VZCZCXRO2864
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #0368/01 0400815
ZNR UUUUU ZZH
R 090815Z FEB 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 3237
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHKO/AMEMBASSY TOKYO 0224
RUEHBY/AMEMBASSY CANBERRA 0418
RUEHBJ/AMEMBASSY BEIJING 3818

UNCLAS SECTION 01 OF 02 JAKARTA 000368 
 
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 - JANUARY 2007 
 
 
¶1. Summary:  Indonesia's exports soared to a record US$ 100.7 
billion in 2006, largely due to high world commodity prices. 
Ministry of Industry (MOI) Secretary General Agus Tjahajana 
announced on January 18 that the Government of Indonesia (GOI) 
expects manufacturing sector output to grow by 7.9% in 2007. 
Director General for International Trade Diah Maulida announced on 
January 15 that the Ministry of Trade (MOT) is considering 
abolishing a 2002 Textile Decree because it is leading to trade 
distortions.  On December 29, 2006, the Ministers of Trade and 
Marine Affairs and Fisheries issued a joint decree to extend a ban 
on shrimp imports for another six month period.  Indonesian cellular 
phone operator Telkomsel claimed on January 15 that the company had 
become the 10th largest 3G telecommunication service provider 
worldwide in terms of numbers of subscribers, only four months after 
it launched 3G services in Indonesia.  Ministry of Industry Director 
of Multifarious Industries Nugraha Sukmajaya announced on January 18 
that the GOI expects new investment of $125 million in the footwear 
sector and a 15% increase in shoe exports to $1.8 billion in 2007. 
End summary. 
 
Exports Exceed $100 billion in 2006 
----------------------------------- 
 
¶2.  Indonesia's Central Bureau of Statistic (BPS) announced on 
February 1, that Indonesia's total export value in 2006 rose to 
$100.7 billion from $85.6 billion in 2005, an increase of 17.6% 
year-on-year (YoY).  Imports rose to $61.08 billion, a 5.9% YoY 
increase from $57.70 billion in 2005.  For the year, Indonesia had a 
total trade surplus of $39.61 billion compared to $27.96 billion in 
¶2005.  Exports of fats and vegetable oil, particularly crude palm 
oil, recorded the highest gain in value among non-oil-and-gas 
exports in December 2006.  Minister of Trade Mari Pangestu told the 
press on January 18 that record world commodities prices -- such as 
those for rubber and palm oil -- and some improvement in 
manufacturing output contributed to the dramatic export growth in 
¶2006.  For the first 11 months of 2006, manufactured goods, 
according to Pangestu, contributed 67.5% of Indonesia's non-oil and 
gas exports.  Moreover, Indonesian garment and textile exports 
during the January-November period grew by 10.5%, footwear by 13.7%, 
automotive components by 28.5%, and iron and steel by 79.8. 
 
¶3.  Pangestu further predicted that Indonesia's exports could grow 
by up to 19% in 2007.  She added that her ministry would continue to 
encourage exporters to target prospective export markets, such as 
the Middle East, where there is an ongoing construction boom.  To 
effectively compete for these markets, Pangestu said Indonesia must 
improve its investment climate to further develop its export 
manufacturing base. 
 
Manufacturing Sector Shows Moderate Growth 
------------------------------------------ 
 
¶4.  Ministry of Industry Secretary General Agus Tjahajana announced 
on January 18 that Indonesia's manufacturing sector output expanded 
7.9% in 2007.  Rising private consumption, government expenditure 
and construction sector investment drove the expansion.  Agus noted 
that manufacturing sector output grew by only 5% in 2006, below the 
GOI's 6% official forecast, due to weak domestic demand and high 
interest rates.  Manufacturing growth in 2005 was just 4.6%.  In the 
past, Indonesia's manufacturing sector has been a key driver of 
economic growth, with factories producing a range of products, 
including textiles, footwear, iron and steel, and petrochemical 
products.  Analysts say labor rigidities, poor infrastructure, 
regulatory and legal uncertainty, and security concerns have hurt 
Indonesia's ability to compete for new investment with regional 
competitors like China. 
 
GOI Considers Abolishing Textile Decree 
--------------------------------------- 
 
¶5.  Ministry of Trade Director General for International Trade Diah 
Maulida announced on January 15 that the GOI may abolish a 
controversial Textile Decree.  The regulation, according to Diah, 
lacks a sound legal basis and is often the source of criticism from 
other members of the World Trade Organization (WTO).  However, 
Coordinating Ministry of the Economy Deputy for Trade and Industry 
Edi Putra Irawady on January 15 said that the GOI would maintain its 
current trade policies for textiles in spite of calls for their 
revision from a number of trading partners, including the United 
States.  According to Edi, in practice the regulation does not 
restrict textile imports, and only imposes some additional 
administrative procedures. 
 
JAKARTA 00000368  002 OF 002 
 
 
 
¶6.  On October 22, 2002, the Minister of Industry and Trade issued 
Decree No. 732/2002 concerning Textile Import Arrangements.  Under 
the Decree, only companies that have production facilities that use 
imported fabrics as inputs for finished products, such as garments 
or furniture, may obtain textile import licenses.  The GOI has often 
noted that the Decree is designed to curb smuggling, but an 
increasing gap between GOI import statistics for fabrics and partner 
country exports figures for those same items indicate that smuggling 
remains prevalent. 
 
GOI Extends Shrimp Import Ban 
----------------------------- 
 
¶7.  The Ministers of Trade and Marine Affairs and Fisheries issued a 
joint decree on December 29, 2006 extending for another six months a 
ban on the import of frozen and fresh shrimp into Indonesia. 
Ministry of Marine Affairs and Fisheries Head of Statistic and 
Information Saut Hutagalung on January 10 explained that an outbreak 
of fish diseases and the continued prevalence of antibiotics in 
shrimp produced in international markets compelled the GOI to extend 
the ban.  Hutagalung noted that the disease infectious myonecrosis 
was discovered in shrimp in East Java in May 2006.  Decrees No. 
02/2006 and No.40/2006 ban the importation of the following species 
of frozen and fresh shrimp: penaeus vanamae, penaeus monodon and 
penaeus stylirosttris.  However, the GOI continues to allow the 
import of these species for research purposes. 
 
Telkomsel's 2G Operations Grow 
------------------------------ 
 
¶8.  Telkomsel Operation Director Alan Ho told the press on January 
15 that the state-owned telecommunications provider plans to build 
more than 1,500 base transceiver stations across Indoensia (BTS) in 
an effort to develop third generation (3G) services in the country. 
According to Ho, Telkomsel, Indonesia's largest cellular phone 
operator, ranks as one of the top ten 3-G providers worldwide in 
terms of number of subscribers, only four months after it launched 
the service in Indonesia.   A subsidiary of state-owned 
telecommunications company PT Telkom, Telkomsel had 1.7 million 3G 
subscribers in January 2007, ranking it 10th out of the 159 3-G 
providers worldwide.  3G service allows its users to combine voice, 
text, pictures and video-streaming, plus broadband internet 
connection, on mobile interfaces.  Other licensed 3G operators in 
Indonesia include Indosat, Excelcomindo, Hutchison CP 
Telecommunications, and Natrindo Telepon Seluler. 
 
$125 Million Investment in Footwear Sector 
------------------------------------------ 
 
¶9.  Ministry of Industry Director of Multifarious Industries Nugraha 
Sukmajaya announced on January 18 that the GOI expects $125 million 
in new investment in the footwear sector in 2007, as well as a 15% 
increase in shoe exports to $1.8 billion.  Nugraha said his optimism 
is based on the expectation that Indonesian footwear export 
producers will increasingly enter European Union (EU) footwear 
markets with the EU maintaining trade sanctions on large producing 
countries like China and Vietman.  Nugraha added that Indonesia's 
footwear sector remains promising, and he claimed that 16 companies 
invested $80 million in the industry in 2006. 
 
--------------------------------------------- ---- 
Table 1: Indonesian Footwear Industries - Profile 
--------------------------------------------- ---- 
Number of companies       350 companies 
Production capacity       1,123 mln pair 
Capacity utilization      73.64% 
Labor force 2005          392,000 workers 
Labor force 2006          375,000 workers 
Raw material              60% imported, 40% local 
Exports value 2005        $1.43 billion 
Exports value 2006        $1.60 billion 
 
Source: Ministry of Industry 
 
PASCOE