[Marinir] {Spam? 3.62} Indonesia Digest No.: 36.06

[Yap Hong Gie]

INDONESIA DIGEST
Indonesia's complex Issues in a Nutshell
Published by: TBSC-Strategic Communication
No.: 36.06 - Dated: 11 October 2006

We wish all our Muslim readers a blessed Ramadhan Fasting Month

In this issue:
MAIN FEATURE:

INDONESIA CLEARS ALL DEBTS TO IMF

NEWS AND BACKGROUND:

1.      Tourism and Transportation:
Hotel Association urges Parliament to enact Law on Tourism before Year End
Bali voted Best Holiday Destination, Asia

2.      The Economy, Trade and Industry
WEF: Indonesia Leaps 19 Places to 50th. Rank in 2006 Global Competitive 
Index
Bank Indonesia Issues New Bank Rules to Boost Economy

3.      Politics and Security:
President Reminds Military to Respect Democracy
Momentum Builds for an Indonesia UN Security Council Seat
Police Raid Sulawesi Pirates Hideout

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MAIN FEATURE:

INDONESIA CLEARS ALL DEBTS TO IMF
On Monday, 9 October, Media Indonesia, - a paper normally very critical of 
government policies, - carried an unusually supportive editorial. In fact, 
Media called on all Indonesians to celebrate and be particularly proud, 
since this week Indonesia regained its pride and honour now that the country 
finally repaid all its debts to the International Monetary Fund.
This week, Indonesia remitted US$ 3.2 billion to IMF, the second installment 
reimbursing its total debts, - some 4 years earlier than the 2010 due date. 
Bank Indonesia Governor, Burhanuddin Abdullah, told the press that 
remittance was made on Thursday 5 October, but that it would take some 5 
days to process. This means that from this week on, Indonesia is clear of 
all debts to the international organization.
In June this year, Bank Indonesia remitted the first installment of US$ 3.75 
billion, promising to repay the second installment in 2007. But instead, all 
of Indonesia's debts to IMF have now been settled this week, following 
President Susilo Bambang Yudhoyono's request to settle the debt within the 
next two years.
The government decided to pay the last $3.2 billion of its debt to IMF ahead 
of the 2010 due date because of the strong position of foreign reserves and 
an estimated $13.2 billion current account surplus. In addition, foreign 
exchange reserves at the end of the third quarter of 2006 stood at $42.3 
billion, reported Reuters as quoted by Indonesia's Trade and Investment News 
published by the Coordinating Ministry for the Economy.

With the settlement of these debts, Indonesia will be back to its position 
as a regular member of the IMF, Vice President Jusut Kalla later told 
reporters.

Meanwhile, President Susilo Bambang Yudhoyono had positive words to say on 
the economy, noting on Friday that the Rupiah was at a favourable level for 
exports and that national debts would continue to decline.

Indonesia's foreign debts to decline rapidly as economy strengthens

The country's debt to GDP ratio would likely drop to around 40% this year, 
the President said, from almost 50% last year and 80% in the year 2000. 
Earlier the President said that he wishes to maintain national debt level at 
around 35% of GDP.

Further, President Yudhoyono commented that new banking rules issued on 
Thursday should also strengthen the sector, as reported by Reuters. The 
President's remarks came as the Jakarta Stock Exchange composite index hit a 
record high last Friday.

Meanwhile, the Jakarta Post reported Bank Indonesia Governor, Burhanudin 
Abdullah as saying last week,  that :"As of today we no longer have any more 
debts to the IMF. We are now a regular member, and no longer a `sick' member 
receiving treatment,"  "We expect this will provide more room for 
Indonesia's economy to grow with more confidence and in a healthier fashion 
without being burdened by the IMF debt."

The Central Bank repaid $3.7 billion of Indonesia's then approximately $7 
billion in remaining debt to the Washington-based financial agency in June. 
The repayment will save the country some $500,000 from this year's interest 
payments, which were expected to reach $22 million.
Finance Minister Sri Mulyani Indrawati, who first proposed repaying the IMF 
debt ahead of schedule, said recently that Indonesia could save at least 
$100 million in interest payments by 2010.

Sri Mulyani, a former IMF executive director, had argued for the earlier 
debt repayment considering the debt's increasing funding costs, while the 
money only functioned as a standby loan to strengthen Indonesia's foreign 
exchange reserves.
Indonesia still has to pay Rp 63.5 trillion ($6.9 billion) in interest this 
year on its $61 billion in foreign debts, which may make the significance of 
the IMF debt repayment questionable except as a matter of national pride.

Indonesia's relationship with the IMF has always been politically sensitive, 
writes the Jakarta Post, but the country may now be able to close those 
books. It joins Brazil and Argentina, which also paid off their debts this 
year, continues the Jakarta Post report.
Between 1997 and 2003, (at the height of the Asian economic crisis) IMF 
provided some $25 billion in loans to help Indonesia rescue its banking 
system, rehabilitate its economy by restructuring private and government 
debts, and strengthen its foreign exchange reserves.
Criticism quickly arose, however, as the loan program called for the 
government to implement a number of tough economic reforms under IMF 
supervision, including the privatization of state firms and the reduction of 
subsidies. Many nationalists saw these steps as damaging the nation's 
interests without significantly improving the economy.

Foreign debt costs have always been criticized, too, for siphoning off funds 
that could have been used to improve people's welfare.
The government, under public pressure, eventually terminated its program 
with the IMF at the end of 2003, but still remained under the Fund's 
"post-program monitoring" to assess the government's own reform targets, 
writes Jakarta Post.

Media Indonesia editorial meanwhile, was of the opinion that IMF had turned 
out not to be a saviour but instead brought calamities to countries the 
organization was said to be saving. Strong criticisms not only came from 
civil societies but was similarly launched by 2001 Nobel Prize winner, 
economist Joseph Stiglitz.

It remains a fact, says Media Indonesia that countries treated by IMF 
suffered longer from the economic crisis, whilst those not treated by IMF 
recovered much faster.
(Sources: Indonesia Trade and Investment News, Reuters, Jakarta Post, Media 
Indonesia)  (Tuti Sunario)
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NEWS AND BACKGROUND:

1.            Tourism and Transportation:

Hotel Association urges Parliament to enact Law on Tourism before Year End

The Indonesian Hotels and Restaurants Association Chairperson, Yanti 
Sukamdani urged Parliament to start debates on the new Bill on Tourism, so 
that it can be enacted before the end of the year to boost the tourism 
industry. The Tourism Bill is an initiative from Parliament, which aims to 
revise Law no. 9 of 1990 on Tourism, which the tourism industry finds not 
specific enough and too general.

According to the Indonesian Hotels and Restaurants Association, PHRI, 
average occupancies of hotels in Indonesia needs improving, Today average 
occupancy of hotels in Bali as at October is 45%, in Jakarta this stands at 
60%-65%, in Batam at 60% and in South Sulawesi between 60%-70%.

Domestic investments in hotels this year until July 2006 was Rp. 180.2 
billion for one project, while foreign investments were made in 21 projects 
to a total or US$76.7 million, or an increase of 5% compared to 2005.

The Association is skeptical that the government's target to achieve 5.5 
million tourists in 2006 will be met, as August statistics already show a 
downward slide rather than an upward trend. In fact, earlier Minister of 
Culture and Tourism, Jero Wacik, commented that he would be happy if tourist 
arrivals could reach 5 million this year.

Bali Voted Best Holiday Destination, Asia
Based on a poll that queried sophisticated frequent travelers over a three 
month period from May-July 2006, SmartTravelAsia.com recently announced its 
list of the "best of the best" covering airlines, hotels, and destinations. 
Mirroring results in the recent Travel + Leisure readers' survey, Bali was, 
once again, selected as the "Best Holiday Destination" in Asia, reports 
balidiscovery.com.

Best Holiday Destination
Proving that Bali's magic is truly indestructible, SmartTravelAsia.com voted 
Bali its favorite Asian holiday destination, saying, "It is an island that 
has retained its disarmingly honest and simple charm, a peaceful 
ritual-minded Hindu enclave in a bustling Muslim country."
Bali garnered 18.7% of total votes in the category followed by Phuket in a 
distant second receiving 11.3% of the votes cast. The South Indian 
destination of Kerala captured third place (7%) followed by Bangkok in 
fourth.

In reviewing Bali's win SmartTravelAsia.com said: "Bali held top spot - and 
by a wide margin - demonstrating that integrity and authenticity can attract 
visitor votes, and dollars. This is a reassuring message in an age of 
instantly bottled and serially manufactured destinations where neon and 
crocodile shows push everything else off the stage."


Among Best Conference Hotels, Asia
In their list of the top 25 conference hotels in Asia two Bali properties 
brought honor to the island with the Conrad Bali Resort & Spa ranking No. 22 
and the Ritz Carlton Bali tying with The Peninsula Hong Kong for No. 24.

In listing the best reports in Asia, the poll participants named six Bali 
properties to their list of the top 25, namely: Amandari, Bali (No. 1); Four 
Seasons Resort at Jimbaran Bay (No. 2); The Legian, Bali (No. 11); Grand 
Hyatt Bali (No. 16); Four Seasons Resort at Sayan (No. 17); and The Bale 
(No. 22), reports balidiscovery.com.


2.      The Economy, Trade and Industry:

WEF: Indonesia Leaps 19 Places to 50th Rank in WEF 2006 Global Competitive 
Index

The World Economic Forum made its Press Release headline of 27 September: 
"Indonesia leaps 19 Places to 50th Rank in the World Economic Forum's 2006 
Global Competitiveness Index".

"Indonesia is the 50th most competitive economy in the world, 19 places up 
from last year, according to the latest edition of the World Economic Forum's 
Global Competitiveness Index (GCI) rankings for 2006-2007 released that 
 date", said the release.

The country trails India by a few places, but is ahead of China, Russia and 
Brazil, said WEF. Given that Indonesia is still in an early stage of 
economic development, it does particularly well in a number of areas 
typically reserved for rich, innovation-driven economies. The country is 
beginning to show benefits of substantial improvements in technology 
transfer through FDI, company spending on R&D, as well as improvements in 
market efficiency linked to greater competition and fewer distortions in the 
goods markets, greater flexibility in the labour markets and better access 
to loans and the local equity market, commented WEF.

"The country has done very well in a number of key areas that have greatly 
enhanced its efficiency and innovative capacity. However, one of its key 
weaknesses lies in the quality of its institutions. Despite government 
efficiency and better private institutions, the country still suffers from 
pervasive corruption, limited judicial independence and a poor property 
rights regime. An equally important source of concern is the overall quality 
of infrastructure, perhaps attributable to the devastating effects of the 
2004 tsunami.

The government must also do more to contain double-digit inflation. In the 
social sector, it should focus on improving basic health indicators 
including infant mortality rates and life expectancy, and to improve 
enrolment rates in secondary education. The government should now take 
advantage of its relative popularity and of the favourable economic context 
to invest more in infrastructure and the social sectors," said Augusto 
Lopez-Claros, Chief Economist and Head of the Global Competitiveness Network 
at the World Economic Forum.

Considered the world's three most competitive economies by WEF are 
Switzerland, Finland and Sweden. Ranked the no. 1 economy in the world in 
2006 is Switzerland, up from no. 4 last year. The USA, which was no. 1 last 
year moved down to no. 6 this year. Similarly down are Denmark, from no. 3 
to no. 4, and Germany, from no. 6 to no. 8 ranking in 2006. Singapore's 
economy has remained level at no. 5, while Japan's has improved its GCI rank 
from no. 10 in 2005 to no. 7 in 2006.


Bank Indonesia Issues New Bank Rules to Boost Economy

Bank Indonesia, the Central Bank on Thursday (5/10/06) issued new rules 
aimed at encouraging banks to disburse more loans to the private sector to 
boost the economy, as well as speeding up consolidation in the banking 
sector, reports Indonesia Trade and Investment News.

The move comes amid criticism that banks have struggled to extend loans due 
to tough regulations, a factor often cited by commercial banks for parking a 
substantial amount of funds in central bank debt paper instead of extending 
loans.

"With these new rules, I feel it is the right time for the banking industry 
to try to optimize its function in disbursing loans to the private sector 
and reduce their exposure in financial instruments," Bank Indonesia (BI) 
Governor Burhanuddin Abdullah was quoted as saying by Reuters.

Under the new rules, banks would be given easier requirements on lending 
limits and minimum capital requirements for surviving commercial banks as a 
result of mergers.

Special treatment will be given to commercial banks' debtors in areas hit by 
natural disasters across Indonesia and Islamic shariah banking will be 
strengthened following a pick up in demand for such products.

To speed up banking sector consolidation, surviving banks following mergers 
will be given incentives such as easier requirements to become a foreign 
exchange bank.

In terms of strengthening corporate governance, former directors, executives 
or independent parties that have a measure of influence in the bank are not 
allowed to be independent commissioners in that bank for a one-year cooling 
period or independent parties to that bank for a six-month cooling period.

The central bank may extend its 2010 deadline for controlling shareholders 
in more than one bank to restructure their stake if the restructuring effort 
is too complex.

According to an XFN-Asia report, an owner who controls two banks could be 
exempted from this regulation if the two banks operate on different business 
principles (conventional and shariah); if one of the banks is a joint 
venture bank; if one of the banks is a branch office of a foreign bank; and 
if one of the banks is a holding company which is created to comply with 
this regulation.

The central bank has set a 2010 deadline for investors to limit control to 
no more than one commercial bank.

The central bank has cut interest rates sharply in recent months, but loan 
growth remains well below the roughly 20% needed to meet the government's 
economic growth target of 6% this year.  Total annual loan growth was about 
12% as of June.

Indonesia has some 130 commercial banks, half the number that operated 
before the 1997-98 Asian financial crisis, but analysts and the authorities 
still consider the total too high, reports Indonesia's Trade and Investment 
News published by the Coordinating Ministry for the Economy.


3.      Politics and Security:

President Reminds Military to Respect Democracy

In his address on Indonesia's Armed Forces Day on 5 October, President 
Susilo Bambang Yudhoyono's highlighted the need for the armed forces to 
continue with internal reforms and to respect democracy. "Continue the 
reform process and respect democracy," Dr. Yudhoyono said in a speech at a 
ceremony marking the military's 61st anniversary, Reuters reported.

"Democracy must continue to blossom and strengthen along with the 
establishment of the rule of law and a government which is free from 
corruption and other ills," he said.
Yudhoyono said the armed forces needed to grow through modernization of the 
defense capability to deal with security problems at home as well as threats 
from outside but this would have to be done gradually in line with economic 
improvements.

Dr. Yudhoyono said Indonesia must be strong militarily and economically to 
be "a dignified nation respected by other nations in the world."

Momentum Builds for an Indonesia UN Security Council Seat

At least 120 countries or two-thirds of the United Nations membership have 
expressed support for Indonesia's bid to be elected as a non-permanent 
member of the United Nations Security Council (UNSC), a foreign ministry 
spokesman said Tuesday (3/10/06). Desra Percaya said Indonesia was 
optimistic about its candidacy, reports Indonesia's Trade and Investment 
News.

He said Foreign Minister Hassan Wirayuda held bilateral meetings with 35 
foreign ministers from UN member countries on the sidelines of the recent UN 
General Assembly in New York.

Before leaving for New York to attend the UN General Assembly, Wirayuda had 
expressed optimism on Indonesia's chances of winning a seat in the UNSC.

"As we know the UN Security Council has an important role of maintaining 
peace and security in the world, Indonesia is also known for being active in 
efforts to create world peace," the minister said recently.

Indonesia's active role in creating world peace and security could be a good 
reason for other countries to vote for it, he said. The election for the 
United Nations Security Council new non-permanent members will be held later 
this month.

Police Raid Sulawesi Pirates Hideout
In other news, the Indonesia Trade and Investments News reports that Police 
arrested 14 alleged pirates on Wednesday (4/10/06) at a makeshift compound 
in Buaya Bay, some 60 km from Kolaka harbor in Southeast Sulawesi. Police 
believe the pirates were preparing to attack a PT Aneka Tambang (Antam) ship 
carrying hundreds of tons of nickel ore.

At the pirate hideout, police found maps, dozens of monkey wrenches, bladed 
weapons and a satellite phone. Police said the pirates were originally 
planning to hit a PT Inco ship also carrying nickel ore, but changed their 
minds and targeted the Antam shipment instead.
Read more

Police found out about the pirates from a fisherman who was kidnapped and 
held hostage by the pirates for 11 days before he managed to escape and 
inform the police. The fisherman told police officers that pirates hijacked 
his boat and two other fishing boats.
Meanwhile, police in Bulungan and Tarakan, East Kalimantan, are boosting 
security at the province's coastal areas following reports on rising pirate 
attacks.

Bulungan Police chief, Arkan M. Hamzah said on Thursday that fishermen have 
requested the police to intensify patrols in the coastal areas.
"They are very much concerned about pirates intercepting (boats) at sea or 
looting fishponds," he said, noting that both the Bulungan and Tarakan 
police are planning to conduct routine operations to curb piracy.

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