[Kabar-indonesia] 3 Tempo Economic Reports: On the Rebound? [1 of 2 (+Production Base)]

[JoyoNews at aol.com]

3 Tempo Magazine Reports (1 of 2):

- Awaiting Wonders 
  on the Rebound 
- Relocation Base 
- Planting Dreams 

Tempo Magazine
No. 51/VI
August 22-28, 2006 

Economy & Business 

Awaiting Wonders on the Rebound 

The Indonesian economy has started to return to the position before 
the oil prices increased. But, the situation is still far from ideal. 

THE adroitness of Joni Andela's "reading of the future," three years ago, 
have begun to show results. During the last month, orders for his company's 
grilling equipment products have flooded in, increasing some three times compared 
to previous amounts. Because of this, the decision of this CEO of PT Almas 
Metal Industri to expand the manufacturing complex in the Padalarang area, West 
Java, was certainly the right move. From its original size of only around 3,000 
square meters, the complex has now increased to some 3.5 hectares. 

For this month, almost 80 percent of the orders that amounted to a total of 
150 containers were sent to the United States. The remainder were exported to 
destinations such as Europe, Australia and several Asian countries. The new 
grilling products that were launched in June this year appear to be extremely 
sought-after by consumers in these countries. 

"Total orders amount to US$4.5 million, or more than Rp40 billion," he said 
on Wednesday last week. The value of these orders amounts to even more than the 
Rp1.5 billion investment to purchase additional support machinery. Joni is 
convinced that the orders will still continue to come in. 

Bearing in mind the economies in his main market countries, there seems to be 
sufficient basis for Joni's conviction. This is because during the second 
quarter of this year, the US economy still grew by around 3.5 percent and Europe 
some 2.2 percent. Countries with strong economies in Asia such as Japan also 
grew although by less than 3 percent, while the growth figure in China was 
really fantastic: 10.9 percent. If the economic cycles continue to turn normally, 
according to Purbaya Yudhi Sadewa, senior researcher at the Danareksa Research 
Institute, "There will be no recession in the US until 2011." 

Domestically, although still far from originally hoped, it is fair to say 
that Indonesia's macroeconomic situation has also started to show some 
improvement. As President Yudhoyono pointed out in his financial notes speech on 
Wednesday last week, growth of gross domestic product (GDP)-the value of all goods 
and services produced in Indonesia-amounted to 5.2 percent during the second 
quarter of this year. This figure is a little higher than the previous three 
months when it was only 4.7 percent. 

This figure is certainly far from impressive, especially when compared with 
Yudhoyono's intention during his election campaign two years ago. At that time, 
he always stated that measures to eradicate poverty and reduce unemployment 
in Indonesia were prerequisites of average annual economic growth of 6.6 
percent. This assumes that every 1 percent of economic growth is capable of 
absorbing between 400,000 and 500,000 new entrants for the workforce, which grows 
every year by about 2.5 million people. 

Whereas, as has often been mentioned by University of Indonesia economist, 
Muhammad Chatib Basri-who is now a special advisor to Minister of Finance Sri 
Mulyani-the elasticity of the absorption of manpower can no longer be as pliable 
as before. At the most, every single percent of economic growth can now only 
absorb between 200,000 and 300,000 new entrants for the workforce. What this 
means is that a higher growth rate is required if unemployment, which has 
already reached some 10.8 million people, can be cut back. 

But this does not mean that there is no hope. From several surveys carried 
out by Danareksa, it can be seen that economic trends in Indonesia have already 
begun to experience a rebound. One of the parameters that indicates this is 
the consumer confidence index, which is based on analyzing the opinions of 1,700 
respondents-with incomes of less than Rp500,000 to over Rp1.5 million per 
month. The confidence of consumers from all levels of society began to improve in 
April this year. "This means that consumer shopping will become more tight," 
said Yudhi. 

Danareksa has also recorded the sentiments of business players such as Joni. 
A total of 700 leaders of well-known companies in Indonesia were asked for 
information as regards the current situation and revenue of their own companies. 
Based on this, it was possible to build up an economic pictorial estimate of 
the next six months to a year. 

After a sharp drop as a result of the fuel price increases in October last 
year, the index began to move up one month later. This indicated that the 
confidence of economic players in terms of investing and carrying out production 
activities was increasing again. With these positive sentiments, from March this 
year the economy, although still weak, began to improve again. 

This can also be seen by the rise in the import value of raw materials of 
more then 8 percent this April and May-even by as much as almost 20 percent in 
June this year. This rise in the import of raw materials is one indication that 
the machine of processing and manufacturing companies has begun to increase 
its production capacity. 

The cooking equipment factory owned by Joni Andela, for example, still has to 
import 70 percent of its raw materials from overseas. One reason for this is 
that local goods, such as steel from PT Krakatau Steel, have become far too 
expensive. Therefore, if this month they increase the volume of their imported 
steel, then for certain in the next two to three months production and exports 
will increase also. 

Data released by the Central Bureau of Statistics on Monday of last week also 
showed an interesting increase in exports during the second quarter. This 
increase was 5 percent higher than the previous quarter. When compared to the 
same period last year, exports during the first half of this year even jumped by 
11.3 percent. 

The agriculture and mining commodity sectors were the main contributors to 
this growth in exports. This is because the prices of commodities from these 
sectors are currently very good in international markets. Crude palm oil, for 
example, rose in price by 26 percent up to US$474 per ton. This is the highest 
price since 2004, caused by the jump in demand for raw materials of biodiesel 
production. The war that is currently being waged in the Middle East has also 
jacked up the price of metals, such as copper, gold and nickel. 

However, not all this increase in production and exports automatically 
reflects an improvement in the competitiveness of Indonesia's real sector. 
"Production of shoes is one example of this," said Djimanto, Secretary of the 
Indonesian Association of Entrepreneurs. The owner of the Piero and Starmon shoe brands 
stated that the leap in orders at factories was due to no more than an 
"overflow" from China and Vietnam. From many points of view, both these two 
countries still have far more competitive advantages. 

Only, at the current moment in time these two are not interfering as they 
have been caught up by the safeguard measures implemented by export destination 
countries in Europe and the US with the application of very high import duties. 
The protective policies for these domestic producers have been made use of by 
these two regions because for the last three consecutive years, shoes from 
China and Vietnam have entered their markets in enormous amounts. 

This is because the orders for shoes have been moved over to Indonesia, 
India, Bangladesh and Pakistan. In fact, Indonesia and the other countries that at 
the end of 2004 were victims of the tsunami disaster obtained import duty cuts 
if they exported goods to Europe. This is the reason why for the last several 
months a total of 15 Chinese shoe producers have rushed to move their 
factories to Indonesia. 

Of course, sadly enough this investment will eventually move on again from 
here because the safeguard policy will be re-evaluated within five years. "In 
reality, Indonesia's investment climate has not yet improved," said Djimanto. 
The large amount of illegal levies, repetitious and time-wasting bureaucracy 
plus so many regional regulations that create real difficulties for investors are 
just some of the delayed factors most complained about. 

The matter of cement is another case in point. This commodity is normally not 
sold overseas because of the expensive transportation costs. Because of this, 
if exports have increased during the last several months, it is only because 
this was triggered by the falling apart of the domestic market. The property 
sector being slowed down and infrastructure projects jammed up have resulted in 
cement production dropping by an average of 5 percent compared to the 
previous year. "We have been forced to sell at a loss by exporting as much as 30 
percent of our production," said Erwin Aksa, Managing Director of Semen Bosowa. 

Erwin has also acknowledged to being pessimistic, however the decrease in the 
standard interest rate of Bank Indonesia-from 12.25 percent to 11.75 
percent-at the beginning of this month has in fact created many new opportunities. 
Danareksa has even predicted that the inflation rate will return to a single 
digit level by the end of the year with the continued drop in the interest rate to 
a level of 9.75 percent. "It is extremely likely that it will be 7 percent by 
the end of next year," said Yudhi. 

Any drop in lending interest rates is normally accompanied by an increase in 
the level of consumption. The market for homes and motor vehicles will once 
again improve. Because of this, during the first six months of this year, the 
sales of motor vehicles have dropped to almost half compared to last year. "This 
August perhaps sales will rise again," said Johny Darmawan, CEO of Toyota 
Astra Motor. 

Energy reserves that lift up consumption are still overflowing in the 
government's coffers. Up until the end of the first week of July this year, the 
government had only spent 23 percent of the total development allocation of Rp122 
trillion of the 2006 State Budget. And as has already happened in the past, 
purchases will again be really high in the second half of the year. 

-- Y. Tomi Aryanto and Rinny Srihartini (Bandung)

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Tempo Magazine
No. 51/VI
August 22-28, 2006 

Economy & Business 

Relocation Base 

Some foreign investors see Indonesia as a production base. 

PUTTING on their black uniforms that had "training" written on the sleeves, 
20 new female workers were lined up in front of the machine that manufactures 
DVD players, which works on an automatic basis. Full of concentration, they 
appeared to be very careful as they inserted components. They carried out checks 
and packaged DVD players at Samsung's factory in Cikarang, West Java, last 
week. 

They are just some of hundreds of new contract workers recruited by PT 
Samsung Electronics Indonesia during this month. For its audiovisual division alone, 
Samsung has recruited 100 new workers. This doesn't include its additional 
workers in other divisions, meaning that total workers now amount to 1,700 
people. 

"Now we are certainly busy," Akhmad Sauki, head of the DVD Production Team, 
told Tempo, last week. "Every two days we have to add an extra two hours' 
overtime." They take it in turns to do overtime until 6:30pm in order to meet the 
increased production target from 3,000 to 7,000 DVD players per day, for the 
next three months. On Saturdays-which are usually free-workers also have to come 
to work. "The time that we have for our families is less, but we are 
certainly happy about the additional wages." 

During the last month, Samsung has recruited new workers, increased working 
hours and added production lines in order to raise its production capacity. 
These measures have been triggered by fluctuations in the export market as well 
as improvements in the domestic market during the second quarter of this year. 
This situation is different compared to what it was like after fuel prices 
were increased in October last year. At that time, demand was weak, production 
capacity was down and many workers had to be sent home. 

However, in order to face up to these international and domestic market 
improvements, this conglomerate from South Korea is not only increasing production 
capacity. Starting from this August, Samsung has made Indonesia the production 
base for its MP3 players, following other products that are already 
manufactured here, such as DVD and CD (CD-ROM) players. "Our MP3 players will only be 
manufactured in China and Indonesia," said Lee Jong Chan, CEO of PT Samsung 
Electronics Indonesia. 

There were several reasons for Samsung selecting Indonesia as a production 
base. In addition to an advantageous investment climate, this country is also 
strategically located for the traffic of goods in the regional market. Also, 
Indonesia's population is the fourth largest in the world. "After Sony pulled 
out, we in fact sustained our investment in Indonesia," said Christian Sudibyo, 
director of sales of this company. For Samsung, with a per capita income of 
US$1,300 per year, the potential of the Indonesian market is huge. What's more, 
penetration of the electronics market is still low. "In order to control the 
market, we have to manufacture here so that costs are cheaper." 

LG Electronics, a competitor from the same country, doesn't want to get left 
behind. In order to fight for the domestic market that is continually 
increasing and facing up to the ASEAN (Association of Southeast Asian Nations) free 
market, LG has made Indonesia the production base for its refrigerators. LG is 
currently constructing two refrigerator-manufacturing units in Tangerang, 
Banten. "The current investment climate is more conducive, even though sometimes 
there are security problems," said Budi Setiawan, General Manager of PT LG 
Electronics Indonesia. 

The value of investment made by LG by the end of this year will amount to 
some US$50 million. The amount of its workers for manufacturing refrigerators has 
been increased, from 614 people in 2005 to 970 people in 2006. With this 
additional investment and workforce, LG is targeting that production this year 
will increase from 960,000 to 1.5 million refrigerators per year. 

In any event, Samsung and LG are only examples. In other regions, investors 
are also starting to increase. In the Gresik industrial estate, East Java, 
seven investors have presented proposals for constructing factories. One of the 
most phenomenal investors, according to Zubair Halim, Managing Director of the 
Gresik Industrial Estate, is PT Elsoro Multi Pratama, which will manufacture 
nylon thread and tires. "They will invest the sum of Rp5 trillion." 

In the special economic zone (SEZ) of the islands of Batam, Bintan and 
Karimun, five investors-including several from South Korea and Singapore-have 
started to enter, this past week. They will be investing funds in the region of 
around US$580 million. "So, whereas in the past the story was one of pulling out, 
now there are improvements," said Boediono, Coordinating Minister for the 
Economy. 

-- Heri Susanto and Kukuh S. Wibowo

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Tempo Magazine
No. 51/VI
August 22-28, 2006 

Economy & Business 

Planting Dreams 

In the middle of the current weak economy, the oil palm industry is pulling 
in trillions of rupiah and providing jobs for hundreds of workers. 

LITTLE by little, Marni's piggy bank is beginning to fill up. Even though 
every day this 33-year-old Dayak woman still has to labor under the heat of the 
burning sun planting palm oil seeds, she is all the more determined: both her 
two sons who are still at junior school will have the benefit of higher 
education. "My husband says that it's best if they go to college in Java," said this 
woman from the Subdistrict of Cempaga, East Kotawaringin, in the Province of 
Central Kalimantan. 

As an agricultural worker, it's fair to say that Marni earns a good wage. If 
one were to average out the monthly wages of these seed-planting workers, who 
have had these jobs for some two years now, they could amount to Rp1 million. 
Fortunately, her husband who comes from Kediri, East Java, now also works as a 
heavy machinery operator at the oil palm plantation company. Since then, "We 
have been able to save," she said. 

For Marni, the expansion of the oil palm industry in Central Kalimantan has 
certainly resulted in many changes. She now no longer has to keep moving from 
one form of rented accommodation to another. Ever since her husband was 
appointed as a permanent employee, her family has been able to live in accommodation 
with two bedrooms provided by the company. 

The company also provides clean water facilities, electricity, a community 
health center and even a junior school for its employees. This is the reason why 
Marni now no longer needs to worry about the education of her two sons. 
Later, when they move up to junior high school, she plans that they will be 
educated in Sampit, where her parents live. 

It is in this way that the oil palm industry has already become the backbone 
of economic activities in East Kotawaringin and several other regencies in 
Central Kalimantan. There has also been similar expansion in the Province of West 
Kalimantan during the last few years. It's fair to say that because of this 
industry, economic activities in both these provinces weren't too adversely 
affected by the economic crisis. And it's a similar situation now. Even though 
the national economy is currently weak, the oil palm industry is thriving there. 

One of the main factors for this situation is that the price of crude palm 
oil has increased in world markets. Even though for the last four years prices 
have risen to around US$200 per ton, now they have more than doubled again. 
What is more, just like on the international market, domestic sales of palm oil 
are also based on the US dollar. 

Another attraction is that this business is based on natural resources and is 
not burdened by import costs that are highly dependent on the fluctuating 
exchange rate of the rupiah. "All that is imported is in fact only fertilizer," 
said Teguh Patriawan, Chairman of the Central Kalimantan Chapter of the 
Indonesian Oil Palm Plantation Entrepreneurs Association. Here, the oil palm business 
began in 1992 with the entry of PT Indoturba Tengah, owned by the Salim 
Group, which operates in the Regency of West Kotawaringin. This company was then 
followed by PT Astra Agro Lestari. 

During the second wave, in around 1996, it was the turn of the Sinar Mas 
Group, Wana Sawit (Surabaya) and PT Matahari Kahuripan Indonesia (Makin), owned by 
cigarette company PT Gudang Garam, to also enter the oil palm plantation 
business here. However recently, the plantation owned by the Salim Group has been 
taken over by Guthrie Berhad from Malaysia and has been renamed PT Minamas. 
Out of these five large companies, Astra Agro owns the largest amount of 
land-around 40,000 hectares. 

The total land for oil palm plantations in Central Kalimantan now amounts to 
4.3 million hectares, which is divided up between 254 business units. As many 
as 83 units (970,800 hectares) are already operating, and 15 units (190,000 
hectares) are classified as foreign investments. The total amount of funds 
already invested has reached Rp11.7 trillion. 

As regards the economic activities of Central Kalimantan, the contribution of 
the oil palm industry is clearly by no means small. From the sales of palm 
oil, which are now targeted at 1 million tons annually, the revenues are in the 
region of around US$400 million (Rp3.6 trillion). It's not surprising 
therefore that since 2002, the contribution from the plantation sector against the 
province's regional gross domestic product have already exceeded that of the 
forestry sector, and now stands above 15 percent. "The amount of people who are 
employed in this sector is extremely large," said Governor Teras Narang. This is 
because at least one worker is needed to maintain each 5 hectares of 
plantation. 

This enormous potential has also made the government of West Kalimantan 
concentrate on expanding the oil palm business. As many as 2 million hectares of 
land are now prepared, meaning that this will provide job opportunities for 
400,000 people, or one quarter of the population of West Kalimantan. "It is an 
enormous creator of new jobs," said economic observer Cyrillus Harinowo. 

-- Metta Dharmasaputra and Karana Wardana (Palangkaraya) 

-End 1 of 2-

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Joyo Indonesia News Service
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