Govt lays out tax incentives to help domestic industry

Alfian, The Jakarta Post 

To help bolster the competitiveness of domestic industries, the finance ministry has scrapped import duties on several raw materials for up to eleven industries, including shipbuilding and automotive components businesses. 

In a statement issued late last Friday, the ministry announced that the policy could have generated slightly more than Rp 1 trillion (US$106 million) in state revenue in the last three months of the year. 

"The incentive is given both to guarantee supply for domestic demand of consumer goods and to strengthen our real sector, in particular general and relevant industries," the ministry's head of public relations Samsuar Said said. 

Raw materials exempted from duty include those that are not produced domestically, or in insufficient volume. 

The eleven industries are: The airline, cruise, coal-fired power generator, shipbuilding, heavy equipment, automotive components, infuse, sorbitol, dairy processing, electronic components, and cold-rolled coil industries. 

Samsuar said the industries were chosen because their products were widely consumed domestically and because they employed large numbers of workers. 

The incentive is effective immediately and will be evaluated in three-months. 

The ministry has also scrapped a 10-percent tax on luxury goods for electronic products, in particular certain types of televisions, laundry machines and cameras. 

The policy applies to TVs smaller than 21 inches, washing machines with a capacity of between six and 10 kilograms of clothes and cameras priced below Rp 2 million. 

"All others are still subject to the tax, as the prices are still not affordable for most middle class consumers in the country," Samsuar said. 

Anggito Abimanyu, head of fiscal policy at the finance ministry, said the cut in luxury tax and import duties was aimed to "boost the real sector, reduce business costs." 

This is also expected to limit imports of unimportant goods, he added. "If producers can purchase domestic goods, they'd better buy domestic goods." 

Indonesian Chamber of Commerce and Industry vice chairman for manufacturing Rahmat Gobel said the business community appreciated the policies, which he said would help lower production costs and eventually selling prices. 

"Production costs will be cheaper and the producers will be able to boost their production. This will also help us eradicate illegally imported products," he said. 

Rahmat said he hoped the tax incentive would be extended to other widely used products in the country, such as air conditioning units and refrigerators.

Indonesia As the New India

This stable democracy with a hot market economy resembles another Asian giant in the 1990s.

By George Wehrfritz | NEWSWEEK, Published Oct 11, 2008 

Jakarta today could be any of Asia's 21st-century boomtowns. The malls buzz, traffic snarls and modern office towers dominate the skyline. It all feels profoundly normal—but that's big progress in a place that, barely ten years ago, seemed destined for ruin. Following the fall of longtime strongman Suharto, and with Indonesia reeling from the 1997-98 Asian financial crisis, many analysts feared that Asia's third-biggest country (population: 235 million) would go the way of Yugoslavia. Instead, it has become a cohesive, robust and exuberantly democratic moderate Muslim nation. Things are so buoyant that Indonesia invites comparison to another Asian giant: India. 

Both remain corrupt, chaotic and excruciatingly complex. Yet each is also an attractive emerging economy, and in India's case, a star of the developing world. Could Indonesia be next? Its economy grew by 6.3 percent last year, the main stock exchange ranks among the world's best performers since 2003 and last year foreign direct investment nearly tripled, to a respectable $4 billion. All of which resembles India in the 1990s, when reforms kick-started a potentially massive economy—though outsiders barely noticed until the IT sector took off and growth passed 8 percent. In Indonesia, the key sectors are energy, mining and soft commodities like rubber, palm oil and cocoa. And in an exclusive interview, President Susilo Bambang Yudhoyono says he sees no inherent reason why a big democracy like his can't grow as fast China, which has posted 10 percent growth rates in recent years. 

That would put Indonesia on a lot of magazine covers. In fact, the country already looks better than India in two ways: its per capita income ($3,348) is a third higher, and thanks to Jakarta's fiscal austerity, it now boasts one of the lowest debt ratios in the world. "After ten years of restructuring, Southeast Asia's largest economy is in great shape," says Nicholas Cashmore, CLSA's country head and chief researcher in Jakarta. 

Indonesia's political turnaround has been just as dramatic as its economic one. The president, known universally as SBY, is a former general who was elected in mid-2004 and has since become the country's most effective democratic leader. In four years, he has helped Indonesia roll up its terrorist problem and rebuild from the 2004 tsunami. Less appreciated (but more enduring), he has backed a profound political decentralization program, empowering hundreds of local administrations. Jakarta now rules by consensus, not decree. This has its downsides: it makes it impossible to railroad through big national development projects of the sort China is famous for. As SBY himself admits, "in many circumstances, we face local communities that don't agree with government projects, so we have to convince them. I do not think the system is wrong. In a democracy like ours, change, reform and resistance are normal." 

The country's largest parties now basically agree on economic policy and the need to reduce corruption, improve the rule of law and make government more efficient. Key democratic institutions—including a free press, impartial courts and a legislature chosen by voters—are remarkably robust, and the once all-powerful military has largely removed itself from politics. Meanwhile, regional autonomy has triggered economic booms at the periphery, in contrast to the typical Southeast Asian model. "From the U.S., the U.K. or even Hong Kong," writes Cashmore, "it is difficult to comprehend the magnitude of Indonesia's potential [or] appreciate just how much more there is to the country beyond Jakarta." By his calculation, greater Jakarta now accounts for just 15 percent of Indonesia's GDP, a relatively small share compared to other Asian capitals. 

Indonesia's accomplishments are all the more impressive when you remember how far and fast the country has come. The fall of Suharto's New Order (a highly centralized system that vested absolute power in the dictator and his cronies) 10 years ago was accompanied by a financial meltdown so severe that the IMF had to step in. Indonesia also faced fierce separatist insurgencies, Christian-Muslim violence and Islamic extremism underscored by the 2002 Bali bombing. The country seemed to be teetering on the brink of wholesale disintegration. Yet today, as Australian National University economist Andrew MacIntyre and the Asia Foundation's Douglas Ramage argued in a recent report, observers should start thinking of Indonesia "as a normal country grappling with challenges common to other large, middle-income, developing democracies—not unlike India, Mexico or Brazil."

 Read whole article ....

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President Yudhoyono asks people to maintain religious harmony

Indonesian economy doing well

The Straits Times

INDONESIA'S economy is 'doing quite well' despite global financial turmoil, with exports crossing US$100 billion (S$146.35 billion) and forex reserves at their highest, President Susilo Bambang Yudhoyono's spokesman said on Tuesday. 

Mr Dino Patti Djalal said economic growth is robust and the ratio of debt to the gross domestic product (GDP) has fallen to 35 per cent from as high as 80 per cent during the Asian financial crisis of 1997-1998. 

GDP is the value of all goods and services produced in the economy. 

'We are doing quite well. We are achieving the highest growth since the (1997-1998) crisis. Exports have exceeded 100 billion dollars,' he told a forum in Singapore organised by the International Institute for Strategic Studies - Asia. 

'Our reserves (are) the highest ever in our history.' 

Indonesia was among the economies hit hardest by the Asian financial crisis a decade ago, requiring a massive lifeline from the International Monetary Fund (IMF) to pull it back from bankruptcy and save the spiralling rupiah currency. 

The country has since rebounded, and the central bank said the economy was on track to grow at around 6.3 per cent in the third quarter despite global instability triggered by the collapse of the sub-prime, or higher-risk, mortgage market in the US beginning last year. 

Mr Yudhoyono on Monday assured there was no danger of a repeat of the Asian crisis. 

Indonesian shares plunged 10 per cent by the close of trade on Monday when the market reopened following a break last week after the fasting month of Ramadan. 

It was the market's biggest one-day percentage fall since 1998. 

Mr Djalal acknowledged that the Indonesian share market had not done well in the past few days but stressed that 'it has been doing very well in the past several years.' 

He said Indonesia's credit ratings are also at their highest since the Asian meltdown and recalled that the country has repaid its loan to the IMF four years ahead of schedule. 

While the economy is doing well, poverty and unemployment remain serious challenges, Mr Djalal said. -- AFP

President: Indonesia will not see repeat of 1997 crisis

The Jakarta Post 

President Susilo Bambang Yudhoyono said Indonesia would not see a repeat of the financial crisis of 1997, as all the fundamentals looked solid and there was clear potential for domestic market expansion. 

Yudhoyono said the U.S.-led global liquidity crisis would affect the country's economy, but urged market players not to panic and to react appropriately. 

Speaking to reporters after a special cabinet meeting on Monday at noon, Yudhoyono said his administration had come up with steps to mitigate impacts of the global liquidity crisis on the local economy. 

After 10 years of political and economic reforms, Indonesia's economy was back on track -- as shown by continuous economic expansion for the last eight quarters and a significant improvement in debt to GDP ratio, he said. 

Yudhoyono urged domestic and foreign business players to make the most of the positive momentum by further developing the domestic market amid the growing crisis, which he said would have a significant impact on demand for Indonesian products. 

"Let us exploit our domestic economy. We must expand our domestic market," he said. 

One of the key initiatives to boost domestic expansion, he said, would be to increase consumption of domestically produced raw materials and goods and to reduce dependency on imports, so as to maintain a healthy balance of payments. 

Yudhoyono said he would issue a special instruction demanding all government departments to focus their expenditure on growth-supporting sectors and to rely on domestic products. 

He also planned to issue an incentive-disincentive scheme to promote consumption of domestic products.

 

Minister: Tourism already restored in Indonesia

Denpasar (ANTARA News) - Indonesian Minister of Culture and Tourism Jero Wacik said here on Friday that tourism had been restored in Bali. 

"The number of tourists visiting Kuta Beach is proof that nationally the tourism sector has started improving," he said when visiting the beach and a number of hotels there. 

He said the number of visitors to Bali had doubled by more than 200 percent and therefore he was optimistic the government`s target of seven million visitors this year would be met. 

"With the increasing number of both domestic and foreign tourists to the paradise island I am optimistic the target will be met," he said. 

He said the improving condition had to be maintained and further improved by all components because this sector also sold an image. 

"The more the tourist arrivals, the better the welfare of the people, because the tourism sector is the moving factor of the people`s economy," he said. 

In view of that he said supporting factors such as security and environment, and cleanliness had to be improved and maintained. 

An Australian tourist, John Pieter, told him "I am glad I could bathe and surf in the Kuta beach that has white sand while the waves there are challenging."

RI economy to remain robust in third quarter

Aditya Suharmoko, The Jakarta Post 

The Indonesian economy is estimated to grow by more than 6 percent during the year's third quarter on the back of robust private consumption, investment and export, the Finance Ministry says. 

Private consumption, especially in consumer goods, between July and September "remained strong", the Finance Ministry head of fiscal policy, Anggito Abimanyu, said Wednesday. 

"Growth in consumer goods was relatively high. Exports were also on track although imports were relatively high," Anggito said. 

The Finance Ministry will provide an exact figure Monday, he said. 

Southeast Asia's biggest economy has seen car and motorcycle sales grow at the fastest pace since the 1997 Asian financial crisis, as commodity boom makes people living in plantation and mining areas wealthier. 

The number of motorcycle sales is often used to gauge the purchasing power of middle to lower-income people, while car sales gauge that of the middle to upper-income bracket. 

Cement consumption, also a standard of living indicator, remained resilient despite higher construction costs, showing 16 percent growth to 25.6 million tons in the first eight months of 2008 compared to the same period last year. 

During the first half of the year, the economy unexpectedly grew 6.4 percent due to strong exports, particularly commodities, according to the Central Statistics Agency (BPS). 

Analysts, however, warned that the decline in global oil prices might undermine export growth in the coming months and affect the country's economy in general because mining and agricultural commodity prices are tailing oil prices. 

Crude oil fell US$2.51, or 2.6 percent, Thursday to $96.02 per barrel in New York, while it was at $96.60 per barrel in London, Bloomberg reported. 

Oil has fallen 35 percent after reaching a record $147.27 in July because of fear the global financial crisis will spread through the economy, weakening energy demand. 

Analysts have predicted that the Indonesian economy will grow by slightly less than 6 percent by the year's end, below the government's expectation of 6.2 percent. 

BPS chairman Rusman Heriawan said the country's economy in the third quarter of 2008 was likely be a bit below the 6.4 percent growth recorded in the second quarter of the year. 

"During the fasting month (September), growth in trade sector was up," Rusman said. "However, inflation might soar too." 

Rusman said inflation in September might accelerate between 0.4 percent and 1 percent as demand jumped during the Islamic fasting month of Ramadhan and Idul Fitri holidays. 

The government has expected September inflation to reach below 0.8 percent as recorded in the same period last year. 

"If in the last three months (of 2008), the inflation is similar to that in September, the 11.4 percent inflation target could be achieved," he said. 

The government has worked hard to ensure inflation, as the main culprit undermining the economy, be kept below 11.4 percent. 

Between January and August, inflation reached 9.4 percent, BPS reported. Year-on-year inflation, meanwhile, stood at 11.85 percent. 

Higher inflation will prompt higher interest rates, leading to increased borrowing costs for the corporate sector wanting to expand or for new investors starting up new businesses. 

Rusman said the government should ensure food supply went accordingly if it wanted to maintain inflation according to its target.

RI economy can absorb impact of possible bailout failure, global fears

Aditya Suharmoko, The Jakarta Post

The government says the possible failure of the U.S. bailout bill may not pose a threat to Indonesia’s economic fundamentals, despite global fears that the United States, the world’s largest economy, may plunge into grave recession. 

Strong banking performance, robust commodity exports and less developed capital market products are cited as key reasons for optimism in keeping the country’s economic pillars sturdier than in the days of the late 1997 Asian financial crisis. 

Vice President Jusuf Kalla said Indonesia could well absorb the impact of the U.S. woes on the back of strong exports of commodities in high global demand, regardless of any shakeup in the global economy. 

“It’s impossible that the world does not need our commodities,” Kalla said Wednesday as quoted by Antara. 

“Regardless of the degree of the crisis in the U.S., the world still needs oil, coal, textiles and palm oil.” 

He added he believed China could be affected more severely because of its reliance on the export of manufacturing products, for which demand is likely to decline due to lower purchasing power in the U.S. and Europe. 

Non-oil and gas exports surged to US$54.38 billion in the first half of 2008, a year-on-year increase of 23.2 percent, thanks to higher worldwide commodity prices, data from the Central Statistics Agency (BPS) shows. 

These exports made up 77.19 percent of Indonesia’s $70.45 billion of total exports. 

Southeast Asia’s biggest economy is also a major exporter of tin, cocoa, coffee, nickel, copper, gold, rubber and vanilla. 

On Thursday, the U.S. Senate approved a $700 billion financial bailout bill, hoping to ease a deepening credit freeze and volatility on global stock markets spawned by the crisis on Wall Street, AFP reports. 

However, the decision to pass the bill remains with the House of Representatives, which on Monday rejected the bill. 

Indonesian Finance Minister Sri Mulyani Indrawati echoed Kalla’s optimism, saying the country’s banking sector was in a healthier state than it was prior to the Asian financial crisis. 

“Economic growth, as well as monetary and banking stability are relatively stronger since our recovery (from the crisis),” she said. 

Key indicators in the domestic banking sector reflect this outstanding performance. 

As of the first half of this year, accumulated gross nonperforming loans (NPL) of domestic banks stood at 4.1 percent, or around Rp 48.6 trillion ($5.28 billion), compared to 4.6 percent at the end of last year. 

The central bank requires an NPL for banks of below 5 percent. 

The capital adequacy ratio (CAR) of local banks stands at 16.4 percent as of June, or around Rp 870 trillion, much higher than the minimum limit of 8 percent. CAR is the capacity of a bank in terms of meeting liabilities and risks, such as credit and operational risks. 

Raden Pardede, chairman of the Indonesian Financial System Stability Forum, said the financial turmoil would not extend far into the Indonesian financial system because of the relative unavailability of complicated securities products in Indonesia. 

“Derivative products packaged similar to the U.S. subprime mortgages, now known as toxic assets, are not that developed here. We are grateful our financial institutions were not lured into issuing such products,” he said.

Indrawati sees bright future for sukuks

By Babu Das Augustine, Gulfnews, Banking Editor

Published: October 02, 2008, 00:07

Dubai: Indonesia's Finance Minister Sri Mulyani Indrawati is scheduled to attend an extraordinary gathering of Ministers of Finance of the Association of Southeast Asian Nations in Dubai on October 8.

Indonesia's minister of finance: she thinks Gulf markets will respond positively to sukuks despite a $10 billion drop in sales since early this year and an average price fall of 1.51 per cent. (Bloomberg News)

The Asean ministers and senior officials will discuss the economic outlook for their respective nations, the wider Asean bloc and the global economy as a whole at the Dubai gathering.

Ahead of the meetings, the minister answers Gulf News' questions on a range of topics related to Indonesian economy and its growing relations with the UAE and the Middle East region.

The minister also speaks about the impact of the current global financial turmoil on Southeast Asia's biggest economy.

Gulf News: An HSBC report recently reported that sukuks have witnessed a $10-billion drop in sales since early 2 008 and an average price fall of 1.51 per cent. Viewed against Indonesia's impending plans to sell dollar-denominated sukuk, how do you view the appetite for Islamic bonds in the Gulf markets next year?

Sri Mulyani Indrawati: We still believe that our plan to sell sukuk is relevant and will get positive responses from Gulf markets. Our skuk will attract the demands of Gulf's investors for several reasons:

The sukuk is fully guaranteed by the government; The government has a good track record in fulfilling bond obligations; many investors are waiting the issuance of sukuk; and Indonesia is the biggest Muslim country, and the Sukuk is a tool to enhance the brotherhood between investors in Gulf countries and Indonesia.

My optimism also relies on data released by Standard and Poor's on Sep-tember 9 suggesting that the Sukuk market will rise again.

In this regard, I think the liquidity in the Gulf is still abundant and requires secured investment instruments such as our sukuk.

Given the large infrastructure needs of the country, what are the government's plans to boost foreign investment in the sector? What are the incentives for investors from the Gulf?

The Indonesian government gives highest priority to investment in infrastructure since the investment will accelerate economic growth, support further industrial development, and improve the economic welfare of Indonesians by reducing unemployment and poverty. To accomplish this, the government is taking several actions such as promoting private sector participation through public private partnerships. In 2006, we offered 10 major infrastructure projects for public tender valued at more than $4.5 billion (Dh16.5 billion). The government has also stipulated several regulations to support the infrastructure programme. In addition, incentives have been proposed to enhance the acceleration of infrastructure deployment. The government has implemented a new government policy of sharing certain risks such as political risk, project performance risk and demand risk, and to approve direct government credit support for infrastructure projects.

We are also in the process of designing special Sukuk offerings for financing infrastructure projects. In the future, such offerings may become an alternative instrument for investors in the Gulf to invest in Indonesia.

How has the Indonesian economy performed in the wake of global credit crisis and the strains in international capital markets? What impact does this have on trade and investment flows with the GCC?

We are not immune to the global crisis, and therefore, we had revised our growth from 6.6 per cent to 6.2 per cent this year. Our capital market also faces a decrease in stock prices, but we see the decrease as the global tendency. We believe we can rebound with the increase of economic growth in 2009 since our economic and financial fundamentals are strong and transparent. Our domestic market demand is still the main engine for growth, and still requires additional investment and increase in trade. In addition, we are optimistic to maintain double digit investment figures this year which is expected to be close to what we achieved last year.

UAE-based investors and companies have recently expressed their interest in developing infrastructure as well as investing in real estate, urban and agricultural development projects in Asian markets. What steps are the Indonesian government taking to encourage investment from the UAE?

Indonesia sees investment from the Middle East as a priority since the investment will bring benefits for both sides. Government (central and local) together with the private sectors are actively promoting investment opportunities to Middle East countries. As shown in Doing Business 2009, Indonesia has reduced drastically the time to start up a new company. In addition, the government has established one stop service for managing the related permits and procedures.

To accelerate the process, President Yudhoyono appointed a special envoy for Middle East Countries for the purpose of enhancing the relationship between Indonesia and Middle East including UAE.

Indonesia currently has several outstanding projects with UAE. The The projects include: one with Emaar Properties; international tourism city in cooperation with the Ras Al Khaimah Investment Authority; railroads and a new jetty as an initial stage of development of the integrated sea port for coal transportation in Tanjung Api-Api, South Sumatra; and Dubai dry-dock project in Batam.

China highly respects Indonesia as friend : envoy

Beijing, (ANTARA News) - China`s government and people highly respect Indonesia as a friend in the past, today and in the future, Indonesian Ambassador to China Sudrajat said here on Tuesday. 

"China always pays special attention to and respects Indonesia as a good friend," Sudrajat said on the occasion of the 59th anniversary of the People`s Republic of China (PRC) which falls on October 1, 2008. 

Sudrajat said the commemoration of the PRC`s establishment this year would mark the stronger relations between China and Indonesia in various fields. 

He said Indonesia and China at present had very good bilateral relations in the political, economic, and social and cultural fields, especially after the signing of their Strategic Cooperation Agreement in 2005. 

Sudrajat said in the political field, the two countries had cooperation in legal affairs, information exchange, corruption eradication, defense and security, and even in inter-parliamentary and political party cooperation. 

"In the near future, a memorandum of understanding on extradition between the two countries is expected to be signed by ministerial-level officials," Sudrajat said. 

He said there was also economic progress as trade relations between the two countries had increased significantly as they had exceeded the predetermined target. 

Sudrajat said the two governments had set the target of their two-way trade in 2008 at US$20 billion whereas in 2007 their bilateral trade reached a total value of US$25 billion. 

He predicted t the total value of bilateral trade this year would reach US$28 billion so that the target of US$30 billion in 2010 was expected to be reached in 2009. 

About social and cultural relations, Sudrajat said art and cultural exchanges between the two countries at present were running very well through mutual tourist visits. 

He said Chinese tourists visiting Indonesia from year to year showed an significant increase and at the end of this year around 300,000 tourists from China were expected to visit Indonesia.

The decoupling debate

As America's economy struggles to stay aloft, the developing world is learning to spread its wings

From The Economist print edition, Mar 6th 2008 | HONG KONG

MANY nasty words begin with the letter D: death, disease, depression, debt (when you drown in it) and deflation. “Decoupling”, on the other hand, has a nicer ring to it, even if it is the source of a great deal of controversy. Economists continue to argue about whether or not emerging economies will follow America into recession. The most pessimistic claim that “it makes no sense to talk about decoupling in an era of globalisation”: economies have become more intertwined through trade and finance, which should make business cycles more synchronised, not less. The slide in emerging stockmarkets on Wall Street's coat-tails appears to endorse their view. Yet recent data suggest decoupling is no myth. Indeed, it may yet save the world economy.

Decoupling does not mean that an American recession will have no impact on developing countries. That would be daft. Such countries have become more integrated into the world economy (their exports have increased from just over 25% of their GDP in 1990 to almost 50% today). Sales to America will obviously weaken. The point is that their GDP-growth rates will slow by much less than in previous American downturns. Most enjoyed strong growth during the fourth quarter of last year, and some speeded up, even as America's economy ground to a virtual halt and its non-oil imports fell.

One reason is that while exports to America have stumbled, those to other emerging economies have surged (see chart 1). China's growth in exports to America slowed to only 5% (in dollar terms) in the year to January, but exports to Brazil, India and Russia were up by more than 60%, and those to oil exporters by 45%. Half of China's exports now go to other emerging economies. Likewise, South Korea's exports to the United States tumbled by 20% in the year to February, but its total exports rose by 20%, thanks to trade with other developing nations.

A second supporting factor is that in many emerging markets domestic consumption and investment quickened during 2007. Their consumer spending rose almost three times as fast as in the developed world. Investment seems to be holding up even better: according to HSBC, real capital spending rose by a staggering 17% in emerging economies last year, compared with only 1.2% in rich economies.

Sceptics argue that much of this investment, especially in China, is in the export sector and so will collapse as sales to America weaken. But less than 15% of China's investment is linked to exports. Over half is in infrastructure and property.

It is not just China that is building power plants, roads and railways; a large chunk of the Gulf's petrodollars are also being spent on gleaming skyscrapers and new airports—not to mention ski-domes in the desert. Mexico, Brazil and Russia have also launched big infrastructure projects that will take years to complete.

The four biggest emerging economies, which accounted for two-fifths of global GDP growth last year, are the least dependent on the United States: exports to America account for just 8% of China's GDP, 4% of India's, 3% of Brazil's and 1% of Russia's. Over 95% of China's growth of 11.2% in the year to the fourth quarter came from domestic demand. China's growth is widely expected to slow this year—it needs to, since even Wen Jiabao, the prime minister, warned this week of overheating—but to a still boisterous 9-10%.

Smaller economies in Asia look more vulnerable. For example, Malaysia's exports to America amount to 22% of its GDP, and they fell by 18% in the year to December. Yet its annual GDP growth jumped to 7.3% in the fourth quarter, thanks to consumer spending and a jump in government infrastructure investment.

Mexico's exports to America are an even larger 27% of its GDP. Real GDP growth held steady at 3.8% in the year to the fourth quarter, but manufacturing jobs are falling and workers' remittances from abroad are falling. Retail sales grew by only 1% in the year to December. Yet the economy is holding up better than during previous American downturns, partly because high oil revenues have enabled the government to increase investment by around 50% over the past year.

American downturns have often caused the prices of oil and other raw materials to slump, but this time China's surging demand is propping up prices and fuelling booms in Brazil, Russia and the Middle East. Brazil's exports jumped by 26% in the year to February. In turn, if prices stay strong, so will China's exports to commodity-producing countries. A sharp slowdown in China would hurt them more than an American recession will.

Act global, think local

A recent IMF study* by Cigdem Akin and Ayhan Kose offers some support for the idea that you can have both decoupling and globalisation at the same time. They divide 106 countries into three groups—developed, emerging, and low-income developing countries (which are less integrated into the world economy)—and then measure how the correlation between economies has changed over time as cross-border flows have expanded. They find that growth has indeed become more synchronised among developed economies and also among emerging economies. But, surprisingly, economic activity in emerging economies has diverged (or decoupled) from that of developed economies over the past two decades. The impact of rich economies on emerging economies' growth has fallen sharply.

The popular argument is that business cycles should become more synchronised because in a globalised world everyone is in the same boat. But this rests on an out-dated impression that poor countries mainly export to rich ones. Instead, emerging economies' trade with each other has risen faster and now accounts for over half of their total exports. Emerging markets as a group now export more to China than to the United States (see chart 2).

Some contend that this mainly reflects imports of intermediate goods into China for assembly; the finished goods are then exported to America and so will be hurt by slower growth. There is some truth to this. However, an analysis by BCA Research, a financial research firm, finds that Asian exports to China are increasingly driven by China's own domestic demand. A growing share of emerging economies' exports are also commodities sold to China.

Another reason why globalisation and decoupling can co-exist is that opening up economies has not only boosted poor countries' trade, it has also spurred their productivity growth and hence domestic incomes and spending. In 2007 emerging economies' real domestic demand grew by an average of 8%, almost four times as fast as in the developed world.

A severe recession in America could still have a nasty impact on the developing world if commodity prices collapsed and if it caused stockmarkets to fall more steeply, depressing global consumer and business confidence. A sharper fall in the dollar could also further squeeze emerging economies' exports.

But for perhaps the first time ever, developing countries would be able to make full use of monetary and fiscal policy to cushion their economies. In the past, when they were net foreign borrowers, capital inflows tended to dry up during global downturns as foreign investors shunned risky assets. This forced governments to raise interest rates and tighten fiscal policy. Economies with large external deficits, such as South Africa, Turkey and Hungary, are still vulnerable. But most emerging economies now have a current-account surplus and large foreign reserves; many have a budget surplus or are close to balance, leaving ample room for a fiscal stimulus if necessary.

Perhaps the best support for decoupling comes from America itself. Fourth-quarter profits of big companies, such as Coca-Cola, IBM and DuPont, were better than expected as strong sales growth in emerging markets offset a sharp slowdown at home. In other words, bits of American business are rising above their own economy. With luck, the world economy can rise above America's.

*"Changing Nature of North-South Linkages: Stylized Facts and Explanations", IMF Working Paper WP/07/280.

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Govt to help empower micro, small businesses

Wahyoe Boediwardhana, The Jakarta Post

Indonesia is working toward initiating a new program to empower micro and small businesses, earmarking up to Rp 381 billion (around US$40.4 million) to finance the project.

State Minister for Cooperatives and Small and Medium Enterprises Suryadharma Ali said in Surabaya recently that the program was subject to approval by the Finance Ministry and would be used to help more than 2,000 businesses across Indonesia. Suryadharma's ministry would oversee the initiative.

"The fund is to help them to get over hurdles that SMEs face in getting sources of capital," Suryadharma said.

"As you know, their biggest obstacle is access to finance."

The ministry's data shows that less than 5 percent of more than 40 million micro, small and medium enterprises in Indonesia did not have secure access to bank lending, making it harder for them to compete with their bigger rivals.

The fund would target 2,038 creditors nationwide, with the management and supervision to be handled by the ministry's Revolving Fund Management Agency (LPDB).

LPDB director LPDB Fadjar Sofyan said he was upbeat about the program, "because there would be a verification from the receiving parties about their usage of funds".

"There would be no excuses for unreported funds," Fadjar said.

"If the funds are used, the businesses will need to report what they were used for. Unused funds that are not returned and can not be verified would be categorized as a state loss due to corruption."

SBY to meet with UN chief, other leaders in Hokkaido

The Jakarta Post

Antara, Tokyo | Mon, 07/07/2008 7:33 PM

UN Secretary General Ban Ki-moon and a number of state and international organization leaders plan to have private meetings with President Susilo Bambang Yudhoyono on the sidelines of the G-8 Summit in Japan this week.

A spokesman of the Indonesian Embassy in Tokyo, Ronny Yuliantoro, on Monday said the UN chief, World Bank President Robert Zoellick, Mexican President Felipe Calderon Hinojosa, and

Indian Prime Minister Manmohan Singh planned to meet the President.

"South Korean President Lee Myung-Bak and Australian Prime Minister Kevin Rudd also want to have a tete-a-tete with President Yudhoyono," Ronny Yuliantoro said, adding that the private meetings were being arranged in adjustment with Yudhoyono's tight agenda during the G-8 Summit.

President Yudhoyono is expected to arrive in Japan on Tuesday after attending a D-8 group of developing nations summit in Kuala Lumpur, Malaysia.

With the soaring oil and food prices and climate change set to dominate the summit which was opened on Japan's scenic island of Hokkaido on Monday, President Yudhoyono is expected to use the opportunity to push forward the Bali road map on the climate change issue.

The three-day summit from July 7-9 of the leaders of the G8 -- Britain, Canada, France, Germany, Japan, Italy, Russia and the United States this year, will be joined by the leaders of 15 other countries including Indonesia, China, India, Brazil, South Korea, Australia and Mexico.

Stock market weathering financial storm, needs more quality firms

The Jakarta Post, Jakarta | Fri, 07/04/2008 11:08 AM

Indonesia's capital market has coped well amid a global financial storm thanks to its natural resources, but the country lacks quality companies to invest in, economists say.

"Indonesia is actually doing better than stock markets in many other countries at the moment, although it is down compared to last year's results," Tim Leissner, co-president of Goldman Sachs, said in a discussion organized by the Indonesian Young Entrepreneur Association in Jakarta on Thursday.

He said Indonesia was able to rely on its natural resources amid a period of deflationary pressure from a suffering housing market and lower consumption in the US, and inflationary pressure from higher commodity and energy prices.

The Indonesia Stock Exchange (IDX) composite index fell 91.86 points, or 3.9 percent, to 2,286.61 on Friday from a day earlier.

According to Bloomberg, the index has declined 19 percent since its Jan. 9 2008 record high.

The near-20 percent drop signals the beginning of a bear market, similar to that experienced since Tuesday by the Dow Jones Industrial Average.

The U.K.'s FTSE 100 Index briefly slipped into a bear market Thursday.

Despite its resilience, the IDX lacks quality resource and energy producing companies, Leissner said.

However, Indonesia has benefited from economic positives, including an increasing number of strategic investments, increasing income and a relatively stable political environment.

"Political stability is very important for the investment environment. If you want to attract foreign capital flow, you have to create an environment that welcomes capital because capital today can go anywhere in the world," he said.

Leissner said ASEAN countries should team up to consolidate their capital markets and build a league that serves as a one-stop market to offer more choices and easier access for foreign investors.

Also speaking at the discussion, Goldman Sachs managing director Christopher Eoyang said controlling inflation was key to maintaining foreign investor confidence.

Investors from developed countries, he said, were worried policy makers would not be able to curb rising inflation in emerging countries.

"The aggressive examples are Vietnam, Pakistan, Venezuela and Turkey, which have received aggressive investment, but are not doing very well. So the large funds around the world say 'I have four examples where they do not work out, maybe I should be more prudent'."

"Investment bankers are recapitalizing their funds and transferring them to other Europe state areas. For the foreseeable future, relative to previous years, investment conducted by developed countries in emerging market will be lower."

Oeyang said investors would still invest in emerging markets because of the higher yield growth but at a lesser speed.

"I think people will take a step back."(mri)

Indonesia to host Asia-Pacific anti-money laundering meeting

Jakarta (ANTARA News) - Indonesia will host the 11th annual meeting and 7th annual technical assistance and training forum of the Asia Pacific Group (APG) on Money Laundering on July 7-11.

"The meeting will take place at the Bali International Convention Center, Westin Hotel in Bali, Indonesia," spokesman of the Center for Financial Transaction Reporting and Analysis (PPATK) Natsir Kongah said on Friday.

He said more than 260 officials of financial intelligence units (FIU) from APG member countries and 19 international organizations as well as 6 observers from Asia and the Pacific would take part in the Bali meeting.

They would discuss a wide range of crucial issues related to money laundering and terrorism funding offences, he said.

Indonesia scraps proposal to limit takeovers to 80%

Gulf Times, Sunday, 29 June, 2008, 01:45 AM Doha Time

JAKARTA: Indonesia’s capital markets regulator will allow investors to buy all the shares of a company during a mandatory general offer, scrapping a proposal to limit purchases to 80%.

Under the new proposal, investors will have to sell a 20% stake in the takeover target to the public at a later date, Ahmad Fuad Rahmany, chairman of the Capital Market and Financial Institutions Supervisory Agency, said.

The regulator raised the threshold that will trigger a mandatory offer to 50% from 25%, Rahmany said. The new rules would allow Qatar Telecom to abandon its general offer for PT Indosat, Indonesia’s second-largest phone company.

“Qatar Telecom is not obligated to do a tender offer,” Rahmany said in a mobile-phone text message on Friday.

On June 7, Qtel agreed to pay $1.76bn to buy a 40.8% stake in Indosat. The Doha- based company said on Friday it would complete a general offer in 30 days, at a price of 7,388 rupiah a share.

“If they voluntarily want to buy public shares, then they might be limited by other regulations,” Rahmany said.

Under government rules, an overseas investor is limited to a 65% stake in an Indonesian mobile-phone operator and a 49% stake in a fixed-line phone company. Indosat made 77% of its sales from its mobile-phone units.

Malayan Banking, Malaysia’s biggest bank that’s buying 56% of PT Bank Internasional Indonesia, may have to offer to buy all the shares of the Indonesian bank. Bank Internasional’s shares rose 5.8% to 460 rupiah at the Jakarta close, a two-week high.

Still, investors said the requirement to ensure 20% of the stock is owned by the public at a later date may deter some companies from purchasing rivals.

“Selling shares at a later stage can be problematic because share prices may decline over time,” said Finny Fauzana, who helps manage about $347mn in assets at PT PNM Investment Management in Jakarta. “That’s bad for the company making the acquisition.” – Bloomberg

RI among Asia-Pacific's top expansion destinations

The Jakarta Post, Jakarta | Thu, 06/26/2008 10:39 AM

Indonesia remains attractive to expansion-minded multi-national firms despite global fallout from the U.S.' sub-prime crisis, a survey reveals.

According to a report by global real estate management firm Jones Lang LaSalle, of 15 nations surveyed in the Asia-Pacific region, Indonesia ranks sixth in a list of top destinations for business expansions -- ahead of Malaysia, Australia, Cambodia, Japan, Korea, Thailand and Hong Kong.

China topped the list, followed by India, Vietnam, the Philippines and Singapore.

Eighty-three percent of the multi-nationals said they would increase or maintain their current growth rates in the region, while 28 percent accelerated the growth of their operations in the region in this year's second quarter, the report shows. 

The survey company's CEO for regional business lines and corporate solutions John Forrest said emerging markets in Asia were the world's bright spots for growth at the moment. 

Asian countries were less affected by the sub-prime turmoil, with the property sector remaining bright, he said. 

"We're still seeing strong demand for space. However, an uncertain economic environment is forcing corporations to find smarter ways to manage their growth," Forrest said. 

Demands for commercial office spaces in Jakarta's commercial business district continued to grow, with the occupancy rate in the first quarter of this year rising 24 percent, the report shows. 

The growth was due mostly to tenant expansions, the company said. 

New office buildings in Sudirman and Kuningan in South Jakarta accounted for the bulk of leasing activity, mainly involving banking, oil-and-gas and services companies. 

Jones Lang LaSalle surveyed 30 senior corporate real-estate executives from leading multi-nationals in Asia-Pacific in the second quarter of this year. 

The survey covered three sectors -- financial services, technology and consumer goods. 

Among the three, the financial services sector was predicted to be the most aggressive this year based on data showing that 44 percent of the companies added growth plans in the first quarter of this year, and 33 percent predicted higher growth by the end of this year. 

The consumer goods sector, on the other hand, showed mixed responses, with one third of the companies saying they would expand their growth plans, another third saying they would downsize their businesses and the rest expecting to maintain their current expansion rates. 

Companies in this sector will likely look to initiate operations in the region to take advantage of promising new markets or shift current operations within it to search for lower-cost destinations. (dia)

RI ranks high in attracting trade

The Jakarta Post, Jakarta | Fri, 06/20/2008 10:34 AM

Indonesia is good at attracting international trade with its relatively competitive tariff barriers, but our border controls and distribution channels create major obstacles, a report says.

The Enabling Trade Index in the 2008 Global Trade Report published Wednesday by the World Economic Forum compares 118 countries' openness and international trade capabilities.

Overall, Indonesia ranked 47th among the 118 countries. Hong Kong topped the list, followed by Singapore, Sweden, Norway and Canada. Malaysia ranked 29th, China 48, Thailand 52 and Vietnam 91. 

The index sums up countries' market access, border administration, transport and communications infrastructure, and business environments. 

Indonesia's trade has been well supported by regulatory openness and a competitive business environment, but has been stalled by poor infrastructure and difficult processes at its borders. 

The country's trade policies allow relatively open market access for foreign goods. Indonesia has low non-tariff barriers and moderate tariff barriers. It is cheap to import, although goods may be held up with customs and domestic transport problems, meaning there are more procedural steps to clear along the way. 

In terms of trade policies, Indonesia was ranked in the top 22 countries, ahead of Britain, Australia, Italy, Singapore, and Malaysia. 

The index also showed a very good regulatory environment including the ease of hiring foreign labor, ease of foreign ownership, and regulations encouraging foreign investment. Indonesia was ranked 34th in this category. 

On top of that, Indonesia has competitive liners connectivity, perhaps due to its location, competitive shipping costs and logistics companies. 

However, as soon as the goods arrive in Indonesia, they are welcomed with inefficient customs administration, irregular payments and corruption at the border. 

According to the Indonesian Chamber of Commerce and Industry (Kadin), exporters and importers must set aside between 5 and 15 percent in additional costs to cover bureaucracy at the customs office. 

The challenges bubble up as distribution is held up by low quality roads, ports and airports -- all of which are ranked among the bottom 20. 

As of March, Jakarta's traffic management center recorded 120 sites where roads were damaged in Jakarta, causing traffic congestion and putting road users at risk. 

In infrastructure, Indonesia scored much lower than Malaysia, China, Thailand and India, although it was comparable to Vietnam. Indonesia came in at 74th in transport and communications infrastructure, and 63rd in the border administration section. 

"Transportation costs have often been more important than trade barriers in inhibiting trade. These costs are not simply a factor of distance, but also the quality of the infrastructure," the report says. 

Of Indonesia's 350,000 km of roads, around 6 percent (21,000 km) are damaged, the Public Works Ministry reported last month. This was an improvement from 10 percent in 2005. (mri)