[Marinir] Indonesia Digest No: 13.07 - 10 - 05 - '07

[Yap Hong Gie]

INDONESIA DIGEST
Indonesia's complex Issues in a Nutshell
By; Ms. Wuryastuti Sunario
Published by: TBSC-Strategic Communication
No.: 13.07 - Dated: 10 May 2007


In this issue:

MAIN FEATURE:
PRESIDENT RESHUFFLES CABINET

NEWS AND BACKGROUND:

1.      Tourism and Transportation:
Tourists Arrivals to Indonesia  up 14.2%, to  Bali up 44.6% in Q1
Domestic Tourists account for half of Arrivals to Bali
ASEAN  Air Passengers and Cargo Liberalization to start 2008

2.      The Environment, Health and Culture:
Climate Change: Indonesia Refutes Record as Country with Fastest 
Deforestation Rate

3.      The Economy, Trade and Industry:
Sinar Mas and Fulcrum to Build Biofuel Plant
-------------------------------------------------------------------------------------


MAIN FEATURE:
PRESIDENT RESHUFFLES CABINET

After months of continued pressure by political parties and the media that 
the President reshuffle his cabinet, -  and two weeks after the President 
finally relented to the pressure, - on Monday, 7 May, the President 
Yudhoyono announced his (limited) Cabinet shake-up. This is the second 
reshuffle after the first in December 2005, when the President was forced to 
change his economic team in the wake of government's slapping a 100 percent 
increase in fuel prices at the pumps, which resulted in spiraling prices 
nation-wide, and ensuing strong protests from the people.

This time around, reasons for immediate change were cited as: slow 
investments in the real sector, a stagnant industrial sector, increased 
unemployment and lay-offs, and increased number of poor, despite much 
improved macro-economic performance, namely a stable Rupiah, decreased 
inflation rate, and a spectacular growth in Jakarta's share market.

Yet in spite of these successes, basic living costs are still on the rise, 
especially in the price of rice and cooking oil, and unemployment 
increasing. Therefore, political parties, economists and the media were 
adamant that the President must change his economic team (yet again).

There had also been a spate of transportation accidents in the past months, 
in the air, at sea and in railways, and the latest issue was the scandal 
brought about by the transfer of huge funds of Tommy Soeharto, son of former 
president Soeharto, from Paribas in London, where the names of Yusril Ihza 
Mahendra, former Minister for Law and Human Rights and incumbent Minister of 
State Secretariat, and Minister for Law and Human Rights, Hamid Awaluddin 
were allegedly mentioned.

The latest destabilizing factor for the cabinet came when Internal Affairs 
Minister, Muhammad Ma'ruf suffered a stroke and was hospitalized, first in 
Jakarta and now in Singapore.

The media had added that other ailing ministers who should also be replaced 
were Minister for Defense, Juwono Sudarsono, who according to rumours is 
suffering from heart disease, as is Public Works Minister, Djoko Kirmanto.

Therefore, pressures were made on 3 issues, namely to replace ailing/unfit 
ministers, economic issues related to industry and unemployment, and 
political/ corruption issues.

New Cabinet Line-up aims at fighting Corruption, and Economic-Legal 
Coordination

However, when the President finally announced his new line-up, - what had so 
long been anticipated and hoped for by the media and political parties to 
become a significant overhaul of the cabinet,-  turned out to be a rather 
low-key change: four incumbent Ministers and the Attorney General were let 
go, and two Ministers were entrusted with a different portfolio. In their 
stead, three professionals and two political cadres were taken on board. But 
none of the economic Ministers, except Minister for State-Enterprises, were 
replaced or removed.
It appears, therefore, that the President had given priority to changing 
Ministers in charge of legal and administration matters only.

According to the Constitution, the formation of the Cabinet is the sole 
prerogative of the President as Head of Government since Ministers are 
assistants to the President. While the President is elected by popular vote.

On the issue of ailing Ministers, in his introductory speech President 
Yudhoyono explained that he had personally asked his medical team to provide 
him with a report on the physical conditions of his Ministers. In this 
aspect, said the President, all were reported to be sufficiently fit to 
implement their office. Except for the present condition of Minister Ma'ruf, 
that still needs to be reported to him in detail.  Therefore, any changes to 
the post of the Internal Affairs Ministry remained pending.

Furthermore, Yudhoyono said that the purpose for reshuffling his cabinet was 
firstly to boost output and effectiveness of the Ministry involved as well 
as of the cabinet as a whole. Secondly, the new line-up is expected to 
improve synergy among ministers through better coordination. For this 
purpose he had asked for input from the Coordinating Ministers. 
Reshuffling, the President emphasized, is not a means (for political party 
cadres) to take turns in top political posts in the cabinet.
 In the process he had taken into consideration the system of 
accountability, and has also asked for input and recommendations from 
Vice-President Jusuf Kalla (thus refuting media reports as if the VP had 
been left in the lurch).

The Ministers who had been removed or are moved in charge of different 
portfolios thus reads as follows:

Minister Yusril Ihza Mahendra, formerly Minister of State Secretariat is 
replaced by Hatta Rajasa, formerly Minister for Transportation.
Incoming Minister for Transportation is Yusman Syafei Jamal, formerly CEO of 
PT Dirgantara Indonesia, and member of the National Transportation Safety 
Committee.
Minister Hamid Awaluddin, formerly Minister for Law and Human Rights is 
replaced by Andi Matalata, Chairman of the Golkar Party and Member of 
Parliament.
Minister Sugiharto, formerly in charge of State-Enterprises, is replaced by 
Sofyan Jalil, former Minister for Communications and Information. Sofyan 
Jalil has once held the post of Deputy Minister for State-Enterprises under 
Minister Tanri Abeng.
Incoming Minister for Communications and Information is Dr. Muhammad Nuh, 
former Rector of the ITS University in Surabaya,
Minister for Developing Regions, Saifullah Yusuf, is replaced by M. Lukman 
Edy. Secretary General of the PKB party
Attorney General, Abdulrahman Saleh, is replaced by incoming Hendarman 
Supanji, formerly Head of the Corruption Crimes Investigation Bureau at the 
Office of the Attorney General.

>From changes made, it is clear that the President had given priority to good 
governance and the anti-corruption campaign, including further reform in the 
legal system and structure

As reaction to the Reshuffle, the Jakarta Stock Exchange index shot up, 
bypassing the psychological 2,000 mark to reach 2,037; and the Rupiah 
strengthened to Rp. 8,888 to the US dollar, the strongest position the 
currency has reached this past year.

The new Cabinet was installed on Wednesday, 9 May.

(Sources: SCTV, ANTV, RCTI, Kompas, Bisnis Indonesia)       (Tuti Sunario)
----------------------------------------------------------------------------------

NEWS AND BACKGROUND:

1.      Tourism and Transportation:

Tourists Arrivals to Indonesia  up 14.2%, to  Bali up 44.6% in Q1

Foreign tourist arrivals in Indonesia increased by 14.21% in the first 
quarter of 2007 compared to the same period last year, according to data 
released by the Central Bureau of Statistics on Tuesday (1/5/07) said 
Indonesia's Trade and Investment News issued by the Office of the 
Coordinating Ministry for the Economy.

Most tourists were drawn to Bali, which enjoyed a 44.67% increase 
year-on-year to 363,686, the figures showed, quoting Agence France-Presse.
The tourism industry will cheer the hike after experiencing a downturn in 
business in recent years amid security concerns on the island.


Nationally, 1 million tourists visited in the first quarter. In March, 
361,760 tourists arrived throughout Indonesia, an increase of 12.25% from 
February.  Widespread floods hit the capital Jakarta in February, which 
adversely affected the month's tourist arrivals.

Domestic Tourists account for half of Arrivals to Bali


Meanwhile, balidiscovery.com reports that the number of domestic passengers 
to Bali increased by 8.08% recording 391,900 passengers on domestic flights 
in Q1 2007, up from the 362,600 passengers in the same period one year 
before.

The Importance of Domestic Tourism for Bali
When the number of passengers carried both domestically and internationally 
via Bali's Ngurah Rai Airport are combined, the major role domestic tourism 
has come to play in Bali's tourism is demonstrated. As a percentage of all 
air passengers, domestic passengers constitute 52.9% of all air passengers 
in Bali during the first three months of 2007, down from 60.5% share in 2006 
when international passengers were negatively impacted following the October 
2005 terrorist attack, wrote balidiscovery.com


ASEAN  Air Passengers and Cargo Liberalization to start 2008

The ASEAN Transportation Working Group (ATWG) in its 15th. Meeting in 
Palembang, South Sumatra, recently agreed to liberalize air transportation 
among ASEAN members, offering fourth freedom rights to passenger airlines 
from member countries flying to and from all 10 capitals of ASEAN beginning 
2008, said Director General for Air Transportation, Tri S. Sunoko, as 
reported by Bisnis Indonesia.

This means that as from 2008 member countries' airlines will have the rights 
to lift unrestricted number of passengers from member country to home 
country, explained Sunoko, so that this agreement will overrule earlier 
bilateral agreements that limited passenger lift.
For example, at present Singapore is limited to carry a maximum of 24,000 
passengers per week from Jakarta , while Indonesia's airlines are limited to 
27,000 weekly.
Starting 2008 no restrictions are made on the number of passengers carried 
from Singapore to Jakarta, and vice versa, Director General Tri Sunoko 
explained.

The open sky policy will be gradually expanded to become fifth freedom 
rights, allowing ASEAN airlines to carry passengers from other ASEAN ports 
to third countries in unrestricted numbers, which is expected to come into 
force starting 2010.

Consequently, Indonesia must prepare our airlines and Jakarta's airports to 
face the new regulations, giving special attention to air safety, and 
service compliance.

Results of the Working will be reported to the ASEAN Transportation 
Ministers Meeting in Singapore later this month, although two points have 
still to be thrashed out, namely the territorial issue and the issue of 
safeguard. While other points of agreement that had been reached were on the 
subject of tariffs, chance of flights, healthy competition and air services. 
Moreover, countries who feel that they are not yet prepared to accept such 
conditions may delay to ratify the agreement.

As regards the liberalization of Air Cargo, which is due to start in 2008, 
Indonesia has offered 7 cities to ASEAN airlines, these are Batam, and 
Palembang in Sumatra, Pontianak and Balikpapan on Kalimantan, Makassar and 
Manado on Sulawesi and Biak on Papua. Cargo liberalization allows for fifth 
freedom rights, so that ASEAN airlines may carry cargo from ASEAN point to 
third countries. Indonesia has agreed to the liberalization of air cargo to 
boost exports especially from the eastern islands of the archipelago, 
reports Bisnis Indonesia.

Hub and Spoke Policy to be gradually enforced

Meanwhile, anticipating the ASEAN Open Sky agreement, the Indonesian 
Government plans to disperse the home base of Indonesian airlines from a 
concentration at Jakarta to
9 other airports, implementing a policy of hub and spoke.

Indonesia counts 16 airlines with 203 domestic routes serving 101 cities. Of 
these, Garuda Indonesia, Adam Air, Indonesia AirAsia, Lion Air, Metro 
Batavia and Sriwijaya Air are expected to maintain their home base at the 
Soekarno-Hatta International Airport in Jakarta, while other airlines are 
expected to move their operational hub to Medan, Surabaya, Makassar, 
Balikpapan, Batam, Kupang, Jayapura, Merauke, Sorong or Manado.

Merpati Airlines is expected to move to Makassar, Wings Air to Surabaya, 
Riau Airlines to Batam, reports Bisnis Indonesia.

Moreover, the government plans to review airline routes and urge partnership 
among airlines, including operating code-share alliances or even to merge.
In so doing, the sprawling Indonesian islands will be better served, and 
airlines will reduce overlap in operations.

In the latest development, answering questions Wednesday posed by detik.com 
journalist, Lion Air President Director, Rusdi Kirana said that the airline 
preferred Surabaya as its home base, but Medan, Manado or Denpasar, Bali as 
its international hub. Lion Air's subsidiary, Wings Air plans to make 
Makassar its home base.

On its side, Garuda Indonesia President Director, Emirsyah Satar said that 
the airline has its home base both in Jakarta and Bali, where Bali is 
particularly operated for Garuda flights to Japan and Australia.

The main problem in merging or code-sharing between Indonesian airlines is 
the different systems and service standards applied by each. So that, these 
need to be harmonized first, said Emirsyah Satar.

2.      The Environment, Culture and Health:

Climate Change: Indonesia Refutes Record as Country with Fastest 
Deforestation Rate

The Government of Indonesia has rejected citations that Indonesia has the 
fastest rate of deforestation in the world, since data mentioned and sourced 
from FAO are outdated. Moreover, Indonesia has since taken a number of 
measures at reforestation. This rejection was made by the Department of 
Foreign Affairs as well as by Minister for Forestry, M. S. Ka'ban, as 
reported by Media Indonesia.
Apparently based on FAO data, Guinness World Records has approved a proposal 
by Greenpeace that Indonesia's forest destruction be included in its 2008 
record book to be published in September this year, Greenpeace Southeast 
Asia campaigner Hapsoro had said, as reported by Reuters.
Displaying a replica of the certificate from the global authority of 
records, Hapsoro said that the citation from the publication would read: "Of 
the 44 countries which collectively account for 90 percent of the world's 
forests, the country which pursues the highest annual rate of deforestation 
is Indonesia with 1.8 million hectares (4.4 million acres) of forest 
destroyed each year between 2000-2005."
Indonesia has lost 72 percent of its intact ancient forests and half of what 
remains is threatened by commercial logging, forest fires and clearances for 
palm oil plantations, Greenpeace said.
Conversion to Plantations and Fires on Peat land make Indonesia 3rd. top 
polluter
The report further continued that "International demand for timber and paper 
as well as commodities such as palm oil was driving the destruction of the 
country's forests, currently covering 120.3 million hectares (297.3 million 
acres), it said.
Indonesia is the second second-largest palm oil producer after Malaysia and 
is poised to be the world's biggest producer of the commodity with more than 
16 million tonnes this year.
Greenpeace said while Indonesia was destroying its forests at a faster pace 
than any other country, Brazil destroyed a larger area of forest every year. 
The group said Indonesia's rate of forest destruction also made the country 
the third-largest greenhouse polluter after the United States and China. 
Experts say up to 25 percent of greenhouse gas emissions comes from tropical 
forest clearance.
Indonesia wants rich countries to pay developing nations to preserve their 
forests and plans to push this proposal at a U.N. conference in Bali on 
climate change in December, reported Reuters.
Refuting the above data, Kompas daily of 5 May reported that the Head of the 
Centre for Mapping in the Department of Forestry, Hermawan Indra, confirmed 
that FAO's statistics are outdated. According to the FAO report, Indra said, 
Indonesia had lost an average of 1.8 million hectares every year between 
2000-2005. In fact, asserts Indra, these are not most recent data, but are 
1985-1997 data.

According to latest surveys, deforestation in Indonesia between 2000-2005 
has declined to 1.18 million hectares per year, whereas earlier, between 
1997-2000 there was indeed an upsurge to 2.83 million hectares a year, which 
was the result of public euphoria in the wake of Indonesia's revolutionary 
Reform movement.

Moreover, Indonesia's total forest area measures 120 million hectares, and 
not 88.495 million hectares, as stated by FAO. Based on these measurements, 
therefore, deforestation rate in Indonesia is not 2 percent per year, but 
0.9 percent per year.

Nonetheless, Indonesia's rejection to accept the title of being the top 
country to destroy its forests fastest, does not take away the fact that 
Indonesia is very serious about preserving its ancient rainforests. For 
Indonesia sees deforestation as the most important issue that must be solved 
to reduce greenhouse gases that cause climate change.
According to 1998 data from the Ministry of Environment, Indonesia produced 
800 million tons of carbon dioxide between 1992-1997, some 75% of which is 
caused by forest fires in the conversion of forests to plantations and to 
human habitat, while only an insignificant amount is produced through the 
use of energy for transport and industry.
However, when including land conversion on peat land as noted by surveys 
made by Wetland International, total greenhouse gases emitted in Indonesia 
shoots up, causing this country to become the third top polluter of carbon 
dioxide after the United States and China.
According to Wetland International 2006 data, if between 1997-2006 a total 
of 1,400 million tons of carbon was produced by forest fires, and the 
reduction and drainage of peat land, 90% of this was produced by peat 
forests fires in Indonesia, reported Media Indonesia.
Preserving the world's rain forests will be one of the main agenda items for 
discussion at the December Climate Change Conference in Bali.
3.      The Economy, Trade and Industry:

Sinar Mas and Fulcrum to Build Biofuel Plant

Indonesia's Trade and Investment News published by the Coordinating Ministry 
for the Economy, quoting Reuters reported that The Sinar Mas Group has 
signed a deal with U.S. energy firm, Fulcrum Power Services, to build a 
biodiesel plant with an initial capacity of 400,000 tons a year, a company 
official said on Friday (4/5/07).

The plant will be built in Dumai on Sumatra and should start producing fuel 
next April, Danny Jozal, the alternative energy chairman at Sinar Mas, told 
Reuters by telephone.

The plant is expected to cost $60 million and capacity may be raised to 1 
million tons from an initial 400,000 tons, he added.

The official said one of the diversified group's units, PT Bio Energi Mas, 
signed the joint venture on Thursday with Houston, Texas-based Fulcrum. 
"Sinar Mas has a 50% share in the joint venture company. It will process 
palm oil, olein, and stearin to biodiesel," Jozal said, adding it may also 
process jatropha, a shrub with oil-bearing fruits.

Sinar Mas Group has joined several Indonesian companies that have announced 
plans to build biofuel plants, mostly palm-oil based biodiesel, including PT 
Asian AGri and PT Bakrie Sumatra Plantations , to tap global interest in 
biofuels.

In January, the group's palm oil unit, PT Smart, signed an agreement with 
Chinese oil major, CNOOC, and Hong Kong Energy Ltd. for a $5.5 billion 
investment to produce biofuel in Indonesia.

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