Indonesia Revisited

While we are debating whether 1Malaysia really works or just lip service, while we are debating whether corruption is more prevalent now than before, while we are debating the transparency and selection process in which projects are being farmed out by ETP and Petronas, while we are trying to pooh-pooh the World Bank's report on outflows and and brain drain issues, while we are debating over the usage of the word Allah, while we are debating over yet another stupid sex video .... Indonesia has surged past Malaysia by a huge margin as the preferred investment destination over the last 5 years. Use any statistics you want, Indonesia would have come up trumps against Malaysia.



Heck, while we are at it, even Thailand is a better preferred destination than Malaysia over the past 3 years, and bear in mind that Thailand had a serious and long drawn "riots/clashes between the reds and yellows" ... and still FDI wants to be there than in Malaysia.

EVER WONDERED WHY LOCAL MEDIA HAD VERY LITTLE NEWS ON INDONESIA'S BRILLIANT RUN OVER THE LAST 3 YEARS???

Indonesia is showing everyone that it takes VERY LITTLE to change and improve. So, what did they do, and what didn't we do:
- Indonesia effectively eradicate important channels of corruption (even though pockets of corruption still exists), bring corrupt big dogs down by charging them in court, as Indonesian courts have more of a backbone than our flawed justice system - that brings forth accountability, enforceability, and that improves perception and comfort level for foreign investors.
- improve corporate governance and government governance.
- give back total independence to the judiciary.
- cut out as much leakages and wastage from the country as possible.
- conduct all projects, resource allocation with utmost transparency and fairness.
- the total lack of acceptance to have a fair media environment in Malaysia, one should issue publishing licences to those who want, let an objective and independent judiciary decide if and when any of them do "wrong things", not up to the government to judge ... who in Malaysia still reads the mainstream media as a serious information disseminating service?
- a vibrant and relatively open media in Indonesia.
- conduct fair elections at every level to weed out discontent and to absolutely get the people's voice and backing.
- This one gutted me the most, Indonesia has linked up so well with India and China, like you would not believe, what Malaysia has done with India (negligible) and China (probably one-fifth of what Indonesia has inked with China) has been deplorable. Considering Malaysia HAD THE NATURAL EDGE with their Malaysian Chinese and Malaysian Indians citizens ... why??? ... its because they WERE NOT EVER EMPOWERED by the government and their supporting policies and functionary bodies.


Yes, its nice to beat their football and badminton fellas, but I'd rather we match their strides in governance, transparency and fairness.

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International financial company JP Morgan praised Indonesia`s economic policies that had made the country one of the world`s most attractive investment destinations.

"The Indonesian government has worked well and we believe Indonesia has become an attractive place for investment and it will continue to develop," JP Morgan Chase`s Chief Executive Jamie Dimon said to newsmen after meeting with President Susilo Bambang Yudhoyono recently.

He said he had discussed a number of economic issues with President Yudhoyono in the meeting including investment, energy and development.

"We have also been briefed about the Indonesian economic development acceleration program (MP3EI) and hope we can help and be involved in it," he said at a press conference with head of the Capital Investment Coordinating Board (BKPM), Gita Wirjawan.

Gita Wirjawan meanwhile said President Yudhoyono in the 30-minute meeting with Dimon had explained about the government`s plan in implementing the program. President Yudhoyono had expressed wish for banks like JP Morgan to help with funds as the program would require a lot of funds.

Besides discussing MP3EI they had also talked about Indonesia`s position which has become better and more attractive as an investment destination country as well as the settlement of global bonds with JP Morgan worth UD$2.5 billion.

"Several days ago they just helped the Indonesian government through the finance minister to settle the global bonds worth US$2.5 billion with yields at the lowest so far. This gives a good prospect as the pricing of global bonds has already reflected Indonesia`s eligibility as an investment grade country," Gita said.

He said "we hoped persons like Jamie Dimon could tell his colleagues in the international financial institutions that Indonesia has a right to be given an investment grade status."

Regarding the Overseas Private Investment Corporation (OPIC) meeting Gita said Indonesia would be the host for the meeting with minimally 250 businessmen from the United States from various sectors.

"This is the initiative of the US government for Indonesia. The business leaders that would come are from companies operating in infrastructure, renewable energy. We hope there would also be technology companies so that we could conduct joint investment and production," he said.



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The State Enterprises Ministry has hinted dividend payments by state firms to the government this year are likely to increase to Rp30.763 trillion from last year`s Rp27.59 trillion.

The dividend payments would consist of cash dividends worth Rp27.590 trillion and interim dividends worth Rp3.173 trillion, State Enterprises Minister Mustafa Abubakar said.

The increase in dividend payments included interim dividends, he said. However, he stopped short of revealing which state firms had paid interim dividends amounting to Rp3.173 trillion. The government has set the target of dividend payments from state firms at Rp27.5 trillion for this year, or 8 percent lower than those in 2010. Dividend payments to the government from state firms last year rose to Rp30.09 trillion from Rp29.5 trillion a year earlier.

Mustafa said the rising dividend payments were fueled by an increase in state companies` profit. "State companies are estimated to have posted a combined net profit of around Rp100.4 trillion in 2010, surpassing the target of Rp98 trillion."

In total, state firms booked more than Rp1,000 trillion in income last year compared to Rp930 trillion the year before, according to the ministry.

Mustafa said the rising income resulted from the improving financial performance of state firms particularly those engaged in the energy, mining and banking sectors. (*)


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Industrial products served as the main engine of Indonesia`s non-oil/non-gas exports in the first quarter of 2011 when they grew 34 percent compared with the same period last year, Trade Minister Mari Elka Pangestu said.

In the first quarter of 2011, industrial products contributed US$28.4 billion to the state coffers compared to US$21.1 billion in the corresponding period last year, she said when disclosing monthly export and import performance.

Quoting data from the Central Statistics Agency (BPS), she said industrial products accounted for 62.57 percent of non-oil/non-gas exports in the first quarter of 2011 compared to 59.39 percent in the same period last year.

"The increase in industrial product exports is one of the indicators that the domestic industries have begun to recover," she said.

Among the industrial products that recorded growth at the start of this year were textiles and textile products, footwear, electronics and automotive products. Data from the Trade Ministry show textile and textile product exports rose 14.4 percent to US$1.89 billion in the first two months of this year from US$1.65 billion in the same period last year. The data also show electronic product exports increased 12.2 percent to US$1.63 billion in the January-February 2011 period from the year before. Footwear exports jumped 44.1 percent to US$507.4 million in the year to February 2011 from US$352 million a year earlier. Automotive product exports meanwhile climbed 46.1 percent to US$490.6 million in January and February 2011 from US$335.9 million in the same period last year.

According to BPS, large-and medium-sized industries in the first quarter of 2011 recorded a 5.51 percent increase in their production compared to 4.26 percent in the same period last year.

"This is quite good because it exceeds 5 percent," BPS Chief Rusman Heriawan said.
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Despite mounting concerns about inflation, Jakarta says GDP of 7-8 per cent is achievable in coming years if the current trends of strong consumer demand and large capital inflows continue.

“Economic growth will be more than (the projected) 6.4 per cent this year. If there are extraordinary circumstances, the economic growth could expand to reach close to 7 per cent”, Central Statistics Agency chief Rusman Heriawan was quoted by the Jakarta Globe as saying.

But to achieve such an ambitious target the country will need to address concerns of investors about government red tape, weak infrastructure and rising inflation, say observers.

The economy expanded by roughly 6 per cent in 2010 and the official government forecast is for an acceleration to 6.4 per cent in 2011. The country’s vice president and former central bank governor, Boediono, was even more optimistic:

“Our economic growth may exceed 6.4 per cent. Given the current positive trend, reaching between 7 per cent and 8 per cent is not impossible”, he told the Tempo newspaper.

Finance Minister Agus Martowardojo said with improved infrastructure alone, GDP would surpass 6.4 per cent this year. That – optimistically – implies the government will succeed in implementing plans to spend tens of billions of dollars on roads, ports, power plants and railways.

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Interesting Newsbites

- Did you know that Indonesia's reserves, which used to be below 20% of Malaysia's total a few years back, is now at the same level as Bank Negara's.

- While corruption still exists, in particular at certain government departments and local councils, there has been a massive improvement in eradication of corruption at the corporate level and at important ministries (finance, immigration and custom).

- Foreign portfolio investment in Indonesian equities hit US$1.29 billion in Q3 2010, up 137% y/y (more than 200% q/q) and representing the highest USD value of equity inflows in the market's history, narrowly beating the previous high of US$1.28 billion set in Q2 2007 (which was followed by another US$1.26 billion in Q3 2007). That said, inflows into debt securities dwarfed those into stocks, reaching US$4.9 billion in Q3 2010, still significantly below the Q1 2010 high of US$6.2 billion. This surge in debt investment helped drive foreign holdings' share of outstanding government debt to an all-time high of 30% by end-2010.

- In 2009, Indonesia had the world’s second-best performing stock market, up nearly 86%. And in 2010, it has climbed nearly another 50%.

- The improvement has been led by reduced global risk aversion and capital inflows, Indonesia's superior economic performance relative to other ASEAN countries and political stability after parliamentary and presidential elections in April and July 2009. The SBY era has heralded a lot of effective change and transparency. Yes, a lot of credit should go to the ex-Finance Minister, Sri Mulyani Indrawati, and a lot more should have been done to save her position. She was a victim for fighting with the indispensable Bakrie Group - that episode could have been better handled.

- Indonesia suspended trading for the first time in eight years on October 8-10, 2008, after a sell-off in Asia and emerging markets caused a 10% stock-market slide, the biggest decline since 1998. The central bank reserves the right to conduct open market operations. Regulators may halt trading if the index falls below certain level.

- In late 2008, the government began allowing firms to buy back shares worth up to 20% of their paid-up capital (upping the previous limit of 10%), with government funding of US$420 million. The government also eased the rule requiring firms to have shareholder approval to do so.

- Political stabilization has enhanced investor sentiment and foreign investment inflows. Indonesia's large population has supported robust domestic consumption and allowed Indonesia to depend less on international trade. The government's US$7.2 billion stimulus package (2009) and supportive economic policies will continue to attract foreign investment.

- Indonesia is the third largest democracy, according to the Economist. Another reason: it is home to 245 million (the fourth largest population). It is the 16th largest economy (according to the CIA World Factbook). And in 2009, Indonesia joined the G20.

- Indonesia's economy grew 6.9% in the fourth quarter, year-on-year, the fastest pace in six years. And that "resilient economic performance" was one of the reasons that S&P upgraded the country's credit rating to the highest level since the Asian credit crisis in 1997. The country's debt is now one level below investment grade (with equivalent rankings from Moody's and Fitch Ratings). And S&P's "positive" outlook has implications: if the country achieves an investment grade rating it will increase capital inflows as it opens the way for more funds to invest there. But the real vote of confidence came from Saudi Arabia. Saudi Aramco, the world's largest oil exporter, will expand into Indonesia.

- But Indonesia has problems as well. The day the government reported their GDP reading, religious violence killed three people. And the next day three churches were burned to the ground by an angry mob. Extremism is an unfortunate part of the fabric of life, and according to estimates religious violence increased 50% last year (with over 100 attacks in 2010).

- And then there's inflation. Some are concerned … the Indonesian government is not. Inflation slowed to 6.65% last month (back in September 2008 consumer prices rose 12.4%).

- Although GDP per capita grew by 11% in each of the past three years, the country still has among the lowest labor costs in the region, with wages that are roughly0ne-third the level of Malaysia and half the going rate in China. This low-cost looks to make the quickly growing country a manufacturing powerhouse in the near future as more businesses look beyond China for cheaper options.

- Unlike many countries in the region, Indonesia has a robust consumer driven economy which is rare for a country of its economic development level. This is largely due to the country’s large middle class and its strong population trends; by 2012 the middle class will have increased by 50%; representing the addition of 27 million households (or adding the entire population of Malaysia) to its ranks. Additionally, the country has slightly more than half (55%) of its population under the age of 30, and one-third under the age of 15 which could be good news as these citizens age and reach their top earning years in the near future.

- Indonesia’s economic growth may accelerate to 7 percent starting in 2011, providing a case for its inclusion in the so-called BRIC economies along with Brazil, Russia, India and China, Morgan Stanley said. Political stability, improved government finances and “a natural advantage from demography and commodity resources are likely to unleash Indonesia’s growth potential.”



Challenges

The main obstacles for further development in Indonesia include deficiencies in basic infrastructure as well as health care and primary education, as highlighted by the Global Competitiveness Index. Furthermore, the country is limited in terms of capital access, due to its macroeconomic environment. Corruption is perceived to be very high, as evidenced by Indonesia’s performance in Transparency International’s Corruption Perceptions Index.

Some of the major problems in Indonesia today are:

• Indonesia remains prone to sectarian and ethnic violence

• More than 15% of Indonesians live below the poverty line

• Infrastructure is poor, if not non-existent

Trade regulations, on the other hand, are less restrictive although the country does impose protective tariffs. The tax regime in Indonesia is welcoming towards investment, both domestic and foreign, and the country has a well-established bankruptcy law. Indonesia has signed and ratified the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States. Corruption is extensive and of concern to investors, reflected in Indonesia’s ranking of 143rd out of 180 countries in Transparency International’s 2007 Corruption Perceptions Index.

Indonesia Outlook 2010 And Beyond:

Asia is believed to be the source of world economic growth in the future. Led by China, the East Asian economy is projected to contribute to three quarters of 2.5 percent of world economic growth in 2010. Although its not just India and China in the Asian growth story. With a wealth of natural resources including copper, gold and coal Indonesia today is becoming an increasingly attractive investment market. With growth rates rising exponentially in China, its appetite for commodities also makes Indonesia - with its close proximity and abundance of natural resources - an ideal partner. Indonesia today is reaping the rewards of good economic policy and responsible debt management, boasting a 4.5 percent growth rate last year and expected to grow by 5.5-6 percent in 2010

Since ASEAN was founded in 1967, Indonesia has always been playing important role in ASEAN. Private consumption accounts for about two-thirds of Indonesia's GDP. Indonesia is also making real efforts to increase accountability in its energy and resources sector by moving to become a candidate country in the Extractive Industries Transparency Initiative (EITI).

Indonesia needs at least $140 billion in investment over the next five years to upgrade infrastructure and meet President Yudhoyono’s goal of 6 - 7 percent annual growth. Two-thirds of that funding will have to come from foreign investment. An enormous market size, young work force, growing economy, and political stability, Indonesia is dressing up for foreign investors in the times to come.

The country still has issues with deeply entrenched corruption, failing infrastructure and legal uncertainties. Yet it still offers big returns for investors to revel in.

• Overall, Indonesia has sound economic fundamentals and sustainable economic growth at around 6%.
• It also boasts low benchmark interest rates, high foreign currency reserves and strong foreign direct investment.

That all factors into why the Japan Credit Rating Agency upgraded Indonesia’s government debt to investment grade this year.

It should know, since Japan is Indonesia’s largest, foreign, long-term investor. Investors there have long-kept parts of their fellow Asian nation in their portfolios.

Indonesia Stock Bubble Formation?

While the Indonesia markets surge attracting foreign investors to the countryForeign investors are snapping up Indonesia’s stocks and bonds. It's important to note that Bank Indonesia board members last year discussed the risks posed by an influx of foreign funds, and the bank studied the feasibility of imposing capital controls. Whatever might be the case, its quite clear that Indonesia is one of the most promising emerging markets not only in Asia but in the whole world.