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Selasa, 06 April 2010

Country Commercial Guide - Indonesia Fiscal Year 2000

Preparation Date : July 1999


International Copyright, U.S. Commercial Service and the U.S. Department of State, 1999. All rights reserved outside the United States.


Table of Contents

Chapter 1 Executive Summary
Chapter 2 Economic Trends and Outlook
-- Summary
-- Overview of The Numbers - Partial Improvement
-- Economic Issues during the Political Transition
-- Policy Outlook : Continuity Expected
Chapter 3 Political Environment
-- Nature of the Political Relationship with the U.S.
-- The Political Situation in Brief
-- Major Political Issues Affecting the Business Climate
Chapter 4 Marketing U.S. Products and Services
-- Distribution Channels
-- Representatives and Agents
-- Franchising
-- Direct Marketing
-- Joint Ventures/Licensing
-- Steps to Opening a Representative Office
-- Selling Techniques
-- Press Contacts
-- Advertising
-- Product Pricing
-- After-Sales Service and Customer Support
-- Selling to the Government
-- Counter Trade Policy
-- Selling to Specialized Submarkets
-- Protecting Your Product from IPR Infringement
-- Need for a Local Attorney
-- Trade Promotion
Chapter 5 Leading Sectors for U.S. Exports and Investment
Chapter 6 Trade Regulations and Standards
-- Trade Barriers
-- Customs Valuation
-- Import Licenses
-- Export Controls
-- Import Documation Requirements
-- Free Trade Zones & Warehouses/Special Import Provisions/Temporary Entry
-- Labeling and Marking Requirements
-- Prohibited Imports
-- Membership in Free Trade Agreements
Chapter 7 Investment Climate
-- Overview
-- Openness and Transfer Policies
-- Expropriation and Compensation
-- Dispute Resolution
-- Performance Requirements and Incentives
-- Right to Private Ownership and Establishment
-- Protection of Property Rights
-- Transparency of the Regulatory System
-- Efficient Capital Markets and Portfolio Investment
-- Political Violence
-- Corruption
-- Bilateral Investment Agreements
-- OPIC and Other Investment Insurance Programs
-- Labor
-- Foreign Trade Zones/Free Ports
-- Foreign Direct Investment
Chapter 8 Trade and Project Financing
-- General Financing Availability
-- Types of Available Export & Project Financing
-- Asian Development Bank
-- World Bank
-- Islamic Development Bank
-- Financing of Agricultural Exports
-- Banks with Correspondent U.S. Banking Relationship
Chapter 9 Business Travel and Environment
-- Business Customs
-- Travel Advisory and Visas
-- Business Infrastructure and Environment
-- Holiday Schedule
Chapter 10 Economic and Trade Statistics
Appendix A: Country Data
Appendix B: Domestic Economy
Appendix C: Trade
Appendix D: Investment Statistics
Chapter 11 U.S. and Country Contacts
Appendix E: U.S. and Country Contacts
Chapter 12 Market Research and Trade Events
Appendix F: Market Research
Appendix G: Trade Event Schedule




This Country Commercial Guide (CCG) presents a comprehensive look at Indonesia's commercial environment using economic, political and market analysis. The CCGs were established by the recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various reporting documents prepared for the U.S. business community. Country Commercial Guides are prepared annually at U.S. Embassies through the combined efforts of several U.S. government agencies.
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CHAPTER I - EXECUTIVE SUMMARY

In mid-1999, the mood of business executives in Indonesia was cautiously optimistic. They had survived 1998 -- the worst economic year in living memory of most Indonesians, in which the country's gross domestic product contracted nearly 14 percent, the currency depreciated against the dollar by such an extent it came to be considered undervalued, the banking system ceased to function and the country's largest conglomerates became bankrupt. Moreover, the political system changed almost overnight following former President Soeharto's resignation May 21, 1998, leading to new freedoms of speech, press, and rights of labor and political expression that had not been seen in decades. Lawlessness and disrespect for prevailing institutions also showed themselves.

Nonetheless, the economy did not stop functioning. While manufacturers cut back to half-capacity, and many closed, Indonesia imported a healthy $27 billion worth of goods in 1998 (two-thirds the value of goods imported in pre-crisis 1997) thanks to overseas bank accounts maintained by most businesses, and supplier credits. In 1999 imports continue to slide, while exports increase.

Agriculture has recovered from the El-Nino drought of 1997-1998, providing job outlets for laid-off city factory workers, sufficient income for small farmers, and even examples of wealth for those who targeted export and other niche markets. Research and anecdotal information suggests that the new urban middle class suffered most from economic dislocations of 1998, while others (the wealthy, the lower middle class, and the poor) either survived with less disruption or took advantage of new opportunities and profited from changed circumstances.

Foreign investors generally held back from investing, although by mid-1999 there appeared to be a surge of new foreign portfolio investment in the form of short-term (monthly) "hot money" coming into Jakarta's perked up stock market. The Indonesian rupiah by mid-1999 had strengthened to under 7,000 per dollar, a rate actually considered too strong by many local business persons. Throughout the spring of 1999 the rate had held at around 9,000 per dollar, compared to the pre-crisis level two years ago of 2,800 and hysterical spikes in early 1998 reaching 17,000.

Direct investors have generally stayed away from the country during the past two years of economic, political and social turmoil, although firms already invested in the country generally have stayed, and sometimes expanded by buying out local partners or buying into attractive new ventures. Slowly, some conglomerates -- supported by the Government and institutional institutions and donors through efforts such as the "Jakarta Initiative" -- have created a climate whereby Indonesian debtors and foreign and local creditors are just now beginning to maneuver towards settlements that restructure indebtedness, dispose of assets at marketable prices, and open new fields to foreign investment. Government efforts to privatize state company assets, though painstakingly slow, have produced a half-dozen partial sales. More are on the horizon. Generally, however, new foreign direct investment will wait for the creation of a new government and political system (due by the end of 1999) before returning to Indonesia.

If Indonesia keeps to its professed course of reform, democracy, increased transparency and commitment to participating in the competitive global economy, the country will once again become ripe for U.S. investors and exporters. In the best scenarios, this will take a few years to play out. The country has immense and varied natural resources that offer lucrative business opportunities for decades to come - oil, natural gas, minerals including gold, copper, tin, nickel, and coal, and plantation crops such as palm oil, coffee, cocoa, rubber and spices. The seas are rich with fish, and the overall cost of doing business in Indonesia has not been this low for decades.

Areas of continuing concern include the extent of transparency in government decision-making, systemic corruption fueled by low wages and widespread poverty, and lack of an effective legal system that encourages the use of personal relationships to get anything done. A political decision to decentralize, and give political and economic powers to the provinces raises new questions for foreign investors outside of Jakarta. Also, the populist efforts of political reformers to "get" cronies and others responsible for past political mis-deeds may put foreign partners of such people into an unwanted spotlight.

This document guides American business through the unfinished changes taking place in Indonesia and offers suggestions for understanding what is happening, and for taking advantage of it for niche opportunities now and longer term business in the future.
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Country Commercial Guides are available for U.S. exporters from the National Trade Data Bank's CD-ROM or via the Internet. Please contact STAT-USA at 1-800-STAT-USA for more information. Country Commercial Guides can be accessed via the World Wide Web at www.stat-usa.gov, www.state.gov, and www.mac.doc.gov. They can also be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS. This Indonesian CCG is posted on the Embassy's web site: www.usembassyjakarta.org . U.S. exporters seeking general export information/assistance and country-specific information should contact the U.S. Department of commerce, Trade Information Center, by phone at 1-800-USA-TRADE, by fax at 202-482-4473, or via the Commerce Department home page at www.ita.doc.gov .


CHAPTER II - ECONOMIC TRENDS AND OUTLOOK

Summary

Indonesia's troubled economy showed signs of increased stability and reemerging confidence by July 1999. Key economic indicators had improved from 1998 levels. Landmark political events -- the parliamentary campaign and June 7 voting -- went smoothly. Together, these developments gave a sense of light at the end of the tunnel after almost two years of turbulence and economic contraction.

Macroeconomic indicators had improved since mid-1998, for both economic and political reasons. On the economic side, close cooperation with international financial institutions paid off. Careful monetary policy allowed inflation and interest rates to decline and the rupiah to strengthen. In addition, international financial support gave the government breathing room on its official debt and supported social safety net programs and bank reform. Abundant rains improved the food situation after the 1997-98 drought and eased rural hardship.

On the political side, President Habibie remained firmly in office despite initial speculation that his government would not last, student unrest dissipated in late 1998, laws governing early elections were passed in January 1999, 48 political parties campaigned peacefully in May and June, and parliamentary elections were held successfully. These political achievements helped begin to dissolve the cloud of political uncertainty hanging over Indonesia -- affecting the exchange rate, interest rates, and other factors -- since President Soeharto's sudden resignation in May 1998. Starting in April 1999, offshore funds fueled a Jakarta Stock Exchange rally.

With a new president and vice president to be selected by late 1999, leading political parties agreed that Indonesia needed to stay on track with its IMF-monitored economic reform program. Consensus on this issue meant that anti-inflationary monetary policy was likely to continue, and that the government would move ahead with the expensive-but-crucial bank restructuring program. On the other hand, efforts to restructure the huge overhang of foreign and domestic debts had made little progress. By mid-1999, the overall impression was that Indonesia had achieved enough macroeconomic stability to keep its economy from collapsing further and to boost confidence, but was still moving at a snail's pace in cleaning up the financial damage. The slow pace of banking sector recovery and of corporate debt resolution was attributable in part to the depth of the financial sector's collapse and large number of borrowers and various nationalities of the lenders involved, but also to the lack of a dependable legal environment.

Increasingly, political parties, civil society groups and academics were saying that major reform of Indonesia's political and economic systems was needed before sustained economic recovery could be achieved. Simply repairing the damage the economy had suffered during the crisis was not the right answer, these groups said, because the pre-crisis economy favored a small circle of cronies and was fraught with corruption.

Overview of The Numbers - Partial Improvement

In terms of several key financial and price variables, what a difference a year made:

Exchange rate: At end-June 1998, one month after President Soeharto resigned in the face of student protests and after rioting shook the capital -- the volatile rupiah stood at 14,900/US$ (compared to 2,450/US$ in June 1997). The rupiah stabilized by fourth quarter 1998, weakened somewhat in early 1999 amidst concerns about the political season, but strengthened in second quarter 1999 (see Table 1). By end-June 1999, it had strengthened to 6,700/US$ where it remained as of mid-July.

Table 1. Exchange Rate: Signs of Strength

End-Period Rp/US$ Nominal Real
Exch. Rate Depreciation. Depreciation*

Jul-97 2,599 0% 0%
Aug-97 3,035 -14% -14%
Sep-97 3,275 -21% -19%
Oct-97 3,670 -29% -26%
Nov-97 3,648 -29% -25%
Dec-97 4,650 -44% -40%
Jan-98 10,375 -75% -71%
Feb-98 8,750 -70% -61%
Mar-98 8,325 -69% -57%
Apr-98 7,970 -67% -53%
May-98 10,525 -75% -63%
Jun-98 14,900 -83% -72%
Jul-98 13,000 -80% -66%
Aug-98 11,075 -77% -57%
Sep-98 10,700 -76% -54%
Oct-98 7,550 -66% -35%
Nov-98 7,300 -64% -33%
Dec-98 8,025 -68% -38%
Jan-99 8,950 -71% -43%
Feb-99 8,730 -70% -40%
Mar-99 8,685 -70% -40%
Apr-99 8,260 -69% -38%
May-99 8,105 -68% -36%
Jun-99 6,726 -61% -23%

* Nominal and real depreciation are compared to July 1997. As defined here, real depreciation takes into account Indonesia CPI inflation, and assumes zero U.S. inflation during the period.

Inflation: The consumer price index was increasing at 80 percent annually as of mid-1998 (5 percent per month for March-June) and calendar 1998 inflation was 78 percent. In contrast, prices increased only 2.7 percent for January-June 1999 (see Table 2). In light of recent signs of zero and even negative inflation, the GOI forecast in early July that inflation would be less than 10 percent for 1999. The low inflation figure testified to the tight money policy that the GOI introduced in mid-1998 (after several months of huge money supply expansion primarily through liquidity credits to banks), but was also seen as the result of depressed domestic demand for goods that had lowered inflation in the entire region.

Table 2. Inflation Negligible

Period CPI Percent change
from previous month

Jun-98 163.9 4.6
Jul 177.9 8.6
Aug 189.1 6.3
Sep 196.2 3.8
Oct 195.7 -0.3
Nov 195.8 0.1
Dec 198.6 1.4
Jan-99 204.5 3.0
Feb 207.1 1.3
Mar 206.7 -0.2
Apr 205.3 -0.7
May 204.8 -0.3
Jun 204.1 -0.3

Inflation for
Calendar year 1997 10.5 %
Calendar year 1998 77.6 %
Jan-Jun 1999 2.7 %

Source: Central Bureau of Statistics

Interest rates: The benchmark Bank Indonesia Certificate (SBI) annual interest rate soared to 70 percent for one-month certificates in August 1998 when a market-determined auction system was first introduced. Bank deposit rates followed suit. Both sets of rates had declined to the 20-percent level by end-June 1999, and declined again -- helped by the apparent absence of inflation -- to the 15-percent range by mid-July. This meant that bank deposit rates were again close to their June 1997 levels (see Table 3).

Table 3. Interest Rates Down Sharply

SBI* 3-month deposits
Annual Percent
Jun-98 56.3 40.6
Jul 55.9 43.0
Aug 69.5 44.4
Sep 60.9 47.4
Oct 59.7 54.7
Nov 37.4 53.1
Dec 37.8 49.2
Jan-99 35.8 45.5
Feb 34.1 38.2
Mar 34.4 34.9
Apr 33.2 32.5
May 26.1 30.0
Jun 20.3 25.0
Jul 21 14.6 15.0

* Average annual interest rate for all SBIs, except May-Jul figures, which are for 1-month SBIs.
Source: Bank Indonesia

Stock Market: The Jakarta Stock Exchange composite index sank to 276 in September 1998. In second quarter 1999, the stock market rallied, reaching 662 at end-June, within striking distance of June 1997 high of 724 (see Table 4). One brokerage firm's June report described the Jakarta Stock Exchange (JSX) as the best performing market in the world, up almost 70 percent in USD terms since the beginning of the year. Analysts described the JSX rally in part as a self-fulfilling process that began in first quarter 1999 when favorable news about other stock markets in the region prompted investment fund managers to look for the next recovery target. Relatively small amounts of offshore funding coming in were enough to push prices up: June 1999 daily trading value at the JSX was typically Rp 1 trillion (about US$ 150 million), or about one-half of one percent of the New York Stock Exchange's 1998 daily trading value. Domestic factors driving the index higher were signs of a recovery of consumer spending, and the perceived attractiveness of some listed banks that the government was helping recapitalize.

Table 4. JSX Composite Index on the Rise

End-Period Index Percent change
from previous month

Jan-99 412 3.5%
Feb 396 -3.9%
Mar 394 -0.6%
Apr 495 25.8%
May 585 18.1%
Jun 662 13.2%

Oil Prices: The price of oil, a key Indonesian export, declined to US$ 12/barrel in mid-1998, declining further to US$ 10/barrel by end-December 1998. By end-June 1999, prices were back to US$ 16/barrel.

Investment figures: Portfolio investment figures were increasing, as reflected by rising stock prices, but there was negligible new foreign direct investment coming into Indonesia as of mid-1999. The exceptions were funds targeted at taking over troubled banks or other indebted firms -- not new ventures.

Bank Indonesia figures showed that Indonesia underwent a stark shift in the composition of incoming capital after the onset of the crisis. Official capital flows such as IMF loans increased, but private capital flows reversed (see Table 5). A lingering question, despite the improvement in confidence in mid-1999, was when the private capital inflows (loans and foreign direct investment) that had fueled Indonesia's earlier growth would resume.

Table 5. Net Capital Flow Reversal

Period Official Private Balance
(US$ billions)
1993/94 1.1 4.6 5.7
1994/95 0.1 4.6 4.7
1995/96 0.1 11.7 11.5
1996/97 -0.8 13.5 12.7
1997/98 4.1 -11.8 -7.7
1999/00 6.9 -4.9 2.0

Source: Bank Indonesia. 1999/00 figure is forecast.

There were preliminary signs of improvement in the real sector:

GDP: In 1998, real GDP declined for four consecutive quarters for an overall decline of 13.7 percent (see Tables 6-7). In 1999, in contrast, preliminary data showed GDP increasing slightly during the first two quarters: real GDP was said to have increased 1.3 percent in the first quarter of 1999, compared to fourth quarter 1998, and by a further 0.5 percent in second quarter 1999, compared to first quarter 1999. However, analysts here cautioned against relying too strongly on these estimates because of their preliminary nature (the second quarter estimate was released the day the quarter ended).

Table 6. 1998 Real GDP: Decline in all but Agriculture and Utilities

1997 1998 change
Rp trillions,
1993 const. prices

Manufacturing 109 95 -12.7%
Agriculture 64 64 0.4%
Retail and wholesale trade,
hotels, and restaurants 73 60 -18.6%
Mining and Quarrying 38 37 -3.6%
Services 38 36 -4.9%
Finance, Rentals, Company Services 39 28 -27.6%
Transportation and Communication 32 28 -12.9%
Construction 35 21 -39.7%
Electricity, Gas and Water 5 6 5.3%

GDP 434 375 -13.7%
GDP excluding oil/gas 399 340 -14.8%

Source: Central Bureau of Statistics, preliminary 1998 data

Table 7. GDP by Expenditure: Investment Slashed

1997 1998 change
Rp trillions,
1993 const. prices

Consumption 274 266 -2.9%
Government Spending 32 27 -14.4%
Investment 147 80 -45.7%
Exports 121 134 10.6%
Imports 140 132 -5.4%
GDP 434 375 -13.7

Source: Central Bureau of Statistics, preliminary 1998 data

Exports: Non-oil exports were disappointing in 1998, given the large depreciation that should have led to export growth, all other things being equal. Instead, average monthly 1998 export earnings denominated in U.S. dollars were 9 percent below the 1997 value (although export values increased in rupiah terms), and non-oil exports were down 2 percent. Early 1999 figures showed further declines. However, preliminary figures showed exports recovering somewhat in April and May 1999, when they were 4 percent above the same months in 1998 (see table 8).

Table 8. Exports Moving Toward Recovery

Non-oil/gas Oil/gas Total
(US$ billion)
Jan 1998 3.35 0.80 4.15
Feb 3.06 0.75 3.81
Mar 3.84 0.72 4.56
Apr 3.14 0.51 3.65
May 3.27 0.65 3.92
Jun 3.86 0.62 4.48
Jul 3.96 0.62 4.58
Aug 3.48 0.61 4.09
Sep 3.39 0.62 4.01
Oct 3.17 0.66 3.83
Nov 3.25 0.61 3.87
Dec 3.24 0.67 3.91
Jan 1999 2.37 0.64 3.02
Feb 2.62 0.58 3.20
Mar 3.20 0.72 3.92
Apr 3.21 0.64 3.85
May 3.37 0.68 4.06

avg./mo. 1996 3.17 0.98 4.15
avg./mo. 1997 3.49 0.98 4.45
avg./mo. 1998 3.41 0.66 4.07
avg./mo. 1999* 2.95 0.65 3.61
*Jan-May

Source: Central Bureau of Statistics, "Economic Indicators," March 1999, and July 1 press release.

There were several theories for the lackluster export showing, but no clear explanation. Analysts cited exporters' difficulty getting trade credit (despite a number of government programs designed to address that problem), slowdowns in traditional Asian markets, order cancellations due to concern about unreliability of Indonesian suppliers, shortage of key imports used in production, and underreporting by exporters. In mid-1999, an added concern was that the strengthening exchange rate would erode exporters' competitiveness.

Also on the trade side, another symptom of the economic contraction, and of the difficulties facing exporters targeting the Indonesian market, was the collapse of imports in 1998 after years of strong growth (see Table 9). Anecdotal information suggested that imports were beginning to recover as of mid-1999.

Table 9. Leading Non-oil Imports Down One-third in 1998

1994 1995 1996 1997 94-97 1998 97-98
change* change
(US$ billions)
Machinery 9.8 9.0 9.1 12.4 8.0% 8.1 -34.8%
Chemicals 3.3 3.8 3.8 5.4 16.4% 3.0 -44.7%
Base metal 1.5 1.7 1.8 2.0 10.1% 1.6 -20.5%
Cereals 0.7 0.8 1.3 1.2 17.1% 1.5 26.8%
Cotton 1.0 1.3 1.1 1.0 0.1% 1.0 2.6%
Paper 0.9 1.1 0.9 0.9 1.8% 1.0 4.0%
Plastics 1.1 1.3 1.1 1.1 -0.9% 0.8 -29.8%
Metals 0.9 1.4 1.1 1.1 7.8% 0.6 -51.0%
Pharmaceut. 0.5 0.5 0.6 0.6 5.1% 0.5 -17.0%

Total 30.4 33.7 32.2 37.8 7.3% 25.2 -33.3%
* average annual percentage change, 1994-1997.
Source: BPS

Rice Harvest: The 1997-98 drought caused Indonesia to become the world's largest rice importer. In 1999, in contrast, abundant rains led to a recovery in production, and imports were expected to decline to normal levels.

In addition, there was new information indicating the extent of the increase in poverty:

Poverty: A range of studies conducted during 1998 estimated variously that poverty had increased from about 11 percent of the population before the crisis, using Indonesian poverty-line measures (per person expenditures of about Rp 50,000 per month as of mid-1998, deemed sufficient to cover 2,100 calories of food per day and other basic necessities) to between 18 and 24 percent of the population in 1998.

The broad range of estimates resulted largely from different methods of handling price increases during a turbulent period in which both prices and most incomes increased in nominal terms. Studies that used the increase in the general consumer price index (up 78 percent in 1998) concluded that poverty increased to the low end of the range, close to 18 percent (meaning from about 22 million before the crisis to about 36 million persons in 1998, out of a population of 200 million). However, studies that focused on the increase in food prices (up 118 percent in 1998), which account for a large share of purchases for low-income households, concluded that the increase in poverty was larger.

While the studies indicated that poverty had not increased to 40 percent of the population, as the GOI's Central Bureau of Statistics had estimated in mid-1998, analysts emphasized that there were also millions of "near poor" Indonesians. The studies showed that urban Java was hardest hit, but that the effects of the crisis on lower-income groups varied greatly within and across provinces.

Economic Issues during the Political Transition

The above figures formed part of the backdrop for the public debate that surrounded the parliamentary election and its aftermath. As of July 1999, it was unclear what sort of government would emerge by the end of 1999, and leading political parties (PDI-P, Golkar, PKB, PPP, and PAN) had not yet articulated clearly what changes in Indonesia's economic policies they would seek.

Though the politics remained uncertain, it was clear that the a new government would have to face at least the following financial, real sector, and institutional issues:

Financial Sector

Banks:

The banking sector took a direct hit in the financial crisis, and recovery efforts were still in the early stage. The IMF, World Bank, and Asian Development Bank were assisting Bank Indonesia, the Ministry of Finance, and the Indonesian Bank Restructuring Agency (IBRA) in this effort. The government had begun issuing recapitalization bonds to a few eligible private banks under a formula whereby the bank owners were obligated to provide 20 percent of the required capital, and the GOI would provide the rest, becoming the majority owner. An equivalent process involving the state-owned banks, where problems were larger, was to begin in July or August. The interest-bearing bonds replaced non-performing loans, which were in turn transferred to IBRA for collection/restructuring. Estimates were that the GOI would issue about Rp 550 trillion (US$ 80 billion) in recapitalization bonds, equivalent to 55 percent of 1998 GDP.

Paying the coupon (mostly linked to market interest rates) on those bonds would seriously crimp a new government's budget for several years, but declining interest rates made the payments appear more feasible. IBRA's program to restructure and recover non-performing loans from the rescued banks was an essential element in financing the program. For FY 1999/2000, the GOI estimated that Rp 34 trillion (about US$ 5 billion) would be needed to pay the interest costs. Half of that (Rp 17 trillion) was on the GOI's budget, and IBRA was expected to provide the other half. IBRA's Rp 17 trillion was to come partly from sales of assets that firms pledged to pay for their earlier bank liquidity credits, and from loan recoveries. However, as of July, IBRA had hardly begun either asset sales or loan recoveries, having auctioned only some vehicles and paintings.

The loan recovery effort was also a political issue because the debtors, whose company names and amounts were published in newspapers in June, included many Soeharto family members and close associates. IBRA faced a dilemma: on the one hand there was pressure to foreclose on debtors and sell their assets quickly to raise funds and to underline the seriousness of the program, but such quick sales would depress market prices and could lead to allegations of preferential treatment if some debtors managed to buy back their assets cheaply.

Debt:

Indonesia's private external debt stood at US$ 81.5 billion as of March 1999, according to the Bank Indonesia Governor's July 1999 testimony to parliament. (For a breakdown of the debt according to publicly available information as of late 1998, see table 10). In addition, there was approximately US$ 50 billion in domestic corporate debt. The debt had increased since the onset of the economic crisis in mid-1997, when borrowers were caught unable to service their debts as the rupiah depreciated and economy slowed, and lenders refused to roll over short-term loans or extend new credits.

Table 10. Indonesian Foreign Debt Overhang

Borrower US$ billions

Public Sector

Central Government 61.1
State-owned banks 4.5
State-owned companies 5.4

subtotal 71.0

Private Sector

Joint-venture banks 3.9
Domestic private banks 2.0
Foreign banks 0.6

Foreign and JV corporations 31.2
Domestic corporations 30.4

subtotal 68.1

Grand total 139.1

Note: Available data for November 1998.

Sources: Bank Indonesia and World Bank.

Restructuring efforts were underway in many cases but were inherently complicated. Neither the Indonesian Debt Restructuring Agency (INDRA, essentially a swap facility allowing debtors to lock in a Rp/US$ exchange rate, with the requirement that they begin making rupiah payments immediately), the revised bankruptcy law that took effect in August 1998, nor the Jakarta Initiative (facilitation service, with assistance from internationally experienced debt workout specialists) launched in November 1998 had made significant headway in resolving the issue.

Foreign creditors said inconsistent bankruptcy procedures were a serious problem, since the result was that debtors did not feel compelled to come to the table. In some cases it was creditors (those who had already provisioned for the non-performing loans), rather than the debtors, who were seen as dragging their feet in hopes of improved economic conditions that would lead to more favorable settlements. The issue was becoming more complicated in light of IBRA's high-profile efforts to recover domestic debts, because many of the same firms had substantial foreign debts.

There were some signs of progress as of mid-1999, as the Jakarta Initiative started to get up and running and anecdotal evidence suggested the debtors were becoming more willing to negotiate. One high-profile group, Astra International (automobile assembly and sales and palm oil export, among other businesses), reached agreement in June 1999, after over a year of negotiations, to restructure US$ 1.1 billion in foreign debt and additional domestic debt.

Real Economy

Real sector recovery/restructuring:

It was essential to revitalize the real sector, but there was no way to address the real sector fully without resolving financial issues first. Banks had to be more stable and corporations had to become more creditworthy (by resolving existing debts, for example) before normal lending for working capital and business expansion could resume.

Furthermore, in the context of the overhaul of the political system that was underway, many Indonesians wanted to overhaul the economic system too, rather than try to simply restore the pre-crisis structure. This added complexity to the recovery process. The deep recession that resulted from the financial crisis was not viewed as a purely economic issue that called for technical solutions, but instead as the result of years of crony capitalism in need of a top-to-bottom overhaul.

One line of argument -- stemming in part from the November 1998 People's Consultative Assembly (MPR) session that mandated development of a "people's economy" -- held that the government should foster growth of small and medium enterprises, so that control of the economy would not simply revert to conglomerates when the economy recovered. The issue was sensitive because many existing conglomerates were owned by ethnic-Chinese Indonesians. It was also difficult to imagine an impartial way to change the ownership of existing firms or parcel out shares in state-owned corporations. The "people's economy" debate was muted as of mid-1999, but remained a potential political issue.

Social Safety Net:

Indonesia has historically not had much of a social safety net system, so introducing one in mid-1998 to address poverty and unemployment on an emergency basis was difficult. The government initially created programs in three areas to help the poor: ensuring food availability (almost 10 million households were said to be purchasing rice at subsidized prices as of February 1999); supplementing purchasing power through job creation and loans to small enterprises (labor-intensive public works projects, for example); and preserving access to education and other critical social services (in part through block grants to poor schools).

In FY 1999/2000 (which began April 1), the GOI allocated 12 percent of its budget (about US$ 3.8 billion out of a US$ 33 billion budget) to social safety net programs, in part to be financed through a US$ 600 million World Bank loan. The program was widely viewed as necessary not only to help the targeted groups, but also to provide a general fiscal stimulus to the economy. Even so, the program remained controversial because there were allegations of leakage and because some non-government organizations argued that the assistance was not reaching the neediest families. A new government would have to contend with such criticisms, as well as decide at what level to continue such programs.

Institutional and Legal Issues

Corruption:

Eliminating "collusion, corruption, and nepotism" (KKN) remained the slogan of the day. The issue remained more political than economic, and more sound than substance, but a new government was likely to have to account for its efforts to overturn the culture of corruption that permeated business and government. That would be no easy feat. As of mid-1999, there were distinctions being made between the alleged corruption of former President Soeharto and his family and close associates, business tycoons who abused bank regulations, and "ordinary" corruption in the government. There were calls for the perpetrators in the first two categories to be brought to justice, but broad-based civil service reform was seen as needed for the latter. Public interest in anti-corruption efforts remained high. Non-government organizations were reporting allegations of government officials' corruption to the media, and had published detailed studies of the cost of corruption in certain areas of everyday life, such as obtaining identity cards.

Legal reform:

As a subset of the corruption issue, the dysfunctional legal system was increasingly being viewed as a root problem that had to be addressed before lasting economic recovery could occur. Both improved law enforcement and improved laws were needed. The magnitude of the crisis meant that a range of new legal issues had arisen, placing increasing stress on a system that malfunctioned to start with. Issues such as bad loans were nearly impossible to resolve in a system where property rights were only vaguely defined, there was no central registry for collateral, and court decisions were often controversial or unenforceable. Foreign and domestic creditors attempting to use the commercial courts got a taste of this. Political figures appeared to appreciate the seriousness of the issue and were already calling for replacement of supreme court justices, but no one had come forward with a comprehensive action plan for legal reform.

Regional autonomy and fiscal equalization:

A new issue on the horizon--not directly resulting from the economic crisis, but part of the ambitious slate of laws passed in 1998-99--was a rearrangement of central and regional government authority and revenue. President Habibie signed two companion laws in May 1999.

The "Regional Government Administration" law said that governmental authority should devolve to the level of "autonomous regions," in most cases meaning the sub-provincial regency level (roughly equivalent to a U.S. county). Exceptions were foreign affairs, defense, justice, monetary, and religious affairs, and would also include "national strategy" and "regional strategy" issues, not yet defined. The "Fiscal Equalization" law said that the central government would share revenues with regions. It included specific revenue sharing formulas for natural resources such as oil and gas.
The laws were to be implemented over two years, but officials at both the central and regional levels were uncertain about that timing and concerned that the laws were mutually inconsistent. Regulations remained to be written. Even so, one Finance Ministry official said, the laws amounted to a "revolution" in that they transferred a great deal of power to regional governments. Activists in restive provinces such as Aceh and Riau had already proclaimed the fiscal sharing law insufficient, and a new government was sure to have to cope with both the logistical and political complications of the issue.

Policy Outlook: Continuity Expected

Though the politics remained uncertain as of mid-1999, the economic policy outlook was less so. That was primarily because of the widespread acceptance among political parties that continued IMF/international financial institution assistance and monitoring was essential during the recovery period. Agreement on the IMF's continued role suggested that the main lines of economic policy would not change drastically in the near term.

Short term

Over the short term (roughly 1999-2001), any new government's economic policy would have to focus primarily on financial and real sector recovery. In that context, there were indications from across the political spectrum that the IMF/international institution-assisted program was broadly accepted -- despite some dissenting voices calling for an end to what was seen as excessive outside meddling in policymaking -- and needed, both in terms of the technical assistance it provided and the continuing disbursements of loans. The IMF's role in stabilizing the economy starting in mid-1998 was generally acknowledged.

The favorable view of the IMF was consistent with, and in a sense a product of, the close working relationship between the GOI and the IMF and other international financial institutions that developed under the Habibie government. Since June 1998, the GOI met its commitments consistently enough to keep the flow of borrowing from the IMF steady (see Table 11 for chronology), and Indonesians could see the results by watching the exchange rate strengthen and interest rates and inflation decline. This was in marked contrast to the sometimes confrontational relationship between the two during October 1997-May 1998 under President Soeharto. During the earlier period, the economic program appeared to have little stabilizing effect in the context of a destabilizing political situation.

In July 1999, it seemed a part of Indonesia's economic policy routine when the government of Indonesia signed a further revision to its August 1998 Extended Fund Facility, which replaced the November 1997 Stand-by Arrangement. In August, the IMF was expected to disburse US$ 200 million in funds, bringing Indonesia's total borrowings from the IMF to US$ 11.3 billion out of a program expected to total US$ 12.4 billion.

This background suggested that the IMF, as well as the World Bank and Asian Development Bank, would continue to play an important role during the late 1999 transition to a new government and beyond. That in turn suggested that Indonesia would retain its orthodox economic policies, open trade regime, and free capital flow orientation during the recovery period. However, there were a number of important unknowns. The possibility of a new president, a new set of economic cabinet ministers, and a more active and politically diverse parliament was bound to affect the relationship between Indonesia and the international financial institutions.

Longer term

The economy was being restructured, and important aspects of the political system rebuilt as of mid-1999. It was impossible, given the unprecedented scale of change occurring, to predict what the system would look like when the political transition was complete and the economy recovered. Even so, if the IMF's continuing involvement suggested policy continuity over the short term, Indonesia's pre-crisis economic orientation suggested that the economy would retain its market-oriented and trade-oriented character over the longer term.

The relevant features of the pre-crisis economy included Indonesia's decades-long experience with a freely convertible currency and open capital account; the steadily increasing role of the private sector in the economy, which become dominant in the mid-1990s after deregulation in the 1980s; and the central role of exports as the engine for growth, which led to growing integration with the world economy and acceptance of trade-enhancing international agreements and substantial foreign investment. Those features suggested that Indonesia would remain private market-oriented, open to foreign capital (though perhaps with new strings attached), and broadly internationalist.

However, there were unresolved issues that could affect the shape of the new economy and the role of foreign businesses in it. There was an ongoing debate about what kind of market-based system was appropriate in Indonesia. There were calls for a more inclusive system with an increasing role for small and medium enterprises rather than a small number of dominant conglomerates, but questions remained about how this could be achieved fairly. Related to this debate was the discussion of the proper role of foreign businesses in Indonesia. The GOI intended to privatize major state-owned enterprises for economic efficiency, but various parties were uncomfortable with sales of such national enterprises to foreign companies. This discomfort was also reflected in concern that Indonesian banks and business would be sold to foreign investors at fire-sale prices.

Another unresolved issue was the decision-making structure that would emerge as democratic institutions gained firmer footing. The Soeharto-era structure, where all roads led to the president, was gone, but it was not yet clear what would take its place. In general, however, the growing public pressure for a more transparent, accountable government and economic structure was likely to lead to an economy that played more to the strengths of U.S. business practices.

Table 11. Chronology of Indonesia's IMF Program

Date Disbursements Description
(US$ bn.)

Oct-97 GOI issues Letter of Intent describing
its planned 3-year economic reform
program.
Nov-97 3.0 IMF Executive Board approves a 3-yr.
"standby arrangement" under which the
GOI is to borrow US$ 10 billion
(SDR 7.3 billion).
Jan-98 GOI issues Memorandum of Economic and
Financial Policies (MEFP) designed to
accelerate the program.
Apr-98 GOI issues Supplementary MEFP that, among
other changes, strengthens monetary
policy in light of inflation concerns.
May-98 1.0
Jun-98 GOI issues Second Suppl. MEFP after
resignation of President Soeharto in May.
Jul-98 1.0
Jul-98 GOI issues new Letter of Intent and MEFP
and requests stand-by arrangement be
replaced by an Extended Fund Facility
(EFF, lengthening the loan repayment
period from 3.25-5 years to 4.5-10 years).
IMF Executive Board approves increase in
loan amount by US$ 1.4 billion, bringing
total program to US$ 11.4 billion.
Aug-98 1.0
Sep-98 0.9 GOI issues 1st Suppl. MEFP under EFF.
Oct-98 0.9 GOI issues 2nd Suppl. MEFP under EFF.
Nov-98 0.9 GOI issues 3rd Suppl. MEFP under EFF.
Dec-98 0.9
Mar-99 1.0 GOI issues 4th Suppl. MEFP under EFF.
IMF Executive board approves a further
US$ 950 million increase in the program,
bringing total program US$ 12.4 billion
May-99 GOI issues 5th Suppl. MEFP under EFF.
Jun-99 0.5
Jul-99 GOI issues 6th Suppl. MEFP under EFF.
Aug-99 0.2*
Nov-99 0.2*
Feb-00 0.2*
May-00 0.2*
Aug-00 0.2*
Oct-00 0.2*
* Expected disbursement
Source: IMF documents on homepage: www.imf.org


CHAPTER III - POLITICAL ENVIRONMENT

Nature of the Political Relationship with the U.S

The United States and Indonesia have enjoyed good relations in recent decades. These close ties are based in large measure on the numerous interests that the two nations share. The fourth most populous nation in the world and the largest by far in Southeast Asia, Indonesia has pursued cooperative relations with its neighbors, thereby contributing greatly to peace and stability in the region. Through its membership in the Non-Aligned Movement, the Organization of the Islamic Council, the Association of Southeast Asian Nations (ASEAN), and the Asia-Pacific Economic Cooperation (APEC) forum, Indonesia also wields substantial influence on a number of other security and economic issues of importance to U.S. interests. Indonesia welcomes continuing U.S. engagement in the region, which it regards as a key factor in creating conditions that have facilitated stability and economic growth in Asia. On the bilateral economic front, the United States is the single largest investor in Indonesia, when natural resources and financial services are taken into account. The U.S. has emerged in recent months as Indonesia's single largest export market.

The United States also assumed a leading role in the international community's response to the economic crisis that struck Indonesia two years ago. Working with international financial institutions, the U.S. contributed as well to Indonesian efforts to implement needed financial reforms and doubled its own economic assistance in support of social safety net programs designed to cushion the impact of the economic downturn on poorer Indonesians. Thanks in part to longstanding relationships with Indonesian non-governmental organizations, the U.S. was well placed to provide substantial technical and financial assistance to support Indonesia's June 1999 parliamentary balloting, the country's first free elections in over four decades.

Support for human rights has been a prominent feature of U.S. policy toward Indonesia. The months following the resignation of President Soeharto in May 1998 have witnessed significant improvements, as evidenced by the success of the parliamentary elections. The media now report developments freely and a wide range of opinion on major issues is routinely published. Freedom of association is now widely practiced and labor unions are largely free to organize and press their views. Numerous political prisoners have been released as well. Human rights
concerns, however, still exist, especially as these relate to the security forces, which have been implicated in serious abuses in Aceh and elsewhere.

The United States has also strongly supported Indonesia's decision to permit the people of East Timor to determine their own future, which offers the best prospect for a solution to that difficult issue in over 20 years. At the same time, the U.S. and Indonesia's other friends have stressed the obligation of the armed forces to ensure that East Timorese can make their views known under secure conditions. A successful outcome to this process will do much to underscore Indonesia's own commitment to democracy and reform.

The Political Situation in Brief

Since the fall of President Soeharto in May 1998, the government of President Habibie has implemented several key political reforms. Political parties have been freed from government control for the first time in 28 years. Forty-five new parties along with the three officially sanctioned under the Suharto government contested 462 seats in the country's parliament (DPR) in the June 1999 election. (The remaining 38 seats in the DPR are allotted to the military.)

The election campaign, which many predicted would see violent incidents, was generally peaceful. The actual voting process went relatively smoothly. Although there were some allegations of fraud, the results were accepted by the major parties. The Indonesian Democratic Struggle Party (PDI-P) led by Megawati Sukarnoputri received approximately 34 percent of the popular vote and will be accorded the largest number of seats in the DPR. The second largest number of seats will go to the GOLKAR party, which during the Soeharto years was government-sponsored and is now headed by President Habibie. Several other parties will also gain representation in the new DPR, as will 38 appointed armed forces members.

The 500 members of the DPR, along with another 200 representatives selected from the provinces and from societal groupings (such as religious leaders, women, students, and ethnic minorities) will join together to form a new People's Consultative Assembly (MPR), currently scheduled to convene in October 1999. The MPR will select a new president and vice president, most likely in November. Among the names mentioned as presidential candidates are Megawati Sukarnoputri, backed by her party, and President Habibie (officially announced as GOLKAR's candidate). Since no one party will control sufficient MPR votes, presidential candidates will almost certainly have to seek backing from other parties and groups.

Major Political Issues Affecting the Business Climate

The current government and its successor must exercise decisive leadership in addressing the need for further progress on the political, social, and economic fronts. Key areas will include selecting the next president, forming an effective cabinet, and widening the role of civil society in the nation's public life, strengthening press freedom, and allowing greater local participation in government and in the management of natural resources. Many Indonesians are also pointing to the need for a new system of checks and balances to reduce corruption and misuse of power. In this regard, far more effective mechanisms will be required to enforce commercial, criminal, and administrative laws.

The related area of corporate governance, which entails transparency, adequate disclosure provisions, consistent accounting standards and increased shareholder rights, is qually important and needs priority attention. The bankruptcy process must be revamped and a secured transactions law is also required that will provide, among other things, for a system of securitization of movable assets.


CHAPTER IV - MARKETING U.S. PRODUCTS AND SERVICES

Distribution Channels

In June 1998, the government of Indonesia eliminated many restrictions on foreign investment in retail operations. Foreign firms are now allowed to operate retail outlets in most major urban areas, although some restrictions remain in the provinces. In addition, many foreign firms use franchising, licensing, and technical service agreements to distribute their goods.

Indonesia also lifted many restrictions on foreign participation in wholesale distribution services. Under government regulations No.15/1998 and No.16/1998, foreign companies may distribute both locally produced and imported goods at the wholesale level.
These foreign companies may also conduct retail operations, but in order to do so must form a separate retail company.

Representatives and Agents

Foreign firms may open and maintain one local representative office in each of the 27 provinces, with permission of the Indonesian Department of Industry and Trade. The representative(s) may be an Indonesian company or individual, or a foreign national. Trade representatives may not engage in direct sales nor conclude deals, but they may engage in sales promotion and marketing, or do market research and provide technical advice. In many cases, foreign companies have established close connections with Indonesian importers, allowing the two companies to function as one. The Indonesian company acts as importer and distributor, and the foreign company promotes its products, sometimes seconding expatriate staff as employees to its Indonesian distributor/partner. A more active role for the foreign firm can be arranged through a management contract, which can take many forms.

The services of an aggressive, active Indonesian citizen agent or distributor can be an important means of expanding sales in Indonesia, because they know the cultural minefields and systemic processes that foreigners would need years to begin to master.

The variety of relationships between foreign principals and Indonesian representatives can take many forms, including the secondment of expatriate staff to the Indonesian company to oversee service delivery according to the foreign party's expectations. In many instances, foreign companies have established close connections with Indonesian national importers, allowing the two companies to operate virtually as one. The Indonesian company acts as an importer/distributor for overseas principals and the foreign company promotes its products within Indonesia.

Appointment of an Indonesian agent (or distributor) requires care, since it is difficult to get out of a bad relationship. Indonesian law allows the severing of an agency agreement only by mutual consent or if a clause permitting the severance is contained in the original agency agreement. A trial agency period at least six month is generally written into agency contacts. As in many countries, the Indonesia's network of contacts and personal power dictate what it costs to buy oneself out of a bad agency agreement.

For sales to the private sector, the appointment of an Indonesian sole agent is not required by law, although Indonesians agents prefer to have this kind of relationship. Since 1980, in order to spur the development of indigenous enterprise, particularly new, small, economically weak enterprises, the government began requiring the state oil company Pertamina and other government agencies to deal through Indonesian agents when purchasing imported goods or services. The government also began to pressure foreign firms into dealing through an Indonesian agent, rather than third-country middlemen. The predilection of some foreigners for regional representatives, often based in Singapore, rather than Indonesian-based representatives, is particularly unwelcome by the government although it is not prohibited by law. For these reasons, a foreign firm selling to government agencies would do well to appoint an Indonesian firm as its agent.

Many Indonesian importers do not specialize in particular product lines, and represent a multiplicity of foreign manufacturers and product lines. Generally, however, large conglomerates establish discrete company units that tend to specialize around a product range. Medium and smaller importers also specialize in a narrow range of goods, but no one is averse to adding a completely different product line if profit can be foreseen. In mid-1998, many agents of industrial products whose market collapsed with the recession began looking at new, income-generating lines as diverse from their norm as Louis XIV furniture (for export) or consumer foodstuffs.

It is generally advisable to set up agency arrangements with firms that handle a complementary range of products. These are not essential, however, since substantial sales can often be made by firms active in quite different product lines. An increasing number of firms identifying themselves as suppliers of "technical goods" concentrate on general industrial machinery and equipment. These firms often have engineers on their staff and are prepared to provide engineering assistance and after-sales technical support.

The main difference between a representative office and an agent is that the former cannot "sell" or sign contracts but only market and do research, while the latter can perform all trade activities. Only Indonesians can function as agents.

Foreign principals often work out a management agreement that allows the foreign company in Indonesia to play a more active role in the marketing efforts of its Indonesian agent or distributor. In many cases, a separate agreement is signed between the expatriate personnel and the foreign employer to regulate this relationship. The tax liability of the foreign firm is limited to the income of the expatriates assigned to the representative office, while any other taxes are assessed to and borne by the agent. Types of management agreements include: (1) technical assistance agreements; (2) management agreements; and (3) management agreements coupled with financial agreements.

The technical assistance agreement limits the foreign firm's function to providing technical assistance to the Indonesian company. The management agreement allows the foreign firm to manage the company or a division within the company. In the management agreement coupled with a financial agreement, the foreign firm also finances the Indonesian operation, either under the name of the Indonesian company or a division thereof. Remuneration to the foreign company can be in one of the following forms:(1)fixed fee;(2) commission; or (3) profit-sharing. Whatever basis is used for remuneration, it must be formulated clearly in the agreement, and it must be applicable under the present Indonesian laws. To protect the foreign company's interests properly, a bona fide and comprehensive agreement should be drawn between the parties concerned.

Franchising

The entry of U.S. firms into Indonesia's franchise industry has largely ground to a halt due to the economic crisis that has affected Indonesia's economy since 1997. The depreciation of the rupiah has made difficult the payment of franchise royalties in foreign exchange. Creative arrangements must be agreed at the current time, generally involving a deferred payment scheme until the rupiah and the economy recover.

Franchises facilitate the transfer of know-how and managerial expertise to the franchisee companies while simultaneously allowing the franchisor to quickly establish a presence in the country. Under a typical franchising agreement, the franchisor receives royalties and fees as stipulated in the contract. In exchange, the franchisee has the right to use (and manufacture) copyrighted, patented or service-marked materials identifying the enterprise. The franchisor typically provides training and organizational guidance in return for a guarantee that the franchisee will follow these operational directions.

With the release of the Government Regulation No.16 of 1997 dated June 18, 1997, the Indonesian franchise industry for the first time has a foundation in Indonesian law. This regulation, which was complemented by the issuance of a Decree of the Ministry of Industry and Trade No.259/MPP/Kep/7/1997, is designed to promote an orderly climate for the franchise business as well as to provide guidance and protection for both franchisors and franchisees.

The regulation, which contains a description of the franchisor - franchisee relationship, states that a franchise agreement between a franchisor and a franchisee must be written in Indonesian and be subject to Indonesia law. The GOI has limited the operation of large franchise businesses to provincial capitals. Only small and medium-scale enterprises, or licensed non-small-scale entrepreneurs, may operate franchise businesses in smaller cities or rural areas. This regulation was designed to insulate indigenous small and medium-size companies against competition from foreign franchisors, and to encourage local companies to develop their own franchise concepts.

Moreover, the regulation obligates every franchise business to obtain a registration certificate, namely STPUW (Surat Tanda Pendaftaran Usaha Waralaba or Franchise Business Registration Certificate), from the Ministry of Industry and Trade. The registration should be made at least 30 working days from the date when the franchising agreement, which shall be valid for at least 5 years, takes effect. The regulation further stipulates that priority should be given to the use of domestic goods and / or products as long as they meet the required quality standards.
For information, please contact :

Mr. Darwis
Kepala Subdit Kemitraan Usaha
Department of Industry and Trade
Direktorat Bina Usaha Perdagangan
Jl. M.I. Ridwan Rais No. 5
Jakarta 10110
Tel.: 385-8189
Fax : 345-3114

Direct Marketing

Direct marketing is used in Indonesia to sell many kinds of products, from insurance to sewing machines. Companies such as Avon and Amway have built up large businesses by direct marketing through local distributors. Independent Indonesian companies have copied their methods and success.

Joint Ventures/Licensing

Since 1994 the government has removed most requirements for domestic equity and joint ventures. However, Foreign investors who opt for 100 percent initial ownership are obligated to divest to Indonesians some share -- as little as one percent -- after 15 years. This can be accomplished through the stock market. This requirement is too new to have been tested yet.

As a practical matter a local joint venture partner is often essential for success in this market, for the same reason that an activist Indonesian agent or distributor has advantages over a foreign trade representative office. The choice of an Indonesian joint venture partner is critical for many reasons, especially for knowledge of the local scene and contacts, which are important for successful operations in Indonesia. A few experienced firms provide background, credit-type reports on Indonesian entrepreneurs and firms (See Chapter XI for list of Consultants and contact information).

A partnership in Indonesia is difficult to dissolve. Consequently, the first choice has to be the correct choice. Business sense is as crucial to any commercial endeavor and contacts in Indonesia as anywhere else; "contacts" alone, while important in Indonesia, can not substitute for business skills in an Indonesian partner.

Because Indonesians place great importance on personal relationships and mutual understanding, partnerships tend to be based primarily on genuine accord, with the written contract playing a less significant role. It is therefore important that any agreement be well understood by both sides. A contract over which there are conflicting interpretations is certain to cause future problems.

In some cases, licensing arrangements for products/services are more cost-effective options for U.S. companies doing business in Indonesia, but firms should apply the same cautions recommended for joint venture partners.

Steps to Opening a Representative Office

Statements emanating from the Indonesian Investment Bureau (BKPM) in mid-1999 offer hope of changes that will reduce the paperwork process and delay in applying for the necessary government permit for a foreign investment in Indonesia. At present, a business permit issued by the appropriate government agency is required to establish an office in Indonesia. Several government agencies may be involved in issuing a business permit, depending on the nature of the business.

To open a foreign representative office in Indonesia, the firm must appoint a representative: the representative may be an Indonesian company, Indonesian national, or an expatriate. A foreign representative office in Indonesia is actually more of a liaison office. According to Indonesian law, a representative office is restricted in the types of activities that it can pursue. These offices are restricted from signing sales contracts, collecting payments, and participating in other related business activities. Prior to opening an office, however, the firm must establish itself as a legal entity by registering with the proper Indonesian government authorities. The process is as follows:

1. A letter of intent and a letter of appointment [indicating the appointed representative], both from company headquarters and on official letterhead, must be sent to the Indonesian Embassy or an Indonesian Consulate for notarization. A letter of reference from the embassy or consulate is also required (See Chapter XI for contact information).

2. The notarized letter of intent, the notarized letter of appointment, and the letter of reference, along with the resume of the appointed company representative and his or her Indonesian work permit (KIMS Card) needs to be submitted. If the appointed company representative is an Indonesian citizen, a copy of the Personal Identity Card (KTP) needs to be submitted instead. All the material is submitted to:

Rifana Erni
Director for Domestic Business Development
Director General of Domestic Trade
Ministry of Trade and Industry
Jl. M.I. Ridwan Rais 5, Jakarta 10110
Tel.: (62-21) 385-8189
Fax : (62-21) 345-3114
Email: erni@pusdata.dprin.go.id

Regional representative offices, classified as serving two or more other ASEAN nations, can also be established in Indonesia. The regional representative office is also limited to more of a liaison role and is restricted from participating in many business transactions. Interested firms should contact the Capital Investment Coordinating Board (BKPM)for procedure information:

Drs. Marzuki Usman
Minister and Chairman
Capital Investment Coordinating Board (BKPM)
Jl. Jendral Gatot Subroto 44
Jakarta Selatan, Indonesia
Tel.: (62-21) 525-0023
Fax : (62-21) 522-7607

Representative offices that are involved in construction, engineering, or related consulting are required to register with the Ministry of Public Works. Foreign representative offices in these fields, in conjunction with Indonesian companies, are allowed to seek project opportunities, submit proposals, participate in tenders, and oversee projects at all levels. Foreign engineering firms with representative offices can participate in government projects. For procedure information, interested firms should contact the Ministry of Public Works.

Ir. Subagia Sastrosoegito
Chair of the Working Group for Construction Services and Public Works
Ministry of Public Works
Jl. Pattimura 20
Jakarta Selatan, Indonesia.
Tel.: (62-21) 720-3371 ext.261/263, 739-5588
Fax : (62-21) 751-1843

Many foreign firms opt to have local consulting firms or their Indonesian representatives take care of the registration process. The application process time varies from two to four weeks. Representative offices are also required to submit reports of business transactions and employee information on an annual basis to the Department or Ministry that it is registered with.

Selling Techniques

Indonesian consumers, particularly from the middle and lower income groups, are sensitive both to price and to general economic trends (e.g. interest rates). Thus, importers of U.S. goods and services here will pay close attention to pricing, more than to product quality and promptness in delivery when making purchasing decisions. They will seek low interest financing, particularly in the coming year.

Other key success factors for doing business in Indonesia are patience and presence. Companies that have made a commitment to the country by establishing an office, or some other significant presence, will be more successful in marketing their products than those that attempt to sell their product on annual whirlwind trips. Brand loyalty and name recognition are highly valued by the Indonesian consumer.

To sum up, ways by which foreign interests can engage in business in Indonesia include:
- the appointment of agents and/or distributors
- representative office
- technical assistance or licensing agreements
- joint venture operations
- establishing a 100 percent foreign-owned subsidiary

A joint venture production operation can be a good option for products that have sales potential in both the domestic market and as exports throughout the rest of Asia.

Press Contacts

Personal contacts are important in Indonesia, and businesses should foster open communication with the press. The U.S. Information Service (USIS), located at the American Embassy, is available to help businesses make initial contacts with the local media. USIS can arrange an introductory meeting between company representatives and the Indonesian press through a press conference or an informal gathering. Please contact the Press Attach, at the American Embassy for further information (See Chapter XI for contact information).

Advertising

Advertising in local media and newspapers is recommended for introducing new products, particularly in areas of purchasing power concentration, such as Jakarta and West Java. However, advertising is currently restricted by government decree to 35 percent of a newspaper's content. In July 1999, the prices quoted for a full color, quarter page ad ranged from about Rp. 9,000,000 ($1,285: US$ 1 = Rp. 7,000) to $4,285 in five daily newspapers. In those same newspapers, a black and white 2 column, 150 cm ad ranged from about Rp. 2,000,000 ($285: US$ 1 = Rp. 7,000) to about $775.

A listing of major, recommended newspapers and business journals (in Bahasa-Indonesia, except where noted) follows:

Newspapers (dailies):
Bisnis Indonesia
Herald International Tribune (English)
Kompas
Media Indonesia
Moneter Indonesia
Neraca Harian Ekonomi
Suara Pembaruan
Jakarta Post (English)
The Asian Wall Street Journal (English)
The Indonesian Observer (English)

Newsmagazines:
Forum (Weekly)
Gatra (Weekly)
Tajuk (Weekly)
Tempo (Weekly)

Business Journals:
Business News (Twice a week, English and Indonesian)
Eksekutif (Monthly)
Indocommercial (Monthly, English and Indonesian)
Indochemical (Monthly, English and Indonesian)
Indonesian Commercial Newsletter (Monthly, English and Indonesian)
Info Bank (Monthly)
Info Bisnis (Monthly)
Kontan (Weekly)
Prospektif (weekly)
Warta Ekonomi (weekly)

In most cases, direct mail advertising is efficient and effective, if the mailing lists are properly prepared and updated. Local advertising agencies can also assist in arranging films, slides, and posters and signboards for bus exteriors, bus stop shelters, and bridges.

Television advertising has grown rapidly and surpassed newspaper advertising in dollars spent since 1992. Indonesia has five commercial television stations (TPI, RCTI, SCTV, Indosiar and An-Teve) and one state-owned outlet (TVRI). RCTI and SCTV are the most popular stations in major cities and are available in 19 and 20 major cities, respectively. The potential viewership for any station is approximately 150 million people.

Another advertising medium is the "Standard Trade and Industry Directory of Indonesia," an official publication of the Indonesian Chamber of Commerce and Industry (KADIN). Requests may be made to the publisher at Jl. Hayam Wuruk 4 SX, PO Box 4556, Jakarta Pusat.

Product Pricing

Given the competition that American suppliers face from products supplied by foreign competitors, product pricing must take into account the costs of delivery, distribution, advertising, and image. As product pricing is one critical factor in determining the product's success in the market, market research is a useful tool. This includes studies on both consumer preferences and competitive practices. Pricing is best developed with advice from local distributors, who are well attuned to the competitive factors at play in the specific market. U.S. companies may conduct their own market research, obtain information from the U.S. Commercial Service, or contract with private research firms (See Chapter XI for a list of consultants and contact information).

After-Sales Service and Customer Support

One critical aspect of a product's successful penetration into any market is customer support and after-sales service. Some American firms face difficulties in providing this support due to distance and the costs of maintaining product support facilities in a foreign country.

Although some local distributor partners normally establish such mechanisms, firms should be prepared to invest substantial amounts of capital and manpower into making their local partner a first-class service provider. Regardless of the reputation a company may have internationally, Indonesian consumers value a firm that has on-the-ground customer support. They expect not only to have their needs handled locally, but also quick turnaround times.

Selling to the Government

Although plans are underway to privatize large state-owned companies, the Government of Indonesia is still a major customer of a variety of products and services. These cover the full range of defense materials, items needed for infrastructure projects, research and development programs, and several of the pure industrial needs categorized under "Strategic Industries." Strategic industries are under the control of the Department for the Empowerment of State Enterprises. The department is currently working with Lehman Brothers and Goldmann Sachs to set up ten holding companies to manage 144 state companies (BUMNs) as part of its BUMN reform program. The ten holding companies will be responsible for the management of the following sectors: financial services, agro-industry and consumer products, energy, tourism, telecom/media, strategic industries, logistics, mining, construction and building materials, and forestry, paper and wood-based products. In the process of forming the holding companies, there will be some liquidations involved along with the establishment of new companies.

Though it may be possible in some cases to sell directly to the government, there is good reason to use the services of an agent or distributor for the early stages of project development, delivery, installation and service needs. Traditionally, this is because most government procurement has been decided on the basis of influence peddling. This has not always mean that corrupt payments need be involved; pre-selection sometimes is based simply on favors to friends. This means that traditionally the rest of the tendering process simply has been a matter of "going through the motions" or a shadow play theater. New-to-the-market U.S. firms need the careful advice of local representatives to avoid wasting time and money in participating in a fake competition whose outcome is not transparent. The value of a local representative in this case is to make sure the outcome is favorable to his/her client, not the reverse. U.S. firms also need to be sensitive to the difficulty some Indonesians have in declaring bad news to someone; if your agent knows a tender is "cooked" against you, he may be reluctant to disappoint you with the bad news in advance. A close relationship with the agent is the best way to ensure frankness.

New efforts since May 1998 to root out corruption, collusion and nepotism (KKN, in Indonesian initials) in the government procurement process may make the process more legitimate. Also, Presidential Decree No. 7 of January 1998 was drafted to make transparent the tendering process for infrastructure projects, which until recently often resulted from an initiative of a private proponent, generally someone close to the Presidency. Implementing regulations have not been issued for this decree.

Most sales to the military must be carried out through an Indonesian agent. Often the customer will assist in the identification of the proper agent. American firms should become familiar with the "Blue Book", a listing of major projects identified by the Government of Indonesia as essential to national development priorities. The document is published annually by the National Planning Agency (BAPPENAS) and constitutes the official list of projects that are open to foreign official assistance and other sources of external financing. Most of the projects listed in this book require "soft loan" (low interest rate) financing. The U.S. government does not initiate soft loan financing, and although the U.S. Eximbank offers "matching" soft loans from its "war chest," Indonesia almost never has accepted offers that would displace other donor commitments made through the annual World Bank-sponsored Consultative Group on Indonesia (CGI). Rarely, some U.S. firms have been successful at convincing Indonesian authorities to accept Eximbank matching soft-loans as "add-on's" rather than displacements to another donor's offer. Ad-hoc soft loans offered outside the CGI may offer opportunities for using Eximbank matching loans.

Projects listed in the Blue Book are classified into three categories, A, B, and C, according to their stage of preparation (i.e. feasibility). A Category C project, for example, is one for which feasibility has yet to be established. With such projects, there may be opportunities for foreign firms (especially engineering firms, consultants, etc.) to assist in determining feasibility. Category A and B projects, on the other hand, are ones for which feasibility has been or will soon be established. U.S. firms should also familiarize themselves with opportunities available through ADB or World Bank-funded projects.

Counter Trade Policy

The Government of Indonesia has since 1982 nominally required winners of some large government tenders to undertake reciprocal purchase or sale of Indonesian non-oil/gas products. It is stipulated for any imports of goods by government institutions that exceed 500 million rupiah in value and is financed by the State budget or other commercial credit. A foreign firm that wins this kind of government procurement is obligated to purchase Indonesian non-oil/gas commodities in an amount equal to a specified percentage of the value of goods and services bought by the government. Usually the foreign firm does not directly undertake this trade, but pays a fee to one of an approved list of Indonesian trading companies to undertake the trade on its behalf.

Procurement from the following is exempt from counter trade requirements: procurement funded by soft loans from multilateral banks; the domestic cost element of a foreign firm's supply contract; services used by the government provided by professional experts such as accountants, lawyers, consultants and the costs of patents, fees, and the like; and purchases undertaken within the framework of joint ventures between a foreign company and a state-owned company.

In 1997 the value of counter trade reached $379 million; in 1998 it decreased to $195 million and involved 67 countries. The United States was first with $166 million worth of counter purchase, followed by Japan, Singapore, South Korea, and Philippines.

The Department of Industry and Trade is the coordinating and regulatory agency for counter trade deals. Contact:

Ir. Gumilang Putri Heryati, MM
Head of Counter Trade Division,
Directorate of Export and Import Facilitation
Directorate General of Foreign Trade
Ministry of Industry and Trade
Jl. M.I. Ridwan Rais, No. 5
Block 2, 8th Floor
Jakarta 10110, Indonesia
Tel.: (62-21) 345-0071, 385-8171 ext. 1164
Fax : (62-21) 385-8202

Selling to Specialized Sub-Markets

Pertamina: The national oil and gas monopoly oversees all oil and gas activities, although Production Sharing Contractors (PSC's) produce most of the hydrocarbons under contract. Purchases by either Pertamina or PSC's must be made through a local, Indonesian-owned limited liability company. Foreign suppliers have a choice of relationships they can establish, e.g. a temporary relationship for a specific sale or purpose; an agency relationship; or a joint venture, in which the Indonesian partner owns at least 5 percent of the venture. Only Indonesian companies can bid on most service contracts to Pertamina.

Most purchases of goods and services are through tender and generally only vendors with a registered vendor ID (Tanda Daftar Rekanan -- TDR) are considered qualified contractors (Daftar Rekanan Mampu - DRM) and able to bid. Sometimes direct purchasing is permitted, without competitive bidding. While PSC contractors can draft their own tenders, procurement by them valued at more than 2 million rupiah and up to 10 million rupiah requires approval from Pertamina/BPPKA (Foreign Contractors Regulating Agency). Procurements over 10 million rupiah require approval of the Coordinating Minister for the Economy.

Tender awards by Pertamina are based on price, Indonesian content, technical advantage, and reputation. Domestic goods and services must be used, if available, even at higher cost. All equipment purchased by PSC's is considered Pertamina property upon arrival in Indonesia.

PT. Freeport Indonesia: As the largest American and foreign investor in Indonesia, producing copper and gold in Irian Jaya, Freeport is a major buyer of U.S. and other overseas goods and services for its workforce of 16,000 and its production that was planned to reach 160,000 tons of ore per day with mining
facilities worth more than $4 billion. The company considers quality, price, delivery, and technical specifications of products needed. Under terms of its Contract of Work, Freeport Indonesia must allow local Indonesian suppliers to bid on all contracts, and the company follows a practice of attempting to increase procurements from Indonesia within the practical limitations of its selection criteria. Freeport Indonesia maintains purchasing offices in New Orleans (for U.S. and European suppliers), Singapore, Cairns (Australia) and Jakarta.

U.S. firms interested in selling to Freeport Indonesia should contact:
PT Freeport Indonesia Company
1615 Poydraw St., P.O. Box 51777
New Orleans, Louisiana 70112
Tel.: (504) 582-4176
Fax : (504) 582-4190

Regional "Growth Nodes"

Marketers and investors may also find advantage by establishing distribution or assembly/manufacturing operations in 14 "growth node" regions in Indonesia, which are targeted for economic development via special tax incentives. They include obvious large cities such as Jakarta, Surabaya, Bandung, Medan and Ujung Pandang, and less obvious districts such as Biak Island in Irian Jaya, and the Manado area of North Sulawesi. Although the government has established the "growth nodes," it depends upon private initiatives to bring value to the idea.

The same is true concerning four "growth triangles" involving areas of Indonesia and neighboring ASEAN countries, and an "Australia Indonesia Development Area" -- all of which offer intra-regional incentives for regional distribution and assembly/manufacturing. The "Growth Triangles" include: Singapore/Riau Islands (Batam, Bintan and Karimun -- which are being developed as off-shore additions to Singapore's industrial base; an international airport exists on Batam, which is 12 km. from Singapore); the Indonesia/Thai/Malaysia Growth Triangle (IMT-GT) including the northern-most Sumatra provinces of Aceh, North Sumatra, West Sumatra and Riau; the Indonesia/Malaysia/Singapore Growth Triangle (IMS-GT) including the Central and Southern Sumatra provinces including and south of Riau; and the Brunei/Indonesia/Malaysia/Philippines East ASEAN Growth Area (BIMP-EAGA) that was expanded in 1996 to include all Indonesian provinces in Kalimantan and Sulawesi, plus Maluku and Irian Jaya.

Finally, the "Australia Indonesian Development Area (AIDA)" aims to focus development attention on all of Indonesia except the islands of Sumatra and Java. U.S. firms having strategic alliance with Indonesian or Australian entities can participate in AIDA projects.

Protecting Your Product from IPR Infringement

Protection of intellectual property rights (IPR) in Indonesia is hampered by inadequate enforcement of the relevant laws and regulations. Foreign companies therefore must be vigilant in protecting their products from IPR infringement. Some choose to go through the Indonesian legal system, but cases may take several years before they are finally resolved.

Occasionally, foreign companies work with local law firms and law enforcement officials to conduct police raids on counterfeiters. Others conduct periodic seminars on the adverse effects of IPR infringement on the Indonesian economy, one of which is reduced investment by foreign companies.

Ultimately, the course taken by companies to protect their intellectual property rights will depend on their product. As an example, one U.S. company first identifies the counterfeiters of its products and then proceeds to work with them and sign them as legal licensees of its products. Some computer software companies provide free training and/or sell their software at competitive prices, while warning that copies of their product may contain damaging viruses. Also, companies with well-known trademarks must be vigilant in defending their marks by registering them early or seeking a cancellation of an unauthorized registration through the Ministry of Justice. In general, acquiring a strong local partner or agent can help in defending trademarks and intellectual property, as long as the arrangement remains amicable.

(See also Chapter VII - "Investment Climate" - for background on Indonesian laws and regulations regarding the protection of intellectual property rights.)

Need for a Local Attorney

Because Indonesia's legal system is currently being overhauled and modernized, firms are strongly advised to locate and retain a local attorney early in the investment process. In the event of a commercial dispute, one should first attempt to reach consensus through negotiation, using a mediator acceptable to both parties if necessary. If deliberation fails to achieve consensus, then companies may enter into arbitration. To prepare for this eventuality, an arbitration clause should be included in any commercial contract with Indonesia chosen as the site of arbitration. This is recommended because foreign arbitral awards have proven difficult to enforce locally. Badan Arbitrase Nasional Indonesia (BANI) is the local arbitration board and companies may employ BANI or select their own arbitration vehicle and procedures (i.e. ICC or UNCITRAL). Only when arbitration fails should companies consider litigation. The Indonesian court system has proven to be an ineffective means of recourse for American companies.

Although foreign legal firms cannot yet open offices in Indonesia, a number of American attorneys consult with Indonesian firms, some having consulted locally for more than ten years. These attorneys are well placed to assist American firms in working their way through the Indonesian legal structure (See Chapter XI for a list of lawyers and contact information).

Trade Promotion

The Ronald H. Brown U.S. Commercial Center

The U.S. Commercial Center, located at the World Trade Center complex on Jalan Jendral Sudirman in Jakarta's business district, is a good place for firms interested in the Indonesian market to begin. The U.S. Commercial Center offers a variety of services that are beneficial to those wishing to take advantage of the many opportunities available in Indonesia. Full information on these services can be accessed from the Center's web site at : http://www.jakarta.uscc.org Services include:

Free Market Evaluation
The U.S. Commercial Center offers all U.S. companies a free evaluation of its prospects in the Indonesian market. The evaluation is based on actual feedback from Indonesian importers and distributors, and it includes a recommended action plan for entering the market.

Facilities
The President's Room, located in the U.S. Commercial Center, is a well-equipped meeting room with catering options. Rental prices of this facility are less than that of an equivalent room in a hotel.

Market Research
The U.S. Commercial Center prepares a full range of sector specific research reports. These include short, topical Industry Market Insight (IMI) reports, and detailed Industry Sector Analysis (ISA) reports. In some sectors, ISA reports cover all Asean countries. All these can be easily accessed from the U.S. Commercial Center's Web Site.

Trade Shows
The U.S. Commercial Center maintains a presence at all the major trade shows in Indonesia and promotes U.S. goods and services through its U.S. National Catalog/Video Pavilion. Interested firms can partake in the Catalog/Video Pavilion and for a small fee, the following is offered:

a. Company catalogs and promotional literature are exhibited at the U.S. National Pavilion at the major Indonesian trade shows in a number of sectors. In addition, trade show visitors can view promotional videos and websites using the Pavilion's two touch screen computers.

b. A record of Pavilion visitors who have reviewed promotional material and expressed interest is kept. That record, along with bio information on interested companies is sent to the Catalog/Video Pavilion participant.

c. Promotional materials used in the trade show are also exhibited for one full year in the permanent Catalog/Video Exhibit at the U.S. Commercial Center. Over 1,800 Indonesian representatives visited the U.S. Commercial Center last year.

Contacts
The Agent/Distributor Service, offered through U.S. Export Assistance Centers, is an inexpensive way to build a shortlist of potential local representatives. This service, using our Commercial Specialists who contact local firms to determine their interest in representing the American principal, costs $250 and takes about 45 days to complete.
The Gold Key Service offers an appointment service for business executives visiting Indonesia. Upon receiving company promotional material, commercial specialists investigate the local market, select potential business contacts, communicate with them, and build an appointment schedule with firms that appear to best meet the interested business' needs. When he or she arrives in Indonesia, a full schedule of appointments is already established.

To determine whether or not the Gold Key Service is an appropriate investment, free preliminary evaluations of products' potential in the Indonesian market are offered. To take part in this free evaluation, fax product literature and a half-page description of products/services. Upon completion of the preliminary evaluation, results and recommendations will be faxed back to you.

The full range of Gold Key Services is listed below:

a. Gold Key Service: $350 for research on one line of products and the scheduling of one day of appointments (generally at least four per day) in one city. Each additional day is $250 more. Four weeks of lead time is required, from the day product literature is received.

b. Two-City Gold Key: A full day of appointments in Jakarta, followed by another full day in Surabaya, Indonesia's second largest city. The cost is only $625 for these 2 days of appointments, and $200 for each additional day in either city.

c. Videoconferencing Gold Key: Only $350 for up to 8 appointments. Because of the time zone differences, these are generally scheduled over a 2 day period.

To join the U.S. National Catalog/Video Pavilion or use any of the Gold Key Services, contact Richard Rothman, Commercial Officer, Trade Promotions at fax (62-21) 526-2855 or Email: Richard.Rothman@mail.doc.gov. More extensive contact information for the U.S. Commercial Center is available in Chapter XI.

The Agricultural Affairs Office

The Agricultural Affairs Office (AAO) in Jakarta is the USDA office in Indonesia that works closely with U.S. exporters, Indonesian importers, trade associations and Indonesian Government officials to increase sales of U.S. bulk and intermediate agricultural products. In addition, the AAO reports on a number of commodities and is responsible for agricultural trade policy issues. A branch of AAO is the Agricultural Trade Office which covers the promotion of U.S. high value agricultural products. The AAO is able to assist interested agricultural exporters in a variety of ways:
Product and Market Information: Commodity reports and Indonesian contact lists are available on request.

Services and Facilities: Visiting exporters can take advantage of in-country briefings and five-star hotel arrangements at competitive U.S. embassy rates.

Trade Shows: The AAO encourages participation by U.S. companies in appropriate trade shows for bulk and intermediate commodities.

Trade Leads, Buyer Alert and AgExport Kit Services: The USDA Washington office provides a variety of services to U.S. companies. Please contact Sharon Green or Linda Conrad for more information, at phone: (202) 690-3416, fax: (202) 690-4374.

Foreign Agricultural Service's (FAS) Home Page: http://www.fas.usda.gov. The FAS Home Page provides exporters, producers, processors, researchers, trade organizations, financial institutions, and other interested individuals and groups with access to facts, figures, analysis, and activities of agricultural trade - around the clock and around the world.

U.S. Agricultural Trade Office (ATO)

The Agricultural Trade Office in Jakarta is the USDA office in Indonesia that works closely with U.S. exporters, Indonesian importers, trade associations, and Indonesian Government officials to increase sales of U.S. high value or consumer ready food products. The ATO is a branch of the Agricultural Affairs Office. The ATO is able to assist interested food exporters in a variety of ways:

Product and Market Information: Lists of importers and commodity reports are available upon request.

Services and Facilities: Visiting exporters can take advantage of in-country briefings, five-star hotel arrangements at competitive U.S. Embassy rates, and temporary office space.

Promotion Activities: A multitude of promotion opportunities are offered by the ATO, including trade shows (every year the ATO stages one major food show and several category specific food shows in Jakarta), agent shows (an opportunity for regional agents to join ATO sponsored trade shows and seminar series in major cities outside of Jakarta), in-store promotions (3-4 in-store promotions are held each year), a monthly newsletter (sent to about 300 Indonesian traders featuring news about various products), and a library and showcase in our office that displays company information and products.

To take advantage of the activities that ATO offers, contact Dennis Voboril, Director, at fax (62-21) 571-1251, or phone at (62-21) 526-2850. Also, please see the list of offered AAO services above.

U.S. Information Service (USIS) Programs for Trade Development

USIS organizes programs to foster trade and investment. USIS programming highlights the advantages U.S. investment provides in terms of consumer value, technology transfer and human resources development. USIS programs also promote the reduction of trade barriers, protection of intellectual property rights, and encourage sustained Indonesian support for trade liberalization.

USIS operates the Zorinsky Research and Information Service (ZoRIS), a state-of-the-art electronic research facility located in the USIS building on the U.S. Embassy compound. ZoRIS resources include Internet access and a variety of databases accessible on-line. These include the U.S. Information Agency's Public Diplomacy Query (PDQ) database, Dialog, Legi-Slate, and Westlaw.

ZoRIS's large collection of CD-ROMs include the UMI/PROQUEST series, which indexes hundreds of periodicals, with over 200 available in full image text, the U.S. Code Annotated, Phonedisc, and North American Fax. ZoRIS staff maintains the U.S. Embassy Jakarta home page, a website with current information about the U.S. Mission, with direct links to the U.S. Department of State Foreign Affairs Network (DOSFAN), other U.S. government agencies, and additional sites related to foreign affairs, trade, and important bilateral issues.

USIS recruits speakers for events such as the annual Economic Seminar, co-sponsored with the Indonesian Economists Association, and on topics including U.S. trade policy and trade promotion. For further information on the speakers program, please contact the Cultural Affairs Officer at (62-21) 344-2211, extension 2525.

The USIS Press Section, through press releases, its Book Translation Program and Worldnet interactive television dialogues, communicates U.S. views on trade and investment issues to Indonesian policy makers and the public. Books translated into the Indonesian language under the auspices of the program include The Language of Trade by Michael Smith, The Rise of the Trading State, by Richard Rosecrance, Protectionism, by Jagdish Bhagwati and Preparing for the 21st Century, by Paul Kennedy.

United States Agency for International Development (USAID)

Through its development activities, USAID promotes the adoption of open trade and investment regimes and creates opportunities for U.S. technology, equipment, and services. USAID supports Indonesia's efforts to strengthen its commitments to free and open trade through reductions in tariff and non-tariff barriers through its technical assistance to the GOI. Much of this work is being carried out in the context of Indonesia's international agreements within APEC, ASEAN and the WTO. USAID is also facilitating adoption of updated laws and regulations which will facilitate commerce and economic development as Indonesia enters the 21st century. This work has already assisted in the promulgation of new legal frameworks for capital markets, companies law, and commodities futures trading. Current work is focused on competition law, bankruptcy, secured transactions, and arbitration.

Urban infrastructure development is one area that has prominent USAID involvement that offers extensive trade and investment opportunities. The Indonesia Cleaner Industrial Production (ICIP) Program is a USAID supported project in the field of urban infrastructure development. Its goals are twofold: (1) To reduce industrial damage to the environment by helping the Indonesian Government assume appropriate policies and programs, (2) and to develop the capability of the Indonesian public and private sectors to reduce the generation of industrial waste with an emphasis on increased industrial efficiency and potential economic benefits.

ICIP's industry assistance is focused on industrial firms with significant emissions problems. It is aimed at increasing industry demand for cleaner production services and technologies; assistance is in the form of cleaner production facility assessments, assistance to implement cleaner production projects, and the delivery of training, workshops and information regarding cleaner production to various audiences.

Assisted by the National Development Planning Agency and the Ministry of Industry and Trade, the ICIP Secretariat is responsible for the day-to-day implementation of the ICIP program, at the following address:

Mashill Tower-20th Floor
Jl. Jend. Sudirman Kav.25
Jakarta 12920
Tel.: (62-21) 526-7681 through 7684
Fax : (62-21) 526-7680

Private Participation in Urban Services (PURSE) is another ongoing USAID project in the area of urban infrastructure development. The PURSE project is designed to help the Indonesian government effectively deal with rapid urbanization. The project supports Indonesian Government efforts to increase private participation in the provision of urban environmental services, water supply, wastewater and solid waste management through operating contracts, concessions, and investment. Support is offered by helping the government develop the necessary legal/regulatory national framework, building local government capacity and facilitating transactions.

USAID's Indonesia energy program promotes the sustainable application of technologies that reduce local and global pollutants. These technologies include both grid-connected and off-grid renewable energy as well as supply and demand side energy efficiency. Activities include pilot projects, resource mapping, cost-sharing feasibility studies with developers, training, transfer of technologies for cleaner generation from fossil fuels and support for the state utility's new small private power producer program, which emphasizes renewable energy. In addition, the USAID-supported Utility Partnership Program funds a series of executive level exchanges between U.S. and host country utilities to examine how each addresses issues of mutual interest. The first Indonesian partnership under this program is between PLN, the Indonesian national electric utility, and Southern Energy, Inc. of Atlanta, Georgia.

Of special interest to U.S. renewable energy developers is the assistance available through Yayasan Bina Usaha Lingkungan (YBUL), a USAID-supported Non-Government Organization specializing in the commercialization of renewable energy.

Yayasan Bina Usaha Lingkungan
Tel.: (62-21) 520-3313
Fax : (62-21) 525-4305
Email: ybul@indo.net.id

USAID's CLEAN/Energy activity supports the Government's efforts to restructure the power sector by removing the links between the generation, transmission and distribution processes. CLEAN/Energy provides technical assistance, including a long term advisor, to help address restructuring and regulatory issues in order to encourage development of a financially viable power sector that can mobilize the significant levels of private infrastructure investment required to meet the rapidly increasing energy demands of Indonesia while doing so with the least environmental impact. Information on these activities can be obtained through: Office of Urban Environmental Management, USAID/Indonesia (See Chapter XI for contact information regarding USAID/Indonesia).

United States-Asia Environmental Partnership (US-AEP)

U.S. companies interested in environmental business opportunities should contact the United States-Asia Environmental Partnership (US-AEP). A joint program of U.S. Department of Commerce and USAID, US-AEP promotes sustainable development in Asia through improved access to U.S. expertise, technologies, services and equipment to accelerate U.S. environmentally friendly technology transfers. All US-AEP activities are focussed on the objective of promoting an Asian "clean revolution," by encouraging countries to develop and adopt less polluting and more resource-efficient products, processes, and services to use during the development process. US-AEP promotion of environmentally sound technology and services provides business opportunities for a number of U.S. firms. In Indonesia, US-AEP has two programs:

A. Office of Technology Cooperation: A Technology representative office assists U.S. firms in introducing responsible environmental products and technologies to decision makers in Asia's public and private sectors.

B. US-AEP Environmental Infrastructure: This program helps local governments and communities deal with the environmental problems brought on by rapid urbanization. US-AEP assists local authorities address such environmental challenges, such as the lack of municipal sewage and solid waste facilities and insufficient water supplies through the transfer of U.S. environmental technologies, services, and management techniques.

The office of Technology Cooperation and Environmental Infrastructure office can utilize the Environmental Exchange Program (EEP)in support of environmental initiatives. This program provides Asian professionals and organizations opportunities to address critical environmental needs in areas such as pollution prevention, environmental and hazardous waste management, air pollution, clean and efficient technology, water supply, solid waste management, and wastewater treatment. EEP programs usually take place in one of the following forms: Environmental Business Exchanges, Environmental Technical Exchanges, and Environmental Fellowships.

If interested in any of these US-AEP programs, contact US-AEP in Washington or the US-AEP office in Jakarta :

In Washington, D.C.
United States-Asia Environmental Partnership (US-AEP)
Asia/Near East Bureau
U.S. Agency for International Development
1300 Pennsylvania Ave, NW
Washington, D.C. 20523-4101
Tel.: (202) 712-0270
Fax : (202) 216-3379
Internet : http://www.usaep.org

In Jakarta
Office of Technology Cooperation
Tel.: (62-21) 526-2848
Fax : (62-21) 526-2849
Email : usaepdir@rad.net.id
Internet : http://www.usaep.org/indonesia

Office of Environmental Infrastructure
Tel.: (62-21) 344-2211 Ext. 2480
Fax : (62-21) 380-6694

Office of the Military Attach, for Defense Programs (OMADP)

OMADP is the principal point of contact for most U.S. defense industry representatives marketing defense equipment in Indonesia. In general and subject to releasability considerations (including export licensing), OMADP's main function is to facilitate the flow of information regarding U.S. systems to help Indonesian buyers make acquisition decisions, either commercially or through Foreign Military Sales (FMS).

OMADP can assist industry representatives by arranging both appointments within the U.S. Embassy and appointments with Indonesian military offices. Additionally, OMADP is a valuable source of information on the Indonesian military procurement system.

OMADP offices can be contacted at the U.S. Embassy, phone (62-21) 344-2211, ext. 2603 or fax (62-21) 384-3339 (More extensive contact information is in Chapter XI).


CHAPTER V - LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT

The following highlights "leading sector" sales prospects, i.e. sectors of the Indonesian economy that remain active despite or because of the current economic recession. It also includes sectors that will bounce back quickest when economic improvement begins.

Indonesia's economic recovery likely will be led by private sector exporters, private -- especially foreign -- investment in existing and new facilities, and by donor-funded infrastructure investment. Major project activity will become more dependent than ever before upon donor financing from IBRD, ADB, Japanese OECF and bilateral lenders. TDA, USAID, and US-AEP training grants, orientation visits, and technical assistance and TDA feasibility studies will become even more crucial to U.S. firms confronting competitor subsidies.

In addition to the leading product and service sectors mentioned below, other sectors that bear watching as they weather the current recession include:

Boats (commercial and fishing): Previous bans on new and used commercial and fishing boats have been removed. Export oriented deep sea fishing and fast ferries offer business opportunities. The government wants to open more distant islands to tourism; with cuts in air flights because of high costs, ferries offer an alternative means.

Hotel and Restaurant Equipment: If tourism remains among Indonesia's healthier sectors, especially on Bali and resort islands near Singapore, there will be a continuing good market for equipment in this sector. Boutique and three star hotels in outer islands offer growth opportunity.

Information Technology: Businesses will want efficiency-inducing new technology to enhance competitiveness, train employees, and take advantage of market openings caused by the IMF-induced new openness. Swings in the exchange rate suggest a need for real-time data networks and financial software. Enhancements in tax auditing and other financial services will require IT.

Best Prospects for Non-agricultural Goods and Services

Best Prospects are ranked by estimated growth, in U.S. dollar values, of U.S. exports over the coming year. U.S.$1 = Rp. 8,000

Rank : No.1
Security and Safety Equipment
SEC
The Indonesian security and safety equipment market offers excellent potential for U.S. products. Demand for security and safety equipment in the construction industry decline because of the overall slump in this sector. However in other sectors, including industrial, commercial, oil/gas and mining, demand has increased.

Promising subsectors include personal security, fire fighting, and building protection equipment.

The security and safety equipment market covers:

HS Codes Description
8303 Safes; strong boxes and doors; safe deposit lockers for strong rooms, cash, and deed boxes.
8424.10 Fire extinguishers
8471.92.900 Card key; magnetic media entry devices
8526.92 Radio remote control apparatus
8530 Electrical signaling; safety or traffic control equipment and parts
8531 Electrical sound or visual signaling apparatus (smoke detectors, burglar alarms, fire alarms, indicator panels, paging alert devices, and radar detectors in motor vehicles)
8705.30 Fire fighting trucks
9022.29.400 Apparatus based on the use of alpha, beta, or gamma radiation for smoke detectors
9022.90.700 Parts and accessories for ionization type smoke detectors

USD millions 1997 1998 1999
(Est) (Est)
Total Market Size 123.8 127.0 154.2
Local Production 41.0 42.5 55.0
Export Market 27.2 25.7 33.0
Import Market 110.0 110.2 132.2
Imports from the U.S. 17.9 18.7 26.4

1998 Import Market Share (Percent for US and Major Competitors): Australia: 28%; US: 17%; France: 11%; Singapore: 10%

Note: The above statistics are unofficial estimates.

Rank : No.2
Industrial Chemicals
ICH
In the past few years, demand for industrial chemicals has grown strongly in the following industries: oil and gas processing, mining processing, textiles, plastics, fertilizer and food processing. The 75% depreciation of the Indonesian rupiah since 1997 has encouraged Indonesian manufacturers to increase production to supply a booming export market, which has stimulated demand for chemical raw materials.

Promising sub-sectors: petrochemicals, textile dyes, organic and inorganic chemicals and specialty chemicals.

USD millions 1997 1998 1999
(Est) (Est)
A. Total Market Size 982.5 1,209.8 1.607.3
B. Total Local Production 336.4 464.5 557.9
C. Total Exports 786.3 806.3 967.7
D. Total Imports 1,432.4 1,551.6 2.017.1
E. Imports from the U.S. 128.9 136.6 177.4

Note: The above statistics are unofficial estimates.

Rank : No.3
Food Processing & Packaging Equipment
FPP
The economic crisis that began in July 1997 has cut demand for food processing and packaging equipment; however, prospects remain relatively good for the coming years. Due to the lack of advanced technology, domestic producers will continue to be limited to the low to medium price and quality segments.

U.S. products, particularly technologically advanced high-volume machinery, are considered to be of excellent quality. The Indonesian market for food processing and packaging equipment is quite open; there are no major import restrictions.

Best prospects are HS 84.22.30.900 (other machinery for filling and closing containers), HS 84.35.90.000 (Parts of presses, crushers & similar machinery), HS 84.22.40.000 (other packing and wrapping machinery) and 84.41.10.900 (other cutting machinery). Within these sectors, U.S. suppliers are already relatively strong and should strengthen their market position with respect to other countries. Main competitor countries include Germany, New Zealand, Denmark, Italy, China, Taiwan and Japan.

USD millions 1997 1998 1999
(Est) (Est)
A. Total market size 347.98 217.5 247.5
B. Total local production 42 39 42
C. Total exports 13 11.5 13
D. Total imports 318.98 190 218.5
E. Imports from the U.S. 19.85 5.5 7

Note: The above statistics are unofficial estimates.

Rank : No. 4
Paper And Paperboard
PAP
The pulp and paper industry is extremely important to the Indonesian economy, with exports of over USD 2 billion in 1998, ranking sixth among non-oil & gas exports. Export levels in this sector increased tremendously in 1998 during the economic and monetary crisis (compared to a 70% decline in the use of paper within the country), making this an important source of hard currencies for the country. However, this healthy sector faces a critical shortage of necessary inputs to the paper-making process, specifically long-fiber pulp and waste paper inputs.

The life-blood of Indonesia's pulp and paper industry is the country's large tracts of tropical rain forests covering 141.4 million hectares, which occupy 70% of Indonesia land mass. Currently, 92 million hectares are available for production and conversion. Moreover, the domestic market has much room for expansion, as the per capita paper consumption of Indonesia's 200 million people was only 16.5 kg/capita in 1997 and even lower in 1998.

In order to supply exports and domestic markets, Indonesian pulp & paper producers have to import nearly 100 percent of their machinery and over 50 percent of the raw materials. The economic crisis and recent political instability have forced investors to put on hold their expansion projects, indicating that U.S. machinery exports face a somewhat tepid reception. However, as actual paper production from 80 existing factories is estimated to increase up to 20 percent in 1999, raw materials from the U.S., particularly long-fiber pulp, is in critical demand.

U.S. suppliers have gained a good reputation for their quality products, such as machinery, processing chemicals, and waste papers. In fact, U.S. products are the leading imports in Paper and Paperboard sector in Indonesia. U.S. strong competitors in this field are Canada, South Africa, and Brazil.

The best sub-sector prospects are :
HS 470200000 Chemical Wood Pulp, Dissolving Grades
HS 470321000 Chemical Wood Pulp, Soda or Sulphate
Bleached, of coniferous
HS 470329000 Chemical Wood Pulp, Soda or Sulphate Bleached, of
non-coniferous
HS 470710100 Waste of Paper/Paperboard of Unbleached Kraft
Paper for Paper Making Purposes

Statistics on Raw Materials for Pulp & Paper Processing

USD millions 1997 1998 1999
(Est) (Est)
A. Total Market Size n/a n/a n/a
B. Total Local Production 7.9 tons 9.7 tons n/a
C. Total Exports 489.8 808.5 1.650.0
D. Total Imports 616.5 605.5 726.6
E. Imports from the U.S. 151.6 81.1 97.4

Note: The above statistics are unofficial estimates.

Local Production figures are only available in metric tons.

Rank : No.5
Telecommunication Equipment
TEL
Despite a strong commitment by the Indonesian Government to develop its telecommunication infrastructure, the economic and monetary crisis reduced total Indonesian telecommunication imports to $424 million in 1998, down 72% from $1.5 billion in 1997. Although total imports decreased in 1998, the United States still played a substantial role. With a total import value of $113 million - representing a 26.8% market share - the United States is still the import market leader in this industry, followed by France (21.5%), Japan (18.5%), and Germany (12.3%).

In 1998, Indonesia's largest telecommunications equipment import was H.S. 8517.90.900: Other parts of electric apparatus for line telephony, accounting for 17.10% of total imports. The biggest supplier for this telecommunications equipment was U.S. (89.23%), followed by Japan (3.90%), and Germany (3.05%). The second largest import was H.S. 8517.50.000: Other apparatus for carrier-current line system (digital line systems), accounting for 15.43% of total imports, which came from Japan (35.12%), followed by USA (20.71%), and Germany (12.08%) of total imports. The third largest import was H.S. 8525.20.000: Transmission apparatus, accounting for 15.28% of total imports, which came from France (69.28%), Spain (9.42%) and Japan (8.19%)

USD millions 1997 1998 1999
(Est) (Est)
A. Total market size 1,646 551 630
B. Total local production 420 510 580
C. Total exports 278 383 410
D. Total imports 1,504 424 460
E. Imports from the U.S. 475 113 135

Note: The above statistics are unofficial estimates.

Rank : No.6
Medical Equipment
MED
As fourth most populous country in the world, Indonesia's market for medical equipment and supplies will continue to expand. Indonesia's health care system is comprised of 1,074 private and government hospitals and 7000 health centers throughout the nation's 27 provinces. Hospitals have cut back on purchases of capital medical equipment and will concentrate on buying basic supplies, particularly consumables and/or disposable medical equipment. The largest buyer of equipment and supplies is the government of Indonesia, representing about 60% of purchases. The government is heavily dependent on soft loan financing for its capital purchases.
The import market for medical equipment and supplies, which grew at an annual rate of 10% before July 1997, had declined by more than 50-70% in dollar terms since July 1997, began to slowly recover in 1999. Business analysts expect growth in 2000.

Over 90% of medical equipment and supplies is still imported. The estimated market size for medical disposable will be over $15 million in 1999. The market for disposable medical equipment is dominated by Japan, followed by the U.S. U.S. products are considered to be excellent quality and very reputable, hence should provide opportunities for U.S. suppliers of medical disposable and supplies.

USD millions 1997 1998 1999
(Est) (Est)
A. Total Market Size 75.2 39.8 43.8
B. Total Local Production 35.8 17.9 21.4
C. Total Exports 34.0 12.5 15.0
D. Total Imports 73.4 34.4 37.4
E. Imports from the U.S. 3.8 1.0 1.1

Note: The above statistics are unofficial estimates.

Rank : No.7
Forestry and Woodworking Machinery
FOR

The forestry sector continues to play an important role in the national economy. Tropical forests cover 143 million hectares, or 75 percent of Indonesia's land, making Indonesia Southeast Asia's richest nation in terms of forest resources. The forestry and woodworking equipment market is driven by the demand for Indonesian wood products. The value of Indonesia's export of forest products in 1999 is expected to reach $8.5 billion, an increase over about $8 billion from 1998. National demand for logs is expected to reach 56.8 million cubic meters in 1999, of which 10.9 million cubic meters will be needed for the sawmill industry, 10.4 million cubic meters for the plywood industry and 1.92 million cubic meters for the chipmill industry.

Promising subsectors : wood-working equipment, feller buncher, harvester machine

USD millions 1997 1998 1999
(Est) (Est)
A. Total Market Size 440.8 373.1 391.1
B. Total Local Production 52.6 63.2 52.0
C. Total Exports 25.7 50.2 53.0
D. Total Imports 413.9 360.1 392.1
E. Imports from the U.S. 59.5 85.9 92.1

Note: The above statistics are unofficial estimates.

Rank : No.8
Trucks, Trailers, and Buses
TRK
The Indonesian market for heavy-duty trucks presents a growing potential for U.S. exporters. Since assembling facilities for heavy-duty trucks are still very limited in Indonesia, the government allows importation of heavy-duty trucks in the Completely Built Up (CBU) condition with a 5% level of import duty. The market, which includes the forestry, mining, container, and construction sectors, is supplied by numerous brands from the U.S., Japan, China, and a number of European countries.

Presently, U.S. built trucks secure only 5 to 10 percent market share, even though many U.S.-made trucks, such as Kenworth, Mack, Haulpak, Ford, Wabco, and OshKosh are imported into Indonesia. Industry sources have acknowledged that U.S. trucks are of good quality but, unlike the Japanese and the other suppliers, they rarely come with financing and good after sales service, including availability of spare-parts. Furthermore, prices of U.S. trucks are, in general, 70 to 80 percent higher than other competitors'.

USD millions 1997 1998 1999
(Est) (Est)

A. Total Market Size 298 247 259
B. Total Local Production 45 45 47
C. Total Exports 6 6 6
D. Total Imports 259 208 218
E. Imports from the U.S. 38 31 33

Note: The above statistics are unofficial estimates.

Rank : No.9
Industrial Pumps
PVC
The domestic market for industrial pumps will remain strong in coming years, as demand for these products has continued to increase. Local producers are still unable to produce sophisticated and high quality industrial pumps, though they can meet the needs of most small to medium sized agricultural and industrial pumps. The technological level of the country's pump industry is not expected to improve significantly, and foreign suppliers will continue to dominate the medium and high end markets.

A wide range of international brands is available in the Indonesian market through local distributors. The U.S. has been a major exporter of industrial pumps to Indonesia. American pumps are well received in the local market, as they are known to be of excellent quality and long durability. Germany, Japan, Australia, Italy, England and Denmark are the key competitors in the market.

Promising subsectors: oil and gas (API standards), chemical, mining, processing, and industrial pumps.

USD millions 1997 1998 1999
(Est) (Est)
A. Total Market Size 201.1 126.0 132.3
B. Total local production 2.0 2.0 2.1
C. Total exports 1.5 1.6 1.6
D. Total imports 200.6 125.6 131.8
E. Imports from the U.S. 60.0 35.1 36.8

Note: The above statistics are unofficial estimates.

Rank : No.10
Oil and Gas Equipment
OGM
Oil and gas exploration and production activities in Indonesia have been slightly affected by the economic slowdown. During 1998, 22 new contracts were signed, six fewer than in 1997. Fifteen were production sharing contracts (PSC), four were joint operating bodies and three were technical assistant contracts. Although the number of new contracts are expected to drop in 1999, the value of capital to be invested by the PSC operators for their operations in Indonesia should reach US$ 5.3 billion, exceeding US$ 4.3 billion in outlays in 1998 at US$ 4.3 billion. It is predicted that around 20 oil and gas contracts should be signed in 1999.

Currently, there are 162 production sharing contract areas with a total of 48 operators across the country. Foreign contractors account for 95 percent of the country's oil and gas output, with an estimated output of 542 million barrels of oil and gas condensate and 2.6 trillion cubic feet of natural gas last year. They have maintained an output of 1.5 million barrels of oil per day over the past five years.

Indonesia imported $ 525.4 million worth of oil and gas equipment in 1998. U.S. products amounted to $ 256.6 million, or 48.8 percent of the total import equipment. American suppliers are particularly strong in the following equipment: tools for drilling (not rock drilling), self propelled boring and sinking machinery, parts of boring/sinking machinery, drill pipe of a kind used in drilling for oil and gas, other line pipe of a kind used for oil and gas pipelines, and floating or submersible drilling or production platforms.

It is predicted that the market for oil and gas equipment will remain at the same level in the next two years. Enhanced oil recovery (EOR) equipment is expected to have very good prospects in the coming years, as Indonesia's limited oil reserves are continuously shrinking. More than a quarter of crude oil is currently produced using the EOR technology.

USD millions 1997 1998 1999
(Est) (Est)
A. Total market size 625.0 575.4 575.4
B. Total local production 90.0 80.0 80.0
C. Total exports 35.5 30.0 30.0
D. Total imports 570.5 525.4 525.4
E. Imports from the U.S. 280 256.6 256.6

Note : The above statistics are unofficial estimates.

Rank : No.11
Mining Equipment
MIN
Despite the continuing economic slowdown, business activity in the Indonesian mining sector is stable. In 1998, the Indonesian government granted mining mineral rights by signing 38 new Contracts of Work (COW) for the Seventh Generation and 12 coal COW's for the Third Generation. In 1999, the government awarded new 12 coal COW to local companies and two COW to foreign companies.

During the past ten years, the export of Indonesian mining products increased at an annual growth rate of about 21.1%. In 1998, around 46.3 million tons or 76.15 percent of coal production was exported to various countries. Almost 82 percent of tin production was exported, while production of Indonesian nickel, copper concentrate and aluminum was all exported.

The total market for surface mining equipment has grown at an average annual rate of 22 percent over the past five years. Imported products account for about 86 percent of all surface equipment purchased in Indonesia in 1998. Imports of surface mining equipment totaled $ 815.4 million in 1997, declining slightly to $ 650.3 million in 1998.

Because of the current economic situation, the demand for surface mining equipment is projected to remain in the same level as in 1998. U.S. products accounted for $ 221.5 million, an increased of 50 percent from the value in 1997. This number amounted to 34.1 percent of all surface mining equipment imported by Indonesia in 1998.

American suppliers are practically strong in the following equipment: belt type continuous elevators, other bulldozers and angledozers, graders, front end shovel loaders, other hydraulic elevators, other self-propelled bulldozers, angledozers, graders, levelers, self propelled boring and sinking machinery, parts of boring/sinking machinery, sorting, screening, separating or washing machines, crushing or grinding machinery for stones, and buckets, shovels, grabs and gribs.

USD millions 1997 1998 1999
(Est) (Est)
A. Total Market Size 948.2 735.0 735.0
B. Total local production 174.0 160.0 160.0
C. Total exports 41.2 75.0 75.0
D. Total imports 815.4 650.3 650.3
E. Imports from the U.S. 147.4 221.5 221.5

Note: The above statistics are unofficial estimates.

Rank : No.12
Educational and Training Services
EDS
The Government of Indonesia (GOI) has released a set of new regulations which allow foreign educational institutions at the tertiary level to operate in Indonesia. This deregulation offers U.S. educational institutions tremendous opportunities in Indonesia, since U.S. education is considered by Indonesians to be the highest quality in the world. With a population of over 200 million, Indonesia offers a huge potential market. In 1998 there were 77 state-run and 1,449 private higher learning institutions with approximately 1,007,000 and 1,535,084 students respectively.

There are currently approximately 13,000 Indonesian students studying in the United States with 60.9% undergraduate, 24.5% graduate and 4.6% postgraduate. Business, engineering and English language are the most popular fields of study.

Due to the massive devaluation of the Indonesian rupiah, studying in the U.S. has become very expensive, and many Indonesians are looking for lower cost high quality alternatives. Australia has been very aggressively marketing its universities in Indonesia, and has been successful wooing students overseas due to lower tuition. In addition, in collaboration with an Indonesian company, Australia's Monash University and University of New South Wales have opened pre-university classes in Jakarta with guaranteed placements for its graduates at either university. The U.K., Canada, New Zealand, Malaysia, and Singapore universities have been also aggressively marketing their education through educational fairs and advertisements in the local media.

Estimated Number of Students in 1998
U.S. 13,282
Australia 17,462
Germany 3,400
U.K. 2,000
Others 4,856

Last year's Market Share in terms of number of students:
Australia: 42.6% U.S.: 32.4% Germany: 8.3% U.K.: 4.9%

Last year's Market share in terms of foreign education spending:
U.S.: 43.4% Australia: 34.2% Germany: 6.7% U.K.: 6.3%

USD Millions 1997 1998 1999
(Est) (Est)
A. Total Market Size of Education n/a 2,195.5 2,308.5
B. Sales by Local Institutions n/a 1,429.7 1,572.7
C. Total Sales by Foreign Institutions n/a 765.8 735.8
D. Sales by US Institutions n/a 332.1 265.7

Note: The above statistics are unofficial estimates.

BEST PROSPECTS FOR AGRICULTURAL PRODUCTS

COTTON

Indonesia remains the world's largest cotton importer. Marketing year 1998/99 imports are estimated to remain stable at about 420,000 tons. Cotton imports for MY1999/2000 are forecast to increase slightly to 440,000 tons as spindle utilization is forecast to start increasing as the country's political and economic situation starts to stabilize. The U.S. cotton market share declined to 15% in MY1998/99 (Aug-Dec) (26% in MY1997/98) due to less competitive prices. It is forecast that U.S. market share can increase during MY1999/2000 with the improvement in U.S. supplies.

1,000 Metric Tons 1997/99 1998/99 1999/2000
Aug/Jul Marketing Year
(Est)

A. Total Market Size 429 429 444
B. Total Local Production 3.8 3.8 3.8
C. Total Exports 0 0 0
D. Total Imports 419 420 440
E. Total Imports from U.S. 110 65 90

SOYBEANS

Indonesia is a major consumer of soybeans for food use. Per capita consumption of soybeans, primarily in the form of tofu and tempe, is ten kilograms annually. The United States is the dominant supplier of the large and growing import market for soybeans. Increased emphasis on corn production suggests that domestic soybean production will remain flat while demand and imports continue to rise. Domestic consumption has not been affected by increased prices, as soybean products remains the most inexpensive protein source for the Indonesian consumer.

1,000 Metric Tons 1997/98 1998/99 1999/2000
Oct/Sept Marketing Year
(Est)

A. Total Market Size 1,970 2,040 2,140
B. Total Local Production 1,306 1,295 1,295
C. Total Exports 0 0 0
D. Total Imports 671 840 840
E. Total Imports from U.S. 671 840 840

SOYBEAN MEAL

The poultry industry is beginning to recover pushing soybean meal imports up an estimated 18 percent for 1998/99 marketing year. The local integrated poultry-feedmill industry and those poultry farms which survived the crisis are reportedly making handsome profits.

1,000 Metric Tons 1997/98 1998/99 1999/2000
Oct/Sep Marketing Year
(Est)

A. Total Market Size 600 640 670
B. Total Local Production 1 0 0
C. Total Exports 0 30 0
D. Total Imports 524 620 670
E. Total Imports from U.S. 63 60 60

WHEAT

The down with Indonesia private sector with imports shows a dramatic increase in U.S. exports, spurred by a variety of U.S. assistance program. At the same time, the end of state trading (BULOG) coincides with the termination of consumers' subsidies on flour.

1,000 Metric Tons 1998 1999 2000
(Est) (Est)

A. Total Market Size 2,850 2,500 2,400
B. Total Local Production 0 0 0
C. Total Exports 0 0 0
D. Total Imports 3,273 2,500 3,000
E. Total Imports from U.S. 0 500 800

Consumer Ready Food Products

Most imported consumer ready food products are consumed by Indonesia's upper and middle class, expatriates and tourists. Imports of U.S. products declined significantly in 1998 following the economic crisis that hit in July 1997. U.S. suppliers not only faced a shrinking market but lost market share as consumers became increasingly price conscious and shifted to lower-priced food products from Australia and New Zealand, particularly for red meats and fresh fruits.

Beginning with the 1998 holiday season - a period that runs from December - February and includes Christmas, Lebaran, and Chinese New Year - imports have shown signs of recovery. Although the number of expatriates and tourists remain below pre-crisis levels, the middle and upper class Indonesian consumers have apparently adapted to the increased price levels of imported food products. The exchange rate has also appreciated by nearly 50 percent since late 1998, leading to a concomitant decline in prices of imported food at the wholesale level. A stronger exchange rate - combined with the gradual normalization of trade financing - should help U.S. suppliers begin to recover sales into the Indonesian market.

Imports of U.S. Consumer Ready Food

USD 1,000,000 1997 1998 1999 2000
(Est) (Est)

Fresh Fruit 50 5 11.6 2.8
Processed Fruit & Vegetables 16 9 9.6 10.6
Dairy 16 4 5.4 5.9
Red Meat 13 2 2.5 2.8
Poultry Meat 1 1.8 6.3 6.9
Snack Foods 2 0.5 0.3 0.4
Others 18 6.7 10.1 11
Total Consumer Ready Food 116 29 45.8 50.4


CHAPTER VI - TRADE REGULATIONS AND STANDARDS

In recent years, Indonesia has liberalized its trade regime and taken a number of important steps to reduce protection. Since 1996, the Indonesian Government has issued deregulation packages that have reduced overall tariff levels, simplified the tariff structure, removed restrictions, replaced non-tariff barriers with more transparent tariffs, and encouraged foreign and domestic private investment. The GOI issued a deregulation package in July 1997, which introduced additional tariff reductions. In conjunction with its stabilization program agreement with the International Monetary Fund, the government has issued a steady stream of reform measures which reduced taxes, tariffs, and quantitative restrictions on exports and imports.

Trade barriers

Indonesia's tariff regime is in rapid flux, with accelerated tariff reductions included in many of the reform measures put into place since last November. Indonesia's applied tariff rates range from 5 to 30 percent. The major exception to this range is the 170 percent duty applied to all imported distilled spirits. In May 1995, the Indonesian Government unveiled a comprehensive tariff reduction package covering roughly two thirds of all traded goods, designed to reduce most tariffs to under 5 percent by 2003. All tariff items with a rate of 20 percent or less are to be reduced to no greater than 5 percent by 2000 while items with rates of more than 20 percent are to be brought to no more than 10 percent by 2003. Tariffs on all food items were cut to a maximum of 5 percent in February 1998. Import tariffs on vehicles were lowered in June 1999 to 65-80 percent (depending on engine size for completely built up sedans, 5-40 percent for trucks, 35-65 percent for motorcycles. Rates were also reduced for parts to a maximum 15 percent. Luxury taxes for sedans range from 35-50 percent.

Services trade barriers to entry continue to exist in many sectors, although the GOI has loosened restrictions significantly in the financial sector. Foreign law firms, accounting firms, and consulting engineers must operate through technical assistance or joint venture arrangements with local firms.

Indonesia is liberalizing its distribution system, a trend which is likely to accelerate as it implements the IMF package which includes an end to restrictions on trace in the domestic market. For example, restrictive marketing arrangements for cement, paper, cloves, other spices, and plywood were eliminated in February 1998. Indonesia opened wholesale and retail trade to foreign investment, lifting most restrictions in March 1998.

Customs valuation

Since April 1997, the Customs Directorate of the Ministry of Finance has operated a post-entry audit system, which relies primarily on verification and auditing rather than inspection to monitor compliance. A paper-less electronic data interchange system that links importers, banks, and customs was also introduced and is slowly being adopted.

Import licenses

The GOI continues to reduce the number of items subject to import restrictions and special licensing requirements. Goods such as alcoholic beverages, hand tools, artificial sweeteners, engines and pumps, tractors, rice, lube oil, and explosives continue to regulated.

Export controls

Like Indonesia's import tariff regime, export controls are in a state of rapid change as the government works to implement reforms associated with the IMF program. Many of the restrictions and taxes placed on exports affect agricultural products, including major cash crops like rubber, palm oil, coffee, and copra. Export restrictions and controls are applied by the government to a number of food commodities in an effort to ensure adequate domestic availability and stable prices of such products, particularly with the economy in such poor shape.

Import documentation requirements

The government requires the following for most imports:

pro-forma invoice commercial invoice
certificate of origin bill of lading
insurance certificate special certificates

According to the Indonesian Customs Law that came into effect in April 1997, importers are now required to notify the Customs Office in the first stage by submitting the import documents on a standard form computer diskette. Customs Inspections of imported goods may be made after they are imported in the importer's warehouse. Typically, the Indonesian importer takes care of this process.

Free trade zones & warehouses/Special import provisions/Temporary entry

The government encourages foreign investors who export to locate in bonded or export processing zones (EPZ). There are a number of EPZs in Indonesia, the most well known being Batam Island, located 20 km. south of Singapore. Indonesia also has several bonded zones or areas that are designated as entre ports for export destined production (EPTE). Companies are encouraged to locate in bonded zones or industrial estates whenever possible. Other free trade zones include a facility near Tanjung Priok, Jakarta's main port, and a bonded warehouse in Cakung, also near Jakarta.

There is a duty drawback facility (BAPEKSTA) for exports located outside the zones. Producers located within the bonded areas are allowed to sell up to 15% of their product into the local market.
Foreign and domestic investors wishing to establish projects in a bonded area must apply to the National Investment Coordinating Board (see Chapter VII, Investment Climate).

Labeling and marking requirements

Regulations of food labeling are currently in place and the government is currently in the process of approving new food labeling guidelines.
The market for foreign pharmaceuticals has been open since the October 1993 Deregulation Package, which previously limited pharmaceutical imports to those that incorporated high technology and were the product of their own company's research. The Deregulation package is also responsible for relaxing the registration requirements for pharmaceuticals approved in other countries.

Prohibited imports

The government bans the import of printed material in Chinese languages, Bahasa Indonesia, and other Indonesian dialects. Video tapes and laser discs are subject to review by the censor board.

Membership in free trade agreements

As a member of the Association of Southeast Asian Nations (ASEAN), Indonesia is party to the ASEAN Free Trade Agreement (AFTA). Through AFTA, ASEAN members are phasing in a Common Effective Preferential Tariff (CEPT) scheme, which will be completed for most traded goods in 2003.


CHAPTER VII-INVESTMENT CLIMATE

Overview

Since mid-1997, Indonesia has grappled with its most severe economic crisis in three decades sparked by the regional currency collapse and exacerbated in 1997 and 1998 by a severe El Nino-related drought. The economic downturn coincided with a prolonged political crisis, which culminated in severe rioting in the capital and other cities and the resignation of President Soeharto, Indonesia's leader for more than 30 years. In May 1998, then-Vice President B. J. Habibie replaced Soeharto as Indonesia's president. In June 1999, the country held its most democratic parliamentary elections in over forty years. The People's Consultative Assembly, consisting of the newly elected members of Parliament supplemented by 200 others, is scheduled to select Indonesia's next president and vice president in the second half of 1999, but a timetable for the process was not available as of June.

The Indonesian government turned to the International Monetary Fund in October 1997 for assistance in surmounting its economic difficulties which included a substantial depreciation of the Indonesian rupiah, rising inflation, and a collapsing banking system. The program, which has undergone several revisions, includes major structural reforms that should ultimately result in an improved investment climate. The central issue in the June 1999 election campaign was reform, interpreted broadly to encompass institution of the rule of law, rejection of corruption, collusion and nepotism (known in Indonesia as "KKN"), and greater government transparency and accountability.

Despite its recent difficulties, Indonesia has maintained a relatively open foreign investment regime. Since the onset of the financial and economic crisis, the Government of Indonesia (GOI) has succeeded in stabilizing the exchange rate, reducing inflation, and establishing the legal frameworks for addressing banking sector recapitalization and corporate debt restructuring. In 1999, Parliament approved laws that transferred greater political autonomy to the regions and established principles of fiscal decentralization. The rupiah strengthened and the Jakarta Stock Exchange index rose on the heels of the unexpectedly peaceful campaign and election that were monitored by domestic and foreign observers.

The GOI's economic policy challenges include: increasing budget revenues, including through privatization of state-owned enterprises; completing the bank recapitalization program, including asset recovery to reduce the program's budgetary burden; promoting debt restructuring between Indonesia's corporate debtors and their foreign and domestic creditors; redefining the fiscal relationship between the central, provincial, and sub-provincial government; improving transparency and accountability of social safety programs to permit ongoing donor financing; and attracting domestic and foreign investment, including through debt-equity swaps, in order to generate employment.

All the major political parties have stated that they intend to work closely with the IMF and other international institutions on Indonesia's economic stabilization and reform program. Major party spokesmen have endorsed Indonesia's participation in the global economy and have stated that they will maintain an open door to foreign investment. With the right policy framework, Indonesia will be able to capitalize on its strengths -- a large domestic market and a correspondingly large workforce, abundant natural resources, modern telecommunications and other infrastructure, and substantial experience with market-based economics and the international trading system.

Note: The following discussion summarizes the legal, regulatory, and de facto investment framework as of mid-1999. Because the identity of Indonesia's next government could not be predicted as of the date of publication, it is not possible to project which laws or regulations might be amended over the next year.

Openness to Foreign Investment

The Indonesian government actively encourages foreign investment. In 1998 and 1999, it issued several new regulations to ease the entry of foreign firms and capital into Indonesia. All investment in Indonesia is categorized as either domestic (PMDN) or foreign (PMA). An investment with any degree of direct foreign ownership is automatically defined as PMA. The Foreign Capital Investment Law of 1967, which provides the basic framework for foreign investment, is currently under revision.

The Capital Investment Coordinating Board (BKPM) plays a key role in promoting foreign investment and approving project applications. The relevant technical government departments handle investments in the oil and gas, mining, banking and insurance industries. All other foreign investment must be approved by BKPM, which also approves domestic investments when the owners seek investment incentives. Approval by BKPM takes between 7 and 20 days depending on the type of application. While BKPM aims to function as a one-stop investor service, investors are routinely required to work closely with relevant technical government departments, such as Finance, Manpower, Land Affairs, and Justice, as well as regional and local authorities. Recent reforms have freed investors from some of the cumbersome documentary requirements resulting from the need to work with other departments and local governments. One significant change is that master lists of capital goods and basic material imports for both foreign and domestic investments are approved by BKPM and no longer need clearance from the Directorate General of Customs and Excise. Another important change is that investors with approval from BKPM no longer need approval in principle from a provincial governor or regional chief before building projects.

The GOI also made alterations in the approval process in order to simplify it. For example, approvals for foreign investment up to $100 million no longer have to be approved by the President of Indonesia, but can now be approved by the Chairman of BKPM. On the domestic side, approval of investments up to Rp 10 billion (US$ 1.2 million) may be issued by the Chairman of the regional BKPM office rather than by headquarters in Jakarta. A recent Ministerial decree gave authority to Indonesian embassies and consulates abroad to accept applications for foreign investment, which would then be forwarded to BKPM for final approval. This practice has not been instituted yet; Indonesian embassy officials abroad are being trained on processing procedures. The government estimates that this service will be available at Indonesian embassies in early 2000.

Private entities may establish, acquire, and dispose of interests in business enterprises. Current regulations permit foreign firms to acquire domestic firms in sectors open for foreign investment after receiving approval from BKPM. When reviewing applications from foreign firms seeking to acquire locally established firms, BKPM frequently requires the buyer to reserve a small stake for a local buyer or the original owner and, in cases where the local firm is being "rescued" by a foreign buyer, to inject capital, not just provide management expertise, technology or assume outstanding loans. The approval process to take over a "sick" firm may take as long as two months. A mandate of the Jakarta Initiative, launched in the fall of 1998, is to eliminate obstacles to corporate debt restructurings. In May 1999, the government issued regulations designed to ease tax treatment for corporate restructurings.

Indonesia encourages the participation of small and medium-sized indigenous firms in certain sectors of the economy and has recently promoted this approach under the general concept of a "people's economy" endorsed by the November 1998 special session of the People's Consultative Assembly. Foreign investors in these sectors are required to partner with small businesses or cooperatives before investment applications are approved. Presidential Decree 99 of 1999 details sectors open only to small businesses and those open to medium and large-scale companies in partnership with smaller firms.

A limited number of other sectors are closed to all private or foreign investment. A "negative" list of these restricted sectors published by the Ministry of Investment in July 1998 significantly reduced the number of industries closed to foreign investment. Sectors that remain closed to foreign investment include freshwater fishing, forestry, public transportation, broadcasting and film, and medical clinics. (Copies of the negative list are available from U.S. Commercial Center in Jakarta and on the Internet at WWW.USEMBASSYJAKARTA.ORG - see Commercial Center).
In June 1998, the government of Indonesia eliminated many restrictions on foreign investment in retail operations. Foreign firms are now allowed to operate retail outlets in most major urban areas although restrictions remain in the provinces. In addition, many foreign firms use franchising, licensing, and technical service agreements to distribute their goods.

In June 1998, Indonesia also lifted many restrictions on foreign participation in domestic distribution services. Under the present regulations, foreign companies manufacturing in Indonesia may distribute their locally produced goods at the wholesale level and may apply for permits to import and distribute other products as well. Companies engaging in wholesale distribution may not conduct retail operations directly, but must form a separate retail company. The number of expatriate employees granted visas to work in any single wholesale and retail business is limited.

In June 1994 and May 1995 several previously restricted sectors were opened, some conditionally, to foreign investment, including harbors, electricity generation, telecommunications, shipping airlines, railways, and water supply. Foreign investment opportunities in many services remain restricted, however. The government is continuing to develop policies on the private provision of infrastructure through build-own-operate and build operate-transfer schemes, particularly for electric power, telecommunications, and roads. Full foreign ownership is not permitted in these sectors. Local partners are required to own anywhere from five to 51 percent of these investments.

Oil and gas: The Indonesian government, through state oil and gas company Pertamina, owns all oil and hydrocarbons in the ground. Oil contractors (mainly foreign) operate under production sharing contracts (PSCs) and variations of PSCs and are obligated to explore and produce hydrocarbons from a licensed area. The contractor is reimbursed for allowable expenditures. In return, the contractors have certain rights to split actual oil and gas production with Pertamina.

An oil and gas bill submitted to Parliament in early 1999 shifts management of PSC contractors from Pertamina to the central government and gradually phases out Pertamina's responsibility for PSCs. The draft law also calls for an end to Pertamina's monopoly over downstream oil distribution and marketing of fuel products.

Mining: Foreign investors operate under coal contracts of work (CCOW) and contracts of work (COW) for general mining. The contractor conducts all stages of the operation and assumes all financial and operational risks. The government's latest eighth-generation COW and fourth-generation CCOW contain significant new provisions that empower regional governments, promising them substantial input to mining companies' community development plans and a larger share of royalties and taxes.

Banking, Securities and Insurance: A 1988 deregulation package partially opened the banking, securities and insurance industries to foreign investment. All entrants had to be in the form of joint ventures, and foreign insurance and securities firms were subject to discriminatory capital requirements. In 1998, in keeping with its commitments under the World Trade Organization's (WTO) Financial Services Agreement, the government equalized the capital requirements for domestic and foreign insurance firms. In a move that exceeded its WTO commitments, in 1998 the GOI also amended the 1992 Banking Law to allow full foreign ownership of banks. The Department of Finance licenses new securities and insurance ventures; Bank Indonesia, the central bank, licenses banks and regulates banking activity.

Privatization

To enhance the efficiency of state-owned enterprises and as part of the Indonesia's ongoing IMF program, the government set an ambitious timetable to divest majority ownership in seven major parastatals, including state-owned steel, plantation, telecommunications, mining, and cement firms, by March 31, 1999. International investment houses were appointed to assist the government in evaluating and packaging these firms and foreign investors have been sought. The process has been delayed, however, due to difficulties establishing the valuation of the state-owned firms, domestic resistance to selling national assets, and the challenge of attracting buyers with the uncertain political and economic environment. Of the state-owned firms that were listed for privatization, only one, Jakarta International Container Terminal (Pelindo II), has had a majority of shares bought by a foreign investor. Semen Gresik (cement) had 14 percent of its shares sold. These sales fell far short of the government's original intentions to raise up to US$ 2 billion. While the government is under some pressure to accelerate the privatization process to raise revenue, it is unlikely that large sales will take place before a new government is in place and key legislation passed, although some limited equity sales will likely continue. Among the major companies scheduled to be privatized this year are toll road operator PT Jasa Marga, PT Krakatau Steel, fertilizer company PT Pusri Kaltim, and paper manufacturer PT Kertas Kraft Aceh.

Conversion and Transfer Policies

In July 1997, the Indonesian rupiah began to weaken in the face of regional currency instability. Indonesia opted to float the currency in August rather than spend large amounts of reserves to defend it. The rupiah depreciated sharply from 2,500/US$ to as weak as 17,000/US$ in June 1998. Since third quarter 1998, the rupiah has steadied and has since strengthened to Rp 7000/US$. Trading, although bullish on the rupiah as of June 1999, remained relatively thin.

In 1991, the government instituted a system of ceilings for foreign commercial borrowing by public sector entities, commercial banks and private sector projects that have a connection with the government.
In 1999, Indonesia enacted a Foreign Exchange Law that will require reporting of all foreign exchange transactions above a value to be specified in regulations (not yet finalized as of June 1999). The law did not change the system of free currency convertibility, however. The Indonesian rupiah is freely convertible and is traded in the Jakarta and offshore (principally Singapore) interbank markets. Indonesia maintains no capital controls and foreign exchange may flow freely in and out of the country. No prior permits are necessary to transfer foreign exchange. Foreign investors have the right to repatriate capital and profits at the prevailing rate of exchange. The government does not place restrictions on outward direct investment.

Expropriation and Compensation

Article 21 of the 1967 Foreign Capital Investment Law stipulates that the government shall not initiate nationalization of foreign investments except by law and when such action is necessary in the interest of the state. According to BKPM, no foreign investment has been expropriated since the passage of the 1967 law. There has been concern that a new government may nationalize projects or abrogate contracts awarded to firms connected to the family of former President Soeharto. Indonesian government officials have stated that foreign firms will not be expropriated in the process of dismantling the business empires of former first family members.

Dispute Settlement

The Indonesian government has agreed to submit any investment disputes to the International Center for the Settlement of Investment Disputes (ICSID) in Washington, D.C. A long-pending investment dispute involving a U.S. investor was resolved through the ICSID in 1993. Indonesia also abides by UNCITRAL (United Nations Commission on International Trade Laws) arbitration regulations. Foreign firms have entered arbitration hearings in Indonesia under UNCITRAL administration. An Indonesian investment arbitration board, BANI, is available when both parties to a dispute agree to submit to its arbitration.

Indonesia is also party to the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. The record of enforcement of foreign arbitral awards is, however, negative. In one case, Indonesian courts refused to recognize the applicability of third country negotiation clauses in a joint venture contract. The Indonesian court's refusal to recognize international arbitration resulted in the foreign investor's abandoning its assets in Indonesia.

The court system does not provide effective recourse for solving commercial disputes. The judiciary is not independent and there is no law requiring Indonesian courts to enforce money judgements of non-Indonesian courts.

The GOI has recognized that the legal system must be modernized. Legal and judicial reform is an important part of Indonesia's economic reform program. Amendments to the Bankruptcy Law entered into effect in August 1998, but the court's first year of performance has been very mixed. In the first half of 1999, Indonesia enacted laws on consumer protection, anti-corruption, and anti-monopoly/competition. Other bills in various stages of preparation cover, inter alia, foreign investment, secured transactions, arbitration, oil and gas, electricity, and telecommunications.

Performance Requirements and Incentives

Various fiscal incentives are available to both foreign and domestic investors. A company producing for the domestic market may apply for import duty exemptions on all required machinery and equipment as well as on raw and supporting materials needed during the first two years of commercial production. A company producing 65 percent for export has additional incentives. It may apply for restitution of import duties paid on inputs, which are subsequently re-exported in finished form. Special investment incentives in the form of income tax, value-added tax, and luxury tax facilities are made available on a case-by-case basis by BKPM.

The GOI re-introduced basic tax holidays with Government Regulation No. 45 of 1996. Investments in specific sectors, including capital goods manufacturing, agribusiness, infrastructure, sea and air transport, engineering, and professional personnel training may be eligible. Presidential Decree Number 7 of 1999 laid out evaluation criteria for tax facilities for new investors entering designated "pioneer" industries. The basic incentive period is three years, with an additional two years for investments outside of Java and Bali. The incentive period can be extended for investments that employ more than 2000 Indonesian workers, are at least 20 percent held by an Indonesian cooperative, and/or whose total investment is US$ 200 million or more excluding land and buildings. Tax exemption for qualifying investments begins at the start of commercial operations or after the project is licensed, whichever comes first. Time beyond five years to achieve startup will be deducted from the period of the tax incentives.

Indonesia looks to foreign investment to help the country out of the current economic crisis. The government expects foreign investors to contribute to the training and development of Indonesian nationals, allowing the transfer of skills and technology required for their effective participation in the management of foreign companies. As a general rule, a company can hire foreigners only for positions that the government has deemed open to non-Indonesians. Employers must have manpower training programs aimed at replacing foreign workers with Indonesians.

Indonesia does not have rules requiring that investors purchase from local sources or export a certain percentage of output. Rules that encouraged investors to locate in industrial estates were diluted in June 1998. Foreign firms are not required to disclose proprietary information to the government before investing.

Right to Private Ownership and Establishment

Indonesia recognizes the right to private ownership and establishment and has relied heavily on the private sector as the principal engine of its economic growth. Parastatals have traditionally played an important role as well. Their role declined as private sector activity grew and privileges awarded to state-owned enterprises decreased. A State Ministry for State-Owned Enterprises was formed in 1998; privatization was an important part of its mandate. The Indonesian Bank Restructuring Agency (IBRA), established in 1998, is assigned responsibility for banks that have been closed or taken over by the government. In addition, under the bank recapitalization program, it has assumed custody of non-performing loans. IBRA's mandate is time-bound and its ownership of formerly private assets is to be temporary.

Protection of Property Rights

Indonesia has suspended many private infrastructure projects, especially in the field of private power generation, for economic and political reasons. The U.S. Embassy and other U.S government entities have vigorously emphasized to the Indonesian government the importance of honoring internationally binding contracts and that all project reviews should be conducted in a rule-based, consistent, objective, and transparent manner. Many government officials recognize the importance of honoring contracts, but a risk remains that the Indonesian government may unilaterally abrogate projects and contracts.

Mortgages and secured interests in chattel and real property are recognized but a recording system is not in place. Foreign entities have no freehold rights to land ownership in Indonesia. Foreign investors' land holdings are often obtained through long-term lease agreements with the government. Leases are generally for 20 or 25 year and are renewable up to 100 years. These lease holdings can be used as collateral. Enforcement of secured interests is problematic. The court system does not provide effective recourse for settling property disputes.

Although it remains on the Special 301 priority watch list, Indonesia has made considerable progress in improving regulatory protection for intellectual property rights. Enforcement is an ongoing problem. Indonesia is a member of the World Intellectual Property Organization and a party to the Paris Convention for the Protection of Intellectual Property. In March 1997, the Parliament passed amendments to Indonesia's patent, copyright and trademark laws designed to bring them into compliance with the TRIPS agreement of the Uruguay Round. In 1997, Indonesia also reacceded to the Berne Convention and signed the Trademark Law Treaty. Other international agreements to which Indonesia is party include the Nice Agreement for the International Classification of Unclassified Goods and Services, the Strasbourg Agreement Concerning the International Patent Classification, and the Budapest Treaty on the International Recognition of the Deposit of Microorganisms. New laws are being drafted to protect industrial design, trade secrets, and integrated circuits.

Patents: Indonesia's first patent law entered into effect on August 1, 1991. The law and its implementing regulations outline patent application procedures, application fees, registration of patent consultants, and patent announcements. Products and production processes are in principle patentable for a period of 14 years commencing from filing of the patent application, subject to certain requirements. The patent may be extended for another two years. In addition to this relatively short period of patent protection, other drawbacks in the law include compulsory licensing provisions, and a provision allowing importation of 50 specific pharmaceutical products by non-patent holders, and patent protection granted only to pharmaceutical products manufactured in Indonesia.

Trademarks: The current trademark law took effect on April 1, 1993. This act states that trademark rights are determined on a first-to-file basis rather than on a first-use basis. After registration, the mark must actually be used in commerce. The law offers protection for service marks and collective marks and sets forth a procedure for opposition prior to examination by the trademark office. It also provides well-known trademark protection, although, to the detriment of several foreign marks, procedures for registering trademarks as well-known have not been fully developed. Cancellation actions must be lodged within five years of the trademark registration date.

Copyright: Parliament passed amendments to the 1982 copyright law in 1987 and March 1997. The amended law affords protection to foreign works, expands the scope of coverage and raises the terms of protection to international standards. The United States and Indonesia concluded a bilateral copyright agreement extending reciprocal protection in 1989. In May 1997, Indonesia reacceded to the Berne Convention on copyright protection.

New technologies: Indonesian law does not include specific protection for biotechnology. Legislation covering integrated circuits is being drafted for presentation to Parliament. The U.S.-Indonesia Science and Technology Agreement ensures protection for intellectual property derived from cooperative activities under the agreement's umbrella.

Transparency of the Regulatory System

Indonesia has a tangled regulatory and legal environment where most firms, both foreign and domestic, attempt to avoid the justice system. Laws and regulations are often vague and require substantial interpretation by implementing offices, leading to business uncertainty. Deregulation has been somewhat successful in removing barriers, creating more transparent trade and investment regimes, and has alleviated, but not eliminated, red tape. Transparency problems and red tape are routinely cited by U.S. businesses as factors hindering their operations in Indonesia.

Efficient Capital Markets and Portfolio Investment

Indonesia's banking sector was undergoing wholesale restructuring as of June 1999, after being severely weakened by the economic crisis that began in mid-1997. The key institutions managing the effort were the GOI's Indonesian Bank Restructuring Agency (IBRA, set up in January 1998), and the international financial institutions. Though most banks were considered technically bankrupt, depositors were protected because in January 1998 the Government issued a sweeping guarantee on bank deposits and other liabilities.

The restructuring effort entailed closure of over 60 private banks considered non-viable, Government take-over of 11 others including the two largest private banks, and recapitalization of 7 banks in May 1999 (with Government providing 80 percent of the required capital and banks owners the other 20 percent). Restructuring of the state-owned banks, which held the largest non-performing loan portfolios, was to begin in late 1999 after merger of four of the state banks into a new bank called "Mandiri."

Individual banks determine deposit and lending rates. Banks' condition was such that there was almost no new lending going on as of June 1999, but interest rates were declining to more reasonable levels.

Underlying problems remained. For example, all the major international accounting firms operate in Indonesia under arrangements with domestic accounting firms, but accounting standards and practices are not considered consistent with international norms.

Indonesia's capital market expanded rapidly over the last decade, led by growth of the equity market. Trading on the Jakarta Stock Exchange - the dominant securities market in the country - increased from only 27,000 shares per day in 1988 to 254 million shares per day in mid-1998. Like the banking sector, however, the stock market was hard hit by the economic crisis that struck Indonesia beginning in mid-1997. In early 1999, a stock market rally began, led by foreign investors. The lack of a well-developed bond market remained a limiting factor for Indonesia's financial sector.

Foreign firms generally enjoy good access to the Indonesian securities market. Financial reforms introduced in 1987 allowed foreign firms to form joint ventures with Indonesian partners in the securities market as underwriters, broker-dealers, and investment managers. The 49-percent restriction on foreign purchases of all non-bank listed firms was lifted in 1997, and for banks in 1999. Discriminatory capital requirements on foreign securities were removed in 1998. Portfolio investment is regulated by BAPEPAM, the Indonesian equivalent of the Securities and Exchange Commission.

As of June 1999, the US$ 67 billion offshore corporate debt issue remained largely unresolved, though a framework was in place for debt workouts: the Jakarta Initiative, launched in November 1998, was available to provide debt workout facilitation including the services of an experienced U.S. legal firm; the Indonesian Debt Restructuring Agency (INDRA) offered borrowers access to foreign exchange at a stable exchange rate; and there was a commercial court to hear bankruptcy cases. In June 1999, Astra International reached agreement to reschedule US$ 1.1 billion worth of foreign debt and Rp 1 trillion in domestic debt.

The GOI issued new regulations in May 1999 intended to ease mergers and acquisitions of financial firms. In general, Indonesian companies are closely held and, prior to the economic crisis, their owners rarely put up more than 20 percent of their stock for public offering. The Indonesian Parliament has enacted a comprehensive capital markets law with the aim of increasing transparency, certainty, and accountability.

Powerful business conglomerates own Indonesia's largest private companies. The companies within each conglomerate share directors and major shareholders. Articles of association and incorporation do not limit or prohibit foreign investment or participation. According to a 1999 ministerial decree, foreign legal entities or are now permitted to establish independent holding companies, with or without the participation of Indonesian entities. Holding companies are defined by the government as companies with the purpose of carrying out activities of capital participation in other companies.

Political Violence

In May 1998, large-scale rioting in Jakarta and other cities in Indonesia led to the evacuation of U.S. and other foreign citizens. In November 1998, violence again rocked Jakarta as students protesters and the security authorities clashed in the downtown business district, resulting in at least 14 deaths.

While there has been no significant unrest in Jakarta since November 1998, other regions of Indonesia have been afflicted by deadly conflicts. Sectarian violence erupted in the Maluku Islands and ethnic clashes broke out in West Kalimantan. The GOI's January 1999 announcement of willingness to consider autonomy or independence for East Timor under United Nations auspices opened a new chapter in that area's history. Pro-independence sentiment has contributed to violence in Aceh, in northernmost Sumatra, and Irian Jaya.

The government of Indonesia held elections for the National Legislature (DPR) on June 7, 1999. Despite concerns that the campaign period and election could be marred by violence, there were no significant disruptions. The elections were the first step in a process that will lead to the selection of a president and vice president by the People's Consultative Assembly (MPR) in during the second half of 1999, though a timetable for the process was not yet available as of June.

Additional information and updates on the security situation in Indonesia is available on the U.S. Embassy Jakarta website at: WWW.USEMBASSYJAKATA.ORG.

Corruption

In recent years, considerable attention has focused on the costs of corruption and influence peddling to local and foreign businesses, and the economy as a whole. Local and foreign companies have long reported that corruption is commonplace, and surveys of business executives working in Asia have ranked Indonesia among countries where corrupt practices are most pervasive and act as a disincentive to direct foreign investment. Demands for "facilitation fees" to obtain required permits or licenses, government award of contracts and concessions based on personal relations, and a legal system that is often perceived as arbitrary are frequently cited problems. Foreign companies have had little satisfaction in filing formal complaints either through legal or administrative channels. Foreign companies frequently report difficulties in obtaining and renewing necessary immigration permits for expatriate staff based in Indonesia.

Since the resignation of President Soeharto in May 1998, identification and elimination of corruption, collusion and nepotism have become national issues but there has been little concrete progress. No charges have been brought against former President Soeharto and investigations into activities of Soeharto family members and others have yet to bear much fruit. Investigations of owners and directors of closed and taken-over banks and of delinquent borrowers continue. The newly-freed local press and non-government organizations energetically investigate and report on alleged cases of corruption by government officials and businessmen, with major coverage in newspapers and on television.

Bilateral Investment Agreements

Indonesia has signed investment protection agreements with many countries, including the United States, Belgium, Denmark, France, Germany, the Republic of Korea, the Netherlands, Norway, Switzerland, and the United Kingdom. It has also signed treaties for the avoidance of double taxation with several countries, including the United States. On February 1, 1997, a new U.S.-Indonesia tax treaty went into effect that reduced withholding rates to 10 percent, on par with rates accorded by Indonesia to Japan and major European countries.

OPIC and Other Investment Insurance Programs

Since 1967, all three types of Overseas Private Investment Corporation (OPIC) insurance -- inconvertibility, expropriation, and war, revolution and insurrection -- have been available to U.S. investors in Indonesia. OPIC coverage was extended to bid bonds on service contracts in 1987. OPIC also offers project financing to U.S. firms.

Labor

The labor force is estimated at about 88 million, of which about 75 percent are between the ages of 15 and 34. The labor force has grown by an average of 2.5 percent over the past 30 years, though this rate is decreasing with the drop in fertility rates, increasing urbanization and lengthening school attendance. Women make up approximately 40 percent of the work force. Before the economic crisis began in 1997, the Indonesian government estimated "open" unemployment (defined as a person who is working less than one hour a week) to be roughly 5 percent. As recently as February 1999, the Indonesian government estimated that 16.9 million persons (19 percent of the labor force) were unemployed. However, the government's August 1998 annual Labor Force Survey reported that only 5.1 million persons over age 15 (5.8 percent of the labor force) were unemployed (i.e., worked less than one hour the previous week), and that 8.6 million persons (9.8 percent of the labor force) were working less than 35 hours a week. The Labor Force Survey includes workers employed in the informal sector, while government estimates focus on job losses from formal sector employment. Some economists, unions, and other non-governmental observers have criticized the Labor Force Survey as understating real unemployment; these other sources estimate that more than half of the population is under-employed.

Before the economic crisis, the educational level of Indonesia's labor force had risen to the point that some 26 percent of non-agricultural workers had graduated from high school, and about five percent had educational achievement at a university level. Only 25 percent of the non-agricultural workers had not completed primary school, although this figure reached almost 50 percent within the agricultural work force. However, high inflation and large-scale layoffs have squeezed family incomes and caused four to five percent of all students to drop out of school during the last year, according to Indonesian government and World Bank estimates.

The United States has traditionally been a top choice for Indonesians who wish to study abroad. In the 1997-98 academic year, there were an estimated 13,000 Indonesians studying in the United States, most in the fields of business and engineering. Approximately 65 percent are in undergraduate programs, 25 percent in graduate programs, and the remaining 15 percent are in non-degree programs, including English language studies. Universities. The sharp drop in the rupiah's value in relation to the dollar reduced the number of Indonesians studying the U.S. by ten percent, according to a 1998 survey of foreign students at U.S. universities.

Job creation and the alleviation of underemployment are targets of economic policymaking, especially in light of the massive layoffs caused by the economic crisis. The unemployment rate for higher education graduates was much higher than the overall unemployment rate even before the crisis. Nonetheless, Indonesia is experiencing shortages of qualified managerial and professional personnel.

The government sets minimum wages by region. The minimum wage in Jakarta and West Java was set at Rp. 231,000 (approx. US$ 33.00 at Rp. 7,000 per dollar) per month as of April 1, 1999. Labor strikes have been common in recent years, although there have been fewer strikes since the economic downturn began in mid-1997. Strikes usually relate to failure of employers to pay the minimum wage, denial of benefits, lack of an effective union, and termination of employees. The Indonesian government promulgated a new regulation in May 1998 which makes it easier for labor organizations to register as trade unions, and more than a dozen new unions have formed as alternatives to the Federation of All-Indonesian Trade Unions (FSPSI), which was the sole government-recognized union prior to 1998.

Indonesia's industrial relations system is based on the national ideology of Pancasila. In its industrial relations application, Pancasila emphasizes the traditional Indonesian values of harmony and consultation leading to consensus. In reality, such consensus is hard to reach and enforcement of labor regulations is a major problem. However, a foreign joint venture can expect more rigorous enforcement of labor regulations as well as other laws than a local firm.

Foreign Trade Zones/Free Ports

Investments in the manufacturing sector in designated bonded zones pay no duty on imported inputs until the portion of production destined for the domestic market is "exported" to Indonesia, in which case duty is owed on that portion. This benefit is available to domestic and foreign firms alike. There are 7 such zones. Batam Island, located between Singapore and Indonesia, is the largest.

Foreign Direct Investment Statistics

Foreign investment interest in Indonesia has fallen substantially since the onset of the economic crisis in mid-1997. According to statistics from the Capital Investment Coordinating Board (BKPM) from 1967 through 1998, the GOI approved over 6,500 foreign investment applications worth more than US$ 216 billion; over half were approved after 1993. As an indicator of the severe downturn in foreign investor interest, while foreign investment approvals reached almost US$ 30 billion in 1996, and US$ 34 billion in 1997, they totaled less than US$ 14 billion in 1998. The declining trend has continued into 1999. Recent statistics showed that foreign investment approvals fell by 80 percent in the first quarter of 1999 compared to the same period in 1998.
Investment approvals decreased in every sector. In 1997 the chemical industry, which includes oil refineries, attracted US$ 13.3 billion in approved investment applications, but in 1998 the figure was only US$ 6.2 billion. In percentage terms, the chemical industry accounted for 445 percent of approvals, by value, infrastructure (electricity/gas/water) for 13 percent, and housing for 9 percent. Metal goods and the pulp and paper industry rounded out the top five. Foreign investment in oil, gas, mining, banking and insurance all fall outside BKPM's purview; there are several billion dollars more annual foreign investment in these sectors.

Realized foreign investment fell as well. According to BKPM's tentative estimates, realized foreign investment fell from US$ 10.4 billion in 1997 to US$ 2.9 billion in 1998. Bank Indonesia data on foreign capital investment also showed a significant decline. According to Bank Indonesia, the inflow of direct foreign capital investment fell from US$ 4.7 billion in 1997 to US$ 930 million in 1998.

Japan is the largest cumulative foreign investor in Indonesia, excluding the oil/gas sector, where the United States is the leading investor. Between 1967 and 1998, BKPM- approved Japanese investment applications reached some US$ 42.5 billion, 20 percent of the total. Indonesia Petroleum, one of Indonesia's largest companies, is a Japanese joint venture, as is the largest automobile manufacturer, P.T. Astra. Japanese partners also figure heavily in the pulp, paper and petrochemicals industries. In 1998, however, the U.K., not Japan, had the highest value of approved projects with US$ 4.8 billion.

According to Indonesian government statistics, The United States ranks fifth in cumulative BKPM-approved investment since 1967, with a total of US$ 12.5 billion, although not all approved investment was realized. Not included in the investment figure is substantial U.S. investment in Indonesia's hydrocarbon sector. In 1998, Caltex (Chevron and Texaco) retained its position as Indonesia's number one oil producer, with close to half of crude and condensate output. It was followed by several other U.S. companies including Conoco, Unocal, Arco, Mobil, and Vico. According to Ministry of Mines and Energy data, petroleum companies planned to spend US$ 6 billion in 1998 on exploration and development.

According to the Ministry of Mines and Energy, investment in Indonesia's mining sector totaled US$ 10.8 billion over the last 30 years, with U.S. companies accounting for US$ 6.4 billion. U.S mining company P.T. Freeport Indonesia, an affiliate of the U.S. mining firm Freeport McMoRan, is one of the largest foreign investors in Indonesia and accounted for the bulk of investment in the mining sector. Recently, Freeport voluntarily agreed to increase royalties on copper and gold production under its fifth-generation COW in return for GOI approval to increase ore output at its mine in Irian Jaya.

Another significant investor in Indonesia's mining sector is Denver-based Newmont Mining Company, which operates a gold mine in North Sulawesi and plans to open its US$ 1.8 billion Batu Hijau copper and gold mine on Sumbawa Island in the last quarter of 1999.

Major U.S. companies produce consumer and other products and provide services for the domestic market. General Motors has built a US$ 110 million vehicle assembly, and General Electric Capital Corporation and Ford Credit are both active in automobile financing joint ventures. In 1996, General Electric opened the first locomotive factory in Southeast Asia and created the second largest lighting company in Indonesia. In 1998, H.J. Heinz Co. formed H.J. Heinz ABC Indonesia by purchasing a majority share in P.T. ABC Central Food company. Also in 1998, Newbridge Capital purchased Astra Microtonic Technology microchip factory in Batam.

Several U.S. independent power producers (IPPs) have invested in Indonesia's electric power sector. Although the government was forced in 1997 to put on hold a number of the IPP projects, some such as Unocal's geothermal plant in West Java and U.S El Paso's gas-fired plant in South Sulawesi are currently in operation others such as Edison Mission Energy's large coal-fired plant in Paition, East Java are close to completion.

In addition to Japan, the UK, and the United States, Indonesia's other major foreign investors include Hong Kong, Singapore, the Netherlands, Taiwan, and South Korea.
ROY


CHAPTER VIII - TRADE AND PROJECT FINANCING

The consequences of the economic crisis that began in mid-1997 continued to play out through the trade and project financing framework in Indonesia through mid-1999. After almost ten years of rapid expansion that began in the late 1980's, Indonesia's banking system was crippled, with the vast majority of local banks technically bankrupt. Although there were early indications that the worst of the economic crisis might have passed, the banking sector was one of the major victims, with wounds that could not be healed overnight. Many local companies could not meet the requirements for new loans, many were no longer servicing their own bank debt, and the banks were struggling to meet capital requirements to stay in business. All this took place within an economy that, as of mid-1999, remained sluggish at best. Letters of credit remained extremely difficult to come by and suffered in gaining acceptance abroad when obtained. The country has just made it through a tense period of political campaigning and the subsequent election that had been contributing to business uncertainties. Foreign banks remained cautious, and official credit agencies such as the Export-Import Bank of the United States, were only beginning to resume a tentative lending policy.

Local banks were not expected to function at normal business levels in the near-term. However, lending by foreign banks and joint venture banks appeared to be resuming on a small scale to selected customers, mostly exporters. The overall environment for lending improved somewhat thanks to Indonesia's policy successes of the last year in reducing interest rates and inflation and in strengthening the rupiah. Economic improvement would encourage and enable corporate borrowers to restructure their bank debt. Such a development would contribute significantly to the ability and the willingness of banks to increase their lending. For the time being, however, U.S. companies could increase their competitiveness by being willing to assume the risk of more flexible financing. In addition, U.S. companies were advised to remain especially alert for projects that might attract U.S. Ex-Im Bank or Overseas Private Investment Corporation support. Also of potential interest were social and physical infrastructure and economic reform projects that might be priorities for multilateral bank funding or for bilateral donors. Financing was available for reform-oriented or critical projects on which the Government of Indonesia has placed the highest priority.

Despite the shocks of the last two years, Indonesia retained an open capital account and no foreign exchange controls. However, a foreign exchange law passed in May 1999 called for banks and other businesses to report foreign exchange transactions. The law's effect remained in question, because regulations specifying what amounts needed to be reported were still pending as of mid-1999. Some observers thought the result would be a more restrained foreign exchange system, because market players would be hesitant to engage in transactions that authorities might view as speculative. In addition, there was discussion of limits, or at least more stringent reporting requirements, being placed on private foreign borrowing in the future.

The large state-owned banks that had been a major engine in the country's growth were undergoing a period of merger and reform, with four of the banks merged into a new "Bank Mandiri" as of July 30, 1999. To encourage trade financing and thereby enable companies to obtain imported inputs needed for export goods, the GOI undertook a number of measures. These included a US$ 1 billion collateral fund deposited offshore to encourage acceptance of Indonesian letters of credit (set up in mid-1998); offering government insurance for repayment of trade financing extended by Indonesian banks (set up in late 1998, but little used); establishment in July 1999 of a new trade credit facility called "Bank Ekspor Indonesia;" and, offering through the U.S. Export-Import Bank a US$ 1 billion dollar short-term credit guarantee program. Moreover, the Government encouraged debtors to negotiate with their lenders by reforming the Bankruptcy Law (although foreign creditors remained disappointed in the results) and by touting the Jakarta Initiative, a voluntary mediation facility staffed by international debt-workout specialists. In these ways, as well as in the massive banking sector restructuring program now under way, the GOI was demonstrating its understanding that the resumption of credit flow was central to economic recovery.

General Financing Availability

Prior to the financial crisis, all forms of import and export financing were available in the Indonesian market and frequently used, although most imports were financed with letters of credit. Short-term financing was readily available. Some larger banks were providing longer-term financing of up to 2-3 years.

Indonesian buyers have generally preferred the supplier to provide the necessary financing for a commercial transaction, either normal commercial trade financing or export credits from the source country's export credit agency (in the case of the United States, the U.S. Ex-Im Bank located in Washington, D.C., see below). Local bank financing has sometimes been arranged, depending on the customer or the agent/distributor involved in the transaction. Once the economy recovers, proposed reforms in the banking sector should make local financing a more favorable option than it has been in the past. Several American banks have shown initiative in arranging trade financing packages for their customers, some with Ex-Im Bank guarantees. U.S. Ex-Im, along with other export credit agencies and foreign banks have recently resumed processing applications. Once bankers have a reasonable assurance that stability is returning to Indonesia, exporters will be attracted to innovative financing options. U.S. exporters were advised to establish banking relationships and explore financing options that would allow them to take advantage of a resumption of business opportunities in Indonesia over the next several years.

Types of Available Export and Project Financing

Indonesia secures a substantial portion of its development funding from the multilateral development banks, primarily the Asian Development Bank (ADB) and the World Bank. Official financing became more important in the scheme of things after the financial crisis hit, because most sources of private financing dried up. In 1997, $5 billion was pledged by a variety of donors belonging to the World Bank-chaired Consultative Group on Indonesia (CGI). In 1998, the CGI contribution was increased to $7.9 billion. At the July 1999 CGI meeting, donors pledged another US$ 5 billion.

American firms can participate in projects funded by the ADB and the World Bank. Information on projects and procedures is available through U.S. Commercial Service officers assigned to each multilateral development bank as well as commercial officers in individual countries (See Chapter XI for contact information). See web home pages, including http://www.ita.doc.gov/mdbo for information on all development banks.

U.S. Ex-Im Bank states that it is committed to establishing a world-class program in limited recourse project finance (The term "project finance" refers to the financing of projects which are dependent on the project cash flows for repayment.). When operation resumes in Indonesia, where appropriate, Ex-Im Bank will offer the maximum support allowed within OECD rules, including financing of interest accrued during construction, allowance of 15 percent local content, financing of host country costs up to 15 percent of U.S. contract value, and maximum repayment terms allowed under OECD guidelines. Ex-Im also has "war chest" monies available to match soft loan offers from competitor countries that exceed OECD guidelines. Ex-Im does not initiate soft loan offers without evidence of a competitor offer already having been made. Ex-Im programs are explained on their homepage, located at http://www.exim.gov.

Other forms of feasibility study and project financing may be available through the Trade and Development Agency (TDA) (see their home page at http://www.tda.gov) and the U.S. Agency for International Development (USAID). Although currently on hold, investment projects in Indonesia are eligible for Overseas Private Investment Corporation (OPIC) loans and insurance. (See Chapter XI for contact information or visit their web-site at http://www.opic.gov).

Asian Development Bank

The Asian Development Bank, headquartered in Manila, is an international financial development institution owned by 56 member countries of which the United States and Japan are the largest shareholders. The bank lent $5.5 billion in 1996 to promote economic and social progress in its developing member countries. The transportation and communications sector received the largest share of lending, followed by energy, social infrastructure, multi-sector loans, agriculture and natural resources, industry, finance, and non-fuel minerals. The Bank's medium-term strategy focuses on poverty reduction, improving the status of women, population planning and environmental protection. The Bank has also assumed a new role as a catalyst for development. In implementing this policy, the bank will leverage its own financial resources through co-financing and other techniques to attract additional private capital in funding the development needs of its member countries.

The ADB was the third largest aid donor to Indonesia recently, pledging $1.5 billion in loans in 1997, and $2.2 billion in 1998.

A commercial liaison office, which reports directly to the Office of Multilateral Development Banks at the Commerce Department in Washington D.C., assists U.S. suppliers and consultants in winning contracts on projects and activities funded by the ADB. The office includes a senior commercial officer and two commercial specialists. One of the specialists represents the United States-Asia Environmental Partnership (US-AEP) at the Bank. The liaison office works closely with the U.S. Executive Director who represents the United States on the bank's board of directors (See Chapter XI for contact information, or ADB's home page at http://www.adb.org/mainpage.asp)

Since 1967, the U.S. has won $3.7 billion in overall ADB procurement. In 1996, the United States won $213 million in procurement contracts and consulting services. This represents 5.34 percent of overall procurement and 17 percent of procurement from donor member countries. The U.S. has consistently ranked first in consulting services awards, capturing about 20 percent of total awards every year.

Examples of ADB projects in Indonesia include:
Water Resources Development in East Indonesia
Coral Reef Rehabilitation and Management
Power Sector Development Program
Railways Development in Sumatra
Capacity Building for Financial Governance
Review of Urban Development Project Preparation
Capacity Building in the Agriculture Sector
Basic Education Project in Bali and Nusa Tenggara Barat
Increasing Efficiency and Competitiveness of Financial Services
Appliance Testing and Labeling
Planning for Fire Prevention and Drought Management

World Bank

The World Bank Group is a multilateral lending agency consisting of four closely related institutions: the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). The World Bank provides loans to developing countries to help reduce poverty and to finance investments that contribute to economic growth.

The International Bank for Reconstruction and Development (IBRD), frequently called the "World Bank," was conceived in July 1944 at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire. The World Bank opened for business in June 1946, and its first focus was the reconstruction of war-torn Europe. Today the World Bank lends to the developing countries of Africa, Asia, Latin America and the Caribbean, and the Middle East and Europe. The World Bank and its affiliates are headquartered in Washington, D.C. A brief description of each group member follows.

The International Bank for Reconstruction and Development
(IBRD) provides funding for creditworthy developing countries with relatively high per capita income. It also provides technical assistance and policy advice. IBRD raises the money through the sale of AAA-rated bonds in international capital markets. Loans are made only to governments or to agencies that can obtain a government guarantee. The IBRD also provides partial risk or partial credit guarantees (with a counter-guarantee from their government) to private lenders on development projects. The interest rates are variable, set at half a percentage point above the Bank's average cost of borrowing or LIBOR. Repayment is usually over 12 to 15 years, including a grace period of three to five years. Opportunities for U.S. companies exist to supply goods and services in connection with these loans.

The International Development Association (IDA) provides assistance on concession terms to the poorest developing countries (per capita incomes below $925 in 1996 dollars) that are not sufficiently creditworthy for IBRD financing. It receives its funding largely from contributions from its wealthier member countries. The terms for IDA credits are maturities of 35 to 40 years (depending on the level of development of the borrower), including a ten-year grace period and no interest but a 0.75 percent annual service charge. IDA credits are made only to governments. As with the IBRD, procurement procedures are well-established and offer opportunities for U.S. suppliers, engineers and consultants. In the past, Indonesia has been ineligible for IDA programs, but this may change.

The International Finance Corporation (IFC) is an affiliate of the World Bank that provides project financing for private investment in developing countries. IFC offers long-term loans and equity investments, as well as other financing services. IFC will generally invest up to 25 percent of the total project cost. In addition to project finance, IFC also provides legal and technical assistance to private enterprises. Unlike the IBRD and IDA, the IFC does not require government guarantees. U.S. companies seeking direct investment funds should contact the IFC. (See http://www.ifc.org for contact information.)

The Multilateral Investment Guarantee Agency (MIGA) was established in April 1988 to help investors overcome the problems of political risk. Investors' concerns about political risk had the effect of slowing down the flow of foreign direct investment, which, in turn, slowed the creation of jobs and the transfer of modern technology. MIGA's purpose is to promote the flow of foreign direct investment among member countries by insuring investments against non-commercial (political) risk and by providing promotional and advisory services to help member countries create an attractive investment climate. U.S. companies seeking investment guarantees should contact MIGA.

The World Bank is the second largest aid donor to Indonesia, pledging $1.5 billion in 1997 and $2.7 billion in 1998. It has a large resident office in Jakarta.

Examples of World Bank projects in Indonesia include:

Education: Book and Reading Development II
Energy: Suralaya Thermal Power Project
Environment: BAPEDAL Development Project
Financial Sector: Banking Reform Assistance Project
Telecom Sector Modernization
Health/Nutrition/Population: Water Supply & Sanitation for Low Income Community
Rural Development: Agricultural Financing Project
Transport: Highway Sector Investment II
Urban: Surabaya Urban Development Project

For further information on the World Bank and assistance it provides, contact:

Commercial Service Liaison Staff
Office of the U.S. Executive Director
The World Bank
1818 H Street, NW
Washington, DC 20433
Tel.: (202) 477-1234
Fax : (202) 522-3405
Internet: http://www-esd.worldbank.org/

Additional contact information for the World Bank is available in Chapter XI.

Islamic Development Bank

Established in 1973, the Islamic Development Bank seeks to foster the economic development and social progress of member countries and Muslim communities through participation in equity capital and grant loans for projects, as well as providing other types of financial assistance. The Islamic Bank recently dispensed a $380 million grant to Indonesia. While a large portion of this grant will be used for humanitarian aid such as food and medicine, $100 million has been earmarked for Education, Health and Agricultural Development Projects. The Islamic Bank is headquartered in Jeddah, Saudi Arabia (See http://www.isdb.org or Chapter XI for additional information and contact information).

Financing of Agricultural Exports

The Embassy's Agricultural Affairs Office and Agricultural Trade Office in Jakarta have successfully launched several credit guarantee programs to facilitate the export of U.S. agricultural products to Indonesia. Under the GSM-102 Credit Guarantee, the U.S. Department of Agriculture, via the Commodity Credit Corporation, will issue a loan guarantee with repayment terms of up to three years. Coverage is available for a wide variety of products ranging from cotton, soybeans and feedgrains to leather, lumber and planting seeds. The program has grown from an initial allocation of $15 million in FY92 to $400 million in FY98 and FY99. With the USDA guarantee, banks are generally able to offer lower interest rates than may otherwise be available. The interest rates, however, are negotiated by the banks and are not set by USDA. Use of this guarantee facility has increased during the economic downturn in Indonesia. The guarantee is assisting Indonesian companies which are otherwise having difficulty with trade financing. The total amount of guarantees available was increased from $250 to $400 million and the coverage was expanded to cover freight charges as well. An additional regional program of $90 million has also been made available by the U.S. Department of Agriculture.

Another program, the GSM-103 facility, is available for animal breeding stocks with credit terms of seven to ten years. To date the $10 million available each year under this program has not been utilized by Indonesian banks for U.S. agricultural products.

Two new facilities, the Supplier Credit Guarantee Program (SCGP), and the Facilities Guarantee Program (FGP) have been introduced in Indonesia. The SCGP program is aimed at commodities which are generally traded without Letters of Credit. The SCGP covers 50 percent of the principle for up to 180 days. A total of $50 million for the Southeast Asian region was made available in FY 99. The numerous commodities eligible are generally high valued products such as meat, fruit and consumer-ready products. The FGP program for the region totals $50 million and covers equipment and services aimed at facilitating imports of U.S. agricultural commodities.

The following Indonesian banks are eligible to participate in the GSM-102 and GSM-103 programs:

Bank Antardaerah Bank Artha Graha
Bank Bali Bank Buana Indonesia
Bank Bumi Arta Bank Century Intervest
Bank Chinatrust Tamara Bank Credit Lyonnais Indonesia
Bank Danamon Bank Duta
Bank Haga Bank Hagakita
Bank Halim Indonesia Bank International Indonesia
Bank Kesawan Bank Lippo
Bank Mandiri Bank Mayapada
Bank Muamalat Bank Multicor
Bank Negara Indonesia Bank Niaga
Bank NISP Bank Panin
Bank PDFCI Bank Prima Express
Bank Rakyat Indonesia Bank Rama
Bank Sakura Swadharma Bank Shinta Indonesia
Bank Tabungan Negara Bank Tamara
Bank Tiara Asia Bank Umum Koperasi Indonesia
Bank United City (Unibank) (Bukopin)
Bank Universal ANZ Panin Bank
Baiwa Perdania Bank BLL Commonwealth
Finconesia Bank Dai Ichi Kangyo Indonesia Bank
IBJ Indonesia Bank Fuji Bank International Indonesia
ING Indonesia Bank Jaya Bank International
Korea Exchange Bank Danamon Paribas - BBD Indonesia Bank
Rabobank Duta Indonesia Sumitomo Niaga Bank
Tat Lee Buana Bank United Overseas Bali Bank

Banks with Correspondent U.S. Banking Relationship

The following six U.S. banks have representative offices in Jakarta: Bank of Boston, Bank of California, Bankers Trust, First Union (formerly Core States), J.P. Morgan, and Republic National.

The following Indonesian banks had correspondent relationships with American banks in the past. Due to the fundamental restructuring occurring in the banking system, it is not clear how many of these relationships remain in effect. Nor is it clear that all of these banks will remain open

Bank Antardaerah Bank Artamedia**
Bank Arta Niaga Kencana Bank Artha Graha
Bank Arta Prima Bank Bali**
Bank Buana Indonesia Bank Bumi Arta
Bank Bumi Daya*** Bank Bumi Putra
Bank Bukopin** Bank Central Asia (BCA)*
Bank Century Int. (CIC) Bank Dagang Bali
Bank Dagang Negara*** Bank Danamon Indonesia*
Bank Duta* Bank Ekonomi Rahardja
Bank Ekspor Impor*** Bank Ganesha
Bank Haga Bank Hagakita
Bank Halim Indonesia Bank Harmoni International**
Bank IFI Bank Intl. Ind. (BII)**
Jaya Bank International* Lippo Bank**
Bank Kesawan Bank Maspion Indonesia
Bank Mayapada Intl. Bank Mestika Dharma
Bank Metro Express Bank Muamalat Indonesia
Bank Negara Ind. (BNI) Bank Niaga*
Bank NISP Bank Nusa Nasional*
Bank Nusantara Parahyangan Bank Nasional
Bank Panin Bank Patriot**
Bank PDFCI Bank Pemb.(BAPINDO)***
Bank PIKKO Bank Prima Express**
Bank Putra Multikarsa Bank Rama*
Bank Risyad Salim Intl.* Bank Shinta Indonesia
Bank Swadesi Bank Tabungan Negara
Bank Tamara* Bank Tata Internasional
Bank Tiara Asia* Bank Universal**
Bank Windu Kencana Unibank

*banks currently under Indonesian Restructuring Agency (IBRA) management control (see Chapter II for background). IBRA status should be reviewed periodically, as banks will be taken off from the list when they become sufficiently capitalized, or conversely, when they are determined unsalvageable and are liquidated.

**banks which have received government assistance to meet capital adequacy ratio of 4%

***one of four banks taken over by the government and merged into a new bank, Bank Mandiri as of July 30, 1999.

An excellent resource for all the banks is the Office of Multilateral Development Bank Operations at the Department of Commerce. Services offered include a newsletter, counseling center, referrals and business outreach. Contact information is as follows:

Janet Thomas, Director
Office of Multilateral Development Bank Operations
U.S. Department of Commerce
USA Trade Center
Ronald Reagan Building, Mezzanine Level
Washington, D.C. 20230
Tel.: (202) 482-3399
Fax : (202) 482-3914
Internet: http://www.ita.doc.gov/mdbo
E-mail : Janet.Thomas@mail.doc.gov


CHAPTER IX - BUSINESS TRAVEL

Business Customs

The best time for an initial business trip is September through June, as school holidays and vacation time in the summer months can impact on the availability of many business people. Visitors should check the local holiday schedule before traveling to Indonesia. The normal business attire is a lightweight business suit or white shirt, tie and slacks for men, and a business suit or dress for women.

Indonesia is a very diverse country, with more than 300 different ethnic groups. Some Indonesians are traditional in culture, others may be considerably "Westernized." Many Indonesians do not conduct business transactions or make decisions in the same direct fashion Americans do, so U.S. business people should be prepared to spend a good deal of time with clients before getting down to the business transaction. Traditional Javanese culture emphasizes harmony and the word "no" is rarely used. This can make it difficult for a Westerner to ascertain exactly how a business proposal is being received. Patience and the development of personal relations is the key. Because Indonesians do business with "friends," people that they know, developing a rapport is crucial. While quality and price are important, they are secondary to the personal interaction of the business partners.

During business meetings, tea or coffee is almost always served and should be accepted. However, it should not be consumed until the host invites you to do so, which may not occur until the end of the meeting. Generally speaking, it is best to use the right hand in receiving or eating. Although hand shaking is a common practice, avoid hearty handshakes and other physical contact. Do not show the soles of your shoes when seated.
A publication that may be of use to some business executives is "The Guide for Business Representatives," available for sale by contacting: Superintendent of Documents, U.S. Government Printing Office, Washington, D.C. 20402, tel.: (202) 512-1800, fax (202) 512-2250. Business travelers to Indonesia seeking appointments with U.S. Embassy-Jakarta officials should contact the U.S. Commercial Center in advance. The U.S. Commercial Center can be reached by telephone at (62-21) 526-2850 or by fax at (62-21) 526-2855. More extensive contact information is available in Chapter XI.

Business Hours:

Commerce: Government:
0800-1600 Monday to Friday* 0800-1630 Monday to Friday*
0800-1300 Saturday

Banks: Shops:
0800-1600 Monday to Friday* 0900-2200 Monday to Saturday

*Moslems are released for prayers every Friday from 1100-1200.
When making a business trip do not expect to schedule meetings for Friday afternoons or Saturdays.

Travel Advisory and Visas

Entrance and Residence Requirements: Tourists and business visitors from the United States may obtain a 60-day short visit pass upon arrival. All visitors must have at least 6 months validity left in their passports and a round-trip or onward ticket. To extend this pass a trip outside the country is usually required. Visitors to Indonesia should reserve enough funds to pay the Rp. 50,000 airport departure tax.

A 6-month to 1-year temporary residence visa may be obtained from the Embassy of the Republic of Indonesia, for either single or multiple entries (See Chapter XI for contact information). When requesting residence visas, one should allow sufficient time to meet whatever requirements may be imposed (e.g. sponsorship letters). All residents must pay a Rp. 1 million fiscal tax at the airport every time they leave the country.

Employment is not allowed without a work permit from the Ministry of Manpower. In addition, foreign and domestic investors must submit an employment plan to the Capital Investment Coordinating Board (BKPM) to obtain approval for expatriate employee work permits. Permits are issued only for positions that cannot be filled by Indonesian nationals.

Travel advisory: Although travel within Jakarta and other major Indonesian cities is generally safe, one should exercise caution to avoid becoming a target of petty thieves and pickpockets. As a result of the economic crisis and increased unemployment, the amount of petty crime is on the increase, particularly in the popular tourist areas. Demonstrations in cities across Indonesia are on the increase as well, and visitors to Indonesia should avoid these gatherings and other situations that could become violent. Please see note about taxis in the "Transportation" section below.

Up to date travel advisories may be obtained from the U.S. Embassy or Department of State, or on the U.S. Embassy home page (http://www.usembassyjakarta.org).

Business Infrastructure and Environment

Transportation: In Jakarta, taxis are inexpensive and widely available except during morning and evening rush hours and Saturday nights during the peak social season, when they become scarce. In Jakarta, make certain the taxi meter is turned on. In other cities it may be common for drivers to negotiate a price rather than use the meter. However, one should also exercise extreme caution while using taxis. The number of patrons reporting thefts and assaults in taxis has increased in recent months, and has prompted many expatriates to use only the most reputable taxi companies, opting to summon taxis by telephone rather than flagging them down on the street. In Jakarta, Blue Bird taxis (and the sister Silver and Golden Bird luxury taxis) are considered to be the safest and most reliable and they can be summoned by telephone (794-1234).

Business travelers may wish to hire a private car which can be arranged through their hotel prior to arrival. Rates for this exceed $100 per day. Alternatively, arrangements can also be made with a taxi driver. Taxi and private limo drivers may not speak much English or be particularly knowledgeable about the city, and visitors are occasionally taken on roundabout routes. Allow plenty of time between meetings to accommodate Jakarta traffic jams; one half hour between locations in the central city is recommended.

Train and air services are usually used for domestic travel. Domestic flights are the most convenient way to travel to most in-country destinations, but the train from Jakarta to Bandung is perhaps an exception, as it is highly recommended. For intercity train service, book a first-class (Eksekutif) seat if available, which can be done by travel agents or at the train station one week in advance. Ferry services for people and vehicles link the major islands and many of the smaller islands.

Language: The national language of Bahasa Indonesia is spoken all over Indonesia, in addition to local languages. English is widely spoken and understood in Jakarta by most business people, although much less so in other cities. Most of the better hotels have English-speaking staff, as do the shopping centers which cater to expatriates. International telephone operators also speak English. However, the level of English can vary. Indonesian firms hoping to conduct business with foreigners generally try to employ some English speakers.

Telecommunications: Telephone services vary between areas in Jakarta. They depend largely on the local telephone exchange's capacity to handle traffic. Phone service is good along the main business thoroughfares and the newer residential areas, which are served by fiber optic trunk lines. In the older residential areas service is less reliable, extra phone lines can be costly, and obtaining them can be time consuming. International direct dial (IDD) lines are available and will allow connection to an AT&T, Sprint or MCI operator, but rates are considerably higher than calling from the United States. Cellular services are readily available but the quality of service varies.

Internet: A number of Internet Service Providers (ISPs) operate in Indonesia. The following are some of the largest and most established ISPs in Indonesia:

IBM Internet Connection
PT. Sistelindo Mitralintas
Landmark Center I, 19th & 32nd Floor
Jl. Jend. Sudirman No.1
Jakarta 12910
Tel.: (62-21) 523-8128
Fax : (62-21) 522-3432
E-mail: sistelindo@ibm.net
Internet: http://www.ibm.net

CBNnet
PT. Cyberindo Aditama
Manggala Wanabakti IV, 6th Floor, Suite 808 A
Jl. Jendral Gatot Subroto, Senayan
Jakarta Selatan
Tel.:(62-21) 574-2488
Fax :(62-21) 574-2841
E-mail: sales@cbn.net.id
Internet: http://www.cbn.net.id

RADNET
PT. Rahajasa Media Internet
Plaza 89, 6th Floor, Suite 601
Jl. H.R. Rasuna Said Kav. X-7/6
Jakarta 12950
Tel.: (62-21) 252-6363
Fax : (62-21) 252-4777
E-mail: info@rad.net.id
Internet: http://www.rad.net.id

Idola
PT. Aplikanusa Lintasarta
Menara Thamrin, 19th Floor
Jl. M.H. Thamrin Kav.3
Jakarta 10340
Tel.: (62-21) 230-2345
Fax : (62-21) 315-8870
E-mail: sales@idola.net.id
Internet: http://www.idola.net.id

Express Delivery & Airlines: DHL, UPS and Federal Express operate in the major cities; incoming parcels are subject to delay at customs. Many foreign firms have established their own regular pouch service, using normal air freight services. Airlines flying into Jakarta include Garuda (the national airline), Singapore Airlines, Cathay Pacific, KLM, and a number of other regional carriers. Connections can be made to all major airlines, including U.S. carriers, in Singapore or Hong Kong. No U.S. airlines currently fly into Jakarta, although Continental Micronesia Airlines flies into Denpasar, Bali from Guam.

Housing: Housing costs have declined, but vary widely. Depending on the size and location of the residence, one can expect to pay from $1,000-$5,000 per month for an expatriate standard house or a luxury apartment in Jakarta. The cost of gas, electricity, and water per month is estimated to be about Rp. 50,000, Rp. 2 million, and Rp. 25,000. Rent is usually paid in U.S. dollars, and leases are typically paid two years in advance.

Health: It is recommended that short term visitors to Indonesia receive the Hepatitis A, Hepatitis B, and Typhoid vaccinations, in addition to all routine childhood immunizations before arrival. The Hepatitis vaccination series takes six months to complete. Those considering travel outside the major cities (Jakarta, Surabaya, Medan, southern Bali, etc.) should take anti-malaria medication; Mefloquine or Doxycycline are considered adequate prevention measures against malaria. Physicians in the United States should be able to answer questions pertaining to immunizations and other health concerns.

Air pollution in the larger cities causes a number of common respiratory ailments to both visitors and long-term residents.

Dehydration as a result of intestinal illnesses can be a serious, even life-threatening condition if not treated. Persons suffering from severe diarrhea should obtain oral rehydration tablets from a pharmacy. If vomiting makes it impossible to adequately rehydrate, visit a clinic immediately.

There are a few modern, well-equipped clinics and hospitals in Jakarta which are considered adequate for minor illnesses, but expatriates generally prefer to fly to Singapore or their home countries for treatment of serious illnesses and/or operations. In the event of illness or emergency, the following clinics and hospitals are among those frequented by expatriates in Jakarta:

Clinics

AEA International/SOS Medika Clinic
Jl. Puri Sakti 10
Cipete, Jakarta Selatan
Tel.: 750-5980 thru 86 - Medical Center and Appointments
750-5973 - Client Services and Information
750-6001 - Emergencies and Alarm Center
Fax : 750-6002, 750-6003

Medikaloka Health Care Center
Graha Irama Building
Mezzanine 1st and 2nd Floor
Jl H.R. Rasuna Said, Block X-1, Kav. 1-2
Jakarta Selatan
Tel.: 526-1118
Fax : 526-1119, 526-1438
AEA Kuningan
Setia Budi Building-II, Ground Floor
Jl. H.R. Rasuna Said
Kuningan, Jakarta
Tel.: 520-1034, 525-5367
Fax : 520-7524

Hospitals

R.S. Pondok Indah
Jl. Metro Duta Kav. UE
Pondok Indah, Jakarta Selatan
Tel.: 765-7525
Fax : 750-2324
Emergency : 750-2322
Notes: has 24 hour emergency room, own ambulance service and a large clinic.

R.S. Jantung Harapan Kita (National Cardiac Center)
Jl. Letjen S. Parman Kav. 87
Jakarta Barat
Tel.: 568-4085, 568-4093
Fax : 568-4130
Notes: Hospital is dedicated to heart problems. There is an intensive care area, and a 24 hour emergency room for cardiac care. This is the place to go for suspected heart attack.

R.S. Cipto Mangunkusumo (Central Hospital)
Jl. Diponegoro 69
Jakarta Pusat
Tel.: 330-808
Fax : 314-8991
Emergency : 314-4029, 390-5839
Notes: A government hospital with a good intensive care unit. Cardiologist on duty 24 hours/day. For emergency cardiac care, go to the cardiac emergency unit, not to the regular emergency room.

R.S. MMC Kuningan
Jl H.R. Rasuna Said Kav. C-21
Kuningan, Jakarta Selatan
Tel.: 520-3435 thru 3450
Fax : 520-3417
Emergency : 527-3473
Notes: 24 hour emergency room and own ambulance service, in addition to a large clinic.

Clinic MMC Hotel Wisata
Wisata International Office Tower, 1st Floor
Jl. Kebon Kacang Raya No.1
Jakarta Pusat 10240
Tel.: 230-0407, 326-670 (direct)
Fax : 230-0578

R.S. Medistra
Jl. Jend. Gatot Subroto Kav. 59
Jakarta Selatan
Tel.: 521-0200
Fax : 521-0184

Food: Exercise reasonable care in food preparation at home and menu selection while eating out because of questionable sanitation practices. Imported meats, vegetables, and packaged foods are readily available from most stores in the Hero grocery store chain (locations through out Jakarta), at Sogo in the Plaza Indonesia/Grand Hyatt complex, and at Kem Chicks in the Kemang district.

Drinking tap water anywhere in Indonesia is not advised. Use commercial bottled water from your hotel or purchased from a supermarket. "Aqua" is one of the more common brands used by expatriates. Avoid buying bottled water from street vendors if possible.

Short term visitors to Indonesia are well-advised to eat only in hotels and restaurants that cater to up-scale visitors. Do not eat from street stalls. Avoid raw, unpeeled fruits and uncooked vegetables, food that is prepared in advance and then left to stand, and raw or undercooked meats, seafood, and shellfish in questionable eating venues. At home, wash and soak all local fruit and vegetables in Clorox-treated, soapy water.

Holiday Schedule

The U.S. Embassy and American Consulate in Surabaya close on American and Indonesian holidays. Holiday dates for FY 1999-2000 are listed below.

U.S. Holiday Indonesian Holiday Date
Independence Day Aug. 17, 1999
Labor Day Sept. 6, 1999
Columbus Day Oct. 11, 1999
Ascension of Mohammad Nov. 6, 1999
Veterans' Day Nov. 11, 1999
Thanksgiving Nov. 25, 1999
Christmas Day Christmas Day Dec. 25, 1999
New Year's Day New Year's Day Jan. 1, 2000
Idul Fitri(End of Ramadhan) Jan. 8-9, 2000
Martin Luther Jan. 17, 2000
King's Birthday
Washington's Birthday Feb. 21, 2000
Idul Adha 1419H March 16, 2000
(Moslem Day of Sacrifice)
Saka New Year (Nyepi) April 4, 2000
(Hindu New Year-1921)
Moslem New Year (1421H) April 6, 2000
Good Friday April 21, 2000
Waisak (Buddhist New Year) May 18, 2000
Memorial Day May 29, 2000
Ascension of Christ June 1, 2000
Mohammed's Birthday June 15, 2000
Independence Day July 4, 2000
Independence Day Aug. 17, 2000
Labor Day Sept. 4, 2000
Columbus Day Oct. 9, 2000
Ascension of Mohammad Oct. 25, 2000
Veteran's Day Nov. 11, 2000
Thanksgiving Day Nov. 23, 2000
Christmas Day Dec. 25, 2000
Idul Fitri(End of Ramadhan) Dec.27-28, 2000


CHAPTER X - ECONOMIC AND TRADE STATISTICS

Appendix A: Country Data

Population in 1999: 201 million (projection based
on 1990 census)
Population growth rate: 1.7 %/year (avg. for 1990-97)
Religions: Islam, Hinduism, Buddhism,
Christianity, Animism
Government System: Transitioning to Democracy
Languages: Indonesian, English, and
Regional Languages
Work-week: Monday-Friday

Appendix B. Domestic Economy

1996 1997 1998 1999
(forecast)
GDP (USD billions) 227 215 99 138
Real GDP growth 9.0% 5.0% -13.7% +2.0%*
GDP/capita (USD) 1,146 1,070 492 688
Govt. spending/GDP 18% 21% 27% 20%
Consumer Price Infl. 6.5% 11.1% 77.6% 10.0%
Unemployment** 5% 5% 5% 5%
Foreign Exch. Reserves
(USD billions) 25.5 21.4 24.1 26.6
Avg. exch. rate/USD 2,342 2,909 10,014 7,000
Debt service/exports 37% 38% 37% 41%
U.S. econ. aid
(USD millions) 71 47 250 270

Appendix C: Trade (USD billions)

Total exports (1) 49.8 53.4 48.8 18.0
non-oil/gas (1) 38.1 41.8 41.0 14.8
oil/gas (1) 11.7 11.6 7.8 3.2
Total imports (1) 43.0 41.7 27.3 9.7
U.S. exp. to Ind (2) 3.8 5.0 3.5 0.6
U.S. imp. fm Ind (2) 6.8 7.1 7.0 2.9

* The forecast for FY1999/2000 (April-March) in the July 1999 GOI supplementary memorandum to the IMF is real GDP growth of positive 1.5 to 2.5 percent.

** Indonesia does not have reliable unemployment data, in part because of the large informal workforce.
note 1: 1999 figure is Jan-May, GOI statistics.
note 2: 1999 figure is Jan-April, USDOC statistics.

Sources: Indonesian Central Bureau of Statistics, Bank Indonesia, Ministry of Finance, World Bank, U.S. Department of Commerce (USDOC).

Appendix D: Investment Statistics

Foreign Investment Approvals
(Billions of $)
Year Approvals
1990 8.8
1991 8.8
1992 10.3
1993 8.1
1994 23.7
1995 39.9
1996 29.9
1997 33.8
1998 13.6
1999 1.5 (January - May 15)
Total 178.4

Source: Indonesia Investment Coordinating Board (BKPM); National Development Information Office

Cumulative Foreign Investment Approvals by largest countries
(Billions of $)
Country 1967-1998
Japan 34.8
United Kingdom 24.4
Singapore 18.4
Hong Kong 14.4
Taiwan 12.8
U.S.A. 10.2
S. Korea 9.0
Australia 6.6
Malaysia 6.6
Germany 6.3
Netherlands 5.7

Source: Indonesia Investment Coordinating Board (BKPM), as published in "Business News", February 26, 1999.
Note: Data excludes the oil and gas and financial sectors.

Cumulative Foreign Investment by selected countries (Realized)
(Billions of $)
Country: 1967- June 15,1999
Japan 10.9
Hong Kong 6.6
United Kingdom 6.1
Singapore 3.7
United States 3.6
Taiwan 3.4
South Korea 3.2
Netherlands 1.7
Germany 1.3
France 1.1
Australia 0.9

Source: Indonesia Investment Coordinating Board (BKPM) in "Business News", 7/23/99.
Note: Data excludes the oil and gas and financial sectors.

Top ten sectors of U.S. Cumulative Investment
(Jan. 1, 1967 - March 31, 1998)

Sector Projects Investment
(Units) (US$000) (% total)

1. Chemical industry 47 3.313.622 34.51
2. Mining 6 1.563.467 16.28
3. Electricity, gas, water 4 1.107.650 11.53
4. Metal Goods Industry 40 721.608 7.51
5. Basic Metal Industry 4 687.490 7.16
6. Hotel & Restaurant 10 424.158 4.42
7. Food Industry 16 328.136 3.42
8. Construction 43 305.960 3.19
9. Other Services 68 279.036 2.91
10. Paper Industry 5 187.565 1.95

Source: BKPM

GDP Composition and Growth rates

Sector GDP (%) Growth
1998 1997 1998

1. Electricity, gas, clean water 1.6 1.15 5.3
2. Agriculture 17.06 14.74 0.4
3. Mining and Quarrying 9.86 8.75 -3.6
4. Services 9.6 8.75 -4.9
5. Manufacturing 25.33 25.11 -12.7
6. Transport, communication 7.46 7.37 -12.9
7. Trade, hotel, restaurant 16.0 16.82 -18.6
8. Finance, leasing, company services 7.46 8.98 -27.6
9. Construction 5.6 8.06 -39.7
GDP 375 434 -13.7

Source: Central Bureau of Statistics, preliminary 1998 data.
Note: 1998 Growth is the estimate for full year 1998 over 1997, based on 1993 base prices.

Unemployment and Utilized Capacity by (manufacturing) Industrial Sector:

Industrial % Utilized Pre-Crisis
Terminated
Subsector Capacity Workforce
Workforce
1. Metal, Machinery, & 42.4 2,583,000
1,487,800
Chemical Industries
Metal 32.5
Machinery, Engineering 28.4
Automotive 15.5
Chemical 59.2
Non-metallic minerals 62.9
(cement, glass, ceramics)

2. Multifarious Industry 62.1 4,304,000
1,631,200
Textiles 63.9
Leather, Footwear 59.7
Electronics 64.4
Multifarious 59.2
(sports, musical articles, toys, clocks, etc)

3. Agric. & Forestry Products 72.3
Food 55.9
Drinks & Cigarettes 49.0
Wood & Rattan 80.2
Pulp & Paper 83.1
Total Manufacturing Industry 10,157,000
4,024,800

Source: Ministry of Trade and Industry (extrapolated), July 1998.


CHAPTER XI - U.S. AND COUNTRY CONTACTS

Appendix E: U.S. and Country Contacts

Chambers of Commerce

Based in New York City, the membership of the American-Indonesian Chamber of Commerce is comprised of over 150 companies and individuals doing business in Indonesia. It has an active program of monthly luncheons, featuring speakers knowledgeable about Indonesia and briefing programs for newly appointed American and Indonesian Government officials. The Chamber also publishes "OUTLOOK/ INDONESIA," a quarterly publication containing interpretations of new Indonesian policies, sectoral reviews, summaries of recent Chamber activities, and an Executive Director's column. In addition, the American-Indonesian Chamber of Commerce provides business translations, either from English to Indonesian or Indonesian to English. Their contact information is as follows:

The American-Indonesian Chamber of Commerce
711 Third Ave., 17th Floor
New York, NY 10017
Tel.: (212) 687-4505
Fax : (212) 867-9882
Email: aiccny@bigplanet.com
Internet: http://www.aicc.globalnetlink.com

The American Chamber of Commerce in Indonesia, known as AMCHAM, is affiliated with the Asia-Pacific Council of American Chambers of Commerce (APCAC). Its 600 members include leading U.S. firms with offices in Indonesia, associates, individuals, and special members. The chamber prepares a number of useful guides to doing business in Indonesia and a membership directory. AMCHAM assists U.S. firms in assessing business opportunities by staging briefing breakfasts at the requestor's expense. Their contact information is as follows:

American Chamber of Commerce (AMCHAM)
James W. Castle, President
Vacant, Executive Director
World Trade Center, 11th Floor,
Jl. Jendral Sudirman Kav. 29 - 31
Jakarta 12920, Indonesia
Tel: (62-21) 526-2860
Fax: (62-21) 526-2861
Email: amcham_indonesia@ibm.net
Internet : http//www.amcham.or.id

Related Business Councils and Associations in the U.S.A.:

California-Southeast Asia Business Council
1946 Embarcadero, Suite 200
Oakland, CA 94606
Tel.: (510) 536-1967
Fax : (510) 261-9598
E-mail: seasia@calsea.org
Internet : www.calsea.org
Contact: Ms. Jeremy W. Potash, Executive Director

Indonesian American Business Association
P.O. Box 420398 Houston, TX 77242-0398
10900 Richmond Avenue, Houston, TX 77242
Tel.: (713) 789-0702
Fax : (713) 789-0559
E-mail: iaba@onramp.net
Internet : www.iaba-usa.org
Contact: Engeline Tan, Executive Director

Pacific Basin Economic Council
1667 K St. NW, Suite 410
Washington, DC 20006
Tel.: (202) 293-5730
Fax : (202) 289-1940

U.S.-ASEAN Business Council
1400 L Street NW #375
Washington, DC 20005
Tel.: (202) 289-1911
Fax : (202) 289-0519
E-mail: mail@usasean.org
Internet : www.us-asean.org
Contact: Ernest Z. Bower, President

Indonesian Trade Associations

The major trade association in Indonesia is the Indonesian Chamber of Commerce and Industry (KADIN). Members include representatives from private industry, cooperatives, public corporations, utilities, as well as state-owned enterprises. In addition, there are numerous other specialized and professional organizations that represent the interests of various other sectors and trades in the economy. Contact information for KADIN is as follows:

Indonesian Chamber of Commerce & Industry (KADIN)
Menara Kadin, 29th Floor
Jl. H.R. Rasuna Said X-5 Kav. 2-3
Jakarta 12940
Tel.: (62-21) 916-5535, 916-5538, 527-4485
Fax : (62-21) 527-4486
Associations of importers and exporters, most of whom are organized on a commodity basis, include the Importers Association of Indonesia (GINSI) and the Indonesian Association of Exporters (GPEI). Both organizations have head offices in Jakarta. Contact information is as follows:

Importers Association of Indonesia (GINSI)
Gedung Bank Niaga, 1st Floor
Jl. M.H. Thamrin 55
Jakarta 10350
Tel.: (62-21) 391-1057
Fax : (62-21) 391-1060
Contact: Mr. H. Amirudin Saud, Chairman

Indonesian Exporters Association (GPEI)
Gedung Bank Niaga, 1st Floor
Jl. M.H. Thamrin 55
Jakarta 10350
Tel.: (62-21) 391-1057
Fax : (62-21) 391-1060
Contact: Mr. H. Amirudin Saud, Chairman

The Indonesian Government established the National Agency for Export Development within the Ministry of Trade to promote the export of less renowned products. These products include handicrafts (ie, jewelry, batik, handwoven fabric, and wood carvings), agricultural and cottage industry products, and new manufactured products. The agency will also assist foreign buyers and importers in establishing contacts with Indonesian companies. Contact information is as follows:

National Agency for Export Development
Jl. Gajah Mada No. 8
Jakarta 10130
Tel.: (62-21) 634-1082
Fax : (62-21) 633-8360

Trade and Project Financing

Asian Development Bank (ADB)
6 ADB Avenue, Mandaluyong City
0401 Metro Manila, Philippines
Mailing Address
P.O. Box 789
Manila Central Post Office
0980 Manila, Philippines
Tel.: (63-2) 632-4444
Fax : (63-2) 636-2444
Telex Numbers: 63587 ADB PN (ETPI), 29066 ADB PM (RCA)
Email: information@mail.asiandevbank.org (for information)
Internet: http://www.adb.org

Denny Barnes, Senior Commercial Officer
Commercial Liaison to the Asian Development Bank
U.S. and Foreign Commercial Service
2nd Floor, GSO Building Seafront Compound
Roxas Boulevard, Pasar City
Manila, Philippines
Tel.: (632) 804-0460
Fax : (632) 804-0357
Email: Denny.Barnes@mail.doc.gov
Internet : http://www.ita.doc.gov/mdbo

Export-Import Bank of the United States (EX-IM Bank)
811 Vermont Ave., NW
Washington, D.C. 20571
Tel.: (800) 565-EXIM(3946), (202) 565-3946
Fax : (202)565-3380
Asia hotline : (800) 565-3946 ext.3905
Internet: http://www.exim.gov

Islamic Development Bank
P.O. Box 5925
Jeddah, 21432
Saudi Arabia
Tel.:(966-2) 636-1400 (10 lines)
Fax : (966-2) 636-6871
E-mail : oicisnet.project@mail.oicisnet.org
Internet: http://www.isdb.org

The World Bank
Graham Barrett or Kimberly Versak
1818 H Street N.W.
Washington, DC 20433
Tel.: (202) 477-1234
Fax : (202) 522-3405
Internet: http://www.worldbank.org
E-mail : kversak@worldbank.org


In Indonesia:
Mark Baird, Indonesia Country Manager
Jakarta Stock Exchange Building
Tower 2, 12th Floor
Jl. Jendral Sudirman, Kav. 52-53
Jakarta 12190 Indonesia
Tel.: (62-21) 529-93000
Fax : (62-21) 529-93111

Indonesian Government Contacts

The following is a listing of President Habibie's cabinet as of July 1999. Because of the uncertainties surrounding the Indonesian government at the time, business persons who wish to get in touch with these cabinet members can contact the U.S. Commercial Service in Jakarta for up-to-date contact information or to forward correspondence.

Coordinating Ministers:
Political and Security: Gen. (Ret.) Feisal Tanjung
Economic, Finance, and Industry: Prof. DR. Ginanjar Kartasasmita
Development Supervision and State Administrative Reforms: Ir. Hartarto Sastrosoenarto
People's Welfare and Poverty Alleviation: Prof. Dr. H. Haryono Suyono

Ministry
Home Affairs: Lt. Gen. Syarwan Hamid
Foreign Affairs: Ali Alatas, SH
Defense/Armed Forces Commander: Gen. Wiranto
Justice: Prof. DR. Muladi
Information: Lt. Gen. Mhd. Yunus Yosfiah
Finance: DR. Bambang Subianto
Industry and Trade: Prof. Dr. Ir. Rahardi Ramelan, MSc
Agriculture: Prof. DR. Ir. Soleh Solahuddin
Mining and Energy: DR. Ir. Kuntoro Mangkusubroto
Forestry and Plantation: Dr. Ir. Muslimin Nasution
Public Works: Ir. Rahmadi Bambang Sumadhijo
Communications: Ir. Giri Suseno Hadihardjono, MSME
Tourism, Art and Culture: Drs. Marzuki Usman, MA
Cooperatives and Small Business: Adi Sasono, SE
Manpower: Drs. Fahmi Idris
Transmigration & Resettlement of Forest Squatters : Lt. Gen. Drs. H.A.M. Hendropriyono, SH, SE, MBA
Education and Culture: Prof. DR. Juwono Sudarsono, MA
Health: Prof. Dr. H. Farid Anfasa Moeloek, SpOG
Religious Affairs: Prof. Drs. Malik Fajar, MSc
Social Affairs: Prof. DR. Ir. Hj. Yustika Syarifuddin Baharsyah

State Ministers:
State Secretary: Prof. DR. Muladi
Research and Technology: Prof. Dr. Ir. Zuhal, MScEE
Investment/Head of BKPM: Drs. Marzuki Usman
Agrarian Affairs/Chairman: Drs. Hasan Basri Durin
Housing and Settlement: Drs. Theo L. Sambuaga
Environment: Dr. Panangian Siregar
Food, Drugs, and Horticulture:
Empowerment of State Enterprises: Tanri Abeng, MBA
Women's Affairs: Dra. Hj. Tutty Alawiyah, AS (Ms)
Youth and Sports: H.R. Agung Laksono
Population :Prof. Dr. Ida Bagus Oka

Officials of Ministerial Rank:
Attorney General: Ismudjoko, SH
Governor of the Bank of Indonesia: DR. Syahril Sabrin

U.S. Government Contacts

U.S. EMBASSY, JAKARTA

Mailing Address from U.S.: International Mail:
American Embassy - Jakarta American Embassy-Jakarta
Box 1 Unit 8129 Jl. Medan Merdeka Selatan #5
APO AP, 96520 Jakarta 10110, Indonesia
Internet: http://www.usembassyjakarta.org

U.S. Commercial Center
Alice Davenport, Counselor for Commercial Affairs
Judy R. Reinke, Commercial Attach,
Richard Rothman, Commercial Officer
Michael Carroll, Commercial Officer
3rd Floor, Wisma Metropolitan II
Jl. Jendral Sudirman Kav. 29-31
Jakarta 12910, Indonesia
From U.S., use Embassy's APO mailing address
Tel.: (62-21) 526-2850
Fax : (62-21) 526-2855
Internet : http://www.jakarta.uscc.org and www.usembassyjakarta.org

U.S. Asian Environmental Partnership-Technical Representative
Gerald Sanders, Director
3rd Floor, Wisma Metropolitan II
Jl. Jendral Sudirman Kav. 29-31
Jakarta 12910, Indonesia
Tel.: (62-21) 526-2844, 526-2848
Fax : (62-21) 526-2846, 526-2849
Email: usaepdir@rad.net.id
Internet : http://www.usaep.org

U.S. Agricultural Trade Office (ATO)
Dennis Voboril, Agricultural Attach,
3rd Floor, Wisma Metropolitan II
Jl. Jendral Sudirman Kav. 29-31
Jakarta 12910, Indonesia
Tel.: (62-21) 526-2850
Fax : (62-21) 571-1251

The following U.S. Embassy Offices are located at:
Jl. Medan Merdeka Selatan #5
Jakarta 10110, Indonesia

Foreign Agricultural Service
Robin Tilsworth-Rude, Counselor for Agricultural Affairs
Tel.: (62-21) 344-2211 (ext. 2161)
Fax : (62-21) 380-1363

Economic Section
Judith R. Fergin, Economic Counselor
Patricia Haslach, Resources Officer
Robin McClellan, Science and Technology Officer
David Digiovanna, Trade Officer
Brian McFeeters, Finance Officer
Bruce Parcell, Economic Officer
Vicky Alfarado, Economic Officer
Tel.: (62-21) 344-2211 (ext. 2073)
Fax : (62-21) 386-2259

U.S. Information Service (USIS)
Richard Gong, Public Affairs Counselor
Karl Fritz, Press Attach,
Tel.: (62-21) 344-2211 (ext. 2500)
Fax : (62-21) 526-2838
E-mail: sjmjkt@usia.gov / rdgjkt@usia.gov

Zorinsky Research and Information Service (ZoRIS)
Melling Simanjuntak, Library Director
Dede Amalfi, Librarian
Tel.: (62-21) 350-8467
Fax : (62-21) 350-8466
e-mail: zoris@usembassy.jakarta.org

Agency for International Development (U.S. AID)
Desaix Myers, Director
Paul Deuster, Chief, Private Sector Development Office
Tel.: (62-21) 344-2211 (ext. 2308)
Fax : (62-21) 380-6694

Defense Attach, Office (DAO)
Col. Joseph H. Daves, Defense Attach,
Tel.: (62-21) 344-2211 (ext. 2191)
Fax : (62-21) 386-2259

Office of the Military Attach, for Defense Programs
Col. Robert Humberson, Military Attach,
Tel.: (62-21) 344-2211 (ext. 2601)
Fax : (62-21) 386-2259

U.S. CONSULATE GENERAL - SURABAYA

Robert Pollard, Consul General
Barton J. Putney, Pol/Econ/Commercial Officer
Lina Jusuf, Commercial Specialist
American Consulate General
Jl. Raya Dr. Sutomo #33
Surabaya, Indonesia
Tel.: (62-31) 568-2287, 568-2288
Fax : (62-31) 567-4492 Telex : 34331

U.S CONSULATE MEDAN

A small office may be opened in 1999-2000

U.S. CONSULAR AGENT BALI

Andrew Toth, Executive Office
Jl. Hayam Wuruk 188, Bali 80235
Tel.: (62-361) 233-605, 222-424
Fax : (62-361) 222-426

U.S. GOVERNMENT - WASHINGTON

Trade Information Center
U.S. Department of Commerce
Ronald Reagan Building, Mezzanine Level
Washington, D.C. 20230
Tel.: 1-800-USA-TRAD(E)8723 or (202) 482-0543
Fax : (202) 482-4473
Internet: http://www.ita.doc.gov/tic or http://tradeinfo.doc.gov//
Flashfax: 1-800-872-8723 (Use flashfax for rapid access to the most frequently requested information on doing business throughout Asia.)

Elena Mikalis / Farah Press
Desk Officers for Indonesia (Policy Issues)
U.S. Department of Commerce
Room 2423
14th and Constitution Ave., N.W.
Washington, D.C. 20230
Tel.: (202) 482-3894
Fax : (202) 482-3316

Overseas Private Investment Corporation
1100 New York Avenue, N.W.
Washington, D.C. 20527
Tel.: (202) 336-8799
Fax : (202) 408-9859
Internet: http://www.opic.gov

U.S. Department of State Office of Business Affairs
Tel.: (202) 647-1625
Fax : (202) 647-3981

U.S. Department of Agriculture, Foreign Agricultural Service, Trade Assistance and Promotion Office
Tel.: (202) 720-7420

Indonesian Embassy and Consulates in the United States:

Embassy of the Republic of Indonesia
2020 Massachusetts Avenue, N.W.
Washington, D.C. 20036
Tel.: (202) 775-5200
Fax : (202) 775-5365
Internet: http://www.kbri.org

Consulate General Office-New York
5 East 68th St.
New York, NY 10021
Tel.: (212) 879-0600
Fax : (212) 570-6206

Consulate General Office-Los Angeles
3457 Wilshire Boulevard
Los Angeles, CA 90010
Tel.: (213) 383-5126
Fax : (213) 487-3971
E-mail : kabidpen@kjri-la.com
Internet : http://www.kjri-la.com
Consulate General Office-Houston
10900 Richmond Ave.
Houston, TX 77042
Tel.: (713) 785-1691
Fax : (713) 780-9644

Consulate General Office-Chicago
Illinois Center Suite 1422
233 North Michigan Ave
Chicago, IL 60601
Tel.: (312) 938-0101
Fax : (312) 938-3148

Consulate General Office-San Francisco
1111 Columbus Ave.
San Francisco, CA 94133
Tel.: (415) 474-9571
Fax : (415) 441-4320

Market Research, Consultants, and Lawyers

Performing market research in Indonesia is difficult because detailed statistics on production and consumption are often not available through published sources. External trade statistics, however, are fairly detailed and additional data can be obtained for a fee from the Central Bureau of Statistics (Biro Pusat Statistik):

BPS
Ir. Sutomo No. 8
P.0. Box 3
Jakarta Pusat
Tel.: (62-21) 384-1195, 384-2508, 381-0281-4
Fax : (62-21) 385-7046
E-mail : bpshq@bps.go.id
Internet : http://www.bps.go.id
Unrecorded trade may distort import statistics and trends. For example, BPS figures tend to understate import values, as these figures exclude duty-free imports, including duty-free imports for investment and certain other transactions.
Although there is a growing number of Indonesian organizations active in market research, the number remains small and expertise varies. Branches of American banks will often conduct market surveys for their customers, and several U.S. consulting firms now have affiliates in Jakarta. A growing number of foreign law firms, including some from the United States, are also entering the Indonesian business community as business consultants.
Members of INKINDO, the Association of Indonesian Consultants, are able to perform a wide range of research and consulting services. INKINDO was established by Indonesian consultants based in Jakarta. The contact information for this association is as follows:

Association of Indonesian Consultants (INKINDO)
Jl. Bendungan Hilir Raya, No. 29.
Jakarta 10210
Tel.: (62-21) 573-8577/78
Fax : (62-21) 573-3474.
Contact: Ir. H. Muhayat, Chairman
E-mail : inkindo@pu.go.id

PT. Data Consult publishes a biweekly newsletter entitled "Indonesian Commercial Newsletter." The newsletter contains a sectoral survey in each issue and other market information. The addresses of several market research firms in Jakarta are listed in the "Sources of Information" section of the Overseas Business Report. Information regarding firms that are capable of conducting market surveys, including the aforementioned ones, may be obtained from the Foreign Commercial Service, U.S. Embassy in Jakarta, or in the following list of consultants and market research firms.

CONSULTANTS AND MARKET RESEARCH FIRMS

AC Nielsen Indonesia
15/F Wisma Bank Dharmala
Jl. Jendral Sudirman Kav. 28
Jakarta 12920
Tel.: (62-21) 521-2200
Fax : (62-21) 521-2203/2204
E-mail: acn@acnielsen.co.id
Internet : www.acnielsen.com

Business Advisory Indonesia (PT. Laksana Tata Indonesia)
Wisma Bank Dharmala, 11th floor, Suite 1103
Jl. Jendral Sudirman Kav. 28
Jakarta 12920
Tel.: (62-21) 522-8613
Fax : (62-21) 522-8612
E-mail: bai@prima.net.id
Expertise: Management consulting, government and corporate research, official sworn-in English/Indonesia language translations of documentations.

The Castle Group
Menara Batavia, 8th floor
Jl. K.H. Mas Mansyur Kav. 126
Jakarta 10220
Tel.: (62-21) 572-7321
Fax : (62-21) 572-7329
E-mail: castle@castleasia.com
Internet: http://www.castleasia.com
Expertise: Market entry strategy consulting, customized market and industry analysis, customized profiles of local business groups and potential, local regulations and business practices, syndicated sector reports, and business briefing program for senior managers.

CIC Consulting Group
Jl. Raden Saleh No. 46
Jakarta 10330
Tel.: (62-21) 310-1081, 314-7433
Fax : (62-21) 310-1505
Cable: CISIRAYA-JAKARTA
E-mail: cisi-cic@idola.net.id
Expertise: Market and feasibility Studies (including pharmaceuticals, cosmetics, medical supplies, health equipment, food and beverages, hotels, golf course, resorts, and recreation facilities), periodical/business Reports, credit information services, partner seeking services, project reports, consumer research, business to business research, social research, and agricultural research.

Citra Duta Artistry (CDA International)
Niaga Tower, 25th Floor
Jl. Jendral Sudirman Kav.58
Jakarta 12190
Tel.: (62-21) 250-5346
Fax : (62-21) 250-5347
E-mail: cda@idola.net.id
Expertise: Office renovation, project management, architectural design, and interior design.

Consensus MBL
division of the MBL Group Plc., an NFO Worldwide Company
Jl. Bangka Raya 18, Pela Mampang
Jakarta 12720
or
P.O. Box 4344
Jakarta 12043
Tel.: (62-21) 719-1858/9, 719-1861, 719-5355
Fax : (62-21) 799-0152, 719-9550
E-mail: cmblindo@dnet.net.id
Expertise: Market research and strategic planning and consultancy.

PT. Data Consult, Inc.
Maya Indah Building II
Jl. Kramat Raya No.5-L
Jakarta 13210
Tel.: (62-21) 390-4711, 390-4712, 390-1879
Fax : (62-21) 390-1878
Or Jl. Pulomas Raya 31
Jakarta 13210
Tel.: (62-21) 475-3302, 475-3304, 475-3226
Fax : (62-21) 475-3227
E-mail : datacon@idola.net.id
Internet : http://www.datacon.co.id
Expertise: Market Research.

Ganesha Aggies Jaya
Jl. Pertogogan II No. 22 A
Jakarta 12160
Tel.: (62-21) 7279-3904
Fax : (62-21) 739-5049
E-mail : ganesha1@cbn.net.id
Expertise: Indonesian labor laws and practices, expatriate staffing, residence and work permits, company establishment, corporate and individual document processing, and human resource related activities.

Harvest International Inc.
Wisma Metropolitan I, 10th floor
Jl. Jendral Sudirman, Kav. 29
Jakarta 12920
Tel.: (62-21) 525-1641, 570-1491
Fax : (62-21) 520-7789
E-mail: hgoldstein@harvest-international.com or
Anggie@harvest-international.com
Expertise: Consulting in business development, investment, project development, and trade.

PT. IBIS Dharma Nusa
Fatmawati Mas Blok 1/113
Jl. R.S. Fatmawati No. 20
Jakarta 12430
Tel.: (62-21) 769-9757
Fax : (62-21) 765-4906
E-mail : henri@ibisworld.com
Expertise: Market research on industrial sectors.

Indonesia Executive Search (I.E.S.)
Graha Irama, 9th floor
Jl. H.R. Rasuna Said Kav. X-1 No. 1-2
Jakarta 12950
Tel.: (62-21) 526-1250
Fax : (62-21) 525-5529
E-mail: dansearch@ibm.net
Expertise: Executive search services, human resource and management consultancy.

Penelitian Hukum Indonesia (PHI)
(PT Terataimas Indocitra)
Wisma Bank Dharmala, 11th floor, Suite 11-03
Jl. Jendral Sudirman Kav. 28
Jakarta 12920
Tel.: (62-21) 522-8613
Fax : (62-21) 522-8612
E-mail: hukum@rad.net.id
Expertise: CD-ROMs containing full text of Indonesian law in English and Indonesian, development of full text databases for business and industry, information systems consulting.

Plansearch Associates
Jl. Limau 1/28 A
Kebayoran Baru
Jakarta 12130
P.O. Box 83 JKSBA
Tel.: (62-21) 739-5017, 722-8052, 727-94117
Fax : (62-21) 739-5017
E-mail: plans@indo.net.id
Expertise: Intellectual Property, partner searches, financial investigations for money collections, market research, environmental studies.

SOFRES FSA Jakarta (Taylor Nelson Sofres Group)
Menara Thamrin Suite 901
Jl. M.H. Thamrin Kav. 3
Jakarta 10340
Tel.: (62-21) 230-2788
Fax : (62-21) 230-2794
E-mail: JakartaOffice@id.tnsofres.com
Expertise: Quantitative and qualitative market research, customer satisfaction and awareness studies, advertising testing, test marketing, concept testing, brand tracking, trade, economic and industrial research.

LAW FIRMS AND ATTORNEYS

Ali Budiardjo, Nugroho, Reksodiputro
Graha Niaga, 24th Floor
Jl. Jendral Sudirman Kav. 58,
Jakarta 12190
Tel.: (62-21) 250-5125(11 lines), 250-5136
Fax : (62-21) 250-5121, 250-5122, 250-5392, 250-5001
E-mail: abnrco@abnr.co.id
Singapore Office :
24 Raffles Place
#22-01/02 Clifford Centre
Singapore 048621
Tel.: (65) 533-5332
Fax : (65) 533-5313
Expertise: Commercial, corporate, and financing matters, including joint venture arrangements, licensing, banking, energy, mining, forestry, project finance, stock & bond issues, construction & engineering projects, maritime law, labor issues, patents, trademark, and other intellectual property matters.
Contact: T.M. Zahirsjah, Ferry P. Madian, Gregory Churchill

PT. CB Indonesia
16th Fl. Central Plaza
Jl. Jendral Sudirman Kav.47
Jakarta 12930
Tel.: (62-21) 525-1985, 570-1425, 525-3340
Fax : (62-21) 525-0734
E-mail: cbindon@ibm.net
Expertise: Joint ventures, insolvency and corporate reorganizations, finance and capital markets, infrastructure and property development, and commercial transactions and disputes.
Contact: Michael Horn

Dewi Soeharto & Rekan
Plaza Exim, 24th Fl.
Jl. Jendral Gatot Soebroto Kav.36-38
Jakarta 12190
Tel.: (62-21) 526-3473
Fax : (62-21) 526-3474
E-Mail: dsrekan@indosat.net.id
Expertise: Aviation, banking and finance, commercial, construction, corporate, energy and resources, entertainment industry contracts, environmental, foreign investment and joint ventures, government, intellectual property protection and enforcement, international trade, labor and employment, maritime, media and board casting, real property, securities, tax, telecommunications.
Contact: Dewi Kamaratih Soeharto, Garry W. Christian

Frans Winarta & Partners
Kelapa Gading Boulevard TB 2/24
Kelapa Gading Permai
Jakarta Utara 14240
Tel.: (62-21) 453-3236, 453-2143
Fax : (62-21) 452-0083, 451-6605, 452-0933
E-Mail: fwp@ub.net.id or h_winarta@hotmail.com
Expertise: Corporate law (cross-border acquisitions and mergers, investments, business, and matters regarding intellectual property), commercial laws and banking regulations, general international trade laws, employment and land laws, civil and administrative law, litigation and international commercial arbitration.
Contact: Frans H. Winarta

Hadiputranto, Hadinoto & Partners
Bursa Efek Jakarta Tower II, 21st Floor
Jl. Jendral Sudirman Kav. 52-53
Jakarta Selatan
Tel.: (62-21) 515-5090, 515-5091, 515-5092
Fax : (62-21) 515-4840, 515-4845
Expertise: International and general practice, corporate, commercial, foreign investment, tax : labor and employment law, banking and finance (including project finance), capital markets, intellectual property, construction, natural resources telecommunications, insurance, mergers and acquisitions, and environmental law.
Contact: Ms. Sri Indrastuti Hadiputranto

Jusuf Indradewa & Partners-Legal Consultants
Bank Artha Graha Tower, 15th Floor
Lot 25, Sudirman Central Business District
Jl. Jendral Sudirman Kav. 52-53
Jakarta 12190
Tel.: (62-21) 515-2122
Fax : (62-21) 515-2382
E-mail: jusufind@uninet.net.id
Expertise: Legal matters relating to establishment of businesses, opening representative and branch offices, joint ventures, direct foreign investment companies, intellectual property rights, mergers and acquisitions, initial public offerings.
Contact: Cecilia Sianawati (Managing Partner), Jusuf Indradewa (Senior Partner), Indra D. Santosa (Technical Advisor), Maya Pradjono (Partner)

Karim Sani Law Firm
Wisma Danamon Aetna Life, 11th Floor
Jl. Jendral Sudirman Kav. 45-46
Jakarta 12930
Tel.: (62-21) 577-1177
Fax : (62-21) 577-1947, 577-1587
E-mail: kksm@indosat.net.id
Expertise: Investment, tax, energy, mining, information technology law, and arbitration/mediation.
Contact: Karen Mills (International Legal Advisor), Kitty Sugondo-Kramadibrata (Project Legal Structure & Commercial Citigation), Iswahjudi A. Karim (Banking & Finance), Asrul Sani (intellectual Property Rights & Commercial Litigation), Tio M. Manihuruk (Corp. Finance/Capital Markets & Property Investment)

Kusnandar & Co.
Aetna Danamon Tower II, 24th Fl.
Jl. Jendral Sudirman Kav. 45
Jakarta 12930
P.O. Box 2057, JKT 10001
Tel.: (62-21) 577-1435
Fax : (62-21) 577 1436
E-mail: kusnalaw@ub.net.id
Internet : http://www.kusnandar.co.id/
Expertise: Foreign and domestic investment, corporations, banking, multi finance, the capital market, securities, tax, property, and real estate, intellectual property and international trade matters, immigration, admiralty, arbitration, and litigation.
Contact: Winita E. Kusnandar

Lontoh & Kailimang
Jl. Jatibaru 45
Jakarta 10250
Tel.: (62-21) 310-1721
Fax : (62-21) 314-4485
E-mail: lonka@indo.net.id
Expertise: Civil law, including adoption and child custody, wills, collections, contracts, corporations, government relations, foreign claims, insurance, labor, direct foreign investment, trademarks/copyrights, auto accidents, immigration, capital market, narcotics, customs, and criminal defense.
Contact: Harry Ponto

Lubis, Ganie, Surowidjojo
Menara Imperium, 30th Fl.
Jl. H.R. Rasuna Said Kav. 1
Jakarta 12480
Tel.: (62-21) 831-5005, 831-5025
Fax : (62-21) 831-5015, 831-5035
E-mail: lgslaw@rad.net.id
Expertise: Representation of foreign and Indonesian clients on commercial and corporate law matters, including acquisition, corporate reorganization, mergers, agency and distributorship, arbitration, banking, capital market, commercial litigation, construction, corporate finance and secured transactions, energy, foreign, and domestic investment, commercial litigation and arbitration, international trade, lease financing, maritime and shipping, mining, real estate transactions, tax, telecommunications, intellectual proprietary rights including trademark, copyrights and patents, venture capital, insurance and labor.
Contact: Lubis, Ganie, Surowidjojo

Makarim & Taira S
Summitmas I, 17th Fl. & 18th Fl.
Jl. Jendral Sudirman Kav. 61-62
Jakarta 12069
Tel.: (62-21) 252-1272, 252-2460
Fax : (62-21) 252-2750, 252-2751, 252-2234
E-mail: m_ts@pacific.net.id
Expertise: International and general practice. foreign investment, commercial, capital markets, banking and finance, constructions, energy and natural resources, intellectual property, commercial litigation, tax, mergers and acquisitions, property development.

Makes & Partner (in association with SKADDEN, ARPS, SLATE, MEAGHER & FLOM)
Menara Batavia, 7th Floor
Jl. K.H. Mas Mansyur Kav. 126
Jakarta 10220
Tel.: (62-21) 574-7181
Fax : (62-21) 574-7180
E-mail: makes@indosat.net.id
Expertise: Corporate and commercial law, restructuring and reorganizations, mergers and acquisitions (including tender offers), foreign and domestic capital investment (including joint ventures), banking and corporate finance (including bank financing, issuance of debt instruments and establishment of venture capital companies and local branches of international investment and commercial banks), capital markets (including debts and equity offerings by Indonesian companies in the Indonesian and International capital markets as well as listing on the Jakarta, Surabaya, Singapore, New York, London, and Luxemburg Stock Exchanges and Nasdaq), telecommunications, energy and infrastructure (including oil and gas contracts and project finance) and real property law.
Contact: Iwan Setiawan, Catherina Celosse

Mochtar, Karuwin & Komar
Wisma Metropolitan II, 14th fl.
Jl. Jendral Sudirman, Kav 31
Jakarta 12920
Tel.: (62-21) 571-1130
Fax : (62-21) 571-1162, 570-1686
Expertise: General corporate and commercial law, specializing in the legal aspects of international finance, foreign investment, infrastructure, and privatization.
Contact: Laurien Christoffel

Prof. Dr. Sudargo Gautama
Jl. Merdeka Timur 9
Jakarta 10110
Tel.: (62-21) 345-6529, 384-1358, 384-7165, 380-9488
Fax : (62-21) 384-6180, 381-3166
E-mail: sgautama@rad.net.id
Expertise: General, civil and criminal law, patents and trademarks, private international law, consulting, and litigation.
Contact: Prof. Dr. Sudargo Gautama

Rosetini Ibrahim & Associates
Wisma GKBI 33rd. Fl.
Jl. Jendral Sudirman #28
Jakarta 10210
Tel.: (62-21) 574-1225
Fax : (62-21) 574-1226
E-mail: rosetini@indo.net.id
Expertise: Corporate law, finance, investments, securities, contracts

Soewito, Suhardiman, Eddymurthy & Kardono
Wisma Bank Dharmala, 14th Fl., Suite 1403
Jl. Jendral Sudirman Kav.28
Jakarta 12920
Tel.: (62-21) 521-2038
Fax : (62-21) 521-2039
E-mail: ssek@ssek.com
Internet : http://www.ssek.com
Expertise: Corporate, commercial and financial law practice, energy and natural resources, maritime, banking, capital markets and securities law, insurance, intellectual property, investment, labor, franchising, real estate, construction and engineering, mergers and acquisitions, tax law, arbitration, hotel and tourist development, environmental law, international trade, government contracts, immigration, oil and gas law.
Contact: Darrell R. Johnson, Michael D. Twomey

Widjojo Law Firm
Jl. Kali Besar Barat 5
Jakarta Kota 11230
Mailing address: P.O. Box 2102
Jakarta 10021
Tel.: (62-21) 690-1707, 691-2226
Fax : (62-21) 692-3648
Expertise: Patents and trademarks.
Contact: George Widjojo

Related Internet Sites:

The following is a list of Internet sites that contain information, in English, that is of interest to the business community in Indonesia:

National Trade Data Bank:
http://www.stat-usa.gov

Antara (Official News Agency of Indonesia)
http://www.antara.co.id

Tempo Interactive (Indonesian business journal)
http://www.tempo.co.id

The Straits Times Interactive (Newspaper from Singapore)
http://www.straitstimes.asia1.com

Compilation of related Indonesia Sites (Multiple Sources)
http://www.iit.edu/~indonesia/jendela

Other Publications:

The U.S. Commercial Service and the private consulting firm The Castle Group in Jakarta publishes a guidebook entitled American Business in Indonesia. It lists selected U.S. firms and Indonesian agents, distributors, and licensees of U.S. firms. It is sold for $25 plus $30 for courier service to the United States. If interested, please contact the U.S. Commercial Service in Jakarta (Contact information above).


CHAPTER XII - MARKET RESEARCH AND TRADE EVENT SCHEDULE

Market Research : Produced by the U.S. Commercial Service in Indonesia during FY 1999 and planned for FY 2000. A complete list of market research is available on the National Trade Data Bank (NTDB).

FY 1999 Industry Sector Analysis (ISA) Reports
1. Human Resource Development Training
2. Major Projects
3. Oil and Gas Field Equipment and Services
4. Pulp and Paper
5. Telecommunications Testing Equipment
6. Banking Sector Opportunities
7. Environmental Equipment
8. College Education Programs
9. Telecommunications Equipment
10. Hand and Power Tools
11. Dental Equipment
12. Forestry and Woodworking Equipment
13. Food Processing and Packaging Equipment

FY 2000 Industry Sector Analysis (ISA) Reports (Planned)
1. Dye Chemicals
2. Forestry Equipment
3. Vitamins and Health Supplements
4. Insurance Services
5. Education and Training Services
6. Mining Equipment
7. Mobile Communications Equipment
8. Food Processing and Packaging Equipment (Asean Regional)
9. Water Resources (Asean Regional)
10. Telecommunications (Asean Regional)
11. Industrial Chemicals (Asean Regional)

FY 1999-2000 International Market Insight (IMI) Reports.
See www.stat-usa.gov or www.usembassyjakarta.org for all our IMI reports.

Trade Event Schedule:

Date: Event:
September 1999 USA Catalog Show

November 1999 Electric Indonesia/Mining Exhibition/Oil & Gas Technology Exhibition (these three take place same time and locale)

March 1-2, 2000 Study USA 2000

May 2000 Indonesian Education Show

Note: Firms should consult the export promotion calendar on the NTDB, or contact the Commercial Section of the U.S. Embassy in Jakarta for the latest information or to arrange individual trade programs.

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