Re-Worked Rupiah...

With so many pressing and important matters to deal with in Indonesia, the government has gone straight to the biggest and most pressing of those issues, the currency. The government has decided that there is a need for a new IDR 1000 coin and a new colour scheme for the IDR 10,000 note.

The coin is a nickel coated steel deal with the Garuda symbol on one side and Gedung Sate with an angklung in the foreground on the flip side.

The colour scheme on the note was so 1990s that the government felt the note needed a little sprucing up and decided on a colour change.

Seriously though, there must have been a real important reason for doing this. Is it a new and improved security measure?

Look Whose Smiling Now...Will it Last?

There are some things that just beggar belief and then there are those things that just seem too stupid for words. But, any of you that have read this blog will know that I am rarely stuck for words even when things seem to be too stupid for them.

Comm. Gen. (Police) Susno Duaji found time to make a visit to the Corruption Eradication Commission (Komisi Pemberantasan Korupsi / KPK) to get an update, or as he would prefer to call it, a clarification. Why is this too stupid for words? Anyone who thinks a little bit about this situation will see that this is nothing short of a very public attempt at intimidation. Duaji is saying, "You wanna mess with me, then you end up a suspect, and out of a job!"

This sort of behaviour is reminiscent of a Mafioso made man. It is the behaviour of a man who thinks his back is covered and he is protected. Just sometimes, and only sometimes, these are the people that are most exposed. If for no other reason than they are expendable as the bigger fish look to tie off any loose ends.

By putting himself front and centre on this one, Duaji also becomes the most likely to take the fall or become the scape goat when this whole affair goes pear-shaped. And, it will go pear-shaped, and perhaps soon.

The focus here needs to be only on Duaji at this point in time. Somehow, I believe that there are plenty of people who would share my belief that Duaji wants it no other way.

This post does not lend itself to a very long expose. The spat between the KPK and Duaji, and perhaps the Police, is long on details. Nevertheless, there are a few pertinent details that are worth repeating, along with some educated speculation about why it came about in the first place. It is also worth noting that this is bigger than one man and a couple of state institutions in the form of the KPK and the police.

There are others involved here. This case involves a traceable money trail and it goes without saying that perhaps the Indonesian Financial Transactions Reports and Analysis Center (Pusat Pelaporan dan Analisis Transaksi Keuangan / PPATK) uncovered a trail of cash and other illicit payments that may implicate a number of those individuals that seem intent on shutting down any KPK investigation into Bank Century, and by default Bank Indonesia (Indonesian Central Bank).

Interestingly, if this case does involve BI, and it seemingly does, then who would be involved at that level? When the Bank Century bail out was being discussed and ultimately approved, the Vice President-elect was at the helm. One would have to wonder whether or not there is going to be a concerted effort to shield the VP-elect from any fallout that may eventuate. So, in that case, who takes the fall? Sri Mulyani Indrawati?

It would also seem that the Office of the Attorney General is intricately and intimately involved in the process of facilitating this fiasco. There is plenty already in the public record that suggests that, at least, at the second tier level of AGO officials there was a concerted effort to facilitate an end to the Anggoro Widjojo investigation.

This is a case that will unravel because their are too many hands in the cookie jar.

There is little doubt that Duaji has gone "balls to the wall" on this one. He is investing everything that he has to protect his interests, and perhaps the interests of some others as well. So much so that there are clear breaches of the police code of ethics with respect to the abuse of authority and in terms of more technical aspects of police officers doing their duty and fulfilling their obligations as officers.

It is time that the Chief of Police and the President became more pro-actively involved in this issue. The Chief of Police must stand Duaji down until the investigations are complete.

The potential for this mess to become even uglier and dirtier is huge. Sometimes it is worth while just sitting back and thinking about how big this case has become and how big it is likely to become.

Is it big enough to bring down SBY? Who knows? What does seem certain is that more heads are going to roll!

(Photo courtesy of here)

Will This Cause Inflation?

There is a bit of concern that the introduction of the new 2000 rupiah note will lead to inflation as merchants jack up their prices with a view to not having to give change. However, these concerns have been dismissed by the Finance Minister, Sri Mulyani Indrawati, as "theoretically impossible".

I have been hearing that the notes are pretty popular in the lead up to the Idul Fitri (Eid ul-Fitr) celebration. Indonesians tend to give crisp new notes as gifts to young children in recognition of the end of the fasting month.

There is a press release on the currency release here (in Indonesian).

Sri Mulyani Indrawti -- Governor of the Indonesian Central Bank?

Politics in Indonesia is a strange animal and even stranger are the motivations of those that play. The latest rumor or perhaps a little more than rumor now that the incumbent president, Susilo Bambang Yudhoyono or SBY to his friends, has said that he is considering it, is the selection of Sri Mulyani Indrawati (photo) as the prospective Governor of Bank Indonesia (Indonesia's Central Bank).

Sri Mulyani is one of SBY's best performing Ministers, if not his best performing Minister. She holds the Finance Portfolio and since the former Coordinating Minister of Economic Affairs, Boediono, was appointed to Bank Indonesia, she has held that portfolio as well.

She is a world class reformer and has made significant inroads into reforming the bureaucracy. She is generally considered to have been successful in her role and been a driving force in cleaning up her department.

Why is it that her appointment to Bank Indonesia is problematic when Bank Indonesia is also an institution that could benefit from her reforming ways? Well, the move reeks of marginalizing the competition and a real shaker and mover on the agenda of reform. A move to Bank Indonesia takes Sri Mulyani out of the majority of the policy areas that she has been so intimate and successful in to date. Almost certainly leading to a waning of her influence in real and broad reforms.

The move is a backward step for those interested in the bureaucratic reform of government. This is not to say that there are not worthy candidates to replace her, there are. This is a backward step because whoever replaces her would have to work twice as hard to develop the gravitas she has acquired during her time in the position. If SBY, and Boediono, are serious then the most sensible move would be, assuming SBY and Boediono win the presidency and vice-presidency, is to make Sri Mulyani the Coordinating Minister of Economic Affairs in the next SBY Government.

There is little doubt that Sri Mulyani would be appointed to the position of Governor of Bank Indonesia if she were proposed as a candidate. Her confirmation through the Indonesian House of Representatives (DPR) would not likely encounter much resistance, if any.

Income Tax Bill -- Passed

This is an updated and expanded version of an earlier post.

Overview

The amendment of the Income Tax Law has been in the pipeline for some time and as is the Indonesian way of legislation, important bills tend to have myriad of issues identified within the proposed provisions. The list of problems identified with the amendments runs to some 770 issues in this case. This list of problems ensures that debate is long and passage time even longer. It also meant that Commission XI of the House of Representatives (DPR) and the Work Committee set up to resolve these issues had plenty of work to do.

Passage
This work was expected to be resolved by the end of 2008 and the amended legislation will be passed by the DPR. However, the DPR has seemed to have made light work of the problems and the Bill was passed by the DPR on 2 September 2008. The general consensus was proved right in that the amendments were technical in nature and did not trigger a significant ideological or policy debate.

Individual Tax Rates
The amendments ensure that there is a reduction in the number of taxation levels from the current five to just four. The maximum rate of taxation will fall from 35% to 30%. Salaries up to IDR 50 million will be taxed at 5%, salaries between IDR 50 and IDR 250 million will be taxed at 15%, salaries from IDR 250 to IDR 500 million will be taxed at 25%, and salaries above IDR 500 million will be taxed at 30%.

Fiscal Tax
The amendments also see the removal of the Fiscal Tax that is paid by residents leaving the country. This will be phased in commencing in 2009 and be in full operation from 2011. The idea of phasing out the fiscal tax is based on the assumption that people will obtain a tax file number in order to be able to take advantage of the no fiscal clause. Therefore, those who already have a tax file number appear to be the most likely to see an immediate benefit from this initiative.

Tax Incentives
Other amendments include incentives for those making contributions to religious activities; incentives for listed companies; incentives for micro, small, and medium enterprises; the taxing of revenue not currently classed as taxable objects (such as the Bank Indonesia surplus), and incentives designed to make Indonesia an attractive destination for both domestic and foreign capital investments.

The amendments are expected to ensure that Indonesia has in place a modern, effective, and efficient tax code that will contribute significantly to national development.

Earlier Versions of the Bill
The only difference of note between the earlier version of the Bill and the one that was passed by the DPR is that the intended insertion of Article 2A did not survive the discussion and debate process and consequently was not inserted into the final version of the Bill.

Amendments
However, for the purposes of review, the new law clarifies or simplifies the following income tax matters:

1. subjects and objects of tax;
2. tax object exceptions;
3. claimable fees;
4. spouses that choose to have a tax payer number of their own;
5. net income calculation norms;
6. non-taxable income thresholds;
7. tariffs;
8. tax avoidance prevention;
9. deductions;
10. foreign tax credits;
11. taxation provisions in the mining and Syariah sectors; and
12. tax facilities for micro, small, and medium scale enterprises.

Corporate Tax Rates
Aside from the benefits that individual tax payers get to enjoy from the amendments, it is worth noting that the government has not ignored corporate tax payers. The current corporate tax rates of 10%, 15%, and 30% will disappear in 2009 in favour of a single corporate tax rate of 28%. In 2010, this corporate tax rate will fall to a flat 25%.

For those companies wanting to go public the new tax provisions provide for a 5% discount on the usual applicable tariff where at least 40% of the shares being offered are offered to the public and subsequently purchased by public buyers.

The government realizes that micro, small, and medium scale enterprises play a significant role in employment and development in the regional areas of Indonesia. Therefore, the recently passed bill recognizes this contribution by providing a discount of up to 50% on the applicable tax rate up to IDR 4.8 billion for gross distribution.

Non-Taxable Objects
As was noted earlier the Government has moved towards phasing out the fiscal tax currently payable by all Indonesians and residents of Indonesia. However, other objects that are no longer going to be subject to tax include student scholarships, financial assistance, educational funds, and research and development. It must be noted that the exemption on research and development taxation is dependent on the excess funding being ploughed back into the research and development program within four years.

Conclusion

It is clear that the Government intends to improve the legal certainty of tax collection in Indonesia. However, this requires that the government tighten enforcement and tighter enforcement requires provisions that are not only clear but easy to comply with.

Indonesian tax payers will be bearing a lighter tax burden in the future and the Department of Finance is of the belief that the lighter the burden the more likely income earners without a tax number are going to register and pay tax. This will increase tax revenue and decrease the numbers of Indonesians not paying their share.

The key will be enforcement. The provisions appear reasonably solid. The only thing standing in the way of the Directorate General of Tax collecting all payable tax is no longer the legislation but the methods used to enforce the provisions.

Terrorism Attack -- Aborted

The 10 Islamic terrorists arrested recently in Sumatra had intended to bomb the Kafe Bedudel in Bukittinggi. They had even gone as far as to plant the devices at the cafe. Fortunately, the were overcome with a conscience and aborted the plan when it became obvious that there would be more Indonesian victims and more Muslim victims than there would be foreigners or westerners.

The group had decided to select a target in Jakarta instead where they would be more likely to get a better kill ratio of foreigners to locals.

Maybe time for an enhanced travel warning?

Corruption In Indonesia

The recent arrest of the fifth currently serving politician, Bulyan Royan, for alleged corruption this year proves two points; the Corruption Eradication Commission (KPK) are getting better at their job and that politicians are still living in the New Order mentality that has them thinking they are immune from arrest and prosecution.

Those arrested to date include Saleh Djasit of the Golkar Party, Al Amin Nasution of the United Development Party, Hamka Yamdhu of the Golkar Party and Sarjan Taher of the Democratic Party for bribery.

Saleh was arrested for his alleged involvement in a IDR 12 billion markup in the purchase of fire trucks while he was Riau Governor from 1999 to 2004.

Al Amin was arrested at a five-star hotel in Jakarta after allegedly receiving a bribe of some IDR 3 billion for his assistance in trying to win government approval to convert a protected forest area into a production forest. He is married to a famous singer and when he was arrested he was allegedly in the company of an "escort".

Hamka is accused of receiving Bank Indonesia money as a bribe for helping to pass a law on Bank Indonesia.

Sarjan was arrested for alleged involvement in a South Sumatra bribery case.

The KPK has also arrested two former lawmakers, Anthony Zeidra Abidin of Golkar Party and Noor Adenan Razak of the National Mandate Party, both who are alleged to have received bribes.

What is interesting is that after coming in for some exaggerated criticism from lawmakers earlier in the year about the KPK being nothing but a toothless tiger that would never be able to live up to its promise on paper, the KPK has had some spectacular successes. There are a few people who must be wondering about how quickly this toothless tiger has emerged and started stalking its prey. A little bit of fear is just what the doctor ordered. Anything that makes people think twice before heading down the corruption path is a good thing.

Bulyan is alleged to have been instrumental in the program for the procurement of patrol boats by the Transportation Ministry's Directorate General of Sea Transportation. The allegation is that of graft. When the KPK arrested Bulyan he was carrying some USD 66,000 and 5,500 euros in cash. The program is to procure 20 patrol boats and the funds allocated for this total some USD 12.4 million.

Even more fun is that the Secretary General of the Reform Star Party, Usman Ali, has said that Bulyan has told him that he received the cash from someone else but has yet to say who that someone is. But then Ali went on to say that the Reform Star Party is a small party and that Bulyan could not have done this by himself. This in effect suggests that there are more people involved in this little corruption scam and that it is likely to include more politicians.

There is nothing more fun than a little scandal whether it be corruption or sex or a bit of both!

Childcare in Indonesia

Save the Children has released a report titled, "Someone that Matters: The quality of care in childcare institutions in Indonesia", the report is jointly published by the Department of Social Affairs and UNICEF.

It is estimated that up to 500,000 children live in institutions in Indonesia. This equates to almost 0.6% of the estimated 85 million children living in Indonesia. The report looked at only 37 of the estimated 5,000-8,000 childcare institutions that are believed to be operating throughout Indonesia. Most of these institutions are privately run and most are faith-based. The 37 institutions were related in just 6 of Indonesia's provinces. So, in many ways this is nothing more than a snapshot of the very much larger whole childcare industry.

The report looks at the legal and policy framework that regulates childcare institutions. What is truly interesting in this report is the link between the number of children in institutions and poverty. The report states that a mere 6% of the institutional population are orphans. More than 90% of those in these institutions are there because their parents cannot afford to give them the opportunities they deserve. Most parents believe that putting their children in an institution is more likely to ensure that they get an education (or at least a part of an education) and that they get fed.

This parental dream might just be that, as the report is fairly explicit that in a lot of case rules and procedures were not followed and children received minimal if any care. The report concludes by stating what seems to be the obvious and that is that there is a need to limit unnecessary institutionalization and to increase the quality of the services provided to children in care.

The Indonesian Supreme Court

The spat between the Indonesian Supreme Court and the State Audit Board headed up by Dr. Anwar Nasution has been an up and down ding dong battle with the Supreme Court seemingly coming out on top for now. The problem revolves around how the Supreme Court is to report the revenue it generates from court fees. This revenue is categorized as non-tax State revenue and in theory does not have to be reported in the same manner as tax revenue. However, it seems unconscionable that this revenue is not to be reported or accounted for at all!

The reality is that the Supreme Court is balking at an audit because it knows that it cannot account for all of the revenue collected. For most statements to the effect that all of the money has been legitimately spent on administrative matters like case management and photocopying rings a little hollow if this has not been properly receipted. If other tax payers are held to account and required to document their claims, then it is reasonable that State institutions be held to the same standard.

Indonesian Corruption Watch (I can link you to their site but it has been hacked by the Free Kosovar Movement and after more than a month the site still has not been repaired) is reporting that the Supreme Court has collected somewhere in the vicinity of IDR 31 billion and to suggest all this money has been utilized only for photocopying and filing purposes and some court administration procedures beggars belief. The Supreme Court should and must be able to do better than that. It is worth noting that the Supreme Court and the Chief Justice (photo above) are on record as to having agreed to be audited once the government passes legislation to that effect. This agreement is one that goes forward and therefore meanings any indiscrepancies or past abuses will be immune from the audit process.

In an era of legal reform both in the laws themselves and the institutions involved, the Supreme Court's approach is not one that rings true of this spirit of honesty, transparency, and equality of justice. For this reason alone it is no wonder that people remain skeptical of the Court's commitment to true reform!

Travel Warnings for Jakarta

The United States has lifted its eight year old travel warning for Indonesia. The US Ambassador to Indonesia, Cameron Hume, cited an improved security situation, the lack of recent bombings, and a weakened Jemaah Islamiyya.

I would reckon that this is more than just a case of Indonesia making a request to lift the travel warning. My guess is that the US would have independent intelligence that indicates that there is in fact an improved and continuing to improve security climate in Indonesia.

Hopefully this does not breed complacency.

The picture of the US Ambassador was borrowed from the US Embassy in Jakarta website.

Indonesia and Foreign Labor

There are lots of expatriates in Indonesia. However, this is just an impression as I have not yet bothered to enquire of the Indonesian immigration services as to exact numbers but I will over the next couple of days! There are probably many expats who have a horror or perhaps even a funny story related to the trials and tribulations that are working in Indonesia and dealing with Indonesian immigration officials.

However, some of these stories probably relate to the incompetent businesses and companies that often employ them and as often seek to circumvent the applicable rules such as paying the USD 100 per month foreigner tax or employing someone in a different capacity to that which was claimed in the application process.

A recent decision from the Industrial Relations Court had opportunity to canvass some of these issues and the decision that was handed-down apparently does very little to clarify the position of expatriate labor in Indonesia but in fact makes any foreigner employed in Indonesia susceptible to the strong-armed tactics of employers. The applicant in this case is a foreigner and the claim was that more than 30 violations of the Indonesian Employment Law (Law No. 13 of 2003) were committed in the recruiting, hiring, and subsequent firing of this person.

As I said, I have not seen the decision yet and will not comment definitively until I have. But if the grapevine is true to its word, and it usually is, then this is a story I will post more on when I have it. Apparently, the decision is going to be appealed so perhaps there will be more wide-spread media coverage of the nitty gritty details for us to peruse.

Astro Soccer

Some might prefer football as opposed to soccer but no matter what your fancy in that regard, if you are an Astro subscriber you are getting screwed out of your subscription fees -- you're paying and Astro is not showing!

Aside from the monopoly rights issues that the Commission for the Supervision of Business Competition is looking into, the very fact that there are some 140,000 subscribers to this Pay TV operator who are not getting service begs the question; what's the problem here?

It seems that Astro has failed to pay some administrative fees and as a consequence the Department of Communication and Information has suspended their broadcasting rights. This is presumably until Astro comes good with the outstanding fees that have already beendue and payable for some time. As my good cyber colleague, Jakartass, points out that the outsatnding fees total some USD 20,000 and the block / suspension of services is costing Astro some USD 100,000 per day.

The obvious, and perhaps stupid question for the seemingly stupid Astro people, is why wasn't some of this USD 100,000 big 'uns directed towards paying these administrative fees?

I do not subscribe to Astro because even though it has the EPL the rest of its offerings are a little lame and I get more from my current provider at a cheaper price! Being a die-hard Arsenal fan I would have been a little bit annoyed if I was an Astro subscriber and could not get to see the game particularly when I had paid my fees and the company I paid them to for the privilege to watch the game was too damn incompetent or poorly managed (perhaps they take their name seriously over at Astro and all their employees are a little "spacey" and that's not Kevin Spacey!) to see that my fees got paid to the right people in order to satisfy their legal obligations.

Another example of big business taking their customers for the proverbial ride!

Sad, sad, sad!

The Indonesian Equation -- Legislation + Money = Corruption

With the recent arrest of the current Bank Indonesia (Indonesian Central Bank / BI) Governor, Burhanuddin Abdullah, for the alleged misappropriation of some USD 11 million from the bank in payments to various legislators to ensure the passage of BI related bills and legislation has proved that money and legislation just do not mix!

The Governor's official tenure in office does not end until May. However, the House of Representatives (DPR) has just approved the current Coordinating Minister of Economic Affairs, Boediono, as the next Governor of BI. In light of the arrest and detention of the current Governor perhaps the Governor-designate needs to move offices and get an early start!

One hopes that this signifies that the Corruption Eradication Commission (KPK) is getting better and more competent at its job and a more coordinated and significant effort to reduce corruption will be the norm from now on.