Update News November 24, 2016

In The News

Banks Breathe Easier From New Reserve Policy
The Jakarta Post, 24 November 2016

Banks pin high hopes on Bank Indonesia’s (BI) recently introduced “averaging-primary reserve requirement (GWM)” policy, expecting to see leeway in reducing their cost of funds amid the current tight cash situation.

Starting from the second half of 2017, the central bank will require banks to maintain a GWM, the minimum funds that banks need to hold in reserve at BI during a certain period of time at an averaged percentage.

Currently, it requires banks to maintain a GWM at 6.5 percent of their third party funds by the end of the day. If the policy takes effect, banks that have a GWM of below or above 6.5 percent by the end of the day will be obliged to record an average of 6.5 percent by the end of a determined period.

BI will later determine the length of the period, whether it is one or two weeks, BI governor Agus Martowardojo told journalists on the sidelines of BI’s Annual Meeting, previously known as the Bankers Dinner, in Jakarta on Tuesday.

“It [the averaging-GWM] will allow banks to manage liquidity with more flexibility. Interbank money market [transactions] will also be more active and banks’ treasury management will be more efficient,” he said, urging banks to include the new policy in their business plans for 2017.

Bankers, who got the policy introduction first hand during the dinner, voiced a similar view. It would maintain the flow of liquidity if cash flow became tighter, president director of the country’s largest private lender Bank Central Asia (BCA) Jahja Setiaatmadja said.

“When liquidity gets tighter, banks can withdraw their excess cash from BI and make use of it rather than just letting it sit idle,” he told journalists after the dinner.

Recently, the government announced that the country’s banking industry was facing a temporary tight liquidity situation after some people withdrew their savings to pay for the tax amnesty’s redemption fees.

Jahja added that such a measure would mean less costs for banks as they could fulfill their cash necessities on certain days by simply withdrawing their funds at the reserve, instead of borrowing money from the interbank money market, which was subject to interest rates.

Besides seeing possibility of more flexible daily cash management, publicly listed state-owned lender Bank Mandiri also sees more chances to allocate its excess liquidity into more diverse investment instruments that offer higher yields.

Eventually, each situation will lead to a more efficient banking industry. The central bank aims to see a 9 to 11 percent increase in third-party funds next year, with 10 to 12 percent in the lending growth target.

“We just need to remain cautious [in ensuring the GWM is in check by the end of the period],” said Bank Mandiri finance and treasury director Pahala N. Mansury.

Inefficiency in the banking system and the high cost of funds are often blamed for the country’s stubbornly high interest rates. The lending rate only has lowered by 60 basis points (bps) so far this year, although BI has cut its benchmark interest rate six times, by 25 bps each, this year.

However, state-owned lender Bank Tabungan Negara (BTN) president director Maryono predicted the breakthrough policy would not directly affect credit growth and lending rates as they remained dependent on market demands.

“The effects will be short term, which is keeping our liquidity [free from] disruption when we expand our loan disbursement. Our loan-expansion planning will be more flexible with the GWM implementation,” he said.

Separately, private lender Permata Bank president director Roy Arfandy said his firm would incorporate the proposed policy in its business plan for 2017.

“It will provide flexibility and help improve banks’ liquidity,” he said on Wednesday.

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Indonesia Sets Eyes On Russian, European CPO Markets
Antara News, 24 November 2016

The Indonesian Oil Palm Business Association (Gapki) has said the countrys crude palm oil (CPO) and its derivatives can penetrate non-traditional markets such as Russia and other regions in the eastern Europe.

Gapki Treasurer Lakshmi Sidarta noted in a written statement here on Wednesday that up by the end of 2016, Indonesias CPO exports to Russia were predicted to reach 700 thousand tons.

"If we seriously exploit the market, we can export more than one million tons. And these are exports to Russia alone, excluding other countries in eastern Europe," she added.

Besides, demand for Indonesian CPO could come from non-traditional markets. Besides traditional markets such as India, China and European Union, Indonesia is yet to fully exploit other markets such as Russia and many nations of Eastern Europe.

Lakshmi, together with a number of Gapki executives and representatives of the government, visited Moscow in the middle of 2016.

At a meeting with Russian business and government officials, they discussed various business opportunities, including ways to open the wider Russian market for Indonesian CPO and processed palm oil.

In 2012, Indonesias CPO exports to Russia were recorded at 356,000 tons. These increased to 570,000 tons in 2014, and then further to 657,000 tons in 2015. In 2016, the figure is expected to reach 700,000 tons.

"If we continue to promote and introduce the Indonesian CPO to that country, Indonesia could increase its exports to over one million tons," she underlined.

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Six Dutch Firms To Expand Businesses In Indonesia
Antara News, 24 November 2016

Six Dutch companies that have been in Indonesia for years would continue to expand their business in the country, Foreign Minister Retno Marsudi said here on Wednesday.

"They are talking about plans to expand their investment in Indonesia," Retno explained after a meeting between President Joko Widodo and the CEOs of these six Dutch companies at the Presidential Palace earlier in the day.

Retno recalled that these companies have been running their businesses in Indonesia for decades. The companies are Royal Dutch Shell, Van Oord, Port of Rotterdam, PGGM Pension Fund, Damen Shipyard Group, and Royal Vopak.

Earlier, President Jokowi had noted that Dutch Prime Minister Mark Ruttes visit along with 200 businessmen reflected their trust and commitment to encourage cooperation with Indonesia.

"This showed trust and commitment of Dutch government and private sector to increase cooperation with Indonesia," he had commented at a joint press conference with Rutte at the Merdeka Palace.

The President reminded that the two countries have a strong relationship that covered various sectors.

"During bilateral talk, we discussed cooperation in economy, trade, investment, water management and development of maritime infrastructure," Jokowi observed.

He emphasized that the Netherlands has been one of Indonesias key partners in Europe. It holds an impressive trade and investment value and a relatively high number of tourists come from this country.

"The Dutch port has become a gateway for Indonesian goods to Europe," Jokowi underlined.

Meanwhile, Mark Rutte pointed out that Indonesia has played an important role in the region and has been a strategic partner of his country.

"Bilateral trade has reached 3.2 billion euros in 2015," he disclosed.

The Prime Minister expressed the hope that the two countries can increase their cooperation further as there are many opportunities in various sectors.

The business delegation accompanying Rutte included those working in the areas of waste management, climate change and agriculture.

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Govt To Establish Four SOE Holdings By 2017
Antara News, 24 November 2016

The Ministry of State-Owned Enterprises (SOEs) will begin the process to establish four holdings or parent companies by 2017 following the six holdings that are being prepared this year. The four holdings are ship and heavy equipment, maritime, pharmaceutical and insurance state-owned enterprise.

"Those four holdings are still in the concept stage. We expect in 2017 the holdings will have been established," Deputy for SOE Restructuring and Development, Aloysius Kiik Ro stated here Wednesday.

The ministry is focusing on the establishment of two state-owned holdings of mining and oil and gas, Aloysius said.

The mining holding will be under the management of PT Inalum (aluminum mining), consisting of PT Timah (lead mining), PT Bukit Asam (coal mining) and PT Aneka Tambang (gold and silver mining).

Meanwhile, the oil and gas holding will incorporate PT Pertamina (oil and gas company) and PT Perusahaan Gas Negara (gas company), in which Pertamina will become the parent company.

"Until the end of this year there will be two SOE holdings formed. The government regulation on these two sectors have already been completed," he said.

There are also four holdings which are being prepared, and these are toll roads and construction, housing, food, banking, and financial services sectors.

"God willing, in the first quarter of 2017 those holdings will have been established," he noted.

The formation of the holdings aims to strengthen the capital of companies which are engaged in the same kind of business.

Also, it aims to further develop the state-owned companies and increase the leverage, to ensure they are not dependent on the capital injection from the state.

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Economy to Grow by 5.1 Percent: Finance Minister
Tempo, 24 November 2016

Finance Minister Sri Mulyani Indrawati said that the national economy is expected to grow by 5.1 percent. She added that the projection reflects optimism and caution.

“The optimism results in the ability to maintain the momentum; the caution is related to external and internal challenges that need to be addressed,” Sri Mulyani said at the Indonesian Stock Exchange (IDX) in Jakarta on Wednesday, November 23, 2016.

She explained that Indonesia has managed to maintain its economic growth at 5 percent and a budget deficit below 3 percent. Sri Mulyani claimed that the economic condition in Indonesia is far better than those in Brazil and India. She revealed that the two countries’ budget deficits in 2015 stood at 10 percent and 7 percent of the GNP, respectively.

Sri Mulyani also predicted that the household consumption and government consumption would remain stable at 5.0 percent and 4.8 percent, respectively, in 2017.

In terms of investment, the Minister expected a growth of 6 percent. She hopes that private sector’s investment, particularly in the capital market, would be better than this year. The expectation is based on the improvement of infrastructures, macroeconomic stability, and increasing government effectiveness.

Sri Mulyani viewed that the growth exports and imports would remain low at 0.2 percent and 0.7 percent, respectively. The prediction reflects that the global market will still experience a slowdown. Sri hopes that exports and imports will start to recover as the contraction over the last periods has been significant enough.

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Indonesia The First To Have FLEGT License: President Jokowi
Antara News, 24 November 2016

President Joko Widodo (Jokowi) said Indonesia is the first country to have the Forest Law Enforcement, Governance and Trade (FLEGT) license.

"Indonesia, therefore, has to make full use of the comparative advantage," the president said in a joint statement with visiting Dutch Prime Minister Mark Rutte at the Merdeka palace here on Wednesday.

He said in the meeting he discussed with Rutte an increase in the competitive value of Indonesian timber products as a result of the FLEGT license.

The two leaders also discussed preparation for negotiation of Indonesia - European Union Comprehensive Economic Partnership Agreement (CEPA).

"We stressed that the result of the CEPA negotiations should benefit both sides," Jokowi said in the joint press statement.

He said his talks with Rutte also covered water management and expansion of maritime infrastructure.

"The two sectors have become priorities in the bilateral cooperation . We are committed to continuing cooperation in the two areas including development of Kuala Tanjung port in North Sumatra," Jokowi said.

Other important issues discussed by the two leaders included cooperation in eradicating terrorism.

"The two countries have been good partners in the eradication of terrorism under the Jakarta Center for Law Enforcement Cooperation," Jokowi said.

He said the two countries are active together in the Global Counter Terrorism Forum amid the growing threat of terrorism.

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Indonesia Placed Fourth in ASEAN Information Technology
Tempo, 24 November 2016

Minister of Communications and Information Technology Rudiantara stated that Indonesia acquired fourth position in the context of ASEAN’s communication and information technology. He said that Indonesia must improve itself to catch up with other countries.

“Because other countries, such as Vietnam, continues to develop,” Rudiantara said on Tuesday, November 22, 2016.

Rudiantara reveals that Indonesia is positioned behind Singapore, Malaysia, and Thailand. One of the reasons why Indonesia is left behind is because of the lack of telecommunication infrastructure developments connecting rural regions.

That is why the government established the Palapa Ring project. Palapa Ring’s central package has at least a number of regions that doesn’t have connections to anywhere, such as Morotai and Tidore Islands.

Currently there are 514 districts/cities that doesn’t have internet access. By the end of 2019, telecommunication providers could only manage to connect 57 districts/cities. While another 57 district/cities will be developed through Palapa Ring, added with 28 districts/cities that will have its access strengthened.

For that matter, Rudiantara acknowledges that it isn’t the operator’s responsibility to develop each and every regions in Indonesia. Especially since building communication infrastructures in places outside of their desired districts/cities would not be a feasible business.

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Reduced Industrial Gas Price to be Announced Today
Tempo, 24 November 2016

Coordinating Minister for Economic Affairs, Darmin Nasution confirmed that his office will announce the price reduction of industrial gas today, Wednesday, November 23, 2016. In the coordination meeting last week, state officials decided that they would first reduce industrial gas prices for the petrochemical, fertilizer, and steel industries.

“Yes (it’s reduced), for three industries. It should reduce to below USD 6,” he said on Wednesday, November 23, 2016.

As for other industrial sectors outside the three mentioned sectors, Darmin explained that the government will attempt to reduce prices before the end of this year. “We’ll try to, before the year’s end, we will complete it,” he said.

On Tuesday, November 22, 2016, the Minister of Energy and Mineral Resources (ESDM), Ignasius Jonan, said that the reduction would be announced today. In last week’s meeting, he mentioned that the Minister Regulation is being set in order to support the gas price reduction.

According to Jonan, although the Minister Regulation would be announced this week, the reduced gas prices will start to take effect on January 1, 2017. The ESDM Deputy Minister Arcandra Tahar added that the price reduction would be assigned by his ministry using a certain formula.

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Indonesia to Remove Land Tax for Geothermal Exploration in 2017: Fin Ministry
The Jakarta Globe, 24 November 2016

Indonesia will remove a land tax for companies exploring for geothermal energy resources next year, according to a finance ministry regulation signed last week.

The decree, which was uploaded to the ministry's website on Thursday (24/11), cited that any company that holds a permit for a geothermal business and is still in an exploration stage can receive a 100 percent reduction in land tax every year for up to seven years.

The new rules were intended to "increase the production of renewable energy ... and to support the acceleration of the 35,000 megawatt power project," the decree mentioned, referring to President Joko Widodo's target for Indonesia's power capacity by 2019.

Renewables have so far played little part in Indonesia's power sector, despite the country sitting on the world's biggest geothermal reserves and being bathed in sunshine, crowded out by an abundance of cheap coal and bureaucratic bottlenecks.

But declining costs for renewable electricity and a new push by Widodo to develop renewables in the remote eastern parts of the archipelago are changing the picture.

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Protecting Peatlands, Saving Forests
Tempo, 24 November 2016

Abdul Hamid spends much of his time inside the forest near the Sungai Beras village in East Tanjung Jabung regency at Jambi province. He often checks on the approximately 1,200 vines of black pepper plant (Piper nigrum) that his farmers' group Senang Jaya planted early this year.

"We tried to plant it on a two-hectare peatland area in the forest," said the 42-year-old. Amid, as he is often called, is also the head of the group. The plants have yet to bear the peppercorns, said Amid, because it takes around two years for pepper plants to mature. The farmers expect to see results at the end of 2017.

He explained that although planting pepper was a recent initiative, villagers had planted jelutung (Dyera costulata) trees since 2014 as part of their reforestation program. "Before, we could see that the weather was hotter. Now it is slightly cooler because of the trees," said Amid.

Facilitated by the Indonesian Conservation Community (KKI Warsi), a non-governmental organization involved in conserving natural resources and community development, the villagers participated in the re-wetting and reforestation of peatlands in Tanjung Jabung as an effort to prevent forest fires. Villagers built wooden partitions on the canals so that the water would not flow out of the peatlands, Amid explained.

He added that KKI Warsi held a variety of training sessions for the farmers, to teach them on the different ways of cultivating in forest areas. "For example, we learned how to produce organic compost to fertilize our plants," he said.

In his village, there are six farmers groups with 25 members in each group. They have started to plant different fruit trees around Tanjung Jabung, which will enable them to harvest non-timber products in the future. According to Amid, villagers recently tried planting pineapple on peatland areas.

The farmers have built apiaries in order to produce honey. "We are only at the stage of production development, after we received some training a couple of months ago. We plan to turn [honey] into a commodity that we can sell," he explained.

There are also hopes that the village women will also be given a chance to get the same kind of training. Several forestry products, like rattan, can be used as raw materials to make handicrafts, which would generate more income for the women, who are mostly housewives.

"I want to continue protecting our forest so that everyone can benefit from it, including women it's not just the men who are farmers," said Amid.

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