INDONESIA - ECONOMIC AND FINANCIAL HIGHLIGHTS APRIL

UNCLAS SECTION 01 OF 03 JAKARTA 005852

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TAGS: EFIN EINV ECON PGOV ID
SUBJECT: INDONESIA - ECONOMIC AND FINANCIAL HIGHLIGHTS APRIL
2006



1. Summary. April year-on-year (YoY) inflation fell
slightly to 15.4 percent from 15.74 percent in March,
continuing an expected gradual downward trend. Bank
Indonesia cut interest rates by 25 basis points to 12.5
percent on May 9, a widely expected move in light of
inflation easing. The Indonesian rupiah continued to
appreciate against the U.S. dollar in April 2006, closing at
8,775 per USD on April 28. The rupiah has strengthened more
than 10 percent since the beginning of the year. Bank
Indonesia's (BI) foreign exchange reserves in April
increased to USD 42.8 billion based on increasing export
proceeds and overseas portfolio investment inflows. Three
of Indonesia's largest state-owned banks met with the
Minister for State-Owned Enterprises and reportedly
committed to provide Rp 7 trillion (USD 777.8 million) to
finance infrastructure projects in 2006. The Government of
Indonesia (GOI) approved in April the sale of its remaining
ownership shares in two banks, Bank Permata (26.16 percent)
and Bank Internasional Indonesia (5.52 percent). Japan
announced USD 796 million of loans to Indonesia for
infrastructure and development projects. End Summary.

Inflation Continues to Decline
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2. On May 1, the Central Bureau of Statistics (BPS)
announced that consumer price inflation grew 15.4 percent
YoY in April 2006, and a negligible 0.05 percent month-on-
month (MoM). A large, 0.85 percent decrease in foodstuff
prices balanced off significant increases in prepared food,
housing, clothing, and health care prices. According to
several private investment banks, core inflation eased to
9.4 percent YoY (compared with 9.6 percent YOY in March) and
0.4 percent MoM.


3. With the decrease in YoY and MoM inflation rates, Bank
Indonesia (BI) cut interest rates 25 basis points to 12.5
percent at its May 9 monetary policy meeting, a widely
expected move. BI had been tightening since August 2005 and
kept interest rates steady at 12.75 percent since December
6, 2005. BI Senior Deputy Governor Miranda Goeltom had told
the press on May 4 that BI would not reduce interest rates
to a level that would undermine the competitiveness of
rupiah-denominated assets. Miranda said she was confident
that the 2006 inflation target of eight percent could still
be met.

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Table 1: Inflation Components - April 2006
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Component MoM YoY
--------------
Foodstuffs -0.85 16.38
Prepared food, beverages, 0.43 12.67
Tobacco
Housing, water, electric, fuel 0.42 12.82
Clothing 0.70 8.27
Health 0.58 7.34
Education, recreation/sports 0.09 7.87
Transportation, communication 0.07 30.75
and financial services
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Total 0.05 15.40
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Source: Central Bureau of Statistics (BPS)

Rupiah Stays Strong Against USD
--------------

(T{@\Txing over ten percent since
the beginning of the year. The rupiah closed at 8,775 per
USD on April 28. BI's Deputy Governor Aslim Tadjuddin
reportedly commented on April 18 that it is important to
prevent excessive volatility in the rupiah. He said BI
would not set a target for the rupiah as the country has a
floating-rate system. Coordinating Minister for the Economy
Boediono said told a group of journalists on April 20 that

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authorities only intervene marginally to reduce extreme
currency fluctuations.

BI Foreign Exchange Reserves Increase
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5. Bank Indonesia (BI) reported its foreign exchange
reserves as of the end of April were USD 42.8 billion, up
from USD 34.7 billion at the end of 2005. Rising export
proceeds along with continued inflows of portfolio
investment were contributing factors.

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Table 2: Indonesia's FX Reserves April 05-April 06
-------------- --------------

Month USD billion
-------------- --------------

April 05 36.4
May 05 34.6
June 05 33.9
July 05 32.2
August 05 31.2
September 05 30.3
October 05 32.6
November 05 33.2
December 05 34.7
January 06 35.1
February 06 35.5
March 06 40.1
April 06 42.8

Source: Bank Indonesia

State Banks to Help Finance Infrastructure Projects
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6. On April 11, senior managers of state-owned Bank Mandiri,
Bank Rakyat Indonesia (BRI) and Bank Negara Indonesia (BNI)
met with State Minister for State-owned Enterprises
Sugiharto and managers of state companies planning
infrastructure projects. The banks reportedly committed to
provide Rp 7 trillion (USD 777.8 million) to finance
infrastructure projects in 2006. On April 15, the head of
the GOI team for infrastructure financing, Dr. Raden
Pardede, reportedly said the GOI is considering allowing
private companies participating in government-sponsored
infrastructure projects to issue long-term (10-20 year
maturity) rupiah-denominated corporate bonds. The bonds
would help finance existing infrastructure projects as well
as replace short-term bank loans, Pardede said. "The scheme
is still being discussed with the Capital Market Supervisory
Agency (BAPEPAM)," he said.

Government to Sell Shares in Bank Permata and BII
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7. The State-Owned Asset Management Company (PT Perusahaan
Pengelola Aset or PPA),the successor organization to the
Indonesia Bank Restructuring Agency, plans to sell the
remaining GOI shares in Bank Permata and Bank Internasional
Indonesia (BII) in 2006, according to press reports. PPA
Vice President Director Raden Pardede said the company had
received GOI approval in April. PPA also plans to appoint a
financial advisor for additional divestments scheduled for
the second half of 2006. The GOI owns a 26.16 percent share
in Bank Permata and 5.52 percent share in BII. Table 3
below outlines GOI shareholdings in majority private
Indonesian commercial banks.

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Table 3: GOI Bank Ownership - May 2006
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Banks Percent
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Bank Permata 26.16
BII 5.52

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Bank Niaga 5.2
Lippo Bank 2.5
BTPN 28.4
May Bank 6.1

Japan Provides Infrastructure Loans
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8. In a press statement on March 31, Japan announced it
would provide Indonesia USD 796 million in new loans to fund
a number of infrastructure projects and development
programs. The statement said the loans aim to improve
Indonesia's investment climate and human resource
development, as well as support the macroeconomy and ongoing
governance reform. The loans have an annual interest of 0.4
to 1.5 percent, with a 30-40 year maturity. The new loans,
which bring Japan's aggregate loans to Indonesia to about
USD 34.5 billion, will finance several projects. These
include the construction of the Tanjung Priok Port access
road (USD 228 million),the Asahan No 3 hydroelectric power
plant in North Sumatra (USD 237 million); the Kamojang
geothermal power plant extension (USD 8 million, for
engineering services only); an integrated water resource and
flood management project in Semarang (USD 140 million); and
projects to develop the human resources of local, provincial
and central governments (USD 83 million).

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Table 4: Selected Economic, Financial, and Trade
Statistics, Jan - April 2006
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Jan Feb Mar Apr
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CPI inflation (YoY) 17.03 17.92 15.74 15.4

CPI inflation (MoM) 1.36 0.58 0.03 0.05

Rp/USD Exch. rate(1) 9,392 9,185 9,075 8,775

30-day SBI rate (1) 12.75 12.74 12.73 12.75

Foreign Res. (USD bn)(1) 35.1 35.5 40.1 42.8

JSX Composite Index(1) 1232.3 1230.7 1323.0 1464.4

Exports (USD billion) 7.51 7.35 7.45

Percent change (YoY) 22.54 15.18 2.76

Imports (USD billion) 4.27 4.51 4.35

Percent change (YoY) 3.58 4.47 -12.65

Trade Balance 3.24 2.84 3.10

Source: Bank Indonesia, BPS, JSX
(1) End of period

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