Indonesia WT/TPR/S/184 
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IV. TRADE POLICIES BY SECTOR 
(1) INTRODUCTION  
1. Indonesia has taken significant steps to liberalize its trade, investment, and regulatory regimes 
in several key sectors during the period under revi ew, although the scope of the liberalization has 
affected some sectors more than others.  
2. Agriculture supports the largest segment of the Indonesian population and the poor, and has a 
primary role in achieving the objective of poverty alle viation.  The two thirds of farming households 
in Indonesia who are net consumers of rice were adversely affected when the Government announced 
a seasonal import restriction on rice from January  2004, which has been extended repeatedly and 
effectively become permanent.  Indonesia has re moved a number of licensing restrictions affecting 
agriculture.  Sanitary and phytosanitary and food qu ality regulations have le d to import restrictions, 
particularly on animals and animal pr oducts and other food items requiring a halal  certificate.  In the 
forestry sector, the ban on log exports was reinstated  in a bid to stem losses from the smuggling of 
illegally felled logs, which is th ought to account for more than half of output from the sector.  
However, this may not adequately address envir onmental damage caused by illegal logging and may 
instead depress prices, thereby encouraging do mestic processing of wood-based products.   
3. The 2001 liberalization of the oil and gas sector has allowed foreign firms to enter the oil 
market, particularly in exploration and production;  private companies are now  allowed to open retail 
outlets for fuel.  Pertamina's monopoly on importi ng and distributing fuel has been lifted, and 
refining, storage, and transport have been liberali zed;  Pertamina was scheduled to be privatized in 
2006.  An electricity law passed in September 2002 e nvisaged an end to the state electric company's 
monopoly on electricity distribution and the possibility for private companies, both local and foreign, 
to sell power directly to consumers within five years.  In January 2005, however, the Constitutional 
Court announced that the law was unconstitutional and it was annulled. 
4. Indonesia's average applied MFN tariffs for the manufacturing sector have been reduced, but 
certain industries (e.g. chemicals, fabricated meta l products, motor vehicles, motor cycles, bicycles) 
continue to be subject to high rates.  In th e textiles and clothing subsector, average MFN tariff 
protection has dropped to 10.3%.  However, si nce 2002, under a decree concerning textile import 
arrangements, only companies that have productio n facilities using imported fabrics as inputs for 
finished products may obtain import licences.  Th ere are no limits on foreign ownership in the 
automotive sector and no local-content requirements or incentives.  Tariff barriers have also been 
lowered, although they remain hi gh by international standards. 
5. The financial sector has undergone major restructur ing and reform since the financial crisis in 
1997-98. The Indonesian Bank Restructuring Agency  (IBRA) oversaw substantial consolidation 
during its six years of operation, but a large portion of the banking system remains in government control. During the period under review, I ndonesia has continued to make progress towards 
establishing a strong and competitive private banking sector although the two biggest state banks still 
have weak governance and large non-performing lo ans (NPLs). According to Bank Indonesia, total 
banking sector NPLs as a percentage of total loans rose to 9.3% in 2006 compared to 8.2% in 2003. 
Banks still dominate the financial system, accounting for 80% of financial assets but the strengthening 
of non-bank financial institutions (NBFIs) -  such  as insurance companies, finance companies  and 
pension funds, while small for a country of Indonesi a's size -  has become a key policy imperative, as 
articulated in the 2006 financial sector policy reform  package. The development of NBFIs promises to  
increase access to low-cost financ ial services and mobilize domestic savings and channel them into 
profitable investments. WT/TPR/S/184 Trade Policy Review 
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6. Indonesia has been undertaking significant policy reform in the telecommunications sector.  
This has brought about increased priv ate sector and foreign participation.  The two main carriers, PT 
Telkom and PT Indosat, which are 65% and 16% state- owned, respectively, have been partially sold 
to private investors.  Competitive licences have been awarded for the provision of GSM mobile 
services, Internet services, and other value-added services. 
7. Given its size and island structure, Indonesia f aces considerable challenges in establishing the 
extensive transport infrastructure  essential for its economic and social development.  Road 
development policy is focused on increasing road cap acity and quality by strengthening main national 
road corridors and providing better access to less de veloped and remote areas. Ports are generally 
inefficient, imposing additional time and costs on domestic cargoes  and exports.  While the main 
airports function well, increased transport demand due  to deregulation and the proliferation of low-
cost airlines is putting pressure on capacity at medium and small-sized airports. 
8. Agriculture (including animal husbandry, fishing, and forestry) accounted for almost 13% of 
GDP in 2006;  it remains the most important sector in terms of employment, providing livelihoods for 
over 44% of the workforce, which indicates that labour productivity in agriculture is only one fifth of 
the level in the rest of the economy.  The country has a vast range of mineral resources, which have 
been exploited intensively, enabling the mining sector  to make an important contribution to exports.  
The manufacturing sector began to expand rapidly in the mid 1980s and by 2006 accounted for 28% 
of GDP.  More recently, the services sector has grown,  boosted by the travel and tourism industry;  in 
2006 it accounted for over 40% of GDP and empl oyed nearly 38% of the working population 
(Table IV.1)  
Table IV.1 
Sectoral GDP and employment, 2002-06 
    2002 2003 2004 2005 2006a 
  Per cent  
Share of sectors in GDP at current prices      
Agriculture, forestry, and fishing 15.5  15.2  14.3  13.1  12.9 
Mining and quarrying 8.8  8.3  8.9  11.1  10.6 
 Crude petroleum and natural gas 5.1  4.7  5.2  6.4  5.6 
Manufacturing 28.7  28.3  28.1  27.7  28.0 
Electricity, gas, and water 0.8  1.0  1.0  1.0  0.9 
Construction 6.1  6.2  6.6  7.0  7.5 
Services 40.1  41.1  41.0  40.2  40.1 
 Wholesale and retail trade 13.3  12.9  12.5  12.1  11.6 
 Hotels and restaurants 3.8  3.7  3.5  3.3  3.3 
 Transport, storage, and communication 5.4  5.9  6.2  6.5  6.9 
 Financial services 4.5  4.5  4.2  4.0  3.8 
 Real estate and business 4.0  4.2  4.3  4.3  4.3 
 Government administration 4.6  5.0  5.3  4.9  5.0 
 Personal and other services 4.5  4.8  5.0  5.1  5.1 
  Annual percentage change 
GDP by economic activity at 2000 market prices       
Agriculture, forestry, and fishing 3.4  3.8  2.8  2.7  3.0 
Mining and quarrying 1.0  -1.4  -4.5  3.1  2.2 
 Crude petroleum and natural gas -3.0  -4.7  -4.3  -1.8  -1.3 
Manufacturing 5.3  5.3  6.4  4.6  4.6 
Electricity, gas, and water 8.9  4.9  5.3  6.3  5.9 
Construction 5.5  6.1  7.5  7.4  9.0 
Table IV.1 (cont'd) Indonesia WT/TPR/S/184 
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    2002 2003 2004 2005 2006a 
Services 5.2  5.5  6.5  5.9  5.9 
 Wholesale and retail trade 4.1  5.6  5.5  8.9  6.4 
 Hotels and restaurants 4.9  4.8  6.5  6.0  4.8 
 Transport, storage, and communication 8.4  12.2  13.4  13.0  13.6 
 Financial services 4.8  5.7  6.5  5.1  2.6 
 Real estate and business 9.1  8.0  9.0  8.7  9.1 
 Government administration 0.4  0.9  1.7  1.9  4.0 
 Personal and other services 7.4  8.0  9.0  7.9  8.1 
Share of sectors in total employment      
Agriculture, forestry, and fishery 44.3  46.4  43.3  44.0  44.5 
Mining and quarrying 0.7  0.8  1.1  1.0  1.0 
Manufacturing 13.2  12.4  11.8  12.7  12.2 
Electricity, gas, and water 0.2  0.2  0.2  0.2  0.2 
Construction 4.7  4.4  4.8  4.9  4.6 
Services 36.9  35.9  38.6  37.3  37.6 
 Wholesale and retail trade, restaurants and hotels 19.4  18.6  20.4  19.1  19.5 
 Transport, storage, and communication 5.1  5.3  5.8  6.0  5.7 
 Finance and insurance, real estate and business 1.1  1.4  1.2  1.2  1.2 
 Community, social and personal  11.3  10.6  11.2  11.0  11.1 
a Provisional. 
Source:  Bank Indonesia, Annual Report 2005 and Employment Statistics ;  and data provided by the authorities . 
(2) AGRICULTURE AND FORESTRY  
(i) Features 
9. Agriculture represented 12.9% of Indonesia's GDP  and 44.5% of the labour force in 2006, is 
home to the largest segment of the Indonesian population and the poor, and has a primary role in achieving the objective of poverty alleviation, ru ral development and employment creation.  
Agricultural trade accounts for 16.7% of exports and 11.5% of imports.  Indonesia is the world's 
largest producer of coconuts, second largest producer of  copra, palm kernels, palm oil, and natural 
rubber, and the third largest producer of rice.  Pr oduction is concentrated in the islands of Java, 
Sumatera, and Sulawesi.  Smallhol der farms (with an average size of one hectare) occupy the largest 
share of cultivated land (87%) and grow mostly  food crops, accounting for 90% of total rice and 
maize output.  Large-scale farms, state- or privatel y owned, account for a small share of agricultural 
output, but the larger share of agricultural exports, such as rubber, palm oil, coffee, and cocoa.  
Agricultural GDP is dominated by food crops (52% );  rice production dominates these crops with over 
54 million tonnes in 2006 (Table IV.2). 
10. Indonesia is a net exporter of agricultural produc ts, with palm oil and rubber accounting for 
the majority of exports in volume terms.  Indon esia is the world's second largest producer of crude 
palm oil;  with exports worth around US$4.5 billi on it has become Indonesia's most important cash 
crop. Indonesia is the world's second largest produ cer of rubber, exporting approximately 90% of its 
production with total rubber exports  exceeding US$3 billion in 2005.  It is also the world's third 
largest producer of cocoa with an estimated 13%  share of the world market;  both foreign and 
domestic investors are currently active in cocoa pr oduction.  Imports are more diversified with high 
volumes of soybean and sugar;  also, a high proportion of imports is in animal feed (oilseed cake) and 
raw material for exports (cotton).  In 2003, I ndonesia was the world's biggest importer of rice, 
importing 13.5% of world trade (Table IV.3);  it was the third biggest producer, after China and India, with 8% of world production.  Due to the current rice import ban, apart from the quantities imported WT/TPR/S/184 Trade Policy Review 
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by BULOG to replenish Government stockpiles, only limited registered quantities of rice were 
imported during 2006.1   
Table IV.2 
Production of major agricultural commodities, 2003-06 
(000 tonnes) 
Commodity 2003 2004 2005 2006b 
Rice 52,138 54,088 54,151 54,402 
Corn 10,886 11,225 12,524 11,611 
Soybean 672 723 808 749 
Sugar 1,631 2,051 2,242 .. 
Palm oil 10,441 12,849 13,112a 13,391 
Beef (meat) 370 448 359 389 
Chicken (meat) 1,118 1,191 1,126 1,333 
Milk 553 550 536 578 
Rubber 1,792 1,662 2,271 2,367 
Cocoa 697 717 610 779 
Coffee 664 612 640 653 
Cassava 18,524 19,425 19,321 19,928 
Orange 1,442 2,071 2,214 .. 
Banana 4,177 4,874 5,178 .. 
Chili 1,067 1,101 .. .. 
.. Not available. 
a Preliminary figures. 
b Preliminary figures. 
Source:  Central Bureau of Statistics (BPS);  and in formation provided by th e Indonesian authorities. 
Table IV.3 
Exports and imports of major agricultural commodities, 2003-06 
(Tonnes) 
Commodity Export Import 
 2003 2004 2005 2006a 2003 2004 2005 2006a 
Rice 676 904 44,914 885,844 1,428,506 236,867 195,015 180,331 
Corn 33,691 32,679 9,473 26,785 1,345,446 1,088,928 234,706 1,013,251 
Soybean .. 18,380 9,151 5,306 .. 2,881,735 2,982,986 2,814,971 
Sugar 82,065 196,341 228,878 371,102 1,572,457 634,900 2,049,229 1,067,686 
Palm oil 7,053,651 10,967,882 11,492,535 8,079,564 5,613 8,459 13,945 5,924 
Beef (meat) .. 19 86 .. .. 11,772 15,349 .. 
Chicken (meat) .. 101 .. .. .. 1,194 3,755 .. 
Milk 49,593 40,935 35,385 .. 117,318 165,411 133,486 .. 
Rubber 1,660,939 1,872,926 2,023,781 1,574,295 14,065 19,474 6,592 3,674 
Cocoa 357,737 368,758 465,162 423,722 41,339 51,017 53,865 28,331 
Coffee 323,904 349,177 445,930 285,669 4,397 5,690 3,195 3,528 
Cassava .. 448,596 343,374 33,338 .. 58,080 103,128 170,786 
Orange .. 1,397 1,435 484 .. 94,866 91,078 77,274 
Banana .. 1,197 3,647 4,296 .. 408 410 .. 
Chilli .. .. 1,617 2,031 .. .. 7,990 7,691 
.. Not available. 
a Up to August 2006. 
Source:  Central Bureau of Statistics (BPS). 
                                                      
1 To strengthen national BULOG rice buffer stocks, 110,000 tonnes of rice replenishments were 
procured from Viet Nam in January 2006;  another 210,000 tonnes of Vietnamese rice were ordered in September for delivery fr om mid-December 2006.  Indonesia WT/TPR/S/184 
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(ii) Main developments 
11. The Medium-Term Development Plan (MTDP) 2004-09 identifies the main constraints to 
growth in the agriculture sector as including: relati vely high poverty and low welfare of farmers;  
inadequate incentives to invest in production incr eases; low level of technology transfer for the 
processing of products, resulting in low productivit y; high dependence on rice consumption as the 
major food crop; and lack of basic infrastructure and poor access to markets and services.  As part of the MTDP, the Government has initiated a plan for revitalization of the agriculture sector with the 
objective of achieving annual average growth of about 3.5% during 2004-09 and increased incomes 
and well-being of farmers.  The plan calls for increasi ng investment in key infrastructure, in particular 
farm-to-market roads and irrigation;  encouragin g diversification into higher-value-added crops;  
improving agricultural research;  and better en suring that exports meet world standards. 
12. With almost two thirds of poor household heads working in agriculture, increasing 
agricultural productivity is essential for broad-based pove rty reduction.  Historically, agriculture has 
performed well and contributed  significantly to Indonesia's growth, bringing with it increases in 
employment and a reduction in poverty.  It achieve d this by focusing on the staple food crops rice, 
corn, sugar, and soybeans.  However, with pr oductivity gains of most food crops slowing down 
significantly, and with the majority of farmers ope rating less than half a hectare, these crops provide 
less potential for generating additional employment and income growth.  According to the World 
Bank, total factor productivity growth in agricultu re has been negative sin ce the early 1990s, from 
annual gains of 2.5% in 1968-92 to annua l contractions of 0.1% from 1993 to 2000.
2  
(a) Border measures 
Tariff protection and binding commitments 
13. In the Uruguay Round, Indonesia bound 100% of all agricultural lines;  the number of bound 
tariff lines increased to 1,500 compared with only 65  before the round.  In general Indonesia's tariffs 
are applied at levels well below bound rates.  The average bound tariff is 47% and  the average 
applied tariff is 8.7%.  The difference between bound  and applied tariffs varies among sectors.  There 
is little difference between bound and applied tariffs for beverages and spirits but in other sectors the 
applied tariff is about one tenth the bound rate (Table IV.4). 
14. Initially set at zero (under Indonesia's IMF commit ment on food items), the tariffs on rice and 
sugar were raised when BULOG's monopoly over im ports was eliminated.  Tariffs on the various 
types of sugar have been reduced in conjunction with a plan to restructure the sugar processing 
industry, including the closure of inefficient state-owned sugar mills;  in 2003 the Government switched from an ad valorem  to a specific tariff in order to deal with under-invoicing practices in 
particular.  In the case of rice, the tariff was set at a specific rate of Rp 430/kg in 2000
3 (with an 
ad valorem  equivalent at around 30%).  Although meant to be temporary, the tariffs on sugar and rice 
are still in effect.  
                                                      
2 World Bank (2006d), p. xvi. 
3 Since 2004, the specific ta riff has been Rp 450/kg. WT/TPR/S/184 Trade Policy Review 
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Table IV.4 
Applicable agricultural bound and applied tariff rates, 2007 
Product Applied (%) Bound (%) 
Fruit and vegetables 5.0 47.0 
Coffee, tea, mate, cocoa and preparations 4.9 45.3 
Sugars and sugar confectionery  Rp 550/kg (about 10%)  58.3 
Spices, cereal and other food preparations 5.2 39.9 
Grains 
 of which rice  
Rp 430/kg (about 30%)a 68.4 
160.0 
Animals and products thereof 4.4 44.0 
Oil seed, fats and oils and their products 3.8 39.9 
Cut flowers, plants, vegetable materials, etc 5.8 40.7 
Beverages and spirits 67.9 98.1 
Dairy products 5.0 74.0 
Tobacco 10.7 40.0 
Other agriculture products 4.3 40.2 
a Rp 450/kg. since 2004. 
Source:  WTO (2004), World Trade Report 2004;   and the Indonesian authorities. 
Non-tariff border protection 
15. During the period under review, Indonesia had removed a number of licensing restrictions 
affecting agriculture.  Those rema ining include alcoholic beverages4;  these may eventually have to be 
eliminated unless Indonesia is granted special exemp tions.  Indonesia had granted sole import rights 
for rice, soybeans, sugar, wheat flour, and garlic to BULOG, the national food logistics agency, and 
sole import rights for cloves were granted to the BPPC, a cloves marketing agency.  Indonesia 
notified the WTO that BULOG5 operates as a state-trading enterprise within the meaning of 
Article XVII of GATT.  The purpose of establishing Perum Bulog as a state trading enterprise (STE), is to support domestic rice producers, to stabilize the pr ice of rice at consumer and producer levels in 
implementing its statutory functions, the agency e ngages in domestic procurement, sales/distribution, 
import/export, and management of  rice reserve stockholding. 
16. Sanitary, phytosanitary, and food quality re gulations have led to import restrictions, 
particularly on animals and animal products and other food items requiring a halal  certificate. 
(b) Domestic support measures 
17. Indonesia maintains a number of domestic pr ogrammes that are classified as domestic 
supports under the Agreement on Agriculture.  These include general services, programmes to 
promote agricultural development, stockholding and administered price systems for some 
commodities, and domestic food aid.  Most of these programmes appear to fall under the Green Box, 
as notified to the WTO.
6 
                                                      
4 Imports of alcoholic beverages are carried out by two companies: PT Perusahaan Perdagangan 
Indonesia and PT Sarinah, both state-owned enterprises.  
5 WTO document G/STR/N/10/IDN of 23 August 2004.  The authorities note that BULOG (and BPPC) 
no longer have sole import rights. 
6 WTO document G/AG/N/IDN/26/Corr.1 of 27 November 2001. Indonesia WT/TPR/S/184 
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(iii) Selected items 
18. The agriculture sector can be divided into five broad subsectors:  food crops, cash crops, 
animal husbandry, fishing, and forestry.  The pred ominant food crops are rice and other food staples 
such as maize, cassava, sweet potatoes, and soyb eans, and have traditiona lly been cultivated on 
relatively small landholdings.  Indonesia is also an im portant producer of a wide range of cash crops, 
including rubber, palm oil, copra, coffee, tea, co coa, sugar, and tobacco.  Most of these commodities 
are grown on commercial plantations and are destined primarily for export.   
Rice 
19. Rice is the most important food crop and the preferred staple of the great majority of 
Indonesians.  It has always been the main focus of Indonesia's policy on agriculture and food security;  
at the heart of the policy has been the Government 's endeavours to stabili ze the price of rice by 
intervening in the market to defend a ceiling price for consumers and a floor price for producers, and 
by controlling trade (Box IV.1).  Self-sufficiency  was attained briefly in 1985 and again since 2004, 
but in the intervening years Indonesia became one of the world's largest rice importers. During the 
period under review, the Government has come under in creasing pressure to deal with rice farmers' 
complaints of low prices, particularly during harv ests, which they have tended to blame on the 
abundance of cheaper rice imports.  In January 200 4, the Government announce that rice imports 
would be banned for six months to protect fa rmers during the main harvest.  The ban was 
subsequently extended and remains in place  as strong harvests from 2004 to 2006 have reduced the 
need for imports.  In 2005, In donesia produced 54 million tonnes of un-husked rice, equivalent to 
32.4 million tonnes husked.  Domestic requirement s are estimated to be approximately 32 million 
tonnes.   
20. Maintaining stable rice prices is critically important for the poor, as rice constitutes 24% of 
their consumption. Two thirds of farming households in Indonesia are net consumers of rice, that is, 
they consume more rice than they produce. High rice prices were detrimental to the poor during the 
crisis in 1997/8 when the collapse of the rupiah le d to a surge in the domestic price of tradeable goods 
consumed by the poor, most importantly the pri ce of rice. The Government restored relative 
macroeconomic stability in 2001, strengthening the rupiah and bringing down the price of rice as a 
result.  During the period under review, mostly due to  shortages as a result of the ban on rice imports, 
the price of rice surged about 30% above interna tional prices, rising 55% between February 2005 and 
March 2006, far ahead of other domestic food prices and was considered to be the main factor in the 
increase in the poverty headcount in 20067.  In 2006, local rice cost over 40% more than rice imported 
from Viet Nam (Table IV.5). 
21. Before the economic crisis, Indonesia had a good re cord for stabilizing rice prices:  the real 
price of rice had been kept roughly at or near the world price for 20 years.  During this period BULOG had an explicit mandate to ensure price stability and was given monopoly import rights to 
enable it to achieve this.  Growing inefficiency at BULOG
8, together with the economic crisis led to 
the collapse of the rice stabiliza tion scheme.  At the end of the 1990s, BULOG lost its monopoly;  
                                                      
7 In the past Indonesia's rice import ban has repeat edly been a cause for controversy and arguments 
among farmers, consumer groups, politic ians, and economists.  In its recent report on Indonesia, the World Bank 
proposed lifting the ban as it had contributed to a hefty rise in rice prices leading to increased poverty. Domestic rice producer organizations are strongly opposed to imports.  World Bank (2006d). 
 
8 BULOG's import mono poly was reported to have operated very  inefficiently, prin cipally because it 
was consistently late in responding to demand, which le d to significant price fluctuations, not always in favour 
of the farmer. WT/TPR/S/184 Trade Policy Review 
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import licences were granted to ge neral importers with no quantity lim its, and the private sector was 
responsible for over half of Indonesia's total rice imports. 
Box IV.1: Major policies on rice - fertilizer and seed subsidies, food security credit, procurement  
  price of paddy (HPP) and import controls 
The fertilizer subsidy comes indirectly in the form of a gas subsidy to the nitrogen/urea factories and in 2006 
amounted to Rp 3,006 billion.  The gas subsidy reduces  factory prices enabling sm allholder farmers (mostly 
food crop farmers) to obtain affordable fertilizer  pric es.  The amount of gas subsidies is limited to the 
production needed by smallholder farmers.  The Government determines the ceiling prices for the outlets where farmers obtain the fertilizer. 
The Government also subsidizes some food crop seed s for rice, maize, and soybean.  Two state-owned 
companies PT Sang Hyang Seri and PT Pertani were assi gned as suppliers of subsidized seed for the period 
1986-06 (regulated in the Minister  of Finance Decree No. 100/PMK/2005).  In 2006, the amount of the 
subsidy was Rp 165 billion, enabling farmers to pay lower prices.  In 2007, the MOA plans to provide 
subsidized seeds directly to farmer, with a total subsidy value of roughly Rp 1.7 trillion. 
To facilitate access to financial services, the Government provides subsidized credit to smallholder farmers.  
Farmers pay interest at 9% per annum, and the Government pays the difference between the commercial and 
the subsidized rates.  With this scheme, smallholder farmer are expected to have more access to commercial 
bank financing as credit risks are shared among the Government, commercial banks and farmers. 
To provide an incentive to rice farm ers, the Government determines the rice procurement price (HPP), 
usually before the beginning of planting season (around October).  In 2006, the procurement price was Rp 
3,350 per kg or around US$365 per tonne. 
The Government is facing difficulties in imposing  high import tariffs on rice to protect its domestic farmers 
and rice industries.  The specific import duty of Rp 430 per kg has been bound since 2000.  However, illegal  
imports and the black market are two major challenges, due to the low price of rice outside the borders, 
rendering tariff protection and restri ctive import policies less effective. 
Source:   Information provided by the Indonesian authorities. 
Table IV.5 
Price gap between domestic and imported rice, 2003-06 
(Average annual prices in Rp/kg) 
 2003 2004 2005 2006a 
Local rice 2,786 2,851 3,479 4,425 
Thailand rice 2,130 2,849 3,578 3,532 
Viet Nam rice 1,981 2,697 3,251 3,115 
a January-October average. 
Source:  Data provided by the Ministry of Agriculture.  
22. There was a brief period of free trade in rice between January 1999 and December 2003, 
initially with no tariff and then with a specific tariff of Rp 430/kg.  From January 2004, the 
Government announced a seasonal im port ban, which has been extende d repeatedly so that is has 
effectively taken on the character of a permanent ban.9  BULOG became a state-owned enterprise and, 
                                                      
9 Decree No. 9/MPP/2004 allows the approval of on e-off imports to ensure food security.  The 
authorities assert that rice import restrictions were imposed during harvesting periods but as the domestic price situation did not improve, the restrictions were extended.  The legal basis was (a) Minister of Agriculture Decree 
No. 301/PP.040/M/12/2005 concerning the harvesting period for rice of February to May 2006;  and 
(b) Minister of Trade Decree No. 1718/M-DAG/12/2005 concerning the import ban on rice for the period 1 January to 31 July 2006, renewed by Minister of Trade Decree No.649/M-DAG/7/2006, extending the ban to Indonesia WT/TPR/S/184 
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while it claims to no longer have a mandate to stabilize prices, has responsibility for purchases and 
sales from BULOG stocks.  The authorities indicate th at BULOG has the capacity to absorb around 
5% of total domestic rice production. 
Fishing 
23. In 1982, international r ecognition of the concept of the arch ipelagic State permitted Indonesia 
to declare the waters separating the many islands to be an exclusive economic zone, thereby giving 
the country undisputed control over the vast marine  fisheries resources of this area.  These resources 
began to be developed in 1987, both through licences issued to foreign fishing fleets and the 
encouragement of private investment in the fishing industry.  Particular emphasis was given to shrimp 
and tuna fisheries.  Nevertheless, productivity in  the sea-fishing industry has remained low while 
over-fishing in some areas has threatened to deplet e fish stocks.  Illegal fishing, by foreign and 
domestic operators, has also been a serious problem , causing both environmen tal damage and revenue 
losses estimated at about US$2 billion per year.10 
24. Fishing is also of great importance in the s ubsistence economy and fish  provide an estimated 
two thirds of the animal protein in the Indonesian diet.  However, there is a widening gap between 
supply and demand for fish.  Many marine fisheries ar e in decline with the productivity of coastal reef 
fisheries threatened by the use of d estructive fishing techniques and poaching.11  The fisheries in 
western Indonesia are operating at or above the ma ximum sustainable yields, leaving little room for 
further expansion in commercial fisheries.  
25. Commercial effort is focused on high-value speci es such as prawns and tuna.  Fishing in 
Indonesia accounted for 2.4% of constant-price GDP in 2004.  The value of shrimp exports alone 
stood at US$824 million in 2004, with the total value of fish exports at around US$2 billion.  As an 
archipelagic country, Indonesia has over 17,000 islands  and 81,000 km of coastline, which provide an 
excellent resource for brackish-water shrimp farmi ng to support the growth of  shrimp exports.  Japan 
is the largest export market for Indonesian shrimp , followed by the EC and the United States. One of 
the most critical challenges faced by the industry relates to quality standards imposed by developed 
country importers, including freedom from antibiotic c ontamination;  Indonesian shrimp growers lack 
the capacity to comply.  Other problems are the low productivity and high cost of production of domestic shrimps, which have caused difficulties in managing cheap shrimp imports from the likes of China, Thailand, and Viet Nam. 
(iv) Forestry  
26. Over the last ten years forestry has represented 3% to 4% of GDP concentrated in three main 
areas of activity:  forest harvesting (1.1%) , processing into wood-based products (1.2%), and 
processing into pulp and paper products (1.4%).
12  The sector's export value accounted for nearly 8% 
                                                                                                                                                                     
31 December 2006.  The overall level of imports since 2 004 has been lower than in previous years mainly 
because of the ban. 
10 Ministry of Maritime and Fisheries, 2005. 
11 Government Regulation No. 17/2006 on Fisheries Capture Management  introduced a new scheme of 
fisheries management, which eliminates foreign vessel catching in Indonesia's Economic Exclusive Zone.  Indonesia's Marine and Fisheries development plays important role in providing labour absorption, food 
resources, poverty alleviation and development of outer islands.  A key milestone in fisheries development was 
prorogation of the New Fisheries Law (Number 31/2004) which aims to improve the living condition of small-scale fishermen and fish farmers;  increase the Governme nt's revenue and foreign exchange;  increase the supply 
and consumption of fish, which is rich in protein;  optimize the management of fishery resources;  increase 
productivity, added value, and competitiveness;  an d ensure the conservation of fishery resources. 
12 World Bank (2006e),  p. 64. WT/TPR/S/184 Trade Policy Review 
Page 76 
 
 
of total exports in 2004, mainly consisting of timber and wood products, pa per cartons and products 
and, to a much smaller extent, pulp and paper.  With a log export ban, Indonesia's exports are 
predominantly processed products. The large Asian economies – China, Japan, Korea – consume over 
half of Indonesia's plywood, pulp and sawn wood exports.  The Government also earns significant 
revenue from the forestry sector through three kinds of (non-tax revenue) fee:  licensing of forest 
concessions, fees paid to the reforestation fund and the forest royalty fee.  According to the World 
Bank, these fees amounted to US$303 million in 2002 or about 0.8% of total government revenue.13  
Clearly, these figures do not measure the value of illegal logging, which has reached enormous 
proportions and is thought to account for over 50% of output from the sector.14 
27. By law all forest resources come under state ow nership but exploitation rights are leased to 
private companies under the forest utilization right system (HPH).  The number of HPH-operating forest concessions and the area they cover have declin ed by more than half over the last decade:  in 
1993 there were nearly 600 concessions operating on over 60 million hectares, but by 2006 there were 
315 concessions operating on less than 30 million h ectares (Table IV.6).  Regional autonomy 
legislation, introduced in 2001, enabled district gove rnments to issue small-sc ale concession permits;  
it appears that many such permits have been issued , possibly creating a certain amount of confusion in 
the sector and forcing harvesting rates beyond sustainable limits. 
Table IV.6 
Natural (HPH) and plantation (HTI) forest concessions, 1993 and 2002-06 
HPH HTI Year Unit Million ha Unit Million ha 
1993 575 61.70 .. .. 
2002 270 28.08 108 5.38 
2003 267 27.80 110 5.46 
2004 287 27.82 114 5.80 
2005 285 27.72 113 5.74 
2006 315 28.98 229 9.64 
.. Not available. 
Source:  The Indonesian authorities. 
28. Plywood is the main export as concession owners  are encouraged to invest in sawmills and 
plywood processing.  The promotion of local production turned Indonesia into a dominant force in the 
tropical plywood sector:  in the 1990s, Indonesia was th e world's largest plywood industry.  However, 
exports have declined from 4.5 million cubic me tres in 2003 (with a value of US$1.6 billion) to 
3.1 million cubic metres (valued at US$1.4 billion)  in 2006, as high production costs and the rapid 
growth of China's wood-based industries affected the industry. 
29. In 2001, the ban on log exports was reinstated  in a bid to stem losses from the smuggling of 
illegally felled logs.  Log export ba ns have been introduced to en courage domestic processing and 
value-addition in wood-based products  and/or to address environmen tal problems, such as damage 
caused by illegal logging (Box IV.2). 
                                                      
13 World Bank (2006e). 
14 Some estimates are much higher.  For example, acco rding to the Telepak organization, which is part 
of a network of 30 civil society organizations working on FLEGT (Forest Law Enforcement, Governance and 
Trade) issues in Indonesia;  Indonesia has one of the worst illegal loggi ng problems in the world with up to 80% 
of its timber production being illegal.  The rate of forest destruction is also among the highest, with 
2.8 million hectares of forests (an area almost as large as Belgium) being lost every year. Indonesia WT/TPR/S/184 
 Page 77 
 
 
Box IV.2:  Log export bans 
Producer countries often argue that export bans will enable them to develop domestic log processing 
industries, foster economic development, and lessen their need to over-exploit natural resources.  As an environmental policy, the export ban works on the assumption that by restricting trade in logs, 
deforestation will decrease.  Many developing countries therefore use timber trade restrictions as a means 
of achieving economic, environm ental, and social objectives. 
The overall impact of a log export ban is heavily debated.  It includes: 
- in the short term a log export ban is likely to increase the amount of logs available on the domestic 
market.  This will lower the domestic price, which in turn will stimulate the expansion of the 
domestic processing industry to capture more of the value of the logs.  This helps to increase timber-derived income and possibly creates employmen t.  However, this is, in effect, providing a 
subsidy to the processing industry and may also lead to an increase in the rate of log production to 
meet the growing capacity of the domestic processing operators; 
- the lower price undervalues the forest resource, making it difficult for legal log production (all 
relevant taxes paid) to be financially sustainable; 
- undervalued log prices can result in inefficient and wasteful production processes, leading to 
decreasing competitiveness, due to over-protection of the domestic industry.  
- for effective implementation of the ban, there ne eds to be strong political will and enforcement.  
Successful application of wider en vironmental policies is greatly enhanced by strong government 
support and enforcement. 
The current log export ban in Indonesia has also had limited effect in stopping exports as its 
implementation has been weak.  An effective log export ban, coupled with strong regulation of domestic 
milling capacity, could help to control over-logging, but neither of these actions is likely under current circumstances. 
Source:   Royal Institute of International Affairs (2004), Flegt and Trade:  What will the impacts be?   Paper
  by Emily Fripp, pp. 9-10.  Viewed at:  http://www.illegal-logging.info/papers/FLEGT_
  and_Trade_Impacts.pdf [2 March 2007].
 
30. Although exports of logs are banned, very substa ntial illegal trade takes place with China and 
with Malaysia.  The Government has highlighted the problem of illegal logging and has issued an 
instruction that directs the leaders of 18 government  bodies to cooperate and coordinate to eradicate 
illegal logging and improve transparency and the rule of law.15  Foreign demand for cheap timber 
appears to be overwhelming the Indonesia's enfo rcement capacity, encouraging loggers to harvest 
illegally, brokers to trade illegally, and government officials to collude in the illegal trade.  The 
Government has supplemented its domestic enforcement efforts by si gning international agreements 
with the EC, Japan, China, and the United States to ban the import of illegal logs from Indonesia. 
31. In this regard, the EU's Action Plan on Fo rest Law Enforcement, Governance and Trade 
(FLEGT), published originally in 2003,  is at the centre of international efforts to control trade in wood 
products.  The FLEGT Action Plan focuses on establishi ng bilateral, and in the medium term, regional 
schemes that identify legal products and license them for import to the EU.  Unlicensed products will 
be denied entry.  A multilateral licensing scheme for legal timber is mentioned as the end goal.  
Because the EU FLEGT process is built on voluntary agreements, it does not raise any WTO complications in terms of restrictions on trade such as labelling requirements, tariffs and taxes, trade bans or any form of discrimination that could be subject to WTO disciplines. 
                                                     
 
15 Presidential Instruction No. 4 of 2005. WT/TPR/S/184 Trade Policy Review 
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(3) MINING AND ENERGY  
(i) Mining 
32. Indonesia has significant, but in some cases unquan tified, reserves of a variety of minerals, 
including coal, bauxite, copper, nickel, iron, sands, gold , and silver.  According to the authorities, coal 
resources are estimated to be around 61.3 billion to nnes with mineable reserves of approximately 
6.7 billion tonnes.  Estimates for gold, copper, tin, and nickel resources are about 3,165 tonnes, 
41.5 million tonnes, 462,402 tonnes, and 627 million tonnes, respectively.  Indonesia is one of the world's leading producers of tin;  mining is primarily by the 70% state-owned tin mining and 
processing company, PT Tambang Timah, which ac counts for 80% of the country's tin production.
16  
Most of the minerals are situated in remote ar eas and their exploitation involves high costs.  The 
sector grew rapidly between the early 1970s and th e late 1990s but was seriously affected by the 
financial crisis of 1997-98 and by  subsequent security threats and le gal uncertainties.  In many cases 
this has led to declines in investment and output in  the industry, which appear unlikely to be reversed 
in the foreseeable future.  Many hi gh-profile mining projects have b een affected by the increase in 
political risk that followed decentralization, and have become involved in legal and contractual 
disputes with district and provincial governments.  Contradictions between the Mining Law, the 2001 
law on regional autonomy17, and the 1999 law on forests (Law No. 41/1999) prohibiting open-pit 
mining in protected forests have exacerbated legal uncertainty in the sector;  this has led to a 90% 
decline in exploration spending by mining companies since 1997. 
(ii) Energy 
33. Indonesia is well endowed with energy resources and has significant reserves of oil, natural 
gas, and coal.  It also has consid erable potential for the developmen t of hydroelectric and geothermal 
power as well as non-conventional sources of energy such as wind and wave energy and solar power.  
Oil and natural gas production was the main source  of government income up to the early 1990s.  
Their relative importance has since declined as the economy has further diversified.  Abundant energy 
resources allowed the Government to subsidize domestic  fuel prices, to the tune of US$4-7 billion per 
year since the financial crisis.  In 2005, with the sharp escalation in world oil prices, and with the 
country becoming a net importer, fuel subsidies w ould have increased to around US$12 billion.  This 
obliged the Government to increase o il prices by more than 100%.   
Oil and gas  
34. Indonesia is the only Asian member of the Organization of the Petroleum Exporting Countries 
(OPEC).  Currently, Indonesia's oil output is at a low of under 1 million barrels a day (bpd) compared with 1.4 million bpd in 1991.  The decline in produc tion reflects the relatively low level of investment 
in exploration since the late 1990s and the fact that the major share of oil is produced from fields that 
are in decline.  During the period under review, consumption levels have increased significantly, 
reaching approximately 1.2 million bpd in 2005 on th e back of rapid economic growth and heavily 
subsidized domestic fuel prices.  Indonesia's pr oven oil reserves have remained at about 5 billion 
                                                     
 
16 Production of tin ore was 71,800 tonnes in 1984.  It is estimated that the same amount of ore is 
produced illegally, which has been a significant factor  in the recent weakness of international prices. 
17 As related in the previous review, in 1999 the Government enacted regional autonomy laws that 
would decentralize the regulation of the mining industry by pushing certain responsibilities down to provincial and regional governments. This necessitated the re writing of Indonesia's long-standing Mining Law and 
progress on the implementation of the regional autonomy laws, and the revision of the Mining Law, appears to 
have been very slow during the period under review, thereby creating much of the uncertainty that hangs over the current regulatory environment. Indonesia WT/TPR/S/184 
 Page 79 
 
 
barrels, and at current production levels, would last  about 12 years.  Without the discovery and 
development of substantial new reserves, Indonesia' s rapidly growing internal  energy demands will 
inevitably make it a permanent net oil importer.   
35. In October 2001, the House of Representatives passed a new oil and gas bill to liberalize the 
sector.  Prior to 2001, Pertamina was both the state oil and gas company and the industry regulator;  
this created conflicts of interest and transpar ency in the sector.  Under the 2001 deregulation and 
reform, regulatory authority was transferred to the Directorate General of Oil and Gas (DG MIGAS) in the Ministry of Energy and Mineral Resources,  and to two new regulatory agencies for upstream 
and downstream activities.  Oil and gas explora tion traditionally took place through production-
sharing contracts with Pertamina.  These are now with the Government through BP MIGAS, the 
upstream industry regulator, while downstream regulation is supervi sed by BPH MIGAS.  Pertamina's 
downstream monopoly (since 1971) was lifted in 2005, although it is likely to remain dominant for 
several years because of its infrastructure and ma rket presence.  The Government is aiming to boost 
investment and production and, the major regulat ory changes introduced since 2001 are an important 
step in this regard.  Foreign firms have entere d the oil market, particularly in exploration and 
production
18, and private companies are now allowed to open retail outlets for fuel;  Pertamina's 
monopoly on importing and distributing fuel has been lif ted, and refining, storage, and transport have 
been liberalized.  Pertamina was sche duled to be privatized by 2006.  
36. Indonesia is the world's largest exporter of li quefied natural gas (LNG), with approximately 
70% of LNG exports going to Japan, 20% to the Republic of Korea, and 10% to Chinese Taipei.  
Indonesia has traditionally relied on oil to supply its own energy needs, but rising oil costs have led 
the Government to encourage greater domestic u se of gas to protect the economy from volatile world 
energy prices.  The country lacks the infrastructur e to use the natural gas domestically and requires 
investments to develop a natural gas distribution infrastructure.  Also under development is a 
medium-term policy to reduce exports from 2010 when  major export contracts with Japan expire.  
Thereafter producers will be required to allocate a s ubstantial part of their output to the domestic 
market.  All existing supply contracts will be hono ured but extension and renewal thereafter will be 
decided on a case-by-case basis.  
Electricity 
37. Indonesia has the lowest electrification ratio in the region.  Despite an average electrification 
of 1 million households per year since 1974, the electrification ratio was only 54% in 2004, compared 
with over 95% in China and Thailand and over 82% in Viet Nam and the Philippines.  The 
Government has committed to increase the electrifi cation ratio to 93% by 2025.  Indonesia's power 
sector has poor profitability, is lacking new invest ment, and is heavily dependent on oil-based fuels, 
which have risen sharply in cost in recent years, a nd a cap on electricity tariffs has held revenue flat.19  
Since 2003, provision of electricity is the responsibility of the state electric company, Perusahaan 
Listrik Negara (PLN), which relies on diesel and fuel oil for 30% of its needs, coal (40%), gas (19%), 
geothermal (5%), and hydropower (6 %).  PLN's goal is to reduce o il-powered generation by building 
new power plants, converting oil plants to run on g as, and replacing obsolete plants with non-oil fired 
plants.  However, to ensure the security of power supply, Indonesia requires substantial investment to 
develop power plants using coal, which it has in abundance. 
                                                      
18 Amongst these are the China National Offshore Oil Corporation (CNOOC), Italian firm ENI, 
Petronas of Malaysia, and U.S.-based compan ies Unocal, Conoco Phillips, and ExxonMobil. 
19 PLN loses money with every residential customer it connects outside the Java-Bali grid because the 
universal tariff structure does not cover the cost of power supply.  Most of the off-grid regions are supplied by 
diesel power plants at a cost of over Rp 2,000/kWh and are dominated by small residential consumers charged 
less than Rp 600/kWh. WT/TPR/S/184 Trade Policy Review 
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38. An electricity law passed in September 2002 envisaged an end to PLN's monopoly on 
electricity distribution and the possibility for private companies, both local and foreign, to sell power 
directly to consumers within five years.  In January 2005, however, the Constitutional Court announce 
that the law was unconstitutional and it was annulle d.  The Court objected to the end of state 
management and regulation of power  provision and pricing.  A new la w is being drafted but it appears 
that PLN is to retain the sole right to distribute and sell electricity.  
(4) MANUFACTURING  
39. The contribution of manufacturing to GDP and em ployment has declined slightly during the 
review period (Table IV.1).  Manufacturing was formerly the most dynamic sector of the economy, 
achieving persistent high real growth of around 11% per annum during the 25 years preceding the 
Asian financial and economic cris is.  Growth in the manufacturing sector, however, was adversely 
affected by the crisis and fell to an annual aver age of around 5% in 2001-2005 with a corresponding 
decline in efficiency and productivity.  As a result there were severe j ob losses in the labour-intensive 
industries, in particular those dealing in textiles 20, garments and leather manufacturing, footwear, and 
wood processing, and several hundred thousand jobs were lost. 
40. Indonesia's average applied MFN tariff and tariff range have been reduced but certain sectors 
(e.g. chemicals, fabricated metal products, motor ve hicles, motor cycles, bicycles) continue to be 
subject to high rates.  Import restrictions and special licensing requirements remain in force for certain goods (including textiles, textile products and footwear)
 21 and exclusive import rights are accorded to 
local producers of some goods (alcoholic beverages, te xtile cloth, hot- and cold-rolled coiled iron and 
steel). 
41. Regional and/or industry-specific tax incentiv es have remained in force and have been 
strengthened with the aim of reducing production costs and increasing domestic consumption as well 
as providing support for research and development activities. 22 
(i) Textiles and clothing  
42. The development of the textile industry has been  one of the Government's major priorities.  
Initially developed as heavily protected import substitu tes, textile products have become the largest 
non-oil, export-based contributor to the national in come, representing 10% of total exports.  In 2005, 
exports reached US$8.7 billion, making the industry the second-largest earner of foreign exchange 
after petroleum;  over 1.2 million people are em ployed in the textile industry spread over 
                                                      
20 The Indonesia Textile Association, for example, reported that 70 companies stopped operating 
during the course of 2005, leading to approximately 70,000 job losses. 
21 Minister of Industry and Trad e decree on Special Importer Iden tification Code Numbers (NPIK), 
issued in March 2002, requires importers of certain pr oduct categories to apply for a special importer identity 
card, without which products can be detained at port.  Th ese goods include:  textile and related products, shoes, 
electronics, and toys. 
22 The authorities note that tax incentive have been regulated in Government Regulation No. 1 of 2007 
regarding income tax facility for certain business a nd/or in certain locations, and Financial Minister 
Regulation No. 16/PMK.03/2007, which elaborated on Government Regulation No. 1.  The beneficiaries are companies or cooperatives of certain business, i.e. 15 groups of certain industries and 6 groups of industries 
operating in certain locations, and three fish-catching activ ities in certain locations.  The authorities contend that 
these incentives will the reduce production costs in certain business fields, hence pushing national industrial development towards the objective/target annual average grow th of 8.6% within 2004-09.  This is expected to:  
increase manpower absorption, public income, and public purchasing power;  poverty relief;  increase public 
consumption;  create domestic value added for national resources-based industries;  and increase government 
tax revenue. Indonesia WT/TPR/S/184 
 Page 81 
 
 
4,500 factories.  Indonesia is an important global source fo r textiles and clothing, and is ASEAN's 
number one exporter in both textiles and clothing.  The industry is vertically integrated, encompassing 
almost every stage of production.  Indonesia h as the largest share of spindles and looms among 
ASEAN countries and its capacity ranks fourth-highest in the world. 
43. The end to quota restrictions on  developing countries' textile and clothing exports at the end 
of 2004 was expected to provide substantial market  access benefits to competitive Asian suppliers, led 
by China.  There was some concern that Indon esia's textile manufacturers would face stronger 
competition from lower-cost producers.  However, an important change to the textile trading 
environment – the introduction in late 2005 of saf eguard quotas on China by the U.S. and the EU – 
appears to have directly benefited Indonesia's co mpetitive position.  According to data provided by 
the U.S. Office of Textile and Apparel (OTEXA), in 2005 after quotas were eliminated for all WTO 
Members, Indonesia and other competitive Asian suppliers expanded collectively the volume of 
clothing shipments to the U.S. market by 32% in va lue terms.  Indonesia performed well with a nearly 
20% increase and its market share increased to 4.2% in 2005 (Table IV.7).  In the first five months of 
2006, Indonesia was able to accelerate its value gr owth from under 20% to al most 25% and expand its 
market share to 5.2%.  The industry has a number of strengths23, which should enable it to retain and 
even expand its share in international markets.   However, needs to implement an extensive 
modernization programme with some urgency.  Af ter 2008, when temporary safeguard quotas against 
China will end, Indonesia can expect to feel th e effects of unfettered competition from China.   
44. Average MFN tariff protection h as remained at an average le vel of 10.8% and since 2002, 
tariffs have been accompanied by the introduction of a Minister of Industry and Trade decree on 
Textile Import Arrangements.  Only companies th at have production facilitie s using imported fabrics 
as inputs for finished products, such as garments or furniture, may obtain import licences.  Trading 
partners have raised concerns that the import licensing requirements restrict and distort trade, although the Indonesian Government has maintained that the regulations are designed to help curb 
smuggling.  However, there has been some discussion within the Government on whether the 
regulation restricts textile imports or only im poses some additional administrative procedures.
24  
Table IV.7 
U.S. imports of clothing from major Asian suppliers, 2004-06 
(US$ million) 
Calendar years Year-to-date (Ytd) Share 
Supplier 
2004 2005 % chg May 05 May 06 % chg 2004 2005 Ytd 05 Ytd 06 
Overall           
China 8,928 15,143 69.6 5,495 5,051 -8.1 13.8 22.0 21.2 19.6 
Indonesia 2,403 2,875 19.7 1,099 1,371 24.7 3.7 4.2 4.2 5.3 
Bangladesh 1,978 2,372 19.9 859 1,075 25.1 3.1 3.5 3.3 4.2 
Cambodia 1,429 1,713 19.9 592 768 29.7 2.2 2.5 2.3 3.0 
India 2,217 2,976 34.2 1,296 1,550 19.5 3.4 4.3 5.0 6.0 
Malaysia 712 678 -4.8 243 243 0.2 1.1 1.0 0.9 0.9 
Pakistan 1,138 1,259 10.7 445 472 6.0 1.8 1.8 1.7 1.8 
Table IV.7 (cont'd) 
                                                      
23 Indonesia has a large, well-established, vertically integrated industry, including mills, garment 
factories and laundries.  It has abundant and relativ ely cheap labour, a large dom estic market and a proven 
capacity to produce quality mid- to high-end textiles and garments for export. 
24 See Indonesia Trade and Investment Highlights, January 2007: "GOI considers abolishing textile 
decree", Economic Section of the U.S. Embassy Jakarta.  Regulation No. 732/MPP/Kep/10/2002 was amended 
by Trade Minister  Decree No.19/M-Dag/Per/0/2005.  WT/TPR/S/184 Trade Policy Review 
Page 82 
 
 
Calendar years Year-to-date (Ytd) Share 
Supplier 
2004 2005 % chg May 05 May 06 % chg 2004 2005 Ytd 05 Ytd 06 
Philippines 1,786 1,830 2.5 662 769 16.1 2.8 2.7 2.5 3.0 
Sri Lanka 1,549 1,650 6.5 668 676 1.1 2.4 2.4 2.6 2.6 
Thailand 1,799 1,808 0.5 693 724 4.5 2.8 2.6 2.7 2.8 
Viet Nam 2,562 2,725 6.3 948 1,222 28.9 4.0 4.0 3.6 4.7 
Total 26,501 35,029 32.2 13,000 13,919 7.1 40.9 51.0 50.1 54.1 
Categories restricted by China safeguards  
China 3,889 6,491 66.9 3,157 2,121 -32.8 8.5 13.5 16.4 11.2 
Indonesia 1,575 1,936 22.9 745 975 30.9 3.4 4.0 3.9 5.2 
Bangladesh 1,363 1,698 24.6 649 875 34.8 3.0 3.5 3.4 4.6 
Cambodia 848 1,139 34.3 389 583 50.0 1.9 2.4 2.0 3.1 
India 1,218 1,653 35.8 696 843 21.0 2.7 3.4 3.6 4.5 
Malaysia 483 498 3.1 169 194 14.7 1.1 1.0 0.9 1.0 
Pakistan 917 1,035 12.8 378 412 8.9 2.0 2.1 2.0 2.2 
Philippines 1,046 1,210 15.7 444 577 29.9 2.3 2.5 2.3 3.1 
Sri Lanka 885 1,101 24.4 452 499 10.3 1.9 2.3 2.3 2.6 
Thailand 1,055 1,184 12.2 465 526 13.1 2.3 2.5 2.4 2.8 
Viet Nam 1,270 1,293 1.9 511 686 34.2 2.8 2.7 2.6 3.6 
Total 14,549 19,238 32.2 8,056 8,290 2.9 22.5 28.0 31.0 32.2 
Note: Ytd = Year-to-date (January to May). 
Source:  United States Office of Textile and Appa rel (OTEXA), downloaded from OTEXA home page:  
http://www.otexa.ita.doc.gov/.  
(ii) Automotive 
45. The size of the Indonesian population and the low level of car ownership suggests that there is 
considerable scope for expansion and development in the automotive industry.25  The sector was 
deregulated and liberalized in 1999 and represents one of the most competitive areas of the Indonesian 
economy.  Constantly increasing sales since 2002 culm inated in a record 534,000 new vehicle sales in 
2005, although sales were down by 40% in 2006 (t o 319,000 new commercial and passenger vehicles) 
due to high interest rates, inflation, and the doubl ing of government-set petrol prices.  Gaikindo (the 
Association of Indonesian Automotive Industries)26 does not project a return to 2005 levels until 
2009. 
46. As noted in the previous Review, in a bid to help restore the ailing automotive industry from 
the monetary crisis, the Government introduced Re gulation PP No.59/1999, which restructured taxes 
and import tariffs on automobiles.  The regula tion no longer linked import duty to local-content 
achievement, and liberalized procedures for CBU (compl etely built-up)  car importation.  The right to 
import CBU cars was made available to any compan y with an import licence, often referred to as 
general importers.  Furthermore, the new policy br ought other changes, including relaxing the bonded 
zone company and the bonded warehouse regulations , removing import barriers, and strengthening 
the structure of the automotive in dustry by releasing import duties on raw material importation for the 
                                                      
25 Indonesia has just one vehicle on the road for every 45 people, one of the lowest penetration rates in 
Asia.  Japanese brands, either locally assembled or im ported, account for over 80% of passenger car sales.  
Domestic manufacturers, led by PT Astra International,  are essentially assemblers for foreign car makers. 
26 Domestic motor vehicle sales projection 1997-2011.  Viewed at:  http://www.gaikindo.org/ 
index.php?fuseaction=statistics.main. Indonesia WT/TPR/S/184 
 Page 83 
 
 
benefit of the component industry.  In short,  the new policy was aimed at enabling Indonesia's 
automotive industry to enter the regi onal free-trade era (AFTA) successfully. 
47. There are no limits on foreign ownership in  the automotive sector and no local-content 
requirements or incentives.  Tariff barriers have also been lowered although they remain high by 
international standards.  Automotives are included in AFTA, which has lowered the import tariff on 
vehicles and automotive parts to 0-5%, provided a car  has a minimum local c ontent of 40% from any 
ASEAN country.  AFTA is gradually leading to an increase in inter-ASEAN trade in automotive products and to greater coordination across the regi on to avoid an overlap of components production 
and assembly.  One of the AFTA objectives is to reduce and eventual eliminate trade barriers among 
ASEAN countries.  This is helpi ng to bring ASEAN's top three car assemblers, Thailand, Malaysia, 
and Indonesia, into direct competition and should eventually lead to higher efficiency within the 
industry. 
48. The maximum tariff on automobiles is 80%.  Tariffs on passenger car kits imported for 
assembly are 25%, 35%, 40%, or 50% depending on engine size.  Tariffs on non-passenger car kits 
are a uniform 25%.  Tariffs on auto components a nd parts imported for local assembly of passenger 
cars and minivans are a uniform rate of 15%. Imports of motor vehicles are no longer restricted to 
registered importers or sole agents of forei gn automakers, but are open to any licensed general 
importer.  Foreign motorcycle manufacturers are concerned that the high tariff of 60% (25% on 
knockdown kits), the luxury tax of 75%, as well as th e prohibition on motorcycle traffic on toll-ways 
are barriers to the Indonesian market.  The luxury sales tax is 75% on 4,000cc sedans and 4x4 Jeeps or 
vans;  and 20% and 40% on automobiles with e ngine capacity between 1,500cc and 3,000cc, 
depending on the size of the engine (Table IV.8). 
Table IV.8 
Import duties and luxury taxes, 2007 
(Per cent) 
Import duty Category CBU CKD Component Luxury tax 
Sedan     
Engine below 1.5 litre 65 35 15 30 
Engine from 1.5 to 3.0 litre or 1.5 to 2.5 litre diesel 70 40 15 40 
Engine above 3.0 litre or a bove 2.5 litre diesel 80 50 15 75 
Commercial vehicle (4x2 van)     
Engine below 1.5 litre 45 25 15 10 
Engine from 1.5 to  2.5 litre 45 25 15 20 
Engine from 2.5 to  3.0 litre 45 25 15 40 
Engine above 3.0 litre or a bove 2.5 litre diesel 45 25 15 75 
Commercial vehicle (4x4 jeep/van)     
Engine below 1.5 litre 45 25 15 30 
Engine from 1.5 to 3.0 litre or 1.5 to 2.5 litre diesel 45 25 15 40 
Engine above 3.0 litre or a bove 2.5 litre diesel 45 25 15 75 
Bus (more than 10 seats)     
GVW from 5 to 24 tonnes 40 25 15 10 
GVW above 24 tonnes 5 0 15 10 
Table IV.8 (cont'd) WT/TPR/S/184 Trade Policy Review 
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Import duty Category CBU CKD Component Luxury tax 
Truck/Pick-up     
GVW below 5 tonnes 45 25 15 0 
GVW from 5 to 24 tonnes 40 25 15 0 
GVW above 24 tonnes 5 0 .. 0 
Double cabin pick-up 4x2 and 4x4     
GVW below 5 tonnes 45 25 15 20 
All engine sizes     
.. Not available. 
Note: CBU = completely built up. 
 CKD = completely knocked down. 
 GVW = gross vehicle weight.  Based on the 1999 automotive policy, there are no restrictions on imports of new automobiles and their components.  Imports of  
used automobiles and components are, however, prohibited. 
Source:  Information provided by the Indonesian authorities. 
(5) SERVICES  
49. Services accounted for an estimated 40.1% of GDP in 2006, and 37.6% of the employed 
labour force.  Wholesale and retail trade dominate services (11.6% of GDP in 2006), followed by 
transport, storage and communication (6.9%), gov ernment administration (5%), real estate and 
business services (4.3%), and financial services (3.8%).  
50. Indonesia submitted its conditional initial offe r in the WTO services negotiations in 
April 2005.27  The offer does not significantly change Indonesia's existing GATS commitments, 
which cover about one third of a ll services subsectors and come with significant limitations on market 
access, such as joint venture requirements and fore ign equity caps.  In the offer Indonesia has 
proposed commitments in a number of professional and business services;  telecommunications;  construction and engineering services;  educational services;  financial services;  health services;  
tourism;  and maritime cargo handling.  Together  with other ASEAN members, apart from Singapore, 
Indonesia is seeking progress in the negotiation of emergency safeguard measures under Article X of 
the GATS. 
51. Trade barriers remain in many services sectors despite relaxation of some restrictions in 
recent years, such as the liberalization in telecommun ications.  Foreign law firms seeking to enter the 
market must establish a joint venture with a local firm  and, in order to practice, all lawyers must hold 
Indonesian citizenship and a degree from an Indonesian legal facility;  foreign investment in the retail 
and wholesale sectors is permitted but on condition th at the investor enters into a partnership 
agreement with a small-scale Indonesi an enterprise;  there is a ban on all foreign investment in the 
broadcast and media industry;  foreign construction firms can form joint ventures with local partners 
in areas where the Government considers that a local firm is unable to do the work.  In 
telecommunications, the requirement that a foreign satellite operator must have  an Indonesian partner 
is perceived by some as a trade restriction th at raise costs to Indonesian consumers.   
(i) Financial services 
52. Indonesia's banking sector collapsed in the wake if the 1997-98 financial and economic crises 
as a result of its huge accumulation of bad debt.  Since then more than 50% of (2000) GDP has been 
                                                     
 
27 See document TN/S/O/IDN of 22 April 2005.  To date, Indonesia has not put forward a revised offer.   Indonesia WT/TPR/S/184 
 Page 85 
 
 
spent to recapitalize the banks and put them on a so lid footing.  Strengthening and supervising the 
banking system has been the focus of Indonesian fina ncial policy in recent years.  The overall goal is 
to set up a consolidated regulator for the financia l sector, a goal which has been postponed until 2010.  
In November 2004, the Government decided to me rge the Directorates for Pensions and Insurance 
under the Finance Ministry with the capital market s regulator, Bapepam, to form a non-bank financial 
sector regulator.  With respect to the GATS, Indonesia – in common with a number of other Asian economies – has bound its multilateral obligations at less than status quo in the financial sector.  This 
might reflect the Government's dual objectives of tr ying to encourage foreign investment in the 
financial sector while providing incumbent nationa l suppliers time to develop the necessary market 
infrastructure and institutional capabilities in order to  create a well-functioning national market in line 
with the principle of progressive liberalization.  
53. The banking sector still dominates the financia l system, accounting for 80% of financial 
assets but the non-bank financial institutions (NBFIs), while small for a country of Indonesia's size, 
are being actively supported by the Government to diversify the financial sector and improve 
mobilization of domestic resources and intermediation (Table IV.9). 
Table IV.9 
Structure of the financial sector, 2006 
(Rp trillion and per cent) 
Type of institution and year Assets (Rp trillion) Assets (per cent) Percent of GDP 
Banks (2005) 1,470.0 79.7 53.9 
Non-bank financial institutions 374.5 20.3 13.7 
Finance companies (2005) 67.7 3.7 2.5 
Insurance companies (2005) 75.1 4.1 2.8 
Pension funds (2004) 107.1 5.8 4.7 
Securities firms (2004) 10.1 0.5 0.4 
Pawnshops (pegadaian) (2005) 4.8 0.3 0.2 
Rural institutions (2004) 14.7 0.8 0.6 
Mutual funds (2005) 29.4 1.6 1.1 
Venture capital companies (2005) 2.7 0.1 0.1 
Outstanding corporate bonds (2005) 62.8 3.4 2.3 
Total 1,844.5 100.0 67.6 
Note: Numbers include some double counting because pension funds, insu rance companies, and mutual f unds invest in banks.  Perce nt 
of GDP of each sector is calculated using th e GDP of the year corresponding to year of the data.  Total as a percent of GDP use s 
2005 GDP figure. 
Source:  Bapepam & LK, Bank Indonesia;  re produced in World Bank (2006), "Unloc king Indonesia's domestic financial 
resources:  the role of non-bank financ ial institutions", December, p. 4. 
54. A regional comparison underlines the extent to  which the Indonesian financial sector is 
relatively undeveloped in terms of assets of banks  and other financial institutions (Table IV.10). 
55. The Government has continued its agenda for economic reform with plans to strengthen the 
financial sector.  The Financial Sector Policy Pack age, announced in July 2006, is centred on five 
main themes:  measures are set out to ensure great er financial system stability by strengthening policy 
coordination between the Government (as the fiscal authority) and the central bank (as the monetary 
authority);  banking institutions are to be stre ngthened by measures to encourage consolidation 
through further bank mergers and regulatory changes that will permit state-owned banks to restructure 
and recover non-performing loans;  non-bank fina ncial institutions (NBFIs ) will be strengthened 
through measures to raise prudential standards and im prove consumer protection;   capital markets will 
be strengthened through measures to  improve liquidity and integrity, including the proposed merger WT/TPR/S/184 Trade Policy Review 
Page 86 
 
 
of the Jakarta and Surabaya stock exchanges;  a nd privatization is to be  given renewed momentum 
through the establishment of a privatization comm ittee and the drafting of a strategic privatization 
plan.  Implementation of the measure s is to be overseen by a team including the coordinating Ministry 
for the Economy, the central bank, the Finance Ministry  and the state minister of state enterprises.  
Table IV.10 
Regional comparison of financial sectors, 2006 
(US$ billion and per cent) 
Indonesia Malaysia Thailand Singapore 
Sector 
Assets % of 
GDP Assets % of 
GDP Assets % of 
GDP Assets % of 
GDP 
Banks 151.5 53.9 166 159.8 172 114.9 213 233.4 
Insurance companies 7.7 2.8 20 19.5 5 3.4 46 49.8 
Pension funds 12.0 4.3 58 56.4 7 4.8 60 65.7 
Mutual funds 3.0 1.1 21 20.1 18 12.2 18 20.0 
Outstanding corporate bonds 6.5 2.3 40 38.0a 19 12.3a 30 32.4a 
Others 10.5 3.7 .. 0.0 .. 0.0 .. 0.0 
Total 191.2 68.0 305 293.3 221 147.4 367 403.3 
Equity market cap 82.5 29.3 168 162.2 119 79.4 148 162.3 
GDP 281.3 100.0 104 100.0 150 100.0 91 100.0 
.. Not available. 
a 2004 data. Note: Indonesia data as of 2005, the rest as of 2003. 
Source: Bapepam & LK, Bank Indonesia;  reproduced in World Bank (2006), "Unlocking Indonesia's domestic financial 
resources:  the role of non-bank financ ial institutions", December, p. 4. 
(a) Banking 
56. Bank Indonesia (BI), the central bank of Indon esia and an independent state institution, 
regulates key aspects of the banking and financial sy stem, including bank regulation and supervision.  
Its main objective is to achieve and maintain stabilit y of the currency.  It does not perform any general 
commercial banking activities.  The Government is es tablishing a Financial Serv ices Authority (FSA), 
an independent regulator, to monitor and regulate the entire financial system.  It was originally 
scheduled to be operational by 2003 but 2010 is the more likely date.  The Ministry of Finance 
focuses on fiscal responsibilities;  it remains in charge of licensing banks, and regulates insurance and 
investment companies and other NBFIs. 
57. The financial sector has undergone major restructur ing and reform since the financial crisis in 
1997-98.  The Indonesian Bank Restructuring Agen cy (IBRA) oversaw substantial consolidation 
during its six years of operation, but a large portion of the banking system remains in government 
control.  The banking sector has been consolidated with the number of banks, falling from a peak of 
240 in the mid 1990s to 131 at the end of 2005;  the Government's goal is to reduce the number to 60-70.  To promote consolidation among banks, Ba nk Indonesia issued two regulations in 2005 
permitting only "anchor" banks
28 to acquire other banks, effectiv e from end-2008.  Non-performing 
loan (NPLs) at the two largest state-owned banks rose to an average of 20% of assets at end-2005, 
compared with an average of 3.4% for private ba nks.  The two largest state-banks, which account for 
                                                      
28 Regulation 7/15/PBI/2005 and circular 7/48/DPNP.  To be designated anchor banks, banks must 
have Rp 80 billion in capital by 2007 and Rp 100 billion by 2010 and will need to meet targets for loan growth (22%), capital adequacy (12%), and return on assets (1.5%). Indonesia WT/TPR/S/184 
 Page 87 
 
 
more than 27% of assets in the banking, account for two thirds of the NPLs.  The loan-deposit ratio 
has continued to increase, although slowly, to  65% at end 2005 from 62% a year earlier. 
58. BI has moved towards full compliance with the Basel Core Principles for Banking 
Supervision and has a blueprint for gradual impl ementation of the revised capital framework for 
banks, commonly called Basel II (Box IV.3).  Regul ation and supervision of the sector has been 
strengthened considerably and the blanket guarant ee on bank deposits, which has existed since the 
crisis, is being gradually phased out since a depos it insurance scheme was put in place in 2004.  In 
January 2004, BI released the Indonesian Banking Ar chitecture plan, which sets out the direction and 
structure of the Indonesian banking system over the next 5-10 years.  By 2010, the plan envisages that 
there will be a few Indonesian banks operating on an international scale, another 3-5 banks with broad 
business operations on a nationwide scale, and 40 or so banks with more specialized operations. 
Box IV.3:  Basel II implementation 
Over the medium term (until 2010), the national banking industry is applying international best practices, 
particularly Basel II, representing recommendations and guidelines issued by BIS and used as a reference by non-G10 country central banks.  The application of the Basel II framework requires thorough 
preparation by Bank Indonesia, the banking industry and other related parties, because of the various 
aspects demanded including effectiv e risk-management practices, compet ent HR, appropriate information 
technology and database support, as well as the ava ilability of other supporting infrastructure, like an 
accounting standard that refers to  International Accounting Standa rd (IAS) and credible ranking 
institutions.  To this end, Bank Indonesia has defined the following implementation stages: 
(1) Basel II application in Indonesia from 2008 onwa rds, for all banks, including the Standardized 
Approach for credit-risk calculati on and the Basic Indicator Approach to estimate operational risk; 
(2) upon the completion of all requirements and subject to approval by Bank Indonesia, a bank may 
shift to the more advanced approaches;  and 
(3) Basel II is expected to be fully implemented by 2010. In terms of Basel II implementation, Bank Indonesia has completed the following: 
(a) organizational preparation, HR recruitm ent, and the Basel II implementation budget; 
(b) improvement of risk-based supervision based on consolidated supervision; 
(c) database development and improvement to meet the infrastructure requirement within the 
internal model framework; 
(d) conducted an implementation survey and collated the position papers regarding the 
preparedness of banks to deal with Basel II; 
(e) compiled the Basel II Implementation roadmap to:  
 provide a foundation in defining policy directives for Basel II implementation in 
accordance with the IBA policy;  and provide  a clearer and more explicit plan for 
preparations toward the implementation of Basel II.  For example, providing supporting 
infrastructure, supervisory organizational structure and human resources); 
(f) establishment of the Basel II Working Gro up with members consisting of representatives 
from Bank Indonesia, banking institutions, and banking associations. Banking institutions 
have also established a Task Force for Basel II implementation along with the Basel II 
Implementation Monitoring Team; 
(g) translation of Basel II documentation; 
(h) quantitative impact study (QIS) 4 and QIS 5 of 40 banks (representing approximately 80% 
of total assets  in the banking system); 
(i) "gap analysis" to identify the existing ava ilability of infrastructure and preparedness in 
accordance with Basel II requirements; 
(j) completion of 9 national discretion studies;  and 
(k) a revision of banking accountancy standards referring to IAS (IAS 32 and IAS 39). 
Source:  Bank Indonesia. WT/TPR/S/184 Trade Policy Review 
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59. The commercial banking sector is highly concentr ated, with the three largest state-owned 
commercial banks controlling over one third the ba nking system assets (Table IV.11).  The state 
continues to dominate the banking sector through it s five state banks:  Bank Mandiri, Bank Negara 
Indonesia, Bank Raykat Indonesia, Bank Tabungan Negara , and Bank Ekspor Indonesia.  It has been 
estimated that the central government controlled 38% of national banking assets as of 
December 2005.  However, the Government's shar e in the banking sector is being progressively 
reduced as it sells off assets it was oblig ed to take over following the crisis. 
60. Foreign interest in the sector has been strong, and by end 2005, foreign investors owned an 
estimated 40% of Indonesia's banking sector assets.  Starting in early 2002, foreign banks began to 
purchase controlling interests in large domestic banks that had fallen into the hands of the 
Government after the financial crisis.  The IBRA ma de its first sale of a rescued bank, Bank Central 
Asia, and other sales followed with increasing momentum.  What is called the "divestation programme" by BI has resulted in a significant incr ease in foreign ownership in the national banking 
system (foreign investors can own up to 99% of the paid-up capital in national commercial banks, 
both listed and unlisted).  At end 2005, 37 banks that could be cate gorized as foreign-owned with a 
combined market share of 40% of the total banking industry, only 6% less than the market share of 
state-owned and regional-owned banks (Table IV.12). 
Table IV.11 
Leading banks, ranked by assets, December 2005 
(Rp trillion) 
 Assets Market share (%) 
Top domestic banks   
Bank Mandiria 255.3 17.4 
Bank Negara Indonesiaa 150.6 10.3 
Bank Rakyat Indonesiaa 123.1 8.4 
Bank Pan Indonesia (Panin) 35.9 2.4 
Bank Tabungan Negarab 29.1 2.0 
Top ten foreign-controlled banks   
Bank Central Asiaa,c 150.7 10.3 
Band Danamon Indonesiab,c 66.8 4.6 
Bank Internasional Indonesiad,c 47.3 3.2 
Bank Niagae,c 41.4 2.8 
Bank Permataf 34.4 2.3 
Citibank 33.0 2.2 
Bank Lipppog,c 29.1 2.0 
HSBC 24.5 1.7 
Deutsche Bank 19.6 1.3 
ABN AMRO Bank 19.4 1.3 
Total market 1,469.8 100.0 
a Farallon Capital (United States) acquired a 51% stake in March 2002. 
b Temasek Holdings (Singapore) and Deutsche Ba nk (Germany) acquired a 51 % stake in July 2003. 
c Still classifieds as a "private national bank". d Kookmin Bank (South Korea) and Temasek Hold ings acquired a 51% stake in December 2003. 
e Commerce Asset-Holding (Malaysia) acquired a 51% stake in November 2002 and a further 10.1% stake in April 2005. 
f Standard Chartered (UK) and local Astra International acquired a 51% stake in Octobe r 2004, and an additio nal 11.2% stake in 
December 2004. 
g Khazanah Nasional (Malaysia) acquired a 52.05% stake from Swissasia Global in August 2005. 
Source: Economist Intelligence Unit, Country Finance Indonesia.  Viewed at:  http://portal.eiu.com/ 
report_dl.asp?issue_id=1660852351&mode_pdf. Indonesia WT/TPR/S/184 
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Table IV.12 
Share of bank ownership, December 2005 
 Number of banks Total asset (Rp m illion) % of total banking industry 
Government 31 37,996,246 45.7 
Domestic 63 215,014,740 14.6 
Foreign 37 582,816,386 39.7 
Foreign bank branch 11 140,679,024 9.6 
Joint venture 17 58,975,657 4.0 
Foreign acquired bank 9 383,161,705 26.1 
Total 131 1,469,827,372 100 
Source: Bank Indonesia. 
(b) Insurance 
61. The insurance industry is small in terms of pr emiums to GDP, at barely 2%, and total assets 
equivalent to 3% of GDP.  As of September 2005 there were 51 life insurance companies, 97 non-life 
and 4 reinsurance companies.  In addition there were  two companies to administer social security and 
three to manage civil servants and armed forces insura nce.  The industry is h eavily concentrated with 
the top five non-life companies accounting for 51% of  assets and the top five life insurance companies 
accounting for 55% of assets.  The industry is no t healthy financially;  five insolvent non-life 
companies and six insolvent life companies are still ope rating.  Local insurers have struggled to meet 
the increasingly rigorous solvency margin requireme nts enacted by the Finance Ministry since 1999.  
Foreign companies can hold up to an 80% stake in  a local insurance company although the experience 
of certain foreign companies in joint ventures has been problematic.29  With respect to commitments 
under the GATS, entry limitations are accompanied by restrictions on foreign equity below the level 
of the status quo.  
(c) Capital markets 
62. The stock market is small in terms of capita lization to GDP at about 30%, compared with 
around 70% in Thailand and 150% in Malaysia, but it has been booming over the past five years.  While 355 firms are listed, trading is mainly in th e 30-40 most liquid stocks.  One reason for the low 
liquidity is the small free float of listed shares.  Fo reign institutions account for more than half of the 
trading volume, and there are an estimated 90,000 reta il trading accounts in Indonesia.  The merger of 
the Jakarta and Surabaya exchanges was announced in March 2006.  
63. The bond market in Indonesia, although still in the early stages of development, has grown 
rapidly over the past decade.  Before 1997 there were no domestic government bonds outstanding, due 
to a balanced budget rule, but by  2006 government bonds amounted to  nearly Rp 390 trillion or over 
14% of GDP.  At the start, much of this was driven by the recapitalization of the banking system but 
the Government now uses bond markets to meet its regular financing requirements.  The corporate 
bond market is smaller than the government bond market  and is also growing, with outstanding issues 
of around Rp 63 trillion (Table IV.9) or 2.3% of GDP, compared with the regional average of 20%. 
This leaves ample room for growth of the corpor ate bond market, which would constitute a significant 
step towards diversification of the sources of co rporate finance and reduction of the dependence on 
bank lending.  Mutual funds started growing in 20 00 when they were allowed to buy more recap 
bonds, and banks started promoting mutual funds to  depositors.  The Capital Market Supervisory 
                                                     
 
29 For example, the UK's Prudential and Canada's Manulife joint ventures were declared bankrupt.  
Both bankruptcies were eventually overruled by the Supreme Court but at some cost to the reputation of the country's legal system and insu rance operating environment. WT/TPR/S/184 Trade Policy Review 
Page 90 
 
 
Agency (BAPEPAM) supervises, regulates, and mo nitors the activities of the Indonesian capital 
market and has the authority to grant licences, a pprovals, and the registration of capital market 
participation.   
(ii) Telecommunications 
64. Indonesia's telecommunications market continued to expand during the review period.  The 
number of fixed lines has risen to an estimated 14.8 m illion in 2007, equivalent to a ratio of six fixed 
lines per 100 people.  This relatively low teledens ity does not fully reflect the degree of coverage 
provided by the existing network, which has over 200, 000 telephone kiosks, which are located in even 
the remotest areas.30  In recent years, mobile telephony h as surpassed fixed-line technology as it does 
not need the same substantial inv estment in infrastructure.  The number of mobile subscribers has 
increased strongly, rising from 32.8 m illion in 2004 to an estimated 92  million in 2007, equivalent to 
a teledensity of around 37% (Table IV.13). 
Table IV.13 
Telecom sector, 2004-08 
 2004 2005 2006 2007 2008 
(est.) 
Telephone main lines ('000) 10,202 12,720 14,295 14,811 14,908 
Telephone main lines (per 100 population) 4.3 5.3 5.8 6.0 5.9 
Mobile subscribers ('000) 32,873 65,000 85,000 92,000 98,000 
Mobile subscribers (per 100 population) 13.8 26.9 34.6 37.0 38.8 
Internet users ('000) 8,587 9,885 12,000 14,000 15,500 
Internet users (per 100 population) 3.6 4.1 4.9 5.6 6.1 
Broadband subscriber lines ('000) 132 325 450 575 690 
Broadband subscriber lines (per 100 people) 0 0 0 0 0 
Personal computers (stock per 1,000 population) 11 12 13 14 15 
Source:  Economist Intelligence Unit, Country Finance Indonesia, pp. 13 and 17.  Viewed at:  http://portal.eiu.com/ 
report_dl.asp?issue_id=1660852351&mode_pdf. 
65. The Government's current sector strategy is based on the 1999 Blueprint for 
Telecommunications Development published by  the Ministry of Tourism, Posts and 
Telecommunications.  The Blueprint's main obj ectives were to:  improve telecommunications 
performance, so as to position the economy to face th e challenges of globalization;  establish the 
foundations for competition by eliminating all form s of monopoly by 2010;  increase transparency 
and clarity of regulatory processes to enhance inv estor confidence;  create opportunities for national 
operators to form international alliances, for medium  and small enterprises to participate in the sector, 
and for expanded employment.  Overall, in all but basic services delivery, Indonesia has made 
progress in making the telecom playing field more transparent and competitive.  Today, there is very little that would impede a foreign investor from ente ring the Indonesian value-added telecoms market.  
                                                     
 
30 Universal service obligation (USO) policy is to provide basic telephone services to rural areas 
nation-wide.  The Government has regulated a special  fund contribution for universal access obligation:  
telecommunication operators contribute 0.75 % of their gross revenues to the fund to be used for establishing 
telecommunications access to all underserved and un-ser ved villages throughout Indonesia.  The Government 
provided telephone access for 3,010 villa ges in 2003 and for 2,620 villages in  2004.  In coop eration with the 
private sector and local government, it still has to provide access to 37,370 villa ges.  By 2010, it is targeted to 
complete the ringing villages (desa berdering) project, which mandates that every village has at least one 
telephone line.  By 2015, it is targeted to complete 50% of the smart village ( desa pintar ) project, which 
mandates that every village has access to internet. Indonesia WT/TPR/S/184 
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Main regulatory developments 
66. Indonesia has been undertaking significant reform  of its telecom policy.  Over the past 
decade, a set of first generation reforms has br ought about increased private sector and foreign 
participation.  The country's two main carriers – PT Telkom and PT Indosat, which are 65% and 16% 
state owned respectively, have been partially sold to private investors. Competitive licences have been 
awarded for the provision of GSM mobile services, In ternet services, and other value-added services.  
The private and competitive provision of cellular mob ile services, in particular, has had a profoundly 
positive effect on the availability and use of telecommunications in Indonesia.  The 1999 
Telecommunications Law (No. 36/1999) also creat ed the enabling environment for second generation 
reforms, which would eventually result in full comp etition in all market segments.  The Government's 
priorities over the next few years include implemen ting the provisions of the 1999 law, in particular 
the development of the regulatory framework that is crucial for the success of the sector liberalization 
programme. 
67. In 2002, implementing regulations establishe d conditions for a new policy of duopoly and 
accelerated reforms.  The Government ended the exclusive rights of PT Telkom for domestic long-
distance service and local fi xed-line service in August 200331, and of PT Indosat and Satelindo for 
international calling service in 2003.  PT Telkom  and PT Indosat were established as Indonesia's only 
full service providers, a move that ensured PT Telkom 's survival in the f ace of increasing competition 
from Voice-Internet Protocol (VIP) services.  Si nce 2002, however, PT Telkom has focused most 
investment in the value-added cellular market and has added few new lines to remote areas.   
68. The provisions of Indonesia's Telecommuni cations Law have guided reforms to end 
monopolies and open basic telecommunications services to majority foreign ownership.  It lifted 
Telkom's and Indosat's respective monopolies on domestic and international services in 2002 as a 
first step towards introduction of full competition by end-2006, a target moved forward from 2010.  
The law lays out goals that exceed many of th e commitments Indonesia agreed to under the WTO 
Basic Telecommunications Agreement (maxim um foreign investment limit of 35% for 
telecommunications services companies) and the WTO Pro-Competition Annex in 1997 (transparent 
regulatory procedures, non-discriminatory licen sing, and competitive safeguards for companies 
operating in Indonesian markets). 
69. The law removed previous requirements that pr ospective foreign investors partner or enter 
into a revenue-sharing arrangement with a state-ow ned enterprise.  In January 2002, to attract 
investors, the Government committed to raise teleph one tariffs each year for three years to achieve 
market levels.  Popular resistance, however, prev ented the second round of price increases in 2003.  
Indonesia has undertaken partial privatization of its  telecommunications companies.  In July 2002, 
government ownership of PT Telkom  was reduced to 51%, after a public offering of 3.1%.  In 
December the same year, the Gove rnment reduced its ownership of PT Indosat to 15%, after it sold 
41.9% to Singapore Technologies Telemedia. 
70. The Indonesian Telecommunications Regulatory Agency (BRTI), an independent 
telecommunications regulatory body, was formed in July 2004 to improve transparency in regulation 
                                                      
31 Before 2002, PT Telkom operated as the exclusiv e provider of fixed-line local, long-distance, and 
leased-line telecommunications services .  At the same time, in 1995, Tel kom awarded 15-year so-called 'KSO' 
concessions to private consortia to operate fixed line services on a monopoly basis in five of seven regional districts (PT Telkom retained control of Greater Jakarta and East Java).  The concessions attr acted substantial 
foreign investment from large international operators, including France Telecom, Media One, Telstra, NTT, 
Cable & Wirless, and Singapore Telecom.  Subsequently, Telkom decided to buy out two of the regional operators, although disputes still exis t with two other regional carriers. WT/TPR/S/184 Trade Policy Review 
Page 92 
 
 
development and dispute resolution.  To date, it  has been largely inactive and the Ministry of 
Communication and Information has been more e ffective in pushing through sector reforms.  
71. Competition in fixed-line services has emerged from companies using Voice over Internet 
Protocol (VoIP) technology.  However, the Governme nt has chosen to restrict entry into this new 
market segment to five companies:  Telkom, Indosat, Satelindo, and tw o independent operators. 
Competition is already well-advanced in the provisi on of mobile services.  Telkomsel, jointly owned 
by PT Telkom and the Singaporean carrier SingTel, is the largest mobile operator, with a market share of over 50%.  Its two main competitors are Sate lindo, fully owned by Indosat, and Excelcomindo, 
partly owned by Verizon (Table IV .14).  There are no limitations on entry for the provision of Internet 
services.  So far, the Government has licensed 190 Internet service providers (ISPs), of which only 
35 are active.  Both PT Telkom, through TelkomNet, and PT Indosat, through IndosatNet, are strong players in the market for Internet services.  ISPs are not allowed to operate their own international 
Internet gateways, but are required to use the facilities of Indosat or Satelindo. 
Table IV.14 
Telecommunications market shares in 2006 
(Per cent) 
Type Operator Share 
Fixed phone Telkom 90 
 Indosat 2 
 BakrieTel 5 
 BB Tel 2 
Cellular Telkomsel 54 
 Indosat 26 
 Excelcom 14 
 Mobile-8 4 
 NTS <1 
 Mandara <1 
 Hutchinson <1 
 Primasel <1 
International Telkom 52 
 Indosat 38 
Source: The Indonesian authorities.  
72. Indonesia, like many developing and developed c ountries, has chosen a gradual approach to 
the reform of telecommunications services.  Partial privatization, the opening of selected service segments to competition (provision of mobile and internet services) and the phasing in of individual regulations has been preferred to a strategy of  radical sector liberalization with the immediate 
adoption of comprehensive pro-competitive regul ations.  According to the authorities, the 
Government has received a significant number of requ ests from its trading partners to improve on its 
commitments in the Uruguay Round and in the context of the 1997 Agreement on Basic 
Telecommunications (Box IV.4).  As the services negotiations progress, the Government will decide 
on how to respond to these requests.  Indonesia WT/TPR/S/184 
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Box IV.4:  Overview of  GATS commitments 
Fixed-line local services are provided exclusively by PT Telkom and five regional joint-operation-scheme 
operators.  The period of exclusivity expires in 2011. 
Long-distance services provided exclus ively by PT Telkom until end-2006.   
International services provided exclusively by PT Indosat and PT Satelindo (duopoly) until end-2005.  
Foreign equity participation is limited to 35%. 
Mobile:  seven operators are now pr oviding service.  Foreign equity participation is limited to 35%. 
As part of its additional commitments, the Government indicated the end of exclusivity periods prevailing 
at the time (2011 for local services, 2006 for long-dis tance services, 2005 for international services).  
However, the commitment only foresees that the "Government will conduct a review of policy with 
respect to whether to permit additional suppliers of such services upon the expiry of this period".  It is 
clear that Indonesia's fixed-line policy is more liberal than its commitments under the GATS.  Indosat has 
already obtained a licence to  provide local services in Jakarta and Surabaya, PT Telkom has been given the 
right to provide international services, and five licen ces for the provision of VoIP services have been 
licensed. 
Indonesia subscribed to the Reference Paper on Regulatory Principles.  It departed from the model text 
only in one way.  According to Indonesia's commitment, the regulatory authority has to be only "not 
accountable to" – and not necessarily "separate from" – any supplier of basic telecommunications services.  
At the time the commitment was made in 1997, the Government felt that its regulatory structure may not 
be compatible with a multilateral obligation of a separate regulatory entity.   
Source:   Ministry of Industry and Trade and DG for Telecommunications RI.  
(iii) Transportation32 
73. As a large country made up of many islands, Indonesia faces considerable challenges in 
establishing the extensive infrastructure of all mode s of transport, communications and public utilities 
that are an essential prerequisite for its economic an d social development.  The necessity of creating 
such an infrastructure has long been recognized by po licy makers in Indonesia.  Indonesia has some of 
the lowest electrification and teledensity rates in the region, low levels of piped water and sanitation 
access, and increasingly congested national and prov incial road networks.  While infrastructure 
received high levels of private and public investment  in the decades before th e crisis, investment has 
fallen precipitously since.  About US$65 billion in new investment is estimated to be needed to 
increase the growth rate from 5.5% to 7.6% over 2005-09.  Restoring private participation in 
infrastructure is necessary to close the financing gap but requires fundamental restructuring.  The 
Government's role is mainly as regulator and fac ilitator, to plan and undertake institutional and policy 
reforms, to manage regulatory and other risks disc ouraging private investment, and to improve inter-
ministerial coordination.  Indonesia's 2006  Infrastructure Reform Package covers power, roads, 
telecoms, water and sanitation, port  and airport modernization.   
Road and rail 
74. Land transport depends principall y on road and, to a lesser extent, rail networks.  The total 
length of roads in 2004 was 348,148 kilometres, of wh ich only 54% was estimated to be in a good or 
satisfactory condition.33  The inadequacy and quality of the ro ad infrastructure result in congestion, 
delays, high operating costs, and poor safety.  The ma in problem is lack of regular maintenance of the 
                                                      
32 No information was available from the authoritie s regarding changes in the laws and regulations 
governing land and maritime since the previous review. 
33 National Medium Term Development Plan 2004-09, Chapter 33-19 . WT/TPR/S/184 Trade Policy Review 
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road network, followed by overloading of vehicles,  demand/capacity imbalance, lack of funding, lack 
of productivity and management, and weak and unc oordinated institutions.  The 1997 Asian financial 
crisis disrupted construction of the toll road networ k (only 606 km).  The poor level of road safety is 
caused primarily by speed, driver capability, poor ve hicle condition, poor road design, overloading, 
and excess driver hours.  High accident rates, and ov erloading, however, occu r because of inadequate 
enforcement of regulations, and increasingly wher e local governments see fines as a revenue source 
rather than a means to eliminate damaging practices. 
75. The Government has set a target to develop 1,500 km of expressway roads in Java and 
Sumatra in the next 10 to 15 years;  this will re quire an estimated US$1 billion per year.  In 2003, 
there were 26.7 million road-vehicle registrations, comprising 20 million motorcycles, 3.9 million 
cars, 2 million goods vehicles, and 798,000 buses.  Ro ad development policy is focused on increasing 
road capacity and quality by stre ngthening main national road corri dors and providing better access to 
less developed and remote areas.  The Road La w No. 38/2004 and the subsequent Government 
Regulation No. 15/2005 on toll roads reformed the legal framework and paved the way for greater 
private sector participation.  
76. Railways cover about 3,100 km on Java and 1,300 km  on Sumatra;  only 10% of this consists 
of double-track railway.  There is one railway company monopoly in Indonesia:  the state-owned Kereta Api Indonesia.  The sector is in need of investment and the Government has been actively 
encouraging foreign investors to participate in infrastructure development.  According to the 
authorities, the railways' share of passenger tran sportation is stagnant, at 7% of total passenger 
transport, and the share of cargo transportation is  under 1%.  This low level of performance is 
attributed to poor condition of the railway infrast ructure and facilities, inadequate application of 
technology, and the poor quality of management, reflected in the declining performance of the 
railways and in particular, the advanced age of locomotives, coaches, and rolling stock.  
Sea 
77. Although Indonesia is an island nation, it has a surprisingly small domestic ocean-going fleet.  
Traditionally Indonesia has maintained strict control over access to its coastal trades, reserving them 
for nationals under Regulation PP17 of 1988 which inter alia  reserves coastal trades for Indonesian-
flag vessels and provides operating subsidies for vessels used on selected inter-island routes.  The Industrial Shipping Law (1988), how ever, allows shipping lines to  use foreign flag vessels with 
certain limitations when local flag tonnage is not av ailable.  Indonesian law allows foreign companies 
to participate in local trade, provided they do so in joint ventures with Indonesian partners. Also, 
Government Regulation No. 20(1994) a llows up to 95% foreign investment in shipping ventures.  It is 
unclear to what extent Indonesia's cabotage policy has been effective in reserving domestic cargoes 
for Indonesian owned and flagged vessels.  Accord ing to the authorities, the main problem in sea 
transportation is the declining share of the na tional shipping fleet, which accounted for 51% of 
domestic transportation and only 4% of international sea cargo in 2003.  The Government is aware of 
the need to fully implement the cabotage principl e for domestic transportation so that the national 
shipping fleet can transport all of the domestic cargo.   To achieve this, public and private investment 
is necessary for the rejuvenation of national commercia l ships, the majority of which, according to the 
Government, are obsolete and inefficient.  
78. Ports are of vital importance and significance to  regional cooperation a nd national integration 
for Indonesia transport.  The maritime sector is a key mode of domestic and international cargo and 
passenger transport.  In 2003, about 600 million tonnes of cargo and 10 million passengers were  
handled by 725 public (and 1,400 private) ports, of  which 141 are classified as international ports.  
The country's main container port, Tanjung Priok in Jakarta, which handled 44% of exports and 60% 
of imports in 2003, is now partly under private ow nership, and heavy investment has made it one of Indonesia WT/TPR/S/184 
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the world's largest full-service international seaports.  Ports can be inefficient, imposing additional 
time and costs on domestic cargoes and exports.  Pr ivate sector finance and containerization have 
been slow to develop, especially outside of the main ports on Java.  The introduction of technology and the facilitation of inter-modal transfers have also  been slow.  Port tariffs are low, allowing full 
cost recovery only in larger ports.  With the intr oduction of the International Ship and Port Security 
Code in July 2004, all international ports in Indonesi a have faced the challenge of implementing strict 
security measures.  
Air 
79. During the period under review, a significant regulatory change was the introduction of 
Ministerial Decree No. 81 (2004) which revised th e earlier general Decree No. 11 (2001) concerning 
overall air transport activity with the objective, according to the authorities, of creating fairer 
competition in domestic and international air tran sport services.  Foreign operators of scheduled 
domestic services are required to enter into a joint ve nture, in which foreign ownership of up to 49% 
is allowed and foreign airline companies may provi de international and domestic passenger based on 
point-to-point services.  The Decision of the Minister of Communications No. 82 (2004) concerning 
aircraft procedures reflects rising maintenance, safe ty and security concerns as air travel expands 
rapidly.  The Directorate General of Air Co mmunications (Department of Communications) is 
responsible for regulating civil aviation, including  flight safety.  Air transport is essential for 
passengers, high-value cargo, and mail as it facilitat es mobility and provides vital access to remote 
areas, thus helping to integrate the islands across the country.  Indonesia has 179 commercial airports, 
three of which (in Jakarta, Denpasar, and Surabaya ) account for about 60% of passenger traffic.  
While the main airports function well, there are is sues about air safety and security management and 
funding resources for development of the medium si zed and small airports, especially those in remote 
areas.  Domestic airport tariffs are kept low and do not allow cost recovery for the services provided.  Consequently, only major airports with significant international traffic can break even.  Increased 
transport demand due to deregulation and low cost airlines is putting pressure on capacity at medium-
sized airports.  Air transport safety and security also deserve attention
34 given the rapidly expanding 
commercial fleet, the absence of a unified air traffi c control, and the overall security concerns in the 
region. 
80. The civil aviation industry suffered financial lo sses after the Asian financial crisis but is now 
carrying over 50% more traffic than before the cr isis.  The number of domestic airline passengers 
grew from a low of 6.3 million in 1999 to 34 million in  2006.  This is partly attributable to lower 
airfares as a result of competition, and an increasing geographical coverage of air transport services.  
There are currently two state-owned carriers, Garuda and Merpati with market shares for domestic routes in 2006 of 20% and 5% respectively
35;  the Government is planning to privatize both.  Lower 
cost, mostly small airlines have proliferated sinc e the sector was liberalized in 2000.  Before 1999, 
there were five scheduled carriers and a few charte r operators;  there are currently 37 licences on issue 
                                                      
34 In early 2007 there was extensive coverage in the Indonesian press of the findings of a 2007 
investigation carried out by the National Team for the Evaluation of Transportation Safety and Security 
following a long series of fatal accide nts involving Indonesian airlines sinc e 2002, putting the spotlight on safety 
standards in Indonesia's airline industry.  The investigation revealed inter alia  that safety standards had 
deteriorated since the deregulation of the aviation sect or and called for a comprehensive reorganization of air 
transport regulating bodies, noting that licences issues by regulators had to be based on rules and regulations and 
not on negotiations, trade-offs and bribes.  According to  press reports, the Team also recommended that the 
National Transport Safety Board should become an indepe ndent body answerable to the President, instead of 
being placed under the Transport Ministry. 
35 Down from 29% and 16%, respectively in 2003.  The authorities maintain that there are no 
government guarantees or subsidies fo r those airlines and there are no "cap tive markets", such as obligations for 
civil servants or government-related  cargoes to fly Indonesian airlines. WT/TPR/S/184 Trade Policy Review 
Page 96 
 
 
with 23 scheduled airlines operating.  The biggest no-frills operator is Lion Air, with an estimated 
market share of 19.5% of the passenger market for domestic routes in 2006.  The increasing competition in the domestic and local international ma rkets have forced Garuda to launch a low-fare 
service.  Trains and ferries are also losing business as a result of the expansion of low-cost airlines.  
The rapid growth of air services promises to have significant implications for airport infrastructure 
and airlines in terms attracting greater levels of external investment.
 36 
(iv) Tourism 
81. During the period under review, visitor numbers have remained above 5 million a year, apart 
from 2003, when tourist arrivals were particular ly low owing to the regional outbreak SARS.  
Government data show that international touris m receipts reached US$4.5 billion in 2005, down from 
US$4.8 billion in the previous year.  Similarly, the number of international visitors fell from 5.3 million to just over 5 million in 2005.  The Government targeted a total of 6 million tourist arrivals in 2005, but this was before the Indian Ocean tsunami devastated parts of North Sumatra at 
the end of 2004.  Tourist arrivals in 2006 are estimat ed to have fallen by  around 3% while arrivals in 
Bali, Indonesia's main tourist destination, fell by  around 13% in the same period (Table IV.15).  
Tourists have been deterred by natural disasters, su ch as earthquakes, tsunamis, and forest fires, as 
well as the threat of avian influenza and the risk of fu rther terrorist attacks.  In 2005, an estimated one 
third of visitors to Indonesia were business travelle rs;  most of the remainder were holidaymakers.  
For 2006, just over half of visitors were business tr avellers, while holidaymakers accounted for about 
one third of the total.  Singapore remains the larges t source of visitors, accounting for 24% of the total 
in 2006 followed by Malaysia (13%), and Japan (10%).  In total there are 11,461  hotels, with 
285,530 rooms and 465,021 beds.  For the country as a whole, room occupancy was just 45% at 
end-2006.  
Table IV.15 
Visitor arrivals to Indonesia, 2003-06 
Average expenditure/person (US$) 
Year International 
visitors Per visit Per day Avg. stay in day(s) Foreign exchange 
income 
(US$ million) 
2003 4,467,021 903.74 93.27 9.69 4,037 
2004 5,321,165 901.66 95.17 9.47 4,798 
2005 5,002,101 904.00 99.86 9.05 4,522 
2006 4,871,351 919.03 100.48 9.09 4,448 
Source:  Information provided by the Indonesian authorities. 
82. The Government is heavily involved in the tour ism industry.  It owns the main domestic and 
international airline as well as another large airline, Merpati.  It is also involved in travel agencies and 
local hotel groups.  The Government is involved in promoting tourism under several themes in 
parallel with the effort to improve Indonesia as the one of the most varied destinations.  As stated in 
the National Tourism Strategic Plan, the vision of st akeholders in Indonesian tourism development is 
to achieve a tourism capability that strengthens na tional identity and unity, increases the nation's well 
being and promotes fri endship among nations.37  The promotion of tourism is complex, involving a 
number of bodies and stakeholders, although the Ind onesian Culture and Tourism agency has overall 
control.   
                                                      
36 Airlines can be 49% foreign-owned. 
37 The plan recognizes that tourism is also a sour ce of increasing stress on fragile ecosystems and 
culture environment becau se it concentrates on vulnerable natural and cu ltural sites.  For the last few years, the 
development of cultural tourism in Indonesia has focuse d away from the mass touris m approach to the special 
interest approach, which generally involves "three pilla rs of sustainability":  ecologically and environmentally 
friendly, socio-culturally friendly , and economically efficient. Indonesia WT/TPR/S/184 
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