RECENT ECONOMIC REPORTS
ECONOMIC HIGHS AND LOWS: DECEMBER
1999
1.
Summary and Introduction
The Muslim Holy Month of Ramadhan, culminating in Idul
Fitri (January 8-9), places enormous annual pressure on
food supplies, prices, and transportation facilities. The
new Indonesian government put preparations for the season
at the top of its priority list, especially since
Ramadhan overlaps this year with other major celebrations
in Indonesia including Christmas and New Year. The
Education Minister announced closure of public schools
during the Ramadhan period. The authorities permanently
shut down Jakarta's oldest red-light district and closed
many types of nightspots during Ramadhan after
demonstrators tied up City Hall.
The GOI guaranteed adequate food supplies for the
holiday season and established markets to sell basic
commodities at low prices. But as Christmas and Idul
Fitri approached, the papers were full of the usual
reports of rising prices for staples. The government
reminded employers of their obligation to pay employees
the annual bonus equivalent to one month’s salary;
those found in violation would face sanctions. The
government also approved the annual Idul Fitri
transportation price hike, this year endorsing a
25-percent surcharge. About 2.1 million Jakartans were
expected to leave the city over the holidays, and another
1 million were expected to arrive, with the reverse trips
taking place in an equally concentrated period.
Foreign and domestic investors maintained their
"wait-and see" stance toward future investment,
as the new government continued to grapple with security,
KKN, (corruption, collusion, and nepotism) and contract
issues. The GOI took a decisive step on December 18 when
it issued a decree to establish an inter-ministerial
committee to address Independent Power Producer (IPP)
issues and stated it would pursue resolution of IPP
issues through negotiations, not the courts. There were
some hopeful signs when telecommunications shares soared
at the start of the second week in December, perhaps in
response to reports that George Soros would purchase PT
Telkom and PT Indosat shares. However, the trading
dropped at the close of the same week when foreign funds
failed to materialize. Although Standard Chartered
Bank’s withdrawal from its agreement with Bank Bali
did not appear to weaken the rupiah, the decision did not
escape the scrutiny of domestic commentators and
investors eyeing Indonesia’s banking sector. End
Summary/Introduction.
TABLE OF CONTENTS
The
Holiday Spirit
Stemming
Holiday Speculation and Inflation
Jakarta
Prepares for Annual Holiday Transport Crunch
PERFINDO
Lowers PLN’s Rating
Investors
Show Some Interest
Advisory
Councils All the Rage
Ministry
of Maritime Exploration and Fisheries Appointments
Baby
Debt and Baby Boom
Twelve-and-under
Set Exempt from Departure Tax
The
Holiday Spirit
In the spirit of forgiveness associated with the
Muslim Holy Month, Ramadhan, the GOI released 91
political prisoners on December 10, among them 70 East
Timorese, six activists of the outlawed Democratic
People’s Party (PRD), and 15 members of a radical
Muslim movement. The Muslim Charity Collection Board
(BAZIS) suggested a minimum standard for traditional
Idul-Fitri alms-giving at RP 7,000 (about one USD) per
person, equivalent to the minimum daily cost of feeding
one person. The wealthy were expected to contribute more,
equivalent to their average daily expenditures.
The Ministries of Religion and Education issued a
joint decree closing all public schools during the
Ramadhan period. Private schools were allowed to remain
open on the condition that Muslim pupils were given
appropriate consideration. Public pressure also convinced
the Jakarta city government to close down the city’s
oldest red-light district -- the Kramat Tunggak -- opened
in 1970 to rehabilitate prostitutes by training them for
other lines of work.
Other crusaders were more aggressive. Demonstrators
led by the Islamic Defenders Front (FPI) occupied and
closed down City Hall, demanding that the city close all
nightspots during Ramadhan. In response, Jakarta Governor
Sutiyoso announced the closure of all discotheques,
billiard rooms, nightclubs, and sauna parlors through the
rest of Ramadhan. Pubs, live music halls, and massage
parlors run by the blind got off more lightly, only
receiving orders to restrict their hours. Not all sectors
welcomed the Mayor of Jakarta’s decision to close
most nightspots during Ramadhan. In addition to
complaints from sectors directly affected by the decree,
taxi drivers complained that the decree had caused their
revenue to drop 50 percent.
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Stemming
Holiday Speculation and Inflation
Price gouging was also part of the Holy Month, as
evidenced by transport, food, and clothing price hikes.
While the government guaranteed adequate basic food
supplies for the holiday season, it did not depart from
its practice of not setting prices. However, the
authorities strove to minimize price increases by
establishing markets to sell basic commodities at lower
prices. Parliament limited the customary Idul Fitri
transportation price hike to 25 percent, below the
GOI’s recommendation for a 35-percent hike, and much
lower than the Association of Public Land Transportation
Owners’ (ORGANDA) demand to raise inter-city bus
fares by 50 percent. The GOI also announced plans to
crack down on bus and train station scalpers who sell
tickets to desperate passengers at double the official
rate.
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Jakarta
Prepares for Annual Holiday Transport Crunch
About 2.1 million Jakartans are expected to leave the
city over the holidays: about 1 million by bus, 800,000
by train, over 97,000 by ship, and as many as 280,00 by
plane. Another 1.1 million are expected to arrive in
Jakarta. The whole people movement reverses right after
the holiday, causing an annual transport crunch. With the
overlap of Ramadan/Idul Fitri and Christmas/New Year
holidays, travel demands this year will be even greater
than usual. The Director of the Ministry of
Communications’ Jakarta office assured the Jakarta
population that transport options had been augmented in
preparation for the increased demand and that command
posts would be placed at all major travel venues to
assist travelers encountering difficulties.
An American Express manager noted that December 1999
was busier than December 1998. Even though many airlines
added flights (Singapore Airlines added two daily flights
to Singapore to its usual five) to meet the increasing
demand, most outbound international flights were booked
solid through January 10, and inbound flights to January
18 -- two days before public schools resumed on January
20. However, there was a decline in bookings to European
destinations, attributed to the lack of promotional
packages for 1999. Also, there were fewer flights to
Europe, in part because Swiss Air and British Air had
eliminated their flights to Jakarta. Domestic outbound
flights from Jakarta (especially for Java, Bali, and
Medan) were booked solid through January 10, while all
domestic flights to Jakarta were full through January 14.
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PERFINDO
Lowers PLN’s Rating
Indonesian ratings agency PERFINDO recently downgraded
its ratings for state electricity company PLN’s
bonds. PERFINDO said in a statement that the downgrade
reflected the increase in PLN’s dependence on
government subsidies to support its operations and to
serve its debt. PERFINDO also said the downgrade was
warranted by PLN’s failure to pay independent power
producers. PLN’s bond V, worth RP 1 trillion,
matures in 2001 and bond VI, valued at RP 600 billion, in
2002.
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Investors
Show Some Interest
Although investors started to show some interest in
returning to Indonesia, capital investment approvals for
1999 were down from 1998. Officials from the Investment
Coordinating Board (BKPM) estimated that foreign capital
investment approvals in 1999 would reach only USD 10 TO
11 billion, down from USD 13.6 billion in 1998 and USD
33.8 billion in 1997. (Realization is always lower than
approvals). The new government endeavored to restore
investor confidence as it grappled with security, KKN,
(corruption, collusion, and nepotism), and contract
concerns. The government also struggled with the
complexities of its transition toward decentralization,
including the need to modify investment regulations to
fit a decentralized system.
On his first official state visit, President Wahid
traveled to China, in part to encourage Chinese investors
to return to Indonesia. Coordinating Minister of the
Economy, Finance, and Industry Kwik Kian Gie led a road
show to Singapore to promote the sale of Government
assets through the Indonesia Bank Restructuring Agency
(IBRA). The government needs the revenues to meet its
budget shortfall (estimated at USD 5 billion for FY
1999/2000) and to pay its burgeoning foreign debt (USD
71.9 billion according to The National Development
Planning Board, BAPPENAS). While in Singapore, Kwik Kian
Gie announced government plans to sell its majority
stakes in PT Telkom and PT Indosat, suggesting the
government would accelerate the opening of the sector to
foreign investment. Minister of Investment and State
Enterprise Laksamana Sukardi championed the Investment
Coordinating Board’s (BKPM) new streamlined
regulations -- No. 38/SK/1999) -- for foreign and
domestic capital investments.
December was a period of investor breakthroughs and
setbacks. On December 20, the GOI Instructed PLN to drop
its lawsuit against Independent Power Producer (IPP)
Paiton Energy and ordered an out-of-court settlement of
the dispute to be brokered by the government. While PLN
President Adhi Satryia resigned out of protest and some
People’s Consultative Assembly and Parliamentary
figures accused the government of bowing to foreign
pressure, the President responded that the decision was
his own and part of his government’s commitment to
honor the sanctity of contracts. Another investment
dispute saga did not evolve so favorably. Standard
Chartered Bank withdrew from its agreement with Bank
Bali. The ramifications of the decision did not escape
the scrutiny of domestic commentators and investors
eyeing Indonesia’s banking sector.
There were some positive signs that foreign investor
appetite for Indonesian investment opportunities was
returning when IBRA reached a tentative agreement to sell
up to 40 percent (worth about USD 500 million) of
well-regarded conglomerate Astra International to a
consortium of U.S. investors, Newbridge Capital and
Gilbert Global Equity Partners. News reports also
suggested that George Soros' Quantum Fund was looking at
investments in cigarette manufacturer Bentoel,
telecommunications firms Telkom and Indosat, and
Soeharto-family toll-road construction company Citra
Marga Nusaphala Persada. In another development, U.S.
insurance conglomerate AIG (American Insurance Group)
started negotiations with Indonesia’s Lippo Group to
buy into Lippo insurance company Lippo Life.
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Advisory
Councils All the Rage
New advisory councils were all the rage, as President
Wahid formed the 18-member National Business Development
Council (NBDC) and the six-member National Legal Reform
Commission (NLRC), the former led by Chinese-Indonesian
tycoon Sofyan Wanandi of the Gemala Group. NBDC deputy
chairmen are Arifin Panigoro (Medco Group) and Aburizal
Bakrie (Bakrie Group and Chairman of the Indonesian
Chamber of Commerce and Industry, KADIN). The NBDC said
it hoped to create 1 million new jobs in the first year
of President Wahid’s presidency. President Wahid
formed his first advisory group -- The National Economic
Council (NEC) -- in November. Presidential critics
claimed President Wahid was trying to circumvent
ministerial authority by forming advisory councils that
would report directly to him. Not to be outdone, NGOs and
other private organizations also formed their own
advisory commissions. KADIN recently established The
National Economic Rehabilitation Committee, and 36 NGOS
formed The Anti-Discrimination Commission of Indonesia
(KADI) to address ethnic and religious discrimination
abuses and conflicts.
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Maritime
Exploration and Fisheries Appointments
Maritime Exploration and Fisheries Minister Sarwono
Kusumaatmadja recently swore in senior personnel for his
brand-new ministry. Personnel include: Indroyono Susilo,
Director General of Research Compatibility and Maritime
Exploration; Untung Wayhono, Director General of
Fisheries; Tommy Purwoko, Director General for Marine
Potential Development and Organizations; Rokhmin Danuri,
Director General of Coasts and Small Islands; Rear
Admiral Busran Kadri, Director General of Supervision and
Maritime Protection: Sapta Nirwanda, Secretary General;
and Mustofa Abubakar, Inspector General. Ministry
headquarters will be located near Bina Graha, Central
Jakarta.
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Baby
Debt and Baby Boom
According to a recent article quoting UNICEF Director
for Indonesia and Malaysia Stephen Woodhouse, every
newborn Indonesian will be saddled with a debt of Rupiah
7.3 million (about USD 1,000) as his or her share of
Indonesia’s foreign debt. Woodhouse employed several
assumptions to support his argument. First,
Indonesia’s foreign debt will reach USD 140 billion
in 30 years. Second, one can assume Indonesia will pay
off its debt at an average of about USD 5 billion per
year. Third, about five million babies will be born in
Indonesia per year. Therefore, each baby will be
"welcomed" by a debt of USD 1,000. Sadly,
however, these newborns might not get what they need to
become productive, debt-paying adults. According to GOI
statistics, Indonesia spends only 8.3 percent of its
national budget on education and a paltry 2 percent on
health services. Woodhouse warned that Indonesia faced
the threat of a "lost generation of
Indonesians" if it failed to meet the
population’s health, education, and other welfare
needs. While some decried newborn debt, others warned of
a looming baby boom. According to National Family
Planning Board (BKKBN) Chairman Ida Bagus Oka, the
GOI’s contraceptive stock will run out by March
2000. The BKKBN’s annual budget of Rupiah 50 billion
per year is less than a third of the BKKBN’s budget
requirements.
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Twelve-and-under
Set Exempt from Departure Tax
Not all news affecting the youngest segment of the
population was negative. Travelers with young children
had cause to celebrate when starting on September 22,
1999, youngsters aged twelve and under were exempted from
paying the RP 1 million (about USD 143) departure tax.
Tourists and diplomats were already exempt from paying
the departure tax before the new regulation went into
effect. On October 22, Official Letter No. SE49/PJ41/1999
formalized the decision and made it retroactive to
September 22. It took some time before travelers became
aware of the new regulation and over the past months many
travelers continued to pay the departure tax for children
who were exempt. Recently, the GOI announced that
reimbursements were available to those who had mistakenly
paid the tax
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