ASEAN-KOREA FREE TRADE AREA (AKFTA) - Yulchon

Indonesia – Korea
Trading
the Potentials & Challenges
on the Global Economic Crisis
Widharma Raya Dipodiputro
Expert Staff of the Minister of Trade - Indonesia

Indonesia – Korea
Trading
| The Republic of Indonesia - Country Overview |
| Current Conditions |
| Potentials & Challenges |
| Important Issues to Discuss |

The Republic of Indonesia
- Country Overview -
• World's fourth most populous country (and the most populous Muslim-majority country)
• Population of approx. 225 million spread across an archipelago of 17,500 islands
• Largest economy in Southeast Asia, with an estimated GDP of approx. USD 433 billion in 2007
• Key sectors are manufacturing, trade/hotel/restaurant, and
agriculture/livestock/forestry/fisheries
• Unitary republic with a presidential system – next general and presidential elections in mid-
2009
The Republic of Indonesia
Composition of GDP by Sector
Manufacturing
7,7%
7,7%
7,6%
27,0%
Trade, Hotel, Restaurant
Agriculture, Livestock,
Forestry, Fishery
Mining, Quarrying
10,1%
Services
11,2%
13,8%
14,9%
Construction
Financial, Ownership,
Business Services
Others
Source: Ministry of Finance
1

Indonesia 2008: Economic Backdrop
• Surging oil prices resulting in widening budget deficit
• Pre-emptive move in reducing fuel subsidies
• Inflation rose to 10.5% y-o-y in September 2008
• Bank Indonesia raised rates to 9.5% in October 2008
• Risks from global financial difficulties and world economic slowdown
• Substantial improvement in economic fundamentals
– Sustained GDP growth of over 6%
– Declining debt-to-GDP ratio
– Strong balance of payments position
Economic Fundamentals Remain Solid
2

Eksport
Millions
Current Conditions
Eksport on 2003-2007
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2003 2004 2005 2006 2007 Jan-Jul'
07
Year
Jan-Jul'
08
Oil
Non Oil
3

Import
Millions
Current Conditions
Import on 2003-2007
3
2.5
2
1.5
1
0.5
Oil
Non oil
0
2003 2004 2005 2006 2007 Jan-Jul'
07
Year
Jan-Jul'
08
4

Amount
Millions
Current Conditions
Export-Import Balances on 2003-2008
3.9
3.4
2.9
2.4
1.9
1.4
0.9
0.4
-0.1
2003 2004 2005 2006 2007 Jan-Jul'
07
year
Jan-Jul'
08
Oil
Non-Oil
5

Real Growth in Total Trade (%)
Current Conditions
Real growth of trade (%)
Most country groups had substantial real trade
growth, but low-income countries’ slowed down
in 2007
14
12
10
8
6
4
2
0
EAP ECA HI OECD HI non-OECD LAC MNA SAS SSA
1995-1999 2000-2004 2005-2006 2007
Source: World Trade Indicators 2008
• ECA = Europe and
Central Asia
Average
• Hi OECD = High
income OECDs
Average
• EAP = East Asia-
Pacific Average
• LAC = Latin
America and
Caribbean Average
• MNA = Middle East
and North Africa
Average
• SAS = South Asia
Average
• SSA = Sub-Saharan
Africa Average
8
6

Current Conditions
Export Share
Share of Indonesian Export 2003
Share of Indonesian Export 2008
Australia
2,3
Taiwan
Others
20,7
European Union
17,1
Japan
14,4
Australia
1,9
Others
23,7
European Union
13,9
Japan
12,5
2,7
India
3,4
South Korea
3,7
Malaysia
4,9
China
5,9
Singapore
10,1
United States
14,7
Taiwan
2,6
South Korea
4,4
Malaysia
India
5,6
6,5
China
7,6
Singapore
9,8
United States
11,6
7

Potentials & Challenges
Shifts in Balance of Trade
Position of Trade Balance
Country
Declining Balance of Trade
Surplus
From Surplus to Deficit
Increasing Surplus
Indonesia, Singapore,
China, Taiwan
India, Korea, Philippines,
Thailand
Malaysia
8

Current Conditions
N
O
HS
Number
Items
Export in 1000 US$
Prod. BM
AKFTA Tariffs
Interest
2005 06 07 08 09
MFN
2001 2002 2003 2004 10
1 260300000 Copper ores an concentrates 303789 269490.5 221612.8 220448.8 NT 1% 1% 1% 0% 0% 0%
2 470329000
3 441213000
chemical wood pulp soda or
sulphate of non-coniferous
Plywood with at least one outer
ply of tropical wood < 6mm
thicknes
111417 139532.8 154138.7 110790.4 NT 0% 0% 0% 0% 0% 0%
67622.6 78972.3 99826.4 74333.4 NT 8% 8% 8% 8% 8% 8%
4 400122160 Sir 20 31689.7 42963 60604.2 73181 NT 1% 1% 1% 0% 0% 0%
5 281410000 Anhydrous Amonia 5368 26798.1 49725.6 28959.7 NT 2% 2% 2% 0% 0% 0%
6 550951000
Other yam of polyester staple
fiber mixed with artificial staple
fiber
16212.4 23261.6 20515.8 28358.4 NT 8% 8% 3% 0% 0% 0%
7 720260000 Ferro-nickel alloys 14507 6666.7 23580.4 27922.3 NT 3% 3% 3% 0% 0% 0%
8 551011100
Single yam of viscose
containing >= 85% of acrylic or
modaclrylic staple fibr
18307.1 28481.1 20916.6 26351.8 NT 8% 5% 3% 0% 0% 0%
9 852110000 Video recording of magnetic tape 1168.5 263.4 758 25850.2 NT 8% 5% 3% 0% 0% 0%
10 550932000
The List of the Top Ten of Non Oil and Gas Export to Korea
Multiple Cabled yam cont >= 85%
of acrylic or modacrylic staple fibr
27903.7 22829.7 22082.6 24523.7 NT 8% 5% 3% 0% 0% 0%
9

Current Conditions
NO
HS
Number
Items
Import in 1000 US$
Prod. BM
AKFTA Tariffs
Interest
2005 06 07 08 09
MFN
2001 2002 2003 2004 10
1 290243000 P-Xylene 151329 100834.5 19427 60662.6 NT 0% 0% 0% 0% 0% 0%
2 390760300
3 852520900
4 721012100
5 720918900
Polyethlene Terephathalate in
chips
Other transmission apparatus
incorp reception apparatus
Flat rolled product plated/coated
with tin thick

Potentials & Challenges
Sustained Economic Growth
GDP Y-o-Y
7.0%
6.0%
5.0%
4.0%
3.0%
6.0% 17.6%
5.9% 5.8%
14.9%
Indonesia has been growing at a rate above 6% since 4Q06 supported by
consumption, investment, and export
3.4%
16.7%
3.8%
12.3%
4.4%
10.4%
GDP Export Investment Consumption
15.6%
5.1% 5.1%
11.8%
4.2%
5.0%
11.4%
5.9%
6.0% 6.1%
3.8%
8.3%
8.1%
2.9% 3.0% 3.0%
6.6% 6.8% 7.0% 6.9%
6.4% 6.5%
4.7% 4.7%
9.8%
10.4%
6.9%
6.3%
7.3%
6.3%
-
6.4%
21.0%
18.0%
16.1%
5.6% 15.5%
5.7%
15.4%
5.3%
5.1%
15.0%
12.8%
12.1%
12.0%
9.0%
2.0%
6.0%
1.0%
2.7%
1.4%
0.9% 0.8%
3.0%
0.0%
1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08
0.0%
11

Potentials & Challenges
Strengthening Private Consumption
Consumption credit growth is strong. Car and motorcycle sales, as a proxy of demand, have
recently experienced significant growth
Indonesia Car and Motorcycle Sales
Consumption Credit Growth
80%
50%
60%
40%
40%
20%
30%
29.2%
0%
(20%)
1Q05 1Q06 1Q07 1Q08
20%
10%
(40%)
(60%)
0%
Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun
Car Sales
Motorcycle Sales
Consumption Credit Line 7
12

Potentials & Challenges
Record High Exports Driven by Commodities
Strong Export Growth (USD Billion) Export Price Index (Rebased to 100)
120
250
80
200
150
40
100
0
2003 2004 2005 2006 2007
50
2003 2004 2005 2006 2007 2008
Agri Mineral Manufactured Oil Gas
Non Oil & Gas
Oil & Gas
Both oil & gas and non-oil & gas exports have gained significantly since 2002.
Total exports rose 14.0% to USD 118.01 billion in 2007- volumes and prices of major commodities such
as crude palm oil, nickel, paper and chemicals spiked.
Dependency on the US market has declined – share of exports to U.S has steadily fallen from 13.3% in
2002 to 9.8% for 2007
13

Potentials & Challenges
Improving Investment Climate
New Investment Law passed in April 2007 aims to facilitate foreign investment. Continuous
taxation reform expected to spur further investment
Significant Improvements in Investment Climate
Imported Capital Goods vs. Investments
Equal treatment for domestic and foreign investment (1)
Extends the validity of land titles
Rights to appoint foreign management
Unrestricted repatriation of profits and capital
Accelerated reform in tax administration
Simplified VAT audits and improved taxpayer services
quality
5% reduction in corporate income tax rate for listed
companies which meet certain conditions
Reduction in the tax rate on dividend payments to nonresidents
from 20% to 10%
Significant increase in budget allocation for capital
expenditure
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
14.9%
39.4%
88.1%
15.4%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
Provides better clarity in business activities that are
conditionally open to foreign investors
0%
1Q05 1Q06 1Q07 1Q08
0.0%
Imported Capital Goods (LHS)
Investments (RHS)

Potentials & Challenges
New policies to support investment
1 Investment Law & Procedure
Investment
climate
improvement
2 Tax & Custom Reform
3 Labor & Immigration
4 Trade Licenses
5 Cross Sector Strategic Policy Reform
Infrastructure
6 Sector Restructuring, Corporatisation and Policy Reform
7 Regulation on natural monopoly & investment protection
8
Clear separation on the role of policy maker, regulator,
contracting agency, and operator
9 Coordination Monetary & Fiscal Authority
Financial
(‏Banking 10 Financial Institution (Banking & Non
11 Capital Market and SOE Privatization
15

Important Issues to Discuss
Trade and
Investment
climate
improvement
1 A list of emergency support needed by both countries
2 A list of new prospective and potential trade for both countries
3 A list of preferences
4 A list of problems & solving.
5 How to speed up the Cross Sector Strategic Policy Reform
Infrastructure
6 How to disseminate the Sector Restructuring, Corporatisation & Policy Reform
7 How to enforce the Regulation on natural monopoly & investment protection
8
How to apply a clear separation on the role of policy maker, regulator,
contracting agency, and operator
9 How to achieve a Productive Coordination amongst Monetary & Fiscal Authorities
Financial
(‏Banking 10 How to empower the Financial Institution (Banking & Non
11 How to support the Capital Market and SOE Privatization
16

THANK YOU VERY MUCH

Important Projects
by State Budget on 2009
Toll Road Trans Java: Government Financing Support

Important Projects
by State Budget on 2009
Electricity 10.000 MW Project Guarantee Support

Important Projects
by State Budget on 2009
Financing Policy: Prioritizing from Domestic Financing

Supports on the Real Sector
‣ Maintaining A Sound Balance of Payment
• Deficit Current Account (or even surplus);
• Effort to attract FDI, e.g. Revision PP 1/2007 PP 62/2008;
• Improving Investment climate to attract investors Inpres 5/2008
• Incentive for export;
• Curbing import, especially for Consumption goods;
• Maximizing income from Tourism, Travels, Services and remittances.
‣ Supporting Business Community:
• Seamless flows of transportation and logistic
• Managing UMR (Minimum Wage)
• Managing electricity supply
• Easier for claiming Tax Return
• Closer coordination to Local governments, including to cut unfriendly local regulations
• Enhancing Venture Capital scheme
• Love Domestic product Campaign
• Implementing PP 62/2008, dated 23 Sept 2008 on Value Added Tax for Investment in certain
region or/and certain business (as Revision of PP 1/2007)

Supports on the Real Sector
I. Ensuring the Competitiveness
1) Trade Facilitation: Ensure the efficiency of imports/exports:
• NSW
• Slash the high cost economy: ports, restitution
2) Trade Promotion:
• TEI
• Market diversification: strategic and segmented
• Product diversification
3) Trade Negotiations and Lobby:
• Market Access: lower obstacles (e.g. ASEAN-Australia-New Zealand and ASEAN India
Free Trade Area)
• Anticipate protectionist activities
II. To Secure the National Markets
a. Optimize Comprehensive steps to tackle smuggling
b. Instruments to secure trade:
- Dumping and safeguards
- Safeguarding products in circulation
- Government budget / procurement
- And others

KEBIJAKAN PEMERINTAH
1. Peraturan Menteri Keuangan No. 134/PMK.011/2008
Tentang:
Bea masuk ditanggung Pemerintah atas Impor Barang dan Bahan untuk Memproduksi
Barang dan/atau Jasa Guna Kepentingan Umum dan Peningkatan Daya Saing Industri Sektor
Tertentu untuk Tahun Anggaran 2008.
2. Peraturan Menteri Keuangan No. 137/PMK.011/2008
Tentang:
Perubahan Kedua atas Peraturan Menteri Keuangan nomor 620/PMK.03/2004 Tentang Jenis
Barang Kena Pajak yang Tergolong Mewah selain Kendaraan Bermotor yang Dikenakan
Pajak Penjualan atas Barang Mewah.
3. Peraturan Menteri Keuangan No. 138/PMK.011/2008
Tentang:
Bea Masuk Ditanggung Pemerintah atas Impor Barang dan Bahan Guna Perbaikan dan
Pemeliharaan Pesawat Terbang untuk Tahun Anggaran 2008.
4. Peraturan Menteri Keuangan No. 139/PMK.011/2008
Tentang:
Bea Masuk Ditanggung Pemerintah atas Impor Barang dan Bahan oleh Industri Jasa
Pelayaran Guna Perbaikan dan/atau Pemeliharaan Kapal Laut untuk Tahun Anggaran 2008.

KEBIJAKAN PEMERINTAH
5. Peraturan Menteri Keuangan No. 140/PMK.011/2008
Tentang:
Bea masuk ditanggung Pemerintah atas Impor Barang dan Bahan Guna Pembuatan
Komponen Kendaraan Bermotor untuk Tahun Anggaran 2008.
6. Peraturan Menteri Keuangan No. 141/PMK.011/2008
Tentang:
Bea masuk ditanggung Pemerintah atas Impor Barang dan Bahan Guna Pembuatan
Komponen Elektronika untuk Tahun Anggaran 2008.
7. Peraturan Menteri Keuangan No. 142/PMK.011/2008
Tentang:
Bea Masuk Ditanggung Pemerintah atas Impor Barang dan Bahan oleh Industri Perkapalan
Guna Pembuatan dan/atau Perbaikan Kapal untuk Tahun Anggaran 2008.
8. Peraturan Menteri Keuangan No. 144/PMK.011/2008
Tentang:
Bea Masuk Ditanggung Pemerintah atas Impor Barang dan Bahan Guna Pembuatan Botol
Infus untuk Tahun Anggaran 2008.

KEBIJAKAN PEMERINTAH
9. Peraturan Menteri Keuangan No. 145/PMK.011/2008
Tentang:
Bea masuk ditanggung Pemerintah atas Impor Barang dan Bahan oleh Industri Pengolahan
Susu untuk Tahun Anggaran 2008.
10.Peraturan Menteri Keuangan No. 146/PMK.011/2008
Tentang:
Bea masuk ditanggung Pemerintah atas Impor Barang dan Bahan Guna Pembuatan
Komponen untuk Pembangkit Listrik Tenaga Uap untuk Tahun Anggaran 2008.
11. Peraturan Menteri Keuangan No. 147/PMK.011/2008
Tentang:
Bea Masuk Ditanggung Pemerintah atas Impor Barang dan Bahan Guna Pembuatan Cold
Rolled Coil (CRC) oleh Industri Baja Nasional untuk Tahun Anggaran 2008.
12.Peraturan Menteri Keuangan No. 148/PMK.011/2008
Tentang:
Bea Masuk Ditanggung Pemerintah atas Impor Barang dan Bahan oleh Industri Pembuatan
Sorbitol untuk Tahun Anggaran 2008.

KEBIJAKAN PEMERINTAH
13.Peraturan Menteri Keuangan No. 154/PMK.011/2008
Tentang:
Pembebasan Bea masuk atas Impor Barang Modal dalam rangka Pembangunan dan
Pengembangan Industri Pembangkit Tenaga Listrik untuk Kepentingan Umum.
14.Peraturan Menteri Keuangan No. 162/PMK.011/2008
Tentang:
Pencabutan Keputusan Menteri Keuangan Nomor 397/KMK.01/2004 Tentang Pengenaan Bea
masuk Inti Dumping Terhadap Impor Carbon Black.
15.Peraturan Menteri Keuangan No. 143/PMK.011/2008
Tentang:
Bea masuk ditanggung Pemerintah atas Impor Barang dan Bahan Guna Pembuatan Bagian
Tertentu Alat Besar dan/atau Perakitan Alat Besar oleh Industri Alat Besar untuk Tahun
Anggaran 2008.