EU, Indonesia to launch trade talks in Nov-diplomat

Reuters Africa, by Juliane von Reppert-Bismarck, Tue Jun 28, 2011

• Europe eyes pharma ceuticals , booming Indonesia markets
• Difficult talks ahead on biofuels, intellectual property

BRUSSELS, June 28 (Reuters) - Indonesia and the European Union will launch talks for a trade agreement in November that would link Southeast Asia's largest economy and the world's biggest market, a senior Indonesian diplomat said on Tuesday.

Trade and business officials lauded the potential of a deal worth an estimated 6.8 billion euros ($9.7 billion) that could make 95 percent of goods traded between the two populous regions move duty-free, free up flows of services and investment and go some way in harmonising patent and competition rules.

Talk of such a deal came as trading powers, abandoning hopes for a global trade accord, increasingly race to secure bilateral treaties with booming markets.

"We will launch talks in November on the side of the G20 meeting. It's probably the last major free trade agreement we'll ever launch," Indonesia's ambassador to the EU, Arif Havas Oegroseno, told Reuters after unveiling a report touting the benefits of a bilateral treaty together with Europe's trade commissioner.

The report by senior government and business officials showed Indonesia's trade balance would benefit from the deal while creating investment opportunities for European firms in a state with a 240 million population and long-term GDP growth estimates of 7 percent.

Indonesian light industries and transport equipment makers would benefit in particular, while poverty in the largely Muslim state would fall thanks to a 1.5 percent average rise in incomes resulting from a deal, the report said.

EU firms likely would focus on investing in the pharmaceutical sector, and benefit from the removal of red tape slowing EU food and drinks sales and courier services.

"European business is in favour of negotiations. We want to have more trade with Indonesia, also in investment," said Pascal Kerneis, senior advisor for Europe's largest business lobby BusinessEurope and co-author of the report.

BILATERAL AGENDA

Frustrated by years of fruitless negotiations for a global trade accord at the World Trade Organization and egged on by the promise of Southeast Asia's booming consumer markets, European negotiators have been pursuing an aggressive round of bilateral talks to lock in gains for business and importers.

Southeast Asian nations including South Korea, Thailand and Singapore are seeking to diversify their trade links and tap Europe's 500 million-strong market and have started talks with the bloc.

Attempts by the United States to forge similar deals in the region have been slowed by divisions over trade policy in Washington, and preliminary steps for a pact with Indonesia are not expected to yield a quick result.

This week sees the first fruits of Europe's bilateral agenda when a free trade agreement with South Korea comes into effect on Friday.

European Trade Commissioner Karel De Gucht said Europe would insist that Indonesia, where legislation varies widely between far-flung regions, agrees to European intellectual property rules and guarantees their enforcement.

"The only raw material we have in Europe is intellectual property rights," he told industry executives and officials.

Trade talks would start "once conditions are met", he said.

Despite such concerns, Europe has been laying the foundations for a deal, agreeing in May to strict controls aimed at stopping illegal timber imports from Indonesia at Jakarta's request.

The two sides will also have to address Indonesian concerns that Europe could close its markets to Indonesian palm oil traditionally used for making biodiesel, on environmental grounds, according to the report.

(Reporting by Juliane von Reppert-Bismarck; additional reporting by Doug Palmer in Washington; Editing by Michael Roddy)

Ministry channels Rp 12t to micro businesses

The Jakarta Post, Jakarta, Tue, 06/28/2011

The Cooperatives and Small and Medium Enterprises Ministry claims it has channeled Rp 12 trillion (approximately US$1.39 billion) in micro loans for 5 million micro businesses across the country under the credit support (KUR) scheme.

“That is reaching nearly 55 percent of the target,” Cooperatives and Small and Medium Enterprises Minister Syarifuddin Hasan said Tuesday in Surakarta, Central Java.

He said the ministry was targeting to channel Rp 20 trillion in KUR loans this year.

Syarifuddin said KUR loans were expected to support micro business developments, citing there were currently up to 52.1 million micro businesses in Indonesia.

He said, as quoted by tempointeraktif.com, that such businesses could curb unemployment with each micro business employing three people on average.

40m Indonesians have no access to financial industry: BI

The Jakarta Post, Jakarta | Mon, 06/27/2011

At least 40 million Indonesians do not have access to the financial industry, particularly the banking industry, a central bank official has said.

"There are 40 million Indonesians, or 17 percent of our population, mostly low-income people, who still have no access to micro activities at banks," Bank Indonesia (BI) deputy governor for banking research and regulation Muliaman D. Hadad said in Jakarta on Monday.

He was speaking at a seminar titled “Financial Literacy: Toward a National Strategy on Financial Education”, organized jointly by BI and the Organization for Economic Cooperation and Development (OECD).

Muliaman said in order to improve the access to the central bank, in partnership with the OECD, it would push for a financial inclusion policy.

"The global community has spoken of the need for financial inclusion. Financial inclusion is believed to play an important role in improving people's welfare," he said.

Muliaman cited financial education as one program that would be carried out to improve people's awareness on the financial industry.

"Sometimes, lack of access happens because of a lack of understanding. We have worked with the National Education Ministry to improve education on financial issues," he said, adding that the education program also targeted Indonesian migrant workers, housewives and members of religious groups.

Muliaman added BI would call on the banking industry to improve a protection system for its customers to build their trust and loyalty.

OECD deputy secretary-general Richard Boucher said the OECD supported Indonesia's efforts to promote financial inclusion among its people.

"We work together to figure things out; what works, what doesn't work. We have the best people to work together, who can compare and design programs. So, we bring in experience, options and advice, but we don't bring in money," Boucher said. (swd)

Europe aims to set the credit rating rules

Deutsche Welle, 24 June 2011

Europe wants to ensure ratings
agencies operate by EU rules

The European Securities and Markets Authority (ESMA) warns US credit ratings agencies that they will need to play by EU rules if they want a license to continue operating within the bloc.

The head of the European Securities and Markets Authority, Steven Maijoor, said Europe wants to break the monopoly currently held by major US ratings companies, and enforce its own operating regulations.

"We shouldn't blindly adopt the regulatory system of a third country," Maijoor told the Financial Times Deutschland, referring to the guidelines governing the behavior of ratings companies in the United States.

He said any agency seeking a license to operate within Europe would be expected to supply extensive paperwork with their application. ESMA said this has not yet been forthcoming.

The biggest agencies, Fitch, Moody's and Standard and Poor's, the latter two of which are American, have been widely criticized since the global financial meltdown.

"Everyone knows that after the crisis there was a big problem with ratings agencies, and that was a conflict of interest," Philip Whyte, senior research fellow with the Centre for European Reform in London told Deutsche Welle. "The people's whose papers were being rated were the people who paid the agencies."

Mixed messages

Greece's ratings have been slashed by Standard and Poor

Yet he added that it is sometimes hard to disentangle what politicians say about the behavior of the agencies in the run up to the financial crisis and what they are saying now in the face of sovereign debt woes.

"Either politicians want them to be independent and to do a good job of rating paper, or they want them to be political puppets who respond to European political pressure," Whyte said. "But they can't have it both ways."

For the past year, Europe has been promising to curb the power of the major three agencies, which the Financial Times Deutschland reported as having a collective market share of 95 percent. Although as of July 1, ESMA will hold the sole responsibility for the supervision of credit rating agencies in Europe, Fitch, Moody's and Standard and Poor's will remain the major players.

In a recent EU report on the reform of the ratings industry, Wolf Klinz, a German member of the European Parliament, called on central banks, investors and private banks to practice risk assessment themselves, thereby reducing dependency on the main agencies.

He also said ratings companies should be held accountable for the economic consequences of their actions.

"When the agencies say they are only expressing opinions, it is inaccurate," Klinz said in his report. "What we need is greater responsibility and accountability."

A European ratings entity

Fitch is owned by a European financial group

The MEP is one of many EU politicians, including Jean-Claude Juncker, chairman of the group of eurozone finance ministers, to back the proposal of the creation of a European ratings agency.

But as Nicolas Veron, a senior fellow with the European think tank Bruegel, was quick to point out, the idea is a very old one, and would be hard to pull off.

"I am not exactly sure what is desired here," he told Deutsche Welle. "If it is a state controlled ratings agency, it would be hard to establish credibility, and it if is about creating a state monopoly, I think it would be a non-starter."

The future of Frankfurt

On Friday, Roland Berger Strategy Consultants announced that it is in talks with the German state of Hesse, the association Frankfurt Main Finance and the Frankfurt Stock exchange "in order to promote, establish and develop a European rating agency in Frankfurt am Main."

Could Frankfurt become home to
an European ratings agency?

The company's global head of risk management, Markus Krall, said in a statement that it was crucial to "reduce conflicts of interest and restore credibility of and confidence in ratings." He added that Roland Berger was inviting companies and institutions across Europe to participate in setting up the initiative.

Whyte, however, said he is skeptical of both the wish and the need for such an entity. He said he believes the EU is angry with rating agencies for downgrading sovereign debt and is looking for ways to make them stop.

"They always think Anglo-Saxons have an inherent bias and that an EU agency would be more balanced," he said. "But one person's balance is another person's susceptibility to political pressure."

Reporter: Tamsin Walker

Editor: Sean Sinico

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Moody’s Threatens Credit Downgrades for Belgium, U.S. (Dec 14, 2010)

Don't bet against euro: German finance minister

China agrees to support Indonesia's economic master plan

The Jakarta Post, Jakarta | Thu, 06/23/2011

Indonesia and China have agreed on the establishment of a working committee reflecting China's support of Indonesia's 2011-2025 Master Plan for the Acceleration and Expansion of Indonesian Economic Development (MP3EI).

“The agreement was made when Coordinating Minister for the Economy Hatta Rajasa, a special envoy to the Indonesian president, met with Prime Minister Wen Jiabao in Beijing,” the Indonesian Embassy in Beijing said in a press release on Thursday, referring to a meeting on Wednesday.

The statement said Hatta was accompanied by Indonesian Trade Minister Mari Elka Pangestu and Indonesian Ambassador to China and Mongolia Imron Cotan, among others.

It also said Hatta explained to Wen the MP3EI concept and its key position in Indonesia's economic development policy for the year 2011-2025.

Hatta expressed hope that China will take part in the implementation of the master plan, which has been apparently welcomed by Wen, Antara news agency reported.

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Master plan may help unemployment after migrant moratorium: SBY

Govt needs to facilitate credits for micro businesses

Antara News, by Andi Abdussalam, Sun, June 19 2011 

(ANTARA/Noveradika)

Jakarta (ANTARA News) - Small and medium enterprises (SME) are in real term the main pillars of the people`s economic development as they provide employment for about 90 million or about 97 of the total workforce and contribute 53 percent to the country`s Gross Domestic Product (GNP).

Considering the roles the SMEs play in the country`s economic development, the government should facilitate and encourage banks to provide credits for them whose number reaches 51.26 million units or about 99 percent of the whole businesses in the country.

"They must be given attention and various kinds of assistance such as access to various information, capital sources and other funding facilities. This should be done based on the people`s economic principles," Maritime Affairs and Fisheries Minister Fadel Muhammad said in West Sumatra recently.

The need to provide financial support for SMEs is also voiced by Djemi Suhenda, vice president director of Bank BTPN, in Bandung on Sunday. He said that the number of small businesses in Indonesia now was recorded at 51 million units, of which 36 million were in the poor productive sector.

"The government support is needed to increase small businesses` access to the funding sources, among others by issuing supporting regulations, loan infrastructure, credits, training and researches," he said.

According to Djemi Suhenda, banks so far have only paid attention to micro banking facilities while they still ignored the poor productive sector because they think it would need huge funds while profit they could gain is not significant.

"The micro and poor sectors need fast and easy access to funding sources in order to accelerate and boost their roles in the development of people`s economy," he said.

The banker however acknowledged that it was not easy and cheap for banks to enter into the micro and poor sectors because they would need a huge investment and a business model innovation in order to adjust it to the characters of micro and small people.

But basically, banks have the potentials to enter the micro and poor sectors because they had the ability to produce innovation and huge amount of funds.

Virtually, the government itself has a credit program called "KUR" or a smallholder credit scheme, to help develop small people`s business. Yet it still found difficulties, particularly in the region in carrying out the KUR program.

Minister for Cooperatives and SMEs Affairs Syarief Hasan said the government still needed time to smoothly carry out and distribute the KUR funds through banks because not all banks shared the same system in the distribution of KUR credits.

"We are still coordinating with a number of banks because large banks usually face difficulties to provide funds for micro businesses rather than for large scale firms," the minister said.

Yet, it seems that the provision of KUR this year could be achieved easily.

The ministry of state enterprises (BUMN) has recorded that the amount of KUR credits provided for micro businesses up to May 2011 has reached Rp11.012 trillion with a number of 771,818 customer recipients.

"The provision of KUR credits has reached 55.06 percent of the target set this year at Rp20 trillion," the minister said.

But he said that the government had not yet decided to revise its 2011 KUR target.

"Although the realization of KUR has reached over 50 percent with the number of recipients reaching 771,818, the target this year remains the same as that already set at Rp20 trillion," Minister Mustafa Abubakar said.

The minister said that the quantitative achievements, including the number of credit recipients showed a progress, so that it was just possible to increase the KUR amounts. "We still keep the target at the amount already set earlier, except if the chief economic minister asked that it should be revised," the BUMN minister said.

Up to May, 2011, the biggest KUR amounts were provided by state-owned Bank BRI reaching Rp6.901 trillion which included retail KUR worth Rp1.307 trillion with 7,259 customers and micro KUR valued at Rp5,593 trillion with 721,470 debtors.

The second biggest KUR provider bank was state-owned Bank BNI with a KUR commitment of Rp1.009 trillion and 8,252 customers. The third largest was provided by Bank Mandiri with KUR credits amounting to Rp1.001 trillion and 10,496 customers.

In the meantime, credit provision of the whole banks up to April 2011 increased to Rp350.8 trillion or about 23.8 percent.

Bank Indonesia (BI/the central bank) Deputy Governor Muliaman D Hadad said if compared with that in the same period a year earlier, the banking credits up to early in June this year had grown by 23.5 percent.

He said that the credit growth was still dominated by investment credits which were recorded at 10 percent year-to-date, followed by consumption credits which accounted for 7.5 percent.

Although there would be steady demand for credits, yet small scale businesses still face difficulties in gaining credits from big banks.

Economic analyst of the Makassar-based Alauddin State Islamic University (UIN) Prof Dr Natsir Mahmud said businesses faced difficulties to borrow money because the interest rates were high namely ranging from 10 to 15 percent.

"The high rate of banking credits poses a problem for small and new business players so that businesses in Indonesia find it hard to develop. In Singapore interest rates are only about six percent while in the United States are five percent, even once three percent," said Natsir.

According to Minister Syarief Hasan, the government still needed time to provide low interest rates and easy access to founding sources for small businesses because it has to build a common perception in the first place with banks.

Djemi Suhenda shared the minister`s opinion, saying that interest rates should not be lowered too far so that banks would be attracted to enter the small business sector.

"Let them enter this sector first. If the number of large banks entering this sector has increased and competition has begun, the interest rates will automatically go down," he said.

Editor: Priyambodo RH

RI among emerging markets redefining global economy

Antara News, Wed, June 15 2011

Jakarta (ANTARA News) - By 2025, Indonesia will be among six major emerging economies to account for more than half of all global growth, says a new World Bank report.

"Other emerging economies include Brazil, China, India, South Korea, and Russia, and as economic power shifts, these countries will help drive growth in lower income countries through more commercial and financial transactions," said the report which was first released on May 17, 2011 in Washington D.C.

International trade in general is expected to rise significantly for emerging economies by 2025. For example, the value of Indonesia`s exports is likely to double between 2010 and 2025. The value of its imports is expected to be more than one-and-a-half times higher by 2025.

Over the same period, global trade - as a contribution to global output - is expected to go up from 49.9 percent to 53.6 percent.

With a growing middle class in developing countries, consumption trends are likely to strengthen, and eventually become a source of sustained global growth.

However, in adapting to its new global role, Indonesia - along with countries like China, India and Russia - must still do more to strengthen its domestic institutions in the economic, financial and social sectors.

"Indonesia has one of the fastest growing middle classes among its emerging peers, expanding at a rate of up to 7 million people a year," says World Bank Country Director for Indonesia, Stefan Koeberle, referring to the number of people entering the lower-middle income group annually since 2004.

"Focusing its policies on reforming key institutions, achieving good governance and boosting the skills of its labor force are all key to helping Indonesia settle into its new role on the global stage," he added.

The international monetary system will likely no longer be dominated by a single currency, according to the report which was posted on the official website of the World Bank Indonesia, Wednesday.

"Global Development Horizons 2011-Multipolarity: The New Global Economy" projects that these emerging economies will grow on average by 4.7 percent a year between 2011 and 2025.

Advanced economies, on the other hand, are forecast to grow by only 2.3 percent over the same period, but will remain prominent in the global economy.

"The projected changes in the global economy are likely to be positive for developing countries. However, a key question is whether existing multilateral norms and institutions can accommodate the passage toward multipolarity," said Mansoor Dailami, lead author of the report and manager of emerging trends at the World Bank.

"In managing global integration, strengthening policy coordination across power centers becomes critical to reducing the risks of economic instability," he said.

Editor: Jafar M Sidik

Yudhoyono Admits Indonesia's Biggest Challenge Is Corruption

Jakarta Globe, Kinanti Pinta Karana, June 15, 2011

President Susilo Bambang Yudhoyono sits down with CNN's
Andrew Stevens in an interview to be broadcast on CNN's
Talk Asia program. (Photo Source: CNN)

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President Susilo Bambang Yudhoyono admitted that corruption is Indonesia's biggest challenge. He made the statement in an interview with CNN's Andrew Stevens which will be broadcast on CNN's Talk Asia on Wednesday at 5.30 p.m.

“Corruption is indeed our biggest challenge, my biggest challenge – I have to be frank on that,” Yudhoyono said, noting that Indonesia has launched the most aggressive anti-corruption campaign in the country's history since he took office in 2004.

“And the results show for themselves. About 150 senior officials have faced the law, and some of them have been convicted and sent to jail. And there’s now a big movement in our society against corruption,” he said.

Responding to Yudhoyono's statement, Emerson Yuntho from the Indonesian Corruption Watch reminded that Transparency International still rates Indonesia quite poorly on its corruption index.

"We have to remember that Indonesia's corruption index is still alarming because the government has not given maximum support to fight corruption," Emerson said.

"There is still a chance for SBY [Yudhoyono] to improve the fight against corruption by being firm. If a leader is firm in his attitude towards corruption, then the rest [of the state officials] will follow."

Talk Asia is CNN's weekly program in which the cable network explores the personalities behind newsmakers in the fields of arts, politics, sports and business. Some of the prominent people Talk Asia has interviewed are Chinese grand slam champion Li Na, football legend Pele and Indian tycoon Ratan Tata.

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RI, EU begin negotiations on comprehensive economic partnership

The Jakarta Post, Jakarta | Wed, 06/15/2011

Indonesia and the European Union (EU) held the first of a series of negotiations toward a Comprehensive Economic Partnership Agreement (CEPA) during an event in Jakarta on Wednesday.

The event was organized to facilitate the presentation of recommendations from the Indonesia-EU Vision Group, which was established in December 2009 by Indonesian President Susilo Bambang Yudhoyono and European Commission President Jose Manuel Barroso, to "invigorate the Indonesia-EU partnership", especially in the trade and investment sectors.

During the Wednesday event, these recommendations were officially handed over to Indonesian Trade Minister Mari Elka Pangestu.

Also during the event, Vision Group co-chairman Djisman Simanjuntak said that while Indonesia and the EU were in "good and healthy relations, the status quo is unsatisfactory".

"We need a new initiative to invigorate the relations, in the pursuit of growth, job creation and poverty alleviation. So it's not only about trade but also for job creation ... for both Indonesia and the EU," Djisman said.

Mari said that over the next few months Indonesia and the EU would be engaged in intensive consultations regarding the CEPA, comprising the governments and the private sectors of both parties.

Djisman added that he hoped the negotiations would be completed within two years.

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Indonesia, EU seek 'ambitious' free trade agreement

Powered-Up Pertamina to Be World-Class by 2023: CEO

Jakarta Globe, S.K. Zainuddin, June 13, 2011

'Mergers and acquisitions are the best options to increase
our production and reserves,' Pertamina chief executive Karen
Agustiawan told the Jakarta Globe on the sidelines of the East
Asia World Economic Forum on Sunday.

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The Jakarta Globe spoke with Pertamina chief executive Karen Agustiawan on Sunday on the sidelines of the World Economic Forum in Jakarta and asked her about Indonesia’s future energy needs and the state oil and gas firm’s role in meeting them.

What is your vision for the firm for the next 20 years?

We want to be a world-class national oil company by 2023 — meaning being respected by oil companies, having a major role in the global energy business and becoming one of 15 best oil companies in the world.

How do you intend to achieve those goals?

There is much to be done. First, we have to increase operational objectives. Our strategy in increasing upstream production is focusing on domestic operations, aggressive international expansion and improving our capability through strategic alliances.

Our focus is on domestic operations. Some of our [oil] fields are mature. It is natural that production at mature fields declines, so we will use sophisticated technology, such as secondary recovery alternative methods to retrieve oil such as water or gas flooding.

Mergers and acquisitions are the best options to increase our production and reserves.

We will invest in production and exploration in undeveloped areas with production capabilities. These assets can either be in the country or abroad.

In terms of downstream production, we must have competitive refineries and we must be able to lead in the domestic retail market, expanding it as well.

Second, we must have a competitive advantage in all business areas and high health and safety standards.

Third, we are also improving our capabilities and promoting a competitive working culture for our employees. We also have to fulfill the expectations of our shareholders.

How will you encourage a shift to green energy?

At Pertamina, we are always trying to use more efficient and environmentally friendly technologies. For example, we are in the process of investing direct-current electric drills to replace the existing, high energy-consumption mechanical drills.

We support various policies and programs that have been implemented and are being developed by the government.

These include the use of liquefied petroleum gas for households and compressed natural gas for transportation, as well as coal and gas for electricity. We also support the increasing use of new and renewable low-polluting energy sources.

We also aim to focus on supplying geothermal energy as an alternative for traditional power sources. For this plan, Pertamina will continue to develop the country’s geothermal reserves. Currently, the installed capacity is only around 4 percent of the country’s geothermal potential.

Is nuclear energy a viable option in order to meet the nation’s energy needs?

We have options. Indonesia’s national energy policy focuses on diversifying its energy resources.

By 2025, the target energy mix should be 33 percent coal, gas and coal-bed methane at 30 percent, oil at 20 percent and renewable energy — including geothermal energy, biofuel and solar power — at 17 percent.

My opinion is that we have to optimize the sources of energy that we have, which is why Pertamina focuses more on alternatives such as geothermal and coal-bed methane.

What is your forecast for Indonesia's energy sector during the next five years?

Southeast Asia’s regional energy security framework has been promoted as one strategic element of the Master Plan on Asean Connectivity adopted in 2010.

In line with the master plan, President Susilo Bambang Yudhoyono recently launched the Indonesian Economic Development Expansion and Acceleration Master Plan 2011-15. The plan aims to establish six economic corridors, each with specific competitive advantages.

The plan aims to help Indonesia become one of the world’s 10 largest economies by 2030 through inclusive, sustainable and high economic growth.

One of the plan’s objectives is to improve energy security for households, industries, and transportation through energy diversification, energy conservation, energy prices and green policies.

Various programs to be developed by the government are to provide LPG for households, CNG and LPG for cars and increase the use of new and renewable low-polluting energy sources.

Analysis: Indonesia: Thinking big

The Jakarta Post, Josh Franken, Oxford Business Group, Mon, 06/13/2011

Indonesia’s newly published economic master plan sets out ambitious targets to become one of the world’s biggest economies over the next 15 years. The plan unveiled by President Susilo Bambang Yudhoyono (SBY) also put the spotlight on the need for heavy investments in infrastructure coupled with improvement in the investment climate.

On May 27, President Yudhoyono unveiled the Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI), which will carry the country through to 2025. It aims to make Indonesia, the 17th largest economy in the world last year, one of the world’s 10 biggest economies by 2025, taking GDP to $4.5 trillion and increasing the per capita income from $3000 now to $15,000.

To achieve this, the master plan seeks to raise average annual growth to 8-9 percent between 2015 and 2025, from around 6 percent now. The MP3EI also sets the target of bringing inflation down from 6 percent now to 3 percent by the middle of the next decade.

The plan outlines Rp 4000 trillion ($468.5 billion) in investments to be made over the next 14 years, including in infrastructure work. Some Rp 544 trillion ($63.72 billion) of government cash has been earmarked for investment to 2025, to be supplemented by Rp 836 trillion ($97.93 billion) from state firms.

At the MP3EI launch, Yudhoyono identified 17 projects worth Rp 190 trillion ($22.26 billion) in the plan that are expected to start this year, some of which had already been announced. They include hydroelectric and solar power plants; oil palm developments; a steel mill in East Java; new roads including toll motorways; mining projects; expansion of broadband internet; and nickel, cobalt and aluminium factories.

Another major project that the government has pledged to launch this year is the long-awaited Sunda Strait Bridge that would link Java and Sumatra, Indonesia’s most populous islands (and the first and fourth most populous in the world, respectively). The bridge is expected to cost Rp 150 trillion ($17.57 billion) and has been subject to planning delays.

While infrastructure and industrial investments have taken most of the headlines, the MP3EI also highlights the importance of moving Indonesia’s economy up the value chain and increasing the level of innovation. Through improving education and boosting school and university attendance, as well as expanding the industrial base, Indonesia aims to develop a more high-tech economy, exporting more tertiary goods and becoming less reliant on commodities, the prices for which have fluctuated greatly over the past five years.

Yudhoyono has acknowledged that Indonesia must first overcome some serious challenges if its vision is to be realised. He identified “five diseases that can make us fail”, including slow bureaucratic processes, conflicting interests in regional government (Indonesia has undergone a process of devolution in recent years), obstructive regulations, broken promises to investors and “unhealthy” political factors.

Despite these challenges, Indonesia has developed into something of an investors’ darling of late, particularly since the economic crisis, which the country weathered remarkably well. The country offers a large and thriving domestic market, access to much of Asia and abundant natural resources.

Business leaders have also drawn attention to the need for a renewed focus on economic reform to enhance the investment climate if growth targets are to be achieved, asserting that the private sector must take the lead in the longer term.

“Foreign direct investment has shown positive increases, demonstrating the level of interest from companies looking to capitalise on the growth of the region,” Mike Gundy, the president-director of BlueScope Steel Indonesia, the local wing of an Australian metals company, told OBG. “However, fiscal incentives and tax holidays are a necessary step if the country is to remain competitive in the region.”

As Yudhoyono noted, red tape is another common complaint cited by investors, and clearing the regulatory thicket around businesses and the limitations on foreign ownership in some sectors would be beneficial.

Indonesia is demonstrably one of the world’s rising economic powers, and has now set the target of shifting up a gear to become one of its very biggest in less than a generation. While public investments will play a crucial part in meeting this goal, a liberated and thriving private sector is the hallmark of an advanced economy.

Indonesia changing quickly as economy booms

BBC News, By Karishma Vaswani, Jakarta, 12 June 2011

Jakarta has changed much as the Indonesian economy has surged,
creating a city of glass and steel

Related Stories

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It is a Wednesday evening and the skyscraper in downtown Jakarta is quiet.

Most of the people who work here have already left for the day - but for the staff at Indonesian internet firm Koprol, the work continues.

Except that it is not all work. A group of twenty-somethings are mucking about on the Nintendo Wii console, enjoying a game of virtual tennis.

It could be an office in Silicon Valley - but this is Jakarta. Most of the people who work at Koprol are below the age of 30, and for many, this is their first job.

They are the new faces of Indonesia's economy.

'Good time'

Koprol, now owned by Yahoo,
tracks your location and
helps you find your friends

Koprol itself is an Indonesian success story.

The social media firm, which allows users to find people who are online and have checked in at the same location, became so popular that it caught the attention of US internet giant Yahoo - who bought Koprol last year.

It was the first Indonesian tech firm to be bought out by a foreign company.

"It's exciting," says Koprol's co-founder Satya Witoelar. "It's a good time to be in Indonesia and an Indonesian."

Indonesia's economy is now one of the best performing in the region - posting more than 6% growth at a time when the US and Europe are struggling.

Foreign investors are now looking at Indonesia carefully, eager to capitalise on the strong growth in the country. Indonesia's stock markets have also been beneficiaries of this new-found confidence, seeing a dramatic rise in the last year.

Pariah state

Looking around the main boulevard in Jakarta's financial district today, it is hard to believe that at one time in this country's history soldiers in their tanks stood on these streets and shot at student protesters demanding democracy.

Today, all you can see are the symbols of Indonesia's success - a gigantic Louis Vuitton sign plastered on one of Jakarta's sprawling mega-malls, and brand new Mercedes and BMWs parked outside some of the finest hotels in the country.

But behind this new image, the country is still dealing with age old problems.

Just over a decade ago Indonesia's economy virtually collapsed during the Asian financial crisis. The value of the rupiah plummeted, property prices dropped, and millions of Indonesians saw their wealth erode overnight.

That, and a growing discontent with the former President Suharto's authoritarian regime, led to Indonesia moving to a democracy from the dictatorship it had been for more than 30 years.

Civil unrest erupted and Indonesia saw a series of terror attacks from Islamic extremist groups. The country was pretty much written off by foreign investors, and most thought Indonesia would end up as a pariah state.

"When I first started this business with my friends, in order to register the company I had to go through a lot of steps, a lot of procedures", Mr Witoelar says.

"And, yes, there were times we had to pay money - sometimes they were for legitimate reasons, at other times they weren't. But I'm Indonesian, and I'm used to it. It's always been this way."

Corruption

Corruption and red tape still affect Indonesia and cost the economy millions every year.

President Susilo Bambang Yudhoyono was first elected on promises to tackle graft - but the latest figures in Transparency International's Corruption Perception Index are not particularly encouraging about the progress he has made.

The index shows that Indonesia scored 2.8 out of 10 - the same as in 2009 when he was re-elected.

One of the worst affected areas by these twin problems is infrastructure. Indonesia desperately needs more roads, ports and highways to see its economy reach its full potential.

Work on a bridge to link the Java and Sumatra islands, worth almost $20bn (£12.3bn), is supposed to start this year - but the plans have been stuck at the feasibility stage for years.

Then there's the failed Jakarta urban monorail system - which was supposed to be built back in 2004, but was abandoned because of legal issues and funding difficulties. All that's left of the project are cement blocks, standing forlornly along one of Jakarta's main roads.

'Unrealistic'

The government acknowledges that corruption and red tape make it tough for Indonesia to compete in the region, but says it's a work in progress.

Car sales, seen as an indicator of consumer
demand, were up in 2010

Gita Wirjawan is the man in charge of attracting foreign investment to Indonesia.

"We've increased foreign direct investment in to Indonesia by 60% in the last year alone," he says.

"It took Hong Kong more than 30 years to stamp out corruption. It is unrealistic to think that Indonesia can do it in three to six months. We have put hundreds of corrupt people behind bars."

But that progress may not be good enough to give millions of young Indonesians a chance to better their lives.

Poverty

Government estimates show that around 13% of Indonesians live under the poverty line but independent economists say its much more than that.

Many come of the country's rural poor come to Jakarta in the hopes of finding work in a factory, or a construction site - but there just aren't enough being built to provide employment to Indonesia's youth.

For instance, one of these poor rural workers, called Suparman, came to Jakarta two weeks ago from Central Java, to find work building roads.

He was rummaging through a dump near train tracks in Jakarta, sifting through plastic bottles and old DVDs, looking for anything he might be able to sell. He says he wants to start a family but can't provide for them doing this work.

Indonesia may be one of the region's fastest growing economies but it is still struggling to fix problems with corruption and red tape from the past.