Strain ties affect Indonesia-RI trade

Strain ties affect Indonesia-RI trade

CANBERRA (Dow Jones): Tense relations between Indonesia and
Australia spilled over into the trade arena Friday, with
Indonesian wheat importers and millers saying they would cut back
or halt their Australian wheat purchases.

Indonesia's largest wheat miller PT Bogasari Flour Mills said
Friday it would cut wheat imports from Australia by 50 percent.

And Fransiscus Welirang, the president director of Bogasari,
said his company would consider halting imports completely if the
government asks them to stop importing wheat from Australia.

"If it becomes an official decision, we would then stop all
our imports from Australia," he said.

Bogasari imports 1.5 million tons of wheat annually from
Australia, or 50 percent of its total imports, with another 25
percent coming from Canada and 25 percent from the U.S. and other
countries.

Wheat importer PT Sriboga Raturay also said it has halted
Australian purchases, and the company's chief commissioner,
Bustani Arifin, told The Jakarta Post newspaper that all
Indonesian wheat importers agreed at a meeting Wednesday night to
stop imports from Australia.

The move by wheat importers follows criticism from the
Indonesian government of the role Australia has played in the
East Timor crisis. Many Indonesians also resent what they
perceive as Australia's overzealousness in sending troops to the
troubled half-island.

Australia is leading the 7,000-strong U.N. peacekeeping force
in the Indonesian province after a bloody rampage by pro-
Indonesia militia was sparked when a large majority of East
Timorese voted for independence at a U.N.-administered poll Aug.
30.

Wheat is one of Australia's main exports to Indonesia, along
with cotton and base metals. Australia also imports 20 percent of
its crude oil from Indonesia.

But Australian dollar traders, while concerned about violence
in East Timor, weren't worried by the threat to trade with
Indonesia, which ranks 10th among Australia's trading partners.

The Australian dollar actually rose to US$0.6503 by around 0607
GMT, up from US$0.6481 late Thursday, bolstered by rising global
commodity prices.

Australian investment in Indonesia is also small, totaling
A$1.16 billion in the year ending June 30, 1998, compared with
its largest amount of investment abroad, A$84.26 billion in the
U.S., followed by A$40.91 billion in the U.K. and A$11.03 billion
in Japan.

Indonesian investment in Australia only amounted to A$216
million in 1997-98, according to the Australian Bureau of
Statistics.

Nevertheless, wheat exporters could be hard hit, and a
spokeswoman for Australia's AWB Ltd. said the monopoly wheat
exporter has already begun working on a new sales strategy to
sell its exports outside Indonesia after the local wheat harvest
starts in October.

Friday's news seems to be a "fairly clear indication that
Indonesia's out for a while," she said. "We're reading it that it
looks like business isn't going ahead there."

AWB exported 2.42 million metric tons of wheat to Indonesia
last marketing year ended Sept. 30, 1998, making it the biggest
importing nation. Total exports of wheat from Australia that year
were 15.2 million tons.

Australia's other soft spot in trade with Indonesia is cotton.
Indonesia buys about 30 percent, or about one million bales, of
the 3 million bales a year of the Australian crop, making it the
biggest customer.

"It's a major market, so if there was any backlash it would
create long-term difficulties," said Bob Bell, general manager
marketing listed Namoi Cotton Cooperative Ltd.

Namoi is the largest marketer of Australian cotton, accounting
for just under 1 million bales a year.

Still, while Bell said he has heard of suggestions Indonesian
cotton mills won't take Australian cotton, "we haven't actually
had someone say to us they'd rather not buy Australian cotton."

Indonesia is also an important source of crude oil for
Australian oil refineries, as its crude is well suited for
gasoline production.

But Australian refiners aren't expecting Indonesian exporters
to sacrifice their hard currency earnings by banning exports to
the country.

"At this stage, I'm not aware that there are long term plans
to block oil imports from Indonesia," Jim Starkey, the executive
director of the Australian Institute of Petroleum, told Dow Jones
Newswires.

While a ban on Indonesian exports to Australia would cause
some temporary difficulty for the industry, Starkey said there
are alternative supplies available in the region.

One oil industry source suggested that Vietnamese crude in
particular could be used to substitute Indonesian exports.

Australia's oil-refining industry is dominated by four
companies, BP-Amoco PLC, Mobil Corp. Royal/Dutch Shell Group, and
Caltex Australia Ltd, which is 50 percent owned by Caltex Corp.,
itself an equal joint venture between Chevron Corp. and Texaco
Inc.

Indonesia is also a significant importer of Australian base
metals.

According to the Australian Bureau of Agricultural & Resource
Economics, Indonesia imports a total of 40,000 metric tons of
zinc and 18,000 tons of lead metal from Australia. The zinc
exports formed some 14.6 percent of Australia's total exports of
274,000 tons in the fiscal year ending June 30, 1999 and lead
exports 8.9 percent of Australia's total lead exports.

Indonesia also buys some 43,000 metric tons of primary
aluminum metal from Australia.

Peter Griffin, group manager of public affairs at Australian
zinc and lead producer Pasminco Ltd. said there is currently no
difficulty in Indonesia. "Sentiment over there is still the same.
People are still buying the metal, but we are monitoring the
situation closely," he said.

Australian aluminum producer Comalco Ltd. also said business
to Indonesia is currently proceeding as usual, although it is
continuing to monitor the situation.