Indonesia Digest No.08.08 ; 30-06-2008
- INDONESIA DIGEST
Indonesia's complex Issues in a Nutshell
Published by: TBSC-Strategic Communication
No.: 08.08 - Dated: 30 June 2008
In this issue:
QUESTIONED: ECONOMIC EFFECT OF BALI'S TOURISM BOOM ON PEOPLE'S WELFARE
NEWS AND BACKGROUND:
1. The Economy, Trade and Industry
· Finance Minister Sri Mulyani is now also Acting Coordinating
Minister for the Economy
· Registered Taxpayers Exempted from Fiscal Tax starting 1 January
By Tuti Sunario
For Indonesia Digest 30/6/08
QUESTIONED: ECONOMIC EFFECT OF BALI'S TOURISM BOOM ON PEOPLE'S WELFARE
From January through April this year tourist arrivals to the fabled island
of Bali have passed all previous records, having registered an impressive
increase of 25.74% year on year. Observers estimate that as this trend
promises to continue, by the end of the year Bali could welcome a total 2.1
million foreign tourist arrivals - a record figure it has never achieved
before. This means that of the targeted 7 million foreign visitor arrivals
for Visit Indonesia Year 2008, Bali alone will have contributed some 30% to
total visitor arrivals nation-wide.
In its latest edition, balidiscovery.com further reports that foreign
tourist arrivals to Bali for the month of May 2008 continued to perform in
record-breaking territory achieving 159,877 visitors, a full +24.24% better
than the same month in 2007 (128,693). So that on a cumulative basis for the
months January-May 2008, Bali arrivals totaled 753,934 - improving +25.50%
over the same period one year before (601,143).
The top 5 countries producing foreign visitors to Bali in May 2008 were
Japan, Australia, Taiwan, South Korea and China, in that order.
Foreign arrivals together with the thousands of domestic tourists who have
finally discovered Bali as an affordable holiday destination finds Bali
attracting more and more visitors in larger numbers. In response,
construction of hotels, villas, restaurants, discos and shopping centers
have sprouted and are now overcrowding popular resorts such as Kuta and
And, to further support Bali's development as a world tourism destination
President Yudhoyono recently inaugurated seven infrastructure projects on
Bali which include beach protection systems in Nusa Dua, Sanur and
Padanggalak, a sustainable irrigation system in the Buleleng and Karangasem
regencies, renovation of a decentralized irrigation system in Buleleng,
Karangasem and Jembrana, the Denpasar Sewerage Development Project (DSDP), a
garbage sorting facility in Tukad Badung and Tukad Mati and the Lila Bhuana
The projects were financed by the Indonesian and Japanese governments, along
with the Bali provincial administration, at a cost of Rp 937 billion (US$100
"We need to develop more infrastructure facilities throughout the country,
including Bali, because the more facilities we have, the better Indonesia's
economic competitiveness, specifically that of the provinces " President
Yudhoyono said at the ceremony, as reported by the Jakarta Post.
The Denpasar Sewerage Development Project (DSPD) at Suwung is Indonesia's
largest sewage processing system targeted to support Bali's role as a world
tourism center, as well as improve the health of the local population. The
new sewerage system is able to serve 250,000 people in the Seminyak, Legian,
Kuta and Sanur areas of South Bali along a piping system running 129
kilometers. The second phase is scheduled to be built in 2009 with an
equivalent amount of funding required. The entire project is scheduled for
completion in 2014.
Similar sewage handling systems are currently being built in other
Indonesian cities including Medan on Sumatra, and Bandung, Yogyakarta, Solo
and Cirebon on the island of Java, reports balidiscovery.com.
In the economy, Bali's provincial government has reported improvements. In
2007 Bali's economy grew by 5. 9%, up from 5.28% in 2006, while per capita
income increased to Rp. 11.18 million in 2007 against Rp.10.89 million in
When tourism and the economy are doing well, why is there so much poverty
Despite these positive official data, however, Bali's economists contend
that Bali's economy is far from rosy. This is because the expected economic
trickle down effect from tourism has been limited, since today more than
142,000 Balinese families eke an existence below the poverty line with
Bali Post reports that although the number of tourists to the island has
been on the upswing in Q1 of 2008, yet their average length of stay has
declined to 3.65 days with consequently less income for the province due to
present dependence on short-stay regional markets as against previous
majority visitors from Europe who tended to stay longer and spend more.
In the real sector, officials from the Industry and Commerce Department in
Bali estimate that value of ready-to-wear clothing, one of Bali's main
exports have declined 3% during the first five months of 2008 despite a 112%
increase in the volume of exports during the same period. Foreign exchange
earned from ready-to-wear clothes exports from Bali for January-May 2008
totaled US$60.7 million for 35 million items. The same period in 2007 saw
16.5 million pieces of clothing worth US$62.7 million exported from Bali,
the decline in income caused by fierce competition from China, Vietnam and
India who, according to Antara produce better quality garments at lower
In all, total exports from the island are also down 10.37%. Bank Indonesia's
statisticians have issued warning signals that economic slow downs in
developed countries, such as the United States, are raising fears that
Bali's export markets may be adversely affected by the ailing world economy.
Further suggesting that Bali's exports may be under threat as export figures
covering the first two months of 2008 show a total value of US$47.5 million,
a decline of 10.37% over the same period last year. The largest decline in
exports was tracked to declining purchases by two of Bali's largest export
markets, namely Japan and the United States, reports balidiscovery.com.
However, despite declining exports, Bali continues to log a very positive
balance of trade. During the first two months of 2008 Bali imported US$7.42
million resulting in a positive trade balance of US$40.08 million for that
period, reports balidiscovery.com Bali's economic growth trails behind other
In a recent seminar organized by Bali Post, economists disseminated reasons
for the slow growth of Bali's economy. Ever since the Asian economic crisis
in 1997, Bali's economy has been trailing, say economic experts Dr. I Nyoman
Erawan, Prof. Dr. Sri Darma, and I.B. Udayana Putra. Despite an improved
2007 growth of 5.9%, this figure still falls short compared to the 6.3%
average national economic growth. They also noted that while during the
Asian crisis one decade ago, the national economy dropped by 18%, Bali's
economy was down by 4% only. This means that today Bali trails behind other
Indonesian provinces in economic growth.
Prof. Erawan believes that the main reason for this slow development is
because Bali's economy has not been well managed, since benefits are sought
from short term programs only. Furthermore, through the enforcement of
regional autonomy to districts since 1999, the panel blames district heads
now acting like "small kings", fiercely competing with one another to
attract tourism and tourism investments to their respective regions,
regardless of its appropriateness or otherwise. In doing so they have
marginalized or even ignored to develop the agricultural sector, where 40%
of Bali's population work the agricultural fields, causing increased
unemployment in the districts and increased poverty, reports Bali Post.
This is in addition to the generally weak spending power of the people, and
the high cost of money at a time when Bali's real sector has not grown
significantly. Small and medium scale companies who should be the backbone
of the island's economy have remained stagnant, while low interest credits
offered by banks have not been able to penetrate down to the economically
weak population, thus in turn causing the minimal growth of Bali's economy,
said Raka Suardana.
Economic growth as calculated by the local government has been mainly
focused on investments in the financial stock market, and not in the real
sector which should be able to provide larger numbers of jobs, which in turn
should reduce poverty, added Raka Suardana
This fact is confirmed by the Head of Bank Indonesia in Denpasar, Viraguna
Bagoes Oka, who noted that Bali's economic growth has not been accompanied
by a commensurate growth in the employment sector. Although he admitted that
there has been a reduction in the number of unemployed in Bali, however, the
ratio is not proportionate to its economic growth.
The provincial island of BALI is relatively small, covering an area of some
563,286 hectares only or is about 0.29% of the total area of the Indonesian
archipelago. Prof. Sri Darma, said that through surveys that he has
undertaken, it was concluded that by and large, Bali's present economic
growth has not been able to lift the welfare of the majority Balinese. Many
villagers today still face continued poverty. Prof. Sri Darma found that
there are still some 142,699 families in Bali who live below the poverty
142,000 Balinese families eke a living below the poverty line
This precarious situation was confirmed at a separate occasion by Speaker of
the Karangasem District Parliament, I Wayan Karangasem, who said that of a
total of the district's 400,000 population no less that 41,750 families
today here live below the poverty line, since employment opportunities are
limited and the daily cost of living keeps rising, fuel is often scarce and
cooking oil becomes dearer by the day. Therefore, in order to empower
farmers and labourers, or even to create agro-tourism attractions, there is
no other solution but to boost the agricultural sector where the majority of
the population is active, and to boost small scale industries and handicraft
through capital loans with very low interest rates, which must be generated
by banks and the national government, he said.
His comments were made in reaction to a call made by the Minister for
Culture and Tourism, Jero Wacik, that regions should not overly depend on
the national government, but should become more self-supporting.
Although poverty is caused by a number of reasons, Prof. Darma continued,
there are three clear variables that cause poverty, namely the large numbers
of unemployed, small incomes of families, who in many instances live below
the regional minimum income, and escalating prices of essential food
commodities, including of rice and cooking oil, as well as soaring fuel
Since the majority of Bali's population live from agriculture, this sector
needs special attention, as most especially the planting and production of
rice employs some 40% of Bali's total population. At present, development of
agriculture in Bali is expected to support the tourism sector. But can
agriculture grow in such a manner as to extricate Bali from its economic
Prof. Erawan explains that today 80% of total investments to Bali is
contributed by the tourism sector. Therefore, to improve the agricultural
sector the government must boost corporate farming to actively involve local
farmers. In so doing the volume and quality of agricultural products can be
guaranteed, while the local population can pride themselves through the
appreciation given by markets to local produce and products.
Economists further rue the fact that regional autonomy that has been granted
to districts since 1999 has in no way improved conditions. On the contrary,
while the thrust of Bali's economy today depends on districts and city
authorities to increase and empower local potentials and local resources,
the fact remains that regional autonomy has created wider gaps and
imbalances among districts, which has triggered economic and social jealousy
among regions. Districts heads now merely compete to gather the largest
amounts of local taxes to show economic improvements in their regencies.
However, in the long run such measure can not guarantee sustainable public
"Our greatest weakness in this era of Regional Autonomy is the fact that
coordination among districts has ceased, as development programs are aimed
only at pleasing the respective district leaderships, maintains Prof.
The role of Culture, Tourism and Agriculture in Balinese Society
Meanwhile, in conjunction with the ongoing month-long Bali Cultural
Festival, another seminar was held mid June to assess the effects of tourism
and globalization on Bali's society and the Balinese identity. Speakers
included Prof. Dr. Mark Hobart, Prof. Dr. Adrian Vickers, Prof. Dr. Ron
Jenkins and Dr Mari Nabeshima.
Bali's social experts believe that Balinese society today is in a quandary
and is confused amidst rapid changes caused by globalization and tourism.
Many are concerned as local Balinese become fearful that their unique
culture and special characteristics will be marginalized by the unrelenting
onslaught of globalization.
In this context Prof. Dewa Ngurah Suprapta of the Agricultural Faculty of
the University of Udayana in Bali underlined that Balinese culture is
embedded in the agricultural environment, in particular in wet rice farming.
Much of what is known as Bali's local genius has its source in the
interaction of the Balinese person with his or her natural environment, and
is based on the Hindu religion and philosophy. For this very reason it is
of the utmost importance that Bali develops and manages the agricultural
sector well, not only to meet food needs and conserve Bali's unique
eco-system, but more importantly to sustain Bali's unique culture and
society, which are nota bene Bali's main draw for tourists to visit the
Prof. Dr. Edi Sedyawati further confirms that "Balinese culture has proven
to continue to remain strong because this culture is based on religious
functions. This can be seen in its performances, music and dance which draw
their source from the Hindu religion. Therefore, Bali's spiritual values
must be sustained, and should not disappear merely to make way for economic
pursuits" she said.
Gubernatorial Candidates seek solutions in Holistic Planning and
Link-and-Match between Tourism-Agriculture-Small Scale Industries
It so happens that these are campaign weeks in the run-up to gubernatorial
elections in the province of Bali on 9 July. Vying for the post of
Governor are Cokorda Budi Suryawan (or CBS for short), Made Mangku Pastika,
and Prof. Winasa. During their campaigns, candidates were asked to expound
their vision on how they plan to govern Bali during their term in office.
In his campaign Cokorda Budi Suryawan confirmed that he is committed to
develop Bali's culture-based tourism to attract more visitors to the island,
since culture and agriculture are Bali's main draws. When elected, CBS will
ensure to continue developing tourism and agriculture in their broadest
sense, reports balipost.com.
Bali started to seriously develop its tourism industry in the 1980's, CBS
said. By 1990 Tourism had become Bali's leading development sector,
however, this pushed agriculture to a secondary sector and was even
marginalized. But, at the outbreak of the Gulf War, and in the aftermath of
terrorist attacks on Bali, and SARS epidemic in Asia, the Bali government
began to review its plans and aimed to boost agriculture to help recover
Bali from its economic doldrums. However, much of what was then said
remained mere slogans and nothing much was actually done to improve this
Additionally, as Bali's population increased rapidly, exacerbated by
migration from other islands, environmental problems arose. Slum areas
appeared in cities, traffic became congested, and industrial waste began to
pollute rivers and seas. People started to build on green belts as little
alternative land was available. Rice fields were sacrificed to make way for
settlements or were converted into tourist facilities. Clearly spatial
development in Bali has become an issue.
Lately, 5.2% of Bali's agricultural land is converted yearly into housing
and urban development, while destruction of forests increases by 2%
annually, resulting in degradation of the quality of water on the island.
When things continue this way, said CBS, then Bali's condition in the next 2
decades will be critical. And as farmers sell their lands in order to work
in the services sector or in small scale industries, Bali's traditionally
prime irrigation network, known as the "subak" system, will be neglected and
with it the agricultural sector will suffer even more.
To correct this situation, CBS aims to revitalize the Balinese philosophical
concept of Tri Hita Karana, namely that in order to maintain balance in the
universe, man must keep proper relations with the Almighty, with his fellow
human beings and with his environment. This CBS plans to spread through the
empowerment of Bali's traditional village communities. This plan will also
include experts and tight coordination among the various sectors, to be
developed in a holistic system, says CBS.
Separately, in a talk-show on metrotv, replying to the question how
Candidate Made Mangku Pastika thought to develop Bali's economy especially
encompassing the tourism and the agricultural sectors, Pastika conceded that
for Bali, Tourism is the economic locomotive which must be able to pull the
other sectors to improve their productivity. The expected trickle down
effect of tourism must be actively planned and should not just be taken for
granted. For this purpose, there must be a program of link and match between
Tourism, the Agricultural Sector and Small and Medium Scale industries.
When elected governor, Mangku Pastika plans to activate the Bali Security
Council to coordinate all stakeholders. Bali's traditional village
communities and Bali's famed "subak" rice irrigation system must be
conserved, he said, to ensure sustainability of Bali's unique culture and
tradition, since Tourism in Bali can thrive only because of Bali's unique
Indeed one of the problems facing Bali is the fact that tourist facilities
are concentrated mainly in the south of the island (particularly in the
districts of Badung, Denpasar and Gianyar), Pastika said, where income is
counted in terms of dollars, whilst the remainder of the island can only
watch with envy. (Bali has 8 autonomous districts/city). Therefore, Pastika
plans to build a more balanced development between the south and other
districts on Bali.
Agriculture in Bali must be built in tandem and in synergy with Tourism so
that tourism benefits can be felt in cities as well as by the rural
population, where agriculture must meet the needs of tourism in a more
effective manner. Furthermore, Pastika plans to build a more congenial
relationship between tourism and agriculture, by, for example, pushing Bali
hotels to buy more of Bali's home grown fruits, flowers, vegetables and
meats, which until now are supplied either from Java or from overseas. In so
doing, Pastika hopes that Bali farmers will be encouraged to continue to
till the land rather than sell their rice fields to be converted into
housing or tourist facilities.
(Sources: Balipost.com, balidiscovery.com. metrotv)
NEWS AND BACKGROUND:
1. The Economy, Trade and Industry
Finance Minister Sri Mulyani is now also Acting Coordinating Minister for
Indonesian women may be justly proud that for the first time in the country's
history, a woman is entrusted to hold the vital position of Coordinating
Minister for Economic Affairs. In tandem with her present portfolio of
Finance Minister, Sri Mulyani Indrawati has been appointed by President
Yudhoyono to take over the Coordinating Ministry for the Economy from former
Minister Boediono who had been endorsed by Parliament to be Governor of
Indonesia's central bank, Bank Indonesia since 22 May.
Her appointment comes at a time when the world is threatened with
stagflation and wildly escalating fuel and food prices, while domestically
the government itself faces fierce criticisms even from Parliament over its
policy to reduce fuel subsidies, at the same time that Indonesia's political
climate is heating up in the run up to next year's general and presidential
In her briefing to the staff of the Coordinating Ministry before the
handover ceremony from former Minister Boediono on 24 June, Coordinating
Minister Sri Mulyani explained that although dual positions require a focus
and amount of time greater than required for a single position, she firmly
believes that this will in itself increase the efficiency of coordination.
"The Coordinating Minister of Economic Affairs is tasked with coordinating
the framing of policies and their implementation, whereas the Minister of
Finance is the fiscal authority with responsibility for budgetary
coordination. I will combine these two responsibilities in a manner that
will improve the effectiveness of coordination within the Economic Team in
the United Indonesia Cabinet," said Sri Mulyani, as stated in the press
release issued by the Coordinating Ministry.
In reference to sectors which she considers priorities, Minister Sri Mulyani
stated that food, energy and infrastructure are of the utmost importance.
"These three sectors are priorities because the world is currently facing
high food and energy prices. At the same time, the development of
infrastructure through budgetary outlays and partnerships between government
and the private sector represents a challenge to improve the national
investment climate and level of competitiveness," said Sri Mulyani.
More generally, the Minister stressed the importance of the implementation
of a number of key policies that are awaited by investors. These include
regulations on investment services, fiscal incentives for investors, the
development of Special Economic Zones including Batam, Bintan and Karimun;
as well as improvements in performance in the logistic sector.
To improve coordination between Ministers, Coordinating Minister Sri Mulyani
said that she was in the process of finalizing procedures which, in a
pro-active manner, will support all members of the Economic Team to meet
their commitments on policy implementation in a timely manner and in line
with established goals. "The remaining time of the Economic Team is very
short, so we must work harder and more effectively," the Minister said.
"Decisions made must achieve quick results in order to provide certainty to
the public as well as the business world. For this reason, my priority will
be to finalize immediately a number of policies that the business community
has been waiting for."
Additionally, Sri Mulyani, who also serves as Finance Minister, reminded her
staff that the macroeconomic stability achieved by means of coordination of
fiscal and monetary policies must continue to be sustained and even
increased. "With Pak Boediono as Governor of Bank Indonesia, coordination
between the fiscal and monetary authorities will be improved, in order that
stability is well maintained and becomes the foundation to accelerate
economic growth and control inflation," she said.
The Minister also reminded officials at the Department of Finance that
additional workload that she was adopting as Coordinating Minister for
Economic Affairs will not reduce her attention and commitment to the Reform
of the Bureaucracy within the Department of Finance itself. Steps toward
such reform was begun two years ago and had already demonstrated
improvements, albeit more slowly than was hoped.
"I wish to see the reform of the bureaucracy at the Department of Finance
reach the point of no return by the end of my term of office next year. For
it is only in this way that the public will believe that reform will bring
structural and permanent improvement," said Sri Mulyani.
In the immediate future, Coordinating Minister Sri Mulyani plans to hold a
Ministerial Level Coordination Meeting to discuss priorities and working
· Registered Taxpayers Exempted from Fiscal Tax starting 1 January
To induce more people to pay tax, the government has decided to give special
exemption to registered taxpayers from having to pay the required Rp. 1
million exit tax each time when leaving for overseas trips.
The Office of the Coordinating Ministry for the Economy in its bulletin:
Indonesia Trade & Investment News of 30 June stated that despite the fact
that Indonesia counts a total population of some 230 million people, only
four million are actually on the tax register, of whom one third only
actually pay tax.
To step up tax collection and tackle widespread tax evasion, Parliament is
expected to pass a new tax bill in the third quarter of this year, providing
incentives to people to register themselves before the end of the year while
authorities will take stronger measures against tax dodgers.
The government will fine unregistered taxpayers 20% of their total taxes if
they fail to register by the end of this year, as part of efforts to
increase tax collections, a legislator said, quoted by Reuters
"Starting next year, unregistered taxpayers will be fined," Melchias Markus
Mekeng, head of a parliamentary commission drafting the new tax law, said.
Registered taxpayers will also be exempted from paying a departure tax paid
for overseas travel from next year as incentive for people to register as
Under the current scheme, Indonesians and foreigners working in the country
Rp1 million as departure tax at the airport for each trip overseas.
"The departure tax will be lifted in 2011, but in the transition period,
starting on 1 January 2009, those persons who already have a tax ID will be
relieved from paying the country's departure tax."
Darmin Nasution, Director General of Tax, said in an interview last August
that he expected the number of registered taxpayers to reach 10 million by
the end of 2008.
Indonesia has set a tax revenue target of 609.2 trillion rupiah, or about
70% of the total budget revenue, this year. The Finance Ministry has
forecast that tax revenue will rise by 19% to Rp. 723.9 trillion in 2009.
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