VZCZCXRO5176
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #5700/01 1251018
ZNR UUUUU ZZH
R 051018Z MAY 06
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 3760
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHKO/AMEMBASSY TOKYO 9765
RUEHBY/AMEMBASSY CANBERRA 9387
RUEHBJ/AMEMBASSY BEIJING 3392

UNCLAS SECTION 01 OF 04 JAKARTA 005700 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EB/TPP/MTA AND EAP/MTS 
TREASURY FOR IA - ANNA JEWELL 
USDOC FOR GOLIKE/4430 
DEPT PASS USTR DKATZ 
 
E.O. 12958: N/A 
TAGS: ETRD EINV ECON KIPR ID
SUBJECT: INDONESIA - TRADE AND INVESTMENT HIGHLIGHTS - 
APRIL 2006 
 
 
¶1.  Summary:  Indonesia's 2006 first quarter exports 
increased 12.5 percent year-on-year (YoY) to USD 22.4 
billion, while imports dipped slightly.  Electrical 
tools, coal, and rubber and rubber products led all 
exports.  Indonesia and Japan held a fourth round of 
bilateral Economic Partnership Agreement talks April 17- 
21 in Tokyo.  President Susilo Bambang Yudhoyono on April 
7 said his administration would postpone submitting to 
parliament proposed revisions to Indonesia's 2003 Labor 
Law.  The move followed large labor demonstrations 
opposing the plan.  The Ministry of Manpower and 
Transmigration issued a decree in late March allowing 
companies to apply for expatriate work permits prior to 
workers arrival in Indonesia.  Minister of Transportation 
¶M. Hatta Rajasa said on April 21 that the Indonesian 
Government (GOI) is considering a USD 200 million soft 
loan from China to finance construction of double-track 
railway connecting West and Central Java. 
Representatives from government and business met on April 
12 to discuss plans to support and revitalize Indonesia's 
textile industry.  A leading Indonesian automobile 
industry association reported that first quarter car 
sales in Indonesia declined 45 percent YoY.  The Ministry 
of Finance on April 17 announced that it plans to abolish 
import duties on raw materials for textiles, beverages, 
footwear and electronics.  Minister of Trade Mari 
Pangestu said on April 19 that her Ministry would abandon 
plans to issue more sugar import licenses.  End Summary. 
 
Export Growth Continues 
----------------------- 
 
¶2.  The Central Bureau of Statistics (BPS) announced on 
May 1 that Indonesia's exports reached USD 22.4 billion 
for the first quarter (Q1) of 2006, a YoY increase of 
12.5 percent.  Non-oil and gas exports rose to USD 17.2 
billion, a YoY increase of 10.7 percent.  First quarter 
2006 imports were USD 13.2 billion, a -2.5 percent 
decline YoY.  Despite a 7.4 percent appreciation of the 
Indonesian currency, the Rupiah, in Q1 of 2006, declining 
imports and strong export growth resulted in Indonesia's 
trade surplus increasing 44.9 percent during the quarter. 
 
--------------------------------------------- ------ 
Table 1: Indonesia Trade Performance Q1 2006: 
(in USD billions) 
--------------------------------------------- ------ 
                        2005      2006     Percent 
                         Q1        Q1      Increase 
                                           2006/2005 
--------------------------------------------- ------ 
Exports                19.87      22.35     12.5 
 Oil and Gas            4.34       5.15     18.7 
 Non-oil and Gas       15.53      17.20     10.7 
   Agricultural         0.67       0.89     32.2 
   Industrial          13.25      14.18      6.9 
   Mining and others    1.61       2.13     32.4 
 
Imports                13.58      13.23     -2.5 
 Oil and Gas            3.75       3.64     -2.9 
 Non-oil and Gas        9.83       9.59     -2.4 
 
Balance of Trade        6.29       9.12     44.9 
 
Imports by Broad Economic Categories: 
 
Imports 
 Consumption Goods      1.04       1.22     17.5 
 Raw Materials         10.67       9.74     -8.7 
 Capital Goods          1.86       2.27     21.7 
 
Source: Central Bureau of Statistics (BPS) 
 
¶3.  Indonesia's agriculture and mining sectors recorded 
the highest Q1 export growth at 32.2 and 32.4 percent 
respectively YoY.  Minister of Trade Mari Pangestu noted 
on April 19 that world demand for agriculture goods, such 
as fish and shrimp, remains high and offers a good 
opportunity for Indonesia to boost exports in these labor- 
intensive sectors.  Overall, electrical tools, coal, and 
rubber and rubber products were Indonesia's top three non- 
 
JAKARTA 00005700  002 OF 004 
 
 
oil and gas export earners in Q1, accounting for USD 1.8, 
USD 1.3 and USD 1.2 billion respectively.  Total imports 
declined in Q1 with weaker demand for raw materials.  The 
United States edged out Japan as Indonesia's largest non- 
oil and gas export destination in Q1 of 2006.  Singapore 
remained a close third. 
 
--------------------------------------------- ---------- 
Table 2: Indonesia's Top 10 Non-oil and Gas Exports 
Q1 2006 (In USD billions) 
--------------------------------------------- ---------- 
                                             Percent 
Commodity                  2005      2006    of Total 
                            Q1        Q1       2006 
--------------------------------------------- ---------- 
Electrical Tools            1.69     1.77     10.3 
Coal                        0.87     1.33      7.7 
Rubber and rubber products  0.81     1.25      7.3 
Mechanical appliance        0.98     0.94      5.5 
Copper, Ash and Residues    0.76     0.82      4.8 
Garment - not Knitted       0.78     0.80      4.7 
Furniture, home lightings   0.86     0.68      3.9 
Pepper                      0.53     0.57      3.3 
Household products          0.55     0.52      3.0 
Fish and shrimps            0.38     0.47      2.7 
 
Total top 10 products       8.21     9.15     53.2 
Other                       7.32     8.05     46.8 
Total non-oil and gas exp  15.53    17.20    100.0 
 
 
--------------------------------------------- ------ 
Table 3: Indonesia: Main Non-Oil and Gas Export 
Destinations, Q1 2006.  FOB value, in USD billions) 
--------------------------------------------- ------ 
 
Country of           2005     2006     Percent of 
Destination           Q1       Q1      Total (2006) 
--------------------------------------------- ------ 
U.S.A.               2.36     2.53      14.7 
Japan                2.34     2.37      13.8 
Singapore            1.58     1.78      10.4 
China                0.86     1.03       5.9 
Malaysia             0.75     0.94       5.5 
South Korea          0.52     0.67       3.9 
European Union       2.54     2.90      16.9 
Taiwan               0.38     0.43       2.5 
Australia            0.28     0.33       1.9 
Others               3.91     4.21      24.5 
--------------------------------------------- ------ 
Total               15.53    17.20     100.0 
 
Source: Central Bureau of Statistics (BPS) 
 
Indonesia-Japan Continue Bilateral Talks 
---------------------------------------- 
 
¶4.  The Governments of Indonesia (GOI) and Japan held a 
fourth round of Economic Partnership Agreement (EPA) 
talks from April 17-21 in Tokyo.  The talks, which began 
in 2005, are aimed at easing trade barriers, improving 
Indonesia's trade capacity, addressing intellectual 
property rights (IPR), and boosting Japanese investment 
into Indonesia.  According to Ministry of Trade 
officials, Indonesia has requested improved access for 
its labor force to work in Japan, particularly for 
factory workers, sailors, and home care workers for the 
elderly. 
 
GOI Delays Labor Law Revisions 
------------------------------ 
 
¶5.  President Susilo Bambang Yudhoyono on April 7 said 
his administration would postpone the submission to 
Parliament of draft revisions to Indonesia's 2003 Labor 
Law following large labor demonstrations opposing the 
plan.  On April 5, an estimated 50,000 demonstrators 
protested revisions to the existing law, claiming that 
they favored business at the expense of workers' rights 
and welfares.  Additional labor demonstrations took place 
on May 1 and 3.  Following a meeting with Vice President 
 
JAKARTA 00005700  003 OF 004 
 
 
Kalla, business groups and labor unions on April 7, 
Minister of Manpower and Transmigration Erman Suparno 
said the GOI would form a tripartite committee to study 
the issue further and make recommendations for a draft 
law acceptable to all parties.  Labor unions have 
threatened to stage further mass demonstrations on May 
Day, May 1, and throughout the month of May. 
 
¶6.  The Yudhoyono Administration has made labor law 
reform in 2006 a cornerstone of its comprehensive, 
February 27 "Investment Climate Improvement Package". 
Business groups and investors have argued that provisions 
of the 2003 Labor Law make it cost prohibitive to hire 
and fire workers, noting that, on average, dismissed 
workers are entitled to nine months of severance pay, 
regardless of the circumstances of their separation for a 
company. 
 
GOI Eases Expatriate Work Permits Requirements 
--------------------------------------------- - 
 
¶7.  The Ministry of Manpower and Transmigration in late 
March issued decree no.7/2006 on procedures for obtaining 
a permit to employ expatriate workers.  The decree, which 
took effect on May 1, allows local employers to apply for 
and obtain work permits for expatriate employees before 
they arrive in Indonesia.  Under a previous decree, 
expatriate workers were required to apply for work 
permits when they arrived in Indonesia, a process that 
could delay their employment for months.  The process for 
obtaining expatriate work permits involves sixteen 
separate approvals from five ministries, costing an 
estimated USD 1,800, including a USD 1,200 annual fee to 
support development of Indonesian workers' skills.  The 
GOI has pledged to simplify the process as part of its 
February 27 investment climate package.  The Indonesian 
Employers Association (Apindo), claims that the GOI has 
failed to use the large sums collected from some 40,000 
expatriates living in Indonesia over the past three 
decades to effectively develop skills of Indonesian 
workers. 
 
GOI Considers Chinese Railway Loan 
---------------------------------- 
 
¶8.  Minister of transportation M. Hatta Rajasa announced 
on April 21 that the GOI is considering a USD 200 million 
soft loan from China to build a 159 kilometer double 
track railway connecting Cirebon, West Java to Kroya, 
Central Java.  Rajasa said the loan would be part of a 
USD 800 million loan commitment from China through 2025 
for infrastructure projects in Indonesia, which was 
agreed to during Vice President Jusuf Kalls's April 20 
trip to China.  The Cirebon-Kroya double track railway 
project would contain a 60 percent local component, 
according to Rajasa.  He added that the GOI hoped to 
tender the project soon, select a contractor by September 
2006, and begin the project by the end of the year. 
 
GOI Seeks to Reinvigorate Textile Industry 
------------------------------------------ 
 
¶9.  Minister of Industry Fahmi Idris, Minister of Trade 
Mari Pangestu, and representatives of Indonesia's major 
textile producers associations met on April 12 to discuss 
plans to reinvigorate Indonesia's textile and garment 
sectors.  According to Idris, the GOI plans to work with 
the industry and international organizations to revamp 
manufacturing facilities, increase investment in the 
sector, and eradicate textile smuggling.  The Minister 
noted that most Indonesian textile machinery is more than 
two decades old and needs upgrading.  He expressed hope 
that local banks would provide USD 100 million and the 
International Finance Corporation (IFC) USD 250 million 
in loans to support restructuring of the industry. 
Minister of Trade Mari Pangestu said that her ministry 
would tighten controls over textile trading in the 
domestic market and better enforce anti-smuggling laws. 
 
Vehicle Sales Drop Dramatically 
------------------------------- 
 
JAKARTA 00005700  004 OF 004 
 
 
 
¶10.  Indonesian Automotive Manufacturers Association data 
shows that unit car sales fell to 80,000 for Q1 of 2006, 
a 45 percent decline YoY.  Industry analysts expect 
automobile sales in 2006 to reach just 400,000 units, a 
33.5 percent decrease from the 533,910 units sold in 
¶2005.  They linked the decline in sales to October 2005 
fuel price hikes and the resulting inflation and higher 
interest rates on consumer loans.  Meanwhile, the 
Indonesian Motorcycle Manufacturers Association announced 
on April 15 that motorcycle sales dropped slightly to 
906,000 units in Q1 of 2006, a 0.03 percent decline from 
the 906,245 units sold in Q1 of 2005. 
 
GOI Considers Abolishing Import Duties 
-------------------------------------- 
 
¶11.  The Ministry of Finance announced on April 17 plans 
to abolish import duties on raw materials for textiles, 
beverages, footwear and electronics as part of an effort 
to boost growth in these industries.  A Ministry of 
Finance official noted that the GOI is also considering 
exempting commodity goods produced by those four 
industries from value-added tax.  The GOI currently 
applies between five to fifteen percent import duties on 
raw materials for these sectors, and 10 percent value- 
added tax on the goods they produce. 
 
Sugar Import Licenses Halted 
---------------------------- 
 
¶12.  Minister of Trade Mari Pangestu announced on April 
19 her ministry has abandoned earlier plans to issue 
additional sugar import licenses this year.  According to 
Pangestu, local sugar production in 2006 should reach 
2.48 million tons, and local consumption 2.27 million 
tons.  The Ministry of Trade has issued licenses for the 
importation of 300,000 tons of sugar in 2006.  Licensees 
have already imported 190,000 tons and are authorized to 
import another 55,000 tons.  State Logistic Agency 
(Bulog) and state trading firm PPI are to share equally 
the importation of the remaining 110,000 tons. 
 
¶14.  According to at 2004 Ministry of Trade Decree 
(No.02/M/Kep/XII/2004), sugar imports are subject to the 
following requirements: 
 
-- Importation of sugar is allowed for "plantation white 
sugar" with ICUMSA numbers between 70 IU to 200 IU; 
 
-- Importation of sugar is prohibited from one month 
before to two months after the harvest season; 
 
-- Importation of sugar is permitted when when the basic 
price of sugar paid to farmers rises above Rp 3,410 per 
kilogram; 
 
-- Importation of sugar is allowed when domestic 
production cannot meet demand; 
 
-- The Ministry of Agriculture determines the period of 
harvest seasons; and 
 
-- An interagency coordinating meeting determines basic 
sugar prices, sugar stock status, and the amount 
allowable for import. 
 
PASCOE