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The Homecoming of Barack Obama Not surprisingly, many Indonesians consider Obama as ‘one of us’. In fact, the school in the Menteng area of Central Jakarta where he spent four years of his childhood now features a bronze statue of him. By Lukman Hakim

hen US President Barack Obama steps out of Air Force One at Halim Perdanakusuma airfield some time in June, he cannot help but notice that the country he last saw in 1971 has become a totally different place today. At the time Indonesia was under authoritarian rule while its economy was practically in ruins. Today, the country is the world’s third largest democracy (after the US and India) with a US$550 billion economy and is a member of an informal but distinguished group comprising 20 of the world’s wealthiest nations (G20). Furthermore, it is one of the only three countries – along with China and India – that last year posted positive growth as others struggled to keep themselves aloft. Indonesia has come a long way indeed since Obama first came to Jakarta with his parents in 1967, and left four years later to live with his grandparents in the US. But then so has Obama, who went on to study law at Harvard University, entered politics to become a senator and was last year elected as president of the world’s most post powerful nation (as well as a Nobel Prize laureate for Peace). Not surprisingly, many Indonesians consider Obama as ‘one of us’. In fact, the school in the Menteng area of Central Jakarta where he spent four years of his childhood now features a bronze statue of him. Many also consider Obama’s visit to Indonesia in June as a ‘homecoming’ of sort. Students

In June, US President Barack Obama will pay a short visit to Indonesia, the world’s third largest democracy and a member of the G20.

at Obama’s former school have prepared a warm welcome for him by putting together a traditional gamelan orchestra, which will greet him as he arrives at the premises for a quick tour. The school’s principal recently told TIME magazine that the US leader “provides a huge motivation to our students, as it means that no matter what your background is, you can succeed if are a good person with a democratic spirit.” Obama, who calls himself “America’s first Pacific presidednt”, was supposed to visit Indonesia from March 23-25 to sign a comprehensive partnership covering political, economic and defence relations. In June, as the new plan so far goes, he is expected to push for closer ties with Indonesia, which has the world’s biggest Muslim population, in the fields of climate change, energy, education and health. Obama’s personal connection to Indonesia is one of his best assets, as he spent four years in Jakarta as a child, as his mother’s second husband was an Indonesian. This makes Obama an even more popular figure in Indonesia than he is in much of the rest of the world, with many Indonesians regarding him as virtually a native son. Both countries are keen to work together to strengthen the G-20, the Doha Round, the Association of South East Asian Nations (ASEAN)-US partnership, and work on climate change and nuclear security. Both governments hope to boost trade and investment, seen as crucial for Indonesia’s bid to join Brazil, Russia, India and China, also known as the BRICs,

Photo: www.newsok.com

the emerging market elite. The US is Indonesia’s thirdlargest trade partner, but has dwindled in importance as a source of foreign direct investment reflecting concerns over endemic graft, red tape, poor infrastructure and inflexible labour laws. Trade volume has risen from US$12 billion in 2002 to US$21.4 billion in 2008 but fell to US$18 billion in 2009 due to the global financial crisis. The Investment Coordinating Board (BKPM) lists the US as seventh in its ranking of foreign direct investment realisation by country in 2009 -- just US$171.5 million or 1.6% of the total FDI, behind Singapore, which tops the ranking with 40.1% total FDI. US companies, ranging from ExxonMobil Corp, Chevron Corp, Freeport-McMoRan Copper & Gold Inc and Newmont Mining Corp in the energy and

mining sectors to Citigroup Inc and JP Morgan in the financial sector are said to be keen to expand in Southeast Asia’s biggest economy. As almost 90% of Indonesians are Muslims, practising a moderate form of the faith, Obama is widely expected to build on his Cairo speech highlighting Indonesia’s combination of Islam, democracy and moderation. The United States has some environment-related projects in Indonesia and may see that rise after Obama’s visit. Washington signed an agreement last year to cut Indonesia’s debt payments by about US$30 million in exchange for saving forests in Sumatra. The climate change part of the comprehensive agreement is likely to focus on forests and sustainable peatland management, but there may be an announcement on clean energy as well. Sources close to the negotia-

tions expect the United States to announce new funding of around US$20-40 million, which may be classified as fast-start climate funding that rich countries promised to make available to developing countries in Copenhagen last year. That could be money directed to forest preservation projects operating under a UN-backed framework called reducing emissions from deforestation and degradation (REDD). Funding for a Southeast Asian “regional centre of excellence” on climate change could also be announced. Many expect Obama to instill a cultural nuance on his short visit by visiting the Borobudur Temple, the world’s largest Buddhist place of worship, near Yogyakarta. The visit, no matter how short, will give a huge boost to Indonesia’s bid to attract more foreign tourists, especially from the US,

as it will be widely covered by American media. Comprehensive Partnership

The US president’s visit was significantly preceded by a conference on the forthcoming “United States–Indonesia Comprehensive Partnership” on March 2 by the United States-Indonesia Society (USINDO) in collaboration with Universitas Indonesia, the Indonesian Council on World Affairs (ICWA), Modernisator, and the Centre for Strategic and International Studies (Jakarta) (CSIS). The conference was the third in a series hosted by USINDO, two held in Jakarta and one in Washington, DC, which were designed to engage the public, private, and non-government sectors in both countries on areas of mutual importance and global significance for the partnership. In his opening remarks at the third conference, Dr. Dino Patti Djalal, Special Staff of the Pres-

ident for International Affairs, noted that the Comprehensive Partnership will require significant efforts on the part of both Indonesia and the United States. Dr. Djalal suggested that Indonesia must learn to focus on the bigger picture while the United States must respect Indonesia’s independence. He pointed out that a strong comprehensive partnership between the two countries will redefine the bilateral relationship for decades to come, and that for this reason it must be an opportunity-driven and profound relationship. “… it is time for us to deliver the vision of President Yudhoyono and President Obama for the comprehensive partnership with creativity and determination, so that the next ten, twenty, fifty years, the relationship will survive – beyond the presidencies, beyond the departments – and redefine the partnership between Indonesia and the United States.”

Inspiring Change A leader must not become complacent because of the organization’s and individual’s past achievements. He/she has to be vigilant to any change and developing situations which could impact the organization in the future. By A.B. Susanto

INTERVIEW

Fadel Muhammad: Indonesia set to become world’s largest fish producer in 2015

leader often demands his/her followers to make changes. Not all changes run smoothly and/or produce the desired result. However, a leader can learn from one of the most successful changes in history: the Meiji restoration in Japan. It has inspired so many great reforms in the world. As an archipelago, until the middle of the 19th century Japan was still a conservative and isolated monarch. At that time, the emperor practiced an isolationist foreign policy with xenophobic tendencies. Meiji, with his progressive ideas, ended such policy. He initiated a program to modernize his country by importing machines from the most advanced countries in the Industrial Revolution era.

Thanks to his policy, in a quarter of century Japan was able to industrialize itself so that it caught up with the US and European nations in technological development. Meiji acted as a reformative leader. He was able to recognize deadlocks, to identify everything went wrong, and to find the root of the problems. Next, he opened the Japanese people’s heart and mind through local leaders, or shoguns, all of whom were united to modernize the country. He convinced, asked, directed and effectively inspired potential people to make changes. The most important factor in Meiji’s successful change program was the value system he embedded in his modernization programs. For Meiji, modernization

was not merely transfer of technology; it is also a review of exiting value system. He preserved and strengthened positive values and culture, while at the same time adopted modern values such as punctuality and openness. In order to run a change program successfully, as done by Meiji, firstly a leader must remember the laws of change and comply with them. Those laws are namely: Law of Native, Law of Chaos, and Law of Eden. Law of Native means that any change program has to involve all organization members. There will not be any people outside the organization which can force changes to happen without the involvement of the organization members. Law of Chaos means that any change will always create inconvenience.

SPECIAL REPORT

INVESTMENT

INFRASTRUCTURE

Indonesia and China: Unstoppable economic titans

As a country with the biggest marine territory in the world, it is ironic that Indonesia is not the largest producer of marine and fishery products.

Two biggest countries in East Asia, China and Indonesia, are growing in terms of economic size as well as political importance in the region and in the world.

PAGE A3

PAGE A4

Hatta: RI conducive for investment

The situation at present is very conducive and as such he is optimistic investment would increase.

PAGE B3

RI Needs More Investment in Infrastructure to Support Economic Growth

Vice President Boediono believes that infrastructure development is the primary key to enhancing the growth of all sub-sectors of the economy. PAGE C1

There will be resistance, particularly from those who feel that their power or income will be reduced and lost. There will be suggestions or remarks that could break the spirit such as: This change has no clear direction, the new approach is confusing, this change reduces performance, etc. An organization must find the right strategy to control such inconvenience. And Law of Eden means that any change program needs the support from a person with high competence and commitment who can act as a positive role model. Followers surely want to know the benefits of a change if it succeeds, despite its risks and complexity. In every change process, a leader can divide his/her followers into three groups: proponents, opponents, and indifferents. Proponents are those who support change; opponents oppose it, while indifferent followers still do not have a clear stance whether they support or oppose change. These include followers who still don’t have enough information or do not care about what is happening in the organization. A leader has to try hard so that as time goes by, opponents are weakened. There might be some of them who shift themselves to the indifferent group before finally support change. Change is a process. Therefore, the most basic question that has to be answered in change

management stratgy is: Towards what end?. This is called vision of change. A leader has the responsibility to formulate and share his/her vision with all organization members. He/she has to become a “merchant of hope” to all followers. He/she has to communicate his/her dreams, raise hope and spirit, and get the organization out of the current situation. A leader must have the ability to create and articulate a realistic and credible vision which can move his/her followers in achieving the organization’s goals. In managing a change, which is often challenging, a leader must show his/her enthusiasm, commitment, and spirit in order to win the support from followers. A leader can give great impact and energy to the organization and all of its members through mastering change. Enthusiasm, commitment, and spirit play an important role and should be started from the change plan process. A leader must not become complacent because of the organization’s and individual’s past achievements. He/she has to be vigilant to any change and developing situations which could impact the organization in the future. Excessive pride will trigger the organization’s potential weaknesses at the time when the organization is at its peak performance. In an established condition, there is also potential for de-

A.B. Susanto

struction that a leader should be aware of. Remember that our existence is not to relive the past and maintain what we have achieved, but to pave the way for a new organization life in the future. By understanding the law of change, having a clear vision, arousing enthusiasm, and avoiding complacency, it would be easier for a leader to manage a change program. The writer is Dean of the Faculty of Economics, President University, and Managing Partner of THE JAKARTA CONSULTING GROUP

The President Post

A2 April 12, 2010

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Special Report INDONESIA AND CHINA:

Unstoppable Economic Titans Two biggest countries in East Asia, China and Indonesia, are growing in terms of economic size as well as political importance in the region and in the world. China took center stage for its role as the world’s engine of growth, while Indonesia’s importance is for its remarkable economic resilience. By Atmono Suryo

o mark the 60th anniversary of diplomatic relations between China and Indonesia, Jakarta will be the host of visiting Prime Minisiter Wen Jiabao in April. As Foreign Minister Marty Natalegawa has stated bilateral relations between Indonesia and China has strengthened since the signing of the Strategic Partnership Agreement in 2005. Two biggest countries in East Asia, China and Indonesia, are growing in terms of economic size as well as political importance in the region and in the world. China took center stage for its role as the world’s engine of growth, while Indonesia’s importance is for its remarkable economic resilience. In the political arena, China is becoming more confident in the international forums, engaging itself in a lot of institutions, thus becoming an important player in the international decision-making process. Indonesia is from the outset known as a champion of developing countries. It is now assuming a role as a peaceful Muslim-majority country, aiming at bridging the two worlds apart, the Muslim world and the western world. Indonesia and China have been in constant and close contact, not only in the bilateral area but also in the multilateral or regional forums. Both countries are members of the G20, form part of ASEAN plus Three (10 ASEAN countries plus China, India and Japan) forum, East Asia Summit, APEC and a number of other forums. CHINA’S ECONOMIC PROFILE

Data from various sources (the World Bank and others) provide an economic profile of the People’s Republic of China as follows: • In terms of population China is a giant country (the largest in the world) with a population of 1.3 billion people in 2009. Its GDP per capita is $3,742 (nominal); $8.8 million PPP) • Its economy is the third largest in the world, after the United States and Japan, with a nominal GDP of US$4.91 trillion in 2009. It is the second with a GDP of $8.8 trillion on a PPP basis. • It is growing at an average of 9.7% per annum since the 1970s. During the latest financial crisis, its economy had been weakened, showing a 6.1% level of growth in the first quarter of the 2009.

“

CHINA

INDONESIA China Prime Minisiter Wen Jiabao

• Nevertheless, with a massive investment-led stimulus, the economy recovered to the level of 6.7% in 2009. The Asian Development Bank (ADB) has put China’s growth for 2010 at 8.9%, while the IMF 9%. • China is presently the largest trading nation in the world and the largest exporter with $1.20 trillion f.o.b 2009; the main trading partners are EU, US, Hong Kong and Japan. • It is the second largest importer of goods with $1.01 trillion in 2009; the main import partners are Japan, EU, South Korea, Taiwan and USA. Its imports include petroleum & related products and metaliferous ores and scrap • Its foreign reserves are the largest in the world, amounting to $2,399 billion • According to GDP by sector, industry is the largest sector (46.8%), services (42.6%), agriculture (10.6%) • In terms of domestic demand, China has been showing constant growth for consumption, from 8.4% in the year 2006 to 9.7% at the end of 2009. This calls for the need of creating a global economic balance between the US economy’s deficit and the high savings of the Chinese people.

• China, India and other East Asian countries, including Indonesia, are expected to be in the lead to achieve global recovery and growth. The constant and massive growth of the main sectors of the economy have stimulated the country to become a first– rate and robust economic powerhouse. Indonesia is in a favorable position to be close to the main economic powerhouses of the global economy, which include the United States, China, Japan and the European Union. At the same time Indonesia continues to make special efforts to attain closer cooperation with the other developing countries. INDONESIA–CHINA BILATERAL RELATIONS

Much is already known in Indonesia through the media about the spectacular development and the significant growth trends of China in the area of economics and trade, but many are less familiar with China’s financial assets and as a potential investor in Indonesia. According to information from the Chinese Embassy there are at present 700 Chinese companies interested to set up factories and trading centers.

ECONOMIC INDICATORS China’s Main Economic Indicators (percent change, unless otherwise indicated)

Real GDP Domestic demand 1/ Consumption 1/

2004

2005

2006

2007

2008

TREND (%) 04-08

Domestic demand 1/

9.4

10.4

8.8

12.7

9.1

8.3

Net exports 1/

2.2

2.6

0.8

-3.9

0.4

0.5

3.8

3.4

1.8

-4.8

0.4

0.5

Exports (goods and services) 2/

23.8

19.9

8.6

-10.6

14.7

9.4

Imports (goods and services) 2/

15.9

14.1

5.1

3.9

16.4

9.2

Potential GDP growth

10.5

10.4

10.1

10.4

9.3

8.7

0.0

2.5

2.1

0.4

0.6

Contribution net exports (WB, pp) 2/

Output gap (pp) Source: The World Bank China Quarterly Update March 2

China has enormous capital and financial resources at its disposal, and is much richer than the United States. But Indonesia is not aware of the easy access in China to huge working capital and other financial sources, which could be used for the development of infrastructure projects such as the Suramadu bridge

in Madura. At the same time, Indonesia’s business community is much concerned with the strong competitive position of China’s export products. Their products, cheap but of high quality, continue to flood Indonesia’s local markets, especially in the area of textile products. It would be of great

PERUB (%) 08/07

PERAN (%) 2008

Jan-Des 2008

Jan-Des 2009

PERUB (%) 09/08

PERAN (%) 2009

-9,74

17,33

Japan

6.053,5

6.892,4

5.488,0

6.472,7

14.864,7

18,93

129,65

15,07

14.864,7

9.810,5

-34,00

12,60

Singapore

2.527,4

2.936,9

3.733,4

3.908,3

11.095,6

38,33

183,90

11,25

11.095,6

9.236,6

-16,75

11,86

United States

3.148,3

3.810,6

3.968,2

4.711,8

7.731,5

22,25

64,09

7,84

7.731,5

7.037,6

-8,98

9,04

Thailand

2.363,9

3.082,0

2.962,3

4.194,8

6.269,9

25,35

49,47

6,36

6.269,9

4.570,8

-27,10

5,87

Source: Ministry of Trade

NON-OIL & GAS EXPORT GROWTH BY DESTINATION COUNTRIES (JUTA US$)

Singapore

People of China Republic

Thailand

Source: Ministry of Trade

8.6

8.2

13.491,4

United States

8.7

9.7

Contribution to GDP growth (pp)

14.947,9

9.5

13.8

9.1

15,15

Japan

8.7

9.4

9.7

87,85

9.6

42,55

TREND (%) 04-08

10.7

9.7

14.947,9

2008

12.9

9.7

18.3

7.957,3

2007

11.6

8.8

5.502,0

2006

2011f

10.2

4.551,3

2005

2010f

11.4

3.358,3

2004

2009

10.1

People of China Republic

COUNTRY

2008

8.4

2007

11.1

Gross capital formation 1/

(JUTA US$)

NEGARA

2006 The real economy

NON-OIL & GAS IMPORT GROWTH BY ORIGIN COUNTRIES NO

Indonesia and China have been in constant and close contact, not only in the bilateral area but also in the multilateral or regional forums. Both countries are members of the G20, form part of ASEAN plus Three (10 ASEAN countries plus China, India and Japan) forum, East Asia Summit, APEC and a number of other forums.

PERUB (%) 08/07

PERAN (%) 2008

Jan-Des 2008

Jan-Des 2009

PERUB (%) 09/08

PERAN (%) 2009

8.383,5

9.561,8

12.198,6

13.092,8

13.795,3

14,00

5,37

12,79

13.795,3

11.979,0

-13,17

12,29

8.272,1

9.507,9

10.682,5

11.311,3

12.531,1

10,57

10,78

11,61

12.531,1

10.470,1

-16,45

10,74

5.390,7

7.068,6

7.824,2

8.990,4

10.104,6

16,15

12,39

9,37

10.104,6

7.947,6

-21,35

8,15

3.437,4

3.959,8

5.466,6

6.664,1

7.787,2

24,06

16,85

7,22

7.787,2

8.920,1

14,55

9,15

2.115,2

2.865,4

3.326,5

4.885,0

7.060,9

34,24

44,54

6,54

7.060,9

7.351,4

4,11

7,54

benefit for the two countries if China would strengthen and modernize Indonesia’s textile industry. China’s export goods includes the following products: office machines & data processing equipment, telecommunications equipment, electrical machinery, apparel and clothing, miscellaneous manufactures. In 2008, the total amount reached US$31 trillion. Indonesia’s export market share to China grew from 6% to 9%, while imports from China is now at the level of US$13 billion. Trade has been the focal point of growth for several years, thanks to the opening up of both markets. Minister of Trade Mari Elka Pangestu describes China as a “production source with a market much bigger than any other country in the world” (TPP, March 12, 2010). Imports of non-oil & gas from China has grown from about $5 billion in 2005 to $13 billion in 2009. China is the largest supplier of Indonesia, followed by Japan, Singapore, the US and Thailand. Manufacturing has been China’s strongest point in its trade relations with the international world. Supported by big investments and vast financial resources, China has demonstrated strong performance in the manufacturing sectors. With regard to Indonesian exports of non-oil & gas to China, Indonesia’s position in 2009 has been weak at only $8.9 billion. Indonesia’s other main destination for its non-oil/gas products in 2009 are Japan, the US, Singa-

pore, China and India. TO INTENSIFY BILATERAL RELATIONS

The visit of Prime Minister Wen Jiabao opens huge opportunities for Indonesia to intensify bilateral relations with one of the largest countries in the world, one that has immense financial and trade resources and a large growing market. To make the economic relations between Indonesia and China more balanced, it would be of great mutual interest to explore and implement the following cooperation schemes: • There is an urgent need to bolster Indonesian exports to China in order to close the increasing trade deficit for non-oil & gas trade. Immediate measures are needed to correct this situation. • Indonesia needs to accelerate the growth of its industrial sector and promote exports in manufactures or semi-manufactures • Indonesia has natural resources to promote the development of value-added industries, which are resource-based • China has the expertise and financial resources to develop infrastructure projects in Indonesia These are some of the areas which could further intensify the economic relations between the two leading economies in Asia on a sustainable basis. In particular to develop a stronger win-win Indonesia-China Relationship. The writer is a former ambassador to the EU

The President Post

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April 12, 2010 A3

Special Report

ASEAN-China Integration Offers Myriad Business Opportunities ACFTA has a combined GDP of US$ 6.6 trillion with 1.9 billion people constituting a free market with a total trade volume of US$ 4.3 trillion. By Jeannifer Filly Sumayku

he free trade agreement ASEAN has with China—popularly known as ACFTA—is the world’s third largest common market after the European Union and North America’s free market mechanism called NAFTA. ACFTA has a combined GDP of US$6.6 trillion with 1.9 billion people constituting a free market with a total trade volume of US$4.3 trillion. Secretary General of ASEAN Dr Surin Pitsuwan believes that China’s economic growth and strong investment expansion “is energizing the region and is providing ASEAN with an expanding diversified market.” Implementation of ACFTA also gives ASEAN a strong edge given the fact that participating countries have to live with lower tariffs, more open service opportunities and better potential for investment expansion, he theorizes. Dr Surin made the remarks in response to queries regarding the apprehension raised by Indonesia’s private sector players. They fear that the influx of cheaper Chinese products would under-

mine domestic manufacturing industries. Indonesian industry leaders recently submitted a proposal to postpone the implementation of tariff reductions on 228 items including iron and steel, textiles, machinery, electronics, chemicals and furniture. The Indonesian Government has formed a team which also involves the private sector to examine these concerns. Nevertheless, noted economist Faisal Basri maintains that Indonesia will benefit a lot—instead of suffer losses—from the implementation of ACFTA because locally-made goods competing against Chinese products are not that many. Indonesia has an advantage because in percentage terms only 26% of its products are competing in AFTA compared to Malaysia’s 88% and Thailand’s 91%. “So those who say that ACAFTA will harm Indonesia must be very ignorant,” Basri said. Basri also theorizes that Indonesia will remain competitive in terms of realization of individual participating countries’ exports due to the huge potential that has yet to be included in ACFTA

trading. In other words, Indonesia has more tradable goods than the coverage of ACFTA list that will generate huge export revenues. Surin, meanwhile, is of the opinion that either as a group or as individual countries, ASEAN members will remain attractive as they can act as chains of supplies for China’s fast expanding economy. “The landscape of trade between ASEAN and China has changed in the last decade due to tariff cuts,” he said. Statistics reveal that ASEAN’s trade with China grew by an average of 26% per annum between 2003 and 2008, mainly in electronics, fuel and fuel products, plastics, rubber, and vegetable oils. Even though it is generally acknowledged that certain industries will come under tough pressure in the transition period, the benefits from growing trade between ASEAN and China would mean that more employment opportunities will emerge, more people will become big spenders and a greater synergy will bind the two regions together. The ASEAN secretary general suggests that member governments may have to strengthen the capacity of domestic corporations, but do so in a way that would not discourage innovations and cost-reduction plans. The free trade agreement (FTA) also has a built-in mechanism for protecting domestic industries from damage and losses, he notes.

He explains that ACFTA has been implemented in stages and products on member countries’ negative investment lists will be liberated at a later stage. Economists believe that the implementation of ACFTA will encourage Chinese investors to open new infrastructure and transportation projects within ASEAN. China recently launched a US$10 billion infrastructure investment fund to upgrade roads, railways, airlines, and telecommunication links with ASEAN. China is also providing a US$15 billion in loan to promote regional integration and regional connectivity networks. With China’s global investment strategy now producing outstanding results and the fact that in 2008 alone China’s direct investment outflows were worth US$52.1 billion, there is hope that the Asian giant will invest more in this new common market. Initially, member countries would feel the pains of making adjustments to a more competitive environment, business analysts say, but in the long run this new free market mechanism can only be fruitful. “If history is to judge this FTA, it is the capacity to add greater value to all parties’ economic development that will weigh in its favor,” Surin says. The historical links between Southeast Asia and China date back to ancient times when individual countries of this region conducted trade with China, not

to mention cultural interactions that come through repeated visits by Chinese merchant ships. ASEAN’s relations which China received a bigger boost in 1991 following political developments initiated by ASEAN leaders to embrace their giant neighbor for mutually beneficial relationship. As of 1991, thanks to warmer diplomatic relations, China intensified trade and investment interactions with Indonesia and the rest of ASEAN also got the benefit. Political observers are now saying that bilateral relations between China and ASEAN’s individual member countries have improved markedly, paving the way for greater flows of goods, services, expertise, and investment funds. In October 2003 the two sides claimed success in opening a new chapter of relations when they signed the Joint Declaration on Strategic Partnership for Peace and Prosperity. This was followed by the adoption of a five-year ASEAN-China Plan of Action in November 2004 which served as the road map for implementation of the declaration. The move crowned ASEANChina top leaders’ maneuvers that served as the basis for further strengthening of relations and securing of regional peace and stability. Political observers are saying that despite the fact that ASEAN and China compete with each other economically, as do ASE-

AN member countries against one another, the free trade arrangement now in place serves as a catalyst to turn their diverging interests into a source of regional strength. The resulting economic integration will open up more opportunities for trade, business, investment, research, technological development, as well as socio-cultural interactions. ASEAN is taking the benefit of continuous influx of Chinese tourists while treating China as its immediate market for various gods and services. The Chinese are also doing the same toward ASEAN member countries. In fact, Chinese-made goods are everywhere in ASEAN countries. Economic cooperation has grown rapidly, especially after the signing of the Framework Agreement on Comprehensive Economic Cooperation (CEC), which provides for the establishment of an ASEAN-China Free Trade Area for Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore, Thailand and China to adopt in 2010; and for Cambodia, Lao PDR, Myanmar and Viet Nam to join by 2015. China is already ASEAN’s third largest trading partner and is responsible for 11.3% of total ASEAN trade in 2008 worth US$192.6 billion. According to statistics the combined GDP of ASEAN and China is worth of US$6.6 trillion with 1.9 billion people and total trade of US$4.3 trillion. Trade between the parties was

Even though it is generally acknowledged that certain industries will come under tough pressure in the transition period, the benefits from growing trade between ASEAN and China would mean that more employment opportunities will emerge, more people will become big spenders and a greater synergy will bind the two regions together. an impressive 13.3% of global trade or half of the total trade of Asia in 2008. In addition, the two regions attracted a combined 10% of global foreign direct investments in 2008. With all these developments taking place, one can only be optimistic about the region’s future given the countless economic and business opportunities the region now offers.

The President Post

A4 April 12, 2010

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Interview MARITIME AND FISHERIES MINISTER FADEL MUHAMMAD

Indonesia Set to Become World’s Largest Fish Producer in 2015 As a country with the biggest marine territory in the world, it is ironic that Indonesia is not the largest producer of marine and fishery products. The welfare of fishermen in some regions has even reached near poverty. To change this condition, a bold move from the government is needed to improve the welfare and productivity of fishermen and fishery entrepreneurs. From several sources, TPP has managed to gathered statements made by Maritime and Fisheries Minister Fadel Muhammad, who said a new paradigm is needed to raise the awareness of fishermen, fishery entrepreneurs and even regional governments on the importance of productivity. “I vow Indonesia to become the world’s biggest marine and fishery products producer by 2015,” he said. The breakthroughs he is preparing I will change the paradigm that has long pervaded the maritime and fisheries sector. The current paradigm is supervision, but from now on I will lead them to productivity. I want to boost productivity as a base to improve the maritime and fishery sector. My dream, in line with the maritime and fisheries ministry, is that Indonesia can become the world’s biggest marine and fishery producer by 2015. The mission is to bring prosperity to the marine and fishery community. Why 2015? Because in 2015 we hope to enter the group of countries with medium income. And as an assistant to

the president, I have to come up with a clear program to achieve that vision and mission. On his programs I will adopt four main strategies. Firstly, I will strengthen and integrate the institution and human resources. Secondly, sustainable management of maritime and fishery resources, and thirdly to bolster productivity and competitiveness with knowledge. Fourthly, to widen both domestic and international market access. The measures that we take are to implement the strategies and make empowerment, introduce entrepreneurship and technology

innovations. We will also extend a network both with the regional governments and entrepreneurs on a national and international scale in order to accelerate production increase.

tuna, 7.9% for crabs, and 27.2% for other fish. We continue to try to boost the percentage but overall, China remains the world’s biggest fish producer.

Indonesia’s fishery production In 2009, our fishery production reached 10.65 million tons with fish farms (budidaya) contributing 47.49% of the total production and 52.52% from caught fish (perikanan tangkap). Of the total production, 69.5% are exported to the United States, European Union and Japan, 11.8% to Southeast Asia, 10.6% to East Asia (excluding Japan), and the remaining 8.1% to the Middle East, Africa, and former Eastern European countries. Fish consumption in Java remains low. Fish consumption in Banten is 20.56%, West Java 16.65%, Jakarta 17.56%, Central Java 11.37%, and Yogyakarta 6.64%, which is lower than the national fish consumption of 30.17 kilogram per capita.

On Indonesia’s ambition to beat China as the biggest fish producer in the world Yes, the target to boost production is rather ambitious. That’s why we need to work extra hard and according to national policies. The most urgent agenda in the maritime and fishery sector this year are debottlenecking, acceleration, and enhancement with the issuance and implementation of policies aimed to create ease for businesses in the maritime and fishery sector.

Indonesia in relation to other countries We are at number 5 to 11, depending on the product. In terms of seaweed, we are number one. With tuna fish, we are not the number one exporter but the biggest supplier to Japan. Our export accounted for 2.75% of the world’s market share and is worth US$2.69 billion in 2008. In the world market, we control 43.1% for shrimps, 12.8% for

I have also asked regional governments to remove retributions. At first they didn’t agree, but they did after being briefed. On retributions as a burden to fishermen The fishermen are already imposed with retributions once they dock. They have to pay more retributions when they bring their fish products to their customers. I have instructed for the removal of all retributions because payment of Rp1-2 million a month is huge for fishermen. It turned out that not only big fishermen that had to pay the retributions but also small fishermen. This must come to an end.

On regional governments’s income Pros and cos will always exist. But I have convinced regional governments; now most of them have given their support. It is true that few others have still not agreed, but I have prepared a safety valve, which is to replace regional income from the retribution with special fund allocation (DAK) from the central government. The allocated DAK budget for maritime and fisheries for this year is Rp1.7 trillion. If regional governments agree to remove the retributions, I will replace them with a much higher DAK. Retribution income from fisheries in Central Java is only Rp14 billion, but DAK reaches Rp60 billion, which is much higher. This way, the farmers’ welfare will improve and regional governments will not get a smaller income. On his strategies We are planning to launch “minapolitans” or fish production centers in many regions. For instance, we build a catfish minapolitan in a certain region and tuna fish minapolitan in other regions and so on. After that we will promote anti-illegal fishing and initiate marine-related businesses. Basically, we will deploy everything to boost productivity. However, we will not cultivate all types of fish, and will only select the most potential commodities

such as seaweeds, catfish, milk fish, grouper fish and crabs. In the future we will have 10 types of fish that we will promote. On his vision I am very optimistic. China only needed five years to become the world’s biggest fish producer. They boosted their production aggressively since the 90s. Improvement in fish farming technique successfully bolstered production by 40 times in 2004 compared to 1978. 42% of the growth in fish farming was contributed by science on fisheries such as aquafeeds, breeding, and disease control. Indonesia can potentially match China because our fish farm is much wider and we want to follow some of China’s ways in developing its fishery sector. I will change the budget in this sector and allocate as much as possible on fish farming. We will increase more fish farming than captured fish production. From now on, we will develop our own seed varieties so that they become more affordable, for shrimp, cat fish, silver catfish, nila fish and milk fish. That’s what we’ll do. On government intervention Yes, it’s true that government intervention is a needed. The government has to help the fishery community in providing seeds, financial management, marketing, and etc. Therefore, we will provide education. We have recruited 800 people

to educate, and they will be deployed in the regions. I have also asked echelon one and two officials to visit the regions to get our fish industry moving. On the ministry’s performance Not that it failed to do its max but maybe not yet because there are still potentials that have not been tapped. The president assigned me to maximize fish production with more advanced pattern. In Gorontalo for example, when I was the governor I set up Mina Bahari Taxi modeled after Blue Bird and other taxies. So, we have people to handle fishing, ship, fish, manage the money, and etc. I will adopt the concept for all Indonesia. The government will help fishermen and entrepreneurs obtain bank loans. The government has already allocated Rp2 trillion in small business credit (KUR) for micro businesses. The government will also control the prices and keep them stable. Should there be any production excess from fish farms, the government will buy them so there is no need for fish farmers to worry. How the Indonesian people can help to realize the dream Three things, we first need to consume more fish products. Secondly, we have to look after our sea and rivers for the sake of everyone. Thirdly, let’s produce more entrepreneurs in the fishery sector.

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The Economy S&P raises RI`s rating to BB International rating agency Standard and Poor`s (S&P) has raised Indonesia`s long-term foreign currency rating to BB from BB- and affirmed its long-term local currency rating at BB+. In a press statement issued last week, S&P analyst for Indonesia Agost Benard said among the key factors pushing up the rating were improving government debt ratio and growing foreign currency reserves which reduce Indonesia`s vulnerability to shocks, coupled with cautious fiscal management policies. “The rating upgrade reflects steadily improving debt metrics and growing foreign currency reserves with continued cautious fiscal management,” Agost Benard said. The two ratings` outlook is positive. Given the upgraded rating Indonesia is only two notches away from an investment grade and the positive outlook suggests that Indonesia is most likely to see another rating upgrade in the next one year.

Duty-free facilities for telecommunication industry The government is providing dutyfree facilities for the importation of goods and materials to produce telecommunication appliances this year, the Finance Ministry announced last month. To improve the competitive edge of the domestic telecommunication industry the government had set the budget ceiling of Rp 38,771,000,000 to bear the import duties. To obtain the facilities. telecommunication companies should file applications to the director general of customs and excise, along with the import plans approved by the director general of transportation and telematic instrument industries.

Excise receipts reach Rp12.75 trillion Indonesia`s excise receipts in the year ending on March 10 reached Rp12.75 trillion, accounting for 22.26% of the target set in the 2010 state budget. The target of excise receipts for 2010 is Rp57.29 trillion, the Directorate General of Customs and Excise said in its online report. Import duty receipts reached Rp3.15 trillion or 18.98% of the target of Rp16.57 trillion, the report said. Export duty receipts stood at Rp407.43 billion or 5.34% of the target of Rp7.63 trillion. Thomas Sugijata “The excise receipts are relatively high although overall, customs and excise receipts are still low because we are at the start of the year,” Director General of Customs and Excise Thomas Sugijata said.

US lowers anti-dumping duty on RI plastic bags The United States has lowered the rate of its provisionalanti-dumping duty on Indonesia`s polyethylene retail carrier bags to 9.18% from 67.18% previously. “The final rate of anti-dumping duty will be decided on April 14 and we will later lodge the second complaint,” Director of Trade Safeguard at the Trade Ministry Ernawati said here on Friday. “Last week the International Trade Commission (ITC) which determined losses as a result of dumping allegation asked for clarification. We told them that the products exported to the US were hand-made while the US alleged that they came from mass production,” she said. The US-anti dumping authorities have accused 13 Indonesian polyethylene retail carrier bag makers of dumping practices based on the results of investigation conducted since April 20, 2009.

Mulyani: Economy to Grow 5.5% in Q1 The minister said investment had started to recover early this year, recording a higher figure than in the same period last year.

inance Minister Sri Mulyani Indrawati predicts Indonesia`s economy will grow 5.3 to 5.5% percent in the first quarter of this year. “From January to the second week of March, the GDP is still above 5.0% or between 5.3 and 5.5%,” she said at the submission of income tax reports by President Susilo Bambang Yudhoyono, Vice President Boediono and a number of state officials here recently. The minister said investment had started to recover early this year, recording a higher figure than in the same period last year. “Exports are also positive in February and March while consumption has remained constant,” she said. Mulyani said there was also a good possibility the GDP would grow above 5.5%. “Interest rates remain steady

although there is a tendency for them to rise. So, the growth momentum in Q1 is very strong in the Asian region including in our country,” she said. The minister however said that the government would not as yet change its economic growth assumption of 5.5%. “We still use the 5.5% assumption,” she said. Chief of the Fiscal Policy of the Ministry of Finance Anggito Abimanyu said there were several factors for optimism, including the increase by 50% of exports, improving global economic conditions and the absence of increase in Chinese goods imports. “We are optimistic with that estimate,” he said. Anggito said that the government had not yet carried out excessive spending in the first quarter of this year, as no sector needed large spending and no negative indication in the real sector development.

“In our early monitoring in the first quarter of this year the economic growth was still good and there was no turmoil,” he said. “Economy to grow 5.5% in first semester 2010” Indonesia`s economic growth in the first semester of 2010 is estimated to reach 5.5%, driven by the consumption sector, an economist said. “I expect economic growth in the first semester to reach 5.5% and to be mainly driven by retail consumption,” Winang Budoyo, an economist at CIMB Niaga Bank said here Wednesday. Besides consumption, exportoriented manufacturing industries would also be an economic growth driver in the first half of 2010, he said, About economic growth for the whole year of 2010, Winang said CIMB Niaga Bank estimated it would be 5.8% or higher than the government`s projection of 5.5%. The expected higher growth in the second semester of the year would mainly be fueled by the infrastructure sector, which would usually surge during the September-December period, he said.

The Finance Ministry had substantially increased the amount of state expenditures, especially for the infrastructure sector, in the Revised 2010 State Budget. The increase in state expenditures also raised the state budget deficit from 1.6% of GDP in the original 2010 State Budget to 2.1% of GDP in the Revised 2010 State Budget. The government had also raised the state budget allocations for fuel, electricity and basic materials subsidies to ensure price stability. Also raised was the state budget allocation for fiscal subsidies to stimulate several important industries as called for in some of the government`s development programs. About the inflation rate in the first semester of 2010, Winang said it would remain below 4%. “I think it will be within a 3.94% range as the rice problem is to be resolved soon with the arrival of the harvest season.” he said. For the whole year of 2010, according CIMB Niaga Bank`s forecast, the inflation rate would reach 6.3% or higher than the government projection of 5.7%, Winang said.

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ECONOMIC UPDATES

“Interest rates remain steady although there is a tendency for them to rise. So, the growth momentum in Q1 is very strong in the Asian region including in our country.” Sri Mulyani Indrawati Finance Minister

Over One-Third of RI Exports to China Use FTA Facility

BI: RI Economy Set

The value of the exports in 2009 using the facility reached 223.2 million tons worth US$425.5 million.

Bank Indonesia (BI) predicts Indonesia`s economy will grow 5.5 to 6.0% in 2010 and continue to grow 6.0 to 6.5% in 2011. BI Deputy Governor Hartadi A Sarwono said here recently the country`s economic prospects would be better than initially forecast. “While domestic demand remains strong, growth will be driven particularly by external factors in line with global economic recovery as seen from increasing exports since the fourth quarter last year,” he said. He said signs of global economic recovery were clearly seen in various economic indicators in advanced countries (US and Japan) or in Asia (China and India). In the US recovery was reflected in increasing consumption responded to by increasing production, while in Japan it was shown by positive growth in the last quarter of 2009, and in China and India the indications are reflected by high economic growth. The recovery will impact positively on their partner countries, including Indonesia, he said. Indonesia`s non-oil/non-gas exports in the fourth quarter of 2009 were recorded up 17% and continued to increase in January this year. Transactions in the first

hirty percent of Indonesian exports to China are carried out using a tariff reduction facility provided in the Asean-China Free Trade Agreement, Deputy Trade Minister Mahendra Siregar said. Based on the trade ministry`s records, in 2009 Indonesia issued 16,606 Form E certificates of origin (SKA) for exports to China. The value of the exports in the year reached US$2.6 billion. “The more products included in the ACFTA list (for tariff reduction) in 2010, the more SKA Form E certificates will be produced, reaching more than 30%,” he said. Indonesia`s biggest exports to China that used SKA Form E are fuel products/mineral oils reaching 480 with a total volume of 12.9 billion tons worth US$1.01 billion. A lot of exports of fat and animal oil or vegetable oil which is 90% crude palm oil also used SKA Form E. The value of the ex-

ports in 2009 using the facility reached 223.2 million tons worth US$425.5 million. In terms of SKA, textiles and textile products are the ones that have used the facility most (1,916 SKAs) reaching 40.9 million tons in volume and US$57.6 million in value. Rubber and rubber products fell second (1,202 SKAs) reaching 147.4 million tons worth US$225 million. CPO, rubber top commodities to meet ACFTA Crude palm oil and rubber are commodities Indonesia could rely on to deal with the AseanChina Free Trade Agreement, an Agriculture Ministry official said here on Friday. “Indonesia is a leading producer of raw materials. Plantation products and rice are actually our strength,” the Agriculture Ministry`s secretary general, Hasanuddin Ibrahim, said at Agrinex International Expo 2010. However, it is a pity that rice exports are still small to only a few countries and of certain varieties, he said. So, the prospective ones will be crude palm oil and rubber in addition to fishery products like tuna, he said. “Rice will only go to the southern part of China and it is not much while Japan only consumes certain rice varieties,” he said.

With its huge population reaching up to 1.5 billion China has to think hard to meet its food needs, and in view of that the chance for Indonesia to enter that country`s market will be bigger following the implementation of ACFTA. The increasing population and economy in that country will also increase demand for motor vehicles and so Chinese demand for rubber from Indonesia will also be bigger, he said. “We hope we can export not in the form of raw materials but finished products, namely tires. So the downstream industries need to be boosted,” he said A lot of exports of fat and animal oil or vegetable oil which is 90% crude palm oil also used SKA Form E.

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to Grow Until 2011 quarter this year are predicted to give a bigger surplus than initially projected. He said foreign investors` confidence on the country`s economic prospects continued to be better as reflected by the surplus in capital and financial transactions which still remained high. Based on developments the surplus in the Indonesian Balance of Payment (NPI) for 2010 is predicted to be higher than initially projected. “One notch left for Indonesia to achieve an investment grade that would give more confidence to foreign investors to increase their investment in Indonesia,” he said responding to improved ratings for Indonesia by Fitch to BB+ from BB earlier. Besides improving export performance private consumption also showed an improvement, confirmed by various indicators such as imports of consumer goods, car and motorbike sales and retail sales. In the future, household consumption is predicted to keep increasing in line with higher income as a result of improvement in exports and consumers` confidence. The rise in the consumer price index early this year was proven to be mere temporary especially because of the rising price of rice and beliefs that no price hikes will happen in the next few months due to the arrival of harvest seasons in various regions.

“Power Rate Hike not to Affect Inflation” Finance Minister Sri Mulyani Indrawati has given the assurance that a 15% rise in the basic power rate effective July would have no impact on the 2010 inflation rate. “This year`s inflation (has already included an increase in the basic power rate). We will discuss the planned power rate hike with the House of Representatives,” she said after a coordination meeting at the Coordinating Ministry for Economic Affairs here last week. In the draft of the revised 2010 state budget, the government has raised the assumed inflation rate to 5.7% from 5% previously. National Development Planning Minister/Head of the National Development Planning Agency (Bappenas) Armida S. Alisjahbana said the projected 5.7% inflation rate had already taken into account additional inflation from the planned power rate hike.

Armida S. Alisjahbana National Development Planning Minister/Head of the National Development Planning Agency (Bappenas)

“The fiannce minister has already included it (in the draft of the revised 2010 state budget),” Armida said. Head of the Central Statistics Agency (BPS) Rusman Heriawan said earlier the power rate hike, if realized, would contribute 0.36 percent to the 2010 in-

flation rate. “If the power rate is raised in July and the hike is to affect all classes of subscribers, it will contribute about 0.36% to the inflation,” he said Joining the choris is Bank Indonesia, which said the plan to raise basic power rates will only have a small impact on the country`s inflation rate. “The impact will not be significant,” acting Bank Indonesia Governor Darmin Nasution said here on Friday. The central bank said earlier the relatively manageable inflation rate in the January-February 2010 period was also reflected by core inflation which fell year-on-year to 3.88% in February from 4.43% in January. Overall, the inflation rate would remain manageable at the specified range of 5 plus and minus 1% in 2010 and 2011, he said.

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On the Rise: The Indonesian Stock Composite Index (IHSG) continues to rise along with the index of regional bourses. It is expected to hit the all-time mark of 2900 in April.

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A6 April 12, 2010

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The Economy

2010–2011: Critical Recovery Stage The years 2010-11 will be the recovery period unless it takes longer for the world to recover. The forecast so far is that recovery will be a subdued but critical. By Atmono Suryo

Interdependence

2010-2011 Recovery

The world recognizes that in this interdependent world no one country or economic entity can exist or act on its own, not even the US, China, the European Union, Russia or Japan. We are now in the midst of a globalized world with a different setting than years before. The G20, which includes Indonesia, would be the best grouping to deal with uncertain and crucial problems of recovery. One of the key issues relates to the question of Stimulus Programs, the world financial system, the global imbalances and the well-being of the developing countries. With world interdependence,

At one time there was the fear that as the world economy was so weak, it may have to undergo through another dip (the socalled W-type and not the V-type scenario). That is now out of the question, as the forecasts for 20102011 are now more promising. It can now be assured that the global economy is now back on track, a conducive development for the world community, including Indonesia, which can envision good prospects in the coming years. It is subject, however, to internal developments, in particular political and bureaucratic developments.

2010-2011 will be a highly critical recovery stage.

PROJECTION OF GLOBAL ECONOMIC GROWTH

INDONESIA 2010-2012

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the Indonesian economy is also highly influenced by developments in the global economy. This also applies to other developing and emerging countries. Indonesia cannot afford to assume a conservative inward-looking position. It will be required to adjust its stance and policies to fast changing global developments. During 2005-2007 the developments of the global economy was in many ways to the advantage of the Indonesian economy. That was the beginning of the country’s economic growth. At that time global economic growth increased from 4.5% in 2005 to 5.2% in 2007. Because of the global crisis it went down in 2008 to 3% and to minus growth of –0.8% in 2009. This had an adverse impact on the Indonesian economy.

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fter having gone through the most devastating crisis since the Great Depression in the 30’s, the world of today is expected to go through another critical stage: the stage of recovery. Conservative forecasts predict that it will take up at least two years to achieve the pre-crisis level of global growth and developments. The years 2010-11 will be the recovery period unless it takes longer for the world to recover. The forecast so far is that recovery will be a subdued but critical. As economists of the World Bank predict, private capital flows are unlikely to recover to the prescrisis levels for some time as world industrial production has yet to recover to pre-crisis levels.

Global Prospects

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Source: Global Economic Prospect (Jan 2010) and World Economic Outlook (Jan 2010)

The forecast for emerging and developing economies is quite remarkable. In Asia, China and India are on the lead followed by Indonesia and Vietnam. As can be seen from the World Bank and IMF’s projections, the road ahead for 2010-2011 shows an upward trend. The forecast for emerging and developing economies is quite remarkable. In Asia, China and India are on the lead followed by Indonesia and Vietnam. With regard to world trade it is predicted that the volume will increase by 4.3% to 5.8% in 2010 and further to 6.2 –6.3% in 2011. While the global economy will

be recovering during the 201011, warnings continue to be aired that some risks remain, especially as global demand remains weak while protectionism and inflation are rising. In this highly competitive global economy, coupled with low world demand, the risk of rising protectionism will still prevail—trade wars can happen everywhere. In addition, the problem of unemployment is expected to continue, not only in the advanced countries but also in developing

countries, including Indonesia. That is one of the key issues that needs to be overcome. Although global prospects are more promising, the global economy will remain at a critical stage in this recovery period. It remains crucial as it will determine in which direction the global economy will move. It will also determine how the financial structure will develop, including the fate of the weakening US dollar, and how the imbalances in the global economy can be altered. Hence,

The Indonesian economy has shown high resilience throughout the global recession of 2008. Three countries, China, India and Indonesia, were able to sustain positive growth in the sea of world contractions and negative growth. Within one year Indonesia showed that it is back on track. Presently the Indonesian economy is projected to grow at 5.5% in 2010, 6.0-6.3% in 2011 and 6.4 -6.9% in 2012 with the provision that the global economy recovers and international public confidence and expectations improve. Some positive forecasts predict that the Indonesian national goal to achieve 7% growth in 2014 will not be an illusion and that it is within reach. At the macro-economic level the Indonesian economy will continue to be doing remarkably well during the recovery period of 2010-2011. Bank Indonesia is confident that the banking industry will improve significantly and is presently in a stable condition. Some positive points have been reached such as high level of CAR (17%), the comfortably safe level of NPL (below 5%), international reserves of US$ 66 billion (as of the end of December) and low inflation (2.8% CPI). Increased economic growth in Indonesia will still be mainly supported by the consumption factor. Private/household consumption, however, seems to show a

relatively flat trend. The growth of the economy will also be driven by external factors through increased exports and investment. While the rate of consumption has been moving up, the real sectors and the productive segments of the economy are still lagging far behind, in particular the important industrial sector as well as agriculture, which are not moving fast enough, much less the mining industry outside coal. Yet, the real sectors are the ones which should open up employment opportunities, reduce poverty, expand the production of goods and improve the real income of the people. In simple terms, the real sectors have been “stuck in the mud”. It will take strenuous national efforts to take the real sectors out of the muddy ditch. To that end, it is important to note that a special team chaired by Dr Kuntoro Mangkusubroto, head of the President’s unit for Development Monitoring and Oversight, has the crucial task to unravel and unlock the myriad of economic barriers and obstacles which obstruct the country’s development. Meanwhile, the country has to race against time in this highly competitive world in order to strengthen its position in the global economy and also to improve its ranking in the top ten emerging countries with Brazil, Russia, India, China, South Africa, Turkey and South Korea. The writer is former ambassador to the EU.

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April 12, 2010 A7

The Economy

THE INDONESIAN ECONOMY:

Current Developments and National Goals An important development to note is that, notwithstanding the non-conducive political and security upheavals, the economy and financial markets continue to go on, almost undisturbed. By Atmono Suryo

CURRENT DEVELOPMENTS

fter many years of going through a period called “muddling through”, the Indonesian economy has moved to the fast track during the last few years. Together with China and India, Indonesia is now rated among the fastest growth countries in the world. Its macro-economic profile has improved considerably and the economic fundamentals have become increasingly solid. The finance and banking industry, which some years ago were in complete disarray, are now in good shape. Economic growth is underpinned by private and public expenditure (consumption) and lately also by increased trade and investment. Inflationary pressures are going up, but remain under control. The important real sectors, however, have been lagging far behind. They are the weak spots of the economy affecting the welfare of the people, particularly in the area of unemployment and poverty. An important development to note is that, notwithstanding the non-conducive political and security upheavals, the economy and financial markets continue to go on, almost undisturbed. It shows that the Indonesian economy has gained strength and can survive even in an unfriendly socio-political environment.

Growth targets

At a panel discussion, organized by the Indonesian Council on World Affairs (ICWA), Financial Club and EU, the following data (Table 1) were presented by the speakers, Vice Minister of Development Planning Lukita Dinarssyah Tuwo and Dr Umar Juoro. The growth targets of around 6% in 2011 and around 6.4% -6.9% in 2012 are considered by the two speakers to be within reach. They can be achieved with some ease. To reach the target of around 7% - 7.7% for the years 20132014 will not be an easy task. Economic growth will require the developments of infrastructure and easier access to credits with lower interest rates. There is also the need to resolve the bureaucratic problems and improve the business and investment climate. Today, the main driving force for higher growth should come from the private sector. Investment

Investment is a powerful tool to achieve higher growth. As explained by Gita Wirjawan, chairman of BKPM (Investment Coordinating Board), to achieve the goal for economic growth of 7% the government has set the target of Rp. 2,000 trillion per year in investment. The government’s share will be only around 15% and the financial institutions 7%. The rest, or around 55%, of the investment needs should come

from the private sector and 25% from household spending. It will be recognized that the flow of domestic investment has its limitations. Foreign investment will be needed to a very large degree. As BKPM has pointed out, thus far Indonesia has attracted only 0.17% of world total FDI (foreign direct investment). It should be able to attract 0.75% of the world total (2008: US$ 1,7 trillion, 2009: US$1,2 trillion and 2011: projected US$1,8 trillion). According to official data, the target of US$10,5 billion for 2010 is being set. The seven provinces of importance for FDI are Riau, South Sumatra, West Java, East Java, East Kalimantan, West Nusa Tenggara and Papua. It is of crucial importance for Indonesia’s economic growth that the county boosts the inflow of Foreign Direct Investment to complement domestic investment. Dr Lukita emphasized that the role of the manufacturing industry at present is quite low, growing at a low rate of 1.6% in 2009. There is the urgent need to boost the industry to become the backbone of Indonesia’s economic development. Trade

In the area of trade, the export sector has improved after suffering a drop. It is expected that there is little possibility that world demand will increase significantly. The market in East Asia, including China and India, should offer better opportunities for In-

Table 1: The Growth Targets 2010 - 2014 2010 (%)

2011 (%)

2012 (%)

2013 (%)

2014 (%)

GDP

5.5 – 5.6

6.0 – 6.3

6.4 – 6.9

6.7 – 7.4

7.0 – 7.7

Investment

7.2 – 7.3

7.9 – 10.9

8.4 – 11.5

10.2 – 12.0

11.7 – 12.7

Exports

6.4 – 6.5

9.7 – 10.9

11.4 - 12

12.3 – 13.4

13.5 – 15.6

Imports

9.2 – 9.3

12.7 – 15.2

14.3 – 15.9

15 – 16.5

16 – 17.4

10.8 – 10.9

10.9 – 11.2

12.9 – 13.2

10.2 – 13.5

8.1 – 9.8

5.2 – 5.3

5.3 – 5.4

Government Expenditure Consumption

donesian exports. The import sector is producing large amount of uncertainties such as the ASEAN-China FTA that took effect as of January 2010. It will boost imports from China while Indonesia seems illprepared to cope with the increasing number of free-trade agreements. National Goals

As explained by Vice Minister of National Development Planning Lukita Dinarsyah Tuwo, the direction of the Indonesian economy is reflected in the country’s National Development Plans (RPJPN) of 2005-2025. This 20 years plan is divided into 4 stages. At present we are at the Second Medium-Term Development plan (RPJM) 2 covering the period 2010-2014. Second Medium-Term Development Plan/RPJM 2 (2010-2014)

The goals to be achieved in the medium term and at the end of

the term namely 2014 are as follows: • Strengthening Indonesian reforms • Building the competitiveness of the economy, increasing the quality of human resources, enhancing innovation capacity, while strengthening doestic economy Economic Stability (2014)

The goals to be achieved in 2014 in the monetary sector and the State Budget are stated in the above graph (Table 2). One of the key elements to sustain economic stability concerns the deficit of the State Budget, which must be kept low. The revised 2010 budget has widened the budget deficit to 2.1% from the original 1.6% of GDP to accelerate growth. Of particular importance to the people concerns the Welfare Projection that is to be achieved during the currentMedium Term: Welfare Projection (2014)

The current unemployment rate is around 7-8%, which must

Table 2: economic stability Projection 2014 Monetary Sector Inflation rate, Consumer Price Index (%) Nominal Exchange Rate (Rp/US$)

3.5 - 5.5 9,250 - 9,850

Interest Rate (BI Rate - 3 Month) (%)

5.5 - 6.5

State Budget Surplus/Deficit of State Budget to GDP (%)

-1.2

Tax Revenue to GDP (%)

14.2

Government Debt Stock to GDP (%)

Table 3: welfare projection Projection 2014 People Welfare Employment rate (%)

5.0 - 6.0

Poverty Rate (%)

8.0 - 10.0

GDP per capita (US$)

be reduced at a faster rate because of its socio-political implications. With regard to the poverty rate, the government’s goal is to reduce the number of poor people to 16 million in 2014. It is also impor-

3,811

tant to note that another goal is to achieve GDP per capita at US$3,811 (Table 3). The writer is a former ambassador to the European Union.

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Education Pre-University Scholarships Up, Post-Grad Students and Researchers Need Better Funding By Alci Tamesa

he government has increased budget allocation for scholarships to well over Rp4 trillion, in a move that confirms President Susilo Bambang Yudhoyono’s commitment to creating a better educated society. The largest portion of this fund, amounting to Rp257.3 billion, will be for aiding some 932,000 talented but financially weak junior high school students. A further allocation of Rp216 billion will be for supporting 2.4 million elementary school students; while about 300,000 senior high school students will receive scholarships from an allocation of Rp92.6 billion. This plan of action will be realized by the Ministry of National Education as of this year, says Prof. Dr. Muhammad Nuh— the education minister. Compared to scholarship allocation in 2009 state budget, there is now a significant increase of Rp1.2 trillion, an indication that the government is becoming more serious now in assisting students from economically weak segments of society.

The fund is primarily meant to support pre-university students with exceptional abilities. It is part of this year’s total educational budget of Rp221.47 trillion that has been approved in the revised state budget. The allocation for education is about 20 percent of the government’s total budget this year and given the huge amount involved, critics were saying in early March that a more stringent set of measures should be in place to ensure efficiency and prevent manipulation. But only a week after the announcement on budget increase was made, Jakarta newspapers published stories about at least Rp1.2 trillion in educational spending having either been embezzled or inappropriately used. Government Audit Agency (BPK) discovered recently that for 2009 alone, utilization of at least Rp1.2 trillion was categorized as “problematic.” This allocation was actually meant for assisting 21 universities but surprisingly, the fund was released without approval from the education minister. In fact, as explained to Jakarta journalists by legislator Rizal Djalil, the educa-

tion minister had actually rejected the proposal for releasing the fund. Investigations are going on to clarify the issue and concerns are now rising from every direction for closer monitoring of the ministry’s spending. PhD Scholarships

As the government increases scholarship funds for pre-university recipients, educators are now calling for bigger allocation for researchers and post-graduate students. The reason is simple: Indonesia needs more high-level innovators and experts to drive many sectors of the economy. According to 2009 data from the Ministry of National Education, Indonesia has almost 7,400 PhDs from a total population of 238 million. So the ratio is 1:32,162 or 31 PhD in every one million population. In comparison, the United States has 2,002,000 PhDs or 6,500 in every million population. Japan’s PhD ratio is 4,800 in every million population, meaning it has 609,600 PhDs. France has 268,700 PhDs or 4,700 in every million population and India has 1,697,000 PhDs or 13,000 in

A Golf Tournament Marking the 45th Anniversary of UNNES Around 136 participants took part in the event, which held at the beautiful 18-hole Borobudur International Golf and Country Club, Magelang By Gunawan Wibisono

NNES, which stands for Universitas Negeri Semarang (State University of Semarang), trains teachers of different disciplines. It was formerly called IKIP (Teachers Training Institute), with its campus in the Central Java capital city of Semarang. In March this year UNNES celebrated its 45th anniversary by holding various activities, one of which was a golf tournament held at the beautiful 18-hole Borobudur International Golf and Country Club in the center of Magelang, which is famous for its magnificent scenery and cool climate. The tournament took place on March 20th, 2010, with tee off time at 07:00 am. Around 136 participants took part in the event, among them Mr Sudiono Sastroatmojo, the Rector of Unnes, Mr Bedjo Sujanto, the Rector of Universitas Negeri Jakarta, Mr Mardianto, the former Minister of Home Affairs, and Mr Subiakto Cakrawerdaya, the former Minister of

Cooperatives and Small Medium Size Businesses. High ranking officials of the Central Java’s Department of Education also took part, namely Mr. Kunto Nugroho, Mr. Jasman, Mr Nur Hadi Amiyanto and Mr Kartono MPd. The regional CEO of BRI (Bank Rakyat Indonesia) of Central Java and his 15 branch managers together with the regional CEO of BNI and 10 of his branch managers also joined the pack. Golfers of various professions from different places also competed in the event. All of them attended and enjoyed the lunch and prize giving party, and stayed until the entire event was over. Expats and lady golfers made the event even merrier. It was reported that all tickets were sold out a week before the date of the event, leaving quite a few numbers of eager golfers with no chance to participate in it. It is worth mentioning that there were three golf tournaments on March the 20th in Central Java, held in Cilacap, Semarang

Borobudur International Golf and Country Club

and Magelang. Most golfers in Central Java surely knowthere are two golf courses in Semarang. An intriguing question worthy of being raised: Why did UNNES decide to hold its anniversary golf tournament in Borobudur International Golf in Magelang? Mr Hadi Rahardja, one of the founders of the Jababeka Industrial Estate, has always insisted that a golf course has to maintain its three main components in superb condition, namely, good quality of the course, good food, and excellent services rendered by its employees. And he will do whatever it takes to make sure that in every golf course he manages, those three components are in place. In his speech before prizes were handed over to the winnersw, Mr.Sudiono said he was impressed by the cooperation, cordiality and sincere hospitality he always gets every time he comes to the Borobudur International Golf and Country Club. Thank you, Mr Sudiono!

every million population. This simply means the Indonesian government needs to provide bigger funds to support PhD candidates and researchers. As it is today, sources of scholarships for this level of study are very limited; more so for researchers who wish to conduct long-term research activities. In terms of “university participation,” a term used by the government to describe involvement in university studies, Indonesia is also lagging behind other countries. At present there are only about 4.5 million students on more than 2,600 university, college, and academy campuses across Indonesia, meaning that some universities have very small numbers of students and may have to be merged with stronger ones. But the number of primary school students is six times bigger. According to Vice Minister of Education Prof. Fasli Jalal, there are 29 million such students now at school, not to mention an estimated 4.5 million new babies born every year that will systematically increase the size of preuniversity segment of the population. Consequently, it will be very difficult to correct the graduateto-population ratio because more students will shift to vocational schools in order to quickly get a job. In such a situation, Indonesia will produce more pre-university skilled workers rather than experts with university education.

Role Models

Perhaps Indonesia can learn Cuba’s experience in developing human resources, analysts say. UNESCO predicted in 2005 that by 2015 Cuba will have emerged as an exceptional country in terms of educational development, similar to Canada, Finland, and Korea. In the UNESCO report, Cuba was singled out as a high performing country in terms of educational policy and a role model to follow in terms of the quality of its educational system. The developing country with 11 million people spends 11 percent of its GDP on education; providing free education from elementary school to college levels and now one in every 15 Cubans holds a university degree. It now has 96.9 percent literacy rate, its student-teacher ratio is 13.5 in primary schools and 15 for higher levels. Compare this to the average 40 in American and Indonesian schools. The People’s Republic of China is another role model in terms of educational pragmatism. Its education policy is directed toward supporting the economy in every angle. Even foreign companies such as Starbucks are required to provide scholarships to local students in return for their operations in rural areas. In this way China has been able to control a huge portion of Asian manufacturing market. Reacting to this, Chairman of Indonesia’s Institute of Sciences (LIPI) Prof. Umar Anggara Je-

nie says it’s time the government raised assistance for PhD candidates in every field because Indonesia has a great number of talented students of this level who need financial support. Likewise, the government must increase the allocation for research funding because research is the source of industrial innovation and creativity which could lead to strengthening of the economy. The LIPI chairman says that the focus must be on to areas— one is universities that have postgraduate programs; the other is the government sector. Such institutions as LIPI, Agency for Assessment and Application of Technology (BPPT), Ministry of Health, and Ministry of Agriculture need more experts so there must be efforts to increase the number of PhDs in those institutions. Indonesia needs more experts in the field of food production, health, sciences, climate change, infrastructure, energy especially electricity, and mining, Prof. Umar says. Similar to this, Prof. Kusmayanto Kadiman, the immediate past minister for research and technology, says that universities must rewrite their curricula to match “natural realities” around them, meaning that every university must become the center of excellence for maximum development of all the natural resources in its surrounding. This is what is tragically lacking in Indonesia. Most universities do not

“

Educators are now saying that the good policies introduced by the SBY government need to be put in a broader framework that transcends political interest so that national leadership succession will not bring mercurial changes in the nation’s education system.

conduct research on natural resources due to lack of fund, expertise, and networking. But the biggest problem in the sector of education is, as always, policy consistency. Indonesia does not have a system to ensure consistency of education policies. Every time there is a change in national leadership, education policies also change. This has been the case for decades. Educators are now saying that the good policies introduced by the SBY government need to be put in a broader framework that transcends political interest so that national leadership succession will not bring mercurial changes in the nation’s education system.

Business BUSINESS BRIEFS RI coal fired power plants secure credits Japan Bank for International Cooperation (JBIC) and a number of foreign financers have pledged a loan of US$1.81 billion for two coal-fired power plants in Java. The foreign financers agreed to loan US$1.21 billion for the third unit of Paiton power plant in East Java and US$595 million for the 660-megawatts Cirebon power plant in West Java. JBIC, which is the lead arranger, will provide US$729 million for Paiton and other banks such as Bank of Tokyo Mitsubishi, Mizuho Corporate Bank Ltd, and Sumitomo Mitsui Banking Corp will provide the rest.

RI insurance industry reports strong growth The insurance industry posted Rp89.4 trillion (US$97. billion) in gross premium income in 2009, an increase of 20.8% from the previous year. Life insurance companies accounted for the largest proportion of the total premium income with a contribution of Rp62.2 trillion up from Rp50.4 trillion in the previous year. Julian Noor, the vice President of PT Asuransi Bumiputeramuda 1967 (Bumida), attributed the improved performance of the industry to fairly strong economic growth in 2009 despite the impact of the global financial crisis.

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Bukit Asam Posts Rp2.7 t Profit, as State Mining Firms Eye Freeport The rise in net profit raised earning per share to Rp1,184 from Rp741.

ublicly-listed coal mining firm PT Tambang Batubara Bukit Asam Tbk (PTBA) posted a net profit of Rp2.727 trillion last year, up 59.75& from a year earlier. Income rose 23.98% to Rp8.947 trillion and gross profit jumped 37.19% to Rp4.843 trillion, according to the company`s financial statement published on Monday.

The cost of goods sold was meanwhile recorded at Rp4.014 trillion, a 11.34% increase compared to 2008 when the figure was Rp3.686 trillion. The rise in net profit raised earning per share to Rp1,184 from Rp741. President Director of PTBA Sukrisno said he was considering a purchase 9.36% of the shares of PT Freeport Indonesia. “If possible we will even take it

over, but of course after studying the company`s financial report,” Sukrisno said. “Freeport`s financial account may not be good, but if it is favorable to us, we may just do it,” PT Aneka Tambang Tbk (Antam) president director Alwinsyah Lubis meanwhile said on the sidelines of a meeting between the State Minister for State Enterprises and the Public Policy Committee themed Setting the Political Economy and State Enterprises` Prospects, in Jakarta recently. Earlier, State Enterprises Min-

Indocement ups production by 1.5 m tons

UOB Indonesia`s profit up 19% in 2009

Gajah Tunggal earns net profit of US$98 m in 2009 Tire maker PT Gajah Tunggal reported a net profit of Rp905.33 billion (US$98.4 million) in 2009, against a net loss of Rp624.79 billion in the previous year. Gajah Tunggal president Christopher Chan Siew attributed the improved financial performance of his company to foreign exchange gain with net sales falling slightly by 0.25%. Last year, the company posted Rp486.89 billion in foreign exchange gain as against a loss of Rp786.36 billion in 2008.

ister Mustafa Abubakar said he will encourage the state mining company to buy 9.36% of Freeport shares. In the meantime, Alwinsyah Lubis said he was still expecting directions from the government in the acquisition of 9.36% of the shares of PT Freeport Indonesia. “If the government supports the state mining company to join Freeport, we would be very happy,” Alwinsyah said. But he added that a comprehensive study would be necessary before joining Freeport, and

as such the purchase is unlikely to take place this year. “This year we are focusing on the construction of a chemical grade alumina plant Takhyan, and a power plant in Pomala, South Sulawesi,” he said. He said that funding of the two projects is expected to be secured this year from the Japan Bank for International Cooperation (JBIC). Another state mining company who has also been nominated by the government to join Freeport is tin company PT Timah Tbk.

PT Dirgantara Indonesia Poised to Build Amphibious Planes

Publicly-listed cement maker PT Indocement Tunggal Prakarsa Tbk looks set to raise its annual production by 1.5 million tons as of May when its two new cement plants start production. Indocement corporate secretary Dani Handayani said on Monday the construction of the two new cement mills cost an estimated US$35 million. She said the company was also planning to build another cement mill in Citeureup, West Java, with a production capacity of 1.5 million tons. The new cement mill is expected to start production in 2012. Indocement has set itself the target of producing 20.1 million tons of cement this year compared to 18.6 million tons last year. Indonesia`s cement consumption grew 0.9% to 38.4 million tons last year while its cement mills had a combined production capacity of 46.2 million tons.

Publicly-listed PT Bank UOB Buana Indonesia said on Sunday it posted a net profit of Rp389 billion last year, up 19.3% over 2008. “The growth was contributed by growing net interest income which rose 19% to Rp975 billion in 2009 from Rp817 billion in 2008,” UOB Indonesia President Director Iwan Satawidinata said in a press statement. The bank`s loan-to-deposit ratio (LDR) was recorded at 81.7% last year, while the amount of third party funds rose 2% to Rp9.307 trillion last year due to an increase in the number of time deposits. The bank noted time deposits rose 4% or Rp325 billion to Rp8,130 billion last year on competitive interest rates. Last year the bank managed to keep its net interest margin (NIM) at 4.2%. Return on equity (ROE) climbed to 16.6% in 2009 from 1.6% a year earlier, while the ratio of cost to income fell to 64.5% in 2009 from 71.3% in the previous year.

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Three airline companies in Indonesia are currently operating 24 A319/320 planes.

GMF Meets Requirements of A320 Maintenance The conclusion was made on the basis of the audit by two EASA auditors Bruno Faucher and Emmanuel Heugas

aruda Indonesia`s subsidiary PT GMF AeroAsia meets the requirements and procedures of the maintenance of A320 aircraft according to the civil aviation authority standards of the European Aviation Safety Agency (EASA). The conclusion was made on the basis of the audit by two EASA auditors Bruno Faucher and Emmanuel Heugas, Fuad Abdullah said in his capacity as VP Quality Assurance & Safety of PT GMF AeroAsia in Jakarta Monday. He told ANTARA here that the European civil aviation authority agreed to a change in rating of the maintenance of A320 aircraft following an audit at the GMF

from March 2 to 7, 2010. “According to the result of the audit, our company meets all the EASA conditions for the maintenance of A320 planes. The fiveday audit covers all aspects of maintenance like personnel, facilities, training, equipment and procedures,” he said. He said that one of the EASA findings is related to personnel quality for Non Destructive Testing-NDT. Under the EASA requirements, NDT personnel need to be qualified according to the European Standard 4179:2000 (EN 4179), or national standard. But as Indonesia still has no such standards, EASA suggested Indonesia to apply for a European qualification or from other countries. Richard Budihadianto said in-

creasing a rating of A320 is an important asset in business development, especially in aiming at the A320 maintenance market. The number of A320 aircraft on the domestic and international market continued to increase in line with the increasing number of operators of this type of plane. The number of A319/A320 planes in Southeast Asia had reached 181 units. In the last five years, the number of A320 and B737-NG aircraft in Indonesia had been increasing in line with the increase in the number of operators of these planes. Many airline companies have replaced their planes with these aircraft. Three airline companies in Indonesia are currently operating 24 A319/320 planes.

State aircraft industry PT Dirgantara Indonesia (PT DI) has the capacity to build amphibious planes, member of Commission I of the House of Representatives Al Muzammil Yusuf said Thursday. He said that amphibious planes may provide a solution to Indonesia as an archipelago because such aircraft can land in many places without depending on land infrastructure. He even suggested the President to develop PT DI by building amphibious planes. “Actually the President, through the defense minister, the research and technology minister, the minister of state enterprises, and the home

minister, needs to bridge the regional administration heads to open transportation routes by using amphibious planes,” he said. But the company`s minus financial balance sheet is posing a serious obstacle to PT Dirgantara Indonesia in building airplanes and undertaking strategic projects in the aviation sector. Technology and development director of PT Dirgantara Indonesia Andi Alisyahbana said in Bandung that PT DI will build amphibious planes in cooperation with the German plane builder Dornier Seawings. “PT DI is currently preparing the production and customer after sales support. And the amphibious planes will be marketed in 2012,” he said.

BTN Net Profit up 14% PT Bank Tabungan Negara (BTN) made a net profit of Rp490 billion in 2009, up from Rp430 billion in 2008. Its president director, Iqbal Latanro, said in a press conference here last week the jump in net profit was driven by a rise in income reaching Rp5.73 trillion or 25.65%, from Rp4.56 trillion achieved in 2008. “Ninety percent of our income came from interest revenue,” he said. He also said that the bank`s financial ratio could be maintained well by the management despite unconducive macro-economic conditions in 2009 as shown by tight liquidity that required banks to adjust their lending rates. In 2009 BTN booked

Rp58.5 trillion in assets, up 30.06% from 2008`s assets of Rp44.9 trillion. Its total credits in 2009 reached Rp40.7 trillion or grew 27.19% from Rp32 trillion recorded in 2008. “The achievement is made due to expansion of corporate credits that reached Rp16 trillion in 2009,” he said. Iqbal predicted this year the bank could grow around 27%, which is bigger than the project growth of the industry of 18 to 20%. He said the bank`s non-performing loans until the end of 2009 could be maintained at 2.7% (NPL Net). The bank`s capital adequacy ratio until the end of 2009 meanwhile reached 20.7% with a net interest margin at 4.7%, he said.

GarudaFood Sees Rp5 t Sales in 2010 The target was set based on the company’s increasing business growth trend in the past 20 years and on Indonesia’s improving macro economic condition.

“We are upbeat on achieving sales growth to Rp5 trillion this year from Rp4.1 trillion in 2009,” Sudamek said during a media gathering last month. He also based the optimism on the government’s 6% economic growth target this year. In its latest forecast IMF sees the world economy growing sharply from minus 1.1% last year to 3.1%.

Data from the Association of Indonesian Food and Beverage Producers (GAPMMI) shows that the food and beverage industry grew 6% in 2009, down from 8% in the previous year. “GarudaFood enjoyed up to 16% growth during that period or above GAPMMI average,” said GarudaFood President Commissioner Dorodjatun Kuntjoro Jakti. Meanwhile, GarudaFood Putra-Putri has decided to postpone its initial public offering (IPO)

arudaFood bids to boost its sales by 22% this year to Rp5 trillion from Rp4.1 trillion last year. The food and beverage producer also aims to achieve sales of up to Rp20 trillion in the next five years. GarudaFood CEO Sudamek AWS said the target was set based on the company’s increasing business growth trend in the past 20 years and on Indonesia’s improving macro economic condition.

plan once again. The company had initially planned to hold the IPO in 2009 but delayed it on uncertain economic conditions. The plan will be put on hold until 2012. According to Sudamek, the company will first prepare the plan well before proceeding with it. “It is the management’s decision which has received the shareholder approval that we delay the IPO. It is most realistic to hold it in 2012,” he explained. He further elaborated that the IPO is aimed to support its ambition to become the number 2 biggest F&B company in Indonesia by 2015, especially amid the robust food and beverage business. The company recorded Rp4.1 trillion in sales last year and hopes to boost the figure to Rp5 trillion in 2010. GarudaFood Managing Director Hartono Atmadja said In-

donesia’s capital market condition was not conducive for IPO last year and that Indonesia was also holding a general election that could have resulted in economic growth contraction. GarudaFood will continue to focus on the domestic market by selling 20 flagship products and at the same time expand to international markets and tap new businesses. “Indonesia’s prospect is still good, while China’s and India’s potentials are also promising for the next few years,” said Sudamek. GarudaFood launched its business in 1990 with Garuda peanut product. In 1994, the company started the tapioca business in Pati, Central Java, and initiated its distribution network in Indonesia, the key to the company’s success in the food and beverage business in the country. GarudaFood produces 100

different kinds of products, including 20 flagship products. It has 11 factories in Java, Sumatra, Lombok and Sulawesi.

GarudaFood launched its business in 1990 with Garuda peanut product. In 1994, the company started the tapioca business in Pati, Central Java, and initiated its distribution network in Indonesia, the key to the company’s success in the food and beverage business in the country.

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Load Work: Workers at Sunda Kelapa Harbor, Jakarta, haul cement bags into a boat destined for Sulawesi. The national demand for cement continues to rise in line with the country’s strong economic development.

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Business Taxing Times – Transitions, Tax Treaties and Uncertainty The purpose of this article is to briefly consider just one of the many recent developments, which are causing some stress and uncertainty to the business community at large. By Philip J. Shah

here are many significant recent developments in the field of taxation. Initial experience with one of these, the new “anti treaty shopping” tax regulations, suggests that Indonesia should proceed cautiously in order to minimize the potential damage which hasty implementation could cause to its investment competitiveness. As background, Indonesia’s tax reforms of 1984, together with

In order to give a clear and certain message to prospective and current investors and to resolve competing policy issues, it would be helpful if Indonesia postponed the implementation or enforcement of these regulations until there has been a full and effective socialization within the private and public sector, including the involvement of Indonesia’s economic policy makers.

the reform of customs, were considered foundation stones of Indonesia’s economic deregulation program, and intended to improve legal certainty and business competitiveness. A related element of Indonesia’s deregulation plan was the rapid expansion of its tax treaty network (now 58 treaties and growing). The past decade has seen major initiatives and developments aimed at reforming the environment and expanding the tax base. Some of these areas are as follows: • The modernization of the tax administration and significant reform of the tax law aimed at improving the good governance of the tax administration and strengthening the rights of taxpayers, • A greater emphasis on the taxation of individuals, and • Recent regulatory responses to the use of tax havens, abusive tax schemes, transfer pricing, and money laundering, etc. These and other developments reflect a complex and multi faceted series of long term transitions which Indonesia is engaged in. This environment creates considerable stress and uncertainty. The purpose of this article is to briefly consider just one of the many recent developments, which are causing some stress and uncertainty to the business community at large.

Some initial observations regarding the regulations affecting the use of tax treaties are as follows: • Indonesia issued two regulations (61 and 62) on 5th November 2009, which impose additional requirements effective 1st January 2010 for those wishing to utilize Indonesia’s network. The purpose of the regulations is to prevent the abuse of tax treaties. These requirements focus on residency and beneficial ownership of the foreign income recipient. They are complex in that they are to be interpreted within the context of International as well as Indonesian Law. They have generated considerable reaction and uncertainty. • One source of disappointment is that the issuance of these very significant regulations was not preceded by a period of socialization with the public at large. The regulations are not only complex, but are still evidently uncertain in a number of important respects. Some changes have already made to these regulations by the Tax Authority and significant matters are in the process of ongoing debate and discussion. These matters include clarification of the concept of special purpose vehicles (SPVs), and confirmation of which types of income are subject to the new eligibility criteria. • If care is not taken, immediate implementation or enforcement of these new requirements could be at the expense of “due process” and respect for the terms of international law (e.g. the Vienna Convention on the Law of Treaties) and possibly Indonesian law also. • The economic impact of these

regulations has also to be considered. Indonesia’s income tax rates are trending downwards, but by no means are they yet fully competitive, Regulations 61 and 62 threaten, for example, to impose a highly uncompetitive rate of 20 percent tax on the gross interest cost (or 25% of net - the domestic law rate, absent the benefit of a treaty) on many major Indonesian investors, which use SPVs. These economic considerations are a matter for Indonesia’s policy makers, not just the Indonesian tax authorities whose first priority is tax collection. Do the country’s economic policy makers wish to execute such tax policies which could adversely affect its competitiveness? Indonesia is at a critical point in its economic development, as are its efforts to increase its competitiveness in a highly competitive world. Recent developments referred to above are perceived as being contrary to such efforts and contradictory to the messages of other Government agencies, such as the BKPM, seeking to promote and attract investment to Indonesia through tax holidays, and other tax incentives. In order to give a clear and certain message to prospective and current investors and to resolve competing policy issues, it would be helpful if Indonesia postponed the implementation or enforcement of these regulations until there has been a full and effective socialization within the private and public sector, including the involvement of Indonesia’s economic policy makers. The writer is Chairman Tax Committee at International Business Chambers (IBC)

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Strong Dollar: The exchange rate of the US dollar against the euro and other major currencies has risen as uncertainty over EU aid to Greece prevails.

BHIT to Acquire Oil, Gas Bloc in South Sumatra Bhakti Investama (BHIT) signed a binding agreement with a local partner to jointly acquire an oil and gas bloc in South Sumatra. BHIT Head of Investor Relations & Corporate Secretary Robert Satrya said the company has completed a joint study and submitted it to the oil and gas regulator BP MIGAS. The cooperation is awaiting approval from BP MIGAS which is expected to issue its decision in the middle of this year. “Under the binding agreement, Bhakti Investama will have a majority participating interest and will be the operator responsible for exploration and development funding,” Robert told the Indonesia Stock Exchange last week, adding that Bhakti Investama has employed a highly capable

management team and professionals to operate the bloc. He added that the oil and gas bloc is located in the southern end of the proven, prolific South Sumatra basin, in South Sumatra. Over the years the South Sumatra basin has accumulated production of more than 3 billion barrels of oil. To the north and west of the bloc under consideration, several producing oil and gas blocks were encountered and are still in production by major oil corporations. “The block is predicted to have a moderate risk exploration opportunity but with high potential to provide high returns. If the bloc is awarded, there will be a significant favorable impact to the financial performance of Bhakti Investama as current study has indicated that the bloc is most likely to have a risk case

reserve (reserve that have taken into account all risk parameters) of 50 MMBO (million barrels of oil), a rare sizable reserve in Indonesia,” he elaborated. Earlier, BHIT announced that it was going to hold a rights issue through non privilege rights mechanism. The new shares will account for 10% of the company’s total shares. The Indonesia Stock Exchange temporarily suspended BHIT share trading (10/3/2010) after the cumulative share price increased significantly by 225.58% from Rp485 to Rp700 during 9 March 2010 trading. Speculations that Bhakti was planning to acquire insurance and coal mining companies sent its share price to the roof. BHIT’s share price was traded at only Rp215 on 16 February 2010.

Garuda Books Rp1 trillion in Profit in 2009

lag carrier Garuda Indonesia Airlines fetched Rp1 trillion in net profit in 2009, up from only Rp669 billion in the previous year. Garuda Indonesia President Director Emirsyah Satar in a press conference (17/3/2010) attributed the achievement to various commercial measures and aspects, operational, financial, and better efficiency. However, Garuda’s revenue dropped to Rp16.7 trillion from Rp18 trillion the year before. Emirsyah said avtur price decline of 40% in 2009 had affected ticket prices, which eventually also affected revenue. “Although we gained 3% passenger increase, the avtur price drop of 40% on average had eaten our revenue,” he said. The state airline company is

seeking for 15% overall growth this year, starting from net profit, revenue, and load factor. The company has allocated capital expenditure of US$100 million this year, sourced internally. The funds will be used to buy 24 new aircraft, comprising 23 B737-800s and one unit of A330200. “We will take delivery of two new aircraft each month,” he explained. Emirsyah added that Garuda is also planning to continue its refurbishment program on B747400 and A330-300 units and open 12 new routes to Bengkulu, Tanjung Pandan, Ambon, Palu, Ternate, Amsterdam via Dubai and more. Garuda is also planning to restructure all its debts which amount to US$527.8 million this

Garuda Indonesia President Director Emirsyah Satar

year and will talk to its creditors regarding the plan. Garuda Finance Director Eddy Porwanto said in restructuring its debts, the company is faced with several options, which include re-

scheduling, debt to equity swap and repurchase through tender mechanism. “The a mou nt of debt has much declined, f r o m Photo: www.vivanews.com US$868 m i l l ion in 2006 to US$527 million in January 2010,” he elaborated. Eddy said the debts come from European Credit Agency (ECA) which amounts to US$241.2 million, commercial lender

Dress Up, Trade Up Smarter dressing connotes better social etiquette, education and even higher intelligence.

“There is no reality, only perception” - so says the mantra of professional branding. The difference between one product being chosen over another is often simply greater visual impact. In business and diplomatic matters however it is you the individual who is substituted for the product and what you wear serves as your packaging. Smarter dressing connotes better social etiquette, education and even higher intelligence. The way you manoeuvre self-styling creates perceptions of your ambition and sense of worth with your attire often being the deciding factor in whether you get that business deal or not. Dressing up is two parts trading up. That being said, putting on a traditional two-piece like the average Joe does not guarantee authority or success. Dressing up means dressing right, so shun the pundits of arbitrary garbs and approach your wardrobe with the same precision and calculation you extend to your finances – go

professional. The first step to upgrading your image involves deciding on the overall personality you want to exude. Then use the expert guidance of an image consultant to pick out a few quality and signature pieces that reflect both your style and your branding. The profits in dressing successfully are valued in terms of fit, colour and overall style and appropriateness with points deducted for looking either too sloppy or too loud. Dressing up should also never be formulaic – personality counts and your attire should convey that. Your image consultant will hence take note of your lifestyle choices, environmental requirements, nature of business and so on and then cuts them into a literal and figurative power suit. Balancing quirks with effortless classics, you can work with him or her to create an index of looks and styles that speak for you and of you. There is no need to break the bank either with wallet-friendly consultants

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US$95 million, Floating Rates Notes (FRN) worth US$75 million and Rp108 billion, and other debts amounting to US$105 million. Eddy added Garuda aims to reduce the amount of debts to about US$400 million by the end of 2010. He claimed that Garuda has secured debt restructuring approval from most of its creditors. “Except for ECA because it is still in the process of documentation negotiation (dalam proses negosiasi dokumentasi) and we hope to finalize it very soon,” he said, adding that Garuda is committed to make at least US$45 million payment to ECA and that the figure is still being negotiated. On Garuda’s plan to go public, State Minister of State Enterprises Mustafa Abubakar said the

government wishes to retain its position as the controlling stakeholder in the airline company with up to 60% shares and thus Garuda may only sell 40% of its shares to the public through initial public offering. “The government will control 60%. We agreed to keep 60,” Mustafa said. He said the government will prioritize selling Garuda shares to domestic investors and provide as small as possible room for foreign ownership. “We haven’t decided yet. We wish to give as much as possible to domestic investors as in the case of BTN, where 80 is bought by domestic (investors) and 20 by foreigners,” he said. Garuda plans to hold an IPO in June this year to raise fresh funds of US$300-400 million

which will be partly used to restructure the company. Mustafa also said that the ministry is planning to retain Emirsyah Satar’s position as Garuda Indonesia president director because the company is preparing an IPO. “Garuda is focusing on preparations to go public. We have a mechanism to temporarily extend the terms of Garuda directors,” he said at the discussion on the establishment of state plantation holding company in Jakarta last week. He added that the extension mechanism can be applied to companies with special condition or to those that have not held a fit and proper test for new directors. Emirsyah was appointed as president director on 17 March 2005 and is supposed to end his term at the end of March 2010.

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April 12, 2010 B3

Investment The situation at present is very conducive and as such he is optimistic investment would increase.

A number of Dutch investors have expressed interest in building hydro-power plants (PLTA) in Bangka Belitung (Babel) province to meet the power needs of the people in remote and isolated islands. “The interest of the Dutch investors provides an opportunity for the government to meet the needs of the people living in remote and isolated small islands for electricity,” chairman of the Babel legislative Council (DPRD) Ismiyardi said in Pangkalpinang Thursday. He made the statement in view of the declaration of Babel, along with 12 other provinces in the country, as an area facing a power crisis. “Some of the Dutch investors have even already conducted a survey in the province to study the prospects of PLTA including its impacts,” he said. He said that the building of a PLTA would be more benefi-

“Investment is increasing and so is the interest of foreign investors. The head of the Capital Investment Coordinating Board (BKPM) is also optimistic that that investment would increase,” he said. He noted there are still investment projects that have not yet been put in the BKPM list of realized projects. “Based on realization, those in the BKPM list do not represent all investments yet. Investments in the oil and gas sector have not yet been included,” he said. BKPM Chief Gita Wirjawan said BKPM has targeted investment growth of 15% in 2010 to reach Rp160 trillion, up from Rp135 trillion in the previous

Chief Economic Minister Hatta Rajasa

year. “We can say that in 2010 investment will grow 10 to 15%, from Rp135 trillion last year,” he said. Gita believed it would be achieved through improvements

in management and the one-stop service facility. RI economy facing investment challenges Meanwhile, economist of Citigroup Johanna Chua said “the most important challenge Indonesia in trying to improve its economy and generate its economic growth is how to increase investment. Chua, in a seminar on the 10th Annual City Indonesia Economic and Political Outlook 2010 last week, added that investment growth in 2009 was too low so that its contribution to national economy was also too small. “Investment growth in 2009 was very low, only about three percent. It should be improved in 2010,” the economist said. She said the government needed to pay attention to the investment activities in the country and

issue supporting monetary polices so that investment could be more generated. Based on a survey, in terms of foreign direct investment, Indonesia is the 15th most attractive nation for would-be investors. “The cost of workers, availability of resources and regulation issues are factors that put Indonesia in the 15th position,” Johanna said. However, she expressed optimism that Indonesia`s economy would improve in 2010 and become better than that in 2009. “One thing that needs to be watched is the upward trend of inflation which would happen in line with improving economic conditions. Also, the government should manage well bonds which are in the hands of foreign investors, particularly when advanced nations adopt an exit policy strategy,” she said.

In Need of Industrial Clusters The government is cooperating with Japan to develop three agro-based industrial clusters. By Eka Putri

he government is set to push for the development of industry clusters to attract investments and to spur the economic growth. The government is cooperating with Japan to develop three agrobased industrial clusters, namely Semangke Kuala Tanjung industrial area in South Sumatra, Dumai area in Riau and Maloi area in Kalimantan. Deputy Minister of Agriculture Bayu Krishnamurti said Japan is a prominent trading partner for Indonesia’s agricultural products and the government will therefore offer six economic corridors to Japanese investors. “Agriculture will be affected by the economic corridors because three out of six corridors proposed will highly support the development of the agriculture sector,” Krishnamurti said in Jakarta recently. He added that the industry clusters in Sumatra are expected to provide additional values to the local prime commodities. Semangke Kuala Tanjung in the southern area of North Sumatra will collaborate with state plantation company PTPN III, while, in Dumai, Riau the industry cluster will be developed at its industrial site. “The concept will resemble the Delhi-Mumbai economic corridor in which the infrastructure is built in an integrated way with the electricity and transportation being linked to the local econom-

ic potential,” Krishnamurti said. Clusters are groups of inter-related industries that drive wealth creation in a region, primarily through export of goods and services. The use of clusters as a descriptive tool for regional economic relationships provides a richer, more meaningful representation of local industry drivers and regional dynamics than do traditional methods. Building industry clusters is also an effective strategy to overcome limited development budget. In 2003, the Asian Development Bank found Indonesia as the country with the poorest infrastructure of the 12 countries it studied, lagging behind Singapore, India and even Vietnam. The government had blamed the lack of funding as the reason for the poor infrastructure. During a visit to Cilegon, Banten, Industry Minister MS Hidayat said that the government has designated three areas in the provinces of Banten, East Java and East Kalimantan to develop clusters of petrochemical industries. Banten would be developed into a cluster of olefin industries, East Java a cluster of aromatic industries and East Kalimantan a cluster of gas-based industries. “In the future the development of petrochemical industries will be directed towards creating clusters of industries to improve their competitive edge,” he said. The government had earlier also chosen Kalimantan, Sumatra, Java and Papua to be de-

veloped into integrated industry clusters for agro-based industries. Hidayat explained that the development of industrial clusters is aimed at strengthening the country’s industrial structure which would integrate upstream and downstream industries. To that end, the government was encouraging national businesspeople to take optimum advantage of local resources to meet their industries’ demand for raw materials. “To support the effort the government has drawn up a number of policies, including a regulation on enhancing the use of domestic products,” the minister was quoted as saying by Vivanews. Hidayat hoped that the government’s policy which provides

Aerial view of Dumai Industrial Clusters

domestic industries with easier access to local resources would help them improve their performances. According to him, the chemical industry, including petrochemical industry offers a great business potential given the wide supply and demand gap. Meanwhile, Kadin had called for appropriate policies at the national level to promote increased investment and better management in industries. Kadin also recommended reorienting government policy away from promoting the export of raw materials toward directing raw materials to supplying domestic production. Kadin Head of Industry and Technology, Rahmat Gobel, ex-

pressed concern that in this increasingly competitive environment, national industrial restructuring will be vital to boost competitiveness in key sectors and ensure business survival. The 10 prime industries are: textile and footwear; electronic and parts thereof; automotive and parts thereof; shipping; infrastructure development, such as power plants, toll roads, telecommunication, construction, cement, steel and ceramic; capital goods and machineries; upstream petrochemical, including fertilizer; fisheries; agriculture, poultry, forestry and plantation, including food and beverage; and cultural and traditional based industries, such as traditional medicine, handicrafts, and batik.

Photo: www.skyscrapercity.com

cial to the local people compared to other types of power plants. “Now that Babel has been declared an area facing a power crisis, the local administration is facing a challenge to raise power supplies,” he said. He said the regional administration needs to invite investors to build hydro-power plants (PLTA), coal-fired power plants (PLTU) and nuclear power plants (PLTN). “At the moment, Babel needs 180 megawatts (MW), and maybe even more, because the number of those on the waiting list have yet to be taken into consideration, including hotels and other buildings,” he said. While the building of PLTU Air Anyir with a capacity of 2x30 MW would be completed this year, the province would still need other sources. So far, he said, the government cannot do much, because matters relating to electricity was entirely the business of state power company PT PLN.

Australian Firms to Invest US$1 billion Five large Australian companies will increase their investment up to US$1 billion to expand their business in Indonesia, Investment Coordinating Board (BKPM) chief Gita Wirjawan said. “The five large Australian firms, in my rough calculation, will increase their investment up to US$1 billion to expand their business in Indonesia,” Wirjawan on board the presidential plane that flew President Susilo Bambang Yudhoyono from Sydney to Papua New Guinea on Thursday. He said that the five Australian companies, namely Coca Cola Amatil, Commonwealth Bank, Thiess, Ramsay Health and AIBC, would make the investment this year. Previously, the chief executive officers of the five companies met with the President before a business forum was held in Sydney last week. The business forum was attended by 140 Australian businessmen from various business sectors, including former Australian prime minister Paul Keating. Wirjawan said that even though the value of their investment was not big, the intention of the five companies to expand their investment in Indonesia would serve as an encouragement for other Australian businessmen to do the same here. Coca Cola Amatil, for example, will build 10 new factories in Indonesia to increase its production which reaches

Photo: The President Post/Nandi Nanti

hief Economic Minister Hatta Rajasa said Indonesia is still considered conducive for investment by foreign investors. “Foreign investors still regard Indonesia as a conducive place for investment in portfolio, real sector as well as manufacturing. Our exports are also increasing,” he said after a coordination meeting on an upcoming Asean Summit in Hanoi here recently. He said the situation at present is very conducive and as such he is optimistic investment would increase. He added that efforts had to be made to increase investment by more than 10%, particularly foreign investment.

Photo: The President Post/Nandi Nanti

Hatta: RI Conducive for Investment

Dutch Investors Interested in Hydro-Power Project in Babel

“The five large Australian firms, in my rough calculation, will increase their investment up to US$1 billion to expand their business in Indonesia.” Gita Wirjawan Investment Coordinating Board (BKPM) Chief

60 million annually, he said. Mining and construction company Thiess, which already has a stake in the mining sector, would take part in the Trans-Java toll road project, Wirjawan, the head of the investment agency (BKPM) said. Thiess’ local unit, PT Thiess Contractors Indonesia, was awarded a 35-year concession to build and operate two sections of the Trans-Java toll road that will link the western and eastern parts of Java.

The President Post

B4 April 12, 2010

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Management

The Changing Face of Reward A New Focus in Challenging Times

Nugroho Irawan Director Hay Group Jakarta

Current times are challenging and organizations seek for a competitive edge in the industry. Refocusing on the right business strategy with integrated objectives on leadership, talent management, engagement, reward, cost control and return on investment is key to drive improved performance. Hay Group’s recent global research focuses on the key factors that influence the changing reward and engagement strategies. Organizations are now looking more closely to their total reward and engagement programs in order to make sure that it delivers the performance that is badly needed to stay ahead of the competition. Indonesia based companies seem to follow closely the reward and engagement trends that are found in the global research.

The new business imperative: do more with less

n a fundamental level, the crisis has functioned as a change accelerator of already ingoing macroeconomic developments. Even in countries or industries that do not experience a recession, it is felt that changes are taking place and the sped of change has increased. Organizations need to adopt to these changes, protect their position, innovate, find opportunities, grow and expand internationally to spread the risks of operating in one market. Cost containment is a major issue for many organizations, in all regions and sectors. Most have already cut employment costs as much as they can through redundancies, restructuring, pay freezes and restrictions to internal investments. The focus is now on centralization and rationalization of business and management processes to have a more responsive and leaner organization that concentrates on those activities that bring the greatest returns, while at the same time putting their operations on a more sustainable course for the future. Difficult choices are being made; the money that is available has to be earned through performance and allocated to those areas (and people) most critical to business success. Return on investment has become an important metric for all functions and one that needs to be better used and tracked. This is also true for getting a return on HR investment. While the focus remains on the bottom line, from now on increased efficiency will be a core driver of profit growth. Performance is the fundamental focus of most organizations with a dominant theme: ‘doing more with less’. There is a very strong focus on the alignment of team and individual performance to corporate goals. To accomplish this organizations focus on building leadership strengths and skills to lead the organization through turbulent times and balance the short and long-term considerations in alignment with the objectives of the organization. Recognizing that excessive focus on short term gains was at the root cause of the financial crisis, and that stability of the market cannot be assumed, risk management is on everyone’s mind now. With increased regulation and public scrutiny, especially around reward, fully understanding the relation between business risks and reward is taking more time of the board and senior management. The talent management challenge

In the current tough market, a talented, engaged and motivated workforce is critical to success. In the cost cutting phase many organizations already focused on stripping out poor performers. Organizations of all sizes in almost every sector cited that now the recruitment, deployment, and retention of key talent, along with the development of good internal candidates and succession planning, is the dominant strategy. A word of caution has to be offered about an over-reliance on high performers to deliver business results. The majority of people fall into neither the poor performer nor the star category, but are good, competent, average performers. It is shifting performance in this middle category that will really make a difference in the success of the organization. Organizations should also keep this large group motivated, engaged and adequately rewarded for the positive contribution they make. In a challenging global and national economy where organizations are running lean, tapping into the discretionary effort of

Benny Zahrial Senior Consultant Hay Group Jakarta

engaged employees is imperative. Our research has shown that organizations in the top quartile on engagement demonstrate revenue growth 2.5 times more than that of organizations in the bottom quartile. And those that score highly for both engagement and nurturing and enabling work environment have revenue growth 4.5 times higher. More then before leaders begin to aim for an engaged and enabled workforce that will produce their best possible performance for the organization. This relentless focus on performance is a recurring feature of the study, as organizations seek to reverse some of the sloppy performance management practices that have crept in over the boom years. The first step in this process for many organizations is ensuring that they understand what performance looks like. Many organizations are taking a broader view of performance that includes the impact on social, environmental and brand issues. As a result there is increased sensitivity to the need to balance short and long-term performance, and financial and non-financial measures of performance. Some organizations – such as those in the public sector or some family-based companies which tend to value loyalty and ‘fit’ above performance – have not previously operated within a performance-focused culture. But the pressures of a tightened market means that also these organizations are looking to introduce more of a performance focus. Organizations are also investing in ensuring that their performance management systems and processes work to drive the performance they define. In some cases this means introducing more efficient systems and processes, and centralizing or automating performance management. But most recognize that those systems and processes will only work if they have the right culture and management skills to support it. A good performance management system is not a substitute for management. The focus for many, as a result, was on building management skills around performance management, and on ensuring the transparency of the performance management process. The impact on reward and reward trends

As discussed in previous paragraphs it seems that across all sectors and regions, organizations are struggling to re-build profitability following the recession or rapid changes in the industry. With revenue growth hard to come by, they are focusing on cost containment and performance improvement as the paths to profit growth. This requires them to balance four, often conflicting, challenges: cost containment, performance improvement, talent engagement and risk management (Figure 1). In particular, the tension between cost containment and talent engagement was a very strong theme to come out of the research. Organizations are very concerned about retention and motivation, particularly for top performers, high potentials and those with scarce skills. However, the option of paying more for retention or performance is often no longer available and companies are focusing more on intangible rewards (such as motivational leadership, challenging work and career development) to boost engagement. Trends in reward The research found some clear themes in how companies are using reward to tackle these challenges. Making pay for performance a reality: the study shows a much greater focus on creating a culture of performance through aligning

rewards to the performance metrics that drive profit and revenue growth. Differentiating and rewarding ‘mission critical’ roles: companies are channeling the limited rewards available in a far more focused way to those employees most vital to the future of the company: the top performers, high potentials, and those with scarce skills. They are also taking a total reward approach to engaging that key talent by offering clear career paths, (global) mobility and targeted development programs as well as higher monetary rewards. Increasing variable pay: companies are increasingly awarding a greater share of total rewards to variable pay to increase focus on critical goals, and to reduce the vulnerability of companies to high fixed reward costs. However, they are also re-examining the measures they use to assess performance, to reduce the risk of disproportionate or undeserved bonuses and to reflect a broader understanding of performance that includes social responsibility and brand. The assessment of risks inherent in bonus schemes is also becoming more frequent. Centralization: reward policies and programs are increasingly being centralized. This is being driven by a desire for consistency of focus on key objectives, and to reduce costs and risk. Companies are striving to find an ideal balance between global consistency and local flexibility, to best manage the impact of local markets, culture, taxes and regulations. Market benchmarking: the study showed a surprisingly strong focus on benchmarking, given the relatively quiet talent markets. This is driven by a desire to ensure that top talent is paid competitively against the market, and that organizations are not paying too much in other areas. Reward is on the board agenda Reward is no longer the province of compensation and benefits experts. Representing anywhere up to 70 per cent of a company’s total costs, reward is now more then ever a top management issue, with the CEO and the board getting closely involved and asking: • What performance are we getting in return for what we pay? • What is the effectiveness of all the costs allocated to reward? • What is the return on investment? Alongside this, the role of the compensation committee is undergoing radical changes, with a much greater remit to oversee all reward programs and understand their impact on costs and risk. This is in part being driven by the growing impact of regulation and taxation. The concern is that this is deviating scarce management time to ensure compliance and a maximum of tax effectiveness, rather than formulating the best reward strategies to drive sustainable performance. Developing and delivering reward programs that are cost effective, drive performance improvement, build talent and avoid undue risks: these are the challenges ahead. Getting reward right is mission critical for all organizations.

Ed Krancher Managing Consultant Hay Group Jakarta

practice crept into reward processes during the boom years and the economic challenging times have forced many organizations to think more sharply about who and what they are paying for. Keeping the following principles in mind will help line managers and human resources professionals responsible for rewards to ensure that their reward programs effectively support business strategy. 1. Create a performance culture. Use your reward programs to help you move from an ‘entitlement’ to a ‘performance’ culture. Consider whether the measures that underpin variable pay are optimal for driving performance. Look at how to differentiate reward for high performers so that it acts to engage not just your ‘stars’, but all your people. 2. Think in terms of total rewards. Our research has consistently shown that intangible benefits such as career development opportunities play a vital role in employee engagement. This is one of the many reasons that organizations should not lose sight of total reward – the total benefits employees receive from working for a company. 3. Consider all costs. While many organizations closely focused on reward costs during the recession, this was sometimes at the expense of a wider contextual consideration of cost. It is too easy in the current climate to overlook the total cost of reward – benefits and allowances can account for as much as 40 per cent of reward costs. 4. Build in flexibility. Bonuses not only focus attention on key goals, they also provide a cost buffer in downturns. Increasing the proportion of total pay delivered through bonuses provides employers with greater flexibility in their cost structures, and helps to protect jobs.

5. Make a thorough assessment of risk. Risk is inherent in reward programs – not least the danger of encouraging risky behavior through variable pay which has been sharply highlighted by the financial crisis – and should be frequently and thoroughly assessed, with the compensation committee playing an increased role as such. 6. Balance global and local requirements. With centralization of reward strategy on the increase, the challenge for multinational companies is to ensure they hit the right balance between global consistency and local autonomy. A close assessment of the effectiveness of reward programs at both global and local level is essential to a successful strategy. 7. Reward effectiveness. Reward programs need to deliver a clear return on investment. Clarify what you expect your reward programs to deliver – whether it be engagement, retention, performance on critical success factors, or some other measure. Make sure you have the means of measuring progress, such as employee satisfaction surveys. 8. Nurture innovation. The survey highlights the tension between the need to reduce risk and meet compliance requirements and the desire to develop new reward policies and programs that better support the needs of the business. Reward managers need to manage the gap between needed innovative reward solutions and increased regulation. For many, the recession has been an opportunity to retrench and reassess. Organizations now seize the chance to clarify their reward strategy and seal any cracks in the foundations, improving and strengthening their reward and performance management systems. Organizations are focusing now more prominently on a reward ‘to do’ list for the (near)

future (Figure 3). About Hay Group Hay Group is a global consulting firm that works with leaders to turn strategies into reality. We develop talent, organise people to be more effective, and motivate them to perform at their best. With 86 offices in 47 countries, we work with over 7,000 clients across the world. Our clients are from the public and private sector, across every major industry, and represent diverse business challenges. Our focus is on making change happen and helping organisations realise their potential. Visit www.haygroup.com.

About the research Hay Group conducted the changing face of reward research in order to better understand the factors driving changes in reward strategy, design and implementation, and how organizations are responding to those changes to engage their people and meet the challenges of the new business environment. The survey was conducted in October and November 2009 via face-to face interviews with CEO’s, senior and line managers, HR Directors and HR specialists from over 230 companies in 29 countries. Half of these companies were based in Europe, a quarter in Asia, a sixth in North America and others evenly distributed across South America, Africa and Pacific. The participant group is a mix of mid sized to large companies, three quarters were multinational and the participant group had a spread across all industries. Indonesia participated with 13 organizations in the research.

Figure 1: Balancing the challenges

��

Figure 2: what is on top of mind for respondents

Business challenges Cost management Risk and regulation Competition

Pay/performance relationship Review metrics Better link between pay and performance Differentiating reward

Response to challenges Cost management Leadership development Organizational redesign

Engagement changes Intangible/total reward focus Line manager skills Improve communications/transparency

Talent strategy focus Internal development Recruit/retain key talent High potential programs

Reward and engagement Employee surveys Reward communications Line manager focus

Drivers of reward External benchmarks Performance management Cost management

Reward management changes Senior and line manager involvement Increase reward communication Centralization of management

Figure 3: the reward ‘to do list’ for organizations

The reward ‘to do’ list 1

Review reward strategy to ensure that it supports business strategy.

Top of mind Throughout the responses to our research, common threads emerged as to what was top of mind for respondents. Summarized below are the top three themes for each topic covered (Figure 2).

Reassess performance criteria so reward is linked more closely to goals that clearly reflect the vision and strategy of the organization.

Review the balance of variable and fixed pay to ensure it is right for the company culture and for business needs.

Use reward differentiation (where appropriate) to focus limited resources on those most successful to the business: high performers, high potentials and those with skills that are in short supply.

The keys to effective reward

Closely assess and measure the return on investment from reward programs and strategy.

Communicate the true value of your reward package, and how it supports the goals of your business.

In many ways, these challenging economic times have been a wake-up call for reward. Sloppy

The President Post

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April 12, 2010 B5

Leadership

Resistance to Change Emotionally, people also feel connected to old folk tales, traditions and past practices. Our availability heuristics, or the rules of thumb that we use for everyday decisions, are formed by our individual experiences and influences through social practice and culture. And all future decisions are determined by the templates we have formed based on the past; and it is always difficult to change what we believe is already good. As much as people loathe to admit, their inertia to change is also subconsciously driven by their fear of lack of competence to change. Who would not want to be the pilot of a new and successful venture? But to go for a new venture and then expose one’s own incompetence is more embarrassing than remaining status quo. To follow someone who takes the lead to a change also means a down gradation to the status of follower, so would naturally want to stay as an opponent to the change rather than be a follower of the change. It is also emotionally unappealing to forsake something that has a higher chance of success for something that has a lower chance of succeeding as it requires venturing into uncharted territory. This resistance to change hap-

Henry and Canella, in ‘The Many facets of Leadership’, classify Change Resistance into three broad forms: 1. Blind Resistance. Those who simply and naturally resist Change. 2. Ideological Resistance. Disagreement through different Values & Beliefs. 3. Political Resistance. Those who believe that there will be a loss in terms of Position, Status, Power, Resources at hand. Greenberg & Baron, authors of ‘Behaviour in Organizations’, classify resistance to Change in terms of: Individual barriers – Economic Insecurity; Fear of The Unknown; Threats to Social Relationships; habit; Failure to recognize the need for Change, and Organizational Barriers – Structural Inertia; Work group Inertia; Threats to existing balance of Power; Previously unsuccessful efforts; and offer an ex-

RISK High

Low

Strong

ow an old cliché, that the only constant, is change. And in this hyper dynamic world it is so true that humans have a natural resistance to change and are comfortable with the given and status quo. As an experiment, clasp your hands in front of you in a locked position, with thumbs folded on one another. Now exchange the position of your thumbs. How does it feel? Odd? The same with folding your arms. Now change the position of you arms. Feels strange, right? It is well known that people have an inertia against or resistance towards change. In the field of psychology, many reasons have been put forward for this resistance to change. One of the more important considerations is when the risk of change is greater than the risk of status quo. This is because current practices are tried and tested while new practices require one to venture into new territories that have no existing models to follow. Even if one is not concerned about the probability of success, criticisms of current practices are likely to be more muted than those for new practices, as the former have precedents to fall back on.

Amarjit Chopra, author of ‘The Many facets of Leadership’ puts it very interestingly: “There are conscious and unconscious forces at work in all human systems, from the individual to the largest corporation, which function to maintain homeostasis – keeping things as they are. When we think and perceive the world within a closed system, we are doing ‘inside-the-box thinking.’ Standing inside the box, there is no real possibility for fundamental change. There might be change, but inside-the-box change is really only more of the same.” Of course there is more to resistance to change in addition to inside-the-box-thinking and indeed many of the following could also be contributing to that state: • Belief that Change is unnecessary. Especially if there are no visible problems and things have been successful. And more so if top management has been advertising that success. • Lack of Trust possibly emanating from a feeling that there may be a hidden agenda, especially if top leaders are not fully open about all aspects concerned with the Change program. • Belief that Change is not feasible. When making a Change that is radically different, or if any earlier program has not been fully successful. • Economic threats. In case people perceive that they would suffer a personal loss in terms of job security, or income loss – which has historically hap-

pened when many a company have downsized in a change program – in fact in the last 2 decades or so, Change has come to be associated directly with downsizing. • Concern about high Costs. • Fear of Personal failure – in not being able to cope up with new systems or methods of operation. • Loss of Status and Power – in the case of organizational restructuring. • Threat to Values and Ideals – in being able to make adjustments to a new culture. • Resentment of Interference and loss of Control.

Dual Resistance

Habit Resistance

Weak

By Dr. Karan Singh MBA, DBA

pens both at the individual as well as the organization level.

Risk Resistance

No Resistance

HABIT

In this hyper dynamic world it is so true that humans have a natural resistance to change and are comfortable with the given and status quo.

ample of GE (General Electric) which has gone through a series of Changes. “Throughout this process, several of the barriers just identified have been encountered. For example, managers had mastered a set of bureaucratic traditions that kept their habits strong and their inertia moving straight ahead. The prospect of doing things differently was scary for those who were strongly entrenched in doing things the “GE Way.” In particular, the company’s interest in globalization triggered many fears of the unknown. Resistance to Change also was strong because it threatened to strip power from those units that traditionally had possessed most of it (e.g., the Power Systems and

Lighting Division). In addition, changes were highly disruptive to GE’s “social architecture”; friendship groups were broken up and scattered throughout the company. In all, GE has been a living example of the many different barriers to Change – all rolled up into a single company.”

Greenberg and Baron go on to add that fortunately such resistance to Change can be overcome through Organizational Developmental Techniques that implement Change in a manner that is acceptable to employees and which enhances the effectiveness of the organization.

Dr. Karan Singh MBA, DBA, Organization Development Consultant, is presently Management Development Director at President University, and Managing Consultant of PT King & Singh Consulting. In his seventeenth year in Indonesia, Dr. Singh has wide experience, across a range of multinational companies, in areas like corporate training, market entry strategy, integrated marketing (external and internal marketing), communications, and human performance improvement.

The President Post

B6 April 12, 2010

Travel

Mahakarya Borobudur Mahakarya Borobudur tells the story behind the building of the Borobudur temple, which began during the reign of King Samaratungga and was completed during the era of King Gunadharma. Taman Wisata Candi Borobudur, Prambanan & Ratu Boko will hold their annual event called Mahakarya Borobudur at Panggung Terbuka Aksobya, Borobudur Temple, Magelang, Central Java. Mahakarya Borobudur tells the story behind the building of the Borobudur temple, which began during the reign of King Samaratungga and was completed during the era of King Gunadharma. Accompanied by the traditional gamelan music and the moco pat (a reflective Javanese song), this spectacular and dramatic dance will run for two hours. There will be four performances this year, namely on May 22nd, June 26th, July 24th, and September 11. The Mahakarya Borobudur dance performance is the result of a collaboration between artists from the Surakarta Indonesian Arts High School (STSI), the local community and historians led by the Taman Wisata Candi Borobudur, Prambanan & Ratu Boko. The dance performance depicts the spirit of cooperation between various elements of society in the past and their loyalty to serve the values of a noble life. The Mahakarya Borobudur show aims to complement other tourist

attractions on hand, and to make Borobudur, Prambanan and the Ratu Boko Palace as a world-class cultural tourist attraction. There are four classes of tickets: • Platinum (Rp 800,000, includes dinner, round trip pickup services hotel–Borobudur Temple, photo session with the dancers, a souvenir and a complimentary Borobudur entrance ticket) • Gold (Rp 700,000, includes dinner, round trip pick-up service hotel–Borobudur Temple) • Festival (Rp 300,000) • Student (Rp 50,000)

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April 12, 2010 B7

Health Senate Report Links Diabetes Drug Avandia to Heart Attacks

STUDY

Healthy Adults Need Less Sleep as They Age

The Senate report was developed over the past two years by committee investigators who reviewed more than 250,000 pages of documents provided by GlaxoSmithKline, the FDA and several research institutes.

he diabetes drug Avandia is linked with tens of thousands of heart attacks, and drugmaker GlaxoSmithKline knew of the risks for years but worked to keep them from the public, according to a Senate committee report released Saturday. The 334-page report by the Senate Finance Committee also criticized the Food and Drug Administration, saying that the federal agency that regulates food, tobacco and medications overlooked or overrode safety concerns found by its staff. “Americans have a right to know there are serious health risks associated with Avandia and GlaxoSmithKline had a responsibility to tell them,” said U.S. Senator Max Baucus, a Democrat and committee chairman. The bipartisan report also was signed by Sen. Chuck Grassley, the top-ranking Republican on the committee. GlaxoSmithKline rejected any assertions Saturday that the drug is not safe. “We disagree with the conclusions in the report,” company spokeswoman Nancy Pekarek told CNN. “The FDA had reviewed the data and concluded that the drug should be on the market.” Seven clinical trials on the drug prove that it is not linked to heart attacks, Pekarek said. “None of that data shows a statistically significant correlation between Avandia and myocardial ischemia or myocardial infarction [heart attack],” she said. Ischemia is a condition in which blood flow and oxygen are blocked from going to certain parts of the body. FDA Commissioner Margaret Hamburg said she is waiting for the recommendations of an advisory committee that will hear reports on the drug this summer.

lationship to myocardial ischemia is inconclusive. Avandia has been under scrutiny for years. The New England Journal of Medicine called the drug’s safety into question in 2007. The Journal of the American Medical Association also questioned whether Avandia was safe in 2007. “Among patients with impaired glucose tolerance or type 2 diabetes, rosiglitazone use for at least 12 months is associated with a significantly increased risk of myocardial infarction and heart failure, without a significantly increased risk of cardiovascular mortality,” the AMA journal wrote, adding that the “findings have potential regulatory and clinical implications.” Photo: www.myheartsisters.org

egies to minimize or misrepresent findings that Avandia may increase cardiovascular risk and sought ways to downplay findings that a competing drug might reduce cardiovascular risk,” the report says.

According to the Senate report: • FDA scientists estimated in July 2007 that Avandia was associated with approximately 83,000 heart attacks since the drug came to market. “Had GSK considered Avandia’s potential increased cardiovascular risk more seriously when the issue was first raised in 1999 ... some of these heart attacks may have been avoided,” the report states.

As an example, committee investigators say they found that GlaxoSmithKline experts verified an outside study showing the cardiac problem, but the company publicly attacked the findings as incorrect.

• GlaxoSmithKline undertook attempts to undermine information critical of Avandia. “GSK executives attempted to intimidate independent physicians, focused on strat-

• Two FDA safety officials sounded a clear alarm in October 2008 writing, “There is strong evidence that rosiglitazone [Avandia] confers an increased risk of [heart attacks] and heart failure compared to pioglitazone [rival drug on market].” They concluded and trials comparing the two would be “unethical and exploitive.” Yet, the trial is still under way, the senators say.

Medicine and ‘Luck’ on Multiple Heart Attack Survivors’ Side

f ifth heart attack, such as the one suffered recently by former Vice President Dick Cheney, is not rare because of advances in modern medicine, cardiologists say. “It’s something we see often enough that we’re not surprised about it,” said Dr. Cam Patterson, chief of cardiology at the University of North Carolina School of Medicine, who is not involved in Cheney’s care. “But it’s also an indication that somebody has some luck on their side.” More patients are surviving multiple heart attacks because of procedures and drugs, Patterson said. “We have patients who are taken to the [cardiac catheterization labs] to have blocked arteries opened up,” he said. “We have stents to keep blocked arteries opened and high-potency drugs like statins that protect against risk factors that make heart disease progress rapidly.” Although these options help heart disease patients, they may not prevent another heart attack. Patients who’ve suffered a heart attack usually have more blockages in other vessels that weren’t problematic earlier. But over time, the blockage builds and could cause future heart attacks, doctors said. Cheney, 69, went to the George Washington University Hospital after experiencing chest pains and underwent a stress test and a

heart catheterization, according to his office. In a cardiac catheterization, a thin, flexible tube is threaded into the heart, usually from the groin or the arm, to examine blood pressure within the heart and how much oxygen is in the blood. Cheney has a long history of heart problems. He suffered his first heart attack in 1978, when he was 37. He had his second heart attack in 1984 and a third in 1988 and underwent a quadruple bypass surgery to unblock his arteries. Shortly after Cheney was elected vice president in November 2000, he had a fourth heart attack and received a stent to open an artery. In some cases, even patients who follow instructions do not respond to therapies and drugs, and they continue to get heart attacks, said Dr. Randall Starling, vice chairman of the department of cardiovascular medicine at the Cleveland Clinic, who also is not involved in Cheney’s care. “I’d like to believe that if patients take their meds, exercise, they’re on a great diet, they reduce their risk,” he said. “But unfortunately, there are patients who have progressive disease even by following all their doctor’s orders. That’s where some of the genetics get into things.” In 2001, doctors implanted a monitoring device to keep track of Cheney’s heart rhythm and

slow it down if necessary. In 2008, he underwent a procedure to restore his heart to a normal rhythm after doctors found that he was experiencing a recurrence of the condition, known as atrial fibrillation. Recently, former President Clinton was also hospitalized briefly because of a heart problem. Clinton received two stents to restore blood flow to a coronary artery after doctors discovered blockage. The two have heart disease. This condition is the leading cause of death in the United States; more than 630,000 people die each year from it, according to the Centers for Disease Control and Prevention. Having the kind of medical care that Clinton and Cheney receive increases the chances of the patient’s survival. “There is very strong data that shows both access to care and socioeconomic status has marked impact on outcomes with people with heart disease,” said Patterson, director of the UNC McAllister Heart Institute. And even after several heart attacks, someone like Cheney can continue to live an active life. “If his heart function remains strong, he’s got good medical care and is taking care of risk factors, he can be in very good shape,” Patterson said. (CNN)

GlaxoSmithKline counters that the Senate report relies on outdated information. “In essence, the report is a compilation of information and events that took place years ago,” spokeswoman Pekarek said. “There’s no new data there.” (CNN) The FDA has evaluated at the drug, Pekarek said, and updated product labeling in 2007 to say information on Avandia’s re-

In 2007, an FDA panel recommended by a vote of 22-1 that Avandia should remain on the market despite an analysis showing links to increased risk of heart attack. The vote was not binding, but a suggestion to FDA regulators. The panel also voted 20-3 at the same meeting in support of data that showed Avandia increased the risk of cardiac ischemia in patients with the most common type of diabetes.

Older adults, aged 66-83, slept about 20 minutes less than middle-aged adults (40-55 years), who slept 23 minutes less than young adults aged 20-30, the study said.

ealthy older adults need less sleep than their younger counterparts and, even with less sleep under their nightcaps, are less likely to feel tired during the day, a study published Monday showed. The time spent actually sleeping out of eight hours in bed declined progressively and significantly with age, the study published in SLEEP, the official journal of the American Academy of Sleep Medicine and the Sleep Research Society, said. Older adults, aged 66-83, slept about 20 minutes less than middle-aged adults (40-55 years), who slept 23 minutes less than young adults aged 20-30, the study said. The older adults woke up significantly more often and spent more time awake after initial sleep onset than younger adults. Deep, or slow-wave sleep, thought to be the most restorative phase of sleep, decreased with age, the study said. But although older adults slept less deeply and less overall, and their sleep was less continuous than their younger counterparts`, they also showed less need for a

quick kip during the day. The study was conducted at the Clinical Research Centre of the University of Surrey in England and involved 110 healthy adults without sleep disorders or complaints. Forty-four of the participants were young, 35 middle-aged and 31 older adults.They slept normally one night, the baseline night, then had two nigths where their sleep was interrupted, followed by one recovery night. During the baseline night, younger adults spent an average of 433.5 minutes asleep compared to around 410 minutes for middle aged adults and 390 for older adults. On the same night, the younger adults had 118.4 minutes of deep sleep, compared to 85.3 minutes for middle-aged adults and 84.2 minutes for older adults. But when asked to lie in a comfortable position on a bed during the day and try to fall asleep, young adults nodded off in an average of 8.7 minutes, compared with nearly 12 minutes for middleaged adults and just over 14 minutes for older adults. (ANTARA News/AFP)

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B8 April 12, 2010

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Living Finding Cruise Deals in a Recovering Economy Consider expenses for the whole trip -- including airfare and hotel costs -- before assuming you can’t afford a more luxurious cruise line

he jaw-dropping cruise deals of 2009 have all but dried up. This year travelers will have to work harder to find a way to save on floating

escapes. “Last year the deals fell out of the sky and hit you on the head,” said Carolyn Spencer Brown, editor-in-chief of cruising Web site Cruise Critic. “This year you’re going to have to look for them. They’re there, there are deals out there, but they’re just not as plentiful as they were.” Wave season, the beginning of the year when cruise lines traditionally roll out value-added promotions, is looking pretty flat in terms of deals. Travelers seem to be shopping for cruises all year round, taking the edge off the frenzy for promotions in January, February and March, Brown said. Cruise agent Linda Allen said she’s spending more time this year finding the best deals for her clients. While pricing isn’t as at-

tractive as it was in 2009, Allen said the number of wave season bookings has been impressive. “This is the biggest wave season I’ve seen in years,” said Allen, who owns Cruises by Linda in Harrison, Arkansas. She’s had more last-minute bookings this year than she’s seen in her 15 years as a travel specialist. “I think that people have finally decided that the recession is over, and they’re willing to part with their money and crack open their credit cards,” Allen said. “It is still early in the selling cycle for 2010, but our order book is stronger and prices are higher than at the same time last year,” said Royal Caribbean Chief Financial Officer Brian J. Rice in a recent earnings announcement. Word of warning

Don’t lose sight of the value of your vacation, Brown cautions. Saving money on something that isn’t a good fit for you is ultimately a waste. “You’ve really got to kind of

Photo: www.coolwaterspoolandspa.com

narrow down your cruise style and then shop that way. Who has a week of vacation that they want to blow in the wrong way?” Good-deal guideline

A double-occupancy, inside cabin shouldn’t set you back more than about $200 a day. “The new formula for a deal, for the most part -- for a mass market ship, a big ship -- is if you’re paying more than $100 a day, per person, you’re paying too much for just about anyplace, including Alaska, which has always been a little bit higher priced, and even in Europe,” Brown said. Expect the price to go up if

you want a larger cabin and more amenities, she said. Flexibility

Opting for a shoulder season sailing, when crowds are thinner but the destination’s weather is still nice, can save travelers not only on cruise prices but also on airfare and hotels in port cities, Allen said. Booking a certain level of cabin but forgoing a room assignment is another way to save, Allen said. Cruise lines are willing to trade lower prices for the ability to shift passengers to meet inventory demands.

Soft markets, soft ships

A glut of ships means lower prices. Cruise Critic counted 37 ships with itineraries in the western Mediterranean in June, and the competition is reflected in attractive prices on those cruises this year, Brown said. “The Mexican Riviera is another place where we’re seeing historically low prices, and it’s got 10 ships,” Brown said. “Now that doesn’t sound like a lot, but remember, there basically are three ports that everybody goes to.” Choose an older ship if you’re not looking for the splashiest new features. Fewer amenities on a

cruise line’s older ships translate into savings for passengers. Look at the whole package

Consider expenses for the whole trip -- including airfare and hotel costs -- before assuming you can’t afford a more luxurious cruise line, Allen said. Sometimes a trip on a more expensive ship will actually be cheaper in the long run. Look for extras

Comparison cruise shopping means looking for added value in the form of on-board credits, upgrades or complimentary amenities. “If you see two ships that are

sailing somewhere for $499, see if one of them is offering gratuities as well. See if there are extras, you want to take advantage of that if you can,” Brown said. Cruise myths

Two common cruising misconceptions: The ships are cramped and you’ll end up socializing with people you don’t like. Not true, Brown said. “Most of the cruise lines have gotten out of the practice of forcing you to sit down to dinner with people you don’t know, which I think is the most barbaric custom ever created.” CNN

A New Flagship Model of BMW Attracting Indonesian Public Jeannifer Filly Sumayku

T BMW Indonesia has unveiled its new 12-cylinder BMW 760Li, the pinnacle of the fifth generation of the BMW 7 Series. The new model was launched recently at BMW Studio, Plaza Indonesia, Central Jakarta. The car’s superior powertrain technology, generous space and unique features all round create an incomparable travelling experience both in the driver and rear seats, confirming BMW’s leading position in the global market of luxury performance cars. “The new BMW 7 Series is a statement. Its strong yet elegant look, combined with superior driving experience, comfort and roominess of the rear area, as well as best-in-class entertainment system, makes this flagship model the choice of leaders and dignitaries in Indonesia and abroad,”

said Ramesh Divyanathan, President Director of BMW Indonesia. The BMW 760Li features a masterpiece in modern engine technology, the all-aluminium 12-cylinder power unit with BMW TwinPower Turbo technology, High Precision Injection and double-VANOS infinite camshaft adjustment, delivering a maximum output of 544 hp from engine capacity of 6.0 liters and a peak torque of 750 Newton-meters from just 1,750 rpm. The third BMW model introduced in Indonesia in 2010, the BMW 760Li features a brandnew eight speed transmission, an ideal match for the power and performance of the 12-cylinder engine. The new transmission also enhances the efficiency of the car to an even higher standard. The engine stands out through

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its effortless surge of power, unique acoustic and vibrationdamping qualities, and a level of efficiency never seen before in this performance class, test-drivers say. The innovations developed based on BMW EfficientDynamics enable this unprecedented luxury saloon to accelerate from a standstill to 100 km per hour in just 4.6 seconds on average fuel consumption of 13.0 liters per 100 km with CO2 emission of 303 grams per km. BMW Efficient Dynamics technology reduces fuel consumption and carbon emissions while simultaneously enhancing the superior performance and driving pleasure typical of BMW cars. The efficiency level achieved by BMW 760Li through BMW EfficientDynamics technology refutes assumptions that big en-

gine vehicles automatically consume more fuel and produce higher carbon emissions than other models. “Customer responses to our new BMW 7 Series last year were extremely positive, and we have delivered 50 units in total,” Divyanathan said during a press briefing. The new BMW 760Li features a full range of unique innovations such as BMW Night Vision, BMW Head-up Display, Lane Departure Warning, Side and Rear View Camera and Interactive Owner’s Manual Book. All BMW 7 Series vehicles purchased at authorized BMW dealers have passed the highest quality test, including for road and traffic conditions as well as humidity and fuel quality. All BMWs purchased at the dealers have a 2-year warranty

PUBLISHED BY Yayasan President University CEO & EDITOR IN CHIEF Ali Basyah Suryo CONTRIBUTORS Atmono Suryo Cyrillus Harinowo Hadiwerdoyo Taufik Darusman Thomas W. Shreve Jeannifer Filly Sumayku Eka Putri

EDITORIAL & ADVERTISING/ CIRCULATION DEPARTMENTS Eka Galliano LAYOUT & DESIGN Mohamad Akmal SALES & MARKETING Mariah Bella Alla Zulia Khairunisa

“The new BMW 7 Series is a statement. Its strong yet elegant look, combined with superior driving experience, comfort and roominess of the rear area, as well as best-in-class entertainment system, makes this flagship model the choice of leaders and dignitaries in Indonesia and abroad,” said Ramesh Divyanathan, President Director of BMW Indonesia. and 5-year BMW Service Inclusive package for peace of mind. The BMW Group is the world’s leading premium car manufacturer since 2005 with its BMW, MINI and Rolls-Royce brands. As a global company, the BMW Group operates 24 production facilities in 13 countries and has a global sales network in more than 140 countries. The BMW Group achieved a global sales volume of approximately 1.29 million automobiles and over 87,000 motorcycles for the 2009 financial year. The pre-tax profit for 2009 was euro 413 million; revenues totalled euro 50.68 billion. As of 31 December 2009, the company employed a global workforce of approximately 96,000 associ-

ates. The success of the BMW Group has always been built on long-term thinking and responsible actions. The company has therefore established ecological and social sustainability measures throughout the value chain, comprehensive product responsibility and a clear commitment to conserving resources as an integral part of its strategy. As a result of its efforts, the BMW Group has been ranked industry leader in the Dow Jones Sustainability Indexes for the last five years. PT. BMW Indonesia is a wholly-owned subsidiary of Munichbased Bayerische Motoren Werke (BMW) AG in Germany.

The establishment of this subsidiary in April 2001 reflects the BMW Group’s confidence in the long-term future of Indonesia and its commitment to maintaining and extending BMW’s leading position in the premium market segment. PT. BMW Indonesia’s activities cover the wholesale of BMW cars, provision of spare parts and accessories, as well as the overall planning of sales, marketing, after-sales, and related activities in Indonesia. Its dealership network covers 11 new car dealers and one usedcar dealer spread out in various cities in Indonesia. Selected models of the 3 and 5 Series sedans are also assembled in Indonesia by a local partner.

SECTION

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Infrastructure ON THIS SECTION INFRASTRUCTURE

Water! And Waste, of Course! Within the scope of this small ministerial level office, chaired by the experienced and highly competent Dr Kuntoro Mangkusubroto with a handpicked team of some of Indonesia’s brightest, lie targets for water, waste, pollution and actions towards achieving the Millennium Development Goals.

Display until May 12, 2010 /// N0. 11 Published by President University www.thepresidentpost.com

RI Needs More Investment in Infrastructure to Support Economic Growth The government needs bigger participation by the private sector and a more substantial intermediation by the banking industry.

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By Alci Tamesa

INFRASTRUCTURE

Jababeka, from Industrial Zone to Independent City Looking back at where he started off, president director of PT Kawasan Industri Jababeka (KIJA) Tbk, SD Darmono, says that much progress has been made but there is still a long way to go in turning this hub into a cosmopolitan area. PAGE C4

INFRASTRUCTURE

Bonded Zones Need Better Infrastructure The figure actually represents 60 percent of their annual production worth as each of the 6,321 industries in those locations bagged an average production value of $12.5 million a year. PAGE C6

he government has in recent years increased substantially the state budget allocation for infrastructure development hoping that a better and more comprehensive provision of facilities would accelerate economic growth and provide new employment opportunities for the population. In 2006 for instance, the allocation for infrastructure was Rp34.32 trillion, but in 2007 it was increased to 38.31 trillion. A year later, the government increased the spending for infrastructure by almost 62 percent, assigning up to Rp61.92 trillion for building roads, bridges, harbors, as well as irrigation and industrial facilities. In 2009 the government raised infrastructure spending to well above Rp70 trillion and this year around Rp100 trillion is needed to build and fix infrastructures in many sub-sectors of the nation’s economy. This does not include infrastructure for real sector business expansion by primary actors of industry. Vice President Boediono believes that infrastructure development is the primary key to enhancing the growth of all sub-sectors of the economy. He says the government will therefore give high priority to infrastructure development in line with its strategy to raise Indonesia’s competitiveness and boost domestic industries. But he also emphasizes that the government needs bigger participation by the private sector and a more substantial intermediation by the banking industry. The government has in fact issued a set of policies to boost infrastructure development hoping that higher economic growth would lead to creation of more employment opportunities and substantial reduction of poverty.

Vice President Boediono believes that infrastructure development is the primary key to enhancing the growth of all sub-sectors of the economy.

The infrastructure policy package comprises three major areas as follows: 1. Improvement of the investment climate through streamlining of regulations and bureaucratic procedures. This is important because many international investors have complained about arduous bureaucracy, illegal levies, etc. 2. Upgrade the quality of infrastructure of strategic projects such as oil and gas, telecommunications, etc. The government is determined to extend full support to private sector investors that need better facilities for their expansion plans. 3. The government will help local businesspersons in need of financing assistance especially for infrastructure projects. One may easily assume that the government may act as a bridge between such investors and state-owned banks which are politically recognized as “agents of development.” The government’s priorities in terms of infrastructure development include development of facilities for land, sea, and air transportation, toll roads, electricity plants, oil and gas industry, telecommunication, clean water, irrigation, and public housing projects. Private sector actors will take much of the responsibility while developing such modern facilities as office blocks and apartments, shopping malls, sport facilities like gold courses, etc which are needed by the international business community. Those are the kinds of infra-

structure Indonesia needs to provide if it wishes to become a more attractive investment and tourist testinations in the years ahead. According to chief researcher of BNI Securities, Norico Gaman, Indonesia needs at least US$10 billion for downstream industries alone for this year given the fact that new opportunities are emerging as a result of regional economic integration in Asia. The BNI Securities researcher says that by increasing investment in infrastructure, Indonesia will see the benefit of its upstream industries becoming a lot more sustainable, innovative, and competitive. The country needs to implement a bottom-up infrastructure strategy in that downstream industries will sustain upstream industries including in the mining industry. In the long run this would spur national economic growth as new opportunities open up for more people to grab. The amount of $10 billion the researcher proposes is the minimum Indonesia needs to spend for this year alone. More investment will be needed in the years ahead as local industries struggle to raise competitiveness amidst implementation of China-ASEAN Free Trade Area (CAFTA). As of today, according to Gadjah Mada University’s economist Tony A. Prasetiantono Indonesia needs to build 38 more toll roads, five new airports, four big harbors, six natural gas complexes, 12 electricity negating plants, one railway, one telecommunication industry center, and 24 clean water dams, not to mention irriga-

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tion facilities. At least $22.5 billion is needed to establish these facilities. Another area needing more investment is the telecommunication sector especially for cellular phones. Indonesia is already one of the world’s fastest growing nations in terms of absorption of cellular phones. In 2002 only 19.4 million people used cellphones. In 2008 the number had soared to 172.78 million and this year it must have exceeded 180 million. In terms of cellphone density, Indonesia is known to have ranked 6th after China, India, Russia, USA, and Brazil. Given the fact that industries will need greater capacity of telephone and Internet broadband connectivity, investment in this sub-sector will remain attractive to international investors in the years ahead. Economists have suggested that for Indonesia to become a more advanced economy, one prerequisite is that it must have a competitive edge in terms of provision of infrastructure. This would attract industrial relocations and expansions. But this is a domain that needs not only managerial decision but more importantly political decision by national leaders. For instance, in 2009 when Indonesia’s Gross Domestic Product (GDP) stood at Rp5,000 trillion, ideally its allocation for infrastructure projects should at least be Rp250 trillion. The fact is, in that year Indonesia spent only about Rp72 trillion, leaving the huge gap open through 2010. This is why ana-

lysts say there are endless opportunities for investing in Indonesia’s infrastructure development. Legislator Bambang Soeroso says a good infrastructure policy must be supported by the government’s strong political will that ensures substantial allocation from the state budget. Ideally five percent of GDP should go for infrastructure projects, he says. Agoes Widjanarko, a high ranking official from the Ministry of Public Works, says that since Indonesia gives little attention to infrastructure development, it is far behind other countries including Singapore, Malaysia and India. For instance, he says, the allocation for the Ministrhy of Public Works is only three percent of state budget; whereas India allocates up to 10 percent of its budget for public infrastructure projects. Indonesia has now allocated 20 percent of its budget for education; so the allocation for infrastructure projects should also be raised to at least 10 percent, he proposes. But legislator Effendi Choirie from National Awakening Party says the government needs to relax many of the regulations in order to raise Indonesia’s investment charm and attract more international investors especially for building better quality industrial infrastructures. Whatever the argument, since infrastructure investment is usually a long term venture, a country needs political stability to facilitate such investment. Together with legal supremacy and policy consistency, political stability has often been cited as the primary ingredient for attracting huge foreign capital. So, while Indonesian democracy is good for encouraging greater political participation and freedom of expression, it should not prevent progress in business and economic areas. In other words, political maneuvers must not reduce Indonesia’s investment charm. But in recent months, Indonesia’s policy making stage has been jolted by political parties’ internal bickering and maneuvers to overthrow one another. In the process international business actors have taken the wait-and-see attitude and are only spending money on short-term portfolio investments. For this reason analysts say political parties need to “think out of the box” and plan a long-term economic strategy together, otherwise selfish pursuits of their short-term interests would block the course of progress already laid down by the private sector.

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Infrastructure Water! And Waste, of Course! While Indonesia is well-blessed with fresh water in most places, it is not used efficiently in areas of dense population, as exists on Java and around the main city centres elsewhere in the country.

secure groundwater at more acceptable depths as well as largely eliminate erosion. Further the additional greening provided in this manner can lead to a very significant increase in agricultural land use and local economic productivity.

Dr Scott Younger OBE

he subject of water has featured extensively in the world’s press in recent times. An excellent coverage of most applications of this most precious of fluids has been presented in the current issue of National Geographic. As I stated in a recent issue of Globe Asia, water and how we conserve and use it sensibly is arguably the most serious issue of the century. One week without water and we are dead! While Indonesia is well-blessed with fresh water in most places, it is not used efficiently in areas of dense population, as exists on Java and around the main city centres elsewhere in the country. Further, there are many other remoter areas around the country where collecting water to survive is still the most important daily activity. Expanding the provision of water supply is a key feature of the Millennium Development Goals to which Indonesia became a signatory at the beginning of the century. The challenge for water involved ensuring that more than 75% of the population would have access to clean water by 2015, i e 5 years from now. Partly because of the length of time taken to recover from the 1997/8 Asian economic crisis, it is certain that the target will not be achieved, although it will be essential to pursue it even though it will take a number of years longer. A few messages and keys to action come to mind. Expanding the coverage of surface water supply in the huge conurbation of greater Jakarta has proved elusive in terms of making headway towards wider deliv-

ery to the citizens and reducing dependence on abstraction from groundwater sources. The latter has reached critical proportions in several locations and the consequent significant subsidence of the city has exacerbated wet season flooding problems. One solution applied elsewhere, where the supply of water is not critical but the demand exceeds supply, is to recycle water that has been used. For instance, citizens expect to drink water from the tap in UK. I remember most vividly, as part of a publicity campaign, a demonstration by the Chief Executive of Thames Water more than a decade ago drinking a glass of tap water in London and emphasising its purity, despite its already having passed through seven stomachs on the way! The Thames valley could not meet its water supply obligations unless a fully integrated water recycling scheme were in place, despite the relatively wet climate familiar to Britons. Jakarta is also one of the most backward cities in the world in terms of dealing with dirty water and all forms of waste. It always seems to be tomorrow’s problem. A consequence of this is serious pollution, unnecessary exposure to unpleasant diseases and a very significant negative impact on the health of the population, plus the loss in productivity which can be measured in the billions of dollars. It is long overdue that the city of Jakarta really starts to tackle water and waste as a major priority, with solutions in a holistic manner. Surely the time for talking is over, and action initiated! In the late 1980s, the city of Bandung, which also faces wa-

Photo: www.politikana.com

The government has appointed an office chaired by Dr. Kuntoro Mangkusubroto with the mission to monitor and oversee development and deal with difficult inter-ministerial departmental issues while securing improved cooperation between ministries.

ter supply problems, put in a well-constructed sanitation system, with significant extra capacity for expansion. Unfortunately succeeding administrations did not see fit to make further connections as the city expanded, although the matter is finally receiving some attention. In the rural areas of Indonesia, the problems vary according to location, topography, geology and rainfall. In some cases tapping into the groundwater is quite acceptable, since recharge can cope adequately with abstraction. However, there is not always adequate care taken to ensure that the water withdrawn has sometimes not been accidently contaminated, sometimes from pollutants from fertilizers or careless defecation, both of which could be avoided with relatively simple practical solutions along with transfer of knowledge. In other places, there is adequate all year round river or

stream flow to provide a surface source. The cost of putting in a small water treatment plant is relatively speaking not high and, where these are not already in place, this should be a priority for local government. I must add that, having been around a few local governments recently, I am being encouraged that many of the new batch of local government leaders – not all – now do have an understanding of their obligations to the communities of their jurisdictions. Some now seem to understand what is meant by the Millennium Development Goals and have the several targets of these, which also include health, environment and gender issues, very much part of their missions. However, I must also draw attention to the fact that an alarming number of river basins, in total or part, are showing signs of distress with demand abstrac-

tion exceeding the rate of replenishment. An exacerbating factor has been upstream deforestation, which has led to devastating rates of run off, with consequent downstream flooding, damage to infrastructure and long term damage to the stability of relating surface and ground water regimes. While much of the current attention on climate change REDD schemes concerns carbon issues, maintaining of the stability of water basins is arguably even more important. There is also a number of dry areas of Indonesia, especially in the east, where it is often hot and dry for long spells and the soils on their own are not adequate for holding water. Water has often to be piped from remote sources. However, interesting and successful efforts elsewhere have shown that planting trees with deep tap roots in conjunction with a stabilising fast rooting grass, such as vetiver, can help to

Solid waste from human activities has provided a blot on the landscape in many locations. There is much to do in this area, whether just in proper structural containment or with the addition of providing gas for small power offtake. Some local governments are also taking serious steps to separate organic from inorganic wastes, with the former being processed for compost. These are early days, of course, and much remains to be done either directly through positive local government action and/or through progressive NGOs and good company CSR programmes. But the message seems to be getting out to the population; solutions will not be successful unless local communities play a major role in implementation. It is interesting that this government has appointed an office with the mission to monitor and oversee development and deal with difficult inter-ministerial departmental issues while securing improved cooperation between ministries. This is essential for achieving government productivity targets, but sadly lacking in the past. Within the scope of this small ministerial level office, chaired by the experienced and highly competent Dr Kuntoro Mangkusubroto with a handpicked team of some of Indonesia’s brightest, lie targets for water, waste, pollution and actions towards achieving the Millennium Development Goals. It will be fascinating to see what progress this government can achieve in the coming years to improve Indonesia’s environment on the back of a fundamentally rich and well-endowed landscape.

Within the scope of this small ministerial level office, chaired by the experienced and highly competent Dr Kuntoro Mangkusubroto with a hand-picked team of some of Indonesia’s brightest, lie targets for water, waste, pollution and actions towards achieving the Millennium Development Goals.

The writer is Chairman Glendale Partners and PT Nusantara Infrastructure Tbk

The Importance of Building Highways in Java The need for transportation infrastructure is indeed a very urgent. If the Government is too slow in taking action, it will hamper developments. By Cyrillus Harvinowo Hadiwerdoyo

recently passed by the Semarang–Kudus Highway, which is part of the Java Northern Shore Highway, in the province of Central Java. The two-lane highway has been recently expanded and now has four lanes. The travel time between Semarang to Kudus used to be two hours; it can now be covered within an hour. This is certainly a new development for many people who travel this tract regularly. What is also important is the travel time for long-distance travel between Surabaya and Jakarta has been reduced by at least one hour. The time saved can increase the efficiency of transportation using the highway. The improvement of the Semarang–Kudus Highway is part of a more comprehensive improvement of the highway connecting the eastern and western parts of Java. The tract between Serang in West Java, Jakarta and Kudus has been expanded to four lanes, sometimes even more, so that traffic now moves well during weekdays. With the development of toll roads along the way, the old northern-shore highway serves traffic relatively well except during long holidays. The hard work by the Department of Public Works, while highly appreciat-

ed, is still not enough compared with the rapid rise of traffic. Therefore, some kind of acceleration is needed to cope with everrising challenges. The segment between Kudus and Tuban and eventually to Surabaya is also being expanded. If that part of the highway can be completed, there is a good chance that travel time between Surabaya and Jakarta, two major commercial hubs, can be reduced significantly. Such a reduction in travel time easily cuts down the duration of goods in transit. Therefore, working capital tied up in traffic will eventually be saved as it raises the competitiveness of the industry. The development of the Northern-Shore Highway can be further improved by reducing juntures by way of tunnels. If that can be developed, the Northern Shore Highway can also be turned into a Non–Toll Expressway fully supported by the Central Government. Is the development of such a highway feasible within the current state budget? The answer is a strong affirmative. The Government has the financial capacity to develop such an expressway within current and future budgets as its cash position is strong, allowing rapid disbursement at any time. Of course, such

an action needs the endorsement of the House, but the fact that we have such a financial capacity is very encouraging indeed. Nowadays, a parallel effort is taking place in the form of the new toll development between Semarang and Solo. From the other end, the development of the toll road from Surabaya to Mojokerto is also currently underway. This highway will later link up with Solo by way of the current highway from the other end that is now being developed. In the meantime, other segments in Central Java, from Pejagan to Semarang, are also in the early development stage. Similarly, the toll road from Cikampek and Palimanan. Once the Trans Java Toll Road is completed, the travel time on that highway can be reduced significantly. Fuel consumption (and emission) and inventory in transit can be reduced so that the overall working capital can be saved. It is expected that the completion of the new toll road will pave the way for the new developments along this highway for commercial, industrial and residential activities. What are the challenges surrounding this project? This toll-way project is being developed by various private operators. Therefore, their financial capacity needs to be addressed. However, even after financial capacity has been assured, the difficulty in clearing lands remains a major obstacle in developing toll-ways. In some places local government officials assist to secure lands, but on many occasions they become part of the problem, not the solution. Therefore, strong support needs to be

provided to private companies, including financial aids for landclearing so that the investment cost becomes feasible for them. Again and again, the Government has the financial capacity to resolve such problems. After all, this project will benefit society and the Government as well. Are there any other alternatives to all these development projects? There has been recently an interesting development in the state-owned railway company PT Kereta Api Indonesia. At the helm of the company is Mr. Ignatius Jonan, a former Citibanker. He brought with him a vision to build an alternative for highway transportation by developing a reliable railway system. As he sees it, the railway company will move in trains some of the cargoes now carried by trucks in containers. From just 300 containers a week last year, the railway company has now increased the number to 1000 containers per week, with a plan to raise it to 5000 containers in five years’ time. This is certainly a tall order, but Mr. Jonan is not unfamiliar with such challenges. In the very near future, the company will build a dry port at the Jababeka Industrial Park. Locomotives are now being imported from the United States in large numbers so that such progress can be realized very soon. Freight cars are also being ordered to carry hundreds of containers. Therefore, we can be sure that the vision will be realized in the foreseeable future. What can the Government do to support the development? The Government is responsi-

With the development of toll roads along the way, the old northernshore highway serves traffic relatively well except during long holidays.

Photo: www.detik.com

ble in making rail tracks available while the railway company owns rolling stock and the stations. Therefore, the Government is able to complement the vision by aggressively building rail tracks. Currently, there are limited double tracks in the Northern-Shore Lines. If the lines between Jakarta and Surabaya can be developed into double tracks, the frequency

of traffic can be increased tremendously. Since we are racing against time, such developments need to be accelerated. Again, the Government has the financial capacity to expedite the process. With Rp. 5 trillion from the state budget, for instance, the Government should invest rapidly in developing double- track projects or

at least start non-multiple track projects and fill the gaps afterwards. The need for transportation infrastructure is indeed a very urgent. If the Government is too slow in taking action, it will hamper developments. I strongly believe the Government has the wisdom in playing a more proactive role.

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H. E. Sri Mulyani Indrawati Minister, Ministry of Finance, Republic of Indonesia

H. E. Djoko Kirmanto Minister of Public Works, Republic of Indonesia

H. E. Kamal Nath Minister of Road Transport & Highways, Republic of India

H. E. Armida S. Alisjahbana State Minister, National Development Planning / Chairperson of Bappenas, Republic of Indonesia

H. E. Tifatul Sembiring H. E. Gita Wirjawan Minister of Communication and Information Chairman, National Investment Technology, Republic of Indonesia Coordinating Board, Republic of Indonesia

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Mr. Fred P. Hochberg Chairman & President of Ex-Im Bank, United States

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The President Post

C4 April 12, 2010

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Infrastructure

ne of the fastest growing industrial zones in Indonesia is Jababeka, which is situated in Bekasi regency, on the eastern outskirt of Jakarta. What was in 1989 known as a “remote suburb” no one wished to visit has grown into an independent city for the international community, housing thousands of offices and houses not to mention shopping malls, schools and a university. Looking back at where he started off, president director of PT Kawasan Industri Jababeka (KIJA) Tbk, SD Darmono, says that much progress has been made but there is still a long way to go in turning this hub into a cosmopolitan area. One reason certainly is a lack of infrastructure that meets international standards. He says that Indonesia’s industrial centers need better facilities to compete in the global market. Darmono believes that the Cikarang bonded zone in what is now better known as Jababeka Independent City is an example of a potential area in need of better attention. “The support for infrastructure has not been sufficient,” Darmono says in a subtle tone for what could otherwise have been an appeal on the government to improve the facilities therein. “The roads are quite okay but not enough…” Darmono says, recognizing, however, that the government has done its best in increasing infrastructure capacity in Cikarang. Darmono seems to have the opinion that the government is over-cautious and is therefore afraid of making important decisions that would otherwise have solved the issue of land clearance which is an obstacle to further development of the industrial hub. “Land clearance would not be a big issue if the government has the courage to discuss amicably with local residents and land owners, Darmono points out.

Jababeka: From Industrial Zone to Independent City Looking back at where he started off, president director of PT Kawasan Industri Jababeka (KIJA) Tbk, SD Darmono, says that much progress has been made but there is still a long way to go in turning this hub into a cosmopolitan area. By Alci Tamesa

He seems to have based his statement on his own experience clearing land for the project that is now very much in demand among international investors. Usually land clearance is a serious obstacle to real sector investment, more so to foreign companies. Therefore Darmono’s statement indicates he is a good source to turn to for advice when you run aground in clearing land for infrastructure projects. Meanwhile, Jababeka Manager Sony Kukuh has explained to reporters that on December 6, 2006the leaders of seven bonded zones had signed a memorandum of understanding (MoU) with the central and local governments as well as PT Jasa Marga in order to develop infrastructure at the Cikarang industrial hub. One of the issues the central government has agreed to do is to build the Cimanggis-Cibitung section of the toll road as well as an access road to Tanjung Priok harbor. Meanwhile, Jasa Marga is required to increase the capacity of Jakarta-Cikampek toll road and move Pondok Gede toll gate to Cikarang. The reason for this is that in 15 years time the traffic in West and East Bekasi, Cikarang and Cibitung will be very heavy and this could impair production speed at Cikarang industrial hub. Jababeka is engaged in the development and sale of industrial estates and related facilities and services. These include residential estates, apartments, office buildings, shopping malls, devel-

President Director of PT Kawasan Industri Jababeka (KIJA) Tbk, SD Darmono

opment and installation of water treatment plants, waste water treatment, telephone, electricity, sports, and recreational facilities. Jababeka’s subsidiaries include PT Grahabuana Cikarang, a real estate company; PT Indocargomas Persada, an industrial estate developer; PT Jababeka Infrastruktur, a real estate and industrial estate management company; PT Gerbang Teknologi Cikarang, an industrial estate developer; PT Padang Golf

Cikarang, a golf course operator; PT Saranapratama Pengembangan Kota, a real estate infrastructure company, and PT Metropark Condominium Indah, a residential condominium operator. Its President Director SD Darmono is a talented business thinker and actor who believes in the philosophy of “think big, move fast, and start small.” He elaborates on this philosophy in a book with the same title which was launched in Jakarta some

time ago. Jababeka is moving fast from being an industrial production center into an “independent city” which carries the connotation of it being a comfortable living environment complete with all the household, office, recreational, as well as business and industrial needs. The term Jababeka itself was originally made up of two words—Jawa Barat (West Java) and Bekasi. They started devel-

oping this hub in 1989 under a consortium of 21 businesspersons who developed a neglected 500 hectare area into what is now one of Indonesia’s promising allin-one cities. From then on the hub has been expanded to 5,600 hectares inhabited by some of the world’s top industries such as Unilever, United Tractors, Samsung Electronics, ICI, Mattel, Nissan, KAO and many more. There are 1,570 companies operating in the area that also has 24,300 houses complete with schools, shopping and recreational centers, office blocks etc. The total population of this industrial city is well over one million people. In Jababeka there is also the President University, Movie Land for television and film production, and medical City a special zone for superb healthcare services. One of the public figures behind this prestigious university is Prof. Dr. Juwono Sudarsono, the immediate past minister of defense and a noted expert on international relations. It is also an international university where entrepreneurial spirit is easily felt on campus. The existence of the university has given added ballast to Jababeka’s image as a new independent city. What is needed today is perhaps to develop more roads leading to this new city in order to erase its impression of being a mere industrial location. Jababeka also has a lot of office space suitable for industrial companies that need spacious production areas. And given the

fact that metropolitan Jakarta is being expanded eastward, an early property investment in Jababeka may be a worthwhile endeavor as is early purchase of office and industrial space in anticipation of rising land and building prices. As the company struggles to promote Jababeka City’s new image, it has in fact obtained license from the regional government in Central Sulawesi to develop yet another industrial city on a 1,520-hectare land. The granting of license for this new project suggests that perhaps Jababeka must continue to be an industrial city developer while promoting the image of its Cikarang hub as an independent city for the international community. The main activity of this company, as it has always been for the past 20 years, is to develop industrial estates which offer attractive industrial sites, standards factory buildings, supporting industry buildings, as well as customized buildings. This publicly listed group of companies also provides infrastructure and estate management, operating clean water and waste treatment plants, managing fire brigades, maintaining roads, parks and public street lights. Industrial tenants on JICA projects are from Australia, Belgium, Canada, People’s Republic if China, Denmark, Finland, France, Germany, Greece, Hong Kong, Italy, Japan, Korea, Malaysia, Netherlands, Norway, Philippines, Singapore, Spain, Switzerland, Taiwan, United Kingdom, and United States of America. Apart from Jababeka, the company’s projects are situated in Cilegon in Banten province, Magelang, and Jakarta Central Business District (CBD). In Tanjung Lesung on the westernmost tip of Java Island, the company runs a luxury resort to satisfy the need of the international businesspersons and Indonesians from middle and upper-class segments.

The President Post

C6 April 12, 2010

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Infrastructure Bonded Zones Need Better Infrastructure as Exports Rise to US$47.4 Billion a Year The figure actually represents 60 percent of their annual production worth as each of the 6,321 industries in those locations bagged an average production value of $12.5 million a year. By Alci Tamesa

ndonesia’s 88 industrial production centers, also known as bonded zones, generated a total of US$47.4 billion worth of exports last year, an indication that locally made products are gaining a stronger foothold in international market. The figure actually represents 60 percent of their annual production worth as each of the 6,321 industries in those locations bagged an average production value of $12.5 million a year. According to data compiled by the Association of Indonesian Industrial Centers (HKI), those companies employ 1.5 million workers who are working to ensure sustainability of these production centers. Industry Minister MS Hidayat has said that the 60 percent export portion is good enough, given that the government does not only focus on exports but also on satisfying domestic demand for industrial products. Due to the rising demand, Minister Hidayat indicates, the government will put special emphasis on rejuvenating infrastructure in bonded zones while weighing possibilities for installing new facilities in collaboration with the private sector. “The government is committed to encourage development of infrastructure such as roads, toll roads, harbors, airports, electricity generating plants, telecommunications, etc,” Hidayat says. Nevertheless, he acknowledges that over the past five years infrastructure development has not been conducted optimally. For instance, it land clearance has always become a stumbling block to many toll road projects. This is a big irony for the country which 35 years ago became one of Asia’s pioneers in toll road development when it built the Jagorawi toll road. He recalls the days when Lee Myung Bak— now South Korea’s president— was the chief engineer for the Jagorawi project. Talking about it, Hidayat says, there is a big irony here because since 35 years ago “we have not been able to develop more than 600 kilometers of good toll roads whereas Malaysia has had 5,000 kilometers of toll roads and the People’s Republic of China now has 85,000 kilometers of toll roads. He therefore describes as very positive the issuance of Government Ordinance Number 24/2009 on development of industrial locations and adds that hopefully Indonesia will henceforth have industrial centers in all its provinces to attract investment and bolster economic growth. Hidayat has repeatedly called for upgrading of infrastructure in industrial locations arguing that this determines to a great extent the quality and competitiveness of Indonesian products in the global market. He has even called on regional (provincial and regency-level) governments to review their infrastructure development plans and if need be ask for additional funds from the state budget because the priority now is on increasing Indonesia’s competitiveness in the global market. “The government pays special attention to development of industrial clusters which are funded by the state budget because such a policy is meant to enhance industrial growth,” he theorizes. West Java

The minister particularly singled out West Java as the province that needs special attention because it hosts most of the country’s industrial centers. West Java needs more toll roads and industrial facilities as well as

M.S. Hidayat Industry Minister

a comprehensive and integrated urban planning policy that would prevent floods during the rainy season. Responding to this, West Java Governor Ahmad Heryawan says his administration has declared 2010 as the “year of infrastructure” and consequently they will work harder to empower industrial locations with better infrastructures. For instance, for this year, the provincial government has earmarked over one trillion rupiah for renovating and building new facilities around the region. In 2009 the regional government provided only Rp500 billion for the purpose. West Java contributes 57 percent of national industrial output including the contributions made by 240 textile companies there. The province also absorbs 44 percent of the nation’s industrial workforce. Pulogadung Industrial Complex

The main issue in Indonesia’s business development is actually a lack of professional management and leadership. This is particularly true when we look at Pulogadung Industrial Complex. What used to be Indonesia’s main attraction for industrial relocations is now a somewhat neglected area. For many years since its establishment in 1973, the 500 hectare Pulogadung Industrial Complex attracted many industrialists but bad condition of the roads that lead to it is to blame for a decline in investor’s interest. Another discouraging factor is security system that seems to be too relaxed, business observers say. If not for seasonal floods that frequent inundate the area, Pulogadung would have been a choice. Since 2002 when floods devastated roads and other facilities, no concrete action has been taken to restore its condition. In fact it was the tenants that took the initiative to repair roads leading to the site. Not surprisingly, Irwansyah, a noted urban development observer from the University of Indonesia (UI) says that abandoning hard-earned achievements is a habit in Indonesian society.m Indonesians are often very good starters but not good maintainers nor finishers as well. Similar situations occur in other industrial centers and some authority should handle this, he proposes. “Otherwise, foreign investors would rethink their plans and may relocate their businesses to other countries.” Sabang Needs More Harbors

One of the industrial locations being developed today is Sabang on the northernmost tip of Sumatra island. The area being developed along with Nangroe Aceh Darussalam (NAD) needs more harbors to facilitate increased traffic of merchant ships. A recent study by National Development Planning Agency (Bappenas) reveals that the vol-

ume of export-import activities has exceeded by far the handling capacity of local harbors so new harbors must be built to satisfy the rising need. Sabang is one of Indonesia’s strategic sports being developed to accommodate sea traffic and other purposes. But it does not have empty land to be turned into a good harbor site and only 0.7 percent of its land may be used for the purpose, according to a Bappenas official. Geographically Sabang is situated on the island of Weh which is part of NAD province. The government needs a total of Rp11 trillion worth of investment to turn Sabang into an international trading and investment hub. Jambi Prepares to Lure Investors

Meanwhile, by the end of this year, the province of Jambi will have completed works on Jambi Industri Agro Industrial (JIAP) project in East Tanjung Jabung regency. Contractors are rushing against time to complete works on a 487 hectare plot of land including 300 hectares provided by the regional government, according to Saut Hilser Sihite, chief of the local branch of Investment Coordinating Board. He says that the project is supported by the Minister of Industry, Minister of Agriculture, Minister of Trade, Bappenas, Export Financing Agency (LPEI) and local plantation companies. At least three corporations have started to participate in the development plan. They are PT Bakrie Rekie Bio Energy, PT Greenland Agroteal industries, and PT Wahana Mandiri Indonesia. An organic fertilizer company is also stepping in. They produce crumb rubber and derivatives of crude pal oil such as oleochemical, cooking oils, etc. LPEI has also included Bank of China in the financing plan for this project. The local government is hoping to attract more international investors to develop the area into a high-class trading and investment gateway to boost the Indonesian economy. Forestry Bonded Zone

In a related development, investors from South Korea have called on the Indonesian government to build a special bonded zone for development of forestry products. Kim Hoon, the director for agriculture and forestry affairs of the Korea-Indonesia chamber (Korindo) says that his government is willing to help build the forestry bonded zone if requested by the Indonesian side. This would solve many of the problems often encountered in the forestry industry, he says, adding that Korean business leaders sent a proposal on this to the Indonesian government. Kim explains that this idea first emerged in a meeting between Korean businesspersons and Indonesia’s minister of forestry Zulkifli Hasan. The meeting was also attended by South Korea’s ambassador to Indonesia. Korean investors have often complained about land conflicts with local residents as well as about different approaches between central and regional governments with regard to city planning issues. Business analysts say that development of a forestry bonded zone would help foreign investors run business without the headache of having to deal with arduous bureaucracy. Kim believes that once a forestry bonded zone is established, Indonesia will be able to produce bio-energy in a large scale because Korea has all that is needed to do mass production and at the same time reduce pressure on industrial consumption of fossil fuel.

Photo: The President Post?Nandi Nanti

Sliding Down: The 500-hectare Pulogadung Industrial Complex, once a prime attraction to industrialists, now suffers from a bad reputation due to poor roads and lax security.

The President Post

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April 12, 2010 C7

Pictorial Event Breakfast Dialogue with Dr Kuntoro Mangkusubroto at The Financial Club Jakarta The Financial Club Jakarta organized the monthly Breakfast Dialogue series on Tuesday, 30 March 2010 by inviting Dr Kuntoro Mangkusubroto as its speaker. Dr Kuntoro presents his speech entitled “Unlocking Indonesia’s Economic Barriers” Present at the breakfast prominent businessmen and professionals, among others, Giueseppe Nicolosi (Enest & Young), Alwin Syah Loebis (Aneka Tambang), Richard Bale (Embassy of Canada), Scott Younger (Glendale Partners), Tony Wenas (International Nickel), Shanti Poesposoetjipto (Samudra Group), Karen Mills (Karimsyah Law Firm), Atmono Suryo (Ambassador), Subarto Zaini (Persona Global), and Mark Wong (Lippo Group).

IABC Cocktail Reception at The Mandarin Oriental Hotel From left to right Mr. Rod Morehouse – Austrade; Mr. Nyamdorj Chuluunbaatar – Consulate of Mongolia; Mr. David Macdonald – Magnum Australia

IABC Cocktail Reception was held on 25th March, 2010 at The Mandarin Oriental Hotel attended by 211 guests From left to right Mr. Paul Martin – Asutrade & Mr. Nam Lee Seng – Singapore Airlines From left to right Mr. Sabam Siagian – IABC; H.E. Bill Farmer AO – Australian Ambassador; Mr. S. Wiryono & Mr. Hamzah Thayeb – Department of Foreign Affairs

The Family Business Network Pacific Asia (FBNPA) Seminar The Family Business Network Pacific Asia (FBNPA) conduct a seminar at the Financial Club Jakarta on March 30, 2010. Shanti L. Posposoetjipto, member of the board of FBNPA officiate the opening of the seminar, while Dr. Greg Li, Head of Enterprise Risk Governance & Management AON Asia Pacific, lead the seminar

From left to right Mr. Noke Kiroyan – IABC; Mr. Moetaryanto – IABC; Mr. John Russell – John Russell Golf; Mr. Sabam Siagian – IABC & H.E. Bill Farmer AO – Australian Ambassador

An Interview with Rosihan Anwar The President Post conducted an interview with senior journalist Rosihan Anwar at his residence at Jalan Surabaya, Jakarta. In the interview, he mentioned about the freedom of press and the journalist association which still are unable to guarantee their journalists’ welfare

Dr. Gregg Li

From left to right: Ali Basyah Suryo, Shinta W. Kamdani, Shanti Poesposoetjipto

Dr. Martha Tilaar

From left to right: May Tjokrosetio & Nicole Tjokrosetio