NEWS ON TRADE AND INVESTMENT IN INDONESIA,

ECONOMY

Markets Show Resilient After Bomb Blast

While many feared that the bomb blast Thursday (9/9/04) in Jakarta would bring confidence crashing once more, the Jakarta Stock Exchange proved the opposite when its composite index hit a fourth-month high at the close the following day at 797.775. The rupiah which dipped against the greenback several hours after the blast closed relatively strong Friday at 9,283.00.

The government response was quick, with President Megawati Sukarnoputri cutting short her visit to the Brunei royal wedding to fly back and tour the scene and MMC hospital.

A statement issued on Friday said Coordinating Minister for Economic Affairs Dorodjatun Kuntjoro-Jakti had reiterated at a high-level meeting the importance of improving security in the whole country before the presidential election on September 20.

“The Coordinating Minister said that it is critical to maintain the momentum of economic recovery as much as possible,” the statement said. “He also reminded his cabinet colleagues that the ability of the Government and law enforcement apparatus to move swiftly and decisively in bringing perpetrators to justice will hopefully accelerate the recovery of business and market's confidence on the economy.”

Solidarity between government and business was needed to maximize economic recovery, Dorodjatun added.

Independent economists said they expected a retreat but said the government’s budgetary targets for the year were still achievable, AFX-Asia reported.

Institute for Development of Economics and Finance (INDEF) economist Bustanul Arifin said the markets had a ‘coping mechanism’ and the economy would “run as before”. He said tourism was expected to be worst affected.

Bank Indonesia deputy governor Aslim Tadjuddin was upbeat about the post-bombing outlook, noting that the rupiah had stabilized. He added that the currency was likely to strengthen if the elections went successfully.

BUSINESS BRIEFS

MACROECONOMY

Tourism Receipts Up

The country earned an estimated $2.3 billion from the tourism sector in the first half of the year, with the number of tourists recorded at 2.6 million, up 35% year-on-year, Antara reported.

Tourism and Culture Minister I Gede Ardika said the earnings figure was estimated on assumption that a foreign visitor spends around $93.27 per day or $903.47 per visit on the average. Last year, the country earned around $4 billion from the sector.

BI Drops Funding Call

Bank Indonesia (BI) has put off a plan to ask the government for additional capital of Rp8.7 trillion to meet a minimum 3% capital ratio following success in keeping down its deficit, Antara reported.

The bank's draft budget for 2005 aims for a deficit of Rp9.3 trillion, or 3.97% of the ratio of the bank's capital to monetary obligations, BI Governor Burhanuddin Abdullah said during a hearing with the House of Representatives' budget and finance commission Wednesday (8/9/04).

Under an agreement between the bank and the government on the settlement of BI emergency loans (BLBI) to ailing banks, the latter will inject funds to the central bank if its capital ratio is less than 3%.

Burhanuddin said the bank's deficit in 2004 is estimated to reach Rp1.1 trillion, giving the central bank a capital ratio of 7.32%.

Forex Reserves

Foreign exchange reserves declined in the fourth week of August to $34.82 billion after remaining almost unchanged at the level of $34.97 billion in the previous two weeks, Bank Indonesia reported. It said the decline was due to foreign debt repayments.

Base money was recorded at Rp172.68 trillion on August 31, up Rp4.52 trillion from the week before.

STATE CONCERNS

China Agrees to Tariff Cut

China has agreed to cut its tariff on refined palm oil products as part of wider plans to free up trade in the Asian region, an Indonesian producers' group said Monday (6/9/04), the Associated Press reported.

Indonesian and Chinese officials have decided to include stearic acid - a product made from refined crude palm oil - on a list of low-tariff goods traded between China and Southeast Asian nations, the Indonesian Association of Oleo-Chemical Producers said.

"The Chinese Finance Ministry agreed that it will reduce import tariffs for Indonesian stearic acid to 10% from 16%," said Kris Hadisubroto, the association's chairman.

Stearic acid exports to China had fallen 20% since June, Hadisubroto said, because Indonesia could not compete on price with Malaysian companies that benefited from lower tariffs, he said.

Tougher Stance on Illegal Fishing

Ships supervising fishing and marine resources will soon be fitted with weapons so that they will be more effective in eliminating illegal fishing, Minister of Fisheries and Maritime Affairs, Rohmin Dahuri said, Republika reported. The type and size of the weapons will be regulated by government legislation.

The ministry has several control ships called Hiu [shark] and has developed a vessel monitoring system (VMS) to deal with illegal fishing. The VMS system successfully foiled last week an attempted raid by a Thai fishing vessel.

Under the VMS system, ships over 100 gross tons are obliged to use transmitters. Rohmin said 767 licensed fishing vessels now had the transmitters.

EU Drops Tuna Embargo Threat

The European Union has dropped its threat of an embargo on tuna exports from Indonesia, Fishery and Maritime Minister Rokhmin Dahuri said, Antara reported.

The threat was withdrawn after the government explained that allegations about high histamine content were false. Investigation by the EU had found that the contamination had taken place in the receiving countries.

PRIVATE SECTOR

More Auto Credits from Bonds

Automotive financing company PT Astra Sedaya Finance plans to issue Rp1 trillion ($107.18 million) in bonds in October to help increase automobile sales, The Jakarta Post reported.

The financing unit of automotive giant PT Astra Internasional will use the proceeds to provide more loans for cars and motorcycles.

The new bonds will have a variety of tenures, ranging from one year to four years. The company has appointed Andalan Artha Advisindo Securities and PT Trimegah Securities as the underwriters.

Automotive sales have been escalating this year, spurred on by cheaper finance. Sales for 2004 are expected to reach a record high of 420,000 vehicles and 3.6 million motorcycles.

Another financing company, PT Indomobil Finance Indonesia, announced Monday it plans to issue Rp300 billion in bonds next month, followed by another issue of Rp750 billion. The firm revised upward its financing target for 2004 by 100% from last year to Rp1.4 trillion.

Another financial arm of Astra, Federal International Finance (FIF), announced last month it plans to issue Rp 500 billion bonds.

SOEs

Telkom Considers Bond

Indonesia's largest telephone firm, PT PT Telekomunikasi Indonesia (Telkom), may issue bonds worth between Rp600 million and Rp1 trillion ($65 million to $108 million) to refinance debt, local media reported Wednesday (8/9/04).

"Issuing a medium-term note is one of the strongest options for Telkom apart from a bank loan," Telkom finance director Rinaldi Firmansyah was quoted as saying by Bisnis Indonesia daily.

Firmansyah added the state-controlled firm had been in talks with several banks and securities firms, including Bank Mandiri and Standard Chartered.

Telkom has said it is looking to refinance some of its foreign debt with rupiah borrowings to reduce the risk of currency losses, after its second-quarter net profit was hit by a weaker rupiah.

Total consolidated debt stood at Rp14.66 trillion on June 30, with 70.7% of it denominated in foreign currency.

HSBC Plans Shariah Loan

Hongkong and Shanghai Banking Corporation Limited (HSBC) plans to arrange a $300 million financing facility for a local company, The Jakarta Post reported.

HSBC Indonesia CEO Richard McHowat said the bank had just received a mandate from one of the country's largest state companies to arrange the lending facility for export using money from Middle East investors.

"We have brought fresh money from a fresh source to Indonesia. But we still cannot disclose the name of the company until we sign the deal, which is expected in two weeks time," McHowat said Wednesday (8/9/04).

McHowat said the six-month facility would be used to boost exports by the company to Middle Eastern countries.

INVESTMENT

Third Motorcycle Plant for Honda

PT Astra Honda Motor Inc., Honda's joint venture company in Indonesia responsible for motorcycle production and sales, announced Wednesday (8/9/04) it has begun construction of its third manufacturing plant in Indonesia, JCN Newswire reported.

The new plant is being constructed at MM2100 Industrial Town in Bekasi, West Java. Total investment is expected to be approximately $100 million and the plant will become operational in October 2005 with an annual capacity of approximately 1 million units.

Honda began production of motorcycles in Indonesia in 1971 with a technical partnership with PT Federal Motor. In 2000, PT Astra Honda Motor Inc., a 50/50 joint venture between PT Astra International and Honda, was established to produce motorcycle parts, motorcycle engines, assembly and sales.

In 2003, PT Astra Honda Motor became Honda's first overseas operation to achieve cumulative motorcycle production of 10 million units.

The motorcycle market in Indonesia, the third largest in the world, expanded to 3.1 million units in 2003, a 22% increase from 2002.

As the market is expected to grow even more in 2004 to approximately 4 million and beyond, Honda is enhancing its production capacity by adding a new plant, to swiftly respond to increasing demand, the company said.

Saudi Investors to Enter

A group of Saudi investors said they will invest around $50 million in various business areas in West Java. Group leader Ghozi Saleh Syalhoeb said the investors wanted to do business in tourism, toll roads, high technology and the pharmaceutical sector under a cooperation agreement between the West Java government and Saudi business leaders.

Ghozi said the Saudi businessmen are expected to increase their investment in West Java, as business ventures they have in the US and Europe have declined. ”We are now turning to Asia and Indonesia as our first choice”, he said at a meeting with regional administration leaders in the West Java capital on Monday (6/9/04).

OIL & GAS

OPEC: Oil Price to Fall

The Organization of Petroleum Exporting Countries’ (OPEC) president says global crude prices will fall soon, partly because of expected supply increases from Iraq, the Associated Press reported.

"International oil prices for the September to December period are likely to drop," Purnomo Yusgiantoro, who is also Indonesia's minister of energy and mineral resources, told reporters in Jakarta Monday (6/9/04).

An expected resolution of the Yukos oil scandal in Russia, which is the world's largest non-OPEC oil producer, should also help tame sky-high crude prices, Purnomo said.

No Extra Concern on Security

Oil and mining firms saw no added element of risk following the blast Thursday (9/9/04) outside the Australian Embassy in Jakarta.

In responses to Dow Jones Newswires, foreign oil companies said terrorism had already been factored into security planning.

President Megawati Sukarnoputri issued a decree last month which laid down procedures for companies to get help from Indonesian military and police in case of threats.