1. BRI (2 x 22)

1. BRI (2 x 22) House urges govt to share IPO proceeds with BRI Rendi A. Witular The Jakarta Post Jakarta

The House of Representatives approved on Tuesday the privatization of state-owned Bank Rakyat Indonesia through an initial public offering scheme (IPO), but urged the government to share the proceeds with the bank.

"The commission has approved the plan, but there are several conditions the government and the management of BRI should meet before going ahead with the IPO," newly appointed chairman of the House finance commission, Emir Muis, said on the sidelines of a hearing between the Commission and the bank.

He explained that one of the main conditions was that part of the proceeds from the IPO should be given to BRI to help halt the bank's declining capital adequacy ratio (CAR).

BRI's CAR has been declining over the past several months due to a lack of fresh capital. As of June this year, BRI's CAR stood at 12.36, down from 14.7 percent in March this year.

Emir said that the House would discuss with the government how the IPO proceeds could be managed so that BRI's CAR could be increased but at the same time the state could use the proceeds to plug the widening budget deficit.

"The bank wants 50 percent of the proceeds, but I don't think that is possible as the government will firmly stick to its plan (of taking most of the proceeds). I guess 20 percent is the most for the bank, and we will ask the government to approve this," Emir said.

2. Tax (3 x 10) Scrap soda luxury tax, says UI Scrap luxury tax, says UI

The Jakarta Post Jakarta

The University of Indonesia (UI) has suggested the government scrap luxury taxes on carbonated drinks, saying the move will increase rather than decrease the government's tax revenue from the industry.

UI's Research Institute for Economy and Society (LPEM-UI) made the suggestion on Tuesday in conjunction with the results of a survey titled "The impact of luxury tax removal from carbonated soft drinks".

"If the government scraps luxury tax on carbonated drinks, state revenue will decrease by Rp 58.4 billion (US$6.8 million)," the paper said.

However, it added that sales of carbonated soft drinks would likely increase due to lower retail prices resulting in an overall increase in tax revenue.

If sales of carbonated drinks climb by 15 percent, tax revenue would be Rp 11 billion higher than the amount collected from the luxury tax, the paper said.

"On top of that, there are multiplier effects from the sales increase," LPEM-UI's economist Chatib Basri told reporters on the sidelines of the seminar discussing the paper. "The investment climate would revive and it would create more jobs."

Under Law No. 18/2000 on Luxury and Value-Added Taxes, carbonated beverages are taxed 10 percent because the products are considered luxury items.

Chatib said the government's criteria on luxury goods was also confusing, pointing out that soft drinks were by no means luxury products.

Also in the seminar, businessman Anton Supit supported the research's conclusion, saying the recent elimination of such taxes on electronic goods had had a positive impact on the industry.

"The industries need tax reform to revive," he said. "But the reform should be carried out thoroughly, including a reform in the investment climate."

4. IFC (2 x 22) IFC, govt launch $19m initiative for SMEs I Wayan Juniartha The Jakarta Post Nusa Dua, Bali

The Indonesian government and the International Finance Corporation (IFC) here on Tuesday officially launched a US$19 million program to help small and medium enterprises in the eastern part of Indonesia.

The Program for Eastern Indonesia SME Assistance (PENSA), a five-year technical assistance program, is cofunded by the IFC and the governments of Australia, Japan, Switzerland and Netherlands.

The program was officially launched by Minister for Cooperatives and Small and Medium Enterprises (SMEs) Alimarwan Hanan, followed by the signing of the MOU by the general manager of Indonesia Enterprise Development Facility (IEDF), Chris Richards, and representatives of Bank Rakyat Indonesia (BRI) and Dharma Bhakti Astra Foundation, which are to assist the IFC in implementing the program.

IFC, the private sector development arm of the World Bank, would manage the US$19 million initial funding to provide training and assistance aimed at improving SMEs capacity and competitiveness.

The PENSA will focus on business sectors which have "regional comparative advantages", such as furniture and handicrafts in Denpasar (Bali), mining in Balikpapan (East Kalimantan), agribusiness in Makassar (South Sulawesi).

It would conduct various training programs for banks and other financing institutions in Surabaya, East Java, to create a wider financial access for SMEs.

Praising the launch of the program as a very important event, the World Bank's country director in Indonesia Andrew Steer highlighted the fact that out of the 17 million registered companies in Indonesia, only 1 percent had more than 20 employees. The rest were SMEs.

"The SMEs are absolutely essential for the future of this country," he stressed.

"Throughout Eastern Indonesia today, there are millions of people who need jobs, there are ten of thousands of good entrepreneurs with good ideas that can change the face of this country if they were given a little help. That's what this program is all about," he added.

Separately, IEDF general manager Richards pointed out that in Indonesia there were 15 million unregistered businesses, mostly micro-size firms. Moreover, SMEs employed approximately 60 percent of the country's labor force and they were represented across most economic sectors.

He also stressed that the PENSA would not provide SMEs with direct funding or loans since the program would focus on training and technical support.

However, the program would actively engage and facilitate the involvement of various strategic partners, which were interested in providing the SMEs with such funding.

Separately, the Embassy of Canada's development counselor Julian Murray stated that his government would soon participate in the program.

4. Bond (1 x 42)

Govt to undertake second bond issue next week The Jakarta Post Jakarta

The government is set to issue Rp 5 trillion (around US$625 million) in bonds on Sept. 9 as part of its efforts to help cover the deficit in the 2003 state budget.

The bond, which is the second tranche this year, will mature on Dec. 15, 2012 and will carry a fixed coupon to be paid twice a year, the Ministry of Finance said in a statement on Tuesday, adding that the coupon rate had yet to be determined.

The bond issuance is part of government plans to issue new bonds to finance maturing government bonds.

In April, the government issued the first tranche, worth Rp 2.7 trillion, which will mature in 2011. The bonds have a fixed coupon rate of 12 percent and was priced through an auction with a weighted average yield of 12.21 percent.

The government has said the bond issuance was a highly important measure to help ease the payments of its huge domestic debts, as well as to avoid a fiscal disaster and maintain investor confidence.

As of December last year, the government's domestic debt stood at Rp 650.4 trillion -- all in the form of bonds, with a large chunk of them maturing between 2004 and 2009. The huge debt is a result of the cost to bail out the banking industry during the late 1990s financial crisis.

Late last year, the government issued treasury bills also in a bid to finance maturing government bonds. The issuance was considered successful given the fact that the bills were oversubscribed.

Previously, the government targeted to issue bonds worth Rp 7.7 trillion this year, but it is currently seeking approval from the House of Representatives for its plan to increase the size of the bond issuance to Rp 11.7 trillion due to a larger-than- expected deficit.

Minister of Finance Boediono said last week the 2003 state budget deficit was expected to widen to 2 percent of the gross domestic product (GDP), due to rising expenditures and falling revenues.

He said the deficit would hover around Rp 35.1 trillion, instead of the original target of Rp 34.4 trillion or 1.8 percent of GDP.

Elsewhere, the statement said that the auction of the new bonds will be held by Bank Indonesia from 10.00 a.m. 12.00 a.m. on Sept. 9.

The government is also expected to sell around $400 million in sovereign bonds in the international market early next year, to help finance next year's state budget.

5. APEC (1 x 42)

APEC finance ministers to gather in Thailand Michael Mathes Agence France-Presse Bangkok

Asia-Pacific finance ministers meeting this week in Thailand will seek to broaden cooperation in a year when terrorism, SARS and economic strains have taken center stage, analysts said.

The financial policy heavyweights from the 21 members of the Asia-Pacific Economic Cooperation (APEC) group, including U.S. Treasury Secretary John Snow, meet on the resort island of Phuket on Thursday and Friday to boost global and regional financial links crucial to the key APEC goal of lowering trade barriers.

Topping the agenda will be the promotion of grassroots small- and medium-sized enterprise development, long seen as a crucial engine of growth in the Pacific Rim, the meeting's Thai organizers said.

"They will also address the regional bond market and free- trade areas and regional trading arrangements," said Churairat Suteethorn, director of Thailand's bureau of international and macro-economic policy in the ministry of finance.

The ministers are also likely to step beyond the pre-set agenda to address global concerns including the fight against terror, an Asian Development Bank (ADB) expert said.

"In terms of enhanced geo-political risk in the region, perhaps they will talk about measures like anti-money-laundering and terrorist financing," Pradumna Rana, ADB's director of regional economic monitoring, told AFP.

"They'll discuss proposals to establish financial intelligence units in various ministries to track down flows of such types of money."

The bid to clampdown on the money trail has gained momentum with the latest terrorist bombing in Indonesia of a Jakarta hotel, which temporarily spooked financial markets and investors.

The dialogue will pick up where the finance ministers left off one year ago, when they boldly opened a broad new front in the fight against elusive terrorist finance networks at their APEC meeting in Los Cabos, Mexico.

Since then, however, the Asia-Pacific has been hammered by the outbreak of Severe Acute Respiratory Syndrome (SARS), which plunged the region into crisis, driving down tourism and investment and battering the economic performance in the first six months of this year.

"But with SARS now under control, and positive news and data coming from U.S. and Japanese economies, the second-half performance for the East Asian region looks better," Rana said, speaking from the ADB headquarters in Manila.

Phuket participants are also to hear a pledge of commitment to the region by the International Monetary Fund, whose managing director Horst Kohler will address the meeting in an effort to "reinforce the IMF's continued engagement with Asia," the fund said in a statement.

"He is particularly interested in the views of Asian countries regarding various regional cooperation initiatives as well as the fund's ongoing work to reinforce global economic and financial stability."

The ADB's Rana said the session is also to touch on global trade, a pillar of APEC, which has set a goal of free trade and investment by 2010 for developed country members and 2020 for developing ones.

The talks will precede next week's World Trade Organization ministerial session in Cancun, Mexico, where negotiators from 146 nations will try to lay out a time frame for trade reform.

Further monetary and financial cooperation among Southeast Asian nations, China, Japan and Korea will also be studied in Phuket, Rana said.

So will the contentious issue of China's currency, the yuan, which Washington and Tokyo have been strenuously arguing is undervalued.

The Phuket meeting precedes by six weeks the APEC summit, which is set to bring 21 world leaders to Bangkok.