INDONESIA TRADE AND INVESTMENT HIGHLIGHTS - DECEMBER 2006

UNCLAS SECTION 01 OF 03 JAKARTA 000049

SIPDIS

SIPDIS

DEPT FOR EB/TPP/MTA AND EAP/MTS
TREASURY FOR IA-SEARLS
USDOC FOR SBERLINGETTE/4430
DEPT PASS USTR DKATZ

E.O. 12958: N/A
TAGS: ETRD EINV ECON KIPR ID
SUBJECT: INDONESIA TRADE AND INVESTMENT HIGHLIGHTS - DECEMBER 2006



1. Summary: The Indonesian Textile Association announced on
December 7 that Indonesia's textile and garment exports reached $7.2
billion for the first nine months of 2006, and should meet earlier
projections of $9 billion for 2006. Director General for
International Trade Diah Maulida stated on December 26 that
transshipments through Indonesia continue to flourish and more
effort is needed in 2007 to implement regulations designed to curb
these activities. The Government of Indonesia (GOI) announced on
December 21 plans for the State Logistics Agency (BULOG) to import
500,000 tons of rice in January and February 2007 and distribute
600,000 tons of rice to Indonesia's poor the next few months in an
effort to stabilize rapidly escalating rice prices. On December 27,
the Jakarta Metropolitan Police destroyed 2.4 million pirated
optical discs seized in raids on vendors, distributors and factories
since July 2006. The Ministry of Marine Affairs and Fisheries
announced on December 1 that the European Union has dropped plans to
impose an embargo on Indonesian fisheries products following
Indonesia's adoption of new quality control standards. End
Summary.

Textile and Garment Exports Show Continued Growth
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2. Executive Secretary of the Indonesian Textile Association (API)
Ernovian Ismy told the press on December 7 that based on Indonesia
Central Statistics Agency (BPS) and Ministry of Industry (MOI)
figures the API expects Indonesia's textile and garment exports to
reach $10 billion in 2007, increasing from a projected $9 billion in

2006. Textile and garment exports from January to September 2006
were $7.2 billion, an increase of 10.8% over the same period in

2005. Ismy expressed optimism that Indonesia would meet its $9
billion export target for 2006, and that a $10 billion forecast for
2007 is realistic.


3. The textile and garment industry is one of Indonesia's largest
foreign exchange earners, contributing $8.6 billion in exports in
2005, 14.9 percent of total non-oil and gas exports and
approximately three percent of Gross Domestic Product. In 2005,
Indonesia ranked number 11 globally among textile exporters with a
1.6% world market share, and number nine in garments with a 1.7%
world market share. Ismy claimed, however, that BPS and Ministry of
Industry data indicate the Indonesian textile and garment industry's
share of the domestic market declined dramatically to 36% in 2005
from 75% in 2004 (300,960 tons in volume in 2005, compared to
661,500 tons in 2004) due to a flood of cheap imports being smuggled
into the country.

GOI Takes Steps Against Transshipments
--------------


4. Ministry of Trade (MOT) Director General for International Trade
Diah Maulida admitted on December 26 that the MOT needs to a better
job in 2007 to curb transshipments. Maulida issued Director General
for International Trade Regulation No. 4/2005 on October 7, 2005
limiting the issuance of Indonesian Certificates of Origin (COOs)
for sensitive items like shrimp, textiles, garments and footwear to
just 14 of 85 provincial offices. Maulida, however, admitted that
the MOT needs to strengthen implementation of the regulations since
transshipments of goods through Indonesia continues to flourish.
Maulida noted that companies from some countries, including China,
use Indonesia to transship their exports and avoid U.S. and the
European Union trade restrictions.


5. Regulation No. 4/2005 limits the issuance of COO's for
Indonesian textiles, garments and footwear to 14 provincial trade
offices:

-- North Sumatra;
-- Riau;
-- Jakarta;
-- West Java;
-- Central Java;
-- East Java;
-- Bali;
-- Jogjakarta;
-- Surakarta;
-- Riau Island;
-- Batam Industrial Development Authority;
-- Cakung Bonded Zone, Jakarta;
-- Tanjung Priok Bonded Zone, Jakarta; and
-- Marunda Bonded Zone, Jakarta;


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6. The regulation also limits issuance of COO's for Indonesian
shrimp to 14 provincial trade offices:

-- North Sumatra;
-- South Sumatra;
-- Lampung;
-- Jakarta;
-- West Java;
-- East Java;
-- Central Java;
-- South Sulawesi;
-- South Kalimantan;
-- East Kalimantan;
-- Tarakan, Kalimantan;
-- South East Sulawesi;
-- Cirebon Regency, West Java; and
-- Bali.

GOI Decides to Import Rice as Prices Rise
--------------


7. In the face of continuing increases in domestic rice prices,
including an eight percent spike during the first three weeks of
December, the GOI announced on December 21 that the National
Logistics Agency (BULOG) would import 500,000 tons of rice during
January-February 2007. The GOI also announced that BULOG would
distribute up to 600,000 tons of rice to Indonesia's poor in the
coming months. The moves follow an October 2006 World Bank report
identifying increases in rice prices as the leading cause of a
higher incidence of poverty. Rice accounts for 25 percent of poorer
Indonesian's regular daily expenditures. National Statistics Agency
(BPS) surveys indicate that wholesale rice prices rose 27 percent
from November 2005 to November 2006 on the back of a 33 percent
increase during the same period a year earlier. Consequently,
higher rice prices have contributed significantly to the increase in
the incidence of poverty from 16.0 percent in 2005 to 17.8 percent
in 2006.


8. The GOI banned rice imports in 2004, and up until recently had
renewed the ban every six months, with the exception of allowing
BULOG to import 210,000 metric tons on October 2, 2006. Although it
has agreed to allow BULOG to import a set amount of rice through
February, it is uncertain if the GOI will maintain its general ban
on rice imports at the end of December 2006. BULOG, a quasi-private
organization, maintains a rice stock for distribution to the poor or
victims of natural disasters at subsidized prices, which it releases
at the behest of the GOI. Current GOI policy prohibits BULOG from
importing rice unless its stocks fall below 1,000,000 tons. In
recent months, GOI ministers, rice distributor and farmer
associations have voiced varying opinions about the size of BULOG's
rice stocks, the need to import rice to stabilize domestic prices,
and the GOI's overall rice policy.

Police Conduct Optical Disc Destruction Ceremony
-------------- ---


9. Metropolitan Jakarta Police on December 27 held a destruction
ceremony of 2.4 million pirated optical discs and three optical disc
burner stacks as part of their continuing efforts to improve
intellectual property rights (IPR) enforcement and protection. In
2006, Jakarta Police seized more than 8.3 million video, music and
software optical discs. During the ceremony, Jakarta Police
estimated that piracy caused Rp 29 billion (US$ 3.2 million) in
state losses from unpaid taxes in 2006. Jakarta Police said that
more than 500 people were arrested in 2006 on suspicion of
involvement in piracy and related crimes. Ministry of Justice
Director of Copyrights Ansori Sinungan expressed hope that the
Indonesian public would take a more active role in fighting piracy.


EU Drops Embargo Plan for Indonesian Fishery Products
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10. Ministry of Maritime Affairs and Fisheries Director of
Standardization and Accreditation Setia Mangungsong announced on
December 1 that the European Union (EU) would not impose an embargo
on Indonesian fishery products as it had earlier threatened.
According to Mangungsong, the EU has accepted quality control
standards recently adopted by Indonesia for exports of its fishery
products. He added that an EU inspection team plans to visit
Indonesia in early 2007. An official at the European Union (EU)
Mission in Jakarta clarified that, following the results of 2005

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inspections, the EU has required testing of samples from all
containers of fisheries products originating from Indonesia since
January 2006. Importers are required to pay the costs of the
samplings and tests. The EU official added that, based in part on
recent GOI efforts to improve regulation of fisheries exports, the
EU does not intend to take any further measures at this time.

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Table 1: Indonesia Trade Performance Jan-Nov 2006
(in USD billions)
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2005 2006 Pct
Jan Jan YoY
Nov Nov (1)
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Exports 77.5 91.2 17.7
Oil and Gas 17.4 19.3 10.9
Non-oil and Gas 60.1 71.9 18.0

Imports 52.8 56.1 6.3
Oil and Gas 16.1 17.6 9.3
Non-oil and Gas 36.7 38.5 4.9

Balance of Trade 24.7 35.1 42.1

(1) Percent increase year-on-year.

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Table 2: Indonesia's Top Non-Oil and Gas Exports
Jan-Nov 2006 (in USD billions)
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Commodity 2005 2006 Pct of
Jan- Jan- Total
Nov Nov 2006
-------------- --------------
Electrical tools 6.66 6.65 9.25
Coal 4.17 5.86 8.15
Crude Palm Oil 4.54 5.30 7.38
Rubber and rubber products 3.22 5.15 7.16
Ash and Residues 2.97 4.22 5.88
Machinery/mechanical tools 4.13 3.98 5.54
Garments - not Knitted 2.77 3.06 4.26
Wood and wood products 2.84 2.99 4.16
Copper 1.14 1.83 2.55
Chemical Organic 1.41 1.71 2.38

Total top 10 products 33.87 40.77 56.71
Other 26.26 31.12 43.29
Total non-oil and gas exp 60.13 71.89 100.00

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Table 3: Indonesia's Main Non-Oil and Gas
Export Destinations
Jan-Nov 2006 (FOB value, in $ billions)
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Country of 2005 2006 Percent of
Destination Jan-Nov Jan-Nov Total (2006)
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Japan 8.72 10.93 15.20
European Union 9.24 10.77 14.98
U.S.A. 8.63 9.78 13.60
Singapore 6.43 7.07 9.84
China 3.60 4.95 6.89
Malaysia 2.96 3.52 4.90
South Korea 2.23 3.12 4.35
Taiwan 1.64 2.06 2.86
Australia 1.02 1.36 1.89
Others 15.65 18.32 25.49
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Total 60.13 71.89 100.00

Source: Central Bureau of Statistics (BPS)

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