INDONESIA TRADE DIRECTORY ON DISK 1993 TRADEWARE BOX 406 WHITE MARSH VA 23183 TITLE : INDONESIA - COUNTRY MARKETING PLAN FY'93 - INDONESIA COUNTRY MARKETING PLAN FY 93 American Embassy Jakarta, Indonesia Fiscal-year 1993 Country Marketing Plan for Indonesia Table of Contents Part Description I Country Data A. Profile B. Domestic economy C. Trade D. Investment II Best Prospects III Commercial Environment IV Financing Environment V Trade and Investment Issues/Barriers A. Major trade barriers B. Major investment barriers VI Market Analysis Plan VII Trade Event Plan I. INDONESIA COUNTRY DATA A. PROFILE 1990 1991 1992 (e) Population (million) 179 183 185 Religion(s): Majority Moslem: approx.: 86 percent; Christian: approx.: 7 percent; Hindu/Buddhist: approx.: 7 percent Government: Presidential; Parliamentary Republic Language: Bahasa Indonesia Work Week: Monday through Saturday morning. Many firms work only half days on Friday as it is the day of worship for Moslems. Contacts: Theodore J. Villinski Counselor for Commercial Affairs American Embassy Jakarta Phone 360-360 ext. 2085 Fax 62-21-385-1632 Telex 44218 AMEMB IA Karen Goddin, Indonesian Desk Officer U.S. Department of Commerce Office of the Pacific Basin, Rm 2032 Washington, D.C. 20230 Phone (202) 482-3875 Fax (202) 482-4435 Carol Kim, Regional Manager Office of International Operations, US&FCS Room 1229 U.S. Department of Commerce Washington, D.C. 20230 Phone (202) 377-8422 Fax (202) 482-5179 Janet Thomas, US&FCS/ADB Asian Development Bank (Manila) 2330 Roxas Blvd. P.O. Box 789 Manila, Philippines Phone (63) (2) 807-251 B. DOMESTIC ECONOMY 1990 1991 1992(e) (Millions US$) GDP (current prices) 107,158 116,158 126,146 GDP Growth Rate (%) (in constant 1983 prices) 7.3 6.8 6.0 GDP Projected average growth rate through 1994 (percent) 6.2 GDP per capita ($ at prevailing exchange rate) 599 638 682 Government spending as % of GDP 25.0 22.9 21.7 Inflation (%) 9.8 10.5 10.6 Unemployment (%) 3.0 2.4 2.5 Foreign Exchange Reserves 8,661 9,868 10,000 Average Exchange Rate (US$1 = RP.) 1,843 1,950 2,047 Foreign Debt (government sector) 45,000 48,000 50,500 Debt Service Ratio 23.1 22.6 21.4 U.S. Economic Assistance* 65.6 174.5 160.0 U.S. Military Assistance** 1.9 2.3 2.5 C. TRADE 1990 1991 1992(e) (Millions US$) Total Exports (F.O.B.) 25,675 29,142 32,500 Total Imports (C.I.F.) 21,837 25,869 27,000 Notes: Source: * - US Agency for International Development - Jakarta **- Office of Military Assistance Defense Programs - US Embassy Jakarta All figures, unless stated otherwise, are based on the Bank Indonesia (the Central Bank) and the Indonesian Central Bureau of Statistics' publications. Exports to the U.S. (F.O.B.) 3,364 3,508 3,650 Imports from the U.S. (C.I.F.) 2,520 3,397 3,700 U.S. share of host-country imports (%) 11.5 13.1 13.8 U.S. share of host-country exports (%) 13.1 12.0 11.2 Imports of manufactured goods (C.I.F.) 17,084 20,220 21,500 Projected average growth rate through 1994 (percent) 6.0 Imports of manufactured goods from the U.S. (C.I.F.) 2,045 2,751 2,960 Projected average growth rate of imports of manufactured goods from the U.S. (C.I.F.) 14.0 U.S. share of imports of manufactured goods (C.I.F.)-(%) 11.9 13.6 13.8 Projected average growth rate through 1994 (percent) 5.0 Indonesian Trade Balance Japan +5,623 +4,440 +4,500 United States +844 +111 -50 Germany -751 -1,708 -1,700 NOTE: Below are listed selected U.S. Department of Commerce trade statistics. Significant discrepancies exist between U.S. and Indonesian trade statistics, some of which may be explained by different methods used to determine the country of origin of foreign shipments: 1990 1991 1992(e) (Millions US$) Exports to the U.S. (Customs value)** 3,343 3,238 3,500 U.S. share of exports (Customs Value) (%)** 13.0 12.5 10.8 Imports from the U.S. (F.A.S.)** 1,897 1,892 2,000 U.S. share of imports (%) 8.7 7.3 7.4 (F.A.S. value)** Indonesia/U.S. Trade Balance* +844 +111 -50 Indonesia/U.S. Trade Balance** +1,446 +1,346 +1,500 Notes: *- Based on Indonesian trade statistics **- Based on USDOC trade statistics Principal U.S. exports to Indonesia (In millions of U.S. Dollars) (five items by tariff line item): 1990 1991 1992(e) Cotton, not carded or combed 179 233 235 (Tariff code: 520100000) Floating or submersible drilling or production platform 203 157 165 (Tariff code: 890520000) Parts of boring and sinking machinery (Tariff code: 843143000) 84 120 125 Aeroplanes and other aircrafts of an unladen weight not exceeding 15,000 kgs. (Tariff code: 88024000) 5 167 75 Polypropylene in granules (Tariff code: 390210200) 53 49 55 Principal U.S. imports from Indonesia (In Millions of U.S. Dollars) (five items by tariff line item): 1990 1991 1992(e) Crude oil to be refined (Tariff code: 270900100): 626 663 650 SIR 20, rubber (Tariff code: 400122160) 307 312 310 Plywood with at least one outer ply of the tropical woods (Tariff code: 441211000) 351 276 260 Shrimps and prawns, frozen (Tariff code: 030613000) 80 114 100 Sports footwear of rubber (Tariff code: 640411100) 76 95 100 D. INVESTMENT* 1990 1991 1992(e) (Millions US$) Total new foreign investment** 8,750 8,778 8,950 U.S. new investment** 154 276 300 Accumulated total investment from 1967 up to year end** 36,066 48,351 53,000 % U.S. share from 1967 up to year end** 5.6 5.2 5.8 Principal foreign investors (accumulated total from 1967 through 1992) - Japan 8,734 11,405 12,500 - Hong Kong 3,372 4,213 4,750 - United States 2,151 2,496 2,600 *Figures exclude oil and gas, insurance and banking sectors which are not classified as investment by the Government of Indonesia. **Figures for total investments are based on approvals received from the Investment Coordinating Board. II. BEST PROSPECTS The following listing of Best Prospects has been selected by USFCS Indonesia as those sectors where U.S. exports can be increased in FY-93. The selection is based on the amount and growth rate of imports in the sector and on U.S. competitiveness in these sectors. Note: Explanation of codes below A: Rank of sector B: Name of sector C: Three-letter ITA industry sector code D: Estimate market size, 1992 (in millions of US dollars) E: Estimate annual growth rate of market, 1992-1995 (percent) F: Estimate total imports, 1992 (in millions of US dollars) G: Estimate average annual growth rate of total imports, 1992-1995 (percent) H: Estimate imports from U.S., 1992 (in million of U.S. dollars) I: Estimate annual growth rate of imports from the U.S., 1992-1995 (percent) J-1: Country's receptivity to U.S. products and services; on a scale of 1 (lowest) to 5 (highest) J-2: Competition for U.S. exporters from domestic and third country suppliers; on a scale of 1 (very heavy) to 5 (very little) J-3: Trade barries on U.S. exports of these products and services; on a scale of 1 (very severe) to 5 (very few) K: Comments. L: List of most promising sub-sectors within the sector, along with the 1992 total market size, in millions, of each sub-sector. - (A): #1 - (B): INDUSTRIAL CHEMICALS - (C): ICH - (D): USD 2,000 - (E): 15 percent - (F): USD 1,400 - (G): 10 percent - (H): USD 200 - (I): 10 percent - (J-1): 5 - (J-2): 3 - (J-3): 4 - (K): Indonesian government agencies and the private sector are continuing to develop industrial plants that will be using industrial organic and inorganic chemicals as basic feedstocks. Indonesia's manufacturing industry has been rapidly expanding during the last five years, especially with the deregulation and privatization measures taken since the mid-1980's. Development in manufacturing industries which use industrial chemicals as basic feedstocks is expected to accelerate during the next five years. The Government has determined that it is necessary to establish a wide range of industrial chemical plants in Indonesia. Special mention can be made of the establishment of petrochemical plants such as olefins and aromatics plants to take advantage of abundant raw materials sourced from domestic oil resources. However, while waiting for these production petrochemical plants to come on stream, imports for many kinds of industrial chemical materials will continue and even experience substantial increases. U.S. exports of industrial chemicals to Indonesia have grown by at least six percent annually during the past three years and should continue to grow by similar amounts through 1995. - (L): - Unsaturated ethylene--USD 65 - Benzene and Tolulene--USD 37.5 - P-xylene--USD 5 - Styrene--USD 20 - Vinyl chloride (chloroethylene)--USD 10 - Ethylene glycol (ehtanediol)--USD 65 - Phenol (hydroxybenzene) and its salts--USD 17.5 - Vinyl acetate--USD 15 - Terephthalic acid (PTA)--USD 110 - Cyclanic, cyclenic or cycloterpenic mono or polyamines, and their derivatives-- USD 12.5 - Isocyanates--USD 20 - Other organo sulphur compound--USD 15 - Tetraethyl-lead--USD 15 - Melamine--USD 25 million - Methyloxirane (propylene oxide)--USD 20 - Carbon black--USD 35 - Sulphur, sublimed or precipitated; colloidal sulphur--USD 35 - Diphosphorus pentaoxide--USD 20 - Meta, ortho and pyro phosphoric acids--USD 125 - Mangenese dioxide--USD 17.5 - Titanium oxides--USD 10 - Sodium hydroxide solid--USD 20 - Sodium hydroxide in aqueous solution-- USD 10 - Aluminum hydroxide--USD 20 - Sodium triphosphate (sodium tripoly phosphate)-- USD 20 - Methanol--USD 35 - Ethyl hexanol--USD 20 - (A): #2 - (B): IRON AND STEEL - (C): IRN - (D): USD 1,900 - (E): 15 percent - (F): USD 1,550 - (G): 15 percent - (H): USD 100 - (I): 15 percent - (J-1): 4 - (J-2): 2 - (J-3): 3 - (K): Along with the rapid growth of Indonesia's economy during the last half of the 1980's, demand for iron and steel products has continuously increased. The general construction industry is consuming large quantities of these products. Special mention should also be made of bridge construction, high rise buildings, manufacturing plants and industrial complexes, shipbuilding, automotive plants, pipe and tube manufacturing plants, oil and gas exploration and recovery, manufacture of tools and equipment and many other sectors that use iron and steel as base materials. The 1991/1992 List of Project Proposal of the National Development Planning Agency (BAPPENAS) contained a project called "Bridge Material Supply for Bridge Replacement Programme." This project covers the procurement of 20,000 meters of permanent bridge superstructure materials which consist of steel trusses and girders. Total cost of this project was USD 107.9 million, all in the form of "foreign exchange cost", some of which are expected to be financed by the World Bank and Asian Development Bank, while the rest are expected to be financed by donor contries. Indonesia already posesses a large integrated steel complex, PT. Krakatau Steel, but its total production is not yet enough to meet the needs of all domestic end users. Indonesian imports in this product category are mainly sourced from Japan. - (L): - Ferrous products obtained by direct reduction of iron ore--USD 27.5 - Ferro mangenese alloys--USD 12.5 - Ferro silico-mangenese--USD 17.5 - Slabs of rectangular iron of non-alloy steel carbon smaller than 0.25 percent--USD 70 - Rectangular blooms, carbon smaller than 0.25 percent--USD 17.5 - Slabs, carbon, greater than 0.25 percent--USD 25 - Flat-rolled products not in coils; a thickness of less than 3 mm. of iron and steel--USD 25 - Other coils; thickness less than 3 mm. other than hot-rolled--USD 92.5 - Other flat-rolled products, in coil thickness of less than 0.5 mm.--USD 60 - Other flat-rolled products, in thickness between 0.5 mm. and 1 mm.--USD 95 - Flat-rolled products, plated/coated with tin in thickness less than 0.5 mm.--USD 45 - Miscellaneous tubes--USD 450 - (A): #3 - (B): OIL AND GAS FIELD MACHINERY AND SERVICES - (C): OGM - (D): USD 1,500 - (E): 15 percent - (F): USD 950 - (G): 15 percent - (H): USD 600 - (I): 17.5 percent - (J-1): 5 - (J-2): 3 - (J-3): 4 - (K): Market activity in the supply of oil and gas field machinery and services has grown continuously during the last few years in Indonesia. Exploration and production of crude oil and natural gas has steadily improved since the great decline during the 1984-1986 world oil price decline. Indonesia produces about 1.3 million barrels of crude oil per day which is its OPEC (Organization of Petroleum Exporting Countries) quota level. In addition to meeting local consumption demands, Indonesia exports a large amount of crude oil. In 1991, Indonesia's exports for crude oil were valued at USD 5.7 billion. Besides producing crude oil, Indonesia also produces natural gas, which is not regulated by OPEC production quota. Recent production volume of natural gas has been 2.1 trillion cubic feet annually. Machinery, other equipment and services are also needed for oil refining and the processing of natural gas. Aside from refining and processing oil and gas for local consumption, in 1991, Indonesia was able to export a total value of USD 1 billion worth of refined oil and USD 3.8 billion worth of natural gas. Presently, there are about 40 U.S. oil companies operating in Indonesia under production sharing contracts with P.N. PERTAMINA, the state-owned oil company. There are a number of other U.S. companies operating in Indonesia which specialize in providing services to oil producing companies, ranging from geological and exploration surveys to provision of supplies and assistance in oil drilling and the like. PERTAMINA, which is the organization responsible for all petroleum activities in Indonesia, must approve all purchases of machinery and equipment by foreign oil companies. Funds for the procurement of all equipment are included in the total cost of production and are consolidated with the production sharing costs. Therefore, technically, PERTAMINA holds the ownership of all machinery and equipment used by foreign oil companies in Indonesia. Consequently, procurement budgets for equipment of any oil producing company in Indonesia must be first reviewed and approved by PERTAMINA. American suppliers play a dominant role in the exploration and production of oil and gas in Indonesia but they face growing competition. - (L): - Seismic activities equipment--USD 10 - Other geophysical and geological instruments--USD 7.5 - Rotary drilling surface equipment--USD 200 - Rotary drilling sub-surface equipment--USD 250 - Well completion and production equipment--USD 80 - Pipeline equipment USD 250 - Workover rigs and related equipment USD 90 - (A): #4 - (B): TEXTILE MACHINERY AND EQUIPMENT - (C): TXM - (D): USD 1,350 - (E): 10 percent - (F): USD 1,200 - (G): 10 percent - (H): USD 80 - (I): 10 percent - (J-1): 1 - (J-2): 1 - (J-3): 3 - (K): The largest category of non-oil and gas exports is textiles and garments, followed by plywood and other wood products. In 1991, the total exports of textile products was valued at USD 1,538 million, while garment and apparel products were valued at USD 2,260 million. Total proceeds of these two items constituted 13 percent of total exports of Indonesia for the year. The textile and garment industries have rapidly developed in parallel with the overall development of the national economy during the last two decades. Aside from export purposes, domestic textile and garment manufacturers are also capable of supplying the increasing demands of about 183 million Indonesians. Despite the huge total of textile and garment products, Indonesia does not yet produce textile and garment machines in significant amounts. Total imports for these machines has increased every year for the past decade. American companies sold a significant quantity of textile machinery in 1991, valued at USD 84.6 million, but this was only 4.7 percent of total such imports. The primary sources were Japan, Taiwan, Germany and South Korea. - (L): - Machinery for extruding, drawing on cutting man-made textile materials--USD 220 - Textile spinning machines--USD185 - Machines for weaving fabrics of a width of 30 cm., shuttle less type--USD 220 - Carding machines--USD 52.5 - Combing machines--USD 25 - Textile doubling/twisting machines--USD 65 - Textile winding (including weft-winding) or reeling machines--USD 90 - Parts and accessories of textile machinery--USD 80 - Other parts and accessories of machines for extruding, drawing on cutting man-made textile materials--USD 40 - Bleaching or dyeing machines--USD 55 - Other machines for washing and drying--USD 70 - Other machines for preparing textile fibers--USD 65 - (A): #5 - (B): PLASTIC MATERIALS AND RESINS - (C): PMR - (D): USD 1,200 - (E): 12.5 percent - (F): USD USD 875 - (G): 12.5 percent - (H): USD 145 - (I): 10 percent - (J-1): 5 - (J-2): 4 - (J-3): 5 - (K): Government organizations and private sector businessmen are continuing to develop industrial plants that will rely on plastic materials as basic feedstocks. Demand for consumer goods and equipment made of plastic materials is increasing fast, including PVC pipes, wrapping and packing materials, radio, television and PC computer casings and boxes, household supplies, and many other basic plastic goods. The government has expressed a strong determination to reach self-sufficiency in the supply of plastic materials. However, it seems unlikely to be able to do so during the next five years, even after several major petrochemical projects, including olefin and aromatic plants, come on stream. Therefore, Indonesia will still rely heavily on the import of raw materials for the manufacture of plastics such as H.D. PVC pellets, polystyrene, polypropylene and other items as in past years. - (L): - Polyethylene with a specific gravity of less than 0.94; granules--USD 100 - Polyethylene with a specific gravity of less than 0.94; other forms--USD 37 - Polyethylene with a specific gravity larger or equal to 0.94; granules--USD 75 - Polyethylene with a specific gravity larger or equal to 0.94; other forms--USD 25 - Polyethers, in granule and chips--USD 30 - Ethylene-vinyl acetate copolymer--USD 35 - Phenolic resins in dispersion or solution--USD 20 - Polypropylene in granules--USD 185 - Polypropylene in other forms--USD 75 - Polyamides in primary form of chips--USD 30 - Polyvinyl alcohols in other forms--USD 30 - (A):#6 - (B): PAPER AND PAPERBOARD - (C): PAP - (D): USD 1,000 - (E): 10 percent - (F): USD 320 - (G): 7.5 percent - (H): USD 75 - (I): 10 percent - (J-1): 2 - (J-2): 3 - (J-3): 3 - (K): Ten years of economic growth have also seen an increase in demand for paper supplies. Presently, the total population of Indonesia is estimated at about 183 million with a 1.8 percent annual growth rate. Within the last decade many local and foreign investors established pulp and paper plants in Indonesia. The industry is rapidly expanding in order to take advantage of vast forest resources that are available. Indonesia would like to be the largest pulp and paper products producer in Asia before the end of the century. In 1991, Indonesia's exports of paper and paper board products totaled USD 210 million. However, some products like those listed below are still expected to be imported during the next two to three years. - (L): - Bank note paper--USD 47.5 - Newsprint in rolls or sheets, white--USD 12.5 - Pattern paper for formica industry--USD 15 - Folding cartons, boxes and cases of non-corrugated paper--USD 8 - Waste paper/paperboard of unbleached kraft paper for paper making purposes--USD 45 - Other waste paper--USD 60 - Paper for cement and fertilizer sacks, unbleached--USD 7.5 - Cigarette paper--USD 7.5 - Other bleached paper or paperboard coated with plastics--USD 17.5 - Other paper (cellulose wadding, webs of cellulose fiber)--USD 12.5 - Fine writing paper--USD 10 - (A): #7 - (B): YARN - (C): YAR - (D): USD 1,000 - (E): 10 percent - (F): USD 270 - (G): 5 percent - (H): USD 67.5 - (I): 10 percent - (J-1): 5 - (J-2): 2 - (J-3): 3 - (K): Presently, the second largest export product category, after oil and gas, is textiles and garment products. In 1991, total exports of textile products were USD 1,538 million, and garment & apparel products totaled USD 2,260 million. Total exports of these two product categories contributed 13 percent to the country's total exports during the year. Also, the total domestic demand for textile products continues to expand. In order to fulfill the huge demand for textile yarns by local textile manufacturers, many spinning plants for producing cotton and polyester, nylon and other artificial fibres have been established during the past 15 years. As an agricultural country, Indonesia is very anxious to produce cotton for self-support purposes. However, this ambition seems unachievable. Indonesia will still import cotton and cotton yarns in large amounts during the next three to five years. 1992 U.S. exports are estimated at over USD 70 million. Meanwhile, although many polyester and nylon yarn plants have been established, a significant amount of polyester and other artificial yarns will still be imported during the next three to five years. - (L): - Miscellaneous cotton yarns--USD 30 - High tenacity yarn of nylon for tire cord manufacturing purpose--USD 70 - Other yarn of other polyesters for other uses--USD 37.5 - Cellulose acetate yarn-- USD 15 - Multiple yarn less than 67 decitex of cellulose acetate--USD 52.5 - Other yarns of polyesters for other uses--USD 10 - (A): # 8 - (B): CONSUMER ELECTRONICS - (C): CEL - (D): USD 950 - (E): 10 - (F): USD 170 - (G): 12.5 - (H): USD 6 - (I): 10 - (J-1): 3 - (J-2): 1 - (J-3): 2 - (K): Demand for consumer electronics in Indonesia has increased tremendously during the past two decades to meet the growing domestic demand. The significant growth in per capita income, from USD 100 at the beginning of the 1970's to USD 638 in 1991, was a contributing factor to the growth in consumption of consumer electronics. The wider availability of electricity during the past two decades has also contributed to this trend. The Government has made a concerted effort to supply electricity to all rural areas. Realization of this government determination has provided the rural people not only the use of electricity for lights, but also the use of more and more consumer electronics. They range from radio and television sets, video and music recorders and amplifiers, to electric home appliances such as washing machines, fans and some air conditioners. Figures provided in parts (D) and (F) above are based on estimates of total local production minus total exports plus total imports that are officially listed in the export and import statistics by the Government of Indonesia. It is often reported in the local mass media that huge amounts of consumer electronics are smuggled in to Indonesia every year. There is strong evidence of a market greater than reported by the statistics. - (L): - Television sets, color and black and white--USD 10 Sound recorders--USD 12.5 - Radio sets--USD 8 - Loud speaker and amplifiers--USD 10 - Washing machines and dryers (household)--USD 20 - Other home electric appliances--USD 30 - Miscellaneous components and parts--USD 85 - (A): #9 - (B): ELECTRIC POWER SYSTEMS - (C): ELP - (D): USD 750 - (E): 20 percent - (F): USD 650 - (G): 15 percent - (H): USD 200 - (I): 15 percent - (J-1): 4 - (J-2): 2 - (J-3): 3 - (K): Electric power is produced and distributed by the state monopoly power company, Perusahaan Listrik Negara (PLN). As the national economy became revitalized beginning in 1987, total demand for and imports of power generating and distributing equipment began growing rapidly. Peak electric power demand on the island of Java alone is expected to reach 21,000 Megawatt Hours (MWH) by the year 2000. Total Indonesian capacity in 1991 was only slightly over 12,000 MWH. Among the power generating plants planned for the near future are coal-fired and gas-fired power plants, diesel power plants and geothermal power plants. Plans for establishing nuclear power plants are also seriously under consideration by the Indonesian Government, and may become reality before the end of the century. The Government has been looking at ways to allow a role for the private sector in commercial power generation and supply. The Embassy report on major Indonesian projects lists 75 electric power projects for 1991 to the end of the century with total costs of about USD 10 billion. Most of these power projects are expected to be financed by international lending institutions such as the World Bank and Asian Development Bank and donor countries. The rest will be financed by PLN through its self generated funds. Based on this plan, a large amount of electric power-generating and distribution equipment is expected to be imported during the next three to five years. - (L): - Water tube boilers--USD 27.5 - Vapor generating boilers--USD 35 - Super heated water boilers--USD 12.5 - Parts of steam boilers--USD 10 - Turbine for marine propulsion--USD 70 - Parts of turbines--USD 15 - Generating sets with compression ignition--USD 180 - Gas turbines--USD 10 - Liquid dielectric transformer--USD 30 - Static converters--USD 10 - Other generating sets--USD 40 - Other transformers--USD 55 - Printed circuits--USD 20 - Switches apparatus--USD 25 - Board panels--USD 80 - Electric conductors--USD 25 - Electric insulators--USD 15 - (A): #10 - (B): TELECOMMUNICATIONS EQUIPMENT - (C): TEL - (D): USD 750 - (E): 15 percent - (F): USD 625 - (G): 12.5 percent - (H): USD 80 - (I): 12.5 percent - (J-1): 5 - (J-2): 3 - (J-3): 4 - (K): Indonesia is attempting to transform its telecommunications infrastructure into a completely digital system by the year 2004. Starting in 1982, the government telecommunications body, PT TELKOM (formerly PERUMTEL) instituted a policy that there was to be no more development of analog telecommunications systems, and that only digital technology should be used for all new telecommunications expansion projects. The telephone network in Indonesia consists of approximately 1.6 million lines, but has been growing at a rate of almost 30% per annum. Indonesia still ranks among the lowest group of countries in term of telephone density, at 0.77 telephone lines per 100 population. The successful call ratio is also low, with official figures showing that there are only 30 successful calls out of every 100 attempted by subscribers. The past performance in telephone development in Indonesia has also been very slow. The average number of lines installed per year was 45,000 lines in PELITA I (1969 - 1974), 65,000 lines in PELITA II (1974 - 1979), 24,000 lines in PELITA III (1979 - 1984) and 67,000 lines in PELITA IV (1984 - 1989). (Note: PELITA is the name applied to the Indonesian government's five-year development plans, which cover almost all infrastructure projects under government control). By the end of 1991, total number installed was 1.6 million. PT. TELKOM intends to increase the installed base by an average of 400,000 lines per year through the end of PELITA V (1994), and by 800,000 - 1,000,000 lines per year during PELITA VI (1994 - 1999). The Indonesian Government has established an ambitious plan to improve the nation's telephone density from 0.77 per 100 population in 1991 to 1.6 per 100 population by the end of PELITA V (1994), and further to 3.7 per 100 population by the end of PELITA VI (1999). To achieve this objective, the Government has introduced some initial forms of deregulation which are intended to enhance the opportunities for private participation (by both local and foreign firms) in telecommunication development in Indonesia. This plan of liberalization, deregulation and privatization of some of telecommunication facilities has been implemented, especially in areas of value added services, cellular telephone operations, radio trunking systems and paging systems. They also allow parts of new telephone system to be constructed by the private sector, often as equity participants in revenue sharing investment schemes. This should boost the pace of development. The World Bank has approved loans amounting USD 350 million for major telecommunications projects throughout Indonesia to be implemented in PELITA V, which is called Telekom IV projects. In addition, the ADB has also agreed to finance telecommunications projects in Sumatera and East Java, valued at USD 185 million. Tenders for the mega projects were open for both domestic and foreign participation. Indonesia will import significant telecommunications equipment during the next five to 10 years. These include entire cellular phone systems, major central digital switch manufacturing and assembly systems, satellite weather and rainfall monitoring systems, and many other telecommunications products. - (L): - Telephonic switching apparatus--USD 125 - Transmission apparatus/incorporating reception apparatus--USD 45 - Radar apparatus--USD 25 - Parts of telephonic switchboards and exchanges--USD 175 - Transmission apparatus--USD 47.5 - Radio navigational aid apparatus--USD 32.5 - Parts of electric apparatus for line telephony--USD 75 - Other parts--USD 120 - (A): #11 - (B): PULP AND PAPER MACHINERY - (C): PUL - (D): USD 750 - (E): 10.0 percent - (F): USD 570 - (G): 10 percent - (H): USD 12.5 - (I): 5 percent - (J-1): 1 - (J-2): 1 - (J-3): 3 - (K): In addition to the many small and medium sized paper plants that have been put into operation in Indonesia during the past 15 years, several large scale paper pulp plants have been established. These efforts were made in order to fulfill the domestic need for paper products. Aside from an ambitious plan to develop self-sufficiency in the supply of paper, Indonesia is also very eager to export paper pulp and paper products in the future, and to become the largest pulp and paper products producer in Asia before the end of the century. The Government is very eager to exploit Indonesia's abundant forest resources to produce these products. It has been estimated that about USD 8 billion will be spent expanding pulp and paper plants in Indonesia up to the end of the century. In light of this, a significant amount of pulp and paper machinery will need to be imported. It must be noted, however, that imports from the U.S. in this product category are very small at present. U.S. manufacturers or exporters of pulp and paper machinery should renew their efforts to promote their products in Indonesia. - (L): - Machinery for making paper and paperboard--USD 125 - Machinery for finishing paper or paperboard--USD 80 - Machinery for making pulp of fibrous cellulose--USD 20 - Paper cutting machines--USD 25 - Other parts of machinery for making pulp of fibrous cellulosic material--USD 100 - Machine for making cartons, boxes, etc.--USD 20 - Offset printing machines--USD 60 - (A): # 12 - (B): BUILDING PRODUCTS - (C): BLD - (D): USD 750 - (E): 20 percent - (F): 150 - (G): 15 percent - (H): USD 6 - (I): 10 percent - (J-1): 3 - (J-2): 1 - (J-3): 3 - (K): Indonesia, the world's fourth most populous country, requires an enormous number of houses and buildings to satisfy demand. With a 1.8 percent population growth rate, the country's population will increase by 3.6 million each year. The need to construct houses and public buildings such as schools, hospitals, hotels, office buildings, shopping and other commercial centers, recreational complexes, manufacturing plants and warehouses will grow accordingly. In line with overall economic development since the 1970's, the general construction business has been one of the economy's most important industrial sectors. The significant growth in per capita income, from USD 100 in 1970 to USD 638 in 1991, is another contributing factor to the growth in the building construction sector and evidence of the overall increase in economic activity. About 650,000 square meters of hotels, offices, factories, schools, hospitals, shopping centers, and other commercial building properties were constructed and renovated annually during the last five years. It is estimated that an average of 800,000 square meters will be constructed each year up to the year 2000, with a growth rate of 20 percent. It is also estimated about 2,500,000 square meters of residential houses of various sizes and quality will be built every year during the period. Over the last 15 years, many building materials have been imported, such as paint and varnishes, roof tiles, ceiling materials, floor tiles, floor and wall covers, refractory bricks, sanitary ware, door locks and many other building accessories. Listed in part (L) below are building materials that show potential for export to Indonesia during FY 1993 through 1995. Supplies for this product category from the U.S. were only about five percent in 1991. Imports come mainly from Japan, Taiwan, Australia and Europe. - (L): - Paints and varnishes--USD 10 - Bricks, blocks, tiles and others of ceramics-- USD 7.5 - Prefabricated buildings--USD 15 - Refractory bricks, blocks and tiles--USD 25 - Other refractory bricks, blocks and tiles--USD 25 - Miscellaneous floor tiles--USD 15 - Miscellaneous door locks, etc.--USD 10 - Miscellaneous building accessories--USD 30 - (A): #13 - (B): COMMERCIAL VESSEL EQUIPMENT - (C): CVR - (D): USD 700 - (E): 10 percent - (F): USD 550 - (G): 5 percent - (H): USD 210 - (I): 7.5 percent - (J-1): 5 - (J-2): 2 - (J-3): 3 - (K): As the world's largest archipelago, Indonesia is an important maritime country. Its territory extends over 3,300 miles from east to west, and 1,300 miles from north to south. It has 13,667 islands with a land area of only about 27 percent of the claimed national territory, excluding the 200 mile exclusive economic zone (EEZ). This means that commercial maritime is very important to the country's transportation needs. Dredging vessels are very important in order to improve the quality of sea ports and river transport. Fishing vessels are also needed in large amounts, in order to exploit the abundant deep sea resources of the country. There has been a steady increase of demand for imports of commercial vessels and equipment during the last four years. Local shipyards produce smaller-size vessels (up to 3,000 DWT), but many imports will still have to be made during the next three to five years, in order to respond to the steady economic growth of the country. Ferry boats are in great demand as well as cargo ships and mixed use vessels. Cruise ships are also a good commercial opportunity. Most of dredging vessels owned and operated by the Government (Directorate General for Sea Communications) are procured with assistance from international lending institution such as the World Bank and Asian Development Bank, as well as from donor countries. Also, many cruise ships operated by Perusahaan Pelayaran Nasional (PELNI), a state-owned sea transportation company, are purchased through suppliers' credits from Germany. German suppliers are generally receive official government assistance in financing these sales. - (L): - Floating or submersible drilling or production of platform--USD 200 - Vessels for the transport of goods--USD 45 - Dredgers--USD 35 - Ferry boats--USD 30 - Barges and the like--USD 37.5 - Tankers--USD 20 - Cruise ships--USD 60 - Other light vessels, fire float, etc.--USD 50 - (A): # 14 - (B): CONSTRUCTION EQUIPMENT - (C): CON - (D): USD 700 - (E): 15.0 percent - (F): USD 600 - (G): 12.5 percent - (H): USD 240 - (I): 10 percent - (J-1): 4 - (J-2): 2 - (J-3): 3 - (K): Since 1987, the construction industry has been booming. Many multi-story buildings, manufacturing plants, industrial complexes and residential houses are being built. Other construction activities are: construction of dams, hydropower and coal-fired power plants, roads and bridges, irrigation, and many other civil construction sectors. Special mention can be made of construction plans for pulp and paper mill plants which are estimated be worth as much as USD 8 billion by the end of the century. Similar development plans are also underway in various other sectors, for example, plans call for chemical and petrochemical plants estimated to be worth up to USD 10 billion. In the same period plans for expansion of power generating plants are valued at USD 10 billion. These construction activities will result in increases in total market demand and total imports for general construction equipment and machinery. Presently, one indication of the level of increased activities in the construction sector is that while Indonesia exported about 1.5 million metric tons of portland cement annually up to last year, now Indonesia is planning to import about 2 million metric tons a year up to 1993, in order to cope with spiraling cement prices and increased demand in the construction sector today. - (L): - Boring & sinking machinery, self propelled--USD 35 - Parts of boring and sinking machinery--USD 100 - Buckets, shovels, grabs and grips--USD 100 - Bulldozer in CKD--USD 40 - Bulldozer, other than in CKD--USD 45 - Hydraulic excavator in CKD--USD 20 - Hydraulic excavator other than in CKD--USD 50 - Off-road construction trucks--USD 25 - (A): # 15 - (B): AIRCRAFT AND PARTS - (C): AIR - (D): USD 600 - (E): 10 percent - (F): 500 - (G): 6 percent - (H): 200 - (I): 15 percent - (J-1): 5 - (J-2): 3 - (J-3): 4 - (K): Along with the vital role played by sea transportation in national economic development, civil aviation is also critical to linking the country's widely separated islands. In recent years, the government has been very active in the modernization of older airports and in building new ones throughout the country. PT. Garuda, a state-owned company and the national flag carrier, operates about 80 jet-aircraft in its fleet. Aside from its domestic operations, largely flown by subsidiary Merpati Nusantara, Garuda also operates international routes to Europe, the United States, Australia and near Asian countries. Starting several years ago, private domestic airlines were allowed to operate jet aircraft for domestic operations. Presently, three domestic airlines already operate jet airplanes in their fleets. Garuda is expected to replace many of its old jets during the next five years, especially in order to realize the potential generated by the Indonesian tourism promotion "Visit Indonesia Year 1991," and "Visit ASEAN Countries Year 1992." Despite Indonesia already being a producer of assembled airplanes, the 35-passenger CN-235 and 20-passenger Casa-212, many small airplanes of various sizes are still imported for training purposes or other special operations, as long as they do not compete directly with the local products. - (L): - Airplanes and other aircraft, of an unladen weight less than 15,000 kg.--USD 100 - Airplanes and other aircraft of an unladen weight exceeding 15,000 kg.--USD 75 - Propeller and rotor for helicopter--USD 4 - Propeller and rotor for aircraft--USD 10 - Under-carriage for aircraft--USD 10 - Aircraft engines--USD 50 - Other parts of airplanes and helicopters--USD 50 - (A): #16 - (B): PUMPS, VALVES AND COMPRESSORS - (C): PVC - (D): USD 550 - (E): 5 percent - (F): USD 475 - (G): 5 percent - (H): USD 175 - (I): 7.5 percent - (J-1): 5 - (J-2): 4 - (J-3): 3 - (K): Growing industrialization and construction of many new manufacturing plants; activities in oil and gas exploration and exploitation; projects for potable water supplies; and the construction of dams and irrigation systems, along with projects in many other sectors, are expected to contribute to a significant increase in demand for pumps, valves and compressors. After having experienced the mid-1980's economic slump, these sectors have been steadily improving. Some pump, valve and compressor products are being produced or assembled locally. However, sophisticated products are still expected to be imported, especially for oil exploration and production. U.S. products are especially popular for meeting the needs of the oil industry and manufacturing plants that require precision and sophisticated measurements. Many Government projects such as water supply, irrigation and oil and gas exploitation, utilize financial assistance from international lending institutions such as the World Bank and Asian Development Bank as well as donor countries in procuring sophisticated pumps, valves and compressors. The increasing trend of imports in this product category is expected to continue in the next three to five years. (L): - Concrete pumps--USD 14 - Centrifugal pumps--USD 60 - Compressors for refrigerating equipment--USD 25 - Parts of pumps--USD 72.5 - Other pumps--USD 30 - Parts of compressors--USD 30 - Valves for gases--USD 35 - Valves for water--USD 25 - Other appliances used in pressure machinery--USD 75 - Compressors for other pumps--USD 100 - (A):#17 - (B): ARCHITECTURAL/CONSTRUCTION/ENGINEERING SERVICES - (C): ACE - (D): USD 450 - (E): 15 percent - (F): USD 175 - (G): 12.5 percent - (H): USD 17 - (I): 10 percent - (J-1): 4 - (J-2): 1 - (J-3): 3 - (K): In line with the rapid development of the country's economy during the last decade, demand for architectural, construction and engineering services has consistently grown from one year to the next. The rise in construction of multi-story buildings, manufacturing plants, highways, bridges, dams, irrigation canals, electric power plants, and many other private and public projects has brought with it the growing need for architectural, construction and engineering services. Foreign architectural, construction and construction supervision services are primarily needed for projects that require sophisticated technology. Many of these projects are joint ventures and projects financed by multilateral lending institutions such as the World Bank and the Asian Development Bank. Projects financed by multilateral lending institutions are generally let out for international tender. During the 1980's, Indonesia received a significant amount of financial assistance from the country members of the Inter-Governmental Group for Indonesia (IGGI). This group organizes the provision of soft loan funds for development projects in Indonesia. During the last few years, IGGI commitments to assist Indonesia averaged USD 4 billion annually. Hundreds of development projects in Indonesia have been constructed with these funds. In most cases, foreign engineering and construction services have been used for electric power plants, dam and irrigation projects, waterworks, air ports and sea ports, highways and bridges, mining plants, manufacturing plants and many other projects. Despite the dissolution of IGGI in mid-1992, financial assistance will be continued through a managing committee, the Coordinating Group for Indonesia, or CGI, chaired by the World Bank. The IGGI was dissolved following a misunderstanding between the Indonesian and Dutch Governments. Therefore, many future development projects will similarly require foreign engineering and construction services. U.S. architectural and consulting engineering firms have operated in Indonesia during the last 20 years. Most of them operate in cooperation with local engineering firms to improve connections with Government officials and private company representatives. In fact, the Indonesian government encourages foreign engineering consultants and construction contractors to establish some form of permanent or temporary cooperation with local companies when working on Government major projects in Indonesia. Listed below are estimates of imports for architectural, construction and engineering services in 1992. - (L): - Engineering studies for major projects--USD 22.5 - Engineering designs for major projects--USD 32.5 - Construction services for large buildings and other major projects--USD 75 - Construction supervision for major projects--USD 45 - (A): #18 - (B): AIR CONDITIONING AND REFRIGERATION EQUIPMENT - (C): ACR - (D): USD 400 - (E): 10 percent - (F): USD 375 - (G): 10 percent - (H): USD 35 - (I): 15 percent - (J-1): 4 - (J-2): 4 - (J-3): 3 - (K): Rapid development in the construction and manufacturing industries during the last two decades in Indonesia has resulted in increasing demand for heating and cooling equipment. The manufacturing industry in particular has enormous need for heating and ventilating equipment. Meanwhile, as a tropical country with a very hot, humid climate, the country is in great need of cooling equipment. Multi-story buildings and residential houses use cooling equipment all year around. With steady increases in electric power generating capacity and a growing middle class, more and more residential houses are being fitted with air conditioning equipment. For hotels, office buildings, other commercial complexes and the like, the use of air conditioning machinery is a must. The majority of heating and cooling equipment used in Indonesia is imported, and with the growth in demand for this type of equipment, their imports have steadily increased. Demand for this equipment is expected to grow by at least 10 to 12 percent a year during the next five years, most of which will be sourced from imports. Meanwhile, the growing food industry and agro-industry require significant inputs of industrial refrigeration equipment and parts. - (L): - Refrigerating or freezing equipment--USD 30 - Other refrigerators, freezers and other refrigerating or freezing equipment--USD 12 - A.C. machines incorporating a refrigerating unit--USD 20 - Other A.C. machines--USD 40 - Other A.C. machines not incorporating a refrigerating unit--USD 30 - Parts of air conditioning machines--USD 30 - Heat exchange units--USD 25 - Miscellaneous dryers--USD 70 - Heating and cooling plant and machinery--USD 50 - (A): #19 - (B): MACHINE TOOLS AND METAL WORKING EQUIPMENT - (C): MTL - (D): USD 350 - (E): 10 percent - (F): USD 325 - (G): 10 percent - (H): USD 25 - (I): 10 percent - (J-1): 2 - (J-2): 2 - (J-3): 3 - (K): Total imports in this product category dropped drastically during the mid-1980's economic crisis caused by the decrease in oil and gas prices on world markets. However, as the national economy began recovering in 1987, there have been huge increases in total imports to the present. These increases resulted from a serious effort by the Government and private sectors to upgrade manufacturing plants and initiate new projects in order to achieve rapid and continuous growth of the national economy. Many industrial plants need modern machine tools, high precision machines, and the like. Among the Government plants in need of this equipment are IPTN (aircraft industry), PAL (shipyard building), and PINDAD (munitions industry). There are many private sector plants being developed and upgraded, especially in the automotive industry and its upstream manufacturing plants. The Government is very anxious to achieve self-sufficiency in the supply of parts and components for automotive assembly in Indonesia. State-owned companies such as IPTN, PAL and PINDAD are generally using international lending institutions or donor countries' loan assistance in equipping their plants. Provision of suppliers' credits by manufacturers/suppliers in cooperation with their local exim banks is the most common financing method used by these state-owned companies. U.S. supplies for this industry sector have been quite small, less than five percent in 1989. However, it is believed that efforts to gain a larger market share in this industrial sector will be extremely fruitful. - (L): - Hot or combination and cold rolling mills--USD 40 - Part of rolling mills--USD 27.5 - Rolls for rolling machines--USD 12.5 - Lathes, numerically controlled--USD 18 - Drilling or boring machine in BU and CKD--USD 15 - Other machine tools for working metal by forging--USD 20 - Bending, folding/straightening machines--USD 17.5 - Hydraulic presses for treating metal--USD 10 - Knee-type milling machine--USD 12 - Casting machines--USD 15 - (A): # 20 - (B): MATERIALS HANDLING MACHINERY - (C): MHM - (D): USD 350 - (E): 5 percent - (F): USD 280 - (G): 5 percent - (H): USD 40 - (I): 7.5 percent - (J-1): 4 - (J-2): 2 - (J-3): 3 - (K): As the Indonesian economy has grown since the mid-1980's, various sectors have witnessed significant development. Many old and obsolete mining plants were reactivated, and some major expansions were made. Renovation and construction of many seaports and airports have also been undertaken. This growth has resulted in increasing demand for materials handling and mechanical equipment. Many new established manufacturing plants require equipment in this category. Presently, most of these tools and equipment are sourced from imports. Considering the ongoing and potential development in the mining and manufacturing sectors, as well as in the construction and equipping of sea and air ports, an import growth of between five and 10 percent for this product category can be expected during the next three to five years. - (L); - Forklift self-propelled trucks in CKD--USD 30 - Pulley tackle and hoists for raising vehicles powered by electric motor--USD 10 - Other materials handling vehicles--USD 12 - Overhead travelling cranes on fixed support--USD 15 - Other machinery, self-propelled--USD 9 - Other cranes--USD 7.5 - Other continuous-action elevator--USD 40 - Lifts and skip hoists--USD 18 - Mobile lifting frames on tires and straddle carries--USD 20 - Parts of mechanical handling equipment--USD 20 - Miscellaneous conveyor idlers--USD 22.5 - Other machinery of lifting, handling and loading--USD 20 - (A): # 21 - (B): PROCESS CONTROL--INDUSTRIAL - (C): PCI - (D): USD 325 - (E): 7.5 percent - (F): USD 315 - (G): 8 percent - (H): USD 112.5 - (I): 10 percent - (J-1): 5 - (J-2): 3 - (J-3): 5 - (K): In line with the growth of manufacturing, construction and natural resource exploitation in Indonesia since 1987, demand for process control equipment and scientific instruments has jumped. There are several firms that assemble PC's or micro-computers, all with plans to expand production capability. This progress should stimulate sales of electronic test instruments. The rapid development of the domestic telecommunications and aircraft industries should also play a contributory role in increased sales levels for analytical equipment. The Indonesian Government is very anxious to develop the role of 10 so-called "strategic industries." These are key industrial sectors contributing to technological development and military-based industries such as aircraft, ships and ammunition. These plants, together with a number of petroleum, petrochemical and many other private chemical industries will also add impetus to sales of imported instrumentation, process control and analytical instruments. - (L): - Instruments for surveying and parts--USD 55 - Measuring and checking equipment--USD 30 - Measuring flow or level of liquids--USD 10 - Gas or smoke analysis apparatus--USD 10 - Instruments/apparatus for demonstration--USD 22.5 - Instrument and apparatus for checking voltage, current, resistance--USD 12.5 - Automatic regulating and controlling instuments--USD 30 (A): #22 (B): ELECTRONIC COMPONENTS (C): ELC (D): USD 250 (E): 5 percent (F): USD 200 (G): 3 percent (H): USD 10 (I): 3 percent (J-1): 4 (J-2): 3 (J-3): 3 (K): The electronics industry in Indonesia started with labor intensive production aimed at the substitution of imported consumer goods, with a restricted demand and a limited number of goods which were generally classified as consumer electronics (electronic products for entertainment and household appliances). The major activity of this industry is still in assembly, using the designs and components of overseas principals. At present, imports are still needed to develop the electronic industry in Indonesia. More than 50 percent of the components for black & white TV sets, color TV sets, radio receivers, air conditioners, refrigerators and washing machines still depend on imports. The value of imports of electronic components is still high although it is showing a diminishing trend. The decrease in the import value was partially caused by the growing capability of the domestic electronic industry in producing a variety of electronic products and components, which can also be exported to principal countries. In addition, the Government imposes high import tariffs on the import of electronic products/components. (L): - Color cathode - ray television picture tubes--USD 82.3 - B/W monochrome cathode - ray TV picture tubes--USD 7.6 - Diodes, other than photosensitive or light emitting diodes--USD 11.5 - Transistors--USD 6 - Semiconductor devices--USD 35 - Integrated Circuits--USD 24 - (A): #23 - (B): COMPUTERS AND PERIPHERALS - (C): CPT - (D): USD 250 - (E): 7.5 percent - (F): USD 175 - (G): 10 percent - (H): USD 60 - (I): 10 percent - (J-1): 4 - (J-2): 2 - (J-3): 4 - (K): As the national economy of Indonesia improved during the last four years, increased market demand for computers and peripherals was a major factor. Deregulation policy measures taken in many sectors of the national economy, particularly financial liberalization steps, have resulted in the establishment and growth of many enterprises. Significant increases in the total exports for non-oil and gas commodities have also generated massive growth in economic activities. As the overall national level of technological expertise rises, the use of computers and peripherals will be stimulated. The rapid expansion of registered private business entities as well as the constantly increasing number of Government offices is creating continuous demand for computer and peripheral products. Special mention can be made of small computers such as those manufactured by IBM, Tandy, Apple, Prime and other U.S. manufacturers which continue to find acceptance in the Indonesian market, and especially in small business applications. Firms in the banking and finance field, along with Government agencies, are continuing to install dedicated computer systems. Households of middle level income groups and above are also very eager to acquire PC computers. Significant purchases in this product category can be expected during the next three to five years. Official import statistics prepared by the Central Bureau of Statistics grossly understate the real size of the Indonesian market for this product category. Many parties believe that the real figure is at least double the officially-reported total imports sold in Indonesia every year. Many are smuggled, under-invoiced or listed under the category for other items which enjoy lower or duty free import status. - (L): - Main frame computer--USD 20 - Digital processing units, whether or not presented with the rest of system--USD 10 - Input or output units, whether or not presented with the rest of system--USD 25 - Other peripheral units, including control and adapting units--USD 12.5 - Other automatic data processing machines--USD 10 - Parts and accessories of the machines of automatic data processing machines and units--USD 25 - Personal and micro computers--USD 20 - Other digital machines--USD 22.5 - CPU for personal computers--USD 10 - Magnetic tape drive and floppy disk drives--USD 6 - Other digital processing units--USD 10 - (A): # 24 - (B): AGRICULTURAL CHEMICALS - (C): AGC - (D): USD 200 - (E): 3 percent - (F): USD 178 - (G): 3 percent - (H): USD 4 - (I): 3 percent - (J-1): 4 - (J-2): 3 - (J-3): 3 - (K): The agricultural sector, particularly food crops, remains among the highest priorities in the development of the Indonesian economy. Various efforts have been made by the government to develop the sub-sector of food crops, particularly rice, through programs of intensification and development of new agricultural land. The achieved self-sufficiency in rice has encouraged Indonesia to keep up its efforts through the application of new technology. Appropriate and wise utilization of fertilizer and pesticides has continued to be promoted in order to avoid excessive use of materials that can prove detrimental to the development of the agricultural sector in general and food crops in particular. Indonesia's crude fertilizer imports have been increasing in the past few years with a total value of USD 79 million in 1990 and USD 112 million in 1991. Meanwhile, imports of manufactured fertilizer decreased from USD 96 million in 1990 to USD 57 million in 1991. Up to the present, not all of the country's demand for pesticides, particularly the active materials, can be supplied by local production. However, as the local industry becomes more developed, imports of pesticides have gradually declined from USD 10 million in 1990 to USD 9 million in 1991. In 1986 the government issued Presidential Instruction No. 3/1986, restricting the use of 57 types of pesticides which proved unable to destroy "wereng" (nilapawata lugen stal) that has lately become the main enemy of rice crops. (L): - Crude Fertilizer--USD 112 - Manufactured Fertilizer--USD 57 - Disinfectants, Insecticides, Fungicides, etc.--USD 9 - (A): #25 - (B): POLLUTION CONTROL EQUIPMENT - (C): POL - (D): USD 100 - (E): 15 percent - (F): USD 90 - (G): 15 percent - (H): USD 20 - (I): 15 percent - (J-1): 5 - (J-2): 4 - (J-3): 4 - (K): The most pressing environmental problem currently facing Indonesia is that of water availability and quality. Rapid population growth and urban migration has placed severe strain upon water sources, while at the same time, prolonged dumping of untreated municipal and industrial wastes into estuaries has taken its toll on water quality. On the island of Java, where more than 60 percent of Indonesia's 183 million people live, over half of the rivers are considered highly polluted. The Indonesian Government's next priority, after water pollution control, is improvement of public and private institutions, supporting environmental impact assessments (EIA's). EIA's are required for all new projects and for those existing facilities which produce toxic or hazardous wastes. Improvements to law enforcement and hazardous waste programs are next in priority, with the remaining priorities for Indonesian environmental officials (in order of importance) being air pollution control, reversal of environmental degradation, sewage regulation and the environmental effects of small-scale activities. Some environment projects are planned or being implemented with assistance from the World Bank, CIDA, JICA, UNDP, USAID, SWEDEN, GTZ, Australian Government, Belgium Government, ADB, and Dutch Government, with financing in the form of grants or loans. A centralized authority coordinating environmental regulations (BAPEDAL) was created in late 1990, pursuant to Presidential Decree No. 23/1990. This environmental protection agency will have central authority in Jakarta, but actual monitoring and enforcement will be implemented at the provincial level. Recently, a center for toxic waste treatment was developed by Waste Management International (WMI) with its local partner, PT. Bimantara Citra. Early investment of this project is USD 100 million to USD 150 million, and it will be implemented in 1993. The center is expected to be operational in 1995. (L): - Water pollution control equipment--USD 20 - Air pollution control equipment--USD 15 - Sludge management and solid waste control equipment--USD 10 - Industrial waste control equipment--USD 10 - Other Equipment--USD 30 III. COMMERCIAL ENVIRONMENT Growth in the Indonesian economy in 1991 slowed somewhat from the rates of over seven percent registered in 1989 and 1990. Real gross domestic product, fueled by strong consumer demand and a lively non-oil export sector, increased 6.8 percent compared to 7.3 percent in 1990. However, the signs of overheating that were first evident in 1990 persisted into 1991. Price levels, for example, remained high due to strong demand as well as the effects of a prolonged drought on rice prices. Excluding agriculture, the economy grew at an 8.2 percent rate. The consumer price index in 1991 remained at 9.5 percent, the same level registered in 1990. In an effort to curb inflation, the Indonesian Government maintained the tight money policy initiated in 1990, and the resulting brake on monetary growth kept interest rates at high levels. Key industries such as construction and automobile manufacturing experienced lower growth as consumers and businesses cut back on interest-sensitive purchases. Sales of passenger automobiles were down 19 percent from the previous year. Investment outlays also appeared to slacken in the face of higher credit costs. Recognizing the economic costs of tight money, the Government in early 1992 urged banks to reduce their interest rates, but with only partial success. The Government's goal is to hold inflation in 1992 to seven percent. Tight money also caused investment to contract. While data are not available on projects implemented, approvals of domestic investment applications in 1992 fell to $41.1 billion, a 31 percent drop from 1990's exceptionally high level of $59.9 billion. Though less sensitive to high domestic interest rates, foreign investors in 1991 submitted investment applications for projects totalling $8.8 billion, or about the same volume as in 1990. The balance of payments situation in 1991 posed another major concern for policymakers. Exports, particularily of non-oil goods, showed good growth in 1991, but strong demand for capital goods and raw materials pulled in a large volume of imports that caused the traditional trade surplus to shrink. The smaller surplus on the trade account, coupled with higher payments for Indonesia's external debt, caused the current account deficit to swell to $4.5 billion, its highest level in a dacade. At the same time, increased offshore commercial borrowing by the private sector greatly expanded the stock of outstanding external debt and led many to question whether the country could service such debt in future years. In addition to taking a variety of fiscal and monetary measures, the Government responded by establishing a cabinet-level debt management team that set guidelines on foreign borrowing and began monitoring applications for offshore commercial loans. Prospects are good for correcting Indonesia's short term economic problems in later years, for several reasons. First, the Government has shown a determination to continue its deregulation program, which should provide incentives for sustained private sector investment and employment. Second, given continued strong growth in non-oil exports and resiliency in key commodity prices, the current account deficit should gradually shrink. Third and last, if the growth trend in exports can be sustained and development assistance from the international donor community maintained at current levels, within the medium-term Indonesia should be able to begin amortizing its heavy external debt burden. Faced with lower oil prices in the early 1980s and a need to create employment for a workforce growing by more than two million annually, the government in 1983 launched a program to give freer rein to the private sector and reduce the economy's dependence on petroleum as a source of earnings and tax revenues. The program, known as "deregulation and de-bureaucratization," began with a loosening of controls on the financial sector. Subsequent measures liberalized conditions for foreign investment, reduced tariffs and import licensing restrictions, eased export requirements, revitalized capital markets and the banking system, and reformed the domestic shipping regime. In June 1991 the government lowered duties on over 500 categories of imports, including various iron and steel products and certain classes of motor vehicles and parts. In 1991, non-oil manufacturing was particularly robust, expanding at an 11.4 percent rate over 1990's relatively high level. Growth in the non-oil manufacturing sector was fueled by strong foreign demand for Indonesian goods: exports of non-oil manufactured products were up nearly 29 percent. The oil and gas sector also recorded good results in 1991. Exclusive of refining, the petroleum industry's output was up 8.8 percent compared to 4.2 percent in 1990. While crude prices were on average slightly lower than the relatively high levels of 1990, output of crude and condensate was up 8.9 percent in volume. In addition, expenditures by companies on exploration and development were siginificantly higher. Outlays on seismic work, drilling and other development activities totalled $2.8 billion, up 49 percent over 1990 levels. Indonesia's total trade increased over 1990 levels, with exports up 8.6 percent (non-oil exports, including agricultural products, rising 18 percent). However, imports also grew by 18 percent, causing a shrinkage in the merchandise surplus. Trade with the United States has not continued to grow as was originally expected, although the percentage change is not substantial. Some of the decline can be attributed to the 1991 Gulf War, which seriously disrupted trade trends. A significant amount of U.S. exports to Indonesia go through the entrepot Singapore and are not reflected in U.S. export figures to Indonesia. Indonesia continues to make progress in several trade liberalization programs, including non-tariff barriers, import monopolies and licensing restrictions (and other market access issues), intellectual property rights, export subsidy reductions, etc. Divestiture requirements for foreign investors have been extended and local ownership requirements have been eased or reduced in many sectors. These and many similar steps have combined to create a climate for business which is more and more making Indonesia an exciting market for trade and investment. Much remains to be done to bring Indonesian regulations into line with international standards in certain sectors, including market access issues, capital requirements, land ownership, labor and employment codes, distribution controls, taxes, revenue collection practices, and licensing requirements. Many of these issues are being reviewed, and eased, as required. (From the American Embassy-Jakarta Economic Trends Report on Indonesia: June 1992.) IV. FINANCING ENVIRONMENT The banking system has grown rapidly since the beginning of the financial sector reform in 1983. In 1991, however, the rate of expansion declined. Total rupiah deposits held by banks were up 14 percent in 1991 compared to a 41 percent increase in 1990; foreign exchange deposits rose by 37 percent in 1991 versus 82 percent in 1990. The money supply has continued to expand, but also more slowly; currency in circulation plus demand, savings and time deposits (M2) rose by 17 percent in 1991 compared to 44 percent in 1990. The rate of credit expansion also declined, with outstanding commercial bank credits up 16 percent in 1991 compared to 54 percent in 1990. The government initiated tighter money policies in mid-1990 which led to a substantial hike in deposit and lending interest rates. In February 1991, the Government promulgated new prudent banking regulations, including requirements to meet Bank of International Settlements capital adequacy standards by December 1993. In November 1991, the government's foreign commercial borrowing team announced ceilings in foreign commercial borrowing by private and state-owned banks, and introduced reporting requirements for private sector borrowing. Bank Indonesia, the central bank, also sharply reduced access to its swap facility to encourage long term capital inflows and discourage short term foreign borrowing. During the first half of 1992, the Government announced an easing of monetary policy and urged banks to reduce interest rates. Banks gradually responded with reductions in deposit rates, but lending rates remained high. Tight (and expensive) credit is expected to prevail for the balance of 1992. Other banking developments in 1992 include the passage of a new basic Banking Law which, inter alia, placed state-owned banks on the same legal footing as private commercial banks, gave them the option of selling shares on the local stock exchange, and permitted foreigners to purchase shares in listed private and state-owned banks. In addition, the government has licensed several money brokers whose operations are expected to enhance the efficient flow of funds. The Indonesian stock market expanded rapidly after being deregulated in 1988. In April 1992, a private company, PT. Bursa Efek Jakarta, took over the running of the Jakarta stock exchange from the Capital Markets Supervisory Agency, a wing of the Department of Finance, which became a regulatory body. By mid-1992, 144 companies were listed on the Jakarta stock exchange, up from 24 four years earlier. After peaking in mid-1990 at over 600, the composite stock index plummeted below 230 by late 1991. Since then, it has recovered somewhat, breaking through the 300 level in early June 1992. The number of new listings has slowed, but there is a steady trickle of new offers. Reasons advanced for the 1991/1992 stock market slowdown include saturated investor appetite, high interest rates on bank deposits, some uncertainty about Indonesia's growth prospects, and some loss of confidence in the exchange and the companies listed on it. With the issuance of more stringent listing and reporting requirements, increased transparency in market operations, and lower deposit rates, the stock market appears set for a sustained modest recovery. Plans for the second half of 1992 include the introduction of private mutual funds and the opening to foreigners of the opportunity to purchase shares in listed bank stocks. Import Payment Process All forms of import and export financing are available in the Indonesian market and are frequently utilized. However, if any form other than a letter of credit as payment procedure is required it must be agreed upon between the exporter and importer. Most imports are financed with letters of credit. Indonesian banks and their foreign branches and agencies can arrange standby letters of credit. These financial instruments are issued by local banks and are guaranteed internationally. They are used widely in Indonesia, as they are abroad. Foreign Exchange Limitations and Regulations The Government of Indonesia imposes no foreign exchange restrictions. Investors may freely transfer funds to or from abroad. Repatriation of profits, costs related to expatriate employment expenses, loan principal and interest, royalties, technical fees, etc. and capital transfers are allowed without any prior permission. This long-standing open foreign exchange policy is a cornerstone of the Indonesian economy and represents perhaps the single most important element in providing the right environment for foreign investment. Payment Schedules and Deferred Payment Practices There are no official requirements for deferred payments. If an exporter chooses to provide goods or services on a deferred payment basis as a competitive tool, it is entirely between the buyer and seller to arrange terms. Countertrade Requirements A countertrade requirement called "counterpurchase" does exist in Indonesia. When a government sponsored (financed) contract is concluded with a foreign firm for construction and/or major project procurement, a counterpurchase of similar value may be requested. Counterpurchase activity has totaled several billion dollars in the past few years but has been carried out on a reduced scale more recently. The Indonesian government also has countertrade agreements with other Governments, including Iraq and Iran for purchase of crude oil in exchange for a number of commodities and manufactured products. Banking System Correspondent Relationships with U.S. Banks Banking in Indonesia is regulated by the Department of Finance and Bank Indonesia. There are ten foreign bank branches (four of them American) operating in Indonesia, all established in the late 1960's. The October 1988 banking deregulation package reopened the local banking market to foreign participation, but under different circumstances. Foreign banks may now establish local joint venture banks with Indonesian partners. Joint ventures are required to make at least 50 percent of their loans to the export sector. Since 1989 a number of foreign banks have entered the market, including several Japanese banks engaged in providing financing for the many Japanese industrial and trading ventures active in Indonesia. Local Financing Possibilities Local financing possibilities do exist for joint venture firms but they must conform to Indonesian Government regulations. Financing for a joint venture project (including the cost of imported equipment) generally comes from abroad. Rupiah loans from domestic banks for investment purposes are forbidden. Joint ventures may borrow locally for required working capital if they are 51 percent or more Indonesian owned or 45 percent Indonesian owned when 20 percent of company stock has been sold in the stock market. Factors Relevant to the Commercial Financing Environment The Government of Indonesia has implemented monetary policies which involve the removal of interest rate and credit ceilings for state bank operations and the introduction of new instruments of monetary control. These changes have been aimed at enhancing financial sector efficiency and developing private sector capital markets. In mid-1990 the Central Bank (Bank Indonesia) began to tighten monetary policy in order to help curb inflation. As of mid-1992 the tight monetary policy continued to prevail aimed at both inflation pressures and a widening current account deficit. The Government has also asked private banks and businesses to restrain their offshore borrowing after the rapid expansion of private sector foreign liability. The Indonesian Government is prohibited by law from financing budget deficits domestically. Assistance from donor countries and international lending institutions adds significantly to Indonesia's development budget. Foreign-funded government projects in Indonesia are required to be financed under terms laid out by Presidential Decree Number 8 of 1984 (Inpres 8), although excettions are permitted. The Inpres 8 terms are 3.5% interest and a 7 year grace period followed by an 18 year repayment period. Indonesia also secures a substantial portion of their developmental funding from the multi-lateral development banks, primarily the Asia Development Bank (ADB) and the World Bank. During 1992, over USD 4 billion was made available from a variety of sources, allocated by the Intergovernmental Group on Indonesia (IGGI), until early 1992 chaired by the Dutch government. That group was subsequently replaced by the Consultative Group on Indonesia (CGI), chaired by the World Bank. The CGI has designated USD 4.9 billion for use on developmental projects during 1993. American firms can participate in projects funded by the ADB and the World Bank, as well as through the EXIM Bank of the United States. Information on projects and procedures is available thorugh US and Foreign Commercial Officers assigned to each bank. Other forms of feasibility study and project financing may be available through the Trade Development Program (TDP) and the US Agency for International Development (USAID). Investment projects in Indonesia is eligible for Overseas Private Investment Corporation (OPIC) loans and insurance. Indonesia's external debt at the end of 1991 was approximately $77 billion, consisting of about $48 billion in public sector medium- and long-term, and $29 billion in private sector debt. Medium- and long-term debt comprises nearly all of the government's debt, much of it on consessionary terms from multilateral development banks and bilateral donors. The market increase in external debt in 1991 was due principally to short term borrowing from abroad by the private sector, stimulated by high domestic interest rates. The Government has taken a variety of steps to strengthen monetary control, some of which discourage offshore borrowing. For example, the central bank in 1991 reduced access to its swap facility, particularly for swaps of short-term foreign exchange into domestic currency. Despite the deterioration of the current account, the central bank's foreign exchange reserves in 1991 climbed to reach nearly $10 billion by year end, or about five months' worth of imports. Interest earnings on the reserves were a significant positive contribution to the current account. V. TRADE AND INVESTMENT ISSUES/BARRIERS The Government of Indonesia has introduced sweeping reforms of the trade and investment regimes in the past few years, most recently in July 1992. The motivations for the changes are twofold: to increase non-oil foreign exchange earnings and to spur the growth necessary to create employment. These motivations dictated a fundamental change in development philosophy away from a largely self-financed import-substitution approach toward a market-oriented approach premised on foreign and domestically financed private sector investment and promotion of non-oil and gas exports. Since the mid-1980's, the Government's reform measures cumulatively reduced the overall level of tariff protection; encouraged production for export; boosted incentives to increase the level of processing of natural resource based exports, particularly in the forestry sector; reduced barriers to investment; and streamlined investment application procedures. Despite significant policy reforms, known locally as "deregulation and debureaucratization", problems remain. A residual focus on import substitution through local manufacture is still noticeable. Some essential industrial product imports remain in the hands of state-owned companies or approved monopoly importers. Many strategic industry sectors have not been greatly affected by deregulation and continue to enjoy protection. However, in many sectors the extent of protection is declining. For example in June 1991, import licensing requirments for cold-rolled steel, tinplate and some commercial vehicles were eliminated or eased. Local content rules remain on the books. Companies which produce for export are exempt from many of the local sourcing requirements and can take advantage of a duty drawback/exemption scheme for imported inputs of eventual exports; producers for the domestic market remain constrained by some tariff and non-tariff induced distortions. Government procurement continues to give preference to locally produced goods and services. The price margin is 15 percent but it can go higher. This policy has led some companies, particularly in the oil equipment industry, to set up joint ventures in Indonesia. A. MAJOR TRADE BARRIERS 1. Lack of Intellectual Property Protection a. Description: 1) Patents Indonesia's first patent law, enacted on November 1, 1989, became effective on August 1, 1991. Some of the implementing regulations to the patent law have been issued, and others will follow. The implementing regulations issued to date have improved some of the drawbacks in the patent law but others remain. For example, the patent law has a clause which permits patented products or products produced by a patented process to be imported by non-patent holders. Implementing Regulation No. 34 of 1991 specifies that this provision only applies to 50 specific products. A problem that will not be corrected in implementing regulations is the relatively short term of protection, which is 14 years from filing plus a possible two year extension. Other drawbacks in the law are: importation is not generally considered that the patent is being worked; the patent can be cancelled after four years if not worked; and compulsory licensing provisions. The Government of Indonesia has been accepting patent applications since 1953 so the backlog is enormous. Provisional patent applications filed since August 1981 will be eligible for patent protection if refiled. The large backlog of applications, combined with a small and inexperienced staff of patent examiners, will likely result in slow implementation of the patent law during the next few years. 2) Trademarks Indonesia's 1987 trademark law was outdated and hampered the efforts of U.S. and other foreign trademark owners to protect their marks in Indonesia. A new law was passed on 28 August 1992, which should rectify some of those problems. Under the previous law, the first registrant was entitled to a trademark unless the registration was challenged within nine months. While there has been insufficient time to fully study the new law, it appears to be based more on the first use, not first file, concept. Since June 15, 1987, the Trademark Office had refused applications for any trademarks considered well-known in Indonesia in the same class of goods and filed by unauthorized applicants. This was modified in May 1991 expanding the definition of well-known marks to include those known in Indonesia and abroad. This was also not limited to the same class of goods. The Government of Indonesia was aware of the deficiences in the law and began drafting a new trademark law in 1991. That law is now in place. Additional study will be necessary to identify the other changes and their effect on trademark protection for American marks in Indonesia, but progress has been made, and a basis exists to bring trademark practice in Indonesia more into line with international standards. 3) Copyrights a. Description: Amendments to Indonesia's copyright law in 1987 brought it largely into conformity with international standards for copyright protection. Its law extends foreign works protection as long as Indonesia has a bilateral copyright agreement with the country in question or Indonesia and the country are members of the same international copyright convention. Indonesia has not joined an international copyright convention but it did enter into a bilateral copyright agreement with the United States effective August 1, 1989. Now that U.S. works are protected, enforcement is the key issue. The Indonesian Government has been particularly aggressive against sound recording piracy and is also cracking down on book piracy. Computer software and videotape piracy remains rampant although the Government has made a commitment to improve protection in these areas. b. Estimated impact: The loss to U.S. copyright owners was estimated to be US$106 million in 1985. The amount in 1991 is far greater, particularly considering the mushrooming counterfeit videotape market and the losses from trademark violations. The Motion Picture Export Association of America estimates that its member companies lose US$10-15 million annually from videotape piracy. The lack of an Indonesian patent law has undoubtedly deterred some U.S. investors but this should change. c. Actions taken or to be taken: The Embassy has taken a lead role in seeking improvements in Indonesia's IPR legislation and enforcement efforts. The Indonesian Administration will issue more implementing instructions to the patent law which may improve certain existing drawbacks. Another challenge to the Indonesian Government will be to get its patent examiners trained before the implementation date of the law. USFCS has helped line up patent examiner training by the Asia Foundation and the U.S. Patent and Trademark Office and will continue to seek further assistance. The Indonesian Government is attempting to improve copyright enforcement in all areas. An example of this effort was a copyright enforcement workshop jointly sponsored by the International Intellectual Property Alliance and the Indonesia Department of Justice in March 1990. The Government of Indonesia also has been conducting a series of "roving seminars" on copyrights and patents in an effort to educate people throughout Indonesia on the laws. USFCS will continue to encourage the Indonesian Government to vigorously enforce the copyright law, including raids on video tape and computer software pirates. USFCS will continue to assist American firms which bring trademark cases to the attention of the Commercial Section. 2. Film and Videotape Market Access Restrictions a. Description: Indonesia prohibits foreign film and videotape distributors from establishing branches or subsidiaries. All importation and distribution is restricted by law to 100 percent Indonesian owned companies. Importing and distributing are handled by associations. U.S. films were initially imported by an association of five companies that acted as a monopoly, with the executing agent making all the decisions. In April 1992, three more companies were added to the list of authorized importers. Films and videotapes are also subject to import quotas. The import quota on U.S. and European films combined in 1990 was 80; the quota on videotapes from all foreign countries was 700. The number of videotapes imported has not come anywhere close to the quota level due in part to rampant videotape piracy. Dubbing of imported films in an Indonesian language must be done in Indonesia. Duties, taxes and other necessary payments also act as barriers. b. Estimated impact: The Motion Picture Export Association of America (MPEAA) estimated its member companies have lost US$50 million from these barriers and lack of copyright protection. c. Action taken or to be taken: Indonesia has been on the Special IPR 301 "watch list" since 1989. MPEAA and the American Film Marketing Association (AFMA) were not satisfied with progress and in early 1992 again requested USTR to elevate Indonesia to a "priority country." USFCS has worked on this issue for several years and doubled its efforts in 1991 and 1992. In late April, 1992, just before USTR was to announce its list of priority countries under Section 301, (a repeat of the 1991 scenario) the Government of Indonesia made a commitment to add three companies to the European-American Film Importers Association (AIFEA) and to allow the U.S. Motion Picture Export Association of America (MPEAA) to participate in the selection of the companies. The Indonesian Government also guaranteed that the offer by AIFEA to enter into technical assistance agreements with U.S. film producers and to allow technical advisors from the U.S. producers to supervise distribution will be adhered to. The Indonesian Government agreed to hold further discussions on direct distribution and import quotas. A final agreement was that, at such time that foreign companies are allowed to directly distribute their products in Indonesia, motion pictures would not be excluded from the list. 3. Services Barriers a. Description: 1) Financial Services Financial sector deregulation packages in 1988 permitted foreign banks, insurance companies, and other financial service providers to enter the Indonesian market in the form of joint ventures. Capitalization requirements are higher for joint ventures than for domestic firms: in banking, joint ventures must have Rp 50 billion (approximately US$27 million) in paid-up capital versus Rp 10 billion (approximately US$5.4 million) for domestic banks; joint venture loss insurance companies must have capital of Rp 15 billion (approximately US$8.1 million) versus Rp 3 billion (approximately US$1.6 million) for domestic companies; and joint venture life insurance companies must have capital of Rp 4.5 billion (approximately US$2.4 million) versus Rp 2 billion (approximately US$ 1.1 million) for domestic firms. In the insurance sector, de facto restrictions on access to the local market exist, particularly for loss insurance. 2) Other Services Foreign accounting firms enter the market through technical agreements with domestic accounting firms. Foreign auditors may act only as consultants and may not sign audit reports. Majority foreign participation is not allowed in the advertising industry. Foreign law firms are not allowed to practice in Indonesia. Foreign companies are not allowed to distribute their products unless the products are made in Indonesia. The Motion Picture Export Association of America has complained about its member companies not being allowed to distribute their films (see IPR section). b. Estimated impact: The differential capital requirements in the insurance industry particularly for foreign loss insurance companies, combined with limited access to large business sectors will reduce the atttraction for new U.S. investment in the insurance industry. In the banking sector, capital requirements are not viewed as an intolerable burden; some regard domestic bank capital requirements as too low. Limitations on foreign accountants pose serious barriers; in addition, they impose costs on an economy which suffers from a lack of trained, experienced accountants. It is difficult to assess the amount of sales lost resulting from U.S. companies not being allowed to directly distribute their products. c. Actions taken or to be taken: The Embassy is closely monitoring regulations in the insurance industry and is reporting developments to the U.S. Department of Commerce and USTR. The Indonesian Government promulgated a new insurance law during the spring of 1992, the effects of which are still being analyzed. The USG has raised these and other services barriers in the Uruguay Round context. 4. Tariff and Other Import Changes a. Description: Indonesia's tariffs range from zero for raw materials and essential manufactured goods not produced locally to 200 percent for sedans and station wagons. Indonesia also imposes an import surcharge ranging from 5 to 30 percent on 396 tariff line items; the surcharge is imposed to safeguard domestic producers against predatory dumping and to provide temporary protection where non-tariff barriers (import licensing requirements) have been removed. Products subject to the surcharge include some food, chemicals, and pharmaceutical items. Most imports are subject to value-added tax and many items are also subject to a luxury sales tax. A series of deregulation packages has reduced the overall level of tariff protection; the most recent tariff reform was introduced on June 3, 1991. This package liberalized trade in some product of interest to U.S. exporters (on edible fruits, commercial vehicles, some steel products for example). Nonetheless, a high incidence of split tariffs and high tariffs on manufactures continue to impede imports to Indonesia. b. Estimated impact: It is difficult to estimate lost U.S. sales due to high tariffs. The series of tariff cuts has helped, but their impact may have been diluted by the proliferation of tariff categories as Indonesia continues to adjust its tariff schedule in the wake of its January 1, 1989 conversion to the Harmonized System. c. Actions taken or to be taken: The Embassy will continue to consult with Indonesia on market access conditions which impede U.S. exports. Negotiations have been held on a bilateral basis as well as under the umbrella of the Uruguay Round Multilateral Trade Negotiations of the GATT. 5. Quantitative Restrictions a. Description: In December 1982, the Indonesian Government restricted imports of certain fruits, confectionary, prepared meats, prepared fruits and vegetables, and alcoholic beverages for balance of payments reasons. The restrictions affected certain items bound during U.S.-Indonesian negotiations in the Tokyo Round of the GATT negotiations. Several rounds of discussion have been held on these restrictions. The barriers have been progressively reduced. The United States and Indonesia continue to negotiate on the elimination of non-tariff barriers under the Uruguay Round. 6. Import Licensing a. Description: In 1982, Indonesia established a list of some 130 commodity categories including food products, chemicals, heavy equipment and consumer goods. Sole importer rights were given to a few state trading companies or officially licensed private firms. In that year, Indonesia also enacted its sole agency decree limiting certain product imports to a sole Indonesian agent. For certain products, the foreign seller must select one Indonesian agent for three years (for selling) and five years (for manufacturing). This may restrict the exporters's ability to sell effectively. The inability to terminate such a sole agency contract leads some exporters to avoid the Indonesian market. Since 1982, the Indonesian Government has removed many products from the list of goods subject to exclusive importer licensing requirements. Many paper, glass, textile, and steel products have been deregulated; notably, plastics were deregulated in December 1988. In September 1989, the Bureau of Logistics (Bulog) monopoly on corn imports was removed. In the May 28, 1990 deregulation package, several hundred products were shifted to the general importer category. These included some items of interest to U.S. exporters such as fruit juices, candy, tomato paste, and canned fruits. In June 1991, a trade deregulation package removed restrictions on edible fruits and other products of interest to U.S. exporters. Nonetheless, remaining exclusive importer arrangements continue to impede trade. In addition, grey area measures such as dollar limits on certain products imported under exclusive licensing arrangements remain. For still-regulated items, there are four importer categories: approved importers (state-owned companies with a special mandate regarding the products in question such as Krakatau Steel and the state-owned munitions producers); producer importers (import goods for production processes); importer producers (import the same goods they produce); and sole agents. b. Estimated Impact: It is not possible to estimate precisely the economic impact of these practises, especially as some of the licensing requirements were only recently abolished. c. Actions taken or to be taken: The Embassy continues to consult with the Government of Indonesia, both bilaterally and multilaterally. 7. Banned imports a. Description: Indonesia bans the import of certain items including printed material in the Indonesian and Chinese languages and fully assembled sedans and station wagons. The May 28, 1990 deregulation package shifted certain products (television sets and portable radios) from the forbidden to the general importer category. The June 3, 1991 package shifted some commercial vehicles and motor vehicles from the forbidden import to the restricted import list. b. Estimated impact: The impact of the fully assembled vehicle import ban is difficult to assess; Indonesians drive on the left side of the road. Several U.S. auto manufacturers are involved in joint ventures with Japanese and Indonesian partners. c. Actions taken or to be taken: American automobile manufacturers have not complained about the import restrictions. They appear to be resigned to the status quo and are now taking a greater interest in local investment. We have and will continue to assist these U.S. companies in setting up joint ventures. 9. Export Barriers a. Description: In a stated effort to boost domestic processing industries and to conserve tropical forest resources, Indonesia had banned the export of logs, raw rattan, and semi-finished rattan. In June 1992, however, those export restrictions were lifted, replacing them with a system of graduated export taxes. Local firms are still working out the procedures to accomodate the change in policy. In addition, since 1989, higher export taxes on sawn timber have been effectively prohibitive. Various attempts have been made to cartelize domestic wood processing industries. In the hardwood plywood sector, these attempts have been successful. Commanding over 80 percent of the world market for this product, Indonesia has been able to organize manufacturers in an industry association which inter alia determines export quotas for major markets. Indonesia's use of high export taxes on wood products has resulted in claims of unfair trade practices by two U.S. pencil slat manufacturers, and has led to the filing of a Section 301 petition against Indonesia. On October 2, 1992 the USTR announced plans to conduct a Section 301 investigation into Indonesian forest products practices. b. Estimated impact: The limitations on the export of forestry sector inputs affect U.S. industries such as furniture manufacturers, making it more difficult for them to export products. It is difficult to estimate the loss of U.S. sales as a result of the restrictions. c. Actions taken or to be taken: In the Uruguay Round, the United States has supported an EC Standstill and Rollback complaint about the ban on semi-finished rattan exports. This could have been the cause of the removal of the total export ban noted above. The U.S. offer in the Tropical Products Group was contingent upon the removal of the export ban on certain products such as rattan webbing. The U.S. zero-for-zero wood products sector initiative launched in the Uruguay Round, therefore, appears to have had some success. B. MAJOR INVESTMENT BARRIERS a. Description: Indonesia is publicly committed to seeking foreign investment, and deregulation packages have addressed many of the serious barriers to investment. The number of required licenses has been reduced, the former cumbersome positive investment list has been replaced by a 60 item negative investment list, and processes have been made more transparent. Costs of doing business, particularly production for export, have been significantly reduced through trade reform, the duty drawback/exemption system, and opening of opportunities (for example, to establish and run industrial estates, to build and operate telecommunications facilities, and to construct power generation plants) to the private sector. Indonesia maintains its long-standing policy of imposing no capital control. Despite major improvements, barriers to investment remain. Lack of national treatment in most instances, burdensome procedures, inefficient bureaucratic responses, overlapping jurisdictions, and corruption affect the investment climate. The legal system is a serious problem; commercial law is out-of-date, contract enforcement is difficult, and legal proceedings are lengthy and expensive. All foreign investment must receive government approval; the Capital Investment Coordinating Board (BKPM) handles investment applications in all fields except financial services, petroleum, and mining which are handled by the appropriate line ministries. Until the spring of 1992, with limited exceptions in the special case of Batam Island, all foreign investment required participation of a joint venture. Previously, most foreign firms could have an 80 percent stake in the firm at the time of establishment, although in certain circumstances (more than US$10 million, in a remote area, or producing mostly for export), 95 percent initial foreign ownership is permitted. In principle, joint ventures must move to majority Indonesian ownership within 20 years. The requirement used to be 10 years but it was increased to 20 when joint ventures began to bump up against the limit. Foreign companies are permitted 100 percent equity for investments on Batam Island for a period of five years, after which a local partner with a 5 percent equity share is required. The minimum foreign investment is generally US$1 million; since May 1989, investments of US$250,000 have been permitted. In May 1992, the Government of Indonesia announced that 100% foreign ownership would be permitted under certain conditions. If paid-up capital is at least $ 50 million, or if a project is located in certain provinces, the project may be 100% foreign-owned initially, with divestiture to a maximum of 80% foreign ownership within 20 years. If a project is located within a bonded zone, and produces entirely for export, the project may be 100% foreign owned initially, with divestiture to 95% within 5 years. If a project is labor-intensive and if at least 65% of production is for export, or production will be used for inputs in other domestic industries, or if a project is in certain services sectors, the foreign partner may own 95% of the project initially, divesting to minority status within 20 years. Before the October 1986 investment deregulation package, foreign investment in existing domestic companies was not permitted. Now it is, provided the local industry is not on the negative investment list and the additional capital is required to improve the company's financial condition or to expand exports. b. Estimated impact: Indonesia has enjoyed a foreign and domestic investment boom since 1987. Much of the new foreign investment has come from other Asian countries: U.S. investment remains concentrated in resource extraction rather than in manufacturing. Potential U.S. investors remain unduly concerned that it may be difficult to abide by the Foreign Corrupt Practices Act. c. Actions taken or to be taken: The U.S. did not pursue bilateral investment treaty negotiations because the Government of Indonesia could not agree to grant national treatment. The Embassy has raised concerns about barriers to investment such as the prohibition on foreigners' owning land in the periodic Agriculture Trade and Development Mission (ATDM) meetings. VI. MARKET ANALYSIS PLAN (MAP) For FY-93, Post plans to prepare Industry Subsector Analysis (ISA) reports for 15 subsector product categories out of the 25 current selected Best Prospects provided in Section II, and some of selected Best Prospects provided in the FY-92 Market Analysis Plan. These reports are the continuation to those that were already produced and completed in FY-92. All the 15 proposed ISA reports will be produced inhouse. Post will forward ISA Subsector reports beginning in October, 1992. A. ISA Reporting schedule The proposed schedule of report preparation is as follows: 1. Report title: The Indonesian Market for Plastic Molding Machinery and Parts Sector code: PME Planned completion: 10/20/92 Responsible post : Jakarta Post researcher: P. Sihombing, MRA Est. workweeks: 6 workweeks Justification: Production of various plastic products has grown substantially since 1980. Plastic materials and resins are the second largest commodity group imported by Indonesia during the past few years. In order to produce the products demanded by the local economy, imports for more plastic product machinery will be required. Cost of report: NA 2. Report title: The Indonesian Market for Commercial Building Air Conditioners and Parts Sector code: ACR Planned completion: 12/10/92 Responsible post: Jakarta Post researcher: P. Sihombing, MRA Est workweeks: 6 workweeks Justification: The major building construction activities which began during the second half of the 1980's has continued into the 1990's. This is to fulfill the need for more office space, hotels and other commercial buildings. These kinds of buildings will need air conditioning system equipment, as Indonesia's climate is extremely warm and humid. Cost of report: NA 3. Report title: The Indonesian Market for Miscellaneous Woodworking Machinery Sector code: FOR Planned completion: 01/31/93 Responsible post: Jakarta Post researcher: P. Sihombing, MRA Est. workweeks: 6 workweeks Justification: Wood products have been the second largest of the non-oil and gas exports from Indonesia during the past few years. Exploitation of tropical woods is likely to continue during the next few years. Therefore, imports of woodworking machinery and equipment is expected to increase during the next few years. Cost of report: NA 4. Report title: The Indonesian Market for Machines for Extruding, Drawing and Cutting Man-made Textile Materials Sector code: TXM Planned completion: 03/20/93 Responsible post: Jakarta Post researcher: P. Sihombing, MRA Est. workweeks: 6 workweeks Justification: The largest non-oil and gas export revenues during the last few years resulted from textile and garment products. It is likely to continue to the end of the century. Therefore, imports of more textile machinery are expected to take place during the period. Cost of report: NA 5. Report title: The Indonesian Market for Beverages Food Processing and Packaging Machinery Sector code: FPP Planned completion: 05/10/93 Responsible post: Jakarta Post researcher: P. Sihombing, MRA Est. workweeks: 6 workweeks Justification: Manufacturing has rapidly developed during the latter half of 1980's. It is expected to continue during the 1990's. Imports of food processing machinery, specifically for the brewery industry are expected to increase in line with the growth of the manufacturing industries. Cost of report: NA 6. Report title: The Indonesian Market for Iron and Steel Products Sector code: IRN Planned completion: 06/20/93 Responsible post: Jakarta Post researcher: P. Sihombing, MRA Est. workweeks: 6 workweeks Justification: There was a great expansion in construction activities during the 1980s, and this is likely to continue through the year 2000. Highrise buildings, bridges, industrial complexes as well as residential buildings need a large amount of iron and steel products. Some needs can be supplied by local products, but more imports are expected to be necessary during the next few years. Cost of report: NA 7. Report title: The Indonesian Market for Oil and Gas Production Equipment and Parts Sector code: OGM Planned completion: 08/07/93 Responsible post: Jakarta Post researcher: P. Sihombing, MRA Est. workweeks: 6 workweeks Justification: Exploration and recovery activities of oil and gas products were expanded following the improvement of oil and gas prices on the world market, after the decline experienced during the first half of the 1980's. In order to be able to produce more products, imports for more oil and gas equipment must be made during the next few years. Cost of report: NA 8. Report title: The Indonesian Market for Hydro-electric Power Generation Equipment Sector code: ELP Planned completion: 09/20/93 Responsible post: Jakarta Post researcher: P. Sihombing, MRA Est. workweeks: 6 workweeks Justification: There is a growing shortage of electric power in Indonesia due to the rapid development of the manufacturing sector, and the Government's commitment to provide more electric power to rural areas. Construction of many hydro-electric power plants must be undertaken in order to fulfill these needs, which can utilize the many rivers in the country. Cost of report: NA 9. Report title: The Indonesian Market for Water Pollution Control Equipment Sector code: POL Planned completion: 11/07/92 Responsible post: Jakarta Post researcher: R. Bhinekawati, Research Assistant Est. Workweeks: 6 workweeks Justification: Water pollution is the most pressing environmental problem faced by Indonesia. Several government regulations have been put in place, and there will be some environmental projects to be implemented with the assistance of several donor countries. Cost of report: NA 10.Report title: The Indonesian Market for Fibers/Yarns: Cotton, wool and Blend Sector code: YAR Planned completion: 12/21/92 Responsible post: Jakarta Post researcher: R. Bhinekawati, Research Assistant Est. workweeks: 6 workweeks Justification: Textiles are the second largest non-oil and gas export from Indonesia. In addition, the total demand for textile products for local consumption is also increasing. Although many polyester and nylon yarn plants have been established, a significant amount of polyester and other artificial yarns will still be imported during the next three to five years. Cost of report: NA 11.Report title: The Indonesian Market for Fiber Optic Transmission Equipment Sector code: TEL Planned completion: 02/10/93 Responsible post: Jakarta Post researcher: R. Bhinekawati, Research Assistant Est. workweeks: 6 workweeks Justification: Indonesia is attempting to transform its telecommunications infrastructure into a completely digital system by the year 2004. Imports of fiber optics equipment are increasing from year to year because of the demand which cannot be supplied by local manufacturers. Cost of report: NA 12.Report title: The Indonesian Market for Industrial Waste Treatment Equipment Sector code: POL Planned completion: 03/31/93 Responsible post: Jakarta Post researcher: R. Bhinekawati, Research Assistant Est. workweeks: 6 workweeks Justification: Environmental Impact Assessments (EISs) will be required for all new projects and for those existing facilities which produce toxic or hazardous wastes. Recently the first center for the treatment of toxic waste was developed. The government is planning to approve some other such centres in the near future. Cost of report: NA 13.Report title: The Indonesian Market for Hydraulic Fluid Power Pumps and Parts Sector code: PVC Planned completion: 04/20/93 Responsible post: Jakarta Post researcher: R. Bhinekawati, Research Assistant Est. workweeks: 6 workweeks Justification: Rapid growth in manufacturing, oil and gas production and exploitation, the construction of dams and irrigation systems has resulted in increased imports of pumps and parts in the last few years. Cost of report: NA 14. Report Title: The Indonesian Market for Cellular Telephone Equipment Sector Code: TEL Planned Completion: 06/07/93 Responsible Post: Jakarta Post Researcher: R. Bhinekawati, Research Assistant Est. workweeks: 6 workweeks Justification: The cellular telephone systems can be operated by private sectors with the Revenue Sharing Arrangement with PT TELKOM. Currently there are 5 cities served by cellular telephone equipment with the capacity of 20,000 lines. The investors now developing more than 23,000 lines and there are 6 more cities will be served earlier in 1993. More and more lines will be developed in the future to meet the growing demand of this service. 15. Report title: The Indonesian Market for Pulp and Paper Machinery and Parts Sector code: PUL Planned completion: 07/31/93 Responsible post: Jakarta Post researcher: R. Bhinekawati, Research Assistant Est. workweeks: 6 workweeks Justification: Aside from an ambitious plan to develop self-sufficiency in the supply of paper, Indonesia is also very eager to export paper pulp and paper products in the future, and to become the largest pulp and paper products producer in Asia before the end of the century. In light of this, a significant amount of pulp and paper machinery will be imported to the country. Cost of report: NA B. Customized Sales Survey (CSS) Report During FY 92, Post completed 6 CSS reports. During FY 93, post should be able to complete eight given current resources. CSS reports in addition to these will be contracted to local firms as instructed in the CMP Guidelines, if funding is available. Estimate contract fee per report is US$1,500. C. Proposed potential contractors for ISA and CSS reports: 1. P.T. Data Consult P.O. Box 108/JATJG Jakarta, Indonesia Contact: Mr. Sulaeman Krisnandhi, Director Telex: 46388 EMBICY IA; Fax: 62-21-362810 2. P.T. Capricorn Indonesia Consult, Inc. Jalan Raden Saleh 46 Jakarta 10330, Indonesia Contact: Mr. Wilson Nababan, Director Fax: 62-21-310-1505 3. P.T. Bina Asih Consultants Jalan Cilacap No. 3 Jakarta Pusat, Indonesia Tel: 351-340, 359-463 Fax: 62-21-310-1777 Contact: Mr. D. R. Nainggolan, Director VII. TRADE EVENT PLAN Present planning calls for FCS Indonesia to organize the following trade promotion events during FY '92-'93. Ohio-Gabdi Business Mission Date 9/15-18/92 Theme Various Product Categories Inc: Machine Tools, Plastic Production and Processing Machinery, Food Processing & Packaging Machinery Type TM Location Jakarta Est. Resources 3.0 work/weeks Environtmental Trade Mission Date 10/22-28/92 Theme Environmental Tehnology Type TM Location Jakarta Est. Resources 4 work/weeks Comdex/Fall Date 11/16-20/92 Theme Computer products and services Type FBP, NTM Location Las Vegas Contact Richard Schwab, (617) 449-6617 Est. Resources 0.5 work/weeks Manufacturing Indonesia Date 12/1-5/92 Theme Chemicals, Polution/Environment Plastic and Rubber, Textile and Clothing Machinery Type PIP, OTM Location Jakarta Contact Philip Jenkinson, (021) 325560 Est. Resources 2 work/weeks Communication Technology Indonesia Date 2/17-20/93 Theme Telecommunications/Business Commu- nications Systems, Computer, Hotel/Cate ring equipment and food exhibition Type PIP, OTM Location Jakarta Contact Philip Jenkinson, (021) 325560 Est. Resources 3 work/weeks Growth Industries USA Date 2/93 Theme Various Products Industries Type RC Location Jakarta Est. Resources 3 work/weeks