[Kabar-indonesia] Indo News - 9/12/05

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- Indonesian pol asks militants to stop shutting churches
- West Java tells Christians to respect government regulations
- Minorities and justice
- Jakarta Police Intensifying Intelligence Operations
- The Situation In Ambon / Moluccas – Report No. 487
- Three burglars break into foreign journalist's house
- Indonesia oil scams vex president
- Turbulence in Indonesia's skies
- Indonesia: Asia's weak link
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Indonesian pol asks militants to stop shutting churches
Associated Press
September 9, 2005

Jakarta, Indonesia -- Vice President Jusuf Kalla asked Muslim militants to
stop closing Christian churches after Christians complained that militants
had shut 23 churches in recent weeks on the island of Java.

''It is the responsibility of all of us to stop such kind of violence,''
he told a gathering of Muslim leaders, urging them to promote tolerance.

Moderate Muslim leaders like former President Abdurrahman Wahid have urged
the government to take stern action against militants involved in the
incidents.

However, Security Minister Widodo Adisucipto denied that churches had been
closed, saying only Christian congregations worshipping in private homes
or halls without permits were affected.

Religious Minister Muhammad Maftuh Basyuni called on all faiths to honor a
1969 government decree requiring religious groups to get permission from
local governments and residents before establishing places of worship.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The Jakarta Post.com
National News
September 09, 2005
West Java tells Christians to respect government regulations
Yuli Tri Suwarni and Nethy Dharma Somba, The Jakarta Post, Bandung/Jayapura

Guaranteeing there would no more pressure from hard-line Muslim groups to
close down churches, West Java Governor Danny Setiawan asked Christian
congregations to comply with the regulations on establishing houses of
worship.

A 1969 joint ministerial decree requires all houses of worship to be built
with the consent of local administration heads and area residents.

The West Java administration later issued Gubernatorial Instruction No.
28/1990 on the matter, which allows a neighborhood to build houses of
worship if there are at least 40 families practicing a religion in the
area.

Minority Christians often have difficulties in building churches in
predominantly Muslim areas of the country. In Bandung, many churches or
houses being used to worship have been shut down by Muslim hard-liners
since 2003. The groups accuse the congregations of lacking permits and of
trying to convert Muslims to Christianity.

However, Christians and other Muslims sympathetic to the rights of
religious minorities believe the 1969 decree is the root of the problem.

Danny said until the administration issued a new regulation, people should
follow the existing ones.

"We'll work on a draft regulation, which is aimed to address the
difficulties (of Non-Muslim groups) in establishing houses of worship," he
said on Thursday after a meeting with the West Java Police and military
chiefs, and the head of the provincial ulema council.

He plans a discussion with Christian leaders next week.

Danny claimed there had been no forced closures of churches by Muslim
hard-liners in West Java and no violence committed against congregations.

Many Muslim residents had protested the illegal construction of churches,
he said, and because their complaints were not heeded, the residents put
pressure on the local administration to close down the churches.

"The churches were closed down by the local administration, which was
facilitated by the police. Reports on church closures and demolitions (by
vigilante groups) are inaccurate and should be considered lies," Danny
said.

Administration staff and police had no information about illegal forced
closures, he said.

Meanwhile, John Simon Timorason, who chairs the West Java office of the
Indonesian Churches Cooperation Forum said that since August last year, 35
churches had been closed down despite obtaining permits from the Ministry
of Religious Affairs.

But ministry provincial office head Iik Makid said the office only issued
recommendations to the governor and regional heads about the operation of
churches, not permits.

"A permit can be sought only if the neighborhood allows it. You know how
sensitive religious affairs are," he said.

Iik said the problem with establishing a church in West Java, where
Christians account for less than 10 percent of the province's population
of 34 million, was similar to building mosques in predominantly Christian
provinces.

Separately, the Papua Bishops Council urged the majority of Christians not
to retaliate for the incidents in West Java.

"When your enemies slap your right cheek, give them the left cheek, as
retaliation is God's prerogative," council spokesman Bishop Leo Laba
Ladjar said.

"The closure of churches in Bandung, however, is a great shock. It
violates the right to worship God."

The council urged President Susilo Bambang Yudhoyono to act against those
who obstructed the freedom of to practice one's religion, as this violated
the Constitution.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The Jakarta Post.com
Your Letters
September 10, 2005
Minorities and justice

Recently I went to the trial of three, female, Sunday school teachers in
Indramayu, who were accused of trying to convert a few Muslim children to
Christianity. After taking my seat in the courtroom, officials asked my
Indonesian friend and me if we would like to listen to the trial from a
safe distance, maybe in a back room.

The police knew trouble was coming and were concerned that as a foreigner,
I could become a target of aggression. As we had just traveled three hours
to view the trial, we did not really like the idea of hiding in a back
office. We thanked them politely and stayed.

They then seated plain clothed police around us and we all hoped for the
best. It was difficult for me to believe that a person, no matter what
color or religion was not safe watching proceedings in a court of law.

Around 25 friends and family of the accused had also taken seats in the
courtroom after being checked for weapons. They sat peacefully awaiting
the verdict. Soon I began to realize why the police had been so concerned.
Around 150 young men and their leaders arrived at the courthouse. They
were angry and chanting.

After shouting and calling for death for these women, they proceeded to
enter the courtroom and overwhelmed it. They were not searched, but were
allowed to push friends and family of the accused out of their seats and
were allowed to enter in such numbers that they outnumbered everyone else,
including the police, by four to one.

As I sat there, with angry young men filling every corner of the room,
some wearing bandanas and covers over their faces, I realized that the
police, although well intentioned and very helpful, had no hope of
controlling such an angry mob. The police had no weapons, no defense gear
and were in as much danger as the defendants and their supporters.

They were at risk of losing their lives if they tried to defend the women,
the judges or myself. We waited and hoped for justice.

The women were found guilty and sentenced to three years' imprisonment. It
saddens me that I felt relief at this result; relief because today these
women would not die at the hands of the mob; relief that I would not die
at the same hands; relief, that the young policemen who stood so bravely
in the face of fear, also would not die that day.

Intense sadness then filled me. Can justice be assured in the face of such
overwhelming intimidation?
KERRY PATERSON Bekasi, West Java
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Antara
Sep 09 15:17
Jakarta Police Intensifying Intelligence Operations

Jakarta (Antara News) - Jakarta police are intensifying their intelligence
operations to follow up on President Susilo Bambang Yudhoyono’s warning
about the possibility of terrorist activity in September and October, a
spokesman said.

"After the warning from President Yudhoyono to increase alertness in
September and October, we are intensifying our intelligence operations by
way of preventive actions," Jakarta Police Chief Insp Gen Firman Gani said
here Friday.

Speaking to reporters while watching a student demonstration in front of
the Merdeka Palace, Firman said the police had also taken measures to
anticipate possible terror bombings.

"We are prepared for such happenings. We are also ready for making arrests
and investigating cases," he said.

Firman admitted he had yet to see indications of an increase in the
terrorist threat. "But the President’s warning serves as a guideline to
increase alertness," he added.

Asked whether the police had received bomb threats, Firman said there was
a time when Jakarta police received such threats at least three times a
day but they later proved to be false.

Meanwhile, on special police security for former President Abdurrahman
Wahid who participated in the student demonstration, Firman said it was
the police’s duty to guard former presidents.

"Security for former presidents is the police’s responsibility. Because he
(Gus Dur) participates in the protest we must guard him," he said.

Hundreds of people early Friday marched from the Hotel Indonesia circle to
Merdeka Palace, to protest the government’s plan to raise fuel oil prices
and the signing of a peace deal with the Free Aceh Movement (GAM).

The protestors walked around the palace three times before dispersing.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Crisis Centre Diocese of Amboina
Jalan Pattimura 32 - Ambon 97124 - Indonesia
Tel 0062 (0)911 342195   Fax 0062 (0)911 355337
E-mail crisiscentre01 at hotmail.com

Ambon, September 11, 2005
The Situation In Ambon / Moluccas – Report No. 487

1. Terrorist Killed – When the day after the bomb explosion at the Mardika
Market last August 25, the police tried to arrest one of the suspects,
named Sarmin M. alias Aden, who was hiding in a shed in the woods near the
village of Ketapang, island of Ceram, he attempted to escape. He then was
shot at by the police and seriously injured. Though fourteen police
servicemen contributed their blood to save the suspected perpetrator, he
at last died of his injuries.

2. Refugees Protest – When in January 1999 the unrest erupted in Ambon,
thousands of people fled Ambon; hundreds of these fled to the Kei Islands,
S.E. Moluccas. Many of these have being staying there in provisional
living conditions up to this day. Financial help for them to build or
rebuild their houses either in Kei or in Ambon is being delayed endlessly.
So at last – on August 30 – 150 of them, under coordination of Frans
Putranubun, went up to the Social Department Office in Tual, capital of
the S.E. Moluccas regency, and started to throw stones at the building,
smashing lots of windowpanes, entering the building and throwing furniture
and various office appliances out of the windows, even trying to start a
fire. There were shoutings like “We are fed up with being treated as
beasts” and “You employees have been devouring our refugee funds for
several years already
” etc. The head of the Social Department Office,
Burhanuddin Rahawarin tried in vain to soothe the mayhem. About 12 office
employees then assailed Yosef Matwear, the one who tried to set fire to
the building, and seriously mishandled him. At last the police put an end
to the pandemonium.

Likewise – a few days ago – several dozens of refugees went up to the
Social Department Office in Ambon, lamenting and sobbing because of their
nasty fate, having been refugees for six years already, being promised
help for rebuilding their houses again and again, never to be fulfilled.

3. Anniversary of the City of Ambon – These days the city of Ambon is
celebrating its 430th birthday. Among the many festivities – all of which
intend to enhance mutual communication between the erstwhile mutually
opposing parties – may be mentioned a visit to Ambon by 17 young
Dutch-Moluccan soccer players from the Dutch town of Middelburg. For ten
years already, Ambon has had a sister-city relation with Vlissingen, a
town not far from Middelburg, (see Reports 255, 416 and 464). The Mayor of
Vlissingen – Anneke van Dok – was among those visiting Ambon. The Fair
Play Cup went to the PSA (Perserikatan Sepakbola Ambon) club.

4. Sri Lankan Terror Expert Expelled – A Singapore based professor and
expert on terror issues was arrested on September 5, for travelling around
the Moluccas doing research while holding a tourist visa, not having a
proper research permit. Mr. Rohan Kumar Gunaratna, from Sri Lanka, was
arrested by an antiterror police unit while he was on his way to Ambon
from Ceram island. Arrested were also his Indonesian translator and his
local guide. Gunaratna – as we read in The Jakarta Post newspaper – is a
professor and the chairman of the Institute of Defense and Strategic
Studies (IDSS) based in Singapore, which is known to have produced a wide
range of articles and books on international politics, terror and
strategic defense. Apparently Gunaratna came to Ambon in order to check on
rumours that – as the situation in the Moluccas has been gradually
returning to a semblance of normalcy – this area had become a safe haven
for terror suspects, who are planning terror attacks throughout S.E. Asia.
According to The Associated Press, Gunaratna now was deported and put on a
plane for Jakarta the day before yesterday; he was told to leave the
country upon arriving in Jakarta – thus had been stamped on his passport.
However, Gunaratna himself denied he had been expelled and said that he
had no immediate plans to leave the country. His two aides were released.

A comparable expulsion from Indonesia happened to Sidney Jones, the
Jakarta based Southeast Asia director of the Brussels-based International
Crisis Group thinktank; however, she was recently allowed to return and
live in Jakarta.

5. Visa For Dutchmen – Since September 1, it is not possible any more to
obtain a visa for Indonesia via swift mode. Thus the Indonesian embassy in
the Hague has been informed by the Indonesian Government in Jakarta. For
obtaining a visa for Indonesia must be reckoned a period of at least
eleven weekdays. It is advisable – when intending to visit the Moluccas –
to let oneself be invited by someone living in the Moluccas.

Advice by the Dutch Government on travelling to and in Indonesia can be
read on www.netherlandsembassy.or.id

C.J. Böhm msc
Crisis Centre Diocese of Amboina
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The Jakarta Post.com
City News
September 10, 2005
Three burglars break into foreign journalist's house
Abdul Khalik, The Jakarta Post, Jakarta

A group of three burglars broke into the home of a New York Times
journalist in the upmarket Menteng area, Central Jakarta, early on Friday,
and stole two laptop computers, a computer monitor and a bag full of
documents.

Central Jakarta police chief Sr. Comr. Sukrawardi Dahlan said on Friday
that officers were attempting to track down the culprits who broke into
the house of Jane Perlez and her husband Ray Bonners.

"We are investigating the case. We suspect members of a burglary syndicate
are involved." he told The Jakarta Post on Friday.

He said that at least three burglars broke into the house, which is
located on Jl. Muh. Yamin, at around 1 a.m. through the left side of the
building that is currently undergoing renovation.

Sukrawardi said that the burglars only managed to take two laptops, a
computer monitor, and a bag as it seems they were in a hurry to get out of
the house.

"They probably jumped from a wall on the left side of the house without
much difficulty as it is under construction. They just grabbed whatever
they could to avoid getting caught. We are not sure if they knew what was
inside the bag," he said.

Mida Sutikno, the security guard at the house, said that he did not know
when the burglars entered the house but added that a night shift security
guard, identified as Murdi, found signs of the burglary at 5:00 a.m..

He said that the thieves jumped into the house from a wall on the left
side when everybody in the house, including the owners, were asleep.

Sukrawardi said that the police had not ruled out the possibility that an
insider was involved.

"That's why we will question everyone, including the security guards, to
find clues. We want to know why the security guards did not know that a
group of people had entered the house," he said.

Residences in the area are tightly guarded as many high-ranking government
officials and foreign diplomats live there.

Beside having guards to watch over the residential estate as a whole, each
of the houses have their own security guards who work in shifts.

In addition, there is a military command office not far from Jl. Muh. Yamin.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
BBC
Friday, 9 September 2005, 13:42 GMT 14:42 UK
Indonesia oil scams vex president

Indonesia's President Susilo Bambang Yudhoyono has ordered changes at the
state oil company after 18 staff were arrested for alleged fuel-smuggling.

Mr Yudhoyono summoned Pertamina's directors and told them to carry out
reforms in the wake of the scandal.

Some 100 tonnes of oil are smuggled out of Indonesia monthly, officials say.

Its price is kept artificially low by government fuel subsidies, making it
lucrative to smuggle and sell at a profit in neighbouring countries.

The 18 Pertamina officials were arrested along with 40 other men in a
crackdown on smuggling rings operating on Java and Sumatra islands, as
well as the Indonesian part of Borneo, Mr Yudhoyono said.

The president added that Indonesia suffered annual losses of 8.8 trillion
rupiah ($850m; £468m) from smuggled oil.

A fifth of the nation's budget goes on fuel subsidies. Concern about
Indonesia's ability to finance the fuel aid has taken its toll on the
economy and investors say plans to cut the cost do not go far enough.

The rupiah has lost more than 10% against the US dollar this year because
of economic pressure from soaring world oil prices.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Asia Times Online
September 12, 2005
Turbulence in Indonesia's skies
By Bill Guerin

Jakarta - Despite extensive international-standard safety regulations
governing Indonesia's air traffic sector, last week's disaster was the
third major air tragedy in less than a year. There have been 14 air
accidents so far this year and more than two dozen since early 2004.

Seconds into a two-hour and 15 minute scheduled flight from Medan's
Polonia airport to Jakarta, a 24-year-old Boeing 737-230 operated by
Mandala Airlines crashed in a densely populated residential area 500
meters beyond the runway. With more than 10 tons of fuel on board the
gross weight on impact would have been about 56 tons. In the ensuing
inferno, 150 people were killed - 103 on board and 47 on the ground -
while 15 passengers in the tail section survived.

Compensation in this instance does not even begin to touch the lower
limits of a major Western carrier's payouts. Payment for death or
disability is only about $5,000 and for treatment to injuries payments
will be up to $2,500.

The crash has focused to an unprecedented level public attention, and that
of authorities, on air safety. Indonesia is rated Category 1 (meeting
International Civil Aviation Organization standards) in the US Federal
Aviation Administration's International Aviation Safety Assessment Program
(IASA). These standards imply monitoring and control of airline
operations, aircraft maintenance, pilot training and licensing, and
minimum required equipment on aircraft.

The problem may be in enforcement of those regulations and the
accompanying checks and tests, in a culture where corruption, to a lesser
or greater degree, is the norm where regulations of any kind are involved.

"It's how to implement these regulations without officials who can be
bribed. This is what can endanger safety," Transport minister Hatta
Radjasa told a local radio station after emerging from a special
parliamentary hearing with the House of Representatives Commission V
dealing with transport and communications.

Legislators and local commentators have questioned safety and maintenance
standards for Indonesia's extensive fleets of aging jets, asking whether
carriers were prioritizing safety above all else in the current difficult
conditions in a sector badly hit by rocketing fuel costs and a protracted
ticketing price war. The crowded and competitive market has forced most
carriers to cut costs and fares to avoid bankruptcy.

"What we worry about most is that the price competition could lead to the
companies neglecting safety aspects," said Sofyan Mile, head of the
commission.

Though some factions in parliament are even calling for all 737-200 series
aircraft to be banned, wiser counsel has prevailed for the time being,
with the government initiating random ramp inspections and inspections of
aircraft in maintenance hangars.

"Most local carriers operate this type of aircraft [Boeing 737-300] and
they have the highest accident rates, but we will not ground all of the
planes," Radjasa said.

This is a sensible approach, given that most aircraft crashes have proven
to be related to pilot error, faulty maintenance, air traffic control
errors or extremely bad weather conditions. On the rare occasions a crash,
or even a reported incident, is proven to be due to faulty design, a quick
change in the design follows, even preceded by a grounding of the global
fleet until the fault has been remedied - if it has the potential to bring
down more of the aircraft type.

The aircraft and its owners
The doomed aircraft was nearly 25 years old. It's first livery after
leaving the Boeing factory was as Lufthansa D-ABHK in 1981. In 1994 it
changed ownership twice, first as Tunisair TF-ABY, then finally as Mandala
Airlines PK-RIM. It had flown more than 50,000 hours and had undergone a
full service in June.

Mandala Airlines was founded in April 1969 and is 90% owned by the
Indonesian Army's Strategic Reserve Command (Kostrad). Before the crash it
had a fleet of 15 Boeings - 13 Boeing 737-200s, two Boeing 737-400s and a
Boeing 727 - and earlier this year ordered another five. The airline
serves 16 domestic routes and employs about 1,300 people.

Most reports describe the carrier as a "budget" airline but as Nicholas
Ionides, Asian editor for Flight International Magazine points out, it is
not a low-cost carrier. "It's an airline that's been around for a long
time, and just because it's not a Singapore Airlines or a Cathay Pacific
full-service, premium airline, it shouldn't be classified in the same
category as other true low-cost airlines, like Air Asia," he said.

Nonetheless, the carrier's commissioner and current Kostrad chief Major
General Hadi Waluyo said the company had been in financial difficulties
during the past two years, though claiming the downturn had nothing to
with the crash. All Mandala's planes were in good condition and the group
was planning a financial recovery package that would make the airline more
competitive, he said.

Cultural questions
Some raise the question of whether the real danger to passenger safety is
the frequently lax attitudes toward safety in a country prone to frequent
major accidents on road, rail and in the air. David Learmount, a leading
expert on air safety, points out that the less-developed countries have a
much-less-strong safety culture, in every way, than those in the developed
West.

Commenting on the recent series of six fatal air crashes worldwide, he
said that when this is factored in to air transport, it means that flying
on airlines other than the "majors" is simply not as safe. "This is
because countries which are more modern, politically and economically,
have the luxury of a safety culture, which applies to everything, such as
road safety, and not just aviation," he said.

The official handle
Investigators say they have discovered signs of engine problems but that
further analysis is needed to determine the reason for the crash. The
National Transportation Safety Committee, NTSC, is responsible for the
probe. As expected, it has refused to speculate on the cause of the
disaster. Its public comments so far include a denial that terrorism
played a part in the crash and that the overcast weather was unlikely to
have been a factor. NTSC also says there were no clues in the
conversations between air traffic control and the crew of the doomed
airliner.

Tests are to be conducted on the fuel lines and fuel quality. A compressor
deformation has been noted and is being investigated further. "We found
that the fan blade engine was in a damaged condition. We also found that
the three screw-jack actuators came loose from a flap and the wing," said
Setio Raharjo, who heads a team of NTSC investigators. He appealed to
those who have taken pieces of the aircraft to return them to enable the
investigation to be conclusive.

A team of six investigators from the US National Safety Transportation
Board (NSTB) is also helping with the investigation. Both black boxes have
been recovered and will eventually be sent to the US for analysis.

Speculation
The scenes of sheer horror and grief televised to the nation for almost
three days, before those bodies that could not be identified were buried
in a mass grave, sparked intensive speculation in the mainstream media.
Excess weight? The age of the ill-fated plane? Unreliable engines due to
poor maintenance by the airline? One report said flight records showed the
aircraft took off with only three kilograms of allowable weight to spare
but NTSC has dismissed this.

One pilot, writing to a professional mailing list, though requesting
anonymity, conjured up the horror of how the final seconds in the cockpit
would have panned out if the aircraft was indeed overweight. "You lost an
engine past V1... decide to continue, go for the single-engine climb speed
... you're heavier than you think ... will you reach that speed? If you
do, then you want to enter the single-engine climb, and your altitude
doesn't increase ... you pull again ... the next thing you know, you're
behind the power curve; speed begins to drop despite fire walling the
remaining engine ... then the stick shaker comes on ... and ... ."

Older aircraft can be operated safely as long as they are adequately
maintained. There are about 4,200 Boeing 737 of all series still in
service across the world. Local sources suggest carriers commonly "dumb
down" aircraft by disabling the auto brakes and auto throttle to maintain
higher utility rates and low turnaround times. This is not a safety issue,
per se, but means more brake and engine changes than normal are needed.
Falling yields and the soaring fuel price, the argument goes, may have led
to even more drastic cost-cutting measures.

Putra Jaya, one legislator from Commission V, said: "If fuel prices go up,
the plane ticket prices should also go up. If they do not, some corners
must be cut. Of course, it won't be food but it will be service and
maintenance costs."

Australian analyst Gerard Frawley, editor of the Australian Aviation
magazine, sums up, "Indonesia has had more than its fair share of crashes
over the past decade, considering that its aviation industry is not
unusually large, although we have to be careful drawing conclusions
because a country can easily have a run of bad luck."

As if to reinforce his words, a Garuda Indonesia aircraft made an
emergency landing at Pekan Baru, Riau the day after the Medan disaster. It
was en route to Medan from Jakarta. A Mandala aircraft also returned on
Tuesday to Jakarta's Soekarno-Hatta International Airport after 10 minutes
in the air due to problems with landing gear warning lamps.

A Batavia Air Boeing 737-200 en route to Medan from Jakarta made an
emergency stop on Thursday at Palembang, and a light aircraft belonging to
Dirgantara Air Service crashed in Kalimantan province on Friday. A Lion
Air flight, with 152 passengers and seven crew members on board, was
diverted to another airport on Saturday due to heavy rain.

Grounded
By accident or design all this was enough for the government. By the end
of the week four 737-200s in different liveries were temporarily grounded
following special checks initiated by the Transport Ministry. Two were
grounded on Friday night after inspectors carried out ramp checks on the
planes at Soekarno-Hatta Airport. Two others were grounded after the
minister made a sudden visit to the airport on Saturday afternoon. Among
the problems discovered was a damaged front landing wheel on one of the
aircraft, according to Kompas newspaper. Transport Minister Radjasa
changed tack on his earlier comments, and was quoted as saying the
government was now considering suspending the issuance of permits for
737-200s because of the age of the aircraft type.

Ramp checks will be implemented every day at this airport, compared with
the previous quarterly checks. But oddly enough, director general of Air
Transport Mohammad Iksan Tatang was quoted as saying ramp checks had
nothing to do with flight safety but with service. He did say, however,
"We are going to audit airlines' financial reports and if they touch up
maintenance issues, we will cancel their routes."

Indonesia is the largest archipelago in the world. With 17,000 islands and
more than 235 million people, air, sea and land transport plays a vital
role in the country. It straddles the equator over a distance of some
3,200 miles and has nearly 450 airports with profound differences in
navigational and landing aids, weather conditions and air traffic density.

Polonia airport, for example, is the main entry point for relief teams and
supplies heading to tsunami-affected areas of Aceh province. The airport's
usual 20 planes per day soared to more than 300 daily in early January and
it still controls a very busy and often crowded sector of Indonesian
airspace.

On September 26, 1997 a Garuda Indonesia Airbus A300 on final approach to
Medan on a flight from Jakarta came down in a mountainous area 30
kilometers from the airport. Extensive smoke and haze from numerous forest
fires caused reduced visibility in the area. All 12 crew members and 222
passengers were killed. Polonia's 3000-meter runway leads to residential
areas and highrise buildings. The government plans to build a new airport
at Kualanamu, 34 kilometers from downtown Medan, but this is only on the
drawing board.

Should a fault attributed to Mandala rather than to Boeing prove to have
been the main contributing factor of last week's Medan disaster, it may
take years to build up the confidence of the flying public that it is once
again safe, or as safe as elsewhere, to take to the skies in Indonesia. As
an editorial in the influential Media Indonesia, owned by the same group
that owns Metro TV, which provided most of the on-the-spot televised
coverage, warned, "In Indonesia it has become a common matter that
passengers, including safety, are being sacrificed."
-- Bill Guerin, a Jakarta correspondent for Asia Times Online since 2000,
has worked in Indonesia for 20 years as a journalist. He has been
published by the BBC on East Timor and specializes in business/economic
and political analysis in Indonesia.
-- Copyright 2005 Asia Times Online Ltd.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Asia Times Online
September 12, 2005
Speaking Freely
Indonesia: Asia's weak link
By Marshall Auerback

Speaking Freely is an Asia Times Online feature that allows guest writers
to have their say. Please click here if you are interested in
contributing.

Lost amidst the carnage wrought by Hurricane Katrina have been ominous
developments in Indonesia. President Susilo Bambang Yudhoyono recently
said his government would raise fuel prices and cut ballooning subsidies,
but failed to outline how or exactly when it would do so. The government's
penchant for subsidizing fuel is expected to cost US$14 billion this year
- a third of its forecast expenditure, or 5.4% of gross domestic product.
This is taking its toll on the rupiah, which is close to a four-year low
against the dollar, falling almost 10% this month. The rupiah's sharp fall
has evoked uncomfortable memories of the Asian financial crisis of
1997-98.

Indonesia cut fuel subsidies in March, but the subsequent rise in crude
oil prices has more than wiped out any savings. As a result, Southeast
Asia's biggest oil producer is ransacking its foreign exchange reserves to
pay for imported oil and to shore up its currency. Forex reserves have
fallen by about $4 billion to $32 billion in the first six months of this
year. That is a comfortable cushion on most measures, but not one that
will bear sustained intervention.

And in worrying shades of 1997, the central bank has responded to the
currency's descent on the forex markets by raising rates: the benchmark
interest rate has been raised already by 125 basis points to 10.5%, but
still no concrete action on the source of the current problem - fuel
subsidies - has been taken by the government. In an effort to deliver on
that promise the president last week, for the first time, stated that his
government would raise prices and cut subsidies that he said could reach
Rp138,600 billion ($13.6 billion) this year, or roughly a third of central
government expenditures.

But Yudhoyono said his administration would draft a compensation plan in
September and October, signaling a move to raise fuel prices in November
at the earliest. And it is unclear whether the markets will give him that
sort of breathing space. Politically, one can understand the president's
hesitation. Anger over rising fuel prices helped to topple Suharto in
1998, and there are also lingering concerns that the country's
vulnerability could be exploited by resurgent Islamic fundamentalists,
whose influence has grown over the past few years in this predominantly
Muslim country.

Although economists generally describe Indonesia's fundamentals as
"strong", bankers fear that without a solid response from Jakarta,
Indonesia's currency weakness could grow into a crisis. Should the
currency remain below Rp11,000-12,000 to the dollar for a quarter, they
say, it would put pressure on the banking system, given the prevalence of
dollar-denominated debt in the system.

It is advisable to take any positive comments about Indonesia's "strong
fundamentals" with a huge chunk of salt, given that similarly confident
pronouncements were made on behalf of Thailand and Korea a short while
before the two nations were plunged into crisis. Literally four months
after praising the economic performance of Thailand and Korea in its 1997
annual report, its then managing director, Michel Candessus, blamed Asian
governments for the deep failures of macroeconomic management and
financial policies that the IMF had discovered only when the countries'
financial crises erupted.

In fact, right up to the eve of July 1997, the continued fast growth of
the "miracle" economies of East Asia looked to be one of the certainties
of our age (about as certain as China's ongoing growth story appears
today). None of the four main crisis-afflicted countries (South Korea,
Thailand, Malaysia, Indonesia) had had a year of significantly less than
5% real GDP growth for over a decade by 1996 - Korea not since 1980,
Thailand not since 1972. The crash was even more devastating to people's
living standards and sense of security than the Latin American crash of
the 1980s.

Some estimates suggest that around 50 million of the combined 300
million-plus people of Indonesia, Korea, and Thailand fell below the
nationally defined poverty line between mid-1997 and mid-1998. Many
millions more who were confident of middle-class status felt robbed of
lifetime savings and security. Public expenditures of all kinds were cut,
creating "social deficits" that matched the economic and financial ones.
Indonesia's real GDP shrank 17% in the first three quarters of 1998,
Thailand's 11%, Malaysia's 9%, and Korea's between 7 and 8%. It took
nearly two years to reach the bottom.

So the costs of procrastination for the Indonesian government are
enormous. To be sure, there are some significant differences between now
and 1997. For one thing, virtually all of the emerging Asian economies are
running significant current account surpluses, in stark contrast to the
time that the 1997 crisis emerged, when the appreciation of the US dollar,
the depreciation of the Japanese yen and the Chinese yuan led to a loss of
export competitiveness in Asian economies whose currencies were
effectively pegged to the US dollar. The capital inflows exacerbated the
real appreciation of the Asian currencies. The appreciation raised input
prices relative to output prices, squeezing profits and hurting export
growth. The Japanese recession reduced export profits. As a consequence of
these external "shocks", Thailand, Korea and Malaysia developed large and
out-of-character current account deficits.

As manufacturing came under pressure, more and more investment went into
the property market and the stock market. In Thailand, Malaysia, and
Indonesia, asset bubbles began to blow out and the fringe of bad
industrial investments also expanded. To be sure, there are not the same
signs of excess today. Foreign exchange reserves remain ample across the
region. In the case of Indonesia itself, exports in July rose 17% to $6.99
billion, while imports rose 15% to $4.8 billion. For the past several
months, the country has been running a trade surplus of roughly $2 billion
per month and has not shown much change in recent months despite higher
oil prices (Indonesia has become a net oil importer, despite being Asia's
largest producer).

But there is little question that a lot of capricious Western speculative
capital remains in the region, largely a repository of the "Chinese
revaluation trade". In spite of the comparative paucity of China's
original revaluation (or perhaps because of it), a lot of hot money has
remained in the region betting on more to come. Funds have flocked to
other obvious "revaluation beneficiaries", such as the Singapore and Hong
Kong dollars, the Malaysian ringgit, and the Korean won. Were the
Yudhoyono government to continue to defer taking tough decisions on fuel
subsidies (which in themselves could trigger much domestic unrest), that
money could start quickly flowing out of the region. Already we are seeing
some sort of indirect contagion effect as currencies such as the Singapore
dollar, in spite of the latter's robust fundamentals, have begun to weaken
as well against the greenback.

Not only is this "hot money" an ongoing source of potential financial
instability in Asia, but very few people demonstrate an understanding of
the nature of the flows themselves, which even today are largely
speculative in nature, as opposed to stable Foreign Direct Investment
(FDI). Most market participants are now familiar with standard derivative
contracts used in hedging risk, such as forward contracts, futures and
listed options. Banks also offer derivative contracts to their clients in
the over the counter market (OTC), but there is no market involved in
these contracts, and they are (as the 1997 crisis vividly illustrated)
individually tailored, usually highly complex combinations of financial
instruments packaged together with derivative contracts designed to meet
the particular needs of clients.

Rather than committing their own capital, the banks often serve in these
transactions as intermediaries whose services largely involve creating
vehicles that attract widespread retail interest via securitization. And
the major objective of these institutions is not so much the maximization
of profits via seeking the lowest cost of funds and channeling them to the
highest-risk adjusted return, but rather in maximizing the amount of funds
intermediated and collecting higher fees and commissions.

This means a shift from continuous risk assessment and risk monitoring of
funded investment projects that produce recurring interest income over
time to the identification of derivative packages that produce large
single payments to the banks, the ultimate impact of the risk never really
fully assessed or understood until a crisis eventuates, as was the case in
1997 where the magnitude of the change in the exchange rates of, say, the
Korean won, or Thai baht, were so extreme as to transform the very nature
of the underlying character of the derivatives packages at the forefront
of these capital flows.

There is no way to control these volatile flows in today's world of
derivatives-charged international finance, particularly against a backdrop
of extraordinary global liquidity, often wrongly described as "excess
savings in search of more efficient returns on investment". Such flows are
persistently justified in terms of (a) maximizing the efficiency of
capital worldwide, (b) allowing a specific country to invest more than
could be financed from its own savings, (c) bringing modern financial
institutions into the country, and (d) deepening the liquidity of the
country's financial system and lengthening investor horizons, thereby
making markets more efficient and more stable. In the end, the case for
free capital flows came down to the classic theory of comparative
advantage, as though trade in dollars was essentially similar to trade in
widgets.

It is hard to make the case that speculative Western portfolio flows have
actually maximized the efficiency of capital worldwide. The rising inflow
of foreign capital - mainly bank loans and portfolio capital rather than
foreign direct investment - has gone disproportionately into unproductive
activities with a high component of speculation, such as real estate. The
continued fast growth rates (that supported the perception of an
unchanging "miracle" in Southeast Asia) has concealed a rise in the ratio
of "bubble" to "real" growth. This is largely a function of the fact that
Asia already is the world's largest repository of global savings and much
of its productive manufacturing sector can be financed internally, pushing
foreign capital into increasingly marginal investments with poor prospects
of return.

The larger result, therefore, has been a series of booms and busts ("a
boom in busts"). Capital flows into emerging markets turn out to be
strongly auto-correlated, especially within regions, propelled less by
differences between countries in their "fundamentals" (including "good" or
"bad" policy) than by "push factors" - macro push factors like the amount
of excess liquidity in different parts of the core zone of the world
economy; and micro push factors like the incentives on institutional money
managers. Money managers tend to be evaluated relative to the median
performance of money managers in the same asset class. This encourages
them to move in and out of markets together, producing "herding" or "trend
chasing" or "positive feedback trading."

It is true that Indonesia has staged a significant turnaround since the
Asian financial crisis. But it would be wrong to be too complacent, given
that the country still bears significant scars from the previous crisis.
And though asset bubbles are not as marked throughout the region as they
might have been during the mid-1990s, there is little doubt that the
countries' ongoing efforts to suppress the rise of their respective
currencies against the greenback have generated new kinds of domestic
credit bubbles, Indonesia included. So a precipitous withdrawal of western
capital, although perhaps not presaging something as severe as 1997-98,
would still have unpleasant implications for the global financial system.
And it wouldn't take long before we also began question whether these
flows did actually optimize market efficiency in a manner constantly
reaffirmed by our soon-to-depart Federal Reserve chairman. There would be
an element of poetic justice if another financial crisis were to erupt on
his watch, although, as usual, someone else would be the one to suffer the
consequences of Mr Greenspan's ongoing embrace of New Era economics.
-- Marshall Auerback is an international strategist with David W Tice &
Associates, LLC, a US Virgin Islands-based money-management firm. He is
also a contributor to the Japan Policy Research Institute. This article
first appeared in PrudentBear.