From Government of Indonesia

Investment Law to Pass

The new investment law will be put to a plenary session of the House of Representatives on Thursday (29/3/07) after being approved by a special working committee.

The long-awaited bill provides tax incentives for new investors and existing operations that want to expand.

It is the first of a number of new pieces of legislation due to be passed this year, with amended tax laws expected to be approved by the House mid-year.

Irmadi Lubis, a member of the House special commission on the bill, said it was needed to attract more investment and create more employment.

The government’s second retail bond issue for the year was received with strong demand, with incoming bids worth Rp7.2 trillion ($790.3 million) by Friday (23/3/07), the treasury director general at the finance ministry told Reuters.

Bidding has now closed and the ministry will announce its targeted sale amount on Monday (26/3/07).

The government sold Rp3.28 trillion bonds to retail investors in August last year, its first such issue, amid strong demand due to expectations of domestic interest rate cuts.

Speculation of a rally in the currency caused Indonesian 10-year bonds to rise for a third day on Thursday, with analysts saying the stronger rupiah would make it easier for the central bank to cut interest rates next month, Bloomberg News reported.

“There's room for improvement” in government bond prices, said Suryandy Jahja, head of debt trading at PT Kresna Graha Sekurindo, which oversees the equivalent of $120 million. “They will do a further rate cut.”

Finance Minister Sri Mulyani Indrawati downplayed growth prospects, stating Tuesday that the economy is likely to expand by 5.9% to 6% in 2007, off the budget target of 6.3%.

Indrawati called the estimate a "realistic" reassessment of the budget target. "We will maximize economic growth, but we must be realistic... (and) I think that the realistic (growth estimate) is 5.9% to 6% because people say that investment isn't growing," she was quoted as saying by Dow Jones Newswires.

The government expects economic growth of 6.6% in 2008, she said. The economy grew 5.5% in 2006 and 5.6% in 2005.

At the launch of the “Indonesia Vision 2030”, President Susilo Bambang Yudhoyono stating that Indonesia was on track to become the fifth strongest power in the world by 2030. He said a rise in per capita incomes to $18,000 was possible with good management. The group backing the program said that the feat could be achieved only if the country's economy grew by 7.26%, with an inflation rate of 4.95% and a population growth rate of 1.12%.

Separately, the president said the government was targeting a 30% increase in its total domestic oil and gas output by 2010. Dr. Yudhoyono said Wednesday that the government would intensify oil and gas exploration and development and persuade regional governments to relax regulatory restriction on oil and gas-related investments.

He said the projected production increase aims to address an expected surge in domestic oil and gas demand rather than export markets. The forecast output rise will include an increase in Indonesia's natural gas production to 10 billion cubic feet a day by 2010 from the current level of 8 billion to 9 billion cubic feet, Dr. Yudhoyono said. Indonesia's crude oil output will rise to 1.3 million barrels a day from around 1 million barrels a day during the same period.

There was increasing confidence of a stronger role for Indonesia in the global automotive industry. Investment in the automotive sector in the first quarter of 2007 has already reached $173 million, said Budi Dharmadi, Director General of Transport Equipment and Information Technology Industry, Antara reported on Wednesday (21/3/07).

A number of the world's leading automotive principals have shown strong interest in establishing their production bases in Indonesia, Dharmadi said. Hyundai is spending $23 million, he said, and Renault and Nissan are both making significant investments.

Dharmadi said the trend is expected to continue through 2008 as foreign firms see strong prospects for the country's economy.
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