VZCZCXRO8129
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #5852/01 1290934
ZNR UUUUU ZZH
R 090934Z MAY 06
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 3937
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHKO/AMEMBASSY TOKYO 9777
RUEHBJ/AMEMBASSY BEIJING 3415
RUEHBY/AMEMBASSY CANBERRA 9417
RUEHUL/AMEMBASSY SEOUL 3656
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 03 JAKARTA 005852 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EAP/IET AND EB/IFD/OMA 
TREASURY FOR IA-JEWELL 
COMMERCE FOR 4430/GOLIKE 
DEPARTMENT PASS FEDERAL RESERVE SAN FRANCISCO 
DEPARTMENT PASS EXIM BANK 
 
E.O. 12598: N/A 
TAGS: EFIN EINV ECON PGOV ID
SUBJECT: INDONESIA - ECONOMIC AND FINANCIAL HIGHLIGHTS APRIL 
2006 
 
 
¶1. Summary.  April year-on-year (YoY) inflation fell 
slightly to 15.4 percent from 15.74 percent in March, 
continuing an expected gradual downward trend.  Bank 
Indonesia cut interest rates by 25 basis points to 12.5 
percent on May 9, a widely expected move in light of 
inflation easing.  The Indonesian rupiah continued to 
appreciate against the U.S. dollar in April 2006, closing at 
8,775 per USD on April 28.  The rupiah has strengthened more 
than 10 percent since the beginning of the year.  Bank 
Indonesia's (BI) foreign exchange reserves in April 
increased to USD 42.8 billion based on increasing export 
proceeds and overseas portfolio investment inflows.  Three 
of Indonesia's largest state-owned banks met with the 
Minister for State-Owned Enterprises and reportedly 
committed to provide Rp 7 trillion (USD 777.8 million) to 
finance infrastructure projects in 2006.  The Government of 
Indonesia (GOI) approved in April the sale of its remaining 
ownership shares in two banks, Bank Permata (26.16 percent) 
and Bank Internasional Indonesia (5.52 percent).  Japan 
announced USD 796 million of loans to Indonesia for 
infrastructure and development projects.  End Summary. 
 
Inflation Continues to Decline 
------------------------------ 
 
¶2. On May 1, the Central Bureau of Statistics (BPS) 
announced that consumer price inflation grew 15.4 percent 
YoY in April 2006, and a negligible 0.05 percent month-on- 
month (MoM).  A large, 0.85 percent decrease in foodstuff 
prices balanced off significant increases in prepared food, 
housing, clothing, and health care prices.  According to 
several private investment banks, core inflation eased to 
9.4 percent YoY (compared with 9.6 percent YOY in March) and 
0.4 percent MoM. 
 
¶3. With the decrease in YoY and MoM inflation rates, Bank 
Indonesia (BI) cut interest rates 25 basis points to 12.5 
percent at its May 9 monetary policy meeting, a widely 
expected move.  BI had been tightening since August 2005 and 
kept interest rates steady at 12.75 percent since December 
6, 2005.  BI Senior Deputy Governor Miranda Goeltom had told 
the press on May 4 that BI would not reduce interest rates 
to a level that would undermine the competitiveness of 
rupiah-denominated assets.  Miranda said she was confident 
that the 2006 inflation target of eight percent could still 
be met. 
 
--------------------------------------------- 
Table 1: Inflation Components - April 2006 
--------------------------------------------- 
Component                         MoM    YoY 
--------------------------------------------- 
Foodstuffs                      -0.85   16.38 
Prepared food, beverages,        0.43   12.67 
Tobacco 
Housing, water, electric, fuel   0.42   12.82 
Clothing                         0.70    8.27 
Health                           0.58    7.34 
Education, recreation/sports     0.09    7.87 
Transportation, communication    0.07   30.75 
and financial services 
--------------------------------------------- 
Total                            0.05   15.40 
--------------------------------------------- 
Source: Central Bureau of Statistics (BPS) 
 
Rupiah Stays Strong Against USD 
------------------------------- 
 
(T{@\Txing over ten percent since 
the beginning of the year.  The rupiah closed at 8,775 per 
USD on April 28.  BI's Deputy Governor Aslim Tadjuddin 
reportedly commented on April 18 that it is important to 
prevent excessive volatility in the rupiah.  He said BI 
would not set a target for the rupiah as the country has a 
floating-rate system.  Coordinating Minister for the Economy 
Boediono said told a group of journalists on April 20 that 
 
JAKARTA 00005852  002 OF 003 
 
 
authorities only intervene marginally to reduce extreme 
currency fluctuations. 
 
BI Foreign Exchange Reserves Increase 
------------------------------------- 
 
¶5. Bank Indonesia (BI) reported its foreign exchange 
reserves as of the end of April were USD 42.8 billion, up 
from USD 34.7 billion at the end of 2005.  Rising export 
proceeds along with continued inflows of portfolio 
investment were contributing factors. 
 
--------------------------------------------- ----- 
Table 2: Indonesia's FX Reserves April 05-April 06 
--------------------------------------------- ----- 
 
Month                  USD billion 
-----                  ----------- 
 
April 05                   36.4 
May 05                     34.6 
June 05                    33.9 
July 05                    32.2 
August 05                  31.2 
September 05               30.3 
October 05                 32.6 
November 05                33.2 
December 05                34.7 
January 06                 35.1 
February 06                35.5 
March 06                   40.1 
April 06                   42.8 
 
Source: Bank Indonesia 
 
State Banks to Help Finance Infrastructure Projects 
--------------------------------------------- ------ 
 
¶6. On April 11, senior managers of state-owned Bank Mandiri, 
Bank Rakyat Indonesia (BRI) and Bank Negara Indonesia (BNI) 
met with State Minister for State-owned Enterprises 
Sugiharto and managers of state companies planning 
infrastructure projects.  The banks reportedly committed to 
provide Rp 7 trillion (USD 777.8 million) to finance 
infrastructure projects in 2006.  On April 15, the head of 
the GOI team for infrastructure financing, Dr. Raden 
Pardede, reportedly said the GOI is considering allowing 
private companies participating in government-sponsored 
infrastructure projects to issue long-term (10-20 year 
maturity) rupiah-denominated corporate bonds.  The bonds 
would help finance existing infrastructure projects as well 
as replace short-term bank loans, Pardede said.  "The scheme 
is still being discussed with the Capital Market Supervisory 
Agency (BAPEPAM)," he said. 
 
Government to Sell Shares in Bank Permata and BII 
--------------------------------------------- ---- 
 
¶7. The State-Owned Asset Management Company (PT Perusahaan 
Pengelola Aset or PPA), the successor organization to the 
Indonesia Bank Restructuring Agency, plans to sell the 
remaining GOI shares in Bank Permata and Bank Internasional 
Indonesia (BII) in 2006, according to press reports.  PPA 
Vice President Director Raden Pardede said the company had 
received GOI approval in April.  PPA also plans to appoint a 
financial advisor for additional divestments scheduled for 
the second half of 2006.  The GOI owns a 26.16 percent share 
in Bank Permata and 5.52 percent share in BII.  Table 3 
below outlines GOI shareholdings in majority private 
Indonesian commercial banks. 
 
-------------------------------------- 
Table 3: GOI Bank Ownership - May 2006 
-------------------------------------- 
Banks                        Percent 
------------------------------------- 
Bank Permata                  26.16 
BII                            5.52 
 
JAKARTA 00005852  003 OF 003 
 
 
Bank Niaga                     5.2 
Lippo Bank                     2.5 
BTPN                          28.4 
May Bank                       6.1 
 
Japan Provides Infrastructure Loans 
----------------------------------- 
 
¶8. In a press statement on March 31, Japan announced it 
would provide Indonesia USD 796 million in new loans to fund 
a number of infrastructure projects and development 
programs.  The statement said the loans aim to improve 
Indonesia's investment climate and human resource 
development, as well as support the macroeconomy and ongoing 
governance reform.  The loans have an annual interest of 0.4 
to 1.5 percent, with a 30-40 year maturity.  The new loans, 
which bring Japan's aggregate loans to Indonesia to about 
USD 34.5 billion, will finance several projects.  These 
include the construction of the Tanjung Priok Port access 
road (USD 228 million), the Asahan No 3 hydroelectric power 
plant in North Sumatra (USD 237 million); the Kamojang 
geothermal power plant extension (USD 8 million, for 
engineering services only); an integrated water resource and 
flood management project in Semarang (USD 140 million); and 
projects to develop the human resources of local, provincial 
and central governments (USD 83 million). 
 
--------------------------------------------- ------ 
Table 4:  Selected Economic, Financial, and Trade 
Statistics, Jan - April 2006 
--------------------------------------------- ------ 
                         Jan    Feb    Mar    Apr 
--------------------------------------------- ------ 
 
CPI inflation (YoY)      17.03  17.92  15.74  15.4 
 
CPI inflation (MoM)       1.36   0.58   0.03   0.05 
 
Rp/USD Exch. rate(1)     9,392  9,185  9,075  8,775 
 
30-day SBI rate (1)      12.75  12.74  12.73  12.75 
 
Foreign Res. (USD bn)(1) 35.1   35.5   40.1   42.8 
 
JSX Composite Index(1) 1232.3 1230.7  1323.0  1464.4 
 
Exports (USD billion)     7.51   7.35    7.45 
 
Percent change (YoY)     22.54  15.18    2.76 
 
Imports (USD billion)     4.27   4.51    4.35 
 
Percent change (YoY)      3.58   4.47  -12.65 
 
Trade Balance             3.24   2.84    3.10 
 
Source: Bank Indonesia, BPS, JSX 
(1) End of period 
 
PASCOE