Banks should pay more attention to SMEs

Novia D. Rulistia, The Jakarta Post, Jakarta

The banking sector needs to boost its lending to small and medium enterprises (SMEs) due to the sector's proven resilience and huge contribution to employment and the economy, a seminar determined Monday.

Ali Masykur Musa, lawmaker from House of Representatives Commission XI overseeing financial affairs, said that while the loans were on the rise, banks were still not meeting their potential when it came to extending loans to SMEs.

"So far, the SMEs only take about 40 percent of the annual lending provided by banks, while the other 60 percent goes to large companies," he said.

"That's not good enough considering the role the SMEs play in the economy."

According to the cooperatives and SMEs ministry, SMEs made up 90 percent of the country's 48.9 million business enterprises in 2006. They employed 96 percent of approximately 88 million workers that year.

"While other businesses are still struggling to get their feet back on the ground around 10 years after the (economic) crisis, the SMEs sector remains resilient and has been showing good performance in supporting the economy," Ali said.

Andang Setyobudi, head of research and development at Bank Indonesia's credit and SMEs directorate, said a fully empowered SMEs sector was the answer to Indonesia's wide income disparity.

"Funding accessibility for the SMEs must be increased. Not only from banks, but also from non-bank institutions, such as cooperatives, pawnshops and venture capital."

Andang said the central bank predicted bank loans to SMEs this year would increase by up to 20 percent from last year, on the back of a government program which provides funds to guarantee bank loans to SMEs.

The absence of collateral is among the key reasons behind banks' reluctance to provide loans to SMEs.

The government program, which was launched last November, involves six banks: Bank Rakyat Indonesia (BRI), Bank Mandiri, Bank Negara Indonesia (BNI), Bank Tabungan Negara (BTN), Bank Bukopin and Bank Syariah Mega.

Budi Gunadi Sadikin, director of micro and retail banking at Bank Mandiri, told the seminar the bank expected a 20 percent increase in SME credits this year.

In 2007, the bank disbursed Rp 15.7 billion for SMEs, up from Rp 9.25 billion in 2006.

US defense secretary: RI plays important role in Asian region

Jakarta (ANTARA News) - The U.S Government believed that Indonesia plays an important role in the Asian region with a world-wide impact, prompting many countries to establih cooperation with the Indonesian government, including in the military field.

"I have confirmed this to President Yudhoyono and believe that it is necessary for us and Indonesia to establish good relations as Indonesia is one of important countries in the region with global influence," visiting U.S. Defense Secretary, Robert Gates said after meeting President Susilo Bambang Yudhoyono at his office here on Monday.

Citing an example, Robert Gates said with its role in bringing about and maintaining peace, Indonesia has shown its role through its participation in peacekeeping forces in Lebanon.

"My talks with the president touched on how the U.S. can assist Indonesia as a democratic and constitutional country, and develop the condition militarily," he said.

Gates also said that the U.S. will help the Indonesian military conduct reforms and improve its capability particularly in air defense and maritime affairs.

"The assistance could be given in the form of training arms supply for which we are ready to help the best we can," he said, adding that the U.S.-Indonesia relations had been very good in these years.

Meanwhile, Indonesian Defense Minister Juwono Sudarsono on the same occasion said that the U.S.-Indonesian military cooperation will take the form of training and increasing the capacity of the main armament system especially the improvement of the capabilities of the Hercules cargo planes and F-16 jet fighters.

"Indonesia is considered to have played an important role in the region, with an international impact, therefore the U.S. Defense Secretary said the two countries will maintain their bilateral cooperation," Juwono explained.

Juwono said further in this case Indonesia established cooperation with several countries, including with the US especially because of its high military technology.

Therefore, the Indonesian government said it has no problems in cooperation with the United States, especially in the renewal of F-16 fighters.

Market supervisory body to promote share, bond issues

Aditya Suharmoko, The Jakarta Post, Jakarta

The stock market regulator's plan to introduce a so-called "shelf registration" scheme to ease procedural requirements for bond and share issues has been praised by business players.

Last week, the head of the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK), Fuad Rahmany, said the agency would put into effect the scheme later this year, allowing firms to issue new shares or bonds over a shorter duration.

"The scheme will fasten the duration in the issuance of new shares or bonds, which is good for businesses. It will also be useful for companies wanting to do initial public offerings," Erry Firmansyah, Indonesia Stock Exchange chairman, told The Jakarta Post on Sunday.

Currently, it can take companies up to three months to fulfill all the requirements before they can issue new shares or bonds -- which many say hampers business.

The shelf registration scheme involves the registration of a new bond or share issuance that can be prepared up to two years in advance, so the issue can be offered quickly as soon as funds are needed or market conditions are favorable.

The scheme allows a single registration document to be used multiple times within two years.

It also gives underwriters greater flexibility in timing market issues and involves little or no increase in direct costs.

For example, a tollway company can launch a rights issue as soon as the government announces it will prioritize tollway projects.

"Under the shelf registration (scheme), companies that want to issue new shares or bonds more than once in a year do not have to register again prior to the next issuance," said Fuad.

Companies, he said, only need to update their documents should there be any changes prior to the next issuance, thus simplifying the bureaucratic procedures, while maintaining the companies' accountability disclosures.

Erry said the scheme would also help companies launch IPOs when the market was most favorable.

According to Bapepam-LK, the scheme has been adapted from the U.S., where the Securities and Exchange Commission -- whose main job is to enforce federal securities laws and to regulate the stock market -- permits the issuance of multiple securities through a single document.

An analyst at PT Eurocapital Peregrine Securities, Poltak Hotradero, told the Post if the scheme was properly implemented, it would benefit companies and shareholders by allowing companies to secure quick funding.

"And in turn, it (the scheme) will also grow the country's economy as companies can expand their businesses quicker," said Poltak.

However, he said, Bapepam-LK should scrutinize companies' updated documents to ensure they are not fabricated.

Muslim group backs SBY-JK for 2009

Desy Nurhayati, The Jakarta Post, Jakarta

One of the pioneer organizations of the United Development Party (PPP) has thrown its weight behind the incumbent president and vice president to run in the 2009 presidential election.

Chairman of the Indonesian Muslims Brotherhood (Parmusi) Bachtiar Chamsyah said here Friday the group would support President Susilo Bambang Yudhoyono and Vice President Jusuf Kalla on the basis of their success in handling the country's problems.

"Terrorism, corruption and other big problems have been handled strictly. That's why we should allow them to continue their leadership for the next term, so they can really settle the problems," Bachtiar, who is also the social services minister, said at the opening of Parmusi's national congress.

He said it would be impossible to completely settle the country's mounting problems in only five years.

In response, Yudhoyono told the congress participants not to be premature in making their choices for the upcoming election.

"There's no need to be in a hurry, just follow the political process," he said.

"I would rather focus on dealing with this country's problems than campaigning for the next election."

Parmusi was initially established as the Indonesian Muslims Party in 1968. Three years later, the Soeharto-led New Order regime merged the party with the largest Muslim organization Nahdlatul Ulama (NU), the Indonesian Tarbiyah (Education) Union and the Islamic United Party to form the (PPP).

In the late 1990s, Parmusi declared itself a non-political Muslim organization.

In the 2004 elections, Parmusi allowed its members to vote for any political parties besides the PPP.

They were also allowed to vote for any presidential candidates other than Hamzah Haz, who was supported by the PPP.

Some Parmusi members have since joined different political parties, with the majority still supporting the PPP.

Attending the event were PPP chairman Suryadharma Ali, Religious Affairs Minister Muhammad Maftuh Basyuni, Minister for Administrative Reforms Taufik Effendy, Coordinating Minister for People's Welfare Aburizal Bakrie and Communication and Information Minister Muhammad Nuh.

Constitutional Court president Jimly Asshiddiqie, deputy speaker of the People's Consultative Assembly AM Fatwa and deputy chairman of the Regional Representative Council Irman Gusman were also present.

FRIENDLY MATCH: Muhammadiyah chairman Din Syamsuddin (right) greets U.S. Ambassador to Indonesia Cameron Hume before the kick off of a friendly soccer match between Muhammadiyah and the U.S. Embassy in Jakarta on Friday. JP/R. Berto Wedhatama

President defends land use fees to save forests

Dessy Nurhayati and Adianto P. Simamora, The Jakarta Post, Jakarta

President Susilo Bambang Yudhoyono defended Friday a new regulation to impose fees on non-forestry firms to rehabilitate the country's deteriorating forests.

The regulation would raise extra money to finance reforestation programs, he said.

"The aim is good, to save our forests," the President told reporters after a limited Cabinet meeting at the Forestry Ministry.

In attendance were Vice President Jusuf Kalla, Coordinating Minister for Economics Boediono, Coordinating Minister for People's Welfare Aburizal Bakrie, Forestry Minister Malam Sambat Kaban and Finance Minister Sri Mulyani.

Yudhoyono said many people, however, misread the regulation and accused the government of renting out the protected forests to investors.

"The idea is not a forest-renting business. This is not to rent protected forests to mining companies," he said.

The President said the forest use fees of between Rp 1.2 million and Rp 3 million per hectare per year, as set in the regulation, could still be debated.

Environmental groups have said the fees were too low compared to potential environmental losses from open-pit mining activities.

Greenomics Indonesia has proposed the government raise the fees to US$16,000 per hectare per year.

Senior forestry official Yetti Rusli said the fee had been determined without prior research, by a team comprising inter-governmental officials.

"The decision (on fees) was made merely from computer simulations," she said.

Yetti said the team had calculated the projected production cost and revenues of non-forestry companies, including mining ones, when running businesses in forests.

"Therefore the fee could be changed depending on domestic and global economic conditions," she said.

Yetti said her office could not set higher fees for forest use as it would affect the country's investment climate.

Minister Kaban insisted the government would not award new licenses for open-pit mining companies to operate in protected forests.

"The forest use fee is only for companies failing to provide lands as compensation for the forest areas they use for their business," he said.

Data from the ministry shows there are currently 334 non-forestry businesses operating in the country's 293,556 hectares of forests.

The ministry is now examining 586 business proposals for licenses.

In 2004, the government agreed to allow 13 firms to run an open-pit mining business in protected forests, mostly in the eastern part of the country.

However, none of the 13 companies have started operations.

Indonesia contains the world's third-largest forest areas after Brazil and Congo, with 120 million hectares.

President Yudhoyono said the country had 66 million hectares of production forests and 33 million hectares of protected forests. The remaining 20 million hectares are conservation forests, he said.

He said the government would work to improve community-based forests to help raise the welfare of local people.

"We are now developing community-based forests in North Sumatra, Yogyakarta, West Nusa Tenggara and Southeast Sulawesi," he said.

SBY's pick of BI gov candidates seen as surprising but positive

Aditya Suharmoko, The Jakarta Post, Jakarta

President Susilo Bambang Yudhoyono's nomination of total outsiders to head Bank Indonesia was interpreted as an attempt at image control.

A surprise to some, the two nominees -- Bank Mandiri president Agus Martowardojo and vice president of asset management company PT Perusahaan Pengelola Aset, Raden Pardede -- could help give BI a new look after a recent bribery scandal said economists and a lawmaker.

The candidates were proposed by the President to the House of Representatives last Friday.

Standard Chartered economist Fauzi Ichsan, said Saturday the nomination might have come from the president's reluctance to name candidates from within BI, following a case of alleged graft at the bank.

Current BI governor Burhanuddin Abdullah has been named a suspect in the case involving some House members. Burhanuddin denied any wrongdoing, but made it clear he would not seek a second term as BI governor.

"Perhaps the President considers that BI needs (an injection of) fresh blood following the case," Ichsan said.

"However, the nomination was surprising."

Candidates expected to be nominated by analysts included BI senior deputy governor Miranda Goeltom, BI deputy governor Hartadi A. Sarwono, former BI deputy governor Aulia Pohan and Indonesia Stock Exchange president Erry Firmansyah.

The president is allowed to nominate up to three people.

Agus made Bank Mandiri -- formed by the merger of four state-owned banks having fallen into disrepute -- one of the most respected banks in the country. Mandiri is now the country's largest bank and had an NPLs rate of 3.8 percent for the first nine months of 2007, well within BI's maximum 5 percent limit.

"Agus is a master when it comes to bank restructuring," said Ichsan.

Separately, Citibank Indonesia economist Anton Gunawan said that while Agus' expertise lay in the banking sector, Raden was "more than capable" on monetary and fiscal issues.

Raden, who was an executive director at PT Danareksa between 2002 and 2004, also heads the Financial System Stability Forum (FSSK), created to synchronize fiscal and monetary policies and detect early signs of crisis.

"Raden has worked with the Coordinating Minister for the Economy since 2004. He was also an advisor for the Finance Minister," said Anton.

If elected, Raden would create a balance between the fiscal and monetary policies, according to Anton.

A member of the House's commission XI overseeing financial affairs, Dradjad H. Wibowo said that although the nomination had come as a surprise it could be read as the government's way to "clean up" BI.

"BI is now facing a problem related to the scandal. It may add to the trouble if the government insists on BI officials as candidates."

He said that although both candidates might lack certain capabilities -- as they both came from outside BI -- either of them would be able to count on support from other top BI officials if elected.

Burhanuddin's tenure ends on May 17, but regulations require the president to submit names three months early, meaning on Feb. 17.

Indonesian growth in 2007 fastest in 11 years

Jakarta (ANTARA News) - Indonesia's full-year growth for 2007 clocked in at 6.32 percent, the fastest rate since the country was hit by the Asian financial crisis 11 years ago, official data showed Friday.

The figure was slightly higher than the government forecast of 6.30 percent, but remained lower than the pre-crisis level of 7.8 percent recorded in 1996.

The Indonesian economy contracted 2.15 percent however in the last quarter of 2007 compared to a year earlier, but grew 6.25 percent compared to the same quarter in 2006, said Slamet Sutomo, deputy chairman of the statistics bureau.

"Some external and domestic factors have resulted in a contraction in the fourth quarter but full-year growth was slightly better than the government's forecast," Sutomo was quoted by AFP as telling a press briefing.

The results were within a range expected by economists.

Separately, President Susilo Bambang Yudhoyono said Indonesia may trim its gross domestic product growth forecast for 2008 to 6.4 percent, down from 6.8 percent due to the expected slowdown in the global economy.

The government is expected to submit its revised 2008 state budget to the lower house of parliament by the end of the month.

The government is also planning to raise its inflation target to 6.5 percent from 6.0 percent, Yudhoyono said during a gathering with provincial

The government's budget deficit is now forecast to come in at 2.0 percent of GDP, up from 1.7 percent, the president said, while the price of crude oil is projected to average 83 instead of 60 dollars per barrel.

Yudhoyono calls for eficient use of regional budgets

Jakarta (ANTARA News) - President Susilo Bambang Yudhoyono called on all provincial governors to use their respective regional budgets efficiently and optimally in the face of world economic turmoil.

Speaking before governors from across the country at the opening of a national working meeting of the Indonesian Provincial Administrations` Association (APPSI) at the State Palace here on Friday, the president called on the governors to use the budgets of their respective regions efficiently and optimally.

On the occasion, the president asked them to postpone unimportant programs and instead do more to improve the economy of poor people who live under the pressure of rising food prices.

"It does not mean that we have to reduce the amounts of regional budgets and postpone development projects, but we have to postpone what can be done later in order to help the poor people," Yudhoyono said.

The head of state also expressed hope that governors who want to adopt policies to optimize the use of their regional budgets should put the poor people`s interest at the top of their priorities.

In his opening address, Yudhoyono explained that the international economic situation such as the rise in world oil prices and recession in the United States were having a negative impact on the Indonesian economy.

RI`s GDP in 2007 recorded at 6.32 pct

Jakarta (ANTARA News) - The Central Bureau of Statistics (BPS) on Friday announced that Indonesia`s gross domestic product (GDP) in 2007 was recorded at 6.32 percent.

BPS deputy chief for statistical and balance sheet analysis Slamet Soetomo said the 2007 GDP was slightly higher than the government`s target of 6.3 percent.

"For the fourth quarter of 2007, year-on-year growth was 6.25 percent," he said.

Factors that had affected and constrained economic growth in the fourth quarter of last year included floods, other natural disasters, the world oil price hikes and the subprime mortgage crisis in the United States.

Meanwhile, factors which had boosted economic growth were among other things the sectors of construction, transportation and communication.

"Many real estates were developed in Indonesia while the communication sector contributed significantly thanks to the increased use of cellular phones," he said.

Composite index to rise by 30%: IDX

Novia D.Rulistia, The Jakarta Post, Jakarta

Supported by an expected array of favorable domestic economic conditions in 2008, the Indonesia Stock Exchange (IDX) is optimistic its composite index can soar by as much as 30 percent.

While optimism runs high, the IDX remains vigilant as estimated index growth is much lower than last year's 52 percent, mainly due to jitters over a possible U.S. economic recession.

"The growth is estimated to reach about 20 to 30 percent this year. That would increase the index to a range of between 2,400 to 3,600," IDX president director Erry Firmansyah said Thursday.

He believes the growth may even exceed the estimate should external factors improve, such as strengthening of economic conditions in the U.S. or global oil price stability.

On the domestic front however, issues related to security and political upheaval in the leadup to the election may negatively impact movement of the index, he said.

"If circumstances deteriorate, the index may drop to 2,400," he said.

Last year, the index closed at 2,745, a 58.69 percent increase in market capitalization to Rp 1,982 trillion (more than US$200 billion) from Rp 1,249 trillion in 2006.

Erry said trading value and overall volume also improved significantly.

At the end of January this year, trading value reached Rp 6.18 trillion, up from Rp 4.7 trillion for the same period of the previous year. Trading volume increased to 4.2 billion shares from 3.7 billion shares a year earlier.

The growth in the index may also be fueled by higher potency of earnings, as the price to earnings ratio (PER) for shares in Indonesia is still considered low in comparison to other countries.

Shares traded on the IDX have an average PER of 16.92 percent, far lower than the 17.7 percent in Malaysia, 17.97 percent in Singapore, and 19.02 percent in the U.S.

"The PER in Indonesia is still attractive for investors, so there will be an opportunity for future growth," said Erry.

Since last November's merger of the Jakarta and Surabaya Stock Exchanges, the IDX has 382 listed companies. The bourse estimates 30 more companies will go public this year.

During the first quarter of this year, the IDX expects to have eight initial public offerings (IPOs). Two of these will be for Bank BTPN and Bank Jabar, he said.

Lower central bank benchmark interest rates will fuel more expansion in the private sector. This is expected to provide more opportunities for companies to go public.

To date movement of the IDX has been dominated by five large companies. Finance Minister Sri Mulyani recently expressed her concerns over the problem, saying the bourse needed to attract more companies into the stock market so that it could become an accurate tool for assessing the country's economy.

The government recently introduced a 5 percent discount tax incentive for companies willing to go public by selling 40 percent or more of their shares.

Govt, House plan to cut corporate tax to 25%

Rendi Akhmad Witular, The Jakarta Post, Jakarta

Aiming to boost private sector investment, the government and the House of Representatives are planning to cut corporate income tax to a single rate of 25 percent in an amendment of the income tax law.

Wednesday's hearing between officials from the Directorate General of Taxation and House Commission XI on financial affairs proposed implementation of the new rate for the 2009 fiscal year.

"The House has agreed to set corporate income tax to a single rate of 25 percent, lower than our earlier proposal of 28 percent," Sumihar Petrus Tambunan, director of potency, compliance and collection at the Directorate General of Taxation told The Jakarta Post on the sideline of the hearing.

During last year's deliberations, the government proposed a single income tax rate of 30 percent in the first year after implementation of the new tax, 28 percent in the second year and 25 percent in the third year.

"There has been a lot of support for an immediate income tax cut to 25 percent to make the country more competitive in netting investors. We will see where this deliberation will take us," said Sumihar.

With the single tax rate, the government will be able to streamline bureaucracy in the tax system and boost supervision.

Sumihar said the proposal for the new rate was not yet finalized as the government and the House were still preparing strategies to cover an estimated decline in immediate tax revenue due to the rate cut.

"We prefer to have a lower income tax to lure more investment, but we will also need to discuss ways to raise tax revenue to help patch the short-term decline in our income tax revenues," he said.

Director General of Taxation Darmin Nasution said in late 2007 the government might see a Rp 31 trillion (US$3.3 billion) decline in income tax proceeds should corporate income tax be set at a single 25 percent.

Income tax for institutions and corporations is presently set at rates between 15 percent and 30 percent based on several income benchmarks.

In the 2007 state budget, the government targeted corporate tax revenues of Rp 474.5 trillion, excluding tax collected from international trade. The government has yet to finish calculating the total taxes it collected last year.

Tax revenues accounted for approximately 70 percent of the country's income for the 2007 state budget. The 2008 budget has targeted revenues of Rp 568.2 trillion.

The long-awaited amendments to the income tax law, the value-added tax law and the luxury tax law, have not proceeded on schedule since the government submitted drafts to the House in early 2006.

Many say the delay has been driven by a decision from the Finance Ministry not to provide grease money to House members for speeding up the deliberation process.

It is public knowledge that the House regularly requires the government to provide such money for deliberating legislation.

Indonesia and China to sign Extradition Pact

The Jakarta Post

JAKARTA (Antara): Indonesia is set to sign an extradition pact with China as part of a new phase in the two country's bilateral relations, Indonesian Ambassador to China Sudrajat said after a meeting with President Susilo Bambang Yudhoyono on Monday.

"The two countries' foreign ministers will meet in due course. We hope it (the treaty's signing) will transpire before the middle of this year," Sudrajat said.

The Indonesia-China extradition arrangement, he added, would allow assets that have been stashed by Indonesian corrupters in China to be returned to the state.

Sudrajat also said that the Indonesia-China trade relations have reached a total value of US$25.01 billion last year, surpassing the two countries' projection for this year at US$20 billion.

"The president expects trade between the two countries to meet the $30 billion target by 2010, which may even be reached by 2009 due to the annual trade growth average of 31 percent," the envoy said.

Apart from trade and legal-judicial cooperation, Sudrajat mentioned that China had also offered assistance in helping Indonesia prop up its defense capabilities in the Malacca Straits, which is part of the two countries' defense cooperation in education and training.

President asks press to exercise self-censorship

Semarang, Central Java (ANTARA News) - President Susilo Bambang Yudhoyono has asked the national press to exercise self-censorship as the government would never control the press.

"I really want self-censorship to be practiced. I put hope in the press council, senior journalists and chairmen of journalist organizations to boost the principle by giving priorities to information which is newsworthy," the President said when speaking at the commemoration of the National Press Day and the 62nd Anniversary of the Indonesian Journalist Association (PWI) here on Saturday.

President Susilo Bambang Yudhoyono attends the commemoration of the National Press Day, Semarang, Saturday (2/9). The Head of State asks the media to use language which could help build the national character. He knew that the press` language should be sharp, but it should not be rough. (ANTARA/R Rekotomo/es)

He said that in the press day commemorations he had repeatedly suggested the press self-censorship since he had become the President in 2004. The matter should be considered by the media because the press control was over and it should never occurred again, he said.

However, the media should be able to select itself which story is newsworthy and which one is not.

President Yudhoyono also asked the press to carry out a reflection on how far they have contributed to the development of democracy in Indonesia and to the national character building.

He also reminded the media not to highlight news on violence too often. The President asked the media to use language which could help build the national character. He said that he knew that the press` language should be sharp, but it should not be rough.

Yudhoyono also said that the press freedom should continue be striven for.

"There should be no doubt that our choice is for the freedom of the press, which is useful, having good moral values, and responsible," he said.

The Head of State also asked the press to maintain its idealism in helping develop the nation and the country, and it must not be diverted just because of business competition or partisan interest.

The people wanted to receive information or news which is correct, appropriate, objective and also good quality and balanced so that it would be beneficial for them, he said.

Govt to revise down economic growth on rising oil, food prices

Aditya Suharmoko, The Jakarta Post, Jakarta

The government confirmed Friday a plan to revise the economic growth target down from the 6.8 percent stated in the 2008 state budget amid soaring global prices for oil and staple food commodities.

"A downward revision is a must, but we will consider all the plus and minus factors," Finance Minister Sri Mulyani Indrawati told reporters as quoted by Antara newswire Friday. However, she declined to give an exact figure for the new forecast.

On Monday, the central bank said the country's economy would grow between 6.2 percent and 6.8 percent this year.

Mulyani said the latest forecast on the country's macroeconomic fundamentals showed mounting inflationary pressure as domestic consumption continued to suffer from global price increases.

"The rising price of staple foodstuffs will hurt the people's purchasing power," she said.

Last month, the country's inflation rate reached to a 16-month high, with a 1.77 percent increase, due to the price rises for key commodities, such as rice, wheat and soybeans.

The changes have prompted the government to review its assumptions on key variables -- particularly oil prices -- in the state budget while issuing new regulations last week to stabilize prices. These include various tax incentives for the food industry.

Facing criticism for its late response, the government announced Wednesday a plan to revise its assumption for oil prices to $83 a barrel from $60 a barrel in the 2008 state budget. The change comes only 36 days after implementation of the budget.

Crude oil prices surpassed $60 per barrel in mid 2006. They are currently hovering around $90 per barrel after peaking at $100 in early January.

The Finance Ministry's latest calculations estimate the government's budget deficit to reach Rp 87.3 trillion (about $9.45 billion), or 2 percent of growth domestic product (GDP), increasing from 1.7 percent in the current state budget.

Mulyani also confirmed, the government would propose a budget revision to the House of Representatives in mid February. It expects the process will conclude in March.

In normal conditions, a state budget is revised in the second semester. The revisions to the key assumptions, many economists said, were a result of poor economic forecasting by the government's economic team, which has led to uncertain growth.

A head economist at the Indonesian Chamber of Commerce and Industry, Faisal Basri, said his team had identified the coming threat of skyrocketing oil prices as early as 2006, but their warning was not taken seriously by the government.

'Schools not in sync with job market'

Desy Nurhayati and Erwida Maulia, The Jakarta Post, Jakarta

Education Minister Bambang Soedibyo said the government needed to synchronize fields of studies in schools and universities with the demand for labor in the market.

He said universities should reduce the quota for students in schools which have not "sold well" in the labor market.

"Programs that are demanded by the market can increase their quota," he said during a three-day Education Ministry national working meeting that ended here Wednesday.

"We also have to open more fields of studies that sell well in the market and not open new schools or new universities arbitrarily."

Speaking at the meeting's close, President Susilo Bambang Yudhoyono called on the education and industry sectors to work together with the government to reduce the increasing unemployment rate.

"The qualification of university graduates is still mismatched with the market demand," Yudhoyono said.

"Therefore, we have agreed to establish better and continuous coordination.

"We have conducted some studies to analyze the requirement of industry within the next five to 10 years."

Bambang said vocational schools could answer to market demands better than high schools and suggested regions open better focused vocational schools.

"Provinces like Bali or Yogyakarta, for example, can open more tourism, art or culture vocational schools, while those having an industrial or agricultural basis can open industry and agriculture-based vocational schools," he said.

The ministry said it was working toward creating a school market made up of 60 percent high schools and 40 percent vocational schools in each region.

"All provinces in Java Island and others like Bali, East Kalimantan and Gorontalo have exceeded the target, but others have yet to meet it," Bambang said.

"So we suggest that the latter build more vocational schools if they want to add the number of their high schools, or they can convert ordinary schools to vocational schools."

He also said diploma, polytechnic and professional programs could sell better in the labor market and suggested schools open more of these programs.

According to data from the Central Bureau of Statistics, the number of unemployed people holding undergraduate degrees nearly tripled from 183,629 in 2006 to 409,890 in 2007.

The number of unemployed holding three-year diplomas also nearly tripled from 94,445 to 179,231, while the number of unemployed holding one-year and two-year diplomas increased from 130,519 to 151,085.

In total, the number of unemployed graduates from universities or academies increased from 408,593 in 2006 to 740,206 in 2007.

Finance Ministry on the up: Survey

The Jakarta Post, Jakarta

The Finance Ministry and its improving service standards reportedly brought satisfaction to 63.6 percent of respondents surveyed by the University of Indonesia in 2007.

Presenting the survey findings during a hearing with a commission of the House of Representatives, Finance Minister Sri Mulyani Indrawati said the survey validated the performance of the ministry throughout last year.

"Only about 6.9 percent were unhappy with our services while the remaining 29.4 percent were relatively satisfied," she said.

The survey, which was conducted in Medan, Jakarta, Surabaya, Balikpapan and Makassar, said respondents from Jakarta appeared least happy, with 50.4 percent of respondents satisfied and 9.8 percent dissatisfied.

The highest number of satisfied respondents came from Balikpapan with 79.8 percent and 11.9 percent dissatisfied.

Makassar came second in the satisfaction chart, followed by Surabaya, Medan and Jakarta.

The survey also indicated the Treasury Directorate General was the best performing among the other directorates under the ministry such as the Tax Directorate General and the Capital Market Supervisory Agency.

"We will continue to review the job evaluations and personal assessment of our officials and staff members," Sri said during a meeting with the Commission XI of the House on Wednesday.

She said she would urge a competition between officials to increase public satisfaction levels toward her Ministry in the next years.

She also said the ministry would cut-off the remuneration of officials if they failed to meet performance expectations.

"The University of Indonesia will keep doing regular surveys on performance levels," said Mulyani.

However, Dradjad Hari Wibowo, a House member from the National Mandate Party faction said the performance of the ministry was still far from "satisfying".

"The annual revenue of the tax wasn't reported transparently, as it only showed the percentage tax paid, not the amount," Dradjad said.

"It's quite strange that two days before the closing day of the tax income, it reported the state had received only around Rp 46 billion (about US$4.9 million) and now it's reported as exceeding the minimum target," he said.

He also said the measurement of the survey was unclear as the details of the respondents, including numbers and their backgrounds, were unknown.

"It's unclear whether the respondents were bureaucrats or ordinary people," Dradjad said.

"Sri Mulyani graduated from the University which conducted the survey.

"I wonder why she didn't use the more experienced ones like LSI survey agency." (rtf)

Indonesia president still No.1 election choice - poll

Jakarta (ANTARA News) - Indonesian President Susilo Bambang Yudhoyono's approval ratings have steadily declined since he came to power in 2004, but he would still win if elections were held now, according to a new poll.

Yudhoyono, a former general, won the country's first direct presidential election in 2004 when he promised to tackle widespread corruption, spur economic growth and create jobs.

But his government has struggled to deliver on some promises.

A nationwide survey of about 1,200 people conducted in January by a private pollster, the Indonesian Survey Institute, showed 53 percent were satisfied with Yudhoyono's performance.

The rating was unchanged from a previous survey by the same pollster last year, but was a significant drop from 61 percent in 2006 and 65 percent in 2005.

His popularity was at 80 percent after he assumed office in October 2004.

But Yudhoyono, who is widely expected to run for a second term in 2009, remained the choice of most voters, with 34 percent of those surveyed saying they would vote for him if elections were held now.

Former President Megawati Sukarnoputri polled second with 24 percent, followed by the sultan of Yogayakarta, Hamengkubuwono X, with 6.6 percent.

Almost 6 percent said they were undecided and the rest were divided between 17 other political figures.

"The drop in approval is in line with a less positive view among citizens on the nation's economic condition," the pollster was quoted as saying by Reuters.

"SBY remains the strongest candidate but support for him tends to decrease when voters are given more choices," it said, referring to Yudhoyono's popular initials.

Indonesia's economy has been growing at a healthy pace, but Southeast Asia's largest economy is still struggling to attract foreign investment and, more recently, food prices have been soaring.

Government to rely on BPS data

JAKARTA (Jakarta Post) : President Susilo Bambang Yudhoyono asked the Central Statistics Agency (BPS) here Tuesday to maintain its independence in providing accurate data to help the government form policies.

"The government always refers to data from BPS in drafting policies. We use it to improve our performance," he said in his speech to mark the opening of a BPS national meeting.

"If we find a worsening indicator in the data, then we try to find a solution. Therefore, I call on BPS to always provide us with reliable data for the sake of the country's improvement."

Last year the agency sparked a controversy with data that showed a lower poverty rate in the country, while the real condition of the poor was generally considered worse due to skyrocketing prices of staple foods.

The BPS said Tuesday it was set to start a national survey on manpower this month and another survey on economic and social conditions in March to determine the country's unemployment and poverty rates.

Survey shows gloomy SMEs employment growth in Indonesia

The Jakarta Post, Jakarta

Despite feeling optimistic about their businesses this year, about two-third small and medium-sized enterprises (SMEs) in the country will not add more employees, an HSBC sponsored survey says.

Of 300 respondents surveyed within October until November in Jakarta, the survey says, approximately 66 percent refused to add more employees, four percent plans to cut less than 20 percent of their workers and one percent to let go more than 20 percent.

On the positive side, about four percent plans to add more than 20 percent additional workers while the remaining 25 percent expects to add less than 20 percent.

Should the survey reflects the actual condition in the market, the total loss for potential employment would be worrysome as there are about 40 million SMEs in the country.

According to the Central Statistic Agency, some 10.01 million Indonesians were unemployed in August last year, with some 3.84 million in Greater Jakarta alone.

The government hopes to lower Indonesia's open unemployment rate to 5.1 percent by 2009, and the poverty rate to 8.2 percent.

"I cannot really comment as to why they are reluctant to add more workers as the survey does not include the reasoning behind the choices."

"Nevertheless, most of them are very upbeat on the prospects of their businesses," said HSBC senior vice president Andre S. Sudjono after presenting the survey, titled Asia-Pacific Small Business Confidence Survey, on Tuesday.

Despite the gloomy picture, the survey shows that about 41 percent of the respondents expects to see their business expansion growth, measured through capital expenditures, to remain steady as last year, 33 percent expects to increase the speed of their expansion and approximately seven percent plans to boost the growth significantly.

On the down side, about 13 percent plans to lower the growth of their businesses while the remaining six percent will aggresively lowering expansion.

Besides Indonesia, the survey was also conducted in China, Hong Kong, India, Malaysia, Singapore, South Korea, and Vietnam in October 2007. The 2,700 SMEs being surveyed earn less than US$10 million in annual revenues.

"More than half of the Indonesian SMEs that are doing international trade expect to increase their trade volume by up to 20 percent within six months beginning in November 2007," Andre said.

In comparison to that, Andre said, nearly half of the SMEs in Asia also expect to increase their international trade volume.

More than 70 percent of the other eight emerging Asian economies, the survey says, also decided not to add their employment and only few of them would reduce the number of their staff members.

"Hong Kong, Taiwan and Singapore are the most active countries that are doing international trade with China, and the rest of the world," said Andre.

This year, Indonesia is on the fourth among the nine surveyed countries in Asia, which are optimistic about the economic growth after Vietnam, India and China.

"Nowadays, the emerging economies seem more optimistic about the economic growth in Asia rather than the developed ones like Singapore and Hong Kong," he added.

Govt introduces new CPO export tax

The Jakarta Post, Jakarta

The government has issued a new progressive tax regulation on crude palm oil (CPO) and its derivative products, implementing three main benchmarks based on the Rotterdam commodity market prices on CPO.

The regulation, signed by the finance minister Friday, says that if CPO is priced between US$1,100 and $1,200 per ton in Rotterdam, the tax will be 15 percent per ton.

The tax will increase to 20 percent if the price is $1,200 to $1,300 and 30 percent if the price exceeds $1,300 per ton.

"The current tax rate is still unchanged at 10 percent as the price is still below $1,100 per ton," Deputy for Agriculture and Maritime Sectors of the Coordinating Minister for the Economy Bayu Krisnamurthi said, as quoted by Antara on Monday.

Bayu added that the regulation also set new tax rates on the export of CPO's derivative products based on their international prices.

If the international price of a derivative product is below $1,100 per ton, the tax will be one percentage point lower than the export tax on CPO priced at the same benchmark.

If the international price is between $1,100 and $1,200, the tax will be two percentage points lower than the export tax on CPO, which is currently 15 percent.

"Thus, if the CPO export tax is 15 percent, then the export tax on crude stearin will be 13 percent," Bayu said.

The new regulation, Bayu said, would result in lower export taxation on CPO derivative products, whose processing demanded high capital investment, such as RBD stearin that would have a cut of 4 percentage points if the price reaches more than $1,100.

On biofuel, the regulation says that if the price of CPO is below $1,100 per ton, the export tax will be 2 percent, and 5 percent if the price is above $1,100.

"For cooking oil exported in branded packages of less than 10 kg, the government will set a tax rate of 5 percentage points lower than the rate on unpackaged products," said Bayu.

Bayu said such incentives were aimed at encouraging manufacturers to export downstream products with high added value.

Bayu also said that to lower cooking oil prices in the domestic market, the government would pay the value-added tax on both packaged and non-packaged cooking oil sold domestically.

"Besides that, the government will subsidize the sale of unlabeled packaged cooking oil to low-income people and small and medium enterprises." (uwi)

Trade deficit with China blows out

Andi Haswidi, The Jakarta Post, Jakarta

The trade deficit with China in the non-oil and gas sector skyrocketed by more than 3500 percent from US$35 million in 2006 to $1.28 billion last year, the Central Statistics Agency says.

In its latest report, the agency also shows that China emerged as Indonesia's biggest import origin for non-oil and gas products in 2007 with a total imports worth $7.95 billion, beating long-time chart topper Japan with $6.46 billion.

Compared to the country's total non-oil and gas imports, which reached $52.5 billion last year, China dominated with approximately 15.14 percent, followed by Japan with 12.3 percent and the United States with 8.98 percent.

Indonesia's total imports from China within the category remarkably jumped by 44.5 percent that year from the total of $5.5 billion made in 2006, far beyond the average increase from 2002 until 2006 that reached 29.6 percent.

"China has become a global exporter for quite some time. Even developed countries are afraid to compete head-to-head with it due to its ability to maintain efficiency in production costs."

"I think it's very natural for us to grow such a high dependency on products from China, considering our condition now," said Aviliani, an economist at the Institute for Development of Economics and Finance.

The deficit, she said, was unavoidable as Indonesia's real economy was already shifting from industry-based toward trade-based, as shown by the growing number of small businesses.

"Most of these small businesses do not produce goods, but rather sell them, which mainly come from China as they are cheap, within the range of our purchasing power," she said.

On the policy front, she highlighted the chronic weakness in coordination among government departments, particularly the Trade Ministry and Industry Ministry.

"The Trade Ministry keeps on opening up import markets and neglecting to support the certain sectors that define the strength of the country's industry. For instance, we now have enough rice, so why are we still allowing it to be imported?" she said.

Focusing on the sudden surge in imports from China and the remarkable deficit growth, Beginda Pakpahan, a lecturer in international economy and politics at the University of Indonesia, pointed the finger at the ASEAN-China free trade agreement, which was signed back in 2002.

The FTA, a zero-tariff market of 1.7 billion people, is expected to be fully implemented in 2010 for the six original ASEAN members and in 2015 for the rest. An early harvest program covering trade in goods came into force in July 2005.

"When the early harvest took effect, we were already behind our regional partners in ASEAN, in terms of trade and industry cohesiveness with China, meaning they already prepared for benefiting from it while we merely act as an export market destination from China," he said.

He warned that in the near future, China would likely to intensify its focus on the region, particularly Indonesia with its 240 million consumers, as an export destination in order to compensate for the weakening demand of U.S. consumers for its products.

"A stronger cohesiveness among ASEAN is crucial to balance China's power, something that we don't see materializing any time soon," he said.

Speaking on a more critical note, Didik J. Rachbini, chairman of the House of Representatives commission overseeing trade and investment said that the government had no strategy whatsoever in facing China's emergence as a global player.

"Chinese goods and our goods substitute for each other, meaning the two countries produce almost exactly the same kind of manufacturing products such as textiles, toys and food, very different from our trade with Japan, which is obviously complementary."

"The huge trade deficit in the non-oil and gas sector clearly reflects how Chinese products come in and move freely here without any protective strategy in place," Didik said.

Indonesian government cuts import duty on rice to rp450 per kilogram

Jakarta (ANTARA News) - The government has decided to cut the import duty on rice to 450 rupiah per kilogram from 550 rupiah previously as part of a plan to stabilize the price of staple food, Coordinating Minister for the Economy Budiono said Friday.

"The import duty cut on rice is part of the government's program, launched today, to stabilize the prices of basic commodities that are affecting the common people's daily life," Budiono was quoted by Thomson Financial as telling reporters at the State Palace.

The government has also launched various programs to stabilize the prices of other basic commodities such as cooking oil, soybean, kerosene and wheat, said Budiono.

As part of efforts to stabilize the price of rice, the government will boost rice production this year through the distribution of quality seeds to farmers, he said.

The government will also increase the quantity of subsidized rice provided to the poor from 10 kilograms per month to 15 kilograms, he said.

The government will raise the export tax for crude palm oil to 15 percent if the price of the commodity rises to 1,100 US dollars per ton or higher in an effort to reduce the price of domestic cooking oil, Budiono said.

According to current tax regulations, CPO exporters are charged the maximum tax rate of 10 percent.

He said the government will also sell subsidized cooking oil to the poor and small-sized business operators at an average of 2,500 rupiah per kilogram.

As for soybean, the government has decided to remove the 10 percent import tax of the commodity, he said.

Record soybean prices have threatened the existence of small and medium-sized enterprises, which use soybean as a raw material for the production of soybean curd and fermented soybean cake, a staple Indonesian diet espso sell subsidized soybean to small business operators for six month.

The government will also scrap the 5 percent import tax on wheat, said Budiono.

Wheat is traditionally processed into flour, which is used to make noodles.

Graft damages reputation, liability of businesses

The Jakarta Post

Along with graft by public officials, corruption involving the private sector has been included in the UN Convention Against Corruption (UNCAC). At the five-day conference of State Parties to the UNCAC in Nusa Dua, Bali, which ended Friday, business players were engaged in finding better international mechanisms to battle graft. The Jakarta Post's Abdul Khalik and Muhammad Nafik discussed the issue with Michael Pedersen, a global leadership fellow with the World Economic Forum's Partnering Against Corruption Initiative (PACI) -- a watchdog overseeing some 130 companies valued at trillions of dollars, including Shell, Newmont, Coca-Cola and TNT -- on the sidelines of the conference. Below are excerpts of the interview.

Question: How do you see the commitment of global private companies to fight corruption?

Answer: I think more and more companies realize there is a strong business case for them to engage in fighting corruption, mainly by means of setting up a very strict and comprehensive compliance system outlining the nature of corruption and what kind of behavior is expected from their employees.

I think it has been very helpful that we now have a very comprehensive international anti-corruption convention. So, there is a change in the regulatory framework, and on top of that we've seen some very severe corruption scandals hitting even very well-known and respected companies. At the end of the day, companies realize that they are increasingly facing reputational and liability risks. And because of that, there is a strong business case for engaging in fighting corruption.

Are there any other reasons that make them aware of the necessity to join the anti-graft drive within their sectors?

If you look from a different point of view, we could also say that the companies are realizing that the issue of corruption is really a substantial cost of doing business. They have a clear interest in leveling the playing field in making sure that no one within their industry and region is willing to pay a bribe.

Although we increasingly see companies agree on the fact, we also see that the companies still often pay bribes on the competitive disadvantage. They are forced to do so because some of their competitors are still willing to pay bribes.

That's where the PACI and other similar initiatives add value to private companies, because what we provide is a neutral platform that allows them to engage in addressing the issue together with their peers, and by doing so they engage in leveling the playing field.

They do so by signing up to zero tolerance to bribery and corruption, and at the same time they also commit themselves to implementing the partnering against corruption principles, which basically outline the international consensus on the nature of corruption and what kind of compliance systems the companies need to have in place in order to ensure an effective anti-corruption system.

So the more companies signing up to the principles, the more effective we actually get in leveling the playing field because the signatory firms agree to the minimum set of standards for how they are going to conduct their business. We are trying to reach out to more companies across industries and regions.

The PACI conducted a survey to assess the compliance of the signatory companies to the anti-graft convention. What were the results?

The survey is really encouraging. Our signatory companies are demonstrating progress in developing, implementing and monitoring their anti-corruption programs. By the end of 2007, there were 90 of the (130) signatory companies stating that they have anti-corruption programs in place.

If you look at other key findings of the survey, we learn that anti-corruption programs are definitely on the top of the agenda of the top management, and we also see that in general they provide e-training and anti-corruption training, as well as whistle-blower hotlines. All of these are seen as an integral part of the anti-corruption drive.

In most cases, the anti-corruption policies of our signatory companies also apply to their business partners, including their suppliers and customers. We also found that three quarters of our signatory companies are willing to publish their anti-corruption policy statements in public.

In many developing countries, like Indonesia, which is ranked among the world's most corrupt nations, companies are forced to bribe officials to conduct business. How do they deal with such a situation?

There are obviously a lot of challenges facing the companies that are willing to demonstrate anti-corruption leadership. And at the end of the day, what has been proven very useful to our signatory companies when doing business in countries perceived as particularly corrupt is that first of all they make sure their commitment is publicly communicated.

That actually empowers them a lot as they can simply just refer to their corporate policies. They can say, "I would be happy to help but this is the policy I have to comply with, otherwise I will get fired." That has been proven to be very powerful. At the same time, it's also proven very powerful that the companies actually monitor and report the demands for bribes, and take these demands to the very high government levels, and outline how other companies deal with such a situation.

Working together among companies and with the government, I think, is the best way to deal with the problems.

How are the existing codes of ethics within the companies aligned with the UNCAC and how do they apply them?

The companies welcome the UNCAC because not only does it deal with public bribes but also it deals with private sector corruption. And in that sense, the convention provides a reference that hopefully will level the playing field across the world. The companies can and should make sure the convention gets effectively implemented.

They can do so by means of developing and implementing comprehensive anti-corruption policies and programs within their own operations. This is a very important contribution from the private sector. But it is also important to acknowledge that it takes two to tango. And it is true that the private sector is both part of the problem and the solution, but at the end of the day, companies can't solve the issues themselves. They need support from the government.