RECENT ECONOMIC REPORTS

INDONESIA: TRADE AND INVESTMENT HIGHLIGHTS 
JULY 2005

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S1 2005: Indonesia's Strong Export Growth Continues

                The BPS announced on August 1 that Indonesia's exports reached USD 45.5 billion for the first semester of 2005, an increase of 27.5 percent YoY.  Non-oil and gas exports accounted for USD 31.7 billion of the six-month total, a YoY increase of 30.15 percent.  Meanwhile, January through June 2005 imports grew to USD 28.3 billion, a 35.35 percent increase YoY. Overall, Indonesia's trade surplus reached USD 12.2 billion for the first semester of 2005, an increase of 10.65 percent YoY.

               Industrial exports, which account for 65.8 percent of total exports, expanded 23.4 percent YoY to USD 26.7 billion from January through June.  Electrical equipment, mechanical appliances and pig and poultry fat were Indonesia's top three non-oil and gas exports for that same period.  Japan remains the largest purchaser of Indonesian exports, followed by the United States and Singapore.

Table 1: Indonesian Trade Performance For the first semester of 2005
(in USD billion)

Source : Central Statistic Agency (BPS)

Table 2: Indonesia's Export Values by Sector

For the First Semester of 2005 (in USD billion, FOB value)

Source : Central Statistic Agency (BPS)

Table 3: Indonesia's Top 10 Non-oil and Gas (NOG) Exports

For the First Semester of 2005 (In USD billion)

Source : Central Statistic Agency (BPS) 

Table 4: Indonesia's Main Export Destinations

For the First Semester of 2005 (FOB value, in USD billion)

Source : Central Statistic Agency (BPS)

                According to the Investment Coordinating Board (BKPM), total domestic and foreign actual investment implementation rose to Rp 39.7 trillion (USD 4.04 billion) for the first semester of 2005, an increase of 43.1 percent over the same period in 2004.  Foreign Direct Investment made the biggest contribution of Rp 31.87 trillion (USD 3,2 billion), a 69.5 percent increase from Rp 18.87 trillion (USD 1,9 billion) for the same period in 2004.  Meanwhile, actual domestic investment implementation for the first semester of 2005 amounted to Rp 7.8 trillion (USD 0.79 billion), a 12.4 percent decline from Rp 8.96 trillion (USD 0.91 billion) YoY.  The construction, chemical, pharmaceutical, metal, machinery, electronic, and telecommunication sectors attracted the greatest investor interest.  BKPM, however, reports that there are still many companies that have not reported actual investment implementation to the agency.

GOI to Pass New Investment Law 

               Minister of Trade Mari Pangestu told the press on July 11 that the Indonesian Government will soon finalize a new investment law and submit it to the parliament for its consideration.  The new investment law will provide enhanced guarantees against nationalization of foreign companies in Indonesia.  If such cases do occur, however, they will follow standard international practices and provide adequate compensation.  According to the Minister, the new law will also include a fiscal incentive package to attract foreign investment though she did not provide details.  Meanwhile, BKPM Chairman Muhammad Lutfi announced on July 13 that his agency will support the new law's aim of attracting investment and improving Indonesia's competitiveness in the region by simplifying and shortening the BKPM's investment license processing procedures to ten working days.  A 2004 World Bank study found that it takes an average of 151 days to obtain government approvals to start a new business in Indonesia.

Indonesian Textile Exports to U.S. Accelerating

               The Ministry of Industry (MOI) announced on July 24 that garment and textile exports to the U.S. reached USD 1.179 billion from January through May 2005, an increase of 13.9 percent YoY.  Garments dominated these exports and accounted for USD 1.098 billion, a 16.3 percent increase from the same period in 2004.  The MOI said that the figure demonstrates an improvement in Indonesia's competitiveness in the global textile market, especially since the expiration of the Multi Fiber Agreement (MFA) on January 1, 2005.  According to the MOI announcement, Indonesia was the third largest garment and textile exporter to U.S. during the January-May 2005 period with a 3.5 percent share of the U.S. market.  China and India were the first and second largest exporters of garments and textiles to the U.S. with market shares of 23.9 and 5.7 percent respectively.  In 2004, Indonesia was listed as the eighth largest exporter of garments and textiles to the U.S.

GOI Issues a July Package for Batam Island

               Minister of Finance Jusuf Anwar on July 21 issued a package of trade, customs, tax and fiscal facilitation measures for Batam, Bintan and Karimun islands aimed at improving the investment climate and business certainty in these special bonded areas.  The package of measures includes provisions to:

• Simplify business licensing and the permitting of the movement of goods to and from bonded zones;
• Simplify customs reporting procedures;
• Reduce and eliminate taxes on several items;
• Liberalize imports of used capital goods, including for factory relocation purposes.  The Ministry of Trade will no longer request a surveyor's certificate of inspection for these imports.

GOI Removes Restriction on the Export of Rattan

               The Ministry of Trade (MOT) on June 30 removed restrictions on the export of half-processed rattan from July 2005 to June 2006. However, the MOT will continue to monitor domestic supply of rattan and ensure its conservation.  Under the revised regulation the government expects rattan production, depending on the type, to range between 16 to 36 thousand tons per annum.

GOI to Provide Tax Incentive for Electronic Sector

               A July 4 Ministry of Industry's (MOI) news release indicated that the MOI is preparing a tax incentive for the electronics sector aimed at attracting investors to Indonesia.  The MOI will provide a tax incentive to those multinational companies that transfer technology and use local components.  In 2004, the Indonesia electronic sector provided 275 thousand jobs and produced Rp 94 trillion  (USD 9.6 billion) in products and USD 7.3 in exports.  This year, Indonesia's electronic exports are expected to reach USD 7.8 billion.

Indonesia to hold Annual Trade Expo in October

               The Ministry of Trade will hold its 20th annual manufactured goods trade exhibition October 5-9 in Jakarta.  The GOI hopes for at least a five percent increase in sales over last year's expo record of USD 107.7 million.  Over 1,200 firms and more than 3,000 buyers from 71 countries participated in the 2004 expo.  Over 2000 confirmed exhibition participants have already reserved two-thirds of the exhibition center.

Indonesia Receives GSP Facilities from U.S.

               Effective July 1, the U.S. provided Indonesia with new Generalized System of Preferences (GSP) benefits, for a specific type of plywood and contact lenses as part of tsunami trade-related assistance.  The U.S. also granted a waiver for two products approaching GSP non-competitive needs limitations: edible products of animal origin and odoriferous flavoring compounds (ether alcohol).  In 2004, the total value of exports of these products to the U.S. amounted to over USD 300 million.

Table 5: U.S. GSP Tsunami Assistance for Indonesia - 2005

Article Description

MFN Rate

GSP Rate

Value 2004
Indonesia Exp. To U.S.

Plywood sheets
(HS 4412.12.40)

8 percent

free

USD 160.2 million

Contact Lenses
(HS 9001.30.00)

2 percent

free

USD 127.0 million

Edible products of animal origin 
(HS 0410.00.00)

1.1 percent

 free

 USD 9.6 million

Ether alcohol
(HS 2909.50.40)

4.8 percent

free

USD 3.4 million

2004 Total Value

 USD 300.2 million

China Tightens Ties with Indonesia

                Indonesian President Susilo Bambang Yudhoyono signed several bilateral agreements with Chinese President Hu Jintao during his July 27-30 visit to China.  Both leaders agreed to boost trade, investment and tourism between the two countries.  The leaders noted that trade between Indonesia and China is expected to reach USD 30 billion by 2010, a three-fold increase from 2004.  The agreements include:

§         Agreement on Grant Assistance in Relation to Economic and Technical Cooperation.  This agreement states that China will grant RMB 30 million (USD 3.7 million) to Indonesia for development of several sectors.  

§         General Loan Agreement of USD 100 million for Preferential Buyers' Credits from the Government of China (GOC) to the GOI.  This is the second installment of a loan provided to the GOI for the Jatigede Dam project in West Java and the double track railway project connecting Cirebon in West Java and Kroya in Central Java.  The first installment of the loan was agreed to during President Hu's April 25-26 visit to Jakarta. 

§         A Memorandum of Understanding (MOU) on Research and Development in Defense Technological Cooperation between China's National Defense; China's Commission of Science, Technology and Industry; and the Indonesian Ministry of Research and Technology. 

§         MOU Between China's Ministry of Civil Affairs and the Indonesian Aceh and Nias Rehabilitation and Reconstruction Agency on Reconstruction concerning projects in the Tsunami-affected areas funded by non-governmental donations from China. 

§         Agreement on Grant Assistance for Economic and Technical Cooperation Between the GOC and the GOI.  

§         Arrangement between China's National Office for Teaching Chinese as Foreign Language and the Indonesian Ministry of Education Directorate General for Primary and Secondary Education.

China also agreed to participate in several investment projects:

•  A 4 x 600 megawatt steam coal-fired power plant in Muara Enim, South Sumatra worth USD 2.1 billion and funded by China's EXIM Bank and the China Development Bank (CDB).
  
• An integrated coal transportation system in South Sumatra worth USD 10.1 billion and funded by the CDB.
  
• The 2 x 660 megawatt Tanjung Jati steam coal-fired power plant in Central Java worth USD 1.1 billion and funded by the Bank of China (BOC).
  
• The Tuban Refinery and Oil and Gas Exploration in East Java, a joint project between China's Sinopec and Indonesia's Pertamina.
  
• A railway project connecting Tanjung Enim, South Sumatra and Tarahan, Lampung in Sumatra worth USD 650-750 million and funded by the Industrial Commercial Bank of China.
  
•  A 2 x 200 megawatt steam coal-fired power plant in Baturaja, South Sumatra worth USD 190 million and funded by the BOC.
  
•  The development of an Industrial Zone in Karawang, West Java worth USD 70 million.

 §         The development of the fisheries industry in Eastern Indonesia.

IPR Update: New Regulation on Optical Disk

               On July 25, the Minister of Industry issued a new regulation requiring importers of optical disc machinery and optical grade polycarbonate to provide the MOI with detailed information about the origin, type, quantity and destination of these produ