Japan announces Asia aid package

BBC World

Prime Minister Taro Aso: 'I have decided on an economic stimulus package' 

Japan's PM Taro Aso has announced a 1.5 trillion yen ($17bn;£11.6bn) aid package to help Asian countries weather the economic downturn.

The money will be spent over three years on infrastructure projects and promoting trade.

It is hoped the proposed funding, which will be finalised at a summit later this year, will boost regional growth.

Mr Aso called on wealthy nations to help smaller countries and warned against protectionism.

Asia's banks have weathered the financial crisis better than their European and US counterparts.

But the region's export-dependent economies have been hit as the global downturn saps demand for consumer goods.

"Japan is ready to provide ODA (overseas development assistance) of not less than 1.5 trillion yen or about $17bn in total," Mr Aso told the World Economic Forum in Davos.

"It will be necessary to strengthen regional cooperation towards strengthening Asia's growth potential and expanding domestic demand," Mr Aso said.

Mr Aso also said that Japan's development assistance would be on the precondition "that the flow of trade and investment not be prohibited".

"We will resolutely fight all protectionism," he said.

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DAVOS - Indonesia exports slowing after 20 pct 2008 jump

By Jonathan Lynn, Reuters, Fri Jan 30, 2009 7:57am EST  

DAVOS, Switzerland, Jan 30 (Reuters) - Indonesia's exports are beginning to slow under the impact of falling commodities prices and slowing global demand, after rising by around one fifth last year, Trade Minister Mari Pangestu said on Friday. 

Southeast Asia's biggest economy is also facing increasing protectionist pressures from developed and developing countries, she told Reuters in an interview. 

Non-oil and gas exports in the first 11 months of last year totalled $100.45 billion, 20.18 percent higher than a year earlier. Pangestu said that data due next week would show they were still around 20 percent higher for the year as a whole. 

"Even with a big decline in December I think we can expect total export growth to be 20 percent, or close to 20 percent," she said, making clear she was referring to non-oil and gas exports. 

Pangestu said Indonesian exports had been buoyed up by record commodities prices in the first half of last year. 

Slowing demand in the last quarter of 2008, however, was beginning to affect export volumes, she said. 

SECTOR-SPECIFIC PROTECTIONISM 

Indonesia is also beginning to encounter barriers to its exports, she said, echoing concerns about growing protectionism from many trade ministers as the economic crisis intensifies. 

However, these measures are quite sector-specific, she said, pointing to anti-dumping measures by Turkey, Egypt and Brazil against Indonesian textile yarn, and by Australia against Indonesian paper. 

"We are concerned that there will be increases of such measures, including possible other kinds of regulations that would appear to restrict imports," she said. 

Pangestu dismissed the idea that requirements on foreign pharmaceuticals companies to set up production facilities in Indonesia to be licensed to distribute drugs were one such non-tariff barrier. 

The measure, enforcing a health ministry decree from 2000, was intended to tighten up the accountability of distributors by making them produce in Indonesia or cooperate with a local manufacturer in order to register their products. 

In addition, it does not apply to drugs with patent protection, the vast majority of pharmaceutical imports, but aims to encourage local production of generics, she said. 

Pangestu said Indonesia wanted a conclusion of the World Trade Organisation's Doha round to free up world trade, which was even more important now to shield developing countries from protectionist moves by rich nations, but this would require a push from political leaders. 

"The relevancy and the existence of the WTO is even more imperative now. We should not reinvent another architecture, because it's still the best architecture we have, and it's still the fairest architecture we have for developing countries," she said. 

(For full coverage, blogs and TV from Davos go to www.reuters.com/davos) 

(Reporting by Jonathan Lynn; editing by Simon Jessop)

BI Announces Measures to Relax Banks’ Lending Rules

The Jakarta Globe, Ardian Wibisono, January 31, 2009 

The Bank Indonesia building in Jakarta. BI announced new measures on Friday designed to help sustain growth in the Indonesian economy. (Photo: Dimas Ardian, Bloomberg)

Indonesia’s central bank on Friday announced a set of measures to help banks keep the country’s economy growing in the difficult financial climate, including plans to boost their ability to lend to the nation’s small businesses. 

Bank Indonesia also warned that 15 banks had about $4 billion of exposure to risky speculative investments, which it said were damaging the economy. 

Muliaman D. Hadad, a BI deputy governor, speaking after a bankers’ meeting on Friday evening, said that it was important to maintain banks’ financing capacity, especially to small and medium enterprises, or SMEs, that he said would become the backbone of the economy in the crisis. 

“We don’t want the banks’ ability to lend to decrease or this will become a barrier to the [government’s] target of 4 to 5 percent economic growth for this year,” Muliaman said. The central bank has already lowered the standards for banks to measure the risk on loans, or the risk-weighted ratio, for SMEs to enable lenders to provide more loans to businesses with the same amount of capital. 

Muliaman said BI was now giving banks more latitude to gauge the credit-worthiness of small businesses. 

Under the new policy, the risk calculation for SME loans of Rp 1 billion ($88,000) to Rp 20 billion would be based on a general assessment of a debtor’s cash flow to determine whether it had the ability to repay the loan. 

“Before this, the risk calculation also included the debtor’s business prospects and financial performance,” Muliaman said “Banks must have a strong risk control system and a good capital adequacy ratio to use these new incentives.” 

To prevent losses from speculation in derivatives and other exotic offshore investment products sold by domestic banks, BI will require lenders to report these instruments before bringing them to market. 

“They should also explain their target market. We demand that only sophisticated customers be offered such products,” said Budi Mulia, another BI deputy governor. 

Budi said that 15 banks currently had about $4 billion of exposure in speculative products. These investments were encouraging people to buy US dollars and were putting the rupiah — and the economy — under pressure, he said. 

BI also eased requirements for bank mergers. Banks are required only to announce an acquisition and merger once and undergo a single fit-and-proper test, not two as before. 

Agus Martowardojo, president director of state-owned PT Bank Mandiri Tbk, welcomed the new measures as “responding to bankers’ needs.” 

But he also said that more regulations could be relaxed, citing a regulation that barred cross-ownership of banks and another limiting the kinds of businesses banks could invest in. 

By relaxing the rules, “bankers can move more confidently,” he said.

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Regional development banks should boost local economies

Aditya Suharmoko, The Jakarta Post, Jakarta | Fri, 01/30/2009 2:12 PM  

Regional development banks (BPD) are to boost their contributions to stimulating the economy in the regions, to provide alternative liquidity sources amidst the global financial crisis.

“BPDs have so far been acting as a cashier to regional government. With huge regional government funds placed in BPDs, the banks should have moved more actively to support regional development,” Finance Ministry director general of financial balance Mardiasmo said in a seminar Thursday.

He said BPDs should allocate more funds to the real sector, such as infrastructure building and also micro-lending, generating growth, instead of simply placing their funds in the financial sector.

As of December 2008, BPD funds placed in central bank certificates (SBI) reached Rp 24 trillion (US$2.11 billion), and in bonds were Rp 9.3 trillion.

Last year, the ministry transferred Rp 290 trillion, or 33 percent of the state budget, to regional governments, with 94.8 percent of these funds going  through BPDs.

This year, the figure has been raised to Rp 320 trillion.

Such a huge amount can be used to spur growth in the regions while many commercial banks are facing a liquidity squeeze.

Bank Indonesia (BI) deputy governor Siti Ch. Fadjriah said that if BPDs and regional governments could harmonize their objectives then regional economies would grow even faster.

To support BPDs, Mardiasmo said, regional governments, as the banks’ stakeholders, should inject capital and provide financing to the BPDs. (hdt)

President inspects bureaucratic reform in National Police

Antara, Friday 30 January 2009

President of Indonesia Susilo Bambang Yudhoyono conversed to National Police Chief General Bambang Henderso Danuri in The National Police Headquarter in Jakarta. Yudhoyono inspected preparations for bureaucratic reform in here on Friday (Jan.30). (ANTARA photo/Widodo S Yusuf)
 

Jakarta (ANTARA News) - President Susilo Bambang Yudhoyono and Vice President Jusuf Kalla inspected preparations for bureaucratic reform in the National Police (Polri) at the National Police Headquarters here on Friday. 

On the occasion, the president listened to a presentation by National Police Chief Gen Bambang Hendarso Danuri about the preparations for Polri`s bureaucratic reform to improve the police`s professionalism. 

Danuri said the bureaucratic reform would be followed by a program to accelerate a change in the cultural attitudes of police personnel through four kinds of activity. 

The four kinds of activity were swift response, transparency in the issuance of driver`s licenses and the like, transparency in investigation processeses, and transparency in police personnel recruitment. 

After listening to Danuri`s presentation , President Yudhoyono was to officially launch the programs. 

According to the police chief, the objective of the reform program was to gradually change the culture of the police in performing their duties until 2025. 

On the occasion the provincial police chiefs across the country also signed an "integration pact" and work contracts to carry out their tasks in accordance with existing regulations. 

Present at the function were also House of Representatives (DPR) Speaker Agung Laksono, National Defense Forces (TNI) Chief Gen Djoko Santoso, Jakarta Governor Fauzi Bowo, Banten Governor Ratu Atut Choisiyah, and a number of cabinet ministers.

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BLBI debtors finally agree to relinquish more assets

Aditya Suharmoko, The Jakarta Post, Jakarta | Thu, 01/29/2009 1:54 PM  

After more than 10 years of dispute over the recovery of central bank bailout funds, several recalcitrant debtors have agreed to cooperate. 

As a result of progress after enquiries last year by the House of Representatives into the settlement of squandered Bank Indonesia liquidity support (BLBI) funds worth Rp 702 trillion (US$ 62.1 billion) of taxpayers money, the Finance Ministry disclosed Wednesday that eight debtors have agreed to relinquish more assets to settle the dispute. 

After a hearing with the House's BLBI supervisory team, Finance Minister Sri Mulyani Indrawati said eight debtors supervized by the ministry have signed a deal to settle their debts once and for all. 

"They have inked the debt settlement deal. We are now valuing their assets. If the value is still lacking, they have to top up to cover the shortfall," she said. 

According to the Supreme Audit Agency (BPK), the eight debtors under the ministry's settlement deal, owe the state a total of Rp 2.3 trillion. 

However, the figure can reach higher than that, if the BPK include interests and fees which should be paid by the debtors, say lawmakers. 

Bank Indonesia provided the liquidity support funds BLBI to help ailing banks during the Asian monetary crisis in 1997 and 1998. 

Only a small part of Rp 702 trillion lost was recovered after the crisis. 

Dradjad H. Wibowo, a member of the BLBI's supervisory team, said debtors had agreed to settle debts with assets, which would then be sold by the government. 

"We expect the money (from the asset sale) could be included in the 2009 state budget. The assets should be sold this year considering the case started 10 years ago," he said. 

An investigatory motion by the lawmakers was launched early last year with the aim of pushing the government to set legal and political parameters for the conglomerates accused of stealing BLBI funds and concerning the amount of money that could be returned to the state. 

Deputy House budgeting committee chairman Hari Azhar said the queries showed political commitment by lawmakers to end the case. 

Chairman of the BLBI's super-visory team Aulia Rahman said lawmakers would hold a meeting with the ministry on Feb. 4 to oversee the progress in recovering the BLBI funds, with the Attorney General's Office and National Police on Feb. 11 and Feb. 18, to seek progress in the parallel prosecution of these cases. 

The Attorney General's Office (AGO) and the National Police are each handling eight debtors. 

Golkar and the Indonesian Democratic Party of Struggle (PDI-P), the two largest House factions, had previously opposed questioning the government as this might disclose alleged fund flows to both parties. 

Several figures from the two parties are believed to have been involved in the disbursement of BLBI funds to eight private banks during the economic crisis. The PDI-P was also blamed for halting investigations into certain BLBI debtors under the so-called Master of Settlement Agreement during the administration of President Megawati Soekarnoputri. 

Eight BLBI debtors under Finance Ministry supervision 

1. James Januardy (Bank Namura)
   
2. Adisaputra Januardy (Bank Namura)
   
3. Atang Latief (Bank Bira)
   
4. Lidya Mochtar (Bank Tamara)
   
5. Omar Putihrai (Bank Tamara)
   
6. gMarimutu Sinivasan (Bank Putera Multikarsa)
   
7. Agus Anwar (Bank Pelita/Istismarat)
   
8. Ulung Bursa (Bank Lautan Berlian)
   

New Islamic Bond

The Jakarta Post   |  Wed, 01/28/2009 10:47 AM  
 

 

Summary of bond trading positions at BNI Sekurities on Tuesday. The government will offer an innovative Islamic retail bond from 30 Jan. to 20 Feb. with a minimum value of Rp 5 million. The bond can be purchased at 13 institutions including four conventional banks, one sharia bank and eight security firms. (JP/Ricky Yudhistira)

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Domestic market a lifeline for nation: SBY

Erwida Maulia and Wahyoe Boediwardhana, The Jakarta Post, Malang, East Java | Wed, 01/28/2009 3:23 PM 

President Susilo Bambang Yudhoyono demonstrated his academic prowess Tuesday while addressing an economic forum about the ways Indonesia could withstand the ongoing global financial crisis. 

Speaking at the 46th anniversary of Brawijaya University, Yudhoyono asked the nation to learn from its Asian neighbors who strengthened domestic markets, rather than rely on exports, to survive the global crisis. 

Yudhoyono, who completed a doctorate degree in agricultural economics from the Bogor Institute of Agriculture in 2004, said export-oriented countries were vulnerable to the crisis in overseas markets. 

The President said Indonesia had enough capital, both in terms of labor force and natural resources, to develop the domestic market to its full potential, particularly with a population of 230 million people. 

"Like South Korea, Taiwan and Singapore, we shall not depend on exports. If we're export oriented, once foreign markets are hit by the crisis and reject our products we will be easily affected. Our economy will be disrupted and mass layoffs will occur," Yudhoyono said. 

The President asked regional administrations to develop their resources to empower the domestic economy and challenged academics attending the forum to invent knowledge-based approaches to develop a "sustainable and environmentally-friendly" economy for Indonesia. 

He insisted the country would maintain its "social-justice open economy" and would continue to combine market mechanisms and government intervention to balance the economy. 

"We do need some market regulations, but we don't agree with pure capitalism," he said. 

Yudhoyono said the current global economic crisis, the Asian financial debacle in late 1990s and the Great Depression in 1930s had been sparked by "imbalances" in the world's economy, the result of the so-called bubble economy phenomenon. 

The imbalances, he said, pit strong developed nations against poor weak nations, supply against demand and production against consumption. 

Yudhoyono highlighted how the uneven distribution of natural resources, disparity in financial capitals and advances in technology had affected the incomes of many countries. The world, he said, was divided between developed nations, which own multinational companies, and poorer, developing nations. 

He also blamed "outrageous" market speculation for the ongoing global economic downturn, a condition he said occurred after the burst of the economic bubble. 

"These factors have made the global economy unstable, unsafe and unpredictable. We must take serious action to fix these imbalances," Yudhoyono said. 

Later that day, the President visited the Islamic State University to rename it after one of the earliest Islamic teachers in Java, Maulana Malik Ibrahim, better known as Sunan Gresik. 

The announcement was unveiled during the inauguration of a new building at the university. 

"This new title is expected to inspire young Muslim intellectuals to learn from the struggle of Maulana Malik Ibrahim," Yudhoyono said. 

The President said Maulana had taught Muslims in Indonesia about promoting Islam through peaceful, civilized and cultural approaches. 

Yudhoyono said leaders in the Islamic world hoped Indonesia, as the country with the largest Muslim population in the world, would contribute to global peace, justice and prosperity.

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Govt unveils final stimulus plan to boost economy

Aditya Suharmoko, THE JAKARTA POST, JAKARTA | Wed, 01/28/2009 8:45 AM  

After giving conflicting figures, the government has finally set the stimulus at Rp 71.3 trillion (US$6.31 billion) to boost the economy amid the threat of crisis. 

The package will include the Rp 27.5 trillion stimulus previously announced, and is higher than the figure of Rp 50 trillion touted by President Susilo Bambang Yudhoyono. 

The new stimulus revolves around tax savings worth Rp 43 trillion, waived taxes and import duties for businesses and certain households, worth Rp 13.3 trillion, as well as subsidies and govern-ment spending of Rp 15 trillion for businesses. 

Speaking before the House of Representatives' Commission XI, which oversees financial affairs, Finance Minister Sri Mulyani Indrawati said the stimulus was aimed at increasing people's purchasing power, the competitiveness and sturdiness of businesses facing the economic downturn, and labor-intensive infrastructure spending. 

Mulyani said the stimulus "is everything that cuts costs borne by businesses and the people", when asked why the stimulus was not fully designed to support businesses. 

The incentives include paying the income taxes of employees — now paid by businesses — of up to Rp 6.5 trillion, subsidizing diesel by Rp 2.8 trillion, and increasing infrastructure spending by Rp 10.2 trillion. 

According to the ministry, Indonesia's Rp 71.3 trillion stimulus package accounts for 1.4 percent of the country's GDP, higher than the recently announced US stimulus, percentage-wise, which only accounts for 1.2 percent of the GDP. 

The government forecasts the economy to grow between 4.5 and 5.5 percent this year, a drop from an estimated 6.2 percent in 2008. 

The global downturn is affecting Indonesia’s economy on all fronts, from weakening demand for exports and slowing down flows of investment, to reducing consumer purchasing power. 

Businesses have long warned that massive layoffs could hit Indonesia when the impact of the global crisis hits home the hardest some time in the middle of this year. 

To achieve 5 percent economic growth, the government will boost spending by 10.4 percent from a year earlier, as private consumption, the economy's main driver, looks likely to drop this year. 

Fauzi Ichsan, an economist with Standard Chartered Bank, said that in the past four years, government spending was relatively low. 

"The stimulus will boost growth only if the government and local administrations can spend the money effectively," he said. 

Government Rp 71.3 trillion Economic Stimulus Package 

Tax savings

• Income taxes of individuals and corporates, as well as untaxed incomes: Rp 43 trillion 

Waived taxes and import duties for businesses and certain households

• Value-added taxes on oil and gas exploration, and cooking oil: Rp 3.5 trillion
  
• Import duties on raw materials and capital goods: Rp 2.5 trillion
  
• Income taxes of employees: Rp 6.5 trillion
  
• Income taxes for geothermal: Rp 0.8 trillion 

Subsidies and government spending for businesses

• Diesel subsidy: Rp 2.8 trillion
  
• Electricity rate discount for industries: Rp 1.4 trillion
  
• Additional infrastructure spending: Rp 10.2 trillion
  
• Expansion of development for people living in rural areas (PNPM): Rp 0.6 trillion
  
  

Source: Finance Ministry

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Derivatives May Land Banks In Court

The Jakarta Globe, Ardian Wibisono & Teguh Prasetyo, January 27, 2009

Containers loading at Jakarta International Container Terminal at Tanjung Priok port. Exporters and importers may resort to action against banks to prevent further losses from speculative investment products. (Photo: Yudhi Sukma Wijaya, JG)

 

Exporters and importers may resort to legal action against banks to prevent further losses from complicated, speculative investment products such as derivatives. 

Toto Dirgantoro, chairman of the Indonesian Exporters Association, or GPEI, said some members have complained that banks pushed them into signing derivatives contracts without properly explaining the potential risks involved. 

“Some of our members have asked to cancel their contracts, but the banks have refused,” Toto said on Monday. “If these banks continue to refuse to cancel these contracts, we’ll pursue legal action.” 

Derivatives are financial instruments that derive value from one or more underlying assets, including currencies, stocks or commodities. These contracts, which are usually held for hedging or speculative purposes, include futures and options. 

Banks usually offer derivatives to take advantage of exchange-rate fluctuations. In Indonesia, these products have mainly been offered by foreign banks or lenders partly owned by foreign institutions. 

Toto said many of its members were offered derivative contracts when the US dollar was still hovering around Rp 9,200 . A typical derivative scheme from the past year, he said, required a firm to sell a specified amount of US dollars per week for a period of a year to banks at an agreed rate of Rp 9,800 per dollar. 

“Lots of exporters and importers were attracted to derivatives because they thought they would be profitable,” Toto said. “They were unaware of the risks involved if the rupiah fell, and the banks did not offer customers the option to cancel contracts if the rupiah plummeted.” 

Many exporters and importers began to encounter problems when the global financial crisis caused the rupiah and commodity prices to plunge in September. 

The rupiah bottomed out at Rp 12,600 on Nov. 20. At this point, holders of derivative contracts had to buy dollars in the open market at higher rates, and then sell them back to the banks at the agreed rates. 

Many exporters were hammered as weakening exports meant they brought in fewer dollars. Toto said he did not know the extent of these losses. “One company held a contract worth more than $10 million,” he said. 

In December, Bank Indonesia, the central bank, banned banks from signing new derivative contracts to speculate on the movement of the rupiah. Existing contracts were permitted to continue, however. 

Wimboh Santoso, BI’s bureau chief of financial system stabilization, said contracts can be canceled if both parties agree to terminate the transactions. 

BI will mediate in disputes and offers a range of restructuring schemes, including the option of converting customer liabilities into loans that have to be paid back gradually. Toto said companies and banks should ideally pursue other avenues, however. 

“We don’t want these contracts to be converted into loans because we didn’t borrow this money for productive purposes,” Toto said. “We’re proposing that banks cancel these contracts and share the losses 50-50. That’s the only fair way.” 

Last week, BI said that derivative-related losses at banks could significantly erode their 2008 net profits. PT Bank Danamon Tbk recently announced that its 2008 net profit fell by 29 percent to Rp 1.5 trillion , from Rp 2.11 trillion in 2007. The decline was due to a loss of Rp 800 billion on forward foreign-exchange contracts.

President delivers scientific oration at Brawijaya University

Malang, E Java (ANTARA News) - President Susilo Bambang Yudhoyono delivered scientific oration to mark the 46th anniversary of Brawijaya University (Unbra) in Malang, East Java, on Tuesday. 

In his 45-minute oration on "Indonesia`s Economic Development in the Globalization Era of the 21st Century," the president explained that the country`s economic instability after the 1998 crisis was due to a change in the political system. 

According to the head of state, the change in the political system increased the ratio of debt against national income, the poverty rate, fuel oil prices, and environmental degradation. 

Yudhoyono said the beginning of his government was marked by natural disasters, instability in fuel oil prices, and the threat of global financial crisis. 

"If you ask which year was difficult during my presidency, I would say all years were hard because we continued to face challenges in addition to the need to cope with the impact of the crisis that happened 10 years ago," Yudhoyono said. 

But he added that the mandate and commitment as state leader to improve the people`s welfare should continue to be carried out. 

Commenting on the global economic system, the president said all countries around the world should unite to overcome the world`s economic imbalances. 

"The great imbalances should be corrected. Although we cannot do it all at once, we have to be serious about it," the president said, adding that Indonesia`s economic system so far had been able to withstand the threat of global financial crisis. 

However, the head of state said there was much homework that had to be done such as expansion of job opportunities and boosting economic growth, food and energy resilience, and government quality. 

In his oration before about 400 Brawijaya students and faculty members, President Yudhoyono appreciated a letter from the president of Brawijaya University students executive board. 

On the occasion the head of state was accompanied by Minister/State Secretary Hatta Rajasa, Cabinet Secretary Sudi Silalahi, National Education Minister Bambang Soedibyo, and presidential spokesmen Andi Malarangeng and Dino Patti Djalal.

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ASEAN, India to ink FTA soon, boost trade by 30%

Alfian, THE JAKARTA POST, NEW DELHI | Tue, 01/27/2009 11:18 AM  

After a string of protracted negotiations since 2003, ASEAN is to sign a free trade agreement (FTA) with India during its next month’s summit. 

With a combined market of 1.72 billion people, the deal will form the world’s second largest FTA after the ASEAN (Association of Southeast Asian Nations) and China FTA in 2007. 

ASEAN secretary general Surin Pitsuwan told The Jakarta Post during a recent trade meeting the FTA would be signed during the group’s summit from Feb. 27 until March 1 at Hua Hin beach resort, around 130 kilometers south-west of Bangkok, Thailand. 

“It (the FTA) has been completed to the satisfaction of both sides. We are only waiting for the day that we sign our respective signature on the document,” said Pitsuwan on the sideline of the Delhi Dialogue, held recently in New Delhi, India. 

The dialogue discussed future potential ASEAN-India cooperation in business and security.

Pitsuwan believed the deal would boost merchandise trade volume between the two regions by more than 30 percent this year. 

“We are hoping that by 2010, two-way trade volume would reach US$50 billion. I think the new flexibility from both sides would certainly encourage us to grow very very fast in our mutual cooperation,” he said. 

The trade volume between the two regions was estimated to reach more than US$40 billion in 2008, up from US$37 billion in 2007, according to Pitsuwan. ASEAN has been enjoying a trade surplus against India. In 2007, ASEAN exports to India reached US$24.66 billion, while only importing US$12.42 billion. 

ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. 

Pitsuwan is upbeat no ASEAN member countries would be left out from the benefit of the FTA.

“We export more to India than India to us,” he said. 

Pitsuwan said ASEAN and India would immediately commence negotiations on trade in services and investment flows. 

ASEAN and India concluded the FTA negotiations in August, 2008, under which Indian tariffs will reduce to zero on 3,666 items imported from ASEAN by the end of 2012. 

The items include fans, air-conditioner parts, refrigerators, jewellery and ornamental goods, rubber products and plastic resins. 

However, this FTA would not apply to all goods. For example, about 600 Indian agricultural products will be exempted from the FTA. 

Indian businessmen said the deal would help ASEAN countries and India to mitigate the negative impacts of the deepening global economic slump. 

Rajeev Chandrasekhar, the president of the Federation of Indian Chambers of Commerce and Industry (FICCI), said the positive impact of the FTA might not be seen immediately due to the crisis. 

“We need to see how long the economic slowdown will play out.” 

“The agreement will strengthen the market, exports and investment flows, in a sense you create an island which has lesser dependence on the volatility in the West,” said Chandrasekhar. 

Krishan Kumar Modi, Chairman of Modi Enterprises, one of the India’s largest agrochemical commodity producers, said his company could boost sales to ASEAN by up to 400 percent . 

Indonesia-India relations 

1. Indonesia’s population is 230 million while that of India is 1.147 billion.
   
2. Bilateral trade topped US$6.55 billion in 2007, leaping from $4.79 billion in 2006. In 2010, trade is forecast to reach $10 billion. Balance of trade is heavily in favor of Indonesia.
   
3. Indonesia mainly exports palm oil, coal, copper ore, alcohols, phenols, rubber, fruit and nuts to India and imports hydrocarbons, animal feed, flat rolled steel products, alloy steel, sugar molasses, cotton, aluminium and telecommunications equipment.
   

Insight: Riding out economic storm

The Jakarta Post, Gita Wirjawan, JAKARTA | Tue, 01/27/2009 9:47 AM  

The theory of chaos in natural science explains how a butterfly beating its wings over the Amazon can lead to a hurricane in the Caribbean. 

Chaos theory is at work in the international economy today. 

The tangled web of complex financial products created to bankroll America’s housing boom has unleashed the worst financial crisis since the Great Depression. 

Major corporate failures have induced pressures powerful enough to bring down the US financial system and a painful global economic slump. 

Markets have entered a vicious cycle of asset deleveraging, price declines and investor redemptions. They have had a tempestuous effect, causing Alan Greenspan, the former chairman of the US Federal Reserve, to describe it as a “once-in-a-century credit tsunami”. 

Consider the effect it has had on the world’s largest economies. 

Volvo truck sales in the US in the third quarter of 2007 were 42,000. During the same period last year, they crashed down to 75. Instructively, the US industrial output was down 7.8 percent last month. Construction of new homes fell 15.5 percent from November to December last year, to an annual rate of 550,000, the slowest pace on record. The pace of new-home construction was 45 percent below its level of a year earlier. 

The American unemployment rate has risen to 7.2 percent, and economists warn that the rate could reach 9 percent as the recession drags on.  

Elsewhere, the ramifications are just as galling. Japanese industrial output fell by 8.1 percent in November 2008, the largest on record. 

In the 27-nation European Union, new industrial orders fell by 17.9 percent year-on-year in October. 

Along the same lines, Germany saw exports plunge by 10.6 percent in November last year, a record month-on-month decrease for the world’s largest exporter. This is already resulting in negative GDP growth and declining overall trade volumes. 

China’s economy slowed so sharply in the final quarter of 2008 to just 6.8 percent as thousands of factories that sold to overseas markets shut, dragging growth of the world’s third-largest economy to a seven-year low. 

As many as six million people have now lost jobs in the cities as the export-dependent economy is hammered by a slowdown in demand. Not all butterflies though cause hurricanes or tsunamis. Millions of butterflies flap billions of times all over the world with marginal consequence. 

Asian countries like China, Japan and Singapore are clearly facing the full wrath of credit tsunami. But others in the region, especially Indonesia, appear to be coping a lot better. There are two broad reasons. 

Firstly, several of these countries are not dependent on exports for economic growth. 

And secondly, the financial systems of several of these countries are relatively safe from any immediate crisis. 

The underlying reason for Asia’s seeming insulation is that the region’s financial institutions, unlike their European counterparts, have only limited exposure to toxic assets — subprime and related products. 

Post-1998 reform and restructuring have significantly improved these institutions.

 Empirical evidence supports this: The low incidence of non-performing loans, high capital adequacy ratios, rates of return on assets, and other key indicators. Indonesian banks, in particular, have one of the best risk-weighted capital adequacy ratios in Asia. They also have the lowest ratio of loans to domestic deposits in the region after China and the Philippines. Indonesia is fast emerging as the babe in the woods. 

This might not be immediately apparent. The rupiah has stabilized at around 11,000 per dollar in recent weeks after suffering from a sharp sell-off last year as investors pulled out from Indonesia’s stock and bond markets, taking the unit to a decade low. The currency fell 14 percent in 2008, becoming one of the worst performers in Asia, while Indonesia’s main stock index plunged nearly 51 percent. 

Certainly, the Indonesian economy is slowing. It did in the final quarter last year as global demand for commodities cools. Jakarta has estimated that the economy expanded 5.8 to 5.9 percent in the fourth quarter of the last year from the same period in 2007. The economy grew 6.1 percent in the third quarter from a year earlier. 

The government forecast is 6.2 percent growth for 2008. It might be lower though in 2009, hovering between 4.5 to 5.5 percent. But this is still much better than many other Asian countries. 

Singapore, the region’s most prosperous economy, is hurting. Its GDP is expected to shrink up to 5 percent this year. It contracted a seasonally adjusted 16.9 percent in the fourth quarter, the largest decline since the Singapore government began publishing the indicator in 1975.

Malaysia’s economic growth this year might slow to an eight-year low of 2.5 percent. In Thailand, the economy is also struggling from a drop in business confidence after protracted political unrest last year. 

Indonesia appears to be coping much better economically. In part, this is a function of political stability which was conspicuously absent in 1998. There is also greater freedom of maneuver, the government no longer constrained by conditions set by the International Monetary Fund. There is no panacea for this crisis. But Jakarta has taken a number of critical steps in reviving the economy — some of which pre-dated the current problems. 

Indonesia’s central bank has already cut its benchmark rate by three-quarters of a percentage point in the past two months. With the BI rate kept at 8.75 percent, Indonesia offers a healthy 8.5 percentage-point premium over the US fed funds rate, which should help revive growth.

Keeping government debt low has been a priority. Today, Indonesia has US$52 billion in reserves — a marked improvement from over a decade ago. 

These initiatives have allowed President Susilo Bambang Yudhoyono to push forward a large fiscal stimulus that would ease some of the pressure on unemployment.  He has announced plans to spend more than Rp 72 trillion on infrastructure and other projects to boost growth and create jobs in a country where the unemployment rate is the highest in Asia. 

But government spending, along with a resilient FDI and strong private consumption ensures that the Indonesian economy appear to be on the front foot compared to other regional states. 

Credit agencies in the main are affirming a stable outlook for Indonesia. Fitch Ratings has retained Indonesia’s BB sovereign rating. It is one notch above the rating of both its rivals Standard & Poor’s which has a BB-minus rating and Moody’s which has rated the country Ba3. 

Indonesia is still vulnerable to external finances. Efforts to raise foreign direct investment and export competitiveness will likely remain challenging against a backdrop of palpable weakness in resource-based activities, as well as poor investor appetite for risk. 

These risks, however, are offset by the strength of Jakarta’s fiscal discipline. It is also explained by the fact that it is not export-dependent. 

China, Japan, South Korea, Singapore, and to a lesser extent Malaysia and Thailand, are reeling as exports evaporate. Just a small chunk of Indonesia’s GDP — 12 percent — relies on exports to Europe and the United States. As a result, it is riding out the storm better than its neighbors. 

After being underrated, for so long, with critics repeatedly writing its economic obituary, the country might appear to be an anomaly in this global financial crisis. 

There is no butterfly effect for Indonesia. 

Gita Wirjawan is Chairman of PT Ancora International.

Top US biz strategist talks `change or die'

Edith A. Johnson, The Jakarta Post, Jakarta | Tue, 01/27/2009 1:22 PM  

"What exactly is the crisis?" How can we - the bigger we, the post-Obama swearing -in united we - determine the real root causes of the world's current crisis and harness our forces to find a better balance? 

American professor Peter Senge has been having conversations with forward-thinking business scions for the past 20 years. He has sat at the table when business leaders, even competitors like Coca Cola and Nestle, collaborated to rethink their basic approach to how their businesses affect planetary elemental concerns like breathable air, drinkable water, and renewable energy. 

"Money for a business is like oxygen for a person. You need it to live. But it's not the reason you live." 

United in Diversity, a well-connected NGO chaired by Sinar Harapan's Aristides Katoppo, sponsored Senge to help their crop of young minds, fellows in their IDEAS Indonesia program, think new thoughts about business, government, and third sector collaborations. 

The IDEAS fellows are themselves drawn from, the private sector, the NGO world and public service. With backing from MIT's Sloan School of Management and UID, some of the brightest are already forging relationships between these worlds early in their careers. 

One participant asked, "Indonesia's private sector does not work that way - it's all about chasing the money. Businesses vie with governments, and the public vies with both. Here it's all about survival." 

Senge responded with an example of an already done deal, EU product lifetime legislation. The EU negotiated for eight long years with European carmakers to craft revolutionary legislation. The gist? "If I make it, it's mine forever." Now, when Renault makes a car or Siemens makes a washing machine, they know they must take it back - they own their waste. 

And it's not only the Europeans who are going down this path. 

"The Chinese know they are in trouble with their use of coal to keep their industrialization process going. They are starting already to retool. They are talking about a circular economy, in which nature and industry feed off each other." 

The biggest businesses already know they are the most quickly affected by threats to the environment. Unilever collaborated with the WWF to form the Marine Stewardship Council, given the 48 percent depletion of fish stocks in our oceans. Unilever's conclusion was, "No fish, no fish sticks."

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BI unconcerned about foreign banks` entry into micro sector

Jakarta (ANTARA News) - Bank Indonesia (BI) Deputy Governor Mulyanaman D Hadad said the central bank was not concerned about the entry of foreign banks into the micro and small business sector in Indonesia. 

"I don`t think we have to be concerned. I think it is the duty of all of us to improve the competitiveness of local banks," he said in response to a question on the entry of foreign banks into the small business sector in Indonesia. 

He said the foreign banks` entry into the micro business sector would have a positive impact because it would enable small people to gain access to financing sources. 

"There is a positive aspect to it because we still do not know when small people can have access to financing sources if we wait for domestic banks to help them out," he added. 

He said that now only about 40 percent of the people had access to banks. 

Hadad said that the entry into micro businesses of foreign banks was expected to bring not only capital money to them but also knowledge and managerial skills so that it would be beneficial for the development of banks in this sector. 

He said that actually almost half of banking credits were provided for the micro, small and medium-sized businesses (UMKM). 

Banks which provided credits for the UMKM sector were state-owned such as BRI which had units in rural areas. 

BRI has a composition of credit provision where 80 percent went to the UMKM sector. 

The BRI step has been followed by Bank Danamon, whose controlling shares are owned by Singapore`s Themasek Holdings through Asia Financial (Indonesia) Pte Lite. 

Danamon built Danamon saving units in various rural areas which are intended to provide financial access for micro and small businesses.

Publicly listed firms, service companies to get tax cuts

Aditya Suharmoko,The Jakarta Post, Jakarta | Sat, 01/24/2009 3:24 PM  

The deepening global economic slump has forced the government to act fast to implement its pledged stimulus package to limit adverse impacts on local companies. 

Finance Minister Sri Mulyani Indrawati recently issued a regulation making publicly listed companies eligible for a 5 percent cut in income tax to help them reduce their costs. 

Finance Ministry Regulation No. 238/2008, effective since Dec. 30, 2008, says companies are eligible for this if their shares are at least 40 percent owned by the public, with at least 300 parties holding shares and no single shareholder having more than 5 percent of total holdings. 

Under the regulation, companies must meet this requirement for at least six months within any one year if they want to get the concession. 

The companies are also required to attach a letter from the Stock Administration Bureau when submitting their tax report. 

Audit director at the Finance Ministry's directorate general of taxation Riza Noor Karim said the regulation, giving lower tax rates to some businesses, would encourage publicly-listed companies to release more shares to the public. 

"Aside from the cuts, the policy will also encourage companies to release more of their shares to the public," Riza said. Income tax for corporations is set at 28 percent flat this year, and 25 percent flat next year. 

The ministry also issued another regulation, No. 244/2008, making service sector companies eligible to a 2 percent cut in tax liability based on a calculation of gross revenue. 

There are 27 service sector firms now enjoying the discount, effective since Jan. 1. This includes several outsourcing companies, installation companies, event organizers, cleaning service companies and food catering companies. 

Service firms having no tax registration number (NPWP) will have to pay double. The normal tax rate taken from gross revenue for such industries is set at 4.5 percent. 

Indonesia, Southeast Asia's largest economy, has unveiled a massive stimulus package to help push the economy by promoting domestic demand as business activities linked to international trade slump. 

The government has set aside Rp 12. 5 trillion (US$1.1 billion) in this year's state budget, including for tax cuts and subsidies. This figure will likely grow as government plans to add Rp 37.5 trillion more for this. 

Several tax incentives are also in the pipeline which will be issued in less than three months. This include taking over liabilities for workers income tax from companies which normally subsidize the income tax contributions of their workers. 

Unlike in developing countries, most companies here subsidize the income tax contributions of their workers as part of a benefit package. 

Services getting the tax cut

1. Valuation
   
2. Actuaries
   
3. Design
   
4. Drilling
   
5. Oil and gas support
   
6. Mining support
   
7. Aviation and airport support
   
8. Logging
   
9. Waste management
   
10. Workforce supplier
    
11. Agency, brokerage
    
12. Securities trading
    
13. Custodian
    
14. Audio dubbing
    
15. Movie mixing
    
16. Software
    
17. Installation
    
18. Maintenance
    
19. Security and private investigator
    
20. Event organizer
    
21. Packaging
    
22. Advertising provider
    
23. Cleaning service
    
24. Pest containment
    
25. Food catering
    
26. Original equipment manufacturing
    

Source: Finance Ministry