INDONESIA PLANS TO BUILT NUCLEAR POWER PLANT

Jakarta (ANTARA News) - Indonesia is considering cooperating with a few foreign countries to set up a nuclear reactor on the Muria Peninsula, Central Java, in order to reach its traget of having a 1,000 MW nuclear power plant by 2015, a cabinet minister said.

"We plan to be in possession of a 1,000 Megawatt facility by 2015 as the first stage of a plan to have a 4,000 Megawatt nuclear power capacity. Because implementation of the project will take six years, it means we must start it in 2009. So we should make the necessary preprations within the next two years," Mineral Resources and Energy Minister Purnomo Yusgiantoro said here Monday.

"At the moment we are still considering four foreign countries to cooperate with, namely France, Japan, South Korea, and the US," he said.

According to Purnomo, since several years ago the government has placed some monitoring instruments in the Muria Peninsula to evaluate whether it was safe to use the area as the location of a nuclear power plant.

"Apperently, up to now the conclusion obtained from the monitoring instruments are showing that the area is stable enough for a nuclear power plant," he said.

Purnomo said Indonesia actually already had a reactor producing about 30 Megawatt in Serpong, West Java.

"And, it is using BWR (Boiling Water Reactor) technology So, our human resources and experts are already familiar with BWR technology. Most possibly we will also use BWR technology (in the Muria project) but maybe of a more sophisticated kind ," he said.(*)

OPPORTUNITY ON POULTRY MARKET IN INDONESIA

The poultry industry in Indonesia is playing an important role in the nations’ economic development in respect of employment creation and opportunity, generating and developing especially rural economic income growth and in earning foreign exchange. Poultry products are also a source of protein and affordable to the majority of the population. An estimated number of 500.000 households are involved in the traditional poultry farming of indigenous fowls, nationwide. The economic and financial crisis of 1997 has hit the poultry industry badly due to drastic decrease of the purchasing power of the people causing a drastic downfall of the demand for poultry products in the domestic market and the devaluation of the local currency. Many poultry farms were forced to close the operation due to the fall of the local currency against the US Dollar and as a matter of fact, the required components in the farming industry, from animal feed to antibiotics and vitamins are still heavily importing dependent. The Directorate General of Livestock Production of the Ministry of Agriculture registered only 22 parent stock breeding farms remained in 1998 out of 101 in total, whereby the survivors were only operating at a capacity level of around 30%, as a negative impact of the economic crisis.

The poultry industry, however, recovered earlier than expected as the foreign exchange situation was relatively stable after the year 1999. In the year 2000 the total poultry meat production was registered at more than 817.000 tons, an increase of 24% from the previous year of 1999 of 620.000 tons. Assuming a relatively stable economic and political climate, the poultry meat production is estimated to reach a figure in excess of 855.000 tons for the current year 2001, an average annual increase of 4.7%. The consumption of poultry meat during the crisis period was merely 450.000 tons and estimated to increase to a level of some 600.000 tons in the year 2000. The fact that Indonesians tend to consume more poultry meat as a substitute for beef and that the demand for poultry products is characterized as income elastic, leads to a higher consumption figure in the near future.

Currently, per capita consumption of poultry meat in Indonesia is 3.8 kg and with expected improvement in the living standard and better purchasing power of the people, the consumption should easily reach a figure of between 740.000 to 750.000 tons annually. This condition indicates that the production output has not yet been fully utilized domestically, the supply side with regard to production capacity has not reached the so-called levelling-off position; the up-stream industry still has over capacity. This means in turn, that more than sufficient room for development and expansion is available for the future.


TRADE POLICY

Indonesia imposes a 5% import duty on all poultry products as listed in the import classification (HS-code system), although there is a WTO bound rate of 40%. All poultry meat products to be imported must be attached with a “halal” label and certified by the Indonesian Islamic Council (MUI). The label is issued by a number of U.S. Islamic centres, which in turn are approved by the Indonesian MUI.

Since the end of 1999 general importers are allowed to import poultry products; they however have to inform the Directorate General of Livestock Production detailed information on the type of product imported, volume, code number of the slaughtering house, port and market destination. In view of the growing import trend of such products recently, the government attempts to control the internal distribution of imported poultry products away from traditional markets in order to protect the domestic poultry producers. Imported poultry products indeed are channelled to market outlets requiring high quality products such as specialized super markets, hotels and restaurants businesses. In the same period of time the government has also removed poultry farming business from the so-called Negative Investment List, a former regulation restricting or prohibiting foreign companies to invest in certain business sectors. Foreign companies are now allowed to establish breeding farms or animal feed mills. A regulation was also revoked in mid 2000, where foreign poultry farms no longer have the obligation to export at least 65% of its production.

INDONESIA DEVELOP AND RESEARCH ON ALTERNATIVE ENERGY

Jakarta, 9/5/2006 (Kominfo-Newsroom)

The research and Implementation of Technology Bureau (BPPT) as the research and implementation of technology consistently and research the development and the engineering to give solution to find other source of alternative energy.

This matter was sent by the BPPT Head, Prof. Ir. Said D. Jenie, Sc. D. was in the address written that was read out by the Deputy the Information Technology Field, Energy, material & the Environment, Dr. Ir. Marzan A. Iskandar in the opening of Vegetable Oil of the Utilization Workshop Directly as the Alternative Fuel, in Jakarta, on Tuesday (5/9/2006).

They said, the price of petroleum in the world of this year was high enough compared to last year, to revolve US$ 60-70/barel, that could it was worried about strike the Indonesian economy because despite this country the producer of oil, but also including wasteful oil in the use of oil, this year was estimated reached 1.13 million barrel per the day.

Whereas the production of Indonesian oil in general only 1.06 million barrel per the day so as to the deficit happen 70 thousand barrel per the day, so as since 2005 Indonesia had the predicate of the importer's country of net oil. The other problem, oil that was consumed was crude oil, at this time with the price of crude oil US$ 70 per barrel, then the price of diesel fuel reached US$ 87 per barrel.

Moreover, the oil refinery capacity could only satisfy the requirement for fuel until 992 thousand barrel per the day. With consumption of fuel that not balanced, where around 43% was consumption of the diesel fuel kind, government was forced to import a third him, because generally an oil refinery did not produce certain kind fuel like diesel fuel until as big as that, the BPPT headword.

The height of the price of world oil and consumption of Indonesian oil according to him, was worried not only will disrupt in a manner the departure tax but also could result in the decline in the exchange rate of Indonesian currency, because of the fall of the foreign exchange reserve importing crude oil and fuel oil, said Said while adding, the government must begin to make use of the source of energy alternative like natural gas, coal, bio-energy and appropriate geothermal the requirement.

So, BPPT carried out various researches including various production technology bio-energy like bio-ethanol, bio-diesel and bio-oil was studied and sat this through the Centre of Development Technology of Energy-TIEM resources also was done by the upper study of the source of alternative energy for the replacement of diesel oil and kerosene that were known with the term “Pure Plant Oil”, he said.

Pure Plant Oil was vegetable oil that was used directly without the modification in manner chemistry. His use needed extra fuel tanks and the heater, as well as the additional filter that make use of hot from the machine to guard vegetable oil stayed hot so that his viscosity is equal to diesel fuel, said Said.

With the existence of various sorts to the replacement of fuel of alternative technology, according to him, was hoped the difficulty could be resulting from the rise in the price of petroleum reduced.

KRAKATAU STEEL PLANS TO BUILD NEW FACTORY

TEMPO Interactive, Monday, 08 May, 2006

Jakarta: Investors from India and China are interested in joining PT Krakatau Steel in a steel factory construction project in South Kalimantan worth between US$600 million and US$1 billion.

Both investors are interested in building roads, steam powered electricity power plants, and harbors.

Director General of Metals, Machineries, and Multifarious Industry, Anshari Bukhari, said Krakatau Steel can only afford fifteen percent of the project's cost.

That is why this state company needs investors.

“However, Krakatau Steel has the right to choose the investors it prefers,” said Anshari in Jakarta last weekend.

Krakatau Steel has two options for expansion to South Kalimantan, either to build only the factory, or to build an integrated factory.

For building a steel processing factory, the funds required are US$119 million, but Krakatau Steel can only prepare some US$30 million.

Building an integrated factory will require between US$600 million and US$1 billion.

This includes not only building a factory, but also for funding the construction of supporting infrastructure.

Due to the large funding requirements, Krakatau Steel will build the factory first.

“The proper study of this factory building will be complete in June,” said Anshari.

Construction of the factory can start next year and is scheduled to be completed in 2008.

The new factory is necessary because the state's steel demand currently reaches between four million and five million tons per year.

However, national production is only between two million and 2.5 million tons, and the remainder must be imported.

The demand for steel will keep increasing and it is predicted that by 2008, it will reach six million tons.

PT Krakatau Steels's President Commissioner, Amir Sambodo, confirmed that investors from India and China were interested in working together to develop an integrated steel factory in South Kalimantan.

He said that the two investors' interest was a positive signal in terms of the plan to build an integrated steel factory.

Krakatau Steel is preparing the technical plans, including the plan to build infrastructure including roads, bridges and a harbor.

Some time ago, Krakatau Steel's President Director, Daenulhay said this expansion project to South Kalimantan is part of the business plan to increase steel production up to 20 million tons per year.

This target will be carried out in phases, starting in 2008 by producing a million tons per year, 10 million tons by 2013 and 20 million tons in 2020.

The funding required to meet this target is US$2 billion.

INDONESIAN DEFFENSE AND SECURITY PROCUREMENT

Indonesia is the 4th most populous country in the world after China, India and the USA and total number of population in 2002 is nearing the 210 million mark; it is by far the largest country in South East Asia in terms of population and area. The total land area of 1.92 million sq. km (five times that of Japan and about one-quarter that of the Australian continent) is in form of more than 17.000 islands, the largest archipelago in the world, strategically located between the Indian and the Pacific oceans, which link East Asia to the Indian subcontinent, Africa, Europe and the oil-rich Middle East. Indonesia is also located in a region where burgeoning economic growth, political transformation and realignments of power place stability and security in potentially dangerous flux.

The Indonesian defence and security concept is the consolidation of the nation consisting of different ethnic groups living scattered within an archipelagic geography. It was for this reason that the Archipelagic Outlook concept was incorporated into the Armed Forces’ doctrine first in 1969 and later reaffirmed as national doctrine in 1973, which is indeed in line with the national motto of Indonesia, known as “unity in diversity”. The Archipelagic Outlook obliges the Armed Forces to defend and secure the entire archipelago; in the practice, the approach is implemented in form of territorial defence and command structure, army units are deployed across the archipelago, the Air Force has begun basing units outside the main island of Java and new naval bases to provide supports have been developed.

Within the governmental structure, the Indonesian President is the supreme commander of the Armed Forces and is assisted by the National Defence and Security Council (an advisory body and national policy think tank), the Coordinating Minister for Defence and Security (responsible not only for the Defence and Security department, but also for routine coordination between the departments of Information, Home Affairs and Justice), the Minister for Defence and Security (executive role) and lastly the Commander-in-Chief of the Armed Forces (ex-officio member of cabinet, directly responsible to the President for the employment of the Armed Forces in support of the national strategic objectives).

The annual state budget allocates budgets for each and every department, including the defence and security department. No matter what policy or plans have been laid down, the realisation of such plans depends on allocation within the annual state budget. Historically, the official defence and security budget since 1980 has been less than 3% of GNP and less than 10% of the total government expenditures. For the current state budget of 2002, the defence and security budget is allocated at totally some Rp. 3.4 trillion ( 7.2%) out of total state budget of Rp. 47.1 trillion. This trend seems to further be continued for some time, unless there are dramatic changes in the defence and security outlook.

The present government puts clear priorities for the economic development rather than any other intention and the question remains to answer is whether or not the allocations are sufficient to achieve the plans and goals set without substantial increases in capital outlays and economic growth in the years to come. The Armed Forces actual defence and security spending is in fact difficult to determine and measure, simply because it does not include special allocations to some large capital projects or services provided, profits from Armed Forces-owned business enterprises or contributions from companies and business communities. Examples and cases in the past have shown that the official defence budget is only a starting point for assessing actual defence expenditure.

In the current national plan (1994-2019), objectives and plans are laid down in order to consolidate and improve the quality and effectiveness of the Armed Forces. Among others are development within the Army of a three-division strategic strike force (so-called KOSTRAD), establishment of one combat brigade of three infantry battalions and supporting arms in several military area commands as well as augmentation of military reserves. The Navy plans a small increase in the number of combat vessels but emphasis will be more on the replacement und upgrading of the current fleet. The Air Force will consolidate its existing 20 operational squadrons and air defence system. The police force, now fully separated from the Armed Forces, will attain a better police to population ratio, which currently stands at 1 to 1.750 as compared to for instance 1 to 400 in Japan. In details, the future military defence requirements would include the following list of equipments and instruments:

• communications and intelligence networks (including early radar warning systems)
• air and maritime defence and surveillance systems
• coastal defence
• support systems and logistics
• medium-lift helicopters
• flight training simulators
• air defence missile systems
• advance fighter aircrafts
• replacement and upgrading of ageing air/sea transport fleets.

The domestic defence and security industry has so far supplied defence requirements, either by private manufacturers or by state-owned “strategic industries”. The private sectors provides pretty much the Armed Forces’ daily needs, ranging from uniforms, boots and other outfits to building materials, infra structures and vehicles. The strategic industries are more a central for development of skills and expertise, which are necessary for Indonesia to compete in advanced industrial manufacturing. Some of these industries provide defence requirements or have the potential to provide them in the future; the manufacturing of a range of defence products is arranged either under licence, joint production or assembly agreements.

PT PINDAD, a former Army factory, supplies mostly small arms and ammunition, PT PAL, a former naval shipyard, supplies patrol boats up to a certain length only and the aircraft manufacturer PT DIRGANTARA INDONESIA (formerly known as IPTN) assembles helicopters and small passenger aircrafts under licence from Spain. The Armed Forces have however expressed dissatisfaction with the cost-competitiveness and appropriateness of some of the products supplied by the strategic industries, who are heavily subsidized and protected by the former government. Only the time will tell and reveal whether or not the investments made so far have been worth-while in building advanced industrial manufacturing base. The present government has already taken the necessary steps to evaluate and restructure these strategic industries, most of which will eventually be privatised.

Armed Forces’ acquisitions and purchases are first of all to be approved by the National Development Planning Board (BAPPENAS) and the Ministry of Finance before being further processed by the respective units within the Armed Forces (e.g. Army, Navy and Air Force). Furthermore, the Board of Study and Implementation of Technology may give advise on major military purchases and is generally interested in offset possibilities and transfer of technology. Requirements are then undergoing a bidding process and suppliers are requested to submit business offer and proposal. The guidance for procurements of goods and services is laid out in the Presidential Decree no. 18/2000 entitled “ Guidance for Procurement of Goods and Services by Government Institutions”.

Doing business with the Indonesian defence and security department requires the involvement of a local legal entity as an agent or representative. This legal entity (often owned or run by retired military officials) must be a member of and registered with the Association of the Military and Defence Suppliers (ASPERDIA-HANKAM), who will provide knowledge of local business practices, arrange meetings with project officers within the respective ministry, promote and demonstrate defence equipments and products on behalf of the manufacturers, in addition to access to the military procurement offices of the ministry. Manufacturers and their respective representatives should also be prepared to deal with the possibilities of an offset deal or other industrial benefits and most important, to address and present attractive financial or funding schemes to finance the procurement, especially in view of the current, very tight financial resources of the Indonesian state budget. The Indonesian government has stated that all financing for procurements by the government institutions must be in the form of “soft loans”, which among others is possible to get by through a combination of attractive financing and pricing or offsets.

The latest significant acquisitions for the defence were back in mid 1990’s with the purchases of the modern F-16 Fighting Falcons from the USA and a navy fleet from the former German Democratic Republic (GDR). Since then, no further significant acquisitions or purchases of the Armed Forces have been registered or taken place, especially since the economic and financial crisis hit Indonesia in mid 1997; in addition to this situation, weapon embargo was imposed on Indonesia by the USA and Great Britain since 1998 and is still effective until today, although negotiations between the governments to lift this embargo have been underway. Badly hit is especially the Air Force due to shortage of crucial spare parts and components for the sophisticated F-16 Fighting Falcons, Hercules C-16 Transporter as well as for the Hawk aircraft fighters from Great Britain.

Suppliers of the various defence equipments and instruments are mostly from the USA, Western European countries, particularly Germany, France, Sweden, Great Britain, whereby explosives and ammunition are being supplied by many countries, including the Far Eastern countries such as Japan and Korea. Brazil has some involvements in the supply of small fire arms such as revolvers or pistols. There are no restrictions with regard to supply possibilities from any country of origin as long as the specific requirements and guidelines to conduct business with the Indonesian Armed Forces are met.

WORLD SOFTWARE COMPANY PLANS TO INVEST IN INDONESIA

The Jakarta Post -- 4 May 2006

Statistical Analysis System (SAS) Institute Inc, one of the world's largest private software companies, plans to invest US$2 million in Indonesia in the coming three years.

Chief operating officer for Indonesia, Erwin Chan, said Wednesday that the company, which focuses on providing integrated business intelligence software, planned to put the money into infrastructure to support its services and the development of its human resources here.

"Our main strategy for the future in this country is to have a direct presence by investing more, including the opening of a Jakarta office, as well as the doubling of the number of our employees," Chan said.

Over the last 10 years the company has been monitoring its operations in Indonesia from its branch office in Singapore.

He added that the company would also expand its business through strategic partnerships to serve its customers, mostly from the financial sector, better by providing them with integrated business intelligence software that enables them to rapidly integrate data from branch offices.

The software can simplify company information processes as it uses a single application, Chan said.

SAS's major customers in Indonesia include Citibank, HSBC, BNI, Bank Mandiri and PT Telkom Indonesia.

"So far, the financial sector has been contributing 40 percent to our growth," he said. "We still expect it to be the main contributor followed by other sectors, such as telecommunications, commerce and the government."

He explained that Indonesia was displaying a better economic performance in both the public and private sectors.

The country was also consolidating and restructuring its banking and telecommunications industries, Chan added.

Executive director for Asia Pacific field strategy and support division, Andrew Quek, said that Asia-Pacific contributed about $170 million, or 10 percent, to the company's total revenues of $1.68 billion in 2005.

"This figure was 15 percent higher than the amount we obtained in previous year in the region," he said.

The U.S.-based company, established in 1976, has 356 branch offices around the world, including 21 in Asia-Pacific, and boasts subscribers in more than 110 countries.

THE INDONESIAN MARKET FOR BUSSES

The Indonesian automotive market is divided into two main categories, e.g. commercial cars and passenger cars or sedan. In the commercial car category, busses and trucks are grouped into category II for light trucks and busses (for gross vehicle weight of 5-10 tons) and category III for trucks and busses (for gross vehicle weight of 10-24 tons). The Indonesian automotive industry, after 3 decades since its beginning in the early 70’s, is still a typical assembling industry rather than a full manufacturing activity; for trucks and busses, chassis and motor are still imported, whereas the body and other automotive parts and components are already domestically manufactured. The government deregulated the automotive industry completely in June, 1999 and opened-up the domestic market among others also for direct imports of built-up cars for all types and classes. In the case of busses, however, the vehicles are up till now still assembled domestically and none has so far, for obvious reasons, been imported in completely built-up condition.

The market in Indonesia for trucks/busses is dominated by two makes, e.g. Japan and Germany. Japan is represented with brands such as Hino, Mitsubishi, Nissan and Germany has Mercedes Benz; the dominant players are Mitsubishi and Mercedes Benz in the light truck/bus category II and Hino and Mercedes Benz in the truck/bus category III.

It is quite obvious from the above numbers that the market for such commercial vehicles is yet to grow and develop; a total market share of only 13.6% for such commercial cars of category II and III still allows room for growth and expansion and considering the market potential in Indonesia with 210 million people, the 4th largest most populous country in the world, and scattered in over more than 13.000 islands, land transportation is somewhat crucial and essential to the population. Not only the expected economic recovery but also the necessary replacement and revitalization of existing and already ageing fleets of busses being the major means of land transportation vehicle will consequently create a growing demand for busses in not too distant future.

Currently, Indonesia does not provide any preferential tariff for the importation of automotive products in general; the import tariff structures in general, follow and adopt the rules generally applied by the World Trade Organization (WTO) and as a general rule, the following tariff structure may be applicable:

- Import Duty: percentages of import duty may vary between 0% and 40% depending on the types or kinds of goods imported
- Sales Tax/VAT: either 0% or 10%
- Sales Tax on Luxury Goods: either 10% or 30% depending on the types or kinds of goods imported.

PROVIDENT FUNDS IN INDONESIA

The existence of provident funds in Indonesia is far from satisfactory; following the conception and nature of provident funds, only one program so far exists, e.g. JAMSOSTEK (translated: Employees’ Social Security Program) besides pension funds, which shall further be elaborated below.


1. PENSION FUNDS
Pension funds in Indonesia started in the early 70’s with the Ministry of Finance, Directorate General of Financial Institution, Directorate of Pension Funds functioning as the supervisory body. Pension’s funds are managed by trustees in form of legal entities, mostly in form of a foundation. Typical characteristic for pension funds is that the participation is voluntary. By the end of the year 2001 there are 335 pension funds legal entities providing two pension programs, e.g. defined benefit and defined contribution programs, out of which the defined benefit program is the dominant program, provided by 271 pension funds trustees or institutions. More than 1.5 million employees are participating in pension funds programs and the total net asset value of pension funds at the end of 2001 is exceeding Rp. 35 trillion. Depending on the program, contribution from the participants is ranging from 4.04% to 26.68% from the pension or retirement income.

Pension funds covering civil servants and military personnel are managed separately and are not included in the pension funds schemes mentioned above.


2. JAMSOSTEK
Introduced since the mid of 70’s, JAMSOSTEK is a compulsory employees’ social security program, which meanwhile has become more popular than other existing pension or retirement programs. Participating conditions as well as benefits are simple and more attractive.

The conception of JAMSOSTEK is to provide basic security and protection to the employees against social-economic risks caused by accident, sickness, disability, retirement and death. The program was originally introduced as ASTEK (Employees’ Insurance) back in the middle of 70’s and through Law no. 3 of the year 1992, JAMSOSTEK as a compulsory social security program was introduced. The operational enforcement was regulated by Government Regulation no. 14 of the year 1993, Presidential Decree no. 22 of 1993 and Decree of the Minister of Manpower no. 5 of 1993. The programs cover work accident, retirement, death and health care security program.

PT JAMSOSTEK, a state-owned business enterprise is commissioned to implement and manage the program and the participants are every legal entity either with a minimum number of 10 employees or paying total monthly salaries or wages of no less than Rp. 1 million; the contribution is payable every 15th of the respective month. Contribution is regulated as follows:


The contribution is calculated based on percentage from total monthly income of the respective employee except for the health care program, where the calculation for the contribution is based on a maximum monthly income ceiling of Rp. 1 million; income exceeding this amount is considered as the maximum income ceiling of Rp. 1 million.

In the course of 2002, more than 21 million employees from more than 106.000 legal entities are active participants of this program and total assets are worth some Rp. 20 trillion. Compensation paid out to participants during 2002 amounted to more than Rp. 1.5 trillion with retirement program being the dominant program with more than Rp. 1.26 trillion in compensation.

US$1 BILLION INVESTMENT FROM RUSSIA

Tempo Interactive -- 1 May 2006

TEMPO Interactive, Jakarta: Indonesia targeted trade and investment volume with Russia to reach US$1 billion up until 2008. Indonesian Ambassador to Russia, Susanto Pudjomartono, last weekend said up to now, the volume of Indonesian trade with Russia is still low. To increase potential cooperation and investment, both countries agree to create a trading house as a means of information exchange.

The volume of trade between Indonesia and Russia is increased in 2004. The trade volume in 2004, amounting to US$360 million, rose to US$500 million in 2005. However, this number is still far below the trade volume of Russia with other ASEAN countries, such as Vietnam, Malaysia, and Thailand, which are above US$600 million on average. Russia has not been included in the top five countries investing in Indonesia.

According to Susanto, one of the obstacles in trade relations between Indonesia and Russia is the matter of payment. Russia is not accustomed to the letter of credit payment system from Indonesia. However, Russia has the potential to invest due to a large reserve of foreign exchange. “Their reserve on foreign exchange reached US$300 to US$400 million,” he said.

NEW RULE ARMS PROCUREMENT

The Jakarta Post, Jakarta

The government plans to enact new policies to minimize corruption in arms deals, an official says.

Defense Ministry secretary-general Lt. Gen. Safrie Sjamsuddin said the 2000 Defense Law and the 2004 Indonesian Military Law regulated weapons procurements by giving the Defense Ministry the sole authority to coordinate purchases with Indonesian Military (TNI) Headquarters, the Army, Air Force and Navy.

The government later issued a presidential decree in 2003 to enforce the two laws.

"We are now campaigning for two new ministerial decrees (to be) issued by the defense minister to ensure transparency in arms procurements both in the Defense Ministry and in the military," Safrie told The Jakarta Post recently.

Ministerial Decree No. 01/2004 regulates the supply of goods and services to the ministry and the TNI through the export credit facility, while Ministerial Decree No. 15 regulates all goods and services bought through other channels. The two decrees require transparency and accountability in arms procurements. All are required to be conducted in public tenders and military chiefs of staff are barred from any involvement.

Safrie said the ministry had adopted a "one-door" system.

However, he said it was proving "impossible and ineffective for us to purchase all spare parts and non-lethal weapons needed by all the forces. The ministry, the TNI Headquarters and forces, therefore, would continue to "have their own lists of private companies who are partners in arms procurements," he said.

The decrees require all arms tenders to be offered to the public. However, in the past most military procurement projects have been won by supplier companies linked to retired military officials or their families.

Safrie said the government had centralized the management of arms procurements because of the Defense Ministry's limited budget.

"We have adopted a one-door policy in arms procurements however, all forces and the TNI Headquarters are still allowed to be involved in procurements and are allowed to buy certain military equipment they need," he said.

Ideally, the Defense Ministry needed funding of around Rp 58 trillion this year but the government had provided it with only half that amount, he said.

This meant the ministry was mostly focused "on routine expenditure to pay servicemen and civilian staff and to finance core military operations," he said.

The country's defense budget -- at only 1.1 percent of the gross domestic product -- was the lowest in Southeast Asia, "Malaysia and Singapore have allocated around 4 percent of their GDP for defense."

Because of the limited defense budget, Indonesia had several times bought weapons, including Russian-made Sukhoi jets and Mi-17 helicopters, under government-to-government export credit facilities, he said.

Separately, ministry director general of arms procurement Rear Admiral Pieter Wattimena said the ministry would follow the directions in two ministerial decrees to clean up future arms deals.

"The supply of weapons, spare parts and other materials will be conducted under the ministry's coordination, and chiefs of staff and other officials in all the forces will no longer be allowed to be involved. We will no longer purchase military equipment at the behest of willing partner companies," he told Detik.com here recently.

"All tenders will offered to the public. The direct appointment of partner companies will only be allowed in emergency cases and for certain spare parts," he said.