Indonesia Clippings: OPIC Signs New Investment Agreement with Indonesia

OPIC Signs New Investment Agreement with Indonesia, April 19
IN THIS UPDATE:
  • Recent Council Activities
  • Susno Update
  • Defense & Security
  • Economy
  • Energy
  • Finance
  • Food & Agriculture
  • Infrastructure
  • U.S. Relations
  • Politics
  • Other

Looking Ahead...
The Council will be hosting a lunch for Minister Armida Alisjahbana from Bappenas on April 23rd. For more information, please contact Mike Orgill at morgill@usasean.org.

Dr. Donald Emmerson will be visiting the Council to informally discuss ASEAN regionalism and Indonesia on Tuesday, April 20, at 4pm. For more information, please contact Mike Orgill at morgill@usasean.org.

Minister Mari Pangestu will be visiting Seattle, Washington on May 3 and Washington, D.C. on May 5 as part of the ASEAN Trade Minister's Roadshow, which is being arranged by the US-ASEAN Business Council and USTR. For more information, please contact Marc Mealy at mmealy@usasean.org.

The US-ASEAN Business Council is in the process of redoing its Indonesia mailing list.  If you have colleagues that did not receive this email or if these emails should be directed to someone else in your company, please contact Mike Orgill at morgill@usasean.org.  

Recent Council Activities

Council members met with Ambassador Cameron Hume on April 7th in Washington. The Ambassador provided insight into the efforts of the U.S. Government in the run-up to the planned March Presidential visit and the prospects for the upcoming Presidential visit this June.

The US-ASEAN Business Council and USINDO jointly hosted a business roundtable with Vice President Boediono, Gita Wirjawan and other officials. Boediono outlined the three priorities for Indonesia: 1) Infrastructure; 2) Investment Climate and 3) Social Programs such as Health, Education and Water supply. Gita announced that the discussions on the Negative List have been finalized and that it will be released to businesses once the President has signed it. Prior to the roundtable discussion, the US and Indonesia signed a new agreement with OPIC that updates a 1967 pact between the United States and Indonesia by adding OPIC products such as direct loans, coinsurance and reinsurance to the means of OPIC support which U.S. companies may use to invest in Indonesia.

Susno Update

Susno Duadji, the former head of Indonesian National Police's Crime Investigation Agency (Bareskrim), has been naming and shaming officials involved in high level corruption ever since his resignation amidst of accusations of his own involvement in several high profile corruption cases. He accused numerous policeand tax officers of taking bribes from graft suspects, including from former tax official Gayus Tambunan. Gayus, a mid-level tax official, was found with more than $3.1 million in his bank account. Gayus was caught in Singapore and is now being questioned in Jakarta.

The Susno-police spat has consumed much of the media's attention since the Bank Century debacle fizzled out about a month ago. A number of high level officials, particularly those with tax responsibilities, have stepped down since Susno began naming names.

President SBY has urged the KPK to go after "the big fish" involved in corruption. Sri Mulyani has ordered that the private incomes of tax officials be audited in an effort to root out corruption from within the Ministry of Finance.

Defense & Security

Indonesia, United States To Conduct 'Cope West 10' Exercise, Bernama, April 19
The United States and Indonesia are scheduled to conduct a joint military exercise dubbed "Cope West 10" at the Halim Perdanakusuma Air Base in eastern Jakarta, beginning on Monday (April 19) to April 23, 2010. "Three US Air Force C-130 Hercules and approximately 77 airmen from the 374th Airlift Wing at Yokota Air Base, Japan, and one C-130 from the Indonesia Air Force are scheduled to participate in exercise Cope West 10," Indonesia's Antara news agency cited a press statement from the US embassy here as saying on Monday.

Economy

BPS Estimate April Deflation, Antara, April 19
The head of the Central Statistics Agency (BPS) Rusman Heriawan predict that in April of this possibility of deflation will occur, and although inflation is still low in numbers. "We see the left-right is still sufficient, which means that deflation could still occur but thinner and thinner if any inflation, because it seems there is still a trend decline in the price of rice and some basic materials," he said when met in a working meeting at the Presidential Palace Looks Siring, Bali, Monday . According to him, in case of inflation, a positive number which occurs only around 0.25 per cent and in case of deflation numbers that occurred in the range 0.1 to 0.2 percent.

SBY opens retreat on economic strategy, The Jakarta Post, April 19
President Susilo Bambang Yudhoyono opened a meeting to formulate a strategy to attain ambitious economic goals for the next four years. The "retreat" practically moved the seat of government for the next three days to this lush presidential palace in this hill village. Until its conclusion Wednesday the president, vice president and the entire membes of the Cabinet, will be here to brainstorm a new strategy with other stakeholders, including provincial governors, chair of provinicial legislative councils, business leaders and academics.

Stronger rupiah could hurt exports: Analysts, Jakarta Post, April 9
While the fast appreciation of rupiah against the US dollar will make imported products cheaper, analysts have warned that “too strong” rupiah would hurt Indonesia’s exports. The appreciation of the rupiah against the greenback may lead to danger signals for Indonesia’s exports if it stays stronger than Rp 9,000 to the dollar, analysts say. “A too strong rupiah will eventually undermine exports because our exports will be less competitive,” state lender Bank Negara Indonesia chief economist Tony Prasetiantono told The Jakarta Post on Thursday. He said the rupiah should be ideally maintained at about Rp 9,000 to the dollar because if it strengthens further, that is below Rp 9,000 to the dollar, it could result in negative impacts on Indonesia’s exports.

Hatta: Investment and Exports Should be Performance Driven, Antara, April 10
Coordinating Minister Hatta Rajasa said the investment climate and export performance should be enhanced to support economic growth. "The expected growth of 5.5 percent in 2010 quite conservative and moderate, (it) is not too high and have the potential to grow large, for that we continue to encourage investment and export performance," he said in a workshop discussion forums reporters in Bandung, Saturday. According to him, investment and export performance related to three main issues namely, first, improvement of infrastructure, because if not quickly realized, would give a big impact on industrial performance and exports.

Energy

Pertamina buys 200,000 barrels of crude per day from Aramco, Antara, April 19
State oil and gas company PT Pertamina is considering buying 200,000 barrels of crude per day from a Saudi Arabian counterpart, Saudi Aramco. Pertamina president director Karen Agustiawan before a hearing with Commission VII of the House of Representatives in Jakarta said it will be a long-term deal which would secure crude supplies for Pertamina`s plants. "We will try to made a permanent contract," she added. She also said that the crude purchase would actually be an addition to a previous purchase of 125,000 barrels per day from Saudi Aramco, and the total would therefore reach 325,000 barrels per day,," she said.

Limit value of procurement to be reduced to U.S. $ 2 million, Bisnis Indonesia, April 19
Executive Agency for Upstream Oil and Gas will lower the maximum return value of the procurement of goods and services that can be done alone by the contractor cooperation contract (KKKS) from U.S. $ 5 million to U.S. $ 2 million. BP Migas Deputy Head Hardiono said the procurement of goods and services the upstream oil and gas done in two ways, namely by KKKS themselves and with the approval of BP Migas. At first, he said, the value of procurement that may be done alone by KKKS limited to a maximum of U.S. $ 2 million.

Indonesia may fail to meet oil output target - BPMIGAS, Alibaba, April 19
Indonesia's oil output may hit 917,000 barrels per day, falling short of this year's target of 965,000 bpd and below last year's level due to environmental and other issues, an energy watchdog official said on Monday. Indonesia has said previously it would produce 965,000 bpd of crude oil and condensate this year, compared with 949,100 bpd in 2009, and 1.5 million bpd in the 1990s. "We still hope to achieve output of 965,000 bpd, but considering several problems, oil production may fall to 917,000 this year," Priyono, the chairman of watchdog BPMIGAS, told a parliamentary commission hearing.

Dispute in Energy Sector Over Indonesia's New Cost-Recovery Rules, Jakarta Globe, April 4
Oil and gas companies with existing contracts in Indonesia will be given three years to adapt to a new government regulation on cost recovery which is expected to be implemented this month, the country’s upstream oil and gas regulator said on Sunday. Parulian Sihotang, head of the accounting division at BPMigas, said the new regulation was intended to clarify what expenses incurred by oil and gas contractors will be reimbursed by the government via the cost-recovery scheme. “For the existing contracts, there will be three years of transition, while for new contracts the regulation will be effective immediately,” he said.

Indonesia Must Open Taps for Gas Investment to Avoid Getting Burned, Jakarta Globe, April 5
Starting in 2007, the government has campaigned to replace kerosene with cleaner, cheaper natural gas, resulting in billions of dollars of savings each year in reduced subsidy costs. Conversion in Java and Bali, which once represented about 70 percent of national kerosene consumption, has largely been completed, and universal conversion is expected to be complete in another year or two. While we can do almost nothing about the risk associated with nature, putting a cap on cost recovery is a sure way to push potential investors out of the door. Such a policy is squarely at odds with the need to develop new assets to feed gas-starved industries and electricity producers. Squeezing more out of investing companies (in the form of the government’s take and the cap on cost recovery) is not the smartest policy in a declining industry. The government needs to consider dropping more candies to attract the army of ants to lift the gas industry in the country.

Finance

Indonesia Stocks in Bubble, Central Bank Study Shows, Bloomberg, April 8
Indonesia’s stocks are in a bubble and officials are prepared to put controls on capital inflows if needed to maintain financial stability, the head of the central bank’s economic research and monetary policy division said.
“The actual stock price now is actually exceeding the fundamental value,” Perry Warjiyo, who was a member of the International Monetary Fund’s executive board before taking his current post in July 2009, said in an interview in Jakarta. “Whatever methodology we use” shows an excess valuation, he said, citing Bank Indonesia studies over recent months.

Indonesia ‘Bubble’ Won’t Apply to Banks, Goldman Says, Bloomberg, April 8
The outlook for Indonesia’s banking stocks remains positive as the central bank’s warning of a bubble in the nation’s stock market shouldn’t deter investors, Goldman Sachs Group Inc. said. Indonesian banking shares are trading at lower valuations when compared with the region and the benchmark Jakarta Composite Index, Goldman Sachs analyst Vincent Chang wrote in a report today. The banks also offer “strong earnings potential,” with loan growth for the industry poised to reach 20 percent this year as the economy improves and risk appetite increases, the analyst said.

Food & Agriculture

Agriculture minister promises to evaluate cocoa export tax, Antara, April 14
Agriculture Minister Suswono has promised to evaluate a finance ministerial decree which imposes a 15 percent tax on cocoa exports. "Basically, this policy will fully be supported if it has the aim of improving farmers` income and competitiveness but we will evaluate it if it proves to disadvantage them," the minister said here on Tuesday. The finance minister has issued Decree No. 67 / 2010 on Cocoa Export Tax which reaches 15 percent effective April 1, 2010.

Export tax expected to help cacao processing industry, The Jakarta Post, April 15
Association leaders are expecting the government’s decision to impose an export tax on cacao beans early this month will help the country’s cocoa processing industry. “The cacao tax policy will revive the cacao industry,” Indonesian Cacao Industry Association (AIKI) chairman Piter Jasman told a press conference in Jakarta on Tuesday. Under decree No. 67/2010, dated April 1, the Finance Minister imposes a 5 percent tax on cacao beans exported at prices between US$2,000 and $2,750 per ton. This tax rate is increased to 10 percent for beans sold for more than $2,750 per ton.

Agriculture Public Spending and Growth: The Example of Indonesia, World Bank, April 2010
An analysis of the trends and evolution of public spending in the agriculture sector in Indonesia, as well as its
impact on the growth of agriculture during the period 1976–2006. Public spending on agriculture and irrigation
had a positive impact on agriculture growth during that period, whereas public spending on fertilizer subsidies had
the opposite effect. As Indonesia continues its efforts to revitalize the agriculture sector, public spending should be
directed at improving the provision of public services rather than at subsidizing private inputs.

Infrastructure

PLN to spend Rp 3.7 trillion on the Jakarta power grid, The Jakarta Post, April 14
To end blackouts in greater Jakarta , state electricity utility, PT PLN will spend up to Rp 3.7 trillion (US$410 million) to improve transmission and distribution in the capital, the company’s executive has said. “The project is called the 500 KV project. We will construct a network system among substations in Jakarta, including a 150 KV cable underground line in the city and four high voltage substations,” Ngurah Adnyana, the Java and Bali operational director, told reporters in Jakarta on Tuesday. The four substations will be built in North Jakarta; in Muara Karang, in Plumpang, in Duri Kosambi and in Tanjung Priok. PLN transmission and load dispatch general manager Zainal Abdidin Sihite said this year PLN had allocated Rp 3.7 trillion for the financing of projects. “The funds will be from internal sources,” he said.

100 public-private partnership projects worth $47 billion to be offered, The Jakarta Post, April 15
Indonesia offers 100 public-private partnership (PPP) projects worth US$47.3 billion in the 2010-2014 period, according to the latest PPP book published by the National Development Planning Agency. The PPP book is launched in line with the Asia-Pacific Ministerial Conference on PPP for Infrastructure Development 2010 held in Kemayoran, Jakarta, from April 14-17. Projects that are ready to offer worth $36 million are from the marine transportation sector, while priority projects worth $8.33 billion cover toll roads, water supply and solid waste and sanitation. Potential projects worth $38.93 billion include air transportation, land transportation, marine transportation, railways, toll roads, water supply, solid waste and sanitation, and power.

Transport sector needs Rp291, 87 trillion, Bisnis Indonesia, APril 15
The government needs private investment funds for the transport sector amounted to Rp291, 87 trillion per year in the period 2010-2014. Transportation Minister Freddy Numberi said the funds were needed both in the public private partnership schemes as well as business to business.

U.S. Relations

OPIC Signs New Investment Agreement with Indonesia, OPIC, April 14
The ability of American companies to invest in Indonesia – the world’s fourth most-populous country – through the support of the Overseas Private Investment Corporation (OPIC) was improved by the conclusion of an agreement between the two countries. OPIC Acting President Dr. Lawrence Spinelli and Gita Wirjawan, Chairman of Indonesian Investment Coordinating Board, signed the investment support agreement at a ceremony in Washington, D.C. attended by Indonesian Vice President Boediono. The new agreement updates a 1967 pact between the United States and Indonesia by adding OPIC products such as direct loans, coinsurance and reinsurance to the means of OPIC support which U.S. companies may use to invest in Indonesia.

Indonesia takes U.S. to WTO over clove cigarette ban, Reuters, April 9
Indonesia is launching a formal dispute at the World Trade Organization against the United States over a U.S. ban on clove-flavored cigarettes, an official at Indonesia's WTO mission said on Monday. Like many trade disputes, this one involves health standards and whether they are being abused for protectionist purposes. It centers on the clove and tobacco blends known as kretek that dominate the tobacco market in Indonesia but are little smoked outside the Southeast Asian country. The U.S. Food and Drug Administration banned cigarettes with fruit, confectionery or clove flavors last September, arguing such cigarettes were particularly attractive to children. But the U.S. ban does not include flavored cigarettes that are produced widely in the United States and smoked by about 19 million Americans.

Politics

Indonesia to host Asean, Straits Times, April 9
Indonesia said on Thursday it will chair the Association of South-east Asian Nations (Asean) next year, in place of Brunei, because of a scheduling clash with its Apec host duties in 2013. Under Asean's system of rotating chairmanship which runs in alphabetical order, Brunei had been due to host Asean and its related summits and meetings in 2011. But Foreign Minister Marty Natalegawa said Indonesia had changed plans because it would have been due to chair Asean in 2013, the same year it hosts the Asia Pacific Economic Cooperation (Apec) forum.

Russia Proposes Indonesia Join BRIC, Tempo, April 19
The Russian Government has proposed that the Indonesian Government join Brazil-Russia-India-China or the BRIC working group. According to the Deputy Minister of Transportation Bambang Susantono, this is to welcome Russia’s offer, especially for transportation sector. “There is a possibility that Indonesia will join the club because Indonesia is a big country and has a large economy,” said Bambang after the bilateral meeting discussing Indonesia-Russia cooperation on transportation sector last Friday.

Impeachment initiative starts rolling, The Jakarta Post, April 13
Five House of Representatives legislators from five different parties signed Tuesday a petition requesting the legislative body exercise its impeachment initiative in connection with the Bank Century bailout, which they say is flawed. The signatories are Maruarar Sirait from the Indonesian Democratic Party of Struggle (PDI-P), Lily Wahid from the National Awakening Party (PKB), the Golkar Party’s Bambang Soesatyo, Akbar Faisal from the People’s Conscience Party (Hanura), and Desmond J. Mahesa from the Greater Indonesian Movement Party (Gerindra). “I believe that there will be at least 100 legislators to follow suit,” Maruarar told reporters after signing the petition at the House building. If approved by the House plenary, the law making body will file an impeachment against Vice President Boediono with the Constitutional Court.

Indonesia party to stay out of government coalition, Reuters, April 8
Indonesia's main opposition party agreed on Thursday to remain outside the government's coalition, rejecting pressure from some wings of the party to join the grouping backing President Susilo Bambang Yudhoyono. Yudhoyono has at various times made overtures to the Indonesian Democratic Party of Struggle (PDI-P), the third biggest party in parliament, to shore up his coalition. The ruling coalition has a comfortable majority in parliament on paper but has come under strain, particularly after some members, such as the Golkar Party and Islamist PKS, sided with the opposition in a recent inquiry into a bank bailout.

Protesters rally in Indonesia after deadly clash, AP, April 15
Hundreds of demonstrators descended Thursday on Jakarta's City Hall to demand that the city's public security force be disbanded following bloody clashes over a Muslim tomb that left two dead and 156 wounded near the Indonesian capital's main seaport. The protesters chanted "God is Great" and some threw rocks at a billboard bearing the photo of Jakarta's governor. More than 1,000 police were deployed to the area, which is near the U.S. Embassy in central Jakarta, city spokesman Cucu Kurnia said. On Wednesday, protesters wielding machetes, sticks and petrol bombs clashed with city security officers and riot police in running battles near the port outside the city the center. Police used tear gas, rubber bullets, water cannons and batons to beat back the demonstrators.

Other

China’s Wen Delays Indonesia Visit After Earthquake, Jakarta Globe, April 15
Chinese Prime Minister Wen Jiabao has postponed his planned visit to Indonesia on April 23-24 following the earthquake in northwestern China that killed more than 600 people, reports said. Xinhua news agency reported on Thursday that both Chinese President Hu Jintao and Wen had postponed planned overseas visits. Hu was due to visit Venezuela and Peru this week, while Wen was scheduled to visit Brunei and Burma, as well as Indonesia.

China's CIC to invest more in Indonesia-minister, Reuters, April 15
China is shopping for ways to invest its sovereign wealth fund in Indonesia's infrastructure, resources and manufacturing sectors, the Indonesian trade minister said on Wednesday. Chinese Premier Wen Jiabao will visit Indonesia next week, just two months before U.S. President Barack Obama's rescheduled trip to Southeast Asia's biggest economy, at a time of mounting competition between China and the United States for influence, especially in resource-rich countries such as Indonesia.

Indonesia to aid threatened sectors, Straits Times, April 8
Indonesia has set up a committee to help local industries that feel under threat from an Asean-China free trade pact, Trade Minister Mari Pangestu said on Thursday. But she said the agreement's implementation would not be delayed by concerns raised among some Indonesian industries, who argue that they could be hurt by the entry of cheaper China-made goods. 'We implement fully the Asean-China Free Trade Agreement,' Ms Pangestu told AFP on the sidelines of the Association of Southeast Asian Nations (Asean) summit and related meetings in Hanoi. 'We have set up a coordinating committee inside the country to address the issues faced by the sectors which have indicated that they are facing potential problems.'

Brands Bet on Indonesia as Spending Booms, WSJ, April 7
International companies are betting Indonesia will become Asia's next big consumer market after China and India—in part because of booming jungle outposts like this one. Here in Samarinda, a coal-mining center on the far eastern edge of Borneo, the population has more than tripled since 2000, and incomes are rising rapidly. Ford Motor Co. has added its first dealership and Honda motorcycle salesmen say they can't get motorbikes fast enough to keep up with demand.

Rethinking the current free trade debate in Indonesia, The Jakarta Post, April 13
The Indonesian government’s failure to renegotiate the ASEAN-China Free Trade Area (ACFTA) this week was seen by many as a major threat to many Indonesian producers. China’s refusal to renegotiate the 228 tariff posts proposed by Indonesia raised concern among not only producers but among bureaucrats as well. One of the results of the renegotiation process is the willingness of China to provide a few “safeguard” measures, should there be a negative impact of ACFTA on Indonesian local producers. However, this result has been deemed not good enough by Indonesia’s Industry Minister, M.S. Hidayat, since its mechanism is still unclear (The Jakarta Post, April 7, 2010). Hidayat has also expressed disappointment in the fact that he was excluded from discussions prior to the renegotiation process.

3i to Join Carlyle in Search for First Indonesian Investment, Bloomberg, April 15
3i Group Plc, Europe’s largest publicly traded private-equity firm, said it is seeking its first investment in Indonesia because the nation offers the biggest growth potential in Southeast Asia. The London-based firm plans to close a deal in the world’s fourth-most populous nation in the next one to two years, said Mark Thornton, its head of Southeast Asia.

BKPM seeks extra budget to improve business climate, Jakarta Post, April 16
The Investment Coordinating Board (BKPM) is seeking an extra budget of about Rp 100 billion (US$11 million) this year to finance programs aimed at improving the business climate. BKPM deputy head Yus’an said in Jakarta on Wednesday that additional funds which would increase the agency’s total budget to Rp 465 billion from Rp 365 billion would be needed to help cope with negative impacts resulting from the full implementation of ASEAN-China Free Trade Area (ACFTA).

END MEMO