BUDGET ALLOCATION FOR SIMULTANEOUS LOCAL ELECTION STILL IMPROPER

The audit also included examination result for Election 2014. Chairperson of House consisting of Head of Parliament Setya Novanto and two vice Chairmen Agus Hermanto/Taufik Kurniawan welcomed BPK leaders Harry Azhar Aziz and Achsanul Qosasi on Monday (13/7) to hear report of the audit outcome.

The auditing of BPK was the kind of examination with certain objectives as requested by House Chairman. Previously Chairman of House has also received a letter from Chairman of Commission II and III of House on auditing of KPU Election Committee.

BPK rated that the budget for Simultaneous Regional Election was not in accordance with the rules. Many Governors had not submitted their budget and security cost was not even confirmed. On the other hand many regional KPUD Election Commission had not forwarded their budget.

All must be the Government’s attention especially the Ministry of Internal Affairs, the re were some Regulation still to be revised following some BPK findings. Other problem was the Regional Grant Agreement text (NPHD) between the Governor and Grant recipient, by the finding the election was under threat in terms of timing and security. (SS)

Business News - July 22, 2015

MINISTRY OFINDUSTRY ENCOURAGES THIRD-GENERATION INDUSTRIAL AREA

Industry Minister Saleh Husin expects industrial estate development today to not only be filled with factories, but also equipped with residential, business, education, entertainment and sports. Such area is called a third-generation industrial area, which is able to make a new modern and independent industrial city.

“Third-generation industrial zone is proven successful in spurring local economic growth and is able to respond to economic, social, culture and environmental challenges as well as capable of transforming itself into a new modern and independent industrial city,” said Minister of Industry in his speech at the “Sharing Session and Breaking Fast Together” event organized by PT Jababeka in Jakarta, on Monday (July 13).

Therefore, the government continues to encourage the development of new industrial zones into third-generation industrial areas so as to foster new industrial cities throughout Indonesia. “PT Jababeka Tbk is a pioneer who developed third-generation industrial area,” said the Minister of Industry.

As an illustration, first-generation industrial areas are industrial zones built and managed entirely by the government, where the government acts as developer, operator and regulator. This stage took place since the 1970-1980s. First-generation industrial areas are Pulogadung Industrial Estate – Jakarta, Rungkut Industrial Area – Surabaya, Medan Industrial Estate; and Makassar Industrial Area. “The government has a very dominant role in the operation of first-generation industrial area,” he said.

Meanwhile, second-generation industrial areas are industrial zones built with a simple concept, i.e. as a factory location alone. This area is growing when Indonesia’s economy was booming, which is in 1990-2000 and in the midst of the growing spirit of deregulation of the government. “These industrial zones are fully constructed by the private sector, and the government only acts as regulator,” he explained.

The progress of the industrial sector is believed to be supported by the provision of industrial locations equipped with a variety of industry supporting infrastructures, so as to make the industry competitive. “Therefore, the provision of industrial zones becomes one of the priorities in the national industrial development program in the future.”

The role of the industrial area in the development of the national industrial sector is very strategic and significant. Industrial area accounts for about 40% of the total value of non-oil & gas exports and attracts investment of 60% of the total investment of the industrial sector as well as providing a substantial contribution to state revenue in the form of various taxes. “Until now the number of industrial estates in Indonesia reached 74 industrial zones with a total land area of 30 thousand hectares. But, 67% of the location of the industrial area is concentrated in Java, “he said.

Therefore, the government has developed direction of national industrial policy that encourages the development of industrial zoning outside Java, either in the form of areas designated for industrial purpose, industrial areas, as well as small and medium-sized industrial centers. In addition, the government also continues to encourage growth of industry population as well as increased competitiveness and productivity, especially for industries outside Java.

“The government will work hard to continue to encourage the development of new industrial areas, especially outside Java, as part of even distribution of industry,” said the Minister of Industry. in 2035, it is expected that percentage of industry distribution outside Java will increase to 40% from 27.22% currently.

To encourage this, the government has set 14 priority industrial estates to be built outside Java, comprising of 7 industrial estates built in the Eastern part and the rest in the Western part. Construction of a new industrial area will be directed to grow into new modern and independent industrial cities.

On the occasion, the Minister of Industry gave appreciation to the President Commissioner of PT Jababeka Tbk, Setyono Djunandi Darmono, for his extensive knowledge and vision of the development of modern industrial park. “in addition, he is also a true entrepreneur soul who does not give up and is always optimistic so that he is able and keen to see that problem is a business opportunity,” he said.

According to the Minister of Industry, the development of third-generation industrial areas is very relevant to the opinion of SD Darmono as outlined in the book with the title “One City One Factory: Building 100 new Cities”. “The concept of One City One Factory is a quite realistic approach in building industrialization today.”

On the other hand, his party expects that the government and the business can continue to build synergy and collaboration in order to accelerate the creation of a new industrial are. Of the 14 priority industrial estate development outside Java, he said, the government must be able to ensure and facilitate the anchor industry to start its business in this area. According to him, to develop industrial estates in the regions, special incentives were needed to attract investors. (E)

Business News - July 22, 2015

STATE’S INCOME GOVERNED BY GLOBAL ECONOMIC CONDITION

Global economic slowdown would undeniably affect Indonesia’s internal economic condition, it even affected state’s income in the taxation sector and investment growth. This was allegedly the reason why state’s income was hard to attain. Marketplayers were depressed by the present economic condition because national economy was more vulnerable to external sentiments. This was disclosed by member of Chairman XI of house, Henry Kurniadi when joining technical visit of Commission XI of House to the Representatives of the Ministry of Finance in Yogyakarta. This was disclosed by the Public Relations Dept of House on Monday (13/7).

Although Indonesia’s fiscal and monetary policy were all on the right track, Henry rated that it was not strong enough to face strong external challenges. An example was the Rupiah exchange rate value against USD. The effect was not only local built also worldwide. Indonesian Rupiah was not the worst: €uro was more adverse and so was Malaysia’s Ringgit.

In fact Indonesia could cope with global economic slowdown but this cycle had to be passed first. The Fed’s prediction would be better next year. But Henry reminded the Government of RI to remain cautious.

Henry reminded that the market must be developed with optimism, so foreign capital would flow in. Without investment state’s income would be hard.

Henky remarked further that state’s income from the tax sector was related with policy of the real sector. He also reminded stakeholders to refrain from sectoral ego for the sake of synergy among Government bodies. (SS)

Business News - July 22, 2015

ABOUT RESTRICTION OF BANK’S OWNERSHIP BY FOREIGN INVESTORS

The discourse of restriction of bank’s ownership by foreign investors had started to roll. The discourse developed into a polemic as Parliament used their initiative right to revise the Banking Law which was rated as no longer relevant with the latest situation in Indonesia.

The only thing was that 40% ownership of bank by foreigners was rated as danger to national economy because it would mean negative signal to foreign investors, causing 60% of fund already invested in Indonesia be pulled out. It would also rock the capital market because global investors international bank as custody.

The discourse to restrict bank ownership in Indonesia to 40% was written in the draft for revision of Banking Bill which was being dissected at House. And yet foreign banks had been playing their roles in national economy. The foreign banks were able to bring cheap fund from their respective countries to be pipelined as productive investment credit or working capital needed by industries in Indonesia.

The foreign banks were also helping Indonesian trade finance companies to operate internationally, and link Indonesian company to global enterprises who offered low prices. The foreign banks had the capacity to assist Indonesian companies to obtain financing from abroad for financing huge projects.

An example was when a foreign bank helped PT Pelindo II release global bond worth around USD 1.6 billion or equal to Rp.21.3 trillion. The amount of fund received by this harbor builder company even exceeded initial target of USD 1 billion.

The view to refuse restriction of bank ownership by foreign investors was also voiced by the Association of Indonesian International Banks (Perbina). They claimed that contribution of foreign banks to Indonesia’s economy was great. If there was any regulation that restricted foreign ownership to 40% it might cause Rupiah and local stockmarket to rock because if foreign babjers had to sell their shares in Indonesia it would be hard to find potential buyers.

So far foreign investors were also playing their roles in investing their capital at the Indonesia Security Exchange (BEI). BEI data had it that per July 2, 2015, there were 14 bank emitents with foreign ownership above 40% commanding market capitalization of around Rp.150,16 trillion.

The market capitalization was down by 10.37% from April 7 last when IHSG reached highest level while market capitalization of total 41 bank emitents was down from Rp.1,179.62 trillion to Rp.1,000.40 trillion. The biggest market capitalization was by BCA which was categorized s national bank amounting to Rp.331,96 trillion.

In the banking industry of the world, only Saudi Arabia restricted foreign ownership of banks entering the country. In some countries like Vietnam and Australia, foreign ownership over local banks were restricted but welcomed foreign banks who brought capital in.

In southeast Asia, the Philippines permitted 100% ownership of banks by foreign investors. If Indonesia who was in need of vast amount of foreign capital restricted foreign ownership to 40%, foreign banks would enter the Philippines.

Foreign investor argued that if ownership was only 40%, they could not command over the management of bank. By the time the Asean Economic Community was in effect on January 2016 next, the Philippines would be enjoying the benefits instead of Indonesia.

So the Parliament, the Indonesian Government and the Financial Service Authority must think of other options of the proposal to restrict ownership was responded negatively by marketplayers, which would bring negative effect on national economy and financial system.

To fortify national interest, some possible preconditions that could be applied to foreign investors without restricting their ownership percentage were as follows:

Firstly, foreign banks or banks partly owned by foreign investors must obey the rules and regulations effective in Indonesia.

Secondly OJK made it mandatory for foreign banks to pipeline credit to small-and-medium business (UKM) at least 18% of their outstanding credit as per 2018.

Thirdly to persuade foreign banks to support Government’s Infra Structure Development Programs through credit pipelining.

Fourthly to manage employment of foreign expatriates in foreign banks only for positions at managerial level like (Commissioners, Directors) while for the medium echelon positions should be given only to local employees.

Employment of foreign expatriates for the certain positions was still permitted if the bank concerned had no access to internal human resources. An example was the position of Chief IT but even such was restricted for a certain period of time only, like 5 years and transfer of technology to the successor would be mandatory.

The above options were quite reasonable and should be accepted by all circles amidst a condition of global uncertainty today so the House the Government and OJK should better be more careful in scheming up a new policy so as not to generate tension considering the potential effect on Rupiah and IHSG.

To make a policy, under any circumstance, the policy should be market friendly, investor friendly, and business friendly. What the Government need today was to foreign public trust and confidence through more hospitable stance. Let it be. (SS)

Business News - July 22, 2015