High crude prices help boost RI`s exports in Q1

Jakarta (ANTARA News) - The Central Board of Statistics (BPS) said Indonesia`s exports in the first quarter of 2008 increased 31.34 percent which was attributable to the upward trend of world crude prices since early this year.

"Actually, the oil and gas exports had been increasing most rapidly as they were directly linked with world oil prices which continued to go up," BPS Head Rusman Heriawan said here on Friday.

He said that from the export aspect there was a windfall in the gas and oil sectors but because Indonesia`s gas and oil imports were higher than its exports, it caused a lot of problems with the state budget.

The BPS also recorded a 41.70 percent increase in agricultural product exports in the first quarter of 2008. Industrial product exports also increased 30.48 percent from 10.02 percent in the same period a year earlier.

"Indonesia`s natural resource-based exports will continue to increase as long as the oil price also continue to go up," he said.

Indonesia`s exports in March 2008 were worth US$11.90 billion. It rose 12.96 percent from the previous month and compared with March in the previous year it rose 31.24 percent.

Non oil exports in March 2008 were estimated at 9.14 billion dollars, up 12.09 percent compared with those in February 2008, or an increase of 21.99 percent if compared with that in March in the previous year.

The BPS chairman said Indonesia`s non oil exports in the first quarter were dominated by crude palm oil (CPO) which rose 47 percent compared with the same period in the previous year.

He said that Indonesia`s imports in March were worth US$10.01, up 3.96 percent from that in February.

Indonesia`s non oil and gas exports in March were US$7.60 billion (75.92 percent,) and oil and gas imports US$2.41 billion (24.08 percent).

The total value of the country`s imports in the first quarter of this year was US$29.24 billion with machinery and electrical appliances being the biggest ones worth US$3.29 billion or 14.70 percent of the total imports.

President calls on people to use fuel oil efficiently

Magelang, Central Java (ANTARA News) - President Susilo Bambang Yudhoyono said the people should use fuel oil efficiently now that the oil price in the world market was soaring.

"We want to overcome the wasting of fuel oil, encourage efficiency and increase production," he said at an informal meeting with workers and handicraftsmen here on Friday.

The President further expressed his wish to reduce the country`s dependence on fossil fuels and to produce energy from other sources such as hydro power.

Many steps needed to be taken to use energy more efficiently and to prevent the people from suffering more due to the soaring oil price, he said.

The government, he added, would try hard to cushion the impact of the soaring oil price on conditions at home.

Religious leaders call on nation`s elite to lead energy-saving movement

Jakarta (ANTARA News) - A number of religious leaders have called on the country`s elite to take the lead in the national energy saving movement President Susilo Bambang Yudhoyono recently ordered to be launched in anticipation of the impact of the world oil price spiral.

"Whatever the elite does has a demonstrative effect on society at large. So , if the elite does not show a frugal life-style, don`t expect the general public will," Indonesian Ulema Council (MUI) chairman Amidhan said here Friday.

He said the example set by the elite in responding to the president`s call to save energy would have a real effect on the behavior of the general public.

A few other religious community leaders, including Muhammadiyah chairman Din Syamsudin, top Hindu priest I Made Gde Erata, Indonesian Christian Communication Forum (FKKI) pastor Gustav Dupe and Buddhist Council chairman Bhiksu Tadisa Paramita also said the elite must set the example in the efficient use of energy.

"If we are to economize on energy consumption, we must begin at the top. The elite must cut their unnecessary energy consumption, don`t only ask the common people to use less energy," Erata said.

"When the President, for instance, wants to take part in a grand rice harvest, why is it necessary for him to be accompanied by 35 ministers who all come in energy-consuming cars?" Gustav Dupe asked.

Yudhoyono on Wednesday (Apr 30) instructed the rank and file in the government at central and regional levels to economize on the use of energy in the face of the continuous surge in the world oil price which was putting the state budget under mounting pressure.

The President also asked the public at large to use energy in more efficient ways.

"I ask recreation or entertainment spots and shopping centers to be also more efficient or economical in their energy consumption. The use of fuel oil in service as well as private cars should also be limited," he said.

The president said if all parties in the country gave their cooperation in the efforts to face the energy problem, he was sure the nation would successfully weather the present difficult times.

Indonesia’s road to growth

The nation’s economy is resilient but governance and infrastructure must improve.

By Rupert Walker  |  FinanceAsia.com  |  2 May 2008 

After the bombings at the Marriott Hotel in Jakarta in 2003 and the Australian embassy the following year, security checks were introduced at major foreign-owned commercial and consular premises. They included car examinations and then a body frisking. Perhaps surprisingly, five years later, they still take place. It might also be a sign that the Indonesian authorities mean business, and intend to persevere with their goal to reform the country’s economy and even its behaviour.

Prakriti Sofat, Indonesia economist at HSBC, writes that “the Indonesian economy is enjoying its strongest and most sustained period of growth since before the dark days of the Asian crisis a decade ago”. Nor does he anticipate much that could go badly wrong. Domestic demand has been boosted by interest rate cuts of 475bp since May 2006 and an expansionary budget earlier this year, which raised public sector wages and development spending. Foreign direct investment reached a record $10.3 billion in 2007, up from $6 billion in the previous year.

Indonesia’s trade exposure to the US is among the lowest of Asian countries, and the current account surplus in the final quarter of last year was a healthy 2.9% of GDP. But although Indonesia is a leading exporter of LNG and its gas balance is comfortably in surplus, its oil production has been falling partly due to poor investment, and its import bill has consequently risen.

The authorities are focusing more on achieving its growth target of 6.8% rather than the central bank’s 4% to 6% inflation objective. But, two-to-three-million people are entering the workforce every year so 6% GDP growth is not enough. Unemployment is at 9% to 10% and rising, and is probably under-stated because of under-employment, points out a Jakarta-based analyst.

A 1% fiscal deficit might increase to 2% because of oil and gas subsidies. Official estimates put the cost at Rp160 trillion ($18 billion) this year – more than 3% of GDP, but the figure is based on an unrealistic average oil price of $83. However, few expect the subsidies to be reduced ahead of the 2009 election.

Yet, the country head of a European bank in Jakarta reckons that too much is being made of the effect of high oil prices and subsidies on the budget deficit. He argues that as a counter-balance, Bank Indonesia is getting monetary policy right by not cutting interest rates in step with US Fed Reserve - all in order to cap inflation and prevent the erosion of purchasing power.

HSBC estimates that each $1 billion cut in the subsidy would add 1 to 1.5 percentage points to inflation. The bank forecasts an average inflation rate of 8.5% this year. And inflation is a concern.

Bucking the trend of appreciating Asian currencies, the rupiah depreciated by about 4% against the US dollar last year – despite a widening current account surplus and higher earnings from its own commodity prices – and the country is vulnerable to higher food prices. The currency continues to be largely driven by portfolio flows, so could be further susceptible to repatriation as investors reduce their exposure to riskier equity markets. Bank Indonesia might be forced to raise interest rates in the second half of the year in order to cap inflation, but is likely to be constrained by the global outlook.

Corruption is still a temptation

Increased government scrutiny of companies should be a good thing. But in Indonesia, says one Jakarta-based commentator, it is not about policing and improving corporate governance but rather to identify opportunities for graft. A concomitant of economic prosperity is a more profitable corporate sector – and some government officials and civil servants, at the national and provincial level, are looking for ways to seize assets for personal gain. But if a company goes public, he says, it can acquire a shareholder list containing powerful foreign names, making it harder for local officials to steal assets or demand backhanders.

But another Jakarta-based banker provides a reality check, pointing out that any of the companies that defaulted on their debts after 1998 were publicly quoted. It’s not that he’s cynical. He may be sceptical about listing as a graft-resisting tactic, but he reckons high-level corruption actually is much reduced, even if it’s rife at the low end.

For instance, Aburizal Bakrie, boss of the eponymous company and also coordinating minister for people’s welfare in President Susilo Bambang Yudhoyono’s cabinet, was not allowed to sell the subsidiary of his conglomerate responsible for the mud eruption in east Java last year. Efforts are being made to make people and companies accountable, and corruption is being tackled, if the daily Indonesian newspaper reports of on-going investigations are a true indication.

But solemn pronouncements against corruption are one thing, practice away from public examination is another. For instance, palm oil and other plantations are booming and they are lucrative cash businesses. A problem is that permits for plantations have been granted within protected forests – and then a recipient needs approval from the ministry of the environment before it can exploit it. But Indonesia is vast and many areas are hard to monitor, so illegal planting almost certainly takes place. Central and provincial governments also clash. For example, Golden Agriculture Resources Group, which is owned by the powerful Widjaya family, had a one-million-hectare concession in Papua but most of it was in protected area. Last year, the environment minister refused permission to plant in the area, but the local governor said yes, as long as felling jobs were given to locals.

Infrastructure needs priority

In 2005, the government drew up plans for $150 billion of investment in 91 infrastructure projects over the following five years. But none of them have been confirmed, although 10, including power plants and a trans-Java toll-road, have been prioritised. But, procrastination and delays mean slow progress, as does official policy. For example, the government won’t give full guarantees for power projects, but investors, including Chinese, insist on explicit guarantees.

Power capacity of 14,000 to 15,000 megawatt capacity is far too low, yet coal is being exported, rather than used to fuel domestic energy needs. Roads are not being built because single-house owners refuse to sell their land – and there is no provision for compulsory purchase orders.

Reform in other areas of the economy has also been less than impressive. Tax reforms have stalled (corporate taxes are among the highest in the region), as have proposed labour market changes, and laid off workers continue to receive up to nine-months severance pay.

Private investment in education is increasing, as the authorities recognise the need to improve human capital. By law, the government is required to spend 20% of its budget on education, but it has consistently missed that target.

Politics at play

President Yudhoyono is seen as clean but not tough or decisive enough by the population. He has powerful rivals both outside the government in Megawati Soekarnoputri, leader of Indonesian Democratic Party-Struggle (PDI-P), and within, as his vice president, Jusuf Kalla, leads the majority Golkar Party. Mulyani Indrawati, minister of finance and Mari Pangestu, minister of trade, are both widely respected for their integrity, skills and energetic attempts to push through reform and drive the economy forward.

The democratisation process that has evolved since the removal of former president Suharto in May 1998 is unlikely to be reversed. “The process has moved forward irreversibly,” says a Jakarta-based political commentator. But there are growing pains: regions and sub-regions insist on more local autonomy and money politics is an entrenched feature. And as the commentator adds, “the current generation of legislators are stuck in the past; but the younger generation will be better and have a greater understanding of accountability”.

This story is part of an Indonesia Report that was published in the April issue of FinanceAsia magazine.

Rio Tinto secures deal with govt on tax system for massive project

Ika Krismantari, The Jakarta Post, Jakarta | Tue, 04/29/2008 12:40 PM

Rio Tinto, the world's second largest mining company, announced Monday it reached an agreement with the government over a tax privilege for its planned US$1.5 billion nickel project in Sulawesi.

The tax facility would be given based on a combination of fixed and prevailing rates, the company said in a statement.

Rio Tinto president director Mike Jolley hailed the agreement, saying that it "would provide sufficient certainty for Rio Tinto to support the multi-billion dollar investment."

"The terms are comparable to the tax incentives provided to other industries, and to the development of large scale and high capital projects in remote areas in Indonesia," he said, although the company chose not to give details on the tax rate.

The head of a team representing the government in the negotiations, Bambang Setiawan, said he too had yet to learn of the rate details, but that the Finance Ministry had issued an official letter permitting Rio Tinto the privilege.

Chairman of the Investment Coordinating Board Muhammad Luthfi earlier said Rio Tinto would be granted a fixed-rate tax facility, also known as a nail-down tax system.

Under the fixed-rate system, a company is taxed based on rates which remain unchanged regardless of any amendments made to the tax system, while the widely used progressive system scales tax rates according to income, and are therefore subject to change.

The tax arrangement is among the company's list of items that need to be settled before it can obtain a "contract of work".

The London-based company previously settled on royalties to be paid to the government.

Under the deal, the government will get 1.5 percent of revenues from nickel-in-concentrate and 0.75 percent from refined metal.

The company's next focus would be resolving overlapping concessions with local companies, which are backed by local administrations that have issued smaller businesses mining licenses to operate on Rio Tinto's concessions.

"We have asked assistance from the government to resolve this matter. We hope that we can clear up all the problems," the firm's spokesperson Budi Irianto told the Post.

Rio Tinto plans to mine nickel in Morowali and Konawe regencies, located on the border between Central Sulawesi and Southeast Sulawesi with an initial production expected to reach 46,000 of nickel metal per year.

Numerous mining projects in the country have run aground due partly to legal uncertainties over the jurisdiction of local administrations to manage mining resources, a result of loopholes in existing laws and regulations.

More Indonesian businesses shun bribery, graft watchdog says

Abdul Khalik, The Jakarta Post, Jakarta | Fri, 04/25/2008 12:11 AM 

More domestic and foreign businesses have opted to operate without bribery in Indonesia, an international graft watchdog says.

Trace International, a non-profit business association working with companies to raise anti-bribery compliance standards, said companies now realized it was in their best interest to avoid paying bribes.

"Even if you win a deal by paying someone off, the company's reputation suffers, and you risk losing your job or possibly worse. Hence, the cost becomes very expensive. It's just bad business," Trace International president Alexandra Wrage told The Jakarta Post in an interview here recently.

Three years ago, she said, when the organization offered anti-corruption training to companies here, no one was interested, and the conference last year had to be canceled because less than 10 participants registered.

"This year, we had to close the registration early because the hotel can't accommodate any more participants. You see, the people that come to the conference are people who want to do business without bribery," Wrage said.

Wrage rejected a suggestion that companies which refused to bribe officials to win contracts would end up losing money to competitors.

She said companies willing to bribe officials were a small minority compared to clean firms.

Trace International works with 130 multinational companies and their 1,200 partners worldwide to campaign for business without bribery.

Wrage was in Jakarta to conduct business training and met with the Corruption Eradication Commission (KPK) to discuss a possible joint venture to combat corruption.

Another factor which pushes companies to avoid bribery is that people worldwide have become fed up with corruption and countries around the world have put pressure on businesspeople to shun corrupt practices, she said.

"Companies are afraid because their executives are going to prison in the U.S. and other countries. An executive sitting in America, for instance, can go to jail because an employee in Indonesia screws up," Wrage said.

The increasing awareness of the business sector, she said, is supported by an increasing number of officials who are tired of corruption.

"Within every government, including Indonesia, we find officials who say they've had enough, it's embarrassing. We want to become a sovereign country that can be proud of itself," Wrage said.

She cited KPK's recent arrests of high-ranking officials and lawmakers as an example of change within the government.

Ten years ago, Wrage found no optimism, because corruption was generally accepted as a fact of life in Indonesia, she said.

But now a great deal of optimism can be sensed among businesspeople and officials, which is a sign things are really beginning to improve in Indonesia, Wrage said.

SILVER JUBILEE

The Jakarta Post, Jakarta | Sat, 04/26/2008 12:43 PM  

SILVER JUBILEE

The Jakarta Post editor in chief Endy M. Bayuni (from left), marketing manager Yulia Herawati, Trade Minister Mari Elka Pangestu, Post President Director Jusuf Wanandi, Presidential Advisor Ali Alatas, Post Chief Commissioner Agung Adiprasetyo, Post director and former chief editor Sabam Siagian and Post Executive Director J. Daniel Rembeth cheer during a reception to commemorate the Post's 25th anniversary at the Ritz Carlton Hotel, Central Jakarta, on Friday night. (JP/J. Adiguna)

Inacraft eyes global buyers

The Jakarta Post, Thu, 04/24/2008 12:26 PM 

President Susilo Bambang Yudhoyono officially opened Wednesday the 10th Jakarta International Handicraft Trade Fair (Inacraft), the biggest annual handicraft expo in the country.

BUYERS WELCOME: (JP/J. Adiguna)

Inacraft, which is organized by the Indonesian Handicraft Producers and Exporters (ASEPHI), will run until April 27 at the Jakarta Convention Center. 

This year, the fair involves 1,700 domestic and foreign participants offering a wide range of handicrafts, including jewelry, textiles, accessories and traditional decorations. 

In 2007, Inacraft involved 1,650 participants generating Rp 67.14 billion in retail sales and $6.43 million in business contracts. 

Yudhoyono said the handicraft industry contributed Rp 105 trillion to gross domestic product (GDP) last year and created five million new jobs. Handicraft exports, valued at $620 million, grew by 19.5 percent on 2006. 

"Although export is important, don't focus only on exporting. Promote and offer the products to Indonesians who are able to buy them." 

He said the domestic market was still strong and would get stronger if people's purchasing power increased. 

The President also encouraged handicraft workers to keep increasing production and quality in line with increasing demand. -- JP/Novia D. Rulistia

R&D expo to strengthen business competition

Novia D. Rulistia, The Jakarta Post, Jakarta | Thu, 04/24/2008 12:26 AM

The Industry Ministry and the private sector will jointly organize the nation's first research and development expo next week to promote use of R&D in industry and strengthen competition.

Head of standardization at the ministry's R&D agency, M. Najib said Wednesday many R&D products developed by research agencies remained unused by industry due to poor marketing.

"The products of research and development usually stop at the laboratory. Many companies are reluctant to come to the laboratory. This exhibition will bring R&D and business closer together to help improve the industrial sector," he said.

He added improvement in research and better use of R&D would help improve national economic performance.

The expo, scheduled for April 29 to May 1, at the Jababeka industrial estate, will involve 56 participants from private and state companies, 26 R&D agencies and several universities.

Najib said the expo was expected to become a national gateway for small and medium enterprises to find the latest appropriate and affordable R&D products.

Jababeka's president director S.D. Darmono said most small enterprises did not have R&D capacity, so were less competitive.

Analysts say a lack of R&D incentives has contributed to the low quality of industrial products.

Last year, according the government, the allocation for R&D was only 0.04 percent of GDP, compared to almost 2 percent in Malaysia and Singapore.

Indonesia's annual spending on research averages some US$300 million, far behind China's $76 billion, or even Malaysia's $1.2 billion and Singapore's $2 billion.

"In developed countries, like Singapore, the government pays the whole cost of the R&D process if they want a product to be completed right away with good quality," Darmono said.

Regions to offer US$8 billion worth of projects in next investment forum

Novia D. Rulistia, The Jakarta Post, Jakarta | Fri, 04/25/2008 12:16 AM

More than 66 regencies have committed to offering a total of 200 projects worth US$6 to $8 billion to investors at next month's Indonesian Regional Investment Forum, says the forum organizer.

"The projects are mostly in the agribusiness, infrastructure, mining and tourism sectors, as we and the Regional Representatives Council (DPD) have agreed to focus on these sectors," Global Initiatives CFO Sydney Yeung said in an interview Thursday.

The total value of the projects submitted by the regencies has exceeded the minimum target of this year's forum at $6 billion.

"The event is still a month away, but we have identified at least 45 interested foreign investors which are suitable for the projects," Yeung said.

He said the interested investors were from investment banks, private equity funds and security firms from, among other places, the United States, the United Kingdom, China, Hong Kong and the United Arab Emirates.

The forum hopes to attract more than 500 investors, including at least 70 foreign investors, who will channel funds to provinces, cities and regencies.

The Indonesian Regional Investment Forum, the second of its kind, will take place May 26 and 27.

Each region hoping to take part in the forum must first present three or more feasible projects with a total investment need of at least $50 million.

Yeung said the organizer would monitor the progress of deals long after the conclusion of the forum, so as to measure the success of the event.

"Through this forum, we want to ensure that the money and the projects are real, by keeping an eye on the projects for at least 12 months after the forum ends," he said.

Yeung said that in addition to help stimulate regional economies, the forum would also promote regulations related to direct investment.

"The government should inform investors of the regulations in all the sectors that we're focusing on. The regulations need to be explained and updated, which areas investors can enter and which they can't," he said.

"It all needs to be clarified in order to protect investors and keep them investing here."

The Investment Coordinating Board said direct investment in the country rose by 86 percent in the first quarter of this year to $8.33 billion from $4.48 billion in the same period last year.

RI is "environmental superpower": US envoy

Jakarta (ANTARA News) - In observance of Earth Day, US Ambassador to Indonesia Cameron R. Hume has written an article titled "Indonesia: Environmental Superpower". Following is his article sent to ANTARA on Tuesday:

Anyone who happened to go by the U.S. Embassy over the past few days might have noticed changes. On Saturday, a group of Indonesian children helped put the finishing touches on seven different murals depicting some of the flora and fauna of Indonesia. I am proud to have their paintings displayed outside the Embassy, and glad to see that they are thinking of the environment at a young age. Today is Earth Day, and it is important to take stock of what we are doing to protect these children`s future environment.

Indonesia was a fitting host for the recent UN Climate Change Conference in Bali, in part because its rich biodiversity and natural resources are unsurpassed. Indonesia possesses the highest marine biodiversity on the planet, and one of the largest and most biodiverse tropical forests in the world.

Indonesia is an environmental "superpower," and a natural leader in global efforts to protect the environment. Yet the country faces tremendous challenges to ensure that the next generation will inherit these vast environmental riches. Indonesia is the world`s third largest emitter of greenhouse gases, due mainly to large-scale deforestation. Illegal logging is widespread. Energy needs and emissions from power generation and transportation are rising fast. The destruction of coral reefs, overfishing, and other unsustainable practices threaten the livelihoods and welfare of tens of millions of Indonesians who depend on the ocean`s resources, as well as irreparable damage to Indonesia`s unique ecosystems.

Indonesia is taking steps to face these challenges. President Susilo Bambang Yudhoyono and the Government of Indonesia are cracking down on illegal logging and taking action to improve forest governance. They are in the process of implementing a new timber legality standard that will constrict trade in illegally harvested timber.

They have launched a National Climate Change Action Plan and a National Action Plan for the Orangutan Protection. Recognizing the importance of coral reefs and threats to their sustainability due to climate change and unsustainable exploitation, President Yudhoyono also launched the regional Coral Triangle Initiative (CTI) during the Bali conference. Fittingly, 2008 is the International Year of the Reef.

Much work remains. Protecting our planet is a long-term, cooperative endeavor. The United States can be Indonesia`s "super-partner", and President Yudhoyono has invited increased U.S. environmental partnership. We already collaborate on anti-illegal logging activities, and support the Heart of Borneo Initiative to protect the forest habitat in Kalimantan. We work together to protect endangered orangutans. Our two governments are negotiating a large fund to conserve tropical forests, under the Tropical Forest Conservation Act. We already fund marine programs in Indonesia and the region, and have pledged initial support of over $4 million to the Coral Triangle Initiative.

Indonesia needs electricity to grow, but it should use clean-coal and renewable energy technologies to meet its rapidly increasing energy needs. Indonesia can retrofit existing "dirty" electricity-generating coal plants, build new, cleaner ones, and harness Indonesia`s potential 27,000 megawatt geothermal capacity. The Clean Technology Fund that President Bush announced last year, and which the United States is developing in cooperation with the World Bank, Japan, the United Kingdom, and other partners, has the potential to be an important tool in dealing with the clean energy challenge.

Working together, we can protect rainforests, conserve biodiversity, avoid the collapse of global fisheries, and combat climate change. The challenges are great, but our cooperation shows great promise for the future

On this Earth Day, let us remind ourselves that we are all connected. How Indonesia and the U.S. treat their forests and oceans will affect the rest of the world, and all of our children`s futures

.

Powering Asia's sleeping giant

By Lucy Williamson, BBC News, Jakarta 

South East Asia's largest economy is facing a big problem - how much longer can the state electricity company meet the country's growing demand for power? 

In February, the islands of Java and Bali - Indonesia's economic powerhouses - both suffered blackouts. 

The immediate cause, officials said, was bad weather, which meant coal supplies were stuck in ports. But the stoppages highlighted the national grid's inability to keep the lights on, even in the capital, in the face of any kind of hiccup. 

Indonesia's economy is growing at about 6.3% a year. Its demand for electricity is growing even faster. To cope with this, analysts say, the state electricity company PLN needs to add 1500-2000MW a year to its capacity - and it is currently falling far short. 

Fabby Tumiwa, of the Institute for Essential Services Reform, says the situation right now is stable as long as PLN maintains its operations reliably. 

"[But] if you look towards the horizon, you'll see more crises appearing," he says. 

"Even this year or next year, if PLN fails to optimise its maintenance and operations, there's a big possibility of power shortages in Java and Bali." 

Government guarantees? 

According to analysts, maintenance of the state electricity network is not good. 

Many power stations are running at 75% capacity - just under half the country is still without power, and there is already very little room to cope with extra demand from the half that is. 

PLN's spokesman, Ario Subijoko, says the company is struggling against financial constraints. 

"The cost of primary energy sources has increased time and time again, and the state budget gave us less subsidy than we needed, so we've had to lower the output." 

The country's energy minister does not dispute the rate at which demand is growing, or the need to build capacity to meet it. But he says the situation is not serious. 

"There is now a 30% reserve in Java and Bali," he explains. "We lease generators during a crisis, and we have a long-term plan to build 5000MW every year to meet the growth in demand." 

He says Indonesia is in the process of building plants that will produce another 10,000 MW. 

Private companies are meant to be building 10,000 more – which will almost double the country's current capacity. They are due for completion in 2009. 

But these plans have been on the table since the financial crisis hit here in 1997, and having been renegotiated in the years that followed, they're now falling behind schedule again. 

Part of the reason for the delay is that investors have been asking for government guarantees in case their investment goes sour. 

And that really goes to the heart of the problem. 

Indonesia's power sector is in many ways an unattractive one for investors. 

It is inefficient and unprofitable. Prices for the consumer are heavily subsidised by the government; subsidies which make up half PLN's revenue. 

Political risk 

James Booker is a coal-buyer for independent energy company Paiton Energy. He says Indonesia's electricity sector is far more financially challenged than its counterparts elsewhere in Asia. 

And tight purse strings do not help build a strong supply of fuel. 

In today's energy marketplace, where a ton of coal can fetch more than $75 (£37) on the global market, PLN is paying only about $35-40. 

And that is a problem, when high oil prices mean higher mining and transportation costs for producers. 

The solution, according to James Booker and others, is to do away with huge government subsidies on electricity and make the consumer pay the market rate for switching on a light, watching TV or powering a factory. 

This would free up some $650m from the government coffers to invest in renovating the national grid, making it more efficient, a better investment, and better able to pay coal and gas producers a competitive price. 

But doing away with subsidies is a politically risky move. A straw poll on the streets of Jakarta suggested that about 90% of people would not vote for a party that put up the price of power - and national elections are due next year. 

A similar scheme in 2006 that raised the price of oil by more than 100% caused widespread protests. 

So for now, Indonesia's growing economy is likely to keep putting pressure on a crumbling power system. But what effect does a crumbling power system have on the economy? 

Most major companies have their own power supply to turn to in emergencies. But even if business does not stop, the unpredictability and expense weigh against the benefits of investing or expanding here. 

James Castle has been working as a consultant to businesses in Indonesia for 30 years. He believes power insecurity is a "huge drag on the economy" and a significant obstacle to economic growth. 

"It affects not only investment decisions," he says. "It also raises operating costs, impedes the efficient operation of manufacturing businesses and causes excessive consumption of expensive, less environmentally friendly diesel." 

He estimates that an efficient power sector could probably add 0.5% to 1.0% to annual GDP growth. 

PLN's spokesman Ario Subijoko does not dispute that the country's electricity problems are holding up growth. 

"I think it's a logical consequence - energy affects economic growth," he says. 

"We'll try to speed things up but if the situation is difficult, there's not much we can do. If we were one of the rich countries it might not be a problem, but Indonesia?"

Indonesia president to be invited to G-8 summit in Hokkaido

New York (ANTARA News) - Indonesian President Susilo Bambang Yudhoyono will be invited to a G-8 summit in Hokkaido, Japan, in July this year to discuss the world food and energy crisis, Finance Minister Sri Mulyani Indrawati said here on Monday.

The Indonesian finance minister was telling the press about the outcome of her meeting with World Bank President Robert B Zoellick in Washington DC at which she also conveyed a letter from President Yudhoyono.

Sri Mulyani said the letter to Zoellick contained President Yudhoyono`s concern over the world food and oil crisis and his hope that the World Bank would take a global initiative to deal with the situation.

The minister also delivered a similar letter from Yudhoyono to UN Secretary General Ban Ki-moon at the UN Headquarters on Monday.

On the occasin, Sri Mulyani was accompanied by Indonesian Permanent Representative to the UN Marty Natalegawa and his deputy Adiyatwidi Adiwoso.

She said President Yudhoyono in his letter expressed hope that the United Nations would hold a meeting of heads of state/government to discuss the world food and energy crisis during the upcoming UN General Assembly session in September.

According to Sri Mulyani, Zoellick told her that Indonesia in the G-8 summit would have a good opportunity to raise problems related with the food and energy crisis.

"The World Bank president said President Yudhoyono will be invited to the G-8 meeting in Hokkaido to exchange ideas and discuss the matter with the other heads of state/government," Sri Mulyani said.

G-8 groups eight developed countries, namely the United States, Britain, Japan, Germany, Russia, Canada, France, and Italy. Their leaders meet annually with the president of the European Commission also attending.

City to cut red tape in foreign investment

Mustaqim Adamrah, The Jakarta Post, Jakarta | Thu, 04/10/2008 11:25 PM

The Jakarta administration and the private arm of the World Bank have joined forces to find ways to attract foreign investors to the city.

The International Finance Corporation (IFC) and the city administration signed an agreement Wednesday at the office of the Jakarta Bureau of Capital Investment and Regional Monetary Management.

The agreement secures for the administration the two-year appointment of an advisory assistant from the IFC to make recommendations on improving the city's business climate.

The IFC consultant will make recommendations on how to reduce the processes required for issuing business permits.

An IFC survey showed red tape in obtaining licenses discouraged foreign investors from doing business in the capital.

Because of conditions in Jakarta, Indonesia was ranked 123 out of 178 countries in the survey in terms of business climate.

"We hope with this assistance, investors will only have to wait 38 days to receive a permit -- considerably less than the 169 days it takes currently -- and will only have to process eight permit applications, more than halving the current number of 19," said bureau head Sukri Bey.

"Consequently, it will cost less for investors to register their businesses here."

IFC associate operations officer Farida Lasida Adji said the first step would be to conduct field studies to determine the actual time and money businesses spend for every permit required.

"Later, we'll work out which steps need to be eliminated to expedite business-related license applications and find ways to improve efficiencies," she said.

She said the IFC's assistance in Denpasar and Tabanan in Bali, and in Tulungagung in East Java, enabled the administrations to cut costs incurred processing business permits by 70 percent.

Sukri said he did not expect foreign investment to increase significantly this year, despite the two institutions' ultimate goal of attracting more investors through the bureaucratic reforms.

"We can only hope foreign investment this year will increase by 65 percent on the Rp 44 trillion posted last year," he said, adding that amount would not be sufficient to keep the city's economic growth at 6.3 percent.

He said it would require Rp 112 trillion (US$12.19 billion) in foreign investment alone to reach the growth rate this year.

The bureau is expecting 400 projects run by foreign investors this year, compared to 365 last year, he said.

Last year, the city's economy grew by 6.4 percent, with a total regional domestic output of Rp 332.7 trillion.

The administration initiated a single-window business registration system early this year in an attempt to lure foreign investors.

The system's effectiveness has yet to be proven.

IDB Chief meets Indonesian president`s special envoy

Jeddah (ANTARA News) - Dr. Ahmed Mohammed Ali, President of the Islamic Development Bank (IDB) received here last Wednesday Indonesian President`s Special Envoy for the Middle East Alwi Shihab.

The IDB President was briefed on the results of the conference on "Investment opportunities in Indonesia," organized by the Indonesian government last month in Dubai.

On the sidelines of the conference, five Memorandum of Understanding (MoU) between the Indonesian government and Gulf investors were signed.

The MoU were for the implementation of substantial projects development in Indonesia in the sectors of infrastructure, ports, railroads and palm oil refinery at a total cost of nearly $3 billion.

During the meeting, they discussed the possibility of the IDB`s contribution to these projects in general and discussed ways of enhancing the existing bilateral cooperation between Indonesia and IDB.

Indonesian sukuk law to attract Mid East investors

Financial Times.com, By John Aglionby in Jakarta, Tuesday Apr 8 2008 15:25

Indonesia's parliament is set to pass a bill on Islamic debt financing on Thursday that will open up a new and potentially lucrative funding source for both the government and companies in the world's most populous Muslim nation.

Analysts see the law as a rare piece of good news for Indonesia, which is battling a ballooning budget deficit and soaring inflation, as it will make the country more attractive to Middle Eastern investors, many of whom only use Islamic products.

Rakesh Bhatia, the head of HSBC in Indonesia, said the legislation, which has taken two years to complete, was "extremely positive".

"Internationally, there is plenty of money available in this area, so the law will give the government and the country access to additional capital," he said. "We're already in advanced talks with companies that are just waiting for the government to take the lead."

Sri Mulyani Indrawati, Indonesia's finance minister, told the Financial Times the government intends to issue up to $1.6bn in sukuk, or Islamic bonds, in the second half of this year, once the law's implementing regulations have been finalised.

This would account for about 16 per cent of the predicted budget deficit, which has ballooned by 27 per cent in the wake of soaring fuel subsidies and inflation.

Sukuk will enable the government to diversify from its traditional debt instruments, on which yields have risen by more than 200 basis points in the past few weeks as markets become increasingly nervous about the budget's stability.

Sukuk do not pay interest, generating returns through actual transactions such as profit sharing or leasing.

Ms Sri Mulyani said: "We'll consider both the domestic and international environments when deciding whether the sukuk will be institutional and mainly international, or domestic retail."

She said that, assuming the present economic growth patterns, Indonesian corporate sukuk issuance could reach $11bn in a few years, or more than three times the total 2007 corporate bond issuance.

"As the economy grows and the development of our own capital market and financial markets gets more advanced, I'm optimistic that Indonesia will be able to compete [as a global sukuk player]," she said. "The timeframe to improve the hard infrastructure, such as institutions, and soft infrastructure, like regulations, will be around five years."

Malaysia is the world's leading sukuk market, issuing about half of the $51.5bn issued last year - a 90 per cent increase on the $27.2bn issued globally in 2006.

Abiprayadi Riyanto, the head of Mandiri Investasi, doubted Indonesia would be able to compete with Malaysia "in the near future". "The Malaysian government's commitment to develop sukuk is so high, while in Indonesia there are so many bureaucratic hurdles," he said.

House approves Boediono as central bank governor

The Jakarta Post, Jakarta | Tue, 04/08/2008 11:55 AM 

As Indonesia faces accelerating inflation that may trim the country's expected economic growth, the House of Representatives' financial commission approved Monday chief economic minister Boediono as the nation's 13th central bank chief. 

The decision was made through a vote after the commission held "fit-and-proper" test to examine Boediono's vision and mission for leading Bank Indonesia (BI). 

Boediono, the coordinating minister for the economy, received votes from 45 of the 46 lawmakers attending the Commission XI selection panel, which previously rejected President Susilo Bambang Yudhoyono's two central bank governor candidates. 

The House is slated to confirm the appointment at a plenary session on Tuesday, or by April 10. 

Boediono will succeed Burhanuddin Abdullah, whose five-year term expires May 17. 

During the assessment session, the 65-year-old former Gadjah Mada University economics professor said he would improve BI's role as monetary stabilizer as well as fix the long-stalled communication with top government economic officials. 

"To achieve that, BI will have to mend its relations with the government, especially with authorities responsible for the distribution of goods and with regional institutions. 

"In terms of monetary and financial policies, the most urgent thing to do is finish drafting the bill on financial safety nets," said Boediono, a Wharton-trained economist who is known for his impeccable integrity and competence. 

The bill, he said, would provide the country with detailed procedures on how to make decisions relating to monetary, banking and fiscal matters during financial turmoil. 

The commission concluded Boediono's knowledge and blend of experiences while acting as finance minister during Megawati Soekarnoputri's administration from 2001-2004, deputy governor at Bank Indonesia from 1996-1998 and state minister for development planning, made him a suitable choice to strengthen cooperation and coordination in an environment of high inflation. 

His record, the commission said, would greatly help the integrity and credibility of the central bank, which has been beleaguered by several corruption cases with its outgoing Governor Burhanuddin Abdullah and two other senior executives recently declared corruption suspects. 

Presidential spokesman Andi Mallarangeng said the government was content with the House's acceptance of Boediono. 

"We have heard from the House that Pak Boediono was supported by some 45 House members. This is a good sign the President has proposed an appropriate figure for the position," Andi said. 

Regarding Boediono's replacement, Andi said the President was still undecided. 

Boediono was appointed the coordinating minister in December 2005, replacing Aburizal Bakrie who was deemed responsible for plunging the country into a minor economic crisis. (uwi)

Indonesia’s Economy to Ease in 2008, Edge up in 2009, Says ADB

Asian Development Bank

Jakarta, INDONESIA (2 April 2008) - The Indonesian economy will expand at a slower pace over the next two years, following its best growth rate since the Asian financial crisis in 2007, the Asian Development Bank (ADB) says in a key report.

ADB’s flagship annual economic publication, the Asian Development Outlook 2008 (ADO), released today, says Indonesia will grow at 6.0% this year, and then edge up to 6.2% in 2009, from 6.3% growth in 2007.

Growth will be driven mainly by private consumption, helped by the lagged effect of lower interest rates. Private investment is also likely to expand in response to the lower interest rates and an improving investment climate. This will by offset to some extent by a contraction in net exports. At the same time public sector investment growth and much needed development expenditures are also likely to remain constrained by increased outlays on subsidies.

Inflation is likely to pick up to 6.8% in 2008, from 6.4% in 2007, due to increased domestic demand and high global food prices before moderating to 6.5% in 2009 due to an easing of world food prices.

Export growth is expected to be more moderate in 2008 - 2009 due to weaker global demand and some easing of international commodity prices. Although around 50% of Indonesia’s non-oil and gas exports are destined for markets in Asia other than Japan, the slowdown in industrial countries will also indirectly hurt these exports since most are intermediate products that feed into final products that are then shipped to industrial markets. Import growth is, however, expected to remain robust owing to stronger domestic demand. These developments on the trade front are likely to be accompanied by larger deficits in the services and income accounts. As a result, the current account surplus will decline to 1.9% of GDP in 2008 and to 1.6% in 2009.

The ADO notes the Government has remained committed to its reform agenda aimed at improving the investment climate and public service delivery. While businesses still face a difficult legal and regulatory environment, in 2007 parliament passed the long awaited investment law and a tax administration law, and Government adopted a raft of measures to reduce the cost of doing business. The Government also launched a National Community Empowerment Program in 2007 to improve local governance and service delivery at the subdistrict and village level. A longer term challenge is to improve the environment for employment generation to reduce the vulnerability of the many Indonesians who live near the poverty line.

ADB, based in Manila, is dedicated to reducing poverty in the Asia and Pacific region through pro-poor sustainable economic growth, social development, and good governance. Established in 1966, it is owned by 67 members - 48 form the region. In 2007, it approved $10.1 billion of loans, $673 million of grant projects, and technical assistance amounting to $243 million.