Honeymoon is over for Boediono

It's almost two months as the coordinating minister for the economy, Dr Boediono has been warmly responded with a stronger rupiah against the greenback, higher stock market index, a lower inflation rate, and new hopes of economic stability and progress.
But being in the post is not just dealing with monetary and fiscal policies, things that earned him so much respects. Boediono, a conservative economist, is confronting some non-monetary and fiscal issues that needs tough decisions and highly sensitive politically.
Huge unemployment due to relatively limited new investment and high-cost economy is the most critical of all especially when so many industries announced mass lay-offs for various reasons, including the planned electricity tariff hike.
From the fiscal perspective, Boediono might choose to raise the tariff as it would ease the burden on subsidies given to state-owned monopolist PT Perusahaan Listrik Negara (PLN). But rasing tariff this time around would risk higher unemployment as most industries and consumers have not absorbed completely the step fuel price hike in October 2005.
State-owned telecommunication company PT Telkom has submitted a plan to raise the telephone tariff up to 30%. (FYI, Telkom booked almost US$1 billion profit last year)
Budget pressure might be higher this year as the country should resume payments of its sovereign loan after one year of break following the Paris Club decision to give the room for Indonesia to cope with the major burden aftermath of the tsunami.
And, while the significant decrease in fuel consumption managed to loosen pressure on budget from high oil price in the last two months, people starts to worry the global oil supply might push the price to the sky amid political development in Nigeria, Iran, and Palestine.
But it's just unfair to raise electricity and telephone tariffs just months after the fuel price hike for the sake of budget balance.
Despite the macroeconomy stability in the last few months, net inflow of capital for fresh investment is still bare minimum. Why? Investors are waiting Boediono's firm decision on several pending issues confronted by major players that normally seen as benchmark.
Indonesia Mining Association (IMA) recently warned government to improve the investment climate in the sector with providing business and legal certainties under the system of contract of work.
PricewaterhouseCoopers cited in its recently published report that even though there has been a significant increase in global exploration spending, exploration spending in Indonesian mining industry remains at low levels, accounted for less than 1.5% of the global spending of US$3.8 billion in 2004.
The recent downtrend in exploration activity can be attributed to the country's lack of legal certainty, security concerns in some remote parts with good mining prospects, and rampant illegal mining.
Few weeks ago I met an executive of Merril Lynch. He believes Boediono could improve the macroeconomy stability. But that's not enough. "We have concerns on some issues like ExxonMobil's project in Cepu. The settlement on Cepu would be a benchmark whether investors want to invest more or pull out and invest in other countries," he said.
The giant oilfield project that needs US$2 billion is yet to start pending the endless dispute between Exxon and Pertamina over who should be the operator of the block.
Little progress has been made in infrastructure projects despite major campaign to lure in foreign investment. Most of toll road projects went to some powerful local business groups. China investors had committed to build some huge powerplants with limited progress.
Textile industry is in a critical situation due to stiff competition with other countries in export market while more and more cheap import garments enter the local market.
An evaluation by the ministry of industry found that half of the machinery at textile companies was more than 15 years old, causing inefficiency and lowering the price competitiveness. A major revitalization program is badly needed and awaits immediate help from government to make use the already committed cheap Japanese loans.
Timber-based industry would continue its downward trend. Last year, 64 furniture firms were closed down due to increasing costs and lack of timber following the government's decision to lower the logging quota for natural forests and the failure in timber plantation program. As export will unlikely to grow, domestic market has been increasingly flooded by imported furnitures. Last year, total furniture imports jumped 78%.
Meanwhile plywood producers in South Kalimantan predicted mass layoffs on 11,800 workers by first semester 2006 due to various problems.
The synthetic fiber manufacturers had announced late last year their plan to layoff 9,000 workers until this year. Some 2,000 workers had been out of the job last year due to fuel price hike, the industry association said.
Bomer Pasaribu, former minister for manpower, predicted up to 1 million workers would join the already 12 million people categorized as open unemployment. That would be a nightmare.
According to Central Bank's statistic, in third quarter 2005, net inflow of foreign direct investment (FDI) was only US$53 million, dropped from US$2.17 billion in second quarter. The numbers were well below the data announced by Investment Coordinating Board (BKPM) that FDI jumped 190% to US$8.9 billion last year. Central Bank's data is more reliable as it recorded the true inflow of capital. BKPM's data should have make more jobs than layoffs.
So, Dr Boediono, it's nice to have you back on board to stabilize the macroeconomy, but that's just not enough. People needs job. We need to invite more investors to create jobs.

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Famine in Papua, shame on us!

President Susilo Bambang Yudhoyono said he would punish government officials who had failed to prevent 55 people in Papua from dying and 112 others from falling seriously ill by food scarcity.
"I ask that this problem be overcome. We must save our brothers (in Papua)," the head of state told participants of a regular course of the National Resilience Institute`s 38rd generation at the State Palace here Friday.
Well, Mr President, Papuans saved our life for so many years thanks to their generosity to let us exploiting the region's rich natural resources. They should be the beneficial owners of the resources and do not deserved such humiliation of famine.
The President made the statement following news reports that 7 out of 14 subdistricts in Yahukimo district at the center of Jayawijaya mountain were suffering from a food shortage which had already killed 55 people and make more than 100 others sick.
The food scarcity is threatening the lives of some 15,000 to 200,000 Yahukimo residents.
Shame on us! Officers are bussy to polish their image, spending a lot of money from the state budget to place advertisements for their own good. One of ministers is willing to pay US$10,000 a day for ads in five national newspapers only to say that he is good enough as a minister. He spent US$40,000 in the last four days already.
Our legislators enjoy super-high salary that enough to feed thousands of people. Our officers enjoy trillions of rupiah from illegal logging in Papua. Hundreds of millions US dollars in tax and non-tax flows to Jakarta each year. We should not let one single person in Papua to die of famine.
House Speaker Agung Laksono put the blame on leaders negligence. But most likely the problem is worse than that. Poor infrastructure for example. Agung was right when he said that if natural disasters such as floods affected the people, it would be understandable. But if what happened was famine, then it indicated that there were mistakes in the government`s infrastructures so that the incident was taking place undetected.
Agung suggested that the government should improve the existing infrastructural facilities to open isolations of villagers in remote areas so that they would no longer experience protracted shortage of food.
More money, off course not necessarily solve the problem in Papua. Newspapers reported involvement of Indonesian military and police officers in illegal logging operations in West Papua, and noted its corruption of local officials to facilitate the operations.
In fact the more the money flows back to Papua, the bigger the amounts corrupted. Remember sometimes ago when a regent in Papua involved in a US$10 million corruption case and Papua governor accused minister of forestry took US$5 million from reforestration fund?
In August 2005, Papua legislators asked President SBY to immediately establish a team to investigate irregularities in the spending of around US$600 million funds disbursed by central government under the special autonomy arrangement in the last three years.
A stupid math would result a US$4,000 per Papuan, three times the national per capita income and that would ensure no Papuans should die for hunger.
Multinational companies like Freeport McMoRan made huge profits from their mining operations. Next year Beyond Petroleum would start the US$3 billion liquefied natural gas (LNG) project.
Oh, shame on us!

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TNI to leave businesses in two years, No more comprador capitalists?

Indonesian military (TNI) said Tuesday it would abandon its lucrative enterprises within two years as part of reforms of the once-powerful armed forces.

"Whether (their assets) amount to one trillion rupiah or five million, they will no longer exist in two years," TNI chief Gen. Endriartono Sutarto quoted by The Jakarta Post today.

Sutarto urged government to balance the policy with an increase in the military budget and soldiers' welfare payments.

The general admitted that some of the businesses had produced "negative effects" even if they were profitable. He did not elaborate, but there have been allegations Indonesian military businesses have been involved in poaching, illegal logging and other unlawful activities.

Under laws recently passed by parliament (Law No.34/2004), commercial ventures acquired by the military during the rule of dictator Soeharto when the armed forces enjoyed a free hand must be surrendered within five years.

The erosion of the military's power after Soeharto's fall has also meant fewer opportunities to take advantage of the various businesses and foundations that it has run for more than five decades.

The Indonesian military's budget is among the lowest in Southeast Asia with the government meeting just about 30 percent of it. The rest is funded through business ventures. These businesses support military operations and increase the welfare of military personnel, their families, and civilians involved.

In the 2003 budget, military got Rp24.7 trillion from the state budget. They were asking for Rp50 trillion for the current year budget, but parliament only approved half of it.

General Sutarto’s statement indeed is good news. But what he really means is direct participation of military foundations in business activities. Critics say the military's involvement in business activities increases corruption and undermines military professionalism.

"There are no real business people in the military," says political scientist Indria Samego in an interview with Asia Times few years go. "They are all rent-seekers."

Samego described soldier-businessmen as "comprador capitalists" who restrict competition and promote corrupt and collusive practices.

Soldiers have their fingers in almost every industry with corporate wealth of the armed forces is estimated at more than $8 billion.

Take a look at these facts.

The army has Yayasan Kartika Eka Paksi-a charitable foundation-with more than 64 companies. Their businesses ranging from banking, forestry, telecommunications, mining, property, aviation, insurance, travel and even higher education. The foundation even has direct shareholding in four banks. Bank Artha Graha is the largest, where YKEP has 20% shares.

Other important subsidiary is PT Tri Usaha Bhakti (Truba). Truba is one of shareholders in PT Cilegon Fabricators, a joint venture with Ishikawa Jima (Japan) and Jurong Engineering (Singapore).

Truba also the largest shareholder in PT Truba Jurong Engineering (TJE) with 48% shares. The company is a leading engineering company in Indonesia. Since its establishment 25 years ago, TJE has become the leading power and industrial plant contractor in Indonesia. TJE has completed a large number of Industrial Plant construction that covers 12 Cement Plants, 8 Fertilizer Plants, 30 Chemical & Petrochemical Plants, 15 Oil and Gas processing facilities and about 20 Pulp & Paper Plants and many more.

Army Strategic Reserve Command (KOSTRAD), is one of the strongest business player in Indonesia. KOSTRAD-linked foundations are also a direct shareholder in several companies, such as Mandala Airlines and PT Bank Windu Kentjana.

In an interview with Tempo last year, Navy Chief of Staff Bernard Kent Sondakh admitted navy only has six companies, significantly dropped from 26 before the deliberation of Indonesia Military Law No.34/2004. Out of six companies, only one (land/building rental in Cilandak, Jakarta) that is really profitable with net income of Rp13 billion per year.

“While every Lebaran (Moslem holiday marks the end of Ramadhan/fasting month), we have to disburse at least Rp15 billion to our soldiers. So we still have to fill the gap,” he said.

Navy also has foundations that run education services from kindergarten to university. But Navy denied those foundations is regarded as business enterprises.

Navy will close down tens of military bases, which, according to Commodore Kent, utilized by his men to make money from sailors and fishermen.

Air force has two main business vehicles, Yayasan Adi Upaya and Inkopau, through which it control Bank Angkasa and PT Cardig Air (cargo services) among others. Just to get the sense of Inkopau’s business, visit their website www.inkopau.com. It is the money from this organization that used to build houses for air force soldiers.

Their business ranging from aviation (spare parts for aircraft, commercial and military), hotels, construction, general trading, military shoes manufacturing, and freight forwarding.

While it might be easy to surrender these businesses to private sector or government (let say under state-owned enterprises ministry), it is harder to strip off high rank officers’ informal protection on private enterprises in what Indonesian normally identify as beking or what analysts termed as comprador capitalists.

It is common practice that conglomerates in Indonesia have their military patron informally and secretively. This is the biggest challenge in the coming years for president Susilo Bambang Yudhoyono, a retired general known as military reformist.

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