Indonesia's complex Issues in a Nutshell
By: Ms. Wuryastuti Sunario
Published by: TBSC-Strategic Communication
No.: 15.06 - Dated: 14 May 2006
We wish all our Buddhist readers Peace and Happiness at Vesak Day
In this issue:
MAIN FEATURE:
ECONOMIC MACRO INDICATORS UP, SO WHY ARE PEOPLE'S INCOMES DOWN?
NEWS AND BACKGROUND:
1. Tourism and Transportation
Yogyakarta to attract Middle East tourists flying via Malaysia
Misinformation to cost Asia tourism billions, says PATA-Visa Study
INACA calls to Limit Foreign Shares in Domestic Airline companies
2. Health, Culture and the Environment
Indonesia still awaits pledged funds in fight against Avian Flu
3. The Economy, Trade and Industry
Bill on Regional Taxes limits levies raised for Regional Revenue
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MAIN FEATURE:
ECONOMIC MACRO INDICATORS UP, SO WHY ARE PEOPLE'S INCOMES DOWN?
Indonesia's macro economy has grown impressively. The Rupiah has
strengthened from over Rp. 9,500 to the US Dollar and - defiying the odds -
the Rupiah today stands at Rp. 8,735 to the US Dollar. Meantime, the Jakarta
Stock Exchange Index has broken two psychological barriers, first the 1,400
index, and today it has passed the second barrier of 1,500 to reach
1,532.62, proving that foreign investors have restored confidence in
Indonesia as they invest in Jakarta stocks. Several days ago Bank Indonesia
decided to lower interest rate with 25 base points from 12.75% to 12.5%,
while the Inflation rate is also slowly declining.
On the other hand, Coordinating Minister for the Economy, Boediono, conceded
that this year the country counts an addition of 1.9 million unemployed,
whereas the government estimates that only 1.4 million jobs will be
available, thus leaving a deficit of half a million people jobless. While,
economic analyst, Didik Rachbini, says that accumulatively, there are
already 10 million people in open unemployment, not yet counting disguised
unemployment.
Meanwhile, the total number of poor has increased from 36 million to 40
million.
Sample surveys made by LSI, Kompas, and other research institutions have
shown that economic conditions of the people are declining. Although
sampling was done based on a limited number of people, yet these findings
are reliable and are representative of general conditions felt overall by
the public. These surveys further indicate that the general public is far
from satisfied with present economic conditions, which are mostly caused
through lack of employment and a drop in purchasing power, says Didik
Rachbini in his article in the Kompas daily of 11 May entitled : " Macro
Positive, but Micro Problematic".
Data of the last two years have shown that problems related to unemployment
have increased. Many who were once employed have now been thrown into the
informal sector, which is less productive and offer minimal returns. This
dismal situation has again resulted in an increase in the number of poor
people. This fact again reveals that collective efforts made so far towards
democratization of the country have yet to solve the problems of poverty.
Public purchasing power has also declined significantly, caused by
government's decision to increase fuel prices with 100% in December of last
year, resulting in double digit inflation. Nonetheless, although inflation
has been controlled, today the public is again faced with soaring world oil
prices.
For the above reasons, the gap between Indonesia's relatively bullish macro
economic conditions on the one hand, and worsening micro-economic conditions
on the other, is widening. Which is surprising, since theories mention that
improved macro indicators are initial indicators to a stabilizing economy.
This in turn should raise micro economic conditions. However, this is not
happening in Indonesia today, says Rachbini, because economic institutions
are malfunctioning, involving the banking system, large corporations, the
bureacracy involved, and others.
Additionally, the high interest rate that has been maintained for months by
the Central Bank has indeed attracted foreign investors, but has stifled the
growth of corporations to increase production. This means that the
government has opted to attract foreign investors over and above
strengthening of the productive sector. Nonetheless, since investments into
the Stock Exchange are for the majority in short term portfolios that can be
transferred elsewhere within minutes, this may result in an economic
upheaval. Such a situation had caused the collapse of Indonesia's economic
crisis in 1997.
To complete this dismal picture, continues Rachbini, government spending
that was planned to fuel and boost circulation of money into the economy,
has not been effective. In 2005, until the end of the fiscal year,
government agencies had succeeded to spend only two-thirds of available
budgets. While, in the first quarter of 2006, agencies have spent only 15% -
17% of the targeted 25% budgets available. Finance Minister, Sri Mulyani
complains that despite the fact that the government has made funds
available, yet government agencies as well as the private sector are unable
to implement planned projects in their determined timeframes. This means
that there must be major drawbacks in implementing projects.
One major reason surmised is that, as corruption probes intensefy, both at
national and regional levels, officials are reluctant to be appointed
project directors lest they will be dragged into corruption cases.
In order to reduce the gap between macro and micro conditions, therefore,
Didik Rachbini recommends a number of actions. These are, firstly, the
macro-economic policy in the financial sector must be maintained to remain
conducive. This includes the continued strengthening of the Rupiah exchange
rate, and reducing bank interest rates to be more favourable to the private
sector. Banks should also increase loans to the business sector, especially
to the production sector, while maintaining prudence, since increased
production will allow increased employment. Positive developments in the
stock exchange should also be maintained, while limiting sudden capital
outflows.
Secondly, the government must devise policies that will reduce unemployment
and poverty. Indirectly this can be done through the creation of a more
conducive business climate, more attractive investments policies, a more
progressive export policy, and improved public purchasing power through
productive businesses. Meanwhile, the labour issue should be settled soon
through the tripartite approach in order to break the present impasse.
Thirdly, with increased poverty, the government should create programs and
policies that are pro poor. This can be done through direct spending from
the Budget, and indirectly through policies and growth.
Fourthly, the implementation of programs funded by the national budget must
be accelerated and become more effective in their implementation.
Fifth, there must be a more effective economic leadership in the cabinet to
coordinate the various government departments, while State Enterprises
should be strengthened to boost investments and add revenues to the national
budget.
(Source: Kompas daily 11/05/06) (Tuti Sunario)
--------------------------------------------------------------
NEWS AND BACKGROUND:
Tourism and Transportation
Yogyakarta to attract Middle East tourists flying via Malaysia
The Special Region of Yogyakarta on Java is confident that it can attract
tourists from the Middle East, having recently attended two travel
exhibitions there, namely the Indonesia Tourism Exhibition in Jeddah, Saudi
Arabia from 26-29 April, and the Arabian Travel Mart at the Dubai World
Trade Centre last month.
Attractions Yogyakarta can ofer to the Middle East Market are, among others,
the Amanjiwo overlooking the ancient monument of Borobudur, the Cangkringan
Resort, the Rumah Sleman, the Tosari plantations at Ambarawa and at Tlogo,
or the Wind of the South resort at Parangtritis which has a magnificent view
of the Indonesian Ocean.
Director of Grand Java Tour & Travel, Anny Yulianti, informed that Arab
tourists and their tour operators are looking for new destinations where
they can bring the whole family on holiday. This market wants a destination
with a cool climate, beautiful scenic, lush green panoramas, where resorts
must be equipped with recreation facilities for children, or with theme
parks.
For this purpose, Yogyakarta plans to take optimum advantage of the direct
Kuala Lumpur-Yogyakarta flights, since Malaysia already attracts large
numbers of tourists from the Middle East, says Yulianti.
ยท Misinformation to cost Asia tourism billions, says PATA-Visa Study
Tourism in Asia may lose billions this year due to misconceptions on
travelers' safety, a report released by Pacific Asia Travel Association
(PATA) and VISA International has revealed, says E-TurboNews. The PATA
report claims that despite visitors willing to visit Asia, Asia stands to
lose billions in tourism revenue because of wrong information on travelers'
safety.
The report, named the Asia Travel Intentions Survey 2006, is based on a
survey on the attitudes of potential travelers to Asia from 10 key markets -
Australia, Canada, China, France, Germany, Japan, Korea, Sweden, the UK and
the US.
Travelers voiced their concern over safety, with 1 in 5 being misinformed
about locations where terrorist attacks have occurred. Two-thirds of
respondents say they are less likely to visit Asia if their government
issues travel warnings.
Almost 60 percent say terrorism fears and negative media reports would
discourage them from traveling to Asia. 80% of those considering Asia as a
destination say there is a 50 % chance of them returning. While 43% of
individual travelers interviewed are considering Asia as a holiday
destination.
Therefore, Potential travelers need urgent and accurate access to
information, the AC Nielsen-conducted study concluded.
INACA calls to Limit Foreign Shares in Domestic Airline companies
Allowing foreign companies to own 49% shares in Indonesia's domestic airline
companies as specified in Indonesia's Foreign Investment Law, makes
Indonesia more liberal than even America, says Tengku Burhanuddin, Secretary
General of INACA (the Indonesia National Air Carriers Association) recently
to Bisnis Indonesia. The USA limits foreign ownership on airlines to 10%
only.
There are also no foreign shares in China's airlines, while Singapore's low
cost airlines, Tiger Air and SilkAir are, in fact, subsidiaries of Singapore
Airlines.
Although Indonesia has agreed to an open sky policy within a few years, the
fact remains that a foreign company, owning near half of a domestic
airline's
shares, is now already operating Indonesian domestic routes. This means that
air transportation liberalization has, in fact, already begun in Indonesia.
Tengku Burhanuddin was referring to the control of Malaysia's Air Asia into
Indonesia's once-called AWAIR, whose name has now been changed to Indonesia
Air Asia. (See Indonesia Digest 44.05 dated 22/12/2005)
If major shares are given to airlines serving international routes from and
into Indonesia, then this is a different matter, since they will be
responsible for bringing passengers and tourists into the country.
In the past five years, Indonesia's home-grown airlines have, through our
own efforts multiplied passenger loads from 6 million to 30 million without
any foreign assistance. And until today, Indonesia's airlines are still able
to serve the domestic market. Therefore, to be fair, and to protect domestic
airlines for its hard work, the government should ideally limit foreign
shares in Indonesia's airlines to a maximum of 10 percent only, says Tengku
Burhanuddin.
Health, Culture and the Environment
Indonesia awaits pledged funds to fight Avian Flu
Indonesia is still waiting for funds that were pledged by international
donors to support the country to combat Avian Flu, said Coordinating
Minister for Social Welfare in Jakarta recently. $1.9 billion was promised
by donors at a conference in Beijing last January. To date nothing has been
received by the government.
Since the death of the first victims in Jakarta in 2003, Avian flu has
killed 25 people in Indonesia. The Indonesian government, in particular the
Health Department has spared no efforts to contain the spread of the disease
by scouring villages door to door, urging the public to live in hygienic
surroundings, and avoid handling affected poultry, it has, on the other hand
also limited public fears from eating chicken and other poultry, as long as
these are well cooked. Indonesia has also imported doses of Tamiflu and is
working with international companies to produce Tamiflu as well as anti-bird
flu serum.
Nonetheless, in an archipelago of more than 17,000 islands and a population
of over 200 million spread across the archipelago, bird flu remains a
threat, since the government lacks the necessary funds and resources to
effectively deal with the virus. Indonesia needs $300 million a year to
fight the spread of the H5N1 avian influenza virus in the vast country,
remarked Minister Bakrie. He said this during a handover of a part of the
500,000 Tamiflu treatment courses promised by Japan to the Association of
South East Asian Nations (ASEAN), stockpiled in Singapore.
At the same event, the World Health Organisation's Western Pacific director,
Shigeru Omi, said that culling of affected chickens was absolutely
necessary. "This is a minimal requirement. Necessary but not sufficient,
particularly if the virus is already entrenched," he said. Indonesia has
resisted mass culling of birds, citing lack of compensation funds and the
impracticality of it in a country where keeping chickens or ducks in
backyards is common.
"We cannot just cull all birds which are infected or close to being
infected without giving them something," said Bakrie. Culling at selective
farms and their immediate surroundings has been the preferred method in
Indonesia, where the H5N1 virus has been reported in birds in most of 33
provinces.The world's fourth most populous country has around one billion
chickens with 30 percent of them living at backyards, reports Reuters.
WHO data reveal that in 2006 Indonesia has reported the most cases and
deaths from avian flu. This year alone Indonesia has had 16 cases with 14
deaths. Egypt has reported 13 cases and 5 deaths, Turkey 12 and 4, and China
10 and 7.
Since the H5N1 virus began spreading widely in 2003, only Vietnam has had
more cases and deaths than Indonesia.
Shigeru Omi, MD, PhD, recently singled out Indonesia and China for
inadequate responses to avian flu. According to a May 6 AFP report, Omi
said, "When it comes to the political commitment or engagement at the
district level, some countries, like Indonesia, certainly, are [doing] less
than what the central government wanted to have, and this is also the case
in China."
Omi, making his remarks at a Vietnam meeting with agriculture and health
ministers representing 21 Asian and Pacific nations, said China has worked
hard at the national and regional levels, but has "room for improvement" at
the provincial district level and below.
AFP last month quoted Bernard Vallat, DVM, director general of the World
Organization for Animal Health (OIE), as calling Indonesia a "time-bomb for
the region" because of its failure to eradicate H5N1 from numerous locales.
Omi urged all nations to report avian flu cases and take other steps much
more quickly to avert or slow a pandemic. He said countries often fail to
report cases fast enough.
The Economy, Trade and Industry:
Bill on Regional Taxes limits levies raised for Regional Revenue
The Bill on Regional Taxes and Dues that will replace the previous Law no.
34 dated year 2000 on the subject will specify 14 tax items authorized to be
raised by Regional Governments, - meaning Districts and Towns, - as well as
their maximum allowable rates. Additional taxes to become regional revenues
include the new environment tax and an enrivonment excise. Taxes on motor
vehicles, including on vehicles owned by national and local government
agencies, will also become revenues for the Regions, clarified Official in
charge at the Department of Finance, Anggito Abimanyu. This measure is meant
to limit the scope of livies made by regions, which lately have become very
"creative" and aggressive in applying all sorts of taxes for the purpose of
increasing regional revenue.
The taxes granted to Autonomous Regions (Daerah) are:
(1) hotel tax at 10%; (2) Restaurant tax at 10%;
(3) entertainment tax at between 35% - 75% maximum (see Indonesia Digest
14.06);
(4) Advertising tax at 25%; (5) street lighting at 1.5% - 10%; (6) tax on
mining of C group materials at 25%. (7) parking tax at 20% (8) underground
water at 20%;
(9) tax on edible birdsnest at 10%; (10) environment tax at 0.5% of
turnover; (10) tax on motor vehicles at 1% - 2%; (11) tax on change of
ownership 1%-10%; (12) tax on surface water at 10%; and (12) tax on fuel for
motor vehicles at 5%.
Anggito further explains that environment excise is applied on industries
that pollute the environment, whereas environment tax is collected to be
returned as investments in the environment where the industry operates.
Manufacturing companies with a turnover of below Rp. 300 million per year
will be waived such environment tax. This tax should also not be confused
with reforestation funds. Reforestation fund is collected from the industry
direct, and will be included in the national budget as non-tax revenue.
(Source: Kompas)
In immediate response to this disclosure, the Indonesian Chamber of
Commerce, KADIN, vehemently protested the proposed environment tax on
industry, citing that the government was taking the easy way out to resolve
the problem of the innumerable illegal levies already borne by the the
private sector. These measures will also not solve the discontent regarding
the split in sharing revenue between the national government and the
regions. Instead, the government now plans to shift the burden to the
consumer and the general public. The business sector foresees that the 0.5%
environment tax on turnover will, in fact, not be used to improve the actual
environment. Should the government insist to continue on this point, then
KADIN will not hesitate to bring the Act for review in the Constitutional
Court.
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