· Unless there is a last minute about face, the US textile quota system will end in 2005 and Indonesia could lose even more of the US garment market to China and Vietnam.

· Substantial quantities of Indonesian hardwoods are illegally smuggled to China where they become furniture for the US and European markets.

· New tariffs on tin plate imports make Indonesian canned seafood and fruit exports uncompetitive.

· Indonesia has received no new investment in its mining industry (except for that of existing companies) in half a decade.

· Indonesian oil production has been dropping while the $3 billion development of one of its largest on-shore oil fields, Cepu, languishes.

· A British company bought a palm oil plantation in Sumatra but the previous owner has successfully sued them to buy it back at a fraction of what the Brits paid.

· A perceived terrorist threat (later proved erroneous) on International Nickel’s top man in Sulawesi caused an evacuation of 30 expats to Bali.

As several articles in this Outlook issue point out, Indonesia is currently relying on a stable macroeconomy and domestic consumption as its growth engine and needs to find a way back to the days when foreign investment in export-oriented areas was a key element of GDP growth. With 40 million (40% of the workforce) unemployed or marginally employed, jobs in manufacturing and resource development are key to the country’s future. According to the World Bank, as a percentage of GDP, FDI has sunk to 17%, the level it was in the early 1970’s, compared with 30 percent before the 1997-98 Asian financial crisis. The short term investments of the 1990’s (toys, garments, footwear) are going to China and Vietnam and Indonesia’s great long-term investment sectors, oil/gas and minerals and agriculture suffer from legal and contract uncertainty.

Bad court decisions, protectionist policies, labor disputes, poor executive branch relations with legislatures, bureaucratic inefficiency and corruption, problems with implementing regional autonomy, and threats to travel are all conspiring to retard investment. Furthermore, large state enterprises such as Pertamina are having difficulty with their new status as limited liability companies. Bureaucrats and local businessmen unhappy with a more efficient and less lucrative system may at times push back in ways harmful to the nation’s interest. One example is the case where Pertamina ordered two large tankers from Korea to end collusive and expensive arrangements with non-Indonesia shippers. Now, Pertamina wants to sell the tankers when they are finally built and go back to the old system. It certainly has the appearance that the officials involved may not be acting in the nation’s best interest but rather their own. Another example of indecision in the oil patch is the slow progress to approve the contractors to continue the $3 billion development of Cepu, the largest new on shore oil discovery in Indonesia since the Minas field was discovered by Caltex in the 1930’s. Jobs and money are sitting on the sideline as the negotiations stall, restart, and stall again. The lack of clear vision for the sector by the government is now showing up in slowed drilling and exploration activity. Indonesian oil fields could not pump more when a worldwide shortage pushed prices up several months ago.

Bright spots still exist for Indonesian exporters: natural gas, handicrafts, agricultural commodities and their derivatives, plush and plastic toys, wood and builder’s products. And of course, many Indonesian factories in the problem sectors (furniture, garments, footwear) will have the tenacity to stay in their markets. But, overall, the sense is that whatever government is in place following the national elections has to be very vigilant or Indonesian exports and the investment they depend on will continue to slip. The American Indonesian Chamber and its members remain committed to providing the necessary advice and expertise to whatever government is formed in October.

v BANKING AND FINANCE

CGI Warns Against Further Merger of State Banks

The Consultative Group on Indonesia has warned against further mergers of large state-owned banks as it could pose risks to the country's banking sector.

The government is mulling a merger between Bank Negara Indonesia (BNI) and Bank Permata to form a mega-bank with combined assets of Rp 160 trillion, second only to Bank Mandiri -- the nation's largest lender.

However, the report said: "Some state-owned banks are already large enough to pose systemic risk to the banking system and operational weakness (in the sector) continues."

"Avoiding such mergers would best meet the government and Bank Indonesia's own objectives of creating a stronger and more competitive banking sector.

S&P Ups Indonesia Ratings Outlook To Positive

SINGAPORE (Standard & Poor's) May 12, 2004--Standard & Poor's Ratings Services today revised the outlook on the long-term sovereign credit ratings on the Republic of Indonesia to positive from stable. At the same time, the 'B/B' foreign currency and 'B+/B' local currency sovereign ratings were affirmed.

"The outlook revision reflects a continuing progress in macroeconomic stability, evident from a stable exchange rate, falling inflation and lower interest rates," said Standard & Poor's credit analyst Agost Benard, associate director in the Sovereign & International Public Finance Ratings group. "Further progress in these areas could help reduce the vulnerability of the government's fiscal position," he said. The government has set a fiscal deficit target of 1.2% of GDP in 2004, and its interest servicing requirement remains high. However, a successful re-profiling of its domestic debt has extended the average debt-maturity profile to 7.8 years from 4.4 years, and enabled a reduction in the country's debt-service burden. Interest payments are expected to fall to below 20% of general government revenues in 2004, from 30% in 2002.

"This rate could accelerate with appropriate policies and a favorable investment climate, as Indonesia's macroeconomic fundamentals put it in good stead to graduate to a higher and more broad-based growth path," said Benard. "The potential for faster economic growth, however, remains contingent on a broad range of reforms, particularly in the judicial, legal, and labor sectors. If there is only slow improvement in these issues, it would adversely affect the country's growth potential," he warned. The positive outlook also assumes a gradual improvement in external liquidity. (source: S & P press release)

MOODY’S ANNUAL RATING

NEW YORK, March 16 - In its annual report on Indonesia, Moody's Investors Service says the government's speculative-grade ratings and stable outlook reflect both high government debt and steep overall foreign-debt levels. The country ceiling for foreign currency debt is B2; the country ceiling for foreign-currency bank deposits is B3.

"While Indonesian political life is more stable than in the 1997-2000 period and progress has been made on the reform front, risks related to potential shocks from political developments or terrorism remain," says Moody's analyst Steven Hess, author of the report. Political challenges remain formidable as sound economic policies may be hard to get through Congress.

On the upside, says Moody's, the ratio of public-sector debt to GDP has fallen fairly sharply in the past three years, partly because of a strengthening of the rupiah and partly because of modest budget deficits. Moody's credits the government of President Megawati for progress in reforms, including recent progress in privatization and disposal of government assets.

The government has decided not to renew its IMF agreement in 2004, Moody's points out, which means that it will repay the IMF on a net basis, and that Indonesia will not be eligible for a Paris Club rescheduling. "While net international reserves may decline, this appears manageable," says Mr. Hess. "But any shock to confidence that leads to an outflow of private capital could be problematic, however." The rating agency's report, "Indonesia: Global Credit Research," is a yearly update to the markets and is not a formal action to alter the credit rating of the issuer.

CGI Donors Urge Indonesia to Push Reform

A grouping of major foreign lenders to Indonesia has renewed calls for further reform here to promote investment and boost exports -- the main factors holding back the nation's economic growth.

In its mid-term report on Indonesia the Consultative Group on Indonesia (CGI) said weak investment was hampering exports, "as in the past, foreign companies were a key driver of export growth." According to Dow Jones, joint ventures between foreign and local companies currently made up around one-third of the country's manufacturing exports.

Indonesia's economy expanded by 4.5 percent in the first quarter of the year but the growth would have been higher had the country managed to exploit its export potential, the report said.

The grouping -- which includes the World Bank, the Asian Development Bank and Japan -- said the country was lagging behind many of its regional peers in export growth. The report said Indonesia's exports grew by only 10 percent from 1996 to 2003, as compared to Thailand's 70 percent and South Korea's 50 percent growth. It said the country was also less aggressive in taking a larger share of China's huge import market. "While Indonesia's exports to China grew 30 percent in 2003, they are not growing as rapidly as those of regional competitors, so Indonesia is losing market share," it said.

With exports failing to live up to expectations, the country had become too dependent on domestic consumption. "Medium-term growth will depend on the progress of reforms, and improvements in the investment climate." Until these factors were dealt with, Indonesia's economy would continue to grow at a "fair" level of about 4.5 percent, the report said. Indonesia needs the return of foreign investment to generate growth of at least 6 percent -- the minimum rate required to address unemployment and poverty in the country. (Jakarta Post, June 3)

v CONSUMER

Chinese Auto Firm to Form JV in Indonesia

JAKARTA, June 10 Asia Pulse/Antara - Chinese automotive company Great Wall Manufactured wants to build a car factory in Indonesia in cooperation with local company PT Batara. A joint venture agreement is expected to be signed toward the end of this year, Metal, Machine and Electronic Industries Director General Subagyo said. The cooperation agreement will be discussed further on the occasion of visit by the industry and trade minister to China scheduled in August, Subagyo said.

He said the investment in the joint venture will be worth hundreds of millions of U.S. dollars. The joint venture company is expected to produce multipurpose vehicles (MPV) with prices below Rp100 million (US$10,600) each.

ASTRA SALES AT RECORD HIGH

JAKARTA Astra International, which sells almost half the cars in Indonesia, is set to beat its 1997 sales record, after taking seven years to recover from a financial crisis that sent the rupiah and consumer spending plunging.

Record sales may help raise profit before taxes and one-time gains by between 15 percent and 20 percent from the 3.4 trillion rupiah, or $365 million, last year, the carmaker's president, Budi Setiadharma, said in a June 1 interview.

Interest rates at a record low are spurring consumer spending, which accounts for more than two-thirds of Indonesia's economy, helping Astra, Indomobil Sukses Internasional and other dealers sell more cars and motorbikes.

"Indonesians usually see whether it's safe enough before they decide to buy a car," said Irvin Patmadiwiria, a manager at Batavia Prosperindo Aset Manajemen in Jakarta. "So far the election process has been smooth, so auto sales volumes should be good."

v MINING AND ENERGY

Indonesia Forced to Buy LNG from Rival Suppliers

Indonesia will need to buy up to 30 liquefied natural gas cargoes on the spot market in order to meet its contractual obligations because of disruptions to its domestic gas output. Asia's only member of the Organisation of Petroleum Exporting Countries, has seen decreasing raw gas deliveries to the Arun and Bontang LNG plants so will need to purchase cargoes to supply its long-term customers in Japan, South Korea and Taiwan. Domestic unrest in the Aceh region has led to lower gas deliveries and output at the Arun LNG plant, while a fire at Unocal's Attaka offshore gas field reduced deliveries to the Bontang plant in East Kalimantan during February.

It is likely to buy cargoes from rival suppliers in the East Asia, including Malaysia, Brunei and Western Australia, plus it could ask fellow Opec members in the Middle East and Nigeria to provide cargoes. The country is one of the world's largest suppliers of LNG, delivering 26.5m tons in 2003, but it has seen customer confidence dented by minor supply disruptions. Indonesia has recently become a net importer of crude oil after its output fell below 1m barrels per day, said energy minister and Opec president Purnomo Yusgiantoro. Low levels of oil field investment and the lack of available new exploration opportunities for international oil companies are to blame. But there is a turnaround on the cards as more offshore projects come on-line over the next five years and BP builds its Tangguh LNG plant.

Gas-Fired Plant in Action

The gas-fired Muara Tawar power plant at Bekasi, West Java, began operation of two power generation units with a combined capacity of 286-MW on Wednesday (3/6/04).

Antara reported that the combined-cycle power plant is expected to be in full operation with six power generation units by next month. President of state utility company PT Perusahaan Listrik Negara (PLN) Eddie Widiono said that the full operation of the Muara Tawar plant could hopefully provide a significant boost to the power supply in the main Java-Bali power grid. He pointed out that Muara Tawar would provide an additional 850 MW to the power grid. Muara Tawar, which has been developed by a Siemens-led consortium, will supply power to PLN.

Also, three independent power producers plan a capacity expansion with an investment of $1.15 billion that will increase power supply to the Java-Bali interconnections. Widiono said PT Paiton Energy, PT Energy Sengkang and Siemens have asked for the expansion of their capacity by a total of 1,385 MW.

Pertamina and Government Reach an Accord on Fuel Subsidies

Pertamina, Indonesia’s state-owned oil company troubled by a transition to a limited liability company, has reached agreement with the government on its cash-flow problems, caused by late payment of fuel subsidies. The government will reimburse up to 95% of the fuel subsidies that Pertamina actually spends every month.

Pertamina intends to raise the prices of non-subsidized fuel oils in June, owing to the surge in the world oil price to more than $40 per barrel, a spokesman said. However, Energy and Mineral Resources Minister Purnomo Yusgiantoro told the House of Representatives' commission on mining and energy affairs Monday (31/5/04) that the government would not raise fuel oil prices in 2004.

"Despite the sharply increased world oil price, the government will not increase fuel oil prices this year," Purnomo said. However, the minister said, he could not guarantee that the country's post-election government would pursue the same policy.

According to experts, Pertamina’s problems following a hike in oil prices is linked to hasty liberalization in the country's oil and gas sector. Noted economist Mohammad Sadli, who was Energy Minister in the 1970s, and energy expert Kurtubi said that while the government ended the decades-long monopoly of Pertamina and turned it into a limited liability company last year (dismantling its regulatory functions), the government failed to adjust the gasoline pricing policy.

The government has decided not to raise fuel prices by reducing the subsidy for the public during the current general election year to prevent social and political unrest. But Kurtubi said that if the public was not yet ready to pay for gasoline at the market price, Pertamina should not be turned into a limited liability company and some of its monopoly privileges should be given back to allow the company to obtain a higher income.

He explained that since Pertamina lost its monopoly over the country's upstream oil and gas sector, the company lost several sources of income. Pertamina's problems mirror Indonesia's seemingly inevitable transition from net oil exporter to importer. Oil is one of Indonesia's biggest exports and most important sources of government revenue. Sales of oil helped Indonesia pull out of the Asian financial crisis of 1997 to 1998.

v TRADE AND INVESTMENT

Indonesia's Trade Surplus Rises in April

JAKARTA, June 1 (AFP): Indonesia's trade surplus rose 5.67 percent from the previous month to 2.05 billion dollars in April as export growth outpaced imports, the Central Bureau of Statistics said on Tuesday. Exports increased 2.7 percent month-on-month to US$5.21 billion in April, while imports rose 0.9 percent to US$3.16 billion, said the bureau's head, Sudarti Surbakti.

Non-oil and gas exports rose to $4.02 billion in April from $3.87 billion a month ago, while non-oil and gas imports increased to $2.29 billion from $2.18 billion, Surbakti said.

Statistics bureau data show that crude oil exports declined to $463.1 million in April from $529.8 million in March, while processed oil exports increased to $153 million from $105.7 million previously. Crude oil imports declined to $442.6 million from $639.6 million in March, while processed oil imports rose to $420 million from $309.6 million -- leaving Indonesia a net oil importer despite being a member of OPEC and currently holding the cartel's presidency. Gas exports were relatively stable at $565.6 million in April, compared with $562.9 million in March.

The head of oil and gas regulatory body BP Migas, Rachmat Sudibyo, had said previously that gas export revenue is likely to offset a decline in oil exports, resulting in a surplus for the government. Sudibyo said Indonesia's oil production has been dropping by about six percent annually for the past five years.

In non-oil and gas exports, electric machinery and equipment still led the top 10 commodities in April, with export value of $653.2 million, down from $779.8 million in March, the statistics bureau said.

By trading partners, Japan was Indonesia's largest partner for non-oil and gas exports in April, accounting for revenue of $693.2 million against $576.8 million in the previous month. The United States dropped to second spot, as exports to the country fell to $589.6 million in April from $617.2 million in March.

Indonesia MaintainS Import Duty on Tinplate

JAKARTA, June 2 Asia Pulse/Antara - The Indonesian government will continue to impose a 15% import duty on tinplate as a raw material to manufacture cans on the grounds that the commodity is already being produced by local industries. "It is impossible to impose zero per cent duty on tinplate because doing so could kill the domestic industry," Director General for Metal, Machinery, Electronics at the Trade and Industry Ministry, Subagyo, said yesterday. Subagyo was responding to demand of industry which used tinplate as raw material to impose zero per cent duty on the commodity because a high import duty on tinplate had reduced the competitiveness of their products. Canned fish producers have reportedly cited the high import duty on tinplate the main reason for a decline in the competitiveness of Indonesian products in the international market, following an increase in the price of steel.

Indonesian furniture exports seen falling due to logging curbs and smuggling

Indonesia's furniture exports may fall by between 200 and 300 million dollars this year as tighter logging regulations cause a shortage of wood, the industry association said Tuesday. "Producers may not be able to meet the export demand due to a shortage of wood. The value is estimated at between 200 and 300 million dollars,"said Sae Tanangga Karim, executive director of the Association of Indonesian Furniture and Wood Products Manufacturers.

He said the government decision to reduce the amount to be logged from 6.5 million cubic meters(8.45 million cubic yards) last year to 5.5 million cubic meters this year had contributed to the shortage. The measure will remain in place until an equilibrium is reached between reforestation and logging, Karim said.

Illegal logging is also to blame for the shortage because most of the illegally felled timber is sold directly overseas, he said. "Illegally logged timber goes to Asian countries like Malaysia, China and Vietnam. We support Greenpeace's campaign urging countries not to accept timber from countries which bought it illegally," he told AFP. "In Malaysia, timber from Indonesia is taxed and after that it's clean as if it originated from Malaysia," he said. (AICC has raised the issue in several meetings with Indonesia’s Minister of Industry and Trade, Rini Soewandi. AICC also attempted to mediate a after a major US buyer of hardwood furniture cancelled over $200 million of orders from Indonesian factories because they were not sure their suppliers were using legally harvested woods.)

v LEGAL DEVELOPMENTS

Indonesia Supreme Court Reverses Prudential Bankruptcy

JAKARTA, June 8 (Dow Jones)--The Indonesian Supreme Court reversed a bankruptcy verdict against a local unit of U.K. insurer Prudential PLC (PRU.LN), an official with the court said Tuesday. "The Supreme Court accepted Prudential Life's appeal and rejected the bankruptcy petition filed by a former consultant against it," the Supreme Court's spokesman, Joko Upoyo Pribadi, told Dow Jones Newswires.

The Central Jakarta Commercial Court in late April declared PT Prudential Life Assurance bankrupt as a former consultant, Lee Boon Siong, sought $40 million in damages after the country's leading investment-linked insurance company terminated an agent recruiting and training contract with him in late 2003. The court ruled Lee is owed $400,000.

Foreign businesses hailed the decision as a shot in the arm for Indonesia’s investment woes.

v POLITICAL AFFAIRS

Indonesia Voter Registration Up 4% Ahead Of Vote For President

JAKARTA, June 8 (AP)--Keen voter interest in Indonesia's first direct presidential election next month is credited as partly responsible for a boost of about 4% in voter registration since parliament elections in April.

The number of registered Indonesians rose by about 6 million to 153.3 million since parliamentary polls in this country of 210 million, Election Commission deputy head Ramlan Surbakti said.

The rise partly reflects greater voter interest in the presidential poll, as well as that hundreds of thousands of Indonesian have reached voting age since April, commission spokesman Andi Irman said. Indonesians must be 17 or married to vote; the total number of eligible voters wasn't immediately available.

The July elections are seen as a milestone in the country's transition to democracy after the fall of Suharto in 1998. Previously, lawmakers acting as an electoral college chose the head of state.

presidential Campaign Begins

Official campaigning for Indonesia's first ever direct presidential elections kicked off June 1 amid tight security after police warnings that militants might launch attacks to coincide with the polls.

An opinion poll released on the same day shows Susilo Bambang Yudhoyono with 41% compared to 11.2% for incumbent President Megawati Sukarnoputri and 10% for Wiranto, the Golkar candidate.

Also running are Hamzah Haz, Megawati's Vice President, and Amien Rais, a former head of Muhammadiyah, Indonesia's second largest Islamic organization and Speaker of the People’s Consultative Assembly. Neither is seen as likely to make the second round. The five candidates and their deputies, cheered on by hundreds of supporters, stood side-by-side to officially start the campaign for the July 5 ballot. A huge plaque bearing the words: "We are prepared to win, but we are also prepared to lose,'' hung above their heads.

Candidates Platforms

Whether Megawati, who trails badly in opinion polls, is prepared to lose remains to be seen but she stole a march on her four rivals by launching her re-election bid on Monday, a day before the others. Struggling to keep her job at the helm of the world's largest Muslim nation, Megawati, at her first ever full press conference since taking office, unveiled a six-page manifesto that promised to create 12.7 million new jobs, halve the poverty rate and appoint half a million new teachers over the next five years. The policies also include plans for new roads, an expansion of the railway infrastructure, better irrigation, rice and fuel subsidies, improved family planning and local medical clinics, and a pledge to raise civil servants' salaries by 15% every year for the next five years.

Golkar Party candidates Gen. (ret) Wiranto and cleric Solahuddin Wahid say weak law enforcement is the main factor behind the low public trust in the government, leading to security problems, recurring violations of the law and the prolonged economic crisis. In their statement titled: Vision, mission and main policies to save the nation, they clearly prioritize law enforcement efforts and national security along with good governance, public welfare, education and "reconciliation".

Susilo Bambang Yudhoyono and running mate Yusuf Kalla released their manifesto in a campaign book which stated that "creating more jobs" was a top priority. They pledged to reduce the poverty rate to around 8.2% by 2009, and increase income per capita to $1,731 by the same year, from $968 in 2003. They targeted growth at 7.6% by 2009

Hamzah Haz and his running mate Agum Gumelar are focusing on economic equality, which they define as equal access to goods and public services and bank lending. According to a document describing the pair's vision and mission, the goal can be achieved through improved "synergy" between the government, the corporate and banking sectors, and the people. Hamzah's platform also includes a promise to help facilitate funding from

banks and other sources to support entrepreneurs and the development of small and

medium-sized enterprises.

National Mandate Party (PAN) presidential candidate Amien Rais has vowed to eradicate corruption, collusion and nepotism if elected as Indonesia's sixth president. Amien said his Cabinet would be made up of professionals who were competent in their respective fields.

The first direct election of Indonesia’s President is scheduled for July 5.

Candidates in Order of Wealth

1. Jusuf Kalla: $13,028,710

2. Siswono Yudhohusodo: $8,014,533

3. Megawati Sukarnoputri: $6,345,816

4. Wiranto: $4,903,478

5. Hamzah Haz: $2,038,514

6. Agum Gumelar: $1,306,305

7. Hasyim Muzadi: $767,564

8. Susilo Bambang Yudhoyono: $493,588

9. Gus Solah: $286,579

10. Amien Rais: $105,791

The law on presidential elections limits campaign contributions to a presidential candidate and his or her running mate to Rp100 million (US$10,610) by an individual and Rp750 million (US$79,575) by a company or organization.

v SECUrity

New Perceived Threats

There has been considerable speculation regarding a new perceived threat against expatriates in Indonesia that has surfaced in recent, widely publicized, press reports. These reports include an article in the Far Eastern Economic Review that indicated that Australian intelligence had picked up information that suggest that there is a shift in the nature of the terrorist threat in Indonesia, that there are signs that the Jemaah Islamiyah (JI) terrorist group is turning away from large-scale car bombs and that JI operatives trained in assassinations have been infiltrated into Indonesia in recent weeks. The reports maintain that US, British and Australian Ambassadors, together with senior embassy officials, are top of the target list but add that there are serious concerns about potential attacks on senior foreign business executives. Furthermore, the press published a report that the head of INCO’s Sulawesi nickel mine had been targeted which led to the evacuation of the executive and other expatriates to Bali. However, this turned out to be a hoax as a disgruntled employee sent false SMS messages to the company.

The major embassies (US, UK and Australia) are clearly mindful of current dangers and called town hall meetings to remind their communities not to become apathetic and to highlight the re-arrest of Abu Bakar Ba’asyir and the danger of JI or other groups sympathetic to him carrying out some form of attack. That these embassies took the unprecedented step of holding town hall briefings during the same week is indicative of the degree of their concern that further attacks could occur in Indonesia. Whilst there was no announcement of specific and credible information to suggest that attacks were currently being planned against the expatriate community, we should be mindful of the apparent success of such attacks in Saudi Arabia and Iraq. The embassies have adopted a heightened security posture including emphasizing the need to vary routines. Overall, the message from the town hall meetings was that the expatriate community should remain on the alert, keep a low profile and be unpredictable in their behavior. This, in fact, has been the message since the Bali bombing in 2002.

There is, however, a danger in drawing inferences from these reports that there is specific and credible information that JI has already embarked on a campaign to assassinate foreign executives, which is not the case, at least not yet.

AICC acknowledges the input of the following firms to the above report:

Brian Watters of Assessments Group Indonesia (bcw@agi.co.id)
James Filgo, Consolidated Services International(jdf@interteknis.co.id)

v Social/Cultural Affairs

Tribal Standoff Near Freeport Mine Ends

JAKARTA, June 8 (AP)--Fighting between rival tribes armed with bows and arrows in Indonesia's remote Papua province killed one person Tuesday - but police said the death had evened the fatality toll between the two sides and hence ended the conflict. The killing brings to three the number of people killed since fighting between the Nduga and Damal tribes broke out Friday over the murder of a Nduga man two months ago, said police Maj. Rinto Prastowo.

Each tribe has now lost two men, and the hundreds of combatants had consequently agreed to stop fighting and return home, he said. "The death from an arrow in the heart of one Nduga man means that the war is over because the respective death tolls are now even," Rinto said. No arrests had been made, he said.

Papua has hundreds of different tribes, each with their own culture and language. Many lead near stone-age existence, and disputes are often settled according to long-standing traditions where police and judges play no part.

The fighting took place close to Timika, home to a giant gold and copper mine run by U.S. company Freeport McMoran. Production at the site, 3,700 kilometers east of Jakarta, was not affected by the troubles.

CREDIT ANALYSIS- INDONESIA STYLE

An Indonesian company has learned how to lend to the poor. Mr. Hendriansyah is a physical surveyor for PT Adira Dinamika Multi Finance, one of several rapidly expanding Indonesian companies that finances the purchase of goods such as motorcycles and washing machines. His job is to determine whether borrowers who have no documented financial history -- and often don't even have a bank account -- can qualify for a small loan.

By studying the circumstances in which the potential borrower lives -- the size of his house, the value of his furniture, the affluence of his neighborhood -- Mr. Hendriansyah and Adira's other surveyors compensate for the lack of assessment measures used in the developed world, such as credit reports and financial statements.

Underlying Adira's business lies a simple idea: that most families in this nation of 220 million people can afford consumer durable goods -- if they can pay with credit instead of cash. By financing this consumer-spending splurge -- often at large premiums over prevailing interest rates -- companies such as Adira are helping to keep Indonesia's economy afloat, even as local and foreign manufacturers and other types of companies look elsewhere for investment opportunities.

"People in Indonesia have no buying power, but they do have installment power," says Erida Djuhandi, Adira's chief financial officer. So long as a family has total income of at least Rp1 million a month, or about $107, she says it should be able to make monthly payments on a loan to buy a motorcycle that costs 10 times that amount. About 70% of Indonesians live in such a family, company officials believe.

Surveyors such as Mr. Hendriansyah visit the home of every potential borrower for extensive background checks. By keeping such close tabs on borrowers -- and by making each lending agent responsible for keeping his own bad-debt level below 2.5% of total outstanding advances -- Adira is able to substantially reduce the risks that are inherent in lending to poor people with little financial history, Mr. Hendriansyah says.

(from an article by Timothy Mapes that appeared in the Wall Street Journal, June 1)

v TOURISM/TRAVEL

Tourist Arrivals to Indonesia Up 27.7 Percent

JAKARTA, June 1 (DPA): Tourist arrivals to Indonesia during the first four months of 2004 reached 1.36 million, up 27.7 percent compared with the same period in 2003, government officials said on Tuesday. The number of foreign tourists who passed through the country's 13 gates across the archipelago in April was 322,146, up 57.5 percent from April 2003. But April arrivals declined 9.1 percent when compared with March's figure of 354,291, said Sudarti Soerbakti, chief of the National Statistics Agency (BPS). "The decline in tourist arrivals in April was due to the 'low season' for the foreign visitors to Indonesia," Soerbakti said.

v Events and Activities

AICC DICTIONARY PROJECT

In conjunction with Ohio University Press, AICC’s Comprehensive Indonesian-English Dictionary is now almost completed and is scheduled to be printed in July. A last round of contributions helped AICC subsidize this important work by member, Allan Stevens, a Yale-educated linguist who teaches at Queens College of the City University of NY.

The following companies and individuals contributed:

ATSGlobal Group

ExxonMobil Corporation

PT Indokor Indonesia

PT Freeport Indonesia

Citigroup

American International Group

Empire Resources

Robert Hornick

Indonesia Australia Language Foundation (IALF)

Unocal Corporation

Indonesian Cultural Foundation

Rosetini Melanita & Partrners

Frank & Joy Shea

Lehman Brothers

White & Case LLP

Smith Asbury

William Milcarek/Arch Insurance Group

The United States-Indonesia Society

Credit Renaissance Partners

Metropolitan Life Insurance

Centerchem, Inc.

v 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

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

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)

TOP 5 US IMPORTS FROM INDONESIA (millions of US$)
	2001	2002	2003
MACHINERY (ELECTRONICS)	2431	2199	1959
APPAREL/TEXTILES	2262	2091	2202
FOOTWEAR	725	729	575
OIL	573	473	468
FURNITURE	505	549	530

TOP 5 US EXPORTS TO INDONESIA (millions of US$)
	2001	2002	2003
ELECTRONICS/MACHINERY	642	637	491
GRAIN/FOOD	450	416	493
CHEMICALS	263	230	189
WOOD/PULP/PAPER	147	179	154
COTTON	199	200	252

v NEW MEMBERS

AICC is pleased to welcome the following new members to our roster:

Boeing Company- one of the world’s largest aircraft manufacturers. Contact: Stanley Roth, Vice President, Asia-International Relations, (703) 465-3968)

Prince Street Capital- operates an emerging markets hedge fund. Contact: David Halpert, Managing Partner, (212) 931-8650

Consolidated Services International- based in Indonesia, CSI provides security guards and personal body guards for US operations, and general commercial investigative services. Contact: James Filgo, VP Operations, phone (01162217971809), email: jdf@interteknis.co.id.

WorldBusiness Capital- a Hartford, CT commercial finance company that makes loans to meet the needs of U.S. companies doing business in global emerging markets. Has a particular interest in financing sales of US equipment and commodities of small to medium-sized businesses to and from Indonesia. Contact Brett Silvers, President, phone (860 246-6300 ext. 110), email: bsilvers@worldbusinesscapital.com.

Stonemount Corporation- import and marketing agent for rubber products from Indonesia. Contact: Robert Blumberg, President, phone (516 294-3232), email: stonemont@aol.com.

Natural Carpet Company- manufactures carpets in Palembang for US market made from abaca fibers. Contact: Norman Marks, President, phone (310 447 7965), email: (nm@naturalcarpetcompany.com).

Saxo Bank-Saxo Bank A/S is a global investment bank serving retail and institutional clients directly and through white label partnerships worldwide. Headquartered in Copenhagen, Denmark, the firm's trading platform, The SaxoTrader, is internationally recognized as "best in class" by Euromoney Magazine and FX Week 2003 Reader Survey. The SaxoTrader offers investors a multi-product trading platform on which clients can trade FX, CFDs (stocks on margin), Futures and Managed Funds on real, live streaming prices. Saxo Bank is currently seeking partnerships for its products in Indonesia. Contact Michael Moschides Tel: (914) 980-1163; Email: mmo@saxobank.com

OUTLOOK/INDONESIA is published quarterly by the American Indonesian Chamber of Commerce, a non-profit membership organization established in 1949 to promote commerce and understanding between the United States and Indonesia. For membership and other information, contact Wayne Forrest, Executive Director, at (212) 687-4505.

Web address:www.aiccusa.org