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.