UNDERSTANDING INDONESIA: Past, Present, Future

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UNDERSTANDING INDONESIA PAST PRESENT FUTURE
By Mr. Sudaryomo Hartosudarmo Consul General of
the Republic of Indonesia Sydney, 13 August 2008

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INDONESIA
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Position
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THE OLD ORDER

• 1960 1965
• Economic growth 2.1 /year
• Inflation rate 250

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THE NEW ORDER

• 1960s
• Chrome underperformer
• 1968
• Economic growth 6 /year
• 1969
• Repelita (5 year development plan) starts
• Per capita income US 70 - poor country
• 1990s
• High Performing Asian Economy (HPAE)
• 1998
• Middle income country
• Per capita income US 1.157

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Achievement

• Over a period of 25 years economy growth 7- 8
  / year
• 80s 90s
• Inflation rate average 10
• Self sufficient in rice
• The President received FAO award
• New Emerging Economy in South East Asia (poised
  for New Asian Tiger)
• Less poor people
• 1967 60
• 1980 40
• 1987 21 or 37 million people

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difficult period

• October 1997
• IMF standby arrangement to restore market
  confidence
• IMF failed
• Soehartos health problem
• Corruption, Collusion, Nepotism
• Economic distress
• Serious political crises
• The President resigned 21 May 1998
• New Order era ends and Reformasi starts

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SITUATION COMPARED

• 1966
• Soehartos New Order Regime emerged triumphantly
  in the wake of serious economic and political
  crises
• 1998
• Soehartos resignation ended in another serious
  economic and political crises

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AFTER SOEHARTO

• - 1998 - 1999 BJ Habibie became president
  currency fell from about Rp 2,500 per US to Rp
  17,000, banks collapsing IBRA established, high
  unemployment/poverty. Economy shrank to 14,
  inflation 80
• 1999 - 2001 President Abdurrahman Wahids
  priority more in politics civil servants salary
  raised, faced problems of subsidies and fiscal
  decentralization
• 2001 - 2004 Megawati Soekarnoputri as
  president economy stabilized/kept steady and
  partly recovered from 1997 monetary and economic
  crises
• - 2004 - till now President Soesilo B.
  Yudhoyono stimulate growth foreign investment
  ?create employment, alleviate poverty, accelerate
  economic and social development, held
  Infrastructure Summit 2005

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All time high (including values before crisis)
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Foreign Direct Investment (FDI) Confidence Index
2007(ATKearney1) Survey 2007)

• Note
• FDI Confidence Index 2007 is a survey to CEO and
  COO from 1.000 world-class companies in 65
  countries, and founded that investors are
  optimistic about economy of developing countries
  including Indonesia, and could be a target of FDI
  destination of their companies in the upcoming
  years.
• Indonesia, Vietnam and Malaysia came back into
  Indexs top 25 most attractive FDI
  destinations.

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largest global clients in all major industries.
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Targets for 2008 - 2009

• Unemployment 9,1 (2007) 8 - 9 (2008)
• Poverty 16,6 (2007) 14,2 - 16
  (2008)
• Economic growth 6,4 (corrected from 6.8) and
  in 2009, BAPPENAS estimation ranges from 6.6
  6.8
• Investment required US 144.0 billion
• Government Contribution US 16.4 billion
• Private Contribution US 127.5 billion
• (private sector contribute around 80)

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FDI Inflow(2000-2011) Averages
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Business Environment Rank and Scores(Economist
Intelligence Unit)
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Main Investment Opportunities

• Refineries Petrochemicals
• Iron, Steel Specialized Steel
• Processing Other Primary Commodities
• Automotives and Shipping industries
• Telecommunication
• Infrastructure (roads, energy, etc)

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• Food Processing Industry (eastern Indonesia)
• Other Food Industrial esp. Spices and Seasoning
  Industries
• Textile Industry and Apparel Industry
• Agro-based Natural Resources Industry (Outside
  Java Island)
• Pulp Industry, Paper and Paper Board
• Packaging and Box Made of Paper and Board Paper
  Industry (Outside Java Island)
• Industrially Chemical Materials Industry
• Other Chemical Materials Industry
• Rubber and Rubber Products Industry
• Plastic Ware Industry (Outside Java Island)
• Porcelain Products Industry
• Cement, Lime and Gypsum Industry (Eastern
  Indonesia)

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• Furniture Industry Group (Outside Java Island)
• Iron and Steel Making Industry Group
• Non-Iron Basic Metal Industry Group
• Non-Iron Metal Making Industry
• Engine and Engine Parts Industry
• Electrical Motor, Generator, and Transformer
  Industry Group
• Electronics and Telematics
• Land Transportation Industry Group
• Ship and Boat Production and Maintenance Industry
  Group
• Sea Fishing and Processing (Integrated Business)
  (Any Provinces bordered with Indian Ocean
• Sea Crustacea Catching and Processing (Integrated
  Business) (Any Provinces bordered with Indian
  Ocean)
• Sea Mollusk Catching and Processing (Integrated
  Business) (Any Provinces bordered with Indian
  Ocean)

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Efforts to improve
investment climate
Enacting Law No 25/2007 on Investment as a tool
to attract foreign investors
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ON STRATEGIC INFRASTRUCTURE

• The budget for infrastructure development is
  increased substantially (almost 50) from FY2007
  ? FY2008, especially at major transportation
  facilities
• Within road development increase of the budgets
  has been more than doubled, from MORE THAN US700
  million in 2007 to MORE THAN US1.6 billion in
  2008.
• For electricity provision (coal-based), major
  transportation facilities, and toll roads,
  government has embarked on several schemes
  through PPP mechanism.

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ON EFFORTS TO IMPROVE COUNTRY PERFORMANCE IN
DOING BUSINESS

• A series of discussions among officials from BKPM
  (Investment Coordinating Board of Indonesia) and
  the State Ministry for the Empowerment of State
  Apparatus (Menpan), along with business
  communities, had been conducted to recommend
  various improvements on related procedures to
  reduce transaction costs.
• Recommendations proposed are toward 6 out of 10
  (non-indexed) variables listed in IFCs Doing
  Business.
• The other four variables (i.e., employing
  workers, getting credit, protecting investor, and
  closing a business) are not included in the
  evaluation because the resulting values derived
  from some relevant surveys are indexed.

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DIRECTION FOR THE NEXT 3-5 YEARS
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iNDONESIAS PERFORMANCE IN DOING BUSINESS 2007
2008 (2008 performance in yellow boxes)
123 168 12 105 80.0 38.4 99 19 196 286.8 153
72 0 60 44 10 108
121 7 42 10.5 68 5 3 20.5 0.2 51 9 5 5 5.7
110 51 266 37.3
1,420 223.0 41 5 21 667 6 27 623 141 39 570 122
.7 136 5.5 18 12.6
Notes Only for 1 year, there has been some
improvement on performance in 2007 (from rank
131st to 123rd) In trading across borders,
improvement of the respective rank is even better
than proposed for the next 3-5 years
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(3) DEVELOPING INTEGRATED (ONE STOP SHOP)
SERVICE From Central to Local Government

• Objective to simplify, speed up and reduce the
  transaction cost
• Scope including all kinds of permits
  (approvals,non-approvals, fiscal facility,
  technical recommendations, advocation, etc.)
• Institutional set-up Central to local
  (district/municipal level) BKPM (Investment
  Coordinating Board of Indonesia) at the Province,
  BKPM at District/Municipality level.
• According to the Law No 25/07 on Investment, BKPM
  Province, and BKPM District/Municipality, are
  organized based on their respective authority.
• Duplications are avoided with the support of
  on-line-system.
• Involved departments should surrender/delegate
  their related authorities to this OSS system for
  simplification based on agreed principles and
  best practices.
• In the implementation stage (scheduled to be
  initialized in the 3rd quarter of the year 2008),
  ministers should place their officials within the
  OSS system.

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Approval Process
investor
Integrated within interconnected Online system
Based on division on authority
OSS at Central (BKPM)
OSS at District/Munic. (BKPM-D)
OSS at Province (BKPM-P)
Local approval (if needed)
Local approval (if needed)

• Types of Approval
• Sectoral
• Operational
• Facilities
• etc

• Types of Approval
• Sectoral
• Operational
• etc

• Types of Approval
• Sectoral
• Operational
• Comp. Registr
• Local Aprroval
• Location
• Building
• Disturbance
• etc

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Thank you very much Questions, please.