The American Indonesian Chamber of Commerce and its members express their deepest condolences to the victims, families, and the people of Indonesia, who have suffered a deep loss as a result of the December 26, 2004 tsunami. Nature’s overwhelming vengeance must be met with an overwhelming human response. The reply from members as corporations and as individuals has been stunning and immediate. Their generous commitment of cash, pledges, and in-kind contributions to numerous charities as well as their work as individual volunteers helping as relief workers coupled with the strong presence of multilateral forces anchored by US transport airplanes, helicopters and amphibious forces providing aid and logistical support, will help Aceh move toward full recovery. Those wishing further details about current events in Aceh or those wishing to donate should contact the AICC at (212) 687-4505 or aiccny@bigplanet.com. A list of qualified relief organizations who accept earmarked contributions for Indonesia are listed at AICC's website: www.aiccusa.org. Your support in any way is encouraged and welcome.

Letter from AICC’s Chairman, Allan Harari

Dear Members and Friends,

The time has come for the private sector to step up to plate on Indonesia. An unprecedented opportunity exists for us to shape the future of US-Indonesia relations, which, if properly handled, will pay dividends for years to come. In spite of the terrible disaster striking at Aceh Province in Sumatra, a year from now, we will look back on 2005 as the year the Indonesian economy rebounded out of its economic doldrums, survived one of the planet’s major natural disasters and started to churn with renewed and more diverse vigor. The old guard which constructed the tipsy but lucrative conglomerate structure which led to the necessity of IBRA and generated an unparalleled capital exodus, has licked their wounds, consolidated and in many cases come back in much leaner and focused form. Younger Indonesian entrepreneurs have emerged and established enough of a foothold to compete against their larger older brothers and on the international stage. A recent visit of KIKAS members combined last year’s PERMIAS delegation suggests we will be seeing a new and younger crowd. More importantly, a lot of them are looking to the future as evidenced by the return of local capital and the launching of new business ventures.

The environment is reminiscent of that in the early 80’s when the economy was not ready for the massive infusions of investment capital which landed during the late 80’s and 90’s. Although the focus is still internal, this academically and empirically educated generation is paying attention to trade, the growth of corporate infrastructure and will not take 10-15 years reach their pre-crisis operational levels.

Where the comparison differs is in the current segregation of business opportunity from government meddling cleaved from the political meandering of the past 6 years. Political appointments are viewed as musical chairs by a business community which learned to work and prosper without the previously vaunted “blessing”. Don’t expect the same pre-crisis rush to jump on the bandwagon but they are focused on business.

Finally, all the above will transpire under the framework of a new SBY administration comprised of many old AICC friends who will soon start a series of visits to the US.

The Chamber, with its legacy of promoting US/Indonesia commerce continues to play a vital role. The current configuration of our board provides us an opportunity for the organization and those wishing to more closely participate in the next cycle. Therefore, please give some thought to joining the AICC board or recommending someone with the kind of forward thinking personality and corporate affiliation who can make a contribution to the growth of the AICC activities. Directorship does not require a great time commitment and will provide you an intimate proximity to the corporate and political decision makers who will shape the future of the post-Soeharto Indonesia.

Hear from you soon.

Very truly yours,

Allan Harari

Chairman

Managing Expectations

Commentary by Wayne Forrest, Executive Director

A surging stock market, rising bond ratings and newborn optimism accompanied the September election of Susilo Bambang Yudhoyono as President. He rolled up his sleeves in October and projected a manager’s image. As 2004 ends Indonesia has much to be thankful for: 3 peaceful elections, stable macroeconomic conditions and a stabilizing political situation for a government elected by popular rather than a parliamentary mandate. The fourth largest nation of the world has now shown the world that democracy and Islam are compatible and you don’t need to go to war to achieve it.

Indonesia now fields one of its best lineups in years to go up against a formidable pitching staff headed by: bureaucratic inertia, high liquidity/low lending, radical jihadists and separatists, self serving legislatures, counterintuitive court decisions, strong regional investment magnets (India, China), as well as human resource deficits. The government doesn’t have to hit homeruns but a rally of singles and doubles will do.

50 days have passed and already you can see some patterns in SBY’s government: careful attention to sequencing policy changes (i.e. rolling back fuel subsidies in an orderly fashion), accountability within the Cabinet, more actions on corruption (actual arrests and prosecutions), solving domestic problems rather than international ones, and realistic expectations for change (singles not homeruns).

The recent election of SBY’s VP running mate, Jusuf Kalla, as chairman of the Golkar party (the largest faction in Parliament) should quell the small rebellions that have already threatened his legislative agenda. If the two can truly work together as a tandem, with Kalla running political interference for the government’s reform efforts, a lot will be accomplished. Some patronage may seep in as a consequence, but what government anywhere can operate without some amount.

From all reports SBY and his government are fully engaged with the business community to implement a series of changes collectively known as “the economic roadmap”, a plan created by KADIN, the national chamber of commerce with input from many regional and binational business groups. Some thought that by now SBY would be announcing a significant “economic package”, harkening back to the late 80’s and early 90’s when such packages came frequently, but SBY and his ministers seem not to want to over inflate expectations unrealistically. They are patiently making their way through past issues, especially solving tough business cases (Cemex, Cepu) that have come to symbolize a stagnant investment environment. When these are done some time in 2005, the confidence that is returning to Indonesia will get a major boost.

Stories of Help and Hope

The stories that follow are a sampling of the many of efforts by AICC members and friends to help the victims in Aceh. They are by no means comprehensive, and we wish not to diminish all the contributions that are being made daily by companies and individuals to our partners in so many relief organizations.

US Coffee Importers Raise Funds for Aceh Farmers

With a local presence already on the ground at the time of the December 26 earthquake-tsunami disaster, local partners of Vermont specialty coffee importer ForesTrade Inc., were able to quickly mobilize relief efforts in Aceh, Sumatra.

The response from ForesTrade’s customers, investors, colleagues, financial institutions, trade groups and friends from around the world has been tremendous as people offer their support and financial assistance. Two specialty coffee industry non-profit organizations, Coffee Kids and Café Femenino Foundation, are acting as conduits for funds to be channeled directly to those in need for immediate relief, and long term reparations to infrastructure such as roads, homes, schools, Mosques and coffee processing facilities. “Coffee Kids really stepped up to the plate, offering to channel donations directly to a designated Sumatra Relief Fund.” exclaimed Thomas Fricke, Co-Founder and CEO of ForesTrade. “100% of the money donated is being transferred to the PPKGO and other reputable local organizations, and Coffee Kids has generously offered not to take any administrative fees.”

“Many of our staff and partnering farmers have family in these areas, and we are deeply concerned about their immediate safety and well-being.” Thomas Fricke explained. “We believe we can be most effective providing relief to those areas where we already know local people, are familiar with the topography and have a trusted way for distributing supplies to ensure they reach those people most in need.” Fricke continued, “with bridges and roads washed out or blocked, the efficiencies of distributing relief is an important consideration.” Contact Forestrade at (802) 257-9157

Marion Djakababa- Marion came to AICC as an intern after graduating from a US university.

“Yunan, one of my best friends from College who lives in Jakarta has a sister who was living in Meulaboh, Aceh. As many of you know, the tsunami left this seaside town utterly devastated. She lived there with her husband, who worked for the port authority, and four children ranging from the ages of three to fifteen. Yunan e-mailed me his sister's story: The family lived in a house about 400 meters from the beach. On Sunday, December 26 at around 8:00 AM a strong earthquake shook the area. The earthquake did not seem to do much damage to their house. So, after things seemed to stop shaking, Yunan's brother-in-law decided to take their two younger kids to check out the market and government buildings (about 3 km from their home) to see how badly damaged the area was. The market and buildings are located on the hilly part of town. Their first son also went to the market area with his friends. He took his brother with him (the second child). Yunan's sister was left alone at home and decided to clean-up. Five minutes after her husband and kids left, people started screaming, "Water! Water!!" She went outside and saw a huge wall of water coming right at her. She ran as fast as she could while being chased by the water for 50 meters before getting sucked in by it. While in the water, she was hit hard by a large wooden beam which she instinctively held fast to. That enabled her to float above the water. While being carried away by the water, she spotted a coconut tree and promptly hugged it and let go of the beam. As the water grew higher, she climbed up the tree so she wouldn't drown. Half an hour passed and the water receded. She was way up the coconut tree, scared for her life and had no knowledge of what happened to her family. As far as she could see, there were only rubble strewn with dead bodies and carcasses of livestock. She was going to go down but somebody who's holding on to the next tree warned her not to because there might be another wave coming. So she did not. Sure enough, another wave bigger than the first came crashing down. She saw a large piece of wooden board floating her way (must be someone's former wall). She climbed onto it while still holding on to the tree. So it was like sitting on a boat. After an hour the water finally withdrew, she climbed down the tree and walked /swam through the rubble and dead bodies. She waded her way toward the hills where she thankfully was united with the rest of her family. They have lost absolutely everything, but she was glad that they were still alive. They left their beloved town shoeless with only tattered clothes on their backs. The next week was very grueling for the family as they walked, swam and hitchhiked their way to Medan, the capital of North Sumatra where Yunan's mother lives. They resorted to eat leaves and begging to survive the trip. They finally got to Medan on New Year's day in the morning. Hungry, filthy but glad to be given another chance at life while so many others had perished.” To help this family directly, call Marian at 973-884-1354.

Unocal Matchs Employee Contributions 2 for 1

El Segundo, Calif., Jan. 10, 2005 – Unocal Corporation (NYSE:UCL) announced today that it will provide an additional $3 million to assist with longer term recovery and reconstruction needs for communities in Indonesia and Thailand affected by the tsunami. "This commitment represents our recognition of the role that our company has played in these countries for many decades and our interest in helping our friends meet their longer term recovery needs in the aftermath of this devastating natural disaster," said Unocal CEO Chuck Williamson. "Our relationships with the people in this region span nearly 40 years. Unocal has approximately 2,000 employees in Indonesia and 1,000 employees in Thailand, and many valued, mutually beneficial partnerships with our host governments and communities." Unocal has already provided immediate and near-term disaster assistance totaling $275,000 from the corporation, Unocal Foundation, business units and employees in the U.S., Thailand, Indonesia and Myanmar. The disbursement of the $3 million will be overseen by Unocal Foundation’s Board of Directors. Projects will be developed in collaboration with the host governments and implemented in partnership with qualified organizations, including those with whom Unocal already has existing relationships. Priority will be given to children’s welfare, rebuilding schools and medical clinics, helping provide fresh water and sanitation, and other long-term community sustainability. Unocal Foundation will also match employee contributions for disaster relief through its Workplace Giving Program. Employees who make a contribution to the International Federation of the Red Cross (or U.S. employees who earmark contributions to the American Red Cross International Response Fund) will be matched on two-for-one basis, which means Unocal Foundation will contribute $2 for every $1 contributed by Unocal employees to the IFRC.

LOVE FOR ACEH CENTER

Sien Lemke is an Indonesian businesswoman based in NY with business, medical and healthcare connections in Indonesia. Her immediate family in Indonesia include doctors as well as business owners. Through her brother who is a physician currently operating at Ground Zero in Banda Aceh, she is in direct contact with the bupati (regional mayor) of Banda Aceh area and through AICC and AMCHAM contacts she is arranging for prefabricated housing to be sent to the area. Her family has operated a foundation benefiting the poor in the cities and remote villagers since 1961 in East Java and their current program for Aceh is described below.

Sien has also begun a kids-to-kids Toys Drive in New York to be distributed to emotionally traumatized kids in the survivor camps of Aceh.

She can be contacted at (914) 761-1288.

Program Outline:

1. Opening a warehouse to receive support from the wider community in the form of food, clothing and funds. Lots of sorting and cleaning and preparing of goods. Bulk rice and oil are being broken down into smaller bags and containers for ease in distribution. Clothing are cleaned and washed and ironed and made into presentable condition. (Aceh people are known to be very proud folks and are not accustomed to wearing used clothing).

2. Coordinating and sending out volunteers to help local emergencies and support refugees and victims. All volunteers have been outfitted with personal survival gear backpacks and back-up systems to sustain themselves. Many initial volunteers have been forced to turn around and come back since they arrived on location that has completely lost its infrastructure. The group aims to fulfill the 20,000 estimated volunteers needed willing to go into forests and wastelands, on a rotating basis.

3. Working with NGOs who are active in Aceh and West Sumatra to coordinate efforts for channeling supplies. An excellent chain of supply in people contact and destination for distribution of goods and volunteers. System is organized down to logistics of volunteers able to stay at local homes/ hosts etc. thereby securing their own survival

mechanisms and not becoming refugees themselves.

4. Working with the Forum of InterReligious Harmony (Forum Kerukunan Antar-Agama) to build trust and synergy with other inter-religious crisis centers. continuing being done. The Forum is an excellent NGO that joins hands between leaderships of various religions.

Office: KHA Dahlan 33, Malang, Tel: 62(341)354107, 62(341)7713343

Email: one_body_malang@yahoo.com

Contact person: local: Tutik (62811367030); international: Paul (62811364939)

Bank accounts: Rupiah: Paul I. Zacharia, BCA Malang #0118555557; US$ Citra Dewi Zacharia, Citibank N.A. #8000897-002, Basuki Rahmat 86, Surabaya

All funds and support will be reported through a financial statement on a monthly basis with statements going to each donor We have provided financial reports for many years to sponsors for our Yayasan that runs 6 units of social services for our orphanage and junior and senior highschools.

The Director is Paul Zacharia (owner of a leather factory in Malang) - cellphone 62-811-364-939. You can call him direct on that HP number. You can also email him at paulizac@indo.net.id. When contacting him direct, you may want to mention my name, Sien Lemke of Valhalla, NY so he will pay better attention (he's a very busy man). Alternatively Sien is available at 914-761-1288 or cellphone 914-433-1502 and by e-mail: icciusa@aol.com

AMCHAM Effort

The American Chamber of Commerce in Indonesia has created a new Aceh Disaster Relief Committee specifically to address the mid-long term issues since a shift is already underway from the initial emergency reaction phase.

Amcham Members Mike McGowan, Harvey Goldstein and others quickly raised funds within 24 hours after the disaster. McGowan notes:

“We got the first medical disaster relief kit to the Achenese, just 3 days after the disaster. We provided desperately needed sanitary napkins and disinfectant to Achenese women. Purchased new clothing such as underwear and T shirts for many who literally lost the shirt off their back. Sent 1,600 cases of instant noodles to Aceh as basic food, this is over 65,000 meals. Send 4,800 packages of high energy biscuits as a quick supplement. Send an American teacher whose church supported an orphanage in Meulaboh, together with two sisters, up to protect their children and possible return to Jakarta with them. I was able to arrange his travel courtesy of the US Airforce free of charge. Disappointingly, his orphanage was obliterated by the wave, there was nothing left and yet he stayed on collecting and clothing kids wandering around the area in shock, hunger and thirst. These children were then given to Red Cross and Red Crescent centers organized with government approval. Not one child was removed from Aceh, as the Provincial Government instituted safeguards to prevent child trafficking. Two days later, I sent an additional two sisters from Keith's church up there to help him and their fellow sisters. Sent 2,000 Jerry Cans for water Delivered 2 tons of medical kits for disaster relief

Mike McGowan can be reached at mmcgowan@ganesha-aggies.com

First Aid to Aceh

Emil Arifin, a young Acehnese based in Jakarta, does business with several AICC members (i.e. ATSGlobal (Allan Harari), Smith Asbury (Greg Asbury). He may have been the first to ship in aid to Aceh, especially the town of Meulaboh, the worst hit area, still largely cut off from the rest of the region. He wrote this:

Thank you very much for your concern. I’m touched for your effort to help, I don’t know how to describe it but everytime I remember it, my eyes were in tears. I came to Meulaboh because this is the only town that has no news, meaning all the infrastructure were gone. 3 days after the tsunami, I and 5 other guys with small airplane that unloaded one ton of food and medicine and the second team arrive the next day with tuna boat, loaded with about 50 tons of food ( rice and instant noodle), mineral water, tents, medicine, 50 mattress, 12 box of used clothes, 1000 sandals, 3 set satelite telp, 6 set of 4000 watt electrical generator and 10 barrel of diesel fuel etc...We recruit 2 doctors and 46 students who has lost their family or relatives and who has no clothes, most of them has no place to stay. So they are happy to stay with us, at least for the moment. Afteronly 7 days all of the food was finished; we distributed to very remote places. When we enter the town, there is no government at all because most of the government officials were busy looking for their family or had died . The town was in chaos and people were chasing our truck asking for water and food. We just got more supply and I think it will be enough until mid of January but I’m now looking for more fund for food at least till the end of Jan. If you are interested to contribute to Emil Arifin’s efforts, contact him at emilarifin@yahoo.como.com.

Response From the Opposite End of Indonesia

“Freeport is a major employer in Indonesia, where our mining operations are located in the easternmost province of Papua. Freeport’s operations were not impacted by the devastating earthquake and tsunami of Dec. 26, which is about 3,000 miles away in Indonesia’s westernmost province of Aceh, but we are part of the larger Indonesian community and as such moved quickly to do what we could to help our brothers and sisters. Freeport provided a sizeable initial cash contribution in Indonesia within 24 hours of the tragedy to provide immediate assistance and to jumpstart fundraising efforts, and additional contributions since that time in both Indonesia and the U.S. Freeport also provided chartered airplanes that have made a number of flights to the stricken area with food and supplies, aid workers and government officials – including some of the first aid to reach the area. In addition, Freeport employees have made generous cash contributions and the company is matching these. Many Freeport employees in Indonesia with special skills have also volunteered to help in the relief effort, and the company is currently coordinating such assistance as is appropriate to the situation”. William Collier, Vice President, Communciations

Comments from Senior Officials and Indonesian “hands”

Hon. Lynn Pascoe, US Ambassador to Indonesia

The December 26 earthquake and resulting tsunami created a humanitarian catastrophe of biblical proportions for Indonesia. President Yudhoyono's administration -- still under 100 days in office -- has responded quickly with its own resources and also welcomed assistance from overseas. The United States Government responded with tens of millions of dollars in immediate assistance and has pledged hundreds of millions in relief aid. In close consultation with the Government of Indonesia, we brought considerable military assets to the country to help deliver critical assistance to inaccessible areas. American corporations with a presence in Indonesia have also donated tens of millions of dollars in cash and in kind toward the relief effort.

As the toll from the December 26 disaster continues to mount, it is difficult to find any silver lining in this dark cloud. However, the United States' devotion of official resources to this humanitarian effort, along with the incredibly generous charitable contributions by American businesses and individuals, have likely reinforced with Indonesian officials as well as the public our readiness to assist a friend in need. Despite our occasional disagreements on the issue of the day, this crisis has demonstrated in the most concrete terms the deep value that we place on our decades-long friendship with Indonesia

Hon. Paul Berg, US Consul General- Designee Medan

The earthquake and tsunami are turning out to be one of the greatest natural disasters in history. In Indonesia, they struck primarily in Aceh, which has already suffered from the effects of years of conflict with a separatist group, corruption at the top of the provincial government, and underdevelopment. Our effort has been a cooperative one, coordinating with the Indonesians, international organizations and other governments to assure the greatest effectiveness possible in such a situation. Our first efforts were intended to deal with the most immediate needs, such as emergency food, water and clothes. While emergency efforts on the ground are intensifying, long range priorities are being developed in consultation with the Indonesians and our international partners. One priority will surely be physical reconstruction of a province which has lost important parts of its infrastructure, such as roads, harbors, government buildings, electrical telephone and water facilities and the like. Housing for the hundreds of thousands of homeless will also be an important need. Medan is the closest US consulate office to Aceh

US Image Improves

Jim Castle is a long time resident of Indonesia, President of his own consulting company, past President of AMCHAM Indonesia

The outpouring of support and good will has literally been overwhelming. The most important things that need to be done right now relate to organization and logistics. Today the relief effort cannot immediately deliver all the goods that are being made available or spend all the cash that has been actually collected, not to mention the huge amounts that have been pledged and will be extremely useful in the long term recovery effort. The major challenge will be to keep attention and resources focused on the plight of the survivors and their needs long after the crisis has faded from the headlines. Corporations not already actively engaged can be most effective by committing themselves (even to the point of assigning personnel) to monitor, assess and support the rebuilding effort for at least the next twelve months. For those abroad, cash contributions are probably best because the money can be used efficiently later as long term recovery needs (as opposed to short term life-saving activities that are essential today) are identified and need funds for implementation. For those in country, finding out from relevant relief agencies what is actually needed at the moment and being able to provide it in an immediate fashion is extremely useful. Often this is just a matter of a few hundred dollars cash at the moment, or the right phone call to provide the right equipment -- fork lift, chain saw, etc. Or a few extra volunteers to help load goods at the airport. I want to emphasize how important and well-received the US effort has been, especially the immediate appearance of our aircraft carrier, the USS Abraham Lincoln. One of my Indonesian friends characterized the rapid mobilization of the Lincoln to Aceh as "an absolute home run!". The Lincoln has saved hundreds of lives, if not more, with its personnel and equipment, and helped relieve the suffering of many thousands. Their efforts have been outstanding and enabled those of us with fewer resources at our disposal to leverage whatever it is we have been able to contribute. Much is being done, but much, much more will be needed. I know AICC and all its members will be in the front lines with the Embassy, USAID and Amcham in making sure we are doing all we can. I know we will stay in close touch on this. Thanks so much as always for your tremendous personal commitment and that of your members.

Banking/Finance

Indonesia Sends Young Bankers to NY

The Financial Services Volunteer Corps (FSVC), a not-for-profit organization founded fifteen years ago to provide technical assistance to banking and financial institutions in emerging markets, has recently concluded a month-long training program for twenty top consumer bankers from Indonesia's largest bank, Bank Mandiri. As part of FSVCs Bank Management Internship Training Program, these specially selected officers spent four weeks in the United States studying best practices in consumer lending at nearly a dozen leading US banking and credit card institutions. This is the second consecutive year that FSVC has hosted a management training program for Bank Mandiri.

This year, over 150 senior professionals in the fields of credit card products, auto finance, and consumer mortgages volunteered their time to collaborate with FSVC to design a rigorous course of study that would provide immediate and practical results for the client. The program was intended to enhance the participants skills in developing, marketing, and managing Mandiris growing consumer loan portfolio. By expanding its retail lending business, Bank Mandiri will be serving the larger economic objective of making credit available in three critical areas of the Indonesian economy.

The bankers from Mandiri spent the first week of the program in New York City in classroom training, hosted by Credit Suisse First Boston. During this week, the group of twenty bankers was given a detailed overview of the three targeted sectors. The training sessions were led by senior bankers from some of the country's leading lenders, including JPMorgan Chase, Citigroup, Washington Mutual, Fifth Third Bank and Regions/Union Planters Bank. Other leading financial services firms who also contributed to the training include Standard & Poors, Synergistics Research, Michael Auriemma Consulting, MMS Consulting Group and BIG FNI.

Following the New York training, the interns split into three teams. Each team spent two weeks developing expertise in credit cards, auto finance or residential mortgage lending through intensive site visits with prominent banks across the country. BB&T, Fifth Third, National City , JPMorgan Chase, Providian, and Visa International all provided in-depth training as part of the hands-on portion of the internship program. While visiting operational facilities in different locations nationwide, the Indonesian bankers also had the opportunity to meet with regulators from regional Federal Reserve branches in New York, Cleveland and San Francisco, and industry specialists such as the Cleveland Automobile Dealers Association and Edgar, Dunn & Company. A program officer from FSVC accompanied each of the groups in their travels, including two staffers who previously lived and worked in Indonesia for long periods.

The three groups of interns reconvened in New York to share their findings during the final week of their internship. The bankers discussed how the best practices they observed could be applied at their own bank. Each group then prepared a presentation offering strategic business plans incorporating these conclusions, which were formally presented to Bank Mandiri's senior management upon their return to Indonesia . Bank Mandiri has already endorsed many of the group's recommendations and is now moving swiftly to implement the new strategic plans.

Indonesia to Cut Corporate Tax in ’05

JAKARTA Bloomberg (12/1/2004) Indonesia plans cut its corporate tax rate starting next year to spur investment and growth in Southeast Asia’s largest economy, Coordinating Minister for Economic Affairs Aburizal Bakrie said. The tax rate will be cut to 25 percent from 30 percent over a period of five years, starting with a one percentage-point reduction in 2005, Bakrie said in an interview yesterday.

“This has been put on the tax reform draft to be presented to parliament,” Bakrie said in Vientiane, Laos, where he attended a meeting of leaders of the Association of Southeast Asian Nations.

The tax cuts are among policies being introduced by Indonesia’s new president, Susilo Bambang Yudhoyono, to reverse a decline in foreign investment. Bakrie said the government is also considering steps to improve roads, power plants and other infrastructure and relax labor laws. Lee said. The corporate tax rate in Singapore is 20 percent while in Hong Kong it’s 17.5 percent. Mor

FITCH REVISES INDONESIA'S RATING OUTLOOK TO POSITIVE

Fitch Ratings-London/Hong Kong-05 October 2004: Fitch Ratings, the international rating agency, today raised the Outlook on Indonesia's sovereign ratings to Positive from Stable to reflect diminished political uncertainty following the satisfactory conclusion of presidential elections on 20 September and the improved outlook for reform. Fitch upgraded Indonesia's Long-term foreign and local currency ratings to 'B+' with a Stable Outlook in November 2003

Indonesian Government expects economy to grow 5.5% in 2005

JAKARTA: The Indonesian government Thursday said it expects the economy to grow by 5.5% next year, up from the 5.4% forecast in the 2005 state budget presented earlier.

Finance minister Jusuf Anwar told legislators at a hearing session that the government expects inflation next year to rise to around 7%, up from 5.5% projected by the previous government.

Interest rates are expected to rise to between 7.5% and 8.5% from the 6.5% previously forecast.

Anwar said the government will also need to sharply revise the forecast of oil prices to $35 barrel from $24 barrel stated in the state budget .Dow Jones Newswires December 9, 2004

Consumer

Franchise Businesses Grow 15%

Franchise businesses in the country have grown by 15 percent this year and are expected to further thrive, considering the fact that Indonesia's economy still mostly relies on domestic consumption, the Indonesian Franchise Association (AFI) said.

Data from the association shows that there are now 270 foreign companies -- from restaurants, supermarkets and dry cleaners to educational institutions --which have franchised their businesses in Indonesia.

"There are also 120 local firms which have the potential for franchising, though perhaps only some 30 percent would be able to do so," AFI chairman Anang Sukandar said on Monday.

Last year, there were 239 foreign companies and 49 local firms that franchised their businesses here.

Auto Sales Up 62%

JAKARTA (Bloomberg): Indonesia's automobile sales in the local market rose 62 percent in November from a year earlier, PT Astra International said, citing figures from the Association of Indonesian Automotive Industries. A total of 35,162 vehicles were sold last month, compared with 21,683 in the same month last year. Astra sold 16,093 automobiles in the local market last month, 81 percent more than the 8,879 units it sold in the same month last year. Faster economic growth and record-low interest rates are helping Astra and rival PT Indomobil Sukses Internasional sell more cars in the country of 235 million people. Most car purchases in Indonesia are funded by loans.

Mining/Energy

Downstream Energy Markets Begin to Open

JAKARTA, Oct 31 (Reuters) - Indonesia has granted oil giant BP Plc. a license to sell oil products in the retail market as part of efforts to open the business to foreign firms, a mines and energy ministry official said on Sunday.

"We have issued an in-principle approval to BP. BP wants to be involved in the wholesale business including trading and retail," Erie Soedarmo, director of processing at the mines and energy ministry, told Reuters.

Malaysian state oil and gas firm Petronas [PETR.UL] was awarded a license in June to sell oil products, such as high octane gasoline, in the Indonesian retail market.

New Hope in Energy Sector

The Indonesian government will sign as many as 46 natural gas exploration, distribution and management contracts with foreign and national gas and oil companies in mid-December. President Susilo Bambang Yudhoyono will witness the signing of contracts between representatives from companies and the Indonesian government, The Mines and Energy Ministry said in a statement December . These will include 15 contracts to explore and manage oil and natural gas blocks across the nation. "For the first three years, the companies are expected to invest around $190 million for exploration needs," the ministry said. Amid the plunge in Indonesia's oil production to 966,500 barrels per day (bpd) this year from as many as 1.2 million bpd in 2002 -- which degraded the country as a net oil importer -- there have, of late, been several promising developments in the petroleum industry.

Last Tuesday, the Oil and Gas Implementing Body (BP Migas) awarded 12 new oil and gas contracts to foreign and national companies, with combined commitments to spending at least US$163 million for exploration within three years.

Problems still remain such as contradictory provisions on taxation for expenditure during the stage of exploration as well as a lack of certainty regarding contract extensions.

Trade/Investment

Op- Ed on Investment by Joe Bartlett

AMCHAM Indonesia’s President Joe Bartlett, a long time resident of Indonesia, says “mindset” is more important than laws in bringing investment back to Indonesia. Excerpts from a recent op ed contribution to the Jakarta Post follow:

One of the major disappointments of Indonesia's economic recovery is that the government's success in re-establishing macro-economic stability has not generated the high levels of investment necessary to increase per capita income, reduce poverty, and raise gross domestic product (GDP) growth levels.

Historically, the government has provided the capital necessary for much of the investment in Indonesia through state owned enterprises and state banks. There was a suspicion, if not distrust, of private capital. However, today, the government does not have the funds, let alone the ability, to be the main driver of economic development. The government must switch gears to fulfill its new role as the facilitator of investment and financial flows rather than the role of its principle provider. Now, more than ever, the government must work in partnership with the private sector to facilitate investment, job creation, and economic growth. In spite of macroeconomic stability, a sampling of recent events informs us that:

New foreign direct investment (FDI) approvals have dropped yet again for the first six months of 2004. However, it is important to note that the decline was somewhat offset by an increase in approvals for investment project expansions by existing investors.

Oil and gas exploration activities have significantly declined over the past several years. Indonesia is a net oil importer. Mining exploration is at a standstill. Electrical power capacity and access to telecommunications are less than the public and business require.

As these few items indicate, Indonesia needs new, private investment capital, and must address the issues that are hindering the country from attracting it.

Investors are attracted to stable and predictable policy environments, where private sector counsel is sought and included in policy formulation. Investors are deterred by surprises and inconsistencies. Equally important, investors are attracted to places where current, existing investors are successful and enthusiastic about their business' future.

From an investor's point of view, major concerns in Indonesia are transparency and the quality of regulations, the control of corruption, the rule of law and regulatory certainty as well as overall government effectiveness, especially policy development and coordination across government ministries and between the national government and the provinces and regions. These are government-created sources of business risk and uncertainty that have reduced Indonesia’s competitiveness, increased the perception of risk and inhibited the inflow of capital.

There is a misperception that business climate can be improved simply by issuing new laws and regulations. Actually, the major problems investors face are often not with the actual rules themselves but with their implementation throughout the bureaucracy which is badly in need of streamlining, rationalization and discipline.

Rules and regulations can always be improved. But these improvements will not bear fruit unless the regulations in which they are embedded are consistently and transparently implemented by the relevant government institutions.

There is a strong perception in the foreign investor community that the problems deterring investment here are ones of attitude and mindset. As a submission by the International Business Chamber to the Ministry of Finance states:"More than just superficial changes are required to reverse the damage which has been done to Indonesia's image and economy. New thinking is required, including the adoption of new paradigms and mindsets towards direct investment, regardless of whether it is foreign or domestic in origin."

As the first president directly elected by the people, the incoming president and her/his Cabinet will be uniquely positioned to introduce a new paradigm towards private investment and governance. We wish to offer a few proposals:

Upon taking office, the President should personally issue a statement of unequivocal support for private sector investment, in which the central role of business, be it a small, medium and larger enterprise, in economic development is clearly recognized.

Current investors are Indonesia's best advocates. Within 100 days of taking office, the President should convene a working session with the business community, to be followed up with quarterly meetings thereafter. The purpose of the meetings will be to jointly discuss and develop integrated, economic policies that will encourage and facilitate private sector investment and development.

Reporting directly to and in the office of the President, a national economic ombudsman office should be established with counterparts in each Department. This office shall serve as the coordination center for the dialogs, an open office where private sector ideas, concerns, and complaints can be presented, and a venue for the private sector to address difficulties across ministries.

Among the many specific, focused actions that should be taken to show a new paradigm, we propose the establishment of a new Intellectual Property Rights (IPR) agency, chaired by the coordinating minister, and inclusive of the National Police, the Attorney General, Customs and other relevant departments and agencies.

The article was condensed from a presentation made by Joe C. Bartlett, Chairman of Amcham Indonesia, at a dialog between the Indonesian Chamber of Commerce and Industry and presidential candidate Megawati Soekarnoputri on Aug.2.

FOREIGN INVESTMENT DOWN

The Jakarta Investment Coordinating Board (BKPMD) revealed on Wednesday that foreign investment as of August had plunged sharply by 58 percent to US$1 billion against last year's $2.5 billion.

Investment in the first eight months was made through 376 approved projects, more than the 341 projects approved for 2003.

Domestic investment also decreased to Rp 2.627 trillion as of August, compared to Rp 3 trillion last year.

The board did not provide figures for the corresponding period last year.

"The decrease is mostly due to lingering concerns by investors about the business climate and security in the country," said BKPMD head Muzahiem Mokhtar.

Muzahiem acknowledged that red tape and uncertainty in the investment procedures also put off investors.

Legal Affairs

Indonesia to start trial of Newmont Minahasa officials

JAKARTA, Dec. 8 (AFX) - A state court in Manado, North Sulawesi, will put on trial in January five officials of PT Newmont Minahasa Raya, a local unit of US gold mining group Newmont Mining Corp, on charges of polluting Buyat bay, said Environment Minister Rachmat Witoelar. Witoelar said the government is already preparing reports on the pollution at Buyat bay and these will be filed with the court within three weeks at the latest.

"In early January, the trial will start at the state court in Manado," he added. Witoler said the accused are five officials of Newmont Minahasa, but he declined to name them. He added the government has not, because of the case, immediately revoked

Newmont's license, but is pursuing the course of action for legal reasons.

A World Health Organization report does not tie villager health problems to Newmont’s waste disposal system. Problems of wildcat mining using mercury have been occurring in the Newmont mining area for years. The mine is now closed as the ore has run out. Newmont’s Chairman, Wayne Murdy, recently visited Indonesia and told reporters: 'It's a shocking thing to see these allegations,' Mr Murdy said. He said it was the first time Newmont had faced criminal charges in any country. Indonesia is a nation that has huge potential from a geologic standpoint,' Mr

Murdy told reporters, 'It has a lot of mineral wealth, and it's a place (in which) we want to do business and make a long-term commitment.'

Corruption Initiatives

Govt identifies 40 suspects in illegal logging cases

PALANGKA RAYA, Central Kalimantan (Antara): Minister of Forestry Malam Sambat Kaban said here on Tuesday that his ministry had registered 40 new suspects allegedly involved in illegal logging throughout the country.

"The new names brings the number of those involved in illegal logging to 59, including 19 others whose names had been publicly announced," Kaban said at the Tjilik Riwut airport before visiting Tanjung Puting National Park.

"The government will crack down against those people or companies involved in illegal logging," he said. (AP 11/9/2004)

Indonesia's president orders police to question governors on alleged corruption

Indonesia's new president on Thursday ordered police to question two provincial governors over allegations that they stole from official budgets, as part of a widening drive against this country's notorious corruption.

The measure is part of President Susilo Bambang Yudhoyono's promise to crack down on graft in a bid to attract foreign investment.

"It is very sad that our nation is considered one of the most corrupt countries," he said in a televised speech marking International Anti-Corruption Day. AP 12/9/2004

US-Indonesia Relations

Lynn Pascoe Becomes Ambassador

AICC hosted the new US Ambassador to Indonesia, Lynn Pascoe, for orientations on October 20. He told us he would be spending at least 20% of his time promoting US business and would practice diplomacy in an “indirect fashion”. Below are excerpts from his confirmation hearings. Questions were by Senate Foreign Relations Committee Chairman, Richard Lugar (IN),

Question: Are there any indications of substantial reform in the military?

Answer: It is an evolving situation. Since 1998 there have been changes to decrease the military's power in politics, for example, moving away from its dual function role and withdrawing from membership in the parliament. There is a general feeling now that it is more appropriate for the military to have a greater professional military role instead of what it has been doing in the past in politics. A bill has been proposed on the functions of the armed forces, and it may not be acted upon until the next legislature is convened after the presidential election. The situation is evolving especially because there has been and will be changes of personnel over time. I believe it is important for the United States to cooperate with the military and to increase our relationship with them. Programs such as IMET will be able to help in this regard.

Question: What is the current relationship between the armed forces and the civilian government? Are there concerns regarding the control of the outlying areas of Indonesia, such as Ache and Papua, where the military has more power than the government on the basis that they are doing it to safeguard the integrity of the country?

Answer: It is definitely a localization process. Over time there needs to be more accountability by the local governments to take responsibility and have more control of their regions; hopefully local elections will be able to do this. I believe that there is an opportunity for the U.S. to help in strengthening local governments for this particular role.

Question: I recently met with a delegation of young Indian parliamentarians and I was impressed that most of them have been educated in the U.S. The delegation members said that their educational background is related to the economic growth and dynamism that India is currently experiencing. I noticed there has been a lot of trade impact between India and the U.S. and also with China, but not much going on with Indonesia. What are the Indonesians going to do about economic dynamism in their own country, especially in relation to India and China?

Answer: In the past, the Indonesian economic miracle was attributed to the group known as the Berkeley Mafia. These people understood how the world works and they wanted Indonesia to be a part of that world. The U.S. had a fairly robust higher education program for Indonesia in the 1980's but for some reason has backed off from that program. Malaysia has helped their citizens who want to study in the U.S. with government sponsorships, but Indonesia does not have a similar program. I think it is important to have more Indonesians coming to the U.S. to study and that the president's initiative of $157 million in funds for education is a good start. It is something we can work with. We need to put some quality time in long-term planning for education, not only in the short-term like counter-terrorism.

Senator Lugar agreed enthusiastically with this statement. He also mentioned that Secretary Powell, in his testimony given a day earlier to the Senate Foreign Relations Committee about the genocide in Sudan, gave a plea for more emphasis on "soft diplomacy" to increase assistance in this area, also in the Millennium Challenge Account and the exchange of scholars. He agreed that the education initiative in the 80s that has disappeared needs to be restored.

Ambassador-designate Pascoe then mentioned the need to improve the visa process and to re-establish the idea that the U.S. does indeed want students from abroad and they will be welcomed. Senator Lugar commented that the Committee has had several hearings on this issue and that it is recognized as a critical challenge. Universities in the U.S. are suffering because of this, but it is not easy especially with the need to focus on the security implications, people overstaying their visa limits, etc.

Feds Charge 26 With Operating Asylum Ring

A fraud ring operating in northern Virginia helped more than 1,000 Indonesian immigrants file bogus asylum applications in recent years, federal prosecutors said Monday.

Sixteen people were arrested Monday and 10 more are facing federal charges, including asylum fraud and labor-certification fraud.

The defendants all worked for companies that charged immigrants $2,000 or more to help them with fraudulent asylum claims or to improperly obtain labor certifications or identification documents like Virginia driver's licenses.

Applicants were coached to tell authorities they had been beaten or raped by Muslims in Indonesia because they were ethnic Chinese or Christians. Their applications contained bogus accounts of abuse that were identical on multiple applications.

"The stories of torture they fabricated were repeated word for word by immigrants who were coached to memorize them exactly," said U.S. Attorney Paul McNulty. McNulty's office has made immigration fraud a priority since the Sept. 11 attacks, when it was discovered that seven of the 19 hijackers had fraudulently obtained Virginia driver's licenses.

Security

The trials of suspects in the Australian Embassy and Marriott bombings, including radical Muslim preacher, Abu Bakir Bashir, are proceeding. Witnesses for the prosecution have established links between Bashir and Osama bin Laden but have not provided unequivocal testimony that he ordered bombings, something Bashir denies. The following report supports the notion that radical Islam continues to be on the rise in Indonesia, notwithstanding the fact that Islam was not a factor in the recent Presidential election.

Survey Shows Significant Support for Radical Islam in Indonesia

A recent survey showed that many Indonesians support the implementation of strict Islamic law, with nearly 60 percent saying they want adulterers to be whipped and 40 percent backing cutting off a thief's hand.

The survey, conducted by the U.S.-funded Freedom Institute, also found 16 percent of people polled refused to condemn terror attacks by the al-Qaida linked regional terror group Jemaah Islamiyah if they were committed to fight Muslim oppression. Still, 59 percent condemned the attacks, while 25 percent said they had no opinion.

The findings will likely rekindle concerns that radical Islam is gaining a foothold in the world's most populous Muslim nation, which has long embraced a moderate form of the religion. AP November 12, 2004

Socio-Cultural

Bahasa Indonesia: The Pride of Indonesians

Almost by definition, all Indonesians are bilingual, speaking one of the 300 regional languages as well as the national language: Bahasa Indonesia. “Bahasa” means language.

For Bobby Kuntoro, 23, a student of social sciences at Sebelas Maret University in Solo, Central Java, it has always been a dilemma about what language to use in and outside of his house.

"I have been using equally Bahasa Indonesia and Bahasa Jawa since my childhood. I use Bahasa Indonesia when outdoors and Bahasa Jawa when indoors. I must be careful while talking to my mother, who is a Javanese and is not fluent in Bahasa Indonesia," Bobby said.

Bobby is one of millions of Indonesians who use Bahasa Indonesia and regional languages in their everyday lives. Both the languages, national and regional, have so far maintained their identity but there is a potential danger that the dominance of Bahasa Indonesia among the younger generation could harm regional languages in coming decades.

Since its birth as a nation, one of the most remarkable achievements of Indonesia has been the development of Bahasa Indonesia as its national as well as official language.

From Sabang to Merauke, Bahasa, or Indonesian -- as it is popularly known -- is widely spoken as a first or second language by almost all 220 million Indonesians. Beyond Indonesia's borders, Bahasa is now also spoken by a majority of people in the youngest nation, East Timor. JP 10/20/2004

Indonesia halves infant mortality rate: UN

JAKARTA (AFP): In just over a decade Indonesia has managed to cut by half its mortality rate for children aged under five but the country still has work to do to tackle regional trouble spots, the United Nations said Thursday.

The UN Children's Fund UNICEF said in a statement that mortality rates among under fives had fallen between 1990 and 2002 from 91 deaths per 1,000 to 45.

It said the country was on track to reduce under-five mortality by two thirds over the next decade.

But UNICEF said there were pockets of high under-five mortality, especially in eastern Indonesia, where the rate could reach more than double the national average.

Tourism

Bali Favorite Island in Asia: Conde Nast Traveler

Bali's panoramic views and unique mixture of spiritualism and tourism has made it the favorite island for travelers in the Asia-Indian Ocean region, according to readers of Conde Nast Traveler magazine.

The international award was received by Bali Tourism Agency head I Gede Nurjaya last week in London at the World Travel Mart 2004, Antara news agency reported.

"Even though Bali has received numerous awards, many things still need to be perfected to make it a high-quality tourist destination,” Norway said.

The island beat out other attractive destinations such as Phuket in Thailand and the Maldives in the Indian Ocean. Borneo and Bali’s next-door neighbor Lombok also made it into the top 10 destination list; in eighth and 10th position respectively.

Conde Nast Traveler surveyed 241,000 subscribers to determine the winner of this year's award. Other awards were also presented to favorite cities, hotels, resorts, and modes of transport.

Economic Indicators

Figures in Billions of $, except where noted	2001	2002	2003*
Population (millions)	215	224	231
GDP ($ billions)	145	172.9	179.1
Real GDP growth rate(%)	3.4	3.7	3.9
GDP Per Capita (nominal $)	609	811	830
Inflation (%)	12.55	10.0	5
Unemployment (%)	6.4	9	9
Foreign Exchange Reserves ($ billions, including gold)	29	31.5	32.6
Average Exchange Rate for $1.00 (Rp)	10,500	9316	8500-9000
U.S. Economic Aid (millions of $)	230	200	184

Source: Government of Indonesia, Bank Indonesia, Central Bureau of Statistics, US Commerce Department and Embassy Projections Fiscal Year in Indonesia is April-March 31, Shares calculated from Indonesian Government Data ( *= preliminary)

TRADE (billions of US $)	2001	2002	2003
Total Exports(FOB)	56.3	57.9	58.7
Total Imports(CIF)	31	34.8	35.2
U.S. Exports	3.2	2.5	2.5
U.S. Market Share of Imports%	8%	8%	7%
U.S. Imports	7.7	9.6	9.3

TOP 5 US IMPORTS FROM INDONESIA (millions of US$)
	2002	2003	2004
MACHINERY (ELECTRONICS)	1655	1373	1168
APPAREL/TEXTILES	1633	1715	1879
RUBBER	361	541	732
OIL	376	258	575
FURNITURE	417	403	416

TOP 5 US EXPORTS TO INDONESIA (millions of US$)	2002	2003	2004
ELECTRONICS/MACHINERY	474	376	472
GRAIN/FOOD	378	449	404
CHEMICALS	158	151	144
WOOD/PULP/PAPER	139	119	125
COTTON	161	183	222