T

his is just the start of the cabinet formation process, so it might be premature to talk about ministerial seat allocation and candidates. But behind the scenes, the man to watch is Kuntoro Mangkusubroto, former head of Rehabilitation and Reconstruction for Aceh (BRR), who is quietly helping the President form his new cabinet.

Kuntoro will be assessing what the President would like to achieve for the next term and suggesting an appropriate cabinet structure, before recommending appropriate ministerial candidates.

Some are already talking about a cabinet structure whereby the President takes care of Home, Defense and Foreign Affairs, while Vice President Boediono oversees Social Welfare and the Economy.

Interest rates are on the decline, but not fast enough, according to Bank Indonesia. As a result, banks are asked to set deposit rates not more than 1.5 percent above the central bank's BI benchmark rate (now at 6.5 percent).

This spread would be further narrowed down to 0.5 percent by December 2009. Bank deposit rates have been high, as banks, especially the state banks, competed for deposits to fund their large loan growth.

It remains to be seen whether this would ultimately lead to limits on lending rates, which banks fear.

This would squeeze interest margins, but would also reduce loans to high risk segments, as interest margins reflect risk. Higher lending rates, like loans on credit cards outstanding, reflect higher risk

Nevertheless, lower interest rates have been positive for the bond market, with a surge of companies planning bond issuances. PLN and Pertamina, the state utility and oil companies, respectively, are both planning large bond issuances.

03Aug: Forest certification in place

The Forestry Ministry has launched certification of forestry products that would involve independent evaluators. This certification unit would certify whether forest management companies (HPH), forest production companies (HTI) and forest communities (HTR) meet required environmental standards.

03/08Aug: Donggi-Senoro LNG project problems

Donggi-Senoro LNG project in Central Sulawesi faced uncertainty with the Japanese (Kansai Electric Power Co. and Chubu Power Col) buyer agreement options having officially expired.

The LNG project is operated and owned by Pertamina (29 percent ownership), Medco Energi Internasional (20 percent) and Mitsubishi Corp (51 percent).

Under the expiring buyer agreement, the Japanese buyers would purchase one million tons of LNG per year for twelve years, starting in 2012.

The problem was caused by Vice President Jusuf Kalla's decision that gas from the Senoro and Matindok fields had to be sold domestically, which wasn't part of the initial agreement. A few days later Japan's Kansai Electric Power Co. Inc. made it official and cancelled its plan to buy LNG from the Donggi-Senoro plant.

04Aug: Inflation at all time low

July YoY inflation at 2.7 percent dropped to its lowest level in nine years.

The government projects 2009 inflation to reach 4 percent.

04/14Aug: PLN issuing $750m bond

State Power Company, PLN, plans to issue US$750 million 10 year bonds paying a yield between 8.25-8.5 percent. The arrangers are UBS and Barclays.

PLN plans to raise another Rp 2 trillion rupiah-denominated bond in 4Q09, up from initial plans of Rp 1.5 trillion. PLN is seeking funds to finance its second 10,000 megawatt power plant expansion.

04/19Aug: BUMI consortium eyes Newmont stake

A BUMI Resources affiliate, Multicapital, and three local governments, West Nusa Tenggara province, Sumbawa and West Sumbawa districts have formed a joint venture called Multi Daerah Bersaing to bid for 10 percent of Newmont Nusa Tenggara (NNT) as part of Newmont's divestment program.

Antam, a state mining company, is being encouraged to join the Multi Daerah Bersaing venture.

Later in the month, the government, represented by a consortium of state owned companies, led by Antam with Tambang Batubara Bukit Asam plans to bid for an additional 14 percent NTT stake under its divestment program.

06Aug: BI lowers rate again

Bank Indonesia cut its BI rate by 25 basis points to 6.5 percent, but noted concern about potential inflation going ahead, indicating that further rate cuts would be unlikely.

07/14Aug: Red Dragon $4b suit

Aquaculture giant, CP Prima's shareholder, Red Dragon Group Pte Ltd has filed a lawsuit in Central Jakarta's District Court against bond trustee bank, Bank of New York Mellon and its custodian agent, Bank Danamon for executing a transfer of shares, which is part of the bond collateral, to bondholders at the request of bondholders.

The bonds issued by CP Prima amount to US$200 million. The hearing begins later in the month. Meanwhile, CP Prima shareholders have also filed a lawsuit in a London court against the bondholders.

The bondholders are accused of having acted illegally when they instructed the trustee bank to issue a notification of default, which led to the transfer of collateral shares to the bondholder.

10Aug: 2010 Tax revenues up 10%

The government is projecting 2010 tax revenues to reach Rp 729 trillion, a 10 percent rise over the revised 2009 state budget, resulting from projected higher economic growth. The 2010 economy is projected to grow 5 percent, compared to 2009 growth, which is estimated to reach 4 percent. Inflation is projected to reach 5 percent next year from this year's estimated 4.5 percent this year.

13Aug: Mutual Fund grows 39%

The value of assets managed by mutual funds reached Rp 104 trillion as of July 31, exceeding analyst estimates of Rp 100 trillion at year-end.

This represents a 39 percent rise from the Rp 74 trillion managed at the start of 2009.

The largest component of assets managed are equity funds comprising about 35 percent, followed by protected funds with 30 percent, fixed income funds with 14 percent, balanced funds with 13 percent, market funds with 4 percent and sharia funds with 3 percent.

13Aug: Bank loans grow 2%

Bank loans grew a mere 2 percent for 1H09 to Rp 1,335 trillion.

As a result, the central bank is scaling down its loan growth target for the year to 12 percent from 15 percent earlier. As of June, gross NPLs stood at 3.9 percent up from 3.2 percent as of December 2008.

19Aug: Minister requests FTA delay

Industry Minister, Fahmi Idris is seeking a delay in implementation of the FTA between ASEAN and China, citing concern over its impact on domestic industries.

The FTA signed in 2004 will become effective on 1 January 2010.

22Aug: Pertamina becoming non-listed public firm

Government is coming out with a regulation that requires Pertamina, the state oil company, to comply with all regulations and best practices of publicly-listed companies, without having to list shares in the stock market.

This is to improve transparency and accountability and paves the way for privatization going forward.

24Aug: Safeguard measures with FTA

Government is speeding up safeguard measures to protect domestic industries facing reduced tariff barriers with a number of FTA's becoming effective.

Domestic producers are calling on the government to speed up investigations on imports and trade protection measures such as anti-dumping, anti-subsidy and local standard requirement measures.

27Aug: Court rejects Danamon appeal

The Central Jakarta District Court rejected Bank Danamon's motion to start bankruptcy proceedings against paper producer Esa Kertas Nusantara (EKN) in relation to the outstanding loans owed to the bank.

Separately, EKN is counter-suing Danamon for selling "misleading" derivative products to the company.

31Aug: Century Rp 6.8t bailout questioned

The State Audit Board (BPK) is doing a review of the bailout of Bank Century, which was done late last year. Estimates of the burgeoning bailout cost have gone up from Rp 1.6 trillion to Rp 6.8 trillion.