- TULlRN REP N CZ RESTRICTED REP T~ DESK W I ReVort. N%. EAP-27a3 NE WE FLE COPY This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION THE INDONESIAN ECONOMY: RECENT DEVELOPMENTS AND PROSPECTS FOR 1972/73 C 0 Z M (n X --I COz O0> November 30, 1971 4 m Ec Z 0 EastAsiaandPaciic eparmen CURRENCY EQUIVALENTS US$L.00 = a 1 Ripiah $0.002 1 million Ipiah = $2.41l5 TABLE OF CONTENTS Page No. BASIC DATA MAP SUMMARY AND CONCLUSIONS ............................. i Chapter I. The Economy in 1971 ............................ 1 II. Fiscal Performance ............................ 16 III. The Balance of Payments: Trends and Prospects 40 Annex A. The Petroleum Sector in Indonesia STATISTICAL APPENDIX This report was prepared in co-operation with the IBRD Resident Staff in Djakarta by an Economic Mission which visited Indonesia in October and November 1971. The Mission consisted of Graeme Thompson (Mission Chief), B. K. Abadian (Chief Economist), Rogelio G. David, John Foster, Harold Pilvin (Economists) and Miss Sandra Shank (Secretary).  BASIC DATA Area: 1,904,639 square kilometers Land use as percentage of total area: 1. Estate agriculture 1.1 2. Other agriculture 13.1 (a) Food crops (9.3) (b) Cash crops (3.8) 3. Forestry reserves 19.3 Population (1971): 124.2 million Density per square kilometer 65 Estimated rate of growth (1971) 2.6 percent Density per square kilometer in Java 592 Political Status: Unitary Republic, member of the United Nations and the Association of South-East Asia Nations (ASEAN) 1/ Gross Domestic Product (1971): Rp. 3,525 billion Per Capita GDP: $70-90 Foreign Exchange Reserves: Dec.1969 Sept,1970 Sept.1971 ($ million) Gross 119 157 181 Net -.86 -51 -72 Sept.1970 Sept.1971 % Ch ue (Rp. billion) Total Money Supply 226.9 292.0 28.7 Time Deposits (State Banks) 40.6 90.4 122.7 Credit to Enterprise Sector 2/ 228.5 3/ 365.0 3/ 59.7 Price Index (September 1966 - 100) 600 618 3.0 Public Sector Operations (Rp, billion): 1970/71 1971/72 Actual Rev,Est, % Change Government Current Receipts 344.7 423.2 22.8 Government Current Expenditure 287.7 354.3 23.2 Current Budget Surplus 57.0 68.9 20.8 Counterpart Transfers 75.4 97.2 28.9 Project Aid Disbursements 41.6 69.7 67.6 Development Expenditures 167.9 236.7 40.1 1/ Tentative estimate T/ Includes state enterprises '5/ End of June figures - ii - External Public Debt ($ million): Outstanding as per December 30, 1970 3,478 Debt Service Liability in 1971/72 100 Debt Service as % of Exports 11 Balance of Payments ($ million): 1970/71 1971/72 Actual Rev.Est. Exports of Goods and Services 896 982 Imports of Goods'and Services 1,264 1,457 Current Account Deficit -368 -475 Commodity Concentration of.Exports (percent): 1970/71 19,71/72 Rubber 30 Oil (net) 15 20 Timber 15 18 Ä-PHILlpmINES PCFI OEA South China Sea PACIFIC OCEAN BRUNE1 P MALAYA )- 1 - b Y S LO, Ceebes Sea INDONE~SIA ~~ -\ ~~BOR NEOSa tm er (KALINANT -,-Mo)uc a BS ~-Bangka SULAWIESI) cra 1 W E0STRWASN IRIAN SUMAT AK Re B a n d a S ea Flo res Sea Arafura Sea OVEMBER 1969 BRD2  SUMMARY AND CONCLUSIONS i. The last Bank economic reports on Indonesia were those of November 1970 (EAP-19a) and March 1971 (EAP-22). This report is designed to provide, primarily for the member countries of the Inter-Governmental Group for Indone- sia, a basis for assessing the request by the Government to the IGGI for proj- ect aid commitments of $350 million and program aid commitments of $320 mil- lion for the 1972/73 fiscal year. It therefore focuses on recent economic performance, particularly in:1971/72, and the prospects for 1972/73. ii. The economy appears to be growing during 1971 at around 6-7 percent in terms of GDP and consolidating the trends towards growth in conditions of price stability established in the immediate past. The fourth successive increase in the production of rice, the basic commodity, seems to have been secured. In the industrial sector, especially in textiles, there is further substantial growth. With private foreign investment accelerating and the rehabilitation and expansion of domestic enterprises being fostered by credit expansion, including that of the medium-term credit program, the prospects of industrial development from the present small base are good. iii. Investment levels in Indonesia are still comparatively low, 13-14 percent of GDP at most with domestic resources, including increased liquidity, financing half of the total or less. Savings propensities appear to be low, and the financing of development programs in the public and private sectors cannot now rely too much on monetary expansion. The onus of mobilizing addi- tional development resources will rest, therefore, primarily on fiscal policy and, if private domestic investment is to be adequately funded, it seems likely that a larger proportion of public savings will have to be channelled to the enterprise sector. iv. Internal revenues in 1971/72 are now estimated to increase by 20 percent over the previous year and a much larger increase, 36 percent, is projected for 1972/73. The largest single item in this increase, to Rp 574 billion, is in the taxes on expected higher earnings of foreign oil companies. Other revenues are nevertheless planned to increase by 18 percent. The in- crement of Rp 150 billion will finance increases in salaries and material expenditures in the routine budget, including some extra provision for essen- tial maintenance expenditures, while still allowing for a doubling to Rp 136 billion in the size of the surplus available for the development budget. Together with a slightly smaller amount of counterpart funds than in 1971/72 (an estimated Rp 95 billion instead of the Rp 97 billion forecast for this year), this will provide for a rupiah development budget 40 percent larger than that for 1971/72 and represent an increase of Rp 66 billion over this year's resources. v. Provision is made in the proposed developmznt budget for increases in infrastructure programs - highways, power, irrigation, railways, tele- communications and ports - and the expansion of education, health and family planning programs and the kabupaten (district development) program. Substan- tial additional budgetary support is to be provided for the investment credit program. Additional resources may also be allocated for the rehabilitation of minor irrigation systems, for the kabupaten program and for education and health maintenance and supply programs. vi. The balance of payments performance this year and the prospects for 1972/73 both show the impact of recent and continuing adjustments in the, international monetary system. The devaluation on August 23, 1971, indicates how quickly and directly the Indonesian authorities had to respond, in the first phase of the new monetary developments, to external influences on the very open economy, following a moderate loss in the economy's already small foreign exchange reserves. This experience should not be repeated because the prospective increase in oil export earnings offers an opportunity to plan with some confidence for an increase in reserves of $90 million next year. Gross reserves amounted to $170 million at the end of September 1971 and net reserves, minus $85 million. vii. Exports, with oil on a net basis, are expected to rise by 10 per- cent in 1971/72 with the prospect of a 29 percent increase in 1972/73. Most of this is acounted for by net oil exports which will increase by 40 percent in 1971/72 because of price increases during the year and over 100 per- cent in 1972/73 with increased production at the higher prices now estab- lished; and by timber exports, up 44 percent in 1971/72 and projected to increase by 27 percent to $220 million in 1972/73. For all other exports, the projections are for a decline in aggregate value in 1971/72 and modest recovery in the following year. Total (net) exports are estimated at $1,270 million in 1972/73. viii. Imports of goods and.services of $1,778 million are projected for 1972/73, an increase of 16 percent if estimated project:aid disbursements are excluded in both years. The current account deficit of $508 million would be slightly larger than that forecast for this year. Debt payments are slightly lower, the expected increase in the private capital inflows somewhat higher and the public capital inflow, at $520 million, is higher by $75 million, because of increased project aid utilization, than that forecast for 1971/72. ix. Of the $520 million projected for public capital inflows next year, $320 million represents program aid in the categories and amounts requested. A food aid request of $110 million, $50 million lower than last year, is possible because of further increases in rice production under official programs and the prospect of another such gain in 1972. At this early stage, however, until more is known about the new rice crop, the request must be regarded as tentative. The other $210 million includes $50 million for the- raw cotton supplies the economy is expected to absorb in 1972/73. The non-food, non-cotton program aid requirement, expressed in US dollars, is significantly less that last year's equivalent amount because of recent revaluations against the dollar of the currencies of several IGGI member countries, approximately 6 percent less at currently prevailing exchange rates. Any further revaluations would enlarge the difference. Allowing also for the price increases of internationally traded goods in the past year, the volume decline in imports implied in the new aid request will be substan- tial. The lower program aid request is possible because of the projected increase in oil earnings next year. Given the uncertainties about other export prospects, the limitations of any projection of import demand on the basis of available data and the need for an increase in reserves, the - iii - request can be considered minimal in relation to Indonesia's resource prospects in 1972/73. x. The request for $350 million in commitments for project aid is supported by a list of projects with aggregate foreign exchange costs, in the A and B categories, estimated at $579 million. The combined request of $670 million, with a shift in composition towards project aid is, nominally, slightly larger than the request for 1971/72. In terms of valuations against the dollar, then and now, it is somewhat less.  I. THE ECONOMY IN 1971 1. This report is designed to provide, primarily for the member coun- tries of the Inter-Governmental Group for Indonesia, a basis for assessing the request by the Indonesian Government to the IGGI for project and pro- gram aid commitments in the amount of $670 million equivalent for the 1972/ 73 fiscal year. It therefore concentrates on a discussion of recent econom- ic performance, particularly in 1971, and the prospects for 1972/73. 2. Particularly because this report has a short-term focus and pur- pose, it may be well briefly to sketch the relevant longer-term context. Indonesia is nearing the end of its fifth year under a new Government -- a Government which set as one of its primary goals economic progress. The Government inherited an economy in which physical production and infrastruc- ture facilities were deteriorating, production and distribution was dis- organized, Government administration was disintegrating, both the internal and external financial situation was approaching chaos, and per capita and aggregate incomes were declining. Its first task was to restore economic order. This it did. 3. The success of its effort to halt the runaway inflation is now a familiar story. Assistance in the form of food, program and later project aid from friendly countries abroad and from international organizations played an important role in this and in the parallel effort to halt the deteriora- tion and begin the rehabilitation of production and infrastructure facili- ties. Successful negotiation of a rescheduling of external debt relieved an intolerable burden on the balance of payments. Extinction of most of the elaborate and counter productive structure of Government controls over pro- duction and distrubution, and foreign trade and exchange helped to reverse the decline in production and exports. All these together along with new direction and purposeful policy in Government produced a rapid increase in Government revenues, making possible the beginnings of improvement in public services and in public investment. uThey also stimulated the beginnings of private savings which could be mobilized for the conduct of private produc- tion and investment operations. A beginning was made in the reorganization and revitalization of Government enterprises providing public utility services and conducting important production operations in agriculture, mining and industry. Purposeful efforts were made to stimulate domestic private invest- ment especially in manufacturing and transport, and to supplement limited domestic investment capability with private foreign investment, especially in petroleum production, mining, forest production and manufacturing. A special effort was directed toward increasing the production of rice, the major food staple. 4. Some of the results for the economy can be identified. Rice pro- duction has increased significantly. Petroleum production and exports have increased substantially in volume and even more in value, and exploration and development activities underway, together with rising prices in export mar- kets, promise further substantial growth. Forestry production and export is expanding rapidly. Textile production has increased and new capacity is being established. Inland and air transport facilities have been much im- proved. Almost imperceptibly in some sectors, including electric power, highways, manufacturing and others, expansion has begun to accompany reha- bilitation. - 2 - 5. Nevertheless, only the beginnings of progress have been made and the problems which remain to be tackled are enormous. Progress is being made in formulating concrete plans, programs and projects and in arranging and organizing for the execution of such plans, so that deficiencies of this type, though pronounced, are not at the moment the most pressing constraints. The more immediate constraint at this point appears to be in the limited material or financial resources available. The pressure on these resources in the current year is evidenced by the continuing high rates of interest which prevail in the economy, by the loss of foreign exchange reserves ex- perienced, and by the necessity for a devaluation in August designed in part as a precaution in the face of international uncertainties and in part to restrain import demand. In the coming year there is prospect of a significant increment in both foreign exchange earnings and Government revenues as a result principally of sharp increases in oil production and the volume and especially the value of oil exports. The demand for resources is so great, however, that this increment will moderate but not reduce the need for aid to supplement the domestic resources available for enterprise and Government investment and the improvement of essential Government services. 6. No reliable national accounts data measuring aggregate output and income, the sources of income and the use of resources are available for Indonesia. 1/ Reasonably accurate data or indicators are available, however, on particular sectors or types of production and trade-activity in 1971. These indicate that agricultural output again increased substantially. Rice production appears to have increased by some 6 percent; other food crop pro- duction appears not to have changed appreciably. Production of rubber, oil palm, copra, coffee, tea and other export crops was up somewhat in volume, but prices of most of these commodities, notably rubber, declined. Forestry production continued to increase sharply. Output of tin and nickel ores increased. Crude petroleum production increased only modestly but the sharp price rise which occurred during the year greatly increased the value of this output. Manufacturing output clearly increased, markedly in the tex- tile industry and also in other branches producing a variety of consumer goods and intermediate products. Construction activity clearly grew sub- stantially. Investment, both private and Government, increased. External trade expanded. If a guess were to be hazarded it might be that Gross Domestic Product had grown by not less than 6 to 7 percent, and perhaps by more. At the same time, the general price level appears to have increased comparatively little. 6a. Some of the main available economic.indicators are presented in Table 1: 1/ A new program of activity by the Central Bureau of Statistics involving technical assistance from the outside is in preparation. It is expected that within a few years this will produce systematic measures of the most important aspects of economic activity in Indonesia and will permit construction of a more useful and reliable set of national accounts. - 3 - Table 1: MAIN ECONOMIC INDICATORS % Change 1969 1970 1971 1971 Djakarta C.O.L. Index (Sept. 1966 = 100) 575 626 621 /1 3 /2 Money Supply (Rp billion) 180 241 292 Ll 283 /2 Currency 114 153 182 34.0 Demand Deposits 66 88 110 20.8 1969/70 1970/71 1971/72 /3 Imports of Goods and Services ($ million) 1,194 1,264 1,457 1:5.3 Export Receipts ($ million) Oil (net) 87 135 192 42.2 Other 659 761 790 3.8 Internal Revenue (Rp billion) /4 244 345 412 19.4 Budget Expenditures (Rp billion) 335 458 596 30.1 Routine 217 288 354 22.9 Development /5 93 128 155 /4 21.1 /1 September 1971. /2 September 1971 compared with September 1970. 7 Estimate. 7 Excluding IPEDA. 7T Excluding Projectiaid. Prices 7. As indicated by the table the main existing measure of consumer prices indicates a high degree of stability. There is evidence that prices of types of goods and services not adequately represented in the index have increased somewhat but not appreciably more. The policy of subsidizing a number of basic commodities, including a number largely imported with program aid, e.g. raw cotton, fertilizer and wheat flour has contributed to the sta- bility of prices of basic consumer goods, as has the policy of stabilizing, and in a sense subsidizing, the prices of petroleum products, one of the few other major commodities for which the prices are administered. Administered prices of public utility services, including electric power and railroad transport have also been kept stable, in some cases with resultant operating losses to service entities, reflected either in cash losses or in inadequate maintenance expenditure. In these instances, however, it may be argued that the consumer is merely being spared the cost of inefficiencies which are in the process of being remedied. One of the most important prices in the economy, the rate (or rates) of interest, has also been stable at a high level, and in real terms has increased. 8. The objectives of the Government's stabilization program now appear to have been achieved and, as measured by the Djakarta cost-of-living index, the rate of price increase has decreased from the already low levels (for Indonesia) of 1969 and 1970 to .only 3 percent in the twelve months to September 1971. The return to a more stable price situation has been quite adequately registered by this index. Nevertheless, it does not today provide a fully satisfactory measure of the movement of consumer or other retail prices. Its base, a small sample of household expenditures of the families of industrial workers in 1957/58, does not properly reflect present consump- tion patterns in Djakarta or Indonesia. A new Djakarta price index has been prepared, using a more comprehensive and up-to-date family consumption expenditure survey undertaken in 1968/69 and measuring price movements in 100 instead of 62 goods and services items. 1/ Surveys of household expend- iture patterns in ten other cities are being made in preparation for the introduction of a national price index. 9. The new Djakarta index is still being tested and may need further modification before it replaces the present indicator. It is likely, since economic growth and structural change imply some degree of general price increase and changes in price relationships, that a better index would behave somewhat differently from the present one and provide a firmer base for economic policy decisions. One cornerstone.of present price policies is the determination to ensure stability in the prices basic commodities, on welfare grounds, but for this purpose the parallel price index of nine essential1goods , and the indices of rice prices in major cities, are the more appropriate indicators. Production 10. Trends in food and other agricultural production are still the prime determinants of growth in the economy as a whole since agricultural activities contribute about half the national product and provide the em- ployment and income of more than 70 percent of the population. In 1971 it appears that the fourth successive large increase in the production of rice, by far the most important food crop, has been secured. In the rest of the agricultural sector, however, performance has been mixed and, in aggregate, has probably not contributed significantly to economic growth in the same period. 11. Recent trends in production of other major field crops are indicated in Table 2. There is little indication of production increase in 1970 over 1968 or over the 1965/69 average, and for maize and cassava the declines are substantial. This probably reflects a shift from other food crops to rice 1/ The proposed new index gives more weight to housing and clothing and other costs, less to expenditures on food. It distinguishes between different qualities and sources of rice, the main consumer good, and provides more adequately for service and miscellaneous expenditures than the present index. - 5 - as a result of the special price and other stimuli to rice production and also as a result of weather conditions specially conducive to the use of land for rice rather than other field crops. Table 2: PRODUCTION OF MAJOR AGRICULTURAL COMMODITIES (Thousand of metric tons except as noted) 1969 1970 1971 Commodity 1968 (Revised) (Prelim) Estimate Food crops: Rice (milled) 10,166 10,641 11,994 12,716 Maize 3,165 2,293 2,425 2,655 Cassava 11,379 11,034 8,955 9,180 Sweet Potato 2,364 3,021 2,947 3,375 Soya Beans 419 389 390 405 Groundnuts 286 267 301 305 Fish: Marine Products 638 785 802 na. Inland Products 480 429 447 na. Industrial Crops: Rubber (Estates) 206 231 239 na. (Smallholders) 529 558 571 na. Sugar (Estates) 526 630 603 na. (Smallholders) 203 220 230 na. Palm Oil (Estates) 180 200 207 na. Tea 41 41 41 na. Coconut (Smallholder) na. 1,221 1,280 na. Livestock Products: Meat na. 309 314 318 Eggs (at 17-per kg) na. 76 77 78 Milk (millions of liters) na. 29 29 30 Forest Products: All ('000 cu.m.) 5,300 6,206 10,100 na. Source: Department of Agriculture. 12. The output of estate and smallholder export crops, particularly rubber, which accounts for over 28 percent of non-oil exports, is increas- ing but has met .adverse price trends in external markets. As discussed in more detail in Chapter 3, export earnings other than from oil and lumber are not likely to grow in value in 1971/72 compared with the previous year. -6- Rice 13. Indonesia's effort to increase rice production has been remarkably successful. While production statistics are open to question, the evidence of stable rice prices and declining imports in the face of increasing de- mand supports the view that production gains in the last three years ap- proximate those indicated by the production statistics. The major factors responsible appear to be increased use of fertilizer, improved seed vari- eties and plant protection materials plus extension of area planted and in- creased labor input. Contributing to these have been Government price sup- port, combined with the fertilizer subsidy, improved distribution of the physical inputs and a large-scale production credit program. The increase in output is all the more notable when it is realized that the extensive rehabilitation of irrigation facilities now under way has not yet had sig- nificant impact on the critical matter of water supplies. The better than average weather conditions which have persisted in the past several years have undoubtedly been a critical factor. offsetting the fact that there has not yet been time for the effects of irrigation rehabilitation to be widely felt. 14. Rice production is estimated to have increased by 25 percent in the three years from 1968 to 1971. Domestic procurement by BULOG, the official rice agency, increased from 530,000 tons in 1970/71 to a planned and largely achieved 570,000 tons in 1971/72. Imports of rice are likely to decline to 540,000 tons in the same period, a reduction of over 40 percent. 15. Whether this good performance will lead towards self-sufficiency in rice by 1973/74 is open to question because there is uncertainty still about the demand for as well as supply of rice. If the policy of providing rice at a retail price of Rp. 45 per kilogram is maintained and if there should be general price rises during the same period, the real price of rice would decline and, as may already have happened, demand will be in- creased by price as well as income elasticities and population growth. This could mean that the demand for rice will increase rather more rapidly than estimated earlier and that, even with further solid gains in production, the goal of self-sufficiency in rice may take longer to attain. It is also possible but not certain that, even if the relationship of fertilizer prices to rice prices should remain unchanged, and even if yields of rice per unit of land and labor should increase, the declining value of rice in relation to commodities purchased by farmers would attenuate producer incentives. Consequently the relationships involved merit careful observation as a basis for future policy with respect to rice prices. 16. The prospects for a further increase in rice output next year as a result of the same combination of factors as are responsible for recent increases appear to be good, subject to the weather which may or may not be as favorable as in the immediately preceding years. A production increase of 4 percent, about 500,000 tons, is considered to be a reasonable expecta- tion. There are some factors, including restrictions on new credit to those farmers who have not made adequate progress in repayment of last season's loans and including possible shortages of fertilizer and other inputs in - 7 - some areas, which could limit production gains, but these are thought un- likely to prevent the increase sought. 17. Rice aid. On the assumption that a production increase of 4 per- cent will materialize in 1972, and taking into account a probable carryover of 150,000 tons of aid rice commitments into 1972/73, the prospect of a BUL stock position at the beginning of April of well over 300,000 tons, and assuming commercial imports of rice at the level (35,000 tons) of this year, the best estimate of 1972/73 rice aid requirements at this early stage is 450,000 tons. This would allow for the same quantity of import arrivals (540,000 tons) as this year and.a similar carryover to the following year. This projected carryover provides some margin of safety against the con- tingency that actual rice production may be lower than forecast. Because lower rice production would result in lower incomes and, therefore, less growth in demand for rice, the margin provided in the import estimates is larger than it appears. This preliminary estimate is reflected in the food aid request of $110 million (including wheat) for 1972/73. As always at this early date this is a preliminary estimate subject to revision upwards, or downwards, in the light of further information on production available by the April IGGI meeting. 18. Wheat. Essential imports of wheat flour and their subsidized dis- tribution during the stabilization phase have led to an established market for wheat flour at prices equivalent to those for milled rice. Demand is estimated at 440,000 tons this year at the given price of Rp. 45 per kilo- gram. Allowing for population and income increases next year and for the assumed price elasticity of demand, a demand growth of about 8 percent to 475,000 tons is expected. The recent establishment of a large mill in Djakarta and construction of mills in Surabaja and Makassar, and a second in Djakarta, will provide during 1972 the capacity to mill all wheat flour needs domestically. The price policy for imported wheat -- the Government now sells wheat grain to millers at under Rp. 22 per kg. and wheat flour to distributors at Rp. 35 per kg. and has agreed on the same prices through August 1972 -- is currently under review to determine whether the subsidies in relation to world prices are appropriate and whether the margin between grain and flour prices is not too wide in comparison with millers' margins in other countries. Almost all wheat is imported, and wheat, which will never be grown in Indonesia, has no nutritional advantage over other grains which can be efficiently produced domestically. There is consequently no valid reason for subsiding wheat distributors, producers or consumers in Indonesia. 19. As indicated above it is possible that no wheat flour imports will be needed in 1972/73. The wheat grain equivalent of expected demand for flour, at the conversion ratio of .72, is about 660,000 tons, perhaps 700,000 tons allowing for the maintenance of a two month's stock of grain and a simi- lar market stock of flour. Depending on sources of supply, this could cost approximately $45 million and this figure is included in the program aid request for 1972/73 for wheat imports. Any residual need for wheat flour imports as a substitute for grain could be accommodated within this total, as could the requirements for bulgur. This commodity is in small demand in - 8 - relation to the foodgrains total, but is a useful substitute in certain rice deficit areas. 20. These imports plus estimated domestic output of rice and maize would provide a foodgrain supply, expressed in terms of milled rice, of the following quantities in 1970/71 to 1972/73 (Table 3): Table 3: MAJOR FOODGRAIN BALANCES (in million tons) 1970/71 1971/72 1972/73 (Est. Actual) (Estimate) (Projected) Rice Production 12.0 12.7 13.2 Imports 0.8 0.5 0.5 Total Rice 12.8 13.2 13.7 Wheat Flour (imports) 0.4 0.4 0.5 Maize 2.4 2.7 2.9 Total Foodgrains Supply 15.6 16.3 17.1 Per Capita availability (Kg.) 129 131 134 Other foods, especially cassava and- sweet potatoes, form part of the basic diet; they are important additions to these foodgrains supplies and changes in their output materially affect total basic food supply availability. Industry 21. Production data for the:imanufacturing sector are incomplete and no current index of industrial production exists. However, data on output of a number of industrial products,-- for example, yarns, cloth, cement, paper products, pharmaceuticals and automobile tires - show that.there was substantial growth in this sector in 1970/71. On the basis of nine months' production figures of selected consumer items such as matches, cooking oil, soap, toothpaste and others, the.output of small-scale manufacturing firms may not increase much this year. For medium to large-scale industries, however, the estimated 14-15 percent increase in raw material imports and 25-26 percent increase in impprts in the capital goods categories in these years, plus the substantial credit extension to the enterprise sector, in- dicate increased output and investment in new capacity. The completion of a number of private investmen projects during the first nine months of the year, and the planned opAning of more factories in the next six months, give assurance of contineud growth in output. 22. In the textilessector, in which total planned investment now amounts to about $200 million under the Foreign Investment Law and Rp 162 -9- billion ($390 million) under the Domestic Investment Law, 13 new factories were inaugurated in West and Central Java in recent months. Total cloth output in 1970 reached 450 million meters and is projected to increase by 33 percent to 598 million meters in 1971. Yarn production is expected, on the basis of 8 months actual output, to exceed 210,000 bales in 1971. All the indications are for a growing import demand for raw cotton in the coming years. 23. Cotton aid. Imports of raw cotton have been financed under PL-480 as one of the program aid commodity arrangements. Most spinning capacity is in the government-owned spinning mills and these and other raw cotton users have received the PL-480 supplies at a price well below c.i.f. cost, currently at the valuation of Rp 215 to the US dollar or 52 percent of actual cost. The aim has been to ensure output prices competitive with those of imported yarns, given estimated production costs of average mills and rea- sonable profits. The aim is also to maintain price stability for batik and other cotton cloth which are basic items of mass consumption. The prices of those cotton yarns imported under PL-480, have for this reason been even more heavily subsidized -- currently, a valuation of Rp 125 to the US dollar is used. 24. With the development of modern textile plants in the private sector, and with increased efficiency expected in the state mills, mainly through higher capacity utilization to be obtained by longer shifts and increased spindle speeds, the subsidy rate is now to be reviewed. Present pricing policies could lead to high profits in the private textile sector and very substantial profits in the efficient state mills, at the same time holding down to present low levels the generation of counterpart funds for the Cen- tral Government budget from this component of program aid. The low price of imported cotton may also be impeding the development of cotton produc-- tion in East Java and the Eastern islands, where experiments indicate that it might possibly be produced at competitive world prices. 25. The economy's absorption of raw cotton has grown from 150,000 bales in 1969/70 to an estimated 250,000 bales this year. Import requirements of around 330,000 bales are projected for next year, at a cost of close to $50 million. This amount is accordingly included in the request for non-food program aid for 1972/73. No request is being made for cotton yarn since supplies estimated as adequate for next year have been assured in response to previous aid requests. 26. Output of (urea) fertilizer from the one producing plant in 1970 amounted to 98,000 tons and is expected to be at approximately the same level in 1971 and 1972. Import demand for all plant nutrients has been projected to increase by 17 percent annually to 1974 from an estimated 220,000 tons in 1969. Import growth in 1970 and 1971 has been contained by the utiliza- tion of accumulated stocks but, with a much lower stock position and improved distribution arrangements, import requirements are expected to grow rapidly until the completion of the Pusri fertilizer plant expansion project, sched- ule for 1973. The Government plans to import some 300,000 tons under official aid arrangements in 1972/73, an increase of 25 percent over the current years. - 10 - 27. Cement output may decline slightly from the 553,000 tons produced in 1970, but should recover rapidly in the next three years as the expansion and modernization of three major plants is completed. Imports amounted to $14.3 million last year and are estimated to reach around $16 million by the end of this year. 28. For the industrial sector as a whole, 1971 appears as a year of substantial progress, with private foreign investment activities accelerating and the rehabilitation and expansion of domestic industrial enterprises also being fostered by credit expansion, including that of the medium-term credit program. On the administrative side, recent reductions in excessive import duty rates on a large number of selected commodities confirm the Government's desire to promote sound industrial growth from its present small base although rates are still so high on many commodities as to be uncollectable or, if collected, to provide an excessive and uneconomic level of protection. Plans for the establishment of three industrial estates in Java have advanced and offer further prospects for industrial development which will utilize Indonesia's comparative advantages in labor, complementing the opportunities for resource-based industrial growth, mainly outside Java. 29. Apart from the consumer goods and light assembly industries, in- cluding electronic components, in which Indonesia has major export potential as well as a growing domestic market, recent investigations suggest that there is now opportunity for economic production in some branches of the engineering and machinery industries and in some of the base metals and chemicals. There are possibilities, deserving more careful study, of a direct reduction steel plant, of certain petrochemical production and of a complex of plants to produce a range of forest-based products. 30. Progress in the minerals sector is dominated by production and price developments in petroleum. Total production is expected to increase by only 5 percent in 1971, to 326 million barrels, but is projected to in- crease to 440 million barrels, or by 35 percent in 1972. The 1971 price increase, 34 percent for the major exporter of crude oil and more for other exporters, leads to an estimate of gross oil export receipts of $574 million in the current fiscal year, an increase of 30 percent. Given the further price increase on Indonesian crude oil scheduled for January 1, 1972 or earlier, gross receipts from exports of petroleum in 1972 are expected to approach $1 billion. Net foreign exchange receipts from oil, after deduct- ing the foreign exchange costs involved in supplying domestic requirements, the foreign exchange costs of Pertamina's exploration, production, and re- fining activities, the foreign exchange costs of the production activities of foreign contractors, and the share of foreign contractors in profits, are estimated at $197 million in 1971/72 and $395 million in 1972/73. Government revenues from oil are, as indicated in a subsequent chapter, also expected to rise sharply. Annex A of this report provides details of cur- rent and planned production and earnings in an integrated discussion of the oil sector. 31. Trends in the production and exports of tin and other hard minerals, including nickel, bauxite and iron-sand which, with tin, account for some 10 percent of non-oil exports, are discussed later in this report. - 11 - Private Foreign Investment 32. Details of investment approvals under the Foreign Investment Law up to September 1971 are presented in Appendix Table 10.1. Applications and approvals have not increased as rapidly as hoped, mainly as a result of a decline in approvals of mining and forestry projects now that concessions cover most of the relevant areas. In part, however, the decline may reflect uncertainty in the minds of potential foreign investors with respect to the stability of the basic policy of attracting foreign investment, and proce- dural difficulties and obstacles to the conclusion of agreements and arrange- ments. Among the actions which may have contributed to such uncertainty are the fact that foreign investment in some 39 manufacturing activities was banned early in the year. Although few of these are of great importance the action may have signalled to foreign investors a change in policy. This may have been the effect also of the decree forbidding foreign investors to engage in distribution activities in Indonesia, and of the decree which practically forbade foreign accountants to practice in Indonesia. In respect to procedural obstacles the increasing inability of the Foreign Investment Board to provide a central point of negotiation and one from which decisions could be obtained has been a negative factor. 33. Complete and systematic data on actual investment expenditures on approved foreign and domestic investments are still lacking, since there is as yet no effective machinery for monitoring of such expenditures and of the physical progress of planned projects. The investment rate is still low but growing rapidly.. At the end of September 1971, of a total approved planned foreign investment of $1,605 million covering 428 projects, $274 million or 17 percent was reported to have been invested. Allowing for under-reporting, however, this proportion may be more of the order of 20 to 25 percent. Domestic Investment 34. The expenditure rate in promoted domestic investment is, as might be expected, higher than in the case of foreign investments, mainly because most of the projects approved are for expansion purposes, have short gesta- tion periods, and do not require as large initial capital outlays. At the end of 1971 total investment expenditures on approved Domestic Investments are estimated at Rp 142 billion or about 33 percent of total approvals. Of this total, roughly 30 percent was spent for imported capital equipment, 50 percent for locally produced fixed assets, and the balance for working capi- tal. Djakarta and the rest of Java account for about 70 percent of these projects, with the rest widely distributed through the outer regions. 35. Just as in the case of the Foreign Investment Board, procedural difficulties appear to have some negative effect. Furthermore, the Board functions principally to determine eligibility for various tax incentives. It does not provide positive help to would-be investors in the form of techni- cal, managerial or other assistance. At present, in fact, no agency of the Government provides such services, although assistance of this type could well make an important contribution to the development of Indonesian entre- preneurship. - 12 - Investment Perspectives 36. Although private domestic investment, aided by the tax incentives provided under the Domestic Investment Law and by the medium term credit program, has expanded rapidly, it is still a small part of total investment in the economy. Government investment, investment by Government-owned enter- prise and private foreign investment in the aggregate are far larger. There is considerable evidence, however, that the principal constraint at this time is not the paucity or caution of domestic enterprise but the limitations on the resources available. Retained earnings of enterprises are limited, pri- vate savings which can be mobilized through the Banking system are growing but limited, and credit creation is of necessity restricted by consideration primarily of balance of payments effects. Although some Government savings derived from the excess of Government revenues over Government expenditures are being transferred through the Banking system to meet the investment capital needs of a few Government enterprises, no other Government budget transfers either through the medium-term credit program or otherwise appear to have been made in the last or the current fiscal year. In the short run, and the longer as well, such transfers need to be made and their amount augmented by foreign private and aid inflows if domestic enterprise is to grow at a significant rate. The reorganization and reactivation of Bapindo, the effort to create several other development finance institutions and the request for project aid for what are called Development Loans through the Banking System are responses to this need, along with efforts to devise additional mechanisms for the stimulation and mobilization of private domestic savings. 37. Total investment expenditures in 1971/72 can be quantified only very approximately. The Central Government investment program in 1971/72 is of the order of $320 million, including the project aid which forms part of it. Provincial and local authorities may account for another $60 - $70 million. No comprehensive information is available on Government enterprise investment but a total of $150 - $200 million, including $90 million by Pertamina and sizeable amounts by other Government mining enterprises, agri- cultural estates and industrial companies, appears to be a reasonable approx- imation. Private foreign investment, including that of foreign oil companies in exploration and production is of the order of $300 million. Private do- mestic investment is.substantially lower. Most enterprise investment by private Indonesian firms appears to be registered under the Domestic Invest- ment Law and data available as a consequence indicate expenditures in 1971 of approximately $160 million. The investment credit program is probably financing half this expenditure. 38. The shortage of loanable funds appears to be the main impediment to more rapid growth of private domestic investment. Admittedly the interest rate, 12 percent per annum, in the medium-term investment credit program is concessional for Indonesia, but there are offsetting deterrents. In spite of provisions in the investment credit program which must deter many poten- tial investors -- the present five-year maximum term, the 25 percent contri- bution to fixed investment costs with no provision for working capital and the requirement for feasibility studies at the applicant's expense for loans - 13 - over about $100,000 -- there is an apparently large backlog of loan applica- tions with participating state banks. An expansion in this program, with due consideration of working capital requirements, longer-term lending and an interest rate somewhat more in line with the scarcity of capital in Indonesia, would seem to deserve full and early consideration. Such ex- pansion is being given higher priority by the Government in its 1972/73 budget plans; it hopes also that increased program and project aid will be available for the purpose so that the total resources available for enterprise invest- ment may be significantly increased. 39. Bank credit to the enterprise sector, including public enterprise, has expanded rapidly over the last two years, by 140 percent in 1969/70 and a further 60 percent to Rp 333 billion in 1970/71. As shown in Table 4,, this growth of enterprise credit has been the main factor in monetary ex- pansion. Table 4: FACTORS AFFECTING MONEY SUPPLY (in billion Rupiahs) September /1 1969 1970 1971 1. Changes in: a) Foreign assets -7.2 12.5 -27.8 b) Credit to Government 14.3 -19.7 8.5 c) Credit to public and private enterprises 82.8 126.7 84.4 d) Time and savings deposits -37.7 -30.3 44.3 e) Other 13.9 -28.1 44.4 2. Changes in money supply: 66.1 61.1 65.2 a) Currency 39.6 38.5 46.3 b) Demand deposits 26.5 22.6 18.9 /1 Compared to September 1970. Source: Statistical Appendix Table 6.2. At the end of 1970/71 disbursements under the medium-term credit program totalled Rp 49 billion, an increase of Rp 33 billion in twelve months, allo- cated 80 percent to the private enterprise sector. So far in 1971/72 both enterprise credits as a whole and lending under the medium-term program are expanding less rapidly, at annual rates of about 40 percent. The deceleration tends to support the view that opportunities for monetary expansion consistent with internal and external balance are diminishing with the return to more stable price conditions, and that further expansion of the investment credit program will need to be based mainly on sources other than the central bank, which has financed over 60 percent of loans to date. - 14 - 40 The progress towards internal price stability is illustrated by the summary table below: Table 5: MONETARY DEVELOPMENTS, 1965-71 (Annual Increase (%) ) Money Djakarta Time & Savings Income Price Deposits Velocity Year Index Money Supply % Change (Est.) 1966 639 754 325 28 1967 113 131 562 1968 85 122 435 1969 10 58 314 17 1970 9 34 61 13 July 1971 /1 2 31 11 /1 Compared with July 1970. 41. With the interest rate structure now strongly positive in real terms, time deposits are still increasing rapidly notwithstanding the 15 percent tax levy on interest earnings imposed in July 1971 and.are currently supporting a combine expansion of lending by the commercial banks on the very low reserve requirement (3 percent) now in force. Until very recently commercial bank lending to private enterprise has been heavily supported by the central bank. Under the medium term credit program, banks have con- tributed only 15-20 percent of the amount of loans from own resources, the rest coming from the central bank, and in 1969,/70 but not mor recently the Government at 4 percent, permitting a minimum 20 percent return on the bank's own share. 42. The Government contribution to the program from the development budget amounted to 33 percent of disbursements in 1969/70, but, except in April 1970, no further transfer from the budget has.been made. The Govern- ment plans, however, to make additional funds available for the investment credit program in 1972/73 by transfers from the development budget and out of project aid; one commitment of $15 million for investment loans through the banking system (investment credits to production enterprises) has alrea"Y' been made. The Government is also reorganizing and revitalizing BAPINDO as a development finance institution and is providing it with additional capit al. Along with the IDA credit now under consideration for BAPINDO and other credits which may be made to this institution, this action will provide a further source of investment finance for production enterprises. These several steps constitute desirable moves in the direction of providing an adequate supply of loanable funds for enterprise investment. 43. The calculations of investment in paragraph 37 6uggest a level of investment, including non-monetized investment, of at most 13-14 percent of - 15 - GDP with domestic resources including increased liquidity, financing half of this total or less. This indicates the existing low levels of savings and the necessity for increased mobilization of domestic savings as well as increased flow of capital from abroad. - 16 - II. FISCAL PERFORMANCE National Priorities and Fiscal Policy 44. In the stabilization phase now ending the main focus has been on increasing revenue and limiting expenditure. The hyper-inflationary problem had to be tacked in a pragmatic way without special concern for the distri- butive effects of taxation or the long-term improvement of procedures for raising revenues. iNor could fully adequate attention be given to the content of development and routine budgets. The main emphasis in budgetary policy was on ensuring that expenditure did not exceed revenue and that within the resources available expenditure was directed largely toward support of the main efforts of stabilization and rehabilitation. The Govern- ment's budgetary operation and the central bank's direct and indirect credit advances underpinned programs that were of great importance to* the success of this effort. Rice production and food procurement schemes in particular received budgetary and credit support. The remarkable success of these efforts has now created the opportunity and emphasizes the need for a major effort on the part of the Government to frame its fiscal policy and operations in a longer term perspective and adapt both revenue and expenditure sides of the budget more fully to the country's needs. 45. The existence of widespread unemployment and underemployment underscores the need for such a major development effort. Indonesia has a labor force of perhaps 40 million and its rate of growth is not much lower than that of the total population -- i.e., 2-2.5 percent a year. For the longer term, the creation of enough employment opportunities for an expanding labor force may be the major challenge for the Government, and for fiscal policy. Investment in the creation of new production and infrastructure facilities and the consequent expansion of output is the basic means by which additional jobs, and incomes, are being and will be created. Although the level of investment has been rising steadily during the past several years, it is still substantially below the level at which it can have an adequate impact, directly and indirectly, on unemployment, given the rate of increase in the labor force. Government investment, primarily in infra- structure improvement and expansion, and both private foreign investment and domestic enterprise (private and Government) investment in new production facilities are all playing a role, along with individual farmers who are extending the areas they cultivate and the input of labor in their operations. Although this may not have been entirely the case a few years ago, it seems clear that the major and most pressing constraint on investment'today is the limited availability of resources for investment. An increased flow of resources from abroad, in the form of aid and of private investment, and considerably increased domestic savings mobilized for investment will ob- viously be needed if the expansion of output and employment is to keep pace with the growth of the labor force and to absorb into productive activity the surplus labor which exists today. 46. Although it was also probably true a few years ago that deficiencies in infrastructure facilities were one of the major conditions which inhibited - 17 - enterprise investment in the expansion of production facilities and activities, this factor also is not today so severely limiting a constraint. Large investments are and will continue to be required in the improvement and expansion of these facilities, notably irrigation, electric power, transport and communications. Even more essential, however, will be investment in new and expanded direct production activities. Here, despite the contribution that is being and, hopefully, will continue to be made by foreign enterprise investment, it is clear that the major role must be played by domestic enterprise, both private and government-owned. Given, however, the existing low level of personal and enterprise savings and the time which may be required to increase these private saving propensities, fiscal policy and the fiscal mechanism will need to be used to mobilize investment resources and to channel them to the enterprise sector. It will be necessary and efforts are being made .to create a variety of financial institutions and mechanisms designed to stimulate and facilitate private savings and to make these efficiently available for the financing of investment as well as current production operations. It will be necessary also to see to it that tax policies and programs, so far as possible, do not reduce incentives to or directly detract from private savings. As already stated, however, it seems likely that, if the enterprise sector is to obtain resources it needs, a larger proportion of public savings will need to be channeled to this sector through appropriate development finance institutions and the rise of public consumption expenditure will need to be kept appreciably below that of Government revenue. 47. Consequently, the Government confronts and will continue to confront for the foreseeable future extremely difficult choices among competing needs and demands. There is an urgent need for an increase in the level of com- pensation of government employees in the interests of greater efficiency and integrity in Government administration. There is urgent need for increased expenditure for maintenance of existing Government facilities including not only Government office buildings, but also schools, hospitals, roads and other infrastructure facilities. There is equally urgent need for increased expenditure on such essential public services as education and health where materials and facilities are today grossly inadequate. The task, therefore, of assigning priorities is, and will continue to be, an extremely difficult and complex one involving important social and political as well as strictly economic considerations and will command the most thoughtful and careful consideration on the part of the highest Government authorities. Routine Expenditure and Public Savings 48. Between 1965 and 1968 total routine expenditure was allowed to grow very modestly, in real terms by less than 4 percent a year. With in-- creased domestic revenues and a greater degree of economic stability, rou-- tine expenditures were permitted to rise in 1969/70 and 1970/71 at an annual rate of 15 percent (in real terms) and a slightly higher rate of growth is expected in 1971/72. Table 6 summarizes the annual rates of growth in rou- tine revenues and expenditure. - 18 - Table 6: THE ANNUAL RATE OF INCREASE IN ROUTINE REVENUE AND EXPENDITURE, IN REAL TERMS (in percent) Routine Routine Revenue Expenditure 1965 to 1968 36.0 3.6 1969/70 to 1971/72 18.8 15.3 1970/71 to 1971/72 (revised est.) 12.7 /1 15.8 /1 Excludes Rp 11 billion carryover from the previous fiscal year 49. Between 1965 and 1970/71 the rate of increase in internal revenues was considerably higher than that of routine expenditure. These revenues as a proportion of roughly and probably under estimated GDP increased from about 4 percent in 1965 to around 9 percent in 1969/70 and an estimated 13 percent in 1971/72. Within this aggregate the performance of non-oil tax revenues also shows marked improvement, although at a less spectacular rate. As a proportion of GDP, these revenues rose from perhaps 6 percent in 1967 to about 9 percent in 1970/71 and 1971/72 (see App. Table 6). In addition, local authorities are also expected to raise about Rp 44 billion through various local levies, thus increasing the public sector's overall tax effort to perhaps 10 percent of estimated GDP. 50. As to the Government's overall budgetary performance, the substan- tial budget deficit of 1965 was eliminated by 1968 and thereafter a modest surplus of internal revenues over routine expenditures ensued (see Table 7). The 1971/72 estimated surplus shows a small decline. A major factor in this has been the resumption of payments on Indonesia's domestic and pre-1967 foreign debts, and the growth of payments on new external borrowing. Debt repayment is, however, a capital transaction and if allowance is made for it, the budgetary surplus in 1970/71 and 1971/72 would be Rp 87.1 billion and Rp 103.5 billion respectively. Table 7: CENTRAL GOVERNMENT'S ROUTINE BUDGET (In billions of rupiahs at 1971/72 prices) 1971/72. 1971/72 1965 1968 1970/71 (Orig. Budget)(Rev. Est.) 1. Revenue 83.6 210.3 365.8 415.9 412.4 f 2. Expenditure 189.1 210.3 305.9 343.3 354.3 3. Surplus (deficit -) -105.5 0.0 59.9 72.6 58.1 4. Debt Repayment 2.7 14.0 27.2 37.2 45.6 5. Surplus (deficit) before debt repayment -102.8 14.0 87.1 109.8 103.7 /1 Excludes carryover of unexpended 1970/71 expenditure authorizations and corresponding funds-of Rp 10.8 billion. Source: Appendix Tables 5.2 and 5.5. - 19 - 51. Revenue performance. During 1966-68 the rise in revenue receipts was very marked, particularly in taxes on the external trade sector and oil companies. Thereafter, receipts from the external trade sector grew at a rate lower than the overall revenue growth rate. The revised estimate for 1971/72, if realized, will show a modest rise in receipts from external trade of about 8 percent compared to 25 percent in 1969/70 and also in 1970/71. Proceeds from the corporate tax on oil companies increased in 1969/70 - 1971/72 at twice the overall revenue growth rate and a further acceleration is forecast for 1971/72. Since 1968 direct taxes have been increasingly emphasized and this trend is also noticeable in the 1971/72 revised revenue estimates. 52. The revised revenue estimate for 1971/72 is Rp 412.2 billion, almost the same level as in the original budget. Receipts from the corporate tax on oil companies are expected to be Rp 23 billion more than the original estimate and those from the income tax, withholding tax and other corporation taxes about Rp 10 billion more. Compared to the original budget, it is expected that there will be a shortfall of Rp 36 billion in indirect taxes, i.e. Rp 10 billion in receipts from the domestic sales of oil, Rp 5 billion from excise duties and Rp 21 billion from import duties and sales tax on imports. As the economy is expected to grow by about 6-7 percent in the current year, the indifferent performance of "other oil revenues" and excises does not stem from sluggish growth in the domestic consumption of oil products and tobacco. In the external trade category, the large scale rationalization of tariff rates, with a substantial reduction of higher revenues on non-essential imports in September 1971, may have temporarily reduced collections. Lower estimated imports of dutiable goods, following the devaluation, may also have affected collections for this year. In the revised estimate, the corporate tax on oil companies accounts for about 27 percent of total Government revenues. The share of indirect tax receipts in total non-oil tax revenue is now about 82 percent compared to 79 percent in 1968. 53. Despite the Government's remarkable revenue performance in recent years, tax administration does not seem to have improved at a similar pace. The higher receipts came mainly through what is known as the "target" system whereby estimates are made of earnings and disbursements of professional groups, companies and traders, norms are established and targets reflecting these norms passed on to collection officers. Tax collectors, therefore, were under pressure to increase collections up to the level of their targets but not systematically to locate taxable income and assess personal and corporate tax liability in accordance with the law. In the years immediate- ly following the hyper-inflation of 1965, the target system was probably a practical way of collecting increased revenues. With the achievement of relative stability in prices and the improvement of Government finances, efforts should be miade to develop more appropriate tax collection and enforcement procedures. - 20 - 54. Routine expenditure. The Central Government's routine budget is characterized by a rapid and continuing rise in personnel and material expenditures, sustained support of the budgets of local authorities and the rising debt burden. 55. There has been a substantial improvement in the pay scale of Government employees in the recent years. Personnel expenditure in real terms including payments in kind has increased steadily since 1965 (see Table 8). Overall, however, its share of expenditures in the routine budget (excluding debt repayment) has declined from 56 percent in 1968 to 54 percent in 1971/72. Payments in kind, including the rice allowance, have declined in importance.. In.1971/72 rice in kind will constitute around 12 percent of personnel expenditure compared to 34 percent in 1968. Table 8: ANNUAL GROWTH RATES (IN REAL TERMS) OF PRINCIPAL ITEMS IN THE ROUTINE BUDGET (In percent) 1969/70- 1965/68 1971/72 1971/72 Personnel Expenditure /1 16.7 17.7 21.1 Material Expenditure 15.1 4.5 2.7 Subsidies to Regions 77.0 12.6 12.0 Debt Repayment 72.0 47.0 67.8 Total 3.6 15.3 15.8 /1 Excluding personnel material expenditures. Source: Appendix Table 5.5. 56. The main featureas,of the.1971/72 routine budget are,summarized in Table 9. Two items merit closer-.examination, namely the provisions for main- tenance and for salarie. - 21 - Table 9: MAIN ITEMS IN THE 1971/72 ROUTINE BUDGET (In billion rupiah) Percent Amount Distribution Maintenance Expenditure 10.7 /1 3.0 Civil Salaries and Pensions 80.2 22.6 -- salaries (domestic) 40.8 11.5 -- salaries (external) 4.2 1.2 sugar allowance 0.9 0.3 -- honorarium 3.8 1.0 -- overtime 0.5 0.1 -- special salary increase of the Ministry of Finance 7.5 2.1 -- special salaries 0.3 0.1 -- special allowance for judges 2.0 0.6 -- pensions 20.2 5.7 Armed Forces (Personnel and Main- tenance) 116.1 32.8 Material Expenditure (Civil) 28.6 8.1 Domestic 23.3 6.6 External 5.3 1.5 Allocation to local Governments 66.8 18.8 Debt Repayment 45.6 12.9 Other 6.4 1.8 Total 354.3 100.0 /1 Includes Rp 4.9 billion maintenance for the armed forces. 57. Maintenance. In the rehabilitation phase the major part of main- tenance and rehabilitation expenditure relating to infrastructure and other public facilities has been financed, albeit very inadequately, from the development budget. In the routine budget maintenance expenditure has been a minor item (see Table 10). - 22 - Table 10: MAINTENANCE EXPENDITURE IN THE ROUTINE BUDGET (In million rupiahs) Percent Distributed 1970/71 1971/72 in 1971/72 Highways 452 410 3.8 Irrigation Facilities 56 .49 0.5 Ports 225 105 1.0 Airports 420 155 1.4 Buildings 4,004 2,197 20.5 Radio-telecommunications 250 158 1.5 Planes 390 1,228 11.4 Ships 596 1,610 15.0 Motor Vehicles .2,278 2,513 23.4 Others 3,156 2,304 21.5 Total 11.827 10.729 100.0 Source: Budget Bureau The total of Rp 10.7 billion for 1971/72 is very small and overstates actual maintenance expenditures as it apparently includes some operating costs. Close to 50 percent is for the operation and maintenance of non-civilian facilities and equipment. -The overall maintenance situation cannot have improved since last year and may have worsened. Some maintenahce work is financed from the budgets of local authorities at the provincial and kabupaten levels. It can be concluded that the Government dd6 not have an adequate maintenance progtm and that increased provision for maintenance in the routine budget is essential. In fact, an adequate provision for a properly prepared maintenance program may have a greater priority than some of the existing development schemes. 58. Salaries. Despite the notable improvement in the*pay.scales of Government employees, the lower two of the four categories coveting about 90 percent of total civil employ6es probably receive compensation which provides for themselves and their families an amount well below the nationAi family income average. Table 11 summarizes the average salary scale of eah of the main four groups. At preseht, the Central Government has about 54,6000 civil employees on its odyrd11 and on the basis of Table 12, total civil service compensation amdWnt to about Rp.40 billion (Table 7). The average annual compensation for Grou I 46d II employees is the equivalent of $96 and $198 respectively. For mf6st ihployees in all categories a decond job or other supplemental incie is essential with obvious effects on efficiency and integrity. Employees ih Group III and IV get, however, $309 and $497 a year respectively. S6ffe Additidnal compensation in the form of honorarium is also paid, and many diipldyees it Group III and IV have the use of Govern- ment-owned houses and c4fs. dleirly, at all levels, payments in kind are a substantial element df t6t1 idofds. In any consideration of salary Table ll AVERAGE MONTTHLY SALARY FOR GOVERNMENT EMPLOYEES (1971/72) Employees with a Employees not in charge of any Section or Division Responsible Position Work - Total Allowance Allowance Position for those Execution for wife 100% of Allowance with a Basic Allowance and. preceding Rice (40% of Responsible roups Salary (20%) childrend A columns) Allowance Total basic salary) Position IV 6,274 1,255 533 8,o62 1,o35 17,1592/ 2,510 19,669 III 3,745 749 318 4,812 1,035 lo,6591 2 1,498 12,157 II 2,262 452 192 2,906 1,035 6,847 905 7,752 I 661 56 717 1,863 3,297 - 3,297 1/ The average dependency ratio for civil servants was 2.9 in 1968 - see Statistical Pocketbook of Indonesia, 1969, p. 68. 2/ These figures exclude housing and car allowances. Source: Budget Bureau - 24 - policy changes they should be coated fully. As a separate issue, the ques- tion whether payments in kind, on the present scale, are efficient in pre- sent conditions of stability should also be considered. Cash payments in- stead of rice, at the lower end of the scale, or instead of houses, at the upper end, may now be preferred. There may be, therefore, a strong case for a replacement of allowances in kind as well as for an upward revision of cash salary payments. Table 12: ESTIMATED SALARY PAYMENTS (CIVIL SERVICE). 1971/72 Average Salary Total, No. of Employees per month Salary Payments Group (In 000) (In 000 Rp) (In Bln Rp) I 272.4 3.3 10.8, II 211.5 7.8 19.7 III 52.3 12.2 7.6 IV 5.6 19.7 1.3 Total 541.8 39.4 59. The salary question needs, however, as has been stressed in earlier Bank reports, to be considered in the framework of Government employment and staff policies as a whole. The improvement in administration which is essen- tial cannot be achieved by increases in the level of compensation alone, although there is no doubt that such increase is essential. A,rationaliza- tion of the whole structure of compensation and an identification of priority Government tasks, of the skills necessary for their performance, and of the relative scarcity of these skills should be the basis for a combination of selective compensation increases combined with such general increases as can be allocated to this purpose in the light of competing needs. 60. There appears to be an obvious need, on welfare grounds, to raise the compensation of the lowest paid civil servants and, to some extent on these grounds and in part on efficiency grounds, to provide a general in- crease in pay for the higher grades with such an increase substituting in an orderly way for the many devices now employed erratically to augment standard compensation. In addition, selective increases, properly applied, are clearly of prime importance to improve efficiency. The action taken this year to raise very substantially the salary levels of all employees in a single department, however, does not follow these principlesand sets- a different precedent for further action on government employee compensation. Increases of the order given could not be extended to civil and,to military employees of all Departments without seriously impinging on the-public savings effort, even if spread over three or four years. Reduction in the excessive numbers of Government employees in some departments would probably produce some savings in Government personnel expenditure, but so long as new job opportunities are not created in adequate numbers elsewhere in the,economy, sweepAng dismissals of Government employees are not feasible. - 25 - The Government Development Program 61. Development activities financed by Government are conducted not only by the Central Government but also by Provincial and local authorities and by Government enterprises, although the role of the Central Government is larger than that of the others. These activities are financed in the case of the Central Government entirely out of the Development Budget. In the case of the Provincial Governments, development activities are financed partly by transfers from the Central Government but also from revenues which accrue directly to them. (Their routine expenditures are also financed both by transfers from the Central Government budget, in this case the routine budget, and revenues they collect themselves). The kabupaten, or districts within the provinces, finance their development activities partly out of their own revenues as well as out of transfers from the development budgets of both the Central and Provincial Governments. The desa, or villages re- ceive grants directly from the Central Government which finance some of their development activities. The Government enterprises finance their investments from their own earnings, by borrowing from domestic Banks and, in some cases, foreign suppliers, and with funds provided out of the Central Government Development Budget in the form of loans or equity investments. 62. Project aid finances part of the Development Budget expenditure of the Central Government and, specifically, contributes to the financing of works executed by the Central Government and some of the Government enterprises, although in the current year there was a first project aid commitment to finance private enterprise investments, with the funds chan- nelled from the Government through the State Commercial Banks to the enter- prises. 63. No consolidated tabulation of public sector development operations is yet available. This will be needed if a proper evaluation and review of Government development strategy is to be made. 64. The allocation of Central Government development budget funds (ex- cluding project aid funds) in 1971/72 and several prior years is indicated in Table 13. As is evident, a major part of the expenditure (45 percent in 1971/72) is devoted to the development of basic infrastructure facilities in the fields of irrigation, transportation, electric power and telecommunica- tions. Another important component (12 percent in 1971/72) is expenditure for development of facilities for education, health and family planning. Another (10 percent in 1971/72) was payment, net of recoveries from farmers for the Bimas Gotong Rojong program for increasing rice production of 1969/70 and 1970/71. Another (10 percent in 1971/72), was granted to the kabupaten and desa. A variety of users received lesser allocations. Little of the budget was allocated for industry which figures prominently, however, in the medium term credit program of the Banks. (See Table 14). - 26 - Table 13: INDONESIA' S DEVELOPMENT BUDGET 1969/70 1970/71 1971/72 1. Agriculture 5,277 4,582 22,886 Improvement of Major Products 4,408 3,170 4,343 Production Support Programs 314 543 545 Forestry Programs 423 560 1,105 Fishery Programs 132 309 648 BGR Programs 2/ 13,000 Other Programs 3, 245 2. Irrigation 19,705 19,688 21,866 Major Irrigation Schemes 19,705 19,558 21,766 Minor Irrigation Schemes - 100 100 3. Industry and Mining 5,565 2,179 2,55 4. Fuel and Power 4,280 8,051 9i056 Major Load Centers 4,055 7,527 8,431 Medium & Small Load Centers -8 132 Gas Projects 225 426 493 5. Transportation 23,203 21,481 29,344 Major Roads 10,577 9,076 14,627 Railroad Projects 2,978 ,:2,685 3,150 Other 9,648 .9,720 11,567 6. Communication 2,006 2, 2 7. Urban Development 1,150 2 522 2,62 8. Raral Development 14,60 11,290 14,073 Subsidies to Desa 4,600 5,590 5,250 Subsidies to Kabupaten - 5,700 8,823 9. Government Buildings 9 336 12 632 10 699 10. Tourism ~'7 11. Culture Tq6 266 M 12. Pre-investment Studies & Surveys M 7- 13. Social Welfare & Physical Training '75T 1 M 14. Education 8 m 10 023 if 656 15. Manpower Training 159 16. Health & Family Planning 379 49. _58_ 17. Statistics 1 020 140 1 119 18. Miscellaneous 19. Contingencies & Other - - Total 92166 14445 i/ lcludes blook alloationa to Provincial Governments including West Irian ?o-which soteral detail is,unavailable. See, however, ables 16 and 17. 2/ Rpapants to Bank Indonesia relating to 1969/70 and 1970/71 programs Source: Appendix Table 5.8 - 27 - Table 14: INVESTMENT CREDIT PROGRAM (In billion rupiah) Credit Outstanding Sector June 1969 June 1970 June 1971 Agriculture 2.0 7.8 15.2 Industry 0.2 7.8 25.8 Mining - 0.1 0.1 Construction & Tourism 1.4 8.5 16.8 Other 0.0 0.1 0.8 Total 3.6 24.3 58.7 65. Project Aid. Table 15 provides an estimate, from available data, of project aid utilization, by sector, of specific IGGI commitments to September 1971. The utilization data are indicated both in terms of letters of credit or their equivalent and on a payments basis built up mainly from official data but consistent, as far as checks could be carried out, with the disbursement records of IGGI member countries and agencies. About 80 percent of disbursements are for the main infrastructure sectors and most of the rest is for industrial and agricultural enterprises. - 28 - Table 15: PROJECT AID COMMITMENT AND UTILIZATION 1968-71 (September) (In million dollars) Specific Commitment Utilization based on: Dist. Letter of Amount (In %) Credit Disbursement Agriculture 73 13 6 6 Estates 61 11 5 5 Other 12 2 1 1 Irrigation 67 12 19 19 Industry and Mining 103 18 19 11 Industry 98 17 17 9 Mining 5 1 2 2 Power 135 24 31 27 Transportation 102 19 55 35 Railways 14 3 7 7 Airports 9 2 8 5 Ports 12 2 9 3 Highways' 65 12 30 19 Marine\ 2 - 1 1 Telecommunication 39 7 11 11 Manpower 5 1 - Urban Development 22 4 6 5 Water Supply 9 2 4 3 Buses 1 - 1 1 Telephone Facilities 12 2 1 1 Technical Assistance 12 2 3 3 Total 558 100 150 117 Source: Bank Indonesia .and-Mission Estimates. 66. The general allocation of 1971/72 Development Budget resources is, except in the important :respect that inadequate priority appears to be given to the investment needs4.of the enterprise sector, reasonably tailored to Indonesia's needs and expressive-of an appropriate balance of priorities. There is, however, considerable room for improvement in the particulars of the allocations. The individual program and project elements of the budget are still in most cases not adequately formulated or carefully evaluated, - 29 - although there has been improvement in this respect in the past several years. The extent to which there have been pre-investment, feasibility and other project or program plannning studies prior to investment and budget allocation decisions has greatly increased. The extent to which projects are financed by project aid and the accompanying cooperation by the aid-- givers on the preparation and evaluation of programs and projects has also helped. Nevertheless, improvements in the budgetary and planning process are importantly needed. 67. Efforts to formulate and institute improved planning and budgeting processes which would start with improvement in the individual Directorates, Departments and Government enterprises are underway but they need to be pur- sued more vigorously and purposefully. As an integral part of this effort there needs to be prepared and established a system of progress reporting which would serve both to provide a sounder basis for the planning and budget- ing operation and to assist in improving the actual execution of the pro- gram by revealing where execution was lagging and why and permitting time- ly action to be taken to deal with the problems encountered and revealed. 68. Regional Development. Partly because there is a considerable degree of autonomy of the Provincial and local Governments, there is no systematic or comprehensive information available on the development work executed by those levels of Government. Table 16 and 16a provide some but not complete or reliable information on the size of the resources available to the provinces and kabupatens. The Central Government's 1971/72 development budget provides for transfer to provincial, kabupaten and desa programs in 1971/72 of Rp 20.8 billion, Rp 8.9 billion and Rp 5.6 billion respectively. An additional Rp 3.6 billion is provided for West Irian. Allocations made to the provincial governments are based on what each formerly received directly from the ADO export tax. The allocation to the kabupatens is based on the population of each such district, currently at the level of Rp 75 per capita. Desas receive Rp 100,000 each. 69. The local revenues available to the Provincial and local Govern- ments are not large since the major potential sources have been pre-empted by the Central government. Nevertheless, in the aggregate, they are by no means negligible at present and there appears to be a potential for sizeable increase. The Central Government is considering various types of matching formula which would give added stimulus to local revenue raising. 70. The local development works have several merits. They generally lend themselves well to labor-intensive execution and thus provide much needed employment opportunities. They are also based on local knowledge of needs that are more difficult to identify and plan from the center and, therefore, serve as an important complement to the national development program. Without these small projects, major and medium-sized irrigation or highway projects will not be fully utilized. Decentralized planning and execution also appears, according to field observations, to lead to - 30 - Table 16: ESTIMATE (F REVENUE AND EXPENDITURE AT THE PROVINCIAL LEVEL FOR 1971/72 (in (billion rupiah) Receipts 111.8 Expenditures 111.8 A. Current Account 81.9 A. Routine 75.4 1. Central Govern- 1. General Services 68.1 ment Transfers 59.5 2. Other 7.3 2. Local revenues, 22-b of which -- direct taxes -- indirect taxes B. Development Account 29.9 Development 36.4 1. ADO,Transfer 20.8 1. Economic sectors 19.9 2. Local revenues, 9.1 2. General services 7.3 of which 3. Social sector 9.2 -- cess (2.6) -- oil taxes (1.9) -- IPEDA (0;9) -- Royalty and licence fees (07) 1/ Includes Central Govermient- tra;afer to Kabupaten Rp 8.8 billion and Central Government transfer tod,4ea Rp 5.2 billion. 2/ Includes cess disbursement. Source: Compilation of all provincial government budgets excluding Irian Barat (Ministry of"inance and BAPPENAS). - 31 - quite efficient execution which benefits from local comprehension and observation. The main constraint on local planning and execution of pro- grams may be the availability of technical personnel in the regions. At the present level of such work, however, and considering its nature, such as the rehabilitation of feeder roads and the construction of tertiary canals and minor water facilities, technical constraints are not yet evident and it is believed that substantial additional resources could be effective- ly absorbed. Table 16a: ESTIMATED KABUPATEN /1 BUDGET FOR 1971/72 (In billion Rupiah) Receipts 42 Expenditures 42 I. Current Account 20 I. Routine 28 -- provincial govern- -- salaries 22 ment transfers 18 -- Transfers to desa 3 -- miscellaneous receipts 2 II. Development 18 II. Development Account 22 -- Labor 9 -- Material 5 -- IPEDA 7 -- Transfer to desa 3 -- Capital transfers: 15 Central Gov't 9 Provincial Gov't 6 /1 There are about 230 kabupaten. A more meaningful classification and estimation of the kabupaten accounts should be possible. 71. West Irian. Development in this Province is closely linked to the FUNDWI program. At the request of the Government of Indonesia, FUNDWI has undertaken a wide range of activities in cooperation with various interna- tional organizations, as envisaged in the 1967 Survey Mission Report. 1i Table 17 summarizes the financial allocations by the Indonesian Government and FUNDWI. The total contribution of FUNDWI amounts to $19.7 million and that of the Government for the 1970/71 and 1971/72 fiscal years to about $10.2 million. The program emphasizes the development of transportation, manpower, education, agriculture, forestry and fisheries: Total allocations and earmarkings by FUNDWI amounts to $26.6 million and that by the Indonesian Government to $14.2 million. 1/ A Design for Development in West Irian. - 32 - Table 17: WEST IRIAN: ALLOCATION OF FUNDS BY SECTOR, 1970/71 and 1971/72 (in million dollars) Sectors: Amount Percent 1. Agriculture and Community Development 1.0 3.3 2. Forestry 1.7 5.7 3. Animal Husbandry 0.4 1.3 4. Fishery 2.2 7.4 5. Handicrafts 0.2 0.7 6. Power 1.2 4.0 7. Transportation, Telecommunication and Meterology 18.4 61.5 8. Manpower and Education 3.7 12.4 9. Health 1.1 3.7 Total 29.9 100.0 72. The Indonesian Government has also decided to establish, 'under the auspices of the UN Development Programme, the West Irian 'Joint Devel- opment Foundation (WIJDF). The foundation was formally inaugurated in May 1971 in Djajapura and will have $4 million from FUNDWI (included in the $26.6 million) and an equal amount in -local currency from the Government (included in the $14.2 million). The WIJDF will give low interest loans and make equity investments in agricultural processing and fishing as well as export earning projects. It will promote the development of transportation and render management and technical advice. 73. In a joint communique -in November 1969 the Indonesian Minister of Finance and the Dutch Minister of Development and Cooperation ;announced the decision of the Netherlands,Government to contribute $5 million to the Asian Development Bank particularly with the further development of-West Irian in mind. Immediately thereafter, UNDP also indicated its readiness to identify in consort with the ADB the areas in which the two organizations might co- operate. A framework for further international assistance to-:West Irian thus appears to be emerging. Atipresent, FUNDWI coordinates, on an informal basis, the work of some eight international agencies. A substitute coordinating organization will need to be shortly appointed by the Government if the de- velopment program in West Irian is to proceed uninterruptedly after the completion of the FUNDWI:program..sometime in 1973. Timely and-adequate supply of rupiah counterpart funds zis also essential for more rapidtprogress of the development projects in West Irian. The Central Government Budget for 1972/73 74. The 1972/73 budget -of the Central Government anticipates a real GDP growth of 6 to 7 pecent -and 'an increase in the general price level of perhaps 4 to 5 percent. ,The revenue estimates take these anticipations into account, and except'in:those-cases where there is a more specific basis for estimate, they forecast,-a higher rate of growth of revenue reflect- ing the expectation of some-improvement in administration and collection. Table 18 summarizes the,revenue forecast for 1972/73. - 33 - Table 18: ESTIMATE OF GOVERNMENT REVENUE FOR 1972/73 (In billion rupiahs) Changes in 1971/72 1972/73 percent I. Taxes on income 186 295 58 /1 1. Income tax 18 21 17 2. Corporate tax :24 29 21 3. Corporate tax (oil) 111 206 86 4. Withholding tax 22 26 18 5. Other 1 1 - 6. IPEDA 10 12 20 II. Taxes on domestic consumption 97 115 19 1. Sales tax 23 29 26 2. Excises 40 46 15 3. Other oil revenue 29 35 35 4. Miscellaneous levies 5 6 20 III. Taxes on international trade 135 154 14 1. Import duties 81 94 16 2. Sales tax on imports 25 30 20 3. Export tax 29 31 7 IV. Non tax receipt 4 9 125 /1 Total domestic revenue 422 - 574 36 /1 Excluding carryover of Rp 11.0 billion 75. As the table indicates total internal revenues of the Central Gov- ernment (including IPEDA in both years) are expected to increase by Rp 152 billion or 36 percent. The largest single item of increase (Rp 95 billion) is in the taxes on foreign oil companies, reflecting the large increase in profits which will result from the higher prices and increased volume of exports in 1972. Internal revenues,-exclusive of those from this source, are expected to increase by Rp 57 billion or 18 percent. This increase is, as already stated, expected to result in part from better collections, along with the growth of income and a small rise in the price level. No new major revenue measures or increases in tax rates are planned. In fact, the personal income exemption level is to be raised and the tax rates applicable at various income levels are to be reduced; it is expected that these changes will facilitate increased collections, especially over time. - 34 - 76. Oil: The Government receives revenues from three distinct types of oil sector activity: from a share in the profits of foreign companies producing crude oil under contracts of work and the newer production-sharing contracts; from profits or "taxes" on the domestic sale of petroleum pro- ducts; and from a tax on the profits of Pertamina's operations. The major source of revenue is the first. Under the Pertamina Law enacted on September 15, 1971, which clarified the organizational and financial relation- ships between Pertamina and the Government, Pertamina is obliged to transfer all income it receives under contracts of work (effectively 60 percent of Caltex and Stanvac net operating incomes); 60 percent of net operating income under production-sharing contracts; 60 percent of the value of bonuses obtained under the second type of contract; and 60 percent of its own net operating income. 77. Government revenues from the profits of foreign companies in 1971/72 are estimated at Rp 111 billion, an increase of 63 percent over the previous year, resulting mainly from recent price increases for crude oil. For 1972/73 a further major increase to Rp 206 billion, or by 90 percent, seems assured. This will result largely from increased production by Caltex and the higher price of $2.57 per barrel beginning January 1, 1972 or earlier. Increased output under production-sharing contracts is also expected to make a contribution and to produce about Rp 19 billion in revenue compared to only Rp 1.2 billion in 1971/72. A detailed analysis of Government revenues from oil operations, and a comparison of the Indonesian oil revenue system with those of other producing countries, are made in Annex A. 78. Other revenues: The 18 .percent increase in internal revenues other than those from foreign oil companies represents another strong revenue effort in most categories. Very approximately estimated the total of these revenues may represent about 10 percent of national income in 1972/73. Given the needs which must be met by Government, however, and the very low level of private savings, this cannot be and is not regarded by the Government as a satisfactory level. Consequently, efforts to further improve tax administration and the structure of taxes are being and should be made. Enlargement of the very small personal income tax base of ,some 200,000 persons, and of the correspond- ingly small corporate tax paying population along with more effective assess- ment and collection seems clearly necessary. The need for comparable measures in the field of customs and other taxes is recognized and in this area vigorous steps to improve administration are now being taken. They would be assisted by a comprehensive rationalization of the import duty structure which would involve reduction in many duties still so high as to be uncollectible and to offer strong inducements to evasion. Expenditures 79. The provisional, bUt not yet final, budget expenditure plan for 1972/73 is indicated in Table 19. It is based on the revenue estimates - 35 - which indicate an increase of Rp 152 billion in internal revenues and a very slight decline of Rp 2 billion in anticipated counterpart revenues arising from program aid. Total expenditures are planned, including very small contingency provisions, to equal total revenues, and will consequently be Rp 150 billion higher than in 1971/72. Table 19: CENTRAL GOVERNMENT BUDGET ESTIMATES, 1972/73 (In Rp billion) 1971/72 1972/73 Rev. Est.) (Preliminary) 1. Internal revenues /1 422 /2 574 2. Routine budget expenditures 354 438 Debt payments 46 48 Personnel /3 233 298 Other 75 92 3. Surplus (1-2) 68 119 4. Counterpart receipts estimate 97 95 5. Development budget (3+4) /4 165 /5 231 Total Expenditure (92+5) 519 669 /1 Including Rp 10 billion IPEDA for 1971/72 and Rp 12 billion for 1972/73. /2 Excludes Rp 11 billion carryover. 7 Including suboidies to regions for salaries. T4? Excludes project aid. /5 This is the present estimate of development expenditure which is lower by Rp 11 billion than the original budget. 80. Out of this total increase in planned expenditure of Rp 150 bil- lion, some 43 percent or Rp 65 billion is tentatively planned to be devoted to increased personnel expenditure, in the civil and military branches of the Central Government (Rp 48 billion) and in the provincial Governments (Rp 17 billion). Only an insignificant part of this is for the employment of additional personnel; the overwhelming part is to be used to increase levels of compensation. Final decisions on the way in which this will be done have not yet been made, but the present intention is to include an across-the- board increase as well as some selective increases (see Table 20). - 36 - Table 20: PROPOSED INCREASE IN CENTRAL GOVERNMENT PERSONNEL EXPENDITURE IN 1972/73 (In billion rupiahs) Increases Amount Percent 1. Proposed increases in salaries 29.8 62.2 2. Normal salary increase 4.1 8.5 3. New personnel 1.9 4.0 4. Rise in pension 3.0 6.3 5. Food allowance 3.3. .6.9 6. External 1.4 2.9 7. Additional payment during Lebaran 3.2 6.7 8. Other 1.2 2.5 Total 47.9 100.0 81. Approximately .Rp 19 billion or 13 percent of the total increase in planned expenditures is to be,used for routine budget expenditures on materials; these include maintenance, supplies and equipment, travel, etc. 82. Approximately gpu46 bilion or 44 percent of the tgal planned increase in expenditure gis,allo9ated to the Development Budget. 83. These allocations mean;qthat in 1972/73 routine budget-.expenditures for personnel will,be 28,percent,higher than in 1971/72; routine budget expenditures for materials.willincrease by 23 percent; development budget expenditures will increase -by 22;.percent. These relationships are expressive of the very high priority given o improving the level of compensation of Government personnel. 84. Proposed Development Budget Expenditure: As indicated in Table 19 Government savings (the excess 6fTinternal revenues over routine budget expenditures) in 1972/73,willlbe Rp 136 billion (including IPEDA revenues and expenditure of Rp 12tbillion),.which is more than twice the level of 1971/72. The total rupah resourqes.now indicated as available for develop- ment budget expenditure4n 1972/73-are estimated at Rp 231 billion (ex- cluding IPEDA). This trpAludfes an.,estimated Rp 95 billion,in counterpart - 37 - Table 21: DEVELOPMENT BUDGETS 1972/73 (Rp billions) Official 1971/72 forecast Percent budget 1972/73 chang 1. Economic Sector 140.9 184.5 30.9 Agriculture7 23.3 13.4 -42.5 Irrigation 22.4 24.9 11.2 Industry and Mining 2.7 5.0 85.2 Electric Power 9.6 16.2 68.7 Telecommnications, tourism, ports, etc. 12.4 19.4 56.5 Highways 17.0 23.1 35.8 Railways 3.2 3.4 3 6.2 Regional Developments 38.8 55.2 12.0 Investments through the banking system 11.5 24.7 114.8 2. Social Sector 24.5 32.0 30.6 Education, culture 11.7 16.1 37.6 Health, welfare 5.8 7.9 36.2 Other (water supply, etc.) 7.0 8.0 14.3 3. General 10.7 13.6 27.1 Armed forces 5.0 6.0 20.0 Other 5.7 7.6 33.3 Total 176.11 231.1 24.4- 1/ Excludes project and disbursements. T/ Includes provision for DGR losses of Fp 13 billion in 1971/72 and FV 2.5 billion in 1972/73. 3/ Including Rp 12 billion IPEDA transfer. 74/ Ecluding IPEDA. 5/ Actual expenditure is pxpected to amount to Rp 165 billion (see Table 19). - 38 - funds generated by program aid, compared,to.an estimated Rp 97 billion for 1971/72. The figure for next year assumes disbursements of program aid in all categories during 1972/73 of $320 million equivalent, and modifications of pricing policy with respect to one or two main aid commodities (see paras 18 and 24). 85. Project aid disbursements on an arrivals basis are calculated at the equivalent of Rp 58 billion ($140 million) for the next fiscal year, an increase of Rp 11 billion ($27 million) over the estimate on the same basis for the current year. 86. These resources are,assigned to a development program provisionally composed as shown in Table 21 which also gives the 1971/72 estimates for comparison. Although, as.indicated in paragraph 82, the provisionally plannedRp 231 billion expenditure in the development budget inl972/73 would be Rp 66 billion, or 44 percent higher than the presently esti!gaTed 1971/72 development budget expenditures, the Rp 231 billion figure is only Rp 55 billion higher than the original development authorization for,.1971/72. This will finance a substantial increase (approximately Rp 30 billion) in ex- penditure for major infrastructure facilities - highways, electric power, irrigation, railways, telecommunications and ports - and lesser increases for other purposes, including education, health and family planning, transfers to Provincial and local authorities and others. The,.allocations made take account of additional rupiah expenditure which will be required to match the estimated increase in project aid disbursements. 87. The allocation in the 1,972/73 development budget of Rp..24.7 billion for investments through the.bankingsystem more than doubles the original budget allocation for thi§ purpose. in 1971/72 and exceeds by awider margin actually anticipated 1971./7;2 expeSditures for this purpose. This allocation is to be used to provide additional capital to Bapindo, the Deyelopment Bank, so that Bapindo, aided also by credits from abroad anticipated-,under project aid, can substantially-enlarge its,term lending to the enterprise sector. It also provides-additional funds.for support of the medium term-investment credit program being executed;by the state banks, and for term loans and other investments in Government enterprises including a number of the agri- cultural estates. Finally., it provides for further investment in a few "retarded projects" started with ppe-1967 aid. The additional allocation of funds to finance investment by productive enterprises will bT a valuable, non-inflationary supplement to the. resources likely to become available from the banks themselves. It is hoped-that budgetary and also aid funds avail- for this purpose will grow in the future. 1/ 1/ A considerable number:of public sector enterprises are receiving managerial and technical assistance through the medium of project aid. No institutional mechaniam as.yet exists through which similar assistance is being provided to.private sector enterprise, financed either out of internal budgetary resources or project aid. Consideration is being, and needs to be given to,the establishment and. the funding.of such a mechan- ism in order to assist in the development of Indonesian entrepreneurship. - 39 - 88. In addition, on the basis of such information as is available. it appears that larger allocations to the rehabilitation of minor irrigation works and to the kabupaten program might be highly productive. Furthermore, increased expenditures for the maintenance of school and health facilities and for the supply of educational and health materials appear to be quite essential. Obviously increases in the amounts allocated to these purposes would require reduction in other planned budgetary allocations. It would be desirable, therefore, that the provisional allocations planned be reviewed and the priorities implicit therein reconsidered. It may well be that a somewhat smaller allocation this year to the increase in levels of Government personnel compensation would be appropriate, despite the desirability on several grounds of properly planned increases of this sort. - 40 - III. THE -BALANCE OF PAYMENTS: TRENDS AND PROSPECTS 89. In response to the uncertainties created by the international monetary situation and the continued weakness in the'prices of most of Indonesia's primary export products, and as a precaution against the possibility of further losses in its slender foreign exchange reserves, the Indonesian authorities devalued the rupiah by 9 percent against the US dollar on August-23. Weighing the revaluations of other major currencies against the dollar since mid-August by the Indonesian import pattern, this is at present (mid-November.1971) equivalent to a devaluation against all major currencies of approximately 13 percent and, if earlier valuation changes are taken into account, of about 15 percent. In relation to the yen, deutsche mark and guilder in particular, the combined effect at present is of a rupiah devaluation of 18-19 percent. 90. The decline in net exchange reserves available to the -monetary authority amounted to $50 million in the first half of 1971 even with the SDR allocation of $28 million in January. In the period April to June, the first fiscal quarter of 1971/72, the net reserve loss was $60 million and gross reserves declined by $80 million to slightly over $100 million. Not all the reasons for this deterioration in reserves can be readily identified. Recorded imports of goods c.i.f. were higher by $50 million in the first half of 1971 than in the preceding six months but export earnings were also higher, by $30 million, and the project and program aid and direct investment inflows which finance a third of the import bill decreased only slightly. There is no basis for assuming capital movements out of the economy during this period or a reverse movement in the following fiscal quarter, July- September, when net reserves recovered by $29 million and the higher import bill was covered by an increase of $55 million in program aid..disbursements. The losses of the first quarter of 1971/72 account largely for a forecast of a loss of $36 million in net foreign exchange reserves for the year as a whole, excluding the SDR allocation estimated at $28 million, instead of the modest gain hoped for earlier this year. 91. The balance of payments figures for 1970/71 and the estimates for 1971/72 are summarized in Table 22. An increase in gross and net oil export receipts by 30 and 42 percent respectively, but only 4 percent in estimated non-oil exports, combine with larger disbursements of aid and inflows of private direct investment to finance the 1971/72 increase of $193 million in recorded imports of goods and services (non-oil), 17 percent more than the previous year. In the following paragraphs export and import, trends are discussed both for 1971/72 and for 1972/73. Oil Exports 92. Indonesia is enjoying an oil boom in exploration as well as in pro- duction. Oil is being actively sought in almost all promising areas through- out Indonesia, particularly offshore, under 46 separate production-sharing contracts. The difference between the Indonesian and other national arrange- ments for foreign oil operations is explained in detail in Annex A, which also supplies detailed estimates of oil export earnings, gross and net, for 1971/72 and 1972/73. - 41 - 93. Most Indonesian oil is exported as crude either directly by companies, including Pertamina, or indirectly by Pertamina under contractual arrangements with foreign companies. The dramatic increase in prices from 1970 and early 1971 levels, as a result mainly of the Teheran Agreement of February 1971 between foreign oil companies and six other countries, will raise Indonesia's oil export earnings markedly in 1971 and also in 1972 when the full impact of these price increases will bear on higher production. Indonesia has also gained from the quality of its crude oil -- the low sulphur content now commands a substantial premium in main markets -- and from higher tanker rates which have increased its geographical advantage over Middle East crudes competing in the Japanese market. 94. The gross value of oil exports in 1971 by Caltex, Stanvac, Pertamina and two of the companies operating under production-sharing arrangements and exporting for the first time is now calculated at $574 million, an increase of 30 percert over 1970 when the volume of oil exports was only 5 percent lower but prices were well below present levels. The 278 million barrels of oil exports include 33 million barrels of products from Pertamina's refinery operations, mainly residual fuel oils which attract prices close to those of crude oil. In 1972, with over 390 million barrels of crude equivalent for export, gross oil export proceeds are estimated, at a uniform price of $2.57 per barrel, to reach $1,014 million. 1/ 95. Net oil exports represent the value of gross oil exports less (1) the profits of the foreign oil companies; (2) the foreign exchange costs of the production operations of the foreign oil companies; (3) the foreign exchange costs of supply of petroleum products to the domestic market; (4) the foreign exchange costs of Pertamina's exploration, production, refinery and marketing operations, insofar as they are not included in (3) above; and (5) the foreign exchange expenditures of Pertamina on its capital in- vestment program, insofar as they are not financed by loans from abroad, and including its debt payments. A calculation is shown in Table 23. The estimate for 1971/72 (oil operations in a calendar year have their balance of payments and budgetary impact in the equivalent fiscal year, that is, with a lag of one-quarter) is $192 million in net oil exports, an increase of 42 percent over the previous year. For 1972/73, the estimate is $395 million, an increase of over 100 percent. 2/ 1/ In Annex A gross oil receipts were estimated at $579 million in 1971/72, $5 million more than the revised figure now available. Receipts in 1972/73 were projected at $997 million. The new projection of $1,014 million reflects greater optimism about the speed with which output will expand in 1972. 2/ Annex A (and Table 23) also show estimates of $197 million and $383 million for net oil receipts in 1971/72 and 1972/73 respectively. The differences derive from the changes in the gross oil export figures explained in footnote 1/. -4I2 - Table 22: THE BALANCE OF PAYMENTS 1970/71 and 1971/72 ($ million) 1971/72 Change 1970/71 (Rev. Est.) () Exports Oil (gross) )443 574 30 Oil sector imports - 179 - 200 Investment income payments - 129 - 182 (oil) Oil (met) 135 192 42 Other exports 761 Net Exports 896 982 10 Imports (c.i.f.) Program aid 282 345 22 Food grains ( 121 ) ( 139) 15 Cotton ( 22 ) ( 36) 64 DK imports ( 139 ) ( 170) 22 Other 857 954 11 Non-freight services 125 18 26 Total Imports L,26 1,457 41 Current Account Deficit, 368 475 - Aid 19 Program ( 282 ) (35) 22 Project ( 91 ) (100) 10 Private Capital 111 153 38 Debt Service - 68 -103 51 Errors and Omissions - 55 - 56 SDR Allocation 28 Monetary Movements - 21 + 36 1/ Including oil sector debt service and hire-purchase payments. - 43 - Table 23: ESTIMATED NET OIL EXPORTS FY 1971/72 - 1972/73 FY 1971/72 FY 1972/73 (US$ million) Tax liability of foreign contractors 272.3 479.1 Less: payments in rupiahs 6.9 7.4 265.4 471.7 Less: contractors' tax liability settled in kind /1 37.2 57.5 Net foreign exchange earnings from contractors 228.2 414.2 Less: Pertamina's foreign exchange needs for domestic market /2 38.6 38.6 189.6 375..6 Add: Net foreign exchange earnings from Pertamina's production, refining and marketing operations 7.0 7.0 Net foreign exchange earnings of oil sector 196.6 /3 382.6 /3 /1 Deliveries to domestic market and transport services. /2 Product imports, refining and transportation. /3 See footnote to para 95. Source: Annex A, Table 6. Other Exports 96. Following a disappointingly slow expansion of 4 percent in 1971/72 -- when only a few commodity exports are likely to increase in value and several, including rubber and copra, show marked declines -- earnings from exports other than petroleum are conservatively projected to reach US$875 million in 1972/73, an increase of about 11 percent from the US$790 million of the current year (see Table 24). The major part of the rise in earnings in 1972/73 would result from a substantial gain in receipts from timber, ac- counting for some three-fifths of the total increase with rubber and a num- ber of minor exports contributing the remaining growth in earnings. If the projections are realized, timber would rival in importance rubber, tradi- tionally the country's principal non-oil export. The export projection for 1972/73 is thus closely tied to a reasonably favorable outlook for tim- ber; earnings from all other commodities (excluding petroleum) are pro- jected to increase by only 5 percent. 97. The pattern of export growth in 1972/73 Would follow a broadly similar pattern evident in the present year, in which a higher level of earnings from the non-oil commodities as a whole has been primarily due -44 - to the continued sharp rise in receipts from exports of lumber, supple- mented by gains in earnings from a number of commodities such as nickel, bauxite, and others of agricultural or mineral origin which, in aggregate, have emerged as a source of earning of steadily growing importance. 98. Accompanying the devaluation measure of August 1971, which in itself had the effect of increasing the rupiah returns of Indonesian ex- ports by at least 9 percent, several more direct measures were taken to en- courage exports. These included the reduction of cesses and other charges on copra, in particular, but also pepper and coffee. Finished goods and handicrafts, as well as tea, had already been exempted from the tax on exports. In a number of other ways, including the promotion of crumb rubber production and the establishment of an export development institute which will have three marketing centers for industrial, agricultural and handicrafts exports, the Indonesian authorities have actively sought to increase exports other than oil and timber. The healthy growth of the miscellaneous category of exports suggests at least partial success in this endeavor. The apparent lack of a supply response in most major export commodities, however, particularly among smallholders, indicates more fundamental problems and a need for further investigation of the conditions under which producers are operating. 99. The gain since 1970/71 in earnings from lumber -- much of which is directly or indirectly shipped.to Japan and the United States -- re- flects substantial increases both in volume and unit value. Higher receipts from tobacco in 1971/72 similarly have resulted from a combination of higher prices and volume of shipments, while an increased quantity of sales to Japan is responsible for a gain in earnings from nickel in the- current year. In both cases little further increase in earnings is likely to take place next year. The drop, in receipts from rubber sales in 1971/72 re- flects a decline in export volume-as well as price in the face of a world market which has weakened as a result of a slowing down in the pace of economic growth in industrial countries, labor difficulties in the United States and continued competition.from synthetic rubber. Exports of Indonesian crumb rubber have, moreover, encountered marketing difficulties which are believed to be temporary. 100. The prospects for significant improvement in earnings from other traditional Indonesian exports in 1972/73 are little better. While in a few- instances, such as pepper and other spices, coffee, tobacco and tea, market prices should continue to be attractive, the gains in export-volume are likely to be modest or negligible. The fats and oils marketswill, in all likelihood, continue to,be rather-weak. In the case of copra, the depres- sive effects on export earnings of low.prices are likely to be accentuated by further diversion of spplies.to the steadily growing domestic market. While the volume of palroil exports,could well be higher than in 1971/72 the outlook is for weakening prices as,large supplies of Malaysian palm oil weigh upon the market. - A5 - Table 24: NON-OIL COMMODITY EXPORTS, 1970/71 - 1972/73 (US$ Million, c.i.f.) 1970/71L- 1971/72L- 1972/73-/ Rubber 255 223 235 Lumber 130 173 220 Tin 60 60 63 Coffee 62 60 62 Palm Oil 41 38 36 Tobacco 13 23 23 Tea 23 26 24 Pepper 9 20 18 Copra 33 16 19 Copra Cake 9 13 11 Palm Kernels 5 4 5 Other 94 110 125 /4/5 /5 Total 761- 790- 875- /1 Actual /2 Bank estimate /3 Bank projection /4 Bursa receipts /5 Includes 4 percent adjustment for advance payments Imports 101. The import projections are shown in Table 25. These use what data are available on imports by economic category in 1970/71 to forecast the import bill for 1971/72, taking the current estimates for direct in- vestment imports and disbursements of project and commodity aid (food and non-food) as data and estimating other categories by using growth trends for each category of imports financed by own earnings and aid exchange. The rates reflect recent experience and assumptions of continued economic growth. Briefly, these are that at 1970/71 exchange rates, the import demand for consumer goods other than foodgrains would increase by 12 percent per annum, that for "other" industrial inputs by 14 percent and that for the "other" capital goods category, by 26 percent in each of the two years. 102. The forecast from 1970/71 conforms in aggregate to the official imports figure for the first semester of 1971/72. For imports during the second half-year, an attempt was made to adjust for the effects of the de- valuation of the rupiah in August 1971 and the further effects of the reval- uation of certain major currencies against the US dollar. Such changes will affect both the total demand for imports expressed in dollars and the cost in dollars of any given volume of imports. Adjustments for both factors are included in the estimates for 1971/72 and produce a total import bill of $1,300 million. - 46 - 103. The projection for 1972/73 is from the 1970/71 base and again attempts to provide,,for the continued effects of rupiah devaluation and other currencies' appreciation against the dollar. This involves the assumption that Indonesia's imports in 1972/73 will be on average 8-10 per- cent more expensive in dollar terms than if 1970 parities had been maintained. With the Indonesian devaluation, this would make such imports 18-20 percent dearer in rupiah terms if no substitution occurred. The effe!ts of this in- crease are assumed to fall mainly on consumer goods imports. The import demands for inputs to production and for investment goods are assumed to be inelastic in this price range. The estimated import bill for 1972/73 indicates the current estimates for direct investment imports and disburse- ments of project and commodity aid. Table 25: COMMODITY IMPORTS BY ECONOMIC CATEGORY 1970/71 - 1972/73 (US$ Million, c.i.f.) 1970/71 /1 1971/72 /2 1972/73 /3 Consumer Goods 338 329 308 Food Grains 154 139 110 Other 184 190 198 Production Materials 412 466 555 Fertilizer 27 20 25 Cotton 22 36 50 Other Industrial 363 410 480 Capital Goods 391 504 705 Project Aid/Private Investment 163 224 350 Other 228 280 355 Total 1,139, 1,299 1,568 /1 Actual /2 Bank estimate /3 Bank projection 104. The estimate of $1,568pmillion for imports of goods in,1972/73 is, subject to margins of error rathqr larger than most such.projections and could, particularly if s9bstantial additional domestic resources are channel- led into private sector.investmt prove to be too low. It provides for a, growth rate of imports.aq a,w1o4.ofi;21 percent in 1972/73 af er the estimated growth of 14 percent this year. The global figures obscure the,.similarity in growth rates postulated,%for domestic investment goods and indiistrial inputs respectively in each year,and.thesprojected decline in food aid. The impor- tance of adequate provision,fpr iipgrts, both for continued price stability. and for development cannot be..overestimated. - 47 - The Balance of Payments for 1972/73 105. Balance of payments projections for 1972/73 are set out in Table 26. The very real uncertainties facing Indonesia, and other developing as well as industrial countries, as a result of recent .and continuing adjustments in the international monetary system, argue for a cautious assessment of balance of payments issues for next year. The devaluation of August 23, in the opening phase of the new monetary developments, indicates how quickly and directly the Indonesian authorities had to respond to influences on the very open econ- omy, in particular because of the country's minimal foreign exchange reserves. This experience should not be repeated because the quantum jump in oil export earnings apparently assured for 1972/73 offers the opportunity to plan with some confidence for a very considerable increase in reserves next year. 106. The present level of gross foreign exchange reserves, about $180 million, is equivalent to 4-6 weeks of external payments if oil sector trans- actions are treated on a net basis. For an economy operating, successfully, in as open an environment as that of Indonesia, reserves equivalent to 3-4 months payments may be necessary if a stable exchange base for the working of the economy and for longer-term policy and development planning measures is to be attained. Table 26: SUMMARY BALANCE OF PAYMENTS, 1972/73 (US$ Million) Gross oil exports 1,014 Oil sector imports (g and s) -299 Investment income payments -320 Net oil exports 395 Non-oil exports 875 Total net exports 1,270 Imports c.i.f. -1,568 Services (non-freight) - 210 Total imports -1,778 Current account - 508 Official transfers 520 (Project) (200) (Program) (320) Private Capital 178 Debt Repayments - 100 Monetary Movements - 90 /1 /1 Increase in net foreign exchange reserves. - 48 - 107. If present expectations of a net reserve loss of $36 million event- uate, then part of the gain postulated for next year will represent a recovery to the position of April 1971. The latest information on external transac- tions, in the current fiscal quarter, suggests the possiblity of a somewhat smaller reserve loss for the year as a whole and the possibility that, with allowance for an allocation of SDR 28 million in the last fiscal quarter, there may be no deterioration in the reserve position in 1971/72. 108. There can, of course, be no assurance that the planned strengthening of reserves will, in fact, occur. The attempt has been made to project export earnings conservatively, allowing in particular for only very modest recovery in prices of some major commodity exports from present depressed levels and making no assumption of increase for some others. On the import side, however, the estimates of import trends must be treated as tentative. The factors af- fecting import demand in Indonesia are imperfectly understood. and the esti- mates of growth, while consistent with recorded data for the pat three years, may understate next year's actual requirements, particularly atince reported data are themselves unsatisfactory and incomplete. On the other hand, debt service payment obligations can be more confidently estimated and will be no higher next year than in 1971/72, mainly because the current years' payments include 18 months or two years' service on external debts consolidated as a result of the Paris debt settlement of April 1970 and only this'year con- firmed in bilaterial agreements with creditor countries. Program Aid for 1972/73 109. Indonesia is requesting for 1972/73 the amount of $320 million in program aid in all categories: $ Million Non-food program aid 210 of which cotton requirements .(50) Food aid 110 320 110. This is less by $50 million than the request presented at the IGGI meeting of December, 1970 for 1971/72. In real terms, taking account of the revaluation of some of the currencies in which aid is provided, the request is smaller by a wider margin. Most of the reduction reflects the growth in national rice production in recent seasons described in Chapter 1 and predicted with some confidence for 1972/73. As emphasized in that discussion, the food aid request must be taken as a first estimate of requirements subject, particularly for rice, to substantial upward or downward revision at the April IGGI session when more will be known about crop prospects for 1972. In summary, the new request of $110 million in this category would encompass: - 49 - Quantity Value (tons) ($ m.) Rice 450,000 65 Wheat (flour equivalent) 500,000 45 111. The cotton requirements of the economy are also discussed in Chapter I. The request for $50 million of aid in this category represents the 330,000 bales of raw cotton estimated as necessary to support growth of the domestic textiles sector next year. 112. Allowing for the recent revaluation of the currencies of several IGGI member countries against the US dollar, a request expressed in dollars for the same amount of non-food program aid represents a significant decline from last year. In terms of the sources of actual commitments of program aid exchange for 1971/72, a request for $160 million dollars of non-food, non-cot- ton program aid is approximately 6 percent less, at currently prevailing ex- change rates, than the equivalent amount a year ago. Any further revaluation would enlarge this difference. Given also the price increases of international- ly traded goods of the categories procurred with program aid, the volume de- cline in imports implied in the new aid request will be substantial. 113. In the course of 1971/72, the value of program aid absorbed by the economy is estimated at $345 million, although it would be reduced by about $25 million if the planned carryover of 150,000 tons of aid rice commitments eventuated and arrival for the year are held to 540,000 tons. Of the non- food aid, $36 million is the import value estimate for raw cotton and cotton yarn and $170 million the estimate of sales of Devisa Kredit (aid exchange). The utilization of DK aid was low, only $19 million, in the first fiscal quarter but has now accelerated to levels which support the estimate of $170 million for the full year. 114. Until August 1971, purchases of aid exchange had lagged behind availability since the previous December when the preferential exchange rate applicable to sales of aid exchange was abolished. The special credit facil- ities for aid transactions introduced in January-June 1971 did not appear to eliminate the preference of importers for free foreign exchange rather than exchange.subject to aid procurement regulations. For aid from some countries, the extra time involved in import transactions and shipment over long dis- tances meant, at the high Indonesian interest rates for trade credits, con- siderably higher costs for imports. 115. In August, as one of the measures associated with devaluation, a system of compensation payments was introduced to compensate importers using program aid funds. This provides compensation ranging from Rp 20 to 60 per US dollar or equivalent (5 to 15 percent) according to the source of funds, with the highest amount for tied aid from North America, a payment of Rp 40 on payments involving European suppliers, Rp 30 for US untied aid and for aid imports from Australia and New Zealand and Rp 20 for aid imports from Japan, Australia and New Zealand. One effect is to reduce to an average of - 50 - about Rp 380 the counterpart generation per US dollar of DK aid. The more important effect has been the acceleration in sales of DK aid. The estimate of $170 million of sales during 1971/72 would exceed commitments for the current year and involve some reduction in the pipeline of $35 million accumulated at the end of March 1971. 116. The program aid request for 1972/73 can be considered minimal. It is lower than the 1971/72 request principally because it reflects lower food aid requirements as a result of successful efforts to increase the domestic production of rice. The increase in net oil earnings forecast for 1972/73 permits the Government to aim at an increase in foreign exchange reserves which is essential in view of their present low level and the.undertainties of the coming year. Furthermore, no equivalent jump in oil earnings can be forecast for 1973. The understandable concern about the prospects for Indonesian exports in an- unpredictable international economy,. the limitations of any forecast of importdemand.on the basis of the less thanslatisfactory data now available and Indonesia'sfdevelopment needs in 1972/73 and there- after, combine to make a strong case for adequate program aid to Indonesia in 1972/73. Intensive work now iP. progress on the improvement:.of trade and financial data and, more fundamentally, on analysis of the level of import demand likely to be generated by the development process now underway should provide a better basis next year for projecting longer-term balance of pay- ments trends. By then also, the!impact of exchange rate read.ustments on the Indonesian balance of paymentswill be known. The assurance of program aid of the dimensions and compostit.ion specified in the Indonesian request would, however, substantially assist the Government in facing the uncertainties inherent in any forecast of external trade developments for 197-2/73. Counterpart Generation 117. Under present subsidy pplicfes the rupiah funds generated:by an in- flow of $320 million, in the comosition specified in the aidi request, would permit the transfer to the budgeprof an estimated Rp 91.4 billion (Table 27). - 51 - Table 27: ESTIMATE OF COUNTERPART FUND GENERATION, 1972/73 Utilization Counterpart US$ Million US$ Million Rp Billion Food Aid 110 55.3 23.0 Rice 65 32.0 13.3 Wheat 46 23.3 9.7 Other Program Aid 210 164.8 68.4 Cotton 50 25.5 10.6 Fertilizer 25 15.7 6.5 General 135 123.6 51.3 Total 320 220.2 91.4 As noted earlier in this report, changes in the domestic pricing of two aid commodities, wheat grain and raw cotton, are being considered. The official estimate of Rp 95 billion in counterpart transfers to the budget in 1972/73 takes into account the probability of adjustments in the prices of one or both commodities before or during the fiscal year. Project Aid 118. The Government is requesting $350 million in new commitments of project aid for the 1972/73 financial year, an increase of $80 million over the request made for 1971/72. The general commitments announced or implied in April 1971 for the current year amounted to $295 million including the estimates totalling $105 million given by IDA and the Asian Development Bank as indicative of the proposed size of their lending programs during the period. These multilateral programs now appear likely to substantially exceed this total. 119. Projectaid commitments amounted to $72 million in 1968, $185 nil- lion in 1969, and $288 million for the 15-month period January 1970 to March 1971. The total of all such IGGI commitments to the end of March 1972 Is likely to approach $850 million. The utilization of aid to September 1971 is shown in Table 15 (Chapter 2). Total utilization on a letter of credit opening basis is estimated at $220 million and on an arrivals basis $175 million, 1/ leaving pipelines of $630 or $675 million according to the defini- tion used. The utilization of project aid has accelerated and a large pro- portion is being disbursed within two years of commitment. The sizeable pipeline consists mainly of recent commitments, commitments for major proj- ects with long gestation periods and that part of the general commitments not yet secured by specific loan agreements. Project aid utilization on a letter of credit bases is tentatively estimated at $200 million in 1972/73. 1/ Both figures exclude pre-1967 project aid still disbursing in small quantities, $15 million in 1969/70 and $10 million in 1970/71. - 52 - 120. This year project and technical assistance lists to be presented by the Indonesian authorities are not duplicated in the Bank report. The pre- liminary project list, still subject to further review and modification, includes projects in the A and B categories with a foreign exchange component of $569 million. In addition, there are projects in the C category with a very roughly estimated foreign exchange component of $226 million. The categories are those used for 1971/72. Category A consists of projects expected to be ready for commitment at the beginning of the next fiscal year and judged to be technically feasible and economically sound. The estimated foreign exchange cost of such projects is $261 million. Category B projects are those on which feasibility studies are in progress and will be completed during 1972/73. Some of these may prove not to be technically feasible or economically advantageous. Others may require reshaping and their costs may differ from those now estimated, but all projects in this category are already being studied and prepared. The third category (C) projects are those which appear possibly to have merit and to command priority but for which the necessary studies have not yet begun. They are included where there is some possibility that the study could.be initiated and completed and a project ready for commitment before the end of 1972/73. Cost estimates on these projects are necessarily very preliminary, and in each case provision for the study appears in the technical assistance list. A summary of the project proposals is given in Table 28. Table 28: PROJECT PROPOSALS 1972/73 (In US$ thousands) STATUS Sector A B A + B C., Total Agriculture 37,26P.; 69,100 106,360 45,350 151,710 Irrigation 14,,20 14,000 28,200 6,500 34,700 Mining 10,499 20,000 30,490 19,000 49,490 Industry - 25,250 25,250- 109,750 135,000 Power 51,780. 80,200 131,980 8,100 140,080 Transportation 1Q6,527 64,597 171,124 24,550 195,614 Telecommunication 3,853- 6,310 10,163 1,020 11,183 D L B S 30,000 - 30,000 - 30,000 Others 7,000 28,595 35,595 11,800 47,395 Total 26:1,110 308,052 569,162 226,070 795,232 - 53 - 121. A number of the projects under consideration have appeared in pre- vious lists, in particular in the 1971/72 list, but are now thought unlikely to receive commitments during the current fiscal year and are therefore pro- visionally included as candidates for 1972/73 project aid. In several in- stances, these projects are now in the A Category, their feasibility having been established in the course of this year. A number of quite new projects are in the list, however, in most sectors., and in particular in the agricul- ture, transportation, telecommunications and general categories there is evidence of considerable further progress in pre-investment work, including project preparation. As between the sectors, the share of transportation projects in the total of A and B categories is about 31 percent, agriculture and irrigation another 24 percent and transportation 23 percent. 122. The total aid request of $670 million for all categories of aid is, nominally, slightly higher than that requested for and subscribed in 1971/72. In terms of valuations of other major currencies against the U.S. dollar, then and now, it is somewhat less. The phift in composition towards project aid, within the total, occurs mainly because increased production of rice and petroleum in Indonesia will, if realized, reduce food and non-food program aid requirements next year. Disbursement of aid from 1972/73 commitments and pre- vious IGGI commitments would, on this basis, aggregate $520 million, higher by $75 million, because of increased project aid utilization, than the public capital inflows now forecast for 1971/72.  ANNEX A THE PETROLEUM SECTOR IN INDONESIA Introduction 1. The structure of the petroleum industry in Indonesia can be quite simply described. Until 1963 crude oil in Indonesia was produced from fields under concession to companies in the Shell group since the 1890's, Stanvrac since 1912 and Caltex since 1935. Law 44 PRP was then enacted in 1960, stipulating that oil and gas activities in Indonesia can be undertaken only through a state enterprise. The old system of concessions was ended in 1963, when the Government-owned oil exploration and production enterprises now consolidated into Pertamina acting as agent for the Government -- entered into "Contracts of Work" 1/ with the above companies for fields which they had previously held under concession. 2/ It bought out Shell's production assets and refineries at the end of 1965 for $110 million, paid over five years. The marketing assets of Shell, Stanuac and Caltex were purchased during 1964 for $12.9 million. PN Pertamina was formed on August 28, 1968 under Government Regulation No. 27/1968 by the merger of Permina and Pertamin. It bought the Sungei Gerong refinery in Central Sumatra from Stanvac on January 5, 1970 for $4,750,000. The Pertamina Law 2. On September 15, 1971 the Pertamina Law was signed, promulgated and came into effect. The new law clarifies the organizational and finan- cial relationship between Pertamina and the Government. It establishes more clearly the management structure of the company and enables the Government to provide more regular guidance and control. It abrogates Government Regulation No. 27 of 1968, and it embodies the financial provisions of Presidential Decree No. 33 promulgated on June 1, 1971 regarding the transfers of revenue which Pertamina must make to the Government from contractors' and its own operations. These financial provisions in so far as contracts of work are concerned have been in effect since such contracts were instituted, and are effective beginning in the current fiscal year in so far as profit sharing contracts and Petamina's operations are concerned. 3. The organizational provisions are to become effective as of Jan- uary 1, 1972. Pertamina is a wholly Government-owned corporation. Until now, it has been under the general purview of the Minister of Mines. Under the new Act a Government Board of supervisors is to be appointed 3/ by and be responsible to the President of the Republic, to supervise and give gen- eral direction to Pertamina's activities. It consists, ex officio, of the Minister of Mines as Chairman, the Minister of Finance as deputy chairman, and the Minister of Planning (chairman of BAPPENAS). Two other members may be appointed by the President of the Republic. The Board is to have a secretariat to expedite the exercise of its duties. 1/ Under contracts of work, the Government receives 60% of net operating income from oil destined for export, and the contractor receives 40%. 2/ A similar contract was also entered into with Pan American Indonesia Oil Company, but this contract has expired. 3/ The Board is expected to be appointed by January 1, 1972. -2- 4. 'Under the general direction of the Board of Supervisors Pertamina is managed by a Board of Managing Directors, consisting of a President- director and not more than five directors. The Board is responsible to the Government Board of Supervisors and is also responsible to the Minister of Mines for Pertamina's operational activities. The Board of Managing Directors must obtain the prior approval of the Board of Supeivisors for: (i) Pertamina's budget, (ii) alterations to Pertamina's budget and work programs, (iii) actions binding Pertamina's assets as guarantee, (iv) bor- rowings above a pre-determined limit, (v) creation of Pertamina subsidiaries and engagement of participants, (vi) purchase and sales agreements above a pre-determined limit, and (vii) a yearly financial report con6isting of a balance sheet and income statement. This financial report is to be audited by the State Accounting Directorate. The Managing Board must also submit a quarterly report on the budget's implementation and on other activities. The budget must depict ckearly the activities of Pertamina, ies subsidiaries and participants, must cover the operational and investment plaks, and must provide.a distinct budget covering production-sharing contract arrangements. 5. Pertamina has exclusive ights to the exploitation of Indonesia's oil and gas resources. In its other production, refining and export marketing operations, Pertamina ats for its own corporate account, subject to the qualification indicated i paragraph 6 below. PertaminA on its own conducts exploration and production activities in certain areds, including those formerly operated by Shell. In other areas, Pertamina operates through contracts of work and "prduction-sharing" contracts with foreign companies under which the latter &dke all the investment required in return for a share of any oil which may -eentually be produced. 1/ Pertamina also owns and operates all refin6ifes now in operation in Indonesia, including several small 'd 'older fefineries in its control sib'e World War II, several older reifWities Tchased from Shell, one-older one purchased in 1970 from Stanv-c ad two newly built by Pertamina itself. 1/ "Production-sharing Cdh(tratalu were fhnst introduced in 1466. Pertamina obtains 65% of net doerdtin thcome, rising to 67-1/2% wb i output exceeds a predetermined level -- generally 75,000 b/d, thd6jh lower in some recent contracts -- and ising to 70% in contracts agnfed in 1971 with Shell and Contiiental 6il when output exceeds 200,006 b/d, and with Caltex when it exceeds 160,000 b/d under a new prod'ution-sharing contract relating to a ndw aYea adjacent to its existing ara under contract of work in Sumatka. The contractor retains the lalance. The contractor also has to Vdy foi geological data and signatie and pro- duction bonuses and Ay IiAve othir commitments such as to'build refining -capacity at his expdnse tb 'Rdbbess output from the contractdal area, or to offer minority 16&dI participation. - 3 - 6. Pertamina also is the monopoly distributor in the domestic mar- ket, except at the retail or near-retail level, of all petroleum products. The latter operation -- and this is the qualification referred to in para- graph 5 -- Pertamina conducts as agent for the Government, receiving cost reimbursement plus a fee for refining and marketing domestically crude owned or purchased by the Government for supply of the domestic market. Domestic market selling prices of products are fixed by the Government; and the Gov- ernment "tax" on such products is neither a specific nor an ad valorem tax per unit but rather the residual difference 1/ between on the one hand sales receipts and on the other hand, the cost to the Government of crude and products purchased from domestic producers or imported for domestic market supply, plus Pertamina's costs in refining and marketing, less the export receipts from sale abroad by Pertamina of any products refined from Govern- ment crude and surplus to domestic market needs. 7. The financial arrangements between Pertamina and the Government are simple. Under the terms of the Law, Pertamina is obliged to deliver to the Government (i) the full 60% share of profits payable by the foreign com- panies operating under contracts of work; (ii) 60% of the profits of com- panies operating under production-sharing contracts; 2/ (iii) 60% of Pertamina's own operating profits, and (iv) 60% of bonus receipts by Pertamina. It is our understanding - but it is not certain - that bonus receipts are being defined to include only production bonuses and not signature bonuses or payments for geological data. Pertamina thus retains 40% of its profits from its own direct operations, plus 5, 7-1/2 or 10% as the case may be, of the profits earned by companies under production-sharing contracts, plus, apparently, certain bonus and other payments. The latter, however, become part of Pertamina's operating profits subject to 60% tax. The above pay- ments exempt Pertamina and the contractors from and constitute payment of the following taxes: corporate tax; fixed fee, exploration fee, exploita- tion fee and other payments related to the granting of mining authority under Law 44 of 1960; collections from oil and gas exports and yields from refining; import duties; and regional development fees. 3/ Oil Production 8. Though commercial production of oil in Indonesia first started in 1893, crude output twenty years ago (1951) was still only 152,000 b/d. Production rose to 467,000 b/d in 1966, 854,000 b/d in 1970 and is expected to average 892,000 b/d (325.7 million barrels) in 1971. Production comes 1/ In law but not in practice this residual includes both an excise and a sales tax element. 2/ Pertamina, therefore, retains 5% when the contractor's share is 35%. 3/ The Government will, however, continue to pay regional development royalties (IPEDA) to regional Governments from income which Pertamina has deposited with it. -4- mainly frim fields -- particularly the Minas field -- in Central Sumatra operated by Caltex under the contract of work entered into with Pertamina; and it is these fields which have been mainly responsible for the substan- tial boost in Indonesian output, rather than newly discovered ones (details in Table 1). To a lesser extent, crude is also produced from fields in Cen- tral and South Sumatra operated under contracts of work by Stanvac and from fields mainly in North and South Sumatra, Kalimantan and West Irian operated directly by Pertamina. Production started in September 1971 from two newly- discovered fields, offshore N.W. Java, both under production-sharing con- tracts. These are the Ardjuna field operated by a group headed by Atlantic- Richfield (ARCO) and the Cinta field operated by a group headed by the Inde- penldent Indonesian American"Petroleum Company (IIAPCO), subsidiary of the Natomas Company of San Francisco. Both crudes are of light grAvity and low sulphur content. Each field started operation at about 12,000 b/d and is expected to reach about 25;000 b/d by end-December 1971. 9. In 1972 total production is expected to increase by'J5% over 1971 to reach 440.2 million barrels (1,203,000 b/d). This presupposes,major in- creases in output onshore under contracts of work, essentially Caltex, and both on and offshore under production-sharing contracts. Caltex plans to bring production in its contract-"area up to about 1,000,000 b/d by July 1972 compared with 725,000 b/d average in 1971 and with 752,000 b/d estimated for October-December 1971, by drilling 83 new wells and bringing four new Sumatran fields into production,'namely Bangko, South Balam, Menggala and Kotabatak fields. The timing of this increase depends, in particular, on the installation (i) of a new gathering system and pipeline to bring crude from the first three fields to the main Sumatran oil loading port of Dumai, and (ii) of a new pipeline from"K6tabatak field into the existing line con- necting the Minas fieldto Dumai. It is also building additional storage tanks and loading facillis anav:a third Oier capable of handing 150,000 d.w.t. tankers at Dumai. This redort assumes on the safe side'that Caltex's output in 1972 will avefige.aboit 900,000 b/d (329.4 million-barrels). However, if the new gathering syA"em and pipelines could be installed by April 1 rather than the date of 'dly 1, 1972 originally contemplated, it could average up to 950,000b/d. 'Under production-sharing cohtracts output is assumed to grow from- the Ardjfina and Cinta fields, and to. tart from the Attaka field offshore N.E. 'Kaliin tan operated by Union Oil/Jap'ex and from the corridor block in Central Sdhtra, assigned by Redco to Stanvac in February 1971. Pertamfia's"fieldunder development at Djatibatang, W. Java is not expected to start out utpuintil early in 1973. -5- 10. Total production estimated for 1971 and expected for 1972 is, therefore, as follows: 1971 1972 (Million Barrels) Contracts of work: Caltex 264.6 329.4 Stanvac 21.6 24.2 286.2 353.6 Production-sharing contracts: ARCO - Ardjuna Field 1.5 17.5 IIAP0 - Cinta Field 1.5 14.6 Gulf and Western - Ceram - 1.4 Union/Japex - Attaka Field - 9.6 Stanvac - Corridor Block 7.0 3.0 50.1 Pertamina 36.5 36.5 325.7 440.2 Exploration 11. Prospects for further expansion of Indonesian oil production after 1972 depend in part on the development of reserves already proven in fields now under contracts of work and production-sharing contracts and in part on the outcome of exploration for new fields. 12. Pertamina has just extended Caltex's rights under its contract of work due to expire in 1983 for an additional 18 years, during which the terms for the same area will convert to a 70:30 production-sharing arrangement. As a new feature, Caltex will also pay to Pertamina $18 million in 15 annual in- stallments starting in 1972 as advance rent for use of facilities after 1983 under the extension. This contract applies to an area of 9,898 sq. km. in Central Sumatra, mostly all Caltex area converted in 1963 from the old con- cession system into a contract of work, plus additional area granted in 1968. It excludes 12,328 sq. km. granted in 1963 to Caltex's parents Texaco and California Standard on which the contract expires in 1983. In addition, Texaco and California Standard have signed a 30 year production-sharing contract -- their first to become operative -- covering another 22,210 sq. km. in Central Sumatra. Production-sharing would start at 65:35 in Pertamina's favor up to 60,000 b/d rising gradually to 70:30 over 100,000 b/d. The signature bonus is US$2 million and the payment for geological data, US$6 million; the expenditure commitment is US$15 million over 8 years. -6- 13. Exploration is being actively pursued in almost all promising area throughout Indonesia, particularly offshore, under some 46 separate production- sharing contracts by end-October 1971 (Table 2). Most of the offshore area from North Sumatra to West Irian has been granted for production-sharing con- tracts. The companies typically have been required to commit themselves to a minimum exploration outlay within eight years; these commitments totalled about US$450 million as of October-31,1971. Indonesia thus is currently enjoying an oil boom in exploration as well as in production. 14. This has been encouraged by tax arrangements which were deliberately designed to induce foreign oil companies to undertake accelerated exploration and production in Indonesia. These arrangements, since they were,initially offered, have been financially somewhat more attractive to the foreign investol than those in many other oil areas:. As the effort to attract foreign invest- ment has succeeded, the terms of the tax arrangements -- and specifically for the division of profits --.have been shifted in favor of Indone,ia, although they remain relatively attractive to the foreign companies., The increase in tax and royalty payments in the Middle East, which resulted from the Teheran Agreement of February 15, 1971 (see Appendix 1), has increased,the share of Middle East Governments vis-a-visecompanies.operating there so that profit- sharing arrangement in Indonesia are, consequently now even more attractive financially to companies than arrangements in the Middle East. The Middle East, however, has the advantage o_f low-cost production from large oil reservoirs. 15. The most important difference between the arrangements in Indonesia and, for example, the Middle East.,,is that in Indonesia the profits from the producing operation are calculated on the basis of actual realized prices and gross receipts, rather than on hypothetical posted prices which international oil companies publish forcrude oil exports f.o.b. the major Nprth African and Middle East loading ports_(s,e.eg, paragraph 27). The result is that Indonesia and the producing compagnes-both share in the profit gains (or reductions) which result from changes in actual market prices.. Under arrangements where taxable income is.calculated on the basis of hypothetical profits derived from hypp.the-tical, prices upward (or downward) changes in actually realized pricesincrease (or decrease) the net after tax profits of only the foreign companies", ag$g do not affect Government repceipts per barrel of crude. 16. Under both arrangemeny.s,, of course, the split between,the Govern-. ments and the companies.is furthpr-determined by the percentage tax rates o:r profit shares stipulatedfor each,.of the parties. In Indones,a, as the effort to attract foreign inyestment in oilexploration and production has become increasingly suc=essful, the profit split has in newer contracts been altered in favor of IndpesL4s, as is evident from the facts cited earlier. 17. Optimism stil;l.seqps high about continued explorat-on.offshore Indonesia. The size of:thenew fi.elds thus far developed at Ardjuna and Cinta is not large by Middlk.East: stan4ards, but- there is still. the possi- bility that a major fieZd might be discovered, as has recently happened, for example, in,.Libya, Alaska- and, the North. Sea. - 7 - Pro-rata Crude supplied to the Domestic Market 18. In terms of physical flows, a relatively small part of crude oil production in Indonesia is delivered to domestic refineries and a major part is exported as crude. Part of the output of the domestic refineries is sold in the domestic market and part (principally products surplus to domestic market requirements) is exported. Some crude oil for processing in domestic refineries is also imported, primarily to meet the particular product demands of the domestic market; mainly for the same reason there is some import of products, notably kerosene and lubricants. In 1971 the domestic market re- quirement is currently estimated at about 43.2 million barrels of refined products. For the purpose of calculating pro-rata proved obligations this is taken to equal 48.1 million barrels of crude oil input to domestic refineries, assuming the Indonesia convention of 10% for fuel use and losses in refining. A feature of the Indonesian arrangements is that with the exception of the four earliest production-sharing contracts, each crude oil producer is required to supply to the Government at cost plus 20 cents per barrel a "pro-rata" share of its output. In the case of Pertamina it- self and the producers operating under contracts-of-work the pro-rata share they are obliged so to deliver to the Government, is a percentage of their output equal to the percentage of total national output represented by domes- tic market requirements. It is currently estimated that this will be 14.7 percent for 1971. In the case of production-sharing contracts (other than the four earliest) this percentage is applied not to their total output but only to the contractor's (foreign company) share of that output (after deducting costs and the Government share of output or profits). The remaining contribution due from these operations to the national pro-rata supply must be provided out of the Government-Pertamina share in output under these contracts. Tables 3 and 4 demonstrate the principle for calculating pro-rata crude supplies in 1971 and 1972 respectively. Crude-in-kind 19. However, the domestic market needs more middle distillates, partic- ularly kerosene, than can be processed at reasonable refining cost from pro- rata crude supplies. Hence, Pertamina refines additional supplies of Indo- nesian crude. It also imports middle distillates, lubricants and special products, plus small amounts of crude imported for its asphalt-making proper- ties. The additional supplies of domestic crude are received from contractors as "crude-in-kind" and paid for at realized export prices. Under contracts of work, Pertamina can and does opt to receive "crude-in-kind" from each contrac- tor up to 20% of his output. Such deliveries of crude-in-kind valued at export prices pay part of the tax obligations of the contractors. They are passed on to the Government by Pertamina in kind or cash. Under production-sharing con- tracts, Pertamina is entitled to take its whole share - 65% - of net operating income in kind. Pertamina processes part of the crude-in-kind in its domestic refineries. It exports the remainder and can thereby test the market price for those grades of crude oil which it does not itself produce. Throughput and Capdcity of Domestic Refineries 20. Crude oil delivered to domestic refineries in 1971 is estimated it about 80.6 million barrels, including pro-rata crude, additional crude from Pertamina's fields, crude-in-kind, and crude imports (Table 5). Refining fuel and loss is reported at about 6.5%. The crude input is equivalent to 232,000 barrels per calendar day or to 246,000 barrels per stream day (BPSD), assum- ing that each refinery shuts down for 35 days on average per year. 21. To handle this crude throughput, Pertamina had about 261,000 BPSD of refinery capacity in early 1970. It has owned and operated all refineries in Indonesia since January 5, 1970 when it bought from Stanvac the Sungei Gerohg'refinery and its deep water sea terminal at Tanjung Uban, an island off the coast of Sumatra. It had bought Shell's three refineries - Pladju, Balikpapan and Wonokromo -- on January 1, 1966; Caltex has had no refining capacity in Indonesia. Pettamina also owned a small refinery it Pangkalan Brandan in North Sumatra. 22. However, most of these refineries are old. In the last three years Pertamina has, therefore, been efghged in a major expansion of refinery capac- ity, bringing it to a level of abut 385,000 BPSD by November 1971. It brought two new refineries on stream in Central Sumatra, one in September 1971 at Dumai, with a capacity of 100,000 BPSD, and the other in December 1969 at Sungei Pakning with an idtial capacity of 25,000 BPSD and now expanded to 50,000 BPSD. The Du&i refinery cost about $37 million and was partly financed by loans from Suffiomo Shoji and Far East Oil Trading Company; they will take most of the refinery's surplus fuel oil for five years, partly as loan repayment aid partly as purchases. Refican of Canada has provided assistance in buildf'g the Sungei Pakning refiney. However, 75,000 BPSD of distilling dapacity -- including 50,000 BPSD at Sungei Gerong, 15,000 BPSD at Pladju, A dd'1O',0664PSD at Balikp'apan -- are aVout to be phased out on account of age. Th provision of 310,000 BPSD of refining capacity is in excess of thd refiniry capacity required to meet the estimated needs of the d6mestic market, as,p , Fesent crude input for this purpose would amount to about 265,000 BfSD in 1"972 and -- assiming a domestic market growth of 8% yearly -- about 335,060 BP§D by 1975, the year when Pertamina plans to hdve another new 100,00 bbl/d'rfefinery on stream. Plans aie under consideration to modify the 61defrlladju and S. Gerong refineries -- both at Palembang -- to make pitr6chetical feedstocks as well as soiii of their present output of mainlie products such as kerosene. The first move to make petrochemicals is the pblypf6pylene plant now being built at Pladju. 23, L. 1rtamina plan6 to liavW a new refinery on stream by 1975 having a crude input capacity of 100,00 b/d and a lubricating oil plant. Its site is expected to be at Tjilktjap on the' south coast of Central Java, which can provide deep water for liege Ycudd oil tankers from the Middle East. It will provide enough additiondi, midle distillates (kerosene and gds oil) and lubri- cants to the domestic madrket tb riifimize or avoid the need fofi*importing these - 9 - products until at least 1978. Pertamina will have to export surplus gasoline and fuel oil as is its present practice from existing refineries. Pertamina has signed an agreement with Shell which -- as a first part of the deal -- would provide up to US$100 million to finance the construction of the refinery. The Shell loan is to be repaid with interest by deliveries of Minas-type crude oil valued at the f.o.b. export price effective at the time of delivery; the debt would be serviced over ten years, starting from completion of the re- fubert. The second part of the deal relates to crude supplies. Shell would supply 65% of the throughput for ten years in the form of Kuwait crude -- having a high sulphur content but good lubricant-making quality -- in return for the same volume of Minas-type crude. Shell would pay cash for the extent to which the f.o.b. value of Minas crude exceeds the c.i.f. refinery value of Kuwait crude. This refinery would bring Pertamina's re- fining capacity in 1975 up to about 410,000 BPSD, while the crude input needed to operate refineries essentially to supply the domestic market -- surplus products being exported -- is in the order of 335,000 BPSD in 1975 and 420,000 BPSD by 1978, assuming a domestic market growth of 8% yearly. Tanker Fleet 24. Pertamina is also expanding and improving its inter-island tanker fleet and its terminal and land transport facilities to serve the domestic market and is also expanding its fleet of ocean-going tankers -- which is currently of the 30,000 to 43,000 d.w.t. range by ordering in Norway five 115,000 d.w.t. tankers. Export Volumes 25. Exports of crude oil in 1971 are estimated at 245.8 million barrels, an increase of 8% over 1970. In 1970 they amounted to 228.3 million barrels, an increase of 21% over 1969. Exports are by Pertamina, Caltex and Stanvac and come from about seven fields, of which the predominant is Minas in Central Sumatra. Sources of crude exported in 1970 were as follows: (Million Barrels) Pertamina Own crude - Rantau 15.9 - Bunju 2.0 - Klamono 0.5 Crude-in-kind - Minas 41.4 - Duri 2.9 62.8 Caltex Minas 119.9 Duri 12.0 Pematang 19.9 151.8 Stanvac Lirik/Palai 13.7 TOTAL 228.3 - 10 - 26. Pertamiia is, as the sole refiner, the only company exporting refined froducts from Indonesia. These are mainly fuel oil, waxy residue, some gasoline, and wax. Product exports in 1970 amounted to 35.7 million barrels and are estimated at about 33 million barrels in 1971. Recent Developments in Indonesian Oil Prices 27. From the late 1950's to about the summer of 1970, world oil sales -- outside the United States -- were characterized by a continuous decline in realized f.o.b. prices from the peak reached during the first closing of the Suez Canal in 1957. The reasons were as follows: (i) some newcohers to Venezuela and North Africa sought a rapid payback on invest- ments 'in new concessions, (ii) U.S. overseas producers could import only a more limited share of their production into the United States after the impdrt restrictions imposed there voluntarily in 1957 and mand;Atorily in 1959, (iii) proven recov6fible reserves of crude oil were groi4Thg world- wide faste than world consumption, and( iv) low freight ratds extended international competition over a wider area than previously. However, the posted prices which international 'oil companies publish for crude exports- f.o.b. the major North African and Middle Eastern oil exporting countries remained virtually frozen, because oil royalties and taxes there are gener- ally computed from proceeds based on posted-prices and the G6vernments there successfully resisted any decrease in posted prices. As a result, crude oil sales both to third parties and to affiliates of international oil groups were made at increasifg discounts off published prices posted at main export terminals. 28. Since mid-1970, the b46r's market has come to a dramatic end, with increases in both posted and 'realized prices and in freight rates. The'Teheran Agreement, -ighed in Februiry 1971, between the Governments of six-countries and foreigh il cffpanies for exports via the Persiah/Arabian Gulf, and comparable agreements effective March 1971 for exports from Libya, Nigeria and Eastern Mediterranaiports 1/ resulted in a major increase in posted prices and inc6me tax rates, and oil exporters have passed on the resulting increase in royalt ahnd tax payments fully in their realized f.o.b. prices. Furthermore from .id-1970 to early 1971 the closing of the Trars-Arabian Pipeline and the prdduction tut in Libya both madb for a sharp increase in the demand for4hipping to bring oil to Eufooe via the Cape of Good Hope and dfove up ffeight rates worldwide. This has raised Middle Eastern crude prices delivered to Far Eastern markets. Consequently, in late March Indonesia"s nitional oil company Pertamina announced an increase in its export price for drude'oil sales to Japan and was followed by private companies exorting fr6m Indonesia. 29. The f.o.b. expOrt ',Ofice -'f Indonesian crude oil is basically derired as a netback frbb pafity ith the c.i.f. price landed at Yokohama of an equivalent Middle Edstern crude, such as Iranian Light -- :-he crude most widely imported into Jan -*- aftr -appropriate adjustment for special prod- uct characteristics and Ahrtkculfly for the special value of low sulphur 1/ Agreements are smbiifed in -Appendix 1, and their application is -illustratdd in Appendieds 2 gnd 3. - 11 - fuel oil. Demand is strong for Indonesian crude with its low-sulphur content. This is about only 0.1% weight, compared with 1.35% wt. for Iranian Light, and commands a premium reflecting the increasing differential value of low sulphur fuel oil in the Japanese market. The increase in price announced by Pertamina in March 1971 was from $1.64 to $2.21 per barrel f.o.b. Dumai effec- tive from April 1, 1971 for export sales of 35.0 API Minas crude oil to its 50% affiliate, the Far East Oil Trading Company. It raised prices for other cus- tomers from $1.67 and $1.70 per barrel to the same level of $2.21. All these prices are inclusive of 90 days' credit, worth about 3 cents. This increase of 51-57 cents or 30-35% is on the high side of the increase in posted prices - reflected in realized f.o.b. prices - of 27% for Iranian Light and of 30% for Kuwait crudes applicable under the Teheran Agreement for the period June 1971 to December 1972 inclusive (Appendix 2). 30. Minas crude accounts for two-thirds of Pertamina's crude exports. Pertamina receives it as crude-in-kind from Caltex. Another quarter of Per- tamina's crude exports are from its own Rantau field in North Sumatra. This is very light -- about 450 API gravity -- and is exported to Japan. Perta- mina's f.o.b. export price for this crude prior to April 1 ranged between $1.95 and $2.13; it is reported to have increased by less than the increase in the realized price-of Minas crude. 31. The private contractors followed suit and made corresponding in- creases in their own f.o.b. export prices. Caltex's f.o.b. price for export sales of Minas crude had been $1.67 from July 1970 to March 31, 1971. This was raised to $2.21 per barrel on April 1, 1971. These prices are gross of 120 days' credit -- worth about 3 to 4 cents -- which is granted in sales to third parties and to affiliates in which it has a 50% interest or less. This applies to virtually all its Eastern Hemisphere sales but not to its sales to the U.S. West Coast which are to affiliates. Caltex raised its f.o.b. price on June 1, 1971 for U.S. West Coast sales to $2.35 per barrel. This f.o.b. price differentiation between sales to the U.S. West Coast and Japan can be analyzed on the basis that the price of Minas crude f.o.b. Dumai for exports to the U.S. West Coast is netted back from parity with the c.i.f. price landed at Los Angeles of an equivalent Middle Eastern crude. Freight to the U.S. West Coast from Indonesia is lower than from the Persian/Arabian Gulf by about 37 cents per barrel -- at current average freight rates -- while freight to Japan from Indonesia is about 28 cents lower than the Gulf. Indo- nesia's additional freight advantage of about 9 cents for export sales to the U.S. West Coast is reflected in its f.o.b. pricing. 32. Stanvac also increased its f.o.b. export price for Minas crude from $1.67 to $2.18 per barrel effective April 1, 1971, with no extended credit terms. 33. The increase of about 57 cents in the Indonesian export price was appreciably higher than the estimated increase in the realized f.o.b. export price of 41 cents for a Middle Eastern crude of equivalent gravity -- Iranian Light -- and reflected both the rising value being placed on low sulphur - 12 - crudes andAthe rise,in average tanker freight rates since early 1970, which have heightened Indonesian crude's geographical advantage over Middle Eastern, crude for the Japanese market. The new price levels suggested a low sulphur premium of about 23 cents for Minas over Iranian Light crude in the Japanese market in mid-1971. Iranian Light crude of 34.00 API gravity was being priced, f.o.b. at roughly $1.79 per barrel - including 90 days credit -- in sales to Japanese refiners and being shipped there for about 48 cents, indicating a c.i.f. price of about $2.27 per barrel, or of about $2.28 for 35.0 gravity. Minas crude sold for $2.21 per barrel plus freight of about 30 cents, indi- cating,a c.i.f. price of about $2.51 and a premium, therefore, of about 23 cents. However, the premium was still clearly below its long-term ceiling equivalent to the cost of desulphurizing oil. The premium for Indonesian crude could be strengthened by the Japanese Government's incentives for clean- er fuel as from November 1971 when.it planned to cut the import duty on 1% max. sulphur content crude oil.by 5 cents a barrel and on crude oil feed stocks for desulphurization units -- already-13 cents lower than the regular crude oil duty-- by another 9 cents. 34. Consequently, when crude production started in September, 1971 from the Ardjuna and Cinta offshore fields, Pertamina and the contractors priced their respective shares of output-at the f.o.b. export price of $2.60 per barrel inclusive of credit terms. The crudes are again of very.low sulphur content and of light gravity (37-400 API). Klamono crude of 22.00 API gravity, which has good characteristics in making lubricating oils, also sells for about $2.60 per barrel f.o.b. Pertamina has now also increased its f.o.b. export price for Minas crude, obtained as crude-in-kind, to $2.60 per barrel effective October 1', 1972. The increase is.expected to be matched by Caltex and Stanvac by January 1,. 1971 or possibly earlier. Gtoss- Value of Oil Exports, FY 1971/72 and 1972/73 35. The gross value.of oil exports during FY 1971-/72 is estimated at US$579..0 million, an increase of 30% over 1970 when it was $444,million. This estimate is ar close approximation- made by deducting from total Indone- sianr oil output of 325.7 millionrbarrels in 1971 the crude oil equivalent 48.1 million barrels, of-.productsconsumed in the domestic market, leaving the equivalent of about 277.6 million barrels of crude-oil for.export. Actually, a minor part of.the export, some 33 million barrels, was exported in the form of products refined in,.the domestic refineries (paragraph 26). These products consisted ma-inly of fuel oil and waxy distillate the average. f.o.b,. export price of which appears to- be only marginally different from that of crude oil, so that the estimation- of gross receipts on this basis is very close to actual recorded receipts.1/ 36. For the purpose of calculating gross oil exports, crude oil prices reported actually to have been realized-in various periods of the year have been taken. Stanvac and,,Caltex exports to the Eastern Hemisphere have been 1/ In 1970 this method- indi"cateathe same-value of oil exports as the addition of crude oil exports by-contractors and of crude and product exports by Pertamina. - 13 - valued net of export credit at $1.67 per barrel in the first quarter and $2.18 in the remaining three quarters of 1971. These prices are also taken for Pertamina's exports except that those for the fourth quarter are valued at $2.57 net of credit, as are all exports from the new Ardjuna and Cinta offshore fields. Caltex's exports to the U.S. West Coast are valued at $1.67 per barrel January-March, at $2.21 April-May and at $2.35 from June 1. Crude oil exports from Indonesia are mainly to Japanese refiners, for most of whom 90-120 days' credit is typical. Contractors make their cash payments of tax about 15 days after the calendar quarter during which they made their exports. Hence, shipments during the calendar year lead to financial transactions one quarter later, i.e. during the Government's financial year for balance of payments and tax purposes. 37. Output of crude in 1972 is estimated at 440 million barrels, and the pro rata crude obligation at 52 million barrels, leaving 388 million barrels of crude equivalent for export. Agreements have already been reached that as of January 1972 selling prices will be uniformly $2.57, net of credit; on the assumption that this price will prevail throughout 1972, gross oil ex- port proceeds are calculated at $997 million (see Table 4). Net Value of Oil Exports, 1971 and 1972 38. The net value of oil exports is conceptionally calculated by (a) estimating the foreign exchange provided by foreign contractors in settlement of their Indonesian tax obligations - other than those settled by provision of goods and services in kind - and (b) deducting the foreign exchange costs incurred by Pertakina acting as Government agent in supplying the domestic market, and (c) adding the net foreign exchange gain or loss in Pertamina's other operations. Conceptually, the net value of oil exports equal the value of gross oil exports less (a) the foreign exchange costs of the production operations of the foreign oil companies, (b) the profits of the foreign oil companies, (c) the foreign exchange costs of supplying the domestic market, which include all crude oil purchases aside from pro-rata crude, the cost of imported products, and the foreign exchange costs of part of Pertamina's production, refining and marketing operations, and (d) the balance of the foreign exchange costs of Pertamina's operations. Calculation on this basis would produce the same result as the conventional calculation. It should be noted that this concept of net foreign exchange receipts from oil operations is a rather unusual one in that the deductions from the gross receipts include not only the foreign exchange costs involved in generating the gross receipts but also the foreign exchange costs involved in supplying petroleum products to the domestic market. Net oil exports are estimated at $196.6 million in FY 1971/72, compared with $126 million in FY 1970/71, and are foreseen to rise to $382.6 million in FY 1972/73 (see Table 6 for details). This assumes that Caltex's production in 1972 will average 900,000 b/d (paragraph 3). If it should average 950,000 b/d, net oil exports would be increased by $25.5 million. - 14 - Government,Revenue - General 39. Government revenues from petroleum are of three sorts: (1) the Government share of the profits from the crude petroleum production and mar- keting operations of the foreign oil companies under contracts-of-work and production-sharing contracts; (2) the Government tax on Pertamina's profits from its production, refining and domestic and foreign marketing oeprations; (3) the Government "tax" on sales of petroleum products in the domestic mar- ket, which is the residual difference between, on the one hand, total sales receipts and, on the other hand, costs plus a fee to Pertamina, which acts as agent for the Government in the domestic supply and distribution opera- tion, including both refining and marketing. 40. Under the Pertamina law which was enacted on September 15, 1971, Pertamina is obliged to transfer income from contractors' operations to the Government as follows: (i) all income obtained under Contracts of Work (60% of operating profits), (ii) 60% of net operating income from Production- Sharing Contracts, 1/ and (iii) 60% of the bonuses obtained under Production- Sharing Contracts. Under the Law it must also transfer to the Government 60% of net operating income obtained from its own operations. Government Revenue from Contracts of Work 41. Under contracts of work the Government's revenue is computed as follows. The contractors' gross proceeds are determined by adding their ac- tual receipts from sales of crude exports (including all crude-in-kind) and receipts from pro-rata deliveries to the Government for the domestic market (20 cents U.S. fee plus reimbursement of cost). From their.gross proceeds, their actual,operating costs, including depreciation, on all output, includ- ing that delivered as pro-rata crude to the domestic market, are deducted to arrive at net operating income. They then pay to Pertamina 60% of this net operating income in full discharge of their fiscal obligation to the Govern- ment. 42. The contractors pay this obligation partly in kind and partly in cash. Their settlement in kind during each calendar quarter's activities consists of (i) services, particularly inter-island transport of crude oil and refined products, and (ii) crude-in-kind for the domestic market. They pay their remaining tax obligation in foreign exchange 15 days after the end of each quarter's activities. Pertamina transfers to the Government all in- come received in cash or kind under contracts of work in the form of either US dollars or Rupiahs. 43. Government revenues for FY 1-9.71-/72 from contracts of work are esti- mated at Rp 107.3 billiqn,(USS269.2 million). This is an increase of 57% over 1/ Pertamina obtains 65% of net operating income, rising to 67-1/2% and -- in three contracts -- thereafter to 70%, when export exceeds predeter- mined level. It is required to transfer to the Government 60% of net operating income, keeping the remaining 5% (rising when output exceeds certain levels). - 15 - the amount of Rp 68.5 billion received in FY 1970/71 and results mainly from the increases in export price in 1971 and to a much lesser extent from the 4% increase in production over 1970 and the Rupiah devaluation on August 23, 1971. The calculations for FY'1971/72 and 1972/73 are given in Tables 3 and 4. 44. Government revenues for FY 1972/73 from contracts of work are esti- mated at Rp 179.6 billion (US$432.8 million). This estimated increase of 67% over 1971/72 again results primarily from the prospect that crude will be ex- ported at $2.57 per barrel under these contracts during 1972, and that crude oil exports will increase by 12% over 1971. Government Revenues from Production-Sharing Contracts 45. Under production-sharing contracts the Government's revenue is com- puted as follows. The contractor is first allowed to deduct from gross output a volume of oil up to 40% of the export value of production in compensation for development and operating costs. The remaining volume of crude oil is then shared 65% by Pertamina and 35% by the contractor. Except in the first few contracts, these percentages move in Pertamina's favor to 67-1/2% when produc- tion reaches a level determined in advance in each contract -- typically 75,000 b/d but less in recent contracts and to 70% when production reaches 200,000 b/d in two recent contracts and 100,000 b/d in a third. In all cases, Pertamina is required to transfer to the Government 60% of the export value of the shared volume (net after costs) and it keeps the balance of 5%, 7-1/2% or 10% as the case may be. In those contracts which require the contractor to supply pro-rata crude, the pro-rata obligation of the contractor is determined by his share and not -- as under contracts of work -- by the total output. Hence, Government revenue is not reduced by the inclusion of a pro-rata obli- gation in production-sharing contracts. 1/ By the same token the contractor's fee on pro-rata crude is not liable to tax and his operating cost in producing such crude is included within the deduction of up to 40% of output allowed for all development and operating costs. 46. Output under production-sharing contracts first began in September 1971. Government revenue in FY 1971/72 from such output is estimated at only Rp 1.2 billion (US$2.8 million). For FY 1972/73 it is forecast at Rp 19.2 billion (US$46.3 million). Government Revenue from Foreign Contractors 47. Total Government revenue from foreign oil companies operating under contracts of work and production-sharing contracts is, therefore, esti- mated at Rp 108.5 billion (US$272.1 million) in FY 1971/72, an increase of 58% over FY 1970/71. It is forecast at Rp 198.8 billion (US$479.1 million) in FY 1972/73, an increase of 83% over FY 1971/72. This assumes Caltex's pro- duction in 1972 to average 900,000 b/d. If it should reach 950,000 b/d (para- graph 3), Government revenues in FY 1972/ would reach Rp 209.4 billion (US$ 504.6 million). 1/ See paragraph 53 for a comparison of the ratio of national share and contractor's share under Contracts of Work and Production-sharing Contracts. - 16 - Government.Revenue from Bonus Payments by Contractors 48. To the above amounts bonus production payments from production-sharing contracts need to be added. The new Pertamina Law of 1971 requires Pertamina to transfer to the Government 60% of bonus revenues. During 1971 and 1972 output from fields operated under such contracts is not expected to exceed the cqptractual points at which production bonuses become payable. However, signature bonuses and payments for geological data amounted to US$19 million from new production-sharing contracts signed during 1971 up to October 31, i.e. with Djawa Shell, Calasiatic and Topco (Caltex Pacific Indonesia's parent,companies), Atlantic-Richfield, and Continental Oil. In 1972 the firsit yearly payment of $2 million is due from Caltex as advance:-rent to Pertamina for use of facilities under production-sharing contracts after 1983-on part of its existing area under contract of work (paragraph 16). If, however, all these payments are included, then Government revenue in FY 1972/73 is estimated at-some Rp 206.4 billion. Comparison of National Share and Private Producers' Share in Indonesia and in Other Countries 49. It is instructive to look at the ratio of national share and pri- vate producers' share in-Indonesia,and in other countries under their quite different fiscal systems, both before and after the recent rounds of increases in posted prices and tax rates in- the Middle East. An accurate comparison is difficult to make, particularly because information on realized export prices during 1971 is incomplete. Furthermore, pro-rata crude in Indonesia also has to be taken into account in making..the above-comparison. 50. The Government, share under Contracts of Work from all-except pro- rata deliveries was about 85 cents;per-barrel at-the export pride prior to April 1, 1971 and about $1.18 thereafter (table below).. The contractor's share was on the average-57-cents.mper barrel prior to April 1 and about 78 cents thereafter. However, Indonesia-benefits-additionally by:vi-rtue of the fact that it receives pro-rata.crude at lower than the export price. Whereas the f.o.b. export price was $1.64,prior to April 1 and $2.18 thereafter (net of credit), the contractors- receive only, reimbursement-of operating cost (an average of 22 cents) plus .a fee oft 8 ,cents after tax (20- cents, -before tax) on pro-rata crude. Thus, the Indonesian.share,in the case of' pro-rata crude was $1.34- prior to April,1 and $1-.88 thereafter. On a weighted average basis tak-" ing together export and pro-rata crude, this means that the national share was 92 cents and the contractor's-share,.50 cents prior to April 1,and $1.28 and 68 cents per barrel respectively thereafter. Onthis basis the-ratio of nat- ional share to contractor!s share-:under Contracts of Work was 65:35 both prior to April 1, 1971 and subsequently., - 17 - National and Contractors' "Take" under Contracts of Work Until March 31, 1971 From April 1, 1971 Pro-Rata Pro-Rata Increase Sales Exports Total Sales Exports Total in Total (14.7%) (85.3%) (100%) (14.7%) (85.3%) (100%) Export Value (net of credit) 1.64 1.64 1.64 2.18 2.18 2.18 +0.54 Less pro- duction cost 0.22 0.22 0.22 0.22 0.22 0.22 - Net Operating Income (de- rived from Export value) 1.42 1.42 1.42 1.96 1.96 1.96 +0.54 National Share 1.34 0.85 0.92 1.88 1.18 1.28 +0.36 Contract- or's Share 0.08 0.57 0.50 0.08 0.78 0.68 +0.18 51. As the increase in net operating income under Contracts of Work has been shared 60:40 by the Indonesian Government and private contractors not only has the national share from contractors' crude exports increased by 36 cents per barrel but the contractor's own "take" has also increased by 18 cents since April 1. This is in contrast with the situation in the Middle East following the rise in tax rate in November 1970 and the Teheran Agreement of February 1971 where the increase in net taxable income has been almost entirely taken by the Middle-East Governments. The net taxable in- come there is assessed from tax-reference "posted prices" and not from real- ized f.o.b. prices.- The Middle East producing companies' share per barrel - realized f.o.b. prices less tax paid cost - has scarcely changed, as they are reported to have succeeded in raising- their realized f.o.b. prices by an amount just equal to - or at most 5 cents per barrel- higher than - their increased tax burden. For example, from Iranian Light crude - roughly equivalent to Minas crude - the Iranian Government's share has increased by 41 cents per barrel to a level of $1.32, while the producing companies' share remains at about 37 cents (Appendix 2). Thus, the Indonesian contractor's "take" of about 50 cents prior to April 1 was more attractive by about 13 cents than that of the Middle East producer, and the present "take" of about 68 cents per barrel.is more attractive to the contractor by 31 cents. 52. Under the early production-sharing contracts which have no pro-rata provision, and do not increase allocable income in Pertamina's favor when out- put exceeds a contractual point, the ratio of national share to contractor's - 18 - share is 65:35. However, the Government receives only 60% of the net operat- ing income, as Pertamina is entitled to retain 5%. 53. Under production-sharing contracts with pro-rata provision, Indo- nesLa benefits additionally by the extent to which pro-rata crude is priced lower than crude for export. For example, when net operating income is allo- cated 65% to Pertamina, the national share is as follows: Export & Pro-rata Volume Price Value of (one barrel) (US cents) Barrel Production 1.00 Less 40% allowed to contractor to cover costs 0.40 Oil to be shared 0.60 Contractor's share at 35% 0.210 46.6 i) pro-rata deliveries (14.7%) (0.031) (20.0) ( 0.6) ii) exported (0.179) (257.0) (46.0) Pertamina's share at 65% 0.390 257.0 100.2 Add: national benefit from obtaining piro-, rata crude at 20' cents instead of $2.57 0.031 237.0 Total national share 107.5 The ratio of national share to contractor s shard in this example is 70:30. It rises to 72:28 when output rises above the cohtractual point, at which the allocable volume is shared 67..1/2:32.1/2. 1/ It would rise to approximately 74:26 when the allocable volume is shared 70:30. 1/ The title to equipment bought by a production-sharing contractor becomes that of Pertamina for no charge; the contractor has in addition to pay to Pertamina an annual rental equal to 10% of the value of the equipment -- as from the start of commercial production. The contractor can in- clude both the amortization of his investment in the equipment and the rental as costs within the 40% maximum allowance. This has the effect of reducing taxable profit by the amount of the rental and therefore reduc- ing Pertamina's share of this profit. It also has the effect, however, of giving to Pertamina 100% of the amount by which profit is reduced, rather than 60%. The rental arrangement is thus an additional benefit to the national share but is hard to quantify at present. - 19 - 54. Thus the ratio of national share to contractor's share in Indonesia is currently 65:35 under Contractor of Work (paragraph 50), 65:35 under the first four Production-sharing Contracts (paragraph 52) and 70:30-rising to 72:28 and 74:26 when output rises above certain contractual points - under subsequent Production-sharing Contracts. (paragraph 53). When these contracts were entered into, the ratios were in line with those generally prevailing in Venezuela, Libya and the Middle East, which had risen gradually after 1964 to a level between 67:33 and 70:30 by the beginning of 1970 (Appendices 2 and 3). The recent rounds of increases in tax rates and posted prices in these and other countries, however, have resulted in ratios of about 77:23 there. 55. As these data on comparative ratios indicate, Indonesia's share, vis-a-vis the producing companies, of total profits is at present character- istically lower than that of many other major oil producing countries, al- though it is closer to the latter in more recent contracts. It is not clear, however, what significance should be attached to this fact. For one thing, under the arrangements which prevail in the Middle East and other areas where Government-company shares are not fixed by contractual arrangements, changes in posted and actually realized prices, and in the relationship between the two, could alter the Government-company division of total profits. Under the Teheran Agreement (see Appendix 1) posted prices -- and hence the produc- er's f.o.b. tax-paid costs - will rise yearly on each January 1, 1973-1975. If actually realized prices should increase by no more than or by less than the increase in taxes, then the Government share of total operating profits in those areas would increase and the company share decline. If, of course, realized prices should increase by more than the increase in taxes, then, the reverse would be true. The fact that this latter event is unlikely suggests that, in reality and especially over the long term, the division of total profits between Governments and producing companies is not a function of the particular form of the contractual relationships but rather reflects the basic differences in the production and marketing positions of various countries and regions and, consequently, the basic negotiating strengths of the Governments and the companies, respectively, in various areas. It may, to some extent, also reflect the will and skill of the negotiators in each area, although in these days of growing knowledge and sophistication on the part of Governments in oil matters, it does not seem likely that differences in will and skill can be a significant factor. 56. In this context, it is apparent that there have been, and are, both relative strengths and weaknesses in Indonesia's position. Among the weak- nesses have been the fact that until relatively recently Indonesia was not a country in which foreign investors were prepared to risk their resources. Furthermore, there was no evidence and uncertain prospect that very large pools of oil, which could be developed and operated at low unit cost, were present. On the other hand, Indonesia had several advantages, including the low sulphur content of its oils and its relative proximity to the large and rapidly growing Japanese market. Government Revenue from Domestic Oil Marketing 57. Mainline oil products are supplied and marketed in Indonesia by Pertamina, acting as the Government's agent. It collects the gross proceeds - 20 - of marketing these products at Government-fixed retail prices and receives reimbursement of its basic costs plus a fee for conducting the domestic dis- tribution operation. The Government retains the net profit from the operation. 58. The eight products thus distributed are avaiation gasoline, aviation turbine fuel, two grades of motor gasoline, kerosene, gas oil, diesel oil and fuel oil. Motor gasoline accounts for 25% of the market and kerosene for 44%. Their prices are not varied according to the size of customer or distance from main tank installation or refinery. This pricing policy gives no incentive to consumers to receive supplies in bulk or to site themselves close to main sup- ply points. By the same token it gives a subsidy to consumers taking small volumes or sited far from main supply points. This may be necessary and desirable on social and other grounds but it does not encouragethe most economic use of oil products. 59. The basic costs to the Government in domestic distribution comprise: (i) the cost plus fee of 20 cents per barrel paid for pro-rata crude supplied by contractors and Pertamina itself; (ii) the purchase at f.o.b. export price crude-in-kind also needed to charge domestic refineries to meet the domestic market's heavy middle distillate needs; (iii) costs of transport of crude oil by Caltex, Stanvac, and Pertamina to these refineries; (iv) the cost plus fee of 10 cents per barrel to Pertamina for refining; (v) costs of sea freight of products by Caltex and Pertamina;, (vi) inland marketing costs (transport, storage, etc.) plus 10 cents per barrel marketed fee to Pertamina; and (vii) the c.i.f. cost of importing kerosene, gas oil and a little fuel oil. The above costs include depreciation on Pertamina's assets insofar as they are used in the domestic distribution operation and not for other operations. They also include a share of Pertamina's head office costs. The proceeds from the export of products refined from Government crude but surplus to domestic needs and therefore exported are credited to the domestic operation. 60. Government receipts from the domestic operation increased from Rp 17.4 billion in FY 1969/70 to Rp. 28.8 billion in FY 1970/71, reflecting the sharp increase in the retail prices of gasoline, kerosene and other pro- ducts put into effect in 1970/71, offset a little by the increases in costs resulting from the rise in the exchange rate from Rp 300 to 324 per US dollar on January 1, 1970 and to Rp 378 on April 17, 1970. 61. A further increase of about Rp 10 billion for FY 1971/72 was antici- pated because of (a) an expected rise of some 10% in sales volumes and (b) the shift of consumption from 79 octane to 87 octane gasoline whose price is Rp 5 per litre higher. However, the present official estimate of 197.1/72 Govern- ment receipts is now Rp. 29.3 billion or only slightly more than in 1970/71. The main reason appears to be that the basic costs have been increased by (a) the higher Rupiah cost of the foreign exchange component of operating costs resulting automatically from the Rupiah devaluation of August 1971 and (b) the higher price of crude-in-kind supplied as from April 1, 1971, $2.17 per barrel, an increase of 42 cents over the price understood'tp be previously incorporated into the basic cost. On the other hand, the prices of products refined from such crude-in-kind and exported as surplus to domestic market requirements are understood to have risen by only half as much and thus to have-p,rovided a smaller credit offset.in the domestic operati.n to the in- creased cost of crude-in-kind. - 21 - 62. Indonesia benefits from the fact that it receives a major part (the pro-rata crude) of the crude petroleum required by the domestic market at a cost well below export prices. This benefit accrues in the first instance to the Government which is the recipient of the low-priced pro-rata crude. In 1971 the-total cost to the Government of pro-rata crude oil was approximately $75 million less than if this crude had been valued at export prices. The consumer in Indonesia pays for petroleum products at a price fixed by the Government which includes four elements: (a) the actual cost of producing or purchasing crude oil supplied to the domestic market; (b) the actual cost of refining and distributing products; (c) a fee or margin above costs providing a modest return on the capital invested by Pertamina in the production, refining and distribution operation; and (d) a tax in the form of the net receipts of the Government above these costs. The Government net or "tax" per average unit of product sold currently equals approximately 50% of the pre-tax cost, and in 1971 was the equivalent in the aggregate of approximately $75 million which happens to equal almost exactly the amount of the Government benefit from its receipt of crude oil at lower than export prices. The consumer therefore could be considered in effect to be paying for petroleum at the export price but with no tax whatever. Alternatively, the consumer could be considered to be paying a price which includes the $75 million benefit or discount below export prices, plus a tax which happens to be currently just about equal to,the discount below export prices. In either case, given the fact that a 50 percent tax on petroleum products is not unusual, it would appear to be the Indonesian consumer rather than the Government which receives the benefit of the especially low prices, lower than export prices, at which most of the crude oil for the domestic market is received. 63. In 1971 furthermore the Indonesian consumer has been sheltered from the effects of the two events which sharply increased the costs, in rupiahs, of supplying the domestic market. Prices to the Indonesian consumer, at least for the time being, have not been increased above their early 1971 levels despite the fact that export prices of petroleum have increased and a devaluation has occured. 64. Given the small volumes distributed over large distances, the distribution costs are bound to be high. However, it is desirable that these costs be carefully examined and that every opportunity be made to make the operation more efficient and less costly. This applies equally to the cost which Pertamina incurs in operating its fields, refineries and tanker fleet, and other elements of its costs. Government Revenue from Pertamina's overall Operation 65. Pertamina acts as agent for the Government in the domestic oil distribution operation. It receives, in addition to reimbursement of costs, a fee for the refining (10 cents per barrel) and marketing (10 cents per barrel) services so performed. It also receives a fee (20 cents per barrel) for the pro-rata crude it delivers to the Government. Pertamina distributes solvents and other special products, bitumen, wax, lubricants and greases for its own account in the domestic market. It exports on its own account (a) part of the crude oil produced from its own fields, (b) part of the - 22 - crude oil obtained under crude-in-kind arrangements, and (c) products surplus to domestic market requirements refined from its own crude and crude-in-kind. It receives income from chartering freight to third parties. It receives product-ion bonuses, signature bonuses and payments for geological data from foreign contractors. 66. Pertamina's costs incurred on its own account are those for ex- ploration, production, refining, freight and head office, to the extent that these costs are not allocated to the Government's domestic distributionn operafion and reimbursed by the Government. 67. Its net profit before tax in FY 1971/72 is officially estimated at about US$10 million, resulting in a tax liability of US$6 million (Rp 2.4 billion) at the 60% rate applicable, under the Presidential decree and the new Pertamina law, throughout FY 1971/72. Since the fees which Pertamina receives for the production, refining, and distribution services it performs in supplying the domestic market in themselves approximately equal $10 million, it is clear that its costs in its other export-oriented operations, including depreciation of newly acquired assets, are so high as virtually to offset completely its receipts from these operations. 68. In conclusion, it is evident that Pertamina has fulfilled its most important task quite effectively. This task was to bring about the explora- tion and development of Indonesia's petroleum resources. Necessarily, since Pertamina, and Indonesia as a whole, did not possess and could not in any case afford to risk the financial resources, the technology, the organization and personnel, or the marketing channels, to do this job on its own, it had to be done by inducing and attracting private foreign capital to do so. In this not altogether easy task, in view of past history, it has been eminently successful. It has also, in the process, developed its own capabilities suf- ficiently that it may have discovered and may be able on its own to exploit a new and possibly good-sized reserve in West Java. Pertamina has also consi- derably improved and expanded the refining and distribution facilities needed to meet the growing petroleum product requirements of the domestic market, and these products will to an increasing extent be the major means of meeting Indofiesia's requirements of primary energy, and, by fueling electric power generdtion, of secondary energy as well. Pertamina has been criticized but is perhaps to be commended for the enterprise and initiative it has displayed in using the resources at its command to meet needs to which other public and private enterprises were not at the time responding. Given the fact, however, that the income and the foreign exchange originating in the oil sector is likely to be so large and increasingly important a part of Indonesia's total income and foreign exchange receipts, the recent action to ensure that a major part of these accrues directly to the Government and that Pertamina's plans and operations are more fully integrated with those of the Government as a whole seems wise. It would be unfortunate, however, if this should impair Pertkiina's effectiveness in performing its task of maximizing the great con- tribution which Indonesia's petroleum resources can make to its economic pro- gress. Appendix 1 MAIN FEATURES OF OIL SETTLEMENTS, 1970-1971 i. Effective September 1, 1970 the Libyan Government succeeded in negotiating with oil companies an immediate rise of about 30 cents per barrel f.o.b. loading port in their posted price (i.e. tax-reference prices) for Libyan crude oil exports, rising to 40 cents by 1975, and an increase in the tax rate from 50 percent to 54-58 percent. This was the most sub- stantial international increase in tax rates since 1957. ii. Posted prices were thereupon raised by 20 cents for Iraqi and Saudi Arabian crude exported through Eastern Mediterranean ports and by 25 cents in Nigeria effective September 1, 1970. Libya's lead was also followed by governments in the Persian/Arabian Gulf which increased the income tax rate from 50 percent to 55 percent as from November 14, 1970 for oil exported from the Gulf; postings for medium and heavy crudes ex Iran, Kuwait and Saudi Arabia were raised by 9 cents per barrel. In December 1970 Venezuela passed a law raising its'oil tax rate from 50 per- cent to 60 percent retroactive to January 1, 1970 and enabling it to fix tax reference prices unilaterally. iii. Then followed the Teheran Agreement of February 14, 1971 between six Gulf State members of the Organization of Petroleum Exporting Countries (OPEC) - Abu Dhabi, Iran, Iraq, Kuwait, Qatar and Saudi Arabia - and 22 oil companies covering oil exported from the Gulf. Its provisions constitute a final settlement of Government "take" and companies' financial obligations from February 15, 1971 to December 31, 1975. The income tax rate was stabi- lized at 55 percent. Crude oil posted prices were increased on February 15, 1971 by another 35 cents per barrel including 2 cents for freight disparities, rising on June 1, 1971 and each January 1, 1973 - 1975 by 2-1/2 percent of the posted price on the preceding day for inflation and by another 5 cents for general escalation. Effective February 15, 1971 they %ere also increased by 0.5 cents for every degree below 40.00 API down to 30.0 (subject to fur- ther negotiation below that level) gravity, and the posted prices of Iranian Heavy, Arabian Medium and Kuwait crudes were increased by 1 cent and that of Basrah crude by 6 cents per barrel. The posted prices currently in effect since June 1 and by 50.5 cents for Kuwait crudes compared with prices in effect immediately before the Teheran Agreement of February 14. iv. As from February 15, 1971 the Teheran Agreement also eliminated the OPEC allowances, granted for Sax purposes (i) as a percentage of posted price, (ii) for crudes above 27.0 API gravity and (iii) for marketing. The percentage and gravity allowances had been introduced in 1964 to ease the initial increased burden of Government take when royalty was made a deductible expense from posted price in computing net taxable income, instead of being treated as a tax offset; the allowances were to have been phased out gradually by 1975. The effect of the Teheran Agreement on Government revenues is to increase them by about 32-34 cents per barrel (about 34-36 percent), from the level in effect immediately prior to the Agreement to that Appendix 1 Page 2 in effect now (since July 1), with automatic increases up to 1975 (see Appen- dix 2). This is additional to their earlier increase effective November 1970 of 8 cents resulting from the rise in tax rate of 55 percent and of another 4 cents resulting from the rise in posted price for medium and heavy crudes. v. Under the Tripoli Agreement of April 2, 1971 effective March 20, 1971, the Libyan Government and the oil companies agreed that its provisions constituted a firm settlement from March 20, 1971 to December 31, 1975. The income tax rate was consolidated at 55 percent, except for Occidental Petro- leum whose rate is 60 percent. The base posting was increased by 52 cents including a premium of 10 cents for sulphur-content of 0.5 percent wt. maximum, rising by 2 cents per barrel each January 1, 1972 - 1975. On March 20, 1971 and on each January 1, 1973 - 1975, the posted price also rises by 2-1/2 percent of the price on the preceding day for inflation and by another 5 cents for general escalation. Effective March 20, 1971, tDe posted price is increased by 0.2 cents per barrel for each 0.10 API aboXe 40.0 and is d6creased by 0.15 cents per barrel for each 0.10 API below 40.0 . Two temporary premia have also been introduced as from March 20, 1971 for addition to the posted price, reflecting Libya's freight advantage over Middle Eastern crudes to the European market. These are of 12 cents per barrel, applied essentially while the Suez Canal is closed to tankers and of 13 cents, reassessed quarterly as from July 1, 1971 to the extent that the London tanker brokers' monthly Average Freight Rate Assessment (AFRA) for Large Range 2 Vessles (45,000 - 79,999 dwt) exceeds 72 percent of the reference tariff Worldscale (currently therefore 10.6 cents). The effect of the Agreement on posted price is to increase it by 90 cents per barrel, equivalent to 34 percent, from the level immediately prior to March 20, 1971 to that in effect now (since July 1). vi. As from March 20, 1971, the Tripoli Agreement also eliminated the OPEC allowance for marketing; 'those for gravity and percentage had been waived since the 1967 closure of the Suez Canal. The Agreement increases Government revenue by about 62 cents per barrel (+45 percent), and this is additional to its increase of about 27 cents effective September 1, 1970 when the posted price and tax rate were increased (see Appendix 3 for il- luatation). vii. The,Nigerian settlement followed the pattern and timing of the Tripoli Agreement, including the tax rate, the amount of increase in base posting including low-sulphut premium, the escalation formula and the freight prekia. The OPEC allowance for gravity and percentage were eliminated re- troAtively from January 1, 1970 and for marketing from March 20, 1971. Royalties are standardizedat 12-1/2 percent of posted price for onshore fields and 10 percent for offshore and are based at export terminal value and no longer at field storage value. The harbor dues are no .longer deduct- ible from posted price for royalty and tax assessment but in compensation are reduced from 6 cents to a level of 2 cents per barrel. The effect of the settlement on posted price is to increase it by 84 cents per barrel (+35 percent), from the level immediately prior to March 20, 1971., to that in effect now (since July 1) And correspondingly to increase Government revenue Appendix 1 Page 3 by about 65 cents per barrel (44 percent), and this is additional to the 13 cents increase as from September 1, 1970. viii. The two sets of settlement between the Iraqi and Saudi Arabian Governments and the oil companies for crude exports ex Mediterranean terminals follow the pattern and timing of the Tripoli Agreement, including the tax rate, amount of increase in base posting excluding any premium for sulphur content which for their crudes exceeds 0.5 percent weight, the escalation formula and the freight premium. The OPEC gravity and percentage allowances on Saudi Arabian crude had been waived since the 1967 closure of the Suez Canal and are now eliminated; they have never applied to Iraqi crude. The effect of the settlement on Government revenues is to increase them by about 47 cents per barrel (+35 percent), and this is additional to increases in November 1970 of about 27 cents for Iraqi crude and of about 10 cents for Arabian. x. In June 1971, the Algerian Government announced its intention to base taxation as from March 20, 1971 on posted prices modelled on the pattern and timing of the Tripoli Agreement. This comprises the amount of increase in base posting including low-sulphur premium, the escalation formula and temporary freight premia. Royalty will be expensed in the computation ofnn net taxable income; the tax rate of 55 percent - effective since 1969 - had previously included royalty. Until 1965 Algerian oil tax had been based on realised prices and thereafter on tax reference prices, which were substan- tially lower for French companies than others and were higher than realised prices but lower than the posted prices set at the Government's behest. In 1970 the Government expropriated with compensation the non-French companies, excepting Getty which operates under a contract revised in 1968 and EL Paso which has contracted to export liquified natural gas to the United States subject to U.S. Government approval. Following 18 months of inconclusive negotiations with the French Government to raise tax reference prices, the Algerian Government brought in a new oil code establishing the state oil concern SONATRACH as a 51 percent partner with foreign oil companies with appropriate compensation - as in the Getty agreement - and obliging French companies to retain gross export proceeds for three months in Algeria. In June 1971 agreement was reached with the first main French company, CFP, on the new terms outlined above, including an increase in tax reference prices retroactively from January 1, 1969 to March 19, 1971.  Apendix2 COMPARISON OF GOVERNMEM AND OIL C)MPANIES "TAKE" IN INDONESIA, RAN. KUWAIT AND SAUDI ARABIA 1970-1971 (WS CENTS PER BARREL) Crude Oil Indonesian Iranian Light Kuwait Arabian Heavy Gravity (degrees API) 35.oo 34.oo 31.00 27.00 Sulphur Content (% wt.average) 0.1% 1.35% 2.5% 2.85% Effective Date of Agreement 1970 (av.) Apr. 1 1971 To Nov.13 1970 Nov.14 1970 Feb.15 1971 To Nov.12 1970 Nov.13 1970 Feb.15 1971 Feb.15 1972 Dte of Price Calculation Jan.1 1970 July 1 1971 Jan. 1 1970 Jan. 1 1971 July 1 1971 Jan. 1 1970 Jan. 1 1971 July 1 1971 Jan.1 1970 Jan.1 1971 July 1 1971 Posted Price of Crude Exports. 162.0 221.0V 179.0 179.0 227.4b/ 159.0 168.0 218.7tt 1lh7.0 156.0 206.4z Realised Price 1)42.&C- 192.0S 7 - - - - - - Less: Gravity Allowance - 3.1 3.5 - 1.8 2.0 - - - - Percent Allowance - 6.3 3.6 - 5.6 3.4 - 5.1 3.1 - Marketing Allowance - - 0.5 0.5 - 0.5 0.5 - 0.5 0.5 - Production Coast 22.0 22.0 11.0 11.0 11.0 6.0 6.0 6.0 10.0 10.0 10.0 Royalty - - 22.5 22.5 28. 20.0 21.0 27.3 18.8 19.5 25.8 Deductible Costs 22.0 22.0 43.4 L1.1 39.4 33.9 32.9 33.3 34.4 33.1 35.8 Net Taxable Income 121.0 170.0 135.6 137.9 188.0 125.1 135.1 185.4 112.6 122.9 170.6 Income Tax 0 60% 0 60% o 50% o 55% o 55% 50% 6 55% @ 55% 50% e 55% * 55% 70.6 loo.0 67.8 75.8 103. 62.6 74.3 101.9 56.3 67.6 93.8 Add Royalty - - 22.5 22.5 28. 20.0 21.0 27.3 18.8 19.5 25.3 Government "Take- 70.6 100.0 90.3 98.3 131.8 82.6 95.3 129.2 75.1 87.1 119.6 Add: Production Cost 22.0 22.0 11.0 11.0 11.0 6.0 6.0 6.0 10.0 10.0 10.0 Cost to Producer 92.6 122.0 101.3 109.3 142.8 88.6 101.3 135.2 85.1 97.1 129.6 Realised Price 143.0 192.0 138.0d 11b6.0W 179.54 127.0 n.a. 171.23! 124.0Cd n.a. 163.0 Producer's "Take- 50.2 70.0 36.7 36.7 36.7 38. n.a. 36.0 38.9 n.e. 33.4 Ratio of Government "Take- to Producer's "Take- 65:5 55:39/ 71:29 73:27 78:22 68:32 n.a. 78t22 66:3 n.a. 78:22 NOTES: a/ Average export price during 1970 realised by private producing companies - Caltex and Stanvac - was $1.62 per barrel fob Dumai. Pertamina's corresponding price was $1.70 which it raised to $2.21 as from April 1, 1971, for Japanese sales to its 50% affiliate, Far East Trading Company. Private companies are assumed to have adopted the same price for sales to affiliates. b/ The base postings for the Oulf exporters of Abu Dhabi, Iran, Iraq, Kuwait, Qatar and Saudi Arabia were increased on February 15, 1971, by 334 per barrel, rising on June 1, 1971 and on each January 1, 1973 - 1975 by 2-'J for inflation plus 5 for general escalation. They also rise by 0.5f for every degree below h00 down to 300 API and by 20 for freight disparities. c/ Per average barrel produced for export and domestic sales by private companies. d/ Realised fob price in January 1970 nas the price paid by Japanese refiniers; it includes aboux 4.5 c,nts represent-ig 90 days' credit. The price is assumed to have increased in step with tax increases thereafter. I/ Iowest price bid for supplies of 3.1 million barrels to YPF, Argentina, effective June 1, 1971; it includes 90 days' credit, worth about L.5 cents per barrel. f/ Adjusted for benefit from pro-rata crude.  Åppendix3 C AISON 07 GV~ENT AND GIL 0 MPANIES' "TAKE" IN INDMIESIA, LIBYA, NEMmTg Alp VEZPUElA 1970-1971 (US CErS PER BaRREM) Crud l 0il Indoneslan Libyan Higerian Venejfa Oraviy (degrees API) 35.0° bo.0° 3.0° 25.5° (av.) Sulphur Coment (N wt.avrae) 0.15 0.25% 0.15% 1.55% Effective Date of Agree~ent 1970 (av.) Apr. 1 1971 To Aug.31 1970 Sept.1 1970 Mar.20 1971 To Aug.31 1970 Sept.1 1970 Mar.20 1971 To Dse. 1970 D-c. 1970 ar.18 1971 Date of Price Calculaon Jan.1 1970 JUy 1 1971 Jan. 1 1970 J-n. 1 1971 JUly 1 1971 Jan. 1 1970 Ja. 1 1971 July 1 1971 1969 (av.) 1970 (av.) July 1 1971 Posted Price of Crode Erports 162.0 221.0f8 223.0 255.0b 319.71/ 217.0 242.0 300.2c/ Add Te ry pr_u - S_ci/ - - - - 12.0 - - 12.0 - - - - Peigtf - - 10.6 --7.3 -- Less Harbour D- . - - - - - 6.0 6.0 - - - - Tota - - 223.0 255.0 3b2.3 211.0 236.0 319.5 - - - Realised Price $f2.S, 192.0 - - - - - - 192.7 193.6 20.0f Lass: Oravity Allmrance 1.9J 1. - - - - Påec Allomance - - - - 13.7 15. - - - - Mrketng Alloance - - 0.5 0.5 - 0.5 0.5 - - - - Poction C-to 22.3 22.0 30.0 30.0 30.0 35.0 35.0 35 0 53.2 53.3 53.7 Royalty - - 28.0 31.8 42.8 25. W 28..l 39.! 47.5 49.4 51.7 Dedctitle¯ e.. 22.c 22.0 58.5 62.~ 72.8 76.2 81.0 7.9 100.7 102.7 105.4 Net Profit before Tax 120.8 170.0 16h.5 192.7 269.5 134.8 155.0 244.6 92.0 90.9 13.6 Additional In- Assessed frce Referenc Pri,te - - - - - - - 9.3 10.5 25.4 Mot Taxable Inco- 120.8 170.0 16.5 192.7 269.5 131.8 155.0 244.6 101.3 101. 160.0 Inoe- T- 6 60 50% -- 51 0 55% 050$ 050% 5 a 52% 60% a 60 70.6 1U7.3 82.3 106.0 1h8.2 67.4h/ 77. 13 50.1 58o 92.69/ Add Royalty . - 28.0 31.8 42.8 25. 28. 39. 7.5 49.4 51.7 Supplemental .mnt - - -.6.6. 2. - - Goern~t "-Tke- 70.6 100.3 110.3 137.8 200.0 28.5 111.8 176.1 98.0 107.4 01U.3 Add: Production c- 22.3 22.3 30. 30.0 30.0 35.0 35.0 35.0 53.2 53.7 53.7 Cost to Producer 9d.6 122.0 110.3 167.8 230.0 133.5 146.8 211.4 151.2 160.7 198.0 Realised Priee 13.0 192.0 19.0 - - 192.0 - - 192.7 193.6 240.01V Produe'. -Taka 50.2 70.0 53.7 - - 58.5 - -1.5 32.9 L2.0 Ratio of Governent "Take" to Producer's Tak.. 65:305/ 65-5/ 67:33 - - 63:37 - - 70:30 7723 7822 NOTE: _./ Average export price during 19"0 realsd by private pmduciM comies - Coltex and Stmnva- was $1.62 per barrel fob Dumi. Pertamia's correspondrg price was $1.70 4hich it ralsed to $2.21 as from April 1, 1971, for Japnese sales to its 50% affiliate, Far zat Tradir, Zonpay. Pr-vate co-:panies are ass~ to have adopted the same price for sales to affiliates. b/ Poted prc of $2. per t 5.r o~m Septeoder 1, 1970, was to increase by 2¢ per tarrel for low-sulphr content ach January 1, 1971-1975. c/ The base Poos.Lm i $3.C7 1. l1by. and $2.86 ir Nigeria per tarrel and includes a 10¢ prenium for sulphur content of 0.55 wt. m.a m, rising t3 2C per tarrel eac~ January 1, 1972-1975. on March 20, 1971 and each Janry 1, 1973-1975, it t. alo increased by 2'..% for inflation plus 5g per larrel for general escalation. d/ Allowance Lasically termnates ten Suez Canal opes to 38 feet draft. o. Quarterly s from July 1, 1971 t, mremium is .058 n Litbya and 0.0ý¢ in Nigeria per barral fr ead 0.15 point of the reference tariff Worldscale by which large Vessel 2 AFrM exceeds Worldscale 72 in preceding quarter. AFRA (Average Preigh Rate As.essmet) i a weighted index of spot arnd lor-term Charter rate and of oil opany-o~ed tanker rates frequently used in the oil trade, and is publisbed cnthly for four different si-es of tanker. f/ Per average trrel produced for export and domestic sales by private compane. 1/ Fztimted price assume that it was increased, in line with the coressionaires' itetion, by the om amount as the increase Lo ineom tx. i Deceober 1970 tie Govern~ent increased me income tax rate to 60% re.roactively throughout 1970, and raived -o refeerece prIces al from march 18, 1971. SJ=r Mach 2V, jo ~ -r ~ , tcp pric- .xporL tennun1 tnstead of at ell roa! as t.orvnn. Garrng cost i. asumec to b 10$ per barrel. / ncome tax asses.moes arv sligntly loer than i indicated from tne relationship of irom tax rate to net taxable Inor, as unvestmen crodit and tax relief are the, grate.d. 1/ In Libya the estoratea supplemental payme t s in ettlement of incov tax imposed by ovrne.t n Septeofr 1970 retroactively to 1965. In Nigerla harbour des aere deduct f-r royalty ard tr aseser unt-1 or-~ 20, 1771. k/ Realised price is taen f.om the bigerian Econoic Report (w 13) at LN 5 per log. b- f BoEnny, w ~1c0 .ndicat,d a dsou.nt of 11.5% off posted price. 1/ Urder the hlgerian agreer effective ?aren 2, 1971, hc ilraces were eltnated for arketir -.r rot jate and for ravtty and percentag- as from Jarma~ 1, 1970. Adjued for bnef-. fr- "rrta zre:e.  TABLE~ INDONESIA: ACTUAL AND FORECAST CRUDE OIL PRODUCTION. 1966-1972 (Millions of Barrels) 1971 1966 1967 1968 1969 1970 1971 1ot ..tr. 2nd -.tr. 3rd Qtr. 4th Qtr. 1972 Pertamina: Own Production Unit I (P. Brandan) 9.1 12.2 13.8 13.7 16.7 3.85 3.8A Rantau Field- Unit II (Pladju) 17.1 14.7 14.1 12.9 10.4 2.71 2.76 3. Sumatra Field (11.2) (8.9) (2.31) (2.39) Djambi Field ( 1.7) (1.5) (0.40) (0.37) Unit III (Wonokromo) 0.1 0.1 1.0g. 0.1 0.1 0.1 0.02 0.03 Kruka & bongas Fields (0.02) (0.03) Djatibarang Field - - - - - - (-) (-) -) -) Unit IV (Balikpapan) 11.1 9.0 8.6 8.1 7.8 1.83 1.87 Tandjung. Tarakan, Hunju Unit V (Sorong) 0.6 0.6 0.6 0.5 0.5 0.12 0.12 Klamono Field Block a 3ula & Ceram Fields - - - - - TOTAL PERTAMINA 38.0 56.6 37.1 35.3 35.5 36.5 8.48 8.88 9.4 9.5 36.5 Contracts of sark 1. Cata Ninas Field 94.1 111.7 143.2 183.4 220.6 60.84 59.85 Pematang Field - 2.2 4.8 19.2 22.5 - - Duri Field 17.0 16.0 15.7 15.4 14.*1.6 3-0 Total Caltex 111.1 129.9 163.8 217.9 257.9 26A.6 64.30 63.25 67.8 69.2 329.4 2. Otanvac Central Sumatra (Lirik) 12.6 12.2 12.4 11.7 9.7 2.5 2.6 Soutn Sumatra rield d 6.1 5. 8.0 2.1 2.8 Total Stanvac 20.9 19.1 18.5 17.4 17.7 21.6 A.6 5.4 5.7 5.9 24.2 3. Lemipas 0.5 0.5 0.4 0.4 0.5 (0.5) (0.13) (0.13) (0.12) (0.12) (0.5) Kawengan Field TOTAL CONTRACT O? dORK 132.5 149.5 182.7 235.7 276.1 73.5 75.1 353.6 Production-sharinp Contracts Gulf and Western Industries - - - - - - - -1.4 ARCO Group - Ardjuna Field - - - - - 1.5 - - 17.5 IIAPCO Group - Cinta Field - - - - - 1.5 - - 14.6 Union/Japex - Attaka Field - - - - - - - - - - 9.6 Stanvac - Corridor Block - -- -. TOTAL iiuUCTION -%LRING CONTRACTJ - - - - - - - _ - 50.1 TOTAL PRODUCTION 170.5 186.1 219.9 270.9 311.5 325.7 7 77.7 82.9 87.6 440.2  s a 8 Š- 9 i i i i ii ii ~ i i i ii §- § § §- -§ 8 0 0A - .,,as --- -. ~. -g -' -o 0l Cn & 56 [ s • w- 9 - 9- .1 INMOUSIA: ~oUMTICK S~oTu (MM=RifiL- Contractor Data of Area lotion Partn's Shøre 655 bo~ P co~tract 67.5% n out.- 7% onout- Paynt for atit_, nvesteart Sinigutexeeoutput ding first 8txrs tet• N,• (b/d} 1b/d) (W¥ Sinie> (b/d} (s-n.iæ>n jU o Union Oil 25 Got. 1968 12,600 Offshore 3. rilntan 50,000 0.125 75,oo 1.5 1.0 tn first ?h@ Attaka Ra benath Unin ad J*p~ s 175,000 1.5 6 year adjaant ar*ed is b~q da~Pa~ Jaintl for prod~tba by iat 1972. Pr2tier ( 3 and contractor), p I R. 1968 113,600 3. China Sa (Block C) 50,000 1.55 50,0M 2.0 15.5 AoIP (295 and operator), 200,O00 5.0 Phillips (29%), Tennen (29%) Oulf 0i 17 Dec. 1968 170,000 S. ~hns Sea (Block D) 75,000 1.55 50,000 0.5 11.3 7500 1.0 100,000 2.0 200,000 2.0 IP (3% & operator), 19 Dec. 1968 107,000 S. China Sea (Block A) 75,000 21.0 FhilIpa (3%) ad Tenco (33%) SS. Asia Oil & Oss (2%) i June 1969 10o,ooo Offrhore S. Sulaei 75,000 0.25 75,000 1.0 8.0 Dearborn boght out Pa Ksta Eatial an Gulf oil (755) 100,000 1.0 oil's 5% ttrest in 1969 ad soid it to Oulf Oil in jene 1970 Jenn.O (operator) and ) 8 Aug. 1969 h7,250 On and Offrhore Karinata 60,000 3.0 25.000 1.25 11.9 Pørta~La's share 67.5% thus stat Syracuse Oil (12.5% each), ) Island beten S.E.Sumatra 50,000 3.0 1 r than the 75,000 b/d -lee States Marine Internatinl & ) ad S.W. Kalimantan (Block E) 100,000 5.0 Sint, 7e Internation (esch ) 8 Aug. 1969 69,250 on and,OtfhoreMentaa 65,000 0.75 30,000 1.2 11.6 maratho Oil *s d a 5" inteest la 37.55) i 5lande off S.V. Ssatra 60,0o0 2.75 sentae d 1nda block tn otbr 1971 Dearborn Computer & Marine 9 Aug. 1969 b7,500 On and Offhore Halåmhera 75,000 1.b 50,000 1.0 7-25 Island in the Sulaaei Sea 100,000 2.25 Asia oil corporation (U.S. 9 Aug. 1969 772.500 Offhore Lpung in 8. Suatra 75,000 2.5 50,000 1.0 17:5 5% Interest avTailabl for dameio private white Shield) 36.75,Tri- and Banten in V. Java 200,000 5.0 apital - a or fetre) =d 2% cf Cætinntal (P«amin) 15% prota to be inve~sd n -- Aminoil (b8.3) Oulf and Western Industries 1 Hov. 1969 373,500 On and Offhore Ceram, 55,000 5.0 25,000 1.5 ILS Abn, Bur and Sula 50.000 3.0 Island in the Moluccas 100,Do 5.0 Rerary nr pAtr- chemial plæt CrP/Total 9 Dee. 1969 1b3,000 Onhore Suatra 75,000 2.0 10.0 (Tebo, Taluk, D) altig Sheli- 6 Dn. 1969 32,500 Onshore R. Kaliu~ntan 75,000 5.0 20.9 over 6 yere Vendell Phillips Oil Co. (50%) b Feb. 1970 32,000 On and ofrhore W. Irin 75,00 0.50 17.5 ad Tesro Petroleum (50%) Tex*o.-Cevran 9 Feb. 1960 72,000 offshore between Java ed 65,000 2.0 9.8 (Calaølatic-Topco) Sulaesi (Lbok) BP Petroleum Development 2 Mar. 1970 2L,00 offshore N.B. Kalimnten 75,000 0.75 50,000 1.0 8.5 sPlus addtina in~etmnts in dmtr Indonesia Ltd. 100,000 2.0. operations Jenney Oil group and Pen May 1970 b8,563 on and Offhare Simeulua ocean Oil Island off S.W.- Sumatra Paa oa*an oil-(35.1%) and 5 Aug. 1970 bo,oo0 Offahore E. Sumatra in the 75,000 o.1o 11.0 Acquired fra ondur in ma 1971. Houston oils (3.9%) erd Kondur RlanIslande ØMs) Trnd EUploration Ltd. 15 Aug. 1970 Onshore W. Irian 75,ooo 0.15 5.5 In April 1971 Soutben Cross Ltd. ad North C~tral Oil Corp. aqured 1% interent Whitetone Indonesia Inc. (20) 2b Oct. 1970 15,5LO Onab.ra W. Irian 15,000 75,000 0.30 Tes 10.15 Gulf oil (80%) Gulf Oil 2b out. 1970 8,547 On and offrhore V.Sulae'I 75,000 1.0 8.5 ,17,353 Onshore s.W. Stilvon Pertaina (25% Pex oil (7.5%), 28 Nov. 1970 1,535 oshore S.E. Kaliaantan Se remarks 0.25 75,000 Rerinery or 7.25 Pertsna' i are is 73.25% of output, Whitney oil (455), an Pexamin petrochemical chaging to 75.62% if output exe (22.5%) plant (ct 75,000 b/d bot it will haue 2% orkLng or output interet and besr thi stare Of coeta unLdsoclosed) TABLE 2 INDONESIA: FRODUCTION SEARING CONTRACTS Page 3 of 3 Contractor Date of Area Location Pertamina's Share, 65% tha Sona Production Bonus Minimum explor- Remarks Cotat6.%o u- 70% oou- Payment aininvestamt Signing put exceeding put exceeding for Geolo- Output Bonus in first 8 years gical data b/d) (bid) (b/d) (USSmillion) (b/d) (USUillion) (USallon) Djama Shell 15 Jan. 1971 9,500 Offshore S. of Central Java 75,000 200,000 4.0 50,000 1.0 6.0 in first 3 5 interest available for Indonesian-owned 16,000 1.0 years and 12.0 private company or state entity; a new in next 5 feature Jenney Oil group and Pan Ocean Mar. 1971 6,75 On and Offshore Simoulue Oil Island off S.W. Sumatra Calasiatic-Topco 9 Aug. 1971 22,201 Onshore 3entral Sumatra 60,000 100,000 8.0 15.0 Caltex 9 Aug. 1971 9,89h Onshore Central Sumatra All output 18.0 Contract is effective from 1983 and covers area now under contract of work sbich expires in 1983. $18 million is advance rental due in 15 installnta beginning in 1972. ARD 9 Aug. 1971 16,835 Onshore 9. Kalimantan 4.0 + 1.3 Continental Oil 28 Oct. 1971 60,000 200,000 2.1  TABL, 3 Page 1 of 2 GOVERNMENT REVENUES FROM FORIGN OIL CONTRiCTOR3, FY 1971/72 CALENDAR YEAR 1971 Jan.-March April-June July-Sept. Oct.-Dec. Total Actual, Actual (millions of barrels) Production CPI 64.3 63.3 67.8 69.2 264.6 PTSI 4.6 5.4 5.7 5.9 21.6 Production-sharing contracts - - - 3.0 3.0 Pertamina 8.6 .0 9 4 9 36.5 Less pro-rata deliveries to domestic 77.5 77.7 82.9 67.6 325.7 market @ 14.7% CPI 9.5 9.4 10.0 10.2 39.1 PTSI 0.7 0.8 0.8 0.9 3.2 Production-sharing contracts - - - Pertamina- 1.2 _1.3 1.5 1.8 __8 Crude Oil Exports (including crude-in-kind) 11i4 11.5 12.3 12.9 48.1 CPI 54.8 53.9 57.8 59.0 225.5 PTSI 3.9 4.6 4.9 5.0 18.4 Production-sharing contracts - - - 3.0 3.0 Pertamina .LA 7.7 7 7.7 30.7 66.1 66.2 70.6 74.7 277.6 Government share per barrel from Contracts of Work (US dollars per barrel) CPI Export price to Eastern Hemisphere (net of creit)1.67 2.18 2.18 2.18 Less operating cost 0.18 0.18 0.18 0.18 Net operating income 1.49 2.00 2.00 2.00 Tax & 600% 0.894 1.20 1.20 1.20 PTSI Export price (no credit granted) 1.67 2.18 2.18 2.18 Less operating cost 0.88 0.88 0.88 0.88 het operating income 0.79 1.30 1.30 1.30 Tax 2 60Po 0.474 0.78 0.18 0.78 TABLE 3 Page 2 of 2 GOVERNMENT REVENUES FROM FOREIGN OIL CONTRACTORS, FY 1971/72 FISCAL YEAR 1971/72 April-June July-Sept. Oct.-Dec. Jan.-March Total (US$ million) Government revenue from Foreign Contractors Contracts of Work - CPId/ 49.2 65.2 70.2 71.6-9/ 256.2 - PTSI 1.8 -.6 3.8 3.9-2/ 13.1 Production-sharing contractsb/ - - 2.8 2.8 68.8 74.0 78.';S 272.1 Government revenue from Foreign Contractors converted into Rupiahs at following exchange rates (Rupiah per US dollar) 378 378a/ 415/ 415 (Rp. billion) Government revenue from Foreign Contractors 19.4 26.7 29.7 32.7 108.5 Notes: a/ US15.8million of contractors' tax obligations met by providing services were converted at Rp 415 per US dollar during July-Sept.&at US330.0 at Rp378 during Oct.-Dec. b/ Volume of output, net of production costs allowed at 40% of output, is shared 65% by Pertamina and 35% by contractors. From its share, Pertamina transfers the value of 60% to the Government at export price of $2.57 per barrel, and retains the remaining 5/. c/ If Caltex and Stanvac were to export at $2.57 per barrel in October-December 1971, their tax assessment would increase by USS13.2 million in FY 1971/72 (Rp 5.5 billion) and $1.2 million (Rp 0.5 billion) respectively. 4/ About 30 million barrels of Caltex's exports are to the U.S. West Coast. They were priced at $1.70 f.o.b. January-March, at $2.21 f.o.b. April-May and at $2.35 f.o.b. as from June 1, 1971, no credit being granted. The additional revenue due to the Government is included above. TABLE 1 FORECAST OF GOVERNMENT REVENUE FROM OIL CONTRACTORS, FY 1972/73 V 0 L U M E UNIT PRICE/COST VALUE VALUE OF GOVERNMENT REVENUE OF EXPORTS Contracts of Work CPI PTSI Total CPI PTSI CPI PTSI Total Total (millions of barrels) (U3 per barrel) (USS million) (US$ million) (Rp billion) Production 329.4 24.2 353.6 lessProirata deliveries to domestic market @ 11.9% 39.2 2.9 42.1 Exports of crude (including all crude-in-kind) 290.2 21.3 311.5 2.57 2.57 800.6 less operating cost 0.20 1.00 Net operating income 2.37 1.57 of which Government receives 60% 1.422 0.942 412.7 20.1 432.8 179.6 Production sharing Contracts ARCO Othere Total Production 17.5 32.6 50.1 less 40% allowed to contractors to cover costs 7.0 13.0 20,0 51.4 Oil to be shared 10.5 19.6 30.1 Pertamina's share @ 65% 6.8 12.7 19.5 less pro-rata deliveries to domestic market 2.0 3.1 5.1 Pertamina's crude available for export 4.8 9.6 14.4 37.0 Government receives 60% of oil to be shared (6.3) (11.7) (18.0) 2.57 2.57 16.2 30.1 46.3 19.2 Contractor's share @ 35% 3.7 6.9 10.6 less pro-rata deliveries to domestic market 0 11.91 - 0.8 0.8 Contra.ctor's exports 3.7 6.1 9.8 25.2 T tel Contrac zrs 914.2 479.1 198.8 Total Production 36.5 less pro-rata deliveries from own fields @ 11.9% 4. Exports of crude from own fields 32.2 82.3 Total Production 440.2 lees pro-rata deliveries _L2., Crude oil exports 2MA2 222 Notes: 2/ No pro-rata provision  Page 1 of 2 CRUDE OIL AVAILABILITY AND DISPOSAL IN INDONESIA 1968-71 (thousand barrels) .1968 1969 1970 1971 Actual Actual Actual Estimated Crude Oil Availability Production of Crude 219.9 270.9 311.6 325.7 Imports of Crude 0.3 0.4 0.8 0.7 Total Availability 220. 271.36. Crude Oil Exports Pertamina (including Lemigas) 27.2 38.9 62.8 56.1 Own Crude (15.1) (14.9) (18.5) (17.0) Crude-in-kind (12.1) (24.0) (44.3) (39.1) Contracts of work (Net of crude-in-kind) 118.3 149.9 165.4 186.7 Caltex (104.1) (134.6) (151.7) (172.6) Stanvac ( 14.2) ( 15.3) ( 13.7) ( 14.1) Production-sharing contracts (Net of crude-in-kind) - - - _.0 155 188.8 228.3 24-5.8 Crude Oil Input to Local Refineries Crude input by Stanvac to S. Gerong 21.6 22.2 - - Local production by Pertamina 8.6 ? 15.9 19.5 Crude imports by Pertamina 0.3 -0.4 0.8 0.7 Pro-rata supplies from contractors Contracts of work Caltex 37.1 39.1 Stanvac 2.5 3.2 Production-sharing contracts - - - - Crude oil purchase from Caltex 22.6 - Crude-in-kind from contractors Caltex 3.7 18.1 Stanvac - - 1.2 - In transit -2.6 723 76.1 81.5 80.6 Crude Oil Exports & Refinery Input 217.8 264.9 309.8 326.4 Increase (+) or decrease (-) in Crude Oil Stocks +2.4 +6.4 +2.6 +14.1 TOTAL DISPOSAL 220.2 7 TABLE 5 Page 2 of 2 REFINED PRODUCT AVAILABILITY AND DISPOSAL (thousand barrels) 1968 1969 1970 1971 1972 Refined Product Availability Crude input into local refineries 72.3 '76.1 81.5'80.6 83.5 Less refinery fuel and loss 6.8 6.0 5.5 6.0 4.0 Locally refined products 65.5 70.1 76.0 74.6 79.5 Product imports 3-5 .2 2.1 4.0 ._ TOTAL PRODUCT AVAILABILITY 69. 78.1 78.6 Refined Product Sales Supplies to domestic market 37.3 39.7 40.0 43.2 46.0 Government account 0.3 0.4 0.5 0.5 Pertamina account 1.5 Export Sales (including bunkers) 28.8 34_9 375 33.0 36.0 66.4 75.0 78.0 76.7 83.5 Increase (+) or decrease (-) in Refined Product Stocks +2.61 1 +0.1 +1.9 - TOTAL DISPOSAL 69.0 7 78. 1 78.6 E / 6.3 million barrels of crude were supplied to S. Pakning and topped there during 1970 when refinery started up. Of the output, 2.2 million barrels of unseparated tops were delivered as feedstock to the Pladju refinery, and the balance was presumably stored at S. Pakning. Source: Pertamina, actual data 1968 - June 30, 1971 Government estimate for production, 1971 Mission estimate for other data, 1971 TABLE 6 ESTIMATED NET OIL EXPORTS FY 1971/72 - 1972/73 FY 1971/72 FY 1972/73 (US$ millions) Tax liability of contractors (see.Tables 3 and 4) 272.3 479.1 Less: CPI's payment of tax obligation in surplus Rupiah, limited to foreign exchange portion of pro- rata crude for which CPI was paid in Rupiah 1.5 2.0 270.8 477.1 Less: Contractors' tax liability settled in kind a) Deliveries of crude-in-kind to domestic market 27.8 48.1 b) Sea freight of crude and products 9.4 9.4 c) 60% of pro-rata crude fee, payable in Rupiahs and withheld against contractors' tax obligation 5.4 _114 Net foreign exchange earnings from contractors 228.2 414.2 Less: Pertamina's foreign exchange needs for domestic market a) Inter-island freight 17.4 17.4 b) Refined product imports 16.4 16.4 c) Refining at S. Pakning .8 4.8 189.6 375.6 Add: Net foreign exchange earnings from Pertamina's production, refining and marketing operations .07. Net foreign exchange earnings of oil sector L%2.6 A/ Source: Based on data provided by PERTAMINA  STATISTICAL APPENDIX Table Number Title 1.1 Area and Population of Main Islands 3.1 Balance of Payments Sunmary 1970/71 - 1972/73 3.2 Status of Project Aid by Donor Country 3.3 Project Aid Commitment and Utilization 1968-71 3.4 Aid Commitment and Disbursement 1966-71 3.5 Project Aid Commitments by Source 1968-71 3.6 Project Aid Commitments by Department 1968-71 3.7 Commitment and Disbursement of Pre-1967 Project Aid 3.8 Utilization of Program Aid 1969/70 - 1972/73 3.9 Counterpart Fund Estimates 1972/73 4.1 External Public Debt Outstanding as of December 31, 1970 4.2 Debt Service on External Public Debt 5.1 Central Government Revenue 1965-1972/73 5.2 Central Government Revenue in Real Terms 5.3 Revenue and Tax Performance 1965-1972/73 5.4 Rbutine Expenditure 1965-1972/73 5.5 Rbutine Erpenditure in Real Terms 5.6 Development Budget 1965-1972/73 5.7 Development Budget in Real Terms 5.8 Development Budget by Sector 1969/70 - 1971/72 5.9 Regional Government Revenues by Sources 1971/72 5.10 Regional Government RDutine Expenditure 1971/72 5.11 Regional Government Development Expenditure 1971/72 5.12 Consolidated Budget of Regional Governments 1971/72 5.13 Number of Government Bployees by Agencies 6.1 Money Supply 6.2 Changes in Factors Affecting Money Supply 6.3 Prices and Real Cash Balances 6.4 Total Bank Indonesia Credits 7.1 Agricultural Production 1967-1971 7.2 Production of Selected Manufactured Products 7.3 Production of Hard Minerals 1961-71 9.1 Consumer Price Index for Djakarta 10.1 Foreign Investment Projects Approved 1967-1971 10.2 Implementation of Foreign Investment Projects  Table 1.1: Area and Population of Main Islands (Population in thousands) Area (in) /2 . Island sq.miles) 1961 1962 1964 1966 1967 1968 1969 1970 1971 1972 Kalimantan 208,286 4,120 4,220 4,433 4,661 4,782 4,907 5,037 5,172 5,312 5,458 Sumatra (incl. sur- rounding islands) 182,859 15,803 16,189 17,003 17,879 18,33 18,823 19,322 19,84O 20,387 20,946 Sulawesi 72,986 7,109 7,283 7,649 8,03 8,251 8,468 8,692 8,925 9,167 9,418 Java and Madura 51,032 63,226 64,661 67,690 70,943 72,660 74,440 76,286 78,201 80,187 82,248 Other Islands /1 220,218 7,129 7,303 7,670 8,067 8,275 8,492 8,717 8,951 9,195 9,447 Total 735,381 97;387 99,656 104,445 109,593 112,311 115,130 118,o5 121,089 124,248 127,517 Rate of Increase (%) - - 2.32 2.39 2.45 2.48 2.51 2.54 2.57 2.61 2.63 /1 Includes Halmahera, Ceram, Sumbawa, Timor, Flores, Bali, Lombok and West Irian. /2 These projections are based on the assumption that the rate of population increase for Java and Madura was 2.24% in 1961; progressing linearly to 1972 according to the equation: r = 2.24 + 0.03t (where r is the rate of increase and t the number of years since 1961). For the other islands the equation is: r = 2.41 + 0.03t. A new population census was begun in September 1971. Source: Central Bureau of Statistics  TABLE 3.1 BALANCE .OF PAYMENTS SUMMARY 1970/71-1972/73 (in million US dollars) 1970/71 1971/72 1972/73 Actual Est. ProL Exports Oil (gross) 443 574 1,014 Oil sector imports -179 -200 299 Investment income -129 -182 - 320 Oil (net) 135 192 395 Other imports 761 790 875 Net exports 826 982 1270 1ports Progran aid 282 345 320 Foodgrains (121) (139) (110) Cotton (22) (36) (50) BE/DK imports (139) (170) (160) Other 857 954 1,248 Non-freight services 125 158 210 Total imports 1,264 1,457 1,778 Current Account Deficit 368 L75 508 Aid 373 520 Program ) 3) (3) Project (91) (100) (200) Private Capital 111 153 178 Debt Service Payments -68 -103 -100 Pre-1967 debt 7(5) 76*) 73) Post-1967 debt (28) (37) (47) SDRs 28 .... .... Errors and omissions -55 -56 .... Monetary movements -21 +36 -90 Source: Based on data provided by Bank Indonesia. TABLE 3.2 STATUS OF PROJECT AID BY DONOR COUNTRY (in millions of US dollars) Donor Country Value of Value of Value of Disbursement Agreement Contracts Signed L/C Opened 1. Australia 18.50 - 2/ 5.47 2. Belgium 0.80 0.80 0.80 0.78 3. Denmark 4.00 3.95 3.87 1.57 4. France 10.53 9.55 8.0i 5.05 5. Germany 40.46 11.83 11.75 9.27 6. Japan 81.14 41.63 41.65 39.22 7. Netherlands 51.75 - 23.31 17.27 8. United Kingdom 3.88 - 3.80 3.49 9. United States 109.23 13.83 9.82 5.79 10. I.D.A. 227.40 57.51 34.31 28.52 11. A.D.B. 11.13 1.24 1.24 1.18 Total 563.82 140.34 138.54 117.61 1/ Based on reports dated June - September 1971. 2/ No L/C's are required. 3/ Includes available funds not yet earmarked for specific projects. 4/ Differs from Appendix Table3*3 because some countries do not require L/C openings. Source: Bank of Indonesia and information from donor countries. TL-BLE 3iJ PROJBCT AID COMMITMENT AND UTILIZATION 1968-71 (In million dollars) Commitment Utilization based on: Dist. Letter of Amount (In %) Credit Disbursement Agriculture _3 11 6 6 Estates 61 11 5 5 Other 12 2 1 1 Irrigation 67 12 1 Industry and.Mining 103 18 19 11 Industry 98 17 17 9 Mining 5 1 2 2 Power 31 _A _1 2 Transportation 102 19 Railway 14 3 7 7 Airports 9 2 8 5 Ports 12 2 9 3 Highway 65 12 30 Ship 2 - 1 1 Telecommunication 11 11 Manpower 1 - Urban Development 22 4 65 Water Supply 9 2 4 3 Buses 1 - 1 1 Telephone' Facilities 12 2 1 1 Technical Assistance 12 2 Total 550 100 1 117 Source: BAPPENAS TABLE 3.4 AIR COMMITMENT AND DISBUSEWENT 1966-71 (in million dollaze) 1966 al 1968 19 1970/71 1 7/ Aid Commitment 1_8 26 5A 62 §U 1. program aid - 183 299. 322 341 344 2. project aid - - 77 202 283 267 Aid Disbursement - 26 264 326 248 1. program aid 195 246 249 284 l883 2. project aid2 - - - 15 42 60 ' Pipeline at the End of the P*riod 711 1074 1. program aid 35 23 76 149 206 362 2. project aid - - 77 264 505 712 1/ To end September 1971 2/ Utilization basis 3/ As of the end of the second quarter of the fiscal year Source: BAPPENAS PROJECT AID 0MMITHENTS BY SOURCE 1968-71/ (in million dollars) 1968 1962 1970 197972 Australia 2.77 3.86 3.25 7.05 Belgium 0.80 2.10 Canada 0.40 1.21 5.002/ Denmark 4.00 France 4.25 6.30 7.22 Germany 10.50 14.21 18.77 24.672/ Japan 40.00 55.00 60.60 65.96 Netherlands 6.50 27.79 12.002/ 15.00 United Kingdom 0.85 0.96 1.84 12.00-' United States 5.18 26.30 31.40 45.702/ I.D.A. 7.00 59.00 104.90 56.502' A.D.B. 3.43 20.11 35.002/ Total 77.05 202.05 263.40 266.88 1/ Status October 15, 1971 2/ 1971 .2/ 1970/71 4/ 1971/74 Source: BAPPENAS TABLE 3.6 PROJECT AID COMfITfENTS BY DEPARTjENT 1968-71 (in million US dollars) 1968 1969 1971/72 Department of Agriculture 1.8 24. j ILI Department of Public Works o48.8 80. 1 131 - water resources 25.6 7.4 35.7 18.8 - electricity 17.2 .42.2 51.8 62.2 - highways 3.7 28.0 12.8 47.4 - housing, urban development etc. 2.3 2.6 3.2 3.1 Department of Communication 19 4A AL 52.8 - railway 6.3 6.4 6.8 14.4 - sea transportation 4.8 9.8 8.1 15.3 - air transportation 3.0 9.9 4,.6 5.7 - post and telecommunication 5.7' 8.1 28.4 17.4 Department of Industry 1.8 40.2 11.0 Department of Mines 2.1 2.5 1.7 Banking System 15.0 Others 2r6 20.3 21.2 Total 76.9 202aL 254.2 262.0 Source: BAPPENAS TABLE 37 COMMITMENT AND DISBURSEMENT OF PRE-1967 PROJECT AID (in millions of US. dollars) Disbursement Amount of As of Total as of Country Contract Dec.1966 1967 1968 1969 1970 Dec. 1970 I. Participating Creditors 218.8 92.6 i 11.8 10.1 175.5 France 65.8 45.1 6.7 0.7 1.0 - 53.5 Germany 56.6 20.4 21.2 3.5 1.6 0.9 47.6 Netherlands 22.2 6.3- 10.5 - - - 16.8 Italy 74.2 20.8 13.1 7.6 7.5 8.6 57.6 II. Non Participating Creditors 115. 2 -0 8 5_2 2.0 2.2 Yugoslavia 42.9 19.4 9.7 5.0 4.4 1.1 39.6 East Germany 52.3 28.8 7.9 0.6 0.6 0.9 38.8 Hungary 9.2 5.5 - 2.7 - - 8.2 Chechoslovakia 9.1 4.8 - - - - 4.8 Bulgaria 1.0 0.5 0.1 - 0.2 - 0.8 333.3 151.6 69.2 20.1 15.3 11.5 267.7 SOu r e: Tk Indonesia TABL 3.8 UTILIZATION OF PROGRAM AID 1969/70-1971/72 (in million US dollars) 1969/70 1970/71 1971/72 JanM Actual Estimate 1. Aid Exchance Loans 132.3 122.0 140.4 Belgium 1.4 1.4 2.3 Canada - - 6.5 France 7.9 2.7 6.3 Germany 11.2 21.0 20.2 India 0.1 0.1 - Japan 64.8 58.2 55.1 Netherlands 2.4 - 3.2 New Zealand - 0.5 0.6 United Kingdom 6.4 5.2 9.0 United States 38.1 32.9 37.2 2. Aid Exchange Grants 29.6 Australia 10.4 5.1 10.5 Netherlands 16.9 12.8 19.1 3* Commodity Loans 151.0 118,6 148.8 PL 480 non-food 45.9 21.8 36.0 PL 480 rice 74.8 57.7 59.0 PL 480 wheat 30.3 25.1 33.8 Japan rice - 14.0 20.0 4. Other Food ILI, 2_1 23.0 Australia 7.7 5.2 6.2 Belgium 0.9 0.8 0.4 Canada 2.6 2.7 2.7 France 1.6 0.9 .9 Germany 1.8 0.7 0.6 Italy 0.4 1.4 - Japan 15.0 10.0 10.0 Netherlands 1.9 0.7 0.5 United Kingdom - 2.7 1.7 Total Bank Indoes Source.: Bank Indonesia TABLE 3.9 COUNTPART U ESTIMATS 192/771/ Freight & Other Net Counter- Utilization Volume Gross Counterprt Surrender Price Charges part receipts Type of Program Aid (3 million) (Unit Price) (Rp. billion Per Unit (Rps.) (Rps. billion) (8 million 1. Non-Food Aid 210 - General (DK) 135 - 51.3 380/8 51.3 - Fertilizer 25 360,000 tons 6.5 18,144/Ton 6.5 (870/T) - Cotton 50 330,000 bales 10.6 215/8 10.6 (8152/bls) 2. Food Aid 110 - Rice 64 450,000 tons (8142/ton) 18.0 40/Kg 13.3 - Wheat Grains 46 700,000 tons 15.2 21.75/Kg 6.4 9.7 (365/ton) Total 320 101.6 91.4 I/ i4ased on current surrender prices Source: Bank Indonesia  TABLE 4.1 NON STANDARD/REVISED INDONESIA - EXTERNAL PUBLIC DEBT OUTSTANDING AS OF DECEMBER 31, 1970 AFTER THE 1970 REORGANIZATION AGREEENTS /1 Debt Repayable in Foreign Currency (In thousands of U.S. dollars) Page 1 Debt Outstanding Source December 31, 1970 Disbursed Including only undisbursed TOTAL EXTERNAL PUBLIC DEBT /2 2L949L540 3,47,58 PRE JULY 1, 1966 DEBT 43,155 b3j3 Debts subject to reorganization - suppliers 21k71 21 571 Debts not subject to reorganization - suppliers 21,84 2176 REORGANIZED DEBT 1,763,733 1,77h,477 Western countries - 089 6 T3 France 101,757 101,757 Germaroy (Fed. Rep. of) 123,940 123,940 Italy 115,076 1.25,820 Japan 78,673 78,673 Netherlands 24,396 24,396 United Kingdom 24,106 24,106 United States 182,921 182,921 Eastern countries and Yugoslavia 1,112,864 1,112,864 Bulgaria 1,437, China (Mainland) 21,543 21,543 Czechoslovakia 68,746 68,746 Germany (East) 56,537 56,537 Hungary 17,154 17,154 Poland 96,563 96,563 Rumania 13,088 13,088 U.S.S.R.. 734,333 734,333 Yugoslavia 103,463 103,463 POST JUNE 30, 1966 DEBT 1,3M2,652 1 659,58 Suppliers (1 108,61i1 Canada 10,100 10,100 Japan 54,614 54,614 United Kingdom 30,000 30,000 United States 13,900 13,900 Loans from international organizations $ 908 186 289 Asian Development Bank 800 16,090 IDA 5,108 170,899 Loans from governments 853,060 1,188, 87 Belgium 3,930 4,1J0 Deura.rk 1,167 4.000 France 9,438 34,219 Germany (Fed. Rep. of) 70,826 97,685 India 13,176 13,333 Japan 266,7b1 341,436 Netherlands 35,930 t7,190 See footriotes at end of table. 'I'ABLE 4.1 NON STANDARD/REVISED TNDONESIA - EXTERNAL PUBLIC DEBT OUTSTANDING AS OF D301-MBER 31, 1970 AFTER THE 1970 REORGANIZATION AGREEMENTS / (CONT.) Debt Repayable in Foreign Currency (In thousands of U.S. dollars) Page 2 Debt Outstanding Source December 31, 1970 Disbursed Including only - undisbursed Loans from governments (cont.) New- Zealand 194 560 United Kingdom 13,051 15,996 United States 438,606 610,355 Nationalization 175,070 175,070 /1 Debt with an original or extended maturity of over one year. 7 Includes arrears of principal and excludes arrears of interest up to December 31, 1970 as shown below: (In thousands of U.S. dollars) Principal Interest TOTAL _ 02950 7,645 Pre July 1, 1966 Debt - suppliers 23,351 2,650 Reorganized Debt - Eastern Countries and Yugoslavia 27 599 4,995 Bulgaria 830 92 China (Mainland) 6,771 579 Hungary 5,166 272 Fhmania 1,387 277 Yugoslavia 13,A45 3,775 1 Includes Pertamina debts contracted up to March 31, 1970. Note : 1. Bilateral agreements on the 1970 Debt Reorganization have been concluded for, the following countries: - Prance,Germany (Fed. Rep. of), Netherlands and U.S.A. - Czechoslovakia, Germany (iast), Poland and U.S.S.R. 2. The following countries have not yet concluded bilateral agreements; debt projections were estimated as indicated below: - Italy, Japan and United Kingdom were based on: (a) the general terms of the multilateralgreement and (b) assumptions. - Bulgaria, China (ainland), Hungary, Rumania and Yugoslavia were based on pre 1970 Debt Reorganization agreements. Economic and Social Data Division Economic Program Department September 29, 1971 TABLE 4.2 NON-ST4 D/R -,." INDONESIA - ESTIMATED PUBLIC DEBT OUTSTANDI'G AS OF D'EDMBER 31, 1970 AFTER THE 2.970 REORGANIZATIOI AGRENTS Debt Repayable in Foreign Currency (In thousands of U.S. dollars) DEBT OUTST (BEGIN OF PERIOD) PAYMENTS DURING PERIOD INCLUDING AMORTI- YEAR UNDISDURSED ZATION INTEREST TOTAL TOTAL EXTERNAL PUBLIC DEBT 1971 3,425,477 117,612 33,713 151,325 1972 3,307,865 100,582 37,751 138,333 1973 3,207,283 92,172 37,948 130,120 1974 3,115,111 92,554 39,316 131,870 1975 3,022,557 97,636 38,669 136,305 1976 2,924,921 90,3o6 36,747 127,053 1977 2,834,615 98,188 35,282 133,170 1978 2,736,427 117,932 33,939 151,571 1979 2,618,495 116,867 32,503 149,3?0 1980 2,501,628 110,963 30,092 141,055 1981 2,390,665 115,248 30,07 145,555 1982 2,275,417 126,187 28,976 145,163 1983 2,19,230 120,867 27,536 14F,4'3 1984 2,038,363 25,711 IM.. 9')h 1985 1,922,110 115,286 38,536 153,824 1986 1,806,822 115,307 37,223 152,2" 1987 1,691,515 112,735 35, 474 1b8,2()9 1988 1,578,780 110,186 33,511 1H4,097 1989 1,468,59 102,12 2, 53 1990 1,366,474 96,372 31,246 127,528 1991 1,270,102 93,208 30,305 123,513 1992 1,176,894 107305 37,687 3.U 1992 1993 1,069,589 103,045 3,6 139,68 1994 966,544 101,527 35,76 137,243 1995 865,017 100,333 34,823 .35,156 1996 764,684 99,148 33,975 133,2.2 1997 665,536 99,146 33,i40 1j?,286 1998 566,390 99,160 32,307 131,h67 1999 467,230 99,021 31,468 130,-"9 2000 368,209 29,052 7,09 Note: Includes service on all debt listZd in Table '.1 prpared September 29, 1971 with the exception of the following, for which repa)7nent tems arc not available: (In thousands of U.S. dollars) Total 52,01 Pre July 1, 1966 Debt - suppliers 23,754, Reorganized Debt - Eastern Countries and Yugoslavia 27,99 9,l63ar6.a 36 1 , 9hi03 (Mainland) 6,771 8un,gary 5,160 Rumania 1,3? Yugoslavia 13,!sh5 Post June 30, 1966 Debt1  TABLE 5.-1 CENTRAL GOVERNMENT REVENUE, 1965-1972/73 (In Billions of Rupiahs) 1972/73 1971/72. 1971/72 1971/72 (Preliminary 1965 1966 1967 1268 1969/70 1970/71 (Budget) (July Program) (Revised Estimate) Estimate) Direct Taxes o27 1.79 16.81 51.04 9147 121.66 144-00 169.40 175.70 295.40 Income Tax 0.04 0.64 3.13 9.43 12.06 13.37 15.70 19.60 18.40 21.40 Corporation Tax 0.09 0.61 3.42 9.50 15.64 20.68 21.60 24.10 24.00 28.90 Corporation Tax on Foreign Oil Company ( 7.38 25.51 48.33 68.82 87.20 104.90 110.50 206.40 Withholding Tax 0.69 6.37 15.27 18.59 19.10 20.50 22.30 26.10 Other 0.141/ 0.541 2.191 0.23 0.17 0.20 0.40 0.30 0.50 0.60 IPEDA 12.00 Indirect Taxes A. Domestic Sector o 4.88 14.60 36.70 68.09 92.00 110.80 100.70 .96-7 115.00 Sales Tax 0.10 1.72 4.20 9.17 15.10 18.28 20.70 21.00 22.50 28.70 Excises 0.13 2.22 7.00 16.57 32.09 38.88 45.60 42.90 40.00 45.80 Net Profit from Oil 0.02 0.08 1.61 7.74 17.46 30.42 39.10 32.10 29.30 34.80 Other 0.06 0.86 1.79 3.22 3.44 4.42 5.40 4.70 4.90 5.70 B. External Trade 3ector 0.05 5 27.50 57.26 80.97 117.63 156.90 1241.20 13560 544 Import Duties 0.05 3.69 16.90 37.30 57.67 70.70 98.60 73.20 81.50 93.90 Sales Tax on Imports - - - 6.04 15.86 22.10 29.60 22.80 25.30 29.60 Export Taxes, Central Gov't - 1.96 10.60 13.92 7.44 25.03 28.70 28.70 28.80 30.90 Non-Tax heceipts 0 . 1.30 .75 .17 13.11 4.26 1.20? 8.80 GRAND TOTAL O 13.14 14. 243.70 344.60 415.96 410.00 412.20 573.60 Includes contribution to local Government. Excludes Rp 11 billion of the unused fund of the preceding fiscal year. Source: Ministry of Finance TABLE 5.2 CENTRAL GOVERNTENT REVENUE, 1965-1971/72 (In real tezma at 1971/12 prices: Billions of iupiahs) Annual Increase in Annual Growth 1971/72 1971/72 1971/72 Growth 1969/70- (Revised Est.) Budget Revised 1965-68 1971/72 over 1970/71 1965 1966 1967 1968 1969/70 1970/71 Estimate Estimate (in %) (in %) (in %) Direct Taxes 24.5 150 5 71.69 109.15 129.15 144.2 17.730 25.0 36.0 Income Tax 3.64 5.47 9.87 13.24 14.39 14.19 15.70 18.40 52.0 16.7 29.7 Corporation Tax 10.78 13.34 18.67 21.95 21.60 24.00 145.0 13.6 9.3 Corporation Tax on Oil Company 8.18 5.21 23.28 35.83 57.67 73.06 87.20 110.50 35.0 51.2 Withnolding Tax 2.18 8.95 18.22 19.73 19.10 22.30 6.3 13.0 Other 12.73 4.62 6.92 0.33 0.20 0.22 0.40 0.50 (-) 23.0 23.0 127.3 Indirect Taxes A. Domestic Sector 28.18 41.71 46.06 51.54 81.25 97.66 110.80 _6.7 22.0 11.4 (-) 1.0 Sales Tax 9.09 14.70 13.25 12. 8 18.02 19.41 20.70 22.50 12.4 7.7 15.9 Excises 11.82 18.98 22.08 23.27 38.29 41.27 45.60 40.00 25.0 5.8 (-) 3.1 Net Profit from Oil 1.82 0.68 '.08 10.87 20.84 32.29 39.10 29.30 80.0 24.0 (-) 9.3 Other 5.45 7.35 5.65 4.52 4.10 4.69 5.40 4.20 (-) 6.0 7.3 4.5 B. zxternal Trade Sector 4t 03.29 86.75 60.4? 96 125.08 156.90 '35.6 160.0 13.6 8.4 Import Duties 4.55 31.54 53.31 52.39 68.82 75.05 98.60 81.50 126.0 3.0 8.6 Sales Tax on Imports - - - 8.48 1l.93 23.46 29.60 25.30 9.6 7.8 Export 'axes, Central Gov't - 16.75 33.44 19.55 8.,U 26.57 28.70 23.80 80.0 8.4 Non-tax Receipts 26.36 7.01 4.10 6.67 3_78 13.92 4.26 4.201/(-)_ .5 100.0 (-) 6A GRA/ c TOTAL Mp.11 112.3i c oAv 2102 290.81 365.82 415.96 412.20 6.0 1 E/kxcludes A~p 11 billion carryover of the preceding fisc.al year. TABLE 5.3 REVENUE AND TAX PERFORMANCE 1965 - 1972/73 (In Billion Rupiahs) AS PERCENT OF GDP Total Total Total Total Non-oil2/ Total Total Non-oil Year GDPI/ Revenue Tax Revenue -Tax Revenue Revenue Tax Revenue Tax Revenue 1965 23.7 0.9 0.6 n.a. 3.8 2.5 n.a. 1966 315.9 13.1 12.3 n.a. 4.1 3.9 n.a. 1967 847.8 60.2 58.9 51.5 7.1 6.9 6.1 1968 1,993.9 149.8 145.0 119.5 7.5 7.2 6.0 1969/70 2,604.4 243.7 240.5 192..2 9.4 9.2 7.4 1970/71 2,900.0 344.6 331.5 262.7 11.9 11.4 9.1 1971/72 (latest revision) 3,200.0 412.2 393.9 283.4 12.9 12.3 8.9 1972/73 (Est.) 3,525.0 561.61 552.8 346.4 15.9 15.7 9.8 / For calendar years;upto 1970 the figures are based on official estimates. The figure for 1972 is based on a growth assumption of 7% and an average price hike of 3% (6% at the end of the period). 2/ Non-oil tax excludes corporate tax on oil, but includes other oil revenues. / Excludes IPEDA Source: Calculated by the mission. TABLE 5.4 ROUTINE EXPNDITURE, 1965-1972/73 (In Billions of Rupiahs) 1971/72 1971/72 1972/73 1965 1966 1967 1968 1969/70 1970/71 Budget (Revised) (Preliminary Est.) Personnel Expenditure 0.67 14.14 31.63 68.92 93.11 119.74 153.80 14.2 203.80 Rice Allowance in kind ( ( 5' 8.99 26.78 18.46 22.15 20.50 20.50 20.50 Rice Allowance in cash 73.62 9.40 10.39 11.40 12.50 13.10 13.10 Salaries, etc. ( 6 6.25 (18.38 25.82 56.43 70.60 101.60 95.40 142.40 Other domestic personnel expenses ( ( ' ( 4.36 3.76 10.81 14.20 19.70 20.90 zxternal personnel expenses 0.34 0.64 2.56 4.07 4.78 5.00 5.50 6.90 Material Expenditures 2.3 7.94 20.34 38.48 61.02 74.26 79-_4 80.50 102.50 Personnel material expenses ((5.45 16.15 9.42 10.73 11.70 12.10 12.10 15.40 Domestic material expenses ( 0.39 ( ( 22.73 42.40 56.28 59.04 59.20 76.70 Pxternal material expenses ( 2.49 4.19 6.33 7.89 6.28 8.20 9.20 10.40 Subsidies to Region 0.Ol 1.88 8.88 25 4 44.12 56.17 66.80 66.80 83_50 West Irian (0.07 1.82 1.33 4.58 8.93 10.07 10.60 10.60 10.60 Local Government ( 0.06 7.55 20.96 35.19 46.10 56.20 56.20 72.90 ADO Substitution - - - - - Debt Repayment 0.03 0 3 9-98 14 25.60 37.20 Internal Debt ( 0.09 1.25 1.91 1.74 2.00 8.40 8.40 9.00 Lxternal Debt 0.03 0.36 2.47 8.07 12.70 23.60 28.80 37.20 38.70 Other Expenditure 0.92 -1.28 5 6.83 85 12.41 6.20 720 _.0 Total 2.08 25.69 70.02 Fin7a5 nc 288.18 L -_3 0 Source: Ministry of Finance TABLE 5.5 ROUTINE EXPENDITURE, 1965-1971/72 (In real terms at 1971/72 prices: Billions of Rupiahs) Annual Growth Rate (In f) 1971/72 1969/70- 1970/71 1965 1966 1967 1968 1969/70 1970/71 Budget 1965/68 1971/72 1971/72 Personnel Expenditure 60,91 120.85 99.7 96-80 111.11 127.11 194.20 16.7 17-7 21.1 Rice Allowance in kind ( ( 64.53 28.36 37.61 22.03 23.51 20.50 ( (-)3.7 (-)-12.8 Rice Allowance in cash ( ( 11.42 13.20 12.40 12.10 13.10 ( 0.4 8.3 Salaries, etc.( ( ( 36.27 67.34 74.95 95.40 ( 23.0 35.6 Other domestic person- (60.91 (53.42 (57.98 (16.7 nel expenses ( ( ( 612 4.49 11.48 19.70 ( 77.0 27.3 External personnel ( ( expenses ( 2.90 2.02 3.60 4.85 5.07 5.50 £ 1.6 (-)8.5 Material Expenditures 35.45 67.86 64.16 544 72.82 78.83 80.50 15.1 4-5 _.7 Personnel material exp. (3 ( 13.25 12.80 12.42 12.10 ( (-)5.8 (-)2.6 Domestic material exp. (35 45 ( 8 31.92 50.60 59.74 59.20 (15.1 30.0 1.0 External material exp. ( 21.28 13.22 8.9 9.42 6.67 9.20 ( 37.9 Subsidies to Region 6.36 16.07 2801 35.87 52.6 52.63 66.80 77. 12.6 12.0 West Irian (636 15.56 4.19 6.43 10.66 10.69 10.60 ( (-)0.l ((-)0.8 Local Government 6.3 0.51 23.82 2944 41.99 48.94 56.20 (77.0 15.7 ADO Substitution - - -0 - - - - ( 14.8 Debt Repayment y 3 11.74 1 172 27o8 45.60 7 7 67.8 Internal Debt ( 7 0.77 3.95 2f8 2.08 2e12 8.40 100.0 296.2 External Debt ( 3.08 7.79 1L34 15.15 25.05 37.20 38.0 48.5 Other Expenditure 410_4 1'.1 a317 7.20-)200.0 16. (-)45.3 Total 189.09 21I.57 220.8B 210.32 258.40 305.92 354.30 _ .6 _15.. TABL 5,6 DEVELOPMENT BUDGET, 1965-1972/73 (In billion Rupiahs) 1971/72 1972/73 (Budget (Preliminary 1965 1966 1967 1968 1969/70 1970/71 Estimate) Estimate) Development Budget: Central Government I,lpt( ( 11.73 28.94 79.74 82.97 125.44 170.20 Financing through ( ( Banking System ( ( 1.62 5.28 7.58 1.00 11.50 12.50 Local Authorities ( 0.45 ( 3.74 2.34 - 2.60 31.90 35.28 39.90 West Irian ( ( - - 2.91 0.78 3.50 3.50 Limas ( ( - - - 9.57 - - Others ( ( 1.84 1.32 - 1.95 - - Project Loans - - 25.30 41.58 66.15 83.oo Total 0.45 3.74 17_53 35.54 118.13 169.75 241.87 309.10 Financing of Development Budget: Surplus of the routine budget (-)1.16(-)12.55(-)9.81 0.00 27.16 56.42 72.62 131.1 Program Aid - - 24.69 35.54 65.76 78.95 103.10 95.00 Project Aid - - - - 25.30 4158 66.15 83.00 Total (-)1.16(-)12.55 14.88 35.54 118.22 176.95 241.87 309_10 1/ Includes IPEDA Source: 3APPENAS TABI 5.7 DEVELOPMENT BUDGET, 1965-1971/72 (In real zers at ly71/7 prices: In billions of fipiahs) Annual Growth hate (In ) 1971/72 1971/72 Budget 1968- over 1965 1966 1967 1968 1969/70 1970/71 Estimate 1965-68 1971/72 1970/71 Central Government Departments ( ( 37.01 40.65 95.16 88.08 125.44 - 35.0 42.4 Financing through Banking System ( ( 5.11 7.42 9.04 1.06 11.50 - 22.0 984.9 Local Authorities ( 4 7.38 - 3.10 33.86 35.28 - 48.0 4.2 West Irian ( 9(33.47 0.83 3.50 - - 321.7 Bimas ( ( - - - 10.16 - - Others ( ( 5.80 1.85 - 2.07 - - Project Loans _ - - 30.19 4 66.15 49- Total 40.91 33 49 140.96 180.20 241.87 70.0  TABLE 5.8 Page 1 of 4 CENTRAL GOVERNMENT DEVELOPMENT BUDGET 1969/70 - 1971/72 (In million Rupiah) Sector and Sub-sector 1969/70 l970/71 1971/72 I. Agriculture Angl7 4,18 22,886 Improvement of Major Products 4,408 3,170 4,343 Rice 1,563 2,256 2,082 Maize 463 116 87 Cassava 13 9 6 Sugar 3 11 7 Tobacco - Rubber 17 75 70 Palm Oil Tea - Other hxport Products 83 221 143 Quarantine, Horticulture, etc. 2,021 252 1,531 Animal Husbandry 245 230 417 Production Support Programs 314 _35 Fertilizer - - - Improved Seed 173 169 135 Small Irrigation Schemes, including under minor irrigation schemes 6 1 3 Warehousing and cold storage facilities 15 38 37 Agricultural marketing- incl. price support programs 14 35 45 Agricultural credit - - - Rivers and canals dredg- ing, survey, extension, etc. 106 300 325 Forestry Programs 123 _.60 1.105 Development of intra- structure 92 90 503 Improvement of forests 331 470 527 Fishery Programs 132 648 Inland & onshore-equipment 132 143 543 Offshore - 166 105 Bimas Loss - - 13.000 Agricultural Processing Industries - - Other Agricultural Programs - -3245 TABLE 5.8 Page 2 of 4 Sector and Sub-sector 1969170 1970/71 1971/72 II. Irrigation 19.705 19,688 21,866 Major Irrigation Projects 19,705 19,588 21,766 Minor Irrigation Schemes Direct Program - 100 100 Provision for credit - - Provision for equipment - - - III. Industry and Mining 5,565 2.179 2.554 Research Center and Pilot Projects 1,520 920 893 Utilization of postponed Projects 700 286 333 Metal Industry, Machinery 1,900 135 309 Research on Oil & Natural Gas 100 135 117 Geological Survey 382 411 393 Improvement of Mining Facilities 263 292 281 Improvement of Coal Mining 700 - 228 Industrial Credit Program Private Sector Public Sector Technical Assistance Private Sector Public Sector 5 IV. Fuel and Power 4,280 8,051 9,056 Major Load Centers (Electricity)4,055 7,527 8,431 Generation 2,833 5,277 4,910 Transmission 505 557 995 Distribution (bycentre) 717 1,693 2,526 Medium & Small Load Centers (Electricity) - 98 132 Generation - 98 132 Transmission Distribution Gas Project 225 426 AM Petroleum Sector - - - Refineries Distribution V. Transportation 23.203 21.481 29,344 Major Road Projects 10,577 9,076 14,627 Secondary Road Projects - - - Railroad Projects 2,978 2,685 3,150 Airport Projects 1,676 2,000 3,470 Ports 3,381 2,846 3,550 TABLE 5.8 Page 3 of 4 Sector and Sub-sector 1969/70 1970/71 1971/72 Transport Equipment Planes 2,601 - - Ships - 54 753 Heavy Equipment/logistic 1,383 3,498 1,894 Soil test 257 373 100 Roads & Bridges Survey - final engineering 350 767 778 Asphalt Production - - - Testing facilities for land vehicles, godown & quay - 182 90 VI. Communication 2,006 2,221 2,678 Telephone services for major town 752 707 765 Intercity telephone services 295 81 86 Postal services 110 121 230 Telegraph services 302 200 225 Other telecommunication pro- jects, earth satellite, microwave system, etc. 547 1,112 1,372 VII. Urban Development 1,150 2,522 2,632 Housing program in major cities 100 167 127 Water supply & sewerage schemes in major cities 1,050 2,355 2,505 Urban transportation for major cities Program for medium-sized and small towns Housing Watersupply & sewerage VIII. Rural Development 4.600 11,290 14,073 Subsidies to Desa 4,600 5,590 5,250 Subsidies to Kabupaten - 5,700 8,823 IX. Government Construction 9,336 12,632 10,699 Administrative buildings 3,329 5,602 3,383 Security and defense 4,000 4,500 5,000 Legislative bodies 699 667 667 Finance Department 1,308 1,863 1,649 X. Tourism 65 50 275 XI. Culture 196 206 206 XII. Pre-investment Studies & Surveys relating to: 356 413 644 Agriculture & Irrigation 46 47 76 Industry & Mining - - Transport - Other Economic Sector 310 366 568 TABLE 5.8 Page 4of 4 1969/70 1970/71 1971/72 XIII. Social Welfare & Physical. Training 751 963 1,052 Social Welfare 660 839 928 Sports & Physical Training 91 124 124 XIV. Education 8,923 10,023 11,080 Primary 360 423 423 Urban Rural Secondary 3,048 2,972 2,792 Urban Rural University Projects 1,737 1,739 2,539 Literary campaign &; adult education 160 156 156 Aid to private sector - - - Other educational programs (religious) 3,618 4,733 5,170 XV. Manpower Training 131 58 59 XVI. Health and Family Planning 3.795 4.426 5,833 XVII. Statistics .020 1,400 1,119 Population census 900 1,200 918 Agricultural census - - - Sample survey - rice 120 127 127 Education, socio-economic and population sample - - - Other sample surveys. - 73 74 XVIII. Miscellaneous 2,007 2,260 2,504 Information 590 704 900 Judicial Affairs 1,060 1,208 1,261 Religious Affairs 357 348 343 XIX. Other Expenditures in Economic Sectors (incl. contingencies) - - 1,676 Total 92,366 104.445 140,236 Source; Budget Bureau TABLE 5.9 Page 1 of 2 REGIONAL GOVaRNMENT RxVENUi;S BY SOURCES 1971/72 D.C.I. Central West Central South North Central South South East West Nusa Dig-j_ Diawa JogJakarta Kalimanten Kalimanten Kalimanten Sulaweei Sulawesi Sulawesi Sulawesi Bali Tenomra A. Current Account 1. Sales and charges 98 55 110 14 3 - 77 68 20 - 99 105 2. Net profit from public enterp. 40 230 5 28 - 4 13 - - 3 4 3 3. Depreciation reserves of public - - - 13 - - - 5 - .1 - enterp. 4. Income from ownership of property 22 - 20 - - - 4 - 27 1 2 1 5. Direct taxes 1,952 390 117 23 8 50 411 10 41 10 19 24 6. Indirect taxes - 55 - 455 540 92 - - 84 19 49 - 7. Social .ecurity contribution 1,300 - - - - - - - - - - - 8. Current transfer from: Central Government 4,700 9,315 1,373 1,611 1,374 1,451 1,266 1,115 2,223 862 1,047 868 Local Authority - - - - - - - - - - - - Abroad - - - - - - - - - - - - 9. Other Current 153 1.351 208 100 102 _63 - - _ 0 123 28 Sub-total (A) 8.265 11396 is-3m 2.244 2.027 1.660 1,71 1.206 2L3 92 1,344 1.029 B. Development 1. Taxes on capital - - - - - - 2. Capital transfers from: AjuU 300 1,055 - 1,187 321 605 397 250 150 113 140 25 Rural Development - - - - - - 232 - - - - - Cess - 50 - - 10 15 508 338 213 47 135 - Oil taxes (gasoline, kerosene) 330 170 29 28 3 20 20 5 45 4 27 - IPzDA, IRdDA, S - 3 27 10 - 6 13 11 40 42 4 13 Abroad - - - - - - - - - - - - 3. Net norrowing Domestic - - - - - - - - - - - - Abroad - - - - - - - - - - - 4. Other Capital Receipts and Payments (net) 2,000 80 - - - - - 21 Sub-total (B) 2.630 1.358 56 1 225 __646 110 _ _9 206 _ 0 268 GRAND TOTAL _I_27 i8l 2U361 Z.306 ,11 - 1.132 650 1.27 Page 2 of 2 TABLE 5.9 East Nusa West North Wes West Tenggara Djava AtJeh Sumatra Sumatra Riau Pengklu Lamung Irian Totals A. Current Account: 1. Sales and charges 76 247 364 154 17 111 4 127 18 1,767 2. Net profit from public enterp. 8 487 - 19 4 - - 2 - 850 3. Depreciation reserves of public enterp. - 50 - - - - - - - 70 4. Income from ownership of property 1 - 11 - - - - - - 89 5. Direct taxes 7 692 52 507 - 37 43 32 42 4,467 6. Indirect taxes - 519 157 36 193 - 1 - 2 2,202 7. Social security contribution - - - - - - - - - 1,300 8. Current transfer from: Central Government 1,430 6,552 1,902 2,600 1,755 2,373 655 1,053 460 45,985 Local Authority - - - - - - - - - - Abroad - - - - 9. Other Current 176 - 211 1,077 _ 3 242 68 26 21 4.060 Sub-total (A) 1.69b 8,547 2,697 4,393 2.042 2,763 71 1,240 543 60.790 B. Development: 1. Taxes on capital - - - - - - - - - - 2. Capital transfers from: ADO 136 968 690 5,327 550 - 155 1,488 4 13,861 Rural Development - - - - - - - - - 232 Cess - - 97 413 - 15 - 251 - 2,092 Oil taxes (gasoline, kerosene) 28 50 201 194 - - - 35 - 1,189 IPEDA, IREDA, SW 150 84 24 40 31 - - 85 - 583 Abroad - - - - - - 3. Net borrowing Domestic - - - - - - 279 - - 279 Abroad - - - - - - - 4. Other Capital Receipts and Payments (net) - - - - -A 730 4.019 Sub-total (B) 1.102 1.012 6,721 581 15 49 2,589 4 22.255 GRAND TOTAL 2.012 9,649 3 11,114 2,623 2,778 1.269 3,829 547 aL045 Source: BAPPzNAS TABLE 5,10 REUIONAL GOUVRNIMUNT iR0UTINs SÅPINDITURE 1971/72 4 .". '. te -4 r. 1-1 :s, O4 -I r. -4 :9 : f c : oc m - k0 9 r 1. General Services 2,669 1,348 543 447 1,157 427 299 355 392 280 149 85 632 2,230 477 509 1,889 235 163 287 111 14.684 2. zducation 350 4.235 673 226 471 520 632 195 48 3 612 3 419 2,995 210 1,109 29 13 12 88 76 12,919 >. nealtn 227 121 28 114 24 98 89 27 108 43 160 52 48 77 63 348 12 14 39 261 25 1,978 4. oocial aelfare 37 95 10 23 - 29 - 2 13 6 3 20 - 39 26 112 - - 17 49 4 485 5. nouding 20 - - - - - - - - - - - - - - 3 - - - - 8 31 6. Uther 4ocial - - - - - - 265 - - - - 62 - - - - - - - 5 15 347 7. Agriculture 67 197 56 289 99 85 16 47 66 68 118 - 94 295 287 125 22 68 61 107 - 2,167 8. å-ining and Industry 14 25 11 22 8 12 - - - - - - - 32 16 9 1 6 3 11 7 177 9. 2rans.ort & Communication 470 3b0 41 5i 8 71 78 32 211 34 37 132 23 226 285 513 79 75 30 52 23 2,931 10. P.ultipurpose Project - - - - - - - - - - - - - - - - - - - - - - 11. Other nconomics 68 7 3 - - - - 3 - - 41 - - 5 - 2,197 - - 35 - 36 2,395 12. Subsidy to Kabupaten - 3,132 - - 273 274 - 485 1,638 - 200 622 108 1,976 1,365 - 187 - 344 610 118 11,332 13. jubsidy to Private Sector 248 89 301 88 - 10 270 - - - - - 339 - - - - 782 - - 43 2,170 14. Advances (e.g., salaries) - 1,201 36. - - - 25 - - 3 - - - - 185 - - - - - - 1,450 15. Contingencies -50 5- - - 50 - 110 TOTAL 4.170 10.880 1.702 1.2>0 2,120 551 1.674 1146 2476 442 1,320 976 1,663 7,875 2.914 4,925 2.219 1.243 704 1,470 466 53.176 Source: BAPPnNA,3 TABLE 53,1 REGIONAL GOUVRNMNT DEVLOPiT EXPIITURMS 1971/72 4> 4- A. FeC t 4> 4 4 3> . 4- > U. C4, 44 4 x 1. General ServiceB 15 2 923 95 15 40 103 - 30 19 47 28 89 91 218 131 69 59 51 - 2,025 2. zducation - 11 6 2 11 77 - 51 78 50 5 - - 570 3. Realtn 185 60 10 - - 20 - - 34 30 20 4 - 6 - 101 45 19 21 25 - 580 4. Social elfare 42 - 5 - - - - - - - - 4 - - 5 9 - - 17 7 - 89 5. Houaing - 29 - 12 - 28 40 - - 20 13 - - - 5 - - 85 - - - 232 6. Other Uocial 130 - 4 59 - - - 15 2 12 2 31 11 - - 10 - 43 - 319 7. Agriculture - 85 9 181 2 111 - 23 184 23 4 40 21 18 12 465 75 1 44 35 - 1,333 6. mlining and Industry 51 - - - - - - - - - - - - - - - 7 - 5 2 - 65 9. Transport and Comaxinication 3,033 113 3 1,328 4 242 110 75 263 21 95 129 46 269 151 758 87 456 313 63 - 7,559 10. Multi-purpoe Project - - 5 - - - - - 4 5 9 17 - 89 11. Other tconomica - - - - - - - - 20 - - 85 232 .Other Capital Formation 2923 427 50 457 34 - 29 211 448 414 83 499 - - 6,657 C. Tranefers: Kabupaten - 120 - 783 - - 26 86 - - 1,514 30 - 30 700 - 3,734 Public Cporations - 100 1 - 50 - 8 - - 3 - - 46 10 50 201 - - - - - 469 Private Sector - - - 229 - 6 - - - - 9 - - 22 21 - - - - - - 287 Other - - - 226 - - - - 82 - - 6o - - - 1,006 - - 66 1,431 - 2.871 D. Direct Loans - 1 - - 67 25 - - - - - - 45 - 595 - - - - - 732 b. Purchase of Asets - - - 5 - - - - - 5 F. Change In Cash Balances - - - - - - - - _- - -- - ---- - - - - - TOTAL 6.364 260 86 4.141 267 j1 62 D 720 lU j 21 322 28 2 872 5.392 JU 1.200 56 2.360 __ 27.528 Source: BAP2~r.A TABLE 5.12 CONOmLIbAT-ED BUDGET O' REGIORAL UUVERNVLNTS 1971/72 (In million Rupiah) Receipts: 8,045 Expenditure: 80701 A. Current Account: 60L220 A. Routine: 1. Sales & charges 1,767 1. General Services 14,684 2. Net profit from 2. Education 12,919 public enterprises 850 3. Health 1,978 3. Depreciation reserves 4. Social Welfare 485 of public enter- 5. Housing 31 prises 70 6. Other Social 347 4. Income from ownership 7. Agriculture 2,167 of property 89 8. Mining and Industry 177 5. Direct taxes 4,467 9. Transport & communi- 6. Indirect taxes 2,202 cations 2,931 7. Social security con- 10. Other economic sectors 2,395 tribution 1,300 11. Subsidy to Kabupaten 11,332 8. Transfer from the 12. Subsidy to private central Government 45,985 sector 2,170 9. Other 4,060 13. Advances on.salaries, B. Development 22,25 etc. 1,450 14. Contingencies 110 1. Capital transfers from: B. Development: - ADO 13,861 I. Fixed Capital Formation 12.773 - Rural Development 232 - Cess 2,092 1. General Services 2,025 - Oil taxes (gaso- 2. Education 570 line, kerosene) 1,189 3. Health 580 - IPEDA, IREDA 583 4. Social Welfare 89 5. 'Housing 232 2. Net Domestic Borrowing 279 6. Other Social 319 3. Other Capital Receipts andPayent (et) 4x09e .nd riltre: 8,333 A. 8. Mining & Industry '65 9. Transport & comm. 7,56-0 II. Other Capital Formation 6,657 III. Transfers ,68 1. Kabupaten 3,734 2. Public corporations 469 3. Private Sector 287 4. Other 2,8.71 IV. Direct Loans cmn V. Purchase of Assets 5 l/ Exclude: South SumatraMVoluccas, East Djawa, Djambi, East Kalimanten. Source: Calculated by.the mission on the basis of data provided by BA-PPENAS. TABLE 5.13 NUMBER OF GOVERNMENT EMPLOYEES BY AGENCIES Percent Distri- Department/Institutions I II III IV Total bution A. State Institutions 1. Congress 103 55 27 - 185 - 2. Parliament 262 195 78 10 545 0.1 3. Advisory Council 50 23 16 3 92 - 4. State Attorney 5,682 5,632 1,540 302 13,156 2.4 5. 6upreme Court 113 52 18 10 193 - 6. Audit Council 174 379 80 11 644 0.1 B. Departments 1. Defense and Security - - - - - 2. Foreign Affairs 505 438 383 113 1,439 0.3 3. Home Affairs 7,457 6,353 988 173 14,971 2.8 4. Justice 15,394 7,510 1,644 390 24,938 4.6 5. Finance 17,592 13,161 2,478 332 33,563 6.2 6. Health 30,241 7,661 1,985 203 40,090 7.4 7. Information 6,943 7,900 1,097 68 16,008 3.0 8. Agriculture 7,092 2,577 1,349 228 11,246 2.1 9. Trade . 1,442 1,693 505 77 3,717 0.7 10. Communication 11,285 4,192 1,438 171 17,086 3.2 11. Industry 1,938 1,578 829 160 4,505 0.8 12. Public Work and Electric Power 4,039 1,988 903 193 7,123 1.3 13. Mining 1,066 736 353 36 2,191 0.4 14. Education and Culture 71,350 66,124, 22,746 2,527 162,747 30.0 15. Labor 1,780 1,582 670 100 4,132 0.8 16. Transmigration.and Cooperation 4,185 3,578 758 31 8,552 1.6 17. Social Affair 2,756 1,670 470 53 4,949 0.9 18. Religion 74,643 73,530 11,188 285 159,646 29.5 C. Non-departmental Bodies 1. State Secretariat 612 386 121 34 1,158 0.2 2. Presidential 6ecretariat 629 76 11 2 718 0.1 3. Military Presidential .3ecretariat 12 8 - - 20 - 4. Indonesian Science Institutions 792 272 198 20 1,282 0.2 5. Institute of Public Administration 136 89 64 11 300 0.1 6. League of National Aero- nautical & Outer 'pace 13 14 13 - 40 - 7. National Intelligence 31 21 10 - 62 - 8. Board of Telecommunica- tion 16 7 2 1 26 - 9. Board of Aeronautical and Outer 3Dace 6 3 7 - 16 - 10. Board.of Atomic Lnergy 268 200 132 17 617 0.1 11. Board of National Development Planning 119 66 57 10 252 0.1 12. Coordination Office of National Intelligence 95 .89 10 3 197 - 13. Office of Personnel Affair 496 297 63 16 872 0.2 14. Central Bureau of Statistics 3,080 1,363 106 9 4,558 0.8 15. National Archive 26 8 - _ - TOTAL 272.428 211,506 J,2 5.602 541.873 100.0  TABLE 6.1 MONEY SUPPLY (In billions of Rupiahs) Total Annual and (Quarterly) Money Demand Percentage Changes Supply Currency Deposits in Money Supply 1964 0.7 0.4 0.3 161- 1965 2.6 1.8 0.8 271 1966 22.2 14.4 7.8 754 1967 51.4 34.0 17.4 131 1968 113.9 74.7 39.2 122 1969 58 March 130.9 80.9 50.0 15 June 146.4 88.6 57.8 12 September 169.5 101.9 67.6 (16) December 180.0 114.3 65.7 ( 6 1970 34 March 210.7 126.3 84.4 ( 17 ) June 216.4 131.7 84.7 ( 3 ) September 226.9 135.9 91.0 ( 5 ) December 241.1 152.8 88.3 ( 6 ) 1971 January 254.1 157.2 96.9 February 260.4 160.4 100.0 March 270.2 166.8 103.4 ( 12 ) April 273.2 169.5 103.7 May 279.1 171.1 108.0 June 289.1 178.6 110.5 ( 7 ) July 292.1 180.3 111.8 August ./ 290.5 181.4 109.1 September 1/ 292.0 182.1 109.9 ( 1 ) 1./ Provisional data Source: Bank Indonesia TABLE 6.2 CHANGES IN FACTORS AFFECTING MONEY SUPPLY, 1969-SEPTEMBER 1971 (In billions of rupiahs) Changes during Period 1970 1971 1969 I II III IV I II III Total Qtr. Qtr. Qtr. Qtr. Total Qtr. Qtr. Qtr. Total Net foreign Assets - 7.2 6.21/ 9.1 .1 - 8.1 12.5 25 .23 -192.7 Net Claims on Government -150 5.5 -20.2 -11.9 14.7 -11.9 - .8 2.8 - 6.i .5 Gross Claims 46.9 -24.4 - 3.7 -11.5. 25.2 -14.4 -13.5 0.7 2.0 -10.8 Government Cash and Deposits -61.9 29.9 -16.5 - 0.4 -10.5 2.5 9.7 2.1 - 8.5 3.3 Net Rice Credit 2.3 0.1 - 0.3 21 -14.7 _ 7 L1 8.7 2.0 16.0 Gross credit 35.2 -12.9 3.1 8.5 -14.2 -15. - 6.2 4.9 7.7 6.4 PL 480 deposits - 5.9 13.0 - 3.4 1.4 - 0.5 7.7 11.5 3.8 - 5.7 9.6. DI CS 5.4 2.1 1.0 1.2 2.0 6 1.2 1.2 0.8 3.2 Net claims on state enterprises and the private sector 82.8 34.8 24.9 35.7 31.3 126-7 32.9 16.4 - 1-4 Gross credit 82.3 29.4 27.2 43.8 29.2 129.6 25.0 19.3 6.4 50.7 Import deposits 0.5 5.4 - 2.3 - 8.1 2.1 - 2.9 7.9 -2.9 - 7.8 - 2.8 Net other items 8.5 -12.61/ - 0.6 -22.5 .L.1. -344 43.1 Total Money supply 66.1 0. 7 10.5 14.2 61.1 29.1 18.9 3. .51.0 Currency 39.6 12.0 5.4 4.2 16.9 38.5 14.0 11.8 3.6 29.4 Demand deposits 26.5 18.7 0.3 6.3 - 2.7 22.6 15.1 7.1 - 0.6 21.6 Time and savings deposits 37. 5.4 A.A 8.2 12.3 3013 14.8 46 .6 32.0 1/ Including Rp. ll,.3 billion related to the first allocation of special drawing rights 2/ Including Rp. 10.5 billion related to the second allocation of special drawing rights Source: Bank Indonesia TABLE 6.3 PRICES AND REAL CASH BALANCES, 1967-71 Quarterly Index of Charge Money Supply Djakarta Real in Real Cash (in bln of Rp) Price Index Cash Balances Balances (in %1 1261 IV Quarter 51.4 283 141 1968 20 I Quarter 62.9 445 110 (-22) II Quarter 85.9 455 147 (34) III Quarter 94.9 493 150 (2) IV Quarter 113.9 523 169 (13) 1269 45 I Quarter 130.9 555 183 (8) II Quarter 146.4 521 218 (19) III Quarter 169.5 545 243 (11) IV Quarter 180.0 575 245 (1) 1970 22 I Quarter 210.7 614 267 (9) II Quarter 216.4 611 275 (3) III Quarter 226.9 600 294 (7) IV Quarter 241.1 626 299 (2) I Quarter 270.2 662 317 (6) II Quarter 289.9 626 360 (14) ,%urce: Based on data provided by Bank Indonesia. TABLE 6.4 TOTAL BANK INDONESIA CREDITS (In millions of Rupiahs) Sept em ber 1966 1967 1968 1969 97 1971 Credit to Bank 105 5_0 30.1 112.8 133.8 Sugar 0.7 3.1 6.5 9.1 12.0 11.4 Production 0.7 3.1 6.5 7.0 7.8 10.8 Distribution 2.1 4.3 0.6 Estates 0.7 1.0 1.7 3.6 3.1 1.9 Agriculture 0.3 3.0 26.3 28.4 25.5 Fertilizer 0.3 1.4 17.9 17.1 10.6 Bimas 1.6 2.6 4.6 8.5 Other 5.8 6.8 6.7 Exports 0.3 2.9 7.9 9.4 7.7 Cotton PL480 10.6 13.2 12.3 17.3 Flour PL480 1.9 2.2 1.2 BE Imports 3.6 5.8 3.4 4.0 Medium Term 5.5 26.4 50.1 Manufacturing 1.0 3.3 5.5 2.3 Transportation 1.4 1.2 1.2 West Irian 2.8 2.8 Other 0.1 0.3 0.9 1.6 6.1 8.2 Direct Credit 1.5 12.1 61.8 87_4 96.8 110.0 Fertilizer 2.4 14.6 - - - Food Procurement - 37.2 72.4 61.7 63.2 BE Imports 8.2 0.6 0.4 0.4 0.4 Flour PL480 3.2 2.1 7.3 12.3 West Irian 1.0 4.0 - - Medium Term 1.3 0.7 0.5 Manufacturing 1.2 1.4 1.3 1.6 Exports 0.3 0.4 0.4 0.4 0.4 Bimas Gotong Rojong (Pertani) 1.2 13.9 17.7 Sugar Imports 1.0 - 0.3 Other 1 1.2 3 11.1 13.6 TOTAL L 1.1 2.0 16. 243.8 1/ End of September 1971 Source: Bank Indonesia TABLE 7.1 AGRICULTURAL PRODUCTION, 196 7-1971 (In thousand metric tons) j6 1968 1969 1970 1971 Rice (Milled) 9,047 10,166 10,642 11,417 12,716 Corn (in kernels) 2,369 3,166 2,293 2,425 3,700 Cassava (roots) 10,746 11,356 11,034 8,955 ) 16,350 Sweet potatoes 2,144 2,364 3,021 2,947 ) Peanuts (shelled) 241 287 267 298 ) 1,080 Soybeans 416 420 389 390 ) Rubber 701 736 785 812 839 Estate (201) (206) (227) (241) (240) Smallholder (500) (530) (558) (571) (599) Oil palm products 2i Palm oil 174 180 189 214 210 Palm kernels 35 39-/ 42 48 45 Coffee 159 156 176 185 193 Estate (19) (13) (14) (16) (15) Smallholder (140) (143) (163) (169) (178) T e a Estate 33 41 41 44 41 Smallholder (gree tea) 38 33 22 24 25 Sugar Estate (centrifugal) 656 602 725 708 691 Other (non centrifugal) 250 202 220 230 220 C o p r a (coconut) 1,094 1,130 1,221 1,280 1,300 Tobacco 100 52 73 51 70 Spices 74 70 40 48 39 Capok 29 21 29 30 33 V/ Provisional 2 Revised 31 Target Source: Department of Agriculture & Central Bureau of Statistics TABLE 7.2 PRODUCTION OF SELECTED MANUFACTURED PRODUCTS Unit 1968 1969 1970 1971 (Estimate 1. Fertilizer ton 95.170 84.170 98.407 107.019 2. C e m e n t ton 411.038 534.017 553.365 532.918 3. Paper ton 11.266,9 15.760,9 21.800 25.723 4. Tire a - t i r e a (automobiles) pieces 238.911 259.031 369.507 494.141 - tubes (automobiles) pieces 159.809 226.981 236.628 237.052 - tires (bicycles) pieces 1.184.822 2.241.015 2.011.892 1.879.800 - tubes (bicycles) pieces 226.962 161.056 182.273 337.901 5. B o t t 1 e a ton 5.784 9.561 11.315 3.601 6. Caustic Soda ton 1.019,2 1.112,5 1.772 4.034 7. 0 x y g e n m3 1.855.975 2.130.073 2.294.718 3.241.469 8. Y a r n bales 130.000 160.500 218.000 240.0001/ 9. Text 1 e a mill.meters 316,5 415,2 598,3 650 10. S o a p ton 200.000 250.000 130.190 137.967,67 11. Coconut Oil ton 208.00 249.790 257.284 266.242 12. Baking Oil ton 23.465 28.067 26.503 27.278 13. Matches mill.box 238 268 284 354,27 14. Toothpaste mill.tubes 13 16 21,7 13,93 15. Cigarettes mill.pieces 14,8 10,9 12,595 11,854 16. Wet cell battery pieces 28.600 32.000 56.150 NA 17. R a d i o pieces 391.750 363.500 393.211 18. Television pieces 1.200 4.500 4.752 19. Electric Light Bulb Lamp pieces 5.862.900 8.212.286 5.090.405 20. I r o n b a r a ton - 4.500 4.752 NA 21. U n i o n p i p e a ton 1.197 1.957 1.872 22. D r y B a t t e r y pieces 4.377.000 4.500.000 4.502.400 23. Assembled Motorcars pieces 2.403 3.037 2.098 24. Sewing Machines pieces 4.000 14.000 13.443 25. Assembled motorcycles pieces 6.247 21.388 31.080 26. Equipment/spares ton 1.114 1.900 5.520 Agric/mines/textile 1/ Fiscal 1970/71 data Source: Department of Industry TA=L 7.3 PRODUCTION OF -ARD MINERALS. 1961-71 Tin Nickel Bauxite G o 1 d Silver Coal Iron Sand Year (OuintiL) (ton) (ton) (kg) (kg) (ton) (ton) 1961 185,217 13,682 441,166 178.6069 10,562.107 560,388 - 1962 175,871 10,777 491,298 120.2486 7,299.717 471,104 - 1963 131,242 45,528 506,241 137.4243 8,672.228 591,356 - 1964 166,062 49,225 647,805 181.9927 7,897.404 445,862 - 1965 149,343 101,136 688,259 209.0762 9,293.817 590,548 - 1966 127,856 117,401 701,223 128.1895 6,867.181 319,829 - 1967 138,271 170,601 920,166 241.1376 9,610.852 208,363 - 1968 169,387 261,973 879,323 185.638 9,613,258 175,673 - 1969 174,155 256,213 926,341 256.6022 10,589.944 190,899 - 1970 190,905 600,000 1,229,175 236.6456 8,802.858 176,520 - 1971 196,669 985,470 1,236,847 315.8905 9,232.455 197.735 358.292 1/ Preliminary estimates Source; Department of Mining  TABLE 9.1 CONSU MR PRICE INDEX FOR DJAKARTA, 1970-71 (September 1966 = 100) Yearly and Miscel- General Quarterly Monthl Food Housing Clothing laneous Index Change Change E (1%) (91) (100fo) (9'o) ( 197 + 8 .2 January 643 776 361 700 617 + 7.3 February 636 766 377 715 617 March 630 769 379 714 614 + 6.8 - 0.5 April 612 769 379 719 605 - 1.5 May 612 769 385 723 607 + 0.3 June 603. 838 394 740 611 - 0.5 + 0.7 July- 605 851 394 736 613 + 0.3 August 602 834 396 744 611 - 0.3 September 583 815 396 749 600 - 1.8 - 1.8 October 582 815 396 746 599 - 0.2 November 606 871 424 750 622 + 3.9 December 612 871 426 750 626 + 4.3 + 0.6 January 639 883 426 760 644 + 2.9 February 664 883 426 769 661 + 2.6 March 667 883 426 770 662 + 5.8 + 0.2 April 653 863 426 771 653 - 1.4 May 632 825 424 77111 638 - 2.3 June 604 879 424 771-' 626 - 5.4- - 1.9 July 604 879 424 771 626 -- August 595 871 424 773 620 - 0.9 September 592 866 427 770 618 - 1.3 - 0.3 1/ Revised Source: Central Bureau of Statistics  TABLE 10.1 FOREIGI INVESTMENT PROJECTS APPROVED BY THE GOVERNIIENT (in thousands of US 3) Cumulative since 1967 19 Field of Activityi/ Number aout2/ 1 Agriculture, Forestry & Fishing 112 490.149 12,000 86.895 286.000 88.704 16.550 Agriculture 46 74,694 - 16,790 2.000 53,354 2,550 Forestry 56 401.905 7.000 67.105 283.500 32.300 12.000 Fishing 10 13.550 5.000 3.000 500 3.050. 2.000 Mining & 14uarrying 541.507 76.500 82.000 304.707 300 78-000 Metal ore 9 465.027 76.500 82.000 304.527 - 2.000 Other 5 76.480 - - 180 300 76.000 Manufacturing 242 459.116 27.969 5Q.021 74,912 126.487 179.727 Food 32 52.370 10.619 9.647 17.048 10.156 4.900 Textile and Leather 31 158.266 - 841 33.550 24.250 99.625 Wood & wood product 3 1.200 - - - 500 700 Paper & paper products 11 10.150 - - 750 3.400 6.000 Chemical & Rubber 77 82.494 15.700 10.947 14.340 25.374 16.133 Non metalic mineral 10 62.692 - 2.778 900 29.700 29.314 Basic metal 7 11.682 - - - 4.682 7.000 Metal products 64 74.682 1.400 22.278 8.324 28.125 14.555 Other 7 5.580 250 3.530 - 300 1.500 Construction ?5 35.083 2.000 6 6.390 17.59 2.400 Trade & Hot-1k 8 51.427 - 22.97 1,500 44-400 Wholesale Trade 1 1.500 - - - 1.500 - Hotels 7 49.927 - 2.730 2.797 - 44.400 Transport & Communications 12.012 6.100 162 1.050 500 4.200 Transport 12 5,912 - 162 1.050 500 4.200 Communications 1 6.100 6.100 - - - - Community. Social & Personal Services 1 15.609 - 1.024 5.650 1.430 7.505 Social & Related Community 7 879 - 24 - 230 625 Recreational & cultural 7 14.730 - 1.000 5.650 1.200 6.880 T o ta 1 428 1.604.903 124.569 229.532 681.506 236.514 332.782 1/ Classification accoraing to "Intornationzil 3tan,dard Industrial ClasLification of All Economic Activities" (Statistical Office of the United Nations, Statistical - Papers, nories Ti. No. 4) 2 Intended Capital Included Insoncian Share in the Joint. nterpris;es ThrouO h e tember Souru: 0o,u Aver:r.u 1o4.. dn Idne TABLE 10.2 IMLPLE4ENTATION OF FOREIGN INVESTMENT PROJECTS-' (in thousands of USS) REALI ZATION Field of Activit Total 1967 1968 262 1970 1271 Agriculture, Forestry & Fishery 85,609.77 661.60 2,923.68 14.931.69 34-292.27 32-800.53 Agriculture 3,939'91 - 108.95 849.61 1,412.03 1,568.32 Forestry 69,008.63 661.60 2,813,86 10,922.34 28,779.08 25,831.75 Fishery 12,661.23 - 0.87 3,159.74 4,100.16 5,400.46 Mining & Quarrying 30.769.63 2_50 904.29 3,229.20 7,692.98 18.940.66 Metal ore 30,704.24 2.50 904.29 3,229.20 7,691.67 18,876.58 Other 65.39 - - - 1.31 64.08 Manufacturing 131,827.57 814.17 10,696.51 23098.44 45,504.34 51,714.11 Food 34,239.51 - 3,400.69 4,304.,36 14,602.26 11,932.20 Textile & Leather 29,870.20 - 387.83 2,241.-19 9,552.86 17,688.32 Wood & Wood product - - - - - Paper & Paper product 3,360.92 - - 249.76 1,143.50 1,967.66 Chemical & Rubber 23,226.40 640.81 1,782.27 4,888.25 7,324.94 8,590.13 Non Metalic Mineral 2,655.01 - 260.36 576.20 897.46 920.99 basic Metal 618.42 - - - 52.34 566.08 Metal Product 34,503.93 117.40 4,570.89 10,126.75 10,509.37 9,179.52 Other 3,353.18 55.96 294.47 711.93 1,421.61 869.21 Construction 9,046.01 _ 1.158.62 2,172.83 3,535.17 2,179.41 Trade & Hotels 5.098.00 - - 281.62 665.22 4.151.16 Wholesale Trade 570.07 - - - 267.66 302.41 Hotels 4,527.93 - - 281.62 397.56 3,848.75 Transport & Communication 6,781.55 61.00 2,248.27 2,114.10 1,562.32 795.86 Transport 2,010.55 - 44.19 i9i.53 1,216.49 558.34 Communication 4,771.00 61.00 2,204.08 1,922.57 345.83 237.52 Community, Social & Personal Services 4,863.61 - 164.79 549.58 2.308.12 1.841.12 social & Related Community 41.46 - - - 41.46 - Recreational & Cultural 4,822.15 - 164.79 549.58 2,266.66 1,841.12 T 0 T A L 2-73,996.16 1,539.27 18,096.16 46.377.46 95.560.2 112,422.85 (Incl. imports financed by DICS) (9,719.15) (-) (-) (2,934.52) (5,950.49) (834.14) 1/ Classification ac-ording to: "International Standard Industrial Classification of All Economic Activities" (Statistical Office of the United Nations, Statistical-Papers, Series M. No. 4) Through September 1971. hxcluding cash trahsfer during the 3rd quarter, 1971. Source: Bank Indonesia Customs Administration