[Kabar-indonesia] 1: RI Trade and Investment News, 21 August 2006

[JoyoNews at aol.com]

The Coordinating Ministry for Economic Affairs
Republic of Indonesia
Jakarta
Monday, August 21, 2006

Trade and Investment News, 21 August 2006

Part 1 of 2

Highlights 

Politics 

* Indonesia to take active role 
  in global peace: President 
* Proposed contingent to Lebanon 
  peacekeeping force ready to go
* Ambassador to the US says look 
  for Iran nuclear solutions outside UNSC

Regions 

* Accept Aceh law, President urges 
* Papua Governor not opposed to 
  creation of new province 

Economy 

* Gross domestic product up 5.2% 
  in second quarter 
* Morgan Stanley says government 
  spending spurred growth 

Business Briefs

Macroeconomy 

* Rising commodity prices give 
  strong contribution 
* President points to 6.3% growth 
  in 2007
* Quicker turn-around for VAT 
  refunds 

Investment 

* Drive for investment in bio-fuels 
* Britain's carbon positive to invest 
  in plantation forests
* Malaysia's Kumpulan Guthrie 
  buys more plantation land 
* New $70 million factory for 
  PT Astra Daihatsu Motor 

State Concerns 

* No tax on rubber exports, official 
  states 

Private Sector 

* Manufacturing industry grows 3.07% 
  in first half 
* PT Telkomsel introduces 3G services 
* No pressure on TV stations to merge 

Banks 

* Industrial and Commercial Bank of China 
  looks at acquisitions 

Oil & Gas 

* Government offers 41 new oil and 
  gas blocks 

Mining 

* Freeport review likely next year 

POLITICS

Yudhoyono: Active Role in Foreign Affairs 

President Susilo Bambang Yudhoyono, in his annual state-of-the-nation speech 
to the House of Representatives on Wednesday, said Indonesia's global image 
has improved substantially since it hosted the Asia-Africa summit in April last 
year. 

"That's why we start to take an active role in realizing global peace... such 
as in the Iran nuclear issue, the efforts to reduce tensions on the Korean 
Peninsula, and our pro-active steps in encouraging peace in the Middle East," 
Yudhoyono said. 

He said Indonesia remains committed to supporting the Palestinian struggle 
for independence, while it made diplomatic efforts to end Israel's offensive in 
Lebanon. 

"To show our commitment, we have expressed our readiness to join the United 
Nations' peacekeeping force to protect the Palestinians and Lebanese from 
Israeli attacks," he said. 

Regarding the war on terrorism, Yudhoyono said domestic security conditions 
have improved, with no terrorist attacks occurring on Indonesian soil since 
early 2006, though the hunt for Malaysian terrorist Nordin Mohammad Top continues.

The president vowed to remain active in realizing an ASEAN Community by 2020, 
comprising the members of the Association of Southeast Asian Nations, beside 
improving cooperation with other countries in East Asia.

Yudhoyono also disclosed his defense and security policies, saying that he 
will improve cooperation with friendly countries in building defense-related 
industries. 

"We wish in the future we can fulfil ourselves our need in the supply of main 
weaponry systems," he said. 

Peacekeeping Troops Ready to Go

With the United Nation's decision to send a peacekeeping force instead of 
multinational troops to Lebanon, Indonesia is poised to contribute a full 
infantry battalion to the United Nations Interim Force in Lebanon (UNIFIL).

But the UN appealed to European nations on Friday (18/8/06) to commit troops 
to the first wave of 3,500 soldiers so the mission can be balanced among 
Western and Muslim states. 

Defense Minister Juwono Sudarsono said on Friday that the government did not 
want its troops involved in the disarmament of either Hizbollah or Israeli 
forces.

Sudarsono said Lebanese troops should neutralize weapons and rocket-launching 
sites. "We will back them up through UNIFIL so our troops will not be 
directly with disarmament in the field … what does matter is to make UNIFIL and the 
Lebanese as the only ones with arms, not Hizbollah or Israeli troops. But to be 
there, Indonesia doesn't want to be the executors."  

Malloch Brown welcomed promises from Italy and Finland to deploy troops and 
firm commitments from Indonesia, Malaysia and Bangladesh. 

The UN hopes to send 3,500 troops within two weeks to oversee a truce and the 
withdrawal of Israeli troops from southern Lebanon after more than a month of 
fighting between Israel and Hizbollah guerrillas. 

The UN wants all contingents deployed by November. The UN Security Council on 
August 11 authorized up to 15,000 troops, including the 2,000 there now in 
the UN force. 

President Susilo Bambang Yudhoyono disclosed that Lebanese Prime Minister 
Fouad Siniora and French President Jacques Chirac had called him and asked 
Indonesia to help in monitoring the cease-fire. 

The 1,000 Indonesian troops going to Lebanon are expected to include the 
president's son, First Lt. Agus Harimurti Yudhoyono, a platoon leader in the Army 
Strategic Reserve's West Java-based 1st Division.

Jakarta on Iran: Look Beyond UN

Indonesia urged the international community on Tuesday (15/8/06) to look 
beyond the United Nations Security Council to end the Iranian nuclear crisis amid 
a looming deadline for Tehran to suspend all uranium enrichment activities.

"When it comes to the dealing of this issue at the global level by the United 
Nations, we believe that there is still room for negotiations beyond the 
Security Council," Indonesia's envoy to Washington Sudjadnan Parnohadiningrat told 
reporters.

The Security Council on July 31 adopted a resolution requiring Iran to 
suspend all activities related to uranium enrichment by August 31 or risk possible 
sanctions.

It follows a July 12 agreement to refer Iran to the council for failing to 
respond to a package of energy, commercial and technological incentives to 
suspend enrichment. Iran has said it will respond to this package by August 22.

Western powers, led by the United States, suspect Iran could be trying to 
build nuclear weapons, charges denied by Tehran which says its atomic program is 
for peaceful purposes.

"Of course by the end of this month, we will see" how the world handles the 
crisis, Parnohadiningrat said at a forum organized by the National Press Club.

At least until this stage, Indonesia hopes for a peaceful settlement of the 
issue beyond the Security Council, the envoy said, adding however, "I do not 
know whether a week later, things can change."

President Susilo Bambang Yudhoyono told Iranian President Mahmoud Ahmadinejad 
at a meeting in May that as a signatory to the Nuclear Non-Proliferation 
Treaty, Jakarta would abide by it "both in letter and spirit" and hoped other 
parties would do the same. 

Court Chief Re-elected

Constitutional Court president Jimly Asshidiqie was re-elected to a new term, 
and said he hopes to increase citizens' awareness of their constitutional 
rights and make them more familiar with the functions of the court.

"As it is a new state institution, not many people are aware of the existence 
of the Constitutional Court," Asshidique, 50, said after winning re-election 
by a landslide on Friday (18/8/06) for a second consecutive three-year term.

He won eight votes from the court's nine judges even though Asshidique 
himself had said it would be better for the court if "there is a leadership change." 
One justice abstained from voting. Asshidique's deputy, Laica Marzuki, was 
also re-elected.

"It is hard to expect the public to relish our verdicts," Asshidique noted. 
"The Constitutional Court is a new institution. The public is still wondering 
whether it is a friend or a foe." 

REGIONS

Accept Bill, President Urges Acehnese

President Susilo Bambang Yudhoyono used his State of the Nation address on 
Wednesday (16/8/06) to urge the people of Aceh to accept a new governance law 
for the province. 

"I want to say to all parties, please kindly accept the law as a foundation 
to build a more prosperous Aceh in the future," Yudhoyono said in his speech to 
the House of Representatives.

Former Free Aceh Movement (GAM) Prime Minister, Malik Mahmud, who stood with 
Vice President Jusuf Kalla at a mass gathering in Banda Aceh on Tuesday 
(15/8/06) to celebrate the first anniversary of the Helsinki peace accord, said that 
from the former separatists' position, only a small part of the law should be 
revised. 

Mahmud said that within one year after the signing of the Helsinki accord the 
people of Aceh could enjoy peace. "It is the first time the people of Aceh 
can breathe normally to build Aceh. The progress in Aceh certainly is a part of 
the progress of Indonesia." 

Vice President Kalla suggested implementing the law and evaluating it based 
on experience in the field. He said the law should be implemented soon since 
amendments could be made in the future. 

Concentrate on People: Papua Governor  

Papua Governor Barnabas Suebu said last week that the drive to create a new 
province of Central Irian Jaya or Central Papua is inappropriate in the current 
fiscal environment. 

His comments follow his revelation that 70% of the province's budget had been 
spent before he took office last month. 

Suebu was commenting on demands from Yance Kayame, chairman of the Papua 
Regional House of Representatives' (DPRP) Commission A, vowing to fight for a new 
province.

Suebu said he was not opposing the creation of new administrative areas, but 
he believed any move in the current circumstances would significantly affect 
the regional government's budget. 

He urged government officials at every level to give the people priority in 
their re-evaluated expenditure programs. 

E. Kalimantan Legislators Probed 

Prosecutors in East Kalimantan have questioned Regional House of 
Representatives Speaker Herlan Agussalim and former House member Hermain Okol over alleged 
corruption. 

Agussalim and Okol are among six legislators suspected of embezzling Rp96 
billion from the provincial budget. Out of 45 House members, 20 are believed to 
be implicated, including former speaker Sukardi Djarwo Putro.

Prosecutors questioned the two legislators regarding their functions and 
duties, as well as their knowledge of the opening of a bank account on behalf of 
Putro. 

Deputy chief of the prosecutor's office, Suroso, said his office had summoned 
four legislators for questioning three months ago but only Agussalim showed 
up. 

The case is the latest in a series of investigations into corruption in 
regional administrations, part of the government's overall crackdown on graft. 

ECONOMY

Growth Moves Upward 

The Indonesian economy put on an unexpected 5.2% in the second quarter from a 
year earlier, up from the revised figure of 4.7% in the first quarter, 
according to the Central Bureau of Statistics, marking the strongest rise for 18 
months. 

The figure, based largely on improved prices for commodities including palm 
oil and rubber, provided a positive backdrop for President Susilo Bambang 
Yudhoyono's annual address to the House of Representatives on Wednesday (16/8/06). 

Dr. Yudhoyono set out the planned 2007 budget, saying it assumes economic 
growth of 6.3%, an inflation rate of 6.5%, an exchange rate of Rp9,300 per 
dollar, an oil price of $65 a barrel and oil production of 1 million barrels a day. 

Total budget expenditure would be Rp746.5 trillion ($82 billion), with 71.2% 
of that coming from taxes.

The budget deficit is set at Rp33.1 trillion, or 0.9% of gross domestic 
product. In the revised 2006 budget, the deficit was set at 1.2%. 

The government plans a 4.9% increase in infrastructure-development spending 
to Rp66.1 trillion ($7.26 billion) next year, together with a Rp2 trillion 
"risk-sharing fund" to help alleviate concerns of private investors about 
investing in infrastructure projects. 

Reaction was generally positive. Economist Faisal Basri said the growth 
target of 6.3% was within "the country's economic capacity", but added that 
promotion of the real sector was needed, The Jakarta Post reported. 

Morgan Stanley Economists, in an analysis by Deyi Tan, said higher government 
expenditure had also contributed strongly to the improved second quarter 
growth figure. 

"2Q data appears to be indicating that Indonesia's GDP growth trend is 
bottoming out and the worst may be behind us," she said.  

 "We maintain our view that domestic demand (consumption as well fixed 
investments) should pick up going forward, supported by declines in interest rates 
and a gradual pickup in government's capital expenditure." 

Figures released last week by the Investment Coordinating Board (BKPM) said 
realized foreign investment stood at $3.71 billion involving a total of 563 
projects for the first seven months of the year. 

Actual domestic investment between January and July grew by 18% to Rp11.46 
trillion ($1.2 billion) involving 104 projects.

Resources and Energy Minister Purnomo Yusgiantoro said Wednesday the 
government would not raise fuel prices at least until the end of 2007, good news for 
consumers and industry in general.

"We realize we needed to stimulate economic growth, so we assumed there will 
be no fuel price hike," Yusgiantoro told a press briefing, Agence 
France-Presse reported.

BUSINESS BRIEFS

MACROECONOMY

Growth Quickens for First Time in 18 Months 

Indonesia's economic growth accelerated for the first time in one-and-a-half 
years, boosted by rising exports of palm oil and rubber. 

Gross domestic product grew 5.2% in the second quarter from a year earlier 
after expanding a revised 4.7% in the previous three months, the Central Bureau 
of Statistics said on Monday (14/8/06), according to Bloomberg News.

Record exports in June are expected to produce higher profits for commodity 
producers, which analysts said had pushed growth upward. 

"The global rise in commodity prices has been helping Indonesia," said Tomo 
Kinoshita, an economist at the Singapore unit of Nomura Securities Co.  

"Cutting interest rates will boost private consumption, particularly the 
purchases of durable goods, which will have an affect on other industries too," he 
said.  Bank Indonesia (BI) on August 8 cut the rate by a half point to 
11.75%. 

Exports rose 11.3% in the second quarter from a year earlier.  Export prices 
for crude palm oil rose 26% to $474 a ton the previous week, the highest since 
2004, mainly on increasing demand for its use in bio-fuels. 

Consumer spending, which accounts for about 65% of the economy, grew 3% in 
the second quarter from 3.2% in the first. Per capita income rose 12% to $1,308 
last year from $1,166 in 2004, the bureau said. 

"The domestic economy has developed greater resilience to shocks, from 
escalating world oil prices," BI Senior Deputy Governor Miranda Goeltom said in an 
interview.  With inflation slowing, an interest rate at 10% by year-end is 
"very possible". 

 "Government expenditure has already started accelerating, that's another 
indication that the economy is going to move and we need to move the economy," 
Goeltom said.  Government spending grew 31.4% in the second quarter from a year 
earlier, according to the statistics agency. 

Tim Bowring, an economist at Macquarie Bank Ltd in Sydney, said "with lower 
rates flowing through and consumers getting used to higher petrol prices, we 
continue to look for a rebound in domestic demand in the second half of 2006." 

Economic Growth, Easing Inflation for 2007

President Susilo Bambang Yudhoyono predicted on Wednesday (16/8/06) that the 
country's economy would grow next year, with inflation easing and the local 
currency stabilizing.

He warned in a state-of-the-nation address to parliament, however, that 
short-term capital, which has poured into Indonesia in the last 12 months, could 
pose a threat if investor sentiment sours, the Associated Press reported.  

He vowed to do everything possible to improve the country's investment 
climate, keeping up his fight against corruption and working with parliament to 
approve draft bills on tax and customs duties.

Dr. Yudhoyono said Indonesia's economy would likely expand by 6.3% in 2007, 
up from an estimated 5.8% growth rate this year.  He also predicted the local 
currency would stabilize at 9,300 to the dollar in 2007.

Meanwhile, Finance Minister Sri Mulyani Indrawati said Tuesday a 6% to 6.5% 
economic growth target is realistic because economic conditions are improving.  
She expressed optimism the economy would pick up in the second semester, 
taking into account several positive signs such as increases in consumption, 
exports and investment, Antara reported.

Govt. to Speed Up VAT Refunds 

The government will expedite the refund of value-added taxes (VATs) to within 
12 months from the submission of a claim, The Jakarta Post reported. 

Fully compliant business taxpayers will be able to receive the tax refunds 
within a month, the Finance Department's Director General for Taxation Darmin 
Nasution said Tuesday (15/8/06), when announcing the tax office's latest 
regulation on the policy, to take effect immediately. 

The regulation also clarifies the time period -- a month -- in which 
businesses must complete submitting supporting documents for the refunds.   Businesses 
can request refunds when submitting their annual tax payment forms.  
Supporting documents include tax payment receipts, export and import notices, as well 
as freight loading and payment transfer bills. 

"The processing of tax refunds became lengthy in the past because it was not 
clear when taxpayers had to complete submitting the supporting documents," 
Nasution said. "We have now sorted this out." 

Compliant taxpayers will now be exempted from having to provide supporting 
documents and will automatically receive their tax refunds within a month.  
Other taxpayers will be assessed and categorized by the tax office based on their 
business activities, and will accordingly receive refunds within two, four or 
12 months at the latest. 

The government created the tax refund policy as an incentive to encourage the 
activities of more export-oriented industries in the country.  It also was 
part of the recent package of policies to improve the investment climate. 

Govt. to Auction Local Bonds 

The government will auction about Rp2 trillion ($220 million) in bonds on 
August 22, a government official said Monday (14/8/06).

The government will offer two series, maturing in 2018 and 2023, Rahmat 
Waluyanto, director of the Finance Department's treasury bond management 
directorate, told Dow Jones Newswires.  Waluyanto did not give details on the coupons of 
the bonds.

The government plans to raise Rp35.8 trillion net in the local and offshore 
bond markets this year to help finance its budget deficit.  So far, it has 
raised Rp30 trillion net.

Forex Reserves Up Next Year

Indonesia expects its foreign exchange reserves to increase to $43.58 billion 
at the end of 2007 from an estimated $39.5 billion at the end of this year, a 
government document showed on Wednesday (16/8/06), according to Reuters.

The country also expects net government bond issues worth Rp34.2 trillion 
($3.76 billion) next year, with proceeds used to help plug a state budget deficit.

INVESTMENT

Indonesia Counting on Bio-fuels

Indonesia is seeking more investment in industries producing energy from palm 
oil, sugar cane and jatropha to help create 5 million new jobs and cut 
government fuel subsidies, President Susilo Bambang Yudhoyono said Wednesday 
(16/8/06).

The government will set aside Rp1 trillion ($110 million) to help farmers pay 
interest on loans they take to plant more crops that can be used to produce 
bio-fuels, Dr. Yudhoyono said, according to Bloomberg News.  Villagers will be 
encouraged to grow jatropha, a plant that thrives in poor soil whose seed can 
be crushed to yield oil for bio-fuels.

"The government alone cannot invest in this, considering the huge cost, which 
is why the government is asking domestic and overseas investors to actively 
invest in this sector," the president said in a speech to parliament.  "It will 
help cut the unemployment rate and fuel subsidies."

He also said the government is aware of the need to improve Indonesia's 
investment climate, so as to draw foreign investment amid stiff competition from 
other countries in the region.  

The palm oil industry in Indonesia currently employs about 1.5 million 
people.  Dr. Yudhoyono said the jobs expected to come from increased investment in 
the sector would be created in the medium-term.

The government, which expects to spend Rp104.3 trillion on capping fuel and 
electricity prices in 2006, will be able to reduce its subsidy costs next year 
as power plants start using other energy sources including bio-fuel, Dr. 
Yudhoyono said.  

By 2009, all power plants on the island of Java will be using "non-fossil 
fuel", he said, adding that fuel subsidies may decline to Rp94.4 trillion next 
year as the government increases the use of other energy sources.

Chinese Timber Investment Plan

The government is conducting a feasibility study on the plan by China Light 
to establish a timber-processing factory in Papua.  Some of the products would 
reportedly support the construction of facilities for the 2008 Beijing 
Olympics.

The government has been engaged in a campaign against illegal logging in the 
province, and believes investment is more beneficial and controllable. 

The Chinese government stated that it consistently "upholds and practices 
collective international responsibility, opposing and cracking down on illegal 
logging and illegal wood imports." China's State Forestry Administration 
spokesman Cao Qingyao was also quoted as saying by Agence France-Presse that the 
government imposes strict import controls. 

The Indonesian Forestry Department's Director General for Forestry Production 
Hadi S Pasaribu said the government is still examining the Chinese firm's 
proposal.  "So long as the company conforms to our regulations, we have no 
objection," he told The Jakarta Post.

He said the company would establish a timber estate and flooring factory, and 
buy 400,000 cubic meters of timber from Indonesia to support the construction 
of facilities for the 2008 Olympics.

UK's Carbon to Build Plantation Forests 

British Carbon Positive Ltd plans to build plantation forests in the country 
with a total investment of Rp1.2 trillion ($132 million).

Director General for Forestry Production Hadi S Pasaribu said the oil and gas 
company will build 100,000 hectares of plantation forests in Sohe, West Nusa 
Tenggara and another 100,000 hectares in Dompu, East Nusa Tenggara, Antara 
said in a report on Tuesday (15/8/06).

Pasaribu said the project is expected to be implemented before the end of the 
year.  He said the company management has held intensive discussions with the 
heads of the regional offices of the Forestry Department.

Meanwhile Malaysia's largest plantation group Kumpulan Guthrie Bhd said it 
has increased its stake in Indonesia with the acquisition of another 20,000 
hectares of oil palm plantation land in the country.

Group chief executive Datuk Abdul Wahab Maskan said besides the conducive 
climate offered by Indonesia, the investment is part of a strategic move to 
expand its business.

"The existing land bank we have in Sumatra, Kalimantan and Sulawesi amounts 
to 220,000 hectares with 170,000 hectares planted with oil palm," he was quoted 
as saying by Malaysian news agency Bernama, on Friday (18/8/06).

Maskan said the new area is being planted with oil palm and this is expected 
to be completed next year.  "We expect to harvest by the beginning of 2009," 
he said.

He said the company is also planning to build four more oil palm mills in the 
country at a cost of RM120 million.  It has 17 mills in Indonesia.

The company is also carrying out a study on bio-diesel as it has a big 
potential for development.  We are now in the process of negotiating with the 
Indonesian government to proceed with the project," he said.

He did not specify the total investment the company was making in Indonesia.

Daihatsu Invests $70m in New Factory 

PT Astra Daihatsu Motor (ADM), one of the country's major automotive 
companies, is investing $70 million in a new factory to be built in Karawang, West 
Java, and for expanding its factory in Sunter, North Jakarta. 

Vice president director Sudirman MR said last August 11 that the new plant, 
which would occupy 1.2 hectares, would start operating in the first semester of 
2007.  "With the new investment, our annual production is expected to 
increase by 36,000 units to 150,000 units from the current 114,000 units," he was 
quoted as saying by the Investor Daily.  He said the company is also recruiting 
workers for 1,400 jobs. 

Sudirman said his company predicted that the country's total automobile 
sales, both for passengers and commercial vehicles, would reach 350,000 units in 
2007 

Astra Daihatsu, part of the country's giant automotive company Astra 
International, expects its total sales to reach 27,500 units this year, about 9.1% of 
total car sales, which are expected to reach 300,000 units.  Its factory in 
Sunter produces 60 units a day. 

-End 1 of 2-

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Joyo Indonesia News Service
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