By Helmi Arman, Analyst

Capital account pressures could restrain the effectiveness of fiscal policy in mitigating the economic downturn next year. Is there a way out?

In recent months, Indonesia’s balance of payments has become an increasingly important point of analysis for economists.

The current account — the difference between exports and imports of goods and services, along with the net amount of income and remittance flows — has been in the spotlight as there was a current account deficit equivalent to 1 percent of gross domestic product (GDP) during the second quarter of this year.

This caused alarm in the markets and some economists began to predict that Indonesia’s long-standing current account surplus, which has been sustained for nearly 10 years, would fall into negative territory for the first time in 2008, with potential to become more negative in subsequent years.

Many became concerned since current account deficits tend to put downward pressure on the currency.

For our part, we were never really convinced that the current account would go deep into the red. The deficit in the second quarter appeared temporary, in relation to oil prices which were then at an all-time high. Surging oil prices worsened Indonesia’s oil trade deficit, pushed up freight costs and boosted the repatriation of income from foreign oil companies.

Fortunately our view appears to be vindicated somewhat by the latest balance of payments data published by Bank Indonesia, which showed Indonesia’s current account deficit shrinking by half in the third quarter; i.e. as oil prices began to decline.

Going forward, the full-year current account surplus might even widen in 2009 instead of shrinking. Judging from past experience, imports tend to fall severely as exports drop and economic growth contracts. Next year should be no exception, especially given the severe weakening of the rupiah.

Therefore in our view, it’s not the current account balance that should be in the spotlight; it is the capital account (or “financial account” in modern day economic jargon).

The capital account faces numerous challenges next year. For example the global commodity price bubble had been a catalyst for foreign direct investment into the plantation and mining sectors for years. Now that the bubble has burst, the flow of resource-based direct investment inflows could also grind to a halt.

Secondly with the ongoing global credit crunch, there is considerable uncertainty surrounding the prospect of portfolio or short-term investment inflows — which the government depends upon to finance its budget shortfall.

(Note that the main buyers of Indonesian government bonds over the past years have largely been foreign investors).

As a result, despite the abrupt improvement in bond market sentiment over the past week, there is still considerable doubt concerning the effectiveness of fiscal policy to act as a buffer against next year’s forthcoming economic downturn.

The government appears to realize this and has been engaged in efforts to secure alternative funding sources for next year’s budget deficit, which is planned at around 1 percent of GDP.

Officials boast confidence that funding from foreign governments and international organizations would be available if needed, by an amount of US$5 billion, which is roughly equal to the targeted amount for net bond issuances needed next year.

However we should be cautious that even $5 billion may not be enough to cover the whole nine yards. In these turbulent times, what one should focus on is the gross — as opposed to net — amount of needed financing.

Nearly $4 billion worth of bonds mature next year and it is not safe to say that all of this would be reinvested back into the bond market, especially if domestic interbank money markets remain dormant and banks prefer to hold vast amounts of liquidity.

If this turns out to be the case, then the choices at hand fall down to two. The government can run a lower than planned budget deficit — which means that fiscal policy would be pro-cyclical instead of countercyclical. Or it can take a simpler way out and ask the central bank to monetize the budget deficit — by way of purchasing government bonds.

The latter option would of course be controversial. The term monetizing or “printing money” is traditionally considered taboo by the markets, since it is associated with complications such as hyperinflation.

But monetizing, at least under a temporary time-frame, does seem like a viable alternative nowadays. It is not like Indonesia is running double-digit fiscal deficits as in Zimbabwe. One percent of GDP is still considered benign from a fiscal sustainability standpoint, even by the most conservative standards.

Furthermore the impact of money base expansion on the broader money supply and inflation probably would not be proportionate, given that private sector credit growth is bound to be slow and falling commodity prices have suppressed the momentum on consumer prices.

Finally even the most advanced economies in the world have been engaged in some form of “printing” (money) in recent months; i.e. expanding their monetary base by opening up various facilities. It does seem that everybody else is doing it. So why can’t we?

The author is currently an economist at Bank Danamon Indonesia [The Jakarta Post]

The continued might of Indonesia’s far-reaching tobacco industry is being questioned, with the House of Representatives and an influential ulema group calling for anti-smoking laws.

Legislator Atte Sugandi of President Susilo Bambang Yudhoyono’s Democratic Party said Monday a bill being pushed for deliberation by the House would curb tobacco-related advertising, promotions, sponsorships, production and sales.

“Once it is passed into law, there will be no retail cigarette sales for students,” he said on the sidelines of a seminar on tobacco farmers.

The House will set up a special committee before the year’s end to deliberate the bill, a move that has been delayed for three years.

“We expect to pass the bill before our term ends next year,” Atte said of the draft, which has 87 articles.

“We are extremely worried about the recent development as most activities ranging from sports to education are sponsored by tobacco companies. They also sponsor students who want to pursue master’s degrees at the University of Indonesia, which is extremely dangerous,” he said.

He blamed the government’s poor monitoring and law enforcement for the excessive cigarette advertising.

Deputy chairman of the Indonesian Ulema Council (MUI) Ma’ruf Amin said ulema from across the country would gather in a West Sumatra town in January next year to discuss the issue of smoking.

“We have so far received many opinions from Muslims about smoking. Many ask the MUI to issue an edict banning Muslims from smoking, some others reject the idea,” said Ma’ruf, who heads the fatwa commission.

“It’s a tough issue to deal with, therefore we will handle it with care.”

Anti-smoking groups have repeatedly called on the government to take measures to reduce cigarette consumption in the country.

The government has rejected the request, citing the millions of jobs that would be at stake in the sector.

A recent survey by the University of Indonesia’s (UI) School of Economics shows that tobacco farmers earn Rp 413,347 on average per month, far lower than the average minimum monthly wage of Rp 883,693.

“We found that 65 percent of the surveyed tobacco farmers wanted to shift jobs to become (rice) paddy farmers or vendors. So, the government’s argument is wrong, only a few people benefit from tobacco,” UI researcher Abdillah Ahsan said.

By Adianto P. Simamora
Source : The Jakarta Post

Jakarta Police have named a blogger, who is also a journalist at Tempo magazine, as a suspect for allegedly maligning a lawmaker in an article posted on an Internet Web log.

The blogger, Narliswandi Piliang, had said a lawmaker had accepted a bribe in conjunction with an attempted cover-up of a House of Representatives probe.

Narliswandi told tempointeraktif.com he had learned he was a suspect in the case from a police investigator but had not yet received any formal notification from the police.

Narliswandi said he would cooperate with the police and their investigation. “I will come down to their offices if they need me. I won’t avoid a police summons.”

According to the law, Narliswandi could serve up to six years in prison or could be fined Rp 1 billion (US$100,000) if found guilty.

The defamation case started when Narliswandi allegedly posted an article “Hoyak Tabuik dan Soekanto” (Hoyak Tabuik and Soekanto), on the Web site presstalk.info. In the story Narliswandi said Alvin Lie, a lawmaker from the National Mandate Party, had accepted money from coal producer PT Adaro so the House would cancel a probe into questionable circumstances surrounding the company’s initial public offering.

The story was later reposted on several Web sites, and distributed to the e-mail list of Kompas Readers’ Forum.

Source : The Jakarta Post

In an apparent bid to promote national reconciliation, the government on Friday named freedom fighter Sutomo and former prime minister Mohammad Natsir national heroes.

The government also awarded hero status to the former chairman of the Indonesian Islamic Community (Persatuan Islam Indonesia), Abdul Halim.

Sutomo, better known as Bung Tomo, led a heroic fight against British troops in Surabaya on Nov. 10, 1945 — a day that was eventually declared Heroes Day. A former minister and military general, Bung Tomo was jailed from 1978 to 1979 for his criticism of then president Soeharto.

Natsir, founder of the Islamic-based party Masjumi, once led a rebellion launched by the Indonesian Republic Revolutionary Government (PRRI) as disappointment settled in nationwide over the government of then president Sukarno in the late 1950s.

Sutomo died in 1981, and Natsir in 1993. There have been constant demands since their deaths that the government recognize the two prominent figures as national heroes.

Last week, hundreds of youths in Surabaya signed a petition urging the government to immediately grant Sutomo national hero status.

“The truth will always prevail, and there it is,” Sutomo’s widow Sulistina, 82, said after receiving the Mahaputera Adipradana Medal from President Susilo Bambang Yudhoyono in a ceremony at the State Palace.

Social Services Minister Bachtiar Chamsyah denied allegations the government had deliberately delayed granting the awards to Sutomo and Natsir. He said it was up to the Hero Assessment Agency, under his ministry’s supervision, to nominate people for national hero status upon recommendation from provincial administrations.

Historian Anhar Gonggong said both Sutomo and Natsir deserved the awards because of their meritorious dedication to the state, regardless of their critical stand on the government.

“What the government is doing now is giving room to review history,” Anhar said on the sidelines of the ceremony.

He said the awards conferred on Sutomo and Natsir were an attempt to promote national reconciliation.

President Yudhoyono also granted the Mahaputera Utama Medal to Petta Lolo La Sinrang, a freedom fighter from the former Sawitto kingdom in South Sulawesi.

Film director Wahyu Sihombing and writer Marah Rusli each received the Budaya Parama Dharma Medal.

By Desy Nurhayati
Source : The Jakarta Post

The government is set to develop horticultural zones to support agrobusiness and serve the domestic market, an academic said in Denpasar, Bali, on Thursday.

“Efforts have been undertaken within the last five years by way of rehabilitating existing plots and developing new ones,” Dean of Agricultural Technology of Udayana University in Bali Bambang Admadi said, as quoted by Kompas.com.

The efforts, he said, were spearheaded by the Agriculture Ministry’s Horticulture Directorate.

Bambang said there were no less than 1.7 hectares of horticultural land already being developed in 66 regions accross Indonesia.

“The results have so far been positive. We have had a steady 10 percent increase of fruit harvest per year,” he said, adding that such growth had allowed the country to produce 14,313,101 tonnes of fruit per year.

Vegetables followed closely with an average growth rate of 5.4 percent or 9,011,417 tonnes annually.

Despite positive trends, Bambang argued that the level of the country’s production was still not sufficient when compared to the exports of neighboring countries.

“The value of Indonesia’s current horticultural export is merely 0.6 percent with a total output of 345,642 tonnes,” he said. “This pales in comparison to other countries in Asia and Australia.”

Source : The Jakarta Post

Asian Beach Games (ABG) British jetski race director Jeremy Holland is reportedly stranded on an unknown island.

“I managed to get through to him by cellphone, but he said he did not know where he was,” Grace, an ABG official, told Kompas.com Saturday morning.

“He then said he was thirsty,” she said, adding that the contact was made Friday evening.

Meanwhile, search and rescue officers continue the search with the help of the Bali Police cyber crime unit in tracing the location of the call.

“The exact location is still unknown as the connection of the call was not that clear,” a Bali police officer said.

Holland reportedly went missing when he and three other jetski race judges took off to Lembongan for a jetski ride.

He is thought to have lost his way enroute back to Tanjung Benoa beach, one of the ABG locations.

Source : The Jakarta Post

Jember Nature Conservation Center (BKSDA) rejected plans of the regency administration to turn Nusa Barong Island into a tourist destination. They said the uninhabited island locating 4,5 kilometer in the Puger coast in Southern Jember is a nature conservation area.

“If they want to change the status of the island, they must get authorization permission from the Forestry Minister and the House of Representatives (DPR),” said East Java BKSDA chief, Abdullah Efendi Abbas yesterday.

Abdullah said he was shocked to hear the regent’s plan to turn Nusa Barong Island as a tourist site for national and international visitors. “We, as the island’s manager and people in charge, were never informed,” he said.

Yet, at the end of 2007, the BKSDA sent a map and regulations covering nature conservation areas to all provincial executive chiefs, including the Jember regent. “This is intended to anticipate such conflicts,” Abdullah said.

Jember regent M.Z.A. Djalal revealed his plans to change the island’s status last week, following his visit to Nusa Barong island together with Puger sub-district head Wahyudi Abdullah and members of the leaders of the executive council. Djalal also brought along two prospective investors to the island. None of the BKSDA members were invited to come along.

Until this report went to print, Djalal could not be contacted.

Sub-district chief Wahyudi, who accompanied regent Djalal’s group, confirmed the plan. According to him, development on the nature conservation area will begin next year.

However, he said, so far there has been no agreement between the investors and Jember regent over the area’s development. “There are also interested investors coming from Surabaya, Canada, and China,” he said.

By Mahbub Djunaidy
Source : TEMPO Interactive

As many as 12 tourists had crowning moments when they were inaugurated as Baliandduring an event organized as part of the Kuta Carnival on Wednesday.

Wearing Balinese traditional attire, the tourists were crowned and warmly welcomed as kings and queens after presenting their comments about the resort island on stage at the Kuta Carnival compound.

On stage, the tourists were asked to honor the Balinese people before making their speeches. Each of them was given around five minutes to perform.

After each performance, a group of judges commented on the candidate’s appearance and their speeches.

“I just love Bali and the Balinese. That is why I keep coming to this place. For me, you never have a bad day because you always throw your best smile at us,” Hans Barkmeijer of the Netherlands said on stage.

It was Barkmeijer third visit to Bali and yet he said the island and its people never failed to mesmerize him.

Natasha, an Australian tourist, said she admired the island’s beautiful scenery and the Balinese’s culture.

“The rather short distance between here and Australia has made me want to visit this place from time to time,” said Natasha, who, with her friends, had stayed for three weeks on the resort island.

Before performing, the nominees surrendered to a painstaking process of professional makeup application, which lasted for at least three hours.

The tourists actually sacrificed a lot as they dressed in the scorching heat and annoying humidity.

Most of the candidates were registered by the hotels they were staying at. Some voluntarily registered a few hours before the contest begun.

I Made Supatra Karang, one of the judges, said that contest was a gesture to welcome the tourists choosing to visit the island.

“We want to treat them more than just the usual tourists. This is what the festival is all about, to warmly welcome them,”he said.

Featuring 33 activities varying from culinary exhibitions to a traditional wrestling competition, this year Kuta Carnival was organized for tourists to enjoy their stay just that little bit more. The carnival, which kicked off last Saturday, will last until Oct. 26, 2008.

The judges announced their favorite king and queen.

“We make our choice based on the performance and candidates’ comments on stage,” he told The Jakarta Post.

Jules Toelanie from the Netherlands was crowned this year’s Carnival king and Ashley Greavef from Auatralia, Carnival queen.

“All that matters for me is enjoying the vacation,” Jules said. Jules Toelanie, who came to Bali with his wife Ritie, said Bali provided them with a memorable holiday and inspiration.

“My wife Ritie is a painter and she is the one who is able to capture the inspiration the most while we stay here,” Jules said.

“Dozens of paintings about Bali and its sceneries have been created and right now are stored safely in our house,”Ritie added.

Ritie said she was never bored on the island because she found new inspiration every visit.

By Dicky Christanto and Luh De Suriyani
Source : The Jakarta Post

Information and Communication Minister Mohammad Nuh said on Wednesday that Jakarta would host this year’s national blogger gathering on Saturday, heralding the theme “Blogging for Society”.

Nuh said the event was to be titled Pesta Blogger 2008 and would be held in the BPPT II building on Jl M.H. Thamrin, Central Jakarta. Nuh added that the gathering would be attended by the U.S. ambassador to Indonesia Cameron R. Hume.

“To establish an information-based society, we need creativity. Events like this undoubtedly give people room to express themselves,” Nuh said, as quoted by kompas.com.

The event’s administrative chairman, Wicaksono, said bloggers from across Indonesia would participate, and that his team expected to double the attendance levels seen at last year’s gathering.

“We hope this event will make a positive contribution to society,” Wicaksono said.

Source : The Jakarta Post

Vice President Jusuf Kalla has sought to give the Indonesian entrepreneurial spirit a boost, for the sake of the country’s development.

“The profession of merchant is very important for Indonesia,” Kalla told some 1,200 participants of the Minang Merchants’ Meeting in the West Sumatra provincial capital of Padang on Saturday.

“This kind of meeting is very important to exchange the entrepreneurial spirit. Without such spirit, Indonesia will not rise after 10 years of dependence on goods imported from countries such as China and Japan and foreign loans.”

Merchants’ meetings are also being held among the ethnic Acehnese and Bugis traders and businesspeople.

Kalla said no nation could develop itself by being dependent on other nations.

“If we (the government) were so proud in the past of getting foreign loans, it is time to change this,” he said.

“We should be proud of paying our debts, instead.”

Kalla himself comes from a trading and business family.

“Becoming a merchant requires the spirit and intellectual ability,” he said.

The first Minang Merchants’ Meeting was held last year. Participants were involved in dialogues with successful businesspeople from West Sumatra.

Indonesian Employers Association chairman Sofjan Wanandi, who was born in Sawahlunto, said trade figures were low because business networking in Minang was still weak.

He said what was needed was to develop synergy among businesspeople and to improve the quality of businesses.

West Sumatra Governor Gamwan Fauzi said there had been many inquiries about how much new investment there was in the province after the first meeting was held last year.

“I said that new investment in West Sumatra is my responsibility and not that of the merchants’ meeting,” he said.

“As of October there was about Rp 15 trillion (US$1.53 billion) in loans disbursed for this year, while there was only Rp 12 trillion last year.”

By Syofiardi Bachyul Jb
Source : The Jakarta Post