MID-EAST AS NEW BUSINESS TARGET

The Jakarta Post -- 28 April 2006
Emanuel Shahaf, Jerusalem

The government and legislature of Indonesia have both recognized the importance for the nation to involve itself, at some level, in the efforts to work towards peace in the Middle East. President Susilo Bambang Yudhoyono has expressed this wish several times and so has the House of Representatives' Commission I when recommending more government involvement in the area, as reported by this paper on March 21.

While the above expressions of interest have been of a general nature, what both, government and the House really mean is that they would like very much to establish a representation in Palestine, which, due to geopolitical circumstances, requires the agreement of the government of Israel.

Israel, from its point of view, has an interest in Indonesia's involvement in the Middle East but naturally expects a nation that wants to play a part in the peace process, to establish relations with both sides.

As a result, Indonesia, reluctant as always to make any move that could be interpreted as recognition of Israel before there is a peace agreement with the Palestinians, is torn between its interest to get involved and play a part and its disinclination to do anything that would indicate an opening towards the Jewish State. In this situation, nothing is happening and the interests of all concerned are not being served.

One of the main reasons that Indonesia is so reticent to make a move towards Israel, even within the framework of establishing relations with the Palestinians, is the perception that such a development would possibly cause unrest in Indonesia among those radical groups that still vociferously are against any rapprochement with the Zionist state.

While this concern can be understood, time and again it has been proven that the Indonesian public is often more astute and tied to reality than its politicians. Foreign Minister Hassan Wirayuda's meeting with his Israeli counterpart Shalom in 2005 was widely reported and caused no great public outcry.

The ongoing mid-level contacts between Indonesia and Israel via their embassies in Singapore receive scarce notice anywhere and economic contacts are lively if mostly inconsequential.

At the same time, the upset victory of Hamas in the Palestinian elections and the difficulty this movement has moderating its agenda while being subjected to tremendous international pressure, mainly from the West, make the need for a Muslim interlocutor who has interests vis-a-vis both sides of the conflict ever more important. Palestine President Mahmoud Abbas' recent letter to President Yudhoyono adds further urgency to the matter.

It is time that Indonesia makes up its mind -- does it want to play in the Middle East or does it not? Indonesia would like to support the Palestinians but cannot get itself to make the minimum effort that is necessary when many other Muslim countries, not to talk about the Palestinians themselves, have overcome their problem long ago and established overt relations at some level with Israel.

Indonesia wants Israeli investments, know-how and technology but is not willing to provide any kind of safety net to Israelis who want to do business here. If Indonesia indeed wants to get involved there is a price to pay.

The price is clear and sensible, and what is even better, it is not even expensive: Let Israel open an office in Jakarta just like Taiwan, a nation also not officially recognized by Indonesia. In return, Indonesia will open an office in Ramallah or Abu Dis on the outskirts of Jerusalem to maintain contact with the Palestinians and another one in Tel-Aviv, to liaise with Israel.

Once the contacts with Israel which until now have existed but were officially denied time and again, will be in the open they will be subject to public scrutiny and thus enable the legislature to make sure that they will be used in the commercial and business fields to advance the Indonesian economy.

And it will permit Indonesia to really push for a peaceful solution in Palestine, supporting the Palestinians.

Indonesia's offices in Palestine would be able to serve the many Indonesian pilgrims who come to Jerusalem and at the same time it would establish a presence that could open additional options in any future peace negotiations when it comes to the disposition of the Muslim holy places in the city. The presence on the ground of a moderate Muslim nation can only help in these difficult times and the Indonesian public would surely recognize the significance.

While this suggestion may give the legal advisors of the Foreign Ministries on all sides some headaches, the Taiwan solution is there to be copied providing a reasonable compromise between the as of yet not-acceptable diplomatic recognition and the counterproductive status-quo.

Let's stop this constant stream of denials of meetings that have taken place or not, let's stop the foreplay and get down to business.

The writer is a retired (Israeli) diplomat who served in South East Asia from 2000-2003. He can be reached at techasia2006@yahoo.com .

INDONESIA - RUSIA TRADE FIGURE

The Jakarta Post -- 28 April 2006

Indonesia and Russia have pledged to increase the value of bilateral trade to US$1 billion, an increase of about 85 percent, from $550.9 million last year by exploring untapped business opportunities.

The commitment was made during a meeting between a Russian trade delegation and Indonesian trade officials in Jakarta on Thursday.

"Considering that there are still many potentialities we haven't yet tapped, we're optimistic we can achieve the target in the next two years," Herry Soetanto, the director general of international trading cooperation at the Trade Ministry, said at the meeting.

During the meeting, which was also attended by representatives of 25 enterprises from Russia, he said Indonesia's exports to Russia over the last five years had increased by an average of 57.87 percent a year.

Last year, Indonesia's exports to Russia reached $348.1 million, an increase of 57.9 percent from $220.48 million in 2004. Its exports included vegetable oils, machinery, electrical tools, coffee, tea, spices, tobacco, footwear and textiles.

Indonesia's imports from Russia -- mainly consisting of steel, fertilizer, paper, steel and finished iron products, finished metal products, and organic chemicals -- increased by an average of 70.20 percent during 2001-2005.

But last year, Indonesia's imports from Russia only increased by 39.8 percent to $202.8 million from $145.11 million in 2004.

Indonesian Ambassador to Russia, Susanto Pudjomartono, also expressed optimism that the target could be achieved, saying that Russia could increase its exports of heavy equipment, mining equipment, and oil and gas sector equipment.

Meanwhile, Indonesia could increase its exports of agricultural and forestry products, as well as various manufactured products.

To facilitate trade, the two sides have agreed to set up trading houses in Indonesia and Russia.

However, Herry admitted that the absence of a proper trade finance system could hamper the efforts to increase bilateral trade. The fact that Russia was not yet a member of the World Trade Organization (WTO) could also be a problem.

But Fedor N. Poselyanov, a member of the Russian delegation and a former consul general at the Russian Embassy in Jakarta from 1972 to 1998, said he was confident that all of the difficulties could be resolved in the near future.

Russia is currently pursuing negotiations with a number of countries, including the U.S., as part of its efforts to become a member of the WTO.

JICA TRAIN INDONESIAN SME CONSULTANTS

The Industry Ministry, in cooperation with the Japan International Cooperation Agency (JICA), a Japanese government organization that provide technical and grant assistance, is holding a six-month training course for 100 small and medium enterprise consultants.

During the course, which started Monday, the participants will study a corporate evaluation system known as shindan in Japanese from 14 Japanese and seven Indonesian trainers from various universities and governmental agencies.

Director General of Small and Medium Industry Sakri Widhianto said after the opening ceremony that the participants would attend 888 hour-long sessions, including 360 hours of field activities, during the Rp 5 billion (about US$ 556,000) training course.

The trained participants would be given certificates as evaluators and consultants, and placed with SMEs across the country, he explained.

"We want the participants to become professional consultants who can give thorough consultancy services to small and medium enterprises on business management, including production techniques, finance and the work environment," he said.

He added that it was hoped that the participants, who hailed from various governmental and research agencies, as well as business associations, would be able to help SMEs upgrade their operations, and work in an effective and efficient manner.

The training course is part of the Strategic Investment Action Plan (SIAP) formulated by Indonesian and Japanese governments in June 2005.

Source: the Jakarta Post

INDONESIA-SOUTH AFRICA INCREASE TRADE

Indonesia and South Africa are seeking to increase bilateral trade and investment ties through direct facilitation in the banking and transportation sectors.

Business relations between the two countries are limited due primarily to the absence of banking and transportation facilities, Trade Minister Mari Pangestu said Monday.

"We cannot not directly export most of our products to South Africa because of the transportation problem, Most of our goods have to be reexported through Dubai and other countries. It is this sort of problems that we need to resolve soon," said Mari.
Mari was speaking after accompanying Vice President Jusuf Kalla to a meeting with visiting South African Deputy President Phumzile Mlambo-Ngcuka.

Mari said that more trade would be unlikely in the near future unless the trade and investment infrastructure between the two countries was improved in order to allow businesses to work together..

Mari will lead an Indonesian trade delegation to South Africa in May as part of the effort to establish such infrastructure and promote Indonesian products and firms at a trade exhibition there.

"We need to boost promotion and provide more opportunities for Indonesian businesspeople. In general, South Africa is a gateway for entering other African markets. That is why we will attend the trade exhibition there," she said.

Last year, two-way trade between Indonesia and South Africa was valued at US$577 million, with Indonesia mostly exporting palm oil and rubber products, while South Africa sent minerals to Indonesia.

Indonesia also sells garments, textiles and electronic products to South Africa and buys fertilizer from that country, although trade volumes are limited.

Indonesia hopes to increase its exports of other manufactured products to South Africa and other countries on the continent so as to reduce unemployment at home.

At present, unemployment -- both open and concealed -- stands at more than 45 million people.

The government is currently working to revive the country's labor-intensive manufacturing sector, which has yet to recover from the devastating impact of the late 1997 Asian financial crisis.

Meanwhile, during a joint press conference with Kalla, Vice President Mlambo-Ngcuka said there is "greater opportunity in open-cut mining in Indonesia than there is in South Africa" and that South African companies should explore coal-mining opportunities in Indonesia.

"I actually don't think that South African companies realize this. This is some information that we intend to take back so that we can encourage our companies to explore more business opportunities here," she said.

Vice President Kalla said Indonesia hoped to see the participation of South Africa in developing the country's coal-liquification industry.

HOW TO INCREASE INVESTMENT AND REAL SECTOR ACTIVITIES

"...some opportunities remain open for Indonesia to improve economic performance. Experiences so far have shown the importance of real sector management, particularly in terms of improving investment climate and accelerating infrastructure development. These steps will be vital in increasing national economic capacity in order to fulfill demand as well as minimize susceptibility to external shocks..."

The above was an excerpt from the Indonesian Economic Report 2005, a report containing comprehensive report and Bank Indonesia’s view on the economy for the year 2005, economic challenges and prospects, and policy direction ahead. The report was launched during the seminar on “Challenges in Encouraging Investment Increase and Real Sector Activities” held on Monday, 20 March 200, in Bank Indonesia Jakarta. The discussion was also in line with the issuance of Presidential Instruction (Inpres) No.3 Year 2006 concerning the Policy Package to Improve Investment Climate which contains a set of programs and actions aimed to improve investment climate covering various aspects. “In the year 2005, Bank Indonesia issued several policies aimed to restore macroeconomic stability. In order to support the tight biased monetary policy in controlling inflation, Bank Indonesia issued various policy packages aimed to control exchange rate volatility by way of controlling speculative transactions, controlling excess liquidity in banks, and maintaining coordination with the government in managing the demand for foreign currencies,” explained Bank Indonesia Governor, Burhanuddin Abdullah, during the opening of the seminar.

The seminar presented Hartadi A. Sarwono, Bank Indonesia Deputy Governor, who talked about the economic prospects, risk factors faced, and the direction of monetary and banking policies. Pradjoto, a banking law expert, presented his view on legal certainty and good governance as efforts to increase investments. Meanwhile, Komara Djaja, Secretary of the Coordinating Minister of Economic Affairs, discussed steps for implementing the policy package to improve investment climate, as well as future infrastructure development.

Burhanuddin also presented Indonesia’s economic prospects for 2006, in which the economic growth is estimated to be within the range of 5.0-5.7% and inflation rate would decrease in line with exchange rates that are stable and tend to strengthen. Recovered economic activities are estimated to occur in the second semester of 2006 due to the possibility of improved investment climate and business certainty. Meanwhile, rupiah exchange rate development in 2006 is predicted to be relatively stable with a tendency to strengthen gradually in line with improvements in private sector capital flows, improved risk premiums, and the end of global monetary tightening cycle. The source of supply for foreign currencies particularly from FDI is expected to improve and thus would decrease exchange rate volatility compared to year 2005. In line with the strengthening exchange rates, inflationary pressure is expected to decrease further and reach 7-9% (yoy) by the end of 2006.

Credit for Cow Slaughterhouse Business in Bali is Rising

Banking in Bali has allocated credit amounting to 18,5 billion rupiahs to 99 businessmen in cow slaughterhouse commodities for the last three months. “This means a raise of 64% from the outstanding banking credit in Bali to the businessmen from the cow slaughterhouse business”, said the Head of Bank Indonesia Bali during the Coordinating Meeting between Banking, Small and Micro Scale Business Enterprises (UMKM) in Cow Slaughterhouse and the Government Agency for Animal Farming for Bali on April 4, 2006 in Denpasar, Bali. Based on the data from Bank Indonesia Office of Denpasar, the credit for businessmen in cow slaughterhouse has shown an upward trend, from 28,8 billion rupiahs in December 2005 to 47,3 billion rupiahs in March 2006. The rising trend of credit to the businessmen is given by 6 commercial banks having business operation in Bali.

The meeting which was held as a follow-up to the Workshop for Business Prospects and Funding Potential by Banking in Denpasar on December 8, 2005, was part of the series of activities conducted by Bank Indonesia in order to improve banking intermediation function. Moreover, it is hoped that the meeting will support the improvement of leading commodities in the regional areas.

As in other regions, the main problem in credit channeling from banking to UMKM is the general perception held by banking of the high risk for credit chanelling to UMKM. Apart from that, other problems are the minimum information regarding the UMKMs that deserve to be given credit and the minimum knowledge on the condition and prospect of the leading sectors. “It is hoped that this meeting will give access for banking to more comprehensive and detailed information concerning the prospect and potential of cow slaughtering business in Bali. Therefore, a wider business cooperation between players of UMKM and banking will be made possible”, added Ketut. If this plan goes well, in return it will bring a very positive impact on the national economy, especially in supporting the economic growth and creating more job fields.

In the future, Bank Indonesia is planning on intensifying the holding of workshops both in Jakarta and other regions. This also includes follow-up activities in the forms of facilitation of follow-up meetings in the regional areas held by advocacy desk in coordination with the related local government agencies. Besides holding of workshops, Bank Indonesia will also intensify other follow-up meetings and training considered necessary for banking.

Indonesia offer full support on foreign investments

Speech by H.E. Boediono
Coordinating Minister for Economic Affairs
At The United States-Indonesia Society (USINDO) Corporate Outreach Dinner
On “Advancing the Partnership between the United States and Indonesia”
and “Recognition of Corporate and Major Donors to USINDO’s Aceh School Program”
March 23, 2006

It is indeed my great pleasure to speak in front of this distinguished forum this evening.
Let me first take this opportunity to join you in commending those of you who have in various ways extended your support to us in coping with the impacts of the most devastating natural disasters I can remember ever happened in this country. I know that the presence of US troops,
medical and rescue teams in the very first days after the tsunami did make a lot of difference to the survivors in Aceh. Subsequently, generous contributions and supports from people, corporations and governments all over the world has made life after the tsunami more bearable for the people in Aceh and Nias. Now, we are all delighted to see that Aceh is on the road to recovery and peace.
It is ironic but true that you need a heart touching disaster to bring peoples closer together. President Clinton was quoted as saying that one third of American households contributed to the tsunami victims, an unprecedented display of human solidarity and sympathy indeed.

Ladies and Gentlemen,
If you live here or visit for more than a few days, you must have observed how vibrant our democracy is. Almost every major issue – regional, national, or international – is openly and vigorously debated in public. Sometimes it takes the form of streets protests with a lot of noise and, regrettably at times, it is accompanied with violence. But if we are willing to see through all these, what is behind those dynamics, we observe progress, slow but unmistakable progress.
One such dynamic that must have raised a question in your mind is about the public attitude toward foreign investment. If you follow the media lately, some of you may get the impression that anti-foreigner and anti-foreign investment sentiment are on the rise in this country. Perhaps some of you may even have a sense that such negative attitudes are specifically directed toward Americans and American investments, and they are getting stronger.
I would submit to you that such a perception is not entirely correct. What we are actually seeing is democracy at work. What we see is a form that dominates substance. But there indeed is a substance in it, though it is not one of rising anti-foreigner, anti-foreign investment, anti-American and anti-American investment sentiment. In my view it is a form of growing awareness among the public here that business and economic activities by domestic or foreign companies must produce tangible benefits for the ordinary people especially those around the localities, not just for a small group of people. This, I think, is a legitimate demand and it can surely be accommodated without violating fair business practices and without spoiling the business and investment climate. The government and the business community can work together in earnest to meet such demands. But at the same time, it is important that the government must take a firm and clear stance toward unreasonable demands that eventually spoil the healthy business and investment climate in the country.
The government, and I think most of the thinking public here, believe that our future rests on our success in opening ourselves up to the world. The only route forward for us is to intelligently participate in globalization. Yes, some of us still see the specter of intense competition and rapid tempo of change with weary eyes. But deep in our heart we believe that closing our borders is not the solution. The best strategy is to prepare ourselves, our institutions, our people to meet squarely the challenges

Ladies and Gentlemen,
Now let me say something about US-Indonesia relations. As the oldest democracy, I am sure the US would like to see Indonesia progress well, as the third largest democracy and the largest one among Moslem nations. Our success will resonate strongly among other Moslem nations and Asian countries.
It is within this context, I look at the development of the bilateral relations between our two nations as very encouraging. The recent visit of Secretary Rice to Jakarta reaffirmed just that.
The two governments are committed to work together on issues of mutual interests such as the maintenance of international peace and security by defending freedom, advancing democracy, and promoting prosperity, as well as building a stronger relationship to support Indonesia’s economic reform and growth.
On economic relations, I am happy to see the renewed vigor in our cooperation within the US-Indonesia Trade and Investment Framework Agreement or the TIFA. I hope the Trade and Investment Council Meeting next month in Washington, DC will solidify the foundation for both sides to embark upon a more strategic economic relationship. On development cooperation, we welcome the US initiatives to help Indonesia to get access to the Millennium Challenge Account (MCA). Last but certainly not least, we welcome the steady recent revival of interest of US corporations to explore business opportunities in this country.
During my meeting with Secretary Rice, I asked her support to encourage American investors and businessmen to take part in our efforts to accelerate economic development. Dr. Rice’s response to the idea was forthright and she said that she would like to see more US investors come here, and hopes the two governments can work together to make corporations see what an extraordinary opportunity now emerges again in Indonesia after the difficult period of adjustment and transition after the crisis.
We fully understand that, on our part, Indonesia needs to make special efforts to improve our investment and business climate to attract more investment. On this, let me very briefly update you on Indonesia’s recent economic development and our policy priority to improve the investment climate.

Ladies and Gentlemen,
On the macro economic front things seem to be moving in the right direction. Economic growth is slowly but surely recovering. A 5.6% annual growth last year was still well below our pre-crisis performance, but it was the highest growth performance since the crisis. Barring exceptional circumstances we expect our economy to grow by close to 6 percent this year and in the range of 6 to 7 percent in the subsequent two to three years.
On the stability front the trend in the past 4 years has been toward sustainable
macroeconomic balances. Last year, due to both internal and external factors our financial markets experienced a short but sharp turbulence. But we are now witnessing a dramatic recovery from the set back. We believe that this recovery reflects a growing market confidence and the anticipation of a dramatic turn-around in growth later this year and next. The Rupiah is now trading at around Rp.9,100, per USD significantly stronger than the Rp.11,000 per USD level of only 6 months ago.
On the monetary policy front our independent central bank, Bank Indonesia, has been increasingly more adept in managing monetary and financial stability. In handling last year’s financial “mini crisis” for instance, Bank Indonesia took a decisive step by raising interest rate by over 5 percent in a series of moves beginning in mid 2005. Bank Indonesia has been consistent in its message, and reinforced in its policy, that its prime objective is to bring inflation down into single digits by the end of 2006 and to regional averages over the next few years.

Ladies and Gentlemen,
While growth and stability are necessary macroeconomic goals, what matters most to the ordinary people (and this is crucially important in a democracy) is whether there is any improvement in their welfare. One of most basic conditions for such improvement is the creation of more jobs and here we have our greatest challenge. The latest data indicate that the economy is currently adding a net 1.2 to 1.4 million jobs a year. However, with new additions to the workforce at approximately 1.6 to 1.8 million workers, we are not making progress, in fact we are losing ground especially when you factor in those already unemployed that need jobs.

Ladies and Gentlemen,
We understand that addressing the challenges of macro stability, economic growth and job creation requires an agenda with clear priorities. And most important for sustaining growth is to capitalize on the current momentum of increasing confidence to boost private investment. Let me now briefly turn to the reform strategy designed to do just that.

Reform Strategy
We have decided to adopt a three pillars strategy designed to create incentives for private investment. First, we need to address the investment climate issues that are faced by all firms including importantly the infrastructure sector. Second, we need to take steps to expedite the implementation of high profile cases that are important in their own right but maybe even more important for the perceptions they create. Finally, we need to address some issues in the financial sector to restart lending, facilitate access to financing and improve the structure of capital markets more broadly.
The first pillar is not difficult to describe as we have just issued policy packages in
infrastructure and investment that include numerous measures in multiple areas. In both cases these packages are based on numerous surveys and discussions with stakeholders which allowed us to identify areas where there are obstacles for all or almost all investors. From this list we created policy matrices where issues are dealt with according to a clear timetable and responsibility at the Ministerial level.
The two policy packages on infrastructure and investment aim at improving the
investment climate. The second pillar of the strategy of our reform involves the acceleration of some key outstanding high profile cases. These cases take special handling as they are important in and of themselves, and they often reflect unique circumstances to influence broader perceptions. Thus we have adopted a more proactive policy, for example in the case of the Cepu oil field project which was resolved last week. Earlier there was an agreement with Newmont on the civil charges around Buyat Bay. Currently, we are looking at the problems holding up the execution of 91 projects that we offered for investment in the infrastructure summit last year.
The final reform pillar includes access to credit at reasonable cost and appropriate
maturities. Financing is normally not an important problem for international investors but it is often a crucial one for domestic investors, especially for small and medium enterprises. The availability of adequate and reasonably priced sources of financing for small and medium enterprises is economically and politically important, and the more so because we have opted to take the democratic route to development. To do this we have agreed with Bank Indonesia that an additional package addressing financial sector reforms is needed and this is underway. We believe strongly that this third pillar is needed to support the reforms in pillars one and two.

Ladies and Gentlemen,
Let me close my remarks by commending USINDO for what it has done together with all “its supporters” to promote deeper and broader bilateral relations between the US and Indonesia.
It is therefore my profound hope that I would be able to count on your continued support for the next chapter of Indonesia’s maturing open-market democracy.

Thank you very much.