REPORT ON INDONESIA – I.B. ASSIGNMENT Page 1

INTERNATIONAL BUSINESS ASSIGNMENT

REPORT

ON

“INDONESIA”

Submitted To:

Ms. Amar Aujla

Submitted By:

Atul Jain

Mansi

Navjot Kaur

Sahil Gaba

REPORT ON INDONESIA – I.B. ASSIGNMENT Page 2

TABLE OF CONTENTS

S.NO.

TOPICS

PAGE NO.

CHAPTER. 1.

HISTORICAL INDONESIA

1 – 2

CHAPTER. 2.

GEOGRAPHICAL INDONESIA

3-4

CHAPTER. 3.

DEMOGRAPHICAL PROFILE

5-6

CHAPTER. 4.

CULTURE OF INDONESIA

7-8

CHAPTER. 5.

RELIGIONS

9-10

CHAPTER. 6.

ECONOMIC PROFILE

11-12

CHAPTER. 7.

GOVERNMENT POLICIES

13-17

CHAPTER. 8.

TAXATION

18-21

CHAPTER. 9.

FINANCIAL MARKET

22-23

CHAPTER. 10.

FOREIGN MARKET

24-26

CONCLUSION

ANNEXURE .1 BIODIESEL (Pg.04)

ANNEXURE .2 INFRASTRUCTURE (Pg.14)

27

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1. HISTORICAL INDONESIA

A number of Hindu and Buddhist kingdoms, centered on Sumatra and Java, covered

much of Indonesia’s modern territory before the gradual ascendancy of Islam and then the

arrival of European traders and imperialists. The last major Hindu kingdom, Majapahit,

reached its height in the 14th century and covered much of the archipelago. It was replaced

by local kingdoms and sultanates, which one by one were taken under Dutch administration

or conquered by Dutch forces. The Dutch did not finally incorporate into the Netherlands

East Indies all of what is now Indonesia until the early 20th century.

Indonesia declared independence from the Netherlands in August 1945, after three

years of rule by a Japanese wartime administration. The Dutch only ceded sovereignty in

1949 after four years of intermittent armed struggle with a medley of pro-independence

forces fighting under national, provincial and religious banners. However, the Dutch

remained as the colonial power in Papua (Netherlands New Guinea) until 1962, when

administering authority was handed over to Indonesia. Papua’s incorporation into Indonesia

became official with a much-disputed consultation of Papuan representatives in 1969, the

―Act of Free Choice‖. At that point, Indonesia’s borders became identical with those of the

former Netherlands East Indies.

The post-independence political landscape has been dominated by Presidents

Soekarno (1949-66) and Soeharto (1967-98). The Soekarno years were marked by political

instability, economic decline and the dismantling of Indonesia's first parliamentary

democracy. Soekarno was a charismatic and aspirant revolutionary leader whose name still

has widespread public appeal in Indonesia, evidenced by the popularity of his daughter,

former president Megawati Soekarnoputri. He pursued a radical foreign policy, which

included military confrontation with Malaysia and the Netherlands (in Papua).

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The instability of the Soekarno era culminated in an abortive armed coup in

September 1965, which the military blamed on the Indonesian Communist Party. It is

estimated that 500,000 or more Indonesians were killed, mainly in Java and Bali, in the

consequent violent suppression of the Communist Party and alleged communists. Major

General Soeharto rose to power during the violent upheaval and formally assumed the

Presidency in March 1967.

President Soeharto's rule from 1967-98 was marked by economic development,

political stability and close relations with the West. Social indicators such as life expectancy

and literacy improved rapidly during this period. It was, however, marred by human rights

abuses, centralised authoritarian rule, weakening of the non-executive branches of

government, increased military involvement in politics and business, the violent annexation

of East Timor in 1975, and rampant corruption and nepotism. The final years of the Soeharto

era were marked by growing public disenchantment and rising street protests, fuelled by the

severe impact of the 1997 Asian financial crisis and the collapse of the rupiah. Having lost

public, military and cabinet support, Soeharto resigned on 21 May 1998.

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2. GEOGRAPHICAL INDONESIA

Indonesia consists of 17,508 islands, about 6,000 of which are inhabited. These are

scattered over both sides of the equator. The five largest islands are Java, Sumatra,

Kalimantan (the Indonesian part of Borneo), New Guinea (shared with Papua New Guinea),

and Sulawesi. Indonesia shares land borders with Malaysia on the islands of Borneo and

Sebatik, Papua New Guinea on the island of New Guinea, and East Timor on the island of

Timor. Indonesia also shares borders with Singapore, Malaysia, and the Philippines to the

north and Australia to the south across narrow straits of water. The capital, Jakarta, is on Java

and is the nation's largest city, followed by Surabaya, Bandung, Medan, and Semarang.

At 1,919,440 square kilometres (741,050 sq mi), Indonesia is the world's 16th-

largest country in terms of land area. Its average population density is 134 people per square

kilometre (347 per sq mi), 79th in the world, although Java, the world's most populous island,

has a population density of 940 people per square kilometre (2,435 per sq mi). At

4,884 meters (16,024 ft), Puncak Jaya in Papua is Indonesia's highest peak, and Lake Toba in

Sumatra its largest lake, with an area of 1,145 square kilometres (442 sq mi). The country's

largest rivers are in Kalimantan, and include the Mahakam and Barito; such rivers are

communication and transport links between the island's river settlements.

Mount Semeru and Mount Bromo in East Java. Indonesia's seismic and volcanic

activity is among the world's highest. Indonesia's location on the edges of the Pacific,

Eurasian, and Australian tectonic plates makes it the site of numerous volcanoes and frequent

earthquakes. Indonesia has at least 150 active volcanoes, including Krakatoa and Tambora,

both famous for their devastating eruptions in the 19th century. The eruption of the Toba

supervolcano, approximately 70,000 years ago, was one of the largest eruptions ever, and a

global catastrophe. Recent disasters due to seismic activity include the 2004 tsunami that

killed an estimated 167,736 in northern Sumatra, and the Yogyakarta earthquake in 2006.

However, volcanic ash is a major contributor to the high agricultural fertility that has

historically sustained the high population densities of Java and Bali.

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Lying along the equator, Indonesia has a tropical climate, with two distinct

monsoonal wet and dry seasons. Average annual rainfall in the lowlands varies from 1,780–

3,175 millimeters (70–125 in), and up to 6,100 millimetres (240 in) in mountainous regions.

Mountainous areas—particularly in the west coast of Sumatra, West Java, Kalimantan,

Sulawesi, and Papua—receive the highest rainfall. Humidity is generally high, averaging

about 80%. Temperatures vary little throughout the year; the average daily temperature range

of Jakarta is 26–30 °C (79–86 °F).

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3. DEMOGRAPIC PROFILE

Population

Indonesia is the fourth most populous nation (after China, India and the United States)

with 238 million people. The island of Java is one of the most densely populated areas in the

world, with more than 130 million people living in an area the size of Greece.

Indonesia includes numerous related but distinct cultural and linguistic groups. Since

independence, Indonesian (a form of Malay and official national language) is the language of

most written communication, education, government, and business. Many local ethnic

languages are the first language of most Indonesians and still important.

List of Indonesian provinces' population

Province Population In Cities (%)

Jakarta 8,389,443 100.0

Yogyakarta 3,122,268 57.7

East Kalimantan 2,455,120 57.6

West Java 35,729,537 50.3

Bali 3,151,162 49.8

Age Structure

0-14 years: 28.4% (male 34,343,198/female 33,175,135)

15-64 years: 65.7% (male 78,330,830/female 77,812,339)

65 years and over: 5.8% (male 6,151,305/female 7,699,548)

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Population growth rate

1.175%

Birth rate

19.24 births/1,000 population

Death rate

6.24 deaths/1,000 population

Net migration rate

-1.25 migrant(s)/1,000 population

Gender ratio

At birth: 1.05 male(s)/female

Under 15 years: 1.04 male(s)/female

15-64 years: 1.01 male(s)/female

65 years and over: 0.8 male(s)/female

Total population: 1 male(s)/female

Infant mortality rate

Total: 31.04 deaths/1,000 live births

Male: 36.14 deaths/1,000 live births

Female: 25.68 deaths/1,000 live births

Life expectancy at birth

Total population: 70.97 years

Male: 67.98 years

Female: 73.07 years

Total fertility rate

2.34 children born/woman

Literacy Rate

Men 15+ 94.0%

Women 15+ 86.8%

Av. Literacy Rate 90.4%

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4. CULTURE OF INDONESIA

Indonesia has around 300 ethnic groups, each with cultural differences developed

over centuries, and influenced by Indian, Arabic, Chinese, Malay, and European sources.

Traditional Javanese and Balinese dances, for example, contain aspects of Hindu culture and

mythology, as do wayang kulit (shadow puppet) performances. Textiles such as batik, ikat

and songket are created across Indonesia in styles that vary by region. The most dominant

influences on Indonesian architecture have traditionally been Indian; however, Chinese,

Arab, and European architectural influences have been significant.

Sports in Indonesia are generally male-orientated and spectator sports are often

associated with illegal gambling.[124]

The most popular sports are badminton and football;

Liga Indonesia is the country's premier football club league. Traditional sports include sepak

takraw, and bull racing in Madura. In areas with a history of tribal warfare, mock fighting

contests are held, such as, caci in Flores, and pasola in Sumba. Pencak Silat is an Indonesian

martial art.

A selection of Indonesian food, including Soto Ayam (chicken soup), sate kerang

(shellfish kebabs), telor pindang (preserved eggs), perkedel (fritter), and es teh manis (sweet

iced tea)

Indonesian cuisine varies by region and is based on Chinese, European, Middle

Eastern, and Indian precedents. Rice is the main staple food and is served with side dishes of

meat and vegetables. Spices (notably chili), coconut milk, fish and chicken are fundamental

ingredients. Indonesian traditional music includes gamelan and keroncong. Dangdut is a

popular contemporary genre of pop music that draws influence from Arabic, Indian, and

Malay folk music. The Indonesian film industry's popularity peaked in the 1980s and

dominated cinemas in Indonesia, although it declined significantly in the early 1990s.

Between 2000 and 2005, the number of Indonesian films released each year has steadily

increased.

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The oldest evidence of writing in Indonesia is a series of Sanskrit inscriptions dated

to the 5th century CE. Important figures in modern Indonesian literature include: Dutch

author Multatuli, who criticized treatment of the Indonesians under Dutch colonial rule;

Sumatrans Muhammad Yamin and Hamka, who were influential pre-independence

nationalist writers and politicians; and proletarian writer Pramoedya Ananta Toer, Indonesia's

most famous novelist. Many of Indonesia's peoples have strongly rooted oral traditions,

which help to define and preserve their cultural identities.

Media freedom in Indonesia increased considerably after the end of President

Suharto's rule, during which the now-defunct Ministry of Information monitored and

controlled domestic media, and restricted foreign media. The TV market includes ten national

commercial networks, and provincial networks that compete with public TVRI. Private radio

stations carry their own news bulletins and foreign broadcasters supply programs. At a

reported 25 million users in 2008, Internet usage is limited to a minority of the population,

approximately 10.5%.

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5. RELIGIONS

Although it is not an Islamic state, Indonesia is the world's most populous Muslim-

majority nation, with almost 86.1% of Indonesians declared Muslim according to the 2000

census. 8.7% of the population is Christian, 3% are Hindu, and 1.8% Buddhist or other. Most

Indonesian Hindus are Balinese, and most Buddhists in modern-day Indonesia are ethnic

Chinese.

LANGUAGES

Types of languages: 360

Bahasa Indonesia is the official national language of Indonesia. It is based on a

version of Classical Malay of the Riau-Johor Sultanate. It was first declared the official

language with the declaration of Indonesian independence in 1945, following the 1928

unifying-language declaration in the Indonesian Youth Pledge.

Almost all of Indonesia's 240 million inhabitants speak the language and it is one of

the most spoken languages in the world. Most Indonesians, aside from speaking the national

language, are fluent in another regional language or local dialect (examples include

Minangkabau, varieties of Chinese, Sundanese, Javanese and Balinese) that are commonly

used at home and within the local community. Most formal education, as well as nearly all

national media and other forms of communication, are conducted in Indonesian.

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In East Timor, which was annexed as an Indonesian province from 1975 to 1999, the

Indonesian language is recognised by the constitution as one of two working languages (the

other is English, alongside the official languages of Tetum and Portuguese)

English may be spoken in international and high level business contexts in large

cities. You may be able to converse with some Indonesians in Jakarta in English. In rural

areas it may be difficult to find people who speak English, unless the locale is a widely

visited tourist destination. Many employees of international hotels and limousine drivers

speak English. You may have difficulty finding an English speaking taxi driver or household

staff.

Dutch may be understood by older Indonesians, who may have attended Dutch

schools.

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6. ECONOMICAL PROFILE

GDP - per capita:

$3,900 (2008 est.)

$3,700 (2007 est.)

$3,500 (2006 est.)

note: data are in 2008 US dollars

GDP - composition by sector:

agriculture: 13.5%

industry: 45.6%

services: 40.8% (2008 est.)

Labor force:

112 million (2008 est.)

Labor force - by occupation:

agriculture: 42.1%

industry: 18.6%

services: 39.3% (2005 est.)

Unemployment rate:

8.4% (2008 est.)

Household income or consumption by percentage share:

lowest 10%: 3.6%

highest 10%: 28.5% (2002)

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Distribution of family income - Gini index:

39.4 (2005)

Investment (gross fixed):

23.6% of GDP (2008)

Budget:

revenues: $101.1 billion

expenditures: $101.6 billion

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7. GOVERNMENT POLICIES

The Republic of Indonesia

Indonesia is a republic with political power organized around the executive,

legislative and judicial branches of government. Indonesia declared independence from the

Netherlands and Japan on August 17, 1945.

Pancasila

Pancasila, the Five Principles, is the basic philosophy of the government. These

principles are: Belief in one God, Just and civilized humanity, the Unity of Indonesia,

Democracy led by the wisdom of deliberations among representatives, and Social Justice for

all Indonesian citizens.

The Executive Branch

The President is the chief of state and head of Government. The President is also the

supreme commander-in-chief of the armed forces. The current President of Indonesia is

Susilo Bambang Yudhoyono, his Vice President is Jusuf Kalla. Their election was the first-

ever direct election for President in Indonesia's history, where voters were actually able to

choose a person and not a party.

The Legislative Branch

House of Representatives (Dewan Perwakilan Rakyat or DPR). While previous DPR

were dominated by members of the Golkar party, representatives of many parties currently

serve in the DPR after the democratic elections held in 1998/1999. The People's Consultative

Assembly (Majelis Permusyawarakatan Rakyat or MPR) includes the DPR members in

addition to 500 indirectly elected and appointed members.

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The Judicial Branch

The Supreme Court is called Mahkamah Agung.

The Legal System

The legal system is based on Roman-Dutch law. This has been substantially enhanced

and modified over the years to cater to indigenous concepts and new criminal procedures

code being enacted every year.

Indonesian Law & Legal Certainty

Numerous highly suspect legal decisions, both civil and criminal, have been handed

down by Indonesian courts since the new government came to power. The Indonesian court

system has stubbornly resisted reform, and for the most part, it has been 'business as usual'.

High-profile court cases involving prominent figures from the New Order regime

have repeatedly failed. Mysteriously, these failures have frequently been due to technical

legal 'flaws' of a rather semantic nature in cases presented by the prosecution or plaintiffs.

The court system in Jakarta is particularly rotten, to the extent that the government

plans to relocate more than 70% of Jakarta's judges to rural areas, replacing them with judges

from areas outside the capital claimed not to be as corrupt. Payment for judgments is

rampant throughout the court system. Unfortunately, judges of any honesty and integrity

were removed by the Soeharto regime. What was left behind was a court system that used

the symbolic forms and the language of law, but which dispensed precious little actual

justice.

There is a critical shortage of 'clean', skilled judges in Indonesia, leading to the

suggestion that judges be imported from Indonesia's former coloniser, the Netherlands, to

hear commercial cases. Whilst the suggestion was not followed up, it does demonstrate the

Indonesian Government's exasperation in dealing with Soeharto's legacy in the legal system.

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Before 1998, Indonesia did not really have an effective bankruptcy process. The

weak bankruptcy laws that existed in Indonesia before 1998 dated from 1906, a legacy of the

former Dutch colonial administration. Technically, these laws only applied to non-indigenous

Indonesians; Europeans, Chinese and Arabs. Consequently, the 1906 laws were used

extremely infrequently, and 'bankruptcy' as it is generally understood was rarely ever applied

to a company or person. The Indonesian loan-word bangkrut is used to indicate an absence

of loss of money, or an inability to pay, rather than referring to a legal process to assist in

meeting obligations to creditors. The level of understanding of bankruptcy processes in

Indonesia is quite low.

At the insistence of the IMF, Indonesia was forced to introduce new bankruptcy laws,

which it did in April 1998. A number of specialist commercial courts were established to

hear bankruptcy cases, and judges in these courts underwent training in commercial law. In

addition, a number of ad-hoc judges from outside the court system also were appointed to

these new courts. These ad-hoc judges are lawyers who specialise in commercial law, thus

competent to understand business matters.

To date, sadly, outcomes from commercial courts have been very disappointing.

'Strange' decisions have been common, partly because judges are still coming to grips with

the concept of bankruptcy, there being few precedents naturally. Bankruptcy laws may well

have been 'reformed', but it seems that Indonesian courts are still reluctant to protect creditors

from debt-ridden Indonesian companies, especially, it appears, when those creditors are

foreigners.

The chances of a foreigner or a foreign company getting a fair hearing in an

Indonesian court are not good. Corruption, cultural misunderstanding, and a misplaced

nationalism, amongst other factors, often conspire to put foreigners at considerable

disadvantage should their case ever get to court.

Given the state of the legal system, one might be forgiven for giving Indonesia a wide

berth as an investment or business destination. Fortunately, absence of law does not mean an

absence of order and justice. This is due to two factors: the musyawarah, and local

community vigilance, more negatively expressed in the phenomenon of mob rule.

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Political Organizations

During the later part of the ―New Order‖ government of President Soeharto, Indonesia

only recognized three legal political organizations: Golkar - the ruling political organization,

PPP - the Muslim backed Development Unity Party, and PDI - the Indonesian Democratic

Party.Since the fall of the Soeharto Regime in 1998, many new political parties have been

formed, with 48 parties participating in the 1999 elections for parliamentary representation

and 38 parties participanting in the 2009 elections.

Political Situation

President Yudhoyono faces similar challenges to those that confronted his

predecessors in the post-Soeharto era. The need to address corruption, inadequate FDI flows,

unemployment/underemployment and legal reform are priorities for his Government. A

defining achievement of his presidency so far has been the peace agreement and subsequent

peaceful elections in Aceh, ending years of armed conflict. Yudhoyono has also indicated

that he places importance on consolidating the Special Autonomy Law for Papua and West

Papua. The military (TNI) remains an influential player in Indonesia – principally as a

consequence of its territorial command structure – although it no longer has a direct role in

political affairs, having lost its reserved seats in parliament after October 2004.

International human rights organisations continue to express concern about human

rights, particularly in Papua and West Papua. But there is recognition by many observers of a

discernible improvement in respect for human rights in Indonesia generally. In 2000, the

Government agreed to approve the establishment of an ad hoc human rights tribunal to try

those implicated in the crimes against humanity committed in East Timor in 1999. Eighteen

officers and Government officials, including three army generals, were tried, but higher

courts have since overturned all of the six sentences handed down by the tribunals. A Truth

and Friendship Commission (CTF) between Indonesia and Timor-Leste released its final

report in July 2008. The CTF’s report found that crimes against humanity occurred in East

Timor in 1999, and ascribed institutional responsibility for those crimes to civilian groups

(both for and against independence) and organs of the Indonesian government. In line with its

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mandate, the CTF did not recommend individual prosecutions, rather it recommended a

process of institutional reforms aimed at creating a culture of accountability. Those

recommendations have yet to be implemented.

The legislature has also passed a law on the formation of a national Truth and

Reconciliation Commission; and there are provisions for equivalent province-level

commissions in the peace agreement for Aceh and the Special Autonomy package for Papua.

But the Constitutional Court revoked the law in 2006, with the revocation also to apply to

province-level commissions. Work on a revised law is currently under way.

In 2004, Indonesia’s first permanent Human Rights Court (for Eastern Indonesia) had

been established in Makassar, Sulawesi. It is the first of four planned nationally. In the same

year, Indonesia’s Ministry of Justice and Human Rights launched its five-year National

Action Plan on Human Rights 2004-2009, which deals with human rights dissemination,

education and implementation at every level of government, including the Police and the

TNI. In 2006, Indonesia ratified the International Covenant on Civil and Political Rights

(ICCPR) and International Covenant for Economic, Social and Cultural Rights (ICESCR) and

has indicated it will look to join the International Criminal Court (ICC).

There have been encouraging signs with respect to combating corruption. Many

senior officials and members of parliament have been convicted since 2004 for corruption-

related offenses. Corruption, however, is still prevalent at all levels of society and judicial

corruption is an especially intractable problem. There is a general consensus that it will likely

take more than a generation if Indonesia is to make significant progress in this area.

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8. TAXATION

Pajak" in Indonesian for: tax and taxes whereas "perpajakan" is defined as taxation in

Indonesian.

Indonesian taxation is based on Article 23A of UUD 1945 (1945 Indonesian

Constitution), where tax is an enforceable contribution exposed on all Indonesian citizens,

foreign nationals and residents who have resided for 120 cumulative days within a twelve

month period. Indonesia has a stratification of taxation including Income Tax, Local Tax

(Pajak Daerah) and Central Government Tax.

The Indonesian Taxation Laws

The relevant eight fundamental taxation laws of Indonesia include:

General Provisions and Taxation Procedures Law "Undang-undang Ketentuan Umum

dan Tatacara Perpajakan/UUKUTp" Law No. 6/1983, amended by Law no.16/2000;

Income Tax Law ("Undang-undang Pajak Penghasilan/UU PPh": Law No.7/1983,

amended by Law No. 17/2000;

Value Added Tax VAT termed 'Goods and Services and Sales Tax on Luxury Goods'

("Undang-undang Pajak Pertambahan Nilai atas Barang dan Jasa dan Pajak Penjualan

atas Barang Mewah"/UU PPN/PPn BM ): Law No. 8/1983, amended by Law No.

18/2000;

Land Tax and Building Tax ("Undang-undang Pajak Bumi dan Bangunan - UU

PBB"): Law No. 12/1985 amended by Law No. 12/1994;

Warrant for Tax Collection ("Undang-undang Penagihan Pajak dengan Surat

Paksa/UU PPSP") Law No. 19/1997, amended by Law No. 19/2000;

Fees for Acquisition of Rights to Lands and Buildings ("Undang-undang Bea

Perolehan Hak atas Tanah dan Bangunan/UU BPHTB") Law No. 21/1997 amended

by Law No. 20/2000;

Tax Court Law ("Undang-undang Pengadilan Pajak/UU PP"): Law No. 14/2002;

Stamp Duty ("Undang-undang Bea Meterai/UU BM") in short, Law Number 13 of

1985.

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Taxation Rates

Indonesia has a series of progressive sliding rate taxes for all categories. Furthermore,

as a developing nation, much economic activity is done at the 'cottage' level where sales and

services taxation are tax exempt. Indonesia's taxations system recognises the economic reality

of the majority poorer citizens and the poor are exempt from almost any taxation. The

underlying ethic of "gotong-royong"- "neighbourly [sic moral] help" is applied where the

more fortunate wealthier are enforced to meet their moral obligation of a heavier burden of

tax- regardless of arbitrary arguments to its' fairness.

The tax-free poverty threshold for Indonesian income earners is also dependent on

regions as there exists some disparity between purchasing power of the Rupiah between

regions and intra-regionally between larger urban cities and smaller ones. The Capital,

Jakarta is considered the most expensive city in term of all goods, services and wages.

Income taxation is subject to Regional (Propinsi) government regulations defined by

the economic realities of that particular area. As mentioned above, the poorer denizens are

exempt from almost all taxation. Although rates are Regionally variable, for the sake of

illustration income tax basically employs a progressive rate, commencing at 10% gross salary

income per annum, sliding to 40% per annum. Regulations are being debated as of 2008 to

include income from shares, dividends, trusts and such related.

For example, the most urbanised and industrialised region, DKI Jakarta (Special

Administrative Region of Greater Municipality of Jakarta), income taxation commences with

salaries greater than one million Rupiah (IDR) per calendar month, at a rate of 10%, which

slides progressively to 40%.

Goods and Services Taxation

A Goods and Services Tax (GST) is levied at the rate of approx 11% at point of sale,

by major vendors. Sales and services tax are exempt from cottage economies and industries.

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Land and Constructions Tax

Land Tax and Tax for the buildings constructed there upon must paid annually, or

may be paid via arrangement in ten year blocks by Indonesian land title deed-holders,

pursuant to relevant criteria for exclusions. In general terms, this tax is applicable mainly to

those of the middle classes and upwards. Land holding businesses must also pay this tax.

Land and Constructions thereupon are calculated at a value calculated by the Regional

government- which is less than real market worth. This calculated value has the caveat of

being a legally non-negotiable purchase price if the Government wishes to procure said land.

In Jakarta, land tax is 10% of Government calculated value.

Non Indonesians may not legally own land but may arrange long-term assured leases

from the Indonesian Central Government. As such, Foreign Nationals may not subject to the

Land Tax obligation of Indonesians. Exemptions from Land Tax exist for poorer society.

Land Tax calculations are considered a highly specialised skill- most especially as the

punishments and sanctions for false reportage are very severe and indeed costly.

Vehicles

Passenger Vehicle Tax is required to be paid by all owners, the rationale being those

fortunate enough to afford a motor vehicle can afford to subsidise their poorer brethren who

rely on far less luxurious public transportation. Again, Regional Government legislates the

specific definitions regarding this tax.

For the city of Jakarta, the city with the greatest vehicle ownership, most congested

city, 1% of current vehicle real agreed market is due annually. Furthermore- passenger

vehicles with an engine capacity greater than 4 cylinders are taxed again and as are those

mass greater than 1500 kilogrammes (commonly four-wheel drives and SUV's).

Transportation and logistics vehicles, trucks/lorries, buses, vans and utility pick-ups

are taxed according to axle number, vehicle mass and maximum safe gross loaded weight.

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Maximum loaded weight inspections are frequent and random and joked colloquially as the

Police's cash-cow.

Petroleum is taxed at a rate of approximately 25%- though remains cheaper than

neighbouring developed nations such as Australia or Singapore

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9. FINANCIAL SYSTEM- STOCK

MARKET

Indonesia Stock Exchange (IDX) or in Indonesian Bursa Efek Indonesia (BEI) is a

stock exchange based in Jakarta, Indonesia. It was previously known as Jakarta Stock

Exchange (JSX) before its name changed in 2007 after merging with Surabaya Stock

Exchange (SSX). As of 31 December 2007, the Indonesia Stock Exchange had 383 listed

companies with a combined market capitalization of $212 billion.

History

Originally opened in 1912 under the Dutch colonial government, it was re-opened in

1977 after several closures during World War I and World War II. After being reopened in

1977, the exchange was under the management of the newly created Capital Market

Supervisory Agency (Badan Pengawas Pasar Modal, or Bapepam), which answered to the

Ministry of Finance. Trading activity and market capitalization grew alongside the

development of Indonesia's financial markets and private sector - highlighted by a major bull

run in 1990. On July 13, 1992, the exchange was privatized under the ownership of Jakarta

Exchange Inc. As a result, the functions of Bapepam changed to become the Capital Market

Supervisory Agency. On March 22, 1995 JSX launched the Jakarta Automated Trading

System (JATS). In September 2007, Jakarta Stock Exchange and Surabaya Stock Exchange

merged and named Indonesian Stock Exchange by Indonesian Minister of Finance. The

current location of the Indonesian Stock Exchange is located in the IDX building in the

Sudirman Central Business District, South Jakarta, near the current site of the Pacific Place

Jakarta.

Stock Indices

Two of the primary stock market indices used to measure and report value changes in

representative stock groupings are the JSX Composite and the Jakarta Islamic Index (JII).

REPORT ON INDONESIA – I.B. ASSIGNMENT Page 25

The JII was established in 2002 to act as a benchmark in measuring market activities based

on Sharia (Islamic law). Currently, there are approximately 30 corporate stocks listed on the

JII.

The FTSE/ASEAN Indices were launched by the five ASEAN exchanges (Singapore

Exchange, Bursa Malaysia, The Stock Exchange of Thailand, Jakarta Stock Exchange, and

The Philippine Stock Exchange) and global index provider FTSE on September 21, 2005.

The indices, covering the five ASEAN markets, are designed using international standards,

free float adjusted, and based on the Industry Classification Benchmark (ICB). The indices

comprise FTSE/ASEAN Benchmark Index and FTSE/ASEAN 40 tradable index. The

FTSE/ASEAN 40 index is calculated on a real-time basis from 9:00 a.m. and the closing

index is calculated at 6:00 p.m. (Singapore time). The FTSE/ASEAN benchmark index is

calculated on end-of-day basis.

Merger

Both Jakarta Stock Exchange (JSX) and the Surabaya Stock Exchange (SSX) merged

to form a new entity "Indonesia Stock Exchange ( Bursa Efek Indonesia). After the merger,

the new entity will have seven director

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10. FOREIGN EXCHANGE

Indonesian exports, based on its rich natural resources and agricultural productivity,

were necessary for the country as it earned Indonesia foreign exchange. With the foreign

exchange earned Indonesia could purchase raw materials and machinery needed for the

development of production and industry. In the 1980s 25 % of domestic product or GDP of

Indonesia was exported. The most significant export was petroleum and the other things

exported were agricultural products like rubber, coffee etc. Export earnings helped

Indonesia to borrow from international financial markets and development agencies and these

borrowings formed the financial basis of government sponsored development projects in

Indonesia. But the borrowings were brought under a limit as the payment obligations were

increasing. By 1990 Indonesia's total foreign debt was US $ 54 billion. The Foreign Debt

Coordinating Committee was established in 1991 to check the growing foreign debt. The

major financial aids of Indonesia are Netherlands, Denmark, Canada, Japan, World bank and

the Asian development Bank(ADB). The unit of currency of Indonesia is the Indonesian

Rupiah. the foreign exchange rate of Indonesian Rupiah against some of the major currencies

of the world are as follows:

Currency Conversion from

Indonesian Rupiah

Conversion to Indonesian

Rupiah

British pound 18.1275 18.1275

danish krone 1.63 0.6099

Euro 12.20 0.08

Indian rupee 0.22 4.50

Japanese yen 0.07 13.66

Korean won 0.0098 102.25

Mexican peso 12.20 1.19

Swiss franc 12.20 0.13

Canadian dollar 8.49 0.11

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Export & Trade

Indonesia's exports grew to a record $136.8 billion in 2008, an increase of 10% from

2007. The largest export commodities for 2007 were oil and gas (19.4%), minerals (18.8%),

electrical appliances (13.27%), rubber products (6.8%), and textiles (3.6%). The top four

destinations for exports for 2008 were Japan (12.8%), the U.S. (11.6%), Singapore (9.4%),

and China (7.2%). Meanwhile, total imports rose to $128.8 billion in 2008. The U.S. trade

deficit with Indonesia increased 1.9% in 2007 to $10.1 billion ($4.2 billion in exports versus

$14.3 billion in imports)

Exports with Philippines

Diplomatic relations between the Philippines and Indonesia were established on 24

November 1949. But even before the establishment of formal relations, friendly relations

existed between the Philippines and Indonesia. President and Mrs. Manuel L. Quezon visited

then Batavia now in Jakarta in 1934, 1936, and 1938.

Other Philippine Presidents have visited Indonesia. It may be noted that former

President Fidel V. Ramos visited Indonesia three times - first on a state visit in 1993, again in

1994 to attend the APEC Economic Leaders Meeting in Bogor, and in 1996 to attend the First

ASEAN Informal Summit. President Joseph Ejercito Estrada visited Batam, Indonesia, on 13

October 1998.

Export with New Zealand

New Zealand’s trade relationship with Indonesia is steadily growing. In the year

ending June 2008, trade between Indonesia and New Zealand was worth NZ$1.78 billion

FOB. Indonesia was New Zealand’s seventh largest export market for the year ending June

2008, and the largest NZ export market in Southeast Asia. Within ASEAN, Indonesia is

ranked New Zealand’s fourth largest bilateral trading partner. The Indonesian and New

Zealand markets are complementary and largely non-competitive. That said, there are sectors

of mutual interest. For example, in forestry and wood products our bilateral trade is worth

around NZ$200 million, almost equally divided between imports and exports.

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In the year ending June 2008, the value of New Zealand exports to Indonesia was

NZ$958.7 million, up 47 percent on the previous year. New Zealand’s dairy exports to

Indonesia were NZ$408 million and paper and wood products were NZ$110 million. New

Zealand’s exports of frozen beef and of ferrous waste and scrap are two sectors that have

rapidly expanded each year since 2002. The dairy industry continues to find new products to

export to Indonesia, with whey products recently finding a sizable market. Exports of timber

have also seen a significant expansion.

Indonesia’s imports to New Zealand were valued at NZ$823 million in the 12 months

ending June 2008, a 12% increase over the previous 12 months.

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CONCLUSION

After going through the culture of Indonesia we are recommending two Businesses,

1- Biodiesel

2- Privatization of the Infrastructure

BIODIESEL

As Indonesia renewable resources comprises of tress specifically JATROPHA

CURCAS. The tree has been recognized as a source for medium viscosity pure plant oil

which successfully has been tested as fuel in stationery diesel engines. Because of its

toxic nature and excellent growth characteristics in the Indonesian climate and production

from the seeds of the plant is considered to be an attractive source of Biofuel that can

reduce the dependency of Indonesia on fossil – Oil imports.

Moreover, large scale cultivation of JATROPHA CURCAS will benefit the socio-

economic circumstances in rural Indonesian areas as it generates several new employment

opportunities.

PRIVATIZATION OF INFRASTRUCTURE

We are recommending privatization of infrastructure because Indonesia’s

infrastructure is not up to the mark and most of the big companies do not want to

establish their businesses in Indonesia.

Without privatization of Infrastructure government can’t over come from this

problem.

Note: For further clarification we are submitting the report of Biodiesel Fuel and

Infrastructure (In the form of Annexure).

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ANNEXURE – 1

“INDONESIA BIODIESEL

REPORT”

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1. BIODIESEL

In view of the forecasted shortages and increasing prices of fossil fuels, climate

change, the need for new income, and employment opportunities in rural areas, biofuels have

taken center stage in policy debates. The use of biofuels as sustainable energy source is

developing favorably worldwide. Brazil, the United States, many European countries, and a

growing number of countries in Southeast Asia, including Indonesia, are now pinning their

hopes on biofuels. Microalgae, as the source of oil used for biofuel, have promising prospect

for Indonesia biofuel industry for its superiority in oil yield per area.

In 2007, Indonesia imported 116,4 million barrels crude oil and 129 million barrels

fuel. The government of Indonesia subsidizes diesel and gasoline but with the increase in fuel

prices on the world market, continuing the subsidy has placed extra pressure on the national

budget. Indonesia, and all countries, oil reserves are declining. In the other hand, the

consumption of diesel is increasing as the population is increasing. If we continue using

petro-diesel oil, one day we will use wood to run our vehicles. According to the Jakarta Post,

a report compiled by Indonesia’s State Minister for the Environment states that the natural

environment is deteriorating on all fronts. The slash and burn tactic used to make palm

plantation exacerbate already high levels of emissions from industry and motor vehicles,

leading to levels of smog and air pollution that have affected neighboring countries. To solve

those problems, we need alternative energy sources.

Biofuel as an alternative sustainable energy source seems to be promising for

Indonesia. Beside solve fuel problems, plants, as the source of biofuels, will solve

environment problem. Biodiesel, a biofuel made from vegetable oil, has the same

characteristic with diesel oil but it contains no sulfur. This will make the exhaust gas is

cleaner compared to diesel oil.

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In an effort to reduce air pollution in Jakarta, the city’s administration announced

plans in January 2004 to develop biodiesel fuel as an alternative to petrodiesel. The city

calloborated with the Riau provincial administration, which had a small biodiesel plant that

provided fuel for the test.

The Jakarta Environment Management Agency (BPLHD) and PT Energy Alternatif

Indonesia, a biodiesel supplier, had previously conducted a joint experiment on 10 public

buses in the Indonesian capital using biodiesel blends ranging between B% and B10. The

initial tests were successful, and the subsequent larger, more sustained road tests were the

result.

The major problem associated with the use of pure vegetable oils as well as oil from

algae as fuels for diesel engines is caused by high fuel viscosity in compression ignition.

Microalgae oil, as well as vegetable oils, is all highly viscous. Due to their high viscosity and

low volatility, they do not burn completely and form deposits in the fuel injector of diesel

engines. Furthermore, acrolein (a highly toxic substance) is formed through thermal

decomposition of glycerol.

Dilution, micro-emulsification, pyrolysis, and transesterification are the four

techniques applied to solve the problems encountered with the high fuel viscosity. Amongst

the four techniques, chemical conversion of the oil to its corresponding fatty ester is the most

promising solution to the high viscosity problem. This process, chemical conversion of the oil

to its corresponding fatty ester, and thus biodiesel, is called transesterification.

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Transesterification refers to a reaction between an ester of one alcohol and a second

alcohol to form an ester of the second alcohol and an alcohol from the original ester, as that

of methyl acetate and ethyl alcohol to form ethyl acetate and methyl alcohol. Chemically,

transesterification means taking a triglyceride molecule or a complex fatty acid, neutralizing

the free fatty acids, removing the glycerin and creating an alcohol ester. Transesterification is

not a new process. Scientists E. Duy and J. Patrick conducted it as early as 1853.

Other than transesterification, the other methods that have been considered to reduce

the high viscosity of vegetable oils or algae oil are dilution, microemulsions with short chain

alcohols (e.g. ethanol or methanol), thermal decomposition, which produces alkanes, alkenes,

carboxylic acids, and aromatic compounds, and catalytic cracking, which produces alkanes,

cycloalkanes, and alkylbenzenes. However, when compared with others, the

transesterification process appears to be the best choice, as the physical characteristics of

fatty acid esters (biodiesel) are very close to those of diesel fuel, and the process is relatively

simple. Furthermore, the methyl or ethyl esters of fatty acids can be burned directly in

unmodified diesel engines, with very low deposit.

Microalgae contain lipids and fatty acids as membrane components, storage

products, metabolites, and sources of energy. Algae strains, diatoms, and cyanobacteria

(categorized collectively as ―Microalgae‖) have been found to contain proportionally high

levels of lipids (over 30%). These microalgae strains with high oil or lipid content are of

great interest in the search for a sustainable feedstock for the production of biodiesel.

The biodiesel from algae in itself is not any different from biodiesel produced from

vegetable or plant oils. All biodiesel essentially are produced using triglycerides (commonly

called fats) from the plant or algae oils. The difference is however in the yield of oil, and

hence biodiesel. Feedstock yield efficiency per acre affects the feasibility of ramping up

production to the huge industrial levels required to power a significant percentage of national

or world vehicles. The highest yield feedstock for biodiesel is algae which can produce 16-32

times the amount of oil per acre as palm oil (http://en.wikipedia.org/wiki/Biodiesel).

The flakes left over from biodiesel squeezing can be processed into ethanol. It can

also be used as livestock feed, such as chicken feed. Algae biomass has other potential on-

and off-farm uses. Although it has primarily been considered as an alternative high-grade

protein source in animal feed, algae biomass with a balanced N:P ratio is a potentially

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valuable organic fertilizer. It may also have some biocontrol properties. Algae biomass is also

reported to be particularly suitable for pisciculture (fish pond).

Biodiesel produced from microalgae appears to be the only feasible solution today

for replacing petro-diesel in Indonesia completely. No other feedstock has the oil yield high

enough for it to be in a position to produce such large volumes of oil. To elaborate, it has

been calculated that in order for a crop such as palm to yield enough oil capable of replacing

petro-diesel completely, a very large percentage of the current land or forest available needs

to be utilized only for biodiesel crop production, which is quite infeasible. However, if the

feedstock were to be algae, owing to its very high yield of oil per acre of cultivation. Clearly,

algae are a superior alternative as a feedstock for large-scale biodiesel production.

Indonesia has the longest coastal line in the world. Combine with its tropical

weather, Indonesia will enjoy being the biggest algae oil and biodiesel producer. By

producing biodiesel from algae oil, Indonesia can save a lot of its national budget that used to

import crude oil and fuel, and will secure its energy source. Algaeculture and biodiesel

industries will absorb many workers and reduce unemployment or underemployment rate.

Algae, like other plants, will absorb CO2 gas and produce O2 in photosynthesis. As we know,

CO2 gas is the main gas that causes greenhouse effect and climate change. Algae grow in

water, so we can save our land and preserve our forest for future generation. Biodiesel

production from microalgae oil will not only solve Indonesia energy problem, but also its

environment and employment problems.

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ANNEXURE – 2

“INDONESIA INFRASTRUCTURE”

REPORT

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INFRASTRUCTURE

Government policy on public infrastructure has always been of interest to

academicians and economists. One of the primary factors that need to be considered in policy

making related to infrastructure is the fiscal; in other words, how much financial support can

the Government give to infrastructure development or how much can it allocate from the

budget? Following the Asian financial crisis, for example, the Indonesian national budget

plunged and the percentage of spending on infrastructure significantly decreased. A study by

the World Bank (Semmler, Greiner, Diallo, Rezai, & Rajaram, 2007) explores the effects of

fiscal policy, including the composition of public expenditure, on economic growth. Their

research reveals that the composition of public investment expenditure matters, as the gains

of moving to the optimal allocation between public infrastructure, and education and health

facilities are significant.

They found that based on the model and the calibration exercise, a practical rule of

thumb seems to be that about two-thirds of public investment should be directed towards

public infrastructure that facilitates market production. The remaining third should be split

more or less evenly between public investments in facilities that support the provision of

health and education. They argue that sucha division of resources would maximize (per

capita) income and welfare. This is due to the fact that the facilitation of market good

production directly increases the availability of public resources, while the other two

expenditure categories first have to permeate the economic system before affecting the

availability of public resources and thus growth and utility.

In reality, the government has to consider many factors when making fiscal policy

decisions, especially those related to public infrastructure investment. First, with a limited

budget, it should use the money efficiently, keeping in mind the macro economic objectives

of economic growth. Secondly, budget allocation policy is jointly determined with the House

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of Representatives or Parliament during budget formulation, and is, therefore, influenced by

political agenda.

A strong need to build infrastructure can put pressure on policy makers to invest in

infrastructure; hence, to determine the need for new infrastructure or its rehabilitation, it is

important to examine the condition of existing infrastructure.

This chapter therefore provides a brief description of the current condition of

infrastructure in Indonesia followed by a definition of the problem and a description of the

policies that the government has adopted. It concludes with identifying the major remaining

issues and problems in infrastructure development in Indonesia.

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CONDITION OF INFRASTRUCTURE

National View of Infrastructure Condition

The easiest way to evaluate the condition of a country’s infrastructure is to compare

its relative performance against others. Table 2.1 gives a view of the current condition of

Indonesian infrastructure compared to the average level of infrastructure indicators in the

region. By comparing the infrastructural levels in the region with those of a group of other

countries [East Asia Pacific, Lower Middle Income and Organisation for Economic

Cooperation and Development (OECD) countries], one can conclude that Indonesian

infrastructure is still lagging behind.

Table 2.1 compares Indonesia and groups of countries in the region on the various

infrastructure parameters. A similar comparison can also be made with the growth status in a

neighboring country or in countries at a similar stage of development. Figures 2.1 to 2.3

provide selected infrastructure indicators for comparison. It is clear that, in general, this

country-to-country comparison also supports the argument that Indonesian infrastructure still

lags behind the average in the region as shown in Table 2.1. Figure 2.1 shows that in both

1998 and 2003, Indonesian road infrastructure measured by road kilometres per land area is

still behind that of Philippines, Mongolia, Vietnam, Brazil and India. However, Indonesia’s

performance is slightly better than that of China, Cambodia and Thailand.

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Nationally, Indonesia lags behind other neighboring countries’ performance in access

to electricity. Figure 2.3 reveals that the percentage of households with electricity connection

in Indonesia was only 55 percent in 2003, while other countries such as China, Mongolia,

Philippines, Thailand, Vietnam and Brazil show much higher percentages of households

connected to electricity, but Indonesia fares better than India, Lao PDR and Cambodia.

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Sector-based View of Infrastructure Condition

Figures 2.4–2.7 and Tables 2.2–2.5 provide a brief overview of the infrastructure

development in the energy, water supply, telecom, and transport sectors in Indonesia in recent

years.

Construction of Roads and Bridges is the biggest among other infrastructure

projects from 2001 to 2004.

In terms of the value of construction projects, spending on roads and bridges as

compared to other infrastructure construction was by far the largest during 2001–2004, as

presented in

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Figure 2.4. Construction in irrigation/drainage ranked second, followed by construction in

electrical installation and electricity network.

Length of Road Has Increased Significantly

In the transport sector, performance in road development can be seen from the total

length of roads, with paved road surface having increased significantly from 2,146 km in

1968 to 216,109 km in 2003. At the same time, the total road length (including non-paved

roads) has increased significantly from 8,269 km in 1968 to 370,516 km in 2003.

Many Villages Are Still Not Supported by Paved Roads

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Despite the positive performance with regard to road transport infrastructure,

Indonesia still requires new investments, especially in rural areas, because only 52 percent of

the villages have paved roads (2003). Figure 2.6 also shows that in terms of accessibility to

four-wheel motor vehicles, 85 percent of the villages in Indonesia can be reached by car.

Road Density in Major Cities in Indonesia Is Still Low Compared to Cities in

Other Countries

A comparison of the road conditions in big cities in Indonesia to that of roads in cities

in other countries is presented in Figure 2.7. It shows that the road density of cities in

Indonesia is far below that of cities in developed countries. While the road density of cities in

the USA is 6.6 (in Australia it is 8.7 and in Europe 2.1) on an average, Jakarta’s road density

is only 0.61 km per inhabitant. The figures are none too different for other big cities in

Indonesia such as Bandung, Semarang and Surabaya.

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National Roads Are Mostly in Sound Condition; Provincial Roads Are Less

Well Maintained and District Roads Are Mostly in Poor Condition

As shown in Figure 2.8, 28 percent of all national roads were in good condition in

2006, while 54 percent were in moderate condition. A different situation exists when it comes

to provincial roads. Roads in good condition totaled 11 percent, while 43 percent were in

average condition. District or ―Kabupaten‖ roads were mostly in poor condition, and more

than half of the existing network had heavy or light damage. This situation implies that in the

future, more rehabilitation is required to improve road quality especially district road quality.

Increasing Road Congestion

The total length of roads has increased over time. However, the growth of paved roads

has not kept pace with the growing number of motor vehicles. Figure 2.9 shows that growth

in the total number of vehicles surpassed growth of paved road in every period, with the

exception of 1983–1988. For the five-year period from 1998 to 2003, paved roads increased

by 29 percent or 5.8 percent annually, while the total number of vehicles increased by 52

percent or 10.4 percent annually. It was very likely that this situation would induce road

congestion, especially in major cities like Jakarta and Bandung, which were already well

known as cities with traffic-jam problems.

27.8 20.2

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Development of toll roads (highways) in Indonesia began in 1978. To date, the rate of

progress in the development of toll roads has been slow. Currently, there are approximately

677 km of toll roads in operation, 515 km being operated solely by Jasa Marga (a stateowned

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enterprises) and the rest by private enterprises. Table 2.2 lists the toll roads in operation in

2008.

Infrastructure in the Water Sector

The growth of infrastructure in the water sector is still behind what other countries

have achieved. Among the 11 countries listed in Table 2.3, Indonesia ranks seventh. Based on

the data, in Indonesia, 78 percent of the population has access to improved water while only

55 percent of population has access to improved sanitation.

One source of clean water is a piped water source. Distribution of clean piped water in

urban areas is the responsibility of about 314 municipal water supply companies Perusahaan

Daerah Air Minum (PDAM) under the ownership/jurisdiction of local governments. In

Jakarta and Batam, concessions for water supply have been awarded to the private sector. The

PDAM supply water to customers through house connections. Their distribution in urban

areas was estimated at 32 percent and in rural areas at 8 percent in 2005 (Coordinating

Ministry for Economic Affairs, 2006). Table 2.4 shows PDAM’s performance based on

various indicators. While Table 2.3 presents the population with access to improved water,

Table 2.4 presents coverage from piped water. (Improved water can also come from other

sources such as pumps, springs, wells, etc.).

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Rapid Growth in the Telecommunications Sector

Figure 2.10 shows that the total number of fixed telephone lines substantially

increased between 1993 and 2003. During the Asian financial crisis in 1997–1998, the total

number of fixed telephone lines dropped, but there was a reversal in 1999. Cellular telephone

communications, on the other hand, increased even more rapidly, as presented in Figure 2.11

While in 1998, in Indonesia, cellular phone subscription was 1 per 100 people, in 2003 the

number became 9 per 100 people.

Despite the rapid growth, telecommunications infrastructure in Indonesia still needs to

be enhanced when compared with the achievements of other countries in the region. Figures

2.11 and 2.12 give a view of the benchmarks. Cellular and fixed-line subscribers per 100

people in Indonesia are still low in numbers compared to China, the Philippines and Thailand.

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Another indicator of infrastructure in the telecommunications sector is internet users

per 100 people. As presented in Figure 2.12, the number of internet users per 100 people in

Indonesia is still below that of China, Mongolia, the Philippines, Thailand and Vietnam.

Growth of the Energy Sector after the Economic Crisis has been Stagnant

Electricity generation capacity increased significantly from 1945 to 1998 as shown in

Figure 2.13. However, following the economic crisis in 1998, it was almost stagnant until

2004.

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The percentage of villages having access to electricity rose rapidly during the

development program Listik Masuk Desa—Electricity enters the village— from 13 percent in

1976 to 80 percent in 2000. However, from 2000 to 2003, growth was stagnant at about 1

percent, bringing the percentage of villages covered by electricity to 81 percent. In this

regard, Figure 2.14 is in line with Figure 2.13.

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IMPACT ON ECONOMY

Indonesia Government should focus on the Infrastructure problem and Government

should partnership with private parties to overcome from this problem and it will directly

impact to Indonesia Economy, as shown in the Figure.

And Government can’t go alone it has to tie up with private parties because

government does not have huge funds to invest in this sector.

As Global Times published on August 20, 2009 “Indonesia needs $142.9 billion

infrastructure investments in 2010-2014: minister” - Indonesia will need infrastructure

investments worth 1,429 trillion rupiah (about 142.9 billion US dollars) or 3 percent of its

gross domestic product (GDP) in 2010-214 to support economic growth of 5-7 percent per

year, a minister said here on Thursday.)