Economic Data
Total GDP: (in U.S.$): 113 billion (1998 est.), 227 billion (1996/7)
GDP Growth: -16% (1998), 8.2% (1996/7)
Per Capita GDP: (in U.S.$): 557 (1998), 1,146 (1996/7)
Inflation: 66% (1998), 5.2% (1996/97)
Unemployment Rate: NA (1998), 4.9% (1996/7)
Trade Balance: (in U.S.$): 17.2 billion (1998), 1.2 billion (1996/7)
Exports: (in U.S.$): 52.2 billion; textiles/garments, wood products, electronics and footwear.
Imports: (in U.S.$): 34.9 billion; raw materials, manufactured goods, foodstuffs and fuels.
Key Trading Partners: Japan, U.S., Singapore, South Korea, Taiwan, and the European Union.
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Political instability and the devaluation of the Rupiah, have cut in half the amount of exporting that Ferguson Perforating & Wire Co. of Providence is doing in Indonesia. But Doug Lavasseur, the company’s director of international sales and marketing, hopes that a movement among younger Indonesians toward more democratization will mean greater stability, and a return to the company’s former export levels. ”Hopefully we’ll get back on track,” said Lavasseur.
When trading was at its zenith with Indonesia, Lavasseur said it represented about 9 percent of all foreign trade for a company that is exporting to a variety of countries worldwide. Now it is half that.
The reduction, he said, had “a lot to do with the impact on their exchange rate with the devaluation that occurred.” It got so difficult, he said, that the government appealed to the general population, asking them to fast one day a week to reduce their import requirements for rice. Even though the country produces a lot of rice, Lavasseur said, it still needed to import the product to satisfy the country of 213 million people’s demand for it.
Ferguson Perforating exports to Indonesia screen products that are used in the conversion of sugar cane to raw and refined sugar, Lavasseur said. The product was actually the first produced by the company when it was founded in 1927.
Since then it has expanded its product line to include filters, acoustical panels, and jet engine perforate that it manufactures at its plant in Providence and another in New Castle, Pa. Of the company’s 128 employees, Lavasseur said, 105 work in Providence.
Indonesia, even without the political instability and devaluation is a difficult country for trade, Lavasseur said. Problems are in the form of foreign competitors in Germany, Taiwan, Japan and India, some of which receive tax benefits from their own countries as an encouragement to export, allowing them to factor the benefit into their pricing. In the U.S., he said, there are no similar incentives.
Additionally, the geography of the country of “many, many islands,” Lavasseur said, logically makes it a difficult land to govern.
And while he said the Indonesians like to “barter,” they leave little room when it comes to the letter of credit they require. Other than the opening letter, Lavasseur said, Indonesia will not bear the cost of any amendments that may be required. Sometimes you have to factor it into your price structure,” Lavasseur said.
Generally in Indonesia and other third world countries, Ferguson Perforating works through representatives in the country, although Lavasseur said they do deal directly with a couple of companies.
”The bulk is through a couple of representatives or distributors,” Lavasseur said. “We’ve tried other arrangements in other countries, but because of political and economic situations that develop, it really can upset the strategies.”
Republic of Indonesia
Location: Southeastern Asia. An archipelago of 17,000 islands (6,000 inhabited) straddling the equator, between the Indian and Pacific Oceans.
Total Area: 1,919,440 square kilometers. Slightly less than three times the size of Texas.
Climate: Tropical, hot and humid. More moderate in highlands.
Main Cities: (estimated population 8.8 million), Surabaya ( three million), Medan (2.5 million), Bandung (2.5 Million)
Population: 213 million (July 1998 estimate), 87% Muslim.
Languages: Indonesian (official), local languages, the most important being Javanese
Work Week: Monday through Friday
Labor Market: 90 million: Agriculture 44%, Manufacturing 13%, Construction 5%, Transportation/Communications 4%, Services 34%.
Type of Government: Republic
Head of State: President Bacharuddin J. Habibie
Currency: Rupiah
Exchange Rate : 6,715 rupiah to U.S. $1 (July 1999)
Economic and Political Conditions: Indonesia was especially affected by the Asian financial crisis, because of inadequate banking supervision, excessive corporate borrowing and weak microeconomic policy. Indonesia reached an agreement with the IMF in June 1998 that focused its stabilization process on reconstructing the distribution system, strengthening the social safety net, and addressing the poor condition of the financial system.
By May 1999, Indonesia was clearly beginning to recover. Economic decline was stabilized. Exports increased, improving the trade balance. Inflation and the exchange rate nearly returned to pre-crisis levels. State banks are restructuring, while several private banks prepare for re-capitalization. Legal reforms and privatization efforts are proceeding. As a result, the IMF has made an additional $450 million available to Indonesia, bringing total IMF aid to $9.5 billion.
Indonesia held the first free elections in 44 years in June. The Indonesian Democratic Party of Struggle captured 34 percent of the vote. Its leader, Megawati Sukarnoputri, hopes to claim the presidency. The Golkar Party, the party of former President Suharto and incumbent President Habibie, won 22% of the vote.
Tariff, trade, pricing, rights
Tariff and Trade Regulations: In recent years, the Indonesian Government has reduced protection of the economy through simplified and more transparent tariff structures, as well as policies that encourage foreign and domestic private investment. In conjunction with its stabilization program agreement with the International Monetary Fund (IMF), the government has issued a series of reforms that have reduced taxes, tariffs, and quantitative restrictions on exports and imports. Indonesia’s applied tariff rates range from 5 to 30 percent, with some exceptions.
Free Trade Zones: Numerous Export Processing Zones (EPZs) have been established in Indonesia. Several bonded zones are designated as entry ports for export-destined production. Companies are encouraged to locate in bonded zones or industrial estates whenever possible. Other free trade zones include a facility near Tanjung Priok, Jakarta’s main port, and a bonded warehouse in Cakung, also near Jakarta. A duty drawback facility exists for exports located outside the zones. Producers within bonded areas may sell up to 15 percent of their product in the local market. Foreign and domestic investors that want to develop projects in a bonded area must apply to the National Investment Coordinating Board.
Foreign Ownership/Licensing: Foreign investors are allowed 100 percent ownership, but are required to divest a share, as little as 1 percent, after 15 years. Joint ventures are often critical to success, since the partner has the knowledge and contacts for successful business development. Partnerships are based primarily on mutual understanding rather than formal contracts, and are difficult to dissolve. Licensing agreements are often the most cost-effective way to enter the Indonesian market.
Export/Import Control and Documentation: A company must have a pro-forma invoice, commercial invoice, certificate of origin, bill of lading, insurance certificate, and any special certificates.
Trade Financing: Since the Asian economic crisis, trade financing has drastically changed. Most Indonesian banks now are technically insolvent. U.S. firms interested in exporting to Indonesia should be prepared to offer financing packages. Several American banks have offered trade finance packages for their customers, some with Ex-Im Bank guarantees. Although the U.S. Ex-Im Bank is not currently processing export applications, as Indonesia stabilizes, financing options will again be available.
Marketing and Selling Factors: Indonesian consumers tend to be sensitive to fluctuating economic trends and thus more concerned with price than product quality. Indonesians value brand loyalty and name recognition, which means those firms that make an established commitment to the area are more likely to be successful.
Product Pricing: Pricing is best determined through market research and the advice of local distributors.
Patents/Trademarks/Copyrights: A patent may be held for 14 years, with a two-year extension. Trademarks are granted on a first-to-file basis and must be used in commerce. The newly amended Indonesian copyright law offers protection for foreign works and has raised its protection to suit international standards. The U.S. and Indonesia reached a bilateral agreement that extends reciprocal protection between the two countries. Indonesia rejoined the Berne Convention in 1997.
Key Contacts
RI Export Assistance Center and World Trade Center
Raymond W. Fogarty, Director
Edward Barr, World Trade Center Manager
Telephone: (401) 232-6407 or (401) 232-6408 Fax: (401) 232-6416 E-Mail: mailto:postoffice@itdn.net postoffice@itdn.net
Website: http://www.rieac.org http://www.rieac.org
Rhode Island Economic Development Corporation (RIEDC)
Maureen Mezei, International Trade Director
Telephone: 222-2601, ext. 123 E-Mail: mmezei@riedc.com
U.S. Export Assistance Center, Department of Commerce
Keith M. Yatsushashi, International Trade Specialist
Telephone: (401) 528-5104 E-Mail: mailto:kyatsuha@mail.doc.gov kyatsuha@mail.doc.gov
Embassy of the Republic of Indonesia
2020 Massachusetts Avenue NW, Washington, D.C. 20036
Tel: (202) 775-5351 Fax: (202) 775-5365
Website: http://www.kbri.org http://www.kbri.org
Consulate General of the Republic of Indonesia in New York
5 East 68th Street, New York, NY 10021-4903
Tel: (212) 879-0600
English Language Publications:
Antara (Official News Agency of Indonesia)
http://antara.co.id http://antara.co.id
Tempo Interactive (Indonesian Business Journal)
http://www.tempo.co.id http://www.tempo.co.id
Bisnes Indonesia
http://www.bisnes.com http://www.bisnes.com
The Jakarta Post
http://www.thejakartapost.com http://www.thejakartapost.com
Country Profile
Compiled by Providence Business News,
in collaboration with Bryant College Export Assistance Center.
