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Economic Recovery
People's Welfare and Poverty Eradication
Food and Horticulture
National Logistics Agency
Industry and Trade
Mining and Energy
Cooperatives, Small and Medium Scale Enterprises
Transportation and Communications
The Law
The Environment
Defense and Security
Social Affairs
The Role of Women in National Development
Population and Family Planning
Religious Life
Education and Culture
Science and Technology
Housing and Settlement
Agrarian Affairs
The Younger Generation and Sports
Tourism, Arts and Culture
Empowerment of State Enterprises


General View

Since the middle of 1997, the national economic working system has slowed down and in 1998 it continued to worsen in a wider scale with higher intensity. However, at the end of 1998 there was promising indication for economic recovery. National economy at that time remained to be unstable as shown by the rapidly rising price (inflation) of goods, poor balance of payment and a very sharp economic contraction. This economic crisis was mostly due to the prolonged exchange rate crisis of the rupiah currency, the crisis of the national banking and private foreign loans, and unfavorable socio-political events. The impact of the ineffective economic working system upon the people at large ranged from the increase of unemployment since many business firms reduced or even stopped their activities, the decline of the people's welfare due to the significant drop of the people's buying power, to the aggravating social unrest.

In the effort to overcome the economic crisis, the government with technical and financial aids from international institutions and friendly countries coordinated by the International Monetary Fund (IMF), initiated the program for economic reform and stabilization. To carry out the program, in the fiscal year of 1998/1999 policy initiatives have been made in fiscal, monetary and banking field, and balance of payment as well as the real sector. The main objective of the effort is to activate the economic wheel without negative effect on inflation and balance of payment. To put this into action it needs a solid coordination of fiscal, monetary, balance of payment and the real sector policies.

In 1999/2000, the effort is continued and intensified so that in this fiscal year the national economy is showing a trend to recover. Today the government is implementing an economic agenda which include: (i) the realization of natural and stable exchange rate of the rupiah currency; (ii) control of interest rate and inflation; (iii) reconstruction and improvement of the banking system; (iv) settlement of private foreign loans: (v) acquisition of nine basic provisions and medicine in adequate quantity and affordable by the people; and (vi) regeneration of production activities, especially those based on the people's economy and is export oriented.

The policy implemented during the reform era has shown a promising progress as reflected in the indicators of macro-economics since the fourth quarter of 1998. In October, November and December of 1998, the inflation rate dropped significantly to be minus 0,27%, minus 0.08% and minus 1.42%. Besides, the exchange rate of rupiah currency became better and relatively stable. The position of the balance of payment tended to be stronger and foreign exchange reserves remained safe, interest rate dropped, and the combined shares prices index increased although there was a fluctuation. Based on such indicators, the national economy in the fiscal year of 1999/2000 was estimated to recover with the growth rate of about 0 (zero) percent, a significant progress compared with the contraction rate of around 12.0 percent in 1998/1999. Meanwhile the inflation rate is estimated to be controlled at about 17.0 percent, a drop compared with the estimate made in the 1998/1999 State Budget of about 66.0 percent. In the middle of 1999, the economic growth-rate, particularly in the second quarter of 1999, is estimated to be positive. In March, April and May, the inflation rate respectively showed minus 0.18%. minus 0.68% and minus 0.28%, while the banking interest rate also started to decrease.

The contraction in Gross Domestic Product (PDB) in the year of 1998 (13.68%) or the 1998/1999 (-15.27%) is higher than what has been projected. But, if we noted its development in trimonthly base, it is found that the process of contraction has surpassed the lowest point. In fact, the contraction in GDP based on basic constant prices of 1993 has increased from minus 9.04% in the first quarter of 1998, to minus 7.02% in the second quarter, minus 4.60% in the third quarter, and minus 0.27% in the fourth quarter. In the next program it became  plus  1.34%  on  the first quarter of  1999.  The  indication proves that the endeavors conducted by the government has brought positive outcome.

The State Budget

Efforts to revitalize the economic working system needs support of the State Budget. According with the letter of intent signed with IMF on January 15, 1998 which contained 50 points of agreement, the 1998/1999 State Budget of Rpl33,491.9 billion was revised to amount to Rpl47,220.8 billion. To strengthen the economic recovery, in April 1998 the government signed an additional memorandum with IMF containing additional agreement.

Various riots broke out in May 1998 and the political change reached the peak with the replacement of national leadership on May 21, 1998, resulting in worse economic working system and gloomy  prospects. The network of goods distribution did not function, economic activities including export were hampered, trust on business activities declined. Consequently the exchange rate of the rupiah currency suffered from bad depression and the inflation rate sky rocketed. The condition urged the government to make another additional memorandum with IMF in June 1998. The agreement among others emphasizes the need of organizing a social safety net and of revising the 1998/1999 State Budget since the earlier assumption was not suitable anymore with the situation. With the approval of the House of Representatives, in July 1998 the government revised the 1998/1999 State Budget which was originally in balance at Rpl47,220.8 billion, to become Rp263,888.1 billion or an increase of 79.25 percent. The rise of the State Budget was due to the change of exchange rate of the rupiah currency from Rp5,000 to Rp 10,600 for one US dollar, which influenced significantly the income from oil and gas, and development revenue as well as the payment of foreign debts.

The deficit realization of State Budget of 1998/1999 in the amount of 2.9% from GDP is lower than the projection of State Budget of 1998/1999 (8.5%). Meanwhile, the estimate of the surplus realization on the current transactions and increase of foreign exchange in the year of 1998/1999 in the amount of US$4.5 million and US$9.9 million respectively, are better than the projection of the State Budget of 1998/1999 (US$1.4 million and US$5.3 million respectively).

The policy has in general been able to recover the economy, which among others is indicated by the increasingly stable exchange rate of the rupiah currency to a more realistic and new balance, controllable inflation rate and the decline of interest rate. Meanwhile the development of oil price at the international market tended to decline due to over-supply and less demand. Considering such factors, the basic assumption used in formulating the 1999/2000 State Budget is the zero growth-rate, inflation rate of 17.0 percent, crude oil price of US $ 10.5 per barrel, oil production of 1,520 thousand barrels per day, and exchange rate of Rp7,500 per US dollar. With such basic assumptions and in view of the factors related with the revenue and the expenditure, the 1999/2000 State Budget is decided to be Rp219,603.8 billion or a rise of 83.2 percent from that planned in 1998/1999.

Bank Restructuring

During the economic crisis, the Indonesian banking sector was confronted with serious problems. At the end of 1997 and at the beginning of 1998, the people's trust on banking dropped sharply, depositors and bank clients withdrew their money from banks with the consequence of bank liquidity. This tendency intensified the people's mistrust and if it were not properly handled, it would make the national banking system collapse, which at the end would affect the payment system and economy in general.

To avoid it, at the end of January 1998 safety policy was taken by providing guarantee to depositors and bank creditors. The policy enabled the troubled banks facing the depositors rush to obtain liquidity aid (BLBI) from the central bank. Bank Indonesia. To guarantee depositors fund, in 1998 the government issued a bond to Bank Indonesia as much as Rp 164,536 billion for liquidity aid which was spent by Bank Indonesia for the banking circle.

In line with the existence of the guarantee, the Indonesian Bank Restructuring Agency (IBRA) was established. The banks in difficulty with liquidity, especially those given more than 500% of the total asset, were placed under the Agency's control. As a follow-up, in April 1998, as many as seven banks regarded not solvent were closed. In August 1998, the other three banks were closed and four were taken over by the government. In general the guarantee policy and recovery measures gradually convinced the people about the safety of their money in the Indonesian banks. However many banks were already in bad condition, especially suffering from capital shortage, thus the national banking could not function properly as the source of economic financing. The economic stagnation complication must be coped with the bank restructuring program designed to enable the national banking function and activate the economy as well as create employment opportunity. To perform the restructuring program, the government took basic steps, consisting of two fundamental policies.First, reconstruction of a sound banking system to support recovery and revival of national economy through (a) recapitalization, (b) improvement of acts and regulations, and (c) improvement and enforcement of principles regarding precaution. Second, settlement of banking problems through immediate action for banking recovery.

In view of the need for reliable banking service to revive the economy, the government decided to implement the recapitalization program for national banking. The program requires banks to arrange a clear working plan to be approved by Bank Indonesia, and to provide at least 20% of the total recapitalization need. The government will prepare the remaining 80%. The government fund for the recapitalization program constitutes capital sharing which can be released at the price favorable to earn added value. The sharing is conducted by conversion of the liquidity aid from Bank Indonesia into government equity and bond, so that the government only takes care of the interest. At the same time the government will receive revenue from the sale of assets, managed by IBRA and the previous owners of "BTO" (Banks which have been taken over by the government) and the "BBO" (Banks Operationally suspended, which actually means "closed down"), to pay the interest. Based on due diligence, recapitalization fund needs an amount of about Rp351,625 billion for recapitalization of State- owned banks about Rp233,254 billion, private banks about Rp24,533 billion, BTO in 1998 about Rp80,475 billion, BTO in 1999 about Rpl2,112 billion, and Regional Development Banks about Rpl,231 billion.

To finance the recapitalization of II private banks and 12 BPDs (Regional Development Banks), the government has issued a bond of Rpl03,831 billion. When added to the bond already issued by the government to cover liquidity aid from Bank Indonesia for the guarantee of an Rpl64,536 billion loan, the entire bond amounts to Rp268,367 billion. For the issuance of the bond, the government is obliged to pay as much as Rp34 trillion for the interest. In the view of the fact that the House of Representatives has approved that part of the interest is in.cluded in the State Budget, in the 1999/2000 State Budget there is an allocation of Rp 17 trillion for repayment of the interest of government bonds for recapitalization of banks. The remaining Rpl7 trillion will be obtained from the sale of assets managed by IBRA.

Elaboration of Activity List/Project List by Region

In line with the demand of the people for the intensification of regional autonomy, starting fiscal year 1999/2000 a wider authority and independence is given to the local government region to decide on the use of routine budget and development budget through the elaboration of DIK (Activity List) and DIP (Project List) by the province. The elaboration of DIK in the province makes the fund of routine budget to be used optimally in line with the local need so that public service will improve. Besides, the wider authority in planning and managing local governments projects will increase the participation of the regions in development activities, being the subject as well. The reason is that the object of development. As the Regional Administration is more aware of the economic condition of its region, thus the identification of problem areas and the designing of a development plan could be done more accurately.

Decentralization of Authority of DIK Design

So far the arrangement of routine budget to accommodate the need of offices/working units is under the responsibility of the ministry/institution which are located in the Capital City. together with the Directorate General of Budgeting of the Ministry of Finance. The mechanism is not conducive to the efficiency of allocation and spending of the routine budget. It is caused, among others, by the tendency to allocate fund for the interest of ministries offices, while the data base for the calculation of routine budget is less accurate since the data compilation is done by ministries/head offices. Besides, the index of the price in the capital city is not uitable to the regional condition, and the decision of activities for regional offices is not in line with that for ministries/head offices. The increase of activities in formulating budget makes it impossible to be completed within a relatively short time and by few personnel.

Such consideration has encouraged the Directorate General of Budget (DGB) and the ministries/institutes to expand the authority of routine budget arrangement to the provincial authorization of routine budget formulation to the provincial offices of the DGB together with the provincial technical offices of ministries/institutes.

Financial Balance between National and Regional Administration

An important step in the organization of regional autonomy is the issuance of Law No. 25 of 1999 on the Financial Balance between National and Regional  Administration and Law No. 22 of 1999 on Regional Administration. Law No. 25 of 1999 regulates the balance of fund namely the fund received from the State Budget allocated for the regions to finance regional need in the implementation of decentralization. There are three sources of financing for the Regional administration coming from the State Budget, namely: (a) fund for the region from Regional Right for Land and Building Tax and revenue from natural resources: (b) general allocation fund, and (c) special allocation fund. The extent of task/function of government which has not been rendered or transferred from the national administration to the regional administration will a great deal determine the amount of budget to be allocated in the State Budget to support the administration activities carried out by the regional administration. Thus. the financial balance between national and regional administration is subject to the balance of authority between the national and the regional administration.

Social Safety Net Program

In line with the Decree of the People's Consultative Assembly No. X/MPR/1998 about the Fundamental Principles of Development Reform to Recover and Normalize the State Life as the State Policy, the State Budget is directed to be used for protecting the groups of people which suffer most from the impact of the economic crisis, by means of the Social Safety Net Program. This program comprises four elements. namely: food stock resilience, creating employment opportunity. social protection particularly for education and health, and development of small businesses. Actually, the Social Safety Net program has already been implemented by the government in the form of Presidential Aid for Villages and Poorest Villages. Education and Additional Food Program for Primary School Students. However, owing to the economic crisis, the program is more intensified and is directly focused on the poorest people with short-cut procedures.

The Social Safety Net Program is not merely consumptive, sincethe aid is given selectively to the needy members of the society as well as allocated for productive sectors, especially of small businesses. Thus the program is expected to play a role as the source of national investment, which would gradually be able to accelerate the national economy, which in turn gives contribution to the state revenue through the tax and non-tax revenue.


In the beginning of 1998, the Development Reform Cabinet had the task and responsibility to continue the development of people's welfare. Due to unfavorable situation, it found difficulties to mobilize participation from potential development which was in the community.

According to the Central Bureau of Statistics (BPS), the poverty rate which declined to 11% in 1997 had increased dramatically to 39.5% in 1998. Eventhough this number had not given the guarantee of accuracy, the public opinion estimated that the poverty was critical. The number of people living in poverty increased to the unbelief able number about 79.5 millions.

Data from the Coordinating Board of National Family Planning (BKKBN) obtained in the beginning of 1998 showed that the number of poor households reached to about 21.3% or about 11.5 millions from the total number 43.9 millions of the whole Indonesian households at that time. The number of poor households or potential to fall into poverty was in the increasing trend. The education participation figures (APK) of primary education (SD) and secondary (SLTP) declined sharply from 70% to 54%; people can not afford to go to Public Health Centers (Puskesmas) or other health centers.

Family access toward the economic efforts as well as development of people's economy can be said as minimal. As a result, there were employment severance toward workers in the factories and industries.

To overcome those unexpected things, the Government, based on Presidential directive, should provide priority to development programs and development activities which focus on:

1.  Human Resources Development;
2.  Poverty Eradication;
3.  Overcoming Natural Disasters and other accidents caused by human error.

To implement those programs, the Government is given the task to coordinate cross-sectoral preparation and problem solving in order to achieve prominent results as follows:

a.  high growth of integrated commitment among ministries and institution;

b.  stronger coordination in overcoming those problems in the planning level as well as in implementation in the field;

c.   complete handling of problems of social economy among small people, welfare as well as disaster integratedly;

d.  integrated manpower and funding support to overcoipe community social problems being faced in disaster areas.

Human Resources Development

Anticipating the number of participation figures which has declined dramatically, so the government assisted by donor institutions has taken concrete steps to jack it up again through the investment of human resources development. For this reason, the program of Social Safety Net in the field of Education has been structured. To socialized the program campaign of "I am a school going Child", has been launched.

This campaign contains the meaning as follows :

1.   Facilities to register children from poor families to go to school free of charge, no compulsory to wear uniforms, open change to children from poor families to obtain scholarships from the government. Through this program, there are five millions primary and secondary children, whohave been given the scholarships;

2.  To extend registration time for new students from the closing date on July 19, 1998 and reopening until the last of October 1998;

3.  To give assistance for school operational cost, both contribution is about 60% with the amount of Rp2 million for primary education and Rp4 million for secondary education. There are 130,000 private and government schools which have obtained this operational funding from government. The available fund for this campaign is about Rpl.S trillion, including operational support and scholarship for children from poor families.

As a result of those persevering efforts, the education participation figures of SD and SLTP levels has successfully been jacked up to the 1997 position of about 70%, thus the monetary crisis impact upon children education field can be averted.

Furthermore, in order to manage and to improve some weaknesses in implementing the 1998/1999 programs as well as to improve Social Safety Net program, the government concerned to increase the quality effort by picking up drop out students, the unschooled or those who have to work and to support the Nine-Year Compulsory Education Program for 1999-2000.

Health Field

In the framework of human resources development, the government adopts a health paradigm to endeavor people getting support their need so that those who are in healthy life can give positive contribution toward development. Thus, poor families due to economic reason are given facilities to go to clinics and public hospitals.

Meanwhile, the Government develops Social Safety Net in the field of health which ensures that poor families obtain health facilities aid when they are sick. They are given health card as identity to get these facilities. Supporting aid and facilities are prepared through Social Safety Net in the field of health and distributed via  puskesmas.

To support the quality of human resources development, various steps and continuing programs have been implemented to overcome HIV/AIDS by establishing Suppression Commission on AIDS in the provinces. With regard to this commission, international cooperation has been implemented through AUSAID, UNDP, UNICEF and others.

In overcoming the problems of street children and working child, who have grown in number as the economic crisis impact, social aid has been implemented so that the children especially from poor families can go to school and to prevent drop-out.

The move is supported by the ratification of ILO Convention 138 about the limitation of working children. In that case the children can join the appropriate school with the Nine-Year Compulsory Education program.

Poverty Eradication.

For nearly one year, the Government has given rice subsidy to poor households due to economic reason to nine millions of households through 30,000 distribution centers, which generally are the local neighborhood associations (RT and RW).

Criticism has been issued toward a special market operation (OPK) on miss distribution, because it does not reach the targets. It happened generally in the beginning of the program in July and August 1998. At the subsequent months, the distribution system is fixed to achieve the target.

Then, the Government develops two types of policies integratedly to give chances to those who are affected by the monetary crisis and those who do not have the chance to get a job in the current situation:

a. To develop certain policy implementing development projects, from technology-intensive and capital-intensive to be labor-intensive projects, such as road construction, tertiary irrigation, etc.;

b. To give the chance to the poor living nearby forests to use forest area with crops plantation, so they can use forest  areas without destroying other plantations for their living caused by the pressure of poverty;

c. To give chances to those who dismissed from work (PHK) in order to get jobs by creating Labor-Intensive Programs managed by the Ministry of Manpower, Ministry of Agriculture, Ministry of Internal Affairs as well as Local Government.

Various policies and labor-intensive projects have successfully absorbed numbers of manpower to help the community which suffers a long monetary crisis.

Access to Economy Effort

About 11.5 millions of the poor (pre-prosperous or pra-sejahtera and prosperous I or Sejahtera 1) households due to economic reason, obtain supporting aid such as food, education, health facilities since 1996 until now. They also obtain empowerment in economy. From 11.5 millions families, there have been 11.3 millions to learn to save and are given the credit with small interest, such as family welfare savings (Takesra) and family welfare business credits  Kukesra).

Besides, poor families have successfully taken credits with the bigger plafond with subsidized interest. The longer the absorbing of credit the better, for instance Farmer Credit Effort (KUT) absorption in 1998/1999 achieved Rp3.9 trillion from Rp6.5 trillion plafond.

Furthermore, through less-developed villages (IDT) program, capital aid has been given, such as rolling funding to 28,376 villages with the total amount of Rpl.5 trillion. This funding will remain in the community in order to be rolled for other group of community (Pokmas) which need it. So, eventhough IDT's funding is not given a new, IDT program remains and it is managed continuously,

Then through family welfare savings (Takesra) and family welfare credits (Kukesra), there are 11.5 million KPS and KS-I poor families or 98.63% of the total have been managed and united into 532,055 groups of efforts on increasing family welfare income (UPPKS), who were formerly the group of family planning acceptors.

Handling Disaster and Other Accidents

Due to better integration more in overcoming disasters and other accidents,  few disasters such as flood,  earthquake, landslides, droughts as forest fire happening in Sumatra, Kalimantan, Central Java, West Java etc. almost none appeared in the news. It shows that disasters can be managed properly.

In the big-scale, in handling the disasters which involve international interests, the government has developed coordination among states, for instance handling forest fire with Malaysia and Singapore.

So, with those programs and actions, in fact the Government can suppress the level of poverty and disasters in favorable limits.


Food Policy

The dynamics of food development policy is essential to monitor its improvement. The policy instruments could change possibly in accordance with the development, but not the vision and the goal of the development.

To develop the horticulture and food industry, the government together  with Indonesia Food Communication Forum during 1999/2000 held official meetings, scientific meetings, and seminars regarding the various matters on food and horticulture and at the same time discuss about policy shortcuts which have been proposed to the government.

To encourage food agro industry the following measures are essential:

(a) Determination of superior horticulture commodities which have high economic value, and far-reaching market,

(b) The national policy of food industry should become the reference for determining macroeconomics and industrialization policies. The macroeconomics and industrialization policies should be able to give more opportunity for developing the food industry through various conducive supports of monetary and fiscal policies, and various micro policies which are related to the food system development,

(c) Enhancement of food development concept by the prescription food system. This system helps the consumers to trace back every item and process of the food production until the first step of the production process. The consumers would be assured that all the safety, health, and environment friendly standard for the products have been met.

(d) Convert the prescription food system into a production operational framework such as crash program to encourage the growth of food agri-industry, to meet the basic needs, wheat substitute, improve company liquidation, identify industries facing problem, saving and maintaining production equipment, saving work opportunities, optimalization of business sectors with market access and include the laid of food agri-industry employees in labor intensive small scale food agro industry; reformation of the credit system to support the growth of food agri-industry and the supporting industries, enhancement of work and business opportunities; strengthen the national industry structure; develop the national industry distribution system efficiently and encourage export increase,

(e) Other staple foods to function as rice substitute.

Provision of Food Supply

Special efforts for increasing supply has been carried out by way of (a) encouraging rice production Increasement through the optimal land use by the farmer during the Gadu season and the following planting season; (b) increasing rice import; (c) increasing the access of the family towards food by Special Market Operation, and (d) encouraging the consumption of domestic alternative carbohydrate sources.

Owing to the monetary crisis and harvest failure, many farmers were not able to repay their farmer business credit. Therefore, in May 1998, the Office of the Minister of State for Food and Horticulture has appealed to the Government that the remaining of the farmer's debts from harvest seasons 1985 to 1995/1996 be canceled. This proposal was approved. It was also suggested to increase the ceiling price of dry unhulled paddy from Rp700 to Rpl.OOO per kilogram as an in-centive for the farmers to produce rice. This measure realized in June 1998 and went on until February 1999 when the price was increased again to Rpl,500 per kilogram.

Handling of Crisis and Riot Impacts

To handle the food crisis in 1998, the government took steps to provide rice to 17.5 million poor families through the Special Market Operation. Each family who is eligible in this category starting July 1998 receives 10 kg. of rice, starting December 1998 they obtain 20 kg. and pay Rpl.OOO per kilogram. The Special Market Operation has reached about 10 million poor families in 27 provinces, 400 districts and more than 30,000 distribution points with a total amount of more than I million tons of rice.

Coordination of Programs and Activities

To face the crisis impact the government emphasized the urgency to provide food for the people in the right amount, time, place, with affordable price. The government has endeavored to (1) cope with the food shortage and provide especially for the society groups and regions who experience lack of food resources; (2) conduct advocation for improving food and agriculture, so that food agriculture become the drawing power to pull out the economic sector from the crisis by increasing the access of producer farmers toward capital money and market: (3) monitor and plan the management of food aid from overseas. Food grant in the form of rice from international institutions realized in fiscal year 1998/1999 are from Thailand 5,000 tons, Malaysia 750 tons, Japan 10,000 tons and Singapore 21,000 tons. In addition to this aid, there has also been a coordination of aids from the World Food Program (WFP) in various programs that equals to 208,000 tons of rice. Other grants are in the form of 6,500 tons powdered milk from the United States and 260 tons blended food from Victoria in Australia.

To cope with the short term need, the government took steps to create Food Crisis Center, with the task to make an inventory of regions with serious food shortage and society groups in the immediate need of food supply, and identity food aids sources that are controlled by the government, the private sector or international assistance, and establish effective distribution channels so that the effort to cope with food crisis can reach the target.

In the medium and long-term, the reformation agenda are mostly directed to improve the food economic structure covering the wider aspects of production, distribution, processing, and food industry. Reformation in the field of Agriculture and Food gives bigger opportunity to the development of the people economy. "The policy that is directed to giving monopoly has been deregulated, and various forms of subsidy that is directed to dependent on the import of raw material have also been reduced.

Food Quality and Food Safety

Efforts to enhance the quality of human resources can not be separated from the national safety food condition. The Office of the Minister of State for Food and Agriculture, together with Ministry of Health and the Information Resources Institution of Bogor Agriculture Institute, have conducted evaluation of the safety of processed Food from the aspects of the use of supplement food products, chemical waste substances and micro biology waste. In general it could be concluded that they are still processed food and snacks that do not meet the standard of food safety.

Cases of food poisoning causing fatality or serious illness are often unidentified which makes it difficult to handle. Therefore the government has identified the characteristics of the regions which frequently experience food poisoning and investigate methods used for solving the cases, in order to improve and increase government services to the people.


At any time. especially during crisis time, the provision of food as a basic need is absolutely necessary. To obtain a basic need is a form of basic right.

Of the various kinds of food in Indonesia, rice is considered the most strategic, viewing from the economic aspect. It is consumed by almost 100% of the population, cultivated by millions of the small scale farmers and absorbs millions of labor in the sector of production. processing and marketing. From the nutrition's aspect rice contributes 66% calories and 62% protein. The food institution has been in Indonesia since the time of the Dutch government, called "Voiding Midline Founds" (VMF). However only since the New Order era. on may 10. 1967. a body to handle food was established with the name Bulog. (abbreviated from Badan Urusan Logistik = National Logistics Agency). The main task of this body is to control the price of rice. unhulled rice. wheat and other basic commodities. The current status of Bulog is non Departmental Government Institution. During time. the legal status of Bulog has changed according to time demand.

During 1997/1998. Bulog handled 5.9 tons of rice. and in 1998/1999 it reached 7.9 tons. This total amount originated from the initial stock which is domestic and imported rice. When providing basic commodity to the Indonesian people, the first choice goes to domestic produce. Only if the supply is still not enough, the government will import rice as supplement.

When in 1998 rice production failed to meet the target, while the need for distribution by the Regular and Special Market operation has increased, more stock of rice was in demand.

Therefore in fiscal year 1998/1999. 4.1 millions tons of rice was imported through a foreign assistance program from Japan. Thailand, Vietnam, Singapore. China and Taiwan: with a grant from WFP. PL-480. and with a soft loan of 1.63 million tons. Commercial import of 2.46 million tons was carried out by the winner of a transparently commercial bid.

The routine distribution of rice by Bulog is allocated for the budget group the civil servants and retirees natural disaster victims and market operation. Rice distribution during fiscal year 1998/1999 totals 4.885 tons. with following breakdown: Budget Group 1,716,000 tons, Civil Servants/Company Employee (PN/PP) 77.000 tons. Regular market Operation 2,176.000 tons and Special Market Operation 857,000 tons, and others 62,000 tons. The target of Regular Market Operation that is currently carried out by Bulog is the consumer in the market. The purpose of the operation is to stabilize the market price of rice so that the people can afford to buy.

Bulog owns 1,606 warehouse units with a storing capacity of 3,81 million tons throughout the provinces, managed by 27 Logistic Depot Units, and 96 Logistic Sub Depot Units. In addition to the big capacity warehouses, Bulog also owns small and medium size warehouses in remote areas to back up the food stock stronghold in the region.

The long dry season that occurred in 1997-1998, as the impact of EI-Nino air stream brought very bad effect to domestic rice production. In  1997 the dry unhulled rice (GKG) has dropped  1,724,452 tons or 3.37% from the production of 1996. This decrease continued in 1998 when the dry unhulled rice production dropped 140,362 tons or 0.28% from the production of 1997. Sugar production in 1996 was 2.094 million tons. and in 1997 it was 2,190 million tons, showing an increase of 4.58%. But in 1998 sugar production only reached 1,492 million tons which shows a decline of about 31.9%. This brought an impact to the domestic rice and sugar supply managed by Bulog.

To cover the shortage of the food supply, in 1998 the Government imported rice amounting to 46.1 million tons, sugar 1,731 million tons, wheat 3,243 million tons, and soybeans 641,000 tons. However, the constraint at this time is the depreciation of the rupiah against the US dollar, which went down to 508% in .July 1998, compared with the rate in June 1997.

Rice Commodity Released from Monopoly

Presidential Decision No. 19 of 1998 regulates that starting January 1998, rice acquisition only be handled by Bulog. Other commodities such as sugar, wheat, flour, soybean, and beans which were previously also handled by Bulog, are released to the market mechanism. In other words private companies are permitted to import mentioned commodities to meet their need. On September 22, 1998, the Minister   of   Trade   and   Industry   issued   Decision   No. 430/MPP/Kep/9/1999, which regulates that the private sector is allowed to import rice with zero percent duty. Thus, this new ministerial decision has abolished rice import monopoly in Indonesia.

The Role of Foodstuff Supply in Economic Stability

In the period of January-May 1999 the inflation rate reached 3.08%. This rate is very low compared to the inflation rate of the same period in 1998 which reached 40.06%. The decrease of inflation is largely influenced by the drop of foodstuff price of about 3.10%. In view of the trend of food commodity price and its availability in the market, it is estimated that national inflation rate in 1999 will return to under 10% (one digit). This reality is very influential to efforts on the stability of politics, economy and the provision of food for the Indonesian nation in the future.

The Availability of Rice in the Entire Regions of Indonesid

In 1998 Indonesia indeed experienced shortage of food, especially in the remote areas. To cope with this problem, Bulog has acquired rice from domestic sources and overseas for distribution to the entire regions of Indonesia. This measure has eased the panic among the people when food vanished form the market. A long prevailing panic caused by lack of food would bring social and political upheavals which would be difficult to handle.

Domestic Rice Supply Normal Again

The average domestic rice acquisition by Bulog during the last five years is 1.5 million tons annually, while during 1998 it only reached lees than 250,000 tons. This shows a steep decline. However, in 1999, rice acquisition by Bulog showed a normal condition. Until June it has reached 1.3 million tons, and this will improve, after the harvest season from August to October 1999.

Rice Supply for the Pre-Prosperous and Prosperous I Groups Through the Social Safety Net Program

One of the efforts to handle the impact of economic crisis in Indonesia is by launching the special Market Operation which is part of the Social Safety Net Program, implemented since July 1998. Bulog has very important role in the Special Market Operation because of its task to distributed 200,000 - 350,000 tons of rice to 30,000 distribution points throughout Indonesia, at the exact time place, and target to prevent social uprising. This program gives benefit to the receiving families who are susceptible to economic crisis. The Special Market Operation program receives positive response from international institutions for its mission and its implementation of the program.


The Office of the State Minister for Investment/Head of Investment Coordinating Board is a government agency in charge of the development in the field of direct investment. By Presidential Decision Number 183 of 1999 the previously two different institutions --Office of the State Minister for Investment and Office of Investment Coordinating Board-- have been integrated into one institution, led by the Minister of State for Investment.

As a government institution/agency, the vision, mission, goal and objectives  of  the  Office  of  the  State  Minister  for  Investment/Investment Coordinating Board are as follows:

Vision: To create a more reliable and independent national economy through investment activities to improve a more evenly distributed social welfare according to the economic democratic system, based on Pancasila. and the 1945 Constitution.

Mission: To transform the potentials of the various resources into an effective power in productive national economic activities according to an economic democratic system based on Pancasila and the 1945 Constitution.

Goal: To realize a reliable and independent national economy, and improve a more evenly spread social welfare.

Objectives: The process of a continuous and increasing investment activity, based on national resources potentials in which the primary role is carried out by extended participation of small and mediumscale businesses/cooperatives that will create a reliable national investment competitiveness with the archipelago concept {wawasan. nusantara) in a global liberalization environment.

Empowerment of the Small and Medium-scale Business and Cooperatives

To realize the vision and mission, and to reach the goal and objectives, policies are made to promote the image and create a more conducive climate to the business environment. In this regard, efforts are made to provide excellent services: determine priorities of investment activities; give priority to programs for the impowerment of small and medium-scale businesses and cooperatives; strengthen the ability and role of the existing government and private economic institutions; and provide exceptional market oriented investment services. Steps are made to accelerate investment promotion, optimize the benefit of foreign relations and cooperation, which are orientated to national interest; and apply a more deregulated and reformative system.

Presidential Decision Number 96 of 1998 has been issued to amend Presidential Decision Number 31 of 1995 on Negative List of Investment, to provide better business certainty.

In the framework of protection and empowerment of the small scale business and cooperatives another regulation has been issued, namely Presidential Decision Number 99 of 1999 on Fields/Types of Businesses Reserved for Small-Scale Business and Fields/Types of Businesses Open for Middle and Large Business with Partnership Requirement.

Improving Foreign Investment

Presidential Decision Number 113 of 1998 on Revision of Presidential Decision Number 33 of 1981 on Investment Coordinating Board has been issued to prepare for institutional effectiveness and efficiency improvement.

For the sake of improving the approval service for foreign investment, particularly investments up to US$100 million, the government has issued Presidential Decision Number 25 of 1991 on Position, Task, Function and Organizational Structure of the Investment Coordinating Board. The latter decision particularly regulates additional tasks of the Regional Investment Coordinating Board (BKPMD) to approve investments up to US$100 million, which was previously the task of the President. However, over US$100 million foreign investments still need approval from the President. To improve the procedure in obtaining investment permits, Presidential Decision Number 115 of 1998 was issued to amend Presidential Decision Number 97 of 1993 on Investment Procedures.

Presidential Decision Number 116 of 1998 was issued, to amend Presidential Decision Number 26 of 1980 on the Establishment of Regional Investment Coordinating Board, to empower the function and task of the Board. The amended Decision directs improvements in the functions and tasks of the Board, especially on particular approvals and permits from Domestic Investment Coordinating Board.

Presidential Decision Number 7 of 1999 on the Evaluation Criteria for Taxation Facilities in Particular Industrial Fields has been issued in order to provide certainty and transparency on incentives. The incentives are in the form of tax facilities for certain industries in accordance with Government Regulation Number 45 of 1996 on Income Tax regarding Institutional Taxpayer Income for Particular Industrial Business.

The government has also issued Presidential Instruction Number 22 of 1998 on the revocation of the obligation to have a recommendation from the technical authority when applying for investment permit.

Presidential Instruction Number 23 of 1998 was also issued to revoke the Stipulation on the Obligation to have an approval in Principal for investments in the provinces. Thus, there is no obligation anymore on the part of investors to obtain principal approval from the  Governor/Head  of First  Level  Territory  or  Head  of  District/Municipality/Head of Second Level Territory, before obtaining investment permit.

In the framework of vitalizing the functions and tasks of the local apparatus of Regional Investment Coordinating Board, particularly in handling investment approvals and permit in local areas, the government has issued Investment Minister/Head of BKPM Decision Number 21/SK/1998 of July 28. This Decision regulates the Delegation of Authority to Governors/Heads of First Level Territories to issue Permit, and Facility and Implementation Permit for Particular Domestic Investments. Thus, investors who apply permits for investment under Rp. 10 billion, could just submit an application to the Chairman of BKPMD of the particular province, and will also obtain approval from the same authority.

In effort to stimulate and protect small-scale businesses and cooperatives, more opportunities are opened to previously mentioned undertakings to establish partnership with medium and large-scale businesses. This measure is endorsed by a Joint Decision between State Minister for Investment/Head  of Investment Coordinating Board and Minister of Cooperatives, Small and Medium-Scale Business Number 22/SK/2999 and Number 07/SKB/M/VII/1998 on the empowerment of Small-Scale Business through Partnership in the Framework of Investment.

To give more information and directives regarding the procedure for investment permit application in accordance with the other reformed investment policies, the government has issued Investment Minister/Head of Investment Coordinating board Decision Number 30/SK/1998. It was on Directives and Procedures for Investment, to amend Investment Minister/Head of Investment Coordinating Board Decision Number 21/SK/1996.

To stimulate equitable distribution of the national development, especially through Integral Economic Development Areas (KAPET), the Investment Minister/Head of Investment Coordinating Board Decision Number 33/SK/1998 was issued. This decision was on Delegation of Authority for Provision of Approval and Investment Control in the Natuna Island Development Area to the Chairman of its Development Management Board. With this decision, potential investors in the Natuna Island Development Area need only to submit application and obtain approval from Chairman of Management Board of concerned Development Area.

For acceleration of economic recovery, particularly in the real sector, and to stimulate investment activities. Investment Minister/Head  of Investment  Coordinating  Board  Decision  Number 12/SK/1999 of June 8, 1999 was issued, regarding Investing in Holding Companies.

Viewed from the various aspects, such as investment institution and sector, macro-wise, the development of investment was showing a positive trend, until prior to the monetary crisis - in the middle of 1997. The institutional aspect showed an increasing degree of public initiative and participation in the economic activities, compared to that of the government. In the sector or business field, the recent years show rapid increase in the tertiary service sector. However, in the other aspects such as procurement, the spending for building materials showed more increase compared to that for machinery/production equipment. This is obvious from the investment development in the property sector, which is generally less productive, and suffered the most at the time of economic crisis. Meanwhile, until mid-1999, the regional aspect showed a concentration of domestic and foreign investment on the West Indonesia Areas, especially the island of Java.

Although experiencing monetary crisis since the middle of 1997, with the global and regional economic situation going up and down, the interest to invest in Indonesia still remains high, especially that of the foreign investors. This is apparent from the development of investment permit approvals during the past five years.

Project Investment
(trillion rupiah)
Project Investment
(billion rupiah)
*Until May 30,1999

The above data show that until May 1999, the domestic investment companies have decreased in the last two years. However, the amount of foreign investment companies has been generally stable at quite a high level. With the decline in 1998, the foreign investment is still more promising compared to the domestic investment companies, which have been approved to obtain permits.


Development in the agricultural sector is carried out through a strategy that Is aimed at Increasing optimum benefit of domestic resources, extending agricultural development spectrum through technological diversification, resources, production, and consumption, improving the application of local and applicable agricultural technology engineering and improving agricultural production containing science and technology with high competition.

The reform occurred in every sectors and reached Its momentum on May 1998. Thus, the agricultural development approach should be improved in accordance with the reform spirit which has spread out throughout the countries. In relation with the spirit, to realize the mission and vision of the agricultural development, eight reform agendas have been formulated, including endeavors to make the agricultural sector the main supporting sector of the national economy through improvement of productivity, efficiency, and quality; as well as to make the agricultural sector take sides with the farmers and fishermen as a subject of development to empower and improve their self-reliance.

Policy reform in product market is directed the Indonesian agricultural product could anticipate trade liberalization. Several steps have been taken, among other things: (a) to permit private importers to import rice commencing on September II, 1998; (b) to give vast opportunities to cooperatives and  non-government organizations (NGO) to participate in foodstuff supply.

The implementation of agricultural development concept, strategy, and policy in the Reform Era is in the form of development programs. The programs in short and medium-term development are focused on three main subjects. I.e. (a) to improve food fortification; (b) to develop people's economy (farmers and fishermen), and (c) to increase export and import substitution.

The concept of Gema (Self Reliance Movement) is used as a means to mobilize support from various related parties in the form of planner level whether in the central office or in regional offices until its operation on the site.

Since the fiscal year of 1998/1999, three Gemas and one fishery export enhancement have been launched, i.e.:

1.  Gema PaLagung 2001: i.e. Self Reliance Movement to increase rice, soybean, and corn production to attain self-sufficiency in 2001.

2.  Gema Proteina 2001: i.e. Self Reliance Movement to increase animal protein production by the year 2001.

3.  Gema Hortina 2003: i.e. Self Reliance Movement to increase national production of tropical horticulture by 2003.

4.  Protekan 2003: i.e. a Program to increase fishery products for export with the target of export value of US$10 billion in the year 2003.

The effort to increase production through Gema and development programs have shown satisfactory results. Rice production in 1998 reached 48.5 million ton of dried hulled rice. that meant an increase of two million ton, compared to that of the Second Projection of the Central Bureau of Statistics before Gema Palagung was launched in July 1998.

Corn production in 1998 reached 10.06 million ton of dried peeled corn. an increase of 14.7% as a result of extensification of harvest and productivity areas by using superior and hybrid quality seeds. In 1998, the area of corn field reached 3.8 million hectares with the productivity of 2.62 tons per hectare.

Presently. 58 varieties of food crops and horticulture have been produced, and 37 of them have been released, and 21 are still under preparation to be released to support Gema Palagung 2001 and Gema Hortina 2003.

To anticipate production crisis in animal husbandry sector . in 1998 efforts have been taken to develop the production of broilers chicken, duck. goat/sheep and cows by empowering husbandry small-holders known as Self-Supporting Protein Production (Gema Proteina 2001). Cattle was chosen for breeding, because a great part of meat consumption in 1994 came from cattle's. 36.6% from broiler chicken, 21.5% from traditional chicken meat. 23% from beef. and 7% from sheep/goat meat.

Fishery infrastructure has also been improved through rehabilitation/development of 18 Fishery Ports. 40 Fishery Landing Places, I School of Fishery. I Fishery Academy. I Fishery Higher Learning Education.  I Fish Catching Development Center, and I Fishery Training Center. In addition, efforts have been taken to develop fishponds in 10 provinces: to rehabilitate 5,650 hectares of fishpond canals. agro-input assistance granted to 1,475 hectares of pilot projects area, and 35 units of demponds.

In the agribusiness sector,  development activities have been changed from production oriented in to rural agricultural development orientated. In line with aforementioned, a number of endeavors have been carried out. among other things, the formulation of the Indonesian National Standard (SNI) for agricultural products and its socialization to the business world: the development of 116 business groups as founders of cooperatives on the Central of High Quality Commodity of Agribusiness and identification of agribusiness investment potential throughout Indonesian.

In addition, the fostering of farmers is directed to increase their income through P4K for low Income Farmers Group (KPK). Presently there are 47,874 KPK, and 37,341 of them in 12 provinces are still active in Phase II of P4K. From 88,866 Collective Business Plan (RUB) arranged by KPK, 84,347 RUB have received credits amounted to Rpl38.7 million.


The mission of forestry and plantation development is set as follows:

a.  To realize and guarantee forestry and plantation resources through determination of forestry, plantation, and natural preservation areas, covering land and water conservation, to ensure the availability of resources so that it could support economic capability, social, and cultural resilience and preservation of environmental function:

b.  To implement the management resources of forestry and plantation and natural conservation areas in accordance with forestry and plantation human resources as well as to guarantee the opening of social participation and resources management mentioned above:

c.   To prevent the increase of critical land and to rectify degraded land function by way of social and environment oriented rehabilitation and regeneration of forest and plantation:

d.  To ensure a Just and equitable distribution of forest and plantation resource.

The restructuring policy is regulated by Government Regulation No. 6 of 1998 on Forest Concession Rights (HPH) and Rights of Forest Product Retribution on Production Forest, which limits maximum size of HPH by a company. This policy is directed in such a way so as to ensure a sustainable forest management and to, bring benefit the people. The long-term target is aimed at enhancing the people's participation in cooperatives , small and medium enterprises, and religious  institutions , as well as traditional groups, by reducing the roles of the government and big enterprises.

Alternative Financial Institution

Forestry and plantation are considered to be dependable sectors to attract investment. Nevertheless, up to present time there are no the financial institutions which focus their activities on financing forestry and plantation sectors Commercial banks are very selective in granting loans and this is not in line with the corporate culture of in the forestry and plantation business. The corporate culture of this business is very specific which is relatively long-term investment and is very much dependent on climate. Therefore, high interest loan is not favorable for investment in this sector.

Due to this fact the Ministry of Forestry and Plantation has pioneered the establishment of Alternative Financial Institution. In this relation, the President has approved the formation of a financial institution with special duty which is to fund investment in the forestry and plantation sector.

State-Owned Forestry and Plantation Enterprises (BUMN)

To solve the problems of former Forest Concession Rights working areas it is deemed necessary to establish a business institution that can insure harmonious interaction between the economic, social, and cultural, and ecological aspects. In addition, forestry and plantation business institutions can any longer rely on the rent seeker pattern. Business institution having the role and function as agent of development pioneer in forestry and plantation enterprises is very much in need.

Thus, the Government will establish a new enterprise in the form of public corporation (perum) or service corporation (perjan) in the forestry and plantation sector, whose main task is to carry out rehabilitation of former Forest Concession Rights areas and other related social task. As well as to facilitate the development of smallholder plantation, mainly to enhance production and productivity quality.

Land Grant College (Forest Concession Rights with the Purpose of Education and Training)

Considering the existing potential, and noting the successful implementation of these programs in other countries, the Ministry of Forestry and Plantation will pioneer an implementation policy on Land Grant College (LGC), or Forest Concession Rights with the purpose of education and training. This policy will be directed to improving human resources capability and developing science and technology in the forestry and plantation sector. To these points, the role of Institute of Education and Research and the Higher Learning Institution must be improved and established.

Nowadays, the policy of LGC will be carried on in more than 30 higher learning institutions with the area ranging from 40,000 to 100,000 hectares. On this phase, the higher learning institutions are expected to be able to develop education and research programs, especially in forestry plantation sectors so as, to Improve the local human resources. To speed up implementation of the phase, an independent executive institution will be established to select, monitor and evaluate forest or plantation land that has been granted for the land grant college scheme.

Levy and Grant

The other policy step to improve human resources and science and technology in the forestry and plantation sectoi is through levy and grant package. This must be implemented in anticipation of the free trade in the globalization era and preparation of the ecolabelling in the year of 2000, as well as to enhance the competitiveness of our products.

Law and Regulation

In this Reform Era, demand for recognition of customary laws is increasing. For the sake of the reform, this demand must be considered. Presently Law No. 5 of 1967 is undergoing improvement to accommodate efforts to empower people and recognize customary law in forest management. In general, this endeavor is aimed at accommodating aspirations of new paradigm in forest management.

Abolishment of Corruption, Collusion, and Nepotism (KKN)

In the framework of abolishing Corruption, Collusion, and Nepotism practices, the Ministry of Forestry and Plantation has established a Team against Corruption, Collusion and Nepotism. The team is established based on Decision of the Minister Coordinator for Development   Supervision/State   Administrative   Reform   No. 64/KEP/MK.Was.PAN/12/1998 on December 3, 1998; and as implementation of Decree of Special Session of the People's Consultative Assembly No. XI/MPR/1998, especially on Article 4. In relation with the implementation of Corruption, Collusion, and Nepotism abolishment mentioned above, several steps have been taken, namely:

a.  To conduct a comprehensive audit to reforestation fund utilization suspected to be Corruption, Collusion, and Nepotism practices.

b.  To give administrative sanctions towards enterprises that fail to pay the Forest Product Retribution and Reforestation Fund.

c.  To  conduct  site  supervision  and  administrative  notification  to corporations holding Forest Concession Rights Forest Concession Rights of Timber Industryand Forest Concession Rights of Natural Tourism and Plantation Business Permission suspected to be Corruption, Collusion, and Nepotism practices.

d.  To cancel the approval of the Minister of Forestry and Plantation on change over of Forestry Area in question according to the valid regulation, and to review of the land value of the replacement land.

Developing Peat Land

In the framework of national food safety, based on Presidential Decree No. 83 of 1992, a decision on the One-Million Hectares of Peat Land in Central Kalimantan Province has been taken. Of the designated area, 300,000 hectares have been opened.

The implementation of this project is considered unsuccessful because it created problems, on the technical, social, economic and cultural as well as ecological issues. There have been reports of big scale illegal tree felling and forest squattering in non-cultivated areas which have damaged the forest, including fauna habitat.

The policy that has been taken are: a) to revoke Presidential becree No. 83 of 1982 which is amended by a new Presidential Decree to consolidate activities by considering conservation principles; and b) due to the inconsistency of the land, activities in the uncultivated area are stopped and its function is returned.

Reforestation Fund

In relation with Reforestation Fund Management, steps that have been taken are as follows:

a.  In the future. Reforestation Fund Retribution is based on the Government Regulation. The draft of the bill is to be discussed by the Ministry of Forestry and Plantation with the Ministry of Finance.

b.  Retribution reforestation Fund is proposed to be taken in the Wood Pile-Up Site by way of official assessment.

Tea plantation at Gunung Mas, Puncak, West Java, is also a tourist destination due to its beautiful scenery

Rice field in South Sulawesi

Pepper plantation primaryly executed in Maluku and Sumatra

Palm oil plantation at Lampung, Southern Sumatra

Fishponds development to support the Protekan 2003 program in increacing fishery product

Society Forest

The utilization of society forest has been decided by Decision of the Minister of Forestry and Plantation No. 667/Kpts-ll/1998. The decision is to amend the Decision of the Minister of Forestry No. 662/Kpts-2/1995. The principles of society forest concession are as follows:

a.  To emphasize the interests of the people's welfare.

b.  To develop and strengthen the local institutions which is based on the local physical infrastructure, social, economic, and cultural aspects.

c.  To provide training and assistance to realize a reliable and professional social institution for sustained forest management.

The implementation of Forest Concession Rights of Society is a step toward redistribution of forest concession, especially in the framework of empowering people's economy.

Forest and Plantation as Food Resources

Indonesia is facing various problems, among other things, providing food problem for more than 200 million people. If it is well restructured, forest and plantation will be able to overcome the problem.

From the forest and plantation area available for developing food crops, it is estimated that the food crops production capacity could reach 1,560 million ton annually. This is more than enough as national food stock. If this program is properly undertaken, the forest in Indonesia will be able to serve as the center of the world food reserve.

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