Jumpstart for Jakarta

Pie Cutters and Pie Bakers

There are two types of political leaders: pie cutters and pie bakers. Pie cutters attain and maintain power by slicing the economic pie to placate opponents and reward friends. Pie bakers focus on making the big economic pie so that the whole country moves forward.

Indonesian President Yudhoyono, a combination of General, intellectual and bureaucrat, was a bit 'of both during his first 11 months in office. But with the economic crisis caused by a weakening rupiah, a stock market swoon, and budget busting petro subsidies, he needs to quickly plant it in the cake baking class.

The oven is ready

Many classified Indonesia as a relatively poor country, but I beg to differ. I took a tour to Indonesia from tip to tip and is a country with many resources and great promise. Rich in natural resources, talented and young population, strategically positioned to benefit from Asian growth, a size three times the population of Texas and fourth largest in the world. As a relatively young democracy and developing economy lacks an important ingredient for economic growth: capital and a fiscal system to allocate it wisely.

'S concentrate on one important Indonesia asset that could dramatically jumpstart its economy and stock market while unleashing resources for badly needed health education and infrastructure. This activity is oil and natural gas. There has been much in the press about the staggering burden of fuel subsidies: $ 7 billion in 2004 and about 14 billion U.S. dollars expected by 2005. A deal must be struck quickly: sharply reduce fuel subsidies and, in turn, increase spending on education and health projects, such as urgent polio immunization programs.

Light the fire

But perhaps most important issue of fuel subsidies is that Indonesian energy production is far below its potential.

The way in which oil production has been treated in recent years is worse than an error and is close to a crime. Indonesia has 10 billion barrels of proven reserves and potential oil and 180 billion cubic meters of proven reserves and potential. However, Indonesia, the only Asian member of OPEC, became a net oil importer in 2004.

Signs that the ignition is broken

This production shortfall is mainly due to underinvestment and delays in awarding contracts for exploration and production. Let's look at an example, Exxon Mobil CEPU block the project. Exxon Mobil has operated in Indonesia for a century and has invested 17 billion U.S. dollars in the country, decided to explore the CEPU dormant years ago and using advanced technology, has found proven oil reserves of 600 million barrels and 1.7 billion cubic meters of gas. Ready to invest 3 billion U.S. dollars to develop the project was expected to go on for two years as state-owned energy company Pertamania Indonesia has been haggling over issues like the government's insistence on a $ 400 million signing bonus before. That's right, he wants 400 million U.S. dollars from Exxon Mobil, the first risk of 3 billion U.S. dollars of shareholders' capital for the development of block CEPU. Meanwhile, the Indonesian oil production levels have dropped to less than 900,000 barrels per day!

At peak production, would provide the GOI CEPU $ 2,000,000 per day in revenues, adding 180 thousand barrels per day in daily production and eliminate gas shortages in East Java. There are other projects that could be moved forward and could lead to bake a total economic pie that could help to raise the whole Indonesian people. Moving ahead with these projects would jumpstart the economy and strengthen the confidence of foreign investors and capital. This is definitely a better choice than sharp increase in interest rates that stifle economic growth and makes badly needed capital even more expensive.

The fire is going to be Set

Our intelligence indicates that due to financial pressures on the Indonesian government, 30 - year of production sharing agreement will be signed this week. This will be a big step forward in solving energy deficit in Indonesia and reassure investors the government's commitment to market reform. I think the market will respond positively to this news, and recommended the fund closed Indonesian (IF) as the best vehicle to invest in Indonesia. E 'managed by Credit Suisse Asset Management and has come down from a March 2005 price of $ 6.99 and an 8% premium to net asset value a current price of $ 5.76 and a discount of 2% the net asset value. The Indonesia Stock Exchange was up 47% in 2004 and is now trading at about 11 times earnings which is in line with the MSCI Emerging Markets Index.

Poke the fire and for large Pies Future Abundance

Indonesia has taken the bold step to open its financial services sector to majority investment by international investors; Let's open up other sectors such as infrastructure and power. The most important reform to make Indonesia more attractive to international capital is to establish a clear and transparent approval process to cut red tape and corruption. Then launch a plan announced to privatize some of Indonesia's largest 145 state-owned companies to increase their profitability and raise more government revenue. Finally, why not follow ten other countries, implementing a flat tax to rein in bureaucracy, corruption and impede growth and productivity.

Cutting fuel subsidies, addressing pressing social needs, increasing oil production and privatization of state enterprises will put Indonesia back on the road to prosperity and progress.