INDONESIA DIGEST Indonesia's complex Issues in a Nutshell By; Ms. Wuryastuti Sunario Published by: TBSC-Strategic Communication No.: 13.07 - Dated: 10 May 2007
In this issue: MAIN FEATURE: PRESIDENT RESHUFFLES CABINET NEWS AND BACKGROUND: 1. Tourism and Transportation: Tourists Arrivals to Indonesia up 14.2%, to Bali up 44.6% in Q1 Domestic Tourists account for half of Arrivals to Bali ASEAN Air Passengers and Cargo Liberalization to start 2008 2. The Environment, Health and Culture: Climate Change: Indonesia Refutes Record as Country with Fastest Deforestation Rate 3. The Economy, Trade and Industry: Sinar Mas and Fulcrum to Build Biofuel Plant ------------------------------------------------------------------------------------- MAIN FEATURE: PRESIDENT RESHUFFLES CABINET After months of continued pressure by political parties and the media that the President reshuffle his cabinet, - and two weeks after the President finally relented to the pressure, - on Monday, 7 May, the President Yudhoyono announced his (limited) Cabinet shake-up. This is the second reshuffle after the first in December 2005, when the President was forced to change his economic team in the wake of government's slapping a 100 percent increase in fuel prices at the pumps, which resulted in spiraling prices nation-wide, and ensuing strong protests from the people. This time around, reasons for immediate change were cited as: slow investments in the real sector, a stagnant industrial sector, increased unemployment and lay-offs, and increased number of poor, despite much improved macro-economic performance, namely a stable Rupiah, decreased inflation rate, and a spectacular growth in Jakarta's share market. Yet in spite of these successes, basic living costs are still on the rise, especially in the price of rice and cooking oil, and unemployment increasing. Therefore, political parties, economists and the media were adamant that the President must change his economic team (yet again). There had also been a spate of transportation accidents in the past months, in the air, at sea and in railways, and the latest issue was the scandal brought about by the transfer of huge funds of Tommy Soeharto, son of former president Soeharto, from Paribas in London, where the names of Yusril Ihza Mahendra, former Minister for Law and Human Rights and incumbent Minister of State Secretariat, and Minister for Law and Human Rights, Hamid Awaluddin were allegedly mentioned. The latest destabilizing factor for the cabinet came when Internal Affairs Minister, Muhammad Ma'ruf suffered a stroke and was hospitalized, first in Jakarta and now in Singapore. The media had added that other ailing ministers who should also be replaced were Minister for Defense, Juwono Sudarsono, who according to rumours is suffering from heart disease, as is Public Works Minister, Djoko Kirmanto. Therefore, pressures were made on 3 issues, namely to replace ailing/unfit ministers, economic issues related to industry and unemployment, and political/ corruption issues. New Cabinet Line-up aims at fighting Corruption, and Economic-Legal Coordination However, when the President finally announced his new line-up, - what had so long been anticipated and hoped for by the media and political parties to become a significant overhaul of the cabinet,- turned out to be a rather low-key change: four incumbent Ministers and the Attorney General were let go, and two Ministers were entrusted with a different portfolio. In their stead, three professionals and two political cadres were taken on board. But none of the economic Ministers, except Minister for State-Enterprises, were replaced or removed. It appears, therefore, that the President had given priority to changing Ministers in charge of legal and administration matters only. According to the Constitution, the formation of the Cabinet is the sole prerogative of the President as Head of Government since Ministers are assistants to the President. While the President is elected by popular vote. On the issue of ailing Ministers, in his introductory speech President Yudhoyono explained that he had personally asked his medical team to provide him with a report on the physical conditions of his Ministers. In this aspect, said the President, all were reported to be sufficiently fit to implement their office. Except for the present condition of Minister Ma'ruf, that still needs to be reported to him in detail. Therefore, any changes to the post of the Internal Affairs Ministry remained pending. Furthermore, Yudhoyono said that the purpose for reshuffling his cabinet was firstly to boost output and effectiveness of the Ministry involved as well as of the cabinet as a whole. Secondly, the new line-up is expected to improve synergy among ministers through better coordination. For this purpose he had asked for input from the Coordinating Ministers. Reshuffling, the President emphasized, is not a means (for political party cadres) to take turns in top political posts in the cabinet. In the process he had taken into consideration the system of accountability, and has also asked for input and recommendations from Vice-President Jusuf Kalla (thus refuting media reports as if the VP had been left in the lurch). The Ministers who had been removed or are moved in charge of different portfolios thus reads as follows: Minister Yusril Ihza Mahendra, formerly Minister of State Secretariat is replaced by Hatta Rajasa, formerly Minister for Transportation. Incoming Minister for Transportation is Yusman Syafei Jamal, formerly CEO of PT Dirgantara Indonesia, and member of the National Transportation Safety Committee. Minister Hamid Awaluddin, formerly Minister for Law and Human Rights is replaced by Andi Matalata, Chairman of the Golkar Party and Member of Parliament. Minister Sugiharto, formerly in charge of State-Enterprises, is replaced by Sofyan Jalil, former Minister for Communications and Information. Sofyan Jalil has once held the post of Deputy Minister for State-Enterprises under Minister Tanri Abeng. Incoming Minister for Communications and Information is Dr. Muhammad Nuh, former Rector of the ITS University in Surabaya, Minister for Developing Regions, Saifullah Yusuf, is replaced by M. Lukman Edy. Secretary General of the PKB party Attorney General, Abdulrahman Saleh, is replaced by incoming Hendarman Supanji, formerly Head of the Corruption Crimes Investigation Bureau at the Office of the Attorney General. >From changes made, it is clear that the President had given priority to good governance and the anti-corruption campaign, including further reform in the legal system and structure As reaction to the Reshuffle, the Jakarta Stock Exchange index shot up, bypassing the psychological 2,000 mark to reach 2,037; and the Rupiah strengthened to Rp. 8,888 to the US dollar, the strongest position the currency has reached this past year. The new Cabinet was installed on Wednesday, 9 May. (Sources: SCTV, ANTV, RCTI, Kompas, Bisnis Indonesia) (Tuti Sunario) ---------------------------------------------------------------------------------- NEWS AND BACKGROUND: 1. Tourism and Transportation: Tourists Arrivals to Indonesia up 14.2%, to Bali up 44.6% in Q1 Foreign tourist arrivals in Indonesia increased by 14.21% in the first quarter of 2007 compared to the same period last year, according to data released by the Central Bureau of Statistics on Tuesday (1/5/07) said Indonesia's Trade and Investment News issued by the Office of the Coordinating Ministry for the Economy. Most tourists were drawn to Bali, which enjoyed a 44.67% increase year-on-year to 363,686, the figures showed, quoting Agence France-Presse. The tourism industry will cheer the hike after experiencing a downturn in business in recent years amid security concerns on the island. Nationally, 1 million tourists visited in the first quarter. In March, 361,760 tourists arrived throughout Indonesia, an increase of 12.25% from February. Widespread floods hit the capital Jakarta in February, which adversely affected the month's tourist arrivals. Domestic Tourists account for half of Arrivals to Bali Meanwhile, balidiscovery.com reports that the number of domestic passengers to Bali increased by 8.08% recording 391,900 passengers on domestic flights in Q1 2007, up from the 362,600 passengers in the same period one year before. The Importance of Domestic Tourism for Bali When the number of passengers carried both domestically and internationally via Bali's Ngurah Rai Airport are combined, the major role domestic tourism has come to play in Bali's tourism is demonstrated. As a percentage of all air passengers, domestic passengers constitute 52.9% of all air passengers in Bali during the first three months of 2007, down from 60.5% share in 2006 when international passengers were negatively impacted following the October 2005 terrorist attack, wrote balidiscovery.com ASEAN Air Passengers and Cargo Liberalization to start 2008 The ASEAN Transportation Working Group (ATWG) in its 15th. Meeting in Palembang, South Sumatra, recently agreed to liberalize air transportation among ASEAN members, offering fourth freedom rights to passenger airlines from member countries flying to and from all 10 capitals of ASEAN beginning 2008, said Director General for Air Transportation, Tri S. Sunoko, as reported by Bisnis Indonesia. This means that as from 2008 member countries' airlines will have the rights to lift unrestricted number of passengers from member country to home country, explained Sunoko, so that this agreement will overrule earlier bilateral agreements that limited passenger lift. For example, at present Singapore is limited to carry a maximum of 24,000 passengers per week from Jakarta , while Indonesia's airlines are limited to 27,000 weekly. Starting 2008 no restrictions are made on the number of passengers carried from Singapore to Jakarta, and vice versa, Director General Tri Sunoko explained. The open sky policy will be gradually expanded to become fifth freedom rights, allowing ASEAN airlines to carry passengers from other ASEAN ports to third countries in unrestricted numbers, which is expected to come into force starting 2010. Consequently, Indonesia must prepare our airlines and Jakarta's airports to face the new regulations, giving special attention to air safety, and service compliance. Results of the Working will be reported to the ASEAN Transportation Ministers Meeting in Singapore later this month, although two points have still to be thrashed out, namely the territorial issue and the issue of safeguard. While other points of agreement that had been reached were on the subject of tariffs, chance of flights, healthy competition and air services. Moreover, countries who feel that they are not yet prepared to accept such conditions may delay to ratify the agreement. As regards the liberalization of Air Cargo, which is due to start in 2008, Indonesia has offered 7 cities to ASEAN airlines, these are Batam, and Palembang in Sumatra, Pontianak and Balikpapan on Kalimantan, Makassar and Manado on Sulawesi and Biak on Papua. Cargo liberalization allows for fifth freedom rights, so that ASEAN airlines may carry cargo from ASEAN point to third countries. Indonesia has agreed to the liberalization of air cargo to boost exports especially from the eastern islands of the archipelago, reports Bisnis Indonesia. Hub and Spoke Policy to be gradually enforced Meanwhile, anticipating the ASEAN Open Sky agreement, the Indonesian Government plans to disperse the home base of Indonesian airlines from a concentration at Jakarta to 9 other airports, implementing a policy of hub and spoke. Indonesia counts 16 airlines with 203 domestic routes serving 101 cities. Of these, Garuda Indonesia, Adam Air, Indonesia AirAsia, Lion Air, Metro Batavia and Sriwijaya Air are expected to maintain their home base at the Soekarno-Hatta International Airport in Jakarta, while other airlines are expected to move their operational hub to Medan, Surabaya, Makassar, Balikpapan, Batam, Kupang, Jayapura, Merauke, Sorong or Manado. Merpati Airlines is expected to move to Makassar, Wings Air to Surabaya, Riau Airlines to Batam, reports Bisnis Indonesia. Moreover, the government plans to review airline routes and urge partnership among airlines, including operating code-share alliances or even to merge. In so doing, the sprawling Indonesian islands will be better served, and airlines will reduce overlap in operations. In the latest development, answering questions Wednesday posed by detik.com journalist, Lion Air President Director, Rusdi Kirana said that the airline preferred Surabaya as its home base, but Medan, Manado or Denpasar, Bali as its international hub. Lion Air's subsidiary, Wings Air plans to make Makassar its home base. On its side, Garuda Indonesia President Director, Emirsyah Satar said that the airline has its home base both in Jakarta and Bali, where Bali is particularly operated for Garuda flights to Japan and Australia. The main problem in merging or code-sharing between Indonesian airlines is the different systems and service standards applied by each. So that, these need to be harmonized first, said Emirsyah Satar. 2. The Environment, Culture and Health: Climate Change: Indonesia Refutes Record as Country with Fastest Deforestation Rate The Government of Indonesia has rejected citations that Indonesia has the fastest rate of deforestation in the world, since data mentioned and sourced from FAO are outdated. Moreover, Indonesia has since taken a number of measures at reforestation. This rejection was made by the Department of Foreign Affairs as well as by Minister for Forestry, M. S. Ka'ban, as reported by Media Indonesia. Apparently based on FAO data, Guinness World Records has approved a proposal by Greenpeace that Indonesia's forest destruction be included in its 2008 record book to be published in September this year, Greenpeace Southeast Asia campaigner Hapsoro had said, as reported by Reuters. Displaying a replica of the certificate from the global authority of records, Hapsoro said that the citation from the publication would read: "Of the 44 countries which collectively account for 90 percent of the world's forests, the country which pursues the highest annual rate of deforestation is Indonesia with 1.8 million hectares (4.4 million acres) of forest destroyed each year between 2000-2005." Indonesia has lost 72 percent of its intact ancient forests and half of what remains is threatened by commercial logging, forest fires and clearances for palm oil plantations, Greenpeace said. Conversion to Plantations and Fires on Peat land make Indonesia 3rd. top polluter The report further continued that "International demand for timber and paper as well as commodities such as palm oil was driving the destruction of the country's forests, currently covering 120.3 million hectares (297.3 million acres), it said. Indonesia is the second second-largest palm oil producer after Malaysia and is poised to be the world's biggest producer of the commodity with more than 16 million tonnes this year. Greenpeace said while Indonesia was destroying its forests at a faster pace than any other country, Brazil destroyed a larger area of forest every year. The group said Indonesia's rate of forest destruction also made the country the third-largest greenhouse polluter after the United States and China. Experts say up to 25 percent of greenhouse gas emissions comes from tropical forest clearance. Indonesia wants rich countries to pay developing nations to preserve their forests and plans to push this proposal at a U.N. conference in Bali on climate change in December, reported Reuters. Refuting the above data, Kompas daily of 5 May reported that the Head of the Centre for Mapping in the Department of Forestry, Hermawan Indra, confirmed that FAO's statistics are outdated. According to the FAO report, Indra said, Indonesia had lost an average of 1.8 million hectares every year between 2000-2005. In fact, asserts Indra, these are not most recent data, but are 1985-1997 data. According to latest surveys, deforestation in Indonesia between 2000-2005 has declined to 1.18 million hectares per year, whereas earlier, between 1997-2000 there was indeed an upsurge to 2.83 million hectares a year, which was the result of public euphoria in the wake of Indonesia's revolutionary Reform movement. Moreover, Indonesia's total forest area measures 120 million hectares, and not 88.495 million hectares, as stated by FAO. Based on these measurements, therefore, deforestation rate in Indonesia is not 2 percent per year, but 0.9 percent per year. Nonetheless, Indonesia's rejection to accept the title of being the top country to destroy its forests fastest, does not take away the fact that Indonesia is very serious about preserving its ancient rainforests. For Indonesia sees deforestation as the most important issue that must be solved to reduce greenhouse gases that cause climate change. According to 1998 data from the Ministry of Environment, Indonesia produced 800 million tons of carbon dioxide between 1992-1997, some 75% of which is caused by forest fires in the conversion of forests to plantations and to human habitat, while only an insignificant amount is produced through the use of energy for transport and industry. However, when including land conversion on peat land as noted by surveys made by Wetland International, total greenhouse gases emitted in Indonesia shoots up, causing this country to become the third top polluter of carbon dioxide after the United States and China. According to Wetland International 2006 data, if between 1997-2006 a total of 1,400 million tons of carbon was produced by forest fires, and the reduction and drainage of peat land, 90% of this was produced by peat forests fires in Indonesia, reported Media Indonesia. Preserving the world's rain forests will be one of the main agenda items for discussion at the December Climate Change Conference in Bali. 3. The Economy, Trade and Industry: Sinar Mas and Fulcrum to Build Biofuel Plant Indonesia's Trade and Investment News published by the Coordinating Ministry for the Economy, quoting Reuters reported that The Sinar Mas Group has signed a deal with U.S. energy firm, Fulcrum Power Services, to build a biodiesel plant with an initial capacity of 400,000 tons a year, a company official said on Friday (4/5/07). The plant will be built in Dumai on Sumatra and should start producing fuel next April, Danny Jozal, the alternative energy chairman at Sinar Mas, told Reuters by telephone. The plant is expected to cost $60 million and capacity may be raised to 1 million tons from an initial 400,000 tons, he added. The official said one of the diversified group's units, PT Bio Energi Mas, signed the joint venture on Thursday with Houston, Texas-based Fulcrum. "Sinar Mas has a 50% share in the joint venture company. It will process palm oil, olein, and stearin to biodiesel," Jozal said, adding it may also process jatropha, a shrub with oil-bearing fruits. Sinar Mas Group has joined several Indonesian companies that have announced plans to build biofuel plants, mostly palm-oil based biodiesel, including PT Asian AGri and PT Bakrie Sumatra Plantations , to tap global interest in biofuels. In January, the group's palm oil unit, PT Smart, signed an agreement with Chinese oil major, CNOOC, and Hong Kong Energy Ltd. for a $5.5 billion investment to produce biofuel in Indonesia. For your comments or further inquiries, please e-mail to: [EMAIL PROTECTED]
