INDONESIA DIGEST Indonesia's complex Issues in a Nutshell By Ms. : Wuryastuti Sunario Published by: TBSC-Strategic Communication No.: 09.07 - Dated: 31 March 2007 In this issue:
MAIN FEATURE: IN 2008 INDONESIA TARGETS 6.8% ECONOMIC GROWTH NEWS AND BACKGROUND: 1. Tourism and Transportation: Tourism must Innovate, says President SBY Indonesian Airports limit passengers carry Liquids, Aerosols and Gels in Plane Cabins 2. Culture and the Environment: Jakarta's 3 Divas mesmerize Kuala Lumpur 3. The Economy, Trade and Industry Bank Indonesia: Bali's Economy must not depend solely on Tourism 4. Legislation and Good Governance: Parliament enacts Bill on National Disasters Management ------------------------------------------------------------------------------- MAIN FEATURE: IN 2008 INDONESIA TARGETS 6.8% ECONOMIC GROWTH For 2008 next year, Indonesia assumes an economic growth target of 6.8% and a Budget deficit of 1.7% of GDP said Finance Minister, Sri Mulyani, announcing the Government's Work plan for 2008 at a recent press conference. The target, which had been decided by President SBY at an enlarged plenary cabinet meeting, is above the earlier predicted growth of 6.5% maximum, said Minister Mulyani. To achieve the accelerated target, household consumption must increase by 5.9%, government spending by 6.2%, investments by 15.5%, exports by 12.7%, and imports by 17.8%, Minister Mulyani continued. Three factors that are estimated to impact on growth are: firstly, the expected positive global economic trend that will affect development sectors such as infrastructure, import-exports, and in particular mining and agricultural production. Secondly, domestically, national disasters may adversely impact on government capacity to realize the accelerated development of infrastructure. And thirdly, there is the issue of oil prices and the price of other commodities. The price of oil is estimated at between US$ 55 to US$ 60 per barrel. In 2007, however, the government's budget deficit is expected to expand from 1.1% of GDP (or Rp. 40.5 trillion) to between 1.2% to 2% (or an estimated Rp. 60 trillion to Rp. 65 trillion), whereas government's revenue is expected to reach Rp. 723.1 trillion, and government spending Rp. 763.6 trillion. This increase was caused by added government spending to assist and recover from the many natural disasters, as well as the increased payments on subsidies carried over from last year. Over the past three years, spending by government agencies has continuously increased, and it is hoped that with increased government spending this will accelerate economic growth, reported Bisnis Indonesia. Unequal growth between Java and other islands; Growth Quality must be improved Meanwhile, Bank Indonesia Economic Report for 2006 showed that economic activities on Java, Bali and Nusa Tenggara are far surpassing those of other islands including Sumatra, Kalimantan, Sulawesi, Maluku and Papua, wrote Kompas daily. The 6.42% growth of the provinces of Jakarta and Banten, for example, exceeds the average 5.5% national growth. In contrast, growth in Sumatra was 4.57%, which is below the national average. This accentuates the fact that there is an ever widening gap between rich and poor provinces, said Mudrajad Kuncoro, economist at the University of Gajah Mada inYogyakarta. Indonesia's economic growth remains unequal and tends to be dominated by the richer provinces. Regional autonomy which came into force in 2001 has apparently not contributed much to equalizing development in regions, he said. The poor quality of economic growth can also be seen when comparing unemployment among regions, which confirms that macro economic growth today still has little impact on employment opportunities. The unemployment rate on Java, Bali and Nusa Tenggara, increased from 9.6% in 2005 to 9.7% in 2006. Similarly, unemployment rate on Sulawesi, Maluku and Papua went up from 9.4% in 2005 to 9.7% in 2006. There is also a widening gap between modern and traditional industries. While capital intensive industries grew faster than labour-intensive industries, which is one of the reasons for the poor absorption of unemployment. Gorontalo Governor, Fadel Muhammad, on his part added that there is still a lack of synchronization between national policies vis-à-vis provincial policies, where often local policies conflict with national bureaucratic rules. Fadel Muhammad, therefore, suggests that provinces take three innovative steps. These are firstly, innovate structure and organizational behaviour. Secondly reduce bureaucratic red tape, and thirdly innovate the decision making process. On the other hand, Bank Indonesia Governor, Burhanuddin Abdullah, was of the opinion that in order to create quality in economic growth, there needs to be quality in investment, meaning the accelerated investments that result from wider access that are open to all economic stakeholders in order to support capital formation in the productive sectors. To reach such quality is required a conducive investment climate which is open and based on a market system that promotes competitiveness. This also requires systematic policies which push national transformation in the economic structure, in asset ownership and production tools that are more widely spread out. To attract quality investments, conducive industrial relations are also required that are not anti-labour, but are instead focused on production and distribution activities to meet domestic market demand. Consumer Spending drives growth; Investments in Infrastructure top priority Separately, further explaining the targets for 2008, Anggito Abimanyu, Head of Fiscal Policies, explained that Indonesia's GDP in 2008 is expected to reach the level of Rp. 4,200 trillion. In efforts to reach this level, the government must solve two critical problems, which are consumer demand and increased investments. Consumer spending which is expected to reach 60% will be the strongest driver, helped by fiscal policies. And in line with consumer spending, the government has prepared a number of programs to improve the real income of the people while at the same time reduce poverty levels. While, from the monetary side, the government will reduce interest rates and curb inflation. This is important, since with controlled prices and improved real income, consumers will spend more, while government earnings will also increase with increased economic activity. On the side of investments, the government has increased spending on infrastructure, in particular through the Department of Public Works and the Department of Communications. Investments are also pushed through public-private partnerships in infrastructure projects, such as in the construction of power plants, roads, airports and seaports. With increased investments, there will be accelerated activity which opens up employment opportunities. For this reason, the government has allocated a significant budget for infrastructure development, said Anggito, as reported by Media Indonesia on Line. To accelerate economic growth to 6.8% in 2008, Anggito continued, the government needs investments of more than Rp. 1,000 trillion, which is more than the requirement set for this year. Recently, Finance Minister, Sri Mulyani mentioned that in order to reach 6.3% growth in 2007, investments must increase by 12.3% through gross investments valued at Rp. 989 trillion. Such growth is necessary since investments in 2006 grew by 2.9% only. Therefore, the programs that are made through the government Departments are aimed to push industrial development, while the government also shares risks with the private sector. In addition, exports will increase quite reasonably this year, despite the fact the price of natural commodities that are Indonesia's chief export commodities, will not continue to increase in world markets. On the other hand, when prices are pressed down, then volumes will increase. This will include commodities such as CPO (crude palm oil), textile and textile products, electronic goods. Prospects of textiles and textile products should remain good, as a result many restructuring programs, while the market is still wide open. This, and improved competitiveness of Indonesia's products should push Indonesia's economy on a continued upward path, considering also that Parliament has recently passed the Law on Investments, while the Bill on Taxes should be passed soon. There is also government's focus on particular industries, and the continued slide in prices of basic commodities should support above growth expectations. Export value of Indonesia's commodities should therefore also be better than today. These measures, together with improved bank loans, direct investments or through the stock market, will become sources of investments for projects that are already in the pipeline, which should, therefore, be able to boost economic growth to 6.8% in 2008, Anggito said. Media Indonesia further noted that Indonesia's GDP in 2006 was Rp. 3,338.2 trillion, while in the 2007 Budget, Indonesia's GDP was said to reach Rp. 3,531.1 trillion. (Sources: Bisnis Indonesia, Kompas, Media Indonesia) (Tuti Sunario) ---------------------------------------------------------- NEWS AND BACKGROUND: 1. Tourism and Transportation: Tourism must step up its Contribution to the Economy, says President SBY Delivering his opening address at the start of the Tourism National Coordination Meeting recently, President Yudhoyono urged the Department of Culture and Tourism and all tourism stakeholders to be more creative and more innovative. The many Indonesian tourism potentials that Indonesia possesses must be maximized, the President said. For at the present moment the President deems that Indonesian Tourism is not yet comprehensively and concretely planned and implemented. Even Indonesia's volcanoes and "ring of fire", the mud-volcanoes, and other geological phenomena can be developed as tourist attractions, the President mentioned, as reported in Bisnis Indonesia. Further President Yudhoyono urged that Tourism become one of Indonesia's chief economic contributors, as in similar fashion tourism contributes significantly to the economies of the United States, Europe and China. Tourism officials in the Department should take lessons from these countries on how they have successfully developed their tourism sector to support their respective economies. In addition to accelerating the number of foreign arrivals from an expected 5.25 million to 6 million this year, the Department of Culture and Tourism now also plans to accelerate its target for domestic tourism from 115.4 million in 2006 to 118 million in 2007. In 2005, there were and estimated 112 million domestic tourists making 213.3 million visits, spending Rp. 77.51 trillion. In 2006 this number was estimated to have increased to 216.5 million visits with Rp. 78.6 trillion spent. While the target for 2007 spent is up to reach Rp. 80 trillion, said Domestic Promotion Director, Titien Soekarya, as reported by Antara and quoted by Media Indonesia. Indonesian Airports limit passengers carry Liquids, Aerosols and Gels in Plane Cabins Effective midnight 31 March, Indonesian airports enforced rulings limiting passengers to carry Liquids, Aerosols and Gels (LAG) as carry-on luggage in plane cabins. This include perfumes, hairspray, thinners, ethanol and similar. Announced on Television just a few days before, the new rules surprised a number of passengers. A foreign tourist who wished to carry a bottle of mineral water into the plane at Bali protested to the new rule, but finally gulped down his drink in front of airport officials. In compliance with the new ICAO ruling which strictly limits LAG's to be carried into the plane, passengers are allowed a maximum of one (1) liter of liquids, which must be carried in a transparent plastic bag. The rule is enforced to minimize terrorist attempts which may use LAG's as medium. Airport authorities added, however, that baby's milk and food, and a limited amount of medicines may be carried on board. While this ruling applies as of immediately on international flights, this is not yet applied to domestic flights, since this needs more socializing to be understood and accepted by domestic passengers. On the other hand, Garuda spokesman said that the airline had applied the ruling on Japan flights since early March, since Japan enforced the ruling already in March. Earlier, new Director General for Air Transportation, Budhi Muiawan Suyitno, admitted that the TSA (Transportation Security Administration) of the United States, had given full security rating to Bali's Ngurah Rai Airport only, having audited all of Indonesia's 25 international airports. This includes Jakarta's Soekarno-Hatta airport which TSA deems not to have fulfilled all safety requirements. Meanwhile, Air Services Australia has offered strategic cooperation with Indonesia to accelerate improvement of air safety infrastructure through a single air traffic control (ATC) and the application of an automatic dependent surveillance broadcast (ADSB) to replace the radar system reports Bisnis Indonesia. Erenzt Joseph of Ernst and Young, the company that has been appointed by ASA said that the draft offer has been submitted to the PT Angkasa Pura I and II for study, while the offer has also been discussed with Vice President Jusuf Kalla, said Erenzt Joseph. It is foreseen that the cooperation between ASA and the government of Indonesia will accelerate improvement of air safety infrastructure in Indonesia to become more efficient, since air safety is not solely the responsibility of one country but also that of the entire region. ASA assessed that the largest part of Indonesia's air safety infrastructure is already outdated, both technologically as well as in human resources capabilities. For this reason, plans are afoot to exchange personnel between ASA and Indonesia's Angkasa Pura. In addition, ASA also offers the development of ADSB travel to replace the radar system since radar is relatively more expensive. 2. Culture and the Environment: Jakarta's 3 Divas mesmerize Kuala Lumpur "Fantastic. Spectacular!" These were words expressed by Malaysia's former Prime Minister, Mahathir Muhammad as well as Malaysia's own Diva, Siti Nurhalizah praising the concert they had just attended at the Bukit Jalil Stadium in Kuala Lumpur recently, which featured Indonesia's top three divas: Krisdayanti, Titi DJ and Ruth Sahanaya. That evening, the three Indonesian singers enthralled Malaysia's audience comprising more than 6,000 who packed the Bukit Jalil Stadium, entertaining them for a full two and a half hours. And indeed, the Indonesian artists gave it their all. For no less than 100 musicians and stage crew were flown to K.L. to "transport Jakarta's electric musical atmosphere to the Malaysian capital". There was top music arranger Erwin Gutawa and artistic arranger Jay Subyakto. Jeffry Waworuntu, who is also husband of Ruth Sahanaya, was co-promotor. All Indonesian artists and the three divas had given their very best to win the hearts of the Kuala Lumpur audience, - and succeed they did, reported Kompas daily. Among the VIP audience were seen brother of Sultan Bolkiah of Brunei Darussalam, Malaysian cabinet ministers as well as Malaysian singer Sheila Majid. This grand performance was organized by Malaysian promoter Pineapple Concerts owned by Razlan Tan Sri Ahmad Razali, reported Kompas. 3. The Economy, Trade and Industry Bank Indonesia: Bali's Economy must not depend solely on Tourism Head of Bank Indonesia in Bali, Ketut Sanjaya told a recent discussion forum on Bali's Economic growth in 2007, that the island province should not solely and continuously depend on Tourism alone to boost its economy, reports Kompas daily. It has been proven that tourism is very sensitive to and is adversely impacted by issues such as safety and security. For this reason, Bali must push an alternative priority sector besides tourism to boost the island's economy, which can, among others, be the agricultural sector, said Sanjaya. The provincial government must study the ups and downs of the tourism sector, and consider options whether this sector can still be boosted further, or whether indeed this sector has reached its maturity. In this case, other sectors must be sought to improve district economies, which may be in agriculture or services. In the aftermath of the two Bali bombings, Bali's economy in 2006 grew by 5.27% only, which declined from 5.56% in 2005m said Sanjaya. The main reason being the decline in trade, hotel and restaurant demand that are the main growth pillars of Bali's economy. In 2006, the number of international tourist arrivals was down 9.1% compared to 2005: from 1.26 million to 1.38 million. This slide immediately impacted on related and processing industries that support the tourism sector. The industrial sector also slowed down by 4.36% as a result of weakening local buying power. Before this, many experts on the environment have already warned that Bali has exceeded its carrying capacity to cater to increased tourism demands. 4. Legislation and Good Governance: Parliament enacts Bill on National Disasters Management Among a number of Bills that were passed by Parliament in Q1 of 2007 is the Bill on the Management of National Disasters. One of the major points in the Law is the formation of the National Board for National Disasters Management, which will have the position at a level with Ministries, and is directly accountable to the President, said Chairperson of Parliament's Working Group, Aisyah Badowi. With this position, The Board will possess executing powers from national level down to the regions. The Board will comprise three main elements, namely the Board of Control, the Executive Board, and the Steering Committee. All three Boards will work in an integrated manner, pre-disasters, at time of disasters and post-disasters. Meanwhile, spokesperson for the PPP party, Andi Ghalib said that it is high time that Indonesia has a permanent Board in charge of national disasters, such as owned by Japan, considering that Indonesia has suffered so many disasters in the past years. While spokesman for FKB party Ilyas Siradj was of the opinion that the government must allocate a special operational budget for the Board, which must be fully entrusted to the Board, without having to pass the normal bureaucratic financial procedures. With the formation of the National Board on National Disasters, the existing organization of Bakornas at national level and the Satkorlak at regional level will be closed, as will be the Aceh Reconstruction Agency, BRR. For your comments or further inquiries, please e-mail to: [EMAIL PROTECTED]
