Indonesia is good at attracting international trade with its relatively competitive tariff barriers, but border controls and distribution channels continue to create obstacles, the World Economic Forum (WEF) says, according to a report in The Jakarta Post. The Enabling Trade Index in the 2008 Global Trade Report published Wednesday (25/6)  by the WEF compares 118 countries' openness and international trade capabilities.

Overall, Indonesia ranked 47th among the 118 countries. Hong Kong topped the list, followed by Singapore, Sweden, Norway and Canada. Malaysia ranked 29th, China 48, Thailand 52 and Vietnam 91. Indonesia scored well on trade policies, in which it was ranked in the top 22 countries, ahead of Britain, Australia, Italy, Singapore and Malaysia. It was ranked 34^th for good regulatory environment, a sector that included ease of hire of foreign labor, ease of foreign ownership and regulations encouraging foreign investment.

Trade was well supported by regulatory openness and a competitive business environment, but poor infrastructure and difficult processes at borders lost the country points, the report stated. It also ranked Indonesia at 34^th in this category. Indonesia’s low non-tariff barriers and moderate tariff barriers allowed relatively open market access for foreign goods, although customs and domestic transport were complicated.

Indonesia has competitive trade connectivity, due to its location, competitive shipping costs and logistics companies, the report added. The continuing improvement of Indonesia’s overseas image also received a boost from a successful bond sale on Wednesday (25/6). It sold $2.2 billion in bonds, a new record, on the international market, above the planned $1.5 billion float, with the issue three times over-subscribed.

The government offered premiums of up to 8.154%, with analysts stating that the rates represented the higher cost of money globally because of high oil price. Bank Indonesia Senior Deputy Governor Miranda Goeltom said that while policy makers will probably keep raising interest rates to slow inflation led by energy costs, they won't move at a faster pace. The central bank increased its key rate by a quarter percentage point in May and again on June 5 to the current rate of 8.5%. Year-end inflation is forecast at around 12.7%.

“There is certainly some indication that we have to respond to the inflation expectations toward the end of the year, although we don't think it's going to accelerate from what we have done,” Goeltom said in an interview in Canada. “There are quite strong indications that we still have to move a little bit more as the inflationary pressures keep building up,'' Goeltom said in a speech.

Muhammad Lutfi, head of the Indonesian Investment Coordinating Board, said PT Krakatau Steel was in talks with AcelorMittal and Tata Steel Ltd. on a new plant expected to cost around $3 billion in which the foreign investor would have the majority of shares.

Krakatau, owned by the government, plans to form a joint venture to build a 2.5 million metric ton-capacity plant next to its existing facility, There was also a commitment to major investment in two nickel mines in a deal signed between BHP Billiton and state-owned PT Aneka Tambang.

One of the mines is located on Gag Island off the western tip of Papua, and the other in Halmahera in North Maluku province. While BHP declined to comment on the value of the projects, estimates ran as high as $4.5 billion.

Australian-based Orica, the world’s largest explosive manufacturer, said it was going ahead with a plant valued at $550 million in East Kalimantan. The rupiah had its biggest weekly gain in more than two months as measures to cool inflation helped restore investor confidence.

The agency noted that the currency is the second-best performer in June behind China's yuan after the government sold the new record amount of dollar-denominated bonds. (Trade and Investment News, 23/6/08)