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of Bali have passed all previous records, having registered an impressive 
increase of 25.74% year on year. Observers estimate that as this trend 
promises to continue, by the end of the year Bali could welcome a total 2.1 
million foreign tourist arrivals - a record figure it has never achieved 
before. This means that of the targeted 7 million foreign visitor arrivals 
for Visit Indonesia Year 2008, Bali alone will have contributed some 30% to 
total visitor arrivals nation-wide.

In its latest edition, balidiscovery.com further reports that foreign 
tourist arrivals to Bali for the month of May 2008 continued to perform in 
record-breaking territory achieving 159,877 visitors, a full +24.24% better 
than the same month in 2007 (128,693). So that on a cumulative basis for the 
months January-May 2008, Bali arrivals totaled 753,934 - improving +25.50% 
over the same period one year before (601,143).

The top 5 countries producing foreign visitors to Bali in May 2008 were 
Japan, Australia, Taiwan, South Korea and China, in that order.

Foreign arrivals together with the thousands of domestic tourists who have 
finally discovered Bali as an affordable holiday destination finds Bali 
attracting more and more visitors in larger numbers.  In response, 
construction of hotels, villas, restaurants, discos and shopping centers 
have sprouted and are now overcrowding popular resorts such as Kuta and 
Sanur beach.
And, to further support Bali's development as a world tourism destination 
President Yudhoyono recently inaugurated seven infrastructure projects on 
Bali which  include beach protection systems in Nusa Dua, Sanur and 
Padanggalak, a sustainable irrigation system in the Buleleng and Karangasem 
regencies, renovation of a decentralized irrigation system in Buleleng, 
Karangasem and Jembrana, the Denpasar Sewerage Development Project (DSDP), a 
garbage sorting facility in Tukad Badung and Tukad Mati and the Lila Bhuana 
Sports Arena.

The projects were financed by the Indonesian and Japanese governments, along 
with the Bali provincial administration, at a cost of Rp 937 billion (US$100 
million).
"We need to develop more infrastructure facilities throughout the country, 
including Bali, because the more facilities we have, the better Indonesia's 
economic competitiveness, specifically that of the provinces " President 
Yudhoyono said at the ceremony, as reported by the Jakarta Post.

The Denpasar Sewerage Development Project (DSPD) at Suwung is Indonesia's 
largest sewage processing system targeted to support Bali's role as a world 
tourism center, as well as improve the health of the local population. The 
new sewerage system is able to serve 250,000 people in the Seminyak, Legian, 
Kuta and Sanur areas of South Bali along a piping system running 129 
kilometers. The second phase is scheduled to be built in 2009 with an 
equivalent amount of funding required. The entire project is scheduled for 
completion in 2014.

Similar sewage handling systems are currently being built in other 
Indonesian cities including Medan on Sumatra, and Bandung, Yogyakarta, Solo 
and Cirebon on the island of Java, reports balidiscovery.com.

In the economy, Bali's provincial government has reported improvements. In 
2007 Bali's economy grew by 5. 9%, up from 5.28% in 2006, while per capita 
income increased to Rp. 11.18 million in 2007 against Rp.10.89 million in 
2006.

When tourism and the economy are doing well, why is there so much poverty 
and unemployment?
Despite these positive official data, however, Bali's economists contend 
that Bali's economy is far from rosy. This is because the expected economic 
trickle down effect from tourism has been limited, since today more than 
142,000 Balinese families eke an existence below the poverty line with 
unemployment increasing.
Bali Post reports that although the number of tourists to the island has 
been on the upswing in Q1 of 2008, yet their average length of stay has 
declined to 3.65 days with consequently less income for the province due to 
present dependence on short-stay regional markets as against previous 
majority visitors from Europe who tended to stay longer and spend more.


In the real sector, officials from the Industry and Commerce Department in 
Bali estimate that value of ready-to-wear clothing, one of Bali's main 
exports have declined 3% during the first five months of 2008 despite a 112% 
increase in the volume of exports during the same period. Foreign exchange 
earned from ready-to-wear clothes exports from Bali for January-May 2008 
totaled US$60.7 million for 35 million items. The same period in 2007 saw 
16.5 million pieces of clothing worth US$62.7 million exported from Bali, 
the decline in income caused by fierce competition from China, Vietnam and 
India who, according to Antara produce better quality garments at lower 
prices.

In all, total exports from the island are also down 10.37%.  Bank Indonesia's 
statisticians have issued warning signals that economic slow downs in 
developed countries, such as the United States, are raising fears that 
Bali's export markets may be adversely affected by the ailing world economy. 
Further suggesting that Bali's exports may be under threat as export figures 
covering the first two months of 2008 show a total value of US$47.5 million, 
a decline of 10.37% over the same period last year. The largest decline in 
exports was tracked to declining purchases by two of Bali's largest export 
markets, namely Japan and the United States, reports balidiscovery.com.


However, despite declining exports, Bali continues to log a very positive 
balance of trade. During the first two months of 2008 Bali imported US$7.42 
million resulting in a positive trade balance of US$40.08 million for that 
period, reports balidiscovery.com Bali's economic growth trails behind other 
Indonesian provinces
In a recent seminar organized by Bali Post, economists disseminated reasons 
for the slow growth of Bali's economy. Ever since the Asian economic crisis 
in 1997, Bali's economy has been trailing, say economic experts Dr. I Nyoman 
Erawan, Prof. Dr. Sri Darma, and I.B. Udayana Putra. Despite an improved 
2007 growth of 5.9%, this figure still falls short compared to the 6.3% 
average national economic growth. They also noted that while during the 
Asian crisis one decade ago, the national economy dropped by 18%, Bali's 
economy was down by 4% only. This means that today Bali trails behind other 
Indonesian provinces in economic growth.

Prof. Erawan believes that the main reason for this slow development is 
because Bali's economy has not been well managed, since benefits are sought 
from short term programs only. Furthermore, through the enforcement of 
regional autonomy to districts since 1999, the panel blames district heads 
now acting like "small kings", fiercely competing with one another to 
attract tourism and tourism investments to their respective regions, 
regardless of its appropriateness or otherwise.  In doing so they have 
marginalized or even ignored to develop the agricultural sector, where 40% 
of Bali's population work the agricultural fields, causing increased 
unemployment in the districts and increased poverty, reports Bali Post.
This is in addition to the generally weak spending power of the people, and 
the high cost of money at a time when Bali's real sector has not grown 
significantly. Small and medium scale companies who should be the backbone 
of the island's economy have remained stagnant, while low interest credits 
offered by banks have not been able to penetrate down to the economically 
weak population, thus in turn causing the minimal growth of Bali's economy, 
said Raka Suardana.

Economic growth as calculated by the local government has been mainly 
focused on investments in the financial stock market, and not in the real 
sector which should be able to provide larger numbers of jobs, which in turn 
should reduce poverty, added Raka Suardana
This fact is confirmed by the Head of Bank Indonesia in Denpasar, Viraguna 
Bagoes Oka, who noted that Bali's economic growth has not been accompanied 
by a commensurate growth in the employment sector. Although he admitted that 
there has been a reduction in the number of unemployed in Bali, however, the 
ratio is not proportionate to its economic growth.
The provincial island of  BALI is relatively small, covering an area of some 
563,286 hectares only or is about 0.29% of the total area of the Indonesian 
archipelago. Prof. Sri Darma, said that through surveys that he has 
undertaken, it was concluded that by and large, Bali's present economic 
growth has not been able to lift the welfare of the majority Balinese. Many 
villagers today still face continued poverty. Prof. Sri Darma found that 
there are still some 142,699 families in Bali who live below the poverty 
line.

142,000 Balinese families eke a living below the poverty line

This precarious situation was confirmed at a separate occasion by Speaker of 
the Karangasem District Parliament, I Wayan Karangasem, who said that of a 
total of the district's 400,000 population no less that 41,750 families 
today here live below the poverty line, since employment opportunities are 
limited and the daily cost of living keeps rising, fuel is often scarce and 
cooking oil becomes dearer by the day.  Therefore, in order to empower 
farmers and labourers, or even to create agro-tourism attractions, there is 
no other solution but to boost the agricultural sector where the majority of 
the population is active, and to boost small scale industries and handicraft 
through capital loans with very low interest rates, which must be generated 
by banks and the national government, he said.
His comments were made in reaction to a call made by the Minister for 
Culture and Tourism, Jero Wacik, that regions should not overly depend on 
the national government, but should become more self-supporting.

Although poverty is caused by a number of reasons, Prof. Darma continued, 
there are three clear variables that cause poverty, namely the large numbers 
of unemployed, small incomes of families, who in many instances live below 
the regional minimum income, and escalating prices of essential food 
commodities, including of rice and cooking oil, as well as soaring fuel 
prices.
Since the majority of Bali's population live from agriculture, this sector 
needs special attention, as most especially the planting and production of 
rice employs some 40% of Bali's total population. At present, development of 
agriculture in Bali is expected to support the tourism sector.  But can 
agriculture grow in such a manner as to extricate Bali from its economic 
problems?
Prof. Erawan explains that today 80% of total investments to Bali is 
contributed by the tourism sector. Therefore, to improve the agricultural 
sector the government must boost corporate farming to actively involve local 
farmers. In so doing the volume and quality of agricultural products can be 
guaranteed, while the local population can pride themselves through the 
appreciation given by markets to local produce and products.

Economists further rue the fact that regional autonomy that has been granted 
to districts since 1999 has in no way improved conditions. On the contrary, 
while the thrust of Bali's economy today depends on districts and city 
authorities to increase and empower local potentials and local resources, 
the fact remains that regional autonomy has created wider gaps and 
imbalances among districts, which has triggered economic and social jealousy 
among regions. Districts heads now merely compete to gather the largest 
amounts of local taxes to show economic improvements in their regencies. 
However, in the long run such measure can not guarantee sustainable public 
welfare.

"Our greatest weakness in this era of Regional Autonomy is the fact that 
coordination among districts has ceased, as development programs are aimed 
only at pleasing the respective district leaderships, maintains Prof. 
Erawan.


The role of Culture, Tourism and Agriculture in Balinese Society

Meanwhile, in conjunction with the ongoing month-long Bali Cultural 
Festival, another seminar was held mid June to assess the effects of tourism 
and globalization on Bali's society and the Balinese identity. Speakers 
included Prof. Dr. Mark Hobart, Prof. Dr. Adrian Vickers, Prof. Dr. Ron 
Jenkins and Dr Mari Nabeshima.
Bali's social experts believe that Balinese society today is in a quandary 
and is confused amidst rapid changes caused by globalization and tourism. 
Many are concerned as local Balinese become fearful that their unique 
culture and special characteristics will be marginalized by the unrelenting 
onslaught of globalization.

In this context Prof. Dewa Ngurah Suprapta of the Agricultural Faculty of 
the University of Udayana in Bali underlined that Balinese culture is 
embedded in the agricultural environment, in particular in wet rice farming. 
Much of what is known as Bali's local genius has its source in the 
interaction of the Balinese person with his or her natural environment, and 
is based on the Hindu religion and philosophy.  For this very reason it is 
of the utmost importance that Bali develops and manages the agricultural 
sector well, not only to meet food needs and conserve Bali's unique 
eco-system, but more importantly to sustain Bali's unique culture and 
society, which are nota bene  Bali's main draw for tourists to visit the 
island.

Prof. Dr. Edi Sedyawati further confirms that "Balinese culture has proven 
to continue to remain strong because this culture is based on religious 
functions. This can be seen in its performances, music and dance which draw 
their source from the Hindu religion. Therefore, Bali's spiritual values 
must be sustained, and should not disappear merely to make way for economic 
pursuits" she said.
Gubernatorial Candidates seek solutions in Holistic Planning and 
Link-and-Match between Tourism-Agriculture-Small Scale Industries
It so happens that these are campaign weeks in the run-up to gubernatorial 
elections in the province of Bali on 9 July.  Vying for the post of 
Governor are Cokorda Budi Suryawan (or CBS for short), Made Mangku Pastika, 
and Prof. Winasa. During their campaigns, candidates were asked to expound 
their vision on how they plan to govern Bali during their term in office.
 In his campaign Cokorda Budi Suryawan confirmed that he is committed to 
develop Bali's culture-based tourism to attract more visitors to the island, 
since culture and agriculture are Bali's main draws. When elected, CBS will 
ensure to continue developing tourism and agriculture in their broadest 
sense, reports balipost.com.

Bali started to seriously develop its tourism industry in the 1980's, CBS 
said.  By 1990 Tourism had become Bali's leading development sector, 
however, this pushed agriculture to a secondary sector and was even 
marginalized. But, at the outbreak of the Gulf War, and in the aftermath of 
terrorist attacks on Bali, and SARS epidemic in Asia, the Bali government 
began to review its plans and aimed to boost agriculture to help recover 
Bali from its economic doldrums. However, much of what was then said 
remained mere slogans and nothing much was actually done to improve this 
sector.
Additionally, as Bali's population increased rapidly, exacerbated by 
migration from other islands, environmental problems arose. Slum areas 
appeared in cities, traffic became congested, and industrial waste began to 
pollute rivers and seas. People started to build on green belts as little 
alternative land was available. Rice fields were sacrificed to make way for 
settlements or were converted into tourist facilities. Clearly spatial 
development in Bali has become an issue.

Lately, 5.2% of Bali's agricultural land is converted yearly into housing 
and urban development, while destruction of forests increases by 2% 
annually, resulting in degradation of the quality of water on the island. 
When things continue this way, said CBS, then Bali's condition in the next 2 
decades will be critical. And as farmers sell their lands in order to work 
in the services sector or in small scale industries, Bali's traditionally 
prime irrigation network, known as the "subak" system, will be neglected and 
with it the agricultural sector will suffer even more.
To correct this situation, CBS aims to revitalize the Balinese philosophical 
concept of Tri Hita Karana, namely that in order to maintain balance in the 
universe, man must keep proper relations with the Almighty, with his fellow 
human beings and with his environment. This CBS plans to spread through the 
empowerment of Bali's traditional village communities.  This plan will also 
include experts and tight coordination among the various sectors, to be 
developed in a holistic system, says CBS.

Separately, in a talk-show on metrotv, replying to the question how 
Candidate Made Mangku Pastika thought to develop Bali's economy especially 
encompassing the tourism and the agricultural sectors, Pastika conceded that 
for Bali, Tourism is the economic locomotive which must be able to pull the 
other sectors to improve their productivity. The expected trickle down 
effect of tourism must be actively planned and should not just be taken for 
granted. For this purpose, there must be a program of link and match between 
Tourism, the Agricultural Sector and Small and Medium Scale industries.
When elected governor, Mangku Pastika plans to activate the Bali Security 
Council to coordinate all stakeholders. Bali's traditional village 
communities and Bali's famed "subak" rice irrigation system must be 
conserved, he said, to ensure sustainability of Bali's unique culture and 
tradition, since Tourism in Bali can thrive only because of Bali's unique 
culture.

Indeed one of the problems facing Bali is the fact that tourist facilities 
are concentrated mainly in the south of the island (particularly in the 
districts of Badung, Denpasar and Gianyar), Pastika said, where income is 
counted in terms of dollars, whilst the remainder of the island can only 
watch with envy. (Bali has 8 autonomous districts/city). Therefore, Pastika 
plans to build a more balanced development between the south and other 
districts on Bali.

Agriculture in Bali must be built in tandem and in synergy with Tourism so 
that tourism benefits can be felt in cities as well as by the rural 
population, where agriculture must meet the needs of tourism in a more 
effective manner.   Furthermore, Pastika plans to build a more congenial 
relationship between tourism and agriculture, by, for example, pushing Bali 
hotels to buy more of Bali's home grown fruits, flowers, vegetables and 
meats, which until now are supplied either from Java or from overseas. In so 
doing, Pastika hopes that Bali farmers will be encouraged to continue to 
till the land rather than sell their rice fields to be converted into 
housing or tourist facilities.
(Sources: Balipost.com, balidiscovery.com. metrotv)
----------------------------------------------------------------------

NEWS AND BACKGROUND:
1.   The Economy, Trade and Industry

Finance Minister Sri Mulyani is now also Acting Coordinating Minister for 
the Economy

Indonesian women may be justly proud that for the first time in the country's 
history, a woman is entrusted to hold the vital position of Coordinating 
Minister for Economic Affairs. In tandem with her present portfolio of 
Finance Minister, Sri Mulyani Indrawati has been appointed by President 
Yudhoyono to take over the Coordinating Ministry for the Economy from former 
Minister Boediono who had been endorsed by Parliament to be Governor of 
Indonesia's central bank, Bank Indonesia since 22 May.

Her appointment comes at a time when the world is threatened with 
stagflation and wildly escalating fuel and food prices, while domestically 
the government itself faces fierce criticisms even from Parliament over its 
policy to reduce fuel subsidies, at the same time that Indonesia's political 
climate is heating up in the run up to next year's general and presidential 
elections.

In her briefing to the staff of the Coordinating Ministry before the 
handover ceremony from former Minister Boediono on 24 June, Coordinating 
Minister Sri Mulyani explained that although dual positions require a focus 
and amount of time greater than required for a single position, she firmly 
believes that this will in itself increase the efficiency of coordination. 
"The Coordinating Minister of Economic Affairs is tasked with coordinating 
the framing of policies and their implementation, whereas the Minister of 
Finance is the fiscal authority with responsibility for budgetary 
coordination. I will combine these two responsibilities in a manner that 
will improve the effectiveness of coordination within the Economic Team in 
the United Indonesia Cabinet," said Sri Mulyani, as stated in the press 
release issued by the Coordinating Ministry.

In reference to sectors which she considers priorities, Minister Sri Mulyani 
stated that food, energy and infrastructure are of the utmost importance. 
"These three sectors are priorities because the world is currently facing 
high food and energy prices. At the same time, the development of 
infrastructure through budgetary outlays and partnerships between government 
and the private sector represents a challenge to improve the national 
investment climate and level of competitiveness," said Sri Mulyani.

More generally, the Minister stressed the importance of the implementation 
of a number of key policies that are awaited by investors. These include 
regulations on investment services, fiscal incentives for investors, the 
development of Special Economic Zones including Batam, Bintan and Karimun; 
as well as improvements in performance in the logistic sector.

To improve coordination between Ministers, Coordinating Minister Sri Mulyani 
said that she was in the process of finalizing procedures which, in a 
pro-active manner, will support all members of the Economic Team to meet 
their commitments on policy implementation in a timely manner and in line 
with established goals. "The remaining time of the Economic Team is very 
short, so we must work harder and more effectively," the Minister said. 
"Decisions made must achieve quick results in order to provide certainty to 
the public as well as the business world. For this reason, my priority will 
be to finalize immediately a number of policies that the business community 
has been waiting for."

Additionally, Sri Mulyani, who also serves as Finance Minister, reminded her 
staff that the macroeconomic stability achieved by means of coordination of 
fiscal and monetary policies must continue to be sustained and even 
increased. "With Pak Boediono as Governor of Bank Indonesia, coordination 
between the fiscal and monetary authorities will be improved, in order that 
stability is well maintained and becomes the foundation to accelerate 
economic growth and control inflation," she said.

The Minister also reminded officials at the Department of Finance that 
additional workload that she was adopting as Coordinating Minister for 
Economic Affairs will not reduce her attention and commitment to the Reform 
of the Bureaucracy within the Department of Finance itself. Steps toward 
such reform was begun two years ago and had already demonstrated 
improvements, albeit more slowly than was hoped.

"I wish to see the reform of the bureaucracy at the Department of Finance 
reach the point of no return by the end of my term of office next year. For 
it is only in this way that the public will believe that reform will bring 
structural and permanent improvement," said Sri Mulyani.


 In the immediate future, Coordinating Minister Sri Mulyani plans to hold a 
Ministerial Level Coordination Meeting to discuss priorities and working 
procedures.
·         Registered Taxpayers Exempted from Fiscal Tax starting 1 January 
2009
To induce more people to pay tax, the government has decided to give special 
exemption to registered taxpayers from having to pay the required Rp. 1 
million exit tax each time when leaving for overseas trips.
The Office of the Coordinating Ministry for the Economy in its bulletin: 
Indonesia Trade & Investment News of 30 June stated that despite the fact 
that Indonesia counts a total population of some 230 million people, only 
four million are actually on the tax register, of whom one third only 
actually pay tax.

To step up tax collection and tackle widespread tax evasion, Parliament is 
expected to pass a new tax bill in the third quarter of this year, providing 
incentives to people to register themselves before the end of the year while 
authorities will take stronger measures against tax dodgers.

The government will fine unregistered taxpayers 20% of their total taxes if 
they fail to register by the end of this year, as part of efforts to 
increase tax collections, a legislator said, quoted by Reuters

"Starting next year, unregistered taxpayers will be fined," Melchias Markus 
Mekeng, head of a parliamentary commission drafting the new tax law, said. 
Registered taxpayers will also be exempted from paying a departure tax paid 
for overseas travel from next year as incentive for people to register as 
taxpayers.


Under the current scheme, Indonesians and foreigners working in the country 
must pay
Rp1 million as departure tax at the airport for each trip overseas.

"The departure tax will be lifted in 2011, but in the transition period, 
starting on 1 January 2009, those persons who already have a tax ID will be 
relieved from paying the country's departure tax."

Darmin Nasution, Director General of Tax, said in an interview last August 
that he expected the number of registered taxpayers to reach 10 million by 
the end of 2008.

Indonesia has set a tax revenue target of 609.2 trillion rupiah, or about 
70% of the total budget revenue, this year. The Finance Ministry has 
forecast that tax revenue will rise by 19% to Rp. 723.9 trillion in 2009.

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