[Marinir] Indonesia Digest: No.01.07 ; 09-01-2007

[Yap Hong Gie]

INDONESIA DIGEST
Indonesia's complex Issues in a Nutshell
By : Ms. Wuryastuti Sunario
Published by: TBSC-Strategic Communication
No.: 01.07 - Dated: 9 January 2007

"We wish all our Readers a Happy and Prosperous 2007"

In this issue:

MAIN FEATURE:

INDONESIA WELCOMES THE NEW YEAR WITH 'MIXED FEELINGS"

NEWS AND BACKGROUND:

1.       Tourism and Transportation:
·         2006 International Visitor Arrivals declined by 4%

2.       Politics and Security
LSI Poll: President Yudhoyono Retains Popularity

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MAIN FEATURE:

INDONESIA WELCOMES THE NEW YEAR WITH 'MIXED FEELINGS"

Indonesia rang in the year 2007 with "mixed feelings", as aptly described by
President Yudhoyono when opening the first day of trading of the Jakarta
Stock Exchange on 2 January.

Although the public was initially buoyed by the peaceful end of the year
celebrations throughout the country, and prospects of a better new year
economically, yet the many human tragedies that occurred, caused by the
changing climate and the onset of the rainy season have quickly dampened
this joyful mood.

First there was the good news: Peace reigned over the country through to the
end of the year, as people of various religions observed appropriate
ceremonies and rites and expressed happiness at the close of the year 2006,
welcoming 2007. On Christmas Eve and on Christmas day, Protestant and
Catholic churches were packed. These churches were guarded not only by
Police but also by members of church congregations, and assisted by Muslim
youth guards to prevent unwanted incidents. On 31 December, which this year
fell together with the Moslem Eid-ul Adha, police were again deployed at
full alert at churches and mosques. After the Eid prayers towards the
evening, Indonesians of all religious backgrounds mingled to jointly welcome
the new year with music and fireworks. There was again the feeling of
togetherness regardless of religious backgrounds.


The second positive news was that Indonesia's macro-economy had kept
improving at a steady pace. The Jakarta Stock Exchange index recorded its
highest position ever at 1,836; the Rupiah managed to strengthen, even
surpassing the psychological mark of Rp. 9,000 to the US dollar but today
stands at Rp. 9,020 to the US dollar, while Bank Indonesia again lowered its
benchmark interest rate with 25 points to 9.5 percent. Whilst, inflation had
been pressed down to 6.6% in 2006, down from 17.1% the year before in 2005.
Finance Minister Mulyani, however, conceded that Indonesia's economic target
of 6.5% growth for the year had not been achieved, since growth had reached
5.5% only. Despite all this, 2007 looks optimistic.

Extreme bad weather sinks ferry, and Adam Air B 737-400 disappears
mysteriously

On the other hand, there was the bad news: extreme and rapidly changing
weather conditions had caused many disasters. As the weather moved from a
long dry season to a belated rainy season, this sudden weather transition
caused havoc and destruction, ranging from cyclones to flash floods and
massive erosions on land. Large tracts of Central Aceh, Riau and Bengkulu in
Sumatra, and parts of Kalimantan were inundated, forcing thousands to
evacuate and a number of people were reportedly drowned or missing.

On 31 December high waves tilted and sunk the ferry Senopati Nusantara near
the Central Java town of Rembang. The ship was sailing between Kalimantan
and Central Java carrying over 600 passengers and heavy cargo on board. Nine
days of scouring the seas, search and rescue teams managed to retrieve 245
passengers from the sea, although 11 were reported dead. Meanwhile, the
remaining 400 passengers are expected to have been trapped and had drowned
within the wreckage of the sunken ferry. Strong winds, unusually high two
meter waves and continued bad weather in the past weeks have made diving for
survivals impossible. Those lucky passengers who had managed to keep afloat
for days on the Java sea were finally salvaged, having drifted far
eastwards, from across the town of Rembang all the way to the eastern-most
tip of Madura island facing the town of Sumenep, and even further away
towards north Bali.

Then, on the very first day of 2007, a Boeing 737-400 with 96 passengers and
6 crew disappeared from the radar screen at Makassar, South Sulawesi. The
plane, operated by Indonesia's LCC Adam Air, was on a routine direct flight
from Surabaya in East Java to Manado in North Sulawesi - some 2 hours 40
minutes flying time -, and had mysteriously disappeared from the radar
screen at Makassar airport at around 14.00 hrs. local time. The pilot had
last reported experiencing strong, 80 mph cross winds, at an altitude of
35,000 ft. above sea-level, and had flown some one hour from Surabaya. Its
position was then estimated to be near the West Sulawesi town of Polewali.

However, after seven days of intensive scouring on land and at sea as well
as through reconnaissance aircraft sorties around the area where the plane
was last detected on radar, not one single trace had been found of the
missing plane nor its passengers. A full nine days into its disappearance,
the ill-fated plane with 102 persons on board is still mysteriously missing.
On 2 January, boosted by reports given by the villagers that they had seen a
plane going down behind the mountains, and that 12 persons were reportedly
alive, entire rescue teams were immediately deployed to scour the high,
sometimes inaccessible mountain terrain, to reach the identified location.
However, by nightfall that day, the teams had to report that they found nil
at the indicated location. They seemed to have followed a wild goose chase,
having lost some precious 24 hours in the search.

All-out efforts made to rescue Ferry survivors and locate ill-fated plane

Meanwhile, President Yudhoyono instructed that search and rescue efforts of
both the sunken ferry Senopati Nusantara as well as the ill-fated Adam Air
KI-574 flight should not be limited to the normal seven days, but that both
are to be extended maximum time for the search, utilizing maximum resources.

Meantime, also, Singapore offered Fokker-50 planes and personnel to help in
the search. This plane is equipped with infrared equipment to detect hot
spots on the surface of the sea or on land. And, as among the missing
passengers are listed three Americans of an Oregon family, the US government
also sent a search team to assist, comprising members from the US National
Transportation Safety Board, the Federal Aviation Administration, Boeing co.
and General Electric.  On Tuesday, 9 January, the fully advanced technology
equipped US Navy Ship Mary Sears is expected to reach Makassar to scour and
map the seabed along the Makassar Straits, where experts believe the plane
had disappeared.

Meanwhile, three Indonesian navy vessels and more Indonesian planes and
helicopters had untiringly flown over large areas, in response to
information received from villagers or fishermen, who could report possible
sites where a plane was seen in distress. The area searched today covers a
radius of 120 nautical miles from the spot where the plane is believed to
have gone down. Overland, this area covers the terrain between Polewali and
Mamasa in Tanatoraja , Majene and Mamuju.  Furthermore, teams were also sent
more northerly to scour the coast around the district of Bolaang Mongondouw.
Next, a Lion Air plane that had reported having received distress signals
further east by the Banda Sea in the Moluccas as it flew across the area,
was immediately followed up by more search teams sent. But all to no avail.
No visible sign has so far been detected of the missing plane.

To further convince relatives of those missing on board of the Adam Air
plane that conscientious efforts are being made by the authorities, the
Indonesian Air Force invited anxiously waiting relatives to join in the
search. These then had to concede that the area to be covered was both very
wide, weather conditions were constantly changing, and the mountains
extremely rugged.

And until today, as air, land and sea rescues are continuously operated
searching for the Adam Air plane along the Makassar Straits, - that deep
trench that separates Kalimantan from Sulawesi, or indeed separates the
continents of Asia and Australia -  other teams are at the same time kept
busy along the Java Sea to Bali to find survivors of the sunken ferry.
 In the latest development, the Indonesian navy ship KR Fatahillah reported
on 8 January that its sonar had detected large chunks of metal some 1,500
meters below the surface of the sea around Mamuju. This finding coincides
with reports given by a fisherman that on 1 January he saw a bluish plane
that seemed in distress flying low around the seas of Mamuju. It then
disappeared behind thick clouds, only to be followed by a loud explosion. As
the Fatahillah does not have the equipment to investigate its finding
closer, the US Navy Ship Mary Sears is expected to confirm whether these
chunks are indeed debris of the ill-fated plane. It is hoped that its finds
may finally reveal the mystery of what happened to Adam Air plane KI-574.

 2007 Economic Outlook remains Optimistic, despite 2006 below target growth

As to economic development, in his article in the Kompas daily on the 2007
Economic Outlook, Analyst Tony Prasetiantono of the University of Gajah Mada
and Chief Adviser to Bank BNI expressed optimism that this year Indonesia's
economy will fare better.

Prasetiantono explained that in 2005, as the government raised fuel prices
by 100 percent, this caused inflation to climb to 17.5% that year,
significantly depleting consumers' buying power. And, since consumption
contributes a hefty 62% to Indonesia's GDP, the contraction experienced in
people's buying power in turn impacted significantly on the economy. Other
contributors to GDP in 2005, says Tony Prasetiantono, were investments,
contributing 10%, government spending 8%, and trade balance18%. Therefore,
Prasetiantono believes that Indonesia's consumption-driven economy will not
change drastically in the short term.

Weak consumption, he continued, is indicated by reduced spending on the
purchase of new cars, which is its benchmark indicator. In 2005, the sale of
new cars reached a record 533,000 units, however, in 2006 this number
dropped drastically by more than 40% to some 300,000 units only. This fact
caused banks to curtail credits for fear of non-performing loans. Only 62%
of third party bank deposits then were channeled to loans, while the
remainder was placed in other portfolios, such as Bank Indonesia
Certificates and government bonds. Which partially explains why the real
sector has remained stagnant so far, impacting on the capacity of the
private sector to provide jobs.

Therefore, Prastetianto concludes, the 2006 inflation rate of 6.6% - which
is far removed from the 17.1% inflation of 2005, a stable rupiah which is
supported by strong foreign currency reserves that allowed the government to
clear its debts to the IMF, and most impressive export results of near to
US$ 100 billion in 2006 -  all these are indications that 2007 will be a
better year economically, says Prasetiantono.

There, of course, remain major drawbacks. In Investments, the government
must clear issues that are outside the financial sector per se, including
the issues of legal certainty, availability of required power and
infrastructure, the complicated structure of the bureaucracy as a result of
excessive euphoria with regional autonomy, and last but not least, the
revision of the present Labour Law, which is seen by investors as a major
disincentive to investing in Indonesia.

And, therefore, with major improvements to the above setting, economic
growth in 2007 should reach at least 6%.

And since in 2006 economic growth could absorb only some 1.1 million of the
2.1 million employment seekers, then with improved growth in 2007 the
economy should be able to absorb more, including the 1 million of new job
seekers who have remained unemployed last year.

Therefore, although economic growth should improve this year, it is expected
that unemployment will still remain a problematic issue that needs to be
resolved in the near future.

(Sources: Kompas daily, SCTV, MetroTV, RCTI)     (Tuti Sunario)
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News and Background

3.       Tourism and Transportation :

2006 International Visitor Arrivals declined by 4%

In his end of the year report, Culture and Tourism Minister, Jero Wacik
conceded that 2006 tourism targets had not been achieved, reported Bisnis
Indonesia.

Although December arrival statistics had not been received from the National
Statistics Board, Minister Jero Wacik estimated that total 2006 arrivals
will again decline by  4.11% compared to 2005, to reach around 4.8 million,
an almost 10% shortfall from the earlier anticipated target of 5.25 million
visitors. Minister Wacik blamed the decline on the still lingering negative
image abroad related to acts of terrorism in the country, the spread of the
bird flu in Indonesia and natural disasters experienced during 2005 and
2006, including the Yogyakarta and Pangandaran quakes and the appearance of
the mud-volcano in East Java.

Receipts from tourism in 2006 also fell 3% to US$ 4.38 billion, down from
the US$ 4.52 billion received in 2005 from a total 5 million visitors.
For 2007, the Department of Culture and Tourism targets total arrivals
between 5.25 million and 5.5 million visitors, with main destinations
expected still to be Bali, Jakarta and Batam.
Indonesia's main markets will be Singapore, Japan, Taiwan, Malaysia,
Germany, Australia, Great Britain, the Netherlands and South Korea. Whereas,
main thrust of marketing efforts will be to increase the China, India and
Middle East Markets, said the Minister, as reported by Erwin Nurdin of
Bisnis Indonesia.
Meanwhile, domestic tourism showed a positive growth of 1.5% to reach 114.39
million people, spending some Rp. 78.67 trillion. This is a 1.5% increase
compared to the previous year, which recorded receipts from domestic tourism
of Rp. 77.51 trillion.
The Indonesian Statistics Board, meantime, reported that November 2006
arrivals had recorded impressive improvements, with near to 40% growth
compared to November 2005, or up 25.73% over October 2006. Nonetheless,
these gains have been unable to jack up the number of international arrivals
to even 2005 figures.
Thus, January-November 2006, said the Board, saw a decline of 4.6% through
Indonesia's 13 main gateways (this percentage decline was assumed by the
Department of Culture and Tourism to be the estimated overall decline in
total arrivals to Indonesia through 2006. ed) Tourist arrivals during the
first 11 months of 2006 was 3,589,115 visitors.
Jakarta recorded an improvement of 3.25%; Bali's total 11 months was still
12.63% lower than the 2005 figures; Batam was 2.62% down, and Medan received
0.43% fewer international visitors compared to the same period in 2005,
reported Bisnis Indonesia.

4.       Politics and Security

LSI Poll: President Yudhoyono Retains Popularity

President Susilo Bambang Yudhoyono remains extremely popular and if an
election were held today he would win by a virtual landslide, according to a
new poll released on Thursday (28/12/06). This was reported by Indonesia's
Trade and Investment News released by the Coordinating Ministry for the
Economy.

The Jakarta-based Indonesian Survey Institute (LSI) found in its latest poll
that the approval rating for Susilo Bambang Yudhoyono had reached 67%, more
than the 61% of the popular vote he and running mate Jusuf Kalla garnered in
the 2004 presidential election.

The LSI interviewed 1,227 people between December 18 and 22 in all the
country's 33 provinces for the poll, which has a 3% margin of error. The
survey found that Yudhoyono would win an election today with 41% of the
vote, outdoing Megawati Sukarnoputri, of the Indonesian Democratic Party of
Struggle (PDI-P), with 17%, and Kalla with just 4%.

Yudhoyono's job approval rating remains at a comfortable 56%, largely
because of perceptions of a stable economy and better prospects for next
year.

The survey found that 48% of respondents were optimistic about an improved
economy in 2007, up from 40% on the December 2005 figure.

Political analyst Sukardi Rinakit, of the Soegeng Sarjadi Syndicate, said it
would be strange if Yudhoyono failed to register an improvement in his job
approval rating. "Everything about him has worked in his favor," he pointed
out. "He is seen as an honest and disinterested figure, and is a former
general who holds a PhD. What's not to like?"

Sukardi said Yudhoyono is seen as capable of resolving three serious
problems -- the rise of fundamentalism, terrorism and the separatist
conflict in Aceh.

On Tuesday, Yudhoyono hinted at a possible change in leadership style in the
remaining two and a half years of his presidency.  "The government I lead is
entering the third year now, so in the years ahead I will use clear
language," the president said in his address marking the 69th anniversary of
the Antara news agency.

He said in the past two years it was enough for his government to carry out
persuasive approaches to solve various problems faced by the people and the
bureaucracy.  But now it was time to take more concrete action.

"I want to carry out our mission more openly so that it can be seen by the
people," he said. "In that way, the people will know that the government is
really working in their interest and I think it is now time for that
condition to be created."

For your comments or further inquiries, please e-mail to:
tbsc-strategy at indo.net.id