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Indonesia Under Review


Indonesia Under Review

March 2013

Politics

President Yudhoyono has nominated finance minister Agus Martowardojo as the next Bank Indonesia governor when the incumbent Darmin Nasution’s term expires in May this year. The nomination surprised pundits and experts alike. While his tenure at Bank Mandiri saw a substantial increase in profits from 2005 to 2010, Mr. Martowardojo’s experience in monetary policy has been questioned - his nomination in 2008 was rejected precisely on this ground. The nomination needs to be approved by legislators at the House of Representatives (DPR), with many seeing this as a test of the executive’s relationship with the legislatives. The test may serve as a prelude to two forthcoming key legislative issues: the passing of the state budget and the enactment of the new banking and oil & gas laws.

Media mogul Harry Tanoesudibjo joined the People’s Conscience Party (Hanura) after leaving the National Democratic Party (Nasdem). 

West Java gubernatorial election saw Prosperous Justice Party (PKS)-backed Ahmad Heryawan – Deddy Mizwar leading the race in a number of quick counts. The recent beef import scandal involving PKS’s Chairman Luthfi Hasan Ishaaq, who has since been arrested, seems not to have dented its candidates’ chances of winning the election. Observers have opined that corruption concerns only the political elite, while grasroot voters were more concerned with economic welfare.

The DPR has approved the draft bills that will see new regencies carved out of existing ones in Sumatra, Sulawesi, Kalimantan and Maluku. The new regencies are: East Kolaka in South East Sulawesi; Penukal Abab Lematan Ilir in South Sumatra; Taliabu Island in North Maluku; Banggai Laut in Central Sulawesi; Central Mamuju in West Sulawesi; Malaka in East Nusa Tenggara; and Mahakam Ulu in East Kalimantan. Creation of new regencies is significant because their new regents are vested with wide discretionary power to grant economic concessions – most notably in the mining sector. In the past, creation of new regencies has sparked mining disputes. These bills are awaiting presidential assent before they come into force, which is typically a technicality that takes several weeks.

 
Corruption

The Corruption Eradication Commission (KPK), Indonesia’s anti-corruption body, has arrested the Chairman of the Prosperous Justice Party (PKS) over the beef import quota scandal. Luthfi Ishaq was detained after his assistant was caught red-handed receiving cash from persons affiliated with a large beef importer, allegedly in exchange for his influence in raising the importer’s quota. He has since resigned his position in the party. Meanwhile the KPK is investigating Suswono, the agriculture minister and a senior PKS member. The PKS, which promotes itself as the party of conscience and morality, has so far publicly defended Luthfi, painting the arrest as an attempt to victimize the party ahead of the 2014 election and weaken its bargaining position.

Anas Urbaningrum, chairman of the ruling Democratic Party, resigned his post after the KPK officially named him as a suspect in the Hambalang sports facility corruption case. The party’s elite has been calling for Anas’ resignation but found it difficult to remove him due to his strong grassroots support base. The KPK is expected to question him before deciding whether to issue an indictment. The Democratic Party has seen a number of its senior members investigated, prosecuted or convicted over a number of high profile graft cases, which has caused internal turmoil and increasing concerns over the upcoming 2014 election.

Hartati Murdaya was convicted of bribing public officials and sentenced to 32 months in prison by the Jakarta Corruption Court. The case signifies the KPK’s effort to take the fight against corruption to the private sector. While KPK enjoys near 100% conviction rate, observers have pointed that the anti-corruption body is not doing enough against those in the private sector who bribes the public officials.

Hotasi Nababan, former president director of Merpati Airlines, was acquitted of corruption charges over the lease of two Boeing passenger planes. The panel of three judges found that the evidence the Attorney General’s Office advanced was insufficient to find Nababan guilty. Previously, the KPK, National Audit Office (BPK) and the National Police all stated that elements of a corruption crime were missing from the case. The Attorney General’s Office nevertheless pressed ahead with the charges. It is currently studying the decision and considering whether or not to appeal.

 
Business
 
            Foreign Investment

Despite warnings of regulatory and infrastructural impediment, Indonesia recorded 2012 FDI growth of 26% for a total of $23 billion.

 
Infrastructure

Eight public-private partnership projects have been redesignated as private-to-private projects on the grounds of expediency. Public private partnership was previously seen as the most viable way to bridge the funding gap in infrastructure development, however certain projects have suffered from regulatory chokehold under the mechanism. 

PT Pelindo II (Indonesia Port Corporation) is investing IDR 7 trillion into two projects: the Kalibaru Terminal at Tanjung Priok Port, Jakarta and the Sorong Port, West Papua. Lack of port capacity and capability is considered as a major impediment to national economic growth. Pelindo II is currently tendering the construction of the Kalibaru Terminal to private contractors. Once completed, private contractors are expected to operate the new terminal on a concession basis.  

Jakarta administration reached an agreement with the central government over the funding of the capital’s MRT, with the Central Government shouldering 49% of the costs.  While the Jakarta Administration had initially been pushing for the central government to finance 60%, it finally relented on the grounds of expediency – the project has been in the planning stage for 26 years. Jakarta’s Governor, Joko Widodo, scheduled development to commence in March with all administrative matters to be completed in February. The project’s study team will involve members of the public, amidst concerns that the development will adversely affect some neighborhoods.

 

            Energy, Oil & Gas and Mineral Resources

London-listed Bumi Plc. shareholders rejected Nathaniel Rothschild’s proposal to remove 12 of the mining corporation’s 14 directors. Rothschild’s defeat was attributed to an 11th hour sale of shares by a shareholder who was previously considered to be acting in concert with the Bakrie Group. The move lifted voting caps imposed on the Bakries and their allies, effectively allowing them to marshal enough independent shareholders to outvote Rothschild. Bumi Plc. board stated that it will proceed with its plan to split from the Bakrie Group, with the earlier divesting its interest in the lucrative Bumi Resources and the latter relinquishing its 24% stake in Bumi Plc. 

The Ministry of Energy and Mineral Resources (ESDM) has refused to renew the contract of ExxonMobil Indonesia’s CEO, claiming a lack of progress in meeting production targets (however, reportedly only 5 of 56 companies meet targets under production sharing contracts). However, a speculated reason appears to be ExxonMobil’s failure to sell the Arun Block, with claims of ESDM being disappointed with the sale not being made to its preferred, second-placed, bidder.

Minister for State-Owned Enterprise gave a number of Pertamina’s subsidiaries approval to list their shares. The IPOs are expected to launch this year and Pertamina is currently conducting a study to see how the move could benefit the corporation. The upstream oil and gas arm of Pertamina, Pertamina Hulu, however is not included in the list.

 

            International Trade and Export/Import

Indonesia recorded its first, although marginal, trade deficit of $2 billion, caused by falling exports in the context of the global economic slowdown and ballooning imports into the rapidly growing market.  

The United States filed a trade dispute with the World Trade Organization against Indonesia on 10 February 2013. The complaint is grounded on a set of import regulations that impede US agricultural exports from entering Indonesia. Indonesia issued the protectionist measures in question based on an argument that they are vital to maintain health and safety standards and help local growers compete against imports.

Bank Indonesia (BI) and the Ministry of Finance have suspended the licenses of 20 exporters for failing to deposit their export earnings with domestic banks. Under a Bank Indonesia regulation, effective 2 January 2013, exporters must deposit income earned from exports with domestic banks or face administrative penalties, including fines and license suspension. BI is yet to name the exporters or their earnings.

 
            Banking and Financial Services

Bank Indonesia issued circular letter No. 15/2/DPNP of 2013, which establishes rules and procedure for shareholders to maintain their shareholding in commercial and sharia banks. The circular further implements BI Regulation No. 14/24/2012, which regulates the single presence policy for Indonesian banks.

 
            Other Business Sectors

Franchise – In an attempt to boost local participation, the Minister of Trade has issued a series of regulations that limit the number of outlets a franchiser/franchisee may directly own. Beyond this limit, the franchiser/franchisee must franchise out excess retail units to unaffiliated parties. The regulation does not grandfather current arrangements - franchisers exceeding this limit must adjust to conform to the new limitation and relinquish their excess outlets.  

 

 

[Last update: 2013-03-05 07:23:17]

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