f9298ab93ca94b9393b8761d25a9013fTradeInvNews15Dec2008.doc

THE COORDINATING MINISTRY FOR ECONOMIC AFFAIRS

REPUBLIC OF INDONESIA

Main Building, Ministry of Finance, Jl. Lapangan Banteng Timur No.2-4 Jakarta 10710

Tel: (021) 351-1178    Fax: (021) 351-1186    Website: http://www.ekon.go.id

Trade and Investment News, 15 December 2008

Highlights

National

· Air navigation to be placed under single operator

Politics

· Survey finds Indonesians want younger leaders

· Two parties back move to Islamic political party coalition

Law & order

· Police uncover major narcotics haul at Jakarta port

· Separatists sentenced to jail terms

Health

· A nationwide survey finds stroke is the most common cause of death

Economy

· World Bank approves loans to assist budget for development

· Finance minister underlines steps to boost economy will continue

Business briefs

Macroeconomy

· Bank Indonesia to continue close monitoring of rupiah

· World Bank predicts 6.0% growth in 2008, 4.4% in 2009

Investment

· Vice president urges business to take advantage of low prices

State concerns

· President Yudhoyono calls on ministers to prepare action plans

· Government committed to creation of 3 million jobs, minister says

SOEs

· Government to push ahead with plantation holding company, IPOs

· PT Semen Gresik looks to $300 million in capital expenditure

Private sector

· Lippo Group to spend $500 million on US, European properties

· Cellular operator Excelcomindo borrows $214 million for expansion

Banks

· Bank Indonesia keeps close watch on non-performing loan rates

· Two state banks look at acquisitions

Power

· Invensys Process Systemsc to upgrade systems at PLN power plants

· Pertamina unit looks for $1 billion to fund geothermal projects

Oil & gas

· Cepu block starts producing crude oil

· Pertamina confidence of reaching 2008 profit target of Rp27 trillion

NATIONAL

Air navigation to be under one agency from 2009

The Transportation Ministry will form a single air navigation operator in 2009, a ministry official said, The Jakarta Globe reported.

Budhi Mulyawan Suyitno, Director General of Civil Aviation at the ministry, said the operator would handle all traffic controllers across Indonesian airports.

"It will merge Angkasa Pura I, Angkasa Pura II and the air service provider belonging to the ministry," he said.

Angkasa Pura I and II are both state-owned enterprises and the three institutions currently operate all air traffic services across Indonesia.

The new provider, he said, would be established in the form of a public service agency and the private sector would be allowed to take part in it.

The navigation agency would provide services for air traffic, air telecommunication and information, aviation meteorological information and search and rescue.

Suyitno said that the establishment of the single air navigation services provider would be regulated in the aviation bill, which was nearing its final phase. "The bill may be passed as soon as December 16," Suyitno added.

POLITICS

‘Younger’ presidential candidates preferred: Survey

The majority of respondents from a recent survey conducted by the Indonesian Research and Development Institute (IRDI) favor younger presidential and vice presidential candidates, Media Indonesia reported.

The IRDI survey defined “younger” as candidates under 60 years old and was conducted between October 16 to 13, involving 2,000 respondents from all 33 provinces.

According to IRDI head Notrida Mandica, 54.8% of respondents wanted younger figures to run in the 2009 election, 20.05% did not want younger candidates while 25.15% abstained.

“The survey also showed that about 48.5% of the respondents wanted Indonesia to have an older president paired with a young vice president. In contrast, 31.2% wanted both president and vice president from an older generation, while 17.8% wanted both to be younger,” said Mandica.

When asked to choose among ‘younger’ politicians, respondents gave People’s Consultative Assembly Speaker Hidayat Nur Wahid 33.05% of support, presidential spokesman Andi Mallarangeng received 24.05%, National Mandate Party chairman Sutrisno Bachir received 11.51%, Youth and Sports Minister Adhyaksa Dault received 8.45% and Democratic Party deputy chairman Anas Urbaningrum received 8.17%.

Executive Director of the Freedom Institute Rizal Mallarangeng garnered 5.48%, State Secretary Hatta Rajasa received 3.16% and Prosperous Justice Party chairman Tifatul Sembiring garnered 1.95%.

Parties eye Islamic coalition

Two major Islamic parties on Friday welcomed a proposal to establish a strategic coalition of Islamic parties for the 2009 elections, The Jakarta Globe reported.

Anis Matta, secretary general of the Prosperous Justice Party (PKS), said the coalition idea — floated by Din Syamsuddin, the chairman of Muhammadiyah, the country's second largest Muslim organization — was a good idea. "We are going to consider the possibility," he told reporters.

Hidayat Nur Wahid, speaker of the People's Consultative Assembly and a former PKS chairman, said such a coalition had the potential to unite Muslim voters.

"However, it is also necessary for the coalition not only to endorse a presidential candidate but to influence Muslim voters to cast their ballots during the elections," he said.

Lukman Hakiem Saifudin of the United Development Party (PPP) said an Islamic coalition could be formed after the legislative elections in April next year.

"It is very possible for the central axis to endorse a presidential candidate," Lukman said, using the term for a coalition of Islamic parties that brought Abdurrahman Wahid to power in 1999.

The two parties together won a total of 15.5% of the vote in the 2004 general elections. However, two other Muslim-based parties, the National Mandate Party (PAN) and the National Awakening Party (PKB) were cool to the idea of an Islamic bloc.

"I think such an idea is no longer relevant today," said Effendy Choirie, who chairs the PKB faction at the House. An alliance of political parties, he said, should be based on shared political platforms.

"Nearly all [nationalist] political parties here are either founded or led by Muslims. So, what is the coalition [of Islamic parties] about?" Effendy said, adding that historically, Islam in Indonesia has never been united politically.

Abdul Rohim Ghazali of PAN also said Islamic parties have never been able to win over the nationalist forces in Indonesia's politics. "It's not relevant to separate between Islamic and nationalist forces now," he said.

LAW & ORDER

Huge narcotics haul at Tanjung Priok

Police broke up an international drug-trafficking network at Tanjung Priok, North Jakarta in what police have called the largest drug bust made in the capital so far this year, Okezone reported.

National Police crime unit director Brig. Gen. Hery Montolalu said a number of suspects were caught in possession of a large amount of illegal narcotics allegedly shipped from Afghanistan.

The evidence included 6.1 kg of heroin, 561 grams of crystal methamphetamine, 1,761 ecstasy pills, Rp32 million and three notebooks containing customer information. All the drugs were found at a rented room on Jl. Cipinang Baru Raya, Cipinang, East Jakarta.

Police said the suspects are believed to be part of a larger international network and connected to a prisoner at Pondok Bambu prison in Duren Sawit, East Jakarta.

Separatists sentenced to five years in jail

Three out of 17 suspects tried for allegedly attempting to establish a separatist Indonesian Islamic State (NII) were found guilty of treason and each sentenced to five years in prison by the Bandung District Court on Friday, The Jakarta Post reported.

The three were NII vice governor turned head of information for southern West Java, Suganda, 63; NII regent for Cianjur-Sukabumi, Dedi Mulyadi, and Mugito.

Another suspect is NII regent for Garut-Sumedang, Dede Suparman, 37.

The three are charged in violation of Articles 106, 107 and 110 of the Criminal Code on treason that carry a maximum penalty of life imprisonment.

The prosecutors accused Suganda and Mulyadi of recruiting new members and leading them to pledge separation from the Unitary State of the Republic of Indonesia (NKRI).

The prosecutors also charged them with Article 154 and 156 for disgracing the state's symbol and expressing hostility against the government.

HEALTH

Stroke, TB are lead killers: Survey

Stroke is the leading cause of death among adults in Indonesia, according to an extensive health survey, reported a UN information agency.

According to the Integrated Regional Information Networks (IRIN), a project of the United Nations Office for the Coordination of Humanitarian Affairs, the Basic Health Research survey also revealed that non-communicable diseases have replaced infectious diseases as the leading cause of death in all age groups.

Deaths caused by stroke constituted 15.4% of all fatalities among Indonesians over five, followed by tuberculosis at 7.5%.

The survey also revealed that 6.5% of deaths among people of all ages were caused by injuries.

The report stated that 25.2% of deaths among under-fives are caused by diarrhea, followed by pneumonia at 15.5%.

The survey said dengue fever is the main cause of death among children between five and 15 in urban areas, at 30.4%, while diarrhea is the greatest killer among the same age group in rural areas, at 11.3%.

The prevalence of dengue is 0.6% nationally but in some provinces it is higher: 2.5% in East Nusa Tenggara, 2% in West Papua, 1.2% in Bengkulu and 1.2% in Jakarta.

The survey, the first of its kind in Indonesia, collected data to measure 900 health variables from 258,366 households or almost one million people.

ECONOMY

WB approved development program loans

The World Bank approved two development policy loans (DPLs) on December 9 amounting to $950 million as part of its continuing commitment to support reform, the Financial Times reported. The loan, which is in US dollar cash, would require 3 days to arrive in the Indonesia Government account.

The loans are supporting Indonesia's efforts to move further forward to improve its investment climate, strengthen public financial management and governance, improve delivery of public services to the poor and address the obstacles to investment in new and better infrastructure.

The Fifth Development Policy Loan – which is part of an annual series of DPLs that started in 2004 – comes at a critical time as Indonesia, along with other countries throughout the world, copes with the ramifications and contagion effects of the global financial crisis.

The $750 million loan builds on and reinforces the four previous DPLs which have been instrumental in helping Indonesia reduce the time it takes to import and export goods, reform its tax administration system and improve budget and cash management within the central government.

“Indonesia is in a strong position to deal with the challenges being thrown up now by global financial turmoil,” said World Bank country director for Indonesia Joachim von Amsberg.

“Before the international crisis developed, foreign reserves were at historic highs and exports at record levels while the public debt to GDP ratio had fallen dramatically,” he said.

“The key to navigating the current turmoil is to continue on the same prudent path of good macroeconomic management and steady improvements on governance and the investment climate.”

By the end of 2009, the $200 million loan is, among other things, expected to help increase capital spending by infrastructure ministries by 25%, increase the proportion of electricity subsidies allocated to the lowest income consumers, prepare competitive and transparent tenders for public-private partnership transactions and significantly reduce the prevalence of open solid waste dumping in large and small cities.

The World Bank's lead economist for Indonesia, William Wallace, said Indonesia’s prospects have weakened due to the crisis, with growth expected to ease to 4.4% in 2009, reflecting slower projected growth in exports, investment and consumption.

The World Bank in its semi-annual report advised governments to use direct spending, particularly on ongoing infrastructure projects, to stimulate demand.

Finance Minister Sri Mulyani Indrawati underlined the government’s commitment to keep spending on infrastructure projects in order to anticipate the increase in the number of unemployed people due to the financial crisis.

“The discussion today concerned infrastructure projects which have been and will be carried out by the government in 2009," she said after a limited cabinet meeting on Thursday, Antara reported.

The government will not cut its expenditure budget in the face of the impact of the global financial crisis, Indrawati stressed.

BUSINESS BRIEFS

MACROECONOMY

BI continues to monitor rupiah

Bank Indonesia (BI) is constantly monitoring the rupiah and will work to ensure it remains stable, the central bank's governor said Friday, Dow Jones reported.

“We will work to ensure the rupiah maintains a stable position at a level that is beneficial to our economy," Bank Indonesia Governor Boediono told reporters.

On Tuesday, BI deputy governor Budi Mulya said recent strengthening in the rupiah currency has been mainly due to external factors. The rupiah has gained around 20% since it hit a 10-year low at Rp13,100 on November 21, buoyed by foreign capital inflows into the bond and stock markets as the central bank cut interest rates to stimulate economic growth.

Boediono also said the country’s foreign exchange reserves now amount to $50.6 billion or $420 million more than last November 28.

Boediono said the country’s foreign exchange reserves would increase by $2 billion in December 2008 with the funds coming from program aid.

On Tuesday, he told the House of Representatives that in order to overcome tight liquidity BI had adopted a number of policies such as lowering banks` minimum reserve requirement (GWM) to 7.5% in the rupiah currency. For the time being, banks were only required to have a GWM of 5% while the remaining 2.5% should be met by October 24, 2009.

Antara reported that for foreign exchange currencies, BI had reduced banks` GWM from 3% to 1%.

BI has also extended the fine-tuning operation tenure from one to 14 days to one to 30 days. It also has extended the foreign exchange swap tenure from seven days to one month.

Meanwhile BI said Tuesday Indonesia's current account deficit narrowed to $546 million in the third quarter from $1.24 billion in the second due to a sharp fall in oil prices, Dow Jones reported.

“The deterioration in global financial markets triggered portfolio-related capital outflows (as foreign investors) pulled out of Bank Indonesia notes, government bonds and stocks," the central bank said in a statement.

The country's balance of payments was in a $89-million deficit between July and September, compared with a $1.32-billion surplus three months earlier, Bank Indonesia said.

The central bank said that the surplus in the capital account narrowed to $509 million from $2.60 billion due to the outflows.

GDP likely to grow 6% in 2008, 4.4% in 2009: WB

Indonesia's economy will likely grow 6% this year, slower than the 6.3% growth last year, the World Bank said Wednesday, Dow Jones reported.

The prospects of Indonesia have weakened, with growth expected to ease further to 4.4% in 2009, reflecting slower projected growth in exports, investment, and consumption," William Wallace, the World Bank's lead economist for Indonesia said.

The World Bank in its semi-annual report advised governments to use direct spending, particularly on ongoing infrastructure projects, to stimulate demand.

Bank Indonesia (BI) deputy governor Hartadi Sarwono also said on Wednesday that the economy is expected to slow from the third quarter, Reuters reported.

“I see in 2008 we may still grow around 6%, while in the fourth quarter the economy may grow around 5.5-5.6%,” Sarwono said.

Sarwono added that economic growth in 2009 would hinge on conditions in the United States, but Bank Indonesia expected growth of around 5%. “It depends on economic improvements in the US for growth to reach 5.5%.”

BI issues new rule on exports facility

Bank Indonesia (BI) has introduced a new rule, which came into effect on December 5, enabling exporters to receive payment faster, in an attempt to reduce the impact of the global credit crunch, Reuters reported.

”Exporters can have liquidity both in foreign exchange and in rupiah, thus reducing pressure on the rupiah exchange rate," BI Governor Boediono said in a statement, adding that this should be positive for the economy.

The new regulation is eligible for six foreign currencies -- the US dollar, yen, pound sterling, euro, Australian dollar and Swiss franc.

Under the new rule, commercial banks are allowed to sell export receivables -- the monies owed to an exporter by the importer -- to the central bank, which will in turn extend the proceeds to the original exporter.

"Exporters, through the banks, will receive exports proceeds faster to meet working capital needs rather than having to wait for the payment date from overseas buyers," BI said on its website.

This should reduce the time it takes for an exporter to receive payment, which typically can be as long as six months, and may help to reduce demand for foreign currencies, reducing the selling pressure on the rupiah currency.

Several companies have already complained about the difficulty of obtaining financing, while monthly exports have dropped significantly because of the crisis.

A BI official said a similar regulation was put into effect during the 1997-1998 Asian financial crisis.

INVESTMENT

Now the right time to invest in Indonesia: VP

Vice President Jusuf Kalla says now is the right time to invest in Indonesia as prices are low following declines in the prices of various products such as steel, Antara reported.

"Now is the best time to invest. Two or three years from now, the economy will boom again," he said at an Investment Award presentation Wednesday.

Kalla said if businessmen invested now they would bear lower costs of development. From the cost side making an investment now would be cheaper around 60% to 70%, he said, referring to the price of raw materials which have dropped 50% in addition to an abundant workforce with competitive wage levels.

Recalling the 1998 crisis the vice president said that at the time many businessmen also declined to invest and as a result they lagged behind in meeting consumer demand when the economy was recovering.

The vice president said he believed that in two or three years` time the world’s economy would be normal again. Businessmen would no longer need to worry about power shortages because the 10,000 MW power development projects now underway would be ready in 2011 and 2012.

“The world will not be in crisis forever. It will certainly revive again," he said.

The vice president also believed the country’s exports would not be affected much by the current condition because most exports were primary materials which would always be needed.

He admitted that in terms of value they would drop in line with the decline in the price of commodities but in terms of volume they would not drop much.

Actual 11-month FDI up 40% on year

Actual foreign direct investment (FDI) in Indonesia rose 40% to Rp127.98 trillion ($11.6 billion) during the first 11 months of the year, head of the Investment Coordinating Board (BKPM) Muhammad Lutfi said Thursday, Dow Jones reported.

Lutfi said he expected actual foreign direct investment by foreign interests to increase 6% next year, and that by domestic investors to rise by 17%.

Investment by local investors slipped 51% on year to Rp144.71 trillion, Lutfi said.

STATE CONCERNS

President calls for action plans to face economic crisis

President Susilo Bambang Yudhoyono on Thursday called on his ministers to prepare action plans in anticipation of the impact of the global financial crisis on the national economy, Antara reported.

"The president asked us to prepare action plans which actually constitute derivatives of what the ministers are going to do at the concrete level with the real sector," Finance Minister Sri Mulyani Indrawati said after a limited cabinet meeting.

Indrawati said the meeting discussed on-going infrastructure projects and those that the government was going to build.

She said that the government decided to accelerate the implementation of infrastructure projects in order to anticipate the increase in the number of unemployed people due to the financial crisis.

“The discussion today concerned infrastructure projects which have been and will be carried out by the government in 2009," she said.

The government will not cut its expenditure budget in the face of the impact of the global financial crisis, Indrawati said.

Indrawati said on Thursday that the 2009 budget included various programs designed to anticipate lay-offs, such as the people’s business credit (KUR) and the national program for people’s empowerment (PNPM).

She admitted that the inclusion of priority programs in the state budget for 2009 could cause a bigger deficit in the 2009 budget than in 2008.

“From the receipt aspect, if economic activities decline, the revenue target could also decline and thus it will automatically generate a bigger deficit," she said.

Govt. to create jobs for 3 million: Minister

The government plans to create employment for three million people in 2009 through labor-intensive projects, Antara reported on Friday.

Public Works Minister Djoko Kirmanto said 2.5 million out of the three million workers to be employed would be new workers while the rest would be workers who were laid off as a result of the financial crisis.

It is expected there will be jobs for the three million workers in 2009 from the ministries of public works, agriculture, transportation and others, he said.

Kirmanto said his ministry had been asked to create employment for 1.1 million people. "This year we have already made projects for 800,000 workers. So we now just have to create jobs for 300,000 people," he said.

Last week, the Director General of Transport Industry, Telecommunications and Information at the industry ministry, Budi Darmandi said the government along with other stakeholders may halt automotive production temporarily as part of efforts to avoid mass-layoffs of both permanent and contract workers in the industry next year.

However, the general chairman of the Association of Indonesian Motorcycle Industry, who is also president director of PT Indomobil Sukses Internasional, Gunadi Sindhuwinata, said that the auto industry always adjusted its production capacity to principles of efficiency and effectiveness.

Russia-Indonesia trade hits $1B in year to October

Russian-Indonesian trade reached $1 billion in the first 10 months of this year, the Russian ambassador said on Friday, RIA Novosti said.

"The goal set by Russian President Vladimir Putin during his official visit to Indonesia in 2007 has therefore been reached ahead of schedule," Alexander Ivanov told a meeting of a bilateral intergovernmental commission.

The commission approved 12 draft agreements, including on direct air links between Moscow and Jakarta, which will help invigorate tourism and business contacts between the two countries.

During Putin's visit to Indonesia, a total of eight agreements were signed, including on a $1 billion loan to Indonesia to buy Russian weaponry.

He said Russian and Indonesian companies had signed a series of contracts worth a total of $4 billion.

"But this is only a beginning. Such Russian majors as RusAL, LUKoil and SintezNefteGaz are already developing the Indonesian market. Another company, Altimo, is interested in investing in Indonesia's telecoms market," he said.

Agricultural commodities to rebound in H2 of 2009

Prices of agriculture commodities such as palm oil, corn and soybeans, which tend to mirror fluctuations in the crude oil price, will rebound in the second half of next year, analysts said on Monday, The Jakarta Globe reported.

It could be in July or at any time because we're not experiencing an economic recession, we're just slowing down," said Harry Su, head of research at Bahana Securities.

Su said that in the short term, the prices of agriculture commodities including palm oil and cocoa would track oil prices closely. Prices could bounce back after the extent of the economic recession in the United States is disclosed, when the country releases its fourth quarter results early next year, he said.

Basically, all agriculture commodity prices will remain steady next year, albeit at low levels due to slowing global demand," said Eric Sugandi, an economist at Standard Chartered Bank. The bank has pegged the crude oil price for 2009 at $60 per barrel, he said.

Compared with prices for the whole of 2008, Sugandi said the bank had projected that prices of corn would be around 6% lower, crude palm oil and soy oil would be down 17% and rice would be around 10% lower next year.

“Demand may not be as high as it was before the crisis, but in the middle of 2009, people will get used to the global crisis," said Bungaran Saragih, an agriculture expert from Bogor Agricultural Institute. He said the prices of agricultural commodities would rebound in the second quarter of 2009.

Saragih said that agricultural products for both the food and energy industries would continue to be in demand, which would boost prices. Still, he warned that prices would not reach the record highs of early 2008.

Bayu Krishnamurti, the deputy managing fisheries, forestry and agriculture for the Coordinating Minister for the Economy, said the biofuel mandatory scheme which the government implemented in October would absorb CPO into the domestic market, cushioning a drop in prices.

“Biofuels can only be used economically when the crude oil price is at around $60," Su of Bahana Securities noted.

SOEs

Govt. to push plantation holding company, IPOs

The government is determined to push plans to create a state-owned holding company and issue initial public offerings (IPOs) for some plantations as soon as possible, officials said, The Jakarta Globe reported.

Minister of State Enterprises Sofyan Djalil told reporters on Tuesday that the new holding company was essential to forming a single strategy that would allow some of the plantations to specialize in producing one specific commodity, rather than growing multiple crops.

The central government, he said, is still negotiating with the Directorate General of Taxation on the amount of taxes the holding company will have to pay. The directorate wants the new holding company to pay all taxes for the plantations up front.

We are still negotiating the tax problem because we will need to pay a huge amount of tax if we want to establish the holding company now," Djalil said. "We want to pay the taxes later or not at all."

Muhammad Said Didu, secretary to the Ministry for State Enterprises, said the ministry is pushing the plantations to secure loans to expand and replant to increase productivity, adding that several state-owned banks have guaranteed funds for them.

"First, the plantation companies must be developed as soon as possible," he said. "Second, there must be cost efficiency, and third, productivity must be increased."

The three companies that the ministry plans to take public next year are PT Perkebunan III, PT Perkebunan IV and PT Perkebunan VII.

Semen Gresik 2009 capex predicted at $300M

State-owned cement producer PT Semen Gresik’s capital expenditure is predicted to reach $300 million next year, the company`s president director Dwi Soetjipto said on Thursday, Antara reported.

“The company at present has relatively good liquidity," Soetjipto said

Soetjipto said Semen Gresik was developing two new plants with a total investment of $670 million. In 2009, the company would spend $300 million.

The strategic projects that would be built in a three-year period would increase PT Semen Gresik`s production capacity by 25 million tons per annum.

Soetjipto said that the largest portion of the financing of the projects would come from the company`s internal sources in 2009. Foreign loans would be possibly needed in the fourth quarter of the year.

"We also get support form national banks. For this moment, the company relatively has no long-term loans so that our financial structure and liquidity conditions are quite strong," he said.

He said that PT Semen Gresik achieved growth of 11% in 2008 while in 2009 growth was predicted to dip to 3%.

State plantation company gets ‘A’ ratings

Indonesian credit rating agency Pefindo has reaffirmed its "A" ratings for state plantation company PT Perkebunan Nusantara V and the company’s Rp300 billion bond I/2003 due in November 2010, with a stable outlook, Antara reported.

The ratings reflected a conservative financial leverage, strong liquidity and protection of cash flow, Pefindo analyst Ronald Hertanto said on Thursday.

It also reflected an increase in fresh fruit stem supplies from nucleus plantations, he said.

However, the ratings were constrained by a profile of relatively old palm oil plantations, a high dependency on supplies of fresh fruit stems from nucleus plantations, and an exposure toward commodity price fluctuations, he said.

PRIVATE SECTOR

Lippo aims for $500M drive into US, European cities

Lippo Group has earmarked about $500 million to make its first property investments in US and European cities to take advantage of tumbling valuations there, the Financial Times reported.

Stephen Riady, Lippo's president and in charge of the group's international operations, said the size of the Western acquisition war chest could be raised further through leverage and partnerships with other Asian investors.

Riady named Chicago, San Francisco and London among cities that are likely to be targeted. "I was very recently in London and I had never seen so many 'for sale' signs," he said.

"We really think that, in the next year or so, there are going to be real (investment) opportunities in such places . . . We could also do something bigger with other Asian investors."

Lippo is one of the biggest real estate groups in Indonesia. It has also been building up a significant property portfolio in Hong Kong, mainland China, Singapore and South Korea.

Riady stressed that falling valuations in central London and elsewhere would not reduce his focus on Asia's urban development.

"The western market is just more saturated," Riady said. "In the Asian market, there is real demand and huge urbanization."

Lippo is one of the first big Asian real estate companies to outline such plans.

Asian interest in distressed property was recently underlined by news that SouFun, the biggest real estate website in China, will next month take potential investors to California to look at properties.

Excelcom borrows $214M for capex

Indonesia's third-largest mobile phone operator, PT Excelcomindo Pratama, said on Friday it has borrowed $214 million from Royal Bank of Scotland and Standard Chartered for capital expenditure, Reuters reported.

The firm, majority owned by Telecom Malaysia said the $214 million facility would be used to buy goods from Swedish telecom equipment maker Ericsson.

Excelcom has already revised up its capital expenditure for 2008 to $1.25 billion from an earlier figure of $1 billion. The money is earmarked for network upgrades as the number of subscriber increases.

However, Excelcom's president director Hasnul Suhaimi warned last month that the firm may miss its subscriber target this year because of the economic slowdown.

Analysts have predicted that the number of mobile phone subscribers in Indonesia would soar to 120 million by the end of 2008, from some 90 million last year.

Telecom Malaysia controls 83.79% of Excelcom while Emirates Telecommunications Corp holds a 15.97% stake in the company.

Rubber group urges no sales below $1.35 per kg

The Indonesia Rubber Association said on Thursday it will ask members not to sell rubber below $1.35 per kg in a bid to dry up supplies and shore up prices, Reuters reported.

“We believe Malaysia and Thailand will follow our initiative," Asril Sutan Amir, the association's vice chairman, told reporters on the sidelines of the International Rubber Consortium (IRCo) meeting in Sukabumi, West Java.

The association sees rubber prices rebounding to $1.5 a kg in the second quarter of 2009 if a proposed temporary ban on exports to prevent a further decline of prices is approved, Amir said.

“By our calculation, $1.5 kg is a fair level for rubber farmers," he said.

The producers are still discussing a further production cut with Indonesian producers seeking a bigger cut of between 10%-30% but Malaysia and Thailand are looking for a lower cut, Amir said.

IRCo, which groups Thailand, Indonesia and Malaysia and accounts for 70% of world output, kicked off a three-day meeting Thursday.

Cigarette firms to pay 7% more tax in 2009

Cigarette firms will have to pay an additional 7% excise tax next year, the finance ministry said on Wednesday, as the government seeks to curb smoking, Reuters reported.

“The increase will vary, depending on the previous retail sales price," the ministry said in a document accompanying a new ministerial decree, which will come into effect on February 1, adding the policy was a gradual step towards simplifying the excise scheme.

Under the existing excise scheme, the government uses a combination of tariffs, linked to factors such as production volume, retail price, cigarette type and the cigarette-making process.

The government currently imposes an excise rate of about 40% from the maximum cigarette excise tax to 57%.

The government aims to lower cigarette production growth to 5% in 2009 from about 7% this year. It expects production to decrease to 240 billion cigarettes next year from an estimated 247 billion cigarettes this year.

2009 telecom users to increase 20%: Kadin

Telecommunication users are predicted to increase by 20% to around 90 million from 75 million users this year, the Indonesian Chamber of Industry and Commerce (Kadin) said on Tuesday, The Jakarta Post reported.

“The telecommunications industry will see positive trends amidst the global economic downturn,” Anindya Bakrie, head of Kadin's standing committee on telecommunications told journalists on the sideline of a discussion on challenges and opportunities in the new media.

Bakrie said that new media would develop within the next couple of years in line with progress in technology infrastructure. New media refers to news and information accessed through television, the internet, radio and mobile phones.

During the discussion, Ninok Leksono, a senior journalist from national daily Kompas, said the government could help the local telecommunications industry by providing supportive policies, including those which would allow people to get internet bandwidth at cheaper prices.

BANKS

BI monitoring possible rise in NPLs

The central bank is monitoring a possible rise in non-performing loans (NPLs) at national banks, Bank Indonesia (BI) Governor Boediono said on Tuesday, Antara reported.

Boediono said the world’s slowing demand would reduce export demand and as a result export-oriented industries would lose much of their market, forcing them to cut production. World economic growth is expected to drop from 3% to 2.2%.

“The economic players` overall debt repayment capacity may drop and that would lead to increasing non-performing loans in banks in the future," he said.

BI director of research and banking regulations, Halim Alamsyah, said he had already revised the projection of credit growth from 22%- 24% to 19%- 22%.

BI's executive researcher of the bureau of monetary policy, Wiwik Sisto Widayat, said because of the uncertainty in the current economic atmosphere banks would be very careful in extending credits to prevent bad debts.

In 2008 bank credits would still grow above 30%. The year-on-year growth of credits in October 2008 reached 34%.

Mandiri eyes banks, insurers: CEO

State-owned PT Bank Mandiri, wants to acquire general insurers and mid-sized banks, chief executive officer Agus Martowardojo said on Thursday, as loan growth slows amid a global financial crisis, Reuters reported.

In 2009 we will continue to do acquisitions and our target is, for instance, mid-sized banks that will give us a good return on equity," he said.

"We are also in the process of looking at general insurance because of the opportunities for cross-selling of financial products,” Martowardojo said.

Loan growth at Mandiri will slow to 15%-17% next year, Martowardojo said, from an estimate of more than 25% in 2008.

The bank aims to keep its gross non-performing loans ratio below 5% next year, compared with 4.4% at the end of September, he said.

BRI plans to buy local bank

PT Bank Rakyat Indonesia (BRI), the second-largest financial services company by market value, plans to buy a local bank in 2009, following an acquisition this year, to boost lending, The Jakarta Globe reported on Friday.

"We definitely need a small bank that can help expand our loan growth to small and medium- companies," Sulaiman Arif Arianto, a director of the bank, said. "We are targeting a bank that has the same core business." He did not provide further details.

BRI has 5,199 small branches across the country, with around 4,350 branches providing loans to small companies, Arianto said.

The bank focuses almost 80% of its lending on small and medium-sized companies in Indonesia.

BRI will open a standalone Islamic banking unit next year after buying PT Bank Jasa Arta this year for Rp61 billion ($5.61 million).

The unit, to be named PT Bank Rakyat Indonesia Syariah, will operate 54 offices early next year, Arianto said.

BNI gets $100M loan from US bank

PT Bank Negara Indonesia (BNI) has secured $100 million in a loan from US-based Wachovia Bank, the bank said Wednesday, Dow Jones reported.

The loan will be used to help strengthen BNI's trade financing and working capital," BNI's treasury and international director Bien Subiantoro said.

The loan carries a one-year tenor with the yield at London Interbank Offered Rate (LIBOR), plus 240 basis points, Subiantoro told reporters.

He expects the bank's trade financing value to hit $4 billion by the end of this year, compared with $2.5 billion a year earlier.

BNI is the nation's third largest bank by assets.

ANZ plans to open more branches

Australia and New Zealand Banking Group Ltd. (ANZ) said Wednesday it plans to open at least 12 new branches in Indonesia over the next year, including two in Surabaya which it opened Wednesday, Dow Jones reported.

“ANZ continues to invest for growth in Asia Pacific and we are committed to playing a role in the ongoing development of the Indonesian banking sector by introducing new products and services for our customers and supporting critical economic development areas such as infrastructure and trade," ANZ Indonesia chief executive officer Joseph Abraham said.

ANZ, which is targeting significant growth in Asia in coming years, already has five branches in Indonesia, which it has identified as one of its highest priority markets in its growth strategy.

This includes our work with our partner bank PT Panin Bank through management and technical support, and through the growth of our 85% owned bank, ANZ Panin," he said.

POWER

IPS, PLN sign contract on power plant upgrade

Invensys Process Systems (IPS), a global technology, software and consulting firm headquartered in Texas, announced on Tuesday that it has signed a contract to make technical upgrades to five power plants on behalf of state power company PT PLN, Marketwire reported.

Under the terms of the agreement, IPS will provide distributed control systems (DCS) and automation solutions to power plants located in Banten, West Java, Central Java and East Java representing some 3,820 MW of power generation capacity.

The automation upgrades at PLN plants are part of the 10,000 MW Crash Program by the government to expand the country's power generation capacity.

Demand for electrical power in Indonesia is expected to grow by at least 10% annually over the next six years, and unless the country improves efficiencies and shifts power generation to lower-cost coal and gas-powered facilities, it will not be able to keep pace with demands.

IPS' DCS automation solutions allow PLN to set the stage for current and future planned upgrades, and, more importantly, improve plant revenues by drastically improving plant reliability and operational efficiency.

Pertamina unit needs $1B for geothermal investment

PT Pertamina Geothermal Energy (PGE) needs around $1 billion to develop several geothermal projects in Indonesia until 2012, Dow Jones reported on Friday.

PGE president director Abadi Poernomo told reporters that several institutions such as the Japan International Cooperation Agency and the World Bank have expressed their interests to help finance the projects.

The projects include exploration in Ulu Belu in southern Sumatra which could produce 110 MW of electricity, said Poernomo.

PGE currently has 15 geothermal concession areas across Indonesia, which could produce a combined 272 MW, and capacity may increase sharply to 1,000 MW by 2014, he added.

OIL & GAS

Cepu Block starts producing crude

ExxonMobil Corp. said the Cepu Block started producing a "limited" amount of crude oil on Wednesday, with production expected to rise to 20,000 barrels a day in the first half of 2009, Dow Jones reported.

Peak production at the block, located on the border of Central and East Java, is expected to be 165,000 barrels per day. The block is vital to the country's hopes to bring crude output back above one million barrels per day.

Exxon owns a 45% stake in the block, which is estimated to contain 600 million barrels of oil. State-owned PT Pertamina holds another 45% of the equity, and several companies owned by the local governments hold the remaining 10%.

Pertamina confident on profit target

Ari Soemarno, president director of state oil and gas giant Pertamina, said Wednesday the company is optimistic its 2008 profit target of Rp27 trillion will be met despite the drop in the world`s price of crude in the past few months, Antara reported.

He said Pertamina`s revenues came mainly from downstream business activities but its profit mainly came from upstream business activities because profit margin in the sector was bigger.

This year the government expects to get around Rp13.5 trillion in dividends from Pertamina, lower than an initial target of Rp15 trillion.

Tangguh to employ Papuan workers

The construction phase of the Tangguh liquefied natural gas (LNG) project at Bintuni Bay in West Papua is expected to be completed soon and the construction workforce is being wound down to about 4,000, a member of the project's advisory board told a Jakarta media briefing on Monday.

The Tangguh Independent Advisory Panel (TIAP) member, Britain's Lord Hannay of Chiswick, said locally recruited workers for the operational stage would eventually comprise about half of the expected 1,500 workers, including employees from local subcontractors, The Jakarta Globe reported.

Papuans comprise more than 30% of the workers already hired for the operational stage of the LNG project.

"By the year 2020, 85% of the workforce will be Papuans," he said, adding that it was feasible that by that stage many of the early recruits would have progressed to being skilled workers," Hannay said.

The panel had repeatedly stressed to the project's operator BP Indonesia that it had to prioritize the employment of Papuan workers during both the construction and operational stages.

The government appointed BP Indonesia as the operator of the Tangguh LNG project in 2005 with a 37.2% stake under a production-sharing contract with BP Migas.

Meanwhile the government is studying the possibility of building or relocating fertilizer factories to a location nearby the Tangguh gas field in Papua, Energy and Mineral Resources Minister Purnomo Yusgiantoro said on Wednesday, Antara reported.

"We learned a lesson from the Arun and Bontang gas fields that fertilizer factories or other industries are better built nearby the gas fields," Yusgiantoro told a meeting with the House of Representatives.

Pupuk Iskandar Muda and AAF fertilizer companies are located near the Arun gas field in Aceh while Pupuk Kaltim is near the Bontang gas site in East Kalimantan.

The development of a fertilizer factory for the Tangguh field would follow the pattern of the Arun and Bontang fields, he said.

Yusgiantoro said Tangguh was expected to produce its first LNG in April 2009 for export to South Korea.

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� This Trade and Investment News is a publication of the Coordinating Ministry for Economic Affairs of the Republic of Indonesia. Readers are welcomed to forward it in its original form but no reproduction is allowed without permission

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