TEI falls short of expectations

Mustaqim Adamrah, The Jakarta Post, Jakarta 

The recent 23rd Trade Expo Indonesia (TEI) recorded a total of US$214.17 million in transactions, a slight rise from the $208.26 million recorded at last year's event. 

But despite the increase, the figure was less than projected. 

"The bad news is we missed the target of $220 million because global demand is declining," Trade Minister Mari Elka Pangestu said. 

"But the good news is we were still able to record growth." 

Mari said a slowdown in Indonesia's "traditional markets", such as the United States and members of the European Union, partly contributed to the shortfall. 

For example, the value of transactions with Spanish businesses sharply declined from $23.91 million in 2007 to $2.07 million. 

Orders from Australian businesses also were down dramatically, from $13.71 million to $2.24 million. 

Orders from Japanese businesses fell from $11.26 million last year to $6.49 million, while transactions from Taiwan dropped from $9.88 million to $5.2 million. 

Despite missing the target, the TEI did manage to attract buyers from new markets, Mari said. 

Orders from new players accounted for $148 million of the total, including orders from Egypt ($28.47 million), Bulgaria ($12.25 million), Saudi Arabia ($6.26 million), Sudan ($4.65 million), Nigeria ($4.33 million), Pakistan ($4.32 million), Ukraine ($4.28 million), South Africa ($3.16 million) and Brazil ($3.14 million). 

"We'll now focus on emerging markets, like China and India, as well as on new markets, such as Turkey, Egypt, Iraq, Iran, Uzbekistan, Ukraine, Kazakhtan and Russia," Mari said. 

Indonesia is also trying to benefit from an expected drop in China's share of the international market as it is "losing its competitiveness in the manufacturing sector with the strengthening of the yuan against the U.S. dollar".

Govt to provide tax incentives to help shore up real sector

Aditya Suharmoko and Mustaqim Adamrah, The Jakarta Post, Jakarta  

The government will provide tax incentives of Rp 12.5 trillion (US$1.13 billion) next year to help the real sector brace for the impact of the global financial crisis, the Finance Ministry announced Friday. 

The incentives will take the form of waived income tax and value-added tax for industry, worth up to Rp 10 trillion, and import duty and import tax, worth Rp 2.5 trillion, said Anggito Abimanyu, the ministry's head of fiscal policy. 

The waived payments would be covered by the Finance Ministry so as not to reduce the government's revenue target. 

"We'll continue overseeing the development (of the real sector). But we can accelerate the execution (of the incentives), which only requires Finance Ministry regulations," he said at a press briefing. 

Anggito said the incentives would be enjoyed by companies in the food, energy and selected sectors. He did not elaborate on the selected sectors. 

"(The incentives) are aimed at reducing the costs of businesses or small and medium enterprises. We have already set aside the money without having to reduce revenues," he said. 

The incentives were included in the 2009 state budget, approved Thursday by the House of Representatives. The budget gives the government enough room to adjust to the impact of the global financial turmoil. 

A downturn in the real sector could trigger mass unemployment, and consequently less consumer spending, on which the Indonesian economy relies heavily. 

Consumer spending makes up about 65 to 70 percent of the country's GDP. 

The Finance Ministry is targeting economic growth of 6 percent in 2009. It expects the poverty rate to drop to between 12 and 14 percent and unemployment to between 7 and 8 percent. 

M.S. Hidayat, chairman of the Indonesian Chamber of Commerce and Industry (Kadin), said the ministry should have a clear target to maximize the incentives. 

"The fund should be spent to support export-oriented small and medium enterprises that have the potential to grow amid the global crisis," he told The Jakarta Post. 

Among these enterprises are those producing handicrafts, batik, rattan and songket (gold- or silver-woven fabrics), he said. 

"Other sectors that may need part of the fund are industries in dire need of liquidity but facing difficulty getting it because banks are reluctant to give loans," Hidayat said. 

These would be labor-intensive industries, he went on, such as the textile and footwear industries. 

Edy Putra Irawady, deputy minister of trade and industry at the Office of the Coordinating Minister for the Economy, said "The most important thing is that such industries support our economic growth and are export-orientated."

Government mandates gradual phase-in of biofuel for industries

Alfian, The Jakarta Post, Jakarta ,  Sat, 09/27/2008

The government has issued a regulation mandating the use of biofuel by manufacturers, commercial business, fuel retailers and power plant operators.    

"The first three months will be a transition period. It will be fully effective as of January 1st, 2009," Purnomo said, adding the transition period was meant to provide time for relevant sectors to adjust. 

According to the regulation, three types of biofuels will gradually replace traditional counterparts: biodiesel, bioethanol and pure palm oil. 

Biodiesel, made from castor and crude palm oil, is expected to gradually replace diesel fuel. The country's annual biodiesel production currently stands at 2 million kiloliters and is expected to grow to 5 million by 2010. 

Biodiesel will be mandatory for fuel retailers, manufacturers, commercials business and power plants. 

For the first three months, at least 0.1 percent of power plant operators' total fuel consumption must be from biodiesel. For manufacturers and commercial businesses, the minimum requirement will be 2.5 percent. 

In addition, fuel retailers will have to devote at least 1 percent of total sale volume to biodiesel. 

Under the terms of the regulation, gasoline will gradually be replaced by bioethanol, made from cassava, sugarcane and sweet sorghum. The country's annual bioethanol production capacity stands at 192,349 kiloliters a year, with expectations it will rise to 4 million kiloliters by 2010. 

Bioethanol will be mandatory for fuel retailers, manufacturers, and commercial business, starting in January. 

The mandatory bioethanol percentages for fuel retailers are one percent of total sales volume for subsidized fuels and five percent for non-subsidized fuels. 

The minimum requirement for manufacturers and commercial businesses is five percent. 

Kerosene and fuel oil used by manufacturers and power plant operators running low and medium speed engines will be replaced by pure palm oil under the regulation, directorate general for oil and gas at the energy ministry Evita H. Legowo said. 

The three types of biofuel will not be difficult to supply as all biofuel producers should be able to produce them, she added, explaining that the mandatory percentages for biofuels will increase over time. 

"Our goal is to have biofuel contribute 5 percent of the national energy portfolio by 2025." 

The government will provide incentives, including a reduction in the value added tax, for those who develop biofuels, she added. 

Companies that violate the mandate risk punishments ranging from reprimands to a cancellation of business licenses.

Businesses give mixed reaction as provinces raise minimum wages

Tifa Asrianti, The Jakarta Post, Jakarta 

Several provinces have announced a significant rise in workers’ minimum wage, but the amount of the increase is facing opposition from certain business groups. 

Workers in Jakarta will get a 10 percent increase in the minimum wage, from the current Rp 972,604 (US$89.22) to Rp 1,069,865 next year. 

Jakarta Governor Fauzi Bowo said Friday the raise had been agreed to by wage councils, labor unions and business associations. 

“We understand that a raise in the minimum wage is necessary, but we also need to maintain the sustainability of the employment provided by businesses. The raise is a compromise,” Fauzi said. 

He added the global financial crisis had caused several businesses to cut production or even close down due to declining export orders. 

“We hope the new minimum wage will prevent layoffs,” he said. 

The Jakarta administration has gradually increased the provincial minimum wage, from Rp 711,843 in 2005 to Rp 819,100 in 2006, Rp 900,560 in 2007 and Rp 972,604 this year. 

The West Java administration will raise its minimum wage for 2009 by 10.56 percent, from Rp 568,193 to Rp 628,191. 

West Java Governor Ahmad Heryawan said incentives would be offered to businesses affected by the global downturn, through the search for new export and domestic markets. 

Some 700,000 West Java residents are employed in 248 textile factories, with 500 to 35,000 workers at each factory. 

While provinces in Java raised their minimum wages by about 10 percent, workers in Riau are struggling to top the 6.5 percent raise — in line with national growth — that the manpower, home affairs, and trade and industry ministries have allowed businesses to give. 

The minimum wage in Riau is Rp 800,000 this year. 

There has been mixed response from industry to the wage hike. 

Sofian Pane of the Jakarta Chamber of Commerce and Industry said that during a discussion held two weeks ago, businessmen had proposed an increase of 6 percent, or in line with Jakarta’s growth rate. 

“However, we support the final figure of 10 percent. We will ask our colleagues to accept it too,” he said. 

Ade Sudrajat, chairman of the Indonesian Textile Association, said the wage hike failed to address the global economic slowdown. 

“We will intervene at municipal and regency level to implement a lower wage than that decided on,” he said. 

Yuli Tri Suwarni and Rizal Harahap contribute to this article from Bandung and Pekanbaru. 

 

Asia urged to deepen economic integration

The Jakarta Post,  

Export-dependent Asia should hasten regional economic integration to bolster trade and keep a crucial engine of growth running as it braces for fallout from the global financial crisis, officials and experts at an international trade forum urged Thursday. 

Many of the region's nations have pursued export-led industrialization and growth to quickly lift living standards but are now facing a prolonged slowdown as demand from Europe and the US wanes as the credit crunch morphs into an economic meltdown. 

Dozens of free trade agreements are being pursued in Asia but these should be unified under a regional umbrella to avoid overlapping pacts and to reap maximum benefit, experts at the forum said. 

"In the current economic situation, the threat of much slower global trade appears to be real. It is important to convince the world that expanding trade through economic integration is one of the ways to restore global economic growth," said Malaysia's Trade Minister Muhyiddin Yassin. 

More than 70 free trade agreements have been concluded by the ten-member Association of Southeast Asian Nations along with China, South Korea and Japan, with another 70 or more still being negotiated, he said. 

ASEAN's members are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. 

But regional or multilateral pacts are preferred in order to maximize trade, minimize distortions and to relieve the administrative burden on smaller developing countries that have limited resources, Muhyiddin said. 

Trade between ASEAN nations has grown from $82 billion in 1993 to $404 billion last year, representing an average annual growth of 12 percent and accounting for a quarter of the grouping's total trade, he said. 

Nagesh Kumar, director-general of the Research and Information System for Developing Countries think-tank in India, said Asia must seek to boost trade within the region to reduce reliance on Western countries as demand slows and exports dwindle amid the global economic meltdown. 

"To make up for the losses, Asia needs to find new sources of demand. Regional economic integration is the real option to pursue now with more vigor to enable it to overcome this crisis," he told The Associated Press on the sidelines of the forum. 

ASEAN countries have set a 2015 deadline to turn into a European Union-style economic community in which goods, services, investments and skilled labor will flow freely. 

At the same time, ASEAN and three major Asian economies - China, Japan and South Korea - are studying a wider proposed East Asian free trade agreement. There are also proposals to enlarge it to embrace India, Australia and New Zealand. 

Despite concerns over a "noodle or spaghetti bowl" effect due to overlapping Asian trade agreements, Philippines senior trade undersecretary Thomas G. Aquino said the pacts are crucial as they allow countries to enter into dialogue on contentious trade issues. 

"In these troubled times, the value of new and deeper FTA models is that they enlarge the menu to beyond spaghetti and noodles. They provide logical reasons, specific opportunties and productive occasions for parties to continue egaging in meaningful cooperation," he said. 

India's Kumar said a wider free trade area incorporating both Asian giants China and India would be the best option even though negotiations become tougher when the number of participating nations increases.

SBY hints at lowering fuel prices

Abdul Khalik and Alfian, The Jakarta Post, Jakarta    

President Susilo Bambang Yudhoyono has hinted at his willingness to lower fuel prices, a move considered decisive in making or breaking his administration ahead of elections next year. 

Yudhoyono said Tuesday the government was studying the possibility of a fuel price cut as global crude oil prices continued their decline. 

"We are studying intensively a plan to lower the fuel prices. If it's considered effective, I will make the decision to lower them," Yudhoyono said after meeting with Finance Minister Sri Mulyani Indrawati and Energy and Mineral Resources Minister Purnomo Yusgiantoro. 

"If (oil) prices keep falling and our (subsidy) calculation is sufficiently sound, it is my moral obligation to reduce the burden on our people," he said. 

Analysts say a cut in fuel prices would drastically boost the popularity of the Yudhoyono administration just months ahead of the upcoming elections, especially among middle- and lower-income voters. 

Indonesia has long maintained a hefty subsidy to keep fuel for motorists and households below international market prices. 

Energy minister Purnomo said the government was unlikely to lower the cost of all type of fuels, because the subsidy for most of the fuel this year was expected to exceed the allocation, due to a spike in global oil prices earlier this year. 

Ministry figures show subsidy spending reached Rp 130.9 trillion (US$13 billion) as of October, far higher than the initially allocated Rp 126.82 trillion for the entire year. 

"I think the most feasible fuel to see a price cut immediately is Premium gasoline," Purnomo said. 

Subsidized Premium currently retails at Rp 6,000 per liter, 9.4 percent lower than the non-subsidized price of Rp 6,622. 

Purnomo said the non-subsidized price was equivalent to the market price under the Indonesian Crude Price (ICP) benchmark of US$70 per barrel on average. The ICP is currently at $73.50. 

Purnomo said it was impossible to simultaneously lower the prices of diesel, kerosene and three-kilogram-canister LPG this year, because their price disparity with global prices were wider than that of Premium. 

State oil and gas company PT Pertamina data shows the price for non-subsidized kerosene in Jakarta, sold to industry, reached Rp 7,629 per liter as of Oct. 15, while the subsidized price was set at Rp 2500 per liter. 

The House of Representatives on Monday officially asked the government to cut fuel prices in the wake of a steep fall in global oil prices, in a move that could galvanize support for the current administration. 

The House's Commission VII, which oversees energy and mineral resources affairs, said lower fuel prices would cushion the economy against the impact of a looming global economic recession.

RI will be more stable than India, Malaysia and Thailand in 2009

The Jakarta Post, Jakarta | Tue, 10/28/2008 9:41 PM  

With concern setting in about the declining rupiah and share prices, there is good news yet: Indonesia next year will be much more stable than regional peers India, Malaysia and Thailand, a Hong Kong-based political risk consultancy said Monday. 

"Indonesia is much more stable today than it was when the regional financial crisis hit in 1997-98. The coming election campaign is likely to see the present government return, with (President Susilo Bambang Yudhoyono) winning the presidency and keeping Jusuf Kalla as his vice president," the Political & Economic Risk Consultancy (PERC) said in a report, whose executive summary is available on PERC's website. 

Source: PERC

Following a massive crackdown on alleged terrorist group Jamaah Islamiyah in recent years, coupled with improving social conditions, Indonesia seems almost guaranteed of stability. But the threat of terrorism is still a factor, PERC warned. 

"There is still a possibility of more terrorist incidents, but overall social conditions are more stable now than at any time in a decade," it said. 

PERC assessed 16 countries in its Asian Risk Prospects -- 2009 on factors such as the risk of racial and communal tensions, struggle for power, the threat posed by social activism, and vulnerability to policy changes by other governments. 

Indonesia, Southeast Asia's biggest economy, rated as the fourth least stable country in the region, with a score of six on a scale of 10, in which zero represents the best socio-political conditions and 10 the highest risk. 

South Asian behemoth India topped the table with the highest political and social risk, scoring 6.87, mainly because of internal and external instability. PERC cited fears over Pakistan, a major player in the global war on terror. 

"India faces some of the biggest risks in 2009 because of uncertainties surrounding the coming general election, rising communal violence and terrorism incidents. 

"The biggest risk is that a deterioration in political and economic conditions in neighboring Pakistan could aggravate social unrest in India further and hurt national security," PERC said. 

Thailand is pegged to be the next least stable country in Southeast Asia next year, scoring 6.28, as the current political mayhem and the separatist violence looks set to run into 2009. 

Surprisingly, Malaysia, which escaped much of the wrath of the 1997 financial crisis, will be the third least stable in the region, with the report noting the political wranglings were aggravating racial and religious tensions. 

"The status quo is changing in ways that will see a stronger political opposition than in the past and UMNO (the ruling party) forced to share more power with non-Malay groups," the report said. 

But these three countries could be relatively immune to the global financial fallout. 

"India, Thailand and Malaysia are not so much vulnerable to negative fallout from the global financial crisis as they are to factors that are mainly internal," Robert Broadfoot, PERC managing director, told Reuters on Tuesday. 

"For these countries, the coming global economic storm is only going to make a bad situation worse," he said. 

The tightly controlled city-state of Singapore was ranked the most stable country, boasting an extremely low political risk in 2009, though its economy is expected to take a big hit from the financial crisis as it heads toward recession. 

This is expected to mirror the current situation in the United States, badly weakened economically and psychologically. 

"It is a humbling experience that, coinciding with a change in government, is likely to see the U.S. become less aggressive in pushing its views on other countries," PERC said. 

With a score of 5.33, China will have a tough year economically in 2009 but not a disastrous one. 

PERC is a consulting firm specializing in strategic business information and analysis for companies doing business in East and Southeast Asia.

Govt to end VAT, luxury tax and duties in FTZs

Mustaqim Adamrah, The Jakarta Post, Singapore   

The government will soon abolish value-added tax (VAT), luxury tax and import duties on production goods in free trade zones (FTZs) in the Riau Islands province in a bid to stimulate businesses. 

The provincial administration and the customs and excise directorate general have finalized a draft regulation that will eliminate these taxes and duties in these areas, according to Riau Islands governor Ismeth Abdullah. 

The draft regulation, he said, would henceforth be based on the 2007 law on FTZs, which stipulates that no VAT, luxury tax or import duties on production goods are applied in FTZs. 

"We (the administration), along with the customs and excise directorate general, just finalized the idea (of the draft regulation) this (Thursday) morning," Ismeth told The Jakarta Post recently. 

Customs and excise director general Anwar Suprijadi would submit it within one to two days to Finance Minster Sri Mulyani Indrawati and to President Susilo Bambang Yudhoyono for approval, he said. 

He said the draft regulation, when enacted, would automatically annul the 2003 government regulation on the imposition of VAT and luxury tax on industrial estates in the bonded zone of Batam Island - the province's biggest island. 

He also said the draft regulation would instead help the central government generate more income from corporate income tax as the elimination of VAT and duty would stimulate more trade. 

"I understand the draft regulation may seem to result in lower revenue from VAT, luxury tax and import duties," Ismeth said. 

"However, we could collect bigger revenues from income tax generated from higher frequency of business activities as a result of the tax reductions," he added. 

According to Ismeth, income tax revenue collected from companies in Batam Island alone reached Rp 1.7 trillion (US$171 million) in 2006 and nearly Rp 2 trillion in 2007. 

The draft regulation will also designate particular seaports on Batam, Bintan and Karimun Islands -- the province's FTZs - to channel export and import activities. 

"We'll cooperate with customs officials to record and control goods entering and going out through the future designated ports," he said, adding that each of the three islands were expected to have two ports. 

The Indonesian Chamber of Commerce and Industry (Kadin) chairman, M. S. Hidayat, told the Post he welcomed the draft regulation as it would encourage businesses in the area.$736 billion of assets under management worldwide as of Aug. 31 this year.

Morgan Stanley remains upbeat on RI, opens local branch

Ika Krismantari, The Jakarta Post, Jakarta 

Against the backdrop of the global financial crisis, the United States financial giant Morgan Stanley has officially opened its doors in Indonesia in a decision which reflects investor confidence toward the country's economy in general. 

Morgan Stanley Asia Indonesia president director Inghie Kwik announced Monday the opening of the company's local branch after it had secured licenses from the country's stock market regulator (Bapepam) in July. 

"This (decision to open a branch) is a long term investment for us...compared with Thailand, the Philippines, and Vietnam Indonesia is a very big country, its population and its associated industries, such as retail, consumer goods and telecommunications are examples that the country's potentials remain promising despite the global financial crisis," Inghie said. 

The decision, he said was also part of the company's long term strategy in expanding its operation in Southeast Asia's emerging markets. 

The Jakarta office is the fifth Morgan Stanley branch operating in the Southeast Asia region. 

Morgan Stanley's presence in Indonesia dates back to the 1990s, when the company supported local companies in international fund raising and in advising on merger and acquisition plans. 

As its confidence grew on the economy, the company established a supporting office in 2005 and it then sought a brokerage and underwriting license from the regulator. 

Inghie said the Jakarta office would focus on providing services related to capital market businesses, including bond issuance and initial public offerings (IPOs) and also on mergers and acquisitions. 

"We believe the stock market will be normal again, but we don't know yet if the recovery curve is going to take an L shape, a U or a V," he said when asked his view on the local bourse, which has felt the impact of the global financial crisis. 

Next year, Morgan Stanley has been given a mandate to underwrite four IPOs worth about U$600 million in total, Inghie said. 

The company, whose largest shareholder is now Japan's Mitsubishi UFJ Financial Group, was the financial advisor to the country's second largest IPO, that of Adaro Energy worth $1.3 billion in July. 

It was also the sole financial advisor for the selling of the local bank Buana to Singaporean UOB and the merger of Lippo Bank and Bank Niaga. 

Aside from capital market services, the company will remain open to opportunities for expanding its business to other sectors such as commodities or real estate, the two sectors where Morgan Stanley has enough experience consider expansion. 

The company will host a reception in Jakarta next week to market the formal opening of Morgan Stanley's office in Indonesia. 

Morgan Stanley, with 600 offices in 35 countries, had $736 billion of assets under management worldwide as of Aug. 31 this year.

Riau Islands FTZs to cut red tape

Fadli, The Jakarta Post, Batam    

The Batam, Bintan and Karimun (BBK) Special Economic Zone Commission has ensured speedy licensing procedures free from illegal levies in a bid to attract foreign investors impacted by the global financial crisis, given lower local production costs compared to other countries in the region, such as Vietnam, Malaysia, Thailand and China. 

Head of the commission, Ismeth Abdullah, also the Riau Islands governor, told The Jakarta Post recently the commission was resolved to complete every investment license procedure in three weeks, compared to up to three months previously. However, environmental impact analysis reports would still take more than a month to complete. 

"We have cut the long and costly bureaucratic red tape and there won't be illegal levies demanded from officers in the field because we have provided them with proper incentives, besides monthly salaries," said Ismeth. 

Ismeth considered that the economic crisis in the United States and Singapore would have positive impacts for foreign investment growth in the Riau Islands, despite some forecasts by provincial foreign investors of a decline in business in 2009. 

He said the competitive position of the area would remain advantageous, given the far higher production costs in neighboring countries. 

"The crisis in America and Singapore has apparently affected the productivity of companies from these countries, so (our) bureaucrats should be able to conjure up strategic breakthroughs and be more proactive toward the business world given the current economic situation," said Ismeth. 

Total investments in the Riau Islands are currently valued at US$10 billion, with Singapore having the lion's share at $4 billion, followed by the U.S.at $1.5 billion. 

The BBK Zone Commission has projected further foreign investments of $5 billion over the next five years. 

According to Ismeth, the BBK zone performs more competitively than other industrial areas in Asia. Commission data shows that the production costs of a company in BBK were 15 percent lower than a similar company in Vietnam and 10 percent lower than in Johor Baru, Malaysia. 

"We must ensure that the flow of goods in Batam can run smoothly and free of illegal payments," said Ismeth. 

He was positive this initiative would get a positive response from business circles and assured business people that this would not merely be lip service but could be counted upon. 

Investors can file a complaint to the commission if licensing procedures exceed the fixed time limits and receive incentives, such as facilities in the next licensing procedures. 

Riau Islands Chamber of Commerce and Industry head Johannes Kennedy Aritonang said the commitment by the BBK zone commission to speed up investment license procedures should be applauded, but his office expected that this would not be just lip service. 

"Although (licensing procedures in) a number of countries are faster, this new breakthrough must be well appreciated. This shows that the government is committed to facilitating the business sector, a prerequisite for a special economic zone," said Johannes.

Unilever Indonesia 9-mth net profit up 30 pct y/y

JAKARTA, Oct 28 (Reuters) - PT Unilever Indonesia Tbk (UNVR.JK: Quote, Profile, Research, Stock Buzz), the local unit of Anglo-Dutch conglomerate Unilever Plc (ULVR.L: Quote, Profile, Research, Stock Buzz), reported a 30 percent rise in its nine-month net profit on Tuesday, thanks to strong sales and a one-off gain. 

Consumer spending, which has received a boost since the central bank lowered interest rates early this year, is the main growth driver for Southeast Asia's largest economy. 

But some analysts have warned that rising inflation, due to a decision by the government to hike fuel prices by around 30 percent in late May, may dampen consumer spending in the later part of 2008. 

Unilever -- which produces various consumer products such as soap, detergents, dairy-based foods and cosmetics -- said its net profit for January-September rose to 2.05 trillion rupiah ($190.7 million) from 1.58 trillion rupiah in the year-ago period. 

Sales climbed 22.4 percent to 11.76 trillion rupiah from 9.60 trillion rupiah a year earlier. The firm also reported a one-off gain of nearly 30 billion rupiah. 

Unilever, which has a market capitalisation of $5.2 billion, saw its operating margin edging up to nearly 25 percent as of September from around 23 percent in the same period of 2007, as its operating income rose nearly 29 percent to 2.88 trillion rupiah.

The firm's 2008 profit is forecast at 2.48 trillion rupiah and revenue at 15.14 trillion rupiah, according to analysts polled by Reuters Estimates. 

Indonesia's key interest rate, the BI rate BIPG, fell to 8 percent at the end of 2007 from a record high of 12.75 percent in late 2005 on easing inflation. 

But with inflation returning to double digit levels since June, after the government raised fuel prices, the central bank has increased the benchmark interest rate by a total of 150 basis points to 9.50 percent. ($1 = 10,749 rupiah) 

(Reporting by Harry Suhartono, writing by Andreas Ismar, editing by Sugita Katyal)

Media helped Indonesia’s tourism: official

SunStar

THE media has played a key role in the recovery of Indonesia’s tourism sector that experienced a decline following the Bali bombings and the natural disasters that occurred in the country, its tourism minister said. 

Jero Wacik, Minister for Culture and Tourism of the Republic of Indonesia, reminded tourism stakeholders to maintain a good relationship with the media both in good and bad times during a session in the sixth United Nations World Tourism Organization (UNWTO) International Tourism Forum for Parliamentarians and Local Authorities at the Shangri-La’s Mactan Island Resort and Spa. 

Wacik said the availability of sophisticated information technology enables media to disseminate news immediately.

Indonesia suffered from the bombings in Bali in 2002 and 2005, the tsunami tragedy in Pangandaran as well as a major earthquake in Yogyakarta, both in 2006. 

Wacik said that media--broadcast, print and electronic--desires to protect consumers who plan to take trips and encourages tour operators to be more selective and strategic in their promotions and sales of tour packages during a crisis or a tragedy. 

Wacik recalled that when Indonesia experienced the Bali bombings, the government immediately put up a media center with the help of a professional public relations company near the area of the disaster for faster and accurate channeling of information. 

Precise 

He advised tourism officers to provide the media with precise information that includes the exact geographical site of the blow and present other areas that were not affected. 

Wacik also told them to allow high-level government officials and reliable industry sources to talk to the media frequently through the established media center, short messaging service, website or e-mail. 

Other ways to protect tourism promotion efforts would be putting up a website with regular updates on the repair of infrastructure, improvement of security systems and humanitarian activities as well as a familiarization tour for the press and tour operators to show to them the recovery of the tragedy site and the unaffected attractions. 

As a result, with the help of media and other stakeholders, Wacik said that the country managed to restore the image of Indonesia to the global tourist market. 

From five million tourists in 2002, 4.9 million tourists in 2005, and 4.8 million tourists in 2006, the country managed to increase its international visitor arrivals by 13 percent or 5.5 million in 2007. Indonesia is targeting seven million tourists in 2008 and eight million in 2009. (NRC)

 

Biz Talk Interview – Mari Elka Pangestu, Indonesian Minister of Trade

By Gary Bowerman in Jakarta, Indonesia, on Sunday, 26 October 2008  

BizChinaUpdate,  Interviews, BizTalk Interviews 

Mari Elka Pangestu has been Indonesia’s Minister of Trade since October 2004. She gained Bachelor and Master of Economics degrees at the Australian National University in Canberra, followed by a Ph.D in International Trade and Finance at the University of California, Davis. She spoke to BizChinaUpdate at the opening of the 2008 Trade Expo Indonesia exhibition in Jakarta, before heading to Beijing to attend the Asia-Europe leaders summit. 

Can you summarise Indonesia’s trade relationship with China, and how do you see it developing? 

M.P.: Indonesia and China agreed a strategic partnership between the two nations, with a target for total trade of USD20 bn by the end of 2008, and USD30 bn by 2010. At the moment, there are differing numbers on each side. China says the balance on trade between the two nations is USD20 bn, our figures say it is between USD16-17 bn. So, from the Chinese figures, we have already surpassed the 2008 bilateral target. 

Most of our exports to China are in natural resources, such as gas, coal, oil, rubber, minerals and palm oil, and we import machinery and manufacturing products. We’d like to rebalance in future, and export more processed foods and manufactured goods to China.  

As manufacturing costs rise in China, what are the opportunities for Indonesian manufacturers? 

M.P.: Footwear is definitely an opportunity that we see coming back. Before the 1997 Asian Crisis, Indonesia was ahead of Vietnam and just behind China in footwear manufacturing, before a lot of footwear brands left for China. Toys is another area; China has suffered some quality and safety issues, and we are seeing a lot of interest from foreign brands. We’re also hopeful for our garments industries, and electronics – although, unfortunately, we’ve not seen the interest we would like coming back yet. It’s an industry that needs a fast turnaround, so we need to improve our roads, ports and infrastructure. 

In the automotive sector, we are quite competitive on parts and family cars, which we are already exporting. ASEAN and China will create more trade in components and specialised multi-purpose vehicles, which Toyota is already producing here. China will increasingly get into the game, and there are two Chinese automakers that have set up joint ventures in Indonesia, as well as motorcycle manufacturers. 

China has suffered damaging domestic and overseas product quality scandals. How will Indonesia try to avoid similar problems? 

M.P.: We must try to ensure that our manufacturers understand the regulations at home and abroad. To do this, we will improve testing, certification and enforcement in the market. For example, we are creating a taskforce to increase supervision of food and beverage products, both for domestic and overseas consumption. It’s also important to educate consumers and make sure they know what signs to look out for. The recent melamine scandal in Chinese dairy products has definitely had an effect, it has made consumers much more aware. 

A buzz phrase at the 2008 Trade Expo Indonesia is “market diversification.” Why is this so important? 

M.P.: Indonesia is relatively well insulated from the global slowdown, as exports account for only around 20 per cent of our total GDP. But, our traditional export markets are the United States, Europe and Japan, so we must find new ways to remain competitive in a global age. This means reaching out to new export markets. 

China and Korea are both growing export markets for Indonesia, and are becoming more important to our economy. Now, our exporters need to explore the Middle East, Russia, Eastern Europe, Africa and Latin America. We’ve seen growth in markets like Nigeria, South Africa and Brazil – and are focusing on the Central Asian republics that were formerly part of the Soviet Union, such as Kazakhstan, Tajikistan and Uzbekistan. These are resource-rich countries with a lot of purchasing power. We see opportunities to increase our exports of furniture, household accessories, consumer products and automotive parts to those nations. 

You have said that tourism is a potential growth sector for Indonesia. How will you promote Indonesia as a tourism destination in China? 

M.P.: We have identified China, India and Russia as high-growth tourism arrival markets for Indonesia, as all three countries have definable and growing middle classes that increasingly wish to travel. We feel there will be a slowdown for tourism from Europe, the United States and Japan next year. However, having our country removed from the U.S. travel warning was very important for showing Indonesia as a tourism destination. 

We have direct flights from China with Garuda, and have had visa-on-arrival for two years now. Chinese travellers need to have a visa before they leave the country, and we’ve been trying to work around that. Singapore has a good system whereby Chinese travellers can use a credit card to go there, and we are seeing if we can become involved in some way. 

We need to be more aggressive on tourism and promotional tours in China. We’ll be trying harder to raise our profile to Chinese tourists, especially leading up to the 2010 World Expo in Shanghai. We are currently in the process of finalising the design for our Expo pavilion.

New overseas markets for RI can replace falling exports

Abdul Khalik, The Jakarta Post, Jakarta   

While Indonesian exports to traditional markets like the United States, Europe and Japan show some signs of slowing down due to the global financial crisis, buyers from other countries representing potential new non-traditional markets have expressed interest in buying more Indonesian goods. 

Businesspeople from several countries in the region have also expressed willingness to put their money into Indonesia. 

Barry Helberg of the New Zealand Retailers Association and David J. Catty, the director of the ASEAN (Association of Southeast Asian Nations) and New Zealand Combined Business Council, expressed their amazement during a discussion at the recent 23rd Jakarta International Trade Exhibition, on the quality and design of Indonesian furniture. 

"These are top quality goods. It is the kind of furniture New Zealand top end consumers are looking for," Catty said. 

Barry, meanwhile, expressed his optimism that Indonesia's furniture, footwear and apparel products would be accepted by his country's consumers. 

"You see, New Zealanders, who have money to spend, are placing increased emphasis on quality and durability. I think Indonesian products still have potential to penetrate New Zealand markets," he said. 

Total two-way trade between Indonesia and New Zealand currently reached US$2 billion, the Indonesian Ambassador to New Zealand Amris Hassan said. 

New Zealand's furniture, apparel and footwear markets, worth a total of $1.4 billion, were dominated by China and Vietnam. Indonesia's total exports to New Zealand for the three sectors was only $30 million last year, he said. 

"How can we lose to Vietnam?. I think we can no longer view New Zealand markets as a leftover from Australia's. That's why we have proposed that we should have our own trade office in Auckland to increase our exports. I will do my utmost to help our businesspeople willing to export their products to the country," he said. 

Meanwhile, President Susilo Bambang Yudhoyono's special envoy to the Middle East Alwi Shihab said that there was a surplus of $1.6 trillion among the Middle Eastern countries. Indonesia could look to these countries as markets for its products and also seek to attract investment funds. 

He said that some investors from the Middle East, including the Emar Group and the Capital Investment Group, have now entered Indonesia to set up businesses. 

Alwi said that Emar was ready to build tourism sites worth up to $1 billion in Lombok, West Nusa Tenggara while investors from Oman would sign an MOU worth $400 million on a joint investment in an oil and gas field with an Indonesian business group. 

In addition, Capital Investment Group from the United Arab Emirates just launched its branch office in Jakarta, ready to invest in real estate, sea ports and other infrastructure sectors, he said. 

Alwi, however, criticized the country's bureaucrats who have held up permit processes for foreign investment, pointing to the example of a two-year delay in negotiations between investors from Qatar and Bahrain with a local state-owned company. 

Rector of Paramadina University Anies Baswedan said that the crisis had provided momentum for Indonesia to look to alternative markets and sources of investment in Asia and the Middle East to reduce dependence on Western countries and to lessen the negative impact of the financial crisis on Indonesia.

Asian nations commit to US$80 billion crisis

The Jakarta Post | Fri, 10/24/2008 3:25 PM  

Asian nations on Friday recommitted themselves to establishing an US$80 billion emergency fund, as leaders from across Asia and Europe gathered in Beijing to discuss the global financial meltdown. 

The pledge by South Korea, China, Japan and the 10-country Association of Southeast Asian Nations was reached at a breakfast meeting, according to the office of South Korean President Lee Myung-bak, who attended the meeting. 

Few details were given, although a preliminary agreement reached in May stated that Japan, South Korea and China would contribute 80 percent of the fund, to be set up by next June, with ASEAN countries covering the remainder. ASEAN consists of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. 

The deal would enable countries to borrow from the fund when facing a liquidity crunch. 

It builds on the so-called Chiang Mai Initiative, in which the 13 nations set up bilateral contracts to supply funds through currency swap lines. 

The summit later Friday of 43 Asian and European nations hopes to establish a consensus on a common approach to the global crisis. 

The meltdown has injected a new sense of urgency into the normally plodding biennial Asia-Europe Meeting, known as ASEM, with EU Commission President Jose Barroso saying "unprecedented levels of global coordination" are needed to deal with the crisis. 

"It's very simple: We swim together, or we sink together," Barroso said at a news conference Thursday in Beijing ahead of meetings with top Chinese leaders. 

ASEM has no mandate to issue decisions, but participants hope it will build momentum toward a common stance ahead of a Nov. 15 meeting of the world's top economies in Washington to discuss the worst financial crisis since the 1930s. 

However, ASEM's members differ widely on their views toward international cooperation and intervention by global bodies. Free-trading Singapore and economic powerhouse Germany are attending, along with isolated, impoverished Myanmar and landlocked, authoritarian Laos. 

French President Nicolas Sarkozy has pledged to use the ASEM meeting to persuade Asian nations to back a plan to redraw the rule book for international capitalism, calling for a global system of regulation. 

Chinese Foreign Ministry spokesman Liu Jianchao echoed the need for changes to the current system. 

"We need to explore the possibilities of reforming the international economic structure ... (to) stabilize the international financial markets, and ensure the stable operation of the international economy," he said. 

Europe has already approved a plan under which the 15 euro countries and Britain put up a total of 1.7 trillion euros (US$2.3 trillion) in guarantees and emergency aid to help banks. 

China's financial system had less direct exposure to the toxic sub-prime mortgages that are wreaking havoc on U.S. and European markets, although it and other Asian economies are expected to take a major hit from a drop in exports and foreign investment. 

The vice president of one of China's main state-owned lenders said Thursday he expected the crisis to start to bite over the next six months. 

"We shouldn't think this is going to be over soon. The key issue for Asian countries is to prevent the banking crisis from turning into a currency crisis," the Bank of China's Zhu Min said in remarks to the Asia-Europe Business Forum in Beijing.

President calls for global measures to deal with financial crisis

Beijing (ANTARA News) - President Susilo Bambang Yudhoyono has called on all countries in the world to take appropriate measures to deal with the current global financial crisis originating in the United States. 

A global problem must be dealt with through global measures, the President said in his speech at the closing of the Asia-Europe Business Forum, here on Thursday. 

Yudhoyono said a lesson drawn from the current global financial crisis was the need for a change in the architecture of the world`s financial sector. 

The global financial crisis, according to the President, had happened because of three mistakes, namely failure of the supervisory policy in advanced economic order, failure of risk management in the financial sector, failure of the mechanism of market discipline. 

"To make up for the failures, we need to make international efforts because the financial crisis transcends countries` borders," President Yudhoyono said. 

He said regional and multilateral cooperation must be strengthened through the World Bank, IMF, or through ASEM (Asia-Europe Meeting), ASEAN or ASEAN Plus 3 (China, Japan and South Korea). 

The World Bank, according to the President, could lead a consortium having a financial system on standby to help deal with deficits in member countries. 

He also emphasized the importance of trade and investment flows which would be mutually beneficial to face the impacts of the global financial crisis, which has also affected Europe. 

The Asian region, he said, was expected to become of one of the regions in the world which could continue to have positive economic growth amid the global financial crisis. 

It meant that the Asian region had become a significant alternative export market for advanced countries and a source of growth amid the sluggish global economic conditions, he said. 

In a such situation, countries must remain open, he said. 

Yudhoyono briefed the Forum`s participants on measures taken by the Indonesian government in dealing with the impact of the global financial crisis. He also invited businessmen from Asia and European to invest in Indonesia.

Bush invites Yudhoyono for crisis meet

The Jakarta Post | Thu, 10/23/2008 4:41 PM 

U.S. President George W. Bush has invited President Susilo Bambang Yudhoyono to attend a meeting of world leaders in Washinton to address the global financial crisis, a spokesperson said. 

Indonesian presidential spokesperson Dino Patti Djalal said in Beijing that Bush had phoned SBY Tuesday and discussed measures to mitigate a more disastrous impact from the US-led global liquidity crisis. 

Dino said SBY advised the matter to be discussed in the upcoming G-20 level meeting in Washington on Nov. 15 as the group of nations would be an enough representation of the various national interests. 

SBY is currently in Beijing to attend the 7th Asia-Europe Meeting (ASEM). 

Speaking separately in Washinton that day, White house press secretary Dana Perino confirmed that Bush had been talking on the phone with a lot of different leaders to hear about their thoughts about the financial crisis and the meeting in Washington. 

Perino said the meeting would be the first in a series of summits that bring together leaders from countries that participate in the G-20 finance process to discuss current economic challenges. 

The so-called G-20 are: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States, and the European Union. 

According to the Associated Press, in the first meeting, working groups will be set up to develop recommendations to be considered by leaders in subsequent summits. 

President George W. Bush, French President Nicolas Sarkozy and European Commission President Jose Manuel Barroso, who met at the Camp David presidential retreat last week, announced the series of summit, saying the international community needs to work together to address the credit crisis that has shaken markets around the globe. 

Noting that the summit will be held after the election, it is too early to know whether the president-elect, be it John McCain or Barack Obama, who were notified about the meeting Wedneday, will attend. It is also unclear whether subsequent summits would be held while Bush is still in office. 

"The leaders will review progress being made to address the current financial crisis, advance a common understanding of its causes, and, in order to avoid a repetition, agree on a common set of principles for reform of the regulatory and institutional regimes for the world's financial sectors," Perino said. 

The managing director of the International Monetary Fund, the president of the World Bank, the United Nations Secretary-General and the chairman of the Financial Stability Forum also have been invited to participate. (and) 

Insight: Financial recovery may take time, despite bailouts

Manggi Habir, The Jakarta Post, Jakarta 

Two weeks ago, the U.S. financial crisis went global in a big way. For the average man living on Jl. Sudirman (in Central Jakarta), the drying up of money markets was only a peripheral phenomenon as news came in of far away global banks going bankrupt, being bought out by governments or allowed to reinvent themselves through mergers and management shake-ups. 

But plain to see were the tumbling of global share prices, including on the Jakarta IDX, and the concurrent weakening of currencies as foreign investors brought their funds home. 

Last week, share prices in free fall were arrested, only for them to land in choppy waters. 

The sweeping announcements of several government bailout packages, commitments to recapitalize banks, inject liquidity into interbank markets, cut interest rates and guarantee bank liabilities across the globe, were just enough to ease the panic and calm the markets. 

However, there is growing realization and concern that what we have witnessed of late is merely the beginning of a long-term crisis. 

This realization was brought home when leaders from the U.S. and Europe announced over the weekend the need for a global summit before the end of the year to be attended by the developed and developing worlds to address the global financial crisis. 

It is time multilateral agencies, such as the International Monetary Fund (IMF) and the World Bank, began playing a more decisive leadership role in coordinating global efforts. 

But now that we have gotten over the panic, what can we expect next? Perhaps, our own experience back in 1998 can shed some light on what is to come. The next phase is to ensure that the banking system is prepared for tougher times ahead. 

In the developed world, heavily exposed banks are usually rationalized though mergers or government buyouts. 

But there could be delayed problems with some banks that require injections of capital as in the case of Indonesia a decade ago. For Indonesian banks, the current problem is one of tight liquidity in the interbank markets, which ultimately raises borrowing costs and slows lending. There is also the tightening up of foreign bank trade facilities, resulting in slower trade. Both point to slower economic activities. 

This will eventually hurt loan quality and banks must ensure there are sufficient provisions and levels of capital. 

The government has already scaled down its 2009 growth target from 6.1 percent to 5.5 percent, but some feel we could return to the slow and muddling 4-5 percent range we experienced after the 1998 crisis. 

It is possible that many weaker Indonesian banks will be absorbed by stronger ones. 

But with foreign banks showing interest in the Indonesian market, it is likely outside money will come in to prop up the Indonesian banking market, rather than for banks here to consolidate themselves. 

Interestingly, ongoing discussions on this are receiving more attention. 

We should also expect rationalization to extend to the real sector. During the 1998 crisis, our diversified and often unwieldy Indonesian conglomerates became much more streamlined, with many choosing to focus on natural resource businesses, while shedding away unrelated businesses to pare down their loans. 

In the U.S., companies will be under similar pressure as exemplified by recent talks between GM and Chrysler. In Indonesia, the politically connected Bakrie group is also trying to settle its debts by selling some of its prized assets. In conclusion, we will have to learn to live with less debt. 

So how long will all this take? Again, our past experience shows the bank restructuring process lasted two years and it was another three years before the banks actually started to lend again; So, a total of five years. 

Indonesia also went through a political upheaval as well. The country moved from an authoritarian regime, under President Soeharto, to a messier, but more democratic regime, which has seen three popularly elected presidents preside over a period of eight years. 

Assuming the world's developed economies have the institutions in place to better facilitate an economic recovery, the recovery time should be much shorter. But we are still talking about two to three years. 

In the meantime, the upcoming global summit has much to discuss. No doubt, there will be much analysis on the world's current financial architecture and the need for an overhaul. 

There is much talk now on what should be the proper roles of governments and markets? And, in a globalized world, what is the preferred role of multilateral institutions? 

However, on a more practical level, improvements should be made to monitoring systems and measures should be taken to implement an early warning system that accurately differentiates between what constitutes a bubble compared to a legitimate rise in value due to innovation. 

And, given the global nature of these crises, there is the added complexity of devising a coordinated global solution that is acceptable to everyone. 

But one thing that should be made clear is that a recession is a natural and inevitable event in an economic cycle. It cleans up the clutter in our economy by punishing those that acted recklessly, although, admittedly, it can be quite brutal. 

Recession also brings inflated prices down to normal levels as exemplified by the drop in commodity prices, including oil. Perhaps a government's role is not to prevent recession, but to manage it properly, so that most innocent bystanders are spared. 

The writer is a financial and business analyst and a lecturer at Tarumanegara University in West Jakarta.

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Jakarta to host "Pesta Blogger" on Saturday

The Jakarta Post, Jakarta 

Information and Communication Minister Mohammad Nuh said on Wednesday that Jakarta would host this year's national blogger gathering on Saturday, heralding the theme "Blogging for Society". 

Nuh said the event was to be titled Pesta Blogger 2008 and would be held in the BPPT II building on Jl M.H. Thamrin, Central Jakarta. Nuh added that the gathering would be attended by the U.S. ambassador to Indonesia Cameron R. Hume. 

"To establish an information-based society, we need creativity. Events like this undoubtedly give people room to express themselves," Nuh said, as quoted by kompas.com. 

The event's administrative chairman, Wicaksono, said bloggers from across Indonesia would participate, and that his team expected to double the attendance levels seen at last year's gathering. 

"We hope this event will make a positive contribution to society," Wicaksono said. (and)