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Indonesia Digest No.08.08 ; 30-06-2008

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  • Yap Hong Gie
    INDONESIA DIGEST Indonesia s complex Issues in a Nutshell Published by: TBSC-Strategic Communication No.: 08.08 - Dated: 30 June 2008 In this issue: MAIN
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      Indonesia's complex Issues in a Nutshell
      Published by: TBSC-Strategic Communication
      No.: 08.08 - Dated: 30 June 2008

      In this issue:


      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


      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
      Sanur beach.
      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
      Sports Arena.

      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
      and unemployment?
      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
      unemployment increasing.
      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
      Indonesian provinces
      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)

      1. The Economy, Trade and Industry

      Finance Minister Sri Mulyani is now also Acting Coordinating Minister for
      the Economy

      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
      must pay
      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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