a business facilitation forum where the International Investors/Business Practitioners will have
a series of business meetings and events with Regional (and National) Decision Makers, as well as Business Entities.
Indonesia Trade and Investment
Indonesia offers trade and investment opportunities in energy, oil and gas, petrochemicals and chemicals, mining,
property, telecommunications, security, automotive, finance, and travel and tourism.
Business in Asia - Why Indonesia?
Indonesia is a rich, ethnically diverse island state with a very large population.
Internal markets for consumer goods are large and offer opportunities for many consumer goods firms. Indonesia
has a large and well developed petroleum industry that adds to government wealth. Indonesia is just starting to
emerge from the crony capitalism that has existed for most of the time since independence.
Wage rates are relatively low and if social stability can be maintained the
opportunities for profitable investment will be significant.
In more recent decades Indonesia has seen major investments by
large multinationals, small businessmen and individuals.
This page will highlight selected business opportunities in Indonesia
open to both expatriates and Indonesian nationals.
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David Cameron has announced a £326m deal to sell 11 Airbus A330 aircraft to airline Garuda Indonesia.
Arriving in Indonesia on his trade tour of East and South East Asia, the prime minister said the deal was "good
news for the UK aerospace industry".
It would safeguard UK jobs and was "a vote of confidence in Britain's manufacturing base", Mr Cameron
said.
Indonesia's trade with the UK accounts for just 0.07% of its imports. It is the world's largest Muslim democracy.
In an interview with Kompas newspaper, Mr Cameron praised Indonesia as an "inspiring democracy" and said
he wanted to double trade by 2015.
"In its successful transition to democracy, Indonesia represents a powerful example for the world of how political
progress can fuel economic success," he told the paper.
Mr Cameron pledged UK help if required after an earthquake struck off the coast shortly before a press conference
with President Susilo Bambang Yudhoyono.
He also announced that he had invited Mr Yudhoyono - who said there appeared to be no threat of a tsunami after
the earthquake - to make a state visit to the UK later this year
Earlier Mr Cameron said the Garuda deal was "testament to the expertise of Airbus's British workforce"
and would protect jobs in Bristol and Broughton.
"I hope it will offer other British companies involved in the £1.5bn supply chain the opportunity to
secure more contracts," he said. The UK has some 10,000 jobs linked to Airbus.
Defence equipment
Speaking after the announcement on the tarmac at Halim Perdanakusuma Airport Mr Cameron said: "I said I wanted
to link Britain up to the fastest growing parts of the world, because we need to trade and export our way out of
our economic difficulties.
"Well, Indonesia is one of those countries. One of the most populated countries in the world, one of the fastest
growing countries in the world. It will be a top 10 economy and these are huge opportunities for British business
and British investment, both in Indonesia and Indonesian investment back into Britain.
"I think we need to recognise that so much of the power in the world is going to be to the South and to the
East and we need to rebuild those relationships. We've got a good standing here because we're one of the largest
investors into Indonesia, but we could be doing far better in terms of our exports and our sales.
"That's why I've packed a plane full of business people to come here to make those links to create those jobs
and investment back at home."
Among those businesses are representatives from defence firms - with Mr Cameron defending their presence, saying
it was right that British defence equipment was available to Indonesia.
The BBC's Indonesia correspondent Karishma Vaswani said that the UK imposed a ban on defence exports to the country
more than a decade ago, following allegations British made equipment was being used against rebels.
But, our correspondent says, Mr Cameron stressed that Indonesia had transformed itself in the last decade to become
one of the world's most important democracies, although human rights groups say Indonesia's military and police
are still guilty of violations that often go unpunished
Mr Cameron was holding talks and delivering a speech in Indonesia before travelling to Malaysia and Singapore.
He is also expected to visit Burma, where he would become the first Western leader to hold talks with Nobel laureate
Aung San Suu Kyi since her election to parliament there.
The prime minister began his trade tour in Japan, where he met Prime Minister Yoshihiko Noda and lobbied for UK
companies to be given access to the country's defence market.
During his visit, it was announced that Japanese carmaker Nissan would build a new model at its plant in Sunderland.
By Olivia Rondonuwu and Mohammed Abbas
JAKARTA | Wed Apr 11, 2012 8:59am EDT
(Reuters) - Indonesia's flag carrier Garuda (GIAA.JK) signed a deal for 11 Airbus (EAD.PA) passenger jets on
Wednesday during a visit by British Prime Minister David Cameron aimed at boosting trade and investment.
The purchase of the A330 jets, worth about $2.5 billion and powered by UK-supplied Rolls-Royce (RR.L) engines,
reflects the growing consumer demand that is attracting political leaders and financiers to court southeast Asia's
largest economy.
"This deal between Airbus and Garuda Indonesia Airlines is great news for the UK aerospace industry,"
Cameron told reporters after arriving in Jakarta on a 24-hour visit.
"I think we need to recognize that so much power in the world is going to be to the south and to the east
and we need to rebuild those relationships," he added, speaking on the second leg of a tour of Asia.
Cameron, travelling with a business delegation that includes defense firms such as BAE Systems (BAES.L) and
Thales (TCFP.PA), also said he wanted to promote arms deals, marking a departure from British policy under the
previous Labor government.
Labor had stopped arms sales to Indonesia in 1999 after British jets were used to bomb rebels. Britain now describes
Indonesia as "one of the most stable democracies in Asia" and Cameron told local media that Indonesia
had been "transformed" in the last decade.
Cameron's coalition government is trying to boost British manufacturing to reduce reliance on financial services
and to limit exposure to the crisis-hit euro zone by doing more business with fast-growing emerging markets.
Speaking after meeting Indonesian President Susilo Bambang Yudhoyono, Cameron said both countries had agreed to
boost trade and other ties, including cooperation between their armed forces and defense industries.
He also offered British aid, should it be required, after a powerful 8.6 magnitude earthquake and strong aftershocks
struck off Indonesia's coast during the two leaders' meeting. There were no immediate reports of casualties or
damage.
INDONESIA AVIATION EXPANDING
The new Airbus jets will increase by two-thirds the number of long-haul A330s already delivered to Garuda or on
order from the airline. Its main domestic rival Lion Air in February signed a record $22 billion deal for planes
from Boeing Co (BA.N). That deal was first announced during a visit to Jakarta by U.S. President Barack Obama.
Leaders from China and France also visited last year together with large delegations of executives sniffing for
investment opportunities, especially to overhaul Indonesia's dilapidated infrastructure.
Indonesia is seeing a rapidly expanding aviation sector as a growing middle class, and business executives, opt
to travel by air across the archipelago of 17,000 islands. Many islands lack good roads or railways, while ship
connections are sporadic and slow, and deadly transport accidents are common.
Many airlines use ageing propeller planes to navigate remote and mountainous eastern provinces such as Papua, where
a Garuda plane skidded off the runway on Wednesday. Garuda was removed from a European Union blacklist on Indonesian
carriers in 2009.
Garuda's CEO Emirsyah Satar said he planned to use the new Airbus planes to expand in Asia-Pacific, including to
China, South Korea and Australia.
Southeast Asian carriers have ordered $47 billion worth of aircraft for the coming decade.
(Writing by Neil Chatterjee; Editing by Michael Perry)
Indonesia’s low tax rates on capital gains make the country more attractive to foreign investors when compared
to countries such as Brazil that impose stiffer penalties on capital gains, a Standard Chartered economist says.
“While in Brazil investors must pay tax at 6 percent, Indonesia has a free foreign-exchange regime,” Jakarta-based
StanChart economist Fauzi Ichsan said on Thursday.
At the end of the 2008 financial crisis, Brazil imposed a 2 percent tax on transactions in which foreign investors
bought into the nation’s stock and bond markets.
It later increased the tax to 6 percent for fixed-income investments. It also introduced a 1 percent transaction
tax on currency derivatives.
On top of that, foreign investors in Brazil are charged a 15 percent rate on capital gains.
Indonesia, to manage erratic capital inflow, took a different approach. Bank Indonesia in June 2010 imposed a one-month
minimum holding period for its short-term debt, known as BI certificates (SBIs), but later increased that to six
months.
Investors who trade securities in Indonesia only have to pay taxes on capital gains, at 0.1 percent on stocks and
up to 15 percent on bonds.
Fauzi said Indonesia still had room to inject stimulus into its economy should global circumstances deteriorate
further. He said Indonesia could grow 5.8 percent to 6.3 percent this year.
When Jim O’Neill, chairman of Goldman Sachs Asset Management, coined the term BRIC — Brazil, Russia, India
and China — in 2001 to refer to newly developed economies, Indonesia, struggling after the Asian financial crisis
and a tumultuous change in leadership, was left off the list.
More than a decade on, having proved its resiliency in the mortgage-driven global crisis of 2008, Indonesia is
now right up there with the BRICs as an attractive investment destination.
Such sentiment is echoed by Mark Mobius, executive chairman of Templeton Emerging Markets Group, a unit of Franklin
Templeton Investments that manages more than $40 billion in emerging market assets.
“We think Indonesia is one of the markets in Asia with great potential,” Mobius said in an e-mail on Monday.
While economic expansion has been weak in the United States and European countries like Spain face the possibility
of slipping back into recession, Asia has been supporting global growth. Indonesia’s 6.5 percent economic growth
last year was its fastest since 1996, lifting average per capita income to $3,500 from $3,000 in 2010.
Indonesia is also abundant in natural resources. Among shipped commodities, it is the world’s largest producer
of tin, rubber and crude palm oil. It also exports vast amounts of coal, gold, iron ore and natural gas.
The country’s emerging middle class has added to the valuation of some local companies, as their earnings “are
helped by strong economic growth, growing consumer demand and government expenditure on infrastructure development,”
said Mobius, an emerging market maven who used to pitch Templeton’s funds in television ads asking viewers what
was the difference between Slovenia and Slovakia.
“This in turn has led to a positive earnings growth outlook for consumer-related companies,” he said. “Indonesia’s
extensive resources and large population put it in a favorable position to attract investments.”
As of the end of December last year, Mobius’s Templeton Emerging Markets Fund had 11 percent of its $1.1 billion
in Indonesia, making the country its third-largest holding. Tops were Brazil (19.9 percent) and Russia (13.9 percent),
with India (9.5 percent) and China (8.5 percent) at fourth and fifth.
In Templeton’s $15 billion Asian Growth Fund, Indonesia accounted for 13.6 percent of the holdings, after China
(30.1 percent), Thailand (22.3 percent) and India (15.3 percent).
One of Templeton’s biggest holdings here is Astra International, whose businesses include automotive distribution,
logistics, infrastructure, financial services, information technology, mining and energy, and palm oil production.
Astra accounts for 7.1 percent of the Asian Growth Fund and 6.3 percent of the Emerging Markets Fund, making it
the biggest single company holding for either fund.
Astra’s share price has risen more than sevenfold in rupiah terms since 2005. Its profit more than tripled to Rp
14.4 trillion ($1.6 billion) in 2010 from Rp 3.7 trillion in 2006, according to Bloomberg data. In the January-September
period last year, its net income exceeded Rp 13 trillion. Its shares closed at Rp 71,500 on Thursday.
Mobius is also interested in companies that are strong producers of commodities such as oil, iron ore, aluminum,
copper, nickel and platinum. Such commodities, he said, have attractive prospects as emerging countries are busy
developing their infrastructure. As emerging markets continue to grow, demand for soft commodities such as sugar,
cocoa and select grains has also increased, Mobius said.
“Resource-rich countries like Indonesia are benefiting from increasing global demand,” he said.
“We are finding good opportunities in companies involved in transportation equipment as well as producers of palm
oil and mining companies such as coal producers,” he added.
Indonesia’s benchmark stock index rose by 2.2 percent in dollar terms in 2011, while the main measures of the BRIC
nations dropped by more than 17 percent, according to Bloomberg data.
Since the start of the year the Jakarta Composite Index has gained 3.5 percent. In the same period, Brazil’s IBOV
index, Russia’s RTSI index and India’s Sensex have advanced more than 20 percent. China’s Shanghai Composite Index
is up more than 9 percent, Bloomberg data show.
Fauzi Ichsan, an economist with Standard Chartered, agreed with Mobius’s assessment that foreign investors would
be attracted to Indonesia’s commodities and publicly traded companies.
But challenges remain in investing in an emerging market such as Indonesia. Fauzi says the country is likely to
continue experiencing a reversal of overseas investment in the capital markets until the end of the first half
of this year as sovereign debt problems in the euro zone weigh on the global economic outlook.
According to Bank Indonesia deputy governor Halim Alamsyah, portfolio investment — which includes stocks and bonds
— in Indonesia totaled $5.8 billion last year, down 56 percent from $13.2 billion in 2010 due to heightened global
economic risks.
With risk forecast to continue, he said, the central bank estimates portfolio investment will fall to $3.7 billion
this year.
However, 2011’s drop was compensated by more foreign direct investment, which rose 12 percent to $15 billion last
year from a year earlier.
Halim estimated that direct investment this year could reach up to $19.2 billion.
As for Goldman Sachs, its asset management group in 2005 started a focus on 11 countries with the largest populations,
after the BRICs, that it expects to have a meaningful impact on the global economy. It includes Indonesia.
Indonesia’s sovereign debt rating was raised to investment grade by Fitch Ratings on Thursday,
citing the country’s strong and resilient economy.
The rating assessor said it raised Indonesia’s long-term and local currency debt rating to BBB- from BB+, putting
the country into investment grade after 14 years. The outlook of both ratings is stable, Fitch said.
“The upgrades reflect the country’s strong and resilient economic growth, low and declining public debt ratios,
strengthened external liquidity and a prudent overall macro policy framework,” said Philip McNicholas, director
of Fitch’s Asia-Pacific Sovereign Ratings group in a statement sent to the Jakarta Globe.
Indonesia lost its investment grade rating in December 1997, at the onset of the Asian financial crisis, which
saw almost all of the country’s banking system collapse. Indonesia spent more than Rp 450 trillion to bail out
lenders then.
Fitch Ratings also forecast Indonesia’s $700 billion economy to grow to an average of more than 6.0 percent per
year through 2013, despite a less conducive global economic climate.
“Indonesia’s domestically-oriented economy and success in delivering relatively strong economic growth without
the creation of external imbalances, or a reliance on short-term external financing suggests economic growth prospects
should prove resilient to external shocks, as was the case in 2008,” Fitch said.
“Low public debt and positive real interest rates give the authorities policy flexibility to respond to any slowdown,”
the ratings agency said.
Analysts and economists in Jakarta said other ratings agencies such as Moody’s Investors Service and Standard &
Poors, which raised the country’s sovereign debt rating to one level below investment early this year, may soon
join Fitch in upgrading the country’s rating next year.
Moody’s Investors Service raised the nation’s rating in January to Ba1 while Standard & Poor’s increased Indonesia’s
long-term foreign-currency rating one level to BB+ from BB in April, with a positive outlook. The rating is one
level below investment grade.
“We welcome this long awaited positive news. Technically, it should open up the restriction
on a universe of domestic investments which foreign funds are allowed to invest,” said Jeffrosenberg Tan, head
of research at Sinarmas Sekuritas in Jakarta.
“The investment grade does not mean a lot nowadays. Our rating should be a lot better than highly indebted developed
countries. Judging from the relative strength of our sovereign balance sheet compared to developed counterparts,
Indonesia should have been awarded a lot sooner then now,” Jeffrosenberg said.
Fitch also said that a strong foreign exchange reserve by Indonesia has put the country in a strong position to
shield it from being hit by the impact of the Eurozone debt crisis.
“The strengthening of external finances through substantial reserve accumulation has insulated domestic economic
and financial stability during recent periods of intensified portfolio capital flow volatility,” Fitch said.
Indonesia’s foreign exchange reserve stood at $113.9 billion as of the end of November of this year, compared with
$95 billion early this year, according to data from Bank Indonesia.
The rupiah, which has been under selling pressure in recent weeks, traded at 9,135 against the dollar on Thursday,
falling 0.5 percent from Wednesday's close at 9,090. Bank Indonesia officials have said that they will continue
to intervene in the market to support the rupiah.
The Jakarta Composite Index could soar to the 4,800 level next year on the back of strong
corporate earnings growth and investor confidence in the country’s overall economy, Nomura Indonesia said in an
equity report released on Wednesday.
If that were to happen it would mean a 26.5 percent rise for the benchmark index from Wednesday’s close of 3,793.26.
The JCI has gained only 2.4 so far this year, a far cry from its 46.13 percent jump in 2010.
Nomura, the local unit of Japan’s largest brokerage, said that despite the risks from overseas, Indonesia, which
benefits from “rising rural incomes and solid domestic fundamental,” should extend its growth momentum into next
year.
The report said the economy was likely to continue to benefit from “a falling sovereign risk profile, strong domestic
consumption and low reliance on exports.”
“Indonesia is unlikely to escape any sharp sell-offs or risk of trade in the global market, but the strong underlying
fundamentals should eventually prevail,” it said. “Any sell-off is likely to prove to be a significant buying opportunity
to ride the solid medium-term growth.
“We expect market volatility will be reduced going forward as investors have learned from the 2008 sell-off and
its strong recovery aftermath.
The report acknowledged “a strong tendency for investors to remain defensive during this turbulent time.” However,
Nomura’s research team “believes the real payoff should come from investing in companies with a strong underlying
business which also appear well positioned for growth.”
The country’s strong economic outlook supports a view for 19.7 percent earnings growth for a variety of listed
companies in 2012, the report said.
Nomura listed its top stock picks as heavy equipment distributor United Tractors, state lenders Bank Rakyat Indonesia
and Bank Mandiri, state gas distributor Perusahaan Gas Negara, state toll road operator Jasa Marga, state cement
maker Semen Gresik, private coal miner Harum Energy and property developer Ciputra Development.
Among stocks under its coverage, Nomura “sees BRI as offering the most attractive earnings and share price potential
upside in a declining interest rate environment in Indonesia, as its net interest margins appear to be most insulated
from competition, while a rising contribution of high-margin micro-credit in its loan portfolio has widened NIMs
in the past two quarters.”
Regarding Mandiri, it said the bank “is not a beneficiary of falling rates, but we believe the bank’s strong non-interest
income growth should offset NIM pressure, while there is still significant loan recovery potential from the bank’s
legacy non-performing loans.”
Indonesia’s central bank has lowered its key interest rate by 75 basis points this year in
two cuts, taking down the benchmark rate to 6 percent, the lowest level since it was introduced in July 2005.
Nomura said PGN was “upbeat on the gas distribution sector, partly due to favorable government policies, robust
demand growth underpinned by the transition to clean and low-cost energy and stable margins.”
However, Nomura also cited some key risks. It pointed to “a sharp correction in commodity prices that would hurt
incomes in Indonesia’s resource-rich regions” and “a sharp rupiah depreciation that could trigger inflation, and
a liquidity crunch that could de-couple market price action from the strong underlying fundamentals.”
Wilianto Ie, head of equity research at Nomura Indonesia, led the research team.
US President Barack Obama stands alongside Ray Conner, second right,
senior vice president of Boeing, and Rusdy Kirana, president director of Lion Air,
during a signing ceremony for a record $21.7 billion deal.
The president says the Asia-Pacific region already supports five million American jobs,
and the fastest growing region in the world has the potential to increase U.S. job growth.
Boeing Co. (BA) won a provisional order, worth $21.7 billion at list prices, from Indonesian
budget carrier Lion Air for 230 of its 737 aircraft in what would be a record transaction for the U.S. planemaker.
The commitment consists of 201 of the new 737 MAX model, which features upgraded engines, and
29 extended-range 737-900s, according to a statement. President Barack Obama today attended a signing ceremony
for the deal in Bali, Indonesia, which coincided with a summit of Southeast Asian leaders.
“There has been a lot of big orders coming out of Asia lately,” said Shin Ji Yoon, an analyst at KTB Investment
& Securities Co. in Seoul. “Travel demand will just grow and grow.”
Lion Air’s commitments are included in the 700 agreements for the 737 MAX that Boeing Commercial Airplanes President
Jim Albaugh cited this week at the Dubai air show. Boeing decided in July to upgrade the top-selling 737 rather
than build an all-new successor and hasn’t yet signed any firm orders for the MAX.
Boeing also said yesterday that lessor Aviation Capital Group plans to buy 35 of the 737 MAX jets and 20 of the
current 737-800s, while Singapore Airlines Ltd. (SIA) firmed an order for eight 777s valued at $2.4 billion at
list prices. Carriers typically receive discounts on large orders.
Asia-Pacific Opportunities
Boeing expects to complete the Lion Air deal, which will include 150 options for more planes, “fairly shortly,”
spokesman Wilson Chow said at the signing ceremony, without elaboration. The Chicago-based planemaker expects to
begin delivering 737 MAX aircraft to customers in 2017, he said.
“This is a remarkable example of the trade, investment and commercial opportunities that exist in the Asia-Pacific
region,” Obama said at the signing ceremony.
Airbus SAS in June announced an order for 200 A320neo planes from Malaysia-based AirAsia Bhd. (AIRA) a day after
confirming an agreement for 180 A320 and A320neo planes from Indian carrier IndiGo. The A320neo is a revamped version
of the A320, which competes with Boeing’s 737.
Jakarta-based Lion Air flies an all-Boeing fleet consisting of 737 models in different configurations and MD-90
jets, according to its website. The airline had 126 single-aisle Boeing jets on order through October, according
to the planemaker’s website. Lion Air has received 52 aircraft since its first order in June 2005.
“There is structural demand for travel in Asia and we do expect that will continue over the long term,” said Andrew
Orchard, a Hong Kong-based analyst at Royal Bank of Scotland Group Plc. Still, Orchard was “a little bit surprised”
by the size of the latest Lion Air agreement, he said.
Lion’s Fleet
Boeing’s Lion Air accord marks the second record broken this week by the 95-year-old company, after Emirates ordered
50 widebody 777s with a list value of $18 billion on Nov. 13. Options for 20 more jets would push the value of
that deal to $26 billion.
The Lion Air accord “is a big deal,” said Rob Stallard, a New York-based analyst with RBC Capital Markets who has
an “outperform” rating on Boeing. “It gives a meaningful boost to Boeing’s backlog and MAX order book.”
Once it’s signed, Lion Air’s order will be Boeing’s biggest by value and number of planes. The largest by value
before this week was Air India’s agreement to buy $11 billion in various models in 2006. By number of planes, AMR
Corp. (AMR)’s planned order for American Airlines in July would come the closest, though the 200-jet commitment
that includes current 737s and 737 MAXes hasn’t been fully completed yet.
Boeing fell 0.4 percent to $66.09 yesterday in New York. The stock has gained 1.3 percent this year.
Production of 777 and 737 jets at Boeing’s Seattle manufacturing hub is being raised to record levels to help whittle
down a seven-year backlog Albaugh has said is too high
GE-Safran Engines
CFM International, General Electric Co.’s venture with France’s Safran SA (SAF), is the sole provider of engines
for the 737, including the new Leap engine on the upgraded 737 MAX. Based on list prices, the Lion Air engine orders
are valued at more than $5.3 billion.
The GE90 engine, the world’s most powerful, is the only choice on the 777ER model ordered by Singapore Air. That
contract is worth more than $450 million based on list prices.
Separately, Boeing lost six orders for the 787 Dreamliner in the past week, countering a contract signed in Dubai
for six planes and bringing this year’s cancellations for the new, composite-plastic model to 32.
Boeing Chief Executive Officer Jim McNerney said last month that the backlog for the plane won’t grow until delivery
slots become available sooner.
In total, the planemaker has booked 495 net orders this year after 116 cancellations, according to its weekly website
tally updated yesterday. That doesn’t include the commitments for the 737 MAX.
To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net;
To contact the editors responsible for this story: Neil Denslow at ndenslow@bloomberg.net; Ed Dufner at edufner@bloomberg.net
Nusa Dua.
Lion Air hopes its record breaking purchase of Boeing aircraft will allow the privately owned Indonesian carrier
to grab a large chunk of the market in Southeast Asia.
The airline said its growth in the region would be in part due to the establishment by 2015 of the Asean Community,
an economic integration program that was a major agenda item of this week’s summit of Southeast Asian leaders in
Bali.
The $21.7 billion deal, which was flagged on Thursday and signed a day later in the presence of dignitaries including
US President Barack Obama, involves Lion Air purchasing 230 Boeing 737 planes from the US aircraft maker.
“With the start of the Asean ‘open sky’ policy in 2015, I think Lion has to at least control 30 percent of the
market in the Asean region,’’ president director Rusdi Kirana, the airline’s president director, said after the
deal was signed.
Lion’s record order — coming from a company that in 1999 was set up with only $850,000 — includes 201 Boeing 737
MAX and 29 Next Generation 737-900 ER, Rusdi said at the Grand Hyatt Bali Hotel.
“We also have the option to add 150 aircraft for $14 billion, taking the total value of the order to $36 billion,’’
Rusdi added.
US President Barack Obama, currently in Bali for the East Asia Summit, attended the signing and lauded the deal as a remarkable example of the commercial opportunities
to be had in the Asia Pacific region.
“For the last several days I’ve been talking about how we have to make sure that we’ve got a presence in this region,
that it can result directly in jobs at home,” Obama said. “And what we see here, a multibillion-dollar deal between
Lion Air — one of the fastest-growing airlines not just in the region, but in the world — and Boeing is going to
result in over 100,000 jobs back in the United States of America, over a long period of time.”
Rusdi said Lion would exercise the option for the additional aircraft. “This will cut costs,” he said, adding that
the Boeing aircraft would be “the future of Lion Air.”
He added that Boeing will deliver the first orders in 2017 and the rest between 2017 and 2025. Several financial
institutions, he said, have provided monetary assistance at a low borrowing cost.
“The interest rate is low now, hovering around 6 percent to 7 percent,’’ Rusdi said, without providing more specifics
on the financing. Obama said the US Export-Import Bank had also helped finance the deal.
Rusdi said Lion Air was planning to sell shares through an initial public offering at some point, but gave no further
details. At present, the airline is owned by a small group of investors.
US Ambassador to Indonesia Scot Marciel, who was present at the signing, said the deal was mutually beneficial.
“It means jobs,” he said.
“A lot of jobs. For us, for Boeing. For Indonesia it’s creating a lot of economic activity. So it’s a great win-win
situation.”
Rusdi asked the Indonesian government to appeal to other Asean states to open their doors to Indonesian airliners.
Lion’s fleet expansion plans are in line with its ambition to become the largest airline in Indonesia, Rusdi said.
Business and political leaders on Thursday agreed that tangible steps were required for the Asean Community to
become a reality within four years, otherwise the region risked slipping toward protectionism
By Janeman Latul, Saeed Azhar and Clara Ferreira Marques
Financier and co-chairman of Bumi Plc Nathaniel Rothschild, left, sits with Bakrie & Brothers chief executive
Bobby Gafur Umar following an agreement between Bumi Resources and Vallar Plc in Singapore, in this handout photo
dated Nov. 15, 2010. (Reuters Photo)
JAKARTA/LONDON (Reuters)- It was supposed to be a union of two legendary business dynasties,
one West, one East. Nathaniel Philip Rothshild, the 40-year-old scion of the storied European banking family, forged
a deal a year ago with the Bakrie brothers, one of Indonesia's mightiest business families, to create an international
coal-mining titan.
That deal last November seemed incredible from the start; the dream of creating the world's biggest thermal coal
company, with mines in Indonesian Borneo, and aiming to be one of the biggest listed companies on the London exchange.
Now a year later the partnership could be on the brink of collapse.
This week Rothschild called for a "radical cleaning up" of the balance sheet and corporate culture at
the Bakrie brothers chronically indebted flagship, PT Bumi Resources, his partner in the London-listed coal venture,
Bumi Plc.
In a letter written to Ari Hudaya, Chief Executive of both Bumi Plc and Jakarta-listed PT Bumi Resources, Rothschild
said the partnership's goal of entering the FTSE-100 in 2012 was still attainable. But he was not satisfied with
progress so far with his Indonesian partners, who remain "over-leveraged," which was a major factor in
the "corporate governance discount" on the Jakarta's firm's stock price.
The leaked letter was a stunning rebuke to top Bakrie lieutenant Ari Hudaya. Hudaya's dual role as CEO of both
the Bakries' PT Bumi Resources and the Bumi Plc joint venture required "closer evaluation and scrutiny,"
Rothschild wrote in the letter, published on the Financial Times website.
Rothschild knew he was dealing with one of Southeast Asia's most powerful and controversial families, and one with
chronic debt issues. Over the past two decades, he has flirted with risk and emerging market powerbrokers, ranging
from an oil venture in Iraqi Kurdistan to a friendship with Muammar Gaddafi's son Saif al-Islam, who has been trying
to flee Libya after the death of his father.
In the process, Rothschild has shed the party-hard reputation of his university years -- the Sunday Times Rich
List anointed him Britain's richest hedge fund manager and he is estimated to be worth around a billion pounds.
He has emerged as a serious dealmaker with a contacts book to rival that of his father, Baron Rothschild, and spends
the equivalent of around a month each year in his private jet "N4T."
On the Indonesian side, Aburizal Bakrie, the oldest of the brothers, headed the group until 2004, when he joined
President Susilo Bambang Yudhoyono's administration. He left after repeatedly clashing with reformers in Yudhoyono's
government and now heads Indonesia's biggest political party, Golkar. He is a likely presidential candidate in
the 2014 Indonesian elections.
The strain in relations between the future Baron Rothschild and a family that may boast a future president after
their hopeful beginning a year ago illustrates some of the difficulties in doing business in Indonesia.
Southeast Asia's largest economy is brimming with opportunities, though it does means navigating
through opaque regulations, erratic business relationships, changing policies and deeply entrenched corruption.
The World Bank ranks it 129 out of 183 countries in ease of doing business.
GLOBAL MARKET SELL-OFF
For the Bakries, the allure of the deal with Rothschild was to get that prized listing on the
London exchange. As Rothschild noted in his letter, their shares on the Jakarta exchange have underperformed, despite
the attractiveness of the coal assets.
Rothschilds' company Vallar became Bumi Plc and was relisted on the London Stock Exchange in June -- just ahead
of a global market sell-off. The stock dropped steadily from the start as markets fell, until it hit 8.50 pounds.
That price triggered a margin call from Bakrie lenders who demanded repayment on loans worth $1.3 billion.
The Bakries brought in a new investor at the end of October to fix that problem, Indonesian coal miner and investment
banker Samin Tan. They sold half their original 47 percent stake in Bumi Plc to Tan in a complex deal that featured
special purpose share-holding vehicles.
The deal did not dilute Rothschild's 10 percent stake in Bumi Plc, and Rothschild in his letter said he fully supports
Tan's entrance into the partnership. What he objected to, Rothschild said, was that Hudaya had refused to call
in Bumi Resources' own loans to others to repay debt. Bumi Plc owns a 29 per cent stake in PT Bumi Resources, which
in turn controls the lucrative mines.
Chris Fong, a spokesman for the Bakrie family, told Reuters Rothschild's letter had taken them by surprise.
"Nat Rothschild hasn't addressed these issues with us," Fong said, referring to a passage in the letter
in which Rothschild said the Bakries also wanted a transformation in the management of Bumi Resources.
"If he wants to raise any issues, as a shareholder and board member, we would expect him to follow accepted
corporate governance procedures and raise concerns at the board level and at the appropriate time."
The two sides, according to knowledgeable sources in both camps, had been taking each other by surprise of late.
Rothschild, thousands of miles away in Europe, had called the Bakries after Reuters first broke news in late October
of an impending deal with Tan, but he could get no confirmation of the deal.
"The family left Rothschild in the dark until the news that Samin Tan was nearing a deal and he called the
family about it," said a source close to the Bakries with direct knowledge of the situation. "The group
didn't think he needed to know about this, that he should only know when a deal was done."
Eton-educated Rothschild insisted in an interview last month with Reuters that he had no issue with the Bakries,
and that he had "total confidence" in the family.
The latest turns in the Bakries' fortunes seems to be following a script written three years
ago during the 2008 global financial crisis. They fended off a $1.2 billion margin call then by selling stakes
in group firms, many of them with buy-back clauses, to lenders and investors.
Like then, the Bakries' latest debt refinancing also ensured the prized Borneo mines would remain in Indonesian
hands.
LEGACY OF DISTRUST
Indonesia has some of the world's largest deposits of coal, gold, copper, tin and natural gas,
spread across the archipelago of 17,000 islands. The legacy of harsh colonialism by the Dutch for over three hundred
years has left many Indonesians with a distrust of foreign motives.
The Borneo coal mines at the heart of the deal with Rothschild once belonged to global energy companies Rio Tinto,
BP and BHP Billiton, who sold them to the Bakries in 2001 and 2003, after coming under pressure from resource nationalists
to divest their assets to local interests.
"Our contacts at the time told us these deals undervalued the companies at pennies on the dollar," said
the U.S. Ambassador to Indonesia, Cameron Hume, in a November 2007 classified diplomatic cable released by Wikileaks.
Bakrie group executives, Hume added, have said they hoped to do more of these "value-oriented acquisitions."
"In the mining sector, cabinet minister Aburizal Bakrie has been most successful in using nationalism for
his private personal gain," Hume noted in that cable.
Aburizal Bakrie's Golkar party at the time was making resource nationalism an issue in the run-up to the 2009 presidential
election, threatening to review energy contracts with foreign oil companies.
So it caused ripples of surprise and interest when Nirwan Bakrie celebrated his 59th birthday last year by announcing
that the coal assets held by PT Bumi Resources would be injected into Rothschild's London-listed investment vehicle
Vallar.
Rothschild put up 100 million pounds of his own money, but the new company's biggest asset
would seem to be worth the price. The KPC mines in East Kalimantan province in Indonesia's part of Borneo island
are among the world's largest open pit mines, with 4.5 billion tonnes of proven reserves. Bumi Plc expects coal
sales this year of 77 million tonnes, which would make it the world's largest thermal coal exporter.
"What we are creating here is the largest exporter of thermal coal to China," Rothschild, whose ancestors
advised generations of European royalty and helped to bankroll Britain's war against Napoleonic France, declared
at the time.
For Rothschild, the venture was an opportunity to become a key player in the global coal industry, and to cement
his image as a buccaneering financier in the mold of his 19th Century forbears.
For the Bakrie family, who escaped financial collapse twice before in 1998 and 2008, the London listing gave it
instant credibility and a global profile.
"We needed the London listing to establish a presence in the international capital market ... we wanted
to show the world that Indonesia owns a global champion in coal," Nirwan Bakrie told Reuters in Jakarta last
month.
SEEDS OF MISTRUST
But not long after that hopeful beginning, seeds of mistrust were sown. In March, three months
before Bumi Plc's London listing, the Bakrie group's holding company, Bakrie & Brothers, along with affiliated
firm Long Haul, consolidated some of their debt through a $1.35 billion loan arranged by Credit Suisse and backed
by their stake in Bumi Plc.
Rothschild and his advisors asked for the details at the time but were told those were private and had no relevance
to their joint venture in Bumi Plc, sources close to the Bakrie family said.
By early October, Bumi Plc's falling share price triggered the margin call on that loan, plunging the Bakries into
a new debt crisis and ultimately leading to the Tan deal.
According to several sources close to Bakrie family, the Bakries believed Rothschild was ready to buy their now
cheapened stake in Bumi Plc if the group was pushed into default.
"He already was looking for a new local partner to replace the Bakries here ... but the coal mining world
is small in Indonesia and those local partners declined to do a deal with him," one source said. "I think
this guy is not a good partner."
The Rothschild camp denies those claims.
With the mistrust apparently deepening, Ari Hudaya, the CEO of Bumi Resources and Bumi Plc
and the target of Rothschild's disgruntlement in his letter, called Rothschild on October 17 on his Blackberry.
He had just met with the Bumi Resources board inside the Bakrie Tower in Jakarta's financial district, whose dark
tinted windows afford views of a volcano outside the capital. They had decided to cancel a $2 billion deal announced
in June that would have given Bumi Plc 75 percent of Bumi Resources Minerals (BRM), the Bakries' latest mining
exploration venture, with promising assets from copper and zinc in the jungles of Indonesia to African diamonds.
Bumi Plc said later in a regulatory announcement from London the deal was canceled due to "continuing market
uncertainties," which was affecting the share prices of the companies involved.
The decision left Rothschild with a less diversified mining firm, and closing off what seemed an easy and promising
entrance to new mining frontiers.
FRIEND OF BAKRIES
The Bakries had first tried to do a loan deal with Glencore, Reuters reported last month. The
commodity trading giant was keen to get a tighter grip on their Indonesian coal marketing rights and keep out rival
trader Vitol.
But because lenders wanted the deal to involve an equity stake, the Bakries turned to Tan, who controls Borneo
Lumbung Energi and investment bank PT Renaissance Capital. The two sides were no strangers, since Tan had advised
the Bakries on their 2003 mine purchases and then tried to buy Bumi's key mines himself in a failed deal several
years ago.
Like the Bakries, Tan comes from Sumatra, born into a family of fish traders. He was a partner at accountancy firm
Deloitte, before setting up his own investment firm.
"The deal is not only about Bakrie," Tan told Reuters, when asked about the risk of any deal with the
Bakries, adding he had prepared some "safety measurement."
nvestors were not impressed, given that Tan is financing it with a loan from Standard Chartered
that boosts his Borneo Lumbung Energi's debt profile. The firm's stock crashed as much as 17 percent on the day
of the deal, and several banks have since downgraded their investment ratings on the miner, from "buy"
to "hold" or "reduce."
Investment banks have said it shouldn't not hurt Bumi Plc, and the London stock has steadied this month along with
the rest of the market.
Weeks before his scathing letter to his Indonesian partner, Rothschild had told Reuters he was confident he would
continue to have a relationship with the Bakries for a long time to come.
"In 10 years' time, I expect to still have the same type of strong and trusting relationship that I have with
the Bakries today."
(Saeed Azhar reported from SINGAPORE; Additional reporting by Prakash Chakravarti
in HONG KONG and Jackie Cowhig in LONDON; Writing by Neil Chatterjee; Editing by Bill Tarrant)
By JAYMES SONG Associated Press
HONOLULU November 13, 2011 (AP)
President Barack Obama signed a bill Saturday making it easier for U.S. business travelers to access Asia-Pacific
nations more freely and quickly.
Obama signed the measure just before taking the stage to address the Asia-Pacific Economic Cooperation CEO Summit
in his native Hawaii, referring it to it as an "APEC business gold card."
The APEC Business Travel Card (ABTC) allows pre-screened business travelers easier entry to most of the 21 APEC
member economies. The card removes the hassle of individually applying for visas or entry permits for every visit.
It also allows multiple short-term entries into participating economies during the three years the card is valid.
Card holders also benefit from faster immigration processing via special APEC fast lanes at major airports.
"Everybody here appreciates it because they're not going to have to wait in line as long at the airport,"
Obama told the CEOs. "So that generated a lot of popularity."
Obama said his administration is going to keep pursuing "every avenue that we have to see how we can ease
and smooth the ability of doing business with the United States and U.S. businesses being able to operate overseas."
"And some of that has to do with us changing our own internal operations," he said.
Besides easier access, the program was created in 1997 to help promote new business opportunities, attend meetings
and conduct trade and investment activities.
Monica Whaley, president of the National Center for APEC, said for all the successes that come out of APEC this
year, the card will be one that Americans will be able to hold in their hands. The card, she said, "will help
American business travelers spend less time waiting in lines at the airport, and more time closing deals in the
APEC region."
The participating APEC member economies are: Australia, Brunei, Chile, China, Hong Kong,
Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Philippines, Singapore, Taiwan,
Thailand and Vietnam.
Russia and Canada are transitional members while Mexico is part operational moving towards full participation in
the program that was created in 1997.
Australia, which was one of the first three to join the program along with South Korea and the Philippines, has
among the highest share of cardholders.
The legislation was unanimously approved by the Senate earlier this month after being introduced this summer by
Sens. Daniel Inouye, D-Hawaii, Daniel Akaka, D-Hawaii and Maria Cantwell, D-Wash.
Akaka earlier said, the program would help Hawaii and the rest of the United States to expand into growing Asian
markets while creating jobs at home.
Besides the National Center for APEC, the legislation was supported by National
Foreign Trade Council, US-ASEAN Business Council, U.S. Chamber of Commerce, U.S.-China Business Council and U.S.
Council for International Business.
APEC Business Travel Card: http://www.businessmobility.org/
MasterCard, a leading payment processing service, plans to develop new retail systems that
can be accessed via mobile phones, the company’s representative for the Asia-Pacific region said last week.
“Indonesia would be one of the leading markets for mobile-enabled payment. It could be beyond the traditional plastic
cards, so we could enable similar services for people without a credit card or debit card today through the mobile
device,” said Phillip Yen, group head of emerging payments for Asia Pacific, Middle East and Africa at MasterCard
Worldwide.
Indonesia’s market offers several potential advantages for MasterCard, he said. The company is interested in the
country’s large number of mobile phone users, which now has 180 million users.
Such services are not new here. Indonesia’s biggest mobile-phone operator, Telkomsel, already has a similar service,
called T-Cash.
Vadyo Munaan, vice president and senior country manager at MasterCard, said the service would help boost e-commerce
in the country.
“MasterCard will make sure the Internet payment system is secure,” he said.
According to research from IT company Sharing Vision, online sales in Indonesia last year reached Rp 43 trillion
($4.9 billion). This year, the figure is expected to jump 28 percent to Rp 55 trillion, thanks to greater use of
online payments.
Yen and Vadyo would not divulge the volume of MasterCard transactions in Indonesia.
Mobile subscriptions grew by 50 percent between 2003 and 2008. By the end of 2009, Indonesia’s mobile subscribers
totaled 143.6 million and grew to around 180 million last year.
The positive growth trend is likely to continue at a 10 percent or more increase this year, and by 2013 Indonesia
will become the fourth-largest mobile market in the world behind China, India and the United States.
Indonesia provides good opportunities for international investment, and US investors are
interested in doing business in the archipelago because of its strong economic growth, the US ambassador has said.
“Companies are looking more at the situation here in Indonesia, rather than what’s happening in the US,” Scot Marciel
told reporters in Jakarta on Wednesday. “We have seen increase in both two-way trade and investment, so I think
it’s going quite well.”
Bilateral trade in the first sixth months of 2011 increased by 20 percent, and Indonesian exports to the United
States could be up by more than 20 percent despite a slowdown in the US economy, he said. Investment from the United
States into Indonesia will reach more than $1 billion this year, Marciel said.
According to data from the Indonesia Investment Coordinating Board (BKPM), the United States — at $936 million
— was the second largest contributor to foreign direct investment in Indonesia in the first half, after Singapore.
Investment from the US soared to $930 million last year from $172 million in 2009, with companies including agricultural
firm Cargill and shoemaker Wolverine setting up offices.
The ambassador said that Indonesia’s fast-growing economy, tame inflation and having the world’s fourth largest
population was appealing for US businesses. Indonesia has benefited from rising exports and strong domestic spending,
which could accelerate economic growth to 6.7 percent next year, from a projected 6.5 percent in 2011.
Marciel encouraged the government to improve its bureaucratic process to make it easier for US companies and citizens
to set up operations.
“Investors would make their judgment based on the overall economy, and also how smooth the environment is,” he
said.
Indonesia is currently ranked 121 out of 183 countries in terms of overall ease of doing business, according to
the Doing Business 2011 list compiled by the International Finance Corporation, the private investment arm of the
World Bank.
Marciel praised the Indonesian government’s moves to provide tax breaks for some investors, saying it showed the
government’s “willingness to try to create a better business environment.”
General Motors, the largest car maker in the United States, last month announced plans to invest $150 million to
reactivate its Bekasi manufacturing plant in West Java, a move that could create 800 new jobs.
The company could benefit from the government’s plan to exempt investors from paying tax for up to 10 years if
their investment is worth at least Rp 1 trillion ($120 million).
President Barack Obama in his visit last November called for US businesses to increase their investment in Indonesia.
An officer inspects automobiles that are ready for export
at Tanjung Priok Port in North Jakarta.
Indonesia is expecting more than $1 billion in investment
in the automotive sector starting this year. (JG Photo)
General Motors and Peugeot’s decision last week to revive assembly of automobiles in Indonesia is positioning
the country to become the leading automobile manufacturer in Southeast Asia.
Indonesia is already expecting more than $1 billion in investment in the automotive sector starting this year.
Nissan recently announced a $250 million expansion plan; Suzuki has announced an $800 million expansion; Chrysler
a $100 million expansion; Daihatsu just carried out a $246 million expansion; and BMW a $12 million expansion.
India’s Tata also expressed interest in building a production base in Indonesia.
A combination of investment, tax incentives, and a rising middle class has contributed to the manufacturing
upturn. “Our domestic market is growing, and the principals want a bigger slice,” said Jongkie Sugiarto, a deputy
at the Association of Indonesia Automotive Industries (Gaikindo). “They came here because our existing facilities
are struggling to meet demand.”
Jongkie said that it would take only two years for Indonesia to overtake Thailand in terms of sales and production.
He said the industry organization forecasts sales of 830,000 vehicles this year, 950,000 in 2012 and 1 million
or more in 2013.
Companies in Indonesia produced 650,000 cars last year and sold 764,000, with imports making up the difference.
In Thailand meanwhile, 1.64 million vehicles were made last year, while 800,000 units were sold domestically and
the rest exported, according to the Automotive Industry Club of the Federation of Thai Industries. The group expects
domestic sales in Thailand this year to reach 850,000 units with exports at 1 million units.
Indonesia’s government announced this week that it would give tax breaks for investment over Rp 1 trillion ($117
million), and Jongkie, who is also the president director of Hyundai Indonesia, said that this package could attract
more investors here, including the parent company Hyundai, based in South Korea.
“We have been lobbying our principal to build a production base here. We will tell them about these incentives,
so that they will invest here,” he said.
Rising cost pressures in Thailand, a nation of about 70 million people, might make Indonesia more attractive for
automakers that do business in both countries. Thailand’s newly elected prime minister Yingluck Shinawatra pledged
to double the nation’s daily minimum wage to around $10, which would raise expenses for the likes of Toyota, Ford
and Nissan.
Major locations for Indonesia’s automotive factories are in Bekasi and Karawang, located about 30 kilometers and
60 kilometers east from the center of Jakarta. Based on minimum monthly wages set by the government at Rp 1.3 million,
the minimum daily wage in the Jakarta area would be around $8.
Johnny Darmawan, president director of Toyota Astra Motor, said that he was not worried about more automakers entering
Indonesia because competition would help to diversify the industry.
“I always see competition as good for business,” he said. “This increased competition could lure in more investment
to Indonesia. This would move the economy.”
However, Johnny was not convinced about the tax incentives announced by the government would materialize. “Let’s
hope it’s not just sweet talk. We’ll be waiting for [the president and the finance minister] to sign the papers,”
he said.
Fauzi Ichsan, an economist at Standard Chartered Indonesia, said that incentives alone would not make Indonesia
the region’s number one car manufacturer.
“It would take improvement in infrastructure and this will take a long time,” he said. “Indonesia’s domestic market
potential is by default larger than Thailand, but without infrastructure to create a production base capable of
exports, Indonesia can’t compete as a major player at the global level,” he added.
Even as Islamic countries are roiled by political unrest, Indonesia, the world’s most populous Islamic country,
is being touted as part of the new emerging growth market. With 2010 GDP estimated at $700 billion, GDP growth
at 6 percent and its share of the world total GDP estimated at 1.4 percent, Indonesia seems ready to take off.
Indonesia Economy 2011
http://www.theodora.com/wfbcurrent/indonesia/indonesia_economy.html
SOURCE: 2011 CIA WORLD FACTBOOK AND OTHER SOURCES
Page last updated on January 18, 2011
Economy - overview:
Indonesia, a vast polyglot nation, has weathered the global financial crisis relatively smoothly because of its
heavy reliance on domestic consumption as the driver of economic growth. Although the economy slowed significantly
in 2009 from the 6%-plus growth rate recorded in 2007 and 2008, by 2010 growth returned to a 6% rate. During the
recession, Indonesia outperformed its regional neighbors and joined China and India as the only G20 members posting
growth. The government made economic advances under the first administration of President YUDHOYONO, introducing
significant reforms in the financial sector, including tax and customs reforms, the use of Treasury bills, and
capital market development and supervision. Indonesia's debt-to-GDP ratio in recent years has declined steadily
because of increasingly robust GDP growth and sound fiscal stewardship. Indonesia still struggles with poverty
and unemployment, inadequate infrastructure, corruption, a complex regulatory environment, and unequal resource
distribution among regions. YUDHOYONO's reelection, with respected economist BOEDIONO as his vice president, suggests
broad continuity of economic policy, although the start of their term has been marred by corruption scandals and
the departure of an internationally respected finance minister. The government in 2010 faces the ongoing challenge
of improving Indonesia's insufficient infrastructure to remove impediments to economic growth, while addressing
climate change mitigation and adaptation needs, particularly with regard to conserving Indonesia's forests and
peatlands, the focus of a potentially trailblazing $1 billion REDD+ pilot project.
GDP (purchasing power parity):
$1.033 trillion (2010 est.)
country comparison to the world: 16
$974.6 billion (2009 est.)
$932.6 billion (2008 est.)
note: data are in 2010 US dollars
[see also: GDP (purchasing power parity) country ranks ]
GDP (official exchange rate):
$695.1 billion (2009 est.)
[see also: GDP (official exchange rate) country ranks ]
GDP - real growth rate:
6% (2010 est.)
country comparison to the world: 39
4.5% (2009 est.)
6% (2008 est.)
[see also: GDP - real growth rate country ranks ]
GDP - per capita:
$4,300 (2010 est.)
country comparison to the world: 157
$4,100 (2009 est.)
$3,900 (2008 est.)
note: data are in 2010 US dollars
[see also: GDP - per capita country ranks ]
GDP - composition by sector:
agriculture: 14.9%
[see also: GDP - composition by sector - agriculture country ranks ]
industry: 46.8%
[see also: GDP - composition by sector - industry country ranks ]
services: 38.3% (2009 est.)
[see also: GDP - composition by sector - services country ranks ]
Labor force:
114.9 million (2009 est.)
country comparison to the world: 5
[see also: Labor force country ranks ]
Labor force - by occupation:
agriculture: 42.1%
[see also: Labor force - by occupation - agriculture country ranks ]
industry: 18.6%
[see also: Labor force - by occupation - industry country ranks ]
services: 39.3% (2005 est.)
[see also: Labor force - by occupation - services country ranks ]
Unemployment rate:
7.1% (2010 est.)
country comparison to the world: 74
8.1% (2009 est.)
[see also: Unemployment rate country ranks ]
Population below poverty line:
13.3% (2006)
[see also: Population below poverty line country ranks ]
Household income or consumption by percentage share:
lowest 10%: 3%
[see also: Household income or consumption by percentage share - lowest 10% country ranks ]
highest 10%: 32.3% (2006)
[see also: Household income or consumption by percentage share - highest 10% country ranks ]
Distribution of family income - Gini index:
39.4 (2005)
country comparison to the world: 66
37 (2001)
[see also: Distribution of family income - Gini index country ranks ]
Investment (gross fixed):
30.8% of GDP (2009 est.)
country comparison to the world: 14
[see also: Investment (gross fixed) country ranks ]
Public debt:
26.4% of GDP (2010 est.)
country comparison to the world: 91
27.4% of GDP (2009 est.)
[see also: Public debt country ranks ]
Inflation rate (consumer prices):
5.2% (2010 est.)
country comparison to the world: 148
4.8% (2009 est.)
[see also: Inflation rate (consumer prices) country ranks ]
Central bank discount rate:
6.46% (31 December 2009)
country comparison to the world: 40
10.83% (31 December 2008)
[see also: Central bank discount rate country ranks ]
Commercial bank prime lending rate:
14.5% (31 December 2009 est.)
country comparison to the world: 57
13.6% (31 December 2008 est.)
[see also: Commercial bank prime lending rate country ranks ]
Stock of narrow money:
$65.47 billion (31 December 2010 est)
$49.63 billion (31 December 2009 est)
[see also: Stock of narrow money country ranks ]
Stock of broad money:
$276.8 billion (31 December 2010 est.)
$205.8 billion (31 December 2009 est.)
[see also: Stock of broad money country ranks ]
Stock of domestic credit:
$253.1 billion (31 December 2010 est.)
country comparison to the world: 37
$192.3 billion (31 December 2009 est.)
[see also: Stock of domestic credit country ranks ]
Market value of publicly traded shares:
$178.2 billion (31 December 2009)
country comparison to the world: 36
$98.76 billion (31 December 2008)
$211.7 billion (31 December 2007)
[see also: Market value of publicly traded shares country ranks ]
Oil - production:
1.023 million bbl/day (2009 est.)
country comparison to the world: 22
[see also: Oil - production country ranks ]
Oil - consumption:
1.115 million bbl/day (2009 est.)
country comparison to the world: 18
[see also: Oil - consumption country ranks ]
Oil - exports:
85,000 bbl/day (2008 est.)
country comparison to the world: 69
[see also: Oil - exports country ranks ]
Oil - imports:
671,000 bbl/day (2007 est.)
country comparison to the world: 20
[see also: Oil - imports country ranks ]
Oil - proved reserves:
4.05 billion bbl (1 January 2010 est.)
country comparison to the world: 28
[see also: Oil - proved reserves country ranks ]
Natural gas - production:
70 billion cu m (2008 est.)
country comparison to the world: 12
[see also: Natural gas - production country ranks ]
Natural gas - consumption:
36.5 billion cu m (2008 est.)
country comparison to the world: 23
[see also: Natural gas - consumption country ranks ]
Natural gas - exports:
33.5 billion cu m (2008 est.)
country comparison to the world: 7
[see also: Natural gas - exports country ranks ]
Natural gas - imports:
0 cu m (2008 est.)
country comparison to the world: 174
[see also: Natural gas - imports country ranks ]
Natural gas - proved reserves:
3.001 trillion cu m (1 January 2010 est.)
country comparison to the world: 14
[see also: Natural gas - proved reserves country ranks ]
Current account balance:
$8.532 billion (2010 est.)
country comparison to the world: 25
$10.75 billion (2009 est.)
[see also: Current account balance country ranks ]
Exports:
$146.3 billion (2010 est.)
country comparison to the world: 30
$119.5 billion (2009 est.)
[see also: Exports country ranks ]
Exports - partners:
Japan 17.28%, Singapore 11.29%, US 10.81%, China 7.62%, South Korea 5.53%, India 4.35%, Taiwan 4.11%, Malaysia
4.07% (2009)
Imports:
$111.1 billion (2010 est.)
country comparison to the world: 30
$84.35 billion (2009 est.)
[see also: Imports country ranks ]
Imports - commodities:
machinery and equipment, chemicals, fuels, foodstuffs
Imports - partners:
Singapore 24.96%, China 12.52%, Japan 8.92%, Malaysia 5.88%, South Korea 5.64%, US 4.88%, Thailand 4.45% (2009)
Reserves of foreign exchange and gold:
$83.58 billion (31 December 2010 est.)
country comparison to the world: 16
$66.12 billion (31 December 2009 est.)
[see also: Reserves of foreign exchange and gold country ranks ]
Debt - external:
$155.9 billion (31 December 2010 est.)
country comparison to the world: 30
$156.7 billion (31 December 2009 est.)
[see also: Debt - external country ranks ]
Stock of direct foreign investment - at home:
$81.21 billion (31 December 2010 est.)
country comparison to the world: 41
$72.84 billion (31 December 2009 est.)
[see also: Stock of direct foreign investment - at home country ranks ]
Stock of direct foreign investment - abroad:
$33.71 billion (31 December 2010 est.)
country comparison to the world: 36
$30.18 billion (31 December 2009 est.)
[see also: Stock of direct foreign investment - abroad country ranks ]
Exchange rates:
Indonesian rupiah (IDR) per US dollar - 9,169.5 (2010), 10,389.9 (2009), 9,698.9 (2008), 9,143 (2007), 9,159.3
(2006)
NOTE: The information regarding Indonesia on this page is re-published from the 2011 World Fact Book of the United
States Central Intelligence Agency. No claims are made regarding the accuracy of Indonesia Economy 2011 information
contained here. All suggestions for corrections of any errors about Indonesia Economy 2011 should be addressed
to the CIA.
US Embassy staff from Jakarta visited Biak Numfor on Friday to continue exploring investment opportunities in the
West Papua regency.
During a visit headed by embassy official Kopt Joel, the US Embassy entourage listened to Biak Numfor regent Yusuf
Melianus Maryen’s presentation on the region’s potential and the local administration’s development policies.
“The security situation in Biak Numfor regency at present is very conducive [for investments] because we prioritize
togetherness and brotherhood among residents,” Maryen said during his presentation, as quoted by Antara.
He added that Biak Numfor had cultural, maritime and fishery potential that could be further explored to support
national development.
Maryen also said his administration was planning to partner with an airline company to open a direct flight connecting
Biak with Wamena, a region of the province of Papua, to support local connectivity.
Kopt Joel said after the presentation that he hoped to report the results of the meeting with the regent to US
parties interested in investing in the region.
TEMPO Interactive, Jakarta:Indonesia is gearing up as of this month to work toward realizing long-term programs
drawn up in the country's economic master plan, known as the MP3EI. Under this master plan, aimed at the acceleration
and expansion of the Indonesian economy to boost investment, the country is set to spend Rp 190 trillion this year
and Rp 4,000 trillion over 15 years to boost infrastructure. A total of at least 16 projects are earmarked in this
master plan, which has been designed to raise Indonesia's economy into one of the world's top biggest economies
by 2025.
According to the Dedy Supriadi from the National Development Planning Ministry, or Bappenas, the infrastructure
projects will be officially launched via ground breaking ceremonies in the near future.
"These [16] projects all involve the government," Dedy said along the sidelines of a Bappenas event in
Ciloto, West Java, over the weekend. The program calls for the creation of six economic corridors or highways,
mostly located along coastlines that would connect various centers of growth.
TEMPO Interactive, Jakarta:Work to turn Indonesia's Soekarno-Hatta International Airport into a world-class international
gateway by 2014 will begin early next year, initially with the drafting of the grand design. State airport operator
Angkasa Pura II's finance director Laurensius Manurung has said that Rp 11.7 trillion would be spent on the overhaul.
The plans include expanding the airport's Terminal 3 and integrating Terminals 1 and 2. Angkasa Pura president
director Tri Sunoko pointed out that it was hoped in the immediate years to come, the airport would be able to
accommodate 62 million passengers.
Even as Islamic countries are roiled by political unrest, Indonesia, the world’s most populous Islamic country,
is being touted as part of the new emerging growth market. With 2010 GDP estimated at $700 billion, GDP growth
at 6 percent and its share of the world total GDP estimated at 1.4 percent, Indonesia seems ready to take off.
At least in the short term, Indonesia and Vietnam may have to get along without a powerful partner in their economic
development.
As the catastrophe in Japan unfolds, the people of emerging Asian nations can be forgiven
for worrying about the impact of the hard period ahead of rebuilding on their economies. Japan has been a powerful
partner in business development and job creation in Indonesia and Vietnam, but its attention will likely be turned
inward for a long time to come.
Japan invested $712.6 million on 323 projects in Indonesia last year, making it third-ranked
in foreign direct investment in Indonesia, behind Singapore and Great Britain.
Japan's Indonesian interests are on the verge of growing much bigger. A Japanese business federation has announced
plans for a massive $24 billion urban infrastructure project called the Metropolitan Priority Area. The project,
scheduled to begin in 2013, aims to upgrade infrastructure in and around Jakarta to meet the needs of modern industry.
Hours before the earthquake hit last Friday, Mitsubishi announced it would invest $18 billion in Indonesia over
the next five years on a variety of projects, from car production to a liquefied natural gas plant.
Japan’s Daihatsu, which has an Indonesian subsidiary, just last month announced it would build a $244 million auto
manufacturing plant that would employ 1,400 workers and produce 50,000 cars in its first year to meet domestic
demand.
An Indonesian government official told The Jakarta Globe early this week that Japan’s investments there would continue
as planned. It’s anyone’s guess as to what, if any, information he’s basing that on.
In Vietnam, stocks fell 3.1% at the beginning of the week, partly on concerns over the future of Japanese investment
in the southeast Asian nation.
Early on, the worries have been over the expected impact of the disaster on Vietnam’s tourism industry. The stock
of Vinpearl Joint-Stock Co., a resort operator, fell 5%, the maximum allowed, after a Vietnamese newspaper predicted
that 30% fewer Japanese visitors could be expected to visit this year.
On Wednesday, India observed Republic Day, celebrating the 61st anniversary of the date
its constitution came into force. The chief guest at India’s first Republic Day on January 26, 1950, had been the
then-Indonesian President Sukarno, whom India’s prime minister at the time, Jawaharlal Nehru, supported during
Indonesia’s struggle for freedom from the Netherlands. In 2011, 61 years later, India hosted a second Indonesian
President, Susilo Bambang Yudhoyono, as the chief guest of its Republic Day celebrations. While demonstrating support
for anti-colonialism was no longer the motive, India’s choice is an indication of the growing economic and strategic
importance of Indonesia in Southeast Asia.
Indonesia is the third-biggest democracy in the world after the United States and India, as well as the third-fastest
growing economy in Asia after China and India. Indonesia’s economic relevance to India can be gauged from the comments
of India’s former ambassador to Indonesia, Shyam Saran, who noted, “Today India needs to make relations with Indonesia
the centerpiece of its Look East policy.” His comments went beyond the economy, however, and also touched on strategic
and defensive issues:
Asia is home to several emerging and globalizing powers, including India, China and Indonesia. An important consequence
of this is the increasing density of maritime communications from the Pacific to the Indian Oceans in which all
major Asian powers have a growing stake. Given their location and capabilities, India and Indonesia have a critical
role in guarding these vital lifelines. This is important for their security. It will also enable them to play
a key role together in shaping the emerging security architecture in the region.
China, for its part, has also been very proactive in attempting to garner Indonesia’s
approval. Premier Wen Jiabao had to cancel a trip to the country in 2010 following the April earthquake, but President
Hu Jintao made up for it by meeting with Yudhoyono at the G-20 meeting in Toronto in June 2010. Perhaps more importantly,
China has put its money where its
mouth is by announcing (days before President Obama’s visit to Jakarta) that Beijing would invest $6.6 billion
in i
nfrastructure improvements in Indonesia.
The United States also is also right in the middle of the competition to woo Indonesia, recognizing that strong
relations with rising Asian powers, besides China and India, are critical to U.S. defense and diplomatic interests.
President Obama visited Jakarta during his Asia trip in November 2010 and although he stated the United States
was not involved in “containing” China’s influence on countries of the region, he poured on the charm by reminiscing
about his four years in Indonesia as a boy, calling Indonesia a “critical partner” of the United States, and stressing
that “the United States and Indonesia are bound together by shared interests and shared values.” This was obviously
a reference to Indonesia’s tradition of constitutionalism and pluralism that is well aligned with the American
ideal of liberty for all. Indonesia is also an ally in the global war on terror and an important economic partner,
with the U.S. exports and private investment in the country totaling $6 billion and $17 billion, respectively.
Despite these advances by the major powers of the world, Indonesia has stated that it wishes to pursue an independent
foreign policy, promoting dynamic equilibrium in Southeast Asia. Its official stance on the United States and China
is best summarized by Juwono Sudarsono, the country’s defense minister from 2004 to 2009:
We want to maintain a strategic space from the rivalry between the United States and China. We can navigate between
that rivalry, from time to time giving out signals that both the United States and China are important to us, because
if we align ourselves too closely, it would be detrimental to the core values of Indonesia’s foreign policy.
Despite these suggestions that it will attempt to stay neutral, Indonesia is a developing country that is bound
to make concessions on geopolitical issues for economic opportunities. We can thus look forward to a fascinating
battle over Indonesia between India, China, and the United States; one that will only get more interesting as the
country continues to make economic strides and seeks to assert its voice in global debates
Indonesian President Susilo Bambang Yudhoyono (L)
and Indian Prime Minister Manmohan Singh
Indian Commerce Minister Anand Sharma (R) and Indonesian Trade Minister Mari Elka Pangestu (2ndL) exchange the
documents
NEW DELHI — Indonesia and India signed on Tuesday business deals worth $15.1 billion and set an ambitious target
of doubling trade in five years as Asia's two biggest democracies moved to strengthen ties.
The 18 pacts spanning energy, infrastructure, manufacturing, services and other sectors were signed in the presence
of visiting Indonesian President Susilo Bambang Yudhoyono in New Delhi.
The Indonesian president will be India's chief guest at the country's Republic Day celebrations on Wednesday, an
invitation reflecting New Delhi's "Look East policy" aimed at boosting relations with its Asian neighbours.
"I hope this visit will create new opportunities in our bilateral cooperations, including economic cooperation
and people-to-people contact," Yudhoyono told Indonesian and Indian business leaders in New Delhi.
"We are growing stronger as economic partners," Yudhoyono said. "There is so much we can do together."
Yudhoyono, who arrived for a state visit Monday accompanied by a dozen senior ministers, held talks with Prime
Minister Manmohan Singh earlier in the day.
The two sides also signed cooperation agreements on fighting terrorism, money-laundering and other criminal activities.
Yudhoyono said the two countries had set a goal of doubling trade to 25 billion dollars by 2015.
The announcement came as the countries said they had begun negotiations on a market opening pact to reduce tariffs
and goods and services to boost trade.
Trade volumes between the two countries have tripled to $12 billion from $4 billion in 2005.
Agreements were signed by a number of key Indian companies including the Tata Group and infrastructure heavyweight
GVK, the company building Mumbai?s new airport.
GVK will build international airports on Indonesia?s resort island of Bali and in Yogyakarta,
a city in central Java.
GVK chairman Krishna Reddy told reporters the deals were worth $3 billion to $5 billion.
"We are very excited by the opportunity to create new landmarks in Bali and Java," Reddy said.
Indonesia pipped the P-5 countries — US, China, UK, Russia and France — in terms of business deals signed during
the visit between the two countries’ business houses as well as governments.
A total of 16 business deals were sealed — worth $16.8 billion — between the top firms from both countries, as
the visiting Indonesian President Susilo Bambang Yudhoyono met the top Indian leadership over the last two days.
This surpassed even the Chinese firms — which had signed deals worth US $ 16 bn — during Chinese Premier Wen Jiaobao’s
visit last December. During US President Barack Obama’s visit in November last year, deals worth $15 bn were signed
between the two countries.
Government sources said that Indonesia is the fastest-growing country in south-east Asia, clocking above 5 per
cent growth rate in GDP, and has been quite keen on maximising the potential of a growing Indian economy.
Both nations are keen to expand trade and investment
India and Indonesia have signed business deals worth billions of dollars and set an ambitious
target of doubling trade over the next five years.
The agreements were signed at the end of wide-ranging talks between Indian Prime Minister Manmohan Singh and visiting
President Susilo Bambang Yudhoyono.
The deals included agreements on energy, infrastructure development and fighting crime.
Mr Yudhoyono will also be the guest of honour at India's 26 January Republic Day celebrations.
"We are growing stronger as economic partners," Mr Yudhoyono told business leaders from the two countries.
"There is so much we can do together."
The two leaders announced plans to achieve bilateral trade of $25bn by 2015, according to a joint statement issued
at the end of the meeting.
Coal deals
Chairman of the Indonesia Chamber of Commerce Suryo Sulisto said the deals were significant.
"The total number of MoUs to be signed is around 30 to 40, covering many areas including mining, steel...
So this is a very important visit," Mr Sulisto said.
Indian companies already source very high grade coal from Indonesia, and Mr Yudhoyono's visit will enable them
to step up sourcing and investment in Indonesian mines.
Last year India imported 40 million tons of Indonesian coal and this is expected to rise to 70 million in the next
two years.
Indonesia is India's third largest trading partner in the Association of Southeast Asian Nations (ASEAN).
Trade has already risen from just $4bn (£2.5bn) in 2005 to $14bn in 2010.
Five major Indian business, including Tata and the Anil Dhirubhai Ambani Group, have made investment commitments
in Indonesia worth $20bn to be undertaken this year.
Other Indian companies like Essar and Jindal are already operating in Indonesia.
Indonesia's Indorama, a textile group, and Harmony soap are among the few Indonesian brands operating in India,
while Mayora is setting up a food processing unit near Chennai.
Mr Yudhoyono previously visited India in November 2005.
Nov 22nd 2010 | from The World In 2011 PRINT EDITION
During the run-up to the Iraq war Donald Rumsfeld, then America’s defence secretary, famously
distinguished between “old” Europe and “new” Europe. In 2011 a growing number of businesspeople will distinguish
between the “old” emerging markets and “new” emerging markets.
The rich world will continue to suffer from anaemic growth for years to come. The emerging world, by contrast,
will be a whirling hub of dynamism and creativity. Over the next decade it will account for more than 50% of global
growth. It will see 700m people enter the middle class. And it will also account for a disproportionate share of
business innovations.
But in 2011 businesspeople will increasingly ask themselves: which emerging markets? The “old” ones, the group
that Goldman Sachs dubbed the BRICs, are suffering from the law of diminishing returns.
Three of them—Brazil, India and China—are rather like the most popular girls at the school
prom: a little too full of themselves. India and Brazil can be haughty. China has taken to bullying and even swindling
its suitors. The Chinese courts imprisoned four Rio Tinto executives for receiving bribes while taking no action
against the Chinese officials who offered the bribes. The Chinese government engaged in a vicious fight with Google
over the search giant’s attempt to prevent it from spying on its customers. As for Russia, it should never have
been admitted to the foursome in the first place. The government is corrupt and capricious. The population is shrinking.
The country’s wealth owes more to an accident of geology—those oil and gas deposits—than to creativity or innovation.
So why not look elsewhere, to “new” emerging markets? These come in two varieties: “overlooked”
countries that can rival the BRICs in terms of prosperity; and “frontier” countries that are only just beginning
to emerge from their chrysalises.
Companies that move first will enjoy lots of advantages
The biggest concentration of overlooked markets is in Africa (which is in many ways an overlooked continent). Africa’s
star performers are South Africa, Egypt, Algeria, Botswana, Libya, Mauritius, Morocco and Tunisia. Collectively
these countries match the average GDP per head of the BRICs.
But there are also huge overlooked emerging giants in every corner of the world. In the
Middle East, Turkey and Saudi Arabia will attract a lot of attention. Turkey is one of the world’s most dynamic
economies (and certainly more dynamic than its ancient sparring partner, Greece). Saudi Arabia has been liberalising
its business environment rapidly, according to the World Bank’s annual “Doing Business” survey (see article). In
Latin America people will take another look at Mexico for its successful companies and thriving middle class. But
the biggest praise will be for Indonesia: it will be the emerging-market star of 2011, with analysts lauding its
innovative companies, growing middle class and relative political stability.
The frontier markets are poorer and riskier than the overlooked ones. They include Sri Lanka, Bangladesh and Pakistan
in Asia, as well as Kenya, Nigeria and Rwanda in sub-Saharan Africa. You will hear a great deal about the unexpected
merits of frontier economies in 2011. Nigeria, home to the tenth-largest oil reserves in the world, has stabilised
its politics. The World Bank listed Rwanda as its champion pro-business reformer in 2010. Analysts will develop
a special enthusiasm for Vietnam, which is well-placed to steal outsourcing jobs from China: it is adding 1m people
a year to its workforce and has a literacy rate of more than 90%. Mobile-phone companies have already discovered
Vietnam’s consumers: mobile-phone penetration has gone from one of the lowest in the emerging world to one of the
highest. Other consumer companies will be hot on their heels.
Never mind the volatility, feel the vitality
These are hardly easy markets: there are good reasons why they are underexplored. Mexico is
wracked by a drug war. Saudi Arabia is a closed society. Frontier markets are by their very nature unpredictable—prey
to the wiles of dictators and the whims of nature. But they present numerous things that are irresistible to the
West’s growth-starved companies. They offer huge opportunities for investment in infrastructure. General Electric
wants to provide Africa with the machinery that it needs to grow: any young GE-er who wants a chance to rise to
the top has to spend some time working in Africa. IBM wants to provide the computing power.
Africa contains a disproportionate share of the world’s mineral wealth at a time when mineral prices are soaring.
It also contains a disproportionate share of the world’s young people at a time when the West faces a demographic
squeeze: by 2040 it will be home to one in five of them. Many local stockmarkets are booming: Egypt’s market produced
annual returns of 39% between 2000 and 2008, in a period when the average return was 2%. True, this growth is volatile.
But in 2011 an increasing number of companies, looking at the West’s flat markets, will decide that volatility
is at least a sign of life.
Above all, the overlooked and frontier markets offer businesses a chance to get in on the ground floor. Companies
that move first will enjoy lots of advantages. They will be able to forge deals with aggressive young companies:
companies such as Angola’s Banco Africano de Investimentos, which is expanding in Europe and Brazil, and Egypt’s
Orascom Telecom, which is expanding across the Middle East and beyond. They will be able to strike infrastructure
deals with local governments. And they can shape the tastes of future consumers.
Companies that succeed in these neglected emerging markets are not only putting down roots in the world’s most
fertile soil. They are giving themselves a chance to establish business habits for years to come.
Adrian Wooldridge: management editor, The Economist
November 22, 2010
In 2001, three years after Russia's ruble collapsed, Goldman Sachs (GS) named the country a member of the BRICs—Brazil,
Russia, India, and China—the emerging markets it said would be four of the most dominant economies by 2050. Over
the next several years, BRIC-fixated investors piled into Russia as its resource economy thrived in the era of
fast-rising oil prices. The BRIC concept still asserts its power. Investors in the $48 billion iShares MSCI Emerging
Markets Index Fund (EEM), for example, have nearly half their money weighted in BRIC stocks.
For plenty of money managers and economists, however, the Russo euphoria is all but gone. From Nouriel Roubini
to Morgan Stanley, they are calling either for Russia to be ousted from the BRICs altogether in favor of Indonesia
or, at the least, for Indonesia to join the other four. They are put off by the policymaking drift in the Kremlin,
Russia's demographic atrophy, and endemic corruption. Indonesia's fiscal prudence, economic growth—6 percent this
year, according to the International Monetary Fund—and strengthening social and political institutions have far
more appeal. Twice-elected President Susilo Bambang Yudhoyono has directed funding toward schools and health care,
and Indonesia's coffers are full enough to put the onetime IMF bailout case on the brink of an investment-grade
credit rating.
Russia, for its part, cannot seem to escape the investor-unfriendly headlines. Sweden's Ikea has leased diesel
generators to circumvent Russian bureaucrats who allegedly demanded bribes to provide electricity to the chain's
stores. Then the Swedish retailer revealed that the Ikea executives in charge of leasing the generators were taking
bribes, too. Petro oligarch Mikhail Khodorkovsky has been in jail on fraud charges since 2003: His supporters say
the charges were trumped up to give the Kremlin an excuse to seize his company. (The government denies this; Khodorkovsky
is on trial for fresh charges.) William Browder, chief executive officer of Hermitage Capital Management, once
Russia's top foreign investor, was banned from the country in 2006 for tax evasion: He says his company was grabbed
by criminals who pulled off the tax scam. "Russia is just not a good place to put your money," says Richard
Shaw, managing principal of QVM Group, a South Glastonbury (Conn.) investment advisory.
Shaw says he avoids putting clients in Russian stocks and funds, and steers clear of BRIC-linked investments because
of their Russia exposure. He would rather own Indonesian exchange-traded funds: "While Indonesia isn't a paragon
of virtue, it's better, especially to participate in the Asian boom." Although some investors want BIIC to
replace BRIC, Shaw votes for BICI (pronounced BEE-chee): "It's catchy—kind of sounds like an Italian purse."
Indonesia, the world's fourth-most-populous country and largest Muslim democracy, has corruption,
too. In part, that's a legacy of the Suharto dictatorship that ended in 1998. Yet Tom Lydon, president of Global
Trends Investments, says the Asian nation has more going for it than Russia. "Beyond natural resources, it
is supported by improving domestic consumption, and anticorruption efforts appear to be working." Indonesia
has sentenced several politicians and former ministers for corruption. In its latest Global Competitiveness Report,
the World Economic Forum ranked Indonesia 44th out of 139 countries—up from No. 54 the prior year. (Russia came
in at No. 63.)
While Morgan Stanley (MS) has called for Indonesia to join the BRICs—Goldman has called the country a "Next-11"
nation, in a runner-up list of sorts—economist Nouriel Roubini of New York University has argued that Indonesia
should replace Russia in the bloc. "From an American perspective," he wrote last year in a column, "Indonesia
is an attractive alternative to Russia, which has vied with Venezuela for leadership of the 'America in decline'
cheering section."
The iShares ETF allocates just 2.6 percent of its money to Indonesia. That will change, say Indonesia backers;
12 years after its financial crisis the archipelago is China's third-largest trading partner, foreign investment
has more than tripled since 2004, and gross domestic product is growing faster than Russia's. While Russia's Micex
index has fallen 22 percent from its December 2007 peak, the Jakarta Composite Index is approaching an all-time
high. Russia's market fortunes have fallen so low that some investors are taking a second look, especially since
Russian corporate profits have been robust. "Russia really stands out as being cheap and attractive,"
says Maarten-Jan Bakkum, an emerging-market equity strategist at ING Investment Management in The Hague.
Indonesia's supporters say that over the long haul the Asia nation has the edge.
More than half of the population is under 30, while aging Russia faces a paucity of productive labor. The Kremlin
may have to commit increasing sums to care for the elderly, says Wijayanto, managing director of the Paramadina
Public Policy Institute in Jakarta. "Indonesia," he says, "has the potential to become a key global
player."
The bottom line: Russia's inability to develop into a mature economy has prompted investors to call for the country's
removal from the BRIC group.
Bloomberg Businessweek Senior Writer Farzad covers Wall Street and international
finance.
Indonesia is one of the largest economies in Asia with an estimated GDP of $408 billion
in 2007. The current global financial crisis has caused many investors to pull out emerging-market assets, despite
the countries strong economic performance. The country recently announced that it will return to capital markets
in... moreIndonesia is one of the largest economies in Asia with an estimated GDP of $408 billion in 2007. The
current global financial crisis has caused many investors to pull out emerging-market assets, despite the countries
strong economic performance. The country recently announced that it will return to capital markets in 2009. Indonesia
capital markets will cover news on and from the country and provide a more insightful understanding of topical
issues in this market.
Indonesian Capital Markets
is part of Business Exchange, suggested by William Henley.
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As President Obama wraps up his trip to Southeast Asia, we thought it was a good opportunity to update you on some
Asian markets we have the most positive outlook on: China/Hong Kong, Indonesia and Singapore.
As President Obama wraps up his trip to Southeast Asia, we thought it was a good opportunity to update you on some
Asian markets we have the most positive outlook on: China/Hong Kong, Indonesia and Singapore.
China/Hong Kong
China and Hong Kong have been laggards so far this year but we remain bullish. Government policies
in 2010 were targeted to slow the economy, but next year’s policies should cause less friction to China’s growth
trajectory.
The 12th Five Year Plan, scheduled to roll out in March 2011, is expected to focus on transitioning China from
an investment-driven economy to a consumption-driven one. This means further urbanizing the country’s interior
and improving its energy efficiency.
Markets in both China and Hong Kong are also relatively inexpensive, with the price-to-earnings ratios (P/E) roughly
15 times future estimated earnings. In addition, these markets have strong liquidity compared to peers and are
logical destinations for fund flows as investors add more Asian influence to their portfolios.
Indonesia
Indonesia got out of the gate quickly in 2010 and has remained one of the world’s best-performing
markets for the year, up nearly 53 percent in U.S. dollar terms in 2010.
This strong performance has pushed the P/E of the Jakarta equity market up from 13.5 times earnings in August to
18 times forward earnings currently. This is relatively high compared with other emerging markets—the MSCI Emerging
Market Index is trading at 14.7 times and the MSCI BRIC Index is trading at 13.5 times earnings.
However, the fundamental drivers of Indonesia’s market are strong and China can look to Indonesia as a blueprint
for building domestic consumption.
The country’s strong balance sheet—very little leverage—and healthy urbanization trend has led to increased demand
for the country’s rich natural resources. This has driven growth while insulating Indonesia’s economy from external
volatility.
This year’s performance has attracted more investment capital, but that’s just the tip of the iceberg. The government’s
efforts to de-risk Indonesia’s balance sheet could pay off with an investment-grade rating for the country next
year, setting off another wave of investment flows.
Singapore
Singapore gets excellent marks for business development and employment. Employment opportunities
are rising and personal income tax rates have been declining, an ideal situation for increased domestic consumption.
The city-state has one of the lowest corporate tax rates in Asia, 17 percent versus 25 percent in both China and
Indonesia. Hong Kong’s is roughly the same at 16.5 percent. In addition, Singapore has been generous in giving
tax incentives to select industries.
We expect more companies to establish or expand their presence in this city-state.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index
that is designed to measure equity market performance in the global emerging markets. The MSCI BRIC Index is a
free float-adjusted market capitalization index that is designed to measure equity performance of Brazil, Russia,
China and India.
Indonesia’s 21 percent gain so far this year is tops in the region but is Asia’s hottest market in danger of overheating?
Not exactly but there are a few concerns.
Inflation is beginning to become an issue. Food prices are rising at 14 percent a year, energy
at 18 percent a year and land prices at 20 percent a year, according to CLSA. CLSA cautions that conventional monetary
measures could make matters worse so policy changes—like an anticipated rise in interest rates—must be monitored
closely.
This year’s performance has also pushed Indonesia’s valuation ahead of other emerging markets.
Stocks in Jakarta trade at roughly 13.5 times earnings over the next 12 months while the MSCI Emerging Markets
Index and the MSCI BRIC Index trade at around 11 times, according to a Bloomberg story
However, it’s important to remember that Indonesia is starting from a very low base. Just
two decades ago, only 21 companies were listed and today the country’s stock market remains one of the smallest
as a percentage of GDP among major emerging markets.
Investible options are currently limited to energy, telecom and banking sectors and the number of domestic retail
investors is less than one percent of the population. As more companies go public and market capitalization grows,
increased liquidity should attract more foreign investment.
Domestically, the economy should benefit from its rapidly urbanizing population, rich natural resources, appreciating
currency and political stability. All of these should insulate Indonesia’s economy from external headwinds and
keep the country on a path of growth for the next five years.
Chart of the Week
March 29, 2010
Chart is from the latest edition of U.S. Global’s Weekly Investor Alert:
Indonesia is one of the giants of Asia, yet for most people it doesn’t come to mind when thinking about the continent’s
economic vitality.
A few quick facts about Indonesia: a population of 234 million (4th in the world) that has been rapidly urbanizing
since the 1970s. An estimated 22 million people live in or around Jakarta, making it the world’s second-largest
urban area. Its natural wealth (oil, gas, metals, agriculture) enables it to be part of the G-20 group of major
economies, and GDP growth in 2010 is estimated at 6 percent.
The chart shows how annual cement demand in Indonesia has more than doubled in the past decade, with the key driver
being housing as the country deals with urban growth – nearly seven of every 10 Indonesians are expected to live
in cities by 2030, up from 42 percent in 2000.
But the infrastructure needs run deeper than housing, and so do the opportunities.
A story last week in the Bali Times quoted top government officials saying that the nation wants to attract $90
billion in private infrastructure investment in the coming five years to build and upgrade roads, railroads, seaports,
power generation, health care and other facilities critical to economic growth.
This represents a significant policy change in Indonesia, which attracted only $10 billion in foreign direct investment
last year.
We watch government policies for signals of a change in investment climate. Indonesia, recognizing that it must
deal with its changing demographics and at the same time remain competitive with its neighbors, may be sending
an important signal that its doors will open wider to overseas investors.
To get more insights and perspective from the U.S. Global Investors investment team,
subscribe to the Weekly Investor Alert.
When it comes to emerging market investing, BRIC nations – Brazil, Russia, India and China
– dominate the headlines.
They're big, important countries. And together, they make up about half of the iShares MSCI Emerging Market Index
XEM-T, one of the most popular exchange traded funds.
But what about the 17 other countries in the fund?
For some time now, I've been monitoring a country that's off the radar screens of even the most sophisticated investors,
one that represents a bigger prize than the BRIC nations.
See if you can guess which emerging market investment I'm talking about. Take a look at these statistics.
1. It's a member of the global economic leaders club – better known as the G-20.
2. With 240 million people, it boasts the world's fourth-largest population.
3. Its land mass is three times the size of Texas.
4. Its 10-year government bond interest rate is less than Spain's.
5. And, most importantly, it was the best-performing stock market in 2009 and continues to chug forward in 2010.
The answer is: Indonesia.
The driving force behind Indonesia's downturn-defying performance: Since the global economic
crisis crushed the capital markets in early 2009, Indonesia has shrugged off the adversity and been a stellar
And while many investors continue to laud the BRIC nations, Indonesia's economy quietly notched up 4 per cent gross
domestic product growth in 2009 and is projected to top 6 per cent this year. That puts the country in the same
league as Brazil, India and China as one of the world's top emerging markets.
The driving force behind Indonesia's success? Private consumption, which accounts for about two-thirds of the economy
and has carried it through the recent financial turbulence. Consumption kicked 5 per cent higher during the second
quarter, while investments jumped by 8 per cent. The country has attracted billions of dollars in foreign capital
into stocks and bonds.
The Jakarta Stock Exchange has fed off the positive flow of economic news. Over the past year, it's more than doubled.
And its emerging market country ETFs have tagged along for the ride. From its low in November 2008, the Aberdeen
Indonesia Fund IF-A is up 372 per cent. And having hit bottom in March 2009, the Market Vectors Indonesia Index
ETF IDX-N (IDX_) has catapulted 313 per cent higher.
The Indonesian rupiah has also strengthened by 24 per cent against the U.S. dollar.
Asia's Big Boys Have Indonesia in the Crosshairs
There's no doubt that Indonesia is growing rapidly. But to maintain growth, the country needs
to attract more than $200-billion (U.S.) in new infrastructure investment, so it can develop manufacturing industries
and create jobs for tens of millions of unemployed people.
And two of Asia's biggest players have identified Indonesia as a major target. Both South Korean and Japanese businesses
are expanding their operations there to ride the Indonesian growth wave.
As Gita Wirjawan, chairman of Indonesia's Investment Coordination Board, told the Financial Times recently: “When
I was in Seoul, there was a queue of manufacturing giants showing a thirst to relocate, or move their manufacturing
hub for Southeast Asia to Indonesia.”
In one of the largest deals to date, Posco, South Korea's biggest steelmaker, recently signed a $6-billion (U.S.)
agreement to build a plant in Indonesia with PT Krakatau Steel. And that's not all:
1. Hankook Tire, the world's seventh-largest tire maker, plans to build a $500-million (U.S.) plant in Indonesia
next year.
2. LG Electronics is considering making Indonesia a regional manufacturing hub, according to those close to the
investments.
3. Korea Electric Power, South Korea's state electricity producer, is acquiring a 20 per cent stake in Indonesian
coal company Bayan Resources.
4. In July, Samchully, a South Korean gas supplier, said one of its units would form a joint venture with Indonesian
state energy firm Pertamina to build a liquefied petroleum gas plant in southern Sumatra. It will invest $190-million
(U.S.) to achieve an annual production capacity of 240,000 tons by 2012.
And with regard to Japan, construction has started on a $1.2-billion (U.S.) thermal power plant that will supply
electricity to some of the most densely populated islands.
PT Paiton Energy (partly owned by Mitsui & Co.) and Tokyo Electric Power are building the
815-megawatt expansion in East Java, with funding from the Japan Bank for International Cooperation and a consortium
of Japanese lenders.
The deal adds to already solid Japanese-Indonesian import-export ties. Trade between Japan and Indonesia reached
$28.4-billion (U.S.) last year, making Japan a larger trading partner than China, where the number totals $25.5-billion,
or the U.S., with trade worth $17.9-billion.
In addition, Japan sources most of its coal and liquefied natural gas from Indonesia, while Indonesia imports large
quantities of Japanese electronics. And there are currently more than 1,000 Japanese projects under way, worth
more than $30-billion.
So where does this leave the United States in the equation?
Think strategically about U.S. security issues and you'll realize that Indonesia's importance to the United States
goes far beyond economics, as it borders several key sea lanes.
America needs to build a much broader and deeper relationship with Indonesia by growing through investment, trade
and partnerships like Japan has done. The Financial Times reports that the Japan-Indonesia partnership is just
one of several trade agreements that Japan has. It's also sealed bilateral free-trade agreements with Brunei, Chile,
Malaysia, Mexico, Singapore, the Philippines, Thailand, Vietnam, Switzerland and the Association of Southeast Asian
Nations (ASEAN).
By Emily Wax
Washington Post Foreign Service
Saturday, November 6, 2010; 7:16 PM
BANGALORE, INDIA - In a futuristic lab on a leafy information technology campus, an inventor showed off a power
strip that calculates a household's carbon emissions for the environmentally conscious U.S. market. In a research
center nearby, rocket scientists worked on designs for lighter, more aerodynamic wings for Boeing fighter jets
The engineers at Infosys Technologies, India's second-largest technology company, are at the cutting edge of the
country's $60 billion IT industry, which is shedding its image as a low-cost call center, with young Indians keeping
U.S. credit card and banking systems humming all night.
In the latest phase of globalization, some economists say, Silicon Valley is in danger of losing a sizable piece
of its knowledge-based industry to India in much the same way Detroit lost its lead to Japan in the auto industry.
While the United States is still the innovation leader with global projects such as the iPhone, thousands of high-tech
jobs with iconic companies like IBM and Accenture have been shipped to India.
"If you look at the historical evolution of globalization, this is simply the latest phase. The center of
gravity has shifted, with cars moving to Japan, then low-cost manufacturing moving to China and now the more knowledge-intensive
work flowing to India," said Partha Iyengar, head of research for Gartner India, a U.S.-based global IT research
organization. "Unfortunately, this time the U.S. is feeling it."
The outsourcing issue is a sore point in an otherwise deepening relationship between India and the United States,
which see each other as vital partners in areas like counterterrorism, defense contracts and nuclear energy.
'Not just a one-way street'
President Obama arrived here Saturday, days after voters concerned about unemployment handed
the Democrats a decisive defeat in midterm elections. Many candidates pounced on the outsourcing issue before the
vote.
At a Mumbai summit of top Indian and American chief executives, Obama said that in the United States a caricature
exists of India as a nation filled with call centers that were taking away American jobs
In India, Obama said, many see the arrival of American companies as a threat to the livelihood of neighborhood
shopkeepers. "These old stereotypes and old concerns ignore today's reality," the president said on the
first of three days he will spend in India. "Trade between our countries is not just a one-way street of American
jobs and companies moving to India. It is a dynamic two-way relationship that is creating jobs, growth and higher
standards in both our countries."
But many Indian industry leaders are upset at the U.S. government for doubling fees for guest worker visas, which
Indian companies based in the United States say hurts their efforts to recruit Indian workers. A bill sponsored
by Sen. Richard J. Durbin (D-Ill.) and Rep. Bill Pascrell Jr. (D-N.J.) would add new restrictions, fees and penalties
for employers to obtain skilled-worker visas. Pascrell says unemployed Americans are eager for the same jobs, which
pay guest workers far less. Indian companies say the restrictions and fee increases are unfair.
"It's another form of tax and discourages the free movement of business," said Girish S. Paranjpe, a
joint chief executive of IT business for Wipro, the third-largest IT firm in India. "It's protectionism and
goes against core American ideas of open markets."
Obama has also urged Congress to close tax breaks that he says encourage companies to create jobs in other countries.
India's outsourcing industry was shaken last year when Obama said he wanted to change "a tax code that says
you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York."
Even on the American TV show "Outsourced," a disgruntled American employee whose job was outsourced throws
a brick with an attached message through a window
The way it's getting framed is that India is the root cause for an economic recession and
is somehow being blamed for America's 20-year credit party," said P.V. Kannan, chief executive and founder
of 24/7 Customer, a global IT firm that has offices in California and Bangalore. "What is actually going on
is an abundance of highly intellectual labor no longer constrained by borders."
U.S. and Indian officials say outsourcing will probably take a back seat to Obama's push for
bilateral trade during the trip. The White House has urged India to give U.S. companies better access to the country's
emerging middle class, which is larger than the entire U.S. population.
The United States, for instance, is pushing India to allow American universities to set up in Mumbai, Delhi and
other cities, potentially bringing in millions of dollars in tuition fees from India's enormous student population.
India's university system is vastly overcrowded.
Can both nations benefit?
Obama said he wants to "pry open" Indian restrictions on foreign investment. But
Indian industry experts say Washington seems to get upset only when it ends up on the losing side.
"Globalization is a two-way street. The U.S. has been lecturing India on opening its markets for years, and
now they want to protect their markets," said Subhash Dhar, an executive council member of Infosys in Bangalore.
"The fact is, for generations and generations, the U.S. was at a competitive advantage because of the principles
of a free market and immigration of the best and brightest."
Industry analysts say it is difficult to determine exactly how many jobs the United States has lost to India. Many
companies decline to release such data.
Some Indian IT leaders estimate that 350,000 American jobs have moved to India over the past decade, but American
outsourcing experts say that number may be much higher. IT leaders in India say outsourcing does not hurt American
companies but makes them more efficient and helps the U.S. economy by freeing up money for innovation and investments.
Outsourcing experts and advocates for American workers say that while outsourcing helps corporate America, American
engineers and computer programmers see few benefits.
The industry has been a driving force in India's economic boom and helped create a generation of young Indian consumers
who have income to spend on cars, computers and spacious apartments.
"They have successfully built a business model where not only do they offshore large numbers of jobs, but
the fraction that remain in the U.S. are filled by lower-paid foreign guest workers," said Ron Hira, an associate
professor of public policy at the Rochester Institute of Technology and author of the book "Outsourcing America."
"They are often also forced to train their foreign replacements."
Ahead of Obama's trip, Indian IT industry leaders have been working on softening their image.
Infosys Technologies recently hired an American to head its research and development unit. Inside their labs, scientists
say they are still inspired by American imagination and ideas such as the iPhone and Amazon.com. Sixty-five percent
of Infosys business comes from the U.S. markets.
"We hope it's just political rhetoric, because So much innovation and our ideas still come from the U.S.,"
said Dhar, of Infosys. "The U.S. is still the largest economy in the world. If America does well, the world
does well."
OECD Investment Policy Reviews: Indonesia charts Indonesia’s progress in developing an effective
policy framework to promote investment for development. It focuses on policies towards investment, competition,
infrastructure, finance and other areas of the business environment and suggests ways the climate for both domestic
and foreign investment might be further improved.
It finds that Indonesia has undertaken a decade of political and economic reform, under very difficult circumstances.
Democracy is now firmly established, and the economy is growing at a steady pace in spite of the global financial
crisis. Reforms over the past decade have done much to improve the resilience of the Indonesian economy, and the
government has made substantial progress in creating a better climate for investment. New laws have been enacted
in almost all sectors, and new institutions have been created to advise the government, implement and enforce laws,
regulate newly liberalised sectors and settle disputes.
Foreign investors have taken notice. Foreign direct investment in Indonesia in the past five years has exceeded
the earlier peak achieved in 1996, before the Asian financial crisis in 1997-98 brought economic contraction and
net outflows of foreign investment. This investment is also becoming increasingly diversified by sector and by
country of investor.
U.S. Commercial Service Indonesia
Business Customs
The best time for an initial business trip is September through June, as school holidays and
vacation time in the summer months can impact the availability of many business people. Visitors should check the
local holiday schedule before traveling to Indonesia, and in particular should try to avoid the Muslim fasting
month of Ramadhan, during which appointments are often difficult to schedule. The normal business attire is a lightweight
business suit or white shirt, tie and slacks for men, and a business suit or dress for women.
Indonesia is a very diverse country, with more than 300 different ethnic groups. Some Indonesians are traditional
in culture, others may be considerably "Westernized." Many Indonesians do not conduct business transactions
or make decisions in the same direct fashion Americans do, so U.S. business people should be prepared to spend
a good deal of time with clients before getting down to the business transaction. Traditional Javanese culture
emphasizes harmony and the word "no" is rarely used. This can make it difficult for a Westerner to ascertain
exactly how a business proposal is being received. Patience and the development of personal relations is the key.
Because Indonesians do business with "friends," people who they know, developing a rapport is crucial.
While quality and price are important, they are often secondary to the personal interaction of the business partners.
During business meetings, tea or coffee is almost always served and should be accepted. It
should not be consumed until the host invites you to do so, which may not occur until the end of the meeting. Generally
speaking, it is best to use the right hand in receiving or eating. Although hand shaking is a common practice,
avoid hearty handshakes and other physical contact. Do not show the soles of your shoes when seated.
A publication that may be of use to business executives is "The Guide for Business Representatives,"
available for sale by contacting: Superintendent of Documents, U.S. Government Printing Office, Washington, D.C.
20402, Tel: (202) 512-1800, fax: (202) 512-2250. Business travelers to Indonesia seeking appointments with U.S.
Embassy-Jakarta officials should contact the U.S. Commercial Service in advance. The U.S. Commercial Service can
be reached by telephone at (62-21) 526-2850, fax at (62-21) 526-2855
Visa Requirements
U.S. citizens traveling to Indonesia are required to have a valid visa. Visas can be obtained
by applying at the Indonesian Embassy in Washington or at their Consulates in New York, Los Angeles, and Chicago.
Visas on arrival (30-day visa) are available at the airport in Jakarta, Surabaya, Medan, Denpasar and several other
large cities for a fee of $25. All travelers to Indonesia must have a passport valid for at least six months from
the date of arrival in Indonesia as well as an onward/return ticket. Indonesian authorities regularly deny entry
to Americans who arrive with less than six months validity on their passports. Travelers are strongly urged to
check with their airline and with the Indonesian Embassy or the Directorate General of Immigration at the following
links, as requirements can change on short notice.
Telecommunications
Telephone services vary between areas in Jakarta. They depend largely on the local telephone
exchange's capacity to handle traffic. Phone service is good along the main business thoroughfares and the newer
residential areas, which are served by fiber optic trunk lines. In the older residential areas, service is less
reliable. Extra phone lines can be costly, and obtaining them can be time consuming. International direct dial
(IDD) lines are available and will allow connection to an AT&T operator, but rates are considerably higher
than calling from the United States.
Cell phones are widely used throughout Indonesia. Cellular services could easily be obtained
as there are eleven operators offering GMS or CDMA technologies. Out of the total carriers, three GSM carriers
- Telkomsel, Indosat, and XL - provide solid coverage across the country. The good thing about using cell service
in Indonesia is that the service can easily be subscribed and cheap compared to U.S. standards. It is also worth
noting that pre-paid SIM cards are easily purchased at many stores and kiosks. The use of BlackBerry has been growing
significantly. However, BlackBerry service is only available to post-paid users.
Coming into 2009, Indonesia has an estimated 25 million internet users. Broadband internet services are very much
in their infancy. Problems with inferior telecommunications infrastructure will continue to impede internet growth.
A number of Internet Service Providers (ISPs) operate in Indonesia.
Indonesia’s growth performance is improving, following a slow recovery from the 1997-98 financial
crisis. Growth is becoming increasingly reliant on the dynamism of domestic demand, rather than net exports. Investment
is picking up, despite considerable business climate obstacles to entrepreneurship. Unemployment remains high,
and labour informality is pervasive, due predominantly to an increasingly onerous labour code.
The macroeconomic policy setting is by and large appropriate. Fiscal policy has been conducted responsibly and
in an increasingly decentralised manner. Public indebtedness has been reduced, creating room in the budget for
raising spending on much needed infrastructure development, human capital accumulation and social protection. Monetary
policy is now conducted within a fully fledged inflation targeting regime. It has delivered disinflation, albeit
to a level of inflation that remains above that of Indonesia’s trading partners. Efforts to enhance credibility
in the monetary policy framework would be helpful.
This Economic Assessment argues that the main barriers to raising the economy’s growth potential are to be found
on the supply side of the economy. Indonesia will need to improve the business environment and make better use
of labour inputs to put the economy on a higher growth trajectory. The country’s income gap relative to the OECD
is sizeable, and several years of sustained growth will be needed to eliminate it.
Chapter 2. Improving the
business and investment climate Indonesia’s business environment is discouraging entrepreneurship and holding back private
sector growth and development. Weaknesses in the regulatory framework, infrastructure bottlenecks and poor governance
continue to weigh down on investment. Policies have been put in place to address these problems, but much remains
to be done. An important recent initiative is the enactment of the Investment Law in 2007, which strengthened the
foreign investment regime.
This chapter argues that options for reform could focus on making regulations more pro business, including by removing
red tape and onerous provisions at the local level of government, improving governance and relaxing remaining restrictions
on foreign investment. Further financial deepening would facilitate access by enterprises to more abundant, cheaper
sources of finance.
Since the financial crisis of 1997-98 job creation has slowed, unemployment has been high,
particularly among youths, and informality remains widespread. Important contributory factors are a tightening
of employment protection legislation (EPL), especially with the enactment of the Manpower Law of 2003, and sharp
increases in the real value of the minimum wage. Strict EPL is nevertheless failing to provide effective social
protection for the needy, because it is not binding in the informal sector. It is also affecting Indonesia’s trade
competitiveness, because the country has a comparative advantage in labour intensive manufacturing, whose former
dynamism has waned.
This chapter argues that options for reform could focus on making labour legislation more flexible, particularly
for regular contracts, while enhancing formal safety nets, especially through well targeted, conditional income
transfer programmes.
Washington. The nominee to be the next US ambassador to Indonesia pledged Wednesday to build
“momentum” to enhance warming relations but also said he would press for a better climate for investors.
Scot Marciel, a longtime US diplomat in Southeast Asia, was tapped as envoy to Jakarta as President Barack Obama’s
administration increasingly looks at the world’s largest Muslim-majority nation as a key partner.
“Indonesia is a country of substantial importance to the United States,” Marciel told his confirmation hearing
in the Senate, which is expected to approve him.
“Both Indonesia and our bilateral relationship are on a positive trajectory, but there is much work to do to maintain
and enhance the momentum and to build an even stronger relationship,” he said.
Marciel, currently the deputy assistant secretary of state focused on Southeast Asia, credited Indonesia with major
improvements over the past decade in embracing democracy and improving its human rights record.
But he called for greater liberalization of the economy in Indonesia, which with the world’s fourth largest population
is seen as a vast market for foreign companies.
“Certainly for us and for me if I’m confirmed, trying to deal with the business climate issues and restrictions
on trade and investment would be a very high priority,” Marciel said.
I recently spent a couple of memorable days in the heart of Sumatra with the EU ambassador and a selection of attaches
from various European missions. The focus of the visit was palm oil and (according to some local officials) how
fantastic it was at enriching the lives of the local people, and in no way was it damaging to the environment.
Which was just sat around being no use to anybody anyway. The highlight of the trip for me was not watching the
EU Ambassador murder a rendition of “A Hard Day’s Night” on the karaoke (the Indonesian officials were awesome!),
but the fact that during the industry roundtable the companies complained that sustainable palm oil was too difficult
to implement because of lack of government intervention.
Rob Daniel This was music to my ears as I have always maintained that sustainability makes good economic sense
- so it doesn’t make sense for companies not to practice it, unless there are perverse incentives. Like many countries
around the world the regulatory and legislative environment often hinders rather than encourages businesses to
move their operations, products and services to a lower carbon footprint. This is where ALBI comes in.
The Alliance of Low-carbon Business in Indonesia –ALBI – seedcorn funded by the FCO's Strategic Programme Fund
and managed by eUconnect Ltd - has been tasked to establish an Alliance of around 80 businesses in Indonesia who
could benefit from moves towards the global low-carbon economy.
The main aim is the creation of a portfolio of recommendations to the Indonesian Government to encourage them to
facilitate a rapid and predictable move to a low-carbon economy.
A great man whom I can’t remember the name of once said ”Think Big, Act Fast and Start Small”.
With that in mind we selected six sectors that we thought would gain traction quickly and hence generate the critical
mass needed to create a self sustaining, business-to-business interaction capable of making government take note.
These are energy, forestry, palm oil, construction, tourism and finance. Each of these sectors will get a general
film about common low-carbon sectoral challenges as well as one or more pioneer profiles. The latter will showcase
an Indonesian company that is embarking on the low-carbon journey. We hope that the stories told will encourage
others to join up and get involved in the debate.
This is the third time I have had the pleasure of working with eUconnect whose core competence is in assembling
and facilitating communities to think together about innovation and the future, as well as being an experienced
digital media producer of stories that communicate options around innovation, climate change and entrepreneurship.
The library of 18 short web length films, around 6-10 minutes long, will be freely available by around April 2011,
and will be downloadable from the ALBI website, which is now up and running. It is likely that they will be usable
not only throughout South East Asia, where many of the business issues are common, but also in other developing
countries.
Rob Daniel is Head of Climate Change Policy at the British Embassy in Jakarta
Indonesia has witnessed some economic growth in recent years, mainly on the basis of booming
private investment and consumption. Foreign investment is on the rise in Indonesia, and there are significant improvements
to be seen with regard to the general investment climate. Despite the deregulation process being successfully implemented,
investors still point at corruption, red tape and an uncertain legal environment as the main challenges for conducting
business in the country. Companies continue to be concerned about concessions based on personal relationships and
demands for irregular fees to obtain government contracts, permits or licences.
Positive developments in relation to corruption and investment:
* Indonesia is trying to break a long tradition of corruption by implementing transparent and accountable governance.
* Several politicians, legislators and former ministers have been sentenced on corruption charges under the rule
of current President Yudhoyono.
* There seems to be a general and strong public sentiment condemning corruption and calling for the prosecution
of corrupt officials and seizure of their assets.
* Indonesia has a relatively open foreign investment regime. Recent reforms have put greater emphasis on improving
the business climate, enhancing regional competitiveness, and creating a more vibrant private sector.
Risks of corruption:
* Indonesian SMEs are relatively more affected by a corrupt environment than larger companies due to their limited
capacity and market power, as they report paying a larger percentage of their income in facilitation payments.
* Bribery typically occurs during licensing procedures, as the level of bribes is positively correlated to the
number of business licences a company must obtain in order to comply with regulations.
* Despite improvements in recent years, tax and customs administrations in Indonesia are perceived by many in the
business community as corrupt, and many regulations as onerous.
* Indonesia has a complex regulatory and legal environment that leads many foreign and domestic companies to avoid
the justice system. Companies are often advised by legal experts to resolve disputes through arbitration outside
Indonesia, because the judicial system operates irregularly and opaquely.
Indonesia is trying to break a long tradition of corruption by implementing transparent and
accountable governance. However, the former political, administrative and business elites continue to seek influence
and consolidate their position in the new democratic system through informal networks. Decades of collusion between
business and government have created a relatively stable, but highly unaccountable system, which does not benefit
the general population. Indonesia is ethnically and religiously heterogeneous, with great socioeconomic inequalities
and large regional economic differences. Institutionally, Indonesia has a federal structure and there has been
wide-ranging decentralisation over the past years. The party system and executive-legislative relations remain
unstable and a strong institutional framework is absent, although improvements have been seen in recent years.
Hard hit by the Asian economic crisis of 1997-1998, Indonesia has been slow to recover. Indonesia has also suffered
from several natural disasters that have had large human and economic consequences, notably the tsunami in 2004.
Indonesia has furthermore suffered from communal violence and terrorism.
President Yudhoyono won a landslide victory in 2004, gaining 61% of the votes based on a campaign platform focusing
on economic growth and fighting corruption. In April 2009, Indonesia held its first direct legislative elections.
Yudhoyono's Democratic Party came out as the winner with 21% of the votes, giving the party the right to nominate
a presidential candidate on its own for the election in July 2009. In July 2009, elections President Yudhoyono
won with approximately 60% of the vote in the first round, securing him re-election without a run-off. The President
has stated repeatedly that eliminating corruption is one of his administration's top priorities. Even though several
politicians, legislators and former ministers have been sentenced on corruption charges under his rule, Yudhoyono
has been criticised for failing to net key figures from the tenure of former dictator Suharto. Nonetheless, Transparency
International's Global Corruption Barometer 2009 reveals that the general public consider their government to be
effective in its fight against corruption, with 74% of the respondents citing the government's efforts to fight
corruption as effective and 19% as ineffective. This shows a large improvement compared to the Transparency International
Global Corruption Barometer 2007, in which 47% of the respondents considered the government's efforts to fight
corruption as ineffective. According to BBC News correspondents, President Yudhoyono's re-election was boosted
by the corruption-free image he enjoys in the country.
Indonesia's recently democratised system, however, contains some legislative and institutional
shortcomings that allow for continued corrupt practices. At the same time, many legal and institutional initiatives
have been undertaken to combat corruption, although many of these measures still require effective implementation.
Several reports indicate that corruption has now been decentralised to a large extent, due to policies of political
and administrative decentralisation which were initiated in 2001. The institutions cited in the Transparency International
Global Corruption Barometer 2009 as most corrupt are public officials, the legislature, the judicial system and
political parties. There seems to be a general and strong public sentiment condemning corruption and calling for
the prosecution of corrupt officials and seizure of their assets.
Business and Corruption
Indonesia has witnessed some economic growth in recent years, which accelerated to a 10 year
high of 6.1% in 2008, mainly on the basis of booming private investment and consumption, as reported by the World
Bank East Asia and Pacific Update 2008. Foreign investment is on the rise in Indonesia, and there are significant
improvements to be seen with regard to the general investment climate. Despite the deregulation process being successfully
implemented, investors still point at corruption, red tape and an uncertain legal environment as the main challenges
to doing business in the country. Companies continue to be concerned about concessions based on personal relationships
and demands for irregular fees to obtain government contracts, permits or licences. According to Transparency International
Indonesia 2008, companies identify the judiciary and police as the two top priority institutions for the fights
against corruption.
According to a national survey on corruption cited by Credit-to-Cash Advisor, 35% of the interviewed companies
reported that they avoided investing in Indonesia because of widespread corruption. According to the World Bank
& IFC Enterprise Surveys 2009, 14.6% of the surveyed companies expect to pay bribes to public officials to
'get things done' and 14% state that corruption is a major problem for doing business in Indonesia. In the World
Economic Forum Global Competitiveness Report 2009-2010, the company executives surveyed point to corruption as
one of the four areas of primary concern for doing business and identify the diversion to public funds to individuals,
companies, or groups due to corruption as fairly common. In contrast, business executives report that the extent
to which government officials favour well-connected companies and individuals when deciding upon policies and contracts
constitutes a competitive business advantage for Indonesia. In Transparency International's Global Corruption Barometer
2009 survey, 15% of the respondents also consider the private sector to be 'extremely corrupt'. According to the
World Bank Indonesian Rural Investment Assessment 2006, decentralisation has led to smaller markets and restrictions
on inter-regional competition, and this has encouraged collusion and anti-competitive behaviour by companies and
local governments in several regions. Nearly 50% of companies polled report local level corruption as a major business
obstacle. Companies in the World Bank World Development Report 2005 state that bribes are frequently paid in business
operations and indicate that the annual cost of bribes amount to 4.6% of sales. Indonesian SMEs are relatively
more affected by a corrupt environment than larger companies due to their limited capacity and market power, and
they report paying a larger percentage of their income in facilitation payments. Bribery typically occur during
licensing procedures, as the level of bribes is positively correlated to the number of business licences a company
must obtain in order to comply with regulations. Service sector companies in resource rich and urban areas pay
higher amounts in bribes. More established and larger companies pay lower bribes. The financial sector regulation
is reported to be effective, however, most listed companies are either family-owned or government-controlled and
systems of corporate governance and auditing are well below international standards. According to the World Bank
& IFC Enterprise Surveys 2009, 65% of the service companies surveyed report that they compete against unregistered
or informal companies.
Many political parties rely on support from private companies and corporate donations are often associated with
influence-peddling in the form of kickbacks from companies or state agencies seeking to get legislation approved.
In general, companies are strongly recommended to develop, implement and strengthen integrity systems and to conduct
extensive due diligence when considering to do or when already doing business in Indonesia.
Regulatory Environment
Indonesia has a relatively open foreign investment regime. Recent reforms have put greater
emphasis on improving the business climate, enhancing regional competitiveness, and creating a more vibrant private
sector. Moreover, public finance management has improved, and tariff barriers have been lowered, as outlined by
the Heritage Foundation 2010. However, despite these improvements, institutional challenges to the business environment
persist. For instance, tax and customs administrations in Indonesia are perceived by many in the business community
as corrupt, and many regulations as onerous. According to the World Bank World Development Report 2005, 48% of
companies indicate policy instability as a major constraint and 56% report that the interpretation of regulations
is unpredictable. According to the same report, senior management can expect to spend 14.6% of its time dealing
with public officials and the burden of government regulations. Nevertheless, business executives in the World
Economic Forum Global Competitiveness Report 2009-2010 indicate that the level of government regulation in the
country represents a competitive business advantage.
Generally, the lack of local compliance with national law and inconsistencies between local and national law is
a major problem in Indonesia. In fact, according to the US Department of State 2008, laws and regulations are often
vague and varying in implementation across different Indonesian regions, leading to increased business uncertainty
and rent-seeking opportunities. Some regions have enacted policies and laws that accord preferential treatment
to their own citizens and companies. This includes the attempt to exclude or to tax workers and companies that
come from outside the region and the imposition of taxes and charges on interregional traffic, a practice which
violates national law. Furthermore, the local governments have attempted to increase their own-source revenue,
which has resulted in numerous new local taxes and charges. Revenues from such charges have more than doubled since
1999-2000. According to the World Bank Rural Investment Assessment 2006, these local taxes are very inefficient
compared to state level taxes and have not led to improved local service delivery. Local business licences are
burdensome to comply with and allow widespread possibilities for corruption, meaning that the cost of compliance
is highly uncertain. State-owned companies still have primacy over private companies, and the legal and institutional
capacities for supporting a market economy are still not entirely in place.
Each business sector has its own licensing rules, and the costs and time spent in company registration
are relatively high. According to the World Bank & IFC Doing Business 2010, it takes 60 days and 9 procedures
to start a company at a cost of 26% of GNI per capita; the minimum capital required is 59.7% of GNI per capita.
Dealing with licences and permits for a standard construction project takes 160 days, 14 procedures and costs 194.8
% of income per capita on average. Companies seem to receive a relatively uniform regulatory treatment by the government,
although the picture varies considerably from region to region. VAT and tax reimbursements are often delayed considerably.
The government is required to reimburse companies within 60 days, but the average is reported to be around 100
days.
Reforms of the judicial system are given high priority by President Yudhoyono, but the Indonesian court system
still cannot provide effective recourse to settle commercial disputes. According to the US Department of State
2008, Indonesia has a complex regulatory and legal environment that leads many foreign and domestic companies to
avoid the justice system. The judicial rulings are often irregular due to corrupt and collusive practices. Local
courts have in several cases accepted jurisdiction over commercial disputes despite contractual arbitration clauses
calling for adjudication in foreign venues. Companies are often advised by legal experts to resolve disputes through
arbitration outside Indonesia, because the judicial system operates irregularly and opaquely. For more information
on dispute settlement, see the section on the judicial system under Corruption Levels. Access the Lexadin World
Law Guide for a collection of legislation in Indonesia.
Sectors (Judicial System, Police, etc.) describe which kind of corruption can be encountered
in different areas. This section covers various forms of corruption, including bribes and facilitation payments.
All information is based on publicly available information and should be viewed as general guidelines on the types
of corruption existing in the country.
Levels of corruption in the different sectors indicate where corruption can be encountered. The levels are defined
as follows:
* Individual Corruption: Corruption that takes place primarily in relations between individual citizens and public
officials and authorities.
* Business Corruption: Corruption that takes place primarily in relations between enterprises/companies and public
officials and authorities.
* Political Corruption: Corruption that takes place in the higher echelons of public administration and on a political
level.
Frequency refers to quantitative surveys on corruption in the respective sectors.
Individual Corruption
In the Transparency International Global Corruption Barometer 2009, the legal system and courts are perceived to
be among the most corrupt public institutions in the country.
Indonesian citizens' low confidence in the judiciary is also evident in a 2006 survey conducted by the Partnership
for Governance Reform in Indonesia, in which 80% of households state that they prefer informal means of conflict
resolution over courts. Informal means of settlement include family, friends and local religious and community
leaders.
A survey conducted by Transparency International in September and December 2008 found that the total sum paid in
bribes to the judiciary is greater than in any other sector, including the police, as reported by Freedom House
2009.
Business Corruption
Legal uncertainty is a frequent complaint made by companies operating in the country; courts at several levels
are perceived as inefficient and corrupt. This is supported by the Heritage Foundation 2010, which characterises
the judicial enforcement in Indonesia as erratic and non-transparent. The Indonesian court system does not provide
effective recourse for resolving commercial disputes. Legal practitioners say irregular payments and other collusive
practices often influence case preparation and the judicial ruling.
Business executives do not report a high degree of confidence in Indonesia's judiciary or legal system in the World
Economic Forum Global Competitiveness Report 2009-2010. According to a 2006 survey conducted by the Partnership
for Governance Reform in Indonesia, two out of three companies prefer informal means of conflict resolution to
the courts. The reasons stated for resorting to unofficial means are the high level of unofficial costs, corruption,
incompetence, delays and lack of enforcement of court rulings. According to Transparency International Indonesia
2008, nearly a third of all business interactions with the courts involve bribery.
According to the US Department of State 2008, Indonesia has a complex regulatory and legal environment that leads
many foreign and domestic companies to avoid the justice system. Laws and regulations are often vague and require
substantial interpretation by implementing offices, leading to business uncertainty and rent-seeking opportunities.
Moreover court cases are handled very slowly unless a bribe is paid. However, deregulation has been somewhat successful
in reducing barriers and creating more transparent investment regimes.
In Indonesia, it is possible to appeal a criminal judgment and the mechanism is generally affordable for companies,
although procedures can be very slow.
Political Corruption
The independence of the judiciary has improved in recent years. However, there are concerns that military, business
and political interests still play a role. Bribery within the judicial service occurs when judges from lower courts
give 'gifts' to their superiors in order to obtain promotions, and recruitment is also said to be influenced by
bribes. There are reports of close relationships between lawyers and judges in the Supreme Courts. Buying and selling
of court decisions has been reported.
Courts are to a large extent still dominated by judges from the Suharto era, and a major increase in the number
of judges during the 1980s saw many incompetent judges enter office, leading to a deterioration of judicial quality.
The courts are known to be under-funded and, according to some estimates, only around 30% of the institutional
needs are covered by the officially allocated budget. Transparency and access to information is generally known
to be low in the judicial sector and access to decisions is usually limited to the litigating parties.
Executive actions can be challenged through the Supreme Court, but in practice the judiciary is unwilling to take
on politically sensitive issues. Reports indicate that except for some high profile cases, the higher echelons
of the political, military and business elite are protected against criminal proceedings. The political intervention
in smaller cases and discrimination in regional and national courts has decreased.
The Attorney General has been active in combating cases of graft, albeit mostly in cases of petty corruption. However,
corrupt practices have been found within the Attorney General's office itself.
Tommy Suharto, son of the former Indonesian dictator, went into hiding in 2000 after receiving an 18 month sentence
for corruption. While a fugitive, he paid two hit men to execute the Supreme Court judge who sentenced him. He
was later sentenced 15 years in prison for the murder. However, he was released in 2006 for good behaviour.
Frequency
The World Bank & IFC: Doing Business 2010:
- To enforce a commercial contract, a company is required to go through 39 procedures, taking 570 days at a cost
of 123% of the claim on average.
World Economic Forum: The Global Competitiveness Report 2009-2010:
- Business executives give the independence of the judiciary from influences of members of government, citizens,
or companies a score of 3.8 on a 7-point scale (1 being 'heavily influenced' and 7 'entirely independent').
- Business executives give the efficiency of the legal framework for private companies to settle disputes and challenge
the legality of government actions and/or regulations a score of 3.8 and 3.9 respectively on a 7-point scale (1
being 'extremely inefficient' and 7 'highly efficient').
The World Bank & IFC: Enterprise Surveys 2009:
- 70% of companies believe the court system is fair, impartial and uncorrupted.
- 5% of companies identify the functioning of the courts as a major business constraint.
Transparency International: Global Corruption Barometer 2009:
- Citizens perceive the judiciary to be among the most corrupt institutions in Indonesia, and 48% of the surveyed
households give it a score of 5 on a 5-point scale (1 being 'not at all corrupt' and 5 'extremely corrupt').
Transparency International Indonesia: Measuring Corruption in Indonesia: Indonesia Corruption Perception Index
and Bribery Index 2008:
- Companies report that 30% of all interactions with the courts involve bribery, for which the average bribe costs
approximately IDR 102.5 million.
Freedom House: Freedom in the World - Indonesia 2006:
- The bribe level to achieve a favourable decision in court ranged from USD 8,300 (Bandung District Court) to USD
600,000 (Supreme Court) depending on the trial venue.
Business Corruption Global Integrity 2008
describes Indonesia's public procurement framework as 'strong'. Recent regulations have improved transparency in
public procurement. The licence requirement imposed on bidders has been eliminated, which has reduced possibilities
for bribery. Tenders are made public in newspapers or on the Internet at the national level, although there is
still a lack of transparency at local levels. Moreover, Global Integrity 2008 reports that it is sometimes difficult
to access information concerning public tenders and that bribery may occur in the process of gathering information
concerning procurement procedures. While business executives in the World Economic Forum Global Competitiveness
Report 2009-2010 report that government officials will often favour well-connected companies and individuals when
awarding contracts, Global Integrity 2008 reports that there is no mechanism to monitor the assets of procurement
officials, fuelling a procurement environment that is conducive to corruption.
Although competitive bidding is mandatory, review of the decisions by unsuccessful bidders is possible, and companies
that violate the regulations are officially required to be blacklisted, public procurement seems to be one of the
most corruption-ridden sectors in Indonesia. Blacklisting is often circumvented through the change of company name
and Global Integrity 2008 reports that investigations into alleged bribery in the procurement process rarely occur.
Several cases of irregularities in public procurement were prosecuted in 2005-2006. Most were related to collusion
between bidders and officials to inflate prices of bids. So-called 'collusion rings' exist in which bidders take
turns winning contracts and share the profits.
For further information on public procurement, see 'Public Anti-corruption Initiatives' in the Initiatives section.
Political Corruption
Lack of access to information and multiple interpretation of legislation (especially at regional levels of governance)
are cited as the primary explanations for corruption in public procurement, whereas weak law enforcement is cited
as an explanation for the problems in combating corruption. The public procurement systems in most sectors still
rely on the decisions of low level officials who are often more vulnerable to pressure and bribery. The lack of
an effective judiciary lowers the risks of prosecution of corrupt arrangements. The government auditors often lack
the resources and skills to investigate public procurement.
The Heritage Foundation 2010
reports that companies cite awarding of government contracts and concessions in Indonesia as based on personal
relationships.
In March 2008, Indonesia's Anti-Corruption Court sentenced Judicial Commission member Irawady Joenoes to 8 years
in prison for accepting bribes in a land procurement deal, as reported by the Jakarta Post. Global Integrity 2008
informs that Irawady was arrested by the Corruption Eradication Commission (KPK) in 2007.
In March 2009, a former official of the Manpower and Transmigration Ministry, Bahrun Effendi, was sentenced 4 years
in jail for having embezzled IDR 13.7 billion in funds from procurement projects.
Frequency
World Economic Forum: The Global Competitiveness Report 2009-2010:
- Business executives give the diversion of public funds to companies, individuals, or groups due to corruption
a score of 3.6 on a 7-point scale (1 being 'very common' and 7 'never occurs').
- Business executives give the favouritism of government officials towards well-connected companies and individuals
when deciding upon policies and contracts a score of 3.7 on a 7-point scale (1 being 'always show favouritism'
and 7 'never show favouritism'), constituting a competitive business advantage for the country.
The World Bank & IFC: Enterprise Surveys 2006:
- 53% of the companies surveyed expected to give gifts to secure a government contract.
- The average value of a gift expected to secure a government contract is 4.03% of the contract value.
US Embassy Jakarta: Press Release, 28 September 2007:
- According to Indonesian government estimates, corruption is responsible for USD 4 billion in losses each year
within the government procurement process.
Organizations doing business in Indonesia should consider the following implications:
* 1997 Environmental Management Act. The main environmental law is the 1997 Environmental Management Act, which
in theory sanctions companies and individuals for environmental offenses. However, enforcement remains inconsistent.
The Ministry of the Environment is proposing national mitigation and adaptation strategies to the United Nations
Framework Convention on Climate Change (UNFCCC), and the Ministry of Finance intends to develop a low carbon growth
strategy.
* National Council on Climate Change (No. 46/2008). Regulation No. 46/2008 established the National Council on
Climate Change to coordinate control over climate change and strengthen Indonesia’s position in international forums
on climate change. The National Council focuses on:
o Formulating and implementing climate change strategies
o Coordinating adaptation, mitigation, technology and funding
o Developing a carbon trading mechanism.
* Renewable energy incentives. The government has developed incentives for renewable energy and biofuels projects.
The incentives include mandates to purchase electricity generated by renewable energy power plants as well as biofuels,
income tax incentives for investment in geothermal energy and biofuels and an import duty exemption for renewable
energy. The government is also considering the possibility of a VAT on biofuels, to be paid by the government.
