Commentary: Certainly not crisis in economic fundamentals but in confidence

Vincent Lingga, The Jakarta Post, Jakarta | Headlines | Thu, August 29 2013, 9:38 AM

Bank Indonesia (BI), like central banks in other major emerging economies, has been in a dilemma over the past weeks due to massive capital outflows, because in order to keep more money in the country and tame inflation, interest rates need to rise. 

But higher interest rates would make it harder for local companies to borrow, potentially causing a credit crunch and limiting economic growth.

What a strikingly different situation it is now compared to the period between 2010 and early this year, when Indonesia was still the darling of foreign direct and portfolio investors.

Indonesia had become the main destination of short-term portfolio capital from Europe and the United States, pushed out by their easy monetary policies. The huge capital inflows were pulled in by a robust economic outlook and high interest rate differential in Indonesia.

Even though it is widely recognized that the size and volatility of the flows created risks to financial stability through the build-up of financial imbalances, the liquidity management ran well as the government made the right policy responses to the capital inflows.

Structural reforms were implemented to improve the capacity of the economy to absorb the capital inflows and channel them into productive investment. The domestic bond and equity markets were deepened, and financial regulations and supervision were strengthened.

Put briefly, disciplined macroeconomic management, encompassing fiscal, monetary and exchange rate policies were able to well manage capital inflows and contain the buildup of excesses in specific sectors of the banking system.

But the eventual recovery in the US and the Federal Reserve signaling last May that it would soon tighten its money policy caused sudden stops and, finally, capital reversals. 

After rejoicing over the sharp rebound of capital inflows from 2010 to early this year and robust economic growth of around 6 percent, Indonesia suffered the brunt of a sudden reversal in flows, unleashing tremendous downward pressure on the rupiah and equity prices.

The cascading impact of the upcoming tighter money policy by the US Fed and the series of distortive economic and business policies made by narrow-minded politicians and mounting economic nationalism have prompted portfolio investors to offload their rupiah assets and turn to more secure dollar assets that promise higher returns.

Fortunately, though, the debacle has not escalated to panic, especially because the offloading of rupiah financial assets was part of a general sell-off of Asian shares and currencies, prompted by fears that the forthcoming US Fed money tightening would raise bond yields.

The Jakarta benchmark stock market index has thus far dropped by almost 20 percent from its all-time record in May and the rupiah lost almost 12 percent, going down to as low as that at the height of the global crisis in early 2009.

The big question now is why is it Indonesia has seemed to suffer the most severely, compared to other Southeast Asian countries? And why Indonesia’s long-term growth path seems to have taken such a negative turn just in the past few months?

The answer is that the good times lulled policymakers and many politicians into hubris, resulting in a series of distortive policies in various economic sectors and the bashing of foreign companies (investors) amid the increasingly pervasive corruption in such key sectors as the law enforcement agencies and oil and gas industry. 

Over the past year, the government has introduced distortive regulations in the petroleum and general mining and banking industries and erected more non-tariff barriers to imports of such vital commodities as food and livestock.

The regulation requiring investors in the mining sector to build smelters is good to generate higher added value. But the time schedule set for this rule is technically and commercially impossible in view of the huge additional investment needed to build smelters. 

Yet even more damaging is the rule that accelerates the compulsory divestment by foreign mining investors to national interests at a time when they are required to put up huge sums of additional investment.

Likewise, the central bank cut the maximum limit on the foreign ownership of a national bank to 40 percent from 90 percent without an adequate transition period, unnecessarily creating uncertainty for foreign investment in the capital-hungry banking industry. 

Consumers were hurt by steep increases in the prices of horticultural products and beef due to protectionist trade policies that did not bring any benefits to local producers.

In the meantime, while new investment in oil exploration and oil production has steadily declined, politicians at the legislature have stubbornly demanded drastic amendments to the 2001 Oil and Gas Law, which they perceive to be too strongly biased toward foreign interests.

Given the upcoming presidential and legislative elections next year, many are afraid that whatever amendments are made to the oil law will be too nationalistic. 

No wonder, business leaders taking part in the panel discussions at the Singapore Channel NewsAsia’s Business Insights Indonesia here on Wednesday saw the latest turmoil in the financial market as a strong wake-up call for the government to restore confidence through a faster pace of reform measures. 

As the London-based Economist weekly news magazine observed last week, “In good times, Indonesia might have been able to afford the luxury of such posturing. But those times, all of a sudden, are over. Now that profit margins are coming under pressure, many foreign investors will begin to look elsewhere, just at the moment when Indonesia might need them most.”

Commentary: Permissiveness
on big cash deals, holdings
spur malfeasance

Vincent Lingga, The Jakarta Post, Jakarta | Commentary | Thu, August 22 2013, 9:58 AM
What stuck in our throat after last week’s arrest of Rudi Rubiandini — who was then chief of the upstream oil regulatory body (SKKMigas) — was the easy way in which senior officials, and even a Cabinet minister, accepted the discovery of stashes of big sums of cash.

There seemed to be no outcry, nor surprise, about the concealment of hundreds of thousands of dollars in briefcases, bank deposit boxes and shopping bags. 

“The money could simply be operational funds,” noted Energy and Mineral Resources Minister Jero Wacik in reference to US$200,000 found stuffed inside a suitcase at the office of the ministry’s secretary-general, Wayono Karno. This spontaneous, almost off-hand, remark really insults the public intelligence. 

Jero, a prominent member of the ruling Democratic Party, seemed unsurprised by the booty unearthed during the unscheduled search by the Corruption Eradication Commission (KPK). The sweep at his ministry followed on the heels of Rubiandini’s arrest. 

Even in the face of $700,000 in bank notes found at his home Rubiandini strongly denied corruption.

“I didn’t commit any act of corruption. I only accepted gratifications,” said Rubiandini, a — formerly — highly respected professor at the prestigious Bandung Institute of Technology.

He showed no sense of remorse.

Two days after his arrest, KPK officials seized another $320,000, also in cash, from his deposit box at state-owned Bank Mandiri, as well as another $20,000 and S$60,000 and 180 grams of gold at a strong box in his office at SKKMigas.

A local executive from Singapore-registered Kernel Oil Ltd has also been implicated in the delivery of the huge sums of money; accordingly, it is of no surprise to learn that Kernel Oil also happened to have accounts at Bank Mandiri. 

We should uphold the principle of presumption of innocence until proven guilty. 

However, in whatever way we see or define it, the accumulation of such a huge amount of cash could have been motivated by some malicious intent to commit malfeasance — if not corruption, it could be tax evasion or money laundering. Whatever the case may be, they all breach the law.

Banks, and their ATMs, operate across this vast archipelago and technology has made electronic transactions quite easy and relatively safe, so, why squirrel away such a large amount of rupiahs — let alone foreign currencies?

Many huge, dubious, cash deals involving dirty money derived from unlawful practices have escaped the attention of the Financial Transaction Reports and Analysis Centre (PPATK), which is in charge of enforcing the 2002 Anti-Money Laundering Law.

Not for wont of trying though — the PPATK claims to have filed thousands of reports on suspicious financial transactions to the National Police, the Attorney General’s Office and the KPK, but very few ended up in courts.

Welcome to the land where big-cash transactions are still the norm rather than the exception and money laundering is the game in town.

Cash deals remain the preferred mode of transaction for corruptors and other big criminals because the absence of a paper trail ensures they stay off the radar of tax officials.

Even lawyers, those supposedly “well-versed” in the Anti-Money Laundering Law, consider it the norm for officials or police officers to live beyond their official means.

Look at how the high-calibre team of defense lawyers for former police Insp. Gen. Djoko Susilo, currently on trial over charges of corruption in the procurement of driving simulators, which cost the state millions of dollars in losses, shamelessly paraded more than half a dozen witnesses in front of the court in support of his innocence.

Subekti Hadianto, one of the witnesses, claimed Djoko invested Rp 200 million in his jewelry business, which until 2010 alone produced total profits of Rp 14.5 billion that he had handed over to Djoko. But when one of the judges asked Subekti to produce documents to support his claims, he said all the transactions had been done in cash without any documents.

Other witnesses claimed to have been engaged in property and credit deals with Djoko worth billions of rupiah, but again all the deals were made in cash without any documents.

Yet, the defense lawyers still gave them their day in the court last month to support Djoko’s claims that his huge assets were the result of legitimate businesses.

Large sums of dirty money can still easily be laundered because not all financial institutions, property developers or car dealers report transactions worth more than Rp 500 million to PPATK.

The central bank has imposed a “know-your-customer” code of conduct on banks to help detect transactions that do not fit with the profile of their clients, but keen competition for deposits or big customers often prompts banks and other companies to compromise on the code for fear of losing big customers.

Commentary: Singapore loses much more than Indonesia in DBS decision

 Vincent Lingga, The Jakarta Post | Fri, August 02 2013, 

The sudden changes in the bank ownership rules made by Bank Indonesia only three months after Singapore’s DBS Bank announced in April 2012 its plan to acquire Bank Danamon, the sixth largest bank in the country, caused the deal to collapse on Wednesday.

DBS, Southeast Asia’s largest bank by assets, announced it had dropped its plan to acquire Singapore government investment company Temasek’s 67.40 percent holding in Danamon because it was allowed to initially hold only 40 percent of the bank, as required by the new rules.

Singapore lost a lot, especially in the run up to the ASEAN economic community in 2015. Indonesia, on the other hand, only lost a little in what seemed to be a short-sighted decision by DBS.

The corporate decision by DBS may not bode well for its rapport with Bank Indonesia. Neither did that move seem to bear the hallmark of Piyush Gupta, the usually visionary CEO of DBS. That decision also would not augur well for the seemingly “perpetual” testy relations between the two governments, taking into account the official stamp in both DBS and Temasek.

True, a minority stake is certainly less attractive as DBS will not be able to fully steer Bank Danamon in the direction it desires.

But the US$7.2 billion (the value of the original deal) question is why DBS did not feel comfortable with the initial deal, while waiting for an eventual controlling ownership — which is still allowed by Bank Indonesia under certain conditions tied to good corporate governance and financial health.

After all, even after the initial deal, the other major shareholder in Danamon will remain to be Temasek, which also controls DBS through its subsidiaries.

Despite the requirement for DBS to put up more core (Tier 1) capital, as required by the capital adequacy rules of the Basel-based Bank for International Settlement, a 40 percent holding in Danamon, one of the most profitable and best-managed banks in Indonesia, is still quite strategic for boosting the pace of DBS’ operation, growth in the country.

Depending only on organic growth through its wholly-owned subsidiary Bank DBS Indonesia will take a very long time to expand across the vast archipelago.

The short-sighted decision to cancel the deal will cause DBS to lose the momentum to grow robustly in Indonesia, which is still the most lucrative banking market and most profitable lending market in the region.

Where else could DBS get an average lending margin of almost 7.5 percent, four times larger than in Singapore and where else DBS could find a market in the region with such a huge potential, other than Indonesia, the $1 trillion economy with a population of more than 240 million.

There is indeed uncertainty about the chance of eventually gaining controlling ownership of Bank

Danamon because it depends on Bank Indonesia’s discretionary power — the assessment of DBS corporate governance rating and financial health.

But why should DBS, well known for its excellent corporate governance and strong financial health, worry at all about those requirements. It will never be able to become a leading bank in Asia without having a strong footing in Indonesia, India and Hong Kong.

For DBS, the acquisition will give it access to Danamon’s more than 3,000-branch network that serves over six million customers, larger than the population of Singapore.

The Monetary Authority of Singapore (MAS) also seemed too rigid in responding to Bank Indonesia’s demand that DBS’ acquisition of Danamon is tied to wider access for Indonesian banks to enter the Singaporean market.

Since Singapore needs Indonesia much more than the other way around, we cannot understand why MAS did not make the terms easier for Indonesian banks to enter Singapore. They would not pose any significant challenge to Singapore’s banks nor the other giant international banks in the city-state.

MAS may be worried a compromise for Indonesia with regards to the terms for foreign bank entry could set a precedent for other countries to demand similar treatment.

But the three local banks, DBS, UOB and OCBC have so strongly been entrenched in Singapore that it would be rather impossible for foreign banks to make a significant dent on the corporate and retail banking market.

To put it briefly, both Indonesia and Singapore would benefit greatly from a DBS-Danamon merger.

First of all, a DBS-Danamon merger will bring in a more significant competitor to Indonesia’s four largest banks — state-owned Bank Mandiri, BNI, and BRI and Bank Central Asia — thereby, making

the banking market even more competitive and consequently more efficient.

Most important is that the DBS-Danamon deal would have benefitted Indonesia’s banking industry through the transfer of skills, expertise in risk management and other best practices of good governance, as well as wider access to new sources of long-term foreign exchange financing for infrastructure development.     

View Point: Mining investors encounter legal landmines

Another bombshell in the hydrocarbon industry: The Jakarta Corruption Court this week jailed three executives from Chevron Pacific Indonesia, the largest oil producer in the country, in a controversial case that should have been handled as a civil case.

Reports said the debacle faced by PetroChina after 14 of the 140 oil and gas wells in its Jabung concession were sealed off by Tanjung Jabung Timur regency administration in Jambi province on May 24 remained unresolved despite intervention by SKKMigas, the upstream oil regulatory body.

SKKMigas, which represents the central government in dealing with all oil mining contractors, seems unable to deal with the local administration even though its unilateral act of sealing off the wells was a blatant breach of the law.

There seemed to have not been any sense of urgency at all in resolving the problem even though the closure of the wells caused an estimated daily output loss of 435 barrels of oil and 11.01 million standard cubic feet of natural gas.

Based on the 2001 oil and gas law, companies prospecting and developing hydrocarbon resources are treated simply as contractors even though they are fully responsible for putting up all the investment and bear all the risks in the mining venture. Fixed assets procured for the concession and the oil and gas wells developed within the block belong to the state (central government), not regional administrations.

No wonder a production-sharing contractor is required to get SKKMigas’ approval for its annual spending/investment program. Yet more mind-boggling were the points of disagreement between PetroChina and the Tanjung Jabung administration.

The local administration demanded Rp 50 million (US$5,000) per well as an annual licensing fee. This means PetroChina is required to pay about US$700,000 in well licensing fees alone each year. This kind of recurring fee is by no means known in the production-sharing contract (PSC).

The Tanjung Jabung administration also demanded that PetroChina implemented more corporate-social responsibility (CSR) programs. The fact is spending for CSR projects must also be approved by SKKMigas; otherwise that expenditure cannot be reimbursed through the cost-recovery scheme.

Several other oil companies such as ExxonMobil, Mubadala Petroleum of the United Arab Emirates and Inpex had also encountered problems in their operations due to protests from local people or regulatory (licensing) problems with local administrations.

Other oil mining contractors are likely to encounter such a hostile business climate if the central government does not act firmly to rein in misguided, renegade regional administrations that abuse regional autonomy.

Even though oil mining firms operate under the concept of PSC with the central government (through SKKMigas), mining contractors have still to obtain dozens of permits from the local administration.

Latest data from SKKMigas shows an oil mining contractor requires 32 kinds of permit for exploratory drilling, 25 for production development and seven for production operations from the central government and regional administrations.

Needless to say, the business climate for oil prospecting in the country has been much less attractive than in other countries in the region, as evidenced by the sharp decline in oil output to 830,000 barrels per day (bpd) today from as high as 1.2 million bpd a few years ago.

But not only is the hydrocarbon sector affected. Many foreign companies operating in general mining such as coal, copper and gold have encountered imbroglio.

That is quite unfortunate because mining, besides fisheries and plantations, should be one of the most promising resource-based ventures in Indonesia, thanks to the country’s major reserves in oil and natural gas, copper, gold, nickel, coal, tin, silver, diamonds and base metals.

 Legal and regulatory certainty is vital, especially for mining investment, because the business is capital and technology intensive, highly risky, has a long payback period and operates mostly in remote areas where basic infrastructure is inadequate.

But it is legal and regulatory uncertainty that has increasingly become a big issue, especially after the devolving of licensing authority for mining concessions, except for oil and natural gas, to regional administrations.

Mining companies also often encounter unreasonable demand from the local people as their oil mining operations generate a sharp rise in local expectations and become a magnet to migrants looking for jobs.

The central government is keen to develop the vast natural resources — vital to keep the economy growing — but often faces determined, and often violent, protests from local communities or rent-seeking measures from local administrations.

At stake are tens of billions of dollars. It is a pity that rather than generating peace and prosperity, the presence of mineral and oil wealth in the regions, which have been poor, often leads to political conflict or corruption.

Many analysts call this anomaly a resource curse. Political noise about foreign mining operations would most likely rise in the run up to the legislative and presidential elections next year. But hopefully, all parties will refrain from destructive acts.

If mining is shut down the economic benefits will be wiped out. Indonesia’s reputation as a world-class exporter of various minerals will disappear. The enormous pool of talent and skills developed in the mining industry over the past five decades could be destroyed.

But as experiences around the world have shown, one essential precondition for overcoming the resource curse is a reasonable level of social unity and public trust.

The writer is a senior editor at The Jakarta Post.

Vincent Lingga, Jakarta | Opinion | Sun, July 21 2013, 10:25 AM

The week in review: Fasting
amid price rises

The Jakarta Post | Editorial | Sun, July 14 2013, 11:00 AM

Hundreds of millions of Muslims began the annual fasting month earlier this week requiring them to refrain from consuming food and beverages from dawn until sunset.

The small disagreement over when the lunar-based fasting month begins — members of Islamic organization Muhammadiyah started fasting on Tuesday, one day earlier than the beginning of Ramadhan as declared by the government and most other Islamic organizations — will not mar the virtues of the holy month.

However, unlike last year, this year’s fasting month will surely be much harder for the majority of Muslims because of the unusually high increases in the prices of most basic commodities and services as the impact of the recent fuel-price rise takes its toll.

Indonesia, which has the world’s largest Muslim population, usually sees prices rise immediately prior to and during Ramadhan and Idul Fitri but the recent fuel-price increase has pushed the inflationary pressures much further.

While the fasting month requires Muslims to refrain from indulgence in bodily desires, the government appealed to suppliers and retailers not to excessively raise prices to offset the costlier fuel so as not to increase the burdens on the people during the fasting month and upcoming Idul Fitri celebrations.

Meanwhile, State Intelligence Agency (BIN) chief Marciano Norman called on mass organizations not to conduct illegal raids on people and places they deem as acting immorally in order to maintain social harmony and peace.

But Muslim hard-liners, affiliated with the Islam Defenders Front (FPI), have vowed to raid “sinful” bars amid rising intolerance. FPI leaders were quoted by newspapers as asserting that they will take firm action against the sale of alcohol, strip shows and prostitution and would send members to spy on sinful activities, pointing out that they would not hesitate to conduct their own raids if the police failed to uphold the law and maintain public order properly.

But Jakarta’s public order agency (Satpol PP) urged hard-liners to refrain from taking the law into their own hands, promising to conduct sweeps of Jakarta, targeting the 1,800 establishments subject to Ramadhan regulations. 

Almost 900 bars, nightclubs, massage parlors, pachinko parlors and pool halls have said they will remain closed for the entire month.

Without much fanfare, the House of Representatives enacted on Tuesday three pieces of legislation on the protection and empowerment of farmers and cattle breeders, the eradication of illegal logging and deforestation and aerospace management.

The most significant of the new laws is the one which will require the government to provide agricultural insurance for farmers to cover losses caused by crop failure due to natural disasters, pests, outbreaks of infectious plant disease or severe weather. 

The law will also protect local farmers from excessive foreign competition by restricting farm commodity imports whenever local supplies are adequate to meet domestic demand and limiting imports only through specific seaports.

The specific entry gateway ports for imports will be located far from the major producing areas of the imported commodities and will be equipped with quarantine facilities.

Regional development banks are required by the law to set up departments specializing in extending microloans to 
farmers and cattle breeders. 

The law also obliges the central government to set up a commodity fund to support the building of buffer stocks of particular commodities in a concerted bid to protect farmers from excessive price volatility.

In addition to the financial empowerment, the law also aims to give Indonesia’s estimated 41 million farmers greater political voice and lobbying power by increasing government support for farmers’ associations and cooperatives. .

The new law on the prevention and eradication of deforestation was billed as the most comprehensive legislation against all kinds of forest-related crimes. 

The House and government claimed that the new law would provide stronger legal foundations for law enforcers to cope with forestry crimes, and a deterrent effect to prevent new crimes. However, a coalition of environmental organizations and anticorruption activists has opposed the legislation, saying they will soon file for a judicial review of the law at the Constitutional Court.

Most obviously missing from the new law, according to green campaigners, are provisions on forest fires and slash-and-burn practices of the type that caused more than two weeks of heavy haze in Riau, Singapore and Malaysia last month. 

The coalition of NGOs asserted that the new law seemed to be completely decoupled from prevailing forestry-related laws and regulations and did not make clear distinction between indigenous and state forests.

The environmentalists claimed the new law instead added to the confusion of overlapping and conflicting regulations regarding forestry issues.

The House saw the enactment of the law on aerospace management as an important move to strengthen the government control of satellites which are essential for data gathering, including those on taxpayers and tax objects.

View Point: Better regulation and protection for financial consumers

Vincent Lingga, Jakarta | Opinion | Sun, May 19 2013, 11:29 AM

Paper Edition | Page: 5

The seemingly endless string of financial scandals involving the sale of fraudulent investment products which has caused many small investors to lose their life savings has prompted the Financial Services Authority (OJK) to strengthen the mechanism of its financial consumer protection.

The latest cases of financial fraud using commodity (gold) trading as the underlying transaction seem to have jolted the OJK to realize how inadequate has been the regulatory framework and inter-ministerial coordination for financial consumer protection, while the average financial literacy of the rising middle class consumers remains very low.

Supervision coordination is indeed most imperative. The OJK oversees only investment and financial service products that it has licensed and has nothing to do with products linked to commodity trading.

Commodity trading, including the futures exchange, lies within the jurisdiction of the Ministry of Trade and with Bapeppti (the Commodity Futures Trading Regulatory Agency).

The problem though is that it is often extremely difficult, especially for uninitiated investors, to distinguish between investments linked to commodity trading and financial products.

The OJK, through its financial customer care (FCC), has stepped up a campaign to educate financial consumers and retail investors and has designed a new way for investment products to be sold in a concerted bid to drive shoddy and aggressive merchants out of the financial service industry.

It has set up a task force consisting of all law-enforcement agencies and various ministries to deal with bogus investment and fraudulent financial products.

In the year to date, OJK Chairman Muliaman Hadad said, the FCC received complaints about the sale of fraudulent investment products by 29 companies, all linked to gold and futures foreign exchange trading.

Last year, the number of complaints raised by financial service customers increased by more than 25 percent to almost 854,000.

In late 2008, hundreds of retail investors who bought Lehman Brothers structured investment products through Citibank Indonesia lost millions of dollars when the US investment bank went bankrupt.

But Citibank, in a good gesture to maintain its customer trust, last December reimbursed the Lehman note buyers with 70 percent of their original investment made in 2007 by buying back the Lehman notes at 70 cents to the dollar.

Hundreds of other retail investors got “burned” when the investment products issued by PT Antaboga Delta Sekuritas through Bank Century (now Bank Mutiara) turned out to be fraudulent.

Even the American government immediately set up a politically independent consumer financial protection agency after the 2008 global financial crisis, triggered by the Lehman Brothers bankruptcy, which caused millions of mortgage borrowers and retail investors to suffer big losses.

The OJK should indeed lead the protection of financial consumers because it will soon take over the oversight of the whole financial service industry and capital market, including banks.

The combination of poor financial consumer protection — caused by incompetent financial service oversight — and low financial literacy of most bank customers and retail investors has made it possible for Ponzi-scheme investments to operate for several years before being detected by regulatory agencies.

Rather than simply ensuring that consumers are provided with complete and accurate information, the OJK should also closely monitor companies to make sure that the right kinds of products are offered to the right kinds of people.

This activist approach is especially needed now when the risk of mis-selling and poor consumer choices is especially high.

With deposit interest rates at historic lows, many investors and savers who are searching for higher returns are turning to complex, poorly understood products, while banks and brokers are under heavy pressure to find new sources of revenue.

Many surveys have found that investors cannot be counted on to make rational choices and often make complex decisions contrary to their own interests because of their aversion to losses, so regulators should ban the sale of potentially harmful products.

Investors or financial product consumers in general are not always rational. Faced with complex decisions or too much information, they often default or they hide behind credit agencies.

Financial institutions therefore should be required to provide customers with simple, user-friendly product information, including “warnings” (risks) on complex investments.

Equally important is that bank tellers and other employees, except those in the wealth management department, should be barred from selling investment products or pushing customers toward representatives selling them.

The OJK or its FCC should conduct a nation-wide campaign to educate financial service customers to improve their financial literacy or their understanding of financial products and their ability and confidence to appreciate financial risks and opportunities, to make informed choices.

The core principle of this campaign is also a cornerstone of economic theory: Well-informed consumers make for vigorous competition and efficient markets.

This idea should be embodied in the design of the new regulatory and protection framework for financial consumers, focusing on improving the information that consumers get from banks and other financial institutions, so that they can do the same kind of comparison shopping as that for other consumer products.

In a complex and opaque industry such as finance, a strong regulator is essential to make sure that market participants are telling the truth. A strong supervisory body is crucial if people are going to have the confidence to invest.

The writer is senior editor at The Jakarta Post.

RI commodities and infrastructure magnet for equipment suppliers

The Jakarta Post | Business | Tue, April 23 2013, 2:02 PM

Paper Edition | Page: 14

As the world’s 16th largest economy with an annual growth of more than 6 percent, Indonesia is predicted to become the third largest market for heavy equipment in Asia after China and India. It was simply the right decision for Bauma 2013 in Munich, the world’s largest heavy equipment fair, which ended Sunday, to make Indonesia its official partner country. Volvo Construction Equipment, one of the largest among the 3,300 exhibitors at the international fair, invited a group of journalists from Indonesia, including Vincent Linggafrom The Jakarta Post, to observe the massive display of power machines. Below is his report.

Indonesia took center stage at Bauma 2013 with a full-day conference where senior officials from the public works, transport, mining and finance ministries, along with the investment coordinating board briefed potential investors and international suppliers on the bright outlook of the heavy equipment market in Indonesia.

Back in February, Indonesia was, for the first time, selected as the guest country at the annual international trade fair in Basel, Switzerland.

In early March President Susilo Bambang Yudhoyono, accompanied by German Chancellor Angela Merkel, raised Indonesia’s global profile at the five-day Internationale Tourismus Borse (ITB) in Berlin, where it was also the official partner country.

But Indonesia’s “bing-bang” participation at Bauma 2013, the world’s largest heavy equipment fair, should top its string of global stage appearances.

Despite the mining and plantation sectors — which at the outset ignited the boom in the heavy equipment market — currently being in their down-cycle period, machine suppliers consider this a temporary phenomenon.

International suppliers remain upbeat about the future of the market, especially as demand from the construction sector had started heating up after the launch of the economic growth acceleration master plan, which needs more than US$460 billion investment in infrastructure alone within the next 10 years.

All major manufacturers of heavy equipment from the world, notably Europe, the United States, Japan, South Korea and China, displayed their machines within the 555,000-square-meter exhibition site.

But the Brussels-based Volvo Construction Equipment, the world’s third largest supplier, appeared to be the star among the exhibitors because last year alone the company released 60 new pieces of equipment, all employing new technology that makes the machines more fuel-efficient, more reliable and more environmentally friendly.

As Indonesia launched its 15-year master plan for the acceleration and expansion of Indonesian economic development (MP3EI) last year, which will require more than $460 billion in infrastructure development alone, Bauma 2013 was certainly the right place for public works officials to assess the latest technology available for the industry.

It is no wonder that Public Works Minister Djoko Kirmanto headed a large delegation to the exhibition. Besides delivering a speech as part of the Indonesian Day conference, Kirmanto also inspected displays at the huge fair.

 Volvo, which operates construction equipment manufacturing plants around the world, demonstrated for Kirmanto and his delegation the capability and performance of their equipment.

“I am impressed with the performance of your equipment,” Kirmanto told Volvo executive vice president Eberhard Wedekind.

Kirmanto also spontaneously asked Hediyanto Husaini, the director general for the construction development agency, to facilitate meetings between contractors in Indonesia and Volvo.

Danang Parikesit, special assistant to the minister, projected in a speech at the conference that Indonesian’s demand for heavy equipment for mining, plantation and construction, would increase from about 42,000 units last year to 50,500 this year.

The annual sales growth of more than 40 percent steadily booked over the past five years by publicly-traded PT Intraco Penta, the main distributor of Volvo heavy equipment, demonstrated the dynamic of the Indonesian market.

Parikesit estimated the value of construction contracts in the country to increase to $40.3 billion this year.

“Indonesia is a very important market for us and we remain upbeat about the market despite the current down-cycle,” noted Volvo CE president Pat Olney, pointing out that the emerging economies such as China, India, Indonesia and Latin America already accounted for more than 50 percent of Volvo equipment sales.

Olney’s optimism has strong foundations because much of the new investment projects approved by the Investment Coordinating Board over the past five years were for mining, tree plantations, property and infrastructure development projects such as toll-roads, bridges, seaports and airports.

Olney said that when it comes to mining, highway construction and maintenance Volvo CE offers an extensive product portfolio.

“We also keep ourselves updated of ideas from our customers and include their suggestions in our research to produce better machinery,” said Anders Larsson, Volvo CE executive vice president for research and technology.

Certainly, Volvo will have to compete fiercely with other major equipment suppliers as Caterpillar from the United States and Komatsu from Japan.

Petrus Halim, president of Intraco Penta (INTA), which has distributed Volvo equipment since the early 1980s, concurred, saying “it is not simply selling a machine but enlightening customers of the right economic concept of heavy equipment”.

The right investment concept is imperative because the prices of heavy equipment can range from tens of thousands to over a million dollars per unit, Halim said.

“We offer a total solution to our customers — not only in terms of operational reliability and operational life. We also tailor the schedule and method of payment to the cash-flow prospects of our customers,”
Halim added.

In addition, Intraco Penta operates about 40 branches around the country that serve as service and maintenance centers and depots for Volvo machinery spare parts.

“We reach out to our customers even in the remote areas, such as Kalimantan and Sulawesi, and go ‘all out’ to minimize the downtime of the heavy equipment we sell,” Halim said.

“Take for example, a coal mining firm that intends to buy our equipment but has difficulties in marketing their coal competitively. We can help this company to sell its coal because one of our subsidiaries is an independent power producer in Batam,” added Intraco’s finance director Fred Manibog.