Much More to Do

The International Monetary Fund (IMF) and ratings agency Standard & Poor’s (S&P) reminded Indonesia last week that changing presidents is not the only work left to do.

S&P said the change of government could be positive for reform in the mid-term. A Susilo Bambang Yudhoyono government was expected to follow existing policy frameworks, it said.

The week’s major achievement was a range of glowing editorials in the world’s leading newspapers. The Financial Times said Indonesia could become “a beacon of Asian democracy”.

The Washington Post said Indonesia’s successful elections had “proved the pessimists wrong”. The country’s new president promised “to continue the consolidation of freedom in the world's fourth most populous country”.

The successful election process and an orderly transition of government will do much to boost Indonesia’s overseas image, making it doubly important that the government act to remove barriers to successful investment.

Foreign business sources say there are promising sides that both the out-going administration and the new are more prepared to sit down and discuss how to get Indonesia back on to the world picture.

There was speculation that food stocks were low approaching the critical Idul Fitri fast breaking in mid-November, but the Monitoring Team on Strategic Commodities within the Coordinating Ministry for Economic Affairs reported that food, fuel and other strategic commodities stocks are adequate to welcome the fasting month.

Bank Indonesia (BI) was watching closely the effect of the US Federal Reserve’s action of raising benchmark interest rate by 25 basis points Tuesday (21/9/04) to 1.75%.

On Thursday, BI Governor Burhanuddin Abdullah said he saw no need to raise local rates. The central bank is open to the possibility of higher rates, he said, but will focus on non-interest rate policies to curb inflation and support the rupiah. The benchmark weighted average rate of the one-month Sertifikat Bank Indonesia, or SBI notes, is now at 7.39%.

BUSINESS BRIEFS

MACROECONOMY

No Move to Raise Rates

Bank Indonesia (BI) Governor Burhanuddin Abdullah said the bank was watching developments in the wake of the US Federal Reserve's decision to raise its key interest rate but there had been no impact so far on the benchmark rate of Bank Indonesia Certificates (SBIs), AFX-Asia reported.

The Fed Tuesday (21/9/04) raised its key interest for the third time this year by 25 basis points to 1.75%.

Bank Indonesia has said it will maintain its "tight bias" monetary policy, which relies on absorbing excess money supply through non-interest rate policies but has not ruled out the possibility of a rise in the key one-month SBI rate.

The one-month SBI benchmark rate now stands at 7.39%, up from a historic low of 7.32% earlier this year.

ADB Raises Growth Forecast

The Asian Development Bank (ADB) has upgraded its GDP growth forecast for Indonesia to 4.8% this year, from an earlier projection of 4.5%, in line with the Indonesian government's official change in base year prices to 2000 levels from 1993, AFX-Asia reported.

The ADB also revised its projection for 2005 to 5.2% from 4.5%, on hopes of improved investment and export performance.

The ADB said in its Asian Development Outlook Update that growth could exceed forecasts if a new government “shows early signs of policy clarity on key issues and forms a balanced and focused cabinet."

Inflation is projected to average 6.5% this year, the same level as last year, and will rise to 7.0% in 2005.

The Update said several major issues face the new government, among them promoting job creation.

"About 2.5 million people enter the labor force annually and, based on past performance, the economy needs to grow consistently at 5-6% a year to absorb these new entrants into the formal sector," the bank said.

The new government should also address Indonesia's export competitiveness, which has lagged behind other countries in the region due to declining foreign direct investments and increasing competition.

"Indonesia needs to revive its competitiveness by, among other steps, attracting investment and revamping its import licensing system," the ADB said.

Tax Revenue at 60.5% of Target

The government’s net tax receipts to September 7 reached Rp140.5 trillion ($15.5 billion), or 60.5% of the full year target of Rp219 trillion target, Director General of Taxes Hadi Poernomo said Thursday (23/9/04), Antara reported.

Receipts consisted of Rp79.5 trillion from income tax, Rp50.7 trillion from value added tax, Rp7.4 trillion from property tax and Rp2.9 trillion from other taxes.

STATE CONCERNS

New Fishing Ports Planned

The government will build five ‘outer ring’ fishing ports in 2005 to boost the country's fish production, Maritime and Fisheries Minister Rokhmin Dahuri said, according to Antara.

The ports will be built at Bitung, Sabang, Cilacap, Biak and Tual at a cost of Rp1.5 trillion ($167 million). They will be equipped with all facilities, including fish processing plants.

Dahuri said he has submitted a proposal on the ports to the Finance Ministry and the National Development Planning Board (Bappenas) and it was hoped construction could start next year.

Parliament Approves Bankruptcy Changes

The parliament passed long-awaited revisions to the bankruptcy laws Wednesday (22/9/04) in a bid to close loopholes that allow bankruptcy suits against solvent companies.

The amendments allow only the Finance Ministry to file bankruptcy petitions against insurance, reinsurance and some state-owned companies. They make the Capital Markets Supervisory Agency responsible for overseeing similar petitions against securities companies.

Confidence on Exports

Minister for Industry and Trade Rini M.S. Soewandi expressed optimism Thursday that the target of a 7% rise in non-oil and gas exports this year was in sight, Antara reported.

"God willing, it could be reached because until July, exports amounted to $28 billion. If we can maintain the monthly amount at $4 billion, the target can be reached," she said.

The target aims for total exports this year of $50 billion, up from last year’s figure of $47 billion.

Earlier, President Megawati Sukarnoputri said the country's exports during 1999-2003 grew by 5.1%, while its average growth of imports reached 5% annually.

In her address at the People's Consultative Assembly's (MPR) annual general session on Thursday, Megawati said total export value in 2003 was recorded at $61.1 billion, up by 6.8% compared with that of the previous year.

Megawati pointed out that the growth in the exports included the rise in the value of oil/gas and non-oil/gas exports which was recorded at 12.7% and 5.2% respectively.

"In an effort to improve the global competitiveness of Indonesian export commodities as well as to empower the national export in order to boost the economic growth, the government has strived to reduce barriers, liquidation problems and expanded the market for export products," the head of state said.

PRIVATE SECTOR

Matahari to Open 50 Outlets

Retailer PT Matahari Putra Prima plans to invest around Rp1 trillion ($109 million) over the next five years to expand its business, Dow Jones Newswires reported.

"This investment will include a plan to open up to 50 new hypermarkets across the country," Matahari said in a statement Thursday (23/9/04).

Matahari, which has a 20% share of the domestic retail industry excluding traditional markets, has opened eight supermarkets and seven department stores this year.

On Thursday, the company opened its second hypermarket in Tangerang and a department store in Medan.

Cement Consumption Up

Domestic cement consumption in August reached 2.87 million tons, up 13.6% year-on-year, while exports fell 1.9% to 386,598 tons, according to the Indonesian Cement Association (ASI), AFX-Asia reported.

Over the first eight months of the year, domestic consumption has risen 8.6% to 19.36 million tons while exports fell 13.3% to 2.01 million over the same period.

The cement industry has benefited from the recovery in the property sector thanks to a lower interest rate environment.

Meanwhile the country’s largest cement manufacturer, PT Semen Gresik, said its sales in August rose 9.9% on-year to 1.48 million tons.

In the eight months to August, sales totaled 10.16 million tons, up 13.1% from the same period last year, it added.

SOEs

Telkom Plans Bond Issue

Indonesia's biggest telephone firm, PT Telekomunikasi Indonesia (Telkom), plans to issue Rp1 trillion ($109 million) in bonds by the end of the year to refinance debt, Reuters reported.

Telkom also said it planned Rp10 trillion in capital expenditure on infrastructure next year, including $600 million for its mobile arm PT Telekomunikasi Selular (Telkomsel).

"We plan to issue one trillion rupiah in medium term notes for debt refinancing of a $124 million foreign loan which is due next year," Telkom president Kristiono told reporters.

Kristiono said the majority of the capital spending would be financed by internal cash flow and the rest from debt that may include bonds.

The company planned to spend Rp14.1 trillion on capital expenditure this year, including Rp5 trillion on Telkomsel. It is also seeking to refinance some of its debt to reduce the risk of losses from currency fluctuations.

Total consolidated debt stood at Rp14.66 trillion on June 30, with around 70% denominated in foreign currency.

Telkom said Wednesday it plans to start trading its shares with a new par value on September 28, following a 2-for-1 stock split a day before. The new par value would be Rp250 per share, compared with Rp500 each currently.

Meanwhile Yoseph Garo, Telkomsel’s general manager of technology and strategic networks, said Wednesday the company expects to obtain a frequency license to run third-generation technology-based radio networks before the end of the year.

Telkomsel would be ready to start providing the services within six months of gaining the license.

The company would offer voice services nationwide but distribute data capacity depending on volume demand. The new generation system allows facilities such as video streaming and video conferencing.

BRI Sees 40-45% Profit Boost

PT Bank Rakyat Indonesia (BRI), the country’s fourth-largest bank, expects to book a gain of 40-45% year-on-year in 2004 net profit, president director Rudjito said Thursday (23/9/04), Reuters reported.

The state-run bank posted a net profit of Rp2.5 trillion ($273 million) last year, a jump of almost 67% on the previous year.

The forecast rise for this year would put net profit between Rp3.5-3.63 trillion.

Rudjito said the increased profit target was the result of lending expansion, while the bank also had access to low-cost funds.

POWER

No Concern on Fuel Funds: Govt

The government says concerns that it may not be able to cover the cost of fuel subsidies are misplaced, and it is setting aside Rp3.9 trillion ($426.69 million) in the state budget, The Jakarta Post reported, but the subsidies are to be dramatically reduced from next year.

The Ministry of Finance's head of analysis on economics, finance, and international cooperation agency (Bapekki), Anggito Abimanyu, said Friday (24/9/04) that funds to cover current subsidies would be reserved as other routine expenditure.

"The money will be put aside in the so-called 'policy measures of fuel' section. So, the government can later use the money if the amount decided for the fuel subsidy turns out to be insufficient," he told reporters here.

The budget committee of the House of Representatives (DPR) meanwhile cut the fuel subsidy in this year’s budget to Rp59.2 trillion from the government's proposal of Rp63 trillion.

The committee offered the government three options: raise fuel prices, reduce fuel consumption or boost efficiency in the domestic use of fuel.

"It's completely up to the next government how they want to exercise these options ... whether or not they want to pick one or combine them, including raising fuel prices this year or next year," said Anggito.

Minister for Mines and Energy Minister Purnomo Yusgiantoro said the current government is already planning to scrap subsidies except for products such as kerosene widely used by the poor.

"Our expectation is that we must eliminate subsidies on bunker oil, premium gasoline and industrial diesel," he told reporters Tuesday (21/9/04).

Indorama to Build Plant

Polyester maker PT Indorama Synthetics plans to build a $64 million coal-fired power plant at its factory in Purwakarta, West Java, in efforts to reduce energy costs, Investor Daily reported, citing corporate secretary V.S. Baldwa.

The International Finance Corporation (IFC) will provide loans worth $48 million to fund the project, and the remainder would come from internal cash flow, Baldwa said, adding that an MoU was expected within a month.

Indorama currently spends around $25 million a year on power, and the company’s own plant would allow the cost to be cut by 35-40%.

Baldwa said the Purwakarta plant was running at capacity of 240,000 metric tons. Sales are tipped to rise to $400 million this year from $356.2 million in 2003.

OIL & GAS

New Blocks to be Offered

The government will offer at least 10 new oil and gas blocks later this year in an attempt to boost declining oil output, Dow Jones Newswires reported.

It cited Iin Arifin Takhyan, Director General for Oil and Gas at the Mines and Energy Ministry as saying "we will offer the new blocks either in October or November." He was not able to name the blocks.

Source: The Coordinating Ministry for Economic Affairs Republic of Indonesia