[Kabar-indonesia] 1 of 2: RI Trade and Investment News, 24 July 2006

[JoyoNews at aol.com]

The Coordinating Ministry for Economic Affairs
Republic of Indonesia
Jakarta
Monday, July 24, 2006

Trade and Investment News, 24 July 2006

Part 1 of 2

Highlights 

Politics 

* East Timor's new Prime Minister to visit Indonesia
* President Yudhoyono offers to send troops for a 
  Mideast peacekeeping force 
* The House of Representatives passes a witness 
  protection law 

Regions 

* Government to fast-track a tsunami warning 
  system, president promises 
* Law on governance in Aceh continues to receive 
  positive response 

Economy 

* Inflation could fall to 7.7% by year end, statistics 
  chief says 
* Domestic investment strongly up in first half 
* Tax incentives for automotives, chemicals 

Business Briefs

Macroeconomy 

* Budget Spending Slow
* High Demand for Retail Bonds 

Investment 

* Foreign investment moves up slowly, domestic 
  approvals up strongly
* 20% of businesses expect to expand in second 
  half 
* One-stop shop for special economic zone 

State Concerns 

* Export duty on molasses to strengthen 
  ethanol industry 

SOEs

* PT Telkom to use a Russian 'floating' satellite 
  to fill a vacant spot 

Private Sector 

* Budget carrier Lion Air to buy new aircraft 
* Hitachi aims for 25% of flat-screen TV market 

Banks

* Lenders cut deposit rates 

Power 

* Ceiling price set for power sold to PLN 
* Interest in 10 coal-fired plants in Java 

Oil & Gas 

* Pertamina to keep stocks at 21 days demand 
* Finance offers for Kalimantan gas pipeline 

Mining 

* PT Timah to cut production to boost tin prices 

POLITICS

Ramos-Horta in Jakarta Visit 

East Timor Prime Minister Jose Ramos-Horta, who took office less than two 
weeks ago, will meet Indonesian President Susilo Bambang Yudhoyono Tuesday, a 
government spokesman said on Friday (21/7/06).

The Jakarta visit will be part of Ramos-Horta's first trip abroad since he 
took up his new post. He regularly visited neighbouring Indonesia in his former 
role as foreign minister. 

"Prime Minister Ramos-Horta wants to show the closeness between Timor Leste 
and Indonesia through this visit," said Indonesian foreign affairs spokesman 
Desra Percaya.

Percaya said Ramos-Horta would fly on to an Asia Pacific security meeting in 
Kuala Lumpur after his Jakarta visit. 

Yudhoyono Offers UN Troops

Indonesia has offered to send hundreds of peacekeepers to Lebanon help 
bolster security in the Middle Eastern nation following Israeli incursions and 
air-strikes, Foreign Minister Hassan Wirayuda said on July 22. 

Urging the UN Security Council to take immediate steps to halt the violence, 
Wirayuda said Indonesia was ready to send one battalion, or about 800 troops, 
to the region if the UN decided it was necessary. 

"We see exaggerated and disproportionate violence taking place in Lebanon," 
Wirayuda was quoted as saying by the state news agency Antara. "Indonesia is 
prepared to send one battalion of peacekeepers." 

The minister also told reporters that Indonesia - which does not have 
diplomatic ties with Israel - will provide $1 million in humanitarian assistance for 
the Palestinian territories and Lebanon. 

Indonesia has previously condemned the Israeli strikes against targets in 
Lebanon and Gaza, and President Susilo Bambang Yudhoyono made a similar pledge 
earlier in the week when he met with 10 Middle Eastern ambassadors to discuss 
the crisis in Lebanon. 

Indonesia last contributed to an international peacekeeping force in Kosovo 
in the 1990s and Dr. Yudhoyono himself once served as head of a UN observer 
force in Bosnia.

Witness Protection Law Passed

Legislators passed a landmark law on Tuesday (18/7/06) that provides 
protection to witnesses and crime victims during legal proceedings.

The law allows for the establishment of the Witness and Victims Protection 
Agency (LPSK, which is also mandated to protect relatives who may be at risk.  
The LPSK will ensure victims are informed of their rights and receive 
appropriate assistance. 

Witnesses will have the freedom to assume a new identity, to choose a safe 
location and to seek the assistance of an interpreter. 

The law has been praised for broadening the definition of witnesses and 
victims to include those involved in cases of terrorism, gross violations of human 
rights, money laundering, drug crimes, human trafficking and other 
gender-based violence. 

United Development Party (PPP) legislator Lukman Hakim Saifuddin said the 
passage of the law was a refreshing sign in the fight against high-profile 
corruption. 

Justice and Human Rights Minister Hamid Awaluddin said the legislation also 
marked a radical departure from the existing Criminal Code, which only gives 
protection to defendants in court. 

"For the first time, the rights of the victim and witness are recognized," he 
told a House plenary session. 

KPK to Widen Wealth Reporting

The Corruption Eradication Commission (KPK) plans to widen its 
wealth-reporting system to target lower-level government and state officials rather than 
just those in top positions.

"We want to expand the scope of the wealth-reporting system," KPK chief 
Taufiequrrachman Ruki said on Tuesday (18/7/06). "Administrative officials as well 
as state officials will have to sign a statutory declaration." 

Speaking after a meeting with President Susilo Bambang Yudhoyono, Ruki said 
the expanded system would apply to all echelon III officials and above. 

Echelon III officials include bureau or division heads at state and 
government agencies. "In many instances, these officials are the ones with strategic 
roles, such as traffic division heads or intelligence division heads at police 
units, or land regulation section heads in the land office," Ruki explained. 
"For the military, we could go from lieutenants up." 

Under the 1999 law on good governance, only specified high-ranking state 
officials are obliged to report their wealth regularly to the KPK. 

Ruki said the proposed changes to the system were aimed at complementing the 
KPK's plan to broaden the use of a reversed burden of proof in pursuing 
corruption cases. 

"The president said he is happy with the corruption eradication measures," he 
said. "He said nearly 20% of the state budget has been salvaged from 
potential graft through careful attention.

REGIONS

Tsunami Warning System 'a Priority'

President Susilo Bambang Yudhoyono said Friday the government would speed up 
the installation of seismic sensor equipment to warn coastal communities of 
approaching tsunamis.

During a tour of communities decimated by the tsunami that hit Central Java 
on Monday (27/7/06), he also ordered the fastest possible clean-up operation 
and recovery for the stricken areas, The Jakarta Post reported.

He said the Rp1.2 trillion ($131 million) tsunami warning system, originally 
due to be completed by 2009, would be accelerated. 

Speaking to thousands in hard-hit Binangun district, Cilacap regency, the 
president did not specify when the installation would be completed but said 
Indonesia will ask China, Germany, Japan and other countries to help realize the 
project.

The death toll from the tsunami rose to 659 after emergency workers reached 
previously inaccessible areas along the southern coast of Java, the Associated 
Press reported said Saturday. Another 330 people are missing.

Drajat Santosa, a National Disaster Management Coordinating Board official, 
said nearly a hundred bodies have been found over the last 72 hours in parts of 
Ciamis district that had been cut off by a broken bridge.

A magnitude 7.7 earthquake triggered the tsunami, which pummeled a 180-km 
stretch of coastline.

The deaths included five foreigners: one Dutch, a Swede, a Pakistani and two 
Saudis. A French national was among those missing.

Meanwhile a 6.2 quake centered in the Sunda Strait rocked Jakarta high-rise 
buildings on Wednesday and in North Sulawesi, Mt. Karangetang, on Siau island 
in Sangihe regency, was reported to be spewing clouds of hot ash and lava, 
forcing the evacuation of thousands of residents.

Praise for Aceh Law 

The architect of Indonesia's regional autonomy system says it sets new 
standards for center-regional relationships. 

Ryaas Rasyid, who introduced Indonesia's original regional autonomy program 
under the Abdurrahman Wahid administration, was quoted as saying by The Jakarta 
Post on Friday (21/7/06) that the law should also create legislators "who are 
not merely adventurers". 

Meanwhile House of Representatives Commission II last week agreed to form 
monitoring teams for special regional autonomy implementation in Aceh and Papua 
province.
 
The teams will consist of Commission II members who would be chosen when the 
House returns after a recess on August 16. 

The commission's internal meeting suggested a mandate for the teams of one 
year. It also suggested that the Aceh monitoring team should consist of members 
of Commission II from Aceh and members of the Aceh bill drafting committee, 
while the Papua monitoring team will consist of members from the region and 
members of the group that worked on the draft of the Papua special autonomy bill. 

In Banda Aceh, capital of Aceh province, political analysts said the 'silent 
majority' of Acehnese wanted to accept the new law in the hope that it could 
bring better conditions. 

The Free Aceh Movement (GAM) is believed to be split over whether to accept 
the law or not. The hard-line wing of the movement, led by Muzakir Manaf, 
Sofyan Dawood and others wants to reject it. 

The more moderate wing, including the politicians who ran the political 
struggle from abroad, do not see a return to armed conflict as an option. 

US to Help Develop Malacca Strait Radar

The US has promised to help Indonesia develop a radar system in the Malacca 
Strait, where piracy has again raised fears for international shipping. 

"The radar system is expected to help improve our capability so that we can 
cooperate more effectively with the Singaporean and Malaysian navies to secure 
the strait," Defense Minister Juwono Sudarsono said after a meeting with US 
Navy Chief of Staff Admiral Michael G Mullen here on Wednesday (19/7/06), Antara 
reported. 
 
Sudarsono said Malacca Strait security was the concern of countries that used 
the lane to facilitate their economic activities such as the US, Japan, 
China, Korea and India.

Besides radar system, Juwono said Indonesia also needed swift patrol boats 
with appropriate radar capability to equal Malaysia and Singaporean capability 
in securing the strait.

He said Indonesia at present has 124 patrol boats but 40% of them are not 
functional because of equipment and spare part problems.

Navy to Boost Papua Presence 

The Indonesian Navy plans to build bases in 2007 in Bintuni Bay and Kaimana 
regency in West Irian Jaya province, as a part of the navy's development of its 
capacity in Papua, Papua Navy Base Commander Brig. Gen. Sumantri said in a 
meeting with the regencies' governments in Kaimana on Monday (17/7/06).

The commander said his immediate objective is to conduct a survey for harbor 
construction, including potential threat and vulnerability in surrounding 
waters. He said Aru Sea waters are vulnerable and, therefore, although the navy 
already has a plan to build a new base in Merauke, other bases have to be built 
to support the navy's operations in Papua, Cendrawasih Pos reported. 

"The planned bases are to support navy ships operating in eastern waters. The 
Navy Chief of Staff has planned the survey and the chief will soon monitor 
areas with potential for the navy to build a base," Sumantri said. 

ECONOMY 

Hopes for Lower Inflation 

The head of the Central Bureau of Statistics now says year-end inflation 
could come in as low as 7.7%, compared to earlier projections of 8%. 

BPS chief Rusman Heriawan said July inflation is expected to be flat compared 
to previous month. 

Coordinating Minister for the Economy Boediono also said Friday (21/7/06) 
that he expects interest rates will continue to fall as the inflation outlook is 
"improving."

"The current (Bank Indonesia one-month benchmark rate) is still high," 
Boediono told reporters. "I hope - not dictate to Bank Indonesia - that the rate can 
be cut in line with improving inflation," Dow Jones Newswires reported him as 
saying. 

The central bank meanwhile described the exchange rate of the rupiah as 
"comfortable" and a business survey by the bank found that most businesses were 
also happy with the current level. 

Domestic-oriented firms said they would prefer a rupiah level at 8,500 to 
9,000 to the greenback, while exporters said they were happy with a range between 
9,000 and 9,500. 

The Investment Coordinating Board (BKPM) said foreign investment approvals in 
the first half of 2006 grew by 2.94% to $6.24 billion compared to the same 
period a year ago. Realized investments for the period rose 6.68%. 

BKPM officials added that domestic investments continued strong, with 
approvals up 172% during the first half on the same period of 2005 to Rp66.8 trillion 
from Rp24.51 trillion. 

Realized domestic investment during the same period increased by a more 
modest but still impressive 43.58% to Rp11.2 trillion from Rp7.8 trillion in the 
first half of 2005. 

Some 20% of manufacturers planned new investments in the second half, a 
central bank survey showed.

There was also positive news on the staple food front, with the agriculture 
ministry saying rice output would be on target and there would be no need to 
import stocks this year, despite severe drought in a number of rice-growing 
areas. 

Industry Minister Fahmi Idris confirmed that the automotive and chemical 
sectors were to get tax incentives, among others. He told reporters after a 
coordinating meeting of economic ministers Monday that get the same deal as pioneer 
industries. 

They will benefit from provisions under Government Regulation No. 148, in 
which tax on the net income of industries will be reduced by 30% of their 
investment, accelerated depreciation and amortization, and longer compensation for 
losses, while income tax on dividends will be reduced from 20% to 10%, Antara 
reported. 

BUSINESS BRIEFS 

MACROECONOMY

Budget Spending Slow, Surplus Rp283.59b

Actual state budget spending during the seven months to July 7 amounted to 
Rp247.52 trillion, or just 38% of the full-year forecast spending of Rp647.67 
trillion, the Finance Department said.

Actual revenue over the same period reached Rp247.81 trillion, or 39.63% of 
the full-year revenue forecast, resulting in a budget surplus of Rp283.59 
billion, XFN-Asia reported on Tuesday (18/7/06).

The government initially projected a budget deficit of Rp22 trillion this 
year, or 0.7% of the gross domestic product (GDP), but has recently proposed to 
parliament to revise this up to Rp37.63 trillion or 1.2% of GDP due to 
bigger-than-expected spending for education, quake reconstruction, subsidies and 
interest payments.

The full-year revenue forecast was also revised up to Rp651.91 trillion while 
expenditure is forecast to reach Rp689.54 trillion.  The statement said tax 
revenue from January to July 7 reached Rp192.22 trillion or 46.17% of the 
full-year forecast, while non-tax revenue amounted to Rp54.92 trillion.

On the expenditure side, the department said the largest item during the 
period was debt repayment, which amounted to Rp39.2 trillion, mostly for domestic 
debt service.  Other major expenses included Rp38.28 trillion on personnel 
expenditure, Rp14.65 trillion on goods procurement, Rp13.99 trillion on capital 
goods and Rp10.3 trillion on subsidies.

Healthy Demand for Retail Bonds

Indonesia's first sale of sovereign retail bonds is attracting healthy 
demand, amid expectations interest rates will fall, Finance Minister Sri Mulyani 
Indrawati said on Wednesday (19/7/06).

The government started marketing the three-year bonds last week with a 12.05% 
coupon rate.  Some officials expect the proceeds to reach about Rp2 trillion 
($216 million).

Indonesia has said it might issue a second retail bond before December as it 
seeks to widen its investor base to boost the government bond market and raise 
funds to plug the budget deficit.

"According to dealers that we have appointed as selling agents, they estimate 
that (demand) is good," Indrawati was quoted as saying by Reuters.

The retail bonds are on sale until August 4 and payment has to be made by 
August 9.  The bonds carry a nominal value of Rp1 million and the minimum 
purchase is Rp5 million ($540).

"Demand for the retail bonds seems to be good," said Randy Pangalila, senior 
vice president in charge of fixed income at brokerage Trimegah Securities, one 
of the appointed selling agents for the bonds.  A key reason for the healthy 
demand is for buyers to lock in current interest rates because they are 
expected to fall later in the year, analysts said.

The government has already sold about Rp48 trillion in bonds this year, 
including foreign currency bonds, to help plug this year's state budget deficit, 
estimated at 1.2% of the gross domestic product.

BI Awards Rp39.3t 1-Month SBIs

Bank Indonesia (BI) said it has awarded Rp39.3 trillion worth of one-month 
Bank Indonesia Certificates (SBI) at a fixed rate of 12.25%, XFN-Asia reported 
on Wednesday (19/7/06).

The SBI rate is pegged to the central bank's key policy rate, called the BI 
rate.

INVESTMENT

FDI Approvals Up 2.94% in H1 - BKPM 

Foreign direct investment (FDI) approvals in the first half of the year 
increased slightly by 2.94% to Rp58 trillion ($6.24 billion), from Rp56.3 trillion 
in the same period last year, the Investment Coordinating Board (BKPM) 
reported on Monday (17/7/06). 

The realized FDI figure for the period rose by 6.68% to Rp34 trillion from 
Rp31.87 trillion previously, BKPM chief secretary Yus'an was quoted as saying by 
The Jakarta Post during a hearing with the House of Representatives' 
investment commission.

Yus'an noted that there are signs that investment is starting to recover.  He 
said domestic investment approvals in the first half of the year soared by 
172% to Rp66.8 trillion from Rp24.51 trillion in the same period of 2005.  
Realized domestic investment during the same period increased by 43.58% to Rp11.2 
trillion from Rp7.8 trillion previously. 

He said that total realized investment (both domestic and FDI) during the 
first semester of the year amounted to Rp45.2 trillion, still less than 50% of 
BKPM's full-year target of Rp132.8 trillion. 

He however said he is optimistic that the target could be achieved on the 
back of the various economic reform programs launched by the government to 
improve the domestic investment climate. 

Some Firms to Expand 

A fifth of Indonesian manufacturers expect to make new investments in the 
second half, a central bank survey showed on Tuesday (18/7/06).

Investment accounted for 22% of the gross domestic product (GDP) in the $290 
billion economy in 2005.  

The survey also showed that for those manufacturing firms planning new 
investment in the second half of the year, such as in new machinery and plant, they 
expect their financing sources to come equally from banks and non-banks.  
Manufacturing accounts for a third of the country's GDP.

For those planning to finance new investments from non-bank sources, most 
expect to do so using internal funding sources, the survey showed.

One-Stop Investment Service for SEZs 

The government will set up a "one-stop investment office" for Batam, Bintan 
and Karimun islands, as a first step to making the area a magnet for foreign 
direct investment which will lead to the establishment of Special Economic Zones 
in the islands.

Immigration procedures and labor permits concerning foreign workers -- along 
with taxation and customs services -- will be simplified through the 
integrated investment service, which is expected to be up and running in Batam by 
September, The Jakarta Post reported on Monday (17/7/06). 

Speaking after a meeting on July 15 of a joint steering committee for the 
development of the SEZs, Coordinating Minister for the Economy Boediono said the 
establishment of the one-stop investment office would be among concrete action 
taken to fix remaining bureaucratic snags still hampering investment into the 
pilot-project area. 

"We are taking immediate steps (to develop the SEZs).  Even before the 
meeting, we have been working to set up the integrated investment system," he said.  
"In the medium-term, we would like the SEZs to be a working model, suitable 
for application in other areas." 

Indonesia and Singapore signed last month a framework agreement on economic 
cooperation to transform the three major islands of Riau Islands province into 
SEZs.  

Singaporean Trade and Industry Minister Lim Hng Khiang said both sides had 
been working hard to improve the area's investment climate, expecting 
implementation results over the next three months.  

"We are looking at all issues related to how the SEZs can enhance Indonesia's 
competitiveness in attracting foreign investment.  First is the institutional 
framework; second, policies that have to be put in place; third, the 
regulatory framework according to which the policies are being implemented; fourth is 
the infrastructure, and fifth is incentives," he said. 

-End 1 of 2-

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Joyo Indonesia News Service
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