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Monday, January 30, 2006

Trade and Investment News, 30 January 2006

he Coordinating Ministry for Economic Affairs
Republic of Indonesia


• Two of nine alleged heroin smugglers from Australia face the death sentence
• Rice welcomes assistance on Myanmar
• Jakarta to assist Korean relations
• Three former directors of Bank Mandiri face 20 year sentences for alleged corruption

• The draft bill on governance in Aceh goes to the House of Representatives

• Investment almost doubled during 2005
• Nomura International upgrades Indonesia to overweight

Business Briefs
• Economic growth projected strong
• Rupiah at 11-month high
• Demand for fuel products stays low
• Bank Indonesia watches Fed move

• Investment in Indonesia almost doubles in 2005
• President Yudhoyono appeals to labor unions to help build a positive investment climate
• Japanese car manufacturers to make Indonesia a regional production base

State concerns
• The government completes its review on import duties for 9,209 products

• State asset management company PPA plans to sell remaining minority stakes in three banks
• Telecoms regulatory body BRTI agrees in principle to a proposed 30% increase in local call rates
• Semen Gresik said its cement sales grew 4.5% to 16.34 million tons in 2005

Private sector
• Three companies to bid for third generation (3G) cellular licenses

• Banking sector looks to higher loan expansion
• Bank Indonesia encourages closer links with rural credit banks
• Banks to assist textile sector
• Malaysia's Khazanah Nasional keen to see mergers with Lippo

• A 600-MW thermal power plant to come on stream, easing pressure on the major Java-Bali

• Defense Minister orders probe into Freeport Indonesia financial support for security forces


Government Wins Rice Vote
The government received the support of the House of Representatives (DPR) over its policy on limited rice imports, with a plenary session on Tuesday ( (21/1/06) rejecting a move for an investigation of the program.

The imports supported by 184 legislators voting against a probe, 151 calling for a full-fledged investigation and 107 backing the motion for an inquiry.
The vote cleared the political and legal hurdles presented by opposition legislators, who had questioned licenses to import 110,000 tons of medium-grade rice from Vietnam.

The government wants the imports to keep prices stable at a time when stocks at the State Logistics Agency (Bulog) are below the minimum requirement, making market intervention to restrain prices difficult.

In Tokyo, visiting Vice President Jusuf Kalla said the debate over the government's rice import plan was natural in any democratic country.
"If the House of Representatives (DPR) conducts an inquiry or interpellation into the government's decision to import rice, I think it is a normal thing, “ he told the Indonesian community on Tuesday. “The government in a democratic country should be controlled and in Indonesia it is Parliament’s right to do so.”
Kalla said that unlike more technologically advanced Japan, Indonesia’s agricultural output and consumption figures can only be done manually.

"The rice production figure, which is issued by the Central Bureau of Statistics (BPS), is the same as that issued by the Agriculture Department, but to calculate consumption is more difficult so there is a difference with Bulog figures,” he said.

Kalla noted that the main issue with rice was not the decision over the desirability of importation, but rather the response of the stock to unexpected increases in demand resulting from a natural disaster.
The vice president was in Tokyo on the last leg of an overseas trip to promote trade and investment relations with Belgium, Finland and Japan.
Earlier on Tuesday, Kalla paid a courtesy call on Japanese Prime Minister Junichiro Koizumi, held a business meeting with Japanese businessmen and attended a seminar on investment and trade held by the Japanese Chamber of Commerce and Industry.

Two Australians Face Death Sentence
A smiling Andrew Chan nodded and muttered "no problem" when prosecutors on Friday (27/1/06) demanded he be executed for his role as the alleged "godfather" of the nine Australians arrested in Bali last year for smuggling eight kilograms of heroin.

Prosecutors want Chan, 22, and fellow alleged ringleader Myuran Sukumaran to go before firing squads, another six members of the heroin smuggling syndicate to spend their lives in prison and the only female accused, Renae Lawrence, to serve 20 years.

Appearing unfazed by his potential fate, Chan smiled and nodded as prosecutor Olopan Nainggolan presented evidence to the Denpasar District Court.

It was Chan who had continued reading in the Denpasar airport lounge on April 17 after the four couriers were arrested with more than eight kilograms of heroin. Only a tip-off from Lawrence resulted in police arresting Chan shortly before boarding the flight to Sydney.

Chan had helped strap the heroin to the couriers' bodies, and it was Chan who, the couriers claimed, said he would have their families killed if they disobeyed instructions. Assistant prosecutor Sinaryati said Chan had "tightly overseen" an international smuggling syndicate as its financier.

"It is clear for us that the defendant is the engine that moved the activities, supported by Tan Duc Than Nguyen and Myuran Sukumaran, and the others were the drug couriers." Chan and Sukumaran were the "financiers and benefactors" of a highly organized syndicate, Nainggolan said.

Militant Declared Suspect
One of several militants detained on suspicion of ties to Malaysian fugitive Noordin Mohamad Top, has been was officially declared a terrorist suspect, police spokesman Brig. Gen. Anton Bachrul Alam said on Monday (20/1/06).
Subur Sugiarto was arrested on a bus in central Java province on his way to Jakarta the previous week, but police did not say at the time what possible charges he faced.

Sugiarto allegedly made the videotape of a masked man identified by police as Top threatening attacks on America, Australia, England and Italy.
In the tape, seized from Top’s hide-out in November, the man pointed at the camera and warned countries that support the wars in Iraq and Afghanistan: "You will be the target of our next attack." Alam said one other militant arrested about the same time was also officially declared a terror suspect on Monday.

Abu Sayaf, was allegedly linked to a semi-automatic handgun that was used by a member of Jemaah Islamiyah in a recent bank robbery. Intelligence officials earlier said the militant group may be running short of cash and turning to bank robberies to help finance their operations.

Meanwhile, police on Tuesday announced the arrest of yet another suspect with ties to Top and said he was providing authorities with information on the fugitive's whereabouts.

The suspect, identified only as Catur, was detained on Monday in Central Java, the latest of at least 11 alleged militants arrested in the region in recent weeks.
Catur is accused of playing a role in "assisting" Top. Officers have a week before they have to release or formally declare him a suspect.

Yenny Wahid Joins SBY
President Susilo Bambang Yudhoyono has appointed Yenny Zannuba Wahid, the daughter of former president Abdurrahman Wahid, as one of his expert advisors, presidential spokesman Andi Malarangeng said on Friday (27/1/06).

Working under Cabinet Secretary Sudi Silalahi, she will the president’s assistant for politicall communication. Wahid’s second daughter declared her personal support for Dr. Yudhoyono when he ran in the 2004 presidential elections and has often accompanied him on visits to Islamic boarding schools.

She started her working life as a journalist at the Sydney Morning Herald, later going on to earn a Masters degree in public policy and management from Harvard University.

US Seeks Help on Myanmar
US Secretary of State Condoleezza Rice has expressed the hope that Indonesia and the United States can cooperate in seeking a solution to the political stalemate in Mayanmar. Receiving new Indonesian ambassador Sudjadnan Parnohadiningrad on Monday (20/1/06), Rice said Indonesia could play an important role because of its experience in negotiating a difficult political transition.

President Susilo Bambang Yudhoyono is planning a visit to Myanmar next month as part of his interrupted swing through the 10 Association of Southeast Asian (ASEAN) states.

The US has been an increasingly vocal critic of Myanmar’s military rulers, particularly over their decision to extend the house arrest of pro-democracy leader Aung San Suu Kyi. Rice said Indonesia has achieved great progress in the defense of human rights and as a predominantly Muslim country, it can represent moderate Muslims around the world.

Rice said the US would also seek Indonesian cooperation in helping to deal with other issues, including international terrorism and Iran’s nuclear program.
Sudjadnan, who met with the secretary of state to submit his credentials, said Indonesia appreciated the recent positive change in US policy towards Indonesia.

Jakarta as Korean Peacemaker
Indonesia said Monday (23/1/2006) it will try and arrange a meeting between defense ministers from the two Koreas later this year as part of efforts to reduce tension on the peninsula.

After talks with his South Korean counterpart in Jakarta, Indonesian Defense Minister Juwono Sudarsono said the diplomatic initiative was meant to complement ongoing six-nation talks on the North's nuclear program.
Sudarsono said he planned to visit South Korea later this year to facilitate a meeting between defense ministers from the two Koreas. He gave no more details.

South Korean Defense Minister Yoon Kwang Ung said President Susilo Bambang Yudhoyono told him that Indonesia wanted to join efforts to resolve the problem on the Korean peninsula. "For that purpose, the president promised to send his envoys to our country and North Korea as
(peace) initiators," he said.

Indonesia has historic ties with both Koreas. It is a major trading partner and investment destination of the Republic of Korea, it has historic ties with the Democratic Republic. Former President Megawati Sukarnoputri has maintained links with Kim Jong Il.

Banker Faces 20-year Jail Term
Prosecutors on Thursday (26/1/06) sought 20-year jail terms for three former executives of the country's largest state bank accused of multi-million dollar corruption.

The recommendations for the three former Bank Mandiri executives were based on proof that they had embezzled funds to the tune of Rp160 billion ($15.9 million), chief prosecutor Baringin Sianturi said.
Baringin told the South Jakarta district court that the three -- individually or in conjunction with others -- were guilty of "enriching themselves" and "causing losses to the state or the nation's economy."

The three are former president Edward Cornelis Williem Neloe, 61, former director for risk management I Wayan Pugeg, 58, and the former coordinator for corporate and government affairs, Sholeh Tasripan, 49. The three allegedly approved loans to a private company without properly ascertaining the client
was bona fide and capable of repaying the loan. They have been detained since May 2005.The trial resumes in two weeks. At least three executives of the company which received the loans are to be tried separately.

Second Bank Fugitive Charged
A second former banker has been brought back from overseas, this time Singapore, to face charges over a Rp170 billion ($17.9 million) graft case, presidential spokesman Andi Malarangeng said on Friday (27/1/06).
Atang Latif, former president of the now defunct PT Bank Bira, was escorted back to Jakarta, where he was formally accused of misusing the money – part of the Rp325 billion in liquidity support funds that Bank Indonesia made available to the bank at the height of the 1997-98 financial crisis.

A state audit later revealed that 95% of the Rp144.5 trillion in loans the central bank provided to the banking industry at the time had been stolen.
Earlier, Indonesian police and the US Federal Bureau of Investigation (FBI) nabbed the former president of the now defunct PT Bank Umum Servitia in San Francisco for embezzling $139 million.

"The president has instructed the police and all law enforcement officials to continue their good work so that all crooked officials who must meet their obligation to the state are returned home," Mallarangeng said.

Sudharmono Laid to Rest

Sudharmono, a former vice president and one of the country's best administrators, died on Wednesday (25/1/06) after a long bout with Parkinson’s disease that left him in a wheelchair.He lay in state at his Jl. Senopati residence before being buried at the Kalibata Heroes Cemetery
on Thursday in a ceremony led by President Susilo Bambang Yudhoyono.
Sudharmono, who would have turned 79 on March 12, was admitted to the Metropolitan Medical Center (MMC) two weeks ago suffering from respiratory difficulties. He is survived by his wife Emma Norma and three children.

Born in the East Java town of Gresik, Sudharmono was known as a hardworking but low-profile official after he took up his post as Golkar chairman. He was particularly close to former president Suharto as one of the leader's six vice presidents.

A retired three-star Army general, Sudharmono served as state secretary for three consecutive terms from 1973 to 1988 under the New Order regime. He led Golkar from 1983 to 1988 and was vice president from 1988 to 1993.
Sudharmono first made his mark in the final days of the Sukarno regime, ordering the decree that banned the Indonesian Communist Party (PKI) after an abortive coup. He later chaired the military's Supreme Operations Command (Koti).

His military career began during the war of independence in the 1940s in East and Central Java as a member of the Ronggolawe Division. After the war, he studied at the Military Law College and subsequently worked as an army prosecutor.

Aceh: Draft Bill to DPR
The government finalized the draft bill on governance in Aceh and delivered it to the House of Representatives (DPR) for discussion on Thursday (26/1/06).
Under the terms of the August peace pact between Jakarta and the Free Aceh Movement (GAM), Indonesia must come up with a set of laws by March 31 that give Aceh the right to control most of its affairs.

"We have submitted it to the parliament today and there is a special chapter on local political parties," Progo Nurjaman, secretary general of the home affairs ministry, told reporters. According to the peace deal signed in Helsinki in August last year, while Aceh elections will be held governed by the new bill later this year, the government has 18 months from the signing date to provide an environment suitable for the operation of local parties.

Poll of Analysts Projects Growth 5.6%
Finance Minister Sri Mulyani Indrawati said the government had received a message on restraint in power rate rises from Bank Indonesia (BI).
“BI and the government will jointly ensure that inflation meets our budgetary targets,” Indrawati was quoted as saying by AFX on Thursday (26/1/06).
Bank Indonesia (BI) Governor Burhanuddin Abdullah said earlier that inflation for the year of 8% was feasible with a rate rise averaging 30%.
“Any hike should be at a maximum 30%," Abdullah told reporters. At 30%, the economy could still grow by 5.4%, he added.

World Bank Country Director Andrew Steer said growth could be as high as 5.5%, and encouraged the government to push ahead with plans to push funds into the market to boost economic activity.

A poll of analysts by Reuters saw a median projection for growth at a relatively high 5.6%.“Analysts expect the infrastructure and telecommunications sectors to expand at a robust pace due to increased government spending and foreign funds,” Reuters reported. High interest rates were likely to crimp the pace of expansion, it said.

Figures released by the Investment Coordinating Board (BKPM) said foreign investment almost doubled last year, boosted by spending in the transportation and telecommunications industries.

Overseas investors spent $8.91 billion on 909 projects in 2005, compared with $4.6 billion on 544 projects in 2004, the agency said in a report, Bloomberg News reported. "It was better than expected," said Winang Budoyo, an economist at Mandiri Sekuritas in Jakarta told the agency. "We had expected the figure would not jump that much. Some sectors, such as telecommunications, still offer good prospects, with high demand and relatively low penetration rate."

A number of Japanese automotive majors are also considering new investments in Indonesia, with talk of plans to turn the country into a production base for regional markets. Industry Minister Fahmi Idris said Friday that Toyota Motor Corp., Mitsubishi Motors Corp., Daihatsu Motor Corp., Honda Motorcycle and Yamaha Motor Corp. were set to upscale their operations in Indonesia in the near future.

Speaking at the opening of a new $70 million plant for Yamaha motorcycles, he said he had been told by the companies while he was in Japan that they intended to make the country a production base. Toyota Motor Manufacturing Indonesia confirmed that it would invest more in the country. The minister said Mitsubishi would spend around $50 million this year.

Nomura International upgraded Indonesia to overweight from neutral, recommending that investors increase the proportion of their holdings in Indonesian bonds, citing improving chances of a credit upgrade.

Govt. to Consider Inflation in Power Hike
The government will take into account the full-year inflation target of 8% in its plan to raise electricity rates, Finance Minister Sri Mulyani Indrawati said.
“BI (Bank Indonesia) and the government will jointly ensure that inflation meets our budgetary targets,” Indrawati was quoted as saying by AFX on Thursday (26/1/06).

She pointed out that the government “respects” BI Governor Burhanuddin Abdullah’s statement that full-year inflation could exceed 8% if the government raises power rates by more than 30%. So far, the size and timing of the rate increase have not been decided. Indrawati said a decision will be made after PLN's production costs are audited by the Supreme Audit Board. The audit is expected to take about a month.

"If power prices are increased by around or more than 30%, there are risks that inflation rate will be higher than targeted. We have discussed this with the government. Any hike should be at a maximum 30%," Abdullah said, according to Reuters.

Meanwhile, the World Bank (WB) said Indonesia's economy is set for moderate growth this year as the country recuperates from last year's slowdown amid lingering high oil prices.

WB country director for Indonesia, Andrew Steer, said on Wednesday that Indonesia could expect GDP growth of between 5% and 5.5% this year, with consumption and investment continuing the slowdown that began last year, The Jakarta Post reported. "Although Indonesia's consumption-driven economy has recently shifted to a more sustainable, investment-oriented one, investment has suffered from the recent high interest rate environment," Steer said.
Steer was upbeat that an economic rebound is on the cards later in the year, saying that "a healthy 5% economic growth is better than an unhealthy 6% one."

Rupiah at 11-Month High
The Indonesian rupiah hit an 11-month high on Thursday (26/1/06) on increased overseas demand for local stocks and high-yielding bonds, dealers said, according to Reuters.

The rupiah traded as strong as 9,285 per dollar, its highest level since March 3, 2005. Dealers in Jakarta said that the interest rates paid by local bonds, among the highest in Asia, were attracting foreign investors. Money has also been flowing into Jakarta stocks, they said.

"It's related to stock and debt inflows," said one dealer in the capital. "We suspect Singapore banks are actively selling dollar-rupiah." Meanwhile, the government on Tuesday (24/1/06) sold Rp3.8 trillion worth of treasury bonds
under the FR0033 bond series at a weighted average yield of 12.94%, the Finance Department's Director General for Treasury Mulia Nasution said.
A further Rp2.05 trillion worth of bonds under the FR0034 series were sold at a weighted average yield of 13.34%, he said according to XFN-Asia.

The FR0033 and FR0034 series carry fixed rates and will mature on March 15, 2013 and June 15, 2021 respectively, the department earlier said.
Nasution attributed the high demand to the so-called January effect, when the financial markets traditionally stage a rally at the start of the year largely on optimism. Tuesday's bond auction was the government's first for the year.
At an average weighted yield of 12.94% for the seven-year bonds and 13.34% for the 12-year bonds, the yields are relatively low compared to Bank Indonesia's one-month benchmark rate of 12.75%, Nasution said.

"This means investor confidence in our fiscal policy is strong," he said, adding that about 85% of Tuesday's buyers were banks and the rest were pension funds. Succeeding bond sales are tentatively scheduled for February 14, March 14 and April 11, he added.

The government plans monthly bond issues to help finance the state budget deficit and refinance maturing bonds. Nasution said Rp13 trillion worth of treasury bonds are maturing next month.

Lower Pertamina Dollar Demand Boosts Rupiah
State oil and gas company PT Pertamina's dollar demand for fuel imports has dropped by as much as 30% from up to $2 billion a month previously, amid lower fuel consumption, Bank Indonesia (BI) Deputy Governor Aslim Tadjuddin said.

“Pertamina previously imported fuel oil at the rate of $1.5 billion to $2 billion per month. The decline in its dollar demand by up to 30% is very helpful (for the rupiah),” Tadjuddin was quoted as saying by AFX. Consequently, the impact of high world oil prices on the rupiah should be less significant than it
was before, he said. Pertamina said it might cut fuel imports this year by about 20%, citing a drop in domestic consumption after fuel prices rose in October.

BI Awaits US Fed Move
Bank Indonesia (BI) is awaiting the outcome of this week's meeting by the US Federal Open Market Committee (FOMC) and some local factors before deciding the next direction of domestic interest rates, Governor Burhanuddin Abdullah said, according to XFN-Asia.

He would not say if the recent strengthening of the rupiah against the US dollar would enable the central bank to start lowering its key reference BI rate.
"Let's see on February 7," he said, referring to the central bank's board of governors' meeting to decide on local interest rates.

He said there is an expectation that the US Fed may need to increase its key rate one more time before ending the rate hike cycle.
The FOMC will meet on January 31 and is widely expected to hike official rates by 25 basis points to 4.5%.

Should the Fed raise its key funds rate as analysts anticipate, Abdullah said, "I think the interest rate differential will still be high enough at 8.25%."
He said Bank Indonesia will also assess domestic macroeconomic conditions, which are still moving in line with central bank's expectations.

BI End-2005 Forex Reserves Down
Bank Indonesia (BI) said its foreign exchange reserves as of end-2005 dropped to $34.72 billion from $36.32 billion a year earlier partly due to the oil price spike, which made oil imports last year more expensive, AFX reported.
The decline would have been bigger had there been no global bond sales by the government, which raised $2.5 billion, the central bank said.

It said base money in 2005 rose to Rp239.78 trillion from Rp199.45 trillion the year before, with money in circulation rising to Rp144.87 trillion from Rp126.9 trillion previously. Its net domestic assets as of December 30 stood at Rp65.98 trillion compared to Rp28.6 trillion in the previous year, it said.

2005 FDI Nearly Doubles
Foreign direct investment (FDI) in Indonesia almost doubled last year, boosted by spending in the transportation and telecommunications industries, the Investment Coordinating Board said.

Foreign investors spent $8.91 billion for 909 projects in 2005, compared to $4.6 billion for 544 projects in 2004, the board said in a report, according to Bloomberg. FDI approvals also increased by 30% to $13.57 billion for 1,648 projects last year, from $10.41 billion for 1,226 projects the previous year. Most of last year's approved FDI proposals came from Singapore (203 projects worth $3.93 billion), the United Kingdom (104 projects worth $1.52
billion) and Japan (76 projects worth $1.17 billion).

"It was better than expected," said Winang Budoyo, an economist at Mandiri Sekuritas. "We had expected the figure would not jump that much. Some sectors, such as telecommunications, still offer good prospects, with high demand and relatively low penetration rate. This sector will likely continue leading the investment for this year."

The government wants to attract $426 billion of investment in the next five years to build roads, power plants and ports. The board said domestic investors spent Rp30.67 trillion ($3.23 million) for 214 projects in the country in 2005, double the Rp15.26 trillion spent for 129 projects the year before.

Local investors mostly focused on the food, paper, printing, agriculture and plantation sectors. Realized foreign and domestic investment projects last year provided employment for 278,859 workers, compared to 206,298 workers in 2004. The 467 approved projects still in the pipeline are expected to provide jobs for 407,743 workers, and result in exports worth $28.07 billion,
reported The Jakarta Post.

The board's figures don't include investment in the oil and gas industry or banking and non-bank financial institutions because their investment licenses are issued by other government agencies.

Support Investment, Labor Unions Told
President Susilo Bambang Yudhoyono called on labor unions on Friday (27/1/06) to support the investment climate by not playing politics.
Yudhoyono said protests on labor problems should be conducted peacefully and within the law to avoid tarnishing the image of local workers. "Labor unions, government and the business community should live together in harmony. They
should settle any labor problems in a sincere manner, and avoid turning them into an excessive political movement," he said during the inauguration of a new Yamaha motorcycle factory in West Java.

Yudhoyono ordered the departments of industry and manpower and transmigration, as well as local administrations to maintain regular communication with the business community to ensure that workers receive proper wages and health benefits.

Japanese Car Giants Mull New Investments
A number of Japanese car manufacturers are mulling new investments in Indonesia as part of plans to turn the country into a production base for the regional market, The Jakarta Post reported.

Industry Minister Fahmi Idris said on Friday (27/1/06) that Toyota Motor Corp, Mitsubishi Motors Corp, Daihatsu Motor Corp, Honda Motorcycle and Yamaha Motor Corp are set to upscale their operations in Indonesia in the near future. "During my recent visit to Japan, these companies told me they intended to invest more in Indonesia and to make the country one of their production bases," Idris said in a speech delivered during the opening of a new Yamaha motorcycle factory in West Java.

He said Toyota and Mitsubushi would invest and Mitsubishi this year to boost the production capacities of their factories in Indonesia.
Toyota Motor Manufacturing Indonesia spokesman Irwan Priyantoko confirmed that the Toyota Group, which also includes Daihatsu, would increase its investment in Indonesia this year.

Car sales this year are expected to come in at between 450,000 and 500,000, lower than the 534,000 sold last year as higher interest rates begin to bite.
However, many analysts believe that next year's sales could hit a new record.
Motorcycle sales this year are expected to hit a new record of more than 5 million compared to 4.6 million last year, making Indonesia the world's third largest motorcycle market after China and India.

Meanwhile, president director of PT Yamaha Motor Manufacturing West Java, Yoshiteru Takahashi, said during the opening ceremony that his company had invested $70 million on building its new plant, which could produce 600,000 motorcycles annually.

With the new facility, the company hopes to produce a total of 1.9 million motorcycles this year compared to 1.23 million last year, making it Yamaha's largest production base outside Japan.

Revision of Import Duties Finalized
The government has completed its review on the import duties for 9,209 products as part of an effort to eliminate price distortions in the domestic market and comply with global free trade agreements, the Finance Department said.

The government will start reducing or eliminating import duties in February on a total of 11,171 products. The new maximum duty on these products will be 5% and the process will be completed by 2010, further opening up the domestic market to competition from imports.

On the upside, however, this will also help local manufacturers and exporters secure cheaper raw materials. "We actually wrapped up the tariff harmonization process in December last year, and reviewed the import duties on a total of 9,209 products," Finance Minister Sri Mulyani Indrawati was quoted as saying by The Jakarta Post on Thursday (26/1/06).

Indrawati explained the revisions were necessary to simplify the current tariff system, which was contributing to distortions in the prices of goods on the local market, while still ensuring appropriate protection for local products.
She acknowledged the new tariff structure could have a slightly adverse effect on state revenue, but stressed the importance and benefits of Indonesia complying with global trade agreements. Business groups welcomed the finalization of the revision process.

Dept. Calls for Rattan Export Ban
Industry Minister Fahmi Idris has asked the Trade Department to ban the export of raw rattan to ensure a sufficient supply for local furniture producers.
Idris said he hopes the Trade Department would discuss the proposed ban in February, as rattan exports have caused acute shortage for local furniture makers.

"We will coordinate with the trade and finance departments, and local municipal administrations to discuss this problem. Some local rattan companies are complaining they need to export more of their products to see a profit," he said, according to The Jakarta Post.

State Firm to Sell Stakes in 3 Banks
State asset management company, PT PPA, plans to sell its remaining minority stakes in three banks this year, in a bid to raise funds to help finance the state budget deficit, its head said on Friday (27/1/06). The planned sale comes after the country's stock and bond markets made strong gains recently, due in large part to increased inflows of foreign capital seeking high-yielding assets, Reuters

PPA chief Mohammad Syahrial said it plans to sell a 5% stake in Indonesia's sixth largest lender Bank International Indonesia (BII), a 26.17% stake in the seventh largest lender Bank Permata, and a 2.4% stake in mid-sized lender Bank Lippo.

"If it is possible in the first quarter, yes, we will sell. We'll see the market. If the second quarter is still good, let's see," he told reporters. PPA is also planning to sell a 28.39% stake in Bank Tabungan Pensiunan Nasional (BTPN) this
year, Bisnis Indonesia reported.

It will offer the stake first to BTPN's majority owner Admiro Corp, which owns a 71.6% stake in the bank, PPA corporate secretary Renny Rorong said.
BTPN, which operates 28 branches, focuses on serving retired civil servants. As of September 2005, its assets were valued at Rp4.2 trillion.

PPA is tasked to manage and sell assets taken over by the state from non-performing debtors following the Asian financial crisis of 1997-1998.
The government has set a target for the agency to raise Rp2.35 trillion ($251.2 million) this year, a substantial amount of which is expected to come from asset sales.

Proposed Phone Rate Hike Approved
Indonesia's telecommunications regulatory body, BRTI, has agreed in principle to a proposed 30% increase in PT Telkom's local call rates to cover rising costs, AFX reported. “In principle, they (BRTI) agreed to our numbers,” Telkom vice president for service and tariff, network and solution Alex Palit said on Thursday (26/1/06). He said BRTI has yet to present its views to the government.

Telkom proposed to raise rates for local calls by 30% and cut charges for domestic long distance calls by 18.5% under a tariff re-balancing scheme.
The last rate adjustment was in April 2004. Telkom raised local call rates by 28.21% but lowered charges for domestic long distance calls by 0.045 to 20.71%. On average, the telephone tariffs rose by only 9%, leaving room for another hike.

Semen Gresik 2005 Sales Up 4.5%
Indonesia's largest cement maker PT Semen Gresik said its cement sales grew 4.5% to 16.34 million tons in 2005 from 15.64 million tons the previous year as strong domestic sales offset a drop in exports, XFN-Asia reported. The company said it sold 14.28 million tons in the domestic market during the year, up 6.5% from 12.4 million tons in 2004, while exports dropped 7.7% to 2.06 million tons from 2.23 million.

Meanwhile, the country’s annual cement consumption growth slowed to 4.9% in 2005 from 9.1% the previous year as the economy slowed, industry data showed on Thursday (26/1/06), according to Reuters. Semen Gresik said total domestic cement consumption, an indicator of economic activity, rose to
31.51 million tons in 2005 from 30.04 million tons in 2004. This year, domestic cement plants are expected to increase production and exports but their
growth will probably slow to less than 10%, the Industry Department’s Director General for Chemical Industry, Benny Wahyudi, said early last week. This year, the property and housing sectors are expected to grow by 25%, he said, adding that the construction of 523 km of toll road would need some 10,000 tons of cement. The cement sector would also be boosted by the development of about 1 million houses in Javaand in other regions.

3 Operators Bid for 3G Frequencies
The tender of third generation (3G) cellular service frequencies has attracted three bidders -- PT Telkomsel, PT Indosat, and PT Excelcomindo Pratama, the Information and Communication Department said.The department plans to offer nationwide 3G services on frequencies of 1,940-1,955 MHz and2,130-2,145 MHz.

Banks Expect Higher Lending

The banking sector expects lending this year to surpass last year's figures, spurred by the central bank's plan to lower its key interest rate and ease several policies which hamper banks from channeling more credit to help finance the economy.

Lending institutions are still awaiting concrete measures from Bank Indonesia (BI) on loosening up its rate and banking policies, as well as the government's commitment to expedite infrastructure and procurement projects to contribute to financing, The Jakarta Post reported on Monday (23/1/06).

Lending increased by 21% on the average as of October 2005 over 2004's total.

Bank Central Asia (BCA) vice president Jahja A Setiaatmadja said his bank expects at least Rp10 trillion ($1 billion) in additional loans this year, because credit applications increase amid a lower interest rate environment.

"We had earlier expected to be able to expand our credit by only Rp8 trillion, but recent conditions have convinced us that we may do better," he said.

"If BI lowers its rate by 1.5 percentage points, then we can also start lowering our credit interest rates from 16% at present. BI's planned banking policy revision, especially lowering the minimum reserve requirement of banks, is also expected to increase our liquidity, enabling us to use it for more loans this year."

BCA, the country's second largest lender by assets, channeled Rp50 trillion in loans as of September last year, up from the Rp35 trillion it disbursed during the same period in 2004.

Bank International Indonesia (BII) director Sukatmo Padmosukarso is likewise optimistic, expecting lending growth to reach 40% this year. "We hope to better, or at least match, our high credit growth during last year's first quarter," he said, noting the lender's total loans of Rp20 trillion last year.

In another favorable move for the banking sector, BI Governor Burhanuddin Abdullah recently said the central bank would reconsider several policies so banks could channel more credit. Its plans include lowering the minimum reserve requirement for banks; easing lending terms to small- and medium-sized firms; and revising BI's strict uniform loan collectibility classification.
Setiaatmadja noted that a boost in lending might only occur in the second quarter, when BI fully implements its policy revisions.

Bank Negara Indonesia (BNI) expects lending to grow by up to 24% in 2006 from the expected 9% rise to Rp62.9 trillion in 2005, its president Sigit Pramono told Dow Jones Newswires recently. "We hope the interest rate would stay steady from the second half of 2006," Pramono said. "Expected higher loan growth should help improve other key financial figures this year."

Bank Rakyat Indonesia (BRI), the country’s fourth largest lender, expects its loans to grow by 15% to 20% this year despite high domestic interest rates, its chief Sofyan Basir said on Thursday (26/1/06). "Although interest rates would remain high, we will keep improving BRI's financial condition," he said after an extraordinary shareholders' meeting.

Other banks remain cautious in evaluating their lending prospects this year despite BI's incentives. Bank Mandiri corporate secretary Ekoputro Adijayanto said his bank had not revised its 15% lending growth forecast. The country's largest lender channeled Rp101 trillion in loans as of 2005's third quarter.

Data from the central bank shows loan disbursements from the banking sector reached Rp719.9 trillion ($76.5 billion) as of October 2005, up 21% from its amount in December 2004.

Banks Urged to Lend More to SMEs
As part of efforts to give small and medium enterprises (SMEs) more access to capital, the central bank is encouraging commercial lenders to link up with rural credit banks (BPRs) to increase lending to the sector, reported The Jakarta Post.

A total of Rp1.56 trillion ($166 million) was injected into the sector through such schemes last year. Bank Indonesia (BI) Governor Burhanuddin Abdullah also said he hoped for more involvement by foreign banks in lending to SMEs through such linkage programs. "We are grateful to the banks that already have linkage programs with the BPRs for the provision of loans to the SMEs as this plays an important part in supporting the real sector,” Abdullah said during a signing ceremony on Thursday (26/1/06) for a Rp197.6 billion linkage program package involving 13 banks and 39 BPRs.

Among the credit agreements signed were ones for Rp90 billion in loans from Lippo Bank, Rp28 billion from Bank Negara Indonesia (BNI), and Rp25 billion from Bank Mega. Abdullah said lending to SMEs would prove to be profitable for the lenders as this sector has one of the lowest non-performing loan (NPL) ratios.

Figures from the central bank showed that lending to SMEs based on linkage programs amounted to Rp1.56 trillion last year, with a total of 22 banks operating such programs in collaboration with 1,833 BPRs. The government has been trying to strengthen the SME sector, which managed to survive the
late-1990s economic crisis relatively intact, to create more jobs for the country's millions of unemployed. SMEs provided about 12 million jobs in 2002, and employed more than 95% of the workforce last year.

Domestic Banks to Help Textile Firms
A number of domestic banks, among them Bank Mandiri, Bank Negara Indonesia (BNI), Bank Rakyat Indonesia (BRI), Bank Danamon and Bank Central Asia (BCA), have made an initial commitment to provide loans to the country's ailing textile industry, an official has said.

The Industry Department's Director General for Textile Industries Ansari Bukhari however that the loans would only be extended to companies with good financial track records operating in the weaving and spinning industries, The Jakarta Post reported.

The banks have agreed to meet with potential borrowers and discuss possible loans with them. Indonesian Association of Textile Producers (API) secretary general Ernovian Gysmi said the textile restructuring committee would probably hire an independent auditor to short-list the companies eligible to receive loans. "The banks will only support those that have good financial track records and prospective markets," he said.

He noted that upstream industries like spinning and weaving would be prioritized, as greater efficiency at this level would eventually trickle down to the downstream sectors, like the garment industry.

Khazanah Eyes Small Indonesian Banks
Malaysia's Khazanah Nasional Bhd is keen on acquiring small Indonesian banks to be merged with Bank Lippo, where it holds a controlling stake, Bisnis Indonesia reported. “We are still identifying and holding talks to find the right banks to be acquired and merged with Lippo,” the report quoted Bank Lippo president Joseph Luhukay as saying.

The Malaysian government’s investment arm, through its unit Santubong Investment, holds an 87.5% stake in Bank Lippo. Khazanah also has a stake in Commerce Asset Holding Bhd, which controls a 63.5% stake in Indonesia's Bank Niaga.

Meanwhile, Bank Indonesia (BI) Governor Burhanuddin Abdullah said a number of major local investors have expressed interest in acquiring several small banks facing difficulties in meeting the central bank's minimum capital adequacy requirements.

"I have heard that a number of businesspeople are willing to buy these financially weak banks. They are proposing taking over a number of small banks and merging them into a larger bank," Abdullah was quoted as saying by Antara on Wednesday (25/1/06). He said many small banks would likely face difficulties in meeting a minimum capital requirement of Rp80 billion by 2007 and Rp100 billion by 2010. "We are studying the possible options that may be used to help the banks satisfy the capital adequacy requirements," he said.
As of last December, at least 27 banks had less than Rp80 billion in capital.

C. Java Power Plant to Operate in February
A 600-MW thermal power plant in Cilacap, Central Java is scheduled to begin operating and entering state power firm PT PLN’s Java-Bali transmission system next month, Antara reported. General manager of PLN's Java-Bali Electricity Supply Center, Muljo Adji, said on Tuesday (24/1/06) the first unit of the Cilacap plant, with a capacity of 300 MW, will begin operating in
February, and the second unit, also with a capacity of 300 MW, in April.
The Cilacap plant is one of three non-oil power plants with a total capacity of 2,660 MW, which will come online this year to support the Java-Bali grid that supplies electricity to heavily populated Java island.

The other two are the 740 MW gas-fueled plant in Cilegon, West Java, expected to come on stream by April and the 1,320 MW Tanjung Jati B coal-fueled plant in Central Java, with the first 660 MW unit operating in July and the second unit in November. The three non-oil plants will increase the Java-Bali grid’s capacity from 19,615 MW to 22,275 MW, far above the estimated peak load of about 16,000 MW in 2006, Adji said.

Medco, PLN Sign Gas Supply Deal
Indonesia's largest listed energy firm, Medco Energi International, has signed long-term gas supply agreements, including one with state electricity company PT PLN that will help tackle power shortage, Reuters reported on Tuesday (24/1/06). Medco will supply 62 billion cubic ft of gas from its fields in South Sumatra to a 100-megawatt (MW) PLN power plant in South Sumatra for seven years from 2007.

The company also signed a preliminary agreement to supply 139 billion cubic ft of gas to state gas distributor PT PGN for nine years from 2008. PGN will supply the gas to industries in South Sumatra.

PLN has said it will cut the use of oil products to generate electricity by about 18% this year as it looks to counter soaring crude costs. Some 30% of PLN's power plants use oil products, such as diesel and fuel oil.

S Korea Seeks to Develop Ethanol
South Korea has sought cooperation with Indonesia in developing ethanol as an alternative to fuel oil, Antara reported. "We have 50 years of experience in using ethanol as alternative energy, therefore we ask Indonesia to jointly develop ethanol production. Indonesia has the raw material and Korea has
the technology," former South Korean prime minister Chang Yuei Lim said during a discussion organized by the United Development Party (PPP) on Tuesday (24/1/06).

With its abundant supply of cassava, raw material for ethanol, Indonesia is expected to become the largest ethanol producer in Southeast Asia.
Chang expressed his optimism that Indonesia would rake in huge profits from producing ethanol and at the same time settle problems brought about by the high fuel price. Senior United Development Party politician Aisyah Amini said the ethanol industry should be developed in Sumatra, where the land and climate are suited to cassava cultivation.

Probe Ordered on Freeport Payments
Defense Minister Juwono Sudarsono said he has ordered an investigation into the legality of US mining giant Freeport McMoRan Copper & Gold Inc's financial support for security forces in Papua.

"I have asked the inspector general of the defense forces to look into this matter and verify whether these payments have been made," Sudarsono was quoted as saying by Dow Jones on Wednesday (25/1/06).

The pending military investigation into Freeport-McMoRan's financial support for security forces posted around the company's massive Grasberg gold mine reflects the widening fallout of a New York Times report last month that Freeport-McMoRan paid military and police officials in Papua nearly $20 million from 1998 to 2004.

"Based on government policy, all provisions of security support by foreign companies should be made through an Indonesian civil executing agency," he said. "Direct payments (by firms to military personnel) are illegal and shouldn't remain (and this view is) also in line with the Foreign Corrupt Practices Act in the US, which disallows this kind of behavior."

The Times report prompted "informal inquiries" from US government agencies about the firm's financial payments to Indonesian security forces that Freeport-McMoRan is fully cooperating with, Adkerson said in a fourth quarter 2005 earnings conference call the previous week.



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