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This Week's Highlighted News (January 27, 2012)

Fri, 01/27/2012 - 14:12

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Government Relations and Economic Development

Private-Equity to Grow as Indonesia’s GDP Rises
Netty Ismail. Jakarta Globe, 26/01/2012

New investors are pushing into Indonesia’s fledgling private-equity market, where firms led by TPG Capital’s local partner raised a record $1.16 billion last year even as deal-making fell by more than half.

Glenn Yusuf, who ran Indonesia’s bank and corporate rescue agency following the Asian financial crisis in 1998, brought in former Lehman Brothers Holdings senior executive Brian O’Connor and private-equity manager Samir Soota to start Falcon House Partners. Mark Thornton moved to Jakarta in January after leaving 3i Group, Britain’s largest publicly traded private-equity firm, and Chad Christopher Holm, a former Bank of America banker, set up Yawadwipa Cos.

The newcomers will compete for deals with global firms such as KKR & Company and Carlyle Group in Southeast Asia’s biggest economy. There will likely be as many as eight new Indonesia-focused buyout funds in the next two years, said Juan Delgado Moreira, head of Asia at Hamilton Lane, which invests in private equity on behalf of clients.

“Fundraising isn’t really a problem,” said Delgado, who is based in Hong Kong. “Indonesia is probably the sexiest destination in the emerging markets now.”

Indonesia-focused private-equity firms, including Northstar Pacific Partners, backed by TPG, increased fundraising about fourfold from 2010, data from the Center for Asia Private Equity Research in Hong Kong show. Indonesia’s gross domestic product will increase 6.2 percent in 2012, the World Bank said this month, compared with a global average of 2.5 percent.

“Indonesia is a little more insulated from the global woes,” said Thornton, 3i’s former head of Southeast Asia. “I get the sense that they’re not feeling the pain and anxiety the same way that many other countries are.”

The private-equity industry manages assets of less than $5 billion, compared with a stock market value of $407 billion, according to Gita Wirjawan, the country’s trade minister.

“Private equity in Indonesia is still in its infancy,” said Charles Gunawan, co-head of investment banking for Indonesia at Credit Suisse Group in Jakarta. “It’s going to become explosive. Give it five years, it’s going to go in a very major way.”

Private-equity deals in Indonesia fell 53 percent to about $545 million last year, according to the Center for Asia Private Equity Research. The 2010 figure was boosted by the 7.2 trillion rupiah ($797 million) acquisition by London-based CVC Capital Partners of Matahari Putra Prima’s department store business, the biggest buyout in Indonesia.

Deals of $100 million or more have been rare in Indonesia as companies large enough to require such amounts have cheaper funding options or are unwilling to cede or share control with outside investors, Gunawan said.

Indonesia’s central bank cut its benchmark interest rate to a record-low 6 percent last year to shield the economy from slowing global growth.

Investments are set to pick up in the second half of the year as the economy starts to feel the impact of Europe’s debt crisis and companies turn to private equity funds that have the “dry powder” to shore up corporate balance sheets, said Sandiaga Uno, who co-founded Jakarta-based Saratoga Capital.

“The interest will take some time to translate into capital being deployed to work,” he said.

Saratoga, which is seeking to raise $400 million for its third fund, bought a stake in budget carrier PT Mandala Airlines last year. It has invested almost $600 million since starting in 1998 and returned about five times the money, Uno said.

The firm is shifting focus to companies that will benefit from growing consumption in the world’s fourth-most populous nation, away from natural resources investments, said Uno, who started the firm with Indonesian billionaire Edwin Soeryadjaya.

Indonesia’s growth has so far weathered the faltering global economy, helping it regain an investment grade rating for its sovereign debt at Fitch Ratings and Moody’s Investors Service for the first time since the Asian financial crisis.

Indonesia is the world’s biggest palm oil producer and holds some of the largest deposits of natural gas and minerals such as coal and copper. Consumer confidence has been buoyed by political stability under President Susilo Bambang Yudhoyono not seen since the ouster of former dictator Suharto in 1998.

The benchmark Jakarta Composite index climbed 16 percent in the past year, the second best-performer in Asia behind the Philippines. The MSCI Asia Pacific Index fell 12 percent.

Northstar raised $820 million last year, the biggest private-equity fund to invest in the country, after attracting “a lot of” first-time investors, including pension funds, sovereign wealth funds and fund of funds worldwide, said co- founder Patrick Walujo in Jakarta. The manager has already invested about 20 percent of the fund, Northstar’s third, in three transactions.

Before raising its latest fund, Northstar had invested about $1.2 billion with its partners, of which about $400 million was its own capital, Walujo said. “We should be able to at least generate that kind of investment within the next five years,” said the former investment banker at Goldman Sachs Group.

Fort Worth, Texas-based TPG, run by billionaire David Bonderman, took a minority stake in Northstar through a share swap last year. Northstar and TPG joined a group led by Indonesian billionaire Boy Garibaldi Thohir that bought a stake in consumer lender BFI Finance Indonesia in May.

Among the new entrants, Holm, formerly a Hong Kong-based Bank of America managing director who worked on mergers and acquisitions, set up Yawadwipa, which has offices in Jakarta and Singapore, in January. He aims to raise $1 billion for an Indonesian private-equity fund mainly from the nation’s wealthiest individuals.

Former 3i executive Thornton, who attended an intensive Bahasa Indonesia language course in Jogjakarta in central Java late last year, said he is considering setting up a “special opportunities” fund that would make private-equity investments, buy shares of listed companies and high interest-paying debt. A “pure private-equity approach” may not be the most effective way of investing in Indonesia given how young the industry is, he said.

“Unless you have a local partner who really knows the local dynamics very well, it is hard to clinch a deal,” said Kathleen Ng, managing director at the Center for Asia Private Equity Research. The market “has not presented itself as an attractive liquidity platform for foreign private-equity investors to exit,” she said.

KKR, the US buyout firm co-founded by Henry Kravis, last year hired Ridha Wirakusumah, the former president director of Bank Internasional Indonesia, as it continues to seek its first investment in Indonesia.

Yusuf, who was also president director of plantation firm Perusahaan Perkebunan London Sumatra Indonesia, set up Falcon House with O’Connor and Soota, who previously oversaw EMP-Daiwa Capital Asia’s Southeast Asia private-equity fund and has been based in Indonesia for almost two decades.

Falcon House aims to raise $200 million in 2012, said O’Connor, who was the head of Lehman’s business in Indonesia and first lived in Jakarta from 1995 till 2001.

Over the past decade, investors profited from investments in distressed or cheap assets, a boom in commodity prices and the scarcity of capital, said O’Connor, a former banker who was also a member of Lehman Brothers’ Asia executive committee.

Bloomberg


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TPG Partner Paves Way for Newcomers to Indonesian Private Equity
Bloomberg, 26/01/2012

New investors are pushing into Indonesia's fledgling private-equity market, where firms led by TPG Capital's local partner raised a record $1.16 billion last year even as deal-making fell by more than half.

Glenn Yusuf, who ran Indonesia's bank and corporate rescue agency following the Asian financial crisis in 1998, brought in former Lehman Brothers Holdings Inc. senior executive Brian O'Connor and private-equity manager Samir Soota to start Falcon House Partners. Mark Thornton moved to Jakarta in January after leaving 3i Group Plc, Britain's largest publicly traded private- equity firm, and Chad Christopher Holm, a former Bank of America Corp. banker, set up Yawadwipa Cos.

The newcomers will compete for deals with global firms such as KKR & Co. and Carlyle Group in Southeast Asia's biggest economy. There will likely be as many as eight new Indonesia- focused buyout funds in the next two years, said Juan Delgado Moreira, head of Asia at Hamilton Lane, which invests in private equity on behalf of clients.

"Fundraising isn't really a problem," said Delgado, who is based in Hong Kong. "Indonesia is probably the sexiest destination in the emerging markets now."

Indonesia-focused private-equity firms, including Northstar Pacific Partners, backed by TPG, increased fundraising about fourfold from 2010, data from the Center for Asia Private Equity Research in Hong Kong show. Indonesia's gross domestic product will increase 6.2 percent in 2012, the World Bank said this month, compared with a global average of 2.5 percent.


'More Insulated'
"Indonesia is a little more insulated from the global woes," said Thornton, 3i's former head of Southeast Asia. "I get the sense that they're not feeling the pain and anxiety the same way that many other countries are."

The private-equity industry manages assets of less than $5 billion, compared with a stock market value of $407 billion, according to Gita Wirjawan, the country's trade minister.

"Private equity in Indonesia is still in its infancy," said Charles Gunawan, co-head of investment banking for Indonesia at Credit Suisse Group AG in Jakarta. "It's going to become explosive. Give it five years, it's going to go in a very major way."

Private-equity deals in Indonesia fell 53 percent to about $545 million last year, according to the Center for Asia Private Equity Research. The 2010 figure was boosted by the 7.2 trillion rupiah ($797 million) acquisition by London-based CVC Capital Partners Ltd. of PT Matahari Putra Prima's department store business, the biggest buyout in Indonesia.

In China, the value of transactions rose 26 percent to $14.2 billion, while in India they gained 41 percent to $7.8 billion, according to the firm.


Cheaper Options
Deals of $100 million or more have been rare in Indonesia as companies large enough to require such amounts have cheaper funding options or are unwilling to cede or share control with outside investors, Gunawan said.

Indonesia's central bank cut its benchmark interest rate to a record-low 6 percent last year to shield the economy from slowing global growth. Yields on U.S. dollar bonds sold by Indonesian companies average 6.73 percent, the lowest since September, according to a JPMorgan Chase & Co. index.

Investments are set to pick up in the second half of the year as the economy starts to feel the impact of Europe's debt crisis and companies turn to private equity funds that have the "dry powder" to shore up corporate balance sheets, said Sandiaga Uno, who co-founded Jakarta-based Saratoga Capital.

"The interest will take some time to translate into capital being deployed to work," he said.


Ratings Upgrade
Saratoga, which is seeking to raise $400 million for its third fund, bought a stake in budget carrier PT Mandala Airlines last year. It has invested almost $600 million since starting in 1998 and returned about five times the money, Uno said.

The firm is shifting focus to companies that will benefit from growing consumption in the world's fourth-most populous nation, away from natural resources investments, said Uno, who started the firm with Indonesian billionaire Edwin Soeryadjaya.

Indonesia's growth has so far weathered the faltering global economy, helping it regain an investment grade rating for its sovereign debt at Fitch Ratings and Moody's Investors Service for the first time since the Asian financial crisis. Standard & Poor's rates Indonesia at BB+, the highest non- investment grade rating, with a positive outlook.

Indonesia is the world's biggest palm oil producer and holds some of the largest deposits of natural gas and minerals such as coal and copper. Consumer confidence has been buoyed by political stability under President Susilo Bambang Yudhoyono not seen since the ouster of former dictator Suharto in 1998.


Stocks Rally

The benchmark Jakarta Composite index climbed 16 percent in the past year, the second best-performer in Asia behind the Philippines. The MSCI Asia Pacific Index fell 12 percent.

Northstar raised $820 million last year, the biggest private-equity fund to invest in the country, after attracting "a lot of" first-time investors, including pension funds, sovereign wealth funds and fund of funds worldwide, said co- founder Patrick Walujo in Jakarta. The manager has already invested about 20 percent of the fund, Northstar's third, in three transactions.

Before raising its latest fund, Northstar had invested about $1.2 billion with its partners, of which about $400 million was its own capital, Walujo said. "We should be able to at least generate that kind of investment within the next five years," said the former investment banker at Goldman Sachs Group Inc.


New Entrants
Fort Worth, Texas-based TPG, run by billionaire David Bonderman, took a minority stake in Northstar through a share swap last year. Northstar and TPG joined a group led by Indonesian billionaire Boy Garibaldi Thohir that bought a stake in consumer lender PT BFI Finance Indonesia in May.

Among the new entrants, Holm, formerly a Hong Kong-based Bank of America managing director who worked on mergers and acquisitions, set up Yawadwipa, which has offices in Jakarta and Singapore, in January. He aims to raise $1 billion for an Indonesian private-equity fund mainly from the nation's wealthiest individuals.

Former 3i executive Thornton, who attended an intensive Bahasa Indonesia language course in Jogjakarta in central Java late last year, said he is considering setting up a "special opportunities" fund that would make private-equity investments, buy shares of listed companies and high interest-paying debt. A "pure private-equity approach" may not be the most effective way of investing in Indonesia given how young the industry is, he said.


Local Partners
"Unless you have a local partner who really knows the local dynamics very well, it is hard to clinch a deal," said Kathleen Ng, managing director at the Center for Asia Private Equity Research. The market "has not presented itself as an attractive liquidity platform for foreign private-equity investors to exit," she said.

KKR, the U.S. buyout firm co-founded by Henry Kravis, last year hired Ridha Wirakusumah, the former president director of PT Bank Internasional Indonesia, as it continues to seek its first investment in Indonesia.

"Our strategy is to find Indonesian companies where there is not only an investment of capital needed, but there is also the desire to partner with us to bring global best practices to the business," said Wirakusumah, director at KKR Asia and a member of the firm's Southeast Asia private-equity team. "This type of value-add investing, while always important, is even more critical in times of economic uncertainty."


Falcon House
Yusuf, who was also president director of plantation firm PT Perusahaan Perkebunan London Sumatra Indonesia, set up Falcon House with O'Connor and Soota, who previously oversaw EMP-Daiwa Capital Asia Ltd.'s Southeast Asia private-equity fund and has been based in Indonesia for almost two decades.

Falcon House aims to raise $200 million in 2012, said O'Connor, who was the head of Lehman's business in Indonesia and first lived in Jakarta from 1995 till 2001. Over the past decade, investors profited from investments in distressed or cheap assets, a boom in commodity prices and the scarcity of capital, O'Connor said.

"Moving forward, returns will be less linear and more challenging with these factors no longer driving returns," said the former banker, who was a member of Lehman Brothers' Asia executive committee. "The two things that will likely characterize successful private-equity investing in Indonesia over the next 10 years will be relationships and the ability to create change and transformation in Indonesian companies."



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Energy and Mining

BPMigas demands certainty over buyers of FSRU’s gas
Rangga D. Fadillah. The Jakarta Post, Jakarta - 26/01/2012

Upstream oil and gas regulator BPMigas urged state-run firm PT Pertamina to make sure there is adequate demand for gas from the planned floating liquefied natural gas (LNG) receiving terminal in Central Java before asking for an LNG supply from the government.

An expert staffer at BPMigas, Fathor Rahman, said that clarity over buyers of the receiving terminal’s gas was important because the agency had to ensure that the supply allocated for the terminal would be absorbed by Pertamina.

“If Pertamina can’t take and distribute the gas due to lack of demand from buyers, we have to sell the gas at the spot market whose price, in many occasions, is lower than that of long-term contracts,” he told reporters during a discussion at his office in Jakarta on Wednesday.

He continued that the spot market was highly uncertain. Thus, if Pertamina failed to absorb the allocated gas and the government had to sell it in the wrong time, such as when the demand for LNG was sluggish, the price could drop by between US$2 and $3 per million British thermal unit (MMBtu).

Currently, the domestic LNG price stands at between $11 and $12 per MMBtu. That price is for LNG sent to a floating receiving terminal built on Jakarta Bay, which will begin commercial operations in April.

As earlier reported, Pertamina eyed a 1.5-million-ton-per-annum (mtpa) LNG supply from the Bontang LNG plant in East Kalimantan to the Central Java terminal, also known as the floating storage and re-gasification unit (FSRU).

BPMigas revealed there was a possibility that the Tangguh LNG field in Papua could also deliver LNG to the receiving terminal. However, the agency demanded firm commitments from Pertamina’s buyers before seeking supply for the terminal.

“Pertamina also has to ensure that there will be no delay in the operation of the terminal, not like the one in Jakarta Bay,” said BPMigas spokesperson Gde Pradnyana.

He said that the operation of the FSRU in Jakarta Bay was delayed a month due to permission from the West Java governor came late.

Fathor said that Pertamina had claimed that the gas from the Central Java receiving terminal would be channeled to industries and the state power company’s PT PLN’s Tambak Lorok power plant in Semarang. But the power plant had received supply from the Kepodang gas field, which would start delivering gas in 2014. The Central Java FSRU is scheduled to begin operation in the first quarter of 2013 with a total capacity of 3 mtpa.

Separately, Pertamina spokesperson Mochamad Harun said that the Tambak Lorok power plant still needed additional gas supply from the FSRU despite the supply from Kepodang. The company’s subsidiary, Pertamina Gas (Pertagas), has also started the construction of a pipeline network, connecting Semarang and Cirebon, to channel the gas to various industries.

Transportation

Jakarta Port Tender Process Is Canceled for Lack of Funds
Investor Daily & Jakarta Globe, 26/01/2012

The government has decided to scrap the prequalification tender process for the North Kalibaru dock terminal at Tanjung Priok seaport in North Jakarta because it cannot afford to jointly finance the project, an official said.

That may cast a shadow on the state’s ambitious plan to improve infrastructure such as seaports and airports in the nation.

Under the state’s master economic plan, the government was required to provide Rp 3.5 trillion ($392 million) to build the dock terminal, Leon Muhamad, the director general of sea transportation at the Transportation Ministry, said on Wednesday.

Those funds, he added, were intended to help fund the bridge construction as well as dredging activities in the terminal.

“The government cannot afford to provide those funds,’’ Leon said.

The project was estimated to cost Rp 11.7 trillion, he added.

The tender process started back in June, and the government in August shortlisted five groups of bidders out of seven to pass the prequalification tender.

A source close to the matter said representatives from these five groups met senior officials at the Transportation Ministry on Wednesday and questioned the government’s decision.

According to minutes of the meeting, which the Jakarta Globe acquired on Thursday, Kemal Heriyandri, a director who is in charge of the nation’s port and dredging activity, said the shortlisted candidates will instead be awarded with a port project in Cilamaya, Karawang.

“[The project in] Cilimaya will be a good complement for the Tanjung Priok port,” Kemal told the bidders’ representatives, as cited in the meeting minutes.

He said the government will assign a state-owned enterprise, which has its own budget, to build the Tanjung Priok port, freeing the government from funding the project with the state budget.

Business leaders and industry groups say the existing Tanjung Priok seaport has already reached its optimum capacity and that it needs to be upgraded.

Last year, Richard Lino, the president director of Pelindo II, one of the project bidders, said the seaport must be expanded.

President Susilo Bambang Yudhoyono has pledged to double spending on roads, seaports and airports to $150 billion to help achieve an average economic growth of 6.6 percent until 2014, when his second five-year term will end.

Poor infrastructure, which has caused rising costs for the distribution of goods in the archipelago nation, has been blamed for modest economic growth and deterring foreign investment.

In the World Bank’s Logistics Performance Index in 2010, which rates countries’ systems for the distribution of goods, Indonesia ranked 75th out of 183 countries.

Additional reporting from Tri Listiyarini & Muhamad Al Azhari


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Airport Rail Lines Ready to Roll in 2013: Minister
Jakarta Globe, 26/01/2012

The government is optimistic that commuter lines from Jakarta to Soekarno-Hatta International Airport will start running next year.

“We’re still finishing the work, and they [the commuter lines] are expected to be operational in 2013,” Transportation Deputy Minister Bambang Susantono said on Wednesday at a seminar at the University of Indonesia.

President Susilo Bambang Yudhoyono issued a regulation last November that allowed state-owned railway operator Kereta Api Indonesia to build the lines after years of delay.

One line will link Manggarai in South Jakarta to Tangerang in Banten province before heading north to the airport. The other line will stretch from Manggarai through Pluit in North Jakarta before going west to the airport.

Soekarno-Hatta, the country’s biggest airport, had 43 million air passengers last year.

Bambang said the first railway line would be a commuter route that used the existing track from Manggarai to Tangerang. KAI will build six kilometers of track northbound to the airport, with a total estimated investment of Rp 2.25 trillion ($252 million).

The second route will cost an estimated Rp 10 trillion. The cost is higher because the route will be an elevated line and will be offered to private investors through a public-private partnership scheme, Bambang said.

He said the government would provide Rp 1.5 trillion to buy land for the project and Rp 1.7 trillion to upgrade the existing rail line between Manggarai and Angke in North Jakarta. Private investors are expected to provide the rest of the project cost.

Sarana Multi Infrastruktur, the state arm for infrastructure financing, will oversee consulting companies to help prepare for the project.

Investor Daily


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Mitsubishi to get new plant, Mazda eyes 33 percent sales increase
Novan Iman Santosa and Linda Yulisman. The Jakarta Post, Jakarta - 26/01/2012

Car distributor PT Krama Yudha Tiga Berlian Motors on Wednesday announced that it has started construction of a new Rp 250 billion (US$27.71 million) plant.

The company is the authorized distributor of Japanese cars manufactured by Mitsubishi Motor Corporation (MMC) and commercial vehicles made by Mitsubishi Fuso Truck and Bus Corporation (MFTBC).

“We are currently constructing a new plant for the Outlander Sport and we hope to launch the new model before the Jakarta Motor Show this year,” MMC president Osamu Masuko said in a media briefing in Jakarta.

“We aim to sell 500 units per month, although we hope Krama Yudha can sell up to 1,000 units per month.”

Masuko, who was Krama Yudha’s president from 1997 to 2002, said the Rp 250 billion investment was sufficient at the moment, although more might be spent in the long run.

“I have just inspected the new plant and found that its capacity is enough for a demand from 500 to 1,000 cars per month,” he said.

“Maybe we will make another decision in five years whether to expand the plant or make a new one. It depends on Krama Yudha’s sales.”

Krama Yudha marketing director Rizwan Ilhamsjah said the new plant in Pulo Gadung would be operational by mid-year.

Krama Yudha also celebrated its 2 millionth car sold in Indonesia since the company’s establishment 41 years ago, when it launched the Colt T100 commercial vehicle in 1970.

Not only did the firm hit 2 million sales. Krama Yudha also recorded its highest yearly sales ever in 2011, selling 134,416 vehicles, a 26.2 percent increase compared to 2010, Rizwan said. He said he could not yet reveal the sales target for 2012.

The Indonesian car market is expected to hit 930,000 vehicles sold this year, increasing by 5 percent from 894,180 recorded in 2011. Indonesia aims to reach a sales figure of 1 million units in 2013 and is ready to overtake Thailand as the biggest automotive market in the region.

Masuko said that Indonesia had big potential, being a big country with large population and plenty of natural resources.

“If we take Brazil as a comparison, its automotive demand is about 3.4 million per year, with a population of some 200 million,” he said.

“Indonesia has more people than Brazil and demand will soon reach 2 or even 3 million cars per year.”

Osamu said Mitsubishi would expect to have a 10 percent share of the Indonesian automotive market, although it would not be easy to achieve.

“Indonesia is an important market for Mitsubishi, being ranked fourth globally after Japan, Thailand and China,” he said.

“The market here is even bigger and more important for Mitsubishi than the United States.”

He also believed that ASEAN countries would be able to overcome a possibly prolonged financial crisis after severe experiences in the 1997-1998 crisis.

“The eurozone countries are having serious financial problems and the Western European economies are already going down. The US is slightly picking up but the Middle Eastern countries are currently politically fragile and not stable, so not so good economically.”

Separately, PT Mazda Motor Indonesia (MMI) anticipates slower sales growth this year amid potential spill-over from the economic downturn.

MMI president director Keizo Okue said on Wednesday that his firm expected sales to rise by only 33 percent to 12,000 units this year, after sales growth of 50 percent to 9,056 units last year.

“One point we have to consider is the global economy. Although the crisis will not affect Indonesia greatly, it will produce negative effects once the economic situation gets worse,” he said on the sidelines of a media briefing in Jakarta.

Okue said that to support the company’s goals, his firm would build nine sales outlets across the country in places with a wide customer base, such as Greater Jakarta. It currently has 28 existing outlets in Indonesia.

Investment for the outlets would range from Rp 20 billion ($2.22 million) and Rp 30 billion each, he said.

Apart from strengthening its sales network, MMI will also introduce several new models onto the local market, including the limited edition RX-8 Spirit R and CX-5 sports cars as well as All New Mazda BT-50 pickup trucks.

Okue said that one of the three new models would be released next month.

Mazda’s sales have been picking up after its separation with Indonesia’s PT Indomobil Sukses International in 2006, hitting a record 9,056 units sold last year.

The Mazda 2 hatchback, which is mostly sold in urban areas, created the largest contribution, amounting to 60.88 percent to total sales, followed by the BT-50 pickup trucks with a 19.74 percent share.


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Indonesia May Expand Less Than 6% on Europe
Bloomberg, 26/01/2012

Indonesia’s economic growth may slow to less than 6 percent in 2012 if Europe suffers a severe recession, said Bambang Brodjonegoro, the head of fiscal policy at the nation’s finance ministry.

Gross domestic product may increase as little as 5.7 percent this year after an expansion of about 6.5 percent in 2011, Brodjonegoro said in an interview with Bloomberg News in Jakarta yesterday said. The government will increase spending to bolster growth and limit the impact of a global slowdown, he said.

Asian policy makers have shifted their focus to shielding growth, rather than stemming inflation, as Europe’s sovereign woes and a struggling U.S. economy increase the risk of another global recession. The U.S. Federal Reserve said yesterday it is considering additional asset purchases as it extended its pledge to keep interest rates low through at least late 2014.

“We will boost government spending especially in infrastructure and domestic consumption to offset the slowdown in exports and investment amid the global turmoil,” Brodjonegoro said. “Our economic growth is still fairly healthy.”

Demand for Indonesian assets has risen after Moody’s Investors Service raised the country’s credit rating to investment grade on Jan. 18. Fitch Ratings brought Indonesia back to investment grade last month after 14 years of junk ratings. The rupiah rose 0.3 percent as of 7:52 a.m. in Jakarta today, according to prices from local banks compiled by Bloomberg.

Capital inflows into Southeast Asia’s largest economy are expected to increase after the rating upgrades and investors will probably seek holdings in Indonesian assets other than its capital markets and government bonds, Brodjonegoro said. The investment grade ranking will also help lenders get cheaper loans from overseas banks, he said.

The government is meeting officials from Standard & Poor’s in March to discuss the nation’s economic progress, Brodjonegoro said. S&P still rates Indonesia one level below investment grade.



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Infrastructure

Rp 3.6 trillion allocated for Trans-Papua road
The Jakarta Post, Jakarta - 26/01/2012

The Public Works Ministry is allocating Rp 3.6 trillion (US$399 million) to build the Trans-Papua Highway.

Iqbal Pane, national road construction development director of the ministry’s Bina Marga (Highway) Directorate General, said that the budget to build roads and bridges in the Papua and West Papua provinces was among the largest of all provinces.

He said that Bina Marga had a Rp. 30 trillion budget to construct roads and bridges throughout the country.

Iqbal said that the aim of the Trans-Papua Highway was to connect isolated areas in Papua’s central highlands to Wamena, Habema, Kenyam, Batas Batu, as well as the Asmat regency on the south coast.

He added that there were also two road projects in Papua which have been included in the Master Plan for Acceleration and Expansion of Indonesian Economic Development (MP3EI). The roads are those linking Timika, in the Mimika regency, and Enarotali, in the Paniai regency, and those linking Merauke with Tanah Merah in the Bouven Digoel regency.

“We are prioritizing the highway and the other two roads, which are included in the MP3EI,” Iqbal said Thursday as quoted by Antara news agency.

He said that the government aims to build 70 percent of a total of 3,100 kilometers of national road in Papua and West Papua by 2014. (drs)


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Govt mulls new scheme to finance projects
Rangga D. Fadillah. The Jakarta Post, Jakarta - 26/01/2012

The government may set up a new institution to finance infrastructure development projects stipulated in the Master Plan for the Acceleration and Expansion of Indonesian Economic Development (MP3EI), an official says.

Bank Indonesia Governor Darmin Nasution reported that the government had conducted a feasibility study to find the best way to provide financial sources for the projects and that establishing a new institution for that purpose was among the suggestions made.

“With our credit rating upgraded to investment grade, the options for the sources of funds are very broad. However, we need an instrument to invite and manage those funds,” he told reporters during a press conference after a Cabinet meeting at the State Palace in Jakarta on Wednesday.

He acknowledged that setting up a new institution would take “some time” because it needed strong and clear legal foundations. Thus, he added, if the government wanted to save time, one available option was to optimize the role of the existing institutions: PT Sarana Multi Infrastruktur (SMI) and the Indonesia Infrastructure Fund Facilities (IIFF).

“We haven’t come to a firm decision on which strategy we’ll use. During the [Cabinet] meeting, we only presented the available options. However, the discussion was very deep and productive so I think a decision can be taken in the near future,” Darmin said.

The MP3EI aims to develop six economic corridors in the country. The corridors are Sumatra for energy-related development, Java for industry and services, Kalimantan for mining, Sulawesi and North Maluku for agriculture, forestry and fisheries, Bali and Nusa Tenggara for tourism and food, and Papua and Maluku for natural and human resources.

Considering the broad variety of projects in the MP3EI, the new institution might be formed along the lines of a development bank, like the one Indonesia had in the New Order era, Bank Pembangunan Indonesia (Bapindo), to allow it to cover not only infrastructure projects but other vital long-term projects, such as in the agricultural sector.

Darmin argued that Indonesia was in better shape compared to during the New Order era in terms of its supervision of the financial sector and its compliance with international rules. No matter which option was taken, the country had a big chance to succeed, he continued.

Coordinating Economic Minister Hatta Rajasa said that projects included under the MP3EI required around Rp 4,000 trillion (US$442.72 billion) in investments. Out of that amount, around Rp 1,700 trillion was needed for infrastructure projects, he reported.

“We need institutions with strong capital structure to provide the required funds in a short time,” he said.

He revealed that the government had not prepared a budget to set up a new institution, but that if the funds to execute the projects were needed urgently, he agreed with Darmin that the government would utilize SMI or IIFF


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