[Kabar-indonesia] 1: RI Trade and Investment News, 2 October 2006

[JoyoNews at aol.com]

The Coordinating Ministry for Economic Affairs
Republic of Indonesia
Jakarta
Monday, October 2, 2006

Trade and Investment News, 2 October 2006

Part 1 of 2

Highlights

Politics 

* Senior government official says the US 
  has neglected Southeast Asia 
* Vice president a partner in power, not 
  a contender for election 
* International analysts play down US 
  report on Jemaah Islamiyah 

Regions 

* Papua's governor briefs international 
  and bilateral institutions on new paradigm 

Economy 

* Central bank to regulate to speed mergers 
* China, Qatar and Singapore banks look 
  at apportunities
* New Daihatsu investment to make Indonesia 
  regional production base

Business Briefs 

Macroeconomy 

* Bank Indonesia points to more room 
  for rate cuts 
* Short-term financial flows around 
  $7 billion, central banker says 

Investment 

* Government to offer 17 million hectares 
  for timber estates, plantations 
* PT Bakrie & Bros to invest $4.81 
  in infrastructure projects 

State Concerns 

* Land reform move to be put to cabinet: 
  Agriculture minister 

SOEs

* New contracts for state air factory 

Private Sector 

* Textile producers welcome transshipment 
  agreement with US 
* PT Samsung Electronics Indonesia says   
5% growth in sight 

Banks 

* Central bank inaugurates new links to 
  anti-money laundering system 

Power 

* State-owned coal miner to build 
  two power stations 

Oil & Gas 

* Government to spend $1.42 billion 
  on bio-diesel development 
* National fuel consumption stays lower 
* Direct offers soon on some 40 to 50 
  frontier blocks 

Mining 

* BDI Mining Corp wins rare 3.02 
  'blue diamond' 
* Banpu PCL to improve environmental 
  standards 

POLITICS 

Terror Fight 'Opened Door to China'

Indonesia chided the United States on Wednesday (27/9/06) for paying too 
little attention to Southeast Asia, warning Washington that its focus on Iraq and 
combating terrorism globally had opened a door to China.

Beijing's diplomats had effectively eased fears that China's rapid economic 
rise and growing military might posed a threat to its Southeast Asian 
neighbours, presidential aide Dino Djalal told a security conference in Canberra.

"There have been some contrasts drawn between the US approach and the Chinese 
approach," he said. "There is a perception, rightly or wrongly, that the US 
is too focused on the war in Iraq and terrorism, that it's probably not paying 
as much attention as it should to the region. That has given China more 
diplomatic space to capitalize."

Indonesia, Djalal said, had rebuilt relations with China since Jakarta cut 
ties in 1967, accusing Beijing of supporting local communists in the 1965 
attempted coup which brought future strongman Suharto to power.

But surveys since the 2003 US-led invasion of Iraq have shown anti-American 
sentiment is on the rise in Indonesia.

Washington has made Jakarta a foreign policy priority, last year restoring 
frozen arms sales and military training programs.

"China is spreading its soft power very, very well," he said. "It has 
de-ideologized its approach, it has not been heavy-handed in dealing with the region, 
it has refrained from commenting on internal affairs, it has presented itself 
as sympathetic, responsible, helpful and agreeable partner."

Al-Faruq Killed in Iraq

Omar al-Faruq, the senior al Qaeda operative who escaped from an Afghanistan 
jail after being controversially handed over the Central Intelligence Agency 
by Indonesian authorities four years ago, was killed in southern Iraq on Monday 
(25/9/06).

A Kuwaiti-born Iraqi, Faruq died in a hail of bullets after he opened fire on 
250 British troops who raided the house where he was hiding in a wealthy 
neighbourhood of Basra. 

"We tracked this terrorist down to Basra, where we identified that he was in 
a particular house in the centre of Basra and we launched the operation in the 
early hours of this morning," said a British military spokesman. 

"As we moved into the house there was an exchange of fire and Omar al-Faruq 
was killed, which is regrettable, frankly, as the operation was intended to 
arrest him," he told reporters.

The Indonesian government has sent a special team to formally identify 
Faruq's body. 

The al Qaeda operative leaves behind an Indonesian wife, Mira Agustina, and 
two children who live in a village near Bogor.

The couple were married in 1999 after meeting at a Muslim boarding school in 
the Central Java town of Jepara.

Faruq was detained by Indonesian intelligence agents in June 2002 and later 
quietly flown out of Indonesia in a CIA executive jet.

He was subsequently moved to a US detention facility at Bagram airbase, 
outside Kabul, but escaped from there about a year ago.

Indonesian police said there were no indications al-Faruq had engaged in 
terrorist activities in Indonesia. "We don't handle any case with links to him. In 
all terror cases in Indonesia, his name has never been spoken," spokesman 
Insp. Gen. Paulus Purwoko said.

Kalla Rules Out Presidency

Vice President Jusuf Kalla has repeated an earlier statement that he won't be 
the country's next president, citing his ethnic background as the main hurdle.

"It took the United States 200 years to accept an Irish Catholic like John F. 
Kennedy to become president," he told The Straits Times in Washington on 
Wednesday (28/9/06). 

"How can someone like me from outside Java be president? I have to be 
realistic that it will not be easy for me to win in a direct presidential election."

Kalla's Sulawesi background made him the ideal running mate for Susilo 
Bambang Yudhoyono in 2004 and he says that same partnership will be important in the 
next elections.

"We will need this combination between someone from Java and someone 
outside," he said. "If need be, I will partner SBY again."

Kalla's working visit to the US included meetings with Vice President Dick 
Cheney, Secretary of State Condoleezza Rice and business executives from 
Newmont, Freeport, and General Electric.

Rice praised Indonesia as a "wonderful friend," telling Kalla after a 
half-hour meeting at a Washington hotel that "we are so grateful to have in Indonesia 
a country that is known for its tolerance and its moderation, for its ability 
of its people to get along."

State Department spokesman Sean McCormack said the talks focused on regional, 
economic and security issues, as well as the two nations' common fight 
against terrorism.

Hambali Stays Under Wraps

Vice President Jusuf Kalla said Wednesday (27/9/06) he was unhappy that the 
United States was not more transparent about its handling of Hambali, the 
Indonesian terrorist currently in American custody and awaiting his appearance 
before a US military tribunal.

Kalla, who visited the White House to meet with US Vice President Richard 
Cheney and National Security Adviser Stephen Hadley, said he was disappointed at 
the way Indonesian authorities were being denied access to Hambali, whose real 
name is Riduan Isamuddin. 

"I don't understand why the US is being difficult in granting us access to 
Hambali," Kalla told reporters following talks with Hadley. 

Hambali, according to the US government, was the operational mastermind of 
the Jamaah Islamiyah (JI) terror network and served as the main interface 
between JI and al Qaeda from 2000 until his capture in 2003 in Thailand.

"I have requested access, but they appear to be very reluctant to disclose 
the simplest form of information about Hambali," Kalla said, stressing that it 
was Indonesia's right to learn about the well-being of its citizens, including 
alleged terrorists.  

Lee Kuan Yew Told to Apologize

The Foreign Ministry on Tuesday (26/9/06)  summoned Singapore's ambassador 
over statements from the city state's founding father Lee Kuan Yew that 
Indonesia had "systematically marginalized" its ethnic Chinese minority. 

Yuri Thamrin, director of East Asian and Pacific affairs at the ministry, 
said ambassador Ashok Mirpuri was called in to help clear up the matter. "It's an 
old story," he said. "We are seeking clarification from the Singaporean side 
and we are still waiting for it." 

Aside from summoning Mirpuri, Imron said the Foreign Ministry also instructed 
its diplomats to seek further clarification from high-ranking officials in 
Singapore.

Lee told a forum in Singapore last week it was vital for Singapore, a  
predominantly ethnic Chinese state, to stand up to its bigger, mainly Muslim 
neighbors Indonesia and Malaysia.
 
US Report Questioned

The US intelligence assessment that Jemaah Islamiah is a growing threat to 
Australia has been questioned by regional terrorism analysts, who say the 
network barely has the capacity to project itself beyond Indonesia's borders.  

"It is nonsense to claim JI has any capacity at all to extend beyond 
Southeast Asia," said Sidney Jones, director of the International Crisis Group. "And 
it is a real question of whether it has much capacity to do serious damage 
outside Indonesia."

Even in Indonesia - where the group's operatives have been responsible for 
most big terrorist attacks, including the two Bali bombings - JI's capacity had 
been degraded by numerous arrests and the killing of master bomb-maker Azahari 
bin Husin in a shootout with police.

Other intelligence sources agreed with Jones. Police operations have 
substantially diminished the capacity of the group, although the organisation was 
likely to attempt further bombings in Indonesia, they said.

Security Pact on Track

Australia and Indonesia are expecting to sign off on a landmark security pact 
by the end of the year.

Presidential spokesman Dino Djalal predicted the pact would be signed some 
time this year. "There is now good progress ... on a bilateral treaty on 
security cooperation," he told a security conference in Canberra.

The pact will be a comprehensive framework covering areas such as maritime 
security, intelligence and natural disasters.

Djalal believes the treaty will be a significant milestone in relations 
between the two countries. "It will ... (mark) a shift in the geopolitical 
relationship between our countries," he said. "The treaty doesn't make Indonesia and 
Australia allies. But it does express our common conviction ... that the 
security of Australia and Indonesia are inter-related.

Djalal highlighted the 2002 Bali bombings and the Boxing Day 2004 tsunami as 
turning points in the relationship between the countries, saying that while it 
was driven by the leaders of both nations, Indonesians had "a lot of 
affection" for Australians.

Graft Agencies Join Forces

Three state agencies charged with combating corruption and money-laundering 
signed agreements on Monday (25/9/06) to improve their coordination in the 
fight against white-collar crime.

The agreements between the Supreme Audit Agency (BPK), the Anti-Corruption 
Commission (KPK) and the Financial Transaction Reports Analysis Center (PPATK) 
envisage increased information and personnel exchanges, and joint education, 
training and research programs. 

"These agreements will be put into effect so as to create synergies between 
these state agencies," said BPK director Anwar Nasution. "This is essential 
given that each agency has its own unique powers and capabilities."

He said the BPK only had the authority to audit state funds and that, unlike 
other institutions such as the police and the KPK, it could not conduct 
investigations. 

KPK director Taufiequrrahman Ruki expressed a similar view about the 
importance of combining forces. "Corruption and money laundering are trans-national 
crimes that have to be handled cooperatively given that they involve not only 
local agencies but also overseas ones," he said.

Ex-Fraud Chief Imprisoned

The former head of the National Police fraud squad, Brig. Gen. Samuel Ismoko, 
was sentenced to 20 months in jail for taking a bribe while investigating a 
Rp1.7 trillion scam at state-owned Bank Negara Indonesia (BNI).

Ismoko, who led the investigation, was found guilty of receiving Rp250 
million in traveller's cheques from bank executive Adrian Herling Waworuntu, one of 
the key suspects in the scandal.

Waworuntu slipped out of the country earlier this year after allegedly paying 
off Ismoko, but he later returned to face trial.

Previously, the South Jakarta District Court handed out a two-year prison 
sentence to national chief of detectives Insp Gen Suyitno Landung in the same 
case. 

Former Diplomat Imprisoned 

The Anti-Corruption Court on Friday (29/9/06) sentenced a former diplomat who 
had been posted to Malaysia to 20 months in jail for corruption and ordered 
him to pay a Rp100 million ($11,000) fine.

Judges found former consul general Erick Hikmat Setiawan guilty of corruption 
by charging illegal fees for passports and visas for Indonesians working in 
Malaysia.

Setiawan, who was posted at the Indonesian mission in Malaysia's northern 
state of Penang, from February 2004 to October 2005, had authorised an illegal 
increase in issuing passports from 120 to 140 Malaysian ringgit.

Alternatively, Setiawan charged Indonesians 220 ringgit for a quicker 
"under-the-table" passport service, the court found. 

Prosecutors, who had recommended Setiawan be jailed for three years, said the 
Penang mission had issued 29,615 passports between 2003 and 2005.

REGIONS 

Suebu in Talks with Donor Agencies

New Papua Governor Barnabas Suebu continued to push for improved development 
in his province, holding a meeting in Jayapura on Wednesday (27/9/06) with 
donor agencies on a new paradigm for infrastructure and social improvements.

The meeting was attended by representatives from the World Bank, AUSAID, the 
Asian Development Bank, a host of United Nations agencies, the Japanese and 
Canadian aid agencies and the embassies of Norway, England, Australia, the 
Netherlands and the European Union.

Suebu outlined his 'vision' that Papua should be more than a welfare 
province, the Cendrawasih Pos reported. 

His five-step program was broken down into strategy and fundamental policy, 
overall development, people-centered development, village development and 
integrated infrastructure development. 

Suebu said that one of his objectives was to overturn the 'reversed pyramid' 
of budget spending, so the money for officials became far less than for public 
infrastructure. 

"In 2007, every village will receive Rp100 million for empowerment," Suebu 
said, adding that if development begins in the villages, the rate of 
urbanization could be reduced. 

Health services, food availability, educational facilities, housing 
improvements and access to clean water were all on his list. In infrastructure, the 
government and the agencies would build 'quality' roads to harbors, airports and 
remote areas. 

Suebu said the funding agencies "positively welcomed the strategic plan." To 
follow up on the meeting, the donor agencies will meet in a working group 
together with the provincial government in order to distribute tasks of developing 
the province. 

The head of the World Bank in Indonesia, Andrew Steer, said the meeting was a 
new direction, the Australian Financial Review reported. 

No More Marijuana for Aceh: BNN 

Indonesia's Anti-Narcotics Agency (BNN) says it wants to stamp out the 
rampant cultivation of marijuana in Aceh by providing villagers with alternative 
crops. 

Co-chairman of the agency I Made Mangku Pastika said the program was an 
alternative to halt the huge drug production in the province, rather than capturing 
and seizing plantations.

He said that the United Nations Office on Drugs and Crime (UNODC) has given 
support on the plan that is to begin next year.

Experts from the UNODC based in Thailand have been in the province to observe 
the soil and to get some data of the income per capita of the residents in 
Aceh for compensation when the program begins, said Pastika.

The police have already destroyed more than 200 hectares of marijuana 
plantations this year.

BNN, in line with the member countries of the Association of the Southeast 
Asian Nations, has targeted Indonesia to be free from drugs in 2015.

ECONOMY

New Push to Rationalize Banks

As China's Industrial and Commercial Bank of China (ICBC) was reported to be 
in talks to buy an Indonesian bank, Bank Indonesia (BI) Governor Burhanuddin 
Abdullah said the central bank would introduce new regulations to encourage 
further mergers in the sector. 

He said BI expects the number of banks to shrink to a total of between 70 and 
80 by 2010 from around 130 currently, Bisnis Indonesia reported Tuesday 
(26/9/06).

Abdullah said around 50 banks are currently facing difficulties in raising 
capital and are expected to merge or be acquired by larger institutions.

The new rules would provide incentives for mergers, and rule on ways 
commercial banks should treat loans to victims of natural disasters.

"We hope to be able to issue the new regulations soon. They will be published 
in a package of new banking regulations," he said, according to Reuters.

Abdullah said on Tuesday that China's state-owned ICBC is seeking to enter 
Indonesia's bank sector, stating that the bank had signed a memorandum of 
understanding with one bank.

The chief executive of ICBC, China's largest lender by assets, confirmed last 
week at the International Monetary Fund/World Bank meetings in Singapore that 
it is seeking a stake in an Indonesian bank, Abdullah told reporters.

A spokesman for ICBC in Beijing declined to comment on any possible 
acquisition in Indonesia.

Qatar Islamic Bank (QIB) may invest $100 million to buy or set up a new bank 
in Indonesia, State Enterprises Minister Sugiharto said.

"They may prefer to open a new bank. This has already been discussed between 
them and the Indonesian central bank who advised them to open a new bank," 
said Sugiharto.

At Bank NISP, managing director Muliadi Hardja said Singapore's Overseas 
Chinese Bank Corp. (OCBC) would use NISP, in which it owns 72%, as a vehicle to 
acquire other banks and was currently composing the criteria of banks to be 
acquired. 

Commenting on Daihatsu's decision announced in August to invest a further $70 
million in Indonesia's car industry, Johannes Loman, the president director 
of PT. Daihatsu Sales Operation, a subsidiary of PT Astra International, told 
The Jakarta Post that the Japanese subsidiary of Toyota Corp. had decided to 
make Indonesia its regional production base. 

Loman said the automaker saw Indonesia as a strong prospective market in its 
self, with a long way to go to reach more developed markets in terms of market 
saturation. 

"The ratio of car ownership in Japan is now 1:1.8, meaning that every car is 
owned by 1.8 people. In Thailand it is 1:9 and in Malaysia 1:4.5. But in 
Indonesia it is still 1:35," he said.

Daihatsu has strong ambitions in Indonesia. "We hope that we can become the 
pioneer in the country's automotive industry," said Loman, adding that the 
automaker would continue to concentrate on vehicles under 1500 cc and priced 
around $15,000. 

The State Enterprises Ministry signaled more activity on privatization, 
saying the government would sell stakes in 10 companies next year. 

"About 10 state-owned companies are ready to go public, pending the approval 
of the privatization committee," secretary of the state ministry, Said Didu, 
said, according to Bisnis Indonesia.

Companies to be offered to the market were Bank Tabungan Negara, Indonesia 
Power, Jasa Marga, Wijaya Karya, Krakatau Steel subsidiary KHI Pipe Industry, 
Pembangkitan Jawa Bali, Commet Plus and Bank Syariah Mandiri.

Minister Sugiharto also announced that state gas distributor PGN and the 
Islamic Development Bank (IDB) had signed a memorandum of understanding committing 
the IDB to help finance PGN's projects.

State steelmaker PT Krakatau Steel had signed a cooperation agreement with 
Saudi Arabia's second largest steelmaker, Al Tuwarqi, for the construction of a 
steel plant in South Kalimantan.

Special envoy of the president for Middle East Alwi Shihab said at least six 
state companies have signed memorandums with counterparts from the United Arab 
Emirates, Saudi Arabia, Qatar and Kuwait.

He was commenting after it was announced that Qatar would invest some 
hundreds of millions in infrastructure projects in Indonesia. 

BUSINESS BRIEFS

MACROECONOMY

Room for October Rate Cut - BI 

Easing inflationary pressure in September will boost the likelihood of a cut 
in the benchmark Bank Indonesia (BI) one-month rate in October, central bank 
Deputy Governor Hartadi Sarwano said Monday (25/9/06).

There is room for the inflation rate to ease in September "because there are 
not big challenges in the economic situation," Sarwano was quoted as saying by 
Dow Jones Newswires.  "There's room for the Bank Indonesia rate to go down 
from this level."

BI Governor Burhanuddin Abdullah said the previous week that any movement in 
October in the benchmark rate, currently at 11.25%, would hinge on September 
consumer price index data.

The Central Bureau of Statistics will issue August trade and September CPI 
data on October 2 while BI's Board of Governors will decide on any benchmark 
rate moves at a regular monthly meeting on October 5.

Sarwano said Indonesia's macroeconomic situation is "on track" and would make 
the central bank's end-2006 on-year CPI forecast achievable.

The impact of the annual upsurge in consumer spending during the Islamic 
fasting month of Ramadhan, which began September 24, won't derail official 
inflation forecasts, he said.

"There are seasonal conditions like Ramadhan, Idul Fitri and Christmas, but 
the impact of seasonal conditions isn't big so the central bank's inflation 
target can be achieved."

Short-Term Inflows Total $7b - BI

Current short-term investment inflows into Indonesia's economy total about $7 
billion, Bank Indonesia (BI) Deputy Governor Aslim Tadjuddin said Monday 
(25/9/06).

That figure included Rp10 trillion invested in BI Certificates (SBIs), Rp56 
trillion in treasury bonds and the remainder in the country's equity markets, 
Tadjuddin was quoted as saying by Dow Jones Newswires.

President Susilo Bambang Yudhoyono cautioned in his annual budget speech in 
August that policy-makers needed to carefully manage those inflows to prevent 
"economic turbulence" created by investor sentiment swings.

Volatility resulting from a turn in investor sentiment against riskier 
emerging markets caused a 5.5% decline in the value of the rupiah to the dollar in 
May.

Meanwhile, the Finance Department sold Rp125 billion worth of treasury bonds 
at its regular debt auction with the weighted average yield coming in at 
11.3%, XFN-Asia reported on Tuesday (26/9/06).

The paper sold comes from the reopening of an earlier bond series, the 
FR0040, which matures in 2025 and carries a coupon of 11%.  It replaces two older 
T-bond series that were to mature in 2007 and 2009, treasury director Mulia 
Nasution said.

"Bids were small because the market is bearish," he said, noting that the 
bids totaled just Rp300 billion.

INVESTMENT

Govt. to Offer 17m Ha of Forest Concessions

Indonesia plans to offer some 17 million hectares of lapsed or unused forest 
concessions to investors interested in developing timber and farming estates, 
Forestry Minister MS Kaban said Thursday (28/9/06).

"We will offer nine million hectares for timber estates from forest 
concessions, which are no longer productive," he was quoted as saying by Agence 
France-Presse.

He said the move aims to boost timber production and open up more job 
opportunities, with plots to be given out for management for a period of 100 years, 
which would allow some 15 harvests of trees such as acacias.

Some Rp9.7 trillion ($1 billion) from the government's reforestation fund had 
been allocated to prepare the land on Sumatra and Sulawesi.

Institutions to manage the funds would first need to be set up and could 
start work in November, he said.  He did not give details on how the concessions 
would be determined or under what terms.

Agriculture Minister Anton Apriyantono, speaking on the same occasion, said 
the government is also preparing 8.2 million hectares of land for plantations 
and agriculture, particularly for palm oil and sugar cane.  He said the land 
had been cleared some time ago.

The head of the land registry agency, Joyo Winoto, said that about three 
million hectares would be allotted for palm oil.

Bakrie to Build Infrastructure Projects

Publicly listed steel pipe maker PT Bakrie & Brothers said it will set aside 
$4.81 billion to finance nine infrastructure projects it hopes to build until 
2010.

Three of the nine projects are toll road projects in Java, which will cost 
$810 million and will be offered in the Infrastructure Summit in November, 
company secretary Juliandus Tobing said, according to Antara.

The three toll road projects are Kunciran-Serpong, to cost $190 million; 
Cimanggis-Cibitung, $340 million, and Serpong-Cinere at $280 million, Tobing said.

Bakrie & Brothers has already been awarded the Tanjung Jati A power project, 
to cost $1.4 billion and a gas pipeline project spanning the sea between East 
Kalimantan and Central Java, to cost $1.26 billion.

-End 1 of 2-

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Joyo Indonesia News Service
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