VZCZCXRO1708
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #0049/01 0080837
ZNR UUUUU ZZH
R 080837Z JAN 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 2709
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHKO/AMEMBASSY TOKYO 0175
RUEHBY/AMEMBASSY CANBERRA 0298
RUEHBJ/AMEMBASSY BEIJING 3776

UNCLAS SECTION 01 OF 03 JAKARTA 000049 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EB/TPP/MTA AND EAP/MTS 
TREASURY FOR IA-SEARLS 
USDOC FOR SBERLINGETTE/4430 
DEPT PASS USTR DKATZ 
 
E.O. 12958: N/A 
TAGS: ETRD EINV ECON KIPR ID
SUBJECT: INDONESIA TRADE AND INVESTMENT HIGHLIGHTS - DECEMBER 2006 
 
 
¶1. Summary:  The Indonesian Textile Association announced on 
December 7 that Indonesia's textile and garment exports reached $7.2 
billion for the first nine months of 2006, and should meet earlier 
projections of $9 billion for 2006.  Director General for 
International Trade Diah Maulida stated on December 26 that 
transshipments through Indonesia continue to flourish and more 
effort is needed in 2007 to implement regulations designed to curb 
these activities.  The Government of Indonesia (GOI) announced on 
December 21 plans for the State Logistics Agency (BULOG) to import 
500,000 tons of rice in January and February 2007 and distribute 
600,000 tons of rice to Indonesia's poor the next few months in an 
effort to stabilize rapidly escalating rice prices.  On December 27, 
the Jakarta Metropolitan Police destroyed 2.4 million pirated 
optical discs seized in raids on vendors, distributors and factories 
since July 2006.  The Ministry of Marine Affairs and Fisheries 
announced on December 1 that the European Union has dropped plans to 
impose an embargo on Indonesian fisheries products following 
Indonesia's adoption of new quality control standards.  End 
Summary. 
 
Textile and Garment Exports Show Continued Growth 
--------------------------------------------- ---- 
 
¶2.  Executive Secretary of the Indonesian Textile Association (API) 
Ernovian Ismy told the press on December 7 that based on Indonesia 
Central Statistics Agency (BPS) and Ministry of Industry (MOI) 
figures the API expects Indonesia's textile and garment exports to 
reach $10 billion in 2007, increasing from a projected $9 billion in 
¶2006.  Textile and garment exports from January to September 2006 
were $7.2 billion, an increase of 10.8% over the same period in 
¶2005.  Ismy expressed optimism that Indonesia would meet its $9 
billion export target for 2006, and that a $10 billion forecast for 
2007 is realistic. 
 
¶3.  The textile and garment industry is one of Indonesia's largest 
foreign exchange earners, contributing $8.6 billion in exports in 
2005, 14.9 percent of total non-oil and gas exports and 
approximately three percent of Gross Domestic Product.  In 2005, 
Indonesia ranked number 11 globally among textile exporters with a 
1.6% world market share, and number nine in garments with a 1.7% 
world market share.  Ismy claimed, however, that BPS and Ministry of 
Industry data indicate the Indonesian textile and garment industry's 
share of the domestic market declined dramatically to 36% in 2005 
from 75% in 2004 (300,960 tons in volume in 2005, compared to 
661,500 tons in 2004) due to a flood of cheap imports being smuggled 
into the country. 
 
GOI Takes Steps Against Transshipments 
-------------------------------------- 
 
¶4.  Ministry of Trade (MOT) Director General for International Trade 
Diah Maulida admitted on December 26 that the MOT needs to a better 
job in 2007 to curb transshipments.  Maulida issued Director General 
for International Trade Regulation No. 4/2005 on October 7, 2005 
limiting the issuance of Indonesian Certificates of Origin (COOs) 
for sensitive items like shrimp, textiles, garments and footwear to 
just 14 of 85 provincial offices.  Maulida, however, admitted that 
the MOT needs to strengthen implementation of the regulations since 
transshipments of goods through Indonesia continues to flourish. 
Maulida noted that companies from some countries, including China, 
use Indonesia to transship their exports and avoid U.S. and the 
European Union trade restrictions. 
 
¶5.  Regulation No. 4/2005 limits the issuance of COO's for 
Indonesian textiles, garments and footwear to 14 provincial trade 
offices: 
 
-- North Sumatra; 
-- Riau; 
-- Jakarta; 
-- West Java; 
-- Central Java; 
-- East Java; 
-- Bali; 
-- Jogjakarta; 
-- Surakarta; 
-- Riau Island; 
-- Batam Industrial Development Authority; 
-- Cakung Bonded Zone, Jakarta; 
-- Tanjung Priok Bonded Zone, Jakarta; and 
-- Marunda Bonded Zone, Jakarta; 
 
 
JAKARTA 00000049  002 OF 003 
 
 
¶6.  The regulation also limits issuance of COO's for Indonesian 
shrimp to 14 provincial trade offices: 
 
-- North Sumatra; 
-- South Sumatra; 
-- Lampung; 
-- Jakarta; 
-- West Java; 
-- East Java; 
-- Central Java; 
-- South Sulawesi; 
-- South Kalimantan; 
-- East Kalimantan; 
-- Tarakan, Kalimantan; 
-- South East Sulawesi; 
-- Cirebon Regency, West Java; and 
-- Bali. 
 
GOI Decides to Import Rice as Prices Rise 
----------------------------------------- 
 
¶7.  In the face of continuing increases in domestic rice prices, 
including an eight percent spike during the first three weeks of 
December, the GOI announced on December 21 that the National 
Logistics Agency (BULOG) would import 500,000 tons of rice during 
January-February 2007.  The GOI also announced that BULOG would 
distribute up to 600,000 tons of rice to Indonesia's poor in the 
coming months.  The moves follow an October 2006 World Bank report 
identifying increases in rice prices as the leading cause of a 
higher incidence of poverty.  Rice accounts for 25 percent of poorer 
Indonesian's regular daily expenditures.  National Statistics Agency 
(BPS) surveys indicate that wholesale rice prices rose 27 percent 
from November 2005 to November 2006 on the back of a 33 percent 
increase during the same period a year earlier.  Consequently, 
higher rice prices have contributed significantly to the increase in 
the incidence of poverty from 16.0 percent in 2005 to 17.8 percent 
in 2006. 
 
¶8.  The GOI banned rice imports in 2004, and up until recently had 
renewed the ban every six months, with the exception of allowing 
BULOG to import 210,000 metric tons on October 2, 2006.  Although it 
has agreed to allow BULOG to import a set amount of rice through 
February, it is uncertain if the GOI will maintain its general ban 
on rice imports at the end of December 2006.  BULOG, a quasi-private 
organization, maintains a rice stock for distribution to the poor or 
victims of natural disasters at subsidized prices, which it releases 
at the behest of the GOI.  Current GOI policy prohibits BULOG from 
importing rice unless its stocks fall below 1,000,000 tons.  In 
recent months, GOI ministers, rice distributor and farmer 
associations have voiced varying opinions about the size of BULOG's 
rice stocks, the need to import rice to stabilize domestic prices, 
and the GOI's overall rice policy. 
 
Police Conduct Optical Disc Destruction Ceremony 
--------------------------------------------- --- 
 
¶9.  Metropolitan Jakarta Police on December 27 held a destruction 
ceremony of 2.4 million pirated optical discs and three optical disc 
burner stacks as part of their continuing efforts to improve 
intellectual property rights (IPR) enforcement and protection.  In 
2006, Jakarta Police seized more than 8.3 million video, music and 
software optical discs.  During the ceremony, Jakarta Police 
estimated that piracy caused Rp 29 billion (US$ 3.2 million) in 
state losses from unpaid taxes in 2006.  Jakarta Police said that 
more than 500 people were arrested in 2006 on suspicion of 
involvement in piracy and related crimes.  Ministry of Justice 
Director of Copyrights Ansori Sinungan expressed hope that the 
Indonesian public would take a more active role in fighting piracy. 
 
 
EU Drops Embargo Plan for Indonesian Fishery Products 
--------------------------------------------- -------- 
 
¶10.  Ministry of Maritime Affairs and Fisheries Director of 
Standardization and Accreditation Setia Mangungsong announced on 
December 1 that the European Union (EU) would not impose an embargo 
on Indonesian fishery products as it had earlier threatened. 
According to Mangungsong, the EU has accepted quality control 
standards recently adopted by Indonesia for exports of its fishery 
products.  He added that an EU inspection team plans to visit 
Indonesia in early 2007.  An official at the European Union (EU) 
Mission in Jakarta clarified that, following the results of 2005 
 
JAKARTA 00000049  003 OF 003 
 
 
inspections, the EU has required testing of samples from all 
containers of fisheries products originating from Indonesia since 
January 2006.  Importers are required to pay the costs of the 
samplings and tests.  The EU official added that, based in part on 
recent GOI efforts to improve regulation of fisheries exports, the 
EU does not intend to take any further measures at this time. 
 
--------------------------------------------- ---- 
Table 1: Indonesia Trade Performance Jan-Nov 2006 
         (in USD billions) 
--------------------------------------------- ---- 
                   2005  2006   Pct 
                   Jan   Jan    YoY 
                   Nov   Nov    (1) 
--------------------------------------------- ---- 
Exports            77.5  91.2   17.7 
 Oil and Gas       17.4  19.3   10.9 
 Non-oil and Gas   60.1  71.9   18.0 
 
Imports            52.8  56.1    6.3 
 Oil and Gas       16.1  17.6    9.3 
 Non-oil and Gas   36.7  38.5    4.9 
 
Balance of Trade   24.7  35.1   42.1 
 
(1) Percent increase year-on-year. 
 
--------------------------------------------- ----- 
Table 2: Indonesia's Top Non-Oil and Gas Exports 
         Jan-Nov 2006 (in USD billions) 
--------------------------------------------- ----- 
Commodity                      2005  2006  Pct of 
                               Jan-  Jan-  Total 
                               Nov   Nov   2006 
--------------------------------------------- ---- 
Electrical tools              6.66   6.65    9.25 
Coal                          4.17   5.86    8.15 
Crude Palm Oil                4.54   5.30    7.38 
Rubber and rubber products    3.22   5.15    7.16 
Ash and Residues              2.97   4.22    5.88 
Machinery/mechanical tools    4.13   3.98    5.54 
Garments - not Knitted        2.77   3.06    4.26 
Wood and wood products        2.84   2.99    4.16 
Copper                        1.14   1.83    2.55 
Chemical Organic              1.41   1.71    2.38 
 
Total top 10 products        33.87  40.77   56.71 
Other                        26.26  31.12   43.29 
Total non-oil and gas exp    60.13  71.89  100.00 
 
--------------------------------------------- ---- 
Table 3: Indonesia's Main Non-Oil and Gas 
         Export Destinations 
         Jan-Nov 2006 (FOB value, in $ billions) 
--------------------------------------------- ---- 
Country of           2005     2006   Percent of 
Destination        Jan-Nov  Jan-Nov  Total (2006) 
--------------------------------------------- ---- 
Japan               8.72     10.93    15.20 
European Union      9.24     10.77    14.98 
U.S.A.              8.63      9.78    13.60 
Singapore           6.43      7.07     9.84 
China               3.60      4.95     6.89 
Malaysia            2.96      3.52     4.90 
South Korea         2.23      3.12     4.35 
Taiwan              1.64      2.06     2.86 
Australia           1.02      1.36     1.89 
Others             15.65     18.32    25.49 
--------------------------------------------- 
Total              60.13     71.89   100.00 
 
Source: Central Bureau of Statistics (BPS) 
 
PASCOE