RECENT ECONOMIC REPORTS

INDONESIA: TRADE AND INVESTMENT HIGHLIGHTS 
MARCH 2005

Trade and Investment Picture Brightens

The Indonesian Central Statistic Agency (BPS) announced on April 1 that Indonesia exports reached USD 12.5 billion for January and February 2005, an increase of 26% YoY.  Non-oil and gas exports accounted for USD 9.9 billion of the two month total, for a YoY increase of 31%.  Meanwhile, January and February 2005 imports grew to USD 8 billion, a 19% increase YoY.  Overall, Indonesia’s trade surplus reached USD 4.1 billion for the first two months of 2005, an increase of 25.8% YoY.

                  INDONESIA'S TRADE PERFORMANCE

                  Source: Central Statistic Agency

 Foreign investment approvals rose to USD 3.24 billion for January and February 2005, an almost three-fold increase over the same period in 2004.  Approvals for domestic investment increased 112% from RP 3.16 trillion (USD 332 million) to RP 6.71 trillion (USD 706 million).  Chemicals, pharmaceuticals, foods and beverages, and electronics attracted the greatest interest.  The Investment Coordinating Board (BKPM) reported actual foreign investment for the first two months of the year of USD 774.7 million, an increase of 43.2% YoY.  Domestic investment, however, declined slightly to 8.3% YoY (RP 2.35 trillion or USD 247 million.

FOREIGN INVESTMENT APPROVALS

  Source: Investment Coordinating Board (BKPM)

Trade Ministry Receives Investment Coordinating Authority

On January 31, the Presidential Secretariat issued Presidential Regulation No. 11/2005 setting out the “Position, Task, Function, Authority, Organizational Structure, and Governance of Non-Department Government Agencies.”  The regulation specifies that the Ministry of Trade will be responsible for the oversight of the Investment Coordinating Board (BKPM).  The Ministry of Trade will coordinate policies of various sectors with BKPM but BKPM will still implement policies and report to the Coordinating Ministry for Economic Affairs.  Some observers expressed hope that the transfer of coordinating authority to the Ministry of Trade would facilitate the investment licensing process, therefore reducing costs for potential investors.

GOI Seeks GSP Facility from U.S. and Japan

 Minister of Trade Mari Pangestu told the press on March 18 that the Government of Indonesia (GOI) will ask the United States and Japan to provide special import tariffs for Indonesian textile and garment products under the Generalized System of Preferences (GSP) scheme. Pangestu said that Indonesia needs the lower tariffs to improve its competitiveness in the post-Multi Fiber Agreement (MFA) environment.  Local textile and garment producers continue to complain that they cannot compete with other regional productions centers like China, Vietnam and India post-MFA without greater access to credit and new capital investments.  Nevertheless, some international buyers, particularly those seeking mid to higher-end products, view Indonesia’s vertically integrated industry and business climate as highly competitive regionally. 

Textile and apparel products have been Indonesia’s largest source of income in the non-oil sector for decades, accounting for an average of 15.1% of total non-oil and gas exports.  Last year, the sector directly employed 1.2 million workers.  Indonesia contributes 1.9% of textiles and 2% of garments to world exports.  The United States is the largest market for Indonesian textile and apparel exports, and Indonesian garments held a 4% share of the US market under the MFA quota system.   

Paracetamol Anti-Dumping Petition

             The Indonesian Anti-Dumping Committee (KADI) on February 21 ruled that PT. Riasima Abadi Farma suffered injury from April 2, 2002 to March 31, 2003 as a result of the dumping practices of eight foreign paracetamol (HS 2924.29.100) producers, including seven Chinese companies and one American company, Saint Louis-based Mallinckrodt.  KADI’s investigation ruled that the U.S. and Chinese companies illegally undercut prices of locally produced paracetamol by 3.8 to 18.6%.  Based on KADI’s findings, the Ministry of Trade asked the Ministry of Finance in March to consider punitive import duties within a range of 3.8 to 18.6% on the paracetomol products of the eight companies.  Before issuing its ruling, KADI provided the eight companies 30 days, from September 2 to October 2, 2003, to submit their comments on the case.   Mallinckrodt and two of Chinese companies did not respond to the KADI’s offer.

 IPR Update: Raids and Piracy Hotline

 The Indonesian National Police (INP), with support from the Business Software Alliance (BSA), conducted raids from February 24 to 28 on several software retailers in three of Jakarta's largest malls: ITC Cempaka Mas Mall, Ambassador Mall and Ratu Plaza Mall.  The raids resulted in the confiscation of over 33,000 CDs containing pirated software produced by BSA members worth USD 3.0 million.  In addition to seizing the software, INP also detained six suspected retailers of pirated software. Under Indonesia's copyright law, if convicted, the retailers could face up to five years imprisonment and/or a maximum fine of USD 53,000. 

 The INP on March 30 closed all retailers of pirated optical discs (ODs) at Ratu plaza.  Police told shopkeepers that the closure would be temporary, only one week.  On April 1, the INP also raided a major pirated OD distributor operating in the notorious Glodok mall area.  It remains uncertain how much product or machinery was seized, or if police made arrests.

 The Business Software Alliance (BSA) on March 22 launched an anti-piracy hotline encouraging the Indonesian public to report confidentially the illegal end-use of business computer software in companies.  The hotline offers a reward of up to USD 5,350 for tips about businesses that use unlicensed copies of software.

Indonesia to Amend Excise Tax Law

Director General of Customs and Excise Eddy Abdurrahman told the press on March 1 that his office was preparing draft revisions to Indonesia's Custom's Law related to excise taxes.  The proposed revisions would include an increase in excise duty from 55% to 65% for local and imported goods that are subject to excise taxes and sold locally.  Under the existing law, there are three categories of goods that are subject to excise taxes: tobacco products and cigarettes, liquor and alcohol and ethanol ethyl.

 Abdurrahman originally proposed imposing an excise tax and sticker system for optical discs as a means to generate government revenue and combat piracy.   However, he reportedly abandoned the plan in the face of strong resistance from the local IPR industry.  The local recording industry, which first suggested the optical disc sticker tax, apparently now objects to the idea on the grounds that it will likely not deter piracy.        

GOI to Appoints more Designated Sugar Importers

Following discussions with Parliament, the Ministry of Trade announced to the press on March 1 that it intends to appoint additional designated sugar importers.  The move follows reports that existing designated importers will not likely reach an import quota of 200,000 tons of sugar through March 31.  A September 2004 Ministry of Industry and Trade decree grants five companies the right to import specific quantities of sugar.  Annual domestic consumption of sugar is roughly 2.5 million tons, while domestic production capacity is 2.0 million tons.  Parliament had questioned whether the limited number of sugar importers affected competition and resulted in high domestic sugar prices.

GOI Lifts Avian Flu Ban on U.S. Poultry

 The Ministry of Agriculture on March 10 lifted its February 2004 ban on imports of U.S. poultry products due to concerns of avian influenza outbreaks in several U.S. states. The announcement of the lifting of the ban notes that all poultry imports must still meet existing halal, food safety and animal health standard requirements.  In 2000, the GOI issued an import ban on U.S. chicken leg quarters due to concerns about whether those products met halal standards.  The ban on chicken let quarters remains in place.

GOI Exempts Public Vehicles And Parts From Import Duties

The Minister of Finance, effective March 10, reduced or eliminated the import duties on public vehicles and spare parts.  The move is aimed at preventing increases in public transportation fares following the March 1 fuel price hikes.  Minister of Industry Andung Nitimihardja said on March 15 that the reduction and elimination of import duties was temporary and based on a quota system.  For example, the Ministry reduced the import duty on completely built up buses (CBU) from 40 to 5% for the first 1,150 units.  The GOI says will restore import tariffs to previous rates after one year or as soon as the quota is met.

Indonesia to Host First Asia-Africa Business Summit

Indonesian Chamber of Commerce (KADIN) Chairman Mohammad Hidayat announced on March 15 that President Susilo Bambang Yudhoyono will open the first Asia-Africa Business Summit in Jakarta April 21.  The GOI will host the business summit April 22 to 24 prior to the Asia-Africa Conference.  The Summit's aim will be to explore business opportunities and to encourage investment and trade between the two continents.  According to the Ministry of Foreign Affairs, the Asia-Africa Conference itself will include delegations from 105 countries.  As many as 45 heads of state have confirmed their attendance.

Tourism

 The Central Statistic Agency (BPS) announced on March 1 that foreign tourist arrivals fell 2.7% YoY to 348,600 in January 2005.  December 2004 tourist arrivals were also down 16.3% to 416,500, compared to 365,440 in December 2003.  Last year, Indonesia attracted some 5.3 million foreign tourists.  Indonesia's tourism sector contributes approximately USD 5 billion to GDP annually and is one of the country’s major non-oil and gas foreign exchange earning sectors.   Bali Island is the tourism industry’s largest income generator, contributing 60% of total tourism receipts annually, or USD 3 billion of GDP. 

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