Country Profile:
Indonesia
Indonesia
As one of the most resource-rich and populous emerging-market countries in the world, Indonesia has long been considered a pivotal economic power, both in the region and globally. It has reasserted its role recently in palm production, mining of coal and gold, offering vast untapped resources in energy and industry. The country’s financial system remained resilient to external turmoil even though the capital markets and property came under heavy sell-off pressure. The financial crisis is likely to strengthen Indonesia’s global economic and geopolitical standing as it is proving to be less dependent on exports posting growth in the face of weak economic conditions. Peaceful parliamentary and presidential elections held in 2009 have further strengthened its international image as a stable democracy open to foreign investors.
ISBN: 1-90202339-96-7
ISSN (Online): 1758-7603
ISSN (Print): 1758-759X
TABLE OF CONTENTS
COUNTRY PROFILE
This section provides a quick overview of some facts about the country, its population, language, natural resources, geography, climate and history.
POLITICS
In 2009 Indonesia celebrated its third series of general elections since the beginning of the new political era, marked by the fall of President Suharto in 1998 and the start of the period of reformasi. In 2009 the parliamentary election was in April, the first-round presidential election in July, with a second round scheduled for September, although initial results showed that President Susilo Bambang Yudhoyono had won enough of the vote to avoid a second round, with some 60% of the ballots re-electing him to office. He is scheduled to formally take office in October. The overall election framework is still divided into legislative and presidential elections, the latter following the former, as Indonesia goes forward with a system often referred to as presidential, but that has parliamentary characteristics.
This chapter provides interviews with President Susilo Bambang Yudhoyono; Hillary Clinton, US Secretary of State; HRH Prince Charles, Prince of Wales; Dino Patti Djalal, Presidential Spokesperson and Co-founder, Modernisator;Stephen Smith, Australian Minister for Foreign Affairs; Kishore Mahbubani, Dean, Lee Kuan Yew School of Public Policy, National University of Singapore.
THE ECONOMY
Indonesia has stood out in recent times as a piece of highly welcome firm ground for many in-the-know investors. Behind this perhaps unexpected status are a number of key factors that give the country some major competitive advantages over to its regional neighbours. Firstly, there is a stable political system. Secondly, there is the huge domestic market of 225.63m inhabitants, with consumption the main driver of growth. Consequently, Indonesia has been comparatively sheltered from the global demand slump afflicting many of its export-driven neighbours. Government forecasts for 2009 show slowing growth, perhaps down to 4-4.5%, alongside inflation of around 5-6% and a currency fluctuating around Rp11,000 to the dollar. Much depends on the course of the global economic downturn, however Indonesia is expected to remain relatively insulated from external shocks.
This chapter provides interviews with Sri Mulyani Indrawati, Minister of Finance and Acting Coordinating Minister of Economic Affairs; Toshihiro Nikai, Minister of Economy, Trade and Industry of Japan; Muhammad Yunus, Founder and Managing Director, Grameen Bank; Angel Gurría, Secretary-General, the Organisation for Economic Cooperation and Development (OECD); Ambassador Michael Tay, Executive Director, APEC Secretariat.
BANKING
Indonesian banks have sufficient capital and their balance sheets appear to be healthy. As a result of numerous programmes and reforms put into place after the Asian financial crisis in 1997-98, the country’s banks have avoided the worst of the toxic securities that recently felled some of the world’s financial giants. Moreover, the economic outlook for the country has been relatively favourable, which should help sustain the banking sector. A handful of large banks dominate the banking industry. The top-10 largest commercial banks accounted for about 61.62% of the industry’s total assets as of January 2009. However, not a single Indonesian bank is among the region’s largest banks. In order to strengthen the domestic banking sector, the government created the Indonesian Banking Architecture, which is a blueprint that was launched in 2004 and charts the industry’s course over the next 10 years.
This chapter provides interviews with Boediono, Former Governor, Bank Indonesia, Agus Martowardojo, President-Director, Bank Mandiri, Eugene Galbraith, President Commissioner, Bank Central Asia (BCA), Shariq Mukhtar, Citi Country Officer, Citibank Indonesia; A Riawan Amin, Chairman, Indonesia Sharia Banking Association
PAPUA
With vast minerals deposits and land suited to the exploitation of resources ranging from basic staples to highly valued minerals, Papua is an important contributor to the country’s resource production capacity and overall economic growth. While Papua’s isolation and underdeveloped infrastructure dictate that doing business there is a far greater challenge than in other places in the archipelago, its very appeal lies in the fact that it is largely unexploited in every sector.
This chapter provides interviews with Barnabas Suebu, Governor of Papua.
EAST KALIMANTAN
East Kalimantan, which is situated on the Indonesian side of Borneo, constitutes around 25% of the country’s land mass, although only around 5% of Indonesia’s population live there. Covering 549,032 sq km, Kalimantan is also home to some of the world’s largest stretches of tropical rainforest and an array of natural resources. Indeed, the name Kalimantan derives from the Malay words for “river of diamonds”. Among the region’s four provinces, East Kalimantan has been particularly blessed with an abundance of oil and gas, on and offshore, major reserves of coal, minerals such as copper and gold, and many gems. As a result of inbound investment and resource exploitation, East Kalimantan is one of the more prosperous regions outside of Java, with one of the highest economic growth rates in the country.
CAPITAL MARKETS
The Jakarta Composite Index has made a comeback after the global economic slump impacted stock exchanges around the world in 2008 and beyond. The exchange dropped 51% in 2008 as investors started panicking and rushed away from perceived risky assets and towards safe havens, such as US government securities. In 2009, however, things began a drastic turnaround. The main Jakarta Stock Composite Index (JSCI) rallied 54%, according to Bloomberg in July 2009, and Indonesia stocks were the fourth-best performers in mid-2009. The re-election of President Susilo Bambang Yudhoyono, who has pledged to put the economy at the top of his agenda, is likely to increase the stock market index and the number of participating investors.
This chapter provides interviews with Gita Wirjawan, Founder and Chairman, Ancora Capital Management (Asia); Rizal B Prasetijo, Managing Director, JP Morgan Indonesia.
INSURANCE
Efforts by the insurance industry and the government to increase traditionally low levels of public awareness as to the benefits of insurance are slowly increasing penetration rates, which reached 2% for the first time in 2008 according to early 2009 estimates from sector analysts and the General Insurance Association of Indonesia (AAUI). A significant part of the challenge of increasing this rate is the geography of the country, which requires a large agent force in order to use the traditional distribution channel. Insurers are creating alternatives to traditional agent distribution, such as bancassurance and direct sales using call centres. The Indonesian government has also been making efforts to increase public awareness of insurance with the introduction in 2006 of an annual insurance day, which has gained further relevance since the tsunami disaster of December 2007, which left millions of uninsured Indonesians solely reliant on government assistance and international aid. Despite penetration remaining low by both regional and global standards, overall growth, particularly in the life sector, has been vibrant in recent years, with life premium income rising by 83% y-o-y in 2007 to Rp44.4trn ($4bn) and non-life premiums growing by 12% to Rp8.4trn ($756m).
TRANSPORT
The government’s 10-year development plan launched in 2005 allocated Rp1.3qrn ($117bn) to infrastructure investment, much of which is being channelled to the transportation sector. In 2009 Rp35trn ($3.2bn) has been pledged for public works. Substantial as these sums are, fund absorption has not always been efficient, and much of the 10-year plan allocation remains unspent almost half a decade after its launch. Indonesia is likely to press forward with infrastructure development according to its model of partnership between the public and private sectors. Large government investments will draw in private players, whether through equity stakes or contract awards. Continued growing demand from the domestic market should see the sector pull through any of the effects from the international economic slowdown.
ENERGY
While in the past much of this energy largesse was exported, strong recent domestic demand growth and declining reserves are also leading to a reshaping of energy strategies. The role of the state, plus the nature of the legislative framework, is now under consideration, with new moves on both issues expected after the 2009 elections. According to the BP Statistical Review of World Energy, Indonesia had oil reserves of some 3.7bn barrels by the end of 2008. This represented 0.3% of the global total and was consistent with a gradual decline that has been taking place over the last two decades. Indonesia’s reserves of natural gas, meanwhile, have continued to expand as the volume of oil has declined. In 1988 gas reserves stood at 2.56trn cu metres (tcm), declining slightly to 2.18 tcm by 1998, then jumping upward again to stand at 3 tcm by the end of 2007 and 3.18 tcm by the end of 2008.
This chapter provides interviews with R Priyono, Chairman, Executive Agency for Upstream Oil and Gas Activity (BPMIGAS), Karen Agustiawan, President Director, Pertamina, Fahmi Mochtar, President Director, Perusahaan Listrik Negara (PLN), Nico Kanter, Head of Country, BP Indonesia, Steve Green, Managing Director, Chevron Indonesia.
CONSTRUCTION & REAL ESTATE
With high levels of investment and ongoing regional development, Indonesia’s construction sector has maintained momentum at a time when the global industry is facing a lean period. The government has reasserted its commitment to infrastructure expansion, while the private sector has avoided the mistakes of the past and is increasingly looking at partnerships with foreign firms.
The property sector emerged from the 1997-98 Asian financial crisis substantially stronger and better managed. Debt has fallen, development has been steadier and growth has been robust, not least in 2008. Substantial new supply of condominium units and office space is expected in 2009. While the global economic situation is likely to tighten demand temporarily, the long-term prospects are excellent, as local incomes rise and companies look to expand operations in Indonesia.
This chapter provides interviews with Daniel Lavalle, President Director, Indocement Tunggal Prakarsa; Tim Mackay, President Director, Holcim Indonesia; Harun Hajadi, Managing Director, Ciputra.
TELECOMS & IT
Indonesia’s information and communications technology (ICT) sector will be worth an estimated $3.2bn at the end of 2009 and is projected to grow to $4.6bn by 2012. In 2008 Indonesia had 25m internet users, representing 10.5% penetration, up substantially from 20m and 8.9% the previous year.
Indonesia’s telephony sector is fragmented among 13 different providers, though the GSM market is dominated by three players. The largest GSM operator is Telkomsel, in which part-stateowned PT Telekomunikasi Indonesia (Telkom) has a 65% share, with the remaining 35% in the hands of SingTel, which is in turn owned by Singapore’s sovereign wealth fund Temasek. There is a new dynamism about Indonesia’s telecoms sector, with operators redoubling efforts to secure a share in a market that still offers huge growth potential. Tariff reductions in 2008 gave a welcome boost to competition which looks likely to trigger some consolidation.
This chapter provides interviews with Kusmayanto Kadiman, Minister of Research and Technology, Erik Aas, President and CEO, AXIS; Johnny Swandi Sjam, President Director, Indosat; Hasnul Suhaimi, President Director, Excelcomindo.
INDUSTRY
The global economic downturn is expected take a bite out of the industrial sector’s performance in 2009. As major trading partners face recessions at home, Indonesia’s exports could decline. The top destinations for non-oil and gas exports are Japan, the US and Singapore, all of which are suffering economically. These three countries alone represent almost 42% of total non-oil and gas exports. Other export destinations include China, South Korea and Malaysia. According to the state news agency, Antara, the deputy governor of Indonesia’s central bank, Hartadi Sarwono, said that he expects exports to decrease by 4.6% in 2009. Fortunately, Indonesia’s economy is not primarily driven by exports. Domestic consumption represents 70% of economic output, which should help cushion the blow. Economists predict that employment levels will not drop by much and consumer spending will remain relatively strong, aided by public expenditure. The government recently launched a fiscal stimulus package to the tune of Rp73.3trn ($6.6bn). The aim is to sustain economic growth, which should spur industrial output.
This chapter provides interviews with Muhammad Lutfi, Chairman, Indonesia Investment Coordinating Board (BKPM); Mohamad S Hidayat, President, Indonesian Chamber of Commerce and Industry (KADIN); Amit Lohia, Managing Director, Indorama.
PLANTATIONS & AGRICULTURE
In 2007 Indonesia overtook Malaysia as the world’s leading producer of palm oil, an industry which in that year alone contributed a total of $8.9bn to the country’s economy. Geographically, agricultural production is spread widely across the archipelago, with Sumatra the leading estate crop territory, especially on the island’s north-eastern coast. Java is also a major centre of production, with much of the agricultural land dedicated to rice, corn, soybeans, coffee, cassava and sweet potatoes. The importance of agriculture for Indonesia is hard to overstate – the sector employs an estimated 45% of the local workforce while accounting for $18.85bn of the country’s export revenues in 2008.
MINING
The mining sector has a long pedigree in the country, stretching back many centuries. In terms of GDP, export revenues and employment, mining is a key contributor to the nation’s economy. Many international companies have been long established in Indonesia and are running globally competitive top-league mines, such as the world’s largest gold mine, operated by Freeport in Papua. Today, the industry faces many challenges. After the giddy heights of the commodities price boom in 2007 and 2008, the price drop experienced by many – although not all – has been all the more spectacular. Mineral prices have started to pick up again in 2009, however. At the same time, more Indonesia-specific challenges remain in terms of the industry’s regulatory framework and overall investment climate. Balancing domestic needs with the demands of the global marketplace is proving to be a tough challenge. However, further regulations for mining are set for the year ahead, with many in the sector hoping for changes that might further unlock the local mining sector’s vast potential.
This chapter provides interviews with Purnomo Yusgiantoro, Minister of Energy and MineralResources, Madhu Koneru; and Managing Director, Ras Al Khaimah Minerals & Metals Investments.
TOURISM
Indonesia is one of the world’s few major economies with obvious tourism appeal that has yet to unlock its true potential. Receiving an average of around 6m tourists annually the country still lags behind neighbouring Malaysia and Thailand in terms of visitor numbers. The reasons for the relative lack of development are manifold, but the good news is that over the last two years the government has taken concrete steps towards rectifying the situation. While worldwide tourism has taken a hit as a result of the international financial crisis, Indonesia is looking like it is more than able to hold its own in the battle to attract increasingly budget-conscious travelers.
The chapter provides an interview with Jero Wacik, Minister of Culture and Tourism.
MEDIA & ADVERTISING
Following the end of the Suharto era in 1998 when restrictions on ownership and freedom of expression were mostly lifted, Indonesia’s TV, radio and newspaper markets underwent an explosion in growth as many rushed to take advantage of a sector that had previously been dominated by state media. A decade on, however, this period of initial growth is now decidedly over and the sector has been undergoing consolidation as players seek to gain economies of scale in an increasingly competitive environment. The TV industry is now focused on enhancing programming quality and diversifying its technical resources, and newspaper owners are anticipating the challenge that web-based information sources are beginning to pose as internet penetration levels in Indonesia rise.
This chapter provides interviews with Jusuf Wanandi, Chairman, The Jakarta Post.
BUSINESS GUIDE
In conjunction with PriceWaterHouseCoopers, OBG explores the taxation system, examining the environment for investors. OBG also introduces the reader to the different aspects of the legal system in Indonesia, in partnership with Lubis Santosa & Maulana.
The legal coverage provides a viewpoint with Jusuf Wibisana, Chairman, PricewaterhouseCoopers Indonesia and Todung Mulya Lubis, Senior Partner, Lubis Santosa & Maulana.
THE GUIDE
This section includes hotel, government and other listings, alongside useful tips for visitors on topics like currency, visas, language, communications, dress, business hours and electricity.
