I- lib investment in INDONESIA basic information for United States businessmen U. S. DEPARTMENT OF COMMERCE investment in INDONESIA basic information for United States businessmen U. S. DEPARTMENT OF COMMERCE Sinclair Weeks, Secretary BUREAU OF FOREIGN COMMERCE Loring K. Macy, Director For sale by the Superintendent of Documents, U. S. Government Printing Office, Washington 25, D. C. - Price 81.25 ore won This handbook, designed primarily to serve the needs of potential investors, is one in a series issued by the U. S. Department of Commerce. Since it brings together in a single publication basic economic and commercial information on Indonesia, exporters and importers also will find it a helpful document. The Republic of Indonesia, a nation which achieved its independence only recently, is endeavoring to further its economic development and raise the standard of living of its people. It has started on this long road but is still feeling its way. It has not yet firmly decided how much private foreign investment it needs or wants in this struggle for economic betterment. Nevertheless, there is recognition of the role which foreign private capital can play in further- ing economic development. There is also interest on the part of American businessmen in knowing more about the situation in Indonesia. This volume discusses economic, social, and political factors which American businessmen will find useful in evaluating Indonesia as a field for investment and trade. -It is recognized that questions may arise in the minds of potential investors which could not be anticipated or, for lack of space, could not be fully covered. The U. S. Department of Commerce invites requests for additional information and assistance. Such inquiries should be addressed to any Field Office of the Department or to the Far Eastern Division, Bureau of Foreign Commerce, U. S. Department of Commerce, Washington 25, D. C. It is planned to keep the basic information contained in this handbook up to date through our World Trade Information Service, issued in four parts, which should be consulted for sub- sequent information on economic, administrative, and legal developments affecting private foreign investment. Current developments are reported in Foreign Commerce Weekly. Both Foreign Commerce Weekly and World Trade Information Service reports may be purchased from any Field Office of the Department of Commerce or from the Superintendent of Documents, U. S. Government Printing Office, Washington 25, D. C. The information furnished in this handbook is not intended to serve in lieu of the legal, financial, or business surveys which businessmen customarily make before investing abroad. This study was prepared by Ada V. Espenshade, Chief of the Philippines-Southeast Asia Section, under the supervision of Eugene M. Braderman, Director of the Far Eastern Division, Bureau of Foreign Commerce. Many individuals contributed in varying degrees to its prep- aration. Particular note should be made of the assistance given by John E. Walsh of the Far Eastern Division. In addition, we acknowledge our appreciation of the cooperation received from American and Indonesian businessmen, officials of the Indonesian Government, the United States Foreign Service, and the International Cooperation Administration Mission in Djakarta. Every effort was made to include the most current information available at the time this handbook went to press. The cutoff date for most of the material was late 1955, but every attempt has been made to include important changes through January 1956. H. C. McClellan Assistant Secretary for International Affairs U. S. Department of Commerce February 1956. Ill Contents Page Foreword III CHAPTERS I. The Investment Situation 1 Attitude Toward Investment 2 Foreign Investment Policy 2 Factors Affecting Investment 3 Investment Experience 6 Probable Fields of I nvestment 6 II. Investment: Past and Present 9 Estimates of Investment 9 Prewar Investment 10 Postwar Investment 12 III. The Land, the People, and the Government. 15 The Phvsical Setting 15 The People 16 The Political Setting 19 IV. Agriculture 21 Smallholdings and Estates 21 Major Agricultural Products 22 Land Ownership, Farm Practices 27 Agricultural Problems 28 V. Forestry and Fishing 31 Extent and Types of Forest 31 Forest Products 32 Forest Legislation and Control 34 Investment in Forestry 35 Fishery Resources and Output 35 Fishing Methods 36 Processing and Trade 37 Recent Fishery Programs 37 VI. Petroleum and Mining 39 Petroleum 39 Tin 42 Coal 45 Bauxite 45 Other Metals 46 Nonmetals 48 VII. Manufacturing and Power 51 Distribution of Industry 51 Foreign Investment in Industry 52 Major Industrial Segments 52 The Government and Industry 58 Industrial Outlook 60 Power Production and Use 60 Power Characteristics and Rates 61 Ownership of Power Plants 61 Outlook for Power Development 62 VIII. Transportation and Communications 63 Railways 63 Highways 64 Water Transport 66 Airways 67 Communications 68 IX. Economic Development 71 Plans and Progress 71 Five- Year Economic Plan 73 Role of Foreign Investment 74 X. Financial Conditions and Facilities 77 Public Finance 77 Savings and Investment 79 Financial Institutions 79 Currency and Money 84 Prices and Interest Rates... 85 Page XL International Trade and Payments 87 Balance-of- Payments Position 87 Character of Trade 87 Trade and Exchange Controls 92 Tariff Structure 94 Trade and Payments Arrangements 95 The Government and Trade 95 XII. Labor and Industrial Relations 97 Labor Supply and Productivity 97 Entry of Foreigners 98 Wages and Hours 98 Labor Legislation 100 Labor Organization 101 Labor- Management Relations 102 XIII. Taxation 103 General Tax Structure 103 Income Taxes 103 Other National Taxes 106 Municipal Taxes 107 XIV. Business Laws and Organization 109 Limitations on Foreign Operations 109 Business Organization 111 Patents, Trademarks, Copyrights 113 APPENDIXES A. Statistical Data (See listing under Tables) 115 B. U. S. Firms With Enterprises in Indonesia 119 C. Commercial and Industrial Associations 121 D. Excerpts From the Commercial Code 123 E. Mining Laws 127 F. Recent Labor Legislation 135 G. Company Tax Law and Relevant Decree 139 H. Regulations Dealing With Patents 151 I. Bibliography 153 TABLES 1. Investments in the Netherlands Indies, 1900- 1937 9 2. Value of United States Direct Investments in Indonesia, by Industry, 1950 and 1953-54... 13 3. Value of United States Direct Investment in Selected Countries, 1949-54 13 4. Production of Major Food Crops, 1937 and 1952-54 22 5. Indonesian Rice Acreage, Production, and Yield, 1937 and 1951-55 23 6. Production and Exports of Indonesian Rubber, 1935-39 Average and 1948-55 23 7. Forested Area in Relation to Total Land Area, as of 1939 31 8. Indonesian Timber Cut, According to Use, 1939 and 1950-54 33 9. Indonesian Timber Cut, by Area of Production, 1952-54 33 10. Output of Forestry Products, 1951-52 33 II. Indonesian Sea Fisheries: Production Data, 1952-53 36 12. Total Production of Indonesian Fisheries, 1954 36 13. Indonesian Production of Fishery Products, 1938 and 1947-53 37 14. Output of Major Indonesian Mineral Products, Prewar Years and 1949-54 39 V Page 15. Output of Minor Indonesian Mineral Products, 1953-54 39 16. Indonesian Production, Imports, and Exports of Petroleum and Petroleum Products, 1938 and 1950-55 40 17. Indonesian Production of Crude Petroleum and Natural Gas, by Companies, 1952-54 40 18. Indonesian Refinery Production, 1953-54 41 19. Inland Trade in Petroleum Products, 1954 41 20. Production and Exports of Tin, 1938 and 1950-55 43 21. Domestic Industrial Production in Relation to Consumption 52 22. Licensed Capacity of Controlled Industries, 1953-54 53 23. Production of Main Weaving Mills, 1951-54-__ 54 24. Generating Capacity and Power Production, 1940 and 1949-54 60 25. Indonesian Railway Traffic, 1938 and 1950-54-. 64 26. Estimated Length of Roads, by Surface Type, 1951 64 27. Registered Motor Vehicles, 1941 and 1954 65 28. Air Transport bv Garuda Indonesian Airways, 1952-54 68 29. Budgets of the Indonesian Government, 1951- 55 77 30. Government Revenues, 1951-54 78 31. Gross Government Expenditures, 1951-54 78 32. Government Debt Position, 1950-55 78 33. Combined Statement of Bank of Indonesia, Bank Negara Indonesia, Bank Industri Negara, and Seven Foreign Private Banks, 1952-54 81 34. Loans and Advances Granted by Bank of Indonesia, Bank Negara Indonesia, Bank Industri Negara, and Seven Foreign Private Banks, 1953-54 81 35. Statement of Twenty Indonesian Private Banks, 1953-54 81 36. Loans Granted by Twenty Indonesian Private Banks, 1953-54 82 37. Money Supply of Indonesia, 1950-55 84 38. Indonesia's Gold and Foreign Exchange Hold- ings, 1950-55 87 39. Indonesian Balance of Payments, 1950-54 88 Page 40. Foreign Trade of Indonesia, 1936-38 Average and 1946-55 88 41. Principal Indonesian Exports, 1953-54 89 42. Principal Indonesian Imports, 1953-54 89 43. Indonesian Trade With Principal Countries, 1953-54 90 44. Terms of Trade for Indonesia, 1948-55 90 45. Indonesian Exchange Rates, as of January 1956 93 46. Minimum Wages in Estate Agriculture in Java and Sumatra, 1941 and 1952-54 99 47. Minimum Wages in Various Industries in Java, 1953-54 99 48. Number of Strikes in Indonesia and Man- Hours Lost, 1950-54 102 49. Major Sources of Indonesian Tax Revenue, 1952-54 103 50. Taxes Payable by a Married Taxpayer With One Child, in Indonesia and the United States, by Income Group 104 Appendix A: I. Area and Population of Netherlands Indies, by Divisions, 1930 115 II. Population, by Administrative Divi- sions, 1952.-' 115 III. Population of Principal Indonesian Cities, 1930 and 1953 115 IV. Production of Large-Scale Indonesian Industries, 1952-53 115 V. Indonesian Exports of Principal Com- modities, 1953-54 116 VI. Indonesian Imports of Principal Com- modities, 1953-54 116 VII. Trade of Indonesia With Principal Countries, 1953-54 117 VIII. Principal Exports of Indonesia to the United States, 1953-54 117 IX. Principal Imports of Indonesia From the United States, 1953-54 117 MAPS Republic of Indonesia facing 14 Petroleum and Mineral Exploitation facing 38 VI CHAPTER I The Investment Situation The Republic of Indonesia is the largest nation of Southeast Asia and the sixth most populous country of the world. It is made up of an island chain which stretches some 2,800 miles along the Equator. With a population of 82 million and varied natural resources, its potential for devel- opment is indeed great. Politically, Indonesia is young, with sovereignty dating only from the end of 1949. Before World War II it was the Netherlands Indies (commonly known as the Dutch East Indies), a colonial area for more than 300 years. During the war it was occupied by the Japanese and later its struggle for independence took the form of a revolution. Civil strife continued after independence and even now some parts of the country are disturbed by dissident groups, but these activities have been confined. The new nation inherited difficult economic and social problems; political independence did not lessen these problems but added new ones. Over- population was serious in Java although other areas were underpopulated. Estate and farm operations were impaired during the wartime oc- cupation and the subsequent internal strife. Transportation and communication facilities and some industrial plants were damaged. Like other raw-material-producing areas the economy had a boom-and-bust cycle. Moreover, Indonesia started with large financial obligations to the Nether- lands. The general living standard of Indonesia's peo- ple was low. More than 90 percent were illiterate and very few had received advanced training. The shortage of trained Indonesians — engineers, Government administrators, agronomists, electri- cians, statisticians, businessmen, teachers — was felt throughout the economy. Thus, the newly formed Republic was saddled with great handi- caps. Furthermore, the prevalent distrust of the Dutch — their former colonizers — prevented the new nation from fully utilizing the trained per- sonnel most familiar with the economy. The war in Korea, with its mounting demand and high prices for rubber, tin, copra, and other Indonesian exports, gave an impetus to the 1950- 51 postindependence economy. This tended to obscure some of the economic problems tempo- rarily. As the boom waned, however, a serious balance-of-payments situation developed, making it necessary to cut back imports sharply. Large budgetary deficits, financed by borrowing from the central bank, aggravated the inflationary trends. These new financial difficulties were added to the problems of rehabilitation and the low living standards of the people. In spite of great difficulties, the years since in- dependence have witnessed progress in certain aspects of the Indonesian economy. Particularly noteworthy has been the expansion of food produc- tion, especially rice. Substantial progress has also been made in rehabilitating transportation and communications. A start has been made in expanding mining and industry although impor- tant segments continue to lag. Indonesia has con- sistently paid its heavy financial obligations abroad, thus establishing an excellent national credit position. Perhaps the most important achievements are the increases in literacy and the start toward training technical personnel. Al- though a majority of the people are still illiterate and technical and administrative training still a serious deficiency, Indonesians want to become better trained and education has made great strides. The desire of the people for higher living stand- ards, coupled with a strong resource base, offers opportunity for future development provided the leaders are successful in adopting social, economic, and political measures conducive to progress. The country's leaders want to: (1) Diversify the economy and export semimanufactured and manu- factured goods as well as raw materials; (2) de- velop industries in order not to rely so exclusively on imports; and (3) encourage Indonesians to engage in foreign trade, domestic commerce, and manufacturing. In this task of economic development, Indonesia faces several special problems. Important among them is the newness of the unitary state, which must govern not a single integrated economy but one composed of many local rural units in which the farmers raise their own crops and have little contact outside the nearest village. These units are scattered over many islands imperfectly linked by transportation. This self-sufficient rural Indonesia is in sharp distinction to the estate and urban economies which are closely tied to foreign capital and world markets. 1 Viewed by "Western eyes, it appears clear that economic development would be stimulated con- siderably if Indonesia could attract foreign in- vestment. Such investment would not only pro- vide additional amounts of capital but would also bring with it the advanced techniques and mana- gerial know-how which Indonesia lacks. Further- more, it could add to the foreign exchange earn- ings or reduce foreign exchange expenditures. In the postwar period to date, however, foreign capital has generally been reluctant to invest in Indonesia. Except for new investment by a few of the companies already established there in pre- war years, the amount of outside private capital which has been attracted has been small. The only significant new investment has been American and that has been in one field — petroleum production. The investment of other foreign countries — pri- marily the Netherlands — has declined. ATTITUDE TOWARD INVESTMENT Indonesia has not yet developed firm policies toward foreign investment, because of serious problems facing the new nation which demanded the attention of its leaders. Some observers have characterized the prevailing attitude — at one time or another during the postwar years — as neutral or acquiescent and others have described it as ambivalent. A few have even called it "hostile. 1 ' Although comments could be quoted to support this latter view, many of these have been expres- sions of Indonesian anticolonialism rather than statements of attitude toward the entrance of all foreign capital. Some Indonesian leaders, recognizing the need for developmental capital, have spoken out in fa- vor of attracting capital from abroad. They have been relatively few in number, however, and their recommendations generally have not been fol- lowed. Moreover, many Indonesians who recog- nize that a more tolerant policy in relation to for- eign capital is fundamental to Indonesia's future economic development consider a positive stand infeasible in view of the present domestic political pressures. Indonesian attitudes toward private foreign in- vestment are strongly influenced by intense na- tionalistic feeling — a reaction to Indonesia's for- mer colonial status — and by the views of political leaders who were educated in Western European socialism in the period 1920-35. In its sensitive- ness to foreign investment, which arises from un- satisfactory conditions of its colonial past, Indo- nesia is not unlike other new nations with a simi- lar history. Part of the strong domestic oppo- sition to foreign investment has been from politically active groups which do not have a full comprehension of economics and are, without justification, convinced that the presence of for- eigners and foreign capital will invite a return to colonialism. Signs of a more balanced, mature view toward investment have recently appeared. If these grow, Indonesia can be expected to take steps to realize its economic potential. Although any rapid economic development will, of necessity, require capital from abroad, some Indonesians be- lieve that Indonesia can develop, even though at a slower pace, by using its own resources. Indo- nesian leaders are increasingly gaining assurance that investment need not be accompanied by an encroachment of sovereignty. This assurance has been acquired from study of the history of the United States and other Western countries where economic development was greatly accelerated by foreign capital. In addition, some Indonesian leaders are begining to realize that if Indonesia wants foreign capital it must compete with other countries in attracting the limited amount avail- able. FOREIGN INVESTMENT POLICY Reflecting various statements of high officials that Indonesia intends to attract foreign invest- ment in a manner mutually beneficial to both the Indonesian people and the foreign investors, con- siderable attention has been given in the past few years to drafting a policy statement concerning foreign investment and an investment law. A draft investment law was prepared in 1953-5-t and approved "in principle" by the Cabinet in late 1954. Although the drafted law x was not pre- sented to the Parliament for consideration, interest in such legislation was indicated in a foreign in- vestment policy statement of the Government on December 8, 1955. The policy statement is quite broad and reiter- ates many of the points made in earlier statements ; nevertheless, it indicates that in several respects a somewhat more liberal treatment may be accorded than in the past few years. 2 The announced policy is summarized below in 16 points. 1. The Government recognizes the need for cap- ital investment to accelerate development, boost production, and improve living standards. 2. Since Indonesian capital is insufficient, for- eign capital — both Government loans and private investments — is needed. Attractive terms will be drawn up, but Indonesian interests will be safe- guarded. 1 This bill us drafted in 1034 reportedly called for the estab- lishment of an investment board that would approve new invest- ments and also attempt to promote investments. Approved new investments could be excepted from the 66%-percent transfer tax and the board could make other tax exemptions for desired investment projects. Reports are contradictory as to whether the law as drafted requires a certain percentage of Indonesian participation and as to whether some fields would be entirely closed to foreign enterprises. 2 For example, the policy stated with respect to remittances and company taxes indicates plans for liberalization of the present situation. 3. Private national capital is free to operate in any field not reserved for the Government. 4. Social enterprises and public utilities, such as railways, telecommunications, interisland navi- gation, domestic air service, electricity, irrigation and water supply, and munitions and nuclear energy plants, must be Government owned. 5. Small-scale industries traditionally operated by Indonesians are closed to foreign investment. 6. Moves should be made toward giving Indo- nesians greater control of basic industries by lim- iting foreign control of investments to 49 percent. However, some industries under this category can be excepted from this limitation for a period not specified. 7. Enterprises not reserved for the Government and for Indonesians or considered basic industries (covered by points 4, 5, and 6 above) are open to both foreign and national investment, provided they are in line with the Government's economic policy. 8. Companies operating wholly or largely in Indonesia must be established in Indonesia and incorporated under Indonesian law. 9. New regulations will be drawn up covering use of land by estates, industries, and other enter- prises for a maximum period of 40 years, with the possibility of extending leases. Provisions will also be made for land rentals. 10. Foreigners are allowed to work in Indonesia in accordance with regulations in effect. To pro- mote the employment of Indonesians, however, conditions may be stipulated for each enterprise concerning the number of foreign personnel to be employed and the training to be established for Indonesians. 11. International agreements shall be entered into to prevent double taxation. Compensations such as lighter company taxes and allowances for depreciation of fixed investments are to be ar- ranged for foreign companies established after January 1, 1950. 12. Privately owned enterprises, either national or foreign, which are not included under 4 above are not to be nationalized except by agreement with owners. 13. The following may be transferred abroad : (a) Profits of foreign investments after the pay- ment of taxes; and (b) expenses of foreign invest- ments in accordance with regulations. 14. The repatriation of foreign capital may be made in the currency of the investor's country after a business has been in operation for a period which is not specified. 15. A foreign investment law will be passed and a special body set up to execute the provisions indicated above. 16. For foreign enterprises already operating in Indonesia regulations will be drawn up to provide for a transition procedure gradually to place them in the same position as newly established foreign companies. The statement is yet to be implemented by laws and regulations, and until additional details are provided the degree to which the conditions are attractive is not clear. Moreover, since the state- ment is that of an interim Government, the pol- icies involved will need further clarification by the new Government which will come into power in 1956 as a result of the elections held in late 1955. FACTORS AFFECTING INVESTMENT Although the postwar climate for private in- vestment in Indonesia cannot be described as fa- vorable and in many respects is unclear, there are, however, some hopeful signs which may presage improvement. And it might be noted that only one of the American companies oper- ating in an industrial field in prewar years has withdrawn and that the American oil companies operating in Indonesia are adding to their investments. Many of the deterrents to foreign investment in Indonesia result from the under-developed state of the economy. Many are the same deterrents which beset the United States in its early years after independence. They include : (1) The fun- damental economic instability resulting from heavy dependence on the export of a relatively few products, notably rubber, petroleum, and tin; (2) the low level of domestic savings and deficient local capital markets; (3) inadequate development in the fields of transportation, com- munications, and power, the necessary base upon which industrial development can be built; (4) a limited supply of skilled labor and low labor pro- ductivity; and (5) low per capita income, with a resultant small market for many products. Many of these deterrents exist to a greater or lesser degree in other underdeveloped countries and, as development progresses, tend to diminish or disappear. The rate of Indonesian economic development in the postwar years has been slow. In some fields prewar levels of production have been exceeded, but in many fields current levels of performance remain below those of prewar years. The Gov- ernment has shown concern over the rate of eco- nomic progress and is attempting to evolve a de- velopment program. No overall well-coordinated plan has emerged thus far, although considerable preliminary work has been done and is continuing in the planning field. Domestic financial resources are small although perhaps not as small as the very inadequate sta- tistical data suggest. Nevertheless, Indonesia faces a shortage of capital available for economic development and it is not likely that savings can be greatly increased in a short time. Assuming that Indonesia wants foreign capital to help finance new enterprises, there are few established 380755 — 5(3- local entrepreneurs with which foreign capital can cooperate. In the colonial period business was concentrated in the hands of non-Indonesians and in the short time since independence, only a small number of competent Indonesian entrepreneurs have emerged. Restrictions on Money Transfers Among the factors which have discouraged foreign investments have been the restrictions on the remittance of profits and the repatriation of capital, coupled with high taxes. In June 1955 new regulations were issued applying to the trans- fer of profits for 1953 and 1954. 3 For 1953, transfers of operating profits are permitted after deduction of the regular company taxes and payment of a 66%-percent transfer sur- charge (for firms established prior to 1953) . For 1954 profits, transfer licenses are granted for only 60 percent of the net profit (out of which the 66%- percent surcharge must be paid) ; 40 percent of the net profit must be deposited in a special ac- count with the Bank of Indonesia. No restrictions exist on the total amount of the transfers of divi- dends for 1953, but for 1954 such transfers are limited to 30 percent of the paid-up capital. Capital repatriation has been generally sus- pended since January 1954. Taxes, especially the corporation tax, currently at 52y> percent of net profits over 2,500,000 rupiah (about $220,000 at the official rate of exchange) , are considered high in view of attendant investment risks. The Gov- ernment's policy statement of December 8, 1955, implies that some repatriation of capital may be worked out. labor and Political Situations Labor conditions have not been conducive to foreign investment. While wages are low by United States standards, the demands of labor unions, many of which are communist dominated, have frequently been considered unreasonable in view of low productivity. Although the. Indone- sian Government has developed a procedure to settle labor disputes, it has not been working in the manner originally planned. The court's de- cision sometimes appear to be against the em- ployers merely because the company is foreign owned, a situation that may stem from the prevail- ing nationalist attitude. Obtaining and maintaining competent technical and administrative staffs is one of the serious prob- lems facing foreign firms operating in Indonesia. Companies often find themselves under pressure to hire Indonesians and experience considerable diffi- culty and delay in getting entry permits for 3 Regulations covering 1055 remittances have not yet been Issued. The regulations cited here do not fully apply to the oil companies, for which special agreements have been made. foreign personnel. In view of the great difficulty in getting personnel to go abroad, 4 long delays in obtaining entry permits impose increased admin- istrative expenditures upon companies. The de- sire of the Government to place Indonesians in higher technical and administrative positions is understandable and is respected by most foreign companies, many of which are carrying out ex- tensive training programs of their own. How- ever, such firms object to demands for the hiring of Indonesians in cases where competent personnel are not available. There is a lack of trained Government personnel. However, a growing body of Indonesians is being trained in technical and administrative fields and a corps of competent Indonesian civil servants is being developed. Many businessmen interested in foreign invest- ment abroad have considered the postwar Indo- nesian political situation — external and internal — an important deterrent. With unsettled political conditions in Asia, the Far East generally has been less attractive than the Western Hemisphere or Europe, not to mention the attractive invest- ment opportunities within the United States. Moreover, during part of the postwar period, In- donesia itself has experienced considerable unrest, some of the disturbances involving theft, arson, and jn'operty damage. These disturbances have been primarily actions by the armed forces of an extremist group and of former fighters of the revolution, although labor groups under com- munist domination have taken part in some inci- dents. As of 1955, however, the general security conditions appeared better than in the earlier postwar years. Uncertainty about future operations is aug- mented by the fact that Indonesia has only re- cently had its first national election and an elected Government had not yet been installed. The ori- entation of the new Government, which is not at present clear, will be an important factor in future development. 5 The governments which have been in power since 1949 have all been handi- capped in planning for long-range developments because of their transitional nature. The present Constitution is provisional. Most of the laws under which businesses operate date from the co- lonial period and will in time undoubtedly undergo 4 According to executives of some business firms one of the principal difficulties in making oversea investments today is getting competent personnel to go to foreign countries, especially the less developed areas. There are much the same physical drawbacks to working abroad as in prewar years but, whereas before the war it was possible for such personnel to make large personal savings and to enjoy a good standard of living at low cost, this is no longer possible. Today, income taxes are high in many of the underdeveloped areas and the cost of living is as high or higher than at home. Moreover, foreign exchange con- trols may block the employee's earnings in the foreign country which are needed to meet financial commitments in his home country. B In a December 1055 unofficial and incomplete tabulation of the parliamentary election whicli was held in September, the Nationalist Party and the Masjumi (Moslem) Party were neck to neck for the largest number of seats. The Nahdatul Ulama (Orthodox Moslem Party) and the Communists were trailing in that order but both had a substantial number of seats. revision, but the nature of these revisions is yet to be determined. The Provisional Constitution, for example, ex- presses a strong public interest in the exploitation of natural resources and "in branches of produc- tion of importance to the State." The interpreta- tion of the Constitution in this field can only be ascertained by future developments; the nation is too new to judge as to how narrowly or how liberally such constitutional provisions will be in- terpreted, provided, of course, they are included in the revised Constitution. Nationalization and Indonesianization One of the deterrents American businessmen have pointed to is the increasing ownership and operation of industrial enterprises by the Indo- nesian Government and the statements of some officials who favor the nationalization of all basic economic enterprises. Government participa- tion in various business operations cannot be con- sidered as a completely new Indonesian develop- ment since the Netherlands Indies Government was deeply involved in economic activities in the prewar period. In addition to carrying on various activities inherited from the colonial regime, some of which are in the same fields as private foreign ventures, the Indonesian Government is establishing several new industries as Government enterprises. How- ever, in establishing such manufacturing opera- tions as rubber remilling plants, sawmills, a soda plant, and a cement plant, the Government has stated that it expects at a later time to sell them to private businessmen. To date Indonesia has largely confined national- ization 6 to enterprises in fields generally regarded as belonging to the public sector, such as the cen- tral bank of issue and various public utilities. The Government-owned Bangka tin mines were placed under Government operation, but in re- spect to other tin mines in which the Government has partial interest, e. g., the Billiton mines, the concession rights were renewed without addi- tional Government participation. The disposi- tion of oilfields in North Sumatra, formerly op- erated by a Dutch company and now under con- sideration for nationalization, has not yet been decided. On the basis of actions to date and present attitudes, it appears that the Indonesian economy will remain essentially a private-enter- prise system for some time to come, but the Gov- ernment will undoubtedly play a larger role than formerly. In Indonesian nationalization actions, there is no record of expropriation without compensation. Nationalization of the Bank of Indonesia, for ex- ample, was accomplished by purchasing the bank's 6 Nationalization is used here, in the usual sense, to mean the taking over of private enterprises by the Government. shares from individual holders. There was also full payment for the former Dutch-owned electric power companies which have been taken over by the Government. Based on this record, the gen- eral policy on nationalization can be summarized in the words of a former prime minister : "As a matter of principle I can state here that the Indo- nesian Government shall not nationalize in such a way that it would create a kind of surprise for the investors. Such nationalization could only take place through due process of law and would be given due and reasonable compensation." 7 According to the investment policy statement of December 8, 1955, as summarized in point 12 above, nationalization except for the fields indi- cated as reserved for the Government will be only by agreement with the owners. The tendency toward reserving some economic activities for Indonesians or to greatly increase their participation through regulations is viewed with misgivings by businessmen. It is feared that this "Indonesianization," which has been prima- rily in certain aspects of trade and transportaiton, will spread to other fields. Other Factors Probably the single most important factor fa- vorable to future investment in Indonesia is the country's extensive and varied natural resources. Mineral resources are abundant and largely un- exploited. Forest and fishery resources are also substantial. Agricultural lands can produce a wide variety of products. In its 82 million people Indonesia possesses an important resource. At present the labor force operates at a relatively low level of efficiency. But that this low productivity is caused by factors other than those inherent in the population is brought out by the performance of Indonesians who have received adequate education and techni- cal training. The efficiency is low because people are poorly educated, and in some cases, poorly nourished, and weakened by chronic disease. Their tools, production techniques, and farm units may have been adequate for a subsistence economy but are far less adequate for a modern economy. Economic development normally brings about increases in income levels. With the present low average per capita annual income, purchasing power is very limited. With further development and higher income levels the market potential of Indonesia would take on new significance. A few items which formerly were imported for general consumption now are being produced within the country, and others could be. 7 Statement of Ali Sastroamidjojo, then Ambassador to the United States, in a speech before an American trade group in 1953. INVESTMENT EXPERIENCE Potential United States investors are interested in the experience of foreign companies now oper- ating in Indonesia — particularly American — as a key to the probable treatment of new investors. American investments in Indonesia are primarily in rubber estates and petroleum operations but are also in the manufacturing field. The estates are in a relatively unsatisfactory position, whereas the oil companies are more favorably situated. Most companies engaged in manufacturing are confronted with difficulties in their operations, and view expansion at present as unpromising. Their businesses are not entirely unprofitable, however. During World War II, plantings on the rubber estates were partially destroyed. In the postwar years internal security has hampered operations; part of the estate output has been stolen and squat- ters have settled on some of the concession lands. Lease renewals are also uncertain, and, since many of the estate concessions have expired or will ex- pire within a relatively few } r ears, this uncertainty is an important consideration for companies which must plan for replanting. The Indonesian Gov- ernment has not as yet decided what terms will be established for the renewal of such leases. To this uncertainty have been added labor troubles and the difficulty of obtaining a compe- tent technical staff among Indonesians to replace the Dutch and other foreigners who made up most of the staffs in prewar years. Furthermore, an extra export tax on rubber (which has ranged from 10 to 25 percent during most of the postwar pe- riod), 8 together with the high cost of other taxes and the limitation on remittances, has made finan- cial returns less attractive than in other rubber- producing areas of the world. The oil companies are in a stronger position than the companies operating rubber estates. They have immense financial resources, with pro- ducing and exploratory interests in many parts of the world. Moreover, for this industry the Indonesian Government, has made special provi- sions. "Let Alone Agreements'", which permitted the companies to operate outside the foreign ex- change system, have assisted in the postwar re- habilitation of the petroleum industry. In 1954 these companies, which have been in- vesting new money on a large scale, successfully negotiated special tax and foreign exchange ar- rangements with the Indonesian Government. Despite certain operating problems, the oil com- panies are moving ahead in Indonesia. Of major importance to their future operations is the policy regarding concessions. The Indonesian Govern- ment has not yet decided the terms under which foreign companies can explore and exploit petro- leum and other mineral resources. 8 In 1955, this extra tax was reduced to 5 percent, and later It was removed along wltli other extra export taxes. Foreign manufacturing companies report nu- merous problems, and profits are currently only moderate at best. These companies, together with domestic companies, find difficulties in obtain- ing foreign exchange for the importation of needed raw materials and new equipment a particular handicap in carrying out or expanding their op- erations. Demands for the promotion of Indo- nesians to positions for which the companies claim local competent personnel are not available have in some instances seemed unreasonable. Similarly, the policy of requiring the transfer of importing and other businesses to Indonesian firms has been criticized on the ground that few of these firms have the requisite experience, facilities, and cap- ital to carry on such activities. 9 PROBABLE FIELDS OF INVESTMENT The general fields open to foreign investment are defined in broad terms in the policy statement of December 8, 1955, already given. The fields which will be fully open to foreigners (i. e., out- side the spheres reserved for the Government and for national capital) are not clear, however, since no definition has as yet been given of "basic in- dustries,"' which, in accordance with the state- ment, will be generally confined to 19-percent par- ticipation by foreign capital. Some types of manufacturing are expected to be open to foreign- ers on a majority-control basis and probably some types of mining, agricultural, forestry, and fish- ing ventures, but the specific types have not been indicated. On the basis of recent experience, it seems unlikely that foreign enterprises will be encouraged in trading operations. Whether in the general field of manufacturing, mining, agriculture, forestry, or fishing, it can be expected that Indonesia will look most favorably on those enterprises which : ( 1 ) Produce for ex- port and therefore are foreign exchange earners; or (2) manufacture goods now imported and therefore will reduce the country's foreign ex- change expenditures. Generally, industries which involve the processing of domestic raw materials will be of interest to the Indonesians. The Government appears likely to develop a system of screening to permit entry only to the fields which it considers desirable. Special con- cessions may be offered to attract desired projects. In any event, consideration of new enterprises is and will probably continue to be on a case-by-case basis, with detailed individual negotiation re- quired before approval is granted. "In the fall of 1955 the Government modified the former regu- lations requiring virtually all import trade to he handled hy na- tionals, hut as of the end of the year a number of commodities could only he imported by nationals, and foreign import com- panies were required to make substantial deposits in order to qualify as Importers. Engineering- and other special types of tech- policies designed to attract investors likely to meal know-how are particularly important to bring in technicians. The Indonesian Govern- lndonesia m its efforts to expand and diversify nient may also wish to hire directly American and its economy. The shortage of technicians and other foreign engineering and management firms managerial specialists may in part be offset by in connection with Government projects CHAPTER II nvestment: Past and Present Indonesia's economic growth has to a consider- able degree been the result of foreign investment in the colonial period. This investment started early in agriculture and trade and later was ex- tended to mining, transportation, public utilities, banking, and, to a lesser degree, manufacturing. From the Indonesian viewpoint, development to the country's present status is sometimes viewed only as exploitation. Nevertheless, it must be conceded that without the inflow of Dutch and other foreign capital Indonesia's present produc- tive output and its important participation in world trade in the 19th and 20th centuries would have been much more limited. ESTIMATES OF INVESTMENT Estimates of foreign investment in both pre- war Netherlands Indies and postwar Indonesia vary considerably, partly because of differences in the methods of evaluation, but also because values underwent great fluctuations, public and private business investments cannot always be easily sepa- rated, and the Dutch were very reticent in giving out information of this type. All the figures mentioned here should be recognized as approxi- mations based on a considerable amount of guess- work. For the immediate prewar period estimates of total foreign investment ranged from about 2.5 billion guilders to about 7 billion guilders, 1 the more generally accepted estimates lying between 4 and 6 billion. The estimates of amounts in- vested in private enterprises varied from 1.3 bil- lion guilders 2 to 3.5 billion. 3 The lower figure is considered too conservative; the higher figure, which appears to check with other data, is believed more realistic. Table 1 indicates the importance of foreign capi- tal in the economy of the Netherlands Indies dur- ing the period from 1900 to 1937. According to 1 The prewar (1937-39) Indonesian and Dutch guilders, which were on a par, were equivalent to about US$0.55. In the post- war period, the term rupiah has replaced guilder for the Indo- nesian currency unit, and several devaluations have occurred (in 1946, 1949, and 1952). 2 This estimate, included in a United Kingdom Memorandum based on issues of corporations, did not take into account rein- vested profits, and neglected early investments which are con- sidered of importance. 3 Estimate made in 1939 by Professor Van Gelderen, who was for many years head of Netherlands Indies Statistical Institute. these data, which have been compiled from various sources and are considered as accurate as any, total foreign investments, including rentier investments (mainly Government bonds), amounted to about 5.5 billion guilders in 1937. 4 Table J. — Investments in the Netherlands Indies, 1900-1937 [In millions of U. S. dollars] ' Year Entre- preneur invest- ments 2 Rentier invest- ments 3 Total 1900 1914 1930 1937 -- 300 675 1,600 1,411 <18.0 68.4 396.7 852.5 318.0 743.4 1, 996. 7 2, 263. 5 1 Converted at the rate of 1 guilder equals $0.40, which represents the parity of the guilder in the former United States gold currency. This conversion has been used, rather than the rate of 1 guilder equals $0.55, in order to compare the 1937 figures with earlier years. 2 Includes resident Chinese business investments. 3 This term was used for Government investments, which were primarily investments through Government bonds. * Includes only consolidated debt, i. e., state loans on behalf of the Nether lands Indies. Source: Foreign Capital in Southeast Asia, by Helmut G. Callis and Carl F. Remer. New York, 1942. Data were compiled from various studies, as indicated in the source. No accurate postwar estimates of overall for- eign investment are available and most of the fig- ures used publicly appear to be reiterations of prewar figures, sometimes with reference to changed conditions and sometimes without such reference. For example, in 1947 Vice President Hatta estimated that of the total postwar foreign investment (4 billion rupiah) only one-fourth or 1 billion remained. 5 Indonesia's Minister of Eco- nomic Affairs Wilopo stated, in 1951, "foreign in- vestment at the present time comes to about 5 billion rupiah." 6 Another 1951 Indonesian Gov- ernment estimate, however, placed "total private foreign investments" several times higher, or about US$1.3 billion. In early 1955 in a memorandum on Dutch in- vestments in Indonesia, the Government stated that the exact amount of such investments was not known, but had been estimated by several experts 4 About $3,025 million at the 1937 rate of exchange or $2,263 million using the earlier parity of 1 guilder equals $0.40 (see footnote 1 of table 1). 5 Statement made in a speech of January 11, 1947, dealing with economic policies of the new Republic. 6 Statement reported in the press, October 1951. at 2.5 billion rupiah. 7 Assuming that about 70 percent of investments in Indonesia were Dutch, this would give an investment total of about 3.6 billion rupiah (about $316 million at the official rate of exchange or $129 million at the 195-1 mar- ket rate of exchange). 8 Another estimate of a semiofficial group placed Dutch investments in Indonesia as of 1954 at about "4.5 billion rupiah at 1954 prices"; on the basis of this figure, and again assuming that 70 percent of the investments were Dutch, total postwar for- eign investments would be 6.4 billion rupiah ($561 million at the official rate of exchange and $230 million at the market rate). Some estimates of total foreign investments, however, are consider- ably higher than these latter figures, placing the total foreign investment in the neighborhood of $1 billion to $1.8 billion. 9 None of the postwar estimates indicated above result from detailed statistical postwar evalua- tions, but all are based on imperfect prewar data taking into account certain adjustments which are known to have occurred in the postwar period. Their validity may well be questioned, but they are the only estimates presently available. PREWAR INVESTMENT Dutch Investment The predominance of the Dutch in investment in Indonesia is clear; their share is generally es- timated for the immediate prewar period as two- thirds to three-fourths of the total. In terms of value, if the 4- to 6-billion-guilder range is ac- cepted for total investment, then the Dutch share was within the range of 2.6 billion to 4.5 billion guilders. The only itemized breakdown of prewar Dutch investment by type (see the listing below) shows the predominance in agricultural enterprises. Half of the Dutch private investment was in sugar, rubber, and other estate agriculture and a large amount was also invested in agricultural loan banks. Dutch interests dominated the sugar industry, although resident Chinese (included here as Dutch) were of some importance. In rub- ber, coffee, and tobacco, the Dutch interest was of major importance although less than that of na- tive Indonesians. The manufacture of cinchona derivatives was exclusively, and the palm oil in- dustry predominantly, in Dutch hands. 7 Figure used in memorandum forwarded by tbe Government to Parliament on February 18, 1055, as reported in tbe press. This figure and others of this memorandum appear, however, to In' Identical with figures reported for prewar years. 8 The official rate used is 11.40 rupiah equal US$1 and the market rate, 28 rupiah equal $1. °A recent report from The Hague, for example, referred to Dutch investment in Indonesia as totaling 4.5 billion guilders (about .$1. 20 billion). Assuming that the Dutch part represents 70 percent of total foreign investment in Indonesia, the total figure would be $1.8 billion. Prewar Dutch investment in private entrepre- neur enterprises in the Netherlands Indies has been broken down as follows : Investment • (millions of guilders) Sugar production 400 Rubber production 450 Other agricultural enterprises 350 Agricultural loan banks — 274 Tin 2 10 Petroleum — 500 Shipping 100 Railroads and tramwavs 2 150 Public utilities 2 100 Industry .-. 50 Miscellaneous 250 Total 2,634 1 Includes resident Chinese capital which was officially classified as Dutch. Does not include capital investment ot Dutch companies located in the Netherlands which operated in the Indies through direct branches or repre- sentatives, but which received a share of their income from trade with the Indies. 2 In addition, governmental capital was invested in these fields. Source: Article by A. S. Keller, entitled "Netherlands Indies as a Paying Proposition", in Far Eastern Survey, January 17, 1940. Second to agricultural holdings was the Dutch interest in the production of minerals, notably petroleum and tin. The Dutch controlled more than one-third of the total production of oil. 10 Of the 500-million-guilder investment in this industry in prewar years, it was estimated that 360 million was that of Bataafsche Petroleum Maatschappij (BPM), a subsidary of the Royal Dutch Shell combine and the largest oil producer of the Indies. 11 Some of the important tin mines as of 1940 were Government owned and Dutch private investments were estimated at only 10 mil- lion guilders. Aside from agriculture and mining, Dutch business investments were largest in communica- tions and public utilities. The major shipping companies carrying on interisland trade, for ex- ample, were privately owned although operating under Government privilege. A considerable por- tion of this investment was also in power pro- duction and distribution. Investment in manufacturing industries — aside from the processing of agricultural products and oil refining, data for which are included in figures for agriculture and petroleum — was estimated at 50 million guilders. Textile manufacture, cement production, paint production, and food and bever- age production were important in this category. Trade and banking, although not listed sep- arately in the breakdown given above, were of in- vestment importance. Moreover, the economic influence of the large Dutch trading firms and banks cannot be expressed merely in terms of their capital working in these fields. 10 This statement is based on estimates that Dutch and British interests together controlled about (iO percent of the total pro- duction ; the Dutch share in the combined interests was about 60 percent. In postwar years the American share in this industry has increased. 11 Some sources place BPM's prewar investment considerably higher — at about 600 million guilders as of i937. See Ernest O. Hauser's article entitled "Britain's Economic Stake in Southeast Asia," in Far Eastern, Survey, December 22, 1037. 10 British Investment Although Dutch investment easily predomin- ated, the prewar policy permitted other foreign nationals to participate. Accordingly, British interests invested in many fields, including the production of petroleum, rubber, and other estate crops, merchandising, and banking. Estimates of total British investments as of 1937-39 range from about 280 million to 450 million guilders; the higher figure appears more realistic. During the boom years of the 1920's, the British poured great amounts into estate agriculture, es- pecially rubber, but also into the production of sugar, coffee, and tea. Investments in these fields declined from a valuation of 278 million guilders in 1929 to an estimated 200 million guilders in 1937. In the manufacturing field, the British- American Tobacco Co. carried on tobacco produc- tion as well as cigarette manufacture. The business partnership of the British with the Dutch in petroleum enterprises meant that con- siderable British capital was invested in this in- dustry in prewar years. Of BPM's total invest- ment about two-thirds was reportedly Dutch and one-third British, i. e., the Shell component of the combine. The British stake in oil production has been placed at 240 million guilders for 1937. 12 British mercantile houses and banking institu- tions also had extensive interests in the Nether- lands Indies; however, no data are available as to the amount of capital invested in these fields. American Investment In the immediate prewar period United States business investments ranked after Dutch and Brit- ish and resident Chinese investments, the latter being officially included in statistical data on Dutch investments. And of United States invest- ments in the Far East, those in the Netherlands Indies were second or third. 13 Nevertheless, American investments were relatively unimpor- tant — whether measured from the standpoint of the Indies in comparison with the holdings of other countries, or as a percentage of total United States investments abroad. For the immediate prewar period American holdings were variously estimated within the range of 128 million to 220 million guilders (about $70-132 million). 14 U. S. Department of Com- merce data report United States direct investments at $70 million in 1936, at the same level in 1939, and at $71 million in 1940. These figures, how- 12 Estimate of Ernest O. Hauser (see citation in footnote 11). 13 American investments in the Philippines were higher. Ac- cording to some sources investments in China were also higher than in the Netherlands Indies. Direct investments, however, as shown by U. S. Department of Commerce data, were only $46 million for China in 1940 compared with $71 million for the Netherlands Indies. 14 Converted at the rate of exchange of 1 guilder equals US$0. 55. Many of the investments were made before 1932, when the par value of the guilder was US$0.40. ever, which reflect book value, are considered very conservative as a measure of total United States investment. 15 Other sources, for example, place the holdings of the major American oil company operating in the Indies in prewar years at $70 million in 1936 and American investments in rub- ber at this time at $30 million to $40 million, so that the total, on the basis of these data, must have been at least $110-120 million. Historically, American investments in the Netherlands Indies were made relatively late. As far back as 1898 Americans were interested in investing in the Indies, but the Dutch Government gave preference to Dutch and British capital. Al- though American capital had obtained a share in the Royal Dutch Co., it was not until 1912, when Standard Oil Co. was given an oil concession, that a purely American concern was successful in establishing itself. It was not until the 1920's that American in- vestment began to move into the Indies in impor- tant amounts, reaching a peak of $201.3 million in 1929, of which $135.1 million was in securities and $66.2 million in direct investments. Later, with the elimination of most security holdings, the American stake declined, leaving largely direct investments in the immediate prewar period. These direct investments, as indicated above, were variously estimated at $70-120 million for the 1937^0 period. Americans were reported to control about 40 percent of the oil interests of the Indies in the immediate prewar period through the operations of two companies. One — N. V. Standard- Vacuum Petroleum Maatschappij — was a subsidiary of the Standard- Vacuum Oil Co., which in turn is owned jointly by the Standard Oil Co. of New Jersey and the Socony- Vacuum Oil Co. The other — N. V. Caltex Pacific Petroleum Maatschap- pij (Caltex) — was a subsidiary of Standard Oil of California and the Texas Co. At the outbreak of "World War II, the first-named company was both producing and refining and also had an asso- ciated sales company whereas the second was still in the state of exploration. Next in importance to petroleum was the pro- duction of crude rubber, with investments centered in Sumatra. The two largest American com- panies operating in the area were subsidiaries of the United States Rubber Co. and the Goodyear Tire and Rubber Co., but in addition there were several smaller American interests. The two large American companies, which produced for export to their principals in the United States, were considered pioneers in the production and ship- ment of latex and in scientific production and chemical research in crude rubber production. After petroleum and rubber enterprises, Ameri- can investment ranked highest in manufacturing. The largest American industrial plants in the 15 The bases of these direct United States investment data are described in further detail in the section, "Postwar Investment." 11 Netherlands Indies were the passenger ear and truck assembly plant of a subsidiary of General Motors Corp. at Tandjung Priok (port of Djakarta), and the tire manufacturing plant of a subsidary of the Goodyear Tire and Rubber Co. at Bogor. The General Motors plant did a large part of the total truck business of the Netherlands Indies and also enjoyed an important share of the passenger car business; the Goodyear factory re- portedly had sufficient capacity to furnish nearly all of the tire needs of the country in prewar years. Another fairly important American prewar manufacturing enterprise was the subsidiary of the National Carbon Co. (an affiliate of Union Carbide and Carbon Co.), which manufactured dry batteries, chiefly for use in flashlights. Amer- ican interests in manufacturing fats and oils were represented by a branch plant of the Procter and Gamble Co., which made margarine and cooking fats in Surabaja, and by the Colgate-Palmolive- Peet Co., which manufactured soaps and toilet preparations under contract in a factory owned by others. Other American investments in prewar Nether- lands Indies were divided among sales and servic- ing offices of companies in the fields of electrical goods, sewing machines, business machines, and motion pictures. Only a few American trading companies operated in the Netherlands Indies and investment in these fields was largely limited to the value of office equipment. Other Foreign Investment The holdings of other nations were relatively small although French, Belgian, German, and Japanese interests had prewar investments which were not altogether insignificant. The French and Belgian investments were in rubber and oil- palm estates and the French also had substantial shares in the Boyal Dutch Shell Co. (petroleum). In addition to some holdings in tea, coffee, rubber, oil palm, and cinchona, prewar German trade in- terests had erected a plant for constructing rail- way cars and equipment. Japanese capital, which had entered several fields of endeavor in prewar years, had holdings in sugar, tea, oil palm, and rubber. In the 1930's Japan had also entered oil production. Resident Chinese investments have been in- cluded here in the figures on Dutch investments since they cannot be accurately separated. A rough estimate, based on what is known about the Chinese population in the Indies, their general economic position, and their family remittances to China, suggest that Chinese business capital may have been 300 million guilders or more in the im- mediate prewar period. The Chinese were pre- dominant in trade, but were also represented in almost every branch of agricultural and industrial endeavor. They produced sugar and rubber, and Chinese capital was of importance in opening some of the tin mines. Rice milling, textile manufac- turing, and rubber manufacture were among the industrial fields in which they were important. Government Investment Although business investments were impressive, rentier investments were also of great importance. These investments, mainly Government bonds, have been estimated at about one-third of total foreign investments in the immediate prewar period (table 1). This large governmental invest- ment is partly the result of borrowing money to carry out the colonial Government's program of public works, especially during depression years. Public indebtedness in the Netherlands Indies was high, being about 1.4 billion guilders in 1937 and, although reduced in later years, it was still more than 1.1 billion guilders in 1940. The per capita debt of the Netherlands Indies has been estimated at about US $10 in the 1938-39 period compared with about $3.5 for the Philippines and $3.3 for Indochina. 16 The Government bonds and other portfolio investment " were preponderantly in the hands of the Dutch. As of 1935 the Dutch share was estimated at about 80 percent, other holdings being primarily British. Americans had considerable dollar bond holdings in the 1920's but by 1935 most of these had been wiped out and, as indicated previously, in the immediate prewar period such investment on the part of Americans was relatively insignificant. POSTWAR INVESTMENT While no reliable figures are available covering postwar overall foreign investment or the im- portant Dutch segment, it is generally recognized that the value of foreign investment — in terms of constant prices — is considerably less than in pre- war years. Wartime destruction of property was large, and postwar disinvestment has been sizable as Dutch firms have tried to repatriate accu- mulated profits, surpluses, and capital investments. The holdings of other nationals, e. g., the British, may also have decreased. New Chinese capital has entered via Hong Kong, but the outward movement of Chinese funds may have been as great as the inward movement. The flow of American capital to Indonesia has been only in small amounts. Because of the lack of statistical data, atten- tion here is given only to United States invest- io Forcir/n Capital in Southeast Asia, by Helmut G. Callis and Carl F. Reiner. Institute of Pacific Relations, New York, 1042. 17 The total portfolio investment is somewhat larger than the bonds of the various municipalities, regencies, and other public bodies because It also includes issues of other Netherlands Indies debentures, some not officially quoted. 12 ment and most of the statements regarding this segment are based on U. S. Department of Com- merce information covering direct investments alone. Admittedly, these data greatly understate the total United States investment in Indonesia. The most recent detailed census of United States business direct investments abroad was conducted by the Department of Commerce for the end of the company fiscal periods closest to December 31, 1950. For more recent years estimates have been made based on known changes in company opera- tions. The following itemization shows the esti- mated value of direct United States investment in Indonesia in 1949-54. Millions of dollars 1949 62 1950 (census year) 58 1951 72 1952 74 1953 i 88 1954 2 66 1 Revised. 2 Preliminary. The reduction between 1953 and 1954 is be- lieved to result primarily from repayments on advances made by parent companies rather than disinvestment. Source : Office of Business Economics, U. S. Department of Commerce, Survey of Current Business, August 1955. In 1950 the net American equity interest ("book value") in foreign subsidiaries operating in Indo- nesia was $58.2 million. This net book value, how- ever, reflected total assets valued conservatively at about twice that amount, or $120 million. In addition, the "true" value of these properties was undoubtedly considerably higher than the indi- cated book value. 18 The industry breakdown of the 1950 direct in- vestment, given in table 2, shows the predominance of petroleum and agricultural — mostly rubber — enterprises. Manufacturing was confined prima- rily to four types of operation — automobile and truck assembly, 19 tire manufacture, production of margarine and cooking oil, and the manufacture of dry batteries. Other investments included, as in prewar years, the sale and service operation of several sewing and business machine companies, the distribution functions of leading American motion picture producers, the limited operation of American trading companies and the investment in 18 The basis of valuation used in the census was the equity of the reporting American companies in the subsidiaries or branches operating in Indonesia, as reflected on the books of the latter, the conversion of local currency figures into dollar terms being in accordance with standard accounting practice. It is cus- tomary for most companies to value such current assets as inven- tories at cost or market value, whichever is lower, and fixed assets at cost less depreciation (usually resulting in a figure much less than replacement value). Furthermore, it is general practice in the extractive industries to charge off depletion against a wasting asset (e. g., petroleum reserves) more rapidly than the asset is being depleted physically. The figures include only those investments in which the controlling interest is resident in the United States and in which the United States investors have an important role in the managerial control. See "Foreign Investments of the U. S.," in Supplement to the Survey of Cur- rent Business, U. S. Department of Commerce, Office of Business Economics, 1953. 10 At the end of 1954, the General Motors Co. closed its opera- tions in Indonesia. In 1955, the former G. M. plant, purchased by the Indonesian Government, was reopened. properties used for religious, charitable, and edu- cational purposes. Table 2. — Value of United Stales Direct Investments in Indonesia, by Industry, J 950 and J 953-54 [In millions of U. S. dollars] Industry 1950 1951 1954' Agriculture^ . . 13.5 ( 2 ) ( 2 ) Petroleum _ _ _ _ 30.7 9.7 ( 2 ) 1.7 2.6 ( 2 ) 17 ( 2 ) 3 3 68 ( 2 ) Manufacturing. Transportation, communications, and public utilities 19 ( 2 ) Trade 4 Other industries. ._ 3 43 Total 58.2 88 66 1 Preliminary. 2 Included in other industries. 3 Primarily petroleum. Source: Office of Business Economics, U. S. Department of Commerce. From 1950 through 1953 an increase of about $30 million was registered in direct United States investments in Indonesia. Most of this amount represented new investment of the oil companies. The year 1954 brought a decline to $66 million. This reduction, however, probably resulted from the repayment of short-term advances to parent companies rather than any real disinvestment. Despite the prewar interest in the Netherlands Indies as a field for United States investment and some investment experience in this area, Indonesia has been largely bypassed as a field for United States investment in postwar years. This is re- vealed in table 3, which provides a summary com- parison on the basis of direct investment data, with certain other countries for the period 1949-54. 20 Table 3. — Value of United States Direct Investment in Selected Countries, 1949-54 * [In millions of U. S. dollars] Country All countries Indonesia Canada Brazil Colombia Mexico - Peru Egypt Union of South Africa India Philippine Republic. . Australia. 1949 1954 2 10, 700 17, 748 62 66 3,146 5,939 588 1,050 194 263 374 523 148 255 38 54 105 216 27 92 132 216 161 387 Percent increase 89 79 36 40 72 42 106 241 64 144 i This table provides a general indication of the levels of direct invest- ments in various countries. Because of differences in company bookkeep- ing procedures, however, country comparisons are in many instances not completely valid. See footnote 16 of this chapter for the basis of these figures. 2 Preliminary figures. Source: Office of Business Economics, U. S. Department of Commerce. 20 Admittedly, these data are imperfect in measuring United States investment abroad, but they are the only ones available for a number of countries on a somewhat comparable basis. 13 95° \ it' ■s h D. ie r- d •e P k, r- is is I- a- 1- ■e I. JS iS ie is m. 3S l() 1- »t. si- te ie o al L° i- )St ■se er- ^y CHAPTER III The Land, the People, and the Government THE PHYSICAL SETTING The Republic of Indonesia occupies most of the large island archipelago which lies between south- east Asia and Australia. From west to east the country extends more than 2,800 miles, approxi- mately the same distance as from California to Maine. From north to south it extends a distance equivalent to that from the Canadian border to central Texas. Its actual land area, consisting of four large islands and more than 3,000 small ones, is 575,893 square miles, 1 or about one-fifth that of the United States. The relative size of the principal islands is as follows (in thousands of square miles) : Kalimantan (Borneo) 1 208.3 Sumatra 164. Sulawesi (Celebes) 73.0 Java 2 48. 8 1 Excludes that part of the island of Borneo which is British territory (Sarawak, Brunei, and North Borneo). Reference throughout this report to Kalimantan (Borneo) is to only the Indonesian portion. 2 Including Madura, which is often grouped with Java, the area would be about 51,000 square miles. The western islands — which include three large ones, Sumatra, Java, and Kalimantan — lie on the Asian land shelf and were within fairly recent geologic time connected with the mainland. The seas separating them from Asia are shallow and much of their coastal area consists of tidal swamps extending far inland. The eastern islands and neighboring New Guinea rest on the Australian land shelf and formerly constituted a part of Australia. Most of the central islands, which in- clude Sulawesi, the Lesser Sunda Islands, and the Moluccas, however, rise out of deep ocean in what was once a wide strait separating the Asian and Australian continents. Topography The topography of Indonesia is one of strong contrasts. The country is predominantly moun- 1 Excludes Netherlands New Guinea (known as West Irian to the Indonesians), the political status of which is in dispute be- tween the Netherlands and Indonesia. tainous, with a central range running along the length of the archipelago. Subsidiary ranges curve northward to the islands of Kalimantan, Sulawesi, and Halmahera of the Moluccas group. Considerable areas of plains, however, border the coasts such as the recently uplifted marine for- mation on the northern coasts of Sumatra and Java. And throughout the islands there are more or less extensive alluvial plains. 2 Sizable swamp areas cover part of the coastal regions. The Lesser Sunda island group (Bali, Lombok, Sumbawa, Sumba, Flores, and others) is character- ized by deep-sea basins and steepsided mountains with only small plains ; here, mountain building is evidenced by frequent earthquakes as well as vol- canic action. More than a hundred of the Indone- sian mountains are active or recently active vol- canoes and the western and southern islands are among the most volcanic territories in the world. Volcanic ash carried down by rivers enriches the soil of the plains. This is an important fac- tor affecting the fertility of the land, and, in turn, the country's agricultural development. Climate Because Indonesia lies along the Equator, days and nights are almost equal in length and the variation between the longest and shortest day is only about 40 minutes. Owing to this uniform duration of the sun's radiation seasonal differences in temperatures are slight. Indonesia has no winter, spring, summer, and autumn and the tem- peratures throughout the year are generally hot. The mean annual temperature at coastal sea- level points is about 77° to 81° F., the absolute maximum temperature about 93° to 97°, and the average maximum temperature about 86° to 89.5°. The absolute and average minimum at coastal places vary, respectively, from about 61° to 71° and from 70° to 75°. The mean annual tempera- 2 Java has a larger proportion of area in low plains than most of the islands and its mountainsides slope more gently. These plains, which are enriched by volcanic deposits, have great fer- tility and suitability for irrigation. 15 ture at Djakarta, for example, is 78°, with the highest monthly average at 80.6° and the lowest monthly average at 77.5°. The tropical heat of the lowland areas is tempered, to a varying degree depending upon location, by ocean winds. The average temperature decreases about 1° F. with each increase of 350 feet in altitude. Thus the mountain districts offer cool relief from the hot lowlands. At Bogor at 800 feet above sea level the average annual temperature is about 75° ; at Bandung, at about 2,000 feet it is 71° ; and at Tosari (in East Java) at 5,790 feet, 61°. Bainfall is heavy in nearly all parts of Indo- nesia and increases with altitude. Some mountain areas are drenched with 10 to 12 feet of rain, but the lowland areas generally range from about 70 to 125 inches. At Djakarta (Java) rainfall aver- ages about 72 inches annually, at Medan (Sumatra) about 82, at Pontianak (Kalimantan) about 120, and at Manado (Sulawesi) about 105. Only in the islands of the southeastern part of Indonesia is there a distinctly dry season and rela- tively light rainfall. Although the temperature varies only slightly throughout the year, the monsoon winds cause a seasonal change in rainfall. However, the mon- soons are less pronounced than in most of South- east Asia, giving a more even pattern of rainfall. In much of Indonesia the "wet" season, at the time of the west monsoon, prevails throughout the winter months of the Northern Hemisphere, and there is a drier period during the east monsoon at the time of our summer months. The dry season is relieved by occasional showers, but rains are lighter and of shorter length than in the wet season. In Java the greatest precipitation generally occurs in December, January, and February and the least in June, July, and August. In parts of eastern Indonesia, however, the seasons are re- versed, with the heavier rainfall at the time of our summer months. Moreover, the difference between the monsoons varies greatly from year to year ; in Java some years have no real dry season while in other years the dry season lasts for several months. East Java normally has a longer dry season than West Java. Although temperatures of the lowland coastal areas do not register as high as those of tropical continental areas nor as high as summer tempera- tures of many middle latitude places, the humidity is generally high. In Djakarta, for example, the average annual humidity is about 80 percent. This means that the heat is more uncomfortable although there are few days which are as oppres- sive as many summer days in Washington, D. C, or Tokyo. Because of the combination of year- round high temperatures and high humidity in the lowlands, trips to nearby mountain places offer welcome relief. Natural Resources The natural resources of Indonesia — particu- larly mineral and agricultural — are extensive and are largely unexploited. The mineral deposits have never been completely surveyed, but on the basis of present knowledge they provide a large potential. Chief among these are petroleum, tin, and bauxite which are currently being produced in sizable quantities, but other minerals include coal, manganese, iron, asphalt, phosphate, cop- per, nickel, tungsten, sulfur, and iodine, as well as gold, silver, platinum, and diamonds. The estimates of waterpower reserves are not con- sidered very reliable but a relatively large poten- tial is clearly indicated. Only a very small frac- tion of the hydroelectric resource is being utilized. The agricultural raw materials contributed to the trade of the world have been varied and im- portant. In prewar years the Netherlands Indies supplied about one-third of the world's rubber, palm-oil, and coconut products, two-fifths of the world's kapok, four-fifths of the world's pepper, and one-fifth of the world's tea. Important quan- tities of sugar and coffee were also produced. Although Indonesia's position in world mar- kets has shifted for many of these products, this list and the numerous crops (rice, corn, vegetables, and a great variety of fruits) grown for domestic consumption indicate the broad base of Indo- nesia's tropical agriculture. Moreover, there are extensive land areas which, when cleared, would be suitable for expanded agricultural production. While the country has poor jungle soils subject to rapid leaching under cultivation, large areas have rich volcanic soils. Forests are extensive and contain sections ca- pable of exploitation. Some forest areas, such as those of Kalimantan, have hardly been ex- plored. Products include teak, ironwood, and other hardwoods, bamboo and rattan, mangrove bark for tanning, cinchona bark, indigo, and gums and resins. Extensive stands of pines oc- cur in the mountains of North Sumatra. Fishery resources, inadequately known, are believed to be large. Food fish are plentiful in the seas sur- rounding Indonesia, and inland rivers and lakes contain additional resources. THE PEOPLE An understanding of the population structure and population problems is essential to an evalu- ation of the potentialities of Indonesia as an area for foreign investment. The present population is about 82 million, 3 which makes Indonesia the 3 No population census has been taken since 1930, which re- corded a population of 61 million for the Netherlands Indies. Recent estimates range from 76 million to 85 million persons. Adding to the figure used by the United Nations for 1054 (81 million) the annual rate of increase estimated by Sumitro Ojojo- hadikusumo, a leading Indonesian economist (1.2 million per year), the population as of 1955 is estimated at 82.3 million. See appendix A for more detailed population data. 16 sixth largest country in the world in terms of population, and the numbers are increasing at a relatively rapid rate. The population distribu- tion is uneven, with some areas among the most densely populated in the world and others under- populated. Population Characteristics The indigenous, or Indonesian, population con- sists of several different groups; the Javanese, the Sudanese, the Achenese, and the Ambonese, for example, have different languages, customs, and other cultural traits. With the exception, however, of people of the extreme eastern area, the Indonesians are predominantly of basic Malay racial stock. These indigenous peoples, who con- stitute some 95 percent of the total population, are primarily farmers. The largest non-Indonesian group are Chinese, who are estimated to number about 2 to 2.5 million, or about 3 percent of the total population. To many of this group Indonesia has been home for generations and they speak the local language as well as Chinese. Less than a third of them, how- ever, are Indonesian citizens and they are largely nonassimilated or only imperfectly assimilated. Many live in cities and towns and are engaged in trading, are independent entrepreneurs in diverse fields (for example, rice and rubber milling and moneylending), or are employed as skilled arti- sans, foremen, supervisors, or in clerical positions. Considerable numbers are also manual laborers on plantations and in the tin mines. Persons who may be classed as "Western" prob- ably numbered about 150,000 as of 1955 ; in prewar years they numbered an estimated 250,000 to 300,000. Although accounting for far less than 1 percent of the total population, this group has occupied an important position with respect to large-scale agriculture, industry and trade, and the professions. Dutch citizens still comprise a major part of this group, although their num- bers have been greatly reduced since independ- ence. 4 Other Westerners include British, other Europeans, and Americans. Eurasians, largely of mixed Dutch and native blood (who are included in the above figure for "Westerners"), form a sizable minority group; in prewar years this group was estimated at 100,000 to 150,000. Permitted a choice of citizenship, some Eurasians have become citizens of the Netherlands whereas others hold Indonesian citizenship. Asians other than Indonesians and Chinese are mainly Arabs, Indians, and Pakistanis, who con- stitute smaller minority groups. The Arabs, who number about 80,000, are in most cases Indonesian 4 The number of Dutch in Indonesia since World War II has probably been reduced by half and is continuing to decline. In addition to those who have left the business fields, the large numbers formerly employed in the civil service have been re- duced ; today, only relatively few Dutch are employed by the Indonesian Government. citizens; a high percentage are engaged in the textile business and retail trade. According to one estimate Indians and Pakistanis number about 30,000. Assuming the present population to be approx- imately 82 million, it is distributed about as follows : 5 Millions Java and Madura 54 Sumatra 13 Kalimantan 4 Sulawesi 6 Lesser Sunda and Molucca Islands 5 Total 82 Population density on Java and Madura is the highest in the world for any comparable area— about 1,000 persons per square mile. These two islands, with about 9 percent of the land area of the country, have more than 60 percent of the population. In the other islands density is much lower; it averages about 550 per square mile for Bali and Lombok, 84 in the other Lesser Sundas, 72 in Sulawesi, 56 in Sumatra, 22 in the Moluccas, and only 13 in Kalimantan. As a result of the exceedingly dense population of Java and the relatively sparse population of most of the other islands, resettlement or "trans- migration" schemes have been attempted for many years — by the Dutch in the prewar colonial period and in recent years by the Indonesian Govern- ment. Most of the Dutch attempts at large-scale emigration from Java to the Outer Islands were unsuccessful. Likewise, the Indonesian Govern- ment has made little progress in its plans, moving only a few thousand families each year — equal to but a small percent of the natural increase on Java. Major cities and their estimated populations as of 1953 are: Djakarta, the capital (2,500,000), Surabaja (926,000), Bandung (724,000), Jogja- karta (500,000), Surakarta or Solo (340,000), Semarang (335,000), and Malang (300,000), all in Java; Meclan (500,000) and Palembang (238,000) in Sumatra; Makasar (265,000) in Sulawesi; and Bandjarmasin (150,000) in Kalimantan. Occupation and Economic Status In the absence of accurate census data, it is estimated that about 75 percent of the total em- ployment is in agriculture, some 10 percent in village industry and manufacturing, and 15 per- cent in all other types of activities. Estimates of the effective labor force are about 20 to 22 million, or about one-fourth of the population. This low percentage results from the large proportion of children and unemployables, some of the lat- ter being in poor health. Rural underemploy- ment is widespread. 5 Since the last full census was held in 1930 these estimates, as well as all other population estimates, are subject to a wide margin of error. 17 Indonesia's agrarian population lives, on the whole, at little more than a subsistence level. Per capita annual income is quoted at various figures but, on the basis of imperfect data and using the market rate of exchange, it may be considered as about $40. G The standard of living should not, however, be measured in terms of cash income. Much of the economy is of a subsistence type which involves little or no exchange of money. And in most of Indonesia, even crowded Java, the average tani seems to live as well as or even better than farmers in many other parts of the Far East. Although based on inadequate statistics, the very rough estimates below indicate the relative order of magnitude of Indonesian national income by source : Percent Subsistence agriculture, village crafts, and personal serv- ices 40 Internal distribution and trade, small industry, and mis- cellaneous services 20 Export production — smallholder and estate agriculture, mineral production 20 State services, armed forces, Government enterprises 20 Most of the export production is in the hands of Westerners, who carry out estate agriculture and produce petroleum and other minerals. Smallholder production of rubber, copra, and other agricultural products for export, however, constitutes at least one-third of this segment. Much of the internal distribution and small in- dustry is controlled by resident Chinese and for- eigners, although the proportion of Indonesians in these fields is increasing:. Language, Religion, and Social Pattern The Indonesians speak a variety of languages and dialects 7 — Javanese, Sundanese, Mingang- kabau, Balinese, and Ambonese to name a few — and although nearly all these belong to a single lin- guistic stock they are mutually incomprehensible. Fortunately, the linguistic problem is simplified by the fact that a kind of "basic Malay," which has long been the language of trade, is generally understood throughout most of the islands. The official Indonesian language (Bahasa In- donesia) is an expanded and modernized form of Malay with borrowings from various Indonesian dialects as well as from Dutch, Arabic, and Sans- krit. Dutch and English are the other important languages. Although Indonesians in govern- mental and business circles know Dutch, its use has generally been discouraged since independ- Estimates of the national income of Indonesia based on ade- quate statistics do not exist. An estimate, made several years ago by S. Daniel Neumark for the Indonesian Government's Na- tional" Planning Board, placed total national income at 70 million rupiah for 1051 and 81.2 million for 1952, or 905 rupiah per capita for 1951 and 1,033 for 1952 (using population figures of 77.4 and 7K.6 million, respectively). On the basis of (he official rate of exchange the per capita income for 1952 was $91 ; on the basis of the market rate, less than $40. Some observers consider Neumark's estimate too high. See the article, entitled "The National Income of Indonesia. 1951-1952," by S. Daniel Neumark hi Ekonomi dan Keuangan liitloncHia, June 1954, and subsequent issues of this publication for additional discussion. 7 There are some 20 to 25 major ethnic and linguistic groups and several hundred dialects. ence. English is now the secondary language of Indonesia, is a compulsory subject in secondary schools, and is being used increasingly in business circles. Nevertheless, it will be some years before any large proportion of Indonesians can read, understand, or speak English. The great majority of Indonesians — about 90 percent — adhere to the Moslem faith. The people of Bali have remained Hindu in religion and, along with Buddhists, make up about 6 percent of the population. About 2,500,000 profess Christianity; both Protestants and Catholics are numerous in some areas, particularly in the Outer Islands. The Islamism, Christianity, or Hinduism of Indonesia is hardly of a "pure'' sort in many instances. Fundamental pagan beliefs persist among a large proportion of the people. The Moslem New Year (Lebaran) is the most important religious holiday. Occurring at the end of the Islamic fasting month, it is an occasion for new clothes, festive foods, and greetings between friends and relatives. The indigenous population has an ancient lit- erature, art, and music of its own. Although that of Bali has been widely publicized because of its high development, villages in Java, Sumatra, and other islands also have their cultural traditions. In recent years, however, diverse influences have touched on the Indonesian cultural pattern and some Western concepts and techniques have been adapted and assimilated, particularly in the larger urban centers. In a country of such varied ethnic and cultural groups as Indonesia, generalizations regarding the social pattern cannot be completely accurate. Nevertheless, it may be considered generally char- acteristic that the social organization is built around the village (desa) where life is slow and unhurried, reflecting simple and easily satisfied wants. And a mutual help or cooperative spirit (gotong-royong) appears to be strongly ingrained in most Indonesians. 8 The leisurely tempo of the social pattern is reflected in low productivity in agriculture and industry, although poor nutrition and health are undoubtedly other important fac- tors. The dominance of communal action in Indonesian life may be considered as contrasting with the individualistic, competitive spirit charac- teristic of Americans. The social life of the people continues to be based on principles of the ancient Indonesian tradition of adat or customary law, which in many respects differs greatly from Western law. Education and Health Educationally, Indonesia is behind most coun- tries of the Far East, but special efforts are being made to overcome this situation. The rate of il- 8 This characteristic is being used in developing the coopera- tive movement, which has made considerable progress in rural Indonesia. 18 literacy is still high and the number of persons receiving higher academic and vocational training, though increasing, is small. At the end of the colonial period the rate of illiteracy was estimated as 90 to 95 percent of the population. The Indonesian Government's inten- sive adult-education program to correct this basic deficiency had, according to official figures, reduced the illiteracy rate to about 65 percent in 1954, but many observers consider a figure of 80 or 85 percent as more realistic. Even these latter fig- ures, however, indicate real progress. The country has few teachers and schools in proportion to its large population, but strides are being made in improving this situation and in increasing the opportunities for secondary and higher education and for vocational training. Ac- cording to the Ministry of Education, the total number receiving primary and secondary educa- tion increased from 2,300,000 in 1940 to about 6,400,000 in 1952-53. During the prewar period the opportunity for higher education was narrowly restricted; in 1940 less than 1,000 students were at institutions of university level. 9 In the postwar period the number receiving higher education has greatly increased ; in recent years it has reached about 20,000. In addition to the increase in higher education within the country, a growing number of Indo- nesians are being sent abroad under various tech- nical assistance programs. Although the Ministry of Education in par- ticular is pushing educational programs, other ministries of the Government are organizing specialized training. For example, the Ministry of Agriculture has charge of a variety of schools and training programs as well as Rural Com- munity Centers, the Ministry of Labor has pro- grams to teach skills to unemployed workers, and the Ministry of Information is trying to inform the population via radio and other communica- tions media. Some of the foreign companies operating in Indonesia, especially the oil companies, are par- ticipating actively in the educational programs by maintaining schools for children of their em- ployees, assisting in combating illiteracy, and providing vocational and university training for selected Indonesians both in Indonesia and abroad. Even with the programs now under way, how- ever, the task of preparing enough trained personnel will take many years. There are quali- fied Indonesians — in Government posts and in fields of private enterprise — but their numbers, though growing, are very small for so large a country. This is one of the most difficult prob- lems in the country's economic development. Indonesian health conditions are poor by West- ern standards, and medical facilities are very 9 In the colonial period a very small number of Indonesians re- ceived a thorough education with special emphasis on languages, as in the Netherlands. Law and political science were fields of advanced study for a few. Training in scientific, technical, and business fields was very limited. limited in comparison with those of most Far Eastern areas. The country has nutritional problems; 10 sanitation, though good in a few places, is apparent by its lack in most areas; life expectancy is only 32 years; infant and child mortality rates are high; and such diseases as malaria, yaws, and tuberculosis are endemic. These conditions, which have been aggravated by years of wartime occupation followed by revolu- tion, are recognized by Indonesian authorities and progress is being made in correcting them. The present shortage of doctors ( an average of about 1 doctor to every 60,000 persons) will gradually be alleviated through the program now in operation for medical training; attention is being given to maternal care and child health; and intensive campaigns are showing considerable success in combating some of the endemic diseases, especially yaws. A mass DDT-spraying program is also being carried on to combat malaria. Much assistance has been provided Indonesia in this field of improving health conditions by United Nations agencies through the programs of the World Health Organization (WHO) and the International Children's Emergency Fund (UNICEF), and also by the United States through the International Cooperation Admin- istration (ICA) and its predecessor agencies. Most of the larger foreign companies operating in Indonesia provide medical facilities for their employees. Some of them also furnish an impor- tant part of local community medical needs. THE POLITICAL SETTING Since December 1949 Indonesia, which was a former Dutch colonial area, has been a sovereign independent state and from August 1950 has been the Republic of Indonesia, a constitutional dem- ocracy with a unitary form of government. 11 The present governmental structure, based on the Pro- visional Constitution, is considered interim. The first national election took place in September 1955 but the final election results were not known as of the end of the year. The composition of the elected Government which will choose a constitu- ent assembly to draft a permanent constitution and may make changes in the governmental struc- ture is at present not clear. Under the Provisional Constitution the present legislative body is a large unicameral Parliament io Tliere are various estimates of the daily caloric intake per capita, ranging from 1.800 to 2.300. A recent study of the Food and Agriculture Organization of the United Nations estimated the average daily intake at about 1,900 calories. Although 2,400- 2,600 calories is commonly considered as the minimum desirable caloric intake tor a European, this figure may be high for the smaller and slightly built Indonesians. Thus, Indonesian caloric intake, which is generally equivalent to that of other countries of Southeast Asia, may not be badly deficient. Nevertheless, from the nutritional standpoint the Indonesian diet is considered poor because of deficiencies, especially in proteins and vitamins. 11 Prior to August 1050 there was a loose federation of States, the Republic of the United States of Indonesia. Fearing that the Dutch might continue to divide and rule. Indonesian leaders worked for a unitary state, which was instituted as the Republic of Indonesia. 19 whose members have been chosen on the basis of geographical, cultural, and political representa- tion. The Prime Minister and his Cabinet of 18 portfolios are responsible to the legislative body. The executive officers are a President and a Vice President. The President can dissolve Parlia- ment, call new elections, and initiate legislation. He must also approve all legislation. Administratively, the Republic is divided into 10 Provinces, each Province being administered by a governor and a local legislative body. These Provinces, with their capitals in parentheses, are : West Java (Bandung) ; Central Java (Sema- rang) ; East Java, including Madura (Surabaja) ; North Sumatra (Medan) ; Central Sumatra (Bukit Tinggi) ; South Sumatra (Palembang) ; Kalimantan (Bandjarmasin) ; Sulawesi (Maka- sar) ; Lesser Sunda Islands (Den Pasar) ; and the Moluccas (Ambon). The Provinces, in turn, are divided into regencies. Indonesia has a multiple-party system, with several major parties and a score or more of lesser ones. A basic problem to date has been that the governments in power have been produced from unsteady coalitions and most of them have been short lived. Since the transfer of sovereignty there have been six cabinets. Despite these cabinet changes, however, there appears to be an increas- ing^ stability among the top civil servants in the various ministries. As of November 1955 the Prime Minister was of the Masjumi or Moslem Party, which is one of the two largest parties, and the cabinet was a co- alition of 12 parties, but without the Nationalists (PNI) and Communists (PKI), the other two leading political parties. The Nationalists were in power for 2 years prior to August 1955 and during that time drew support from several par- ties, including the Communists. The complexion of the newly elected Government will not be known until an official electoral count has been completed. In its relations with foreign nations Indonesia adheres to what is generally considered a neutral policy, although its leaders prefer to describe it as "independent and active." Indonesia has steered a course designed to keep it from becom- ing involved in the East- West struggle of the postwar period. The Indonesians looked to the United States for aid during the early postwar period and they have also more recently worked out technical assistance and loan programs with the United States. To balance such relations with the West, Indonesia has taken such steps as the es- tablishment of diplomatic relations with Peiping and Moscow, and the signing of trade agreements with communist countries. Since 1950 Indonesia has been a member of the United Nations, and it is a participant in many of the specialized UN agencies. Internally, security conditions created a major problem in the postwar years which is not com- pletely solved. 12 In most areas of the country conditions are improved as compared with a few years ago ; the seriousness of the outbreaks has lessened and incidents are fewer. In the past year and a half, however, important security diffi- culties have been experienced in such distant areas as Atjeh in extreme northern Sumatra and Makasar in Sulawesi. Some sections of West Java are not under unchallenged governmental control and estates in many parts of the country have serious problems resulting from theft of their produce and from occupation of parts of their concession lands by squatters. Insecurity has been a serious drag on the economy and will not be easy to completely overcome. The strong centralization of Government con- trol in Djakarta 13 has also resulted in internal difficulties. Regional dissatisfaction is evident, for example, in the demands made by groups in Sumatra and Sulawesi for greater autonomy. There appears to be growing recognition, however, that Djakarta officials cannot make all decisions and that internal political adjustments may be re- quired in order to meet the demands for increased local autonomy. 13 Indonesia has had insecurity throughout the years since the end of World War II. Even since the revolution against the Dutch which ended in 1949, violence has occurred almost con- tinuously in some part of the country. These include the Wester- ling Revolt in West Java ; recurrent raids by an extremist group in Central and West Java ; the Ambon Affair and other difficul- ties in the Moluccas; the Atjeh (Sumatra) revolt of 1953-54; and the rebellion in southern Sulawesi. 13 Provincial governors are appointed by Djakarta and are re- sponsible to the Central Government. Each of the ministries has branch officials at the Provincial and regency levels, but au- thority rests with officials in Djakarta. 20 CHAPTER IV Agricult ricuiTure The Indonesian economy is based primarily on agriculture, supplemented by other types of ex- tractive industries, particularly mining, and small- scale manufacturing. About three-fourths of the employed persons in Indonesia are engaged in agricultural pursuits, and agricultural exports make up about three- fourths of total Indonesian exports. About 42 million acres are under cultivation. 1 Most of this land is devoted to food crops but some 35 or 40 percent is in commercial export crops. About 60 percent of the cultivated land is on Java and Ma- dura, the rest being scattered throughout the Outer Islands. SMALLHOLDINGS AND ESTATES The agricultural economy falls into two types : Small-scale farming carried on almost exclusively by Indonesians and large-scale estate production generally operated by Westerners. Almost all of the output of the estates is intended for export; that of the Indonesian smallholders is for both domestic consumption and export. Although the line of demarcation between the two types of agriculture is not always sharp, in general the size of the holdings and the methods of production are distinctive. Smallholder Agriculture Millions of small farms are operated by native producers principally growing rice and other food crops for family consumption. The farmer in many cases is virtually self-sustaining, with his smallholding planted to rice, corn, cassava, and coconut and with some production of vegetables and fruit and a few chickens. Some years ago it was estimated that only 10 percent of the output of the average Javanese farmer was devoted to cash crops, the rest being 1 This figure is based on 1938, which may be considered normal for prewar years. No official data are available for postwar years, but the total cultivated area is considered to be of this general magnitude. New land has been cleared for food pro- duction and rubber acreage is above the 1938 level, but the reduced acreage of other crops probably offsets these increases. Some recent data, however, place the cultivatable land at only 32 million acres and that under cultivation at about 27 million acres. consumed by the farmer and his family. At pres- ent the Indonesian farmer, on the average, sells a somewhat greater share of his harvest (probably 20 percent) or does outside wage work. Never- theless, the simple rural existence characteristic of most farmers precludes the necessity of a sub- stantial cash outlay for the means of subsistence. Agricultural production of the smallholder centers around rice, but corn, cassava, sweet pota- toes, sago, peanuts, and soybeans are of consider- able importance as are numerous vegetables and fruits. Cash crops include many of the export products, rubber being of particular importance. Farming on smallholdings, which average about 2 or 2.5 acres on Java, is generally carried on with primitive implements and with little use of fertilizer. The crops frequently are grown in a complex rotation built around rice, which is pro- duced in irrigated fields (sawahs) wherever the water supply is sufficient for this method. In- tensive irrigated cultivation with double cropping of rice is common on Java, Madura, Bali, and Lombok. Many crops, including rice, even on these islands, however, are grown in dry fields ; in Sumatra and Kalimantan sawah cultivation is confined to limited areas. In parts of the Outer Islands the most prevalent practice is shifting ( ladang ) cultivation. A farmer clears a bit of the jungle or bushland by burning, and then plants crops. Little effort is made to keep the land cleared and after several years, when it has be- come overgrown, it is abandoned. The farmer then shifts to a new location and repeats the land- clearing process. Estate Agriculture Estate agriculture, which became highly de- veloped in the Netherlands Indies in the period 1870-1930, 2 is an important feature of the present Indonesian economy, but the area under active estate operation is only about two-thirds that of the prewar period. As of 1953, the Ministry of 2 The Agrarian Act of 1870 paved the way for rapid develop- ment of estate agriculture by providing for long-term leases or concessions. Over a period of years, especially from 1905 to 1930, a flow of Dutch, English, American, Belgian, and French capital went into estate production of the Netherlands Indies. As of the immediate prewar period there were about 2,400 estates oc- cupying an estimated 7,260,000 acres. 21 Agriculture reported 1,280 estates in operation, with, a total area in production of about 1,963,000 acres. The disturbed conditions of the postwar years have not been conducive to full rehabilita- tion or to the expansion of estate agriculture. Some of the estate land has been redistributed to peasant cultivators and some has been taken over by native squatters. The prewar estate economy provided efficient management in the cultivation of export crops. It cleared and opened up new land and produced a major part of the country's foreign exchange earnings. On the whole, however, it appeared to have brought few direct benefits to the native population and this situation helps to explain the strong opposition that has existed since inde- pendence to the return of estate enterprises. To date the Indonesian Government has not reached basic decisions regarding the permanent status of estate cultivation. Some leaders realize, however, that in view of Indonesia's acute shortage of cap- ital and technicians, foreign-owned estate agricul- ture is indispensable for the further development of the country's industrial resources. Estate agriculture is characterized by large- scale operations under foreign management and is generally identified with the cultivation of a single crop. Hired labor is used and advanced agricultural practices are generally followed. Although some 30 crops are produced on es- tates, nine products — rubber, tobacco, sugar, palm oil, hard fiber, coffee, tea, cacao, and cinchona — are of greatest importance. In prewar years palm oil, sugar, cacao, cinchona, and hard fiber exports were almost exclusively estate products; tea and tobacco were primarily estate grown though a con- siderable quantity of smallholder tobacco was also produced ; rubber and coffee were produced about equally by estates and smallholders. Some of the estate crops — rubber, coffee, tea, cacao, and cin- chona — are grown in upland areas of Java unsuit- able for irrigated rice cultivation ; in less densely populated Sumatra rubber is grown on lower land. Sugarcane and tobacco compete with native food crops; with pressure for smallholder cropland in the postwar period, the future of sugar and tobacco estates is open to question. Most of the estates are on Java and Sumatra, only a small number being scattered throughout the other islands; as of the immediate prewar period, 43 percent of the total estate area was on Java and 51 percent on Sumatra. Estates on Java average about 2,200 acres and those on Su- matra, where land is more abundant, more than 5,000 acres. Most of the estates are worked with hired labor, obtained locally in densely populated Java but brought in for Sumatra and the other islands. 3 Eor some of the hill crops — rubber, coffee, tea, cacao, oil palm, and cinchona — the estates obtain labor from landless peasants and from owner-cul- tivators who supplement their income by occa- sional outside work. For sugarcane and tobacco a different arrangement is frequently made ; estate operators lease land for a single growing season from Indonesian farmer-owners who contract to work their land. MAJOR AGRICULTURAL PRODUCTS Principal Food Crops Rice, the economic foundation of native agri- culture, is the staple food in the Indonesian diet. 4 Corn, cassava, sweet potatoes, peanuts, and soy- beans are the principal secondary food crops. The total production of these six food crops in 1954 was slightly above that of prewar years; rice production was about 10 percent higher and only cassava and sweet potatoes were below prewar levels (table 4). Since the population had in- creased by some millions from 1937 to 1954, how- ever, food availability is below that of the prewar period — recent estimates indicate that it may be about 10 percent below prewar levels. Table 4. — Production of Major Food Crops, 7 937 and 1 952-54 [In thousands of metric tons] Java and Madura Outer Islands ' Crop 1937 1952 1953 1954 1954 as percent of 1937 1952 1953 1954 Rice: 2 Irrigated Nonirrigated Corn, shelled Cassava roots. ... Sweet potatoes Peanuts, shelled Soybeans, shelled 3, 682 223 2,037 7, 037 1,182 181 209 3,886 114 1,204 5,088 1,200 128 266 4,120 141 1, 303 6,468 1,231 164 275 4,471 193 2,084 6. 400 1, 053 202 301 109 137 160 99 86 123 131 1,897 490 433 2,448 1,031 47 20 2,206 563 512 2, 100 945 59 32 2,231 666 584 3,043 885 71 40 8 In most cases estate laborers have boon brought into Sumatra and 11k> other Islands from. Java, but in the prewar years consid- erable numbers were also imported from other countries, par- ticularly China. 1 Comparative prewar data for the Outer Islands are omitted since 1937 data are incomplete. 2 The rice figures given here do not agree with those in table 5. For 1954, for example, the total Indonesian production here is 7,561,000 tons whereas table 5 gives a lower figure. Other sources indicate still lower figures for 1954, or about 7,100,000 to 7,200,000 tons. Source: Based on data from Central Bureau of Statistics and the Service for Indigenous Agriculture as reported in Bank of Indonesia, Report for the Year 1951,-1965. In the postwar period the Indonesian Govern- ment has placed great emphasis on achieving self- sufficiency in rice production. Production rose steadily after 1951 and is now considerably larger than the prewar output (table 5). With the in- creased production, imports, which amounted to more than 750,000 metric tons in 1952 and 371,000 in 1953, were reduced to 259,000 tons in 1954. Al- though rice output in 1955 was expected to have approached the needs of the population, it was 4 Although rice is generally the staple food, other foods are staples in certain areas. Sago is the main food in the Moluccas. In some areas of East Java. Timor, and parts of Sulawesi and Lombok. corn is the staple food. Corn mixed with rice is the chief food in parts of East Java and Madura. 22 somewhat lower than in 1954, largely because of unfavorable weather conditions, and imports were necessary. 5 An estimated 17 million acres are in rice cul- tivation, the acreage increasing by about 3 percent per year in the past few years. The larger pro- duction results both from additional ricelands, principally in Sumatra and Kalimantan, and from increased double cropping, primarily in Java. 6 Although the gains in the Outer Islands 7 have been sizable, Java's irrigated rice cultivation sup- plies about tw 7 o-thirds of the total. Opportunities for further extension of the rice area in Java are limited; there is little unused land suitable for irrigation, more than half the cultivated land is already double cropped, and much of the forest area has been seriously denuded. Table 5. -Indonesian Rice Acreage, Production, and Yield, 1937 and 7 951-55 Year Harvested area (hec- tares) Production ' (metric tons) Yield per hectare (kilograms) 1937 6, 230, 000 6, 100. 000 6, 325, 000 6, 570, 000 6, 728, 000 n. a. 6, 221, 000 6, 086, 000 6, 420, 000 6, 798, 750 7, 472, 000 2 7, 100, 000 998 1951 998 1952 _-_ 1,015 1953 1,035 1954 1,096 1955- n. a. n. a. Data are not available. 1 Milled equivalent. 2 Estimate. Sources: Statistics for 1937 and 1951-53 from Indonesian Ministry of Agriculture; 1954 data from Food Supply Board (Jajasan Urusan Bahan Makanan). In addition to the six main food crops (see table 4), an estimated 2.5 million acres of minor annual crops are grown by native cultivators on Java and Madura; these include such root crops as potatoes, arrowroot, and taro, as well as pulses. Important food contributions are also made by the house compounds (kamjwngs), which surround most native dwellings. These kampongs are planted to a wide selection of vegetables and fruits ; beans, cucumbers, gourds, melons, yams, bananas, papaya, jackfruit, mangosteens, rambutans, pom- elos, and mangoes are among the crops raised. Principal Commercial Crops Before World War II most of the export crops were products of estate agriculture although the long-run trend was in the direction of an increas- ing share from native smallholders. In 1925 es- tates accounted for about 75 percent, and native agriculture 25 percent, of the value of total agri- 5 Although official statements early in the year indicated no rice imports were expected in 1955, later in the year it became evident that imports of 100,000 tons would be required, and near the end of the year it became apparent that imports would be 2 or 3 times that amount. 6 The use of improved seeds is an additional factor in some areas. 7 Outer Islands, a term commonly used in the prewar period, refers to all of Indonesia except Java and Madura. cultural exports; in 1938 the figures were about 60 and 40 percent. In postwar years, however, smallholders have produced the major share of commercial crops. This change has been due, in a considerable degree, to the increased production of rubber by smallholders. Whereas in prewar years this important commodity was produced in about equal proportion by estate and native grow- ers, smallholder production now far surpasses es- tate output. With many difficulties besetting estate agricul- ture in the postwar period and high world prices for a number of the export products, native pro- ducers have capitalized on the situation by har- vesting both their own and, to a considerable extent, estate-planted commercial crops as well. Rubber, tobacco, sugar, copra, palm oil, coffee, tea, cacao, hard fibers, kapok, cinchona, and spices are the major commercial crops. Rubber. — As an export commodity, rubber is Indonesia's most important single product. In the immediate prewar period it accounted for about one- fourth of the value of all exports and the same position was maintained in the early postwar period. Soaring rubber prices in 1950 increased its relative importance and in 1951 and 1952 rub- ber accounted for about one-half of Indonesia's exports. In 1953 and 1954 rubber constituted, by value, about one-third of total exports. About 42 percent of the world's natural rubber in recent years has been from Indonesia. Before the war the planted area on rubber estates was 1,557,000 acres, of which about 40 per- cent were in Java, 50 percent in Sumatra, and the rest in Kalimantan and East Indonesia. From 1942 to 1952 losses in estate area resulting from war, civil unrest, and other causes amounted to several hundred thousand acres so that, as of 1952, the total estate acreage was about 900,000. Production of estates in 1953 amounted to about 304,000 long tons; in 1954, 282,500 tons; and for 1955, 261,000 tons (preliminary). See table 6. Table 6. — Production and Exports of Indonesian Rubber, 1 935—39 Average and 1948—55 [In long tons] Production Net ex- ports 1 Period Estate Small- holder Total 1935-39 average. 186, 850 101, 743 169, 145 175, 127 222, 534 294, 468 304, 215 282, 526 261, 345 167, 513 330, 606 263, 851 521, 345 591, 872 456, 026 390, 335 456, 144 472, 441 354, 363 432, 349 432, 996 696, 472 814, 406 750, 494 694, 550 738, 670 733, 786 338, 860 1948 431,982 1949 -- 422, 076 1950 691,711 1951 793, 750 1952 749, 073 1953 673, 983 1954 -- 728, 670 19552 __ 721, 786 1 Includes unreported exports not listed in official trade statistics of In- donesia. 2 Preliminary. Sources: Rubber Statistical Bulletin, published by Secretariat of the Inter- national Rubber Study Group, London, for 1948-55 data. Prewar data are also based on International Rubber Study Group material. 23 Estate production in recent postwar years has been much smaller than smallholder production; in 1955 smallholder output was 472,000 tons com- pared with 261,000 from estates. 8 Some of the smallholder rubber in postwar years has been ob- tained, however, from estate plantings tapped by squatters or has been stolen from the estates. For many years the estates have had their own producer associations and these have pioneered in the field of scientific research. Rubber yield has been considerably increased, the average now being about 560 pounds per year per acre. New plantings using select high-yielding seedlings and bud grafts could result in much higher yields over a period of years, but most of the estates are re- planting only limited areas owing to the uncer- tainty of future estate operations. Smallholder methods of planting, maintaining, and tapping trees and preparing latex are gen- erally inferior to those practiced on the estates. The amount of rubber derived from a small- holder's plot depends primarily on the current market price. Many native farmers raise food crops as well, and use rubber simply as a cash crop to augment their incomes. When prices are very high, farmers may neglect their field crops and concentrate on rubber; they use the cash income to obtain rice instead of growing corn and cassava, which they consider less desirable foods. When the market price of rubber declines, however, the commercial crop may be entirely or partially abandoned, and the farmers turn to increased pro- duction of their families'' food supply. Yields received by smallholders are much lower than those of the estates ; the average grower pays relatively little attention to the maintenance of his grove. To a degree the smallholders have received the benefit of the long years of rubber experimentation carried on by the estates and the colonial government. They have been aided by the distribution of selected seed, by schools for tappers in some of the rubber districts, and by the development of improved methods of latex preparation. Among the more progressive small- holders these improvements have taken hold, but large numbers of farmers operate in the same man- ner as before and are attracted to rubber produc- tion only in relation to price. The Indonesian Government has proposed on several occasions in recent years the formulation of a world plan to stabilize the price of rubber. However, these proposals have not gained general acceptance and no international action has developed. Tobacco. — For a long time Indonesia was a major tobacco producing and exporting country, but economic dislocations of World War II and since then have adversely affected the industry. Although production has increased considerably in the last few years, it seems unlikely that Indo- 8 Figures are those of the International Rubber Study Group, ■which bases smallholder production on reported exports of small- holders plus estimated nonreported exports. nesia will regain its prewar position in the fore- seeable future. The pressure of population has diverted much of lowland tobacco fields to food crops and some of the estate areas suited to special export tobacco are particularly troubled by squat- ters. Production of tobacco in 1954 was 7,200 tons; output in 1955 was reportedly lower be- cause of unfavorable weather. Tobacco is cultivated both by estate growers and smallholders. The area devoted to estate produc- tion as of 1951 was estimated at about 37,000 acres. The principal estates are in the northeastern part of Sumatra, where Deli wrapped tobacco is pro- duced, and in the Besuki and Vorstenlanden dis- tricts of East and Central Java, where wrapper, binder, and filler tobacco are produced, together with a native-grown leaf used for pipe tobacco and domestic cigarettes. The Deli cigar wrapper tobacco is considered superior to all other types of tobacco grown in Indonesia. Not only is this district, which sur- rounds the city of Medan, especially suited by soil and climate for the production of this type of tobacco, but many years of care and scientific re- search have gone into the tobacco production of the area. In prewar years 48 tobacco plantations in Sumatra with concessions of 645,000 acres were all controlled by 7 companies, of which N. V. Deli Maatschappij was the largest. Although the tobacco land is extensive because of the method of fallowing (tobacco is grown on the land 1 year out of 8), only a small part of the estate is used at one time. During the war much of the estate area was used by Indonesians to grow food, and since the end of the war the estates have been trying with little success to evict Indonesian squatters. Most of the estates are limiting their planting since some of leased land has been occupied by squatters, and there is as yet no assurance regarding the renewal of leases, many of which are reaching their terminal dates. The future of Sumatra estate tobacco is, therefore, not clear. Estate production in Java in prewar years was carried on by about 40 estates; some operated on long-term leases from native sultanates and others on land rented from native cultivators — the native owner then becoming a sharecropper on his own land. In contrast with the fallowing system used in the Deli area of Sumatra, in both the Vorsten- landen district of Central Java and the Besuki district of East Java tobacco is grown on the land once in 2 or 3 years, and in other years the local inhabitants grow food crops. Virginia leaf to- bacco is grown in parts of Java, and cultivation of this type has been expanded in recent years. Estate tobacco production in Java, as in Sumatra, has been harassed with difficulties in postwar years. Civil disturbances, banditry, and labor un- rest have marked much of the period. Smallholder tobacco is grown throughout the country on hilly land or as a secondary crop fol- lowing the sawah rice harvest. Yields are low 24 compared with those of the estates. The exact total area of smallholder tobacco is not known, but it is considerably greater than that of the estates. In 1954 the harvested area was estimated at 284,- 000 acres, which is somewhat below that of pre- war years. Sugar. — Sugar, one of the major prewar export crops of Indonesia and an important factor in Java's economy, is being produced in increasing quantities in the past few years, but output is still far below that of the prewar period. Estate production of sugarcane is carried on in East and Central Java on irrigated land generally obtained by short lease from individuals or from local communities which own land in common. Sugar is planted in rotation with food crops so that it is grown on the same ground only once in every 3 years. The 1953 sugar production was about 620,000 metric tons, that of 1954, 714,000 tons; and, ac- cording to the Indonesian Ministry of Agricul- ture, that of 1955, an estimated 850,000 tons. The average 1937-39 output was 1,463,000 tons. The Indonesian Government has encouraged exports of sugar by restricting domestic consumption. In 1953, about 92,000 tons were exported and, in 1954, 216,000 tons. For 1955, exports of 250,000 tons were expected. However, because of the increased population and the resultant need for more rice and other foods for local consumption, it is un- likely that in the foreseeable future the exporta- tion of sugar will again reach the prewar figure ( 1,186,000 tons for 1937-39) , and many doubt that it will reach half that amount. In addition to the pressure on sugar land for food production, the wartime destruction of sugar factories and the diversion of cane to small portable factories which produce less sugar from a given weight of cane have been factors in the re- duced output. Further rehabilitation of estate operations depends on capital outlay for recon- struction and modernization of mills, but the estate owners have not found conditions condu- cive to new investment in plant and equipment. Moreover, estate managers report that continually increasing rental rates are becoming a problem in profitable production. Copra. — In prewar years Indonesia was con- sidered the world's largest producer of coconuts and ranked next to the Philippines as a leading exporter of copra. Today, production is prob- ably less than in prewar years although data are available for only a part of the total output. The coconut is a popular local food and the pressed nut meat provides the major vegetable oil in the Indonesian diet. According to official data, production in 1953 amounted to 461,000 metric tons and in 1954, 441,000 tons. Exports for these years were re- ported at 240,000 and 297,000 tons, respectively. In the first half of 1955 production was reported at 188,000 metric tons, a drop from the 1954 level. These figures, however, cover only the purchases of the Copra Foundation ( Jajasan Kopra), which operates in East Indonesia and Kalimantan. Copra produced in Sumatra and Java is free from Copra Foundation authority and may be sold freely in the domestic market. In addition, large amounts of copra are known to be smuggled from Sumatra to Malaya and from East Indonesia to the Philippines and British Borneo. Coconut cultivation is almost exclusively a smallholder operation ; smallholders reportedly account for 95 percent of the total output. Estate production, however, with its more scientific methods and intensive cultivation brings higher yields. East Indonesia — Sulawesi, the Moluccas, and the Lesser Sundas — is the major producing area, although most of Indonesia has natural con- ditions favorable to coconut cultivation. Palm oil.- — Unlike the production of copra, In- donesian output of palm oil is almost exclusively from cultivated palms grown on foreign-owned estates. Virtually all of the palm oil originates in Sumatra, the center of the industry being the northeastern coastal area with about 30 estates; in prewar years the number of estates was larger and the area planted was greater than at present. Production in recent years has been about 160,000 metric tons of oil and 42,000 tons of palm kernels, compared with some 220,000 and 48,000 tons, respectively, in prewar years. Recovery has been good considering that during the wartime occupation and the period of revolution estates were neglected, many oil palms were uprooted, and some of the oil-pressing factories suffered heavy damage. Palm oil, which is used largely for margarine and soap, was shipped to the United States in considerable quantities in prewar years, but subsequently only small amounts have moved in this trade. Coffee, tea, and cacao. — These three products, grown in Indonesia for many years, are of minor but varying importance in the economy. Coffee and tea have been sizable foreign exchange earners but cacao production has contributed to the econ- omy to only a very limited extent. Coffee is produced both on estates and on small- holdings, and is often interplanted with another crop such as rubber. Just before World War II total production in Indonesia averaged about 124,000 tons a year, of which almost half was estate grown. Production, still below that of pre- war years, was reported as about 60,000 tons for 1953-54 and at 55,000 in 1954-55 and forecast at 65,000 for 1955-56. Estate production today is much lower than smallholder, in part because the full rehabilita- tion of estates has not been achieved on account of postwar unsettled conditions but also because some coffee stolen from the estates is marketed as native- grown coffee. Production is expected to increase over the next few years in view of new plantings made within the last 4 years. Coffee exports in 1953, amounting to 34,000 tons-, were about 40 per- cent of 1935-39 shipments, but it is probable that 25 additional quantities were smuggled out of the country. Reported exports in 1954 were 38,000 tons. Tea, essentially an estate crop but also grown by many smallholders, was produced in sufficiently large quantities in prewar years to place Indo- nesia as the fourth producer in the world. Up- lands of Java and Sumatra at elevations of 1,000 to 6,500 feet are the main producing areas. During the war tea plantings on some of the estates were uprooted and in many areas food crops and other crops replaced tea. Postwar recovery has gener- ally been slow, especially before 1952. Not only was the wartime destruction extensive, but blister blight which appeared on some of the estates had to be brought under control. More- over, some of the estates have had to contend with labor unrest during part of the postwar pe- riod. By 1953 Indonesia was still producing less than half the prewar level (the 1935-39 average was about 77,100 metric tons) . In 1954, however, considerable gains were reported; estate produc- tion for the first half of the year was about 20 percent above that of the comparable period of 1953 and smallholder output rose 70 percent. Exports in 1954 amounted to about 45,000 tons, a considerable increase from 33,000 tons in 1953. With production in 1955 reported at about 55,000 tons exports are expected to show a further in- crease. As a result of rising world tea prices and increas- ing world consumption the general outlook for this industry for the near future appears brighter. However, some observers familiar with the trade look to a leveling off at about 60,000 tons, and do not foresee production increases to even prewar levels. Relatively low labor production and higher labor costs and the old age of the present plantings preclude large increases on estates. Pro- ducing estates now number about 175, compared with 275 prewar. Smallholder production, never very large, has recently gained, mainly because of severe overharvesting rather than because of jncreased plantings. Output of cacao beans before the war averaged about 1,600 tons a year, almost all being produced on estates in Central Java. Production is still below the prewar level, owing in part to loss from neglect or plant diseases during the war and early postwar period. Exports have been lower not only because of reduced production but also because of the greater consumption in the domestic candy industry resulting from curtailed imports of con- fectionery products. Fibers. — Hard fibers have been the major part of Indonesian fiber output; the principal types are sisal, which comprises about 90 percent of total production, cantala, and abaca. In addition to these three hard fibers, small quantities of soft fibers — roselle and kenaf — are grown. Except for a small amount of cantala all fiber production is on estates. Recently, under auspices of the Bank Industri Negara, a Government bank, experi- mental plantings were made of ramie. 9 Cotton has not been raised in any sizable quantities, but a plan has been put forward for mechanized produc- tion. The sisal plantations, located in both Java and Sumatra, provided in the immediate prewar years about one-third of the world's export supply of sisal. Total production of the three hard fibers was about 84,000 to 95,000 tons in the years from 1934 to 1938. During the Japanese occupation fiber acreage was increased (largely at the expense of sugar and tea) , but the plantings were neglected for several years after the war's end. Production was estimated at only 27,400 tons in 1953 and 30,700 tons in 1954. Extensive areas which had become too old for efficient production have been abandoned and, because of labor and squatter diffi- culties and uncertainty regarding the Govern- ment's future policies, the planting of new areas has been postponed. Kapok, which may be considered as a fiber al- though used primarily as stuffing and as an in- sulating material, is produced almost entirely by smallholders. Kapok trees are planted around houses, villages, and along roads, but seldom oc- cur in regular holdings. Central and East Java are the major areas, probably producing about 85 or 90 percent of the total. The industry's ex- pansion is being encouraged through gifts of seeds to farmers, and it is estimated that by 1958 pro- duction may be around prewar levels of about 20,000 tons. In 1953 the crop harvested was only about 8,000 tons. Exports of ginned kapok in recent years have amounted to 4,800 to 5,700 tons. Cinchona. — Before World War II about 90 per- cent of the world's supply of cinchona bark, from which quinine is extracted, was produced in Indo- nesia. In 1935-39 output was about 11,200 tons and exports of bark were 7,040 tons and of quinine, 170 tons. Unlike their treatment of many estate products, the Japanese encouraged cinchona pro- duction, and output was large during the war but has since declined. The industry's difficulties stem from develop- ment of a wide range of synthetic antimalarial drugs and from competition with other areas, pri- marily the Belgian Congo. Estate production in 1953 was only 1,200 tons and smallholder produc- tion, about 6 tons. Total 1954 production (dry bark) was reported at 1,770 tons. Pepper and spices. — Indonesia was the source of about 85 percent of the world's prewar pepper supply and was an important supplier of cinna- mon (cassia), nutmeg, and mace. Spice produc- tion, which is largely a smallholder operation, has in recent years been far below prewar levels. Production of black pepper (primarily from South Sumatra) and white pepper (mainly "These attempts appear to have been successful enough on a small scale to warrant the importation of processing machinery valued at 20 million ruplah in 1955. 26 from the island of Bangka) amounted to about 55,000 tons in 1938. During the war many pepper vines were uprooted and the area used for food crops ; and only in the past few years has produc- tion of pepper (both black and white) exceeded 15,000 tons. Output of black pepper in 1955 is estimated at about 8,000 tons and white pepper at 5,000 tons — a production lower than in the two preceding years because of adverse weather conditions. Cassia production, centered in western Sumatra, has been increasing and 1953 production was about double that of 1938. Indonesian nutmeg and mace, both products from the seed of the nutmeg tree which grows in the forests of the eastern islands, accounted for about 70 percent of the world's production in prewar years. Output in 1953 was reported at 2,950 tons and in 1954 it was an estimated 3,800 tons, compared with 4,800 tons in 1938. Clove production has not been suf- ficient since the war to meet the increased domes- tic demand (largely for use in native cigarette manufacture), and cloves are imported. Livestock While crop production is the principal means of agricultural livelihood, the raising of livestock is important. The industry is entirely unlike that prevailing in Western countries, however, and consists chiefly of rearing draft animals for agri- cultural and transportation uses. The production of hides and skins and meat is of secondary im- portance, and commercial dairying is negligible. The total number of animals was estimated at about 20 million in 1954, cattle, buffaloes (cara- bao), horses, goats, sheep, and pigs being the principal types. Large numbers of livestock were destroyed during the wartime occupation but the total is now about 15 percent above prewar, and is increasing. The poultry population, esti- mated at about 60 million chickens and 12 million ducks in 1954, is still below prewar numbers. 10 Livestock is unequally distributed. Java, Madura, Bali, and Lombok, the most densely populated islands, have about TO percent of the total. As part of its program to improve livestock, the Government has 62 cattle-breeding stations and 7 artificial insemination centers, and some 50 poultry-breeding stations. LAND OWNERSHIP, FARM PRACTICES Both the pattern of land ownership, which is somewhat different from that prevailing in other Asian countries, and the agricultural practices followed are important to potential investors in agricultural enterprises. 10 Some recent figures give the total number of chickens as 80 million and ducks as 17 million. Land Ownership The basic act on land ownership in Indonesia dates from the colonial period. The Agrarian Law of 1870 u established the policy of Govern- ment protection of land ownership for both in- dividually owned and communally owned land of the native population. Sale of such lands to nonnatives was prohibited, thus preventing legal ownership of land in Indonesia by any foreigner. Under Indonesian law there are two types of land rights, i. e., native and European rights. European rights are held by foreigners who hold title to land in the Western sense of the word, and who may pass title by deed to other for- eigners. Only about 1 percent of land in Indo- nesia is held under such rights and in past years the Government has been buying back some of this land. The. native rights are governed by traditional Indonesian law (adat), which recognizes both communal possession and hereditary individual ownershij). Hereditary individually owned land can be mortgaged or sold only with the approval of the village or other local unit to a narrowly defined group. Natives are permitted to lease land to nonnatives only by transactions supervised by the Government. If a farmer abandons his land he loses the right to it unless he has planted fruit or other trees on it, in which case he retains an individual property right as long as the trees survive. Holdings are not registered except in Java, where they are registered for land-tax purposes. The rights provided natives under this basic land law, together with the firmly implanted Indo- nesian concept of communal property, explain the general lack of farm tenancy. Although this lack has often been pointed out as providing a better situation than exists in many other countries, numerous Indonesian landowners through short lease or debt actually have no effective control of their holdings and, in some areas, their status is analogous to that of tenants. Moreover, large numbers of Indonesians, estimated at about 25 percent of the agricultural working force on Java in prewar years, were landless wage Avorkers who were primarily employed as estate laborers. The Agrarian Law also provided for long-term leases or concessions. It is estimated that about 2 million acres of land are now held under such concessions, most of it by foreign-owned com- panies. Many of these leases have expired and are being continued only on a temporary basis; many other leases will expire within the next 5 or 10 years. Although the Indonesian Govern- ment's policy regarding the future of these large holdings has not yet been decided, some political 11 This basic law, the associated Land Lease Ordinance of 1918 (establishing conditions for leasing sugar and tobacco land), and the Factory Ordinance of 1898 (prescribing ratios to be main- tained between food and export crops) still remain in effect. 380755—56 27 groups advocate redistribution of the land to Indo- nesian farmers. Form Practices Irrigation. — In Java, irrigated land accounts for about 40 percent of the total cultivated area and in Bali, Madura, and Lombok irrigation is commonly used. On the other islands much of the land is unirrigated although rice is generally grown with irrigation. Use of irrigation and the building of extensive small-scale works on Java are related in part to the dense population ; a dependable irriga- tion system has permitted more widespread double cropping to help assure a supply of food. The most common method is river water irri- gation using gravity flow. With this system, silt, carried by the rivers in large quantities, remains on the soil and fertilizes it. Reservoirs and wells are used, however, in some areas. Irrigation has been to a considerable degree under Government super- vision and control since prewar years. A number of ambitious irrigation projects have been proposed and studied in the postwar period, but none have progressed beyond the blueprint stage. Among these projects are (1) the multi- purpose development project proposed for West Java which would provide water for double crop- ping rice on a large area in northwest Java, and (2) plans to provide water for extensive areas in Sumatra, Kalimantan, and East Indonesia. A recent plan calls for an increase in the irri- gated area of 876,000 hectares by 1959. Actual Government activities in the postwar period have been confined largely to repairing and servicing the existing irrigation systems (mostly on Java) and to encouraging cooperative projects by farmers at the local level. Fertilizing practices. — The use of fertilizer such as practiced by the average Japanese farmer is virtually unknown to the Indonesian farmer. Soil fertility is maintained largely by nutritive sub- stances in the water irrigating the fields, but this method does not sufficiently compensate for the lack of fertilizers and is considered to be the main factor in the lower crop yields obtained in Indo- nesia. Through the educational work of the Ex- tension Service, the use of commercial fertilizer is now increasing in Indonesia and the practice of green manuring is also becoming more common. The principal demand for fertilizers has been on the estates, especially the sugar holdings. In the prewar period 1936-41 the average annual con- sumption of fertilizers was 122,700 tons; in the period 1947-52 it was only 53,000 tons. By 1953 imports of fertilizers had increased to 101,000 metric tons and in 1954 they amounted to 105,000 tons. Use of farm machinery. — Native agriculture is carried on mainly with human labor or draft ani- mals, using crude plows, harrows, patjols (hoes), choppers, bush knives, and other hand tools for clearing and cultivating land and harvesting crops. The use of farm machinery is confined largely to the foreign-managed estates, princi- pally for clearing land preparatory to planting rubber trees, oil palms, fiber plants, tea, and coffee, but also for cultivating such crops as sugarcane and tobacco. Farm machinery use is restricted by physical and economic characteristics of Indonesian agri- culture. While great interest is shown in mech- anization, its possibilities are limited. Further expansion in the use of farm machinery may be expected, but it is likely to be relatively slow and on a selective basis. Even the cultivation of vari- ous estate crops is generally considered as not sus- ceptible to a high degree of mechanization. As of 1951 the Ministry of Agriculture reported only 250 tractors in Indonesia, but the number has increased considerably. In the last few years cooperative tractor pools have been established in several places, providing the use of machinery to local farmers. 12 AGRICULTURAL PROBLEMS Many of the problems facing Indonesian agri- culture today are essentially like those existing before the transfer of sovereignty. The Indo- nesian Government thus far has tended to con- tinue policies and programs initiated during the colonial period, with modifications and additions to place greater emphasis on economic and social improvements. Production Difficulties The basic agricultural problem facing the Gov- ernment is the satisfactory production and dis- tribution of a food supply adequate for an ever- increasing population. Production of many of the principal food crops is only now reaching the prewar level of output. Precise figures on popu- lation numbers are not available, but on the basis of the estimated present rate of increase ( 1.5 per- cent per year) , it is likely that the food available per capita is somewhat lower than in prewar years. Since it is considered of utmost importance that food supplies keep pace with the population, the Indonesian Government has placed primary emphasis on increasing food production (pri- marily rice) . In 1954, it announced a 5-year agri- cultural plan designed to make the country self- sufficient in food and to increase agricultural pro- ductivity generally. 13 Estate agriculture is faced not only with vari- 13 United States teehnicnl assistance funds have been used in establishing such tractor pools. 13 See chapter IX for additional discussion of the 5-year plan. 28 ous immediate problems in carrying out its opera- tions but also with the long-range question as to its future. The present major operational prob- lems revolve around such matters as the regular procurement of necessary supplies and equipment in view of foreign exchange stringencies, and the changing labor relations with workers. Other problems faced by estate managers during the postwar period include rehabilitating neglected or destroyed areas and removing the threat to se- curity. Long-term problems arise in connection with expiration of estate leases and settlement of the squatter issue. Squatter Situation and Land Leases During the Japanese occupation large areas of uncultivated estate lands, especially in Sumatra but to a lesser extent in Java, were turned over to farmers for the production of foodstuffs. The troubled conditions that arose at the end of the war made it impracticable for many planters to resume operations and, as a result, additional thousands of acres were taken over by native squatters. It is estimated that there are now about 280,000 squatter families, about equally divided between Java and Sumatra. Throughout the postwar period the Govern- ment has been pressured for a clear-cut settlement of the squatter situation. On the one hand, squatter groups, in some cases backed by com- munists, have demanded outright grants of occupied land plus additional land. On the other hand, estate managers have attempted to get Gov- ernment assistance to remove the squatters. In attempting to prevent further takeover by squatters several "hold fast 1 ' orders have been issued by governmental agencies, the most recent of which was included in the "Emergency Land Law" of June 1954. Following the various "hold fasts," however, additional squatters have oc- cupied estate lands. Moreover, no final settle- ment has been reached as to what should be done about squatters who settled at earlier dates. The questions of new leases for estate lands, the amount of rentals, and the conditions of ten- ure are closely related to the squatter situation. Without some basic settlement of these issues, estate production can be expected to remain at levels below those of prewar years. A number of estates have remained inactive since the war and some companies continue to postpone plans for clearing, planting, and replanting because of these uncertainties. 29 CHAPTER V Forestry and Fishing Forest and fishing activities, although far less significant than agriculture and mineral produc- tion in the Indonesian economy, are important occupations for many persons, particularly those on a subsistence basis. Relatively limited com- mercial exploitation and little foreign investment have taken place in these fields, but the resources suggest a potential as yet incompletely realized. EXTENT AND TYPES OF FOREST Indonesia has large forest resources and, except in Java and Madura and locally on other islands, has made relatively little use of them. However, large parts of the forested territory are not yet opened up and other parts are difficult of access. Distribution of Forested Area Some 240 million acres, or about two-thirds of the land area of Indonesia, are in forests. 1 It is estimated that of the total forested area, 74 per- cent is in Kalimantan and East Indonesia, 24 percent in Sumatra, and 2 percent in Java and Madura. Distribution on the different islands varies widely. In densely populated Java forests ac- count for only about one-fifth of the land area and the forests are in scattered tracts. Madura is al- most completely deforested. In the Outer Islands, on the other hand, most of the land is forested and the forested areas are more con- tinuous. For Sumatra the proportion of land in forest was estimated at 62 percent in 1939; for Kalimantan, 77 percent; and for East Indonesia, 66 percent (table 7). More recent data are lack- ing but the overall percentages have probably changed little. On the more developed of the Outer Islands — Sumatra, Sulawesi, and the Lesser Sundas, where population density averages 20 to 35 persons per square mile — the forest cover accounts for about 60 percent of the land surface. In these regions 1 Available estimates of forest area vary considerably, but are of the general magnitude indicated here. If western New Guinea (West Irian) is included (as in table 7), the total forest area is about 300 million acres. Since adequate forest surveys have not been made of most of Indonesia, estimates of the avail- ability of commercial woods are lacking or deficient. Table 7. — Forested Area in Relation to Total Land Area, as of J939 1 [In square kilometers] Item Java Sumatra Kaliman- tan East Indonesia 2 Land area Forest area.. Percent of land area.. _ _ _ 132, 174 30, 572 2i 27, 122 21 4,747 18 473, 606 292, 400 62 72, 251 IS 86 0.1 539, 460 416, 000 77 13,823 3 2 0.1 759, 105 498, 600 66 Reserved forest area Percent of land area 17, 110 2 Reforestation. 66 0.4 1 Data with a comparable breakdown are not available for the postwar period, but the general distribution remains the same as in prewai years. 2 Includes western New Guinea (West Irian). Source: Based on data of the Indonesian Forestry Service (Djawatan "Kehutanan) perhaps 10 to 15 percent of the total surface is in secondary growth (on land once used for culti- vation) and 45 to 50 percent is still in virgin forests. In the less developed Outer Islands — Kalimantan and the Moluccas, where the popula- tion is sparser — the percentage of area covered with virgin forest is larger. In Indonesia, as in many other tropical areas, the forests are generally heterogeneous in charac- ter. Some 3,000 species capable of reaching a diameter of 14 inches are reported for the country as a whole and most areas have a considerable variety of species. Some woods, such as teak, ebony, ironwood, and sandalwood, have been well known in world trade for many years ; others are almost unknown except locally. Species of the genera Dipterocarpus (damar rangas, lagan, kerning), 2 Shorea (tneranti), Dry- obalanops (camphor), and Hopea, all of the Dip- terocarpacae family, are perhaps the most important commercially. Some of these are re- lated to Philippine mahogany. Other trees yielding woods of commercial use include Palaquim species (halam or suntai) , which furnishes good light-construction lumber; Al- stonia scholaris (pulai), which produces a soft, easily worked wood good for interior construction ; T etramerista species (punah or punak), moder- 2 The native names, which are commonly used in referring to Indonesian woods, are included here for only a few trees and the list is not complete. The nomenclature is particularly con- fusing because of the many languages and dialects. 31 ately durable strong wood ; EusideroxyJon zwageri (belian) , known as Borneo ironwood, a high-grade wood used for bridge construction and piling; Slo- etia species (damuJi, tempinis) , known as Riouw ironwood, also used for heavy construction; Di- ospyros (ebony), which has been exploited in Sulawesi and the Moluccas and is reported to be almost exhausted; and Santalum (sandalwood), principally found in East Java, the Lesser Sunda Islands, and Timor. Forest Types, by Area Each island, and in the case of the larger islands each section, has a somewhat different arrange- ment and extent of forest types — related to topo- graphic, soil, and climatic conditions. The types may, however, be illustrated by those of North Sumatra where six general types have been rec- ognized. These are fairly representative of the forest types of the rest of Sumatra, are similar to the types in Kalimantan, and to a greater or lesser degree can be identified with the types of some of the other islands. Local variations occur, how- ever, both as to particular species and the quan- titative distribution. The six general types described for North Sumatra are : 3 1. Tidal belt of mangroves. In this forest zone, which occupies the tidal strip, mangrove trees are dominant and include several species of Rhizo- phora, Bruguiera, Xylocarpus, Sonneratia, Geri- ops, and Avicennia. 2. Belt of nibung or nipa palms. The palm belt, occurring on fairly dry ground at the inner edge of the mangrove belt, in most areas is narrow. It is covered with palms and various broad-leaved evergreens. The typical tree is the nibung palm (Oncosperma filament osum, also known as Areca nibung). Other palms include nipa (Nipa fmiti- cans), sago (Metroxylon sagus) , and coconut (Gocus nucifera) . Among the broad-leaved trees are species of B airing tonia, Hibiscus, Terminalia, Eryfhrina, Artocarpu-s, Macaranga, Ganua, Koompassia, Garania, Ficus, Horsfieldia, Gomp- nosperma, and Xylocarpus. 3. Coastal plain swamp forest (paja). The swamp forest, which in some parts of Sumatra extends back from the coast as far as the center of the island, is the forest zone which has been most utilized. It is under water during much of the year, being dry only during the dry season. This zone is generally a mixture of many species but Dipterocarpacae are the most important with suntai, meranti, balam, and punak of special im- portance for several districts of northern Sumatra. 4. I "plain! tropical forests. These forests are reported to contain more valuable woods than the 3 Based on Notes on Forest Resources of Sumatra, compiled by \V. N. Spar-hawk. U. S. Forest Service. Undated typed report (probably about 1942 or 1943). Several subdivisions of some of the types are recognized. lowland forests, but have not been utilized or in- vestigated to the same extent, owing to the lack of transportation facilities. Dipterocarpacae are important here as in the coastal swamp forest, but other trees such as Sloetia elongata, Tristania species, Gratoxylon species and Ochanostachys amentacea are among the first-class woods re- ported for the northern Sumatran uplands. 5. Subtropical-Temperate Zone mountain for- ests. In much of this zone the original forest has been destroyed and extensive areas are open sa- vanna with only scattered trees. In addition to some of the trees of the lower areas which extend into this zone there are such Temperate Zone trees as pine, conifers (Dacrydium and Podocarpus species) , oak, and chestnut. The pine forests are largely confined to the highlands of North Sumatra. 6. Mountain mossy forests. This type consists of more or less dwarfed, stunted trees of no com- mercial value but important for the protection of watersheds. No detailed breakdown by forest types is avail- able for Indonesia as a whole, but about 10 million acres are grouped as mangrove forests, about 100 million acres as swamp and lowland forests, about 70 million as hill forests ( 100 to 500 meters above sea level), and about 125 million as mountain forests (above 500 meters). 4 Most of the Indonesian forests are heterogene- ous in character; nevertheless, several types of homogeneous stands exist which are particularly important for exploitation. On Java about a third of the forests are relatively homogeneous teak stands, most of which are now cultivated. These teak forests are reserved and under inten- sive, sustained-yield management. In the high- lands of North Sumatra large natural stands of pine (Pinus merkusii) occur and in southern Kalimantan Agathis alba occurs in virtually pure stands as well as in mixed stands. These two soft- woods appear to offer potentialities for pulp production. FOREST PRODUCTS Wood Production r The local population makes considerable use of the forests, obtaining construction materials, fire- wood, and charcoal from them. Some of the wood is cut and collected by the families using it, but other production is on a commercial scale. Com- mercial production, which occurs throughout the country, is largely concentrated in villages along navigable streams, where the buyers — many being Chinese — take the products in return for advances in goods or money. 4 These figures are based on data that include western New Guinea. 5 For discussion of the manufacture of wood products see chapter VII. 32 Large-scale commercial exploitation is limited to a few areas located primarily in the more ac- cessible forest areas of Sumatra and Kalimantan. From the eastern part of Sumatra and the Riouw Islands, logs and some lumber firewood and char- coal have long been sold to the Singapore market by Chinese merchants who have been granted concessions. Production reported by the Indonesian Forestry Service for recent years is shown in tables 8, 9, and 10. These figures, which are for quantities produced under general control of the Forestry Service, probably underestimate the actual out- put by a considerable amount. An obvious under- estimation is the total for firewood and charcoal production. Most of this production comes from commercial woods, private yards, and estates and is therefore unreported. Table 8. — Indonesian Timber Cut, According to Use, J 939 and J 950-54 Table 10. — Output 1 of Forestry Products, J 95 1-52 [Quantity in units indicated; value in thousands of rupiab] [In thousand cubic meters, rough timber equivalent] Year Total timber cut Lumber Firewood Charcoal 1939.. 1950 1951 4,034 2,845 2,965 3,515 3,558 3,116 2, 010 1,319 1,332 1,706 1,644 1,452 1,677 1,355 1,271 1, 526 1, 652 1,359 357 171 362 1952 1953... 1954 283 262 305 Source: Bank of Indonesia, Report for the Year 195i-1965. Based on data of the Indonesian Forestry Service (Djawatan Kehutanan). Table 9. — Indonesian Timber Cut, by Area of Production, 1 952-54 [In thousand cubic meters, rough timber equivalent] Area 1952 1953 1954 Java and Madura .. 1,901 1,074 503 37 2,161 1,018 336 43 1, 735 Sumatra.. ... __ .. _. 909 Kalimantan. __ __ ._ 441 East Indonesia . ... ... 16 Total 3,515 3,558 ' 3 116 1 Total as given in source. Source: Based on data of the Indonesian Forestry Service (Djawatan Kehutanan). The exact number of commercial sawmills is not known but the approximate total is 100. 6 In addi- tion, a large amount of handsawing is carried on throughout the islands. The Government's Forestry Service was operating eight sawmills as of 1955 7 and the Government has proposed the establishment of other mills in recent years. In the Javanese teakwood forests, which are Government controlled and managed, the timber is transported to assembling yards and most of it is sold publicly to sawmillers, dealers, and small consumers. Product 1951 1952 Volume Value Volume Value Timber 1,000 cubic meters.. Firewood and charcoal millions of stacked meters. . Shingles . . -. .thousands- Bamboo... ..... 1,000 units . Other products 2 . 1,254 1,693 59, 546 4,500 n. a. 93, 756 19,200 5, 955 4, 500 6,957 1,668 2,100 82, 671 2, 623 n. a. 175, 900 42, 000 12, 401 2, 623 726 Total... 130, 368 233, 650 In the immediate prewar years operating sawmills numbered 100 to 110. 7 Based on a press-interview statetment of the head of the Indo- nesian Forest Service, March 1955. n. a. Data are not available. 1 These data and those of tables 8 and 9, which report the output from Government forests, grossly underestimate total Indonesian production. Production of firewood and charcoal has been estimated at 20 times, the production of bamboo at 10 times, and that of other products at about 15 times the figures shown here. Although complete data are not available for later years, 1954 production of firewood is reported at 915,000 cubic meters and char- coal at 12,000 metric tons. 2 Includes rattan, resins, and other products. Source: Based on data of the Indonesian Forestry Service (Djawatan Kehutanan). Timber Consumption and Trade Consumption data are considered inaccurate since much of the total forest output is not re- corded. Based on the reported cut, estimated per capita consumption of lumber as of a few years ago was about 0.01 cubic meter ; for the same year consumption in the United States was about 0.90 cubic meter. This low rate of lumber consump- tion, although admittedly an underestimation of the true rate, is indicative of the low rate of in- dustrialization of Indonesia. For Kalimantan and for most of Sumatra and the islands of East Indonesia the supply of timber is ample for local needs. Java, on the other hand, is not self-supporting and receives increasing quantities of logs and timber, mainly from Kalimantan. Indonesia in prewar years exported a number of timber products to Western markets, of which teak, ironwood, and sandalwood are best known. Postwar exports have been relatively small, how- ever. Wood exports were only 4,600 cubic meters in 1953 and 5,000 meters in 1954. In addition, considerable amounts of logs are sent to Sing- apore, particularly from Sumatra for use in the Singapore market. Some of the logs are returned to nearby Indonesian consumption centers as lumber, reflecting a lack of sawmilling capacity in this part of Sumatra. Other Forest Products Bamboo and rattan are important products of Indonesian forests, used both domestically and abroad. Also various gums and resins collected in the forests have commercial significance. Tannin (cutch) is gathered from the mangrove forests and essential oils are obtained from other forested areas. 33 Bamboo and rattan. — In Indonesia, as in many other parts of the Far East, bamboo is a mainstay in the daily life of many of the natives, providing the material for huts, rafts, bridges, and other construction. It has had little commercial ex- ploitation, and only small quantities have been exported. Rattan, on the other hand, enters into world trade. Exports are largely from Kalimantan and East Indonesia, particularly Sulawesi. In the latter area rattan is probably the most impor- tant single commercial forest product. Collection is made by natives who hunt out collecting grounds, cut the rattan (which is of several palm genera), and float it in bundles to coastal ports for shipment abroad. In recent years rattan ex- ports have amounted to about 30,000 metric tons annually. Gums and resins. — The gum and resin industry is of little overall importance to Indonesia, but in certain districts it constitutes a major source of income. The industry has existed for many years and has risen and fallen in response to general economic conditions and demand for the commodi- ties on world markets. Since most gums and resins are forest products, collected at will, the output depends on whether or not collection proves remunerative in relation to other economic activi- ties. In recent decades, particularly since World War II, the industry has met severe competition from various synthetic resins and from produc- tion of gums and resins in other countries. Most important of the various gums and resins collected are jelutong and gutta-percha, damar, and copal. Others which have entered commer- cial trade include benzoin and dragon's blood. Pine resin, a product of some importance, is mainly used domestically. 8 Jelutong is a rubberlike gum collected in swamp areas of southern Kalimantan and, to a lesser extent, South Sumatra. In prewar years these areas, with an annual average output of about 9,000 tons, supplied 50 to 60 percent of the world's requirements. Much of the Indonesian pnloja was used before the war as an ingredient in chewing gum, considered a little inferior to Latin America chicle. Gutta-percha, a gum obtained from trees of the Sapotaceae family, is produced mainly in Suma- tra. Although partly an estate product (North Sumatra had several estates as of 1938), natives also gather it from forested areas. Its high re- sistance to acids and alkalis and its toughness have made it useful in various products. Damar, used in waxes, paints, and varnishes, is obtained from the wood of certain trees of the genus Dipterocarpus of the western half of Indo- nesia, including Sumatra, Bangka, and Billiton and parts of Kalimantan. The most important 8 Much of the processing of gum from pine has long heen from a Government estate operation in the Atjeh area of North Su- matra. A plant there processed turpentine, selling the rosin primarily to batik manufacturers in Java. This plant was de- stroyed by fire in 1055. type of damar in commercial trade has been mata koefjing, exported to both American and European markets. European countries were the major cus- tomers for all types of damar in the past but Japan is now the principal buying country. Prewar pro- duction amounted to 13,000 to 15,000 metric tons annually ; postwar production was about 7,000 tons as of 1918 and was estimated at about 8,000 tons for 1954. Copal, used in spirit varnishes, lacquers, and waxes and in the linoleum industry, is obtained from the bark of AgatMs trees — chiefly in the eastern half of Indonesia, particularly the Moluc- cas, Sulawesi, and Kalimantan. The large, rela- tively unmixed stands of southern Kalimantan, which have received attention as a source for ply- wood and pulp, are also one of the copal-producing areas. Lesser quantities of good-grade copal are produced in Sumatra. Prewar exports of copal ranged from 12,000 to 16,000 metric tons per year, but the highest annual postwar export was 5,950 tons (1954). FOREST LEGISLATION AND CONTROL Indonesian forests are on public lands, except for small tracts. In Java almost all the forested area is "reserved, 1 ' and cutting is directly regu- lated by the Forestry Service; on the other islands, extensive areas, particularly the upland regions, are reserved. On nonreserved lands licenses must be obtained from the Forestry Service, which designates the area to be worked. In Sumatra the licenses are generally on an annual renewable basis, and are issued for areas usually not larger than 2,000 hectares. However, extensive concessions of 7,000 to 10,000 hectares have been granted for periods up to 30 years. Scope of Legislation Indonesian forest legislation dates from the 1860's, with a basic Forest Ordinance in 1897 and other regulations at later dates. The laws and regulations were primarily designed to exploit and protect the teak forests of Java. The later laws were concerned with bringing the forests under sustained yield. Detailed regulations were issued which provided for prescribing teak-forest bound- aries, the surveying and mapping of these areas, and plans for bringing them under a sustained- yield policy. The legislation provided for acqui- sition, by the Government, of private leases as such leases expired, for reforesting, felling, and pro- tecting these forests, and for building roads and other works in connection with their exploitation and conservation. In contrast with the extensive legislation con- cerned with the teak forests of Java, apparently 34 little was done to govern the exploitation of forests on the other islands and information on such legis- lation is not readily available. No general forest law exists for the other islands but various ordi- nances and regulations are in effect. All forest areas in the Outer Islands are under trusteeship of the Government, which issues forest concessions of three sizes : ( 1 ) Small concessions (up to 500 hectares) to small enterprises; (2) medium-sized concessions (500 to 5,000 hectares) to logging companies; and (3) large concessions (5,000 to 40,000 hectares) to large-scale logging- companies and to sawmillers and other woodwork- ing industries. Loggers on the concessions are required to leave certain marked seed trees, a meas- ure designed to insure a natural reforestation. In "reserved areas 1 ' of the Outer Islands the logging restrictions are much more strict and in some areas logging is prohibited. Administration and Conservation During the earlier years of the Dutch colonial period, native exploitation of wooded areas was left undisturbed. Later, unscientific lumbering and the clearing of land for agriculture began to denude accessible areas in Java and the need for supervision of forest exploitation and develop- ment was recognized. In 1879 the Forestry Serv- ice was established. Attention was devoted pri- marily to the teak forests of Java and it was not until 1910 that a permanent forestry officer was stationed at any place in the Outer Islands. By 1937 the Forestry Service, which consisted of 5 divisions with a total staff of almost 2,400, had 23 forestry officers appointed to the various residences of the Outer Islands. Since World War II, as well as in the immedi- ate prewar years, sizable amounts have been spent by the Indonesian Forestry Service to reforest areas on Java, especially on the slopes of volcanic mountains in East Java. Reforestation from 1950 through 1953 by the Forestry Service amounted to about 190,000 hectares and, in 1954, 49,000 addi- tional hectares were reforested. Losses in the forest reserves have been exten- sive in the war and postwar years. During the war the Japanese carried on quick, clean cutting in easily accessible forests in order to help supply lumber to shipbuilding yards. They also author- ized the clearing of forest lands for the cultiva- tion of food, with resultant devastation in some areas. The postwar years have brought some improve- ment, but the great demand for wood and arable land — constantly growing with the increase in population — continues to give rise to extensive clandestine tree felling. No statistics are avail- able, but it is believed that this illegal felling in some areas neutralizes or nearly neutralizes the effect of reforestation. In 1954 it was estimated that about 500,000 hectarces of forests had been de- nuded in Java since the end of the war and that heavy losses were suffered in other parts of the country. INVESTMENT IN FORESTRY Outside of Java and Madura, some of the large areas of forest appear to be commercially exploit- able. However, heavy investment would be re- quired to develop them on a modern, profitable basis. Because of this fact the Government is of the opinion that the development of forests on a large scale must be by the Government or with Government assistance. In most of the areas transportation and communication facilities are lacking. Difficulties in financing and the lack of Indonesians trained in forestry operations are other handicaps to plans for exploitation. Among the centers which have been proposed by the Indonesian Government for the development of sawmilling and other wood industries are Bandjarmasin, Balikpapan, Samarinda, and Tara- kan in Kalimantan; Besitang and Semangus (near Palembang) in Sumatra; and Djakarta and Surabaja in Java. Sampit (in southern Kaliman- tan) and Poesea (near Lake Toba in Su- matra) have been mentioned as suitable for the establishment of pulp industries, owing to the abundance of coniferous forest stands. The possibilities of a large modern timber in- dustry in southern Kalimantan have long been recognized and this area has been considered among the most promising for other wood indus- tries. Lumber mills were planned for this area by the Netherlands Indies Government in prewar years, and in 1951 a mixed Dutch-Indonesian en- terprise (N. B. Bruynzeel Dajak) opened a saw- mill at Sampit, reported to be the largest in Asia. The operations, which involved heavy investments, are said to have incurred losses and in 1954 it was reported that the company's mills had been taken over by the Government. FISHERY RESOURCES AND OUTPUT Fishing is of greater importance in the Indo- nesian economy than is generally recognized. Its significance is not apparent from statistical data because fishing is a mobile and widely dispersed activity and plays little part in revenues and inter- national trade. Nevertheless, as an occupation for large numbers of persons (usually part time) in supplying a basic foodstuff and as an activity offering possibilities for expansion, it should not be overlooked. In the Indonesian diet fish is the staple com- plementing rice, and it supplies most of the animal protein consumed as well as calcium, iodine, and salt— items otherwise not easily come by or ex- 380755—56 35 pensive. A statement about a local ecology, "Rice and fish together form a Javanese meal and all the rest is supplementary," could be repeated for most areas of the country. Although the number of persons engaged in fishing is reported as 393,000 in 1953, covering only the sea fisheries, probably well over a mil- lion persons in Indonesia are fishermen. Along the coasts many fishermen are part-time workers, sharing their labor between ricefields and fishing- boats and nets. Inland farmers and villagers fish in swamps, ricefields, rivers, and lakes, using the catch for their family needs. The extensive Indonesian archipelago includes tens of thousands of square miles of usable fishing grounds. Commercial sea fishing, however, is largely confined to a narrow band off the coasts of the various islands, the greatest concentration being off northern Java. As in other tropical waters the number of species is large, but each species has relatively few members in comparison with the resources of cooler waters. This cir- cumstance is reflected in the commercial catch; although it consists of some 90 or more species, no one species is preponderant. Indonesia also has fishery resources of consider- able importance in lakes, rivers, swamps, and arti- ficially made ponds. The extensive systems of brackish coastal waters (tambaks) yield a large part of this inland fisheries production. Fish are also raised in limited degree in the flooded rice- fields. No precise data are available on Indonesia's take of fish and other fishery products. Figures of the Department of Fisheries of the Ministry of Agri- culture show production of 572,000 tons for 1952, 616,600 tons for 1953, and 628,000 tons for 1954. Of the reported 1954 output, 401,000 tons were produced from the sea fisheries and 227,000 tons from inland fisheries. These figures do not take into account the large part of the total fish catch consumed by the families of fishermen and the high loss due to spoilage. Production data, including the number of fishing- boats and fishermen, for the sea fisheries are given in table 11 for 1952 and 1953 and production data for both sea fisheries and inland fisheries for 1954 are given in table 12. The gains in production in the postwar years, which have raised output above reported prewar figures (472,000 tons in 1940 for both sea fisheries and inland fisheries) , result largely from an expan- sion of the sea fishing fleet, particularly motorized vessels. Another factor is the Government's distri- bution of fingerlings to farmers for use in inland fisheries. FISHING METHODS Indonesia's commercial sea fishing fleet was re- ported as of 1953 at about 93,000 boats in opera- Table 7 7. — Indonesian Sea Fisheries: Production Data, 7 952—53 Production of fish Area 1952 1953 Volume (metric tons) Value (1,000 rupiah) Volume (metric tons) Value (1,000 rupiah) Java and Madura 68, 585 157, 830 41, 360 97, 356 131,413 1, 044, 703 121.220 368. 979 71,214 131,399 75, 000 97. 500 168, 244 752, 577 Kalimantan... . _. East Indonesia . 251,250 369, 354 Total 365, 131 1, 666, 315 375, 113 1, 541, 425 Number of fishing boats Area 1952 1953 With engine With sail Total With engine With sail Total Java and Madura Sumatra 130 160 10 31 22, 930 25. 677 5,730 36, 036 23, 060 25,837 5,740 36, 067 139 561 11 36 28, 159 25, 340 3,103 36, 036 28, 298 25, 901 Kalimantan 3,114 East Indonesia 36, 072 Total 331 90. 373 90, 704 747 92. 638 93, 385 Area Number of fisher- men 1952 1953 Java and Madura ... 145, 838 99, 804 4,500 106, 004 168, 448 113,373 Kalimantan- ._..__ 4,953 East Indonesia 106, 004 Total 356, 146 392, 778 Source: Indonesian Sea Fisheries Service, Ministry of Agriculture. Table 7 2. — 7ofa/ Production of Indonesian Fisheries, 7 954 [In thousands of metric tons] Area Sea fisheries Inland fisheries Java and Madura 71 132 96 102 65 Sumatra 48 Kalimantan 89 25 Total 401 227 Sources: Indonesian Sea Fisheries Service and Inland Fisheries Service, Ministry of Agriculture. tion, but other data indicate a considerably smaller number. Total fishing units, consisting of 1 fish trap or 1 fishing vessel, have elsewhere been re- ported as about 40,000. Since most of the fleet con- sists of very small craft — sail and rowboats — the number reported depends, in part, upon the defi- nition of ''boat"; also the nature of the industry makes it very difficult to collect accurate data. The principal fisheries are the inajang fishery, the trap fishery, that for flying fish, reef fishing, the developing tuna fishery, and the inland fisheries. The majang fishery, which accounts for more than half of all the fish caught by Indonesians in the Java Sea, is carried out by small craft 36 (majang) which operate with nets. A net (pajang) is used to surround a school of fish near the surface and is then towed through the water to capture the fish in the bunt. Prior to using the net, the fish are lured by artificial shelters of coconut fronds. The most important species caught by this method are horse mackerel, mack- erel, pomfret, and sprat. In trap fishing (sero), traps of many designs and shapes and of varying sizes are used through- out Indonesian waters. Among the many kinds of fish caught by traps, mackerel, pomfret, sar- dines, anchovies, sprat, Spanish mackerel, and horse mackerel are most numerous. Flying fish are taken in traps which float in the water near masses of seaweed in spawning areas. As the flying fish skim over the surface to lay their eggs they attempt to avoid the sea- weed and in submerging plunge into the traps. Reef fishing, which is conducted primarily for yellowtail, consists of catching the fish in fixed nets into which they have been driven by divers. A tuna fishery is being developed in eastern In- donesian waters with vessels operating out of Aertembaga (Sulawesi) and Ternate and Ambon (the Moluccas). The catches, made by vessels on daily trips from port, consist largely of skipjack, although some yellowfin and bluefin tuna are taken. Some fishing experts believe this type of fishing can be greatly expanded. Other important methods of fishing are by beach seines, haul seines, gill nets, scoop nets, cast nets, hook and line, and bamboo pots. Trawling is not common, but has been carried on in the Makasar district for sharks and rays. Pearl and trochus fisheries are conducted by divers. Catches in the extensive inland fisheries are made with cast nets and with various types of traps and pots. Lake Tempe in Sulawesi is one of the important inland fishing areas. In Java extensive and quite advanced inland fisheries have been developed. Along the north coast, near Djakarta, Semarang, and Surabaja, large connecting ponds (tambaks) , filled with sea water by skillful use of the tidal movement, are used to grow marine fish. Spawn and young fish, gathered from the sea and carried to the ponds, fatten on algae and weeds. The milkfish ( Chanos chanos) — or benteng in Indonesian — is the most common fish raised by this method as it reaches a marketable size within a year, but mullets, snap- pers, and eels are also produced. Tambaks are also found in Sulawesi, Sumbawa, and North Sumatra, but are not extensive in these areas. The total area of the tambaks was estimated at about 295,000 acres as of a few years ago. Inland artificial fresh- water ponds cover exten- sive areas; in these fish of the carp type are bred in greatest numbers. The ricefields (sawahs) in which large quantities of fish are also raised, mainly for home consumption, yield an average of about 15 kilograms per month per acre. Ac- cording to data of the Inland Fisheries Service, in 1953 about 43,000 acres of inland ponds and 110,000 acres of ricefields were devoted to raising fish. PROCESSING AND TRADE Salting and drying, the major means of process- ing fish, are carried on throughout Indonesia. The making of fish preparations is of some importance and fish fertilizer is also produced (table 13). Canning is done but only on a small scale in two or three places. One plant, which canned sardines, is known to have been abandoned reportedly because of erratic supplies of fish. As of mid-1955 a small cannery in Bali was operating. Table 1 3. — Indonesian Production of Fishery Products, ? 938 and 1947-53 [In thousands of metric tons] Year Dried and salted fish Fish prep- arations Fish ferti- lizer 1938 1947 _ 51.0 3.5 7.2 14.5 18.2 18.5 20.3 21.1 8.0 .7 1.5 2.9 3.7 3.7 4.1 4.3 6.0 1948 1949 1950_ _ 1951. 1952 1953 8.1 21.0 21.2 8.7 Source: Food and Agriculture Organization, Yearbook of Fisheries Statistics, 1952-53, vol. IV, part 1, Production and Craft, Rome, 1954. Most Indonesian fish is marketed locally but interisland trade is considerable. Java and Ma- dura are importing areas whereas Sumatra and Kalimantan and East Indonesia ship to Java. The principal items in this trade are loosely packed, salted and dried fish and fish paste. Indonesia is a net importer of fishery products, and these have not played as important a part in trade as in prewar years. The postwar cutback in imports has been due largely to conservation of foreign exchange. Statistics show imports of 36,000 to 38,000 tons annually in recent years, mostly salted or dried fish from Thailand and Malaya, and exports of about 1,000 tons of fresh fish to Malaya. In addition, some 8,600 tons of fertilizer from fishery products were exported to Malaya. RECENT FISHERY PROGRAMS The fishing resources of Indonesia are consid- ered of sufficient magnitude to sustain annual catches far above those now taken, and could be expanded. Under the Ministry of Agriculture's Five- Year Plan a rather comprehensive program has been scheduled calling for an increase by 1959 to 600,000 tons for sea fisheries and 420,000 tons for inland fisheries. The increases are based pri- 37 marily on the use of additional motorized vessels, increased tambak acreage, and a marked extension of fish cultivation in ricefields. To further assist the program, additional fishery cooperatives are being encouraged, the Government is establishing more breeding stations, and the training of tech- nical personnel is being increased. To more fully utilize the catch, reducing some of the spoilage, attention has been given to improv- ing terminal and processing facilities. Current plans include construction of an iceplant, cannery, and a fish-flour plant at Kota Baru in southeastern Kalimantan. Also, a plan is under way for build- ing a fish cannery on the island of Ambon. Whether Indonesia can achieve the planned in- creases in production and develop a greater degree of processing remains to be seen. The increases of the past few years are encouraging, but large-scale expansion is limited by insufficient capital, the lack of incentive on the part of fishermen because of high interest rates, and by poor fishing methods in some respects. 38 0« Letter princii A C Ag Al As c Au B C Cu D Fe Hg I Ko X X X Base* of Mi Note indig here of No full p 95 marily on the use of additional motorized vessels, increased tambak acreage, and a marked extension of fish cultivation in ricenelds. To further assist the program, additional fishery cooperatives are being encouraged, the Government is establishing more breeding stations, and the training of tech- nical personnel is being increased. To more fully utilize the catch, reducing some of the spoilage, attention has been given to improv- ing terminal and processing facilities. Current plans include construction of an iceplant, cannery, and a fish-flour plant at Kota Baru in southeastern Kalimantan. Also, a plan is under way for build- ing a fish cannery on the island of Ambon. Whether Indonesia can achieve the planned in- creases in production and develop a greater degree of processing remains to be seen. The increases of the past few years are encouraging, but large-scale expansion is limited by insufficient capital, the lack of incentive on the part of fishermen because of high interest rates, and by poor fishing methods in some respects. 38 CHAPTER VI Petrol eum an dMi ining The economic life of Indonesia is strongly af- fected by the country's mineral production. Pe- troleum and tin are of outstanding importance — these two minerals and their derivatives account for about one-third of total exports. Coal and bauxite are of secondary importance and a number of other minerals are produced in smaller quanti- ties (tables 14 and 15) . Table 74. — Output of Major Indonesian Mineral Products, Prewar Years and J 949-54 [In thousands of metric tons] Year Crude petro- leum Tin con- centrates (tin content) Bauxite (crude ore) Coal 1935-39 average 7,026 7,949 7,939 5.933 6,414 7,445 8,523 10, 224 10, 775 29.5 27.2 42.0 29.5 32.6 31.5 35.6 34.3 35.9 164 231 275 678 531 642 1344 1 150 1 166 1,374 1939 1940.... 1949 1,781 2,009 602 1950 1951.. 1952.. __ 804 868 969 1953 898 1954 ._ _ 890 1 Dried equivalent of crude bauxite ore. Sources: United Nations, Statistical Year Book, 195i, for data from 1935 through 1953. Data for 1954 from Indonesian Department of Mining (Dja- watan Pertambangan). Table 15. — Output of Minor Indonesian Mineral Products, 1953—54 [In metric tons, except as indicated] Mineral 1953 1954 Asphalt rock 2,051 9,547 n. a. ' 16, 986 285 n. a. 828 266, 000 1,237 Iodine . Kaolin . . kilograms.. 10, 668 n. a. Manganese ore 14, 916 10 Nickel ore. . n. a. Phosphate rock . __ . . . . . n. a. Salt 130, 000 n. a. Data are not available. 1 Also reported as 18,425 metric tons. Source: Data largely from Indonesian Department of Mining (Djawatan Pertambangan) as reported by the United States Embassy, Djakarta. Mineral resources are varied and generally con- sidered to be extensive. However, investigations are incomplete and statistical collection facilities are not adequate to provide accurate data for many of the minerals, particularly those produced in outlying areas. On the basis of resource informa- tion at hand there appears to be a good potential for several minerals in addition to petroleum and tin. Nickel, bauxite, and possibly iron are among the most promising. For other minerals, for ex- ample, manganese and sulfur, the potential ap- pears small to moderate, and for many others it is as yet uncertain. In the long run Indonesian min- erals may offer important opportunities for development and could stimulate activities in undeveloped regions. No prediction is possible regarding specific fields of development or the probable extent of foreign capital participation. As of the present, condi- tions for increased mining operations do not ap- pear particularly promising because of a general uncertainty as to the Indonesian Government's intent with respect to many concession rights now approaching expiration. There is also some fear of future nationalization of mining enterprises, based on various statements of Indonesian officials. Nevertheless, mining is a field in which foreign capital could under improved circumstances find new opportunities. It has attracted foreign in- vestment in the past, and most of the major min- ing operations are still carried on by foreign com- panies. Several measures could be taken to facilitate ex- ploration for mineral deposits and to further the development of the mining industry, should the Indonesian Government desire to do so. Particu- larly important will be its position with respect to prospecting and exploitation. A policy offer- ing positive incentives for these difficult and ex- pensive operations would do much to stimulate future development. Such incentives, as well as safeguards against undesirable control over min- erals, may be provided by the new mining laws now under consideration. 1 A clearcut policy re- garding the scope of nationalization of mining enterprises would also help to clear up present un- certainties. PETROLEUM The petroleum industry, in which foreign com- panies carry on the major operations, contributes large foreign exchange earnings through taxes, export and import duties, and rental fees. It gives 1 As of early 1956 two mining laws reportedly were under con- sideration — one dealing with hydrocarbons and the other with minerals in general. 39 direct employment to thousands of Indonesians and indirect employment to a much greater num- ber. It also provides an important training ground f 01 - skilled labor. Resources Indonesian petroleum resources are considered to be the largest in the Far East, but they are small in relation to those m the Middle East and Latin America. Recent estimates of known re- serves range from 1.2 to 1.9 billion barrels — or be- tween 1 and 2 percent of the world's reserves. Prospects are considered good for significant new discoveries. Natural gas reserves associated with the petroleum are estimated at over 1 trillion cubic feet. The richest oil areas are in Sumatra, the Resi- dencies of Palembang and Djambi being of major producing importance in South Sumatra and the Atjeh area the focal district in North Sumatra. In recent years Central Sumatra has become in- creasingly important because of new discoveries, and this part of the island may in time over- shadow the other Sumatran areas Kalimantan ranks next to Sumatra as a major producing region. The Samarinda field in south- eastern Kalimantan near Balikpapan is one of the largest in Indonesia. Another producing area includes the islands of Tarakan and Bunju just off the northeastern coast of Kalimantan, near British North Borneo. Other areas in Kaliman- tan offer potentials for development. The central and eastern part of northern Java and the island of Madura have a wide scattering of oil wells, but most of them are relatively small producers. While these areas appear much less promising than Sumatra or Kalimantan, new de- velopments in Java may be profitable. The island of Ceram in the Moluccas has produced oil, but no estimates have been made of the reserves of this structurally complicated field. The oil produced in Central Sumatra is excep- tionally high in wax content and has a high pour point. It is low in sulfur content. Production The Indonesian petroleum industry was reha- bilitated rapidly following World War II and has been expanded considerably in recent years (table 14). Further expansion is currently under way. Crude oil. — Production of crude oil in 1953 and and 1954 (table 1(J) amounted to 10.2 million and 10.8 million tons, respectively, compared with 7.4 million tons in 1938 and 7.9 million tons in 1939, the peak prewar year. Output in 1955 increased by about 1 million tons over the 1954 level, reach- ing 11.8 million tons. The largest production of crude oil is from fields in Sumatra, but Kalimantan produces im- portant amounts; Java fields contribute much smaller quantities. About half of the crude pro- duction in recent years has been by American com- panies — Stanvac and Caltex (table 17). Natural gas. — The production of natural gas — a raw material associated with petroleum — has in- creased in recent years, reaching more than 2 mil- lion metric tons in 1954 (table 17). Only a frac- tion of the natural gas is used in extracting natural gasoline; large quantities are dissipated into the air from the oilfields. Refinery output. — As reported by the Indonesian Department of Mining, net refinery output in 1954 amounted to 10.4 million tons or slightly above the 1953 output (table 18). These production data include the operation of five refineries — two in Sumatra (Sungei Gerong and Pladju in South Sumatra) ; one in Kaliman- tan (Balikpapan); and two with much smaller production in Java (Tjepu and Wonokromo). Table 7 6. — Indonesian Production, Imports, and Exports Petroleum and Petroleum Products, 1938 and 7 950-55 [In thousands of tons] of Year Crude oil Petroleum product Produc- tion Imports Exports Imports Exports 1938 7,398 6,816 8,093 8, 523 10, 225 10, 775 11,804 68 8 599 2,086 2,303 n. a. 158 69 73 95 99 88 n. a. 5,999 6,091 1950 1,575 1,495 2,211 2,279 2,131 n. a. 1951 6, 725 1952 1953 7,284 7,513 1954 7,584 1955 n. a. n. a. Data are not available. Source: Centra] Bureau of Statistics (Kantor Pusat Statistik), Ministry of Economic Affairs. Table 1 7. — Indonesian Production of Crude Pefroleum ond Natural Gas, by Companies, 1952-54 * [In thousands of metric tons] Crude petroleum Natural gas Company 1952 1953 1954 1952 1953 1954 N. V. Bataafsche Petroleum Mij. (BPM) 3,444 3,743 3,954 599 793 891 N. V. Netherlands Indies Pe- troleum Mij. (MAM). _ 1,167 1,283 1,482 221 228 360 N. V. Standard-Vacuum Pe- troleum Mij. (Stanvac) 3, 176 3,127 3,239 553 726 770 N. V. Caltex Pacific Petroleum Mij. (Caltex) 736 2,072 2,100 6 16 20 Total .- 8,523 10, 225 10, 775 1,379 1,763 2,041 1 Production of the North Sumatra and Tjepu (Central Java) wells are not included. In 1954 these installations are estimated to have produced about 370,000 and 30,000 tons, respectively. Source: Indonesian Department of Mining (Djawatan Pertarnbangan). 40 7ob/e J 8. — Indonesian Refinery Production, J 953—54 [In thousands of metric tons] Item 1953 1954 Crude run to stills: Domestic . . 7, 937. 4 2, 404. 1 8, 407. 5 2, 164. 8 Total _. 10, 341. 5 10, 572. 3 Output: Aviation gasoline .___.. 384.5 2, 215. 5 1, 179. 9 2, 459. 9 3, 240. 110.1 30.1 251.1 86.4 242.1 (-)9.6 (-)151.5 297.9 2, 167. 7 1, 368. 9 2, 332. 4 3, 508. 9 118.8 Asphalt and cutback, _ _ _ _ 34.4 Gas fuel . .. . 126.5 64.3 Other products . 528.8 (-)10. 2 (-)160. 6 10, 038. 5 10,411.7 Source: Based on data of the Indonesian Department of Mining (Djawatan Pertambangan). Marketing and Consumption Petroleum exports have risen significantly in the postwar period and in 1954 accounted for about one-fourth of the total value of exports. Excluding bunkers, exports of crude and petrol- eum products amounted to 9,887,000 tons in 1954, of which crude motor gasoline and fuel were the important components. Crude oil exports in the past few years have amounted to more than 2 mil- lion tons annually, largely shipments by Caltex to its new refinery in the Philippines and to the west coast of the United States. Imported crude — mainly brought in by Bataafsche Petroleum Maat- schappij (BPM) , which has not been permitted to exploit some of its concessions — has been about- equal to the exported crude (table 16). Indonesian consumption of petroleum products has increased. Table 19 shows 1954 inland trade in petroleum products from BPM and Stanvac re- fineries and from foreign sources. Table 7 9. — Inland Trade in Petroleum Products, J 954 [In thousands of liters, except as indicated] Product Aviation gasoline Automotive gasoline Terpine Solvent oil Kerosene Solar oil Diesel oil Residual oil Lubricating oil Industrial oil Household specialties Naphtha Grease 1,000 kilograms- Asphalt do... Wax (paraffin) do_ _ _ Liquid petroleum gas Output sold in Indo- nesia BPM' 15, 770. 508, 382. 4 6, 054. 2 1, 588. 2 547, 385. 2 182, 626. 1 94, 077. 6 208, 235. 3 42.5 32, 071. 2 5, 490. Stanvac 12,456.3 177, 303. 3 193, 587. 6 74, 113. 2 47, 989. 5 79, 424. 8 570.8 58.8 4.9 3, 790. 6 5.4 Imports 168.0 34, 841. 6 1, 665. 9 783.1 64.3 3, 353. 8 13, 867. 9 Total 28. 227. 2 685, 685. 8 6, 054. 2 1, 756. 2 740, 972. 8 256, 739. 2 142, 067. 1 287, 660. 1 34, 884. 1 2, 236. 8 841.9 69.2 3, 353. 8 45, 939. 2 9, 280. 6 5.4 1 N. V. Bataafsche Petroleum Mij. Source: Indonesian Department of Mining (Djawatan Pertambangan). Ownership and Company Operations Indonesian oil production is largely in the hands of four companies. Two are subsidiaries of American oil companies ; one is a Dutch company ; and the fourth is a joint Indonesian Government- private company enterprise. N. V. Standard-Vacuum Petroleum Maatschap- pij (referred to elsewhere in this report as Stan- vac), of which Standard- Vacuum Oil Co. of New York is the parent company, has operated in Indo- nesia since 1912. The company produces from fields in South Sumatra and has a refinery at Sun- gei Gerong, near Palembang. The value of its total investment is not known, but undoubtedly it is large. The installations were badly damaged during the war but major rehabilitation has taken place. In March 1954, at the time a new agree- ment was reached with the Indonesian Govern- ment covering a profit split, the company an- nounced that it intends to carry out a capital in- vestment of from $70 million to $80 million over a 3-year period. This expenditure will cover the drilling of new wells in the Lirik region of Central Sumatra, ren- ovation of the company's refinery at Sungei Gerong, and the building of pipelines to serve the new Lirik development. As of November 1955 some of this new construction was under way ; for example, according to a press report about 10 miles of the pipeline had been completed. The com- pany also announced that it had long-term plans for further development, provided it is granted the new exploration and exploitation rights for which it has applied to the Indonesian Government. The petroleum products from Stanvac's refin- ery at Sungei Gerong in South Sumatra are mar- keted throughout Indonesia through Standard- Vacuum Sales Co. Stanvac also maintains a tanker fleet. N. V. Caltex Pacific Petroleum Maatschappij (referred to elsewhere in this report as Caltex), of which the parent companies are the Standard Oil Co. of California and the Texas Oil Co. (New York), went into Indonesia in 1935, much later than the other companies which are operating there. By the time of the outbreak of World War II Caltex had made encouraging discoveries and was ready to drill. During the war the Japanese drilled at the point at which the company had in- stalled a rig and thus produced the first oil from what is today the main Caltex operating area — ■ the Minas field near Pakan Baru in Central Sumatra. Since 1950 the company has gone into major production, increasing its output from some 736,- 000 tons in 1952, the first year of production, to 2,100,000 tons in 1954. The company has built a base settlement in the jungle, now employs more than 3,000 Indonesians, and is providing training to many more. The company is reported to be 41 planning additional investment over the next sev- eral years to expand its operations. Bataafsche Petroleum Maatschappij (BPM), of the Royal Dutch Shell group, is the largest pro- ducing company in Indonesia. The company's production is approaching its prewar level in spite of the fact that it is not in possession of five of its fields in North Sumatra and three of its fields in Java. The company is operating holdings in South Sumatra and Kalimantan but the fields in North Sumatra and East Java are operated by indigenous groups. 2 Many political and emo- tional pressures have been brought to bear on suc- cessive Governments with respect to the disposal of these latter properties ; as of 1955 the Govern- ment appeared no closer to the solution than sev- eral years ago. Mining Concessions 3 Petroleum concessions for exploration and de- velopment are generally held under provisions of article 5a of the Mining Law of 1899, as amended in 1918, although a few older concessions are held on a somewhat different basis under the law prior to this amendment. Under the "5a contracts" which have been made between the various com- panies and the Netherlands Indies Government, exploration concessions may be held for a max- imum of 5 years and development concessions for a maximum of 40 years. The development con- cessions obtained in the earlier period are valid for a maximum of 70 years. Mining concessions, including those for petro- leum, were extended in 1948 to allow for the time they were inoperable during the war and the early postwar period of internal disturbances. Issu- ances of new permits have been virtually sus- pended, however, pending the passage of new mining legislation. In 1954 new agreements, negotiated by Stanvac and Caltex for periods of 4 and 5 years, respec- tively, replaced the earlier let-alone agreements of these companies. Under the new agreements the two companies, on certain conditions (includ- ing monthly reports and the submission for ap- proval of an annual foreign exchange budget), receive a general foreign exchange permit to ex- pend foreign currency for imports and invisible payments necessary to maintain and develop their enterprises in Indonesia. They may also retain temporarily their foreign exchange earnings from export or other sources. In connection with the new arrangements both companies are expanding their investments over the next few years. Outlook The short-term prospect for the petroleum in- dustry is moderately favorable. Production is in- creasing and new investment is taking place. There are numerous operating problems, however, particularly in the labor field ; 4 and competition with Middle East crude together with the high wax content of Indonesian crude are unfavorable, aspects. The long-term prospects are unpredict- able and depend on political as well as economic factors. The resources are large, but what further ex- ploitation will be made of them is not clear. For long-term development new concessions are needed, and the granting of these awaits enactment of new mining legislation. And although the oil companies are being treated more favorably than other foreign firms, the Indonesian Government still remains undecided on the basic question re- specting attitude toward foreign capital. Thus, further expansion of the oil industry in Indonesia depends, to a considerable degree, upon policy de- cisions yet to be taken by Indonesia. Government-Industry Relations The petroleum industry, because of its im- portance to the country's economy, has been given greater encouragement in its operations than have other foreign-controlled industries. In 1948, the Government signed "let alone agreements" with the three major oil companies (Stanvac, Caltex, and BPM) . These agreements permitted the com- panies to retain foreign exchange earnings and gave them responsibility for financing their own imports. The agreement with BPM was due to expire at the end of 1955. • As of May 1054 the properties in North Sumatra were placed under control of the Ministry of Economic Affairs. Although this did not nationalize the properties it appeared to he a step in that direction. More recently, however, some statements seem to indicate that the Government may not nationalize these properties. • See chapter XIV and appendix E for further discussion of the Indonesian mining laws. TIN Indonesia, having regained its prewar position as the world's second producer of tin, 5 finds tin mining a major earner of foreign exchange- Only rubber and petroleum exceed tin in the ex- port trade and tin exports are especially valuable because they are sold chiefly for dollars. Tin also provides a considerable amount of Govern- ment revenue, through the Government's yield from profits and dividends from its enterprises together with income from taxes paid by the tin industry. While important in these respects, the industry affects directly only a small percentage * The companies find a scarcity of Indonesians with sufficient training to increase the ratio of Indonesians as rapidly as desired by Indonesian officials, and some of the labor demands for in- creased benefits have appeared unrealistic. 5 In some postwar years Indonesia has been the third producer after Malaya and Bolivia, but in the most recent years its production has surpassed that of Bolivia. 42 of the population and accounts for only a small part of the national income. Resources Tin is found mainly in the three islands of Bangka, Billiton, and Singkep off the eastern coast of Sumatra. In addition, small deposits occur near Bangkinang on the west coast of Sumatra and on the islands of Karimun and Kundur. Oc- currences have also been reported on most of the other islands of the Riouw Archipelago and also on islands off the east coast of Sulawesi. Geologically, Indonesian tin ore deposits are of the same kind as those in the other tin fields of Southeast Asia. Primary tin deposits occur in quartz veins, granite, and greisen on Bangka and on Billiton, but more important are the large alluvial and eluvial deposits. Most of the ore is in alluvial deposits found mainly in river valleys and on the slopes of hills. In several places de- posits extend along the coastline under the sea. Data on tin resources are incomplete, but op- erators have no fear that the supply will be ex- hausted in the foreseeable future. The alluvial reserve is estimated at 1 million tons of tin con- tent. In addition, extensive deposits of primary ore in lode mines have never been fully developed. Many well-informed specialists believe an active prospecting program would determine much larger reserves. Production and Exports Production in the period 1950-54 averaged about 33,500 metric tons annually (table 20), the high point being in 1954. Output in 1955 was at about the same level— 33,817 tons. The recent average level is about the same as for 1936-40, but con- siderably below the peak year 1941, when output reached more than 53,000 tons and Indonesia ac- counted for 21 percent of world production. Tablo 20. — Production and Exporfs of Tin, 1938 and 7 950-55 [In long tons] Production of tin in concen- trates Exports Year Tin in con- centrates Tin metal 1938 29, 728 32, 102 30, 986 35, 003 33, 822 35, 862 ' 33, 817 13, 699 31, 349 30, 750 34, 601 32, 732 33, 941 i 32, 030 7,207 1950 1951 ___ 1952 .._ 4 1 15 1953 1954 224 944 1955 n. a. Data are not available. 1 Preliminary estimate. Sources: International Tin Study Group, 1954 Statistical Year Book and Statistical Bulletin, The Hague. Data (or 1955 are from Indonesian Depart- ment of Muling (Djawatan Pertambangan). Bangka furnishes about two-thirds of the out- put and Billiton and Singkep together produce the remainder. Bangka tin, as the metal from the island of Bangka is known in commercial chan- nels, is of the purest quality. Concentrates from Billiton and Singkep are also high grade, and "Billiton tin," which refers to metal from both of these islands, is frequently specified commer- cially. The production of tin in Indonesia in 1953-54 was as follows, by districts : In long tons 1953 1954 Bangka 21,399 24,695 Billiton. ___ 9,715 9,019 Singkep _ 2,708 2,146 Total 33,822 35,860 Sources: International Tin Study Group, 1954 Statistical Year Book, The Hague, for 1953 data. Statistics for 1954 are from Indonesian Department of Mining (Djawatan Pertambangan). Ore is recovered from the alluvial deposits in several ways. Tin-bearing areas of great size and sufficient depth and those covered by the sea are worked with powerful floating bucket dredges, completely equipped to separate the ore from sand, clay, and silt, which are then dumped be- hind the dredge. Sometimes a "forerunner" (a suction-cutting dredge or other earth-moving ma- chine) is used before the bucket dredge. This forerunner removes the overburden of sand or clay so that the bucket dredge has to deal only with the tin-containing earth. Frequently, the ore is mixed in open pits where the earth is sluiced with water to gravel pumps after the overburden has been removed by bulldoz- ers. The pumps move the tin-bearing mixture to the head of a flume or sometimes onto sloped ground. Concentration of the heavy minerals is controlled by baffles in the flume, and partial clean- ing of the low-grade concentrates is accomplished by raking the ore against an inflowing stream of water. Gravel-pump mining is particularly suit- able for small producers as relatively little ex- penditure is necessary on development and equip- ment. In the past lode mining was important. Both lodes of fairly important dimensions and small ones have been worked. Major lode mines, which were developed in the prewar years, as, for ex- ample, that of Klappa Kambit on Billiton, have not been rehabilitated. Raw concentrates of Indonesian tin contain about 65 or 70 percent tin. By a second concen- tration the tin content is raised to about 73 per- cent 6 and the final product is dried, bagged, and shipped to the smelters. Before the war three domestic smelters were in operation, all on Bangka, and they produced about 10,000 tons of metal a year. Since the war, only one of the smelters (at Muntok on Bangka) has been rehabilitated and it has produced only oc- 6 The average tin content of Indonesian tin shipped to smelters in recent years is reported as 72.5 percent. 43 casionally, and on a small scale, for domestic re- quirements. Whereas in prewar years, Indonesian concen- trates went largely to smelters in Malaj-a and the Netherlands, sinee'1946 the output has been divided between the Netherlands and the United States. The former has taken about two-thirds of the post- war output and the United States the remainder. Much of Indonesia's tin exported to the Nether- lands for smelting also finds its way eventually to the United States for consumption. From 1952 until March 1955 the United States purchased tin from Indonesia under a contract negotiated by the Reconstruction Finance Cor- poration. The contract provided for the sale of 18,000 to 20,000 tons of tin for each of the 3 years, the tin being provided partly as concentrates and partly as metal smelted in the Netherlands. Guar- anteed prices for the period March 1952 through February 1951 were for the most part above world market prices, providing very favorable terms to Indonesia when its export volume declined in 1958. The renegotiation of the agreement in 1951 terminated special prices and in the past year United States purchases have been at world mar- ket prices. Since the end of the agreement in March 1955 several short-term extensions have been made. Some eight of the bilateral trade agreements which Indonesia has made with various countries include tin as an Indonesian export commodity. For the first half of 1955, however, the United States and the Netherlands remained the sole pur- chasers of Indonesian tin. Ownership and Management Tin production in Indonesia is centralized in the hands of a few companies. The Bangka tin fields are OAvned by the Government of Indonesia and worked by a Government company, Perusahaan Negeri Tambang Timah Bangka (Bangka Na- tional Tin Mining Enterprise). The mines on Billiton are worked by the Gemeensehappelijke Mijnbouwmaatschappij Billiton or GMB (Billi- ton Joint Mining Co.). This is a joint Govern- ment-private operation ; 621^ percent of the shares are in the hands of the Government and the rest is owned by the N. V. Billiton Maatschappij of The Hague. The Singkep mines are worked by N. V. Singkep Tin Exploitatie Maatschappij or SITEM (Sinirkep Tin Exploitation Co.), a sub- sidiary of GMB. In March 1948 all tin mining in Indonesia was brought under the central management of GMB for a period of 5 years. This arrangement was not renewed in February 1953 and the Indonesian Government took over full control of the manage- ment in Bangka at that time. The mining rights of GMB in Billiton, also due to expire in Febru- 44 ary 1953, were extended for another 5 years. Most of the members of the management board are ap- pointed by the Government, and the company serves as a proxy to the Indonesian management. The day-to-day operation of GMB is entrusted to the Billiton Co. of The Hague, working through a management board with representatives of the Government. International Tin Agreement The Indonesian Government, which attaches considerable importance to international action to stabilize commodity prices, has supported postwar moves for an international agreement on tin. The International Tin Agreement, which was worked out in 1953 at Geneva by the important tin- producing and tin-consuming countries which form the International Tin Study Group, was signed by Indonesia in 1955 and was ratified in early 1956 by the Indonesian Parliament. This agreement is designed "to prevent excessive fluctu- ation in the price of tin, to achieve reasonable sta- bility of price, and to ensure adequate supplies of tin at reasonable prices at all times." It estab- lishes an International Tin Council, which will administer buffer stock and which will determine prices appropriate to attaining the objectives. 7 Since the United States, a major consuming country, is not a member, much of the world's trade in tin will be outside the agreement. Outlook In contrast with the situation for most other metals produced in Indonesia, the outlook for tin, at least in the short-term future, appears fairly bright. Not only are the reserves considered good, but production costs to date have been sufficiently low to give Indonesia an advantage over most com- petitors. Consequently, efficient producers are not worried about operations even though the world supply is considered high in relation to pres- ent consumption. The world demand for tin, of which the United States demand is a major part, is generally ex- pected to continue high. However, various times in the past, tin producers have adopted policies of restricting production to maintain the price of tin. And United States industry has found it necessary at times to reduce the demand for tin because of the uncertainty of tin supply. The future substitution of other materials for tin and economies which can be made in the use of tin could, of course, affect future demand for this important Indonesian export product. 7 For further details of the new agreement, which can now go into effect inasmuch as the required number of countries have ratified it, see the International Tin Study Group puhlication, 195b Statistical Year Hook. COAL Indonesia has moderate reserves of coal, mostly of low rank. The proportion of lignite is large. No coking coal has yet been produced, but the geology of Indonesia is such that some of the bitu- minous coals might prove to be of coking quality. Production has increased considerably in the post- war period but is still far below prewar levels. Coal-reserve tonnages have been reported as fol- lows : Proved, 1.3 billion ; probable, 1.2 billion ; and possible, 1 billion. Since much of this coal is of lower ranks, its economic usefulness has been lim- ited. Further utilization may be possible, but cannot be predicted with any assurance. The large known reserves are in South and Central Sumatra and eastern Kalimantan. Some deposits have also been reported for Central Java. 8 Indonesia is a minor coal producer by world standards. Output in recent years has averaged almost 900,000 tons (table 14), from the Govern- ment's mines in Sumatra — the Bukit Asam in South Sumatra and the Umbilin in Central Su- matra — and from private mines in eastern Kali- mantan. Production in 1955 was below this level, totaling about 814,000 tons. A substantial part of the coal production is fines, some of which is briquetted with asphalt binders. The private production is largely in conjunction with shipping and other enterprises, one of the major producers being the Parapatan mine oper- ated by a subsidiary and the major interisland shipping company. In Kalimantan, family-op- erated coal mines are also important producers; their output is purchased by the larger companies operating in the area. Present production is sufficient to supply the railways, interisland shipping, a number of elec- tric power plants, and other domestic needs and to allow for some export. Shipments in 1954, chiefly to Thailand and Hong Kong, were about 87,000 tons, somewhat lower than in 1953. Since the coal is not suitable for coking, small quantities of coke are imported for use by the local gas com- panies. The short-term outlook for the coal industry is not favorable. Domestic demand is declining be- cause of progressive dieselization of the railways and shipping. 9 Low-unit productivity is reflected in costs which compare unfavorably with those of foreign competitors, making significant ex- pansion of coal exports unpromising. The future of the industry depends to a considerable degree upon reduced costs, which in turn depend partly on modernization and partly on improved labor output. Expansion of industrial plants in Indo- nesia, which may become important consumers, would also affect coal production. 8 Reports of coal in the vicinity of Wonogiri and Giriwojo, for example, were publicized in early 1955. 9 Operations at the Parapatan mine, for example, were being slowed down in 1954 in anticipation of closing because of the conversion of the interisland fleet to oil. Experimental attempts have been carried out for many years to make coke from Indonesian coal, but to date these have been unsuccessful. There are some indications, however, that the mix- ture of domestic coal with imported coal may pro- vide a suitable coke, and some authorities believe further experimentation with certain of the de- posits is worth while. BAUXITE Indonesia has long been known to have large reserves of bauxite, but mining of this mineral dates only from 1935. In that year a mine was opened by the Nederlandsch Indische Bauxiet Ex- ploitatie Maatschappij (Netherlands Indies Baux- ite Exploitation Co., or NIBEM) 10 in Bintan, one of the Riouw Islands. In the next few years mining increased rapidly and production of the Netherlands Indies in 1940 reached 275,000 tons, or between 6 or 7 percent of the world's produc- tion. By this time mining operations had spread to several areas and consideration was being given to the establishment of a domestic aluminum in- dustry and the construction of a hydroelectric plant on the Asahan River in Sumatra. After World War II production was high for a short period (1950-52), surpassing the prewar peak, but then declined. Encouraged by special United States purchases, production reached a peak of 654,000 tons in 1951. By 1953, however, output had dropped to 152,000 tons and was only a little above this level (166,000 tons) in 1954. Production in 1955 increased considerably, amounting to about 261,000 tons. Indonesian bauxite is considered to have a mar- ginal competitive position at present. It is too far from the major consumers (the United States and Western Europe), the high freight rates pric- ing it out of these markets. In Japan, the major market at present, it must compete with Malayan bauxite. If Japan expands its aluminum indus- try the market there may be increased, and in the long run Indonesia's own consumption may rise from the present negligible amounts to consider- able quantities. However, any increase in do- mestic demand due to the establishment of an aluminum industry based on hydroelectric power from the blueprinted Asahan project appears to be far in the future. Reserves in prewar years were placed at 20 million to 30 million tons, or about one-fifth of the then-estimated world supply of high-grade bauxite. The deposits on Bintan, Kojan, and Angkut, and other Indonesian islands, 11 are gen- 10 Participants in the company (as formed in 1932) included Billiton Maatschappij and Oost Borneo Maatschappij and the Government. The bauxite industry, therefore, was a joint private- Government operation. 11 Present workings are from Bintan, the largest producer, and Kojan, which reportedly produces the best quality. 45 erally considered the largest known deposits of the Far East. OTHER METALS Iron Indonesia has sizable iron ore deposits, but they appear to be a long way from commercial exploi- tation. Total known reserves are in the neigh- borhood of 600 million metric tons, located in Sumatra, Kalimantan, and Sulawesi. Some fig- ures place the reserves at two to three times this amount. Much of the ore is lateritic, containing nickel and chromium which cannot be removed inexpen- sively. These difficulties, plus the lack of coking coal, have left the iron resources unexploited. Nevertheless, exploitation permits have been ob- tained by a number of companies (mostly Dutch). Various Japanese and German companies have ex- pressed interest in the eventual development of the ore deposits, and the Indonesian Government has indicated that it may mine iron in connection with the establishment of an iron and steel in- dustry. The Sumatran deposits, known as the Ranggal or Lampong deposits and located near the south- eastern tip of the island, are of a higher grade than the other Indonesian ores and are free of nickel. The Lampong ore is magnetite, hematite, and limonite; the magnetite is reported as 62 to 65 percent iron content, The total "measured and indicated" reserves of this area are reported at 2 million metric tons, but in addition there are inferred reserves of some 10 million tons. Dutch companies hold concessions for this area, but have not exploited the ore. Reportedly, the Indonesian Government's present considerations of a steel in- dustry are based on this supply of iron ore. Kalimantan has large iron reserves near the coast in the southeast (the Sungei Duwa deposits) , and other deposits are located on the neighboring island of Sebuku. The total Sungei Duwa re- serves are perhaps 170 million tons, of which some 96 million tons are more or less measured. These lateritic ores, which are said to have about a 45- percent iron content, also contain nickel and chromium, and much of the ore requires nodulizing before it can be used in an ordinary blast furnace. Moreover, the pig iron made from these ores is not considered good for general use. The ore of the Sebuku deposits reportedly has an iron con- tent of 55 percent, but these deposits have not been systematically sampled. Estimates of reserves range from 13 million to 300 million metric tons. Pending detailed exploration, the lower figure can be accepted. The Larona deposits near the "armpit" of the large southeastern arm of Sulawesi has reserves placed at 370 million tons, with an iron content averaging about 50 percent, Although the ore is plentiful, it is not chemically or physically suited for use in ordinary blast furnaces. High nickel and chromium content is one factor which has limited its use ; moreover, most of the ore is clay- like. However, about 10 million tons are reported to be lump ore, which is physically better suited than the claylike ores. "Extensive investigations" in the possible use of these ores were carried out in the 1920 , s with unfavorable conclusions, but interest was renewed later and there are some indications that successful treatment may be economically possible. South of the Larona deposits, on the west side of the east arm at Pamala, ore has been mined for nickel but no attempt was made to save the iron. Java lacks iron ore deposits but some experts be- lieve that the iron sands on the southern beaches of Central Java near Tjilatjap can be processed for small-scale steel production. Nickel The iron ores of Sulawesi contain nickel in workable quantities and these resources have been partially utilized. No nickel has been mined, however, in the postwar period. Although the nickel content of some of these ores is low — vary- ing from 1 to 4 percent — the deposits are so sit- uated that open-pit mining is possible. Total known ore reserves are estimated at about 12 mil- lion tons, of which about 5 million tons are re- ported to have a nickel content of 3 percent or more. The two nickel areas, which are close together in southeastern Sulawesi, are Kalaka on the Gulf of Bone and Malili inland from the head of that gulf. The Kalaka (Pamala) area was worked in prewar years by a Dutch company and during the war period by a Japanese company. In 1938 pro- duction was 20,000 tons and in 1940, 51,000 tons; during the war some 300,000 to 400,000 tons were shipped to Japan. The Dutch company (Boni- Tolo Mijnbouw Maatschappij, a subsidiary of Oost Borneo Maatschappij) announced plans in 1953 to resume mining, but the plans did not materialize. Insecurity in the region and legal complica- tions regarding the sale of nickel stocks are among the problems facing the company. Some attempts have been made to interest other foreign capital to participate in further exploitation plans which would involve the erection of a modern smelter^ but as of late 1955 no immediate plans for pro- duction had been announced. Another Dutch company (N. V. Mijnbouw Celebes Maatschappij, affiliated with the Billiton Co.) has explored the Malili area, but no plans for exploitation are known. On the basis of available information it appears that, with relatively favorable world market con- ditions for nickel and successful production, nickel would be among Indonesia's more promising fields for mineral exploitation. 46 Manganese One of the fastest growing mineral industries of Indonesia in postwar years is manganese min- ing. Production in 1953 reached almost 17,000 tons (table 15), compared with 9,000 to 12,000 tons a year in the 1936-40 period. Output dropped in 1954 but still exceeded the prewar level; in the first half of 1955 alone, production totaled about 16,000 tons. All of the postwar production has been exported, chiefly from the port of Tjilatjap in Java. Western Europe, the United States, and Japan are the principal markets. The major postwar producer has been the Karangnunggal concession in western Java oper- ated by N. V. Algemeene Industrieele Mijnbouw en Exploitatie Maatschappij, or AIME (General Industrial Mine and Exploitation Co.), largely foreign owned, which also operates other manga- nese mines. 12 Prospecting has been carried on actively in the past few years by several Indone- sian companies on short-term leases, and some of these were reported to be passing into commercial production in 1954 and 1955. Japanese companies also have shown interest in developing manganese mines. Proved reserves of manganese are limited, but further investigation may indicate larger ones. The known reserves in the two main prewar pro- ducing districts in Central and West Java were reported at about 262,000 tons. Other deposits occur in Kalimantan (east of Bandjarmasin), Su- matra, Sulawesi, Timor, and on the islands of Halmahera and nearby Doi in the Moluccas, but reserve figures are not available. Considerable in- terest has been evidenced in recent years in possi- bilities of working the deposits of Kalimantan and Doi. 13 Before the war Indonesian manganese ore was reported as of two grades — high-grade ore with about 50 percent manganese and second-grade ore with a lower percentage. The manganese con- tent of the high-grade ore was raised to 60 per- cent by calcination and used in the United States for chemical purposes. In recent years the grades produced have been reported as three — the first with 46-48 percent manganese; the second, 43-46 percent ; and the third, with less than 43 percent. Despite the recent activity and possibly fair-to- good reserves, the future of Indonesian manga- nese mining is clouded. No local demand exists because of the lack of a domestic steel industry. Continued strong foreign demand is related to price factors, and the high production costs may 12 Kliripan (in the Jogjakarta district), one of the former major sources of manganese ore, was also a mining concession of AIME but operations were not resumed after the war and in 1953 the company's concession expired. The company also holds several concessions in Central Java. 13 In 1953 an expedition from the Indonesian Geological Service (the first geological expedition since transfer of sovereignty) went to Halmahera to investigate manganese and asbestos. Re- ports indicate that in 1955 efforts were being made to reopen a manganese mine in Doi, reportedly with the assistance of a loan from the Bank Industri Negara. outprice Indonesian manganese in the world mar- ket. Moreover, the principal foreign concession holder recently encountered difficulties in work- ing out arrangements for further operations with local government authorities. Copper Indonesia has produced copper in very small amounts, most of it being in the form of concen- trates obtained as a byproduct of gold mines. The total annual production in 1938 and 1939 was about 90 tons. Copper deposits are widespread, oc- curring at several places in Sumatra, Kalimantan, Sulawesi, and Timor, but the known quantities are small and transportation facilities are lacking for many of the localities. Further research and investigation of copper appear to be warranted, however, in view of the relatively high price of copper in recent years. In 1954 the Indonesian Government began some ex- ploratory work. On the basis of van Bemmelen's summary of resources one of the most promising localities in the area may be east of Lake Sing- karak in Central Sumatra (near Padang). 14 Gold and Silver Indonesia's output of gold and silver is only a small fraction of world production, but it has been of local economic importance for centuries. The metals are widely distributed throughout the country, but the main districts have been in Suma- tra, Kalimantan, and the northern arm of Sula- wesi. Although placer gold and gold-silver ores are known in many localities, explorations by the former Netherlands Indies Government and by private companies have been successful in only a few instances and considerable capital has been lost in abortive gold-mining enterprises. Gold and silver are one industry as the deposits are found in the same areas and have been worked together. The total production for the period 1900-1940 was 123,281 kilograms of gold and 1,219,261 kilograms of silver. Prewar operations were carried on by several foreign companies and gold was panned on a small scale by Indonesians and Chinese. Postwar rehabilitation of the larger operations has been delayed, reportedly because of the Gov- ernment's decision to retain a portion of the pro- duction and because some of the mine sites were in insecure areas. However, one company, N. V. Exploratie Maatschappij Bengkalis, was rehabil- itating its concessions in Central Sumatra in 1953 preparatory to full operations in 1954. u R. W. van Bemmelen, The Geology of Indonesia, vol. II, The Hague, 1949. 47 Minor Metals Lead has been worked in West Java, where lead and zinc sulfides frequently occur in gold-silver mines. Production, confined to Java, has been very small — it was reported at about 40 tons in 1940 and in the postwar period none has been re- ported. Lead and zinc are found in many other places but the reserves are considered too small and the transportation problems too difficult to make exploitation profitable. Tungsten, chromium, molybdenum, mercury, titanium, bismuth, and antimony are known to exist, but quantitative data are largely lacking. Wolframite deposits occur in small quantities on the tin islands of Billiton and Singkep. Simi- larly, according to prewar surveys, small chromite deposits occur at several places including south- eastern Kalimantan and central Sulawesi. How- ever, these are of dubious economic value and the molybdenum of Kalimantan was reported as "in quantities too small to allow profitable exploita- tion.''' 15 Rumors of the discovery of uranium in Kali- mantan in 1954 have not been confirmed. Mona- zite sand is produced as a byproduct of tin work- ings. Production in 1953 was reported as 285 tons, but it dropped in 1954 to 10 tons (table 15). N. V. Billiton Maatschappij, the only producer, exported small quantities in recent years to the Netherlands. NONMETALS Sulfur As a country with widespread volcanic activity Indonesia has abundant sulfur deposits. The de- posits occur as pure sulfur incrustated in craters and on slopes of volcanoes, and as sulfurous mud and sulfur-bearing gravel in volcanic craters. The known sulfur-mud resources of high sulfuric con- tent, which are considered most important from an economic standpoint, are limited. Those of 30 to 70 percent sulfur are estimated at about 1 million metric tons. It may be possible, however, to add to this reserve considerably by developing material with lower sulfur content through treat- ment by means of flotation. Only a few of the Indonesian sulfur deposits have been exploited ; they produced an average of about 13,000 metric tons annually in the period 1936-38 and l'eaehed an output of more than 18,000 tons in 1941. Luring the war the Japanese ex- ported considerable quantities. The major pre- war producing companies have not renewed large- scale production, although considerable interest was apparent at the time of increased world de- 15 While no deposit appears large enough to Iip exploited for molybdenum alone, it may lie possible to work this mineral as a byproduct of other production. It is also reported to occur in association with tin ores in Uangka, ISilliton, and Singkep. mand in 1951. Lack of satisfactory security con- ditions in some of the concession areas and un- certainty regarding revision of the mining laws were reportedly deterrents to development at that time. In the last few years a number of domestic companies have begun extraction on a small scale, but are reportedly facing shortages of operating capital. The prewar production was largely from the Kawah Patih deposit near Bandung in West Java, which was exploited by the Algemeene Indus- trieele Mijnbouw en Exploitatie Maatschappij (General Industrial Mine and Exploitation Co.). The second major producing deposit was in the northern peninsula of SulaAvesi, which was worked by a German-owned company. Several com- panies held other scattered concessions. The small-scale postwar operations are in East Java and in North Sumatra. The development of the sulfur resources in the near future appears unlikely since Indonesian sulfur generally cannot compete on the world market and the total known high-grade reserves are not large. However, if industrial develop- ment in Indonesia should increase, a greater do- mestic demand may well make it profitable to utilize these reserves. The expansion of the petro- leum industry and the establishment of basic chemical industries and paper manufacturing could provide substantial domestic demand. Japan may also be a possible market for sulfur if production costs can be held sufficiently low. Salt Before World War II Indonesia produced suffi- cient salt for domestic needs and supplied a small export surplus which went principally to Japan; 1940 production was 431,000 tons. In postwar years reported production has fluctuated between 130,000 and 320,000 tons, and exports have been small and confined to a few years. Production dropped in 1955 and as of September it was an- ticipated that imports would be required to meet domestic requirements. Indonesian salt is recovered from the evapora- tion of sea water. Large-scale production is cen- tered primarily in Madura, where the Government operates evaporating pans and makes briquettes. The other major producing area is Sulawesi, where production units generally are small. Salt is proc- essed on a limited scale in other areas. According to the Salt Monopoly Ordinance of 1941 the islands of Java, Madura, Sumatra (ex- cept Atjeh), Kalimantan, and northern Sulawesi fall within the Government's monopoly (the Na- tional Salt Enterprise) and private production is allowed only in other areas. Salt is also sold as a Government monopoly. However, part of the northern coastal area of Java was exempted from the provisions of this monopoly in the early post- 48 war period and a proposed decree for reinstating the monopoly in this area in 1953 was so unpopular that moves have been made to abolish the Govern- ment's monopoly. Since the sale of salt has for many years provided an easy and lucrative means of collecting revenue, the Indonesian Government will probably try to continue the monopoly. Salt not only forms an important element in the diet, but is essential to many industries. The fish industry, soap works, tanneries, margarine factories, and oil refineries are important indus- trial consumers. The development of chemical industries, such as indicated by various plans for industrial development, would increase the do- mestic demand above present levels. Iodine In prewar years Indonesia exported about 30 tons of iodine annually and was second to Chile as a world source, but in postwar years produc- tion has been small (table 15.) Only minor dam- age to the installations was incurred during the war, but poor security conditions and lack of personnel caused delays in getting back into pro- duction. In 1953 and 1954 only one company was producing, and the 1954 output was less than one- fourth of the prewar level. Faced with the problem of high production costs, the industry has been unable to reenter the export market; no export of iodine or its compounds took place in 1953 or 1954. An important factor in the increased cost of production is the lower labor productivity. The normal method of iodine production has been to manufacture iodine salts in association with other chemicals. If produc- tion costs were reduced, this type of operation probably would again turn out products that could compete on world markets. Iodine occurs in salt water springs ; the greatest number are in northern Java in the district be- tween Tjirebon and Surabaja, the present pro- ducing districts. Springs also are found in other islands including the Lesser Sunda Islands (espe- cially Timor and nearby Roti) and Ceram (the Moluccas). Diamonds Indonesia has for several centuries produced diamonds from various areas in Kalimantan. Immediately before World War II production was limited to two areas: (1) The Landak-Sanggau district of western Kalimantan and (2) the Mar- tapura-Pleihari district in the southeast portion of the island. The former may have been almost exhausted in the prewar period; production was only 175 carats in 1940. The Martapura-Pleihari area, which in the same year produced 3,292 carats, is now considered the most important area. Except for output from workings under the Japanese occupation, Indonesian diamonds have been consumed domestically. The present work- ings are on an individual or family scale, the limited production being sold to itinerant traders. There is no clear indication that large- scale production could be profitable, but some Indonesian officials have expressed considerable optimism in the past few years regarding the pros- pects of a diamond industry. Phosphate Present information reveals only modest re- serves of calcium phosphates and aluminum phos- phates, both useful as fertilizer. However, the known deposits are all on Java and the reserves of the other islands have not been investigated. Van Bemmelen 1C states that the reserves of Java, where several enterprises were producing in pre- vious years, are about 500,000 tons of 28 percent P 2 O s . In 1938, when production was at its high- est, the total output of phosphate rock was about 33,000 tons ; recorded production in 1953 was only 828 tons. Building Materials ir On the basis of known reserves, Indonesia appears to be moderately well supplied with vari- ous building materials, although some areas lack them. Some of the more important known re- sources being utilized are mentioned briefly here. Limestone. — Limestone is widely distributed in Indonesia, although production has been confined largely to Javanese quarries. Before the war out- put was reported at about 600,000 tons annually, the greater part of which was used in the build- ing industry. Limestone suitable for cement is reported from several areas. The cement factory at Padang (Sumatra) uses limestone from a nearby area and the plant at Gresik in East Java, now under construction, will use local supplies. Asphalt. — Natural asphalt rock occurs in con- siderable quantities on the island of Butung, off the southeast coast of Sulawesi. In prewar years several of these asphalt deposits were worked by a Dutch company under special contract, and the rock was shipped to Java where it was crushed and used as building material. Production in 1941 amounted to about 8,000 tons. After the war the Dutch company resumed pro- duction but in 1954 transferred its operations to the Ministry of Public Works ; a national company ( N. V. Handel Intraport Maatschappi j ) manages the enterprise. Production dropped to 1,237 tons in 1954, compared with 2,051 tons in 1953. 16 R. W. van Bemmelen, The Geology of Indonesia, vol. II, The Hague, 1940. 17 For a brief discussion of the cement industry, see chapter VII. 49 Although the Government's Department of Min- ing indicated early in 1955 that output was ex- pected to reach 500 tons a month, no data are available as to the actual volume produced. Other sources of asphalt and asphalt rock are the Palembang area of Sumatra and the Kromong Mountains near Tjirebon in "West Java. Clay and sand. — Production of clay in prewar 3 7 ears was reported at 30,000 to 32,000 tons — prob- ably an understatement of the total output. Pro- duction by the many local brick and tileworks is not fully known. Sand production in 1938 was reported as 7,800 tons. The best known quartz sand is from a coastal strip of low dunes along the north coast of East Java; plans have been made to use this sand for making glass at Tuban. Trass. — In prewar years several companies quar- ried trass, volcanic tuff, near Semarang, Pekalon- gan, and Bandung in Java. It was used as a hydraulic mortar and to protect concrete from sea-water deterioration. Production in 1940 was about 2,200 tons. Pumice. — In 19'53 an Indonesian company ob- tained a permit to extract pumice from the crater Anak Krakatau in Sunda Straits to be worked into hollow brick. However, extraction opera- tions were put off pending cessation of volcanic activity in the crater. Kaolin Kaolin and fine clays are known to occur on various islands, but very little investigation has been made to discover the quantity or quality available. China clay for making ceramics and refractories is produced from the overburden of tin deposits or as a residual product from rocks rich in feld- spar. Production has been largely from Bangka and Billiton and from the Tjiawi district of Java. The major producer is a Dutch company operat- ing on Bangka. An Indonesian company was reported as ready to begin production in late 1953, in conjunction with a porcelain factory on Billiton. Kaolin deposits considered of good quality are reported from several locations in Sumatra and from western Kalimantan. 50 CHAPTER VI! Manufacturing and Power Manufacturing output does not account for a large share of the total employment or national product of Indonesia, but it does make an impor- tant contribution to the economy. Moreover, as in other underdeveloped areas, it is a segment of the economy for which expansion is greatly de- sired and it plays a prominent role in all recent de- velopment plans. Industrial expansion has been hampered by an inadequacy of local capital, by the lack of a favorable climate for foreign in- vestment and of technical know-how, and by im- port regulations which have restricted the opera- tions of established industries dependent on foreign raw materials. DISTRIBUTION OF INDUSTRY Until the beginning of the 20th century the Netherlands Indies was almost exclusively an agrarian country and the small amount of es- tablished industry — sugar mills, tapioca flour mills, indigo mills — was there by way of being com- plementary to the major business of agriculture. From the 1920's on, however, the Government's policy shifted toward encouraging and aiding in- dustrialization and gradually the number of in- dustries — including some turning out nonagri- cultural products — increased. By the time World War II broke out in the Pacific considerable attention was being directed to preliminary investigation of several fields, in- cluding the manufacture of steel (based on scrap metal), aluminum, paper, and chemicals. The new Republic of Indonesia inherited a country largely agrarian, with very little heavy industry but with a considerable variety of small- and medium-scale enterprises turning out light manu- factures. "Industry," including the small-scale and cot- tage industries, employed an estimated 3 million persons and accounted for 8 to 9 percent of the national income in 1951-52. Another estimate places industry as contributing 6.4 percent of the gross national product as of 1950. 1 lr The first figure is from Neumark's study of the national in- come. See article in Ekonomi dan Keuangan Indonesia, June 1954. The other figure is from a study of the U. S. Mutual Secu- rity Agency as quoted by John E. Metcalf in The Agricultural Economy of Indonesia (U. S. Department of Agriculture publica- tion, 1952). Present industries are largely of two types : ( 1 ) Processing of primary products for export or do- mestic consumption, and (2) production of con- sumer goods dependent on both domestic and im- ported raw material. In the first category are the refining of petroleum, sugar milling, and the processing to some degree or other of various es- tate products, such as rubber, tea, coconuts and palm seeds, sisal, and kapok. 2 Processing of these and of rice, cassava, and other agricultural com- modities makes Indonesia self-sufficient in a va- riety of food products. The manufacture of other consumer goods — - including automobile and bicycle tubes and rub- ber shoes, radios, batteries, soap, margarine, cig- arettes, and light bulbs — meets a large part of the domestic demands. Still other locally made com- modities — such as textiles, glass, and paper — sat- isfy a smaller part of consumption needs. From an overall viewpoint, however, Indonesia is self- sufficient in relatively few items and imports most of its requirements of consumer goods as well as capital equipment (see table 21 for the amount of certain goods produced in relation to the amount locally consumed). Lack of statistical data makes it almost im- possible to determine the growth of overall in- dustrial production. In recent years, particu- larly in 1953-55, output of most of the larger plants making consumer goods did not increase and some production declined. This development was largely due to difficulties in obtaining neces- sary imported raw materials caused by tightened import licensing and also to a somewhat inefficient distribution of the materials available. Never- theless, the number of new small industries prob- ably has increased to the extent that total pro- duction has held its own or increased slightly. Manufacturing as it developed in Indonesia has been heavily concentrated on Java, primarily be- cause of the large labor supply and market there and the island's well-developed system of trans- portation. According to a Government survey 2 None of the other leading agricultural export products of In- donesia require quite as much mechanical processing as sugar- cane, but the transformation of rubber into forms suitable for shipment abroad, the preparation of tea, the extraction of oil from coconuts and palm seeds, and the cleaning and pressing of kapok are processes carried out partly on an industrial basis. 51 Table 27. — Domestic Industrial Production in Relation to Consumption 1 Articles for which do- mestic production supplies 90 percent or more of consump- tion Articles for which do- mestic production supplies 25 to 90 per- cent of consumption Articles for which do- mestic production supplies less than 25 percent of consump- tion Item Per- cent Item Per- cent Item Per- cent Margarine Frying oil. Coconut oil- .... Soap (washing) — Cigarettes (kre- tek) Cigarettes 100 100 100 100 100 100 100 98 98 97 92 90 90 Automobile tubes. Paints . . .... Automobile tires.. Toothpaste Towels Radios. Glass jars. 82 73 65 65 61 58 57 55 45 36 33 31 Dry batteries Cocoa butter. . _. Beer bottles.. __ Paper (writing and printing) Socks.. _ _. Printing ink . . Matches 24 20 14 12 9 Woven sarongs... Electric light bulbs - . ... Singlets 6 Carbonic acid Soap (toilet) Chocolate powder- Cement Washbasins Food containers. __ Cigarette paper Packing paper Handkerchiefs 4 3 Bicycle tires Yarn 3 Chocolate prod- Ink.. ] ucts ... . 1 Beer 1 The source indicates these commodities as articles which can be produced in Indonesia in the percentages shown. In fact, however, for at least some of the items, the figures seem to represent the approximate percentages presently supplied by industry in Indonesia. Source: Based on calculations of the Indonesian National Planning Bureau as given in article, entitled "Indonesia's Economic Developments," in Ekonomi dan Keaangan Indonesia, July 1954. in 1940, 3 the number of factories employing over 20 workers in Java totaled 3,900 and in the other islands, 1,500. However, there is considerable variation in the distribution of manufacturing types. Whereas a large percentage of Indonesia's total cigarette output is from factories in Java, only a little more than half of the country's rice mills are in Java and most of the rubber smoke- houses and remilling plants are outside Java. Central Java with its numerous industrial cen- ters is important in manufacturing; it contains the main textile centers, the cigarette factories, and many of the shops producing food products and metal products. The Djakarta-Bogor-Bandung area is the industrial center of West Java, and the Surabaja-Malang district contains most of the factories and workshops of East Java. Outside Java, with the exception of oil refining, sawmill- ing, and the processing of estate agricultural products, manufacturing is confined almost en- tirely to the few large centers. Chief among these are Medan in Sumatra, Makasar in Sulawesi, and Bandjarmasin in Kalimantan. FOREIGN INVESTMENT IN INDUSTRY Most of the present large manufacturing en- terprises in Indonesia were established before World War IT and are foreign owned. Dutch investment predominates, with enterprises in such fields as petroleum refining, cement production, paint manufacture, textile manufacture, and va- 'Tins is the latest published Information regarding the dis- tribution of plants; however, the Department of Industry (Dja- watan Perindustrian) of the Ministry of Economic Affairs lias more recent, unpublished data regarding the distribution of plfl Til B. rious types of food processing. United States in- terests own an oil refinery, a tire factory, a bat- tery factor} 7 , and a margarine and cooking-oil factory. A British-owned tobacco factory is the major cigarette producer and a British company produces soap, margarine, and cooking oil. Resi- dent Chinese control most of the rice milling and operate small plants in many industries, including textile mills and ice factories. Indonesian private participation is largely con- fined to small plants and handicrafts but is grad- ually increasing in several fields. Aided by Gov- ernment financing, Indonesian official or semiof- ficial groups also are now operating or will be operating soon several types of larger industries, including a desiccated coconut plant, an automo- bile assembly plant, a soda plant, a tire factory, and a textile bag factory. The more important types of manufacturing en- terprises — and the nationality of major capital participation in 1955 — are shown below : Type of industry Nationality of capital Food industries : Rice milling Chinese, Indonesian. Food packing Dutch. Beer production Dutch. Sugar refining Dutch, Chinese. Margarine and coconut oil United States, British, small production. Chinese mills. Desiccated coconut produc- Indonesian. tion. 1 Tapioca production Chinese, Indonesian. Textiles : Cotton spinning and weaving^ Dutch, Chinese, Indonesian, British, Arab. Rati]; dyeing Chinese, Indonesian, Arab. Petroleum refining United States, Dutch. Rubber processing and manufac- tures : Rubber remilling Chinese, Indonesian. Rubber tires (automobile and United States, Chinese. bicycle). 2 Sawmilling Primarily Chinese. Shoes Swiss, Chinese. Cigarettes British, Chinese, Indonesian. Radios and light bulbs Dutch. Dry cell batteries United States. Cement 3 Dutch. Chemicals : Paint Dutch, Chinese. Quinine Dutch. Caustic soda Indonesian. 4 Soap British, Chinese. Printing Dutch. Chinese, Indonesian. Automobile assembly G Indonesian. 1 The only plant, formerly United States owned, is now operated by an Indonesian company through assistance provided by the Indonesian Government. 1 A new factory for production of automobile tires, now under construction, will be owned by the Indonesian Government. 3 A second factory, now under construction, will be owned by the Indonesian Government. 4 Government-owned plant. r> One of the two automobile assembly plants was owned by a United States firm until 1055. A third assembly plant, involving German capital, was in process of building as of 1955. Note. — This listing is not based on statistical data, but was compiled as of mid-1955 from information available concerning the various industries in Indonesia. Small-scale industries are not fully covered. Nationality of capital in the case of Chinese cannot be determined : the enterprises listed as Chinese are pri- marily owned by resident Chinese. MAJOR INDUSTRIAL SEGMENTS 4 Overall data on industrial capacity (table 22) are available only for the 11 Government-eon- 4 See also sections in chapters IV, V, and VI dealing with the processing of agricultural, forestry, fishery, and mineral products. 52 trolled industries and the coverage for these in- dustries does not include the smaller producers. Current capacity and production data are not pub- licly available for most Indonesian manufactur- ing industries. This section summarizes available information regarding important segments of Indonesian man- ufacturing. It should not be considered, however, as giving a complete picture. Moreover, some of the information, especially that concerning recent developments, is based primarily on press reports, the accuracy of which cannot be fully verified. Table 22. — licensed Capacity of Controlled Industries, 1 1953-54 Industry and unit of capacity Printing works 1,000 sq. meters of printing per hr.. Rice milling works horsepower.. Spinning mills spindles.. Weaving mills ..hand looms.. Do machine looms. . Knitting mills knitting machines. Textile printing works machines.. Cigarette works. 1,000 cigarettes per minute.. Iceworks tons per month.. Cooking pan works .do Rubber remilling factories 1,000 tons per year.. Dock companies 1,000 tons per month.. End of 1953 2, 022 54, 733 07, 000 67, 746 12, 994 545 8 199 34, 498 521 158 5, 72,3 End of 1954 Total 2,777 56. 607 98, 000 75, 435 12, 480 700 18 199 34, 399 510 158 5, 682 Java 2,424 41, 009 94, 000 71,419 12, 219 674 18 178 22, 676 441 2 3,910 Other islands 353 15, 598 4,000 4,016 261 26 21 11, 723 69 156 1,772 i The controlled industries are licensed by the Department of Industry (Djawatan Perindustrian) of the Ministry of Economic Affairs. Source: Bank of Indonesia, Report for the Year, 1954-1956. Based on data of the Department of Industry. Food, Beverages, and Tobacco Sugar, margarine, and cooking oil are the major factory-produced food products, but rice milling, carried on in small-scale units throughout the country, is undoubtedly the single most important type of food processing. Desiccated coconut and tapioca are processed in factories. Small estab- lishments prepare meat, fish, baking goods, various native food products, 5 as well as candy and other Western-type products. Beer and soft drinks are produced by foreign-owned companies. The man- ufacture of tobacco products, particularly cigar- ettes, is a sizable industry. Only about a fourth of the Indonesian rice crop is milled by machinery, the rest being processed by simple hand methods. Machine milling is car- ried on in some thousand or more mills, scattered throughout the country but most numerous on Java. The majority of the mills have long been Chinese owned ; for example, it is reported that in West Java only 20 of the 218 mills were Indo- nesian owned as of 1952. Undoubtedly some in- crease has taken place in Indonesian ownership in the past year as a result of the Indonesian Govern- 6 Among the various food products produced in small establish- ments are krepuk (crisp thin wafers made of tapioca flour) and trassi (fish paste). ment's requirement in mid-1951 that all rice-hull- ing mills must be owned by Indonesians, but it is extremely unlikely that great strides in this direction have been accomplished in view of the scarcity of local Indonesian capital for the pur- chase of rice mills. Before World War II, when Indonesia was a major sugar producing and exporting area, sugar mills numbered some 185, but as of 1954 only 55 were in operation and production was below that of prewar years. Most of the larger sugar mills are operated by foreign-owned producers although a considerable number are owned by local capital, primarily Chinese. In addition to the factory production, small cane-pressing mills are operated by diesel engines and several thousand small mills are operated by cattle power. The output of these enterprises is not known. The Indonesian Gov- ernment is providing assistance to sugar mills. Loans are reported by the Bank Industri Negara, and the Government is also helping in the con- struction of the only new Indonesian postwar mill, at Jogjakarta. Production of margarine and cooking oil is largely concentrated in two foreign-owned com- panies, one British with a large plant in Djakarta (Unilever) and the other American (Procter and Gamble), located in Surabaja. These two com- panies use domestic copra — allocated through the Copra Foundation ( Jajasan Kopra) — as their pri- mary raw material, and import the other necessary supplies, particularly tinplate. 7 Both products are sold entirely in the domestic market although their use is confined to the relatively small per- centage of the population able to afford them. A recent report that the Indonesian Government is interested in oil extraction from coconuts and pea- nuts indicates possible expansion in the production of vegetable oils. 8 A modern desiccated coconut plant, built at Sukur in the Minahasa district of northern Sula- wesi a few years ago, was operated for some time by an American company (Peter Paul) and small shipments were made. This Government-owned plant, which never ran at capacity, is now oper- ated by the Copra Foundation (Jajasan Kopra). To date it has not been successful in competing in markets abroad with desiccated coconut from the Philippines and other countries, and the domestic Indonesian market for this product is very limited. Tapioca has long been processed in a number of small factories, but most Indonesian cassava is prepared at home by boiling or frying or by drying or grating into a coarse meal. In 1939 some 200 plants were recorded, producing several hundred tons of tapioca for domestic and export use, but 6 Indonesian Government Regulation 52 of July 2, 1954. 7 Margarine as well as cooking oil is commonly packed in tins because of the general lack of refrigeration. 8 Report of July 1955 that the Indonesian Government plans to purchase a complete extraction plant to be used for extracting oil from coconuts and peanuts. 53 reported postwar production has been lower. Bogor and Bandung- in West Java are the main centers of this industry. Meat production is largely carried on in small abattoirs, and the slaughtered animals are con- sumed within a comparatively short distance of the plants. Meat and fish canning is very limited. Small meat-canning factories have been estab- lished on the islands of Bali and Timor, and at least two small fish canneries are operating. Dry- ing and salting fish and making fish preparations are common small-scale industries throughout Indonesia. Beer production, largely for the foreign popu- lation," is primarily in the hands of two Dutch companies. Soft drinks are produced by several European and Chinese companies; several Ameri- can companies sell concentrates for soft drinks and in 1954 a Coca-Cola bottling plant was established in Djakarta. Milk consumption is extremely lim- ited in Indonesia but interest in the establishment of milk plants 10 has increased. Cigarette manufacturing is extensive, with pro- duction on a large scale by Western firms and on a medium and small scale by domestic producers. The output of standard machine-made cigarettes in 1954 was estimated at 10 billion pieces. The major producer was the British- American To- bacco Co. This company produces several brands, some of which are blends of imported and domestic tobaccos and others are blends of various domestic tobaccos. Kreteks (native clove cigarettes) are manufactured by rather modern machinery in sev- eral factories and by hand-operated machines, pro- ducing one cigarette at a time, in hundreds of small establishments, chiefly in Central and East Java. Textiles Indonesia's textile requirements — consisting largely of cotton goods — are generally considered to be about 10 to 11 meters per person per year, or a total of about 800-880 million meters. Accord- ing to recent production data only about half of this amount of cloth is woven in Indonesia and al- most all (probably about 90 percent) is produced from imported yarn. Textile products constitute, with the possible exception of food, the single largest group of Indonesia's imports, accounting for about 15 to 20 percent of total imports in re- cent years. Cotton spinning is concentrated in the hands of 7 companies, which had a combined capacity of about 126,500 spindles as of 1954. 11 Central Java is the main center of the spinning industry, with plants at Tegal, Semarang, and Tjilatjap; others 9 In recent years, however, the use of beer by the Indonesian population lias increased in urban centers. 10 One reported venture is the plan to establish a soy milk factory in Jogjakarta. Others are based on the reconstitution of dried milk. 11 The licensed capacity shown in tahle 22. which gives capac- ity as 98,(100 spindles, is believed to understate the total capacity. are located in East Java (Pasuruan) , in West Java (Bandung), and in Sulawesi (Makasar). Dutch capital owns several of the largest of these plants ; only the new plant at Tjilatjap is owned by Indonesians. The total estimated weaving capacity of Indo- nesia in 1954, on a single-shift work basis, was as follows ( in millions of meters of cloth ) : 12 Hand looms 143.0 Hand looms, with some use of power 209. 7 Machine looms, single 66. 8 Machine looms, double 25. 8 Total 445. 3 As in the case of spinning, weaving is concen- trated in Java, with West Java predominating— probably two-thirds of the total weaving capacity is in West Java. Weaving plants are owned by foreign companies (Dutch and British), by resi- dent Chinese, and, to a considerable extent, also by Indonesians. Whereas spinning is concen- trated in a few factories, weaving is carried out only partly in factories with power looms; much of the total production is on simple hand looms scattered in many small units. According to the Ministry of Economic Affairs, production has amounted to about 80 or 82 million meters of ma- terial in recent years, including gray piece goods, sarongs, slendangs, towels, and other fabrics. 13 Production of the main mills is shown in table 23. Table 23. — Production of Alain Weaving Mills, 1951-54 Item Number of mills: Total In operation Yarn consumption tons. . Production: Piece goods ' 1,000 meters Slendang 1,000 pieces. - Sarong do Towels do 1951 1952 1953 46 72 76 42 61 67 4,393 6,056 8,600 22. 829 29,118 42, 829 237 113 71 2,889 3,224 3,579 538 1,863 2,779 1954 73 65 9,200 46, 145 14 3,925 2,611 1. Of unspecified width and quality. Source: Bank of Indonesia, Report for the Year 1954-1955. Based on data of the Central Bureau of Statistics (Kantor Pusat Statistik). The spinning of cotton yarn and the weaving of cotton cloth, especially the former, are among the industries which the Government is trying to en- courage. Kelatively little expansion has occurred, however, owing to the scarcity of capital, to lack of "industry-mincledness" on the part of Indo- nesians, and to difficulties in obtaining foreign ex- change allocations for bringing in the required machinery and raw materials. Moreover, the ex- pense of textile production in Indonesia is suffi- ciently high that foreign textiles of the same quality can be imported at a lower cost. Although the wages in Indonesian mills are lower than in mills of Western countries, productivity is also 12 Data from Indonesian Department of Industry (Djawatan Perindustrian), Ministry of Economic Affairs. 13 These figures may underestimate the total production since they are based on summary data only and no allowance has been made for incomplete returns. 54 low, resulting in comparatively high labor costs per yard of finished goods. 14 Knitting mills, which produce primarily under- wear, sport shirts, and socks, are scattered throughout the larger centers of Java and also operate in a few centers in the other islands, par- ticularly in the Medan area of Sumatra. Produc- tion has grown rapidly in the past few years. As of 1954, 33 knitting factories with 525 knitting ma- chines were reported. Available data for 1953 show that 14 reporting mills used 720 metric tons of yarn and, in 1954, 10 reporting mills used about 550 tons. Output in 1953 was reported as about 269,000 singlets, 52,000 undershirts, and 164,000 sport shirts. 15 The batik industry, i. e., the dyeing of cotton cloth by the traditional Indonesian wax process, is typically a small-scale and medium-scale one. Most of the production of batik in Indonesia today is centered in Jogjakarta, Surakarta (Solo), Peka- longan, and Garut, and is coordinated by two large organizations 16 which supply cambrics, wax, dyes, and other needed materials to their member producers and handle the sale of their output. In prewar years about 100 million yards were printed annually and tens of thousands of persons were engaged in this aspect of the textile industry. As of 1950 it was estimated that about 17.3 mil- lion batik sarongs were produced, winch at about 21/2 yards per sarong meant a production of about 43 million yards. Incomplete production data for recent years indicate increases since 1950, and the prewar level of this industry has now been reached. Indonesian weaving mills produce only a part of the cambric used in batik sarongs; much is sup- plied by imports, especially from Japan and West- ern Europe. Some interest has been shown in the manufac- ture of textiles from ramie. Ramie is grown in Sumatra and research in cultivating this fiber is being carried on. Toward the end of World War II a Japanese firm built a small ramie-spinning mill in North Sumatra, but with the end of the war it was closed and apparently later dismantled. As of early 1955, plans were under way for the establishment of a mill in the Medan area, and arrangements were being made to import spindles from Japan. Heavy textile products — twine and bags for carrying agricultural products — are manufac- tured in some quantity. In Java locally produced rosella fiber (similar to jute) is used in a bagging fabric mill at Surakarta (Solo) and will be used at a new Government-owned factory near Sura- baja. In prewar years, Indonesia's output of 14 One large foreign-owned weaving mill in East Java, for ex- ample, reports that, whereas in Europe a single worker handles four or more nonautomatie looms, in Indonesia a worker handles only one or two. 15 No production data are available for 1954, but output is be- lieved to have increased. 16 The United Batik Concerns of Indonesia and the All-Indone- sian Federation of Batik Cooperatives, the commercial branch of which is called the Batik Trading Co. bags was estimated at about 10 million units, but postwar production has been lower. Many of the bags are used for sugar and salt. Rubber Processing and Manufactures The processing of rubber into latex or sheets for export is an important industry, centered in the rubber-producing areas of Sumatra. Aside from production on the foreign-owned estates, rubber-remilling factories are largely in the hands of Chinese. However, much of the remilling of Indonesian rubber is clone in the mills of Singa- pore. Efforts are being made by the Indonesian Government to expand processing facilities for smallholders' rubber and to reduce the rubber trade between Sumatra and Kalimantan and Malaya, but they have met with only limited success. The manufacture of rubber products includes automobile and bicycle tires, soles for rubber shoes, and numerous small rubber products. Automobile tires are at present manufactured only in the United States-owned Goodyear plant at Bogor, which supplies almost all of the present domestic requirements. A Government-owned factory is being completed, however. Bicycle tires are made by the Goodyear plant and by a number of smaller plants, most of which are Chinese owned. The largest of these is the Java Rubber Factory, Ltd., Djakarta. Total production of automobile and truck tires numbered about 327,000 in 1955; the production of bicycle tires was reported at about 2,600,000 in 1954. The Indonesian Government, anxious to "break the monopoly on this non-Indonesian" industry, is encouraging the establishment of tire factories. As of mid-1955 the press, in reporting on the Government-owned tire factory nearing comple- tion in the Djakarta area, indicated possible plans for several other tire plants. Metal Manufactures Indonesia has no basic iron and steel industry or other basic metal manufacturing. Metal- working industries are confined largely to three types 17 — manufacture of simple tools, implements, and household utensils; foundry operations; and the assembly of vehicles. As in other nonindustrialized countries, Indo- nesia has shown considerable interest in develop- ing a basic iron and steel industry, but informed observers hold differing opinions as to whether such an industry is economically feasible. Al- though Indonesia has coal it is not of coking quality and the major iron ores contain impurities. 17 In addition to these three main types, wire is manufactured in some quantity and nails are being produced in increasing amounts. 55 As of late 1955 German experts were expected to start a survey of the possibilities of an iron and steel industry within the next year. The pro- posed development of an aluminum industry, based on the bauxite reserves of Sumatra and using the hydroelectric power of the Asahan falls, has met with somewhat more general approval as a feasible long-term project. Copper refining and rolling mills have also been mentioned as pos- sible future metal industries. The local manufacture of hoes, sickles, knives, axes, and other small hand tools is carried on in machine shops in the cities and larger towns and by blacksmiths in the villages. No reliable sta- tistics are available on production or on the num- ber of workmen employed, but output is sufficient to supply most of the hand tools, especially the patjol, a native type of mattock, used by Indo- nesian farmers. Scrap metals, available in urban areas, are common raw materials. The foundries and machine shops of Indonesia are equipped to make large and small castings, to overhaul and repair heavy machinery (such as that used in sugar mills or textile factories), and to manufacture preassembled bridges, railroad cars, and steamrollers. However, no regular pro- duction is undertaken and overall output is not large. Most of the metalworking shops, which are largely Dutch or Chinese owned, have rather old equipment since little replacement has been pos- sible owing to foreign exchange difficulties and to uncertainties regarding the future of large in- dustrial installations. The foundries and shops are principally in cities in Java (Djakarta, Bandung, Bogor, Tjeribon, Jogjakarta, Malang, Pasuruan, Samarang, Tegal, and Surabaja), as well as at Medan and Palembang in Sumatra and at Makasar in Sulawesi. The Government has its major railroad shops at Bandung. Two automobile and truck plants located in the Djakarta port area can assemble several thousand units annually. The larger of these is the former plant of General Motors Corp., which was recently reopened by a new company (Gaja Motors), a Government-controlled concern financed by the Bank Industri Negara. The other plant is op- erated by Indonesian Service Corp., a private do- mestic company. A plant for the assembly of German cars is under construction at Surabaja. Indonesia uses large numbers of bicycles for local transportation, and imports both complete units and parts for assembly. Several assembly plants are in operation and plans for establishing several new ones have been reported in the past year. Considerable interest has been shown in starting the manufacture of bicycle parts, with the hope that eventually the fabrication of vir- tually all component parts will be possible within Indonesia. Chemicals and Drugs No sizable basic chemical industry exists in In- donesia, and almost all fertilizers 18 and industrial chemicals as well as other types of chemicals and drugs are imported. Some sulfuric acid, carbonic acid, and oxygen are made, but production data are not available. 19 Only a few products which can be included in the general category ''chemicals and drugs" are produced in quantity — turpentine and rosin, soap, paint, matches, dyes and inks, and quinine. However, chemical manufacture has high priority in Government planning; prelim- inary overall plans for economic development call for the production of caustic soda, ammonium sul- fate, and nitric and sulfuric acid. Indonesia will start soon to produce caustic soda. The country's first soda plant, built by the Gov- ernment's Salt and Soda Monopoly of the De- partment of Justice, is expected to be opened in 1956. When operating at capacity the plant, lo- cated in East Java, is expected to supply about a fourth of Indonesia's current needs. Factories producing rosin and turpentine are located in the pine forest area of North Sumatra. The largest processing plant was that of the Government (Ministry of Economic Affairs) es- tate near Takengon, which was destroyed by fire in 1955. Turpentine has been exported (mainly to the Netherlands) and rosin, the product for which the industry was established, is used in the batik industry. Soap is produced in some 12 factories and in many smaller units throughout the country. An- nual production as of several years ago was re- ported at between 65,000 and 70,000 tons. The plant of Unilever Inc. (British-owned), which also produces cooking oil and margarine, has been expanded since the war and is reported to be the largest soap factory in Southeast Asia. Most of the small and medium-sized factories in various cities are owned by Chinese. In gen- eral they only manufacture "wash soap 1 ' (sabim tjutji), which is sold in surrounding communities. In northeastern Sumatra, for example, more than 30 such plants were reported in 1953, about half of them being located in Medan. Raw materials used in soap manufacture, except caustic soda and soda ash, are available in Indonesia, which has large supplies of vegetable oils and salt. Two paint factories, started in the late 1930's, produce considerable quantities of paint but do not supply all of the country's needs. Both firms are Dutch owned. Smaller paint plants are op- erated by resident Chinese. The first plant op- erated by Indonesian interests was opened a few years ago. 18 Local production of fertilizers is confined almost entirely to natural phosphates, especially rock phosphate. 50 Much of the sulfuric acid is produced by the oil companies, which use their own output ; carbonic acid is produced in con- nection with breweries ; and oxygen is made in connection with iron works and other industries. 56 Matches are produced in several centers. The needed raw materials are supplied by local timber and imports of chemicals. Several factories are in Djakarta — at least two are Dutch owned — and other factories are in Medan and Siantar. Re- cently a factory was built in Semarang, reportedly the first in Central Java, and another is in East Java near Surabaja. Match production is among the industries the Government desires to expand. Modern synthetic pesticides are not manufac- tured in Indonesia, but locally grown derris root is processed in two factories and several small firms produce pyrethrum. As of early 1955, a small DDT factory was reportedly being estab- lished and several firms bottled a household in- secticide in which DDT was mixed with a pe- troleum solvent. Some observers believe pyre- thrum processing has promise for further de- velopment. Indonesia has historically been a major pro- ducer of a few crude drugs for export and pro- duces considerable amounts of native drugs. The major drug product manufactured in quantity is quinine. A Dutch-owned factory located in Bandung predominates in producing quinine salts (particularly quinine sulfate) from cinchona bark. Iodine, which formerly was exported, is processed into medicines sold domestically. With a great increase in the importation of antibiotics, some at- tention has been given to mixing and packaging of such products. For example, one of the major importers and wholesalers of pharmaceuticals in Djakarta recently announced plans for a plant to package penicillin. A few plants that also produce rubber or metal products are molding plastic articles, chiefly house- hold utensils. However, no plastic raw materials are manufactured. Paper and Products Indonesia is a large importer of paper and paper products — imports of newsprint alone amounted to more than 10,000 metric tons in 1954. Overall paper consumption, while low, is in- creasing. Domestic paper production is limited. Output since World War II has probably averaged about 5,500 to 6,000 tons, consisting largely of writing paper, strawboard, cardboard, and cigarette paper. Most of the production is in two Dutch-owned mills on Java, but a number of Chinese-owned mills are in operation. No newsprint is manu- factured. The Indonesian Government has shown an in- terest in increasing the production of paper. This interest centers particularly on a proposed project for a paper-pulp factory in North Sumatra, based on the pine forests of the area. This proj- ect, included several years ago in the Urgency In- dustrial Plan as a long-term project, appears also to meet current approval of officials working on the 5-year plan. 20 In 1953 a legal entity was es- tablished to promote the project and orders were reported to have been placed in Europe for equip- ment. The plan was delayed, however, because of a lack of funds and the outbreak of revolt in the area. Preliminary plans called for a production capacity of 25,000 tons of newsprint and 18,000 tons of cellulose. In addition to the paper-pulp project, the Gov- ernment hopes that Indonesians will establish small mills using rice straw. One such attempt is being undertaken by the Bank Industri Negara. Some interest has also been shown in the possibility of paper manufactured from bagasse (sugarcane waste). Other Industries Electrical equipment. — The making of light bulbs and batteries and the assembly of radios con- stitute the major types of electrical manufacture in Indonesia, and operations are largely in the hands of N. V. Philips Fabricate en Handel Maatschappij, a Dutch company with business in- terests throughout the world. The company has two plants in Indonesia but only one was operat- ing as of mid-1955. 21 In 1954, the company's out- put amounted to about 7 million light bulbs and 96,000 radios. Flashlight and radio batteries are manufactured primarily by National Carbon Co. (Java), Ltd., an American-owned company. Batteries are pro- duced also in smaller factory or workshop units. Construction materials. — Construction materials have been in strong demand on account of the de- struction and damage incurred during the war and the revolutionary period and because the increase in population has raised the need for houses. Housing requirements are met in large part by forest products, but cement and related construc- tion materials have been in heavy demand in urban areas. Indonesia's annual consumption of cement, esti- mated at 500,000 to 600,000 metric tons, 22 is being supplied by the production of one plant, heavily supplemented by imports. The single cement plant is at Packing in Sumatra; it was established before the war by Dutch capital and has since been rebuilt and expanded. Its rated annual ca- pacity was reported at 240,000 tons as of 1953 but actual production has been 150,000 to 167,000 tons. A new Government-owned plant at Gresik in East Java, expected to be completed in 1957, has a planned capacity of 250,000 tons. 23 20 See chapter IX for a discussion of economic development plans. 21 The plant at Surabaja was closed in 1954 reportedly because of difficulties in obtaining foreign exchange for the importation of parts. Production is at present concentrated in the company's newer plant in Bandung, opened in 1953. 22 Some estimates range as high as 800,000 tons. 23 The factory is being built by the Bank Industri Negara, using primarily funds supplied under the U. S. Export-Import Bank credit line extended in 1950. An American engineering company (Morrison-Knudsen International Corp.) is carrying out this construction job. 57 K ubber asphalt for road construction is being manufactured in small quantities in a plant at Semarang. A plant is to be established for the manufac- ture of wallboard, using coconut bast as the raw material. Erection of the plant, assisted by Gov- ernment financing, was reported to be planned as of early 1955 and some machinery ordered. Shipbuilding and ship repair. — Shipbuilding in Indonesia has been characteristically limited to the construction of steel lighters, barges, patrol vessels, fishing boats, and prai/s for coastal and interisland shipping. The principal companies engaged in both shipbuilding and repair work are Dutch. Drydoek facilities are available at Sura- baja and at Djakarta (Tandjung Priok). To maintain its fleet in good condition, Koninklijke PaketvaartMaatschappij (KPM) has extensive workshops at Tandjung Priok and Surabaja and smaller ones at Makasar and Manado in Sulawesi. Glass. — Indonesia produces only a part of its glass requirements. Most of the glass factories are rather primitive and are owned by Chinese and Arab interests. They can meet foreign com- petition for low-quality glass, but do not produce high-quality types. Even glass bottles are im- ported in considerable quantity. Leather and shoes. — About 20 tanning factories are in operation, of which several are fairly large. Reports of the past few years indicate that the Government is building a few new plants. Shoes are being made in several factories and in many small shops. The largest shoe factory — that of Bata Company in Djakarta — is European owned, whereas others are owned by resident Chinese and Indonesians. Production data are not available, but estimates place the overall fac- tory output — both leather shoes and rubber-soled canvas shoes — at some 10 million pairs annually. Minor industries. — Indonesia has many minor industries, some of long standing. They include such varied handicraft or small-scale operations as mat weaving, making pandanus hats, produc- ing paper umbrellas (pajongs), manufacturing saddlery, handbags, and other leather articles and metal utensils, and making native furniture and bricks, tiles, and other ceramics. 24 A few of the handicraft industries, e. g., "Jogja" silver, Bali- nese woodcarvings, and the Kendari silver filigree work of southeastern Sulawesi, have become known outside Indonesia, but many others are known only locally. 21 Some types of small-scale industries, at least in Java, are concentrated in specific areas. For example, almost every home in the village of Plered in West Java makes ceramic ware, the small village of Klender has about 400 workshops producing fur- niture and other wooden articles, Magelang in Central Java is a center of small leather tanning and processing units, and Dju- wiring in East Java specializes in umbrellas. Products of these centers are marketed throughout Java and even shipped to other parts of the country. THE GOVERNMENT AND INDUSTRY The Indonesian Government's stated intention is to promote certain types of manufacturing, and its regulatory and promotional activities should be viewed in the light of this policy, which re- portedly has three main objectives : 25 1. To stimulate industries that provide essential needs, for example, clothing and simple tools. 2. To stimulate industries that will save expendi- tures of foreign exchange and to discourage those requiring unnecessary expenditure of foreign exchange. 3. To promote the "harmonious growth of the industrial sector of the economy within the so- cial framework of the country." It is considered desirable (1) to have industry provide additional income for the rural population, and (2) to achieve an overall balance between the large-scale indus- tries located at a few centers and small-scale in- dustries spread throughout the entire country. Government Regulation Some of the large-scale industries are "regu- lated," i. e., subject to the approval of the De- partment of Industry (Djawatan Permdustrian) of the Ministry of Economic Affairs. The law concerning regulation of industry dates back to the year 1934—35 of the colonial regime. At that time it was considered necessary to prevent ex- cessive competition, to prevent the establishment of Japanese-controlled industries, and to provide Dutch home industries with a more or less guar- anteed market. Although the old ordinance, which provides for the licensing of industries, is still in effect, the bases on which industry is now regulated have undoubtedly shifted. No state- ment of the present principles has been issued. Ten manufacturing industries — rice milling, rubber remilling, spinning, weaving, knitting, textile printing, cigarette manufacture, printing, manufacture of pans, and iceworks — are li- censed. 20 To establish or expand a "regulated" industry an application must be submitted for approval of a committee headed by the Chief of the Department of Industry of the Ministry of Economic Affairs. Other industries are not sub- ject to direct licensing. However, their opera- tions in most instances are to a degree restricted by the Government because of their need for Gov- ernment-allocated foreign exchange to import raw materials and equipment. In late 1951 the Committee on Industrialization divided industries into four groups and stated a general policy guide as follows : 25 Ekonnmi dan Kcuanqan Indonesia, vol. VII, No. 11 (Novem- ber 1954). See article entitled "The Government's Program on Industries.'' by the Institute of Economic and Social Research, University of Indonesia. 20 Dock companies are also subject to licensing. 58 1. Industries reserved for the state. These in- clude public utilities and industries connected with defense. 2. Industries reserved for private Indonesian interests. These consist of small-scale industries which Indonesians have traditionally operated. 3. Industries open to joint participation of for- eign and Indonesian interests with Indonesian control (at least 51 percent of shares to be held by Indonesians) . If Indonesian private capital is not available, the Government's Bank Industri Negara would participate on the Indonesian side. 4. Industries open to foreign as well as Indo- nesian interests. In approving such foreign en- terprises the hiring and training of Indonesians is a necessary condition. In the period since 1951 until recently no new clear-cut statement had been made regarding the ownership or control of new industries, borne officials indicated these general criteria still held, and this classification of industries kept cropping up in later plans within Government circles. Other officials, however, stated that decisions were not on the basis of these criteria, but entirely on an ad hoc basis. The Government's foreign in- vestment statement of December 8, 1955 (see chapter I) essentially restated the four general categories listed above. It termed industries in category 3 as "basic in- dustries" for which, in some cases, exceptions would be made for a transitional period. No lists of particular types of manufacturing were given for categories 3 or 4 above when the four groups were formulated in 1951, nor were such details given with respect to the groups as restated in December 1955. The actual scope open to foreign enterprise even under these criteria is therefore not known and each proposed industrial enter- prise must be negotiated on an individual basis. Government Participation and Aid The Government is an active participant in the several new large industrial enterprises which have been established in the last few years and has also taken over several manufacturing enter- prises formerly managed by foreign private capital. Aid to industry in the Netherlands Indies was primarily directed to the small- and medium-size native enterprises. Perhaps the most important phase of the Government's efforts to promote in- dustrialization was a program of technical educa- tion which involved the use of model Government plants which sought to provide research services and to train craftsmen who could work inde- pendently or in small groups. This type of as- sistance continues and is being increased under the Indonesian Government. Aid to small-scale enterprises is under the juris- diction of the Department of Industry of the Ministry of Economic Affairs. The Scientific Re- search Section of this Department, which dates back to the colonial period, carries on a rather ex- tensive propaganda and instruction service, with consulting offices and a staff to give technical and economic instruction. It also appropriates funds for the central production plant (induk) 27 pro- gram and administers a loan-mechanization pro- gram for small industries. To provide the basic engineering facilities, serv- ices, and trained personnel for implementing the Government's program of industrial development, the Department of Industry maintains the follow- ing seven development and training institutes: Industrial Development Institute (Djakarta) ; Chemistry Institute (Bogor, with extension serv- ices in Surabaja and Makasar) ; Materials Testing Institute (Bandung) ; Leather Institute (Jog- jakarta) ; Textile Institute (Bandung) ; Ceramics Institute (Bandung) ; and Batik Institute (Jog- jakarta). These institutes attempt to devise new processes and methods and to improve the quality of prod- ucts while reducing their costs; train personnel in new methods; and help the industries in their technical problems. They are particularly im- portant as serving centers for the central produc- tion plant program and the small-scale private in- dustry loan program. Both programs have re- ceived assistance from the United States through the International Cooperation Administration. Specialists of United Nations agencies have also given technical guidance to the centers. The Government also has plans to assist to a limited degree the new developments and im- provements in medium-sized industries. 28 These are financed through: (1) The Department of In- dustry of the Ministry of Economic Affairs; (2) Government banks, particularly the Bank Industri Negara although in some cases also through the Bank Rakjat Indonesia; and (3) Government agencies such as the Credit Foundation ( Jajasan Kredit), the Department of Transmigration, and various organizations handling a particular prod- uct, such as the Copra Foundation (Jajasan Ivopra). Priority in assisting medium-sized businesses appears to be for labor-intensive industries and industries which process domestically produced raw materials. Within the framework of this program preparations reportedly have been made to erect a number of new factories ; a plywood fac- tory, a chemical factory, and a glass bottle factory are among those mentioned. 27 An induk is a cooperative parent plant through which mech- anization and standardization are introduced into separate units and through which the purchase of raw materials and the sale of products may be channeled. It is hoped that through this sys- tem the character of small industries can be kept intact while the quantity and quality of their output, which is generally low, can be raised. 28 The demarcation between small-scale and medium-scale in- dustries is not always a sharp one, but these terms are commonly used in referring to industries in Indonesia. In some instances the distinction is according to the number of employees and in others according to power capacity. By Western standards even the medium-sized industries would be considered small. 380755—56- 59 INDUSTRIAL OUTLOOK POWER PRODUCTION AND USE Indonesian leaders generally urge industrializa- tion, and the Indonesian Government is providing some financial and technical assistance for new enterprises, but actual industrial growth in the postwar years has been small. The number of Indonesian businessmen starting manufacturing ventures at their own risk has been very limited. 29 This reluctance is due in part to the absence of an industrial tradition and in part to the fact that manufacturing enterprises generally require a larger initial capital than the individual Indo- nesian businessman is willing or able to invest. In these circumstances, industrial growth will be slow and Government assistance will not be fully effective until Indonesians are prepared to spend their energy and risk what capital they have. Foreign capital and managerial and technical know-how could materially assist the country's industrial development, but foreign capital has not found this field attractive under the conditions of the past few years. The important position of cottage and small- scale manufacturing in the overall industrial pat- tern is likely to be maintained as Indonesia's industrialization grows. Encouragement of this type of industry is one aspect of the Government's industrial policy and, moreover, Western tech- nology — which is based on labor-saving devices — may not be suitable for segments of the Indonesian economy which are underdeveloped but overpopu- lated. The importance attached to this level of manufacturing is indicated by the Government's measures in setting up induks for the various branches of small-scale industries. The development of large-scale industry is also the aim of the Indonesian Government, however ; and this aspect is likely to be emphasized insofar as it can be financed and successfully managed. Many of the basic industries will probably be Government enterprises, as least at the initial stages. With virtually no background of indus- trial development itself, the Indonesian Govern- ment will of necessity have to draw upon foreign experience. Managerial and technical skills, as well as necessary equipment, will have to be imported for many years to come. a An organization, P. T. Badan Pembangunan Perindustrian Indonesia (Indonesian Industrial Development Corporation, Ltd.), which was established in 1954 Is developing facilities to help Indonesian businessmen in the industrial field. Organized at the initiative of the Dewan Ekonomi Indonesia Pusat or DEIP (Indonesian Chamber of Commerce and Industry), this agency was formed "to assist in and stimulate the establishment of industrial projects." Its purposes are to work out plans for various industries ; to give technical advice to Industrial con- cerns ; to serve as an intermediary between businessmen and the Government or between several industries in the establishment of new industries ; to serve as an intermediary between Indo- nesian businessmen and foreign businessmen who are Interested in investing capital ; and to serve as an intermediary between credit institutions and businessmen seeking financial assistance in establishing industrial enterprises. The demand for electric energy in Indonesia is increasing, and generally the postwar period has been characterized by a power shortage. Any sizable economic development must be accom- panied by increased development of power. For- tunately, an increased demand for energy will present no problem with respect to fuel. The country is well supplied with, coal and oil and the large waterpower resources have been used only to a very limited extent. The Government's attention is directed toward the expansion of power, particularly several large hydroelectric projects, but plans for financing them have not been fully developed. Meanwhile, a number of small plants are being built to meet the most pressing needs, and other small-scale projects are planned. Indonesian per capita production and consump- tion of power is extremely low. As of a few years ago, the annual per capita production of electric energy was reported as about 8 kilowatt-hours for Indonesia, compared with 37 for the Philippines, 476 for Japan, and 1,190 for the United States. The installed capacity of power plants in Indo- nesia in 1952 was reported at 167,700 kilowatts, or about the prewar level. Eeported energy pro- duction at 591,500,000 kilowatt-hours was, how- ever, considerably higher than in prewar years (table 24). More recent information places the installed capacity as of 1954 at about 292,300 kilowatts and 1953 production at 784,300,000 kilowatt-hours. Tobfe 24. Generating Capacity and Power Production, 7 940 and 7 949-54 Year Aggregate installed generating capacity (thousand kilowatts) Energy production (million kilowatt- hours) 1940 171.0 140.4 157.1 1 159. 5 2 167. 7 n. a. 292.3 364.0 362 1949 1950 1951 l 53g 7 1952 2 591 5 1953 784 3 1954 n. a. Data are not available. i Excludes small private-company-owned undertakings. Data for Govern- ment undertakings are for 1950. 2 Excludes small private-company-owned undertakings. Data for Govern- ment undertakings are for 1950 and the figure for one large company included in the total is for 1951. Sources: Economic Commission for Asia and the Far East (ECAFE), Electric Power Bulletin, August 1954, for data through 1952. Later data are from Indonesian Ministry of Public Works and Power. About 62 percent of the power generated is hy- droelectric. Diesel plants account for almost a third and the rest is developed in steam plants. The production of power by type in 1954 is shown below : 60 Millions Per- of kilo- cent watt- of hours total Hydroelectric 510 62 Diesel 240 30 Steam 62 JS Total 812 100 Source: Indonesian National Planning Bureau, according to an article, entitled "Indonesia's Economic and Social Develop- ments in 1954," in Ekonomi dan Keuangan, July 1055. The greatest development of power is on Java, especially West Java. On the other islands elec- tric power production is confined to a relatively few areas and many towns and cities lack elec- tricity. Large industrial enterprises have fre- quently found it necessary to provide their own power facilities. In recent years, because of the unreliability of distribution, even some smaller plants have found it necessary to set up their own auxiliary generating units. 30 Djakarta, Surabaja, Medan, and other large cities have had periods of shortages necessitating blackouts or dimouts. The greatest use of power is by small consumers, particularly for lighting. It is estimated that about 65 percent of the total energy output is for lighting or other domestic purposes in cities and that about 35 percent is used for industry. POWER CHARACTERISTICS AND RATES The power generated in Indonesia is generally standardized at voltages used throughout the country, the usual system of transmission and dis- tribution being 3-phase alternating current at 50 cycles per second. The principal voltages used for transmission are 25,000-30,000 volts and 70,- 000 volts. For generation and primary distribu- tion 6,000 volts are used, while for secondary dis- tribution 127/220 and 110/190 volts are used. Di- rect current is used by small private plants and by electric traction companies. No general grid system covers the entire country. Three main high-voltage systems operate on Java — the Djakarta- Bogor, the Bandung, and the Surabaja networks — and a number of short trans- mission lines feed into the surrounding areas. Out- side Java, distribution systems of over 6 kilovolts are very limited and most of them are on Sumatra. The characteristics of the current (all a. c. and 50 cycles) are given below for a number of Indo- nesian cities: Phase Voltage Bandung (Java) 3 127/190:127/220 Djakarta (Java) 3 125/200 Jogjakarta (Java) , 3 127/220 Makasar (Sulawesi) 3 127/220 Malang (Java) 3 127/220 Medan (Sumatra) 3 125 Manado (Sulawesi) 3 127/220 Samarang (Java) 3 127/190 Surabaja (Java) 1 110/125 ; 115/200 Tegal (Java) 3 127/220 30 According to recent reports the power shortage and the re- sultant high cost of power are important handicaps to the de- velopment of small industries in Java. The necessity of install- ing their own power supply weighs more heavily on small concerns than on larger scale enterprises. The importance of power sup- ply to small industries is indicated by the large number of loans obtained by such enterprises for the installation of power generators. Much of the Indonesian power equipment is old and likely to break down when overtaxed. Even in the larger cities blackouts have been common. For example, throughout most of 1955 part of Medan was dark at night because of power short- age. In a few areas, new equipment has recently been installed. The Indonesian electricity rate structure is com- plicated, with 6 different tariffs (5 for domestic and commercial consumers and the other for in- dustrial users) and 18 regional zones. According to data of the Ministry of Public Works and Power, thermal generated electricity costs an esti- mated 40 sen per kilowatt-hour compared with about 8 sen for hydroelectric power. The rate structure in effect since January 1953 is based on a price of 80 rupiah for 1,000 liters of diesel oil, 30 rupiah for 1,000 liters of residual oil, and 20 rupiah for a metric ton of coal. Provision is made for upward adjustments of electric rates as fuel costs increase. Kates vary widely among different sections of the country ; in Medan, Palembang, and other cities of Sumatra, for example, rates are higher than in Djakarta and Bandung. Since most areas suffer from a shortage of electricity, local authori- ties have set maximum limits on the power avail- able to domestic and commercial consumers, high penalty rates being assessed for consumption above these amounts. For industrial consumers, how- ever, rates decrease with increased consumption. Special rates are charged for use during "restric- tion periods." OWNERSHIP OF POWER PLANTS In the colonial period, the Netherlands Indies Government was responsible for much of the de- velopment and generation of electric power. In addition to the Government's operation in this field, some nine large private companies — all Dutch owned — generated and distributed energy. As of 1952, according to data submitted by the Indonesian Government to the Economic Commis- sion for Asia and the Far East (ECAFE) , 44 per- cent of the total production of energy was by Government-owned plants and 56 percent was by privately owned plants. When more recent fig- ures become available, however, they may show a larger percentage in Government hands. The Indonesian Government plans to national- ize the development and distribution of electric power and has taken important steps in this di- rection. 31 Several of the former Dutch companies have been purchased by the Government, particu- larly since 1952. In late 1954, when one of the large companies was nationalized, an Indonesian official estimated that about 70 percent of all for- 31 These steps are part of the overall Government policy of nationalizing enterprises considered essential to the nation, in accordance with article 38 of the provisional Constitution. 61 eign electric power companies in the Republic had been taken over by the state. Thus far most of the nationalization has occurred in the field of distribution. Whereas private distributing com- panies have been nationalized, some related firms which produce electricity are still in private hands. OUTLOOK FOR POWER DEVELOPMENT The Indonesian Government is giving attention both to the short-run problem of existing power deficits and the long-run problem of developing its power potential for industrial expansion. In meeting the first problem the Government has built a number of power plants, especially on Java, in the past few years; it has not been able, how- ever, to completely satisfy the demand. Atten- tion has also been given to extending transmission lines and improving service, but accomplishments to date leave much to be desired. In connection with the long-run problem, the Government has made preliminary plans for several large-scale hydroelectric projects as well as additional diesel plants. Estimates on available power resources in Indo- nesia are spotty and not very reliable. Water- power reserves, which are looked upon as the most promising source for future large-scale power de- velopment, are variously estimated at 2,860,000 to 4,850,000 kilowatts. Of the large-scale power projects under prelim- inary consideration, the most important are the Djatiluhur project in Java and the Asahan proj- ect in Sumatra. These are given high priority in recent development plans. The Djatiluhur dam installations, when completed, reportedly will have a capacity of about 150,000 kilowatts, sufficient power to supply the needs of West Java, where the shortage is particularly acute at present, and to provide additional power for Central Java. 32 The project proposed at the falls of the Asahan River is one which has been considered recurrently for many years. At one time it was rejected as of questionable economic feasibility, but just be- fore World War II the Dutch showed new in- terest in it. In the past year the Indonesian Gov- ernment has had engineering surveys made by a French firm and now appears ready to move ahead on construction if financing can be obtained. Associated with the Asahan power plant are plans for later construction of such high-power- consuming industries as fertilizer and aluminum manufacturing. The total planned capacity of the power plant is reported at 800,000 kilowatts, although a capacity of only 100,000 kilowatts is planned for use in the next 5 years, i. e., by 1960. Indonesian officials envisage the Asahan power project as important both in developing heavy industries and opening up new areas in Sumatra. 32 The proposed Djatiluhur power development project is part of a multipurpose project which includes construction of two dams on the Tjitarum River ; these will provide water for irri- gating an area of 100,000 hectares and enable the generation of 350,000 kilowatts of electric energy. The Djatiluhur dam has been mentioned as planned for completion in the "first five years under recent development plans," i. e., 1956-60. 62 CHAPTER VIII Transportation and Communications Transportation and. communications facilities, which suffered damage and deterioration during World War II and subsequent military action, have largely been rehabilitated and expanded. Nevertheless, the existing facilities are recognized as needing further expansion, coordination, and improvement. Transportation is particularly important to In- donesia because of the many islands and the great distances. To develop some areas, e. g., much of Sumatra and Kalimantan as well as the eastern islands, additional facilities are essential. In Java, on the other hand, facilities are reasonably well developed although locally they present spe- cial problems. Transportation rates throughout Indonesia are considered somewhat high. The Government has operated for many years in the field of transportation and communications and such participation will continue and possibly expand. Facilities not Government owned are generally reserved for Indonesians. Most of the railways and the only major domestic airline are nationalized and a Government-owned fleet of in- terisland ships is being developed to break the long- held monopoly of a Dutch company. The Govern- ment is also encouraging Indonesian shipping lines, and regulations were issued for all port facil- ities to be in the hands of Indonesians as of March 1956. Communication facilities are generally owned and operated by the Government. RAILWAYS Railways provide a major means of transporta- tion in Java and Madura and are of some impor- tance in Sumatra. Java has a fairly complete net- work of Government railways (Djawatan Kereta Api) ; Sumatra has three separate Government networks and one privately owned line; Madura has a small public system ; and Sulawesi has a short public line. Except for short lines on Bangka and Billiton, the other islands have no railway transportation. In addition to these general- traffic lines, there are many privately owned short railways which haul produce and supplies for the estates, primarily in Java and Sumatra. Java's network includes two trunklines con- necting Djakarta and Surabaja (a northern route through Tjeribon and Semarang and a southern one through Bandung, Jogjakarta, and Surakarta) and three north-south lateral lines that connect the trunklines. At the western end of the island a ferry service connects the Java rail lines and the lines of southeastern Sumatra, From Surabaja a ferry crosses to Madura, connecting Java and Madura railways. Each of Sumatra's three unconnected railway systems serves a separate and relatively well de- veloped section of the island, linking the area to a port. The three railways are (1) the northeast coast system, consisting of two lines (one the privately owned Deli Railway Co.), which serves Medan and its port, Belawan; (2) the Sumatra West Coast Railway serving the Padang area; and (3) the south Sumatra system, which con- nects Teluk Betung with Kertapati, opposite the petroleum center of Palembang on the Musi River. The reported total length of track in use at the end of 1953 (with no appreciable change in 1954 and 1955) was 6,658 kilometers, of which 6,108 kilometers were operated by the State Railways (4,697 kilometers in Java and Madura and 1,411 in Sumatra) and 550 kilometers by the Deli Rail- way Co. in Sumatra. Most of the routes are of a uniform gage of 3 feet 6 inches, but the gage of the At jeh line in northern Sumatra is narrower, pre- venting through traffic from this line to the Deli Railway. The railways have continued to be handicapped in the postwar period by the deterioration in road- bed and equipment which occurred during the war and early postwar period, but much in the way of repair and replacement has been done since 1950. In that year the rolling stock consisted of 699 lo- comotives, 2,375 passenger cars, and 16,893 freight cars, whereas by the beginning of 1954 it had risen to 953 locomotives, 2,630 passenger cars, and 22,031 freight cars. As of 1955 diesel locomotives imported from the United States had been installed on main lines in Java, and coaches on the main lines were air conditioned. Some of the Export-Import Bank funds have been used for improving the railroads ; assistance has also been provided in training rail- road technicians. As of 1955 the total rolling stock was still below the prewar level, but plans 63 were under way to purchase additional equipment. While repair work has been extensive almost no new construction has taken place. Proposals by the Government to extend the systems in Sumatra have not been carried out because of a lack of funds. The construction of lines on the other is- lands is generally considered unwarranted at pres- ent because of the limited traffic potential and the preference for roadbuilding in dense areas. How- ever, some consideration has been given to the construction of railroads in Kalimantan, where none now exist. In November 1955 the Indonesian Ministry of Communications announced plans for a 5-year program of streamlining and modernizing the rail- way system, starting in early 1956. The pro- gram — to cost 3.8 million rupiah — includes repair- ing and smoothing out railway beds and building new bridges and the purchase of new diesel lo- comotives to replace old steam engines. Data on railway traffic (table 25) indicate in- creases in freight tonnage since 1950, but the total is still only about 80 percent of the prewar level. This poor showing results in large measure from truck competition, which has greatly increased in the postwar period. Passenger traffic, on the other hand, has approximately doubled despite the com- petition from buses. Table 25. — Indonesian Railway Traffic, 1938 and 7 950-54 Year Passengers carried (thou- sands) Freight carried (thousands of tons) State Rail- ways Deli Railway Co. Total State. Rail- ways Deli Railway Co. Total 1938 48, 083 103, 634 99, 321 93,428 107, 828 ' 122, 20S 4,117 3,400 4,450 3, 807 3, 553 i 3, 460 52, 200 107, 034 103, 771 97, 235 111,381 1 125, 668 6,915 4,437 4,816 4,287 4,884 i 5. 398 844 943 1,120 1,191 1, 257 1 1, 280 7,759 1950 5,380 1951 1952... 5,936 5,478 1953 . 6, 141 1954. . . ' 6, 678 1 Preliminary figure. Source: Bank of Indonesia, Report for the Year 1953-195J,. of the State Railways and Deli Railway Co. Based on data The State Railways has recorded losses in its operations in recent years, the net loss being 64.8 million rupiah in 1953 and an estimated 15 million in 1954. The privately owned Deli Line has been operating at a profit. Since World War II, the Government has taken over the management of virtually all the country's railways and plans complete nationalization. Be- fore the war the state owned and operated a con- siderable portion of the railways, but there were some 12 private companies. Freight rates of the State Railways are report- edly governed by the principle of charging what the traffic will bear, but have generally been low in the postwar period in terms of prevailing price and \vaenditures are presented on a gross basis. Although annual totals for gross revenues are available, data Concerning revenue lireakdown are only available for net revenue, 1. e., the revenue by source less receipts directly chargeable to the expenditures of the Government agencies involved. On the other hand, a breakdown of expenditures Is available on a gross basis. Most of the increase in the debt in recent years has been accounted for by the floating debt, which as of the end of September 1955 stood at 7.5 billion rupiah. The consolidated debt, which has re- mained fairly stable from 1953 on, totaled 10.1 billion rupiah on September 30, 1955. It was about equally divided between internal and ex- ternal debt. Of the total foreign debt, a large part represents prewar loans obtained from the Netherlands and the remainder covers postwar credits received from the United States, the Netherlands, Japan, Canada, and Australia. As of the end of 1954, 78 the Netherlands accounted for about 60 percent of the external debt and the United States almost 30 percent. The debt to the United States, con- sisting of credits for surplus materials, a loan of the Economic Cooperation Administration, and an Export-Import Bank credit, totaled 1,530 million rupiah (about $135 million). Indonesia's consolidated debt as of December 31, 1954, is shown below by sources of loans : External debt: Millions Prewar loans: of rupiah Netherlands 2,086 Postwar loans: Netherlands _ 756 United States Surplus credit 616 Economic Cooperation Administration loan 196 Eximbank.. 718 Japan 684 Australia 146 Canada 35 Total postwar loans 3, 151 Total external consolidated debt _ 5, 237 Internal debt: Public loan 1950... 1,189 Bank of Indonesia 3,838 Total internal consolidated debt 5,027 Total consolidated debt 10,264 Source: Bank of Indonesia, Report for the Year 1954-1955. In addition to a large indebtedness to the Bank of Indonesia, the floating debt includes amounts owed to importers for prepayments to the Foreign Exchange Fund, currency and notes put into cir- culation by the Government, and Treasury bills and notes. SAVINGS AND INVESTMENT The available data are inadequate to evaluate Indonesia's financial resources and investment ex- penditures. It appears that only a relatively small part of the country's national income is in- vested, that is, spent for goods and services having a productive purpose. According to a frequently quoted estimate, net investments have amounted to about 5 percent of the total national income in recent years ; other estimates, however, indicate somewhat lower as well as higher percentages. The scope of personal savings is quite limited. Per capita income is very low and most of the people do not have any strong tradition of saving. Institutional savings do not play a substantial role in developing capital resources. At the end of 1954 savings balances in the country's savings in- stitutions and time deposits in commercial banks together represented about 3.5 percent of the money supply. Other forms of savings, such as life insurance, are unimportant and the stock exchange plays a negligible role in mobilizing private savings. There is considerable evidence, however, that much of the savings in rural areas and villages takes the form of personally held cash reserves. The extent of such hoards is unknown, but they are be- lieved to constitute an important part of total savings. Total domestic investment in recent years ap- pears to have been only little more than sufficient to restore and maintain the present economic sta- tus; little growth has been recorded. Govern- ment investments, though small, are estimated to represent nearly half of the country's gross in- vestment in 1954. 3 Private investment, for which there are no data, has been very limited. Invest- ment in industry is perhaps increasing but, if so, only at a slow pace. Indonesian businessmen invest primarily in short-term agricultural, trade, and speculative ventures. The Chinese and commercial bankers, rather than investing in industrial development, are continuing their traditional practices, the Chinese primarily providing short-term capital for trade and agriculture and the commercial banks financing foreign trade. There also ap- pears to have been some shifting of Chinese in- vestors from productive enterprises to real prop- erty in the past few years as a result of inflation and the Government policy of encouraging Indo- nesians in business fields. As in other less industrialized countries local investors are reluctant to take risks in new types of enterprises. As long as it is possible to make relatively large and quick profits in commercial transactions which do not require immobilization of funds over a long period of time and which can be financed in part by available credit, there is likely to be only limited interest in investment in industry. The total amount of capital in In- donesia is not large, but may be larger than com- monly realized ; the most critical shortage is that of private venture capital, which is so necessary for economic development. FINANCIAL INSTITUTIONS 4 The Bank of Indonesia The Bank of Indonesia (Bank Indonesia) is the country's most important banking institution in terms of resources and statutory power. In addi- 3 Although informal observers generally agree that the rate of investment in postwar Indonesia has been low and that domestic resources are small, there is some disagreement as to the actual levels. One important factor believed by some to be greatly un- derestimated is the investment made by the local governments, especiallv in the areas outside Java. According to Douglas Paauw, net investment in 1953 may have been about 7.5 percent of the net national income, if full consideration is taken of local government investment. (See Douglas S. Paauw, "The Role of Local Finance in Indonesian Economic Development." in Ekonomi dan Keuangan Indonesia, vol. 8, No. 1, January 1955.) 4 In addition to financial institutions considered here, a num- ber of Government agencies have certain financing functions bearing on economic development. These include the Depart- ment of Industry of the Ministry of Economic Affairs (see page 59) and the Copra Foundation. Although not a financing agency, the Indonesian Industrial Development Corporation's functions include bringing businessmen in contact with credit institutions (see footnote 29, page 60). 79 tion to such fiscal functions as issuing currency and holding the country's international reserves, it performs commercial banking functions. It was established in 1953 as successor to the Java Bank, 5 which had been nationalized by law in 1951. The Bank, which assumed the assets and liabili- ties of the Java Bank after July 1, 1953, operates under a three-member Monetary Board. This board consists of the Minister of Finance as chair- man, the Minister of Economic Affairs, and the Governor of the Bank. It is assisted by an ad- visory committee of nine members, representing trade, industry, and labor. The 1953 establishing legislation defined the Bank's function in such terms as to give it more ex- plicitly the functions of a central bank. These in- clude regulation and stabilization of the value of the currency; exclusive issuance of banknotes, which must be covered by 20 percent in gold or the equivalent ; supervision of the country's credit system; facilitation of a transfer system within the country and abroad; and performance as the financial agent of the Government. The latter in- cludes acting as the Government's banker in finan- cial transactions, giving assistance regarding agreements with foreign countries and organiza- tions, administering the country's gold and foreign exchange reserves, and making loans to the Gov- ernment, of which 50 millian rupiah carry no in- terest charges. The Bank is required to make current advances to the Government, but is protected from unlim- ited demands by the provision that such advances "shall not be allowed to exceed 30 percent of the revenues of the Treasury in the budgetary year preceding the one in which the Government asks for the advances" unless Parliament gives consent. Since its administration is subject to Govern- ment control and its operations relate primarily to Government financing, the Bank of Indonesia has not been able to pursue independent policies bearing on the volume or composition of credit. The Bank's position as guardian of the sound- ness of the country's credit system and credit- issuing institutions was strengthened, however, by a Government ordinance of January 1955. This explicitly invests the Bank with the right and duty to examine the books of accredited banks and credit institutions, to prohibit or limit the grant- ing of specified types or forms of credit or credits exceeding a certain maximum amount, to deter- mine the minimum and/or maximum rate of in- terest chargeable, and to require that a part of the liquid resources of every credit institution be deposited with the Bank of Indonesia, invested in Treasury bills, or otherwise used. 6 The nationalization did not constitute a drastic change Inas- much as the Government had been a major shareholder In the Java Bank since Its establishment in 1828. Private shareholders, most of whom were foreign, were given the opportunity to sell their shares to the Government. Only a few credit institutions are exempt from the Bank's supervision. Moreover, it has an ex- perienced staff and is held in respect by the bank- ing community, and thus has been able to exert some influence on the overall credit policy through moral suasion, i. e., through advice to the other financial institutions. Besides its functions as a central bank the Bank of Indonesia is the largest commercial bank. Al- though its lending functions are eventually to be transferred to other banking institutions, the Bank continues to do a significant amount of general banking. 6 As of the end of 1954 its total assets were 12.2 billion rupiah, of which 8.2 billion rep- resented advances to the Government. The Bank of Indonesia, together with seven pri- vate foreign banks and three Government-owned banks (described below), do some 70 to 80 per- cent of all the banking business in the country. The chief balance-sheet items of these banks is indicated in table 33. Outstanding loans and ad- vances totaled 2,660 million rupiah at the end of 1954, an increase of about 400 million rupiah from the preceding year (table 34). Of these 1954 credits, 64 percent had been granted to Indonesian enterprises and individuals (including semigov- ernmental institutions) and 36 percent to non- Indonesian enterprises and individuals. Private Commercial Banks Seven large foreign commercial banks finance much of the foreign trade and business enter- prise of Indonesia. These include three Dutch, two British, and two Chinese banks. Private banks controlled by Indonesians have compara- tively small assets but are of increasing importance. Foreign banks. — Branches of three Dutch banks — Nederlandsche Handelsmaatschappij (the "Factorij") , Nationale Handelsbank, and Escomp- tobank — have a major role in providing short- term credit to the agricultural estates and to that portion of industrial and commercial enterprise which is foreign controlled. Branches of two British banks — The Chartered Bank of India, Aus- tralia and China and the Hong Kong and Shang- hai Banking Corp. — have operated primarily in the financing of foreign trade carried on by West- erners. The two Chinese banks are branches of the Bank of China (domiciled in mainland China) and the Oversea- Chinese Banking Corp., Ltd. (domiciled in Singapore). There are no branches of American banks in In- donesia, but a substantial number of the banks in New York, Chicago, and the major west coast 6 It has been indicated that the Bank of Indonesia will gradu- ally dispose of its commercial business, particularly as the full functions of a central bank, standing over other banks of the country, are taken over. The Bank Negara Indonesia has been considered the probable successor to the general banking depart- ment of the Bank of Indonesia. 80 Table 33. — Combined Statement of Bank of Indonesia, Bank Negara Indonesia, Bank Industri Negara, and Seven Foreign Private Banks, 7952-54 [Year-end figures, in millions of rupiah] Resources Item Cash in hand Balances of other banks with Bank of Indonesia .... Treasury notes and bills Investment In securities Debtors, internal commercial bills, and participa- tions Foreign bills and balances Foreign exchange certificates on account of foreign exchange bought Real estate Sundry debit accounts Subtotal, Gold and bullion, balances in convertible foreign exchange, and claim on the Government on account of gold deposited on its behalf with International Monetary Fund (IMF) and Inter- national Bank for Reconstruction and Develop- ment (IBRD) Foreign exchange certificates on account of gold bought Foreign Exchange Fund, foreign currency account. . Advances of Bank of Indonesia to the Government. Claim in rupiah on the Government on account of payments made on its behalf to IMF Total. 1952 115 515 63 30 2,445 1,557 65 41 137 4,968 892 208 223 4,730 11,021 1953 152 760 114 51 2,394 1,261 199 165 5,096 1,651 210 5,309 12, 266 1954 208 1,176 153 58 2,826 980 232 299 5,932 1,055 1,461 8,472 171 17, 091 Liabilities Item Private capital and reserves invested in Indonesia- Domestic creditors Nonresident accounts (Rurni). Time deposits Sundry credit accounts Subtotal. Foreign Exchange Fund, foreign liabilities Debt of Bank of Indonesia to other banks in Indo- nesia... __ Banknotes in circulation Economic Cooperation Administration counterpart account IMF and IBRD accounts Total. 662 2,255 115 85 1,725 4,842 874 515 4,209 581 11,021 1953 2,269 155 119 1, 239 4,766 1,097 759 5,030 614 12, 266 1954 1,059 3,419 122 130 1,345 6,075 1,738 1,177 7,270 645 186 17, 091 Source: Bank of Indonesia, Report for the Year 195.^-1955 Table 34. — loans and Advances Granted by Bank of Indonesia, Bank Negara Indonesia, Bank Industri Negara, and Seven Foreign Private Banks, 1953-54 [In millions of rupiah] Borrower Semigovernmental institutions Private business and individuals: Banks and credit institutions... Insurance companies and savings banks Rice-hulling works Domestic produce trade.. Exporters Importers. _ Dock and transport companies Sugar plantations Other plantations. Industrial enterprises Other enterprises Individuals Subtotal Total. ._ December December 1953 i 1954 i 162 321 50 60 7 4 7 8 55 103 257 359 516 457 111 127 490 444 219 156 239 366 130 239 15 16 2,096 2,339 2,258 2,660 1 Credits in the form of participations and discounting of bills are omitted from this table. Source: Bank of Indonesia, Report for the Year 1964-1955. cities in the United States which are concerned with financing foreign trade with Indonesia have correspondent relationship with one or more of the foreign-owned banks. The resources of the foreign banks — estimated at about 4 billion rupiah as of 1954— are committed largely to short-term trade credits. Little invest- ment capital is attracted to them, time deposits representing only about 3 percent of their liabilities. Indonesian private banks. — About 20 private banks controlled by Indonesians are important and regularly issue reports. Their assets have grown substantially, increasing from about 187 million rupiah at the end of 1953 to more than 401 million at the end of 1954 (table 35) . 7 Trade credits con- stitute the largest part of their portfolios, as in 7 Later figures for June 1955 show a considerable decrease in the combined assets of "20 national private banks" — to about 300 million rupiah. However, the data are not strictly com- parable. Table 35. — Statement of Twenty Indonesian Private Banks, 1953—54 [Year-end figures, in thousands of rupiah] Resources Item Cash in hand Balance with other banks Treasury notes and bills Investments in securities Debtors, domestic bills, and participations Real estate Sundry debit accounts Total. ._ 1953 186, 650 1954 14,254 26, 480 34, 056 72, 604 434 340 3,066 3,979 103, 248 222, 584 6,498 11, 054 25, 094 64, 126 401, 167 Liabilities Item Capital and reserves Fixed liabilities Domestic creditors and bills payable Time deposits Sundry credit accounts Total 1953 19, 200 40,087 93, 300 14, 728 19, 335 186, 650 1954 28, 661 26, 091 192, 725 74,208 79, 482 401, 167 Source: Bank of Indonesia, Report for the Year 1954-1956. 81 the case of the foreign banks, but in 1954 such credits were a slightly lower proportion of the total than in the preceding year (table 36). Table 36. — loans Granted by Twenty Indonesian Private Banks, 7 953-54 [Year -end figures, in thousands of rupiah] Sector of activity 1953 1954 Trade 75,727 15, 155 3,936 3,163 2, S23 1,246 114,966 Industry _. _ _ _ _ _ ._ 30,211 Transportation _ _ _ 4,347 Estate agriculture. ... _ 9,430 Individuals _ ... _ 17, 200 Sundry 23, 039 Total.. 102, 051 199, 203 Source: Bank of Indonesia, Report for the Year 1954-1955. Government-Financed Banks In an effort to build up national financial insti- tutions, the Indonesian Government has estab- lished and financed three banks. One is a com- mercial bank which primarily assists Indonesians in foreign trade; another provides funds for in- dustrial development; and the third was estab- lished to provide small loans, particularly for agri- culture. These banks have small resources as com- pared with those of the foreign commercial banks, but they appear to be increasing in importance. The State Bank of Indonesia (Bank Negara Indonesia). — This bank, established in 1946 and reestablished by Emergency Law No. 2 of 1955, engages in general commercial banking business. 8 Its major emphasis is in assisting Indonesians in the sphere of trade, particularly import-export trade, although it has done considerable credit business in other fields. The bank grants both short-term and long-term credits. The capital of Bank Negara Indonesia was fixed by law in 1955 at 300 million rupiah. At the end of 1954 it had outstanding loans totaling 610 mil- lion rupiah, an increase of 88 million from the preceding year. About 38 percent of the out- standing loans at the end of 1954 had been granted to importers and exporters — a decrease from 50 percent reported at the end of 1953, State Bank for Industry (Bank Indvstri Ne- gara) . — The functions of this bank are to provide financing — including long-term loans — and tech- nical assistance to manufacturing, mining, and agricultural industries. The bank was established as of April 1951 with a capital of 500 million rupiah, of which half had been paid in as of 1955. In addition, the bank has at its disposal about 190 million rupiah in the form of deposits from the Government and 150 million rupiah resulting from issues of debenture bonds. These latter consisted of two issues of 3- 8 Tile hank was originally created to be the bank of issue but never functioned in this capacity. In 1052. functions which it held in the field of reconstruction and development were trans- ferred to the Hank Industrl Negara. percent 15-year debenture loans — one of two tranches in 1954 amounting to 100 million rupiah and another issue in 1955 totaling 50 million rupiah. 9 The Bank Industri Negara has extended sub- stantial credits, ranging from 3 to 10 years, to Government and private enterprises. By the end of 1954 these credits amounted to 426 million rupiah, compared with 351 million at the end of 1953. A considerable proportion of the total — about 80 percent — was extended to manufacturing and sugar industries. It is not known to what extent these investments are long term or short term. The Indonesian People's Bank (Bank Rakjat Indonesia) . — This bank was established in 1949, and its functions were further defined by law in 1951. 10 It has branches throughout the country to help in carrying out its purpose — the provision of small credits to the lower income group and to those who cannot obtain credit elsewhere. In its early period the bank primarily provided small loans for agricultural purposes, but in recent years it has increasingly concentrated on small business loans, including some in urban centers. At the end of 1954 this bank had loans outstand- ing of 480 million rupiah, of which two-thirds were "middle class and current account loans," about one- fifth were agricultural, and the rest were "to people with fixed incomes." By the end of September 1955 outstanding loans had increased to 568 million rupiah. Other Banks and Financial Institutions Village banks (desa banks). — Village banks were of considerable importance in the rural areas of Java and Sumatra in the prewar period. They were disorganized during the war, but through Government efforts have been considerably re- vitalized since 1952. These banks are largely financed by funds allocated through the budget of the Central Government. They are primarily concerned with extending small monetary loans to farmers, but also make loans to small-scale trad- ers and craftsmen. 11 As of September 1955 they numbered 4.672 and had outstanding loans of about 63 million rupiah. Cooperatives. — Of the many activities carried on by cooperatives in Indonesia, the granting of credits to farmer and cottage industry members is the foremost. Credit cooperatives are the most numerous of the various types. Although the capitalization of the cooperative societies is largely from the savings of members, the move- ment, which is strongly supported by the Gov- These debentures were made available only to nonresidents holding blocked rupiah balances, so-called "rurni" accounts. An- other issue was reported planned for early 1956. 10 The bank took over some of the functions of an earlier Uni- versal Peoples Credit Bank (Algemene Volkscredietbank), which was liquidated. 11 In addition to the village (dr»a) banks, rural rice warehouse (lumbung desa) banks extend small rice loans in rural areas. 82 ernment, has received loans from the Bank Negara Indonesia and the Bank Rakjat Indonesia. The cooperative movement dates from the 1930's but became disorganized during the war. It has expanded greatly in recent years, however, as is indicated by the fact that the total number of co- operatives increased from 5,770 in 1951 to 9,583 by the end of 1951 and membership rose from a little over a million in 1951 to 1,610,000 in 1954. Total deposits during the same period rose from 35 million rupiah to 150 million. Pawnshops. — Pawnshops, which were estab- lished in the prewar period as a Government mo- nopoly to combat usury by providing credit on more reasonable terms, play an important role in the credit field. The number of pawnshops owned and controlled by the Government was 413 as of September 1955. In 1954, they loaned 1.2 billion rupiah on 38 million pledges, and at the end of that year loans outstanding totaled about 380 mil- lion rupiah. Savings banks. — Savings banks, including those of the postal savings bank system {Bank Tabungan Pos) and six private banks, play only a minor role in the capital supply. At the end of 1954 credit balances of savings banks totaled 180 mil- lion rupiah, of which 159 million rupiah repre- sented deposits with the 755 centers provided in the postal savings system and 21 million rupiah represented deposits with six private savings banks. The small capital built up from savings is loaned primarily to finance economic activities in local areas. The Credit Foundation {Jajasan Kredit) . — This institution is a cooperative foundation founded by the Government in late 1950 and reorganized in 1952. Its original purposes were to "promote the national economy" through granting credits to industrial and commercial enterprises, and to act as a guarantor for the financing of industrial activities approved by the Government on behalf of borrowers unable to meet commercial banking- requirements for loans. The financing of such credits up to the middle of 1952 was accomplished by the Credit Founda- tion in cooperation with the Bank Rakjat Indo- nesia and the Bank Negara Indonesia from re- sources made available by the Government; dur- ing this same period similar credits were also being granted by various Government departments from their own budgets. As a measure to correct the complicated overlapping system of granting credits by a variety of Government agencies with- out sufficient coordination, in 1952 the Credit Foundation was reorganized and its functions more sharply defined. The following objectives were established at that time: (1) All credits, other than normal credits for the benefit of Indonesian industry, would be granted exclusively through the Credit Foundation; (2) separate credits would not be granted by Government departments; (3) the Credit Foundation would be financed by the Bank of Indonesia, which opened in 1952 a credit of 88 million rupiah for this purpose (raised in 1954 to 93 million rupiah) ; and (4) the Credit Founda- tion would be decentralized by the establishment of branches called District Credit Institutes (Jajasan Kredit Daerah) located in principal cen- ters of the Provinces and in other towns. These branches were empowered to grant credits up to 100,000 rupiah for periods not exceeding 3 years. From September 1952 through December 1954 the Credit Foundation (and its branches) received 1,980 credit applications for a total amount of about 346 million rupiah. Of these, 909 loans were granted totaling 148 million rupiah. About 40 percent of those granted were for "general eco- nomic affairs" ; another 40 percent, for sugar and other estate agriculture ; 15 percent, for industry ; and the remainder, for cooperatives. Although arrears have been reported for a substantial por- tion of the outstanding loans, as of the end of 1954 the situation had shown considerable im- provement. Insurance companies. 12 — Insurance companies, both life and nonlife, account for only a very small amount of capital formation in Indonesia. Life insurance in force in Indonesia with Dutch companies totaled 115 million rupiah as of De- cember 31, 1952. Insurance company funds, in- sofar as they are invested within the country, are believed to be invested largely in Government bonds and real estate. As of June 1955, about 135 insurance companies were operating. Of this total, 20 were locally in- corporated and financed, all 20 having been formed since 1950. The Dutch insurance market has al- ways covered an important percentage of Indo- nesian insurance and most of the foreign insurers are Dutch owned, but United States, British, Aus- tralian, and Canadian companies also are repre- sented. The Government exercises supervision over the insurance industry through the Ministry of Fi- nance and the Ministry of Economic Affairs, and also through its control of a reinsurance company formed in 1954 and whose obligations are guaran- teed by the Government. The Government also controls a direct-writing insurance company which sells all branches of insurance except life, operating in competition with privately owned insurance companies. Under Indonesian insur- ance law, qualifying deposits are required only of life insurance companies. Workmen's compensation regulations are in ef- fect, but employers are not required to carry in- surance. Automobile insurance is the most im- portant class of casualty insurance written. Some personal accident insurance is sold. The com- panies have for some years followed the practice 12 Prepared by the Insurance Staff, Office of Intelligence and Services, Bureau of Foreign Commerce. 83 of excluding riot and civil commotion coverage from all policies. The stock exchange. — The Djakarta Stock Ex- change, which began operation in 1952, 13 makes only a very minor contribution to the mobilization of domestic capital. The exchange lists primarily the securities of Dutch firms but also a few Indo- nesian securities and Dutch certificates of Ameri- can securities. From the end of 1953 until October 1955 only four new issues appeared, three of which were the Bank Industri Negara bond issues. These were available only to nonresidents, most of whom used them as a means of repatriating blocked rupiah balances. The volume of trading on the exchange is small, the chief activity being in 3-per- cent Republic of Indonesia bonds (1950) and 3-percent 15-year debentures of the Bank In- dustri Negara. CURRENCY AND MONEY Currency and Exchange Rates The basic unit of currency is the Indonesian rupiah, consisting of 100 sen. Since February 1952, when the currency was last devalued (earlier devaluations occurred in 1946 and 1949), the basic official rate has been 11.40 rupiah to the United States dollar. The rates for other currencies are : Pound sterling, 31.72 rupiah ; Netherlands guilder, 3 rupiah; and the Malayan dollar, 3.715 rupiah. Official buying and selling rates have fluctuated about these middle rates. The system of additional levies and taxes has created multiple effective rates differing from the official rates and varying with changes in these levies and taxes. The current exchange rates for trade transactions range from the official rate to about 57 rupiah to the United States dollar and the rate for most invisible payments is a little over 19 rupiah to the dollar. Details of the cur- rent rates are summarized in table 45 (page 93). There is no legal market rate in Indonesia. However, "curb" rates are regularly quoted in some newspapers in Indonesia and dollar prices of most domestic and imported goods are based on the relationship of the curb rate to the dollar. In 1954 and 1955 the curb rate was several times higher than the official rate, fluctuating between about 25 and 38 rupiah to the dollar. Indonesia has been a member of the Interna- tional Monetary Fund since April 1954, but has yet to establish a rupiah par value with the Fund. 13 Before the war, stock exchanges were maintained in both Djakarta and Surabaja. These were only of local significance, however, since most investors in the area used the Amsterdam exchange. Security prices were dependent on quotations in Ani- Sterdam, and the business of the local exchanges consisted merely of filling orders of local investors which were not given direct to banks or brokers in the Netherlands. Money Supply The money supply in Indonesia has been pri- marily affected by the Government budget and the balance-of -payments position. In the period since 1951 the financing of Government deficits with loans from the central bank has been the chief cause of the rise in money supply and inflationary pressures. The average increase in the money supply — cur- rency and demand deposits — since 1949 has aver- aged about 1 billion rupiah annually. From the end of 1951 to the end of 1954 it increased from 5 billion rupiah to 11 billion and in September 1955 stood at 12.6 billion (table 37) . The increase was particularly marked in 1954; in that year alone the rise was more than 45 percent. Table 37. — Money Supply of Indonesia, 7 950-55 [In millions of rupiah] As of end of period Currency Deposits Total 1950 2,582 3,328 4, 349 5, 218 7, 542 8,566 1,726 1,706 2,255 2,269 3,419 4,000 4,308 1951 5,034 1952 6,604 1953 7,487 1954.. 10, 961 1955 (September) 12, 566 Sources: Bank of Indonesia, Report for the Year 1964-1955 and Bulletin No. 7— Third Quarter 1966. The growth in money supply was due mainly to the expanding note circulation of the Bank of In- donesia which, however, up to mid-1954 had been accompanied by a decline in gold and foreign ex- change reserves. The ratio of the latter to the Bank of Indonesia's note and deposit liabilities declined from 80 percent at the end of 1952 to 28 percent at the end of 1953 and to 22 percent at the end of 1954. The diminishing reserves caused the Government in mid- 1954 to lower temporarily the legal minimum ratio of gold and convertible foreign exchange from 20 percent to 15 percent. As of the end of 1954 advances of the Bank of Indonesia to the Government were more than 8.3 billion rupiah, reflecting an increase of about 3 billion rupiah during that year. Private credit expansion by other banks, amounting to over 450 million rupiah in 1954, to a limited extent also generated inflationary pressures. Domestic loans and investments of other banks at the end of 1954 amounted to almost 2.3 billion rupiah. To check inflation resulting from the expanding money supply, the Indonesian Government has in- stituted various measures and these were partially effective, especially prior to 1954. 14 The system of 11 Some of the usual measures of monetary control of Western countries were not possible in Indonesia. Owing to its newness as a central bank and the absence of legislation, the Bank of Indonesia was not in a position to control effectively the activittes of commercial banks, particularly since the major banks held their reserves abroad. Moreover, conducting open market opera- tions was possible only to a very limited extent, and the varying of rediscount rates was ineffective since commercial banks in Indonesia do not follow the practice of rediscounting their paper with the central bank. 84 rupiah prepayments required on applications for foreign exchange by importers (introduced in 1952 and raised later) had a disinflationary effect. This measure was supplemented by the prohibi- tion instituted against transferring profits abroad by any firm indebted to a bank. In addition, the commercial banks agreed not to expand their total credits to importers or provide credit for the financing of advance payments on foreign ex- change. The marketing of a bond issue was also claimed to have an anti-inflationary effect. 15 In 1954, the large budget deficit, together with lagging production and the severe curtailment of imports, resulted in the sharpest rise in the money supply. Later in 1955, however, the Government achieved at least temporary independence from central bank financing, primarily by severely re- ducing its expenditures. With Government re- ceipts thus brought to a near balance, expansion of the money supply slowed and in the last few months of 1955 it showed little advance. PRICES AND INTEREST RATES Prices Indonesia's inflation due to the expanding money supply and the limited availabilities of consumer goods has resulted in rising prices and living costs. Whereas during most of the period since inde- pendence inflation has been "creeping," in 1954 and 1955 the pace was greatly accelerated. In late 1955, however, inflation was strongly checked. Speculative hoarding — especially among Chinese traders — frequently has contributed to the sharp price increases. Price controls have been used during much of the postwar period and for many products, but their effect has been somewhat limited. 16 Based on the somewhat inadequate indexes avail- able, prices in Indonesia by the end of 1953 had almost doubled from the 1949 level and were then followed by additional increases in 1954 and 1955. In particular, the price level of foods consumed by most of the Indonesian urban population has risen ; the index covering prices of 19 foodstuffs on the Djakarta market increased from 100 in 1950 to 199 at the end of 1953, to 210 in the last quarter of 1954, and to 268 in the third quarter of 1955. 17 15 However, since the bond issue (of Bank Industri Negara) was sold only against the blocked rupiah deposits of foreigners, bal- ances which were not freely disposable, it seems unlikely that the sale of bonds had any effect in increasing the money supply. 16 In September 1955, price controls were reduced and simpli- fied. In place of the confusing system then in existence, which had evolved over the postwar period, controls are now limited to about 20 categories of goods and services. The categories re- maining under price control after the decree of September 1955 are : Rice, rents, petroleum products, medicines, hotels and lodg- ing houses, motion picture theater admissions, electric light bulbs, automobile tires, cigarettes and tobacco, sugar, coal, news- print, books and other reading matter, port services, coconut oil, margarine, cooking oil and fats, and soap. 17 Much of the sharp rise in food prices in the second half of 1955 was due to the timelag in the effect from earlier inflationary forces, together with marked increases in the price of short- supply rice after it became known that stocks had been exhausted and imports were still at a low level. Shown below are index numbers of food prices in Djakarta for the period 1950-55: Index (1950=100) i 1950 100 1951 167 1952- - — -- 176 1953 187 1954 - 199 1st quarter - 196 2d quarter. 195 3d quarter 196 4th quarter 210 1955 1st quarter 236 2d quarter 254 3d quarter. 268 i The index which the International Monetary Fund refers to as "cost of living" relates to 19 foodstuffs in Djakarta. The original index compiled by the Indonesian Central Bureau of Statistics, with 1938 as the base year, has been adjusted to a 1950 base. Source: International Monetary Fund, International Financial Statistics. The overall cost of living for middle-class fami- lies in Djakarta, for which data are available only through 1954, has risen perhaps less sharply than the food index affecting all urban dwellers but was considerably influenced by the stringent import restrictions of 1954 and most of 1955. By mid- 1955 many imported commodities were priced at several times their 1953 levels in Djakarta markets, a trend which was undoubtedly rein- forced by activities of speculators. Late in 1955 following new import regulations, however, prices of imported commodities — particularly textiles — declined. Near the close of 1955 the long-en- trenched sellers' markets for imported goods were rapidly changing into buyers' markets. Although the price increases indicated above are significant, their overall effect on the Indo- nesian economy is more limited than is sometimes recognized. Many Indonesian farmers, being largely self-sufficient, are isolated from the market economy and the inflation has had much smaller impact in the rural areas 1S than elsewhere. The urban population and workers on the agri- cultural estates were strongly affected by the price rise, as were civil servants. Based on the limited available data, the real incomes of these groups declined considerably in the period 1950-55, espe- cially after 1953. Employees of foreign-owned enterprises probably suffered least because they have been best able to obtain repeated wage ad- justments. Interest Rates Interest rates in Indonesia on loans extended through Government banks and financial agen- cies and the private banking system are low to moderate. These loans are generally limited to safe borrowers; strict collateral requirements are maintained. On the other hand, interest rates ob- tained in the unorganized money market are 18 The size of Indonesia and its regional differences mean that there has also been considerable regional variation in the postwar inflationary effect. Available statistical measurements, largely limited to a few of the major cities in Java and Sumatra, prob- ably distort the overall situation. 85 many times higher than those in the organized sector. Annual interest rates of the Bank Indonesia, are as follows : On discounts, 3 to 6 percent ; on loans against sugar, rice, and oils and fats, 414 percent; on loans against other export products, 5 per- cent; and on loans against import commodities, 5 percent. Commercial banks quote interest rates of 6 to 9 percent a year. Rates on loans from official and semiofficial agencies average 8 to 10 percent. The Credit Foundation (Jajasan Kredit), established to help business activities which cannot be served by the usual banks, charges a yearly interest rate of 10 percent. Short-term loans by local cooperatives to their members are reported at about 2 percent per month or 18 per cent per year. Small producers and traders in Indonesia rely heavily on the unorganized money market for short-term unsecured credit. Many of them can- not meet the standards demanded by foreign and Indonesian private banks. The credit facilities which have been made available by the Govern- ment only partially serve their needs. 19 They turn, therefore, especially for short-term loans, to private moneylenders who charge high interest rates. According to reports as of 1954-55, rates of private lenders for most loans varied from about 2 to 10 percent per month; some loans are made at considerably higher rates. w It is reported that these facilities are often impractical, es- pecially when the need is for immediate credit. For example, obtaining a loan through the Bank Rakjat Indonesia or the Bank Industri Negara is difficult. The collateral requirements are higher than most small-scale Indonesian businessmen can meet, and it takes considerable time to get a loan processed. 86 CHAPTER XI nternational Trade and Payments Since Indonesia depends on imports for most of its consumer and capital goods, as well as for part of its food supply, a high level of exports is essen- tial to the country's economy. Exports must cover not only payments for the large import requirements but also the substantial deficit which is normally incurred for such invis- ible items as the servicing of foreign investments and loans, shipping and insurance, and other current balance-of -payments transactions. BALANCE-OF-PAYMENTS POSITION Except for the brief period of the Korean war boom, Indonesia has experienced persistent bal- ance-of -payments difficulties since it achieved inde- pendence. In 1953 and early 1954 its interna- tional finances deteriorated seriously, but since mid-1954 the situation has improved considerably. In the early postwar years Indonesia lacked gold and foreign exchange reserves and private foreign credits needed to meet its large deficits on goods and services. During this period the country de- pended heavily on long-term foreign government loans and "rants. Then 1951 and 1952 brought D a < ..." large export receipts. With a decline in this ex- port boom, however, Indonesia found itself after 1952 in a worsening financial condition. Grants had largely ceased, new loans were limited, and except for investments in the petroleum industry the influx of private foreign capital was small. As a result, Indonesia drew heavily on its gold stock and foreign exchange assets in 1953 and early 1954 to settle its international accounts. Stricter import controls were also imposed to reduce the trade imbalance. Meanwhile, gold and foreign exchange holdings declined, reaching a low point of $212 million in mid-1954, the lowest figure since 1947 (table 38). Subsequently, the effect of the sharp curtailment in imports and higher prices for major export products (coupled with sustained and improved levels of exports) has resulted in considerable improvement in the balance of pay- ments and the exchange holdings. The Indonesian Government has also attempted to obtain new long-term credits, largely to cover the importation of goods for industrial and eco- nomic development. In late 1954 and 1955, the Table 38. — Indonesia's Cold and Foreign Exchange Holdings, J950-55 [In millions of dollars] Bank of Indonesia Other banks Total gold and foreign exchange holdings Exchange fund lia- bilities End of period Gold Foreign ex- change Total 1950 .. 209 28U 235 145 81 81 81 81 81 147 231 79 67 76 167 192 176 187 356 511 314 212 157 248 273 257 208 115 81 77 64 55 51 52 48 59 471 592 391 276 212 299 325 305 327 70 1951 1952. . 66 77 1953 96 1954: June 140 December 1955: March 152 156 June... 150 September 146 Source: International Monetary Fund, International Financial Statistics, January 1956. Minister of Finance reported long-term credits for capital imports from France, the Netherlands, and Western Germany. In addition, industrial cred- its by several private European firms have been reported. Several of the Soviet bloc countries have also made bids to extend credits to Indonesia. Indonesia's heavy invisible outpayments of the postwar period consist largely of transfers of in- vestment income (primarily profit remittances on behalf of foreign interests), interest payments on the Government's external loans, and transfers by foreign employees and pension payments to former Dutch officials. For the postwar period as a whole, outflows of private long-and short- term capital have exceeded inflows. The balance of payments from 1950 through 1954 is summar- ized in table 39. Preliminary data for 1955 in- dicate a more favorable situation than has existed since 1951. CHARACTER OF TRADE A large export surplus was characteristic of Indonesia's trade before World War II. Not only was trade disrupted by the war, but many of the production facilities in Indonesia were damaged or destroyed during the Japanese occu- pation and the postwar hostilities with the Netherlands. With the need to import most of the required manufactured goods as well as basic 87 Table 39. — Indonesian Balance of Payments, 7 950—54 [In millions of dollars] Item 1950 1951 1952 1953 1954 1 Goods and services: Exports, f. o. b. 2 Imports, c. i. f. ! . Investment income (net) Transportation and insurance (netl 800 -443 -24 -32 -78 -38 1,261 -892 -41 -13 -107 -80 905 -988 -27 -23 -531 -65/ 669 -635 -55 -26 -74 696 -564 -70 -17 Nontrade transactions of oil com- panies (net) Other (net) ... ... —86 Total goods and services Official and private donations 3 Capital movements: Private, capital-. Official and bank capital: Long-term capital: Gold and United States dollar subscriptions to IMF and IBRD 185 39 -16 128 1 -8 -251 7 -19 -121 3 1 -41 3 -5 -18 Loans received (net) Other 2 * -10 39 76 3 -7 1 -4 Short-term capital: Use of IMF resources 15 United States dollar as- sets, net (increase — )_. Other foreign assets, net (increase — ).. -79 i -83 -30 1 -67 -82 931 87) 47 33 96 -9 Monetary gold (in- 58 Total capital movements.-. .. Net errors and omissions -216 -8 -117 -12 287 -43 124 -6 37 1 i Preliminary. » The merchandise trade figures in this table do not agree with the figures in some of the tables showing trade included in this report. The Inter- national Monetary Fund, which is the source of data for this table, often makes considerable adjustments in original data for coverage, valuation, and timing. The tables showing trade have been compiled direct from Indonesian official trade data. ' Primarily official donations. 4 Excludes transactions arising out of the withdrawal of Indonesia's par- ticipation in the Netherlands' subscriptions to the International Monetary Fund and the International Bank for Reconstruction and Development. Source: International Monetary Fund, International Financial Statistics, vol. VIII, Nos. 8 and 11 (August and November 1955). rice, Indonesia's trade by from 1946 through i large deficit each 1949 year was characterized (table 40). In 1950, however, the trend was reversed and in 1951 the surplus reached a high of $419 million, reflecting the boom in exports from the heavy de- mand for Indonesian products — especially rub- ber — created by the war in Korea. Exports Table 40. — Foreign Trade of Indonesia, J 936— 38 Average and 1946-55 [In millions of dollars] Year Exports f. o. b. Imports c. i. f. Balance 1936-38 average 436 58 128 394 524 800 1,292 934 840 856 934 227 106 305 464 580 440 873 948 765 629 693 +208 1946 . -48 1947 - -173 1948 -70 1949 -66 1950 +360 1951 - +419 1952 -14 1953 +75 1954 +227 1955 ' +341 i Preliminary data. Source: Based on official Indonesian trade data Issued by the Central Bureau of Statistics. reached a level that enabled Indonesia to add to its gold and foreign exchange holdings even though imports were greatly increased. In 1952 and 1953 declines in the price of rubber and other export products, together with lagging production and increased competition in some fields, caused exports to drop greatly below the 1951 level and led to drastic weakening of the rupiah and stricter import controls. In 1954 and the first part of 1955 the full effect of these stricter controls held imports in check, while the value of exports was only slightly above the 1953 level; later in 1955, however, exports substantially in- creased. Composition of Trade Exports. — A heavy reliance on a relatively few export products has characterized Indonesian postwar trade. Although, in prewar years also r considerable dependence was placed on a number of basic products, fewer commodities have ac- counted for a larger share of the total exports in the postwar period. Rubber, petroleum and prod- ucts, tin, and copra made up about 70 percent of 1954 exports (rubber, 31 percent; petroleum and products, 26 percent; tin, 7 percent; and copra, 6 percent) compared with about 62 percent in the immediate prewar years. The difference is due largely to the increased importance of rubber and,, to a lesser degree, of petroleum and products, accompanied by a decline in various secondary products. Other products exported in 1954 in amounts exceeding 100 million rupiah (about $9 million) were coffee, tea, tobacco, palm oil, sugar, and pep- per (table 41). The export commodities listed in the table constituted about 90 percent of 1954 exports. Chief among other commodities of lesser importance were tapioca roots, sisal, kapok, and rattan. Imports. — In both prewar and postwar years Indonesian imports have consisted primarily of consumer goods and "raw and auxiliary materials"' to support the domestic consumer goods indus- tries. In the immediate prewar period these two overall categories constituted about 75 percent of total imports and in recent postwar years they constituted about 80 percent. Capital equipment, which makes up the remaining imports, accounted for about 20 percent of the total in recent years; compared with 25 percent in prewar years. 1 In the postwar period about 25 to 30 percent of total purchases from abroad have been textiles and textile raw materials. Rice imports have 1 These categories are based on the classification of items ass used by the Indonesian import statistics, which differentiate be- tween raw auxiliary materials and capital goods as follows : Raw auxiliary materials are intended mainly for domestic con- sumer goods industries and include cotton yarn and grey piece goods, paper and paper manufactures, metal manufactures, dye- stuffs, fertilizer, and cement. Capital goods include iron an63 steel structurals, electric cables, office machines, motor vehicles, tires and tubes, internal combustion engines, and IndustriaJ machinery. 88 Table 41. — Principal Indonesian Exports, 7 953—54 [Volume In units indicated; value in thousands of dollars] Commodity Rubber, crude, in sheets, slabs, and balls metric tons.. Petroleum and petroleum products, total _-- Petroleum, crude 1,000 liters. . Gasoline ... do Kerosene do Diesel, solar, and similar motor oils 1,000 liters.. Fuel oils do Paraffin metric tons.. Tin ore, slag, and ash do Coconut products, total 2, 467, 357 2, 731, 429 857, 781 2, 624, 761 2, 782, 624 41, 178 47, 449 Copra metric tons _ . Copra oilcakes do Coffee ...do... Tea do... Tobacco, leaf... do Palm oil and palm kernels, total Palm oil metric tons.. Palm kernels -do Sugar, refined do Pepper do Total, these exports . All exports from Indonesia. 1953 Quantity Value 712,134 273, 716 199,347 311,029 114,379 33, 575 33, 003 14,577 135, 962 43,403 97, 369 7,605 13, 904 78, 822 20, 452 46, 143 34,654 5,372 80, 588 65, 106 57, 773 7,333 30, 871 23, 734 31,386 34, 678 28, 559 6,119 10, 216 16,202 765, 844 840, 245 1954 Quantity Value 749, 754 265, 945 221, 547 2, 725, 080 2, 457, 157 988, 422 2, 417, 509 2, 885, 719 76, 486 48, 254 296, 855 141,241 .38, 232 '44,973 19, 494 140, 106 42, 595 212, 829 12,927 32, 357 69, 762 23,915 44, 205 40, 943 10, 365 59, 457 57, 648 50, 946 6,702 39, 943 39, 800 32, 118 30, 443 25, 539 4,904 22, 372 12, 822 782, 095 856, 064 Source: Based on official Indonesian trade data issued by the Central Bureau of Statistics. ranked second, but are declining. Chemicals (in- cluding fertilizers and pharmaceutical products), paper, cement and glass, and metal products have been important in the categories of consumer goods and raw and auxiliary materials. Crude oil is imported for refining and reexport. Some shifting away from imports of consumer goods toward increased imports of raw and aux- iliary materials is discernible. Whereas con- sumer goods accounted for 43 percent of the total import value in 1938 and raw and auxiliary ma- terials accounted for 32 percent, in 1954 their rel- ative position was reversed, raw and auxiliary materials accounting for 42 percent of the total and consumer goods, 38 percent. Table 42 gives the major imports for 1953 and 1954 according to general commodity groups ; the listed commodities constitute about 90 percent of all Indonesian imports. Trading Partners Most of Indonesia's trade (about 60 percent in 1954) is with the United States, the Netherlands, Malaya (including Singapore), and Japan. Western Germany and the United Kingdom are the other leading European trading partners and Hong Kong, Australia, Burma, and Thailand are of importance (table 43). Table 42. — Principal Indonesian Imports, 1953—54 [In thousands of dollars] Item 1953 Textiles and textile products, total. Cotton fabrics Yarns.. Synthetic fabrics Clothing and footwear Gunny sacks Cotton, raw and waste Other textile fibers, yarns, fabrics, and made-up goods Machinery and equipment, total Cycles, not motorized, and parts Electrical machinery and equipment, including loco- motives Railway passenger cars Internal combustion motors Other nonelectrical machinery and parts Mo torbuses and trucks Other road motor vehicles and parts Communications equipment Seagoing motorships Food products, beverages, and tobacco, total. Rice Wheat flour Tobacco Fish and fish preparations. Cloves and clove stems Dairy products. Base metals and manufactures, total . Iron and steel sheets and plates and hoop iron. Iron and steel bars, tubes, and pipes Nonferrous base metals and alloys.. Other base metals, ores, and manufactures Petroleum and related products, total. Petroleum, crude Other fuels, lubricants, and related products. Chemicals and allied products, total Chemical elements and compounds Fertilizers... Pharmaceutical products Coal-tar dyes Other chemical products and preparations. Paper and paper products, total Nonmetallic minerals and products, total- Cement Glass and glassware. 225, 574 136, 369 29, 274 18, 387 10, 170 7,094 4,638 19,642 135,411 17, 844 23, 325 1,551 14, 178 39, 896 9, 256 14, 877 7,076 7,408 133, 134 80, 372 18, 779 10, 522 9,413 6.252 7,796 73, 815 21, 907 15, 998 4,196 31,714 54, 074 42, 954 11, 120 43, 642 Total, these imports.. All imports into Indonesia. 9,608 7,456 5,447 4,583 16, 548 18, 974 11, 179 6,067 5,112 1954 182, 915 107, 614 30, 568 9,321 7,177 5,951 4,845 17, 439 107, 817 14, 197 13, 106 9, 205 8,120 38, 144 5,990 11,174 5,338 2,543 93, 479 48, 947 12, 302 9,034 8,310 8,381 6,605 66, 376 20, 873 12, 410 8,552 24,541 46, 893 38, 200 8,693 38, 967 695, 803 766, 610 8,590 6,991 5,803 5,312 12, 271 16, 879 13, 682 8,059 5,623 567, 008 Source: Based on official Indonesian trade data issued by the Central Bureau of Statistics. The Netherlands and the United States are the leading markets for Indonesia's exports, receiving goods both direct and by transshipment through Malaya. The major exports to the Netherlands are copra, palm oil and palm kernels, tea, tobacco, and tin ore. The United States purchases mainly rubber, tin ore, and crude petroleum, but also gets tea, tobacco, pepper, hard fibers, and kapok. Japan is a market primarily for rubber ; Germany,, for rubber, copra, and palm oil ; the United King- dom, for rubber and tea; and Australia, for petro- leum products. The United States and Japan are Indonesia's leading suppliers. In 1954 Japan ranked first but in other recent years and through the first 10 months of 1955 the United States led. The Neth- erlands is third-ranking supplier. Germany and 89 Table 43. — Indonesian Trade With Principal Countries, 1953—54 [In thousands of dollars] Country ' of origin or destination United States Netherlands Malaya 2 Japan Germany Hong Kong United Kingdom : Australia Burma Iraq Thailand (Slam).. Total for countries listed. 1, 323, 184 All countries... 1,605,014 Total trade Value 1953 311, 287 283, 510 216, 583 165,011 90, 333 67, 207 71,309 37, 213 44, 561 12, 272 23, 898 1954 234, 277 230, 951 224, 507 186, 858 82, 651 77, 704 74, 060 43, 171 31, 107 30, 951 24, 328 1, 240, 565 1, 485, 163 Percent of total in 1954 15.8 15.6 15.1 12.6 5.6 5.2 4.9 2.9 2.1 2.1 1.6 83.5 Exports Value 1953 172, 193, 205, 37, 39. 12, 17, 19, 1,776 707, 484 100. 840, 245 1954 143, 478 165, 132 219, 195 50, 100 39, 582 39, 970 39, 937 30. 253 629 865 8,445 737, 586 856, 064 Percent of total in 1954 16.8 19.3 25.6 5.9 4.6 4.7 4.7 3.5 .07 .1 1.0 82.2 100.0 Imports Value 1953 1954 90, 779 65, 819 6,012 136, 758 43, 069 37, 734 34. 123 12,918 30, 478 30, 086 15, 883 503, 659 629. 099 Percent of total in 1954 14.4 10.5 1.0 21.7 6.8 6.0 5.4 2.1 4.8 4.8 2.5 80.1 100.0 1 Countries listed in this tahle are those which had a total trade (exports plus imports) valued at $20 million or more in 1954. Countries not listed here which had trade in 1953 of $20 million or more are (with the 1953 value of the total trade in thousands of dollars): Sarawak and Brunei, 29,925: Belgium-Luxem- bourg, 28,346; and India, 24,712. 2 Includes Singapore and the Federation of Malaya. 3 Includes Ireland. Source: Based on official Indonesian trade data issued by the Central Bureau of Statistics. Belgium have been other European suppliers of importance in recent years, and Burma, Hong Kong, Thailand, Sarawak, India, and Australia, have been leading Far Eastern suppliers. Iraq has also ranked as a supplier. Manufactured goods have predominated in the imports from most of these countries except Burma and Thailand, from which rice has been the major import. Japan ranked first in 1954 as Indonesia's source of yarns and textiles (except gunny sacks, which come largely from India), iron and steel sheets and plates, and bicycles and parts. The United States was the leading supplier of to- bacco, paper and paper products, nonelectrical machinery, and motor vehicles, and the second country of origin for wheat flour, iron and steel sheets and plates, and electrical machinery and equipment. The Netherlands held first place as supplier of chemicals, electrical machinery and equipment, and some types of transport equip- ment, and second place as the source of nonelec- trical machinery and parts. Terms of Trade The most favorable level in terms of trade in the postwar period was in 1950 and 1951, when prices for Indonesian exports were high as a result of the demand created by hostilities in Korea. Ex- port prices rose about 110 percent between 1949 and mid-1952, while import prices increased only 00 percent in this period. After 1951, however, the volatile prices of Indonesian exports dropped faster than the cost of imports, resulting in a de- cline in the terms of trade. Using 1950 as base year ( 100) , the terms of trade reached a low of 03 in February 1954. A rise then occurred, and in February 1955 the terms of trade stood at 98 and in August 1955 at 94 (table 44). Table 44. — Terms of Trade for Indonesia, 1948—55 [1950 = 100] Year Price index num- bers Terms of trade Exports (f. o. b.) Imports (c. i. f.) (monthly average) 1948 6S 68 100 144 101 90 86 102 76 83 100 138 131 119 108 109 90 1949 89 1950 100 1951 104 1952 77 1953 76 1954 80 1955 (August) i 94 i The price index numbers for August 1955 have been adjusted to a basis comparable with that of prior years. This adjustment does not alter the calculated terms of trade. Source: Annual reports and bulletins of the Bank of Indonesia. Much of this recent improvement resulted from higher rubber prices ; these rose in 1954 and held firm in 1955. The average export proceeds of petroleum products and tin also increased in 1954 and 1955 but prices of some Indonesian export products — coffee, tea, and copra — declined. In the most recent postwar years the prices of im- ported consumption and capital goods registered declines while prices of most other imported raw materials remained steady. Trade Outlook The overall level of future foreign trade de- pends primarily on Indonesia's success in develop- 90 ing and expanding the production of exports and the successful marketing of these products abroad. Difficult problems are faced, however, in achieving sizable increases in the export level. The future for rubber, the leading foreign ex- change earner, is clouded by several factors. The outlook for an increase in the demand for rubber is good; it has been estimated that the total world consumption (natural and synthetic) will increase by about 16 percent in the years 1955-59. The technological advantages of natural rubber for some uses and its strong competitive position with synthetic for other uses under favor- able price conditions provide an opportunity for increased sales of natural. However, the limited planting of rubber trees in the past 7 years means that a relatively small increase in the world's supply of natural rubber is possible in the short run, whereas synthetic production can be increased more rapidly. 2 In- donesia's prospects for gaining a larger share of the world's natural rubber market are less promis- ing than are those of some other producing and exporting areas. Indonesia has lagged behind Malaya, for example, in replanting older rubber trees and in introducing new strains and methods. 3 Replanting of the present producing areas and the planting of additional ones have become in- creasingly necessary and important if Indonesia is to keep its share of the total world rubber mar- ket. Since large-scale replanting could be ex- pected to reduce total output for some years (until the new trees reach the rubber-bearing stage), even under the most favorable conditions it ap- pears unlikely that Indonesian production can be significantly increased before the middle 1960's. Moreover, the production and export of small- holder rubber, which now exceeds rubber from estates, have resulted in some lowering of quality in the rubber shipped from Indonesia. The main- tenance of acceptable quality standards for small- holder rubber is a requisite if Indonesia is to increase its export in the face of competition with other producing areas and with synthetic. The outlook for increased petroleum exports appears somewhat brighter. As a consequence of new arrangements between the Indonesian Gov- ernment and the oil companies negotiated in 1954, 2 It is expected that the world's consumption of synthetic rubber in the next few years will increase more rapidly than that of natural and the proportion of synthetic used will be higher than at present. The increase in total world demand for rubber for the period 1955-59 is estimated at 16 percent but the expected increase in production of natural rubber in this period is only 3 percent. The increase in synthetic production thus necessary to satisfy the expected demand will be about 40 per- cent. Whereas, in" 1955, the amount of synthetic used was less than half the amount of natural, the consumption of synthetic in 1959 is expected to be about two-thirds that of natural. (Chem- ical and Rubier Industry Report, vol. 2, No. 5, May 1955, page 24. Business and Defense Services Administration, U. S. De- partment of Commerce.) These estimates exclude consumption by Soviet bloc countries of rubber produced in those countries, but include estimated imports of natural rubber into the bloc countries. 3 It is estimated that 34 percent of Indonesia's rubber estate acreage was over 35 years old in 1955, compared with 25 percent for Malaya, and that Malaya had 21 percent of its rubber estate acreage in rubber trees under 15 years old in 1953, compared with 9 percent for Indonesia. and substantial additional investments in produc- ing facilities, there have been recent increases in production and activity and these are expected to continue. Crude oil production in 1954, for ex- ample, was 148 percent of the 1938 level. The ex- port volume of crude oil in 1954 was 110 percent of that in 1953 and export proceeds from petro- leum and its products increased by a larger per- centage. For the first half of 1955 Indonesia's total production of crude oil was 113 percent of the amount in the first half of 1954, and the vol- ume of exports of petroleum and products for the first 10 months of 1955 was about equal to that of the corresponding period in 1954. The future prospects for Indonesian tin show indications of continuing the relatively good rec- ord of the past. While mine production of tin in other countries declined slightly between the pre- war period 1935-39 (average) and 1954, Indo- nesian production increased by nearly 24 percent. Tin exports rose in 1954 to 104 percent of 1953 tonnage, but in the first 10 months of 1955 they were slightly lower than in the corresponding pe- riod of 1954. Favorable prospects for tin are bolstered by the fact that Indonesia is well situated with respect to reserves of tin (having perhaps 20 percent of world reserves) ; moreover, Indo- nesian tin concentrates, of high grade and free from impurities, can be used advantageously to improve the concentrates obtained from other areas. The outlook for copra as a source of export earnings is not clear, but prospects do not appear favorable. The volume of exports from Indonesia in 1954 was some 45 percent less than the average volume of 1938 and 1951, and a steady decline has been recorded since 1951. Indonesian copra is at a disadvantage in the United States market, be- cause of preference given to Philippine copra un- der an oil-processing tax. Moreover, the develop- ment of substitutes for soap and the production of surplus oils and fats in other parts of the world are adverse factors. Indonesia has long produced numerous second- ary export products, many of which have been of greater importance in the past than in recent years. Diversification commoditywise, including new products as well as those which have declined since the war, can offer opportunities for the expansion of exports. Increased attention will have to be given to price competition, uniformity and quality of products, and regularity in supplying products. Indonesian imports will continue to be pre- dominantly manufactured goods (including some industrial raw materials) though their composi- tion can be expected to show some changes. If the country's industrialization is stepped up, imports of capital goods will constitute a larger part of the total imports, but as manufactures are pro- duced in increased quantities in Indonesia — for 1 See also a discussion of the outlook for tin in chapter VI. 380755—56- 91 example, cement, glass, and paper — imports of these items will be reduced. The trading partners dominant in Indonesia's trade in recent years — the United States, the Netherlands, and Japan — are expected to con- tinue to lead in the near future. 5 Should Indo- nesia and Japan reach a reparations settlement similar to the settlement reached with Burma and that under discussion with the Philippines, Japan's trade position with Indonesia un- doubtedly will be further strengthened. TRADE AND EXCHANGE CONTROLS Indonesia has maintained some degree of con- trol over trade and exchange transactions since 1940, when the Foreign Exchange Law and Ordi- nance became effective. In recent years the Gov- ernment has resorted to numerous regulatory expedients, and changes in this field have been frequent. The basic aim of the restrictive system since its inception has been to obtain full and appropriate use of the coimtry's limited foreign exchange re- sources. It is primarily designed to serve bal- ance-of-payments purposes in a nondiscriminatory manner : On the one hand, restricting imports and the transfer of foreign exchange payments for certain invisible items; on the other hand, increas- ing exports. Other objectives, such as increasing Government revenue, assisting economic develop- ment, and affording protection to domestic indus- tries, have played important but relatively subor- dinate roles. Essential features of the system have included restrictions exercised through licensing require- ments attached to imports, exports, and exchange payments. Foreign exchange proceeds from ex- ports have, in most instances, been required to be surrendered to official exchange authorities. Ef- fective multiple exchange rates have been in force since 1947. On the export side, the multiple rates have been established through granting various "induce- ment" schemes, special combined export-import arrangements, and the payment of export pre- miums. On the import side, varying rates have been established primarily through the classifica- tion of commodities into priority categories subject to the payment of additional import surcharges; these surcharges have been changed several times within the range of zero to 400 percent of the value of the imported goods. Designed primarily to restrict the demand for imports of semiluxury and luxury goods and of 6 Malaya (Singapore and the Federation of Malaya) have been omitted here as major trading partners because they are not final consuming markets or producing areas, but serve primarily in the transshipment and processing of goods moving to and from Indonesia. This trade will undoubtedly remain large, although Indonesia may continue its recent efforts to trade direct with other countries rather than through Malaya. goods which could be manufactured domestically, the surcharges have also provided increased Gov- ernment revenue and have helped to decrease the money in circulation. An additional surcharge on most foreign nontrade payments not of a personal nature has also been in effect. Another restriction affecting import transac- tions which has been in effect for several years is the requirement of advance deposits ; the rates of these rupiah prepayments have changed several times, ranging from 40 to 100 percent of the value of the merchandise to be imported. Not only have the advance deposits served the purpose of restrict- ing import applications, but they have also tempo- rarily helped to improve the cash position of the Government, decrease money in circulation, and indirectly encourage domestic industry. A major revision of Indonesia's import-export regulations was effected by a series of changes announced on September 1, 1955, and shortly thereafter. This revision was considered neces- sary to simplify the system of controls which in the past several years had become so confusing and complex as to make its administration ex- ceedingly difficult. Among the various changes at this time was the abolition of previously ex- isting regulations which had directly or indirectly tied together many import and export transac- tions, that is, those of a compensatory, barter, and parallel nature and certain other special trade transactions. Import Regulations Under the September 1955 revisions, imports remain under strict control and require approval in the form of prior import-exchange licenses. Such licenses are granted only to individuals and business establishments that have obtained official recognition as importers from the Ministry of Economic Affairs. Advance deposits (in rupiah equivalent) of 75 percent ad valorem of raw ma- terials and capital goods for industry, and of 100 percent ad valorem of all other imports, are necessary before licenses are granted. A system of multiple rates for various groups of imports is retained. (The current effective rates applicable to imports and exports are given in table 45) . Import goods are divided into four categories, with applicable import surcharges (Tambahan Pembajaran Impor, or TPI's) as follows: Rate of surcharge Category and type of export (percent ad valorem) I. Essential goods 50 II. Semiessential goods 100 III. Luxury goods 200 IV. Extreme luxury goods 400 Unless a special permit is issued by the Mon- etary Board, goods not included in the above cate- gories cannot be imported. The following partial 92 Table 45. — Indonesian Exchange Rates, as of January 7 956 [Rupiah per U. S. dollar] Selling rates 11.475 (official rate): Category I (essential) imports not subject to TPI ' (rice, weaving yarns, newsprint, etc.); invisible payments arising from foreign trade; invisible payments and capital transfers exempted from 66%-percent TPT charge. 17.213 (official rate plus 50-percent surcharge) : Other category I imports. 19.125 (official rate plus 66%-percent charge): Invisible payments and capital transfers not exempted from TPT levy. 22.950 (official rate plus 100-percent surcharge) : Categorv II (semiessential) imports. 34.425 (official rate plus 200-percent surcharge): Category III (luxury) imports. 57.375 (official rate plus 400-percent surcharge): Category IV (extreme luxury) im- ports. Buying rates 11.355 (official rate): Major exports (rubber, petro- leum and products, tin, copra, coffee, palm oil and kernels, to- bacco, and sugar). All invisibles and capital. 11.928 (official rate plus 5-percent premium) : Exports of pepper. 12.491 (official rate plus 10-percent premium): Most other exports. 1 Tambahan Pembajaran Impor (import surcharge). list provides a general indication of the types of commodities in these categories. 6 Category I : Rice, weaving yarns, milk for infants, aviation fuel, newsprint (the preceding all free of surcharge), cheaper quality textiles, ferrous and nonferrous crude and semimanufac- tured metals, cement, gunny bags, fertilizers, flour, paper, books, various medical, pharmaceutical, and technical articles, and chemical products. Category II : Canned milk, cheese, nails, paints, washing machines, kitchen ranges, bicycles and smaller motorcycles, cheaper type watches, type- writers, and office machines. Category III : Cakes and biscuits, vegetables and fruits in other than fresh form, jams and jel- lies, spices, fish and meat (other than salted or dried), cigarettes and cigars, cameras and film, kitchen cutlery, and fountain pens. Category IV: Radios and phonographs, auto- mobiles and accessories, larger motorcycles, leather footwear, and more expensive watches. In addition to clearly defined decrees establish- ing import procedures, certain privileges and preferences are granted to national firms under administrative decisions and directives of various supervisory bodies. Export Regulations Under the trade regulation revisions of the last half of 1955, certain controls over exports are maintained to facilitate exchange controls, to strengthen the position of exporters, and to insure adequate supplies of goods in the domestic mar- ket. All exports require licenses. With the excep- tion of oil companies to which special arrange- 8 The classification of specific commodities can be obtained from the Far Eastern Division, Bureau of Foreign Commerce, U. S. Department of Commerce. ments apply, exporters are required to surrender all foreign exchange proceeds. Exports may not be invoiced in rupiah, but must be invoiced in a foreign currency acceptable to the Central Bureau of Exports. No general limitations are in effect as to the destination of exports; however, in order to coordinate this phase with other aspects of national policy, the export of certain commodities may be periodically prohibited. Likewise, in certain cases export li- censes may be withheld if the destination con- cerned is considered not to be in the interest of Indonesia or not in conformity with existing trade agreements. In conjunction with a recent revision of the ex- port duty system, an incentive scheme of export premiums was reintroduced under which the Gov- ernment makes certain payments to exporters of weak (i. e., slow-moving) products. These pay- ments are in rupiah and based on percentages of the f. o. b. prices. Most commodities eligible for this premium assistance receive a 10-percent payment. Exchange Restrictions In principle residents of Indonesia are not al- lowed to possess foreign exchange. 7 As previously indicated, foreign exchange from the sale of goods abroad must be deposited to the Government's funds out of which, in turn, foreign exchange re- quired for payment abroad is made available. Be- cause invisible outpayments constitute a substan- tial drain on foreign exchange reserves, Indonesia tightly limits such payments through stringent exchange controls and a heavy tax on most re- mittances. Profit transfers. — Foreign firms operating in Indonesia are usually able to transfer only a part of their gross profits earned in any accounting pe- riod and are subject to a levy on most remittances. For remittances covering transfers of profits for the book year 1952, the Indonesian Government generally allowed only 40 percent of the gross profits before taxes; new regulations (given be- low) have been issued for 1953 and 1954, but not for 1955. In March 1954 an exchange surcharge of 66% percent (often referred to as a TPT levy) was imposed on transfers abroad of foreign exchange for payments for invisible items, including profit remittances. Only a few types of transfers are exempt from this levy. Specifically exempt are transfers on income from foreign investments made in the industrial field after 1953, personal transfers of foreign employees, and payments re- lated to commodity transactions (freight, insur- ance, export commissions, and bank charges). 7 Foreign nationals resident in Indonesia may, however, retain in the currency of their own country any income that arises from other than foreign trade. 93 In June 1955 new regulations were issued which apply to transfers of profits for the years 1953 and 1954. For a book year beginning on any date in 1953, profits may be transferred after deduction of taxes paid on the assessable profits and after payment of the transfer surcharge. For profits made in the fiscal year beginning any date in 1954, transfer licenses are granted for only 60 percent of the net profit, out of which is paid the transfer surcharge. Applicants for exchange licenses must be able to prove that 40 percent of the 1954 net profit — gross profits less company tax — has been deposited with the Bank of Indonesia in a "profit reserve account." Transfers may then be granted up to the amount of the remaining balance after deduction of the transfer surcharge. Excepted from the profit re- serve are investments made in or after 1954. No restriction is made on dividend remittances for the fiscal year 1953, but remittances for 1954 are limited to 30 percent of the paid-up capital. Private remittances. — Transfers of exchange by foreign-staff employees in Indonesia are limited to about 20 percent of their salaries. The regulations covering these remittances, which were put into effect by the Foreign Exchange Institute on Janu- ary 1, 1954, also established an administrative pro- cedure which places the responsibility for distrib- uting the foreign exchange remittances of a com- pany's employees in the hands of the employing firm. Most types of personal transfers — for example, savings, maintenance, and educational expenses and insurance premiums — are handled through the employer, who receives a lump-sum allocation on foreign exchange based on 20 percent of the gross salary of his foreign staff. 8 Capital outpayments. — Capital repatriation has been largely suspended since 1954. Foreign na- tionals residing in Indonesia do not normally re- ceive approval for capital payments abroad. Each case of repatriation of capital on behalf of non- residents is subject to individual consideration by the Indonesian authorities. Other provisions. — The Foreign Exchange Insti- tute has issued various regulations covering other invisible payments, such as income of rents and dividends and insurance. It also has discretion to grant licenses for the remittances of film rentals, advertising payments, legacies, and charitable re- mittances on individual application. Administration of Controls The administration of the exchange controls is done by the Foreign Exchange Institute (Lem- 8 Firms must divide their allocated foreign exchange among their foreign-staff employees within the limits of 17 y 2 and 22% percent of the employees' gross salary. Within these limits the employer is charged with making a just distribution of the foreign exchange among his employees and providing for its transfer. baga Alat-Alat Pembajaran Luar Negeri, or LAAPLN) under the direction of the Bank of Indonesia. For trade transactions, combined im- port and exchange licenses are issued by the For- eign Exchange and Trade Bureau (Biro Devisen Perdagangan, or BDP). 9 Export licenses are is- sued by the Central Bureau of Exports (Kantor Urusan Expor). TARIFF STRUCTURE The major purpose of the Indonesian tariff sys- tem is to raise revenues. The tariff has no prefer- ential or discriminatory features. In addition to import duties Indonesia levies duties on exports. Import duties and charges are assessed on the c. i. f . value, whereas export duties and charges are as- sessed on the f . o. b. value. Import Duties The import tariff rates are generally the same basic rates in effect prior to World War II, but an additional 50-percent surtax has been added. The basic rates are divided into three main cate- gories: (1) Raw materials and semimanufactured goods, 6 percent ad valorem; (2) ordinary con- sumer goods, 12 percent ad valorem; and (3) lux- ury goods, 20 percent ad valorem. The 50-percent surcharge, however, raises these duties to 9, 18, and 30 percent, respectively. In addition, duties have been fixed for a few items at other ad valorem rates and for about 20 items specific duties are charged. In addition to import duties, since October 1951 sales taxes have been imposed on all imports as well as on goods domestically produced and sold. These taxes amount to 5 percent for most goods and 10 percent for luxury goods. In assessing these taxes on imports, which are sometimes re- ferred to as "special import taxes" and are col- lected by the customs, calculations are made on the basis of the value of the goods plus duties (in- cluding the surcharge). Exemption from import duties is granted on certain categories of commodities (mostly raw ma- terials) needed for agriculture, transportation and communications, public health, and selected indus- tries. Exemption from duties is possible, for ex- ample, for such imports as chemical dyestuffs for use in factories, minerals and crude oils for cer- tain industries, materials and equipment for the manufacture of export products, and some ma- chine tools. The importation of certain raw ma- terials for new industrial enterprises may be ex- empted from duties for a period of up to 2 years. Prior to September 1955, when it was abolished, the Central Import Office (KPUI) was the agency responsible for implement- ing Import regulations. Thought is being given also to trans- ferring control of export transactions to the new BDP. 94 Export Duties During much of the postwar period Indonesia has imposed a general export duty of 8 percent on most products. The Minister of Finance, how- ever, has had the authority to exempt particular products. In addition to these general export duties, special and additional duties have been levied on most of the important export items and the rates of these duties have changed frequently. Statistical dues and administrative charges, to- gether amounting to 1 percent, have also been assessed. In October 1955, following a comprehensive revision of the import system, the export duty system was considerably revised as part of an effort to boost the country's export trade. All extra export duties and most general export duties were abolished, as Avell as the statistical and ad- ministrative charges in connection with exporta- tion. All duties were removed on pepper, to- bacco, sugar, palm oil, and palm kernels. Export products remaining subject to a general export duty are copra and coffee, on which a 3-percent ad valorem duty is imposed; petroleum and petro- leum products, 4 percent; tin, 8 percent plus 3.50 rupiah per 100 kilograms ; and rubber, 65.4 rupiah per 100 kilograms. 10 In addition, for these prod- ucts 1 percent is imposed as a statistical and ad- ministrative charge. TRADE AND PAYMENTS ARRANGEMENTS A significant part of Indonesia's foreign trade is covered by various trade and payments agree- ments. Upon assumption of sovereignty, Indo- nesia took over the rights and obligations of Dutch trade and payments agreements with third countries in which Indonesia had been included jointly or as a member of the guilder area. Since that time, Indonesia has made efforts to negotiate bilateral agreements to replace these obligations and has also concluded numerous agreements with other countries. As of 1955, trade and payments agreements were in effect with the Netherlands, Japan, Czechoslovakia, Hungary, Poland, Rumania, Yugoslavia, and communist China. Other agreements — with Austria, Denmark, France, Western Germany, Greece, Italy, Norway, Portu- gal, Sweden, and Switzerland — provided for payments to be settled under arrangements with the Netherlands through the European Payments Union. In addition, trade agreements were in effect with Australia, India, Pakistan, Finland, and Egypt. A payments arrangement, limited in scope, had been concluded on a private level io The rate on rubber as established in October 1955 was 3 rupiah per 100 kilograms, but in late December it was sharply increased to 65.4 rupiah. with Eastern Germany, and a similar arrange- ment was made with the Bank of Mexico for the financing of a barter transaction. An informal "compensation arrangement" with Hong Kong has been in effect during part of the past few years. In the latter part of 1955 it appeared that some of the agreements which had expired would not be renewed and that there was less interest in new agreements. A number of statements by Indonesian officials indicated that some of the agreements have not resulted in the expected in- crease in trade and may actually have operated to decrease Indonesia's foreign exchange earnings. Indonesia's payments agreement with the Neth- erlands, concluded in 1950, has some features of general interest. Under it the Netherlands main- tains an account in Netherlands guilders in the name of the Bank of Indonesia (the so-called A account) . Commercial and financial transactions between Indonesia and the Netherlands and pay- ments between Indonesia and certain third coun- tries (countries of the European Payments Union) are made through this account. In effect, Indonesia accepts guilders for its usual surplus with all EPU members other than the Netherlands and applies the guilders to its normal deficit with the Netherlands. Any remaining defi- cit is then settled in other types of foreign ex- change acceptable to both parties. In practice, this has meant that Indonesia has usually settled its net deficits with the Netherlands in dollars. As of the end of 1955 negotiations between Indo- nesia and the Netherlands were under way con- cerning future commercial and financial arrange- ments. 11 In addition to earnings through direct exports to the United States, Indonesia acquires consider- able amounts of dollar exchange under special ar- rangements with the Netherlands, Singapore, and the Federation of Malaya. These areas remit dollars and other currencies to Indonesia earned by the reexport of goods which originate in Indo- nesia. THE GOVERNMENT AND TRADE Although trade is generally in private hands, the Indonesian Government engages in import and export activities to a limited extent. Throughout the postwar period the Government's policy has emphasized the channeling of trade in the hands of Indonesian firms and numerous measures have been taken to achieve this policy. u In early 1956, overall discussions between Indonesia and the Netherlands — which covered various relationships between the two countries— broke off and Indonesia abrogated the Nether- lands-Indonesian Union which had been negotiated at the time Indonesia was granted independence. Some question remains as to whether Indonesia will leave the financial and economic agree- ment intact or will seek new economic arrangements. 95 Government Trading The purchase and sale of most copra are in the hands of the Copra Foundation (Jajasan Kopra). The Government's Food Supply Board (Jajasan Urusan Bahan Makanan) , which regulates the dis- tribution of rice, buys and holds stocks of this important food commodity as reserves against emergencies. Many of the supplies required for Government projects are imported by the Government. To facilitate its purchases the Government maintains purchasing offices abroad, including the Indone- sian Supply Mission, 5 East 68th Street, New York 21, N. Y. Temporarily, the Government has at times taken over the importation of certain com- modities ; for example, in late 1954 when there was considerable speculation in flour and textiles the Government took over control of the importation and distribution of these commodities. Indonesianization of Trade A major Government policy followed since Indonesia became sovereign has been the encour- agement of Indonesians in trading activities and the protection of Indonesian trading companies. To achieve these ends, certain privileges have been granted to Indonesians; these have varied from time to time, depending on the emphasis given "Indonesianization" by the particular cab- inet in power. 12 The pace was stepped up in 1953 and 1954. During this period the issuance of import licenses was virtually limited to national firms. This action forced foreign firms wishing to stay in business either to organize Indonesian firms as fronts or to buy licenses from Indonesian concerns; since there were few experienced Indo- nesian trading firms, these latter practices became generally accepted. Since September 1955, when new import pro- cedures were established, foreign importers have again been permitted to receive licenses in their own names, provided they pay 5 million rupiah for the purpose of financing present and future imports. 13 Certain kinds of import goods — mostly related to native-type industries — can be imported only by Indonesian firms. Moreover, Government orders continue to be channeled al- most exclusively through Indonesian firms, which also have preference in trade with certain Asian countries. Commercial groups in Indonesia are pressing for continued and increased protection for national firms in the trade field. u Indonesianization has not been confined to trading activities, but it has perhaps been pushed hardest in this and related fields. Although primarily aimed at the large Dutch firms, which have for many years handled most of the trade, and at the Chinese who are active in trading activities, it has affected all nounational firms. 13 Some industrial firms which import raw materials for their own consumption are, however, exempt from this deposit. 96 CHAPTER XII Labor and Industrial Relations From the standpoint of private foreign invest- ment the Indonesian labor situation is of major concern. Lack of trained labor, low productivity, increasing demands for labor unions, and diffi- culty in obtaining entry permits for needed foreign personnel are problems facing entrepreneurs. Businessmen find, however, a large supply of labor, and employees are generally anxious for training. Moreover, some labor leaders are becoming in- creasingly aware of the responsibility of laborers, and collective bargaining procedures are im- proving. LABOR SUPPLY AND PRODUCTIVITY The Indonesian labor force, estimated as of 1955 at 32 million to 36 million persons, or about 40 to 45 percent of the population, is the largest of any country in Southeast Asia. As of 1951, of an esti- mated labor force of about 26 million, some 16 mil- lion (or 35 percent) were reported engaged in agriculture, forestry, fishing, and cottage indus- tries. About 1.7 million persons worked in 1951 on estates producing primarily export products, such as rubber, coconuts, tobacco, or sugar ; 2.6 mil- lion, in mining and manufacturing; 2 million, in commerce ; 550,000, in transportation and commu- nications ; 500,000, in Government service ; 210,000, in professions; and 2.4 million in other occupa- tions. A later estimate, as of 1953, places the labor force at 30 million and gives the following dis- tribution by occupational groups: Number (millions) Production of raw materials 18. 2 Industry 4'. o Transportation '. 8 Trade 3*0 Professions ~__ ' o Government service ]_[ 8 Other o! Total , 30. Under present conditions an oversupply of rural unskilled labor exists. Moreover, labor availabili- ties in the principal urban areas toward which farm people tend to migrate are in excess of the demands of the present limited industrial base. Perhaps 20 percent of the total labor force is with- out regular work, even though the employment situation has improved since 1952. 1 As of 1954 an estimated 7 million farmhands were jobless except at harvest time and an esti- mated 3 million urban workers could find only sporadic employment. Registered unemployed persons are a small part of the total unemployed ; those registered numbered only about 60,000 in 1954. 2 Indonesia, therefore, faces serious rural underemployment and urban unemployment — problems that are intensified by an annual increase of about half a million to the labor force. Both underemployment and unemployment are most serious in Java and Madura, but they are re- ported to be extensive locally in other sections of the country. The Government's attempts to alleviate unem- ployment have had only limited success. The transmigration schemes have moved relatively few persons from Java to the other islands; Gov- ernment relief projects, such as road and school construction, are on a small scale; and the Gov- ernment's 200 labor placement offices have been unable to reach many of the jobless and can place only a small percentage of those who register for work. Although the overall Indonesian labor force is ample, skilled workmen are in short supply. For the most part, farmers and industrial workers lack education and training and have little famil- iarity with modern production techniques. And despite improvement, the country still has a short- age of vocational training facilities. Moreover, as in some other countries many high school and university graduates are reluctant to do manual work. Experience has shown, however, that Indo- nesian laborers, when properly trained and super- vised, are good industrial workers. To achieve further economic development In- donesia's skilled labor force must be increased; and, in general, workmen will have to be trained on the job. But as of the present time a serious lack of technicians or managers prevails at all 1 Employment figures are very incomplete. Figures for em- ployment in village industry, for example, are lacking and those on factory employment consist of percentage increases from a pre- war base. No comprehensive statistics on employment have been gathered since the 1930 census. In recent years the International Labor Office has provided some technical assistance to the Indo- nesian Government to help in developing an adequate labor statistical service. 2 This is the total number reported registered with the Employ- ment Bureau (Djawatan Penempatan Tenaga). 97 levels — only 150 to 200 engineers, a handful of trained business administrators, and but few trained supervisors, foremen, and crew bosses. Such skills can be acquired only through educa- tion and experience; Indonesia cannot supply them in sufficient quantity for some years to come. Per capita labor productivity is low, and is considerably below that of prewar years. The abundance of labor, its lack of training, and the absence of capital are basic factors underlying the low productivity. The destruction of facili- ties and economic dislocations resulting from World War II and the subsequent revolution are additional factors. Low output has also been attributable to fre- quent work disruptions caused by insecurity and unsatisfactory labor relations. Moreover, the normal workday was reduced from 9 hours to 7 in 1950, and as a consequence comparisons of present output with that of prewar years are gen- erally unfavorable. Data on which to base a com- parison of Indonesia with other undeveloped countries are not available, but statements made by some company managers familiar with opera- tions in a number of countries indicate that the per capita output in Indonesia is among the lowest. ENTRY OF FOREIGNERS The Indonesian Government takes the position that the national labor market must be protected, that Indonesians should be placed in responsible positions, and that the entry of foreign employees should be limited to the fewest number possible. The desire to upgrade its nationals in technical, supervisory, and similar types of positions is a natural aspiration, and from a long-range view- point, if Indonesia is to compete successfully, a substantial body of Indonesians capable of assum- ing responsibilities in local enterprises is a neces- sity. From the short-run viewpoint, however, the attitude of Indonesian officials and unions has in some instances created difficulties. Some foreign firms report considerable pressure for the replacement of members of their foreign staff with Indonesians. The pressure probably is greatest on firms that have former Dutch colonial personnel, but applies to others as well. Unfortu- nately, companies operating in Indonesia cannot at the present time find sufficient numbers of Indo- nesians with the required education and training to fill clerical, technical, or supervisory positions in a manner consistent with sound operations. The more progressive foreign firms have made a good beginning by training Indonesians and pro- moting them as rapidly as possible. Although the number of Indonesians in such positions is steadily increasing, it will be many years before Indonesia can supply a sufficient reservoir of technical and managerial personnel at all levels. The Indonesian Ministry of Labor, which ad- vises the Immigration Service on applications for entry of foreign workers, stated several years ago that the following four factors are taken into account when considering the admission and use of foreigners for employment: 1. The national aspirations of the Indonesian people to occupy important positions in all sectors of the community, in order to give effect to inde- pendence in the widest sense of the word. 2. Protection of the national labor market. 3. The interests of the state, by decreasing pay- ments abroad. 4. Security and defense of the state, particularly in critical times. The two basic rules used by the Ministry in approving any particular entry permit were stated as follows: 1. The expert knowledge, or skill in a particular line, of a foreign worker must be proved satisfac- torily (by means of photographs of diplomas and other certificates) ; 2. The economic necessity in connection with the economic reconstruction of the state or the needs of the Government must also be proved. Each case will be examined individually by the Ministry of Labor, and the necessary information will be sought from Government authorities, trade unions, and employers. (The employer must submit staffing details.) Implementation of these regulations has fre- quently resulted in delaj^s and difficulties for for- eign companies in obtaining entry approval for technicians or specialists when needed. This is one of the present irritations facing companies op- erating in Indonesia. WAGES AND HOURS This discussion of wage-paid labor necessarily concerns only a small part of the working popula- tion. A large percentage of Indonesians farm their own small plots and raise much of their own food. Wages Indonesian wage levels when measured on a cash basis are low, but much of the wage is paid in kind. Moreover, since labor productivity is so much lower than in prewar years many employers consider the present wages high in relation to output. Indonesia has no minimum wage legislation, but wages are regulated to some extent by the Govern- ment through minimum wage rates issued for vari- ous regions, and through arbitration of labor dis- putes. Industrywide collective bargaining has resulted in a considerable degree of uniformity in wage rates in the larger enterprises. 98 Although postwar wages may appear high in relation to output, especially when the latter is compared with prewar productivity, wage in- creases do not seem out of line with increases in living costs and there are indications that wages have in fact lagged considerably behind. Com- parable indexes are not available, but the price index of foodstuffs, which constitutes a major component of living costs for the laboring class, at the end of 1954 was 3,256 in Djakarta (July 1938 = 100), whereas available wage-rate indexes (for estate workers, rather than Djakarta labor- ers) stood at 2,500 to 3,000 for early 1954 on a 1941 base of 100. Additional price inflation has occurred since 1941; in general, wage increases did not keep pace with the rise in living costs in 1954 and 1955. One report prepared by a labor group concerning the cost of living of workers claimed that the workers' real wage in late 1954 was about half that of 1938. Tables 40 and 47 provide such data as are avail- able concerning wage rates. Table 4G, which gives minimum daily wages on the Java sugar estates and on the estates producing perennial crops on Table 46. — Minimum Wages in Estate Agriculture in Java and Sumatra, 1941 and 7 952-54 [In rupiah per day as of end of year] Industry and wage Sugar Industry Absolute wage: In money. . In kind Total. Percentage of 1941 wage Nominal wege per net working day. Percentage of 1941 wage. Perennial Crops Absolute wage: In money. . In kind Total. Percentage of 1941 wage Nominal wage per net working day. Percentage of 1941 wage Perennial Crops Absolute wage: In money. .. In kind Total. Percentage of 1941 wage Nominal wage per net working day. Percentage of 1941 wage 1941 1952 1953 1954 Java 0.275 .275 100 .275 100 100 .275 100 4.00 2.70 6.70 8.15 2,964 3.00 1.60 4.60 5.60 4.00 2.70 6.70 2, 436 8.15 2,964 3.50 1.80 5.30 1,927 6.45 4.00 3.80 9.49 3,451 3.50 2.16 5.66 2,505 Sumatra 0.35 .35 100 .35 100 3.25 3.75 5.80 5.80 9.05 9.55 2,586 2,129 11.01 11.62 3,146 3,320 3.75 6.64 10.39 2,969 12.64 Source: Bank of Indonesia, Report for the Year 1964-1955. Note. — Absolute wage is the amount paid out to a worker (with a non- working wife and two children) as wages in money, plus the value of supplies in kind, exclusive of bonuses and other social benefits. Wage costs per net working day are calculated on the basis of the employer's total wage expendi- ture per worker per year, including housing and social services, divided by the number of working days per year. Table 47. — Minimum Wages in Various Industries in Java, 1 953-54 [In rupiah per day as of beginning of year] Industry Estate agriculture Mining Food and drink Tobacco Sugar and rice milling Chemical Leather tanning Furniture Textile Transport companies. Metal Shipbuilding.. Coconut oil Ice factories 1953 3. 00-4. 00 6.00 3.75 2. 00-1. 00 2. 50-3. 50 3. 00-4. 50 3.50 n. a. 2. 50-4. 00 n. a. 4. 00-5. 50 4. 00-5. 50 3. 00-3. 50 4.00 1954 3. 50-4. 50 6.00 3. 50-1. 50 4.50 4. 00-4. 50 3. 50-5. 00 3. 50-1. 00 3. 50-1. 50 2. 50-4. 50 5. 00-7. 00 5. 25-6. 00 5. 30-6. 25 3. 50-1. 00 4. 00-4. 50 n. a. — Data are not available. i In January 1955 a ruling of the Government's Central Arbritration Com- mittee (P4P) raised the lowest minimum wage of estate workers from 3.60 rupiah to 3.75 and required employers to sell workers certain textiles at 35 percent of cost. A previous decision to sell workers rice at 15 percent of cost presumably still remains in effect. This change for estate workers is par- ticularly important because as the largest segment of the paid labor force their pay rates, in effect, set a floor on wage rates for all concerns employing large numbers of laborers. Source: Bank of Indonesia, Report for the Year 1954-1955. Based on data of the Labor Control Service. both Java and Sumatra, is based on the wage of a worker with a nonworking wife and two chil- dren. The general wage trend shown is considered as representative of other segments of the labor force. Comparable data are not available for 1955 ; however, the overall wage trend was upward, with the lowest basic rate for estate workers raised to 3.75 rupiah as of January 1955. Table 47 gives minimum wage rates as of 1953 and 1954 for vari- ous industrial groups. It should be noted that these figures only give the minimum payment in money. They do not present a complete picture of wages paid since payments in kind, cost-of- living supplemental bonuses, and social provisions are not included. Additional wage data are fragmentary but the following average wages as opposed to minimum rates — for several industries in which foreign concerns are operating — provide a basis of meas- urement. As of early 1954 the total average wage for a laborer with a nonworking wife and two children on a rubber estate of East Coast Sumatra was about 11 rupiah per day, including the cost of the food packet and premium pay (earned be- cause of increased production) ; in addition, hous- ing and various social services were provided. Other estates (tobacco and perennial crops) re- ported average monthly wages of about 280 rupiah ; housing and social services were provided without charge. Average gross pay — including food packets and other emoluments — for unskilled workers not living in company houses was re- ported by one of the oil companies as 828 rupiah per month. In manufacturing industries, the wages paid in the larger establishments and in the smaller ones vary considerably. In general, foreign com- panies pay wages at the highest rates for any 99 particular type of work. For example, in a large cigarette factory the minimum daily rate may be three times as high as in a small cigarette factory. Wage rates also vary considerably from place to place within Indonesia. Wages tend to be some- what lower in Java — where there is a labor sur- plus — than in Sumatra or Borneo. In general, wages in Djakarta are above those of Surabaja and Semarang and wages in Medan are higher than in Djakarta. Hours of Work The 40-hour week and the basic 7-hour day are the standard for employment throughout Indo- nesia. Overtime, which must not exceed 14 hours per week, requires special permission from the Government. Workers are entitled to 1 day off a week, 2 weeks' paid vacation, official holidays (which number about 20 per year), and free time for the performance of religious rites. LABOR LEGISLATION In the prewar colonial period labor legislation was concerned largely with contract labor em- ployed on the estates, in mines, and in the saw- milling industry. Because most of the contract laborers were recruited from the overpopulated areas of Java to work in Sumatra or the other islands at considerable distances from their homes, the purpose of the legislation was : (1) To protect employers (mostly estate operators) from the desertion of workers and their refusal to work; and (2) to protect workers against abuses con- cerning work contracts, wages, hours, and work- ing and living conditions. Much of this legislation was superseded by the omnibus Labor Code of 1948, which set standards to be implemented gradually by various ordi- nances. Some provisions of this law, such as those dealing with women, hours, and holidays, have been implemented, whereas others have become rather common practice but are not legally re- quired. The principal provisions of the code, in- cluding provisions added since 1948, are : 1. Children under 14 cannot be employed for wages. 2. Women and adolescents caimot be used in nightwork or in unhealthful work. 3. Hours of work are limited to 7 a day or 40 a week, Avith night work limited to 6 per day or 35 per week. 4. Workers are entitled to 1 day off per week, free time for the performance of religious rites, and a holiday on May 1. 5. Workers are entitled to all official holidays and vacations of 2 weeks for each year of service up to 6 years of service. After 6 years of service they become entitled to 3 months of leave. 3 6. Women are to be granted 2 days' menstrual leave and 3 months' maternity leave. 7. Places of employment and houses provided must meet with sanitary requirements and be sub- ject to inspection. 8. Violations are punishable by fines and im- prisonment. The basic legislation that now concerns labor union and labor disputes is embodied in "Emer- gency Act of the Settlement of Labor Conflicts," officially known as Emergency Law No. 16 of 1951. This law establishes a procedure for settling labor disputes between workers and employers by re- gional boards. If settlement cannot be reached, the regional board (P4D) is required to refer the dispute to a regional committee 4 for decision. The committee's decision may be appealed to the central committee (P4P), 5 which has broad powers. In the last several j 7 ears numerous labor bills have been drafted of which the more important ones deal with mediation in dispute settlements, dismissals, collective agreements, registration of trade unions, registration of enterprises, pensions, sick benefits, and unemployment. As of late 1 955 most of these bills had not been enacted and were in various states of completion, with expected in- stances of extensive redrafting. Action has taken place in relation to two of the bills : ( 1) A bill on registration of enterprises was replaced by a decree in December 1953 6 requiring employers to report on conditions of their busi- nesses, and (2) a bill on collective agreements was approved by Parliament and promulgated in June 1954. The text of this decree and the law are given in appendix F. At present only one social security law is in effect, the Labor Accident Law of 1951. This law, based on the old Dutch civil code, makes the em- ployer liable for medical care and full or partial wage payments to workers injured in the line of duty. In the event of death, the employer must pay burial expenses and periodic or lump-sum payments to the worker's dependents. The law covers only enterprises in which there are hazards 3 This provision is designed to enable workers to return to their native villages. * A regional disputes committee consists of a chairman of the regional board and representatives of the Ministries of Labor, Internal Affairs. Economic Affairs, Agriculture, Finance, Com- munications, and Public Works and Power. 5 The Central Disputes Arbitration Committee (P4P) is com- posed of the Minister of Labor as chairman and the Ministers of Economic Affairs, Agriculture, Finance, Communications, Public Works and Power, and Justice. "The proposed bill was to have been a companion bill to one providing for the registration of trade unions. When the latter bill was withdrawn because of the strong objections of com- munist-dominated labor unions, the bill oa registering enterprises was replaced by a Government regulation. The proposed law on registration of labor unions was to be replaced bv a Government regulation, but as of late 1955 no regulation had been issued. 100 or risks, as determined in each individual case by the Ministry of Labor. 7 Labor legislation is administered by the Min- istry of Labor, established in the early postwar period. The Ministry maintains regional labor offices in the larger cities. These offices house the Labor Mediation Service, the Labor Inspection Service, and the Labor Information Service and are responsible for local labor inspection, media- tion, conciliation, and registration of the unem- ployed. The offices have small staffs which are not uniformly well trained in labor matters. LABOR ORGANIZATION In prewar years the growth of trade unionism in the Netherlands Indies was slow in tempo and small in scale. However, in postwar Indonesia, which provides freedom for labor organization, the movement has been markedly accelerated. Workers in estate agriculture, oil production, and the manufacturing industries which are foreign owned are generally organized. Many of the In- donesian labor unions are weak and inexperienced. Left-wing political leadership, which was active in the early movement, predominates in the pres- ent labor organizations. The largest labor feder- ation is communist dominated, forming the trade-union branch of the Communist Party in Indonesia, and it is affiliated with the Communist World Federation of Trade Unions (WFTTJ).. Trade unions are considered by the Indonesian Government to be such a basic and desirable part of the country's social structure that they are rec- ognized in the Provisional Constitution and are given Government subsidies to pay for their edu- cational activities. Most unions are organized on industrial lines, and local unions have affiliations with national unions through both regional fed- erations and industrywide federations. Available statistics on union membership are considered inaccurate since the membership data furnished the Ministry of Labor are known to be padded out of proportion to the actual numbers. Total numbers of unionized labor are variously estimated at 1.5 million to 5 million persons. Most of the so-called "members" are not members in the Western sense of being clues payers. The Indo- nesian Ministry of Labor reported that as of late 1954 there were 7 national labor federations, about 180 national or regional unions, and more than 1,100 local independent unions. The communist-dominated federation, Serikat Organgasi Buruh Seluruh Indonesia (SOBSI), claimed a membership of about 2.7 million as of 1955, but it was believed actually to control only about one-third this number and many of these 7 In industries not covered by this law it is also customary to pay all or part of the employee's salary during an extended ill- ness and burial costs and other payments in the event of death. It has also become customary to provide health insurance for employees although no law requires it. Some plans provide both medical and hospital care. were not dues-paying members. SOBSI fre- quently has moved in on a disturbing local labor situation, bargained for the workers, and then claimed them as "members." The importance of SOBSI lies not only in its large membership, but also in the fact that many Indonesians associate it with the country's fight for independence. Apparently many laborers are attracted to the SOBSI propaganda, which fosters the prevalent anticolonial and anti-imperialist feeling, overlooking that in 1948 some of SOB Si's top leaders were involved in the communist at- tempt to seize governmental power (the Madiun revolt) . SOBSI has national, regional, provincial, and local commissariats as well as various industrial divisions based on the type of product or type of work, i. e., estate workers, 8 rubber workers, oil workers, transport workers, etc. Although the top leadership is believed to be entirely communist, most of its members and many of its officials are not. Aside from SOBSI another federation — Sentral Organisasi Buruh Kepublik Indonesia (SOBBI) — is communist in orientation. This federation, which at present has only a small mem- bership, has long been guided by the Trotzkyite Communist Party and is a member of the World Federation of Trade Unions. In late 1953 SOBRI's secretary general announced that this group would cooperate with SOBSI insofar as possible. The noncommunist portion of the Indonesian labor movement has been primarily under the lead- ership of persons associated with various political parties. In the postwar period several federa- tions have been established, banded together in loose and frequently changing combinations. None of the federations as of 1955 were affiliated with the International Confederation of Free Trade Unions (ICFTU) ; nor were they affiliated with trade unions in Western countries, although some factions are working for such affiliations. The principal noncommunist national federa- tion as of early 1955 was the Kongres Buruh Selu- ruh Indonesia (KBSI), formed in 1953 out of a loose "counsil" of several earlier federations and representing diverse noncommunist political ele- ments. Serikat Buruh Islam Indonesia (SBII) is a trade-union organization affiliated with the Masjumi (Moslem) Party. Other noncommunist federations include one of Government workers (GSBI) , one associated with the Nationalist Party (KBKI), one associated with the Labor Party (HISSBI), and one estab- lished by the orthodox Moslem Party (IBNU). Lack of sufficient funds, inexperience in labor mat- ters, and the absence of overall cohesion have made the work of the noncommunist labor groups extremely difficult. 8 The most important union within SOBSI is SARBUPRI, a national union of estate workers. 101 LABOR-MANAGEMENT RELATIONS Labor unrest, including strikes, work stop- pages, and disputes, has been relatively common in postwar Indonesia. Records indicate that on the average about 3.8 million man-hours have been lost annually in the 5 years 1950-54 because of strikes (tabie 48). In 1954, in addition to dis- Table 48. — Number of Strikes in Indonesia and Man-Hours Lost, 1950-54 Year Strikes Workers involved Man- hours lost 1950. 144 541 349 266 306 490, 539 319, 030 132,963 411,446 141, 707 7 784 271 1951 3,719,914 878, 911 4, 352, 418 1, 700, 659 1952 1953 1954 Source: Bank of Indonesia, Report for the Year 1951,-1955. Based on data of the Ministry of Labor (Kementerian Perburugan). putes resulting in strikes, there were 2,220 dis- putes involving 1,707,000 employees. On the basis of data for the first 9 months, more man- hours were lost in 1955 than in 1954. This loss of man-hours at the going wage rates represents but a minor portion of the gross na- tional product; however, rubber estates, the petroleum industry, shipping, and the large manu- facturing establishments have been particularly affected by the labor unrest. Consequently, the economy has suffered in sectors in which the con- tributions to total output and foreign exchange earnings are unusually important. The greatest number of strikes and disputes have been on the agricultural estates and in industry; these two categories accounted for about 35 percent of all disputes in 1953 and 1954 and more than 80 per- cent of the disputes in the first quarter of 1955. General demands with respect to wages and individual dismissals are the object of most strikes and disputes. Much of the labor unrest has re- sulted from the inflationary conditions which have prevailed in postwar Indonesia. In some in- stances, however, strikes and other labor difficul- ties have been encouraged by communist trade- union leaders, especially on estates and in other industries owned by foreign enterprises and in vital industries. In addition to troubles on the estates, which loom largest for the postwar period as a whole, there have been disputes and go-slow movements in mining, in manufacturing plants, and in the transportation system (especially among dockworkers). Collective bargaining has had an immense growth in a relatively short time in the postwar labor movement. Virtually all major industrial enterprises that employ a considerable number of workers are covered by some kind of contract ne- gotiated by a union. For the most part, however, these contracts are not the result of true collective bargaining nor are they contracts in the sense of those used in Western countries. Most of them could be termed "temporary arrangements," sub- ject to reopening almost at will by either party. As indicated earlier, a procedure for handling labor disputes was established by Emergency Law No. 16 of 1951. Although this law provides the opportunity for local and regional settlement of labor difficulties, almost all major decisions have in actuality been made by the Government's Cen- tral Disputes Arbitration Committee (PIP), which has binding and compulsory arbitration powers." Detailed regulations on dismissals, for example, have been developed and are enforced by the P4P. These regulations require employers to give employees 1 to 4 months' notice before dis- missal, except for dismissal for cause, and to in- form the Ministry of Labor a month in advance of any planned layoff of more than 10 workers. 9 The heavy workload placed on this committee, together with the time limit on some of its decisions, has meant that the com- mittee has had insufficient time to give full consideration to all aspects of the disputes referred to it. Moreover, a study of the various decisions rendered by the P4P and the regional P4D committees does not reveal any particular set of principles upon which they have been based. 102 CHAPTER X!!l Taxation GENERAL TAX STRUCTURE The taxes and duties levied in Indonesia are, with very few exceptions, for general revenue pur- poses. None of the taxes are considered protec- tive. A comparatively heavy dependence on taxes on commodities — the so-called "indirect taxes" — is characteristic of the tax structure. Import and export duties and charges, although not described in this chapter since they are covered elsewhere, 1 are a major part of the Indonesian Government's tax revenue. Excise taxes, the company tax, and the income tax are the other most important rev- enue sources (table 49). The heaviest tax burden in Indonesia falls on the export-import segment of the economy. 2 Table 49. — Major Sources of Indonesian Tax Revenue, / 952—54 [In millions of rupiah] 1952 1953 1 1954' Tax Amount Percent of total Amount Percent of total Amount Percent of total Import duties Export duties - - Excise taxes 2 Company tax. Income tax.. 1,397 1,K20 1,097 897 657 628 185 306 20 2fi 16 13 9 9 3 4 1,295 1,049 1,366 1,084 644 557 230 243 20 16 21 36 10 9 4 4 995 546 1,593 1,331 786 576 244 271 16 9 25 21 12 9 4 Other taxes _ 4 Total tax re- ceipts 6,987 100 6,468 100 6,342 100 i Preliminary figures. 2 Major income derived from excise taxes on petroleum products and tobacco products. Source: Central Bureau of Statistics (Kantor Pusat Statistik), Statistik Konjunktur, June 1955. The tax system is successful in capturing a sub- stantial part of windfall profits and general in- come profits, particularly in the export sector, but it is considered deficient in collecting from much of the nonurban sector. A recent study of the Indonesian tax structure indicates that some areas within the rural segment of the economy are almost completely free from taxation and 1 See chapter XI. 2 In the case of imports this means that the burden ultimately falls on the consumer of Imported goods In Indonesia. With the exception of textiles, Indonesians have in the past consumed only a relatively small part of imported goods, so much of this tax burden has fallen on the non-Indonesian segment of the population. others are undertaxed. It is believed that a greater stability of tax income could be achieved if greater dependence were placed on the rural sector of the economy as a source of tax revenue. 3 The Indonesian taxes of primary concern to foreign business and trade are the national taxes, which are summarized in this chapter. Provincial and other local taxes are less significant and con- sist chiefly of property and license taxes on busi- nesses and occupations. Some of these local taxes, however, are important to business operations or to foreigners living in Indonesia. Since these taxes vary considerably from place to place de- tails should be obtained from local authorities. Included in this chapter is a summary of typical municipal taxes; unfortunately, it has not been possible to provide a similar summary of Provin- cial taxes. The enforcement of taxes in Indonesia is not uniformly strict and many people do not pay full taxes. It has been estimated that stricter enforce- ment and more adequate administration of two important revenue producers — the company tax and the income tax — could double the yield of these levies at current rates. Some segments, such as the upper income groups in the rural sector, are believed to be escaping Central tax administration to an important degree. Foreign companies and foreigners working in Indonesia, however, almost without exception pay the prescribed taxes and thereby provide directly and indirectly a signifi- cant part of Indonesia's total tax revenue. INCOME TAXES Personal Income Tax Indonesia's income tax 4 is applied to all income in excess of 400 rupiah annually. 5 It is used in con- junction with the wages tax where the income is sufficiently high to place the taxpayer in brackets subject to the income tax. At the present time all income not subject to the corporation tax, described later, is subject to the personal income tax. 3 Elconomi dan Keuangan Indonesia, vol. VII, No. 9 (Septem- ber 1954). See article, entitled "The Tax Burden and Economic Development in Indonesia," by Douglas S. Paauw. 4 Prior to 1952 the postwar income tax was referred to as the transition tax. B For tax purposes, dollars are converted at the basic rate of 11.40 rupiah equal US$1. 103 Tax liability.— The tax liability of an individual depends on his status as a resident or nonresident. American businessmen working in Indonesia fall into both groups. Whether an individual is con- sidered a resident for tax purposes depends on many factors, such as duration and character of his stay in Indonesia, whether he leaves his family at home, and his tax status in his own country. Obligation to pay begins on the date of arrival in Indonesia and ends at the time of departure. Periods of less than a calendar year are divided on a monthly basis. Regardless of his nationality a person who is a resident of Indonesia is subject to the income tax on his entire income, i. e., his income both in Indonesia and abroad. He is, however, entitled to a tax reduction corresponding to the amount of the tax on certain (not all) parts of the foreign income. Nonresidents, who have a limited tax liability, are subject only to tax on income from the follow- ing categories derived from local (Indonesian) sources : Real property ; interest on loans secured by mortgages on real property; income from a profession or trade; and periodical payments by the Treasury of public funds for past or present services. These categories of income are defined more fully as follows: 1. The income from real property includes all income derived by the taxpayer in virtue of own- ership or any other title to the income therefrom, provided such income is not derived from capital invested by the taxpayer in his own trade or pro- fession. The owner of a house is taxable on its rental value. 2. The income from personal property includes dividends (stock dividends or bonus shares) , inter- est of all kinds, rent from leasing personal prop- erty, and all other income from personal capital, provided it is not used in the taxpayer's own busi- ness or profession. In the case of repayment of borrowed money, if the amount received exceeds that originally loaned, the excess is regarded as income. 3. Income from a profession or trade includes the earnings of the taxpayer in money or in kind, and what he takes from his own produce for his personal use, as well as profits from the carrying on of agriculture, maritime commerce, handicraft, mining, manufacturing, practicing an art or sci- ence, or from any other profession or trade. The income from salaried employment includes every- thing earned by the taxpayer in money or in kind, whether in the form of a fixed salary, a share of the profits, or any other remuneration. Income includes free board and lodging, free house rent, medical attendance, medicine, allowance for table expenses, vacation pay, and unemployment pay, as well as all bonuses and other gratuities. 4. Periodical payments include furlough al- lowances, half-pay, subsistence allowances, pen- sions, wages, annuities, and, in general, all pay- ments which are not connected with the carrying on of trade, the exercise of a profession, or the performance of a service, and which end with the decease of the person interested or of a third party. Tax rates. — The income tax rates as of 1955, some of which are listed below, were established effective January 1, 1952. _ This tariff (Tariff B 1952) is confined to annual incomes of 5,000 rupiah or more. The complete tabulation of rates is grad- uated in steps of 100 rupiah. Incomes of less than 5,000 rupiah are subject to rates set forth in Tariff A 1952, which divides these smaller incomes for tax purposes into 17 groups, with the amount of taxes varying from 5 rupiah to 135 rupiah per year, based on the number of dependents as well as on the exact income. Rates are based on those fixed for married tax- payers. Single taxpayers must add 5 percent to their net income and pay the tax for the resulting figure. Effective rates begin at slightly less than 3 percent and rise to about 55 percent, plus 75 per- cent of each additional 100 rupiah, on incomes over 300,000 rupiah. For purposes of illustration, the basic rates, i. e., for a married person with no children, are as follows : Tax Income (in rupiah) (in rupiah) 5.000 , 150 25,000 2, 215 50,000__. 10, 956 100,000 , 35, 931 300,000 1172, 780 1 Plus 75 rupiah for every additional 100 rupiah income. Exemptions are allowed for dependents, gradu- ated from 600 rupiah (1 dependent), 1,140 rupiah (2 dependents), and 1,620 (3 dependents) to a limit of 3,300 rupiah (10 or more dependents). The income rates, except for persons with very low incomes, are higher than in the United States (see table 50 for comparative data). Table 50. — Taxes Payable by a Married Taxpayer With One Child, in Indonesia and the United States, by Income Croup Total income (dollars) Indonesian income tax United States Rupiah U. S. dollar equivalent ' income tax (1955 rate in dollars) 5,000- 13, 600 27, 795 44,400 62, 295 80, 360 100. 500 120, 400 1,193 2,438 3,895 5,464 7,049 8,816 10, 561 664 7,500.- -_ 1,282 10,000-.. -.- --- - 2,028 12,500 2,906 15,000 3,916 17,500-- 5,059 20,000 - 6,306 1 Converted at rate of 11.40 rupiah equal US $1. The tax rates in Indonesia, since they exceed those paid by individuals in the United States, present problems to American companies that find it necessary to bring in technical and supervisory personnel. Companies that follow the policy of charging the full Indonesian tax to their employ- ees find it difficult to attract personnel of adequate caliber. Some companies operating in many parts 104 of the world follow the policy of guaranteeing their employees the payment of that part of in- come taxes abroad which exceed charges in the United States; for these companies their Indo- nesian operations require additional payments from company funds. As a result of the high income tax level, various practices reportedly have been used to avoid the full tax. Moreover, although the official rate of 11.40 rupiah to the dollar is the exchange rate pre- scribed for tax purposes, in recent years some earners of dollar income are said to have converted dollars to rupiah at the market rates. With curb rates in 1955 ranging, for example, as high as 25 to 38 rupiah per dollar, it is clear that substantial savings can be made by those who obtain their rupiah at the curb rate for use in paying their income taxes. Wages Tax The wages tax is levied on all wages earned in private or public service with the exception of wage earnings from agricultural pursuits carried out on laud registered under Indonesian adat law and from domestic service. Since estates are reg- istered under Western law, wages paid in estate agriculture are subject to the wages tax. The rate has been on a progressive scale since 1947 and at present begins at 3 percent for incomes under 1,500 rupiah and increases to a maximum of 15 percent for wages of more than 12,000 rupiah. The wages tax, which operates in conjunction with the income tax on personal income, is gen- erally withheld by the employer from the wages of employees. An employee with an annual wage of less than 1,500 rupiah is subject only to the wages tax but one receiving 1,500 rupiah or more is also subject to the income tax. In the latter case, however, the employee's assessment is reduced by the amount of the wages tax he paid and the employer, who is responsible to the Government for payment of the tax, may deduct the amount from the wages paid. Company or Corporation Tax The basic company tax law is that of 1925 for the Netherlands Indies as amended. Under this law a tax is levied on : 1. The profits earned by limited liability com- panies, limited partnerships with share capital, and other companies and associations whose capi- tal is wholly or partly divided into shares, coop- erative societies, and mutual insurance companies domiciled in Indonesia. 6 The latest amendment Is that of Emergency Law No. 11 of 1952. Appendix G gives a translation of the company tax law as amended, together with a 1953 decree of the Minister of Finance which explains depreciation allowances. 2. The profits earned by associations domiciled in Indonesia whose capital is not divided into shares and also by institutions the profits of which are derived from operations other than those car- ried on exclusively for the promotion of a general social interest. 3. The profits of corporations not domiciled in Indonesia from enterprises carried on within In- donesia by a fixed establishment there, or from real estate located there (including titles based thereon), or, in case of the transfer of such rights, on profits dependent on the quantity or yield of the products obtained from the exploitation of such property. Allowable deductions from gross income include expenses incurred in making, collecting, and main- taining net profit. Deductions are also permitted for interest paid on loans, depreciation of assets used in the business, and bad debts contracted in conducting the business and written off on account of the expiration of rights (e. g., leaseholds) which are subject to a limited period. A loss suf- fered in 1 year may be deducted from the profit made during the 4 succeeding j-ears. Capital expenditures for the creation or increase of a reserve fund, for interest paid on capital invested in the business, or for any tax on profits derived in Indonesia (i. e., the Indonesia company tax or a foreign tax) are not allowable deductions. Since January 1, 1952, the rates, which are on a graduated basis assessed on net profits, have ranged from 40 to 52^2 percent as follows : 7 Tax rate Net profit (in rupiah) (percent) Below 500,000 40 500,000 to 1,000,000 42% 1,000,000 to 1,500,000 45 1,500,000 to 2,000,000 47% 2,000,000 to 2,500,000 50 2,500,000 and over 52% Double Taxation of income Before the transfer of sovereignty the Nether- lands had negotiated treaties for the prevention of double taxation with several countries and provi- sions were included in some of these treaties to provide coverage for the Netherlands Indies. The convention between the United States and the Netherlands concluded in 1948 did not, however, include any provisions concerning the Netherlands Indies; nor has a treaty for this purpose been negotiated between the United States and Indo- nesia since the attainment of sovereignty. American citizens and firms, therefore, may have a tax liability in both Indonesia and the United States in respect to the same items of income. The prospective foreign investor must consider the 7 These rates were instituted by Emergency Law No. 2, 1952 (promulgated January 10, 1952). Prior to 1952 the rate was 40 percent across the board, i. e.. 10 percent plus a surcharge of 300 percent. Emergency Law No. 2 indicated that new rates would be established each year. Although several proposals have been made for new rates sinee 1952, as of January 1956 there had been no announcement of new rates and the above rates are the current ones. 105 effects of Indonesian taxation in conjunction with such provisions of the United States tax legisla- tion as bear on the subject of taxation of foreign income received by United States taxpayers. 8 The U. S. Internal Revenue Code of 1954 pro- vides relief for income received from foreign sources under certain conditions. Among the pertinent provisions of the code are the following : 1. Sections 164 and 901, which permit, within certain limits, either a deduction or a credit for foreign income taxes (or a tax in lieu of an income tax) paid by the United States taxpayer. 2. Section 911, which provides that an indivi- dual citizen may exclude from his gross income amounts received for personal services performed outside the United States if he has been a bona fide resident in a foreign country for an unin- terrupted period which includes the tax year. As an alternative, earned income (limited to $20,000 per taxable year) may be excluded for the entire period if the taxpayer is merely present in a for- eign country for at least 510 full clays in any period of 18 consecutive months. OTHER NATIONAL TAXES In addition to the personal income tax and the company tax, the two major levies affecting foreign businessmen, there are numerous national taxes on which full details of the present methods of assessment and collection are not readily at hand. Among these are the personal property tax, prop- erty transfer tax, reconstruction tax, and radio tax — mentioned below — as well as other national taxes for which somewhat more information is available. The personal property tax (use tax) in prewar years was conceived as a tax on the use of various kinds of capital and durable goods. It included a tax on actual or imputed rental value, house- hold furnishings, and vehicles. Since the war the tax has not been collected on rent and furnishings so that at present it amounts to a levy on certain types of vehicles. The annual flat rates as of 1952 were 144 rupiah per automobile and 54 rupiah per motorcycle. The tax was increased in 1953. The property transfer tax is a levy of 5 percent of the selling price of real estate registered ac- cording to Western (as opposed to adat) law. Payments made in hotels and restaurants have been subject to a 10-percent levy (reconstruction tax) since 1951. A radio tax, introduced in 1951, is levied on all radio receivers. The monthly charge as of 1953 was 5 rupiah per set. Other national taxes are described below. 8 For a brief discussion of United States taxation of foreign income see chapter 14 of Foreian Investment and Taxation, by E. R. Barlow and Ira T. Wender. Prentice-Hall, Inc., 1955. Premises Tax This tax is on real estate and property registered according to Western law; that owned by Indo- nesians under adat law is excluded. 9 The tax has been levied on two categories : ( 1 ) Property with buildings; and (2) plantation real estate. The first type of property is assessed yearly on a rule-of-thumb formula of 10 times the annual rental value and is subject to a tax of three-fourths of 1 percent of the assessed value of the property. The tax on the second type, which was assessed every 5 years, with the value of the property deter- mined principally on the basis of annual profits, has not been enforced in postwar years. Capital Assets Tax This tax, sometimes referred to as the property or wealth tax, dates from 1932. It is applied to the capital assets of individuals — savings, cash balances, investments, real estate, residential prop- erty, and all other items possessing monetary value. Prior to 1952 it was levied at low progres- sive rates ; it is now collected at the rate of 5 rupiah per thousand on net worth over 250,000 rupiah. However, valuations have not been revised to keep pace with the general price increase of recent years. All residents are subject to this tax. Nonresi- dents are subject to it if they (1) Possess title to real estate or its equivalent in Indonesia; (2) own or enjoy the benefit from claims on debts covered by real estate mortgages in Indonesia; (3) carry on, personally or through representatives, a regu- lar 10 trade or profession (except employment) in Indonesia; (4) derive benefits from such trade or profession in other manner than as described in (3) but not by virtue of current employment con- tracts or as shareholders or holders of profit or organizer's certificates. Safes and Stamp Taxes A sales tax, which replaced a turnover tax in 1951, is a general levy on manufactured goods, both imported and domestically produced. Pri- mary foodstuffs and many essentials are free of this tax. Rates are 5 percent on goods classed as necessities and 10 percent on luxury goods. It is payable by importers or manufacturers upon delivery of the goods. Stamp taxes of various ad valorem and specific rates are applicable to documents which must have their legality established. As of a few } r ears ago "Formerly a land rent tax was applicable to land owned ac- cording to adat law. This was abolished in 1951 with the plan of replacing it with a tax on production from such land, but no tax of this type has been instituted. 10 jj v "regular" is meant that the trade or profession is of at least 3 months' duration. 106 the maximum ad valorem rate was about 21/2 per- cent. See chapter XIV for stamp taxes on docu- ments required in connection with establishing a business in Indonesia. Motor Vehicle Tax A law of 1953 imposes taxes on "luxury auto- mobiles," i. e., automotive vehicles not for public transportation with cylinder capacity of 2,000 cubic centimeters or more, if the model was new within the last 5 years. All United States models are subject to this tax. The rates, as assessed by the Minister of Fi- nance, are as follows : Cylinder capacity Tax per year (in cubic centimeters) (in rupiah ) 2,000 to 2,500 600 2,500 to 3,000 1,200 3,000 to 3,500 2,400 3,500 to 4,000 3, 600 4,000 or over 4, 800 Excise Taxes These taxes are levied on alcohol, beer, petro- leum products, tobacco products, and sugar, as well as on a number of other products. The levies on petroleum products and tobacco products provide most of the revenue from these taxes. The excise tax on alcohol, which dates from 1874, is levied on alcohol produced and consumed in Java and Madura and on that brought into these islands from the Outer Islands. Outside Java and Madura alcohol is not subject to excise, but an import duty is levied on alcohol originating in Java or Madura. An import duty is levied on foreign alcohol imported into Indonesia, the amount of this duty being equivalent to the amount of the excise. The excise rate (basic rate plus surcharge) 11 is 750 rupiah per hectoliter of 50-percent strength. Since 1931 an excise has been levied on beer pro- duced domestically. On foreign manufactured beer an equivalent import duty is levied on its im- portation into Indonesia. The rate of excise has changed several times, the present rate being 82.50 rupiah per hectoliter. The excise on petroleum products, which dates back to 1886, is levied as follows (as of 1955) : 1. Ordinary lighting petroleum or kerosene, 7 u The specific rates given for excise taxes were placed in force as of January 1954. Since surtaxes are fixed at different per- centages from time to time current rates may not be the same as shown here. rupiah per hectoliter. The excise is equivalent to the amount of import duty. 2. Gasoline, benzine, and all other petroleum derivatives which are more volatile than petro- leum, 50 rupiah per hectoliter. This excise is levied on foreign as well as domestically produced petroleum and, in the case of foreign petroleum, the excise is levied in addition to the import duty. A general excise has been imposed on tobacco products since 1932. It is levied on cigars, cigar- ettes, "strootjes" (native cigarettes), cut tobacco, snuff, and other prepared tobacco for consumption, except tobacco grown in Indonesia, unpacked or packed in the native manner. The tax amounts to 10 percent of the retail prices of cigarettes and cut tobacco and 30 percent of the prices of other to- bacco products. An excise has been in effect since 1934 on cane, beet, and other sugar having a chemical compo- sition similar to cane sugar, solid or liquid, regard- less of the degree of purity. The rate as of 1954 was 27 rupiah per 100 kilograms. However, sugar produced by Indonesian farmers in the native manner without the aid of mechanically driven ap- paratus is exempt. Saccharine and other syn- thetic sweetstuffs with a sweetening capacity higher than sugar, either manufactured or im- ported into Indonesia, are also subject to an excise. MUNICIPAL TAXES Municipalities in Indonesia are autonomous and the taxes levied by them are consequently not uni- form. However, those of Djakarta may be gen- erally regarded as typical of the taxes imposed by other important municipalities. Djakarta taxes are reported to include the fol- lowing: Surtax on the national income tax; sur- tax on the national premises tax ; advertising tax (on boards or posters) ; amusement tax (collected for entrance to public amusement places) ; tax on strong drinks (levied on the holder of a permit for the sale of strong drinks) ; street tax (levied on real estate bordering or adjacent to public roads or parks maintained by the city) ; vehicle tax (levied on all vehicles except those on rails and bicycles) ; bicycle tax (levied on bicycles in use and kept within the municipality) ; fireworks tax (lev- ied on the manufacture of and trade in fireworks) ; and a dog tax. In addition there are general levies for the Health Service, the Fire Service, and for the gar- bage and sewer departments. The rates have varied, but are generally considered moderate. 380755 — 56- 107 CHAPTER XIV Business Laws and Organization Mucli of the current Indonesian legislation affecting business operations is still that of the former Netherlands Indies. The Provisional Constitution of the Republic of Indonesia, ap- proved in August 1950, provided for the transfer of these laws to the newly independent country. No overall revision of the Commercial Code has been made and no new basic legislation has been passed regarding ownership of land, mineral rights and industrial property rights, and the licensing of industrial enterprises. There have been, however, a number of im- portant modifications and new legislation is cur- rently under preparation which will affect impor- tant aspects of business operations. Legislation, which is in varying stages of preparation, includes a law concerning foreign investment, new mineral laws, a new law for regulating industry, new legis- lation concerning land tenure, additional labor legislation, and revised patent legislation. Al- though some of these have been under prepara- tion for several years and are known to have been completed in draft, it appears unlikely that any will be finalized until after the newly elected Indonesian Government takes office in 1956. The Provisional Constitution sets forth funda- mental human rights and freedoms, many of which apply to all persons within the country whether or not they are citizens. Article 8 states that all persons within the territory are entitled to equal protection of person and property. LIMITATIONS ON FOREIGN OPERATIONS 1 There are no constitutional provisions, domes- tic regulations, or treaties which affect the rights of United States nationals other than provisions in the agrarian and mining laws which limited the issuance of long-term leases on land and li- censes for mining exploration and exploitation to Netherlands subjects, to residents of Indonesia or the Netherlands, or to corporate bodies resident in Indonesia or the Netherlands. 2 In other words, nonresident United States nationals or 1 Various restrictions and controls affecting business opera- tions are discussed elsewhere in this book. Important among them are the restrictions imposed by exchange and trade controls and those relating to taxes. 2 Residence in the Netherlands cannot be considered a factor in the future. New regulations, now under preparation, can be expected to limit such residence to Indonesia. corporations cannot obtain such leases or licenses. With respect to other types of business, no legal limitations exist insofar as nationality is con- cerned. At present American interests operating industrial enterprises in Indonesia do so through companies incorporated in prewar years in the Netherlands or in the Netherlands Indies. Agricultural Leases and Rentals A basic law of the Netherlands Indies granted the natives the right to own land under their own "adat" law, a locally diversified, unwritten law which prevented Indonesian titles to land holdings from being alienated to non-Indonesians, includ- ing non-Indonesian orientals as well as Western- ers. Under the Agrarian Law of 1870 all land in Indonesia (except the small amount already owned according to Western law) was declared Govern- ment domain, with the express condition that all adat law titles of Indonesians to land would be respected. The Agrarian Law also provided for long-term leases or concessions on so-called "undeveloped land," which was land that had not yet been cul- tivated and consequently was not subject to any ownership claim by Indonesians. Over a period of years the Government leased such land, largely to foreign-owned companies, 3 on leases up to a maximum term of 75 years. It is estimated that 2 million acres are now held in such concessions. Some of these leases have expired and are being continued only on a temporary basis. Others will expire within the next few years. The Indonesian Government's policy regarding the future of these holdings has not been clearly decided. 4 New leases have not been issued in recent years. In addition to long lease, agricultural land can be rented by foreigners from the present holders. However, a number of legal provisions safeguard interests of the holders. Other restrictions on the leasing and renting of land for agricultural purposes are contained in various laws and regulations. For example, the 3 Some agricultural leases to foreigners antedate the Agrarian Law, but the largest number were under it and later implementing ordinances and regulations. The most important of these was the Land Lease Ordinance of 1918. 4 A policy statement of the Indonesian Government of Decem- ber 8, 1955, announced that the lease period would be 40 years, but no regulation has been issued implementing this policy. 109 Agrarian Law prohibits poppy culture on long lease. The Factory Ordinance (1899) places re- strictions on estates producing sugar and indigo, requiring among other things that a license be obtained for the renting of land or the purchase of locally grown output. This same ordinance also placed restrictions on estate production of cassava. 5 Mining Concessions 6 Mining in Indonesia is controlled by the Indo- nesian Mining Law of 1899, its various amend- ments, and the supplemental Mining Ordinance of 1930. Article 1 of the basic law lists the minerals to which the law applies, of which the most important are precious stones, precious metals, tin, coal, and mineral oils. Minerals not specified, such as chalk and limestone, are subject only to the Civil Code, which implies that persons entitled to the surface are also entitled to the minerals. For all minerals covered by the Mining Law, however, subsurface rights belong to the Government but may be leased to foreign investors under contracts approved by the Government. The Mining Law distinguishes between explo- ration and exploitation. A license issued by the Government for exploration entitles the holder to exclusive exploration rights in a specified area for a period of 3 years, with the privileges of 2 extensions of 1 year each. The exploration fee is based on a rental charge for the exploration area plus a percentage of the gross value of the min- erals produced. If minerals are found in exploitable quantities the license holder has a right to claim the con- cession. However, this must be done before the exploration license expires. A concession is granted for varying periods up to a maximum one of 75 years. For this concession a rental fee is charged (on the basis of area) and a percentage of the gross value of the minerals produced is paid to the Government. Pursuant to article 5 a of the Mining Law, the Government is also entitled to explore for min- erals, and all deposits of coal and mineral oils are reserved for the Government. This implies that a licensed explorer finding coal or oil cannot claim an exploitation concession. The Government may, however, contract with private companies for the exploration and exploi- tation of mines and oilfields in which the Govern- ment shares in the profit. This has been done in the case of the American and Dutch oil com- panies operating in Indonesia which have so-called "5a contracts" with the Government for the ex- 's The restrictions placed on certain crops by the Factory Ordi- nance appear primarily to have been for the purpose of preventing too creat an expansion to the detriment of Indonesian native agriculture. " Further details concerning mining legislation are provided in appendix E. ploitation of petroleum fields. Development con- tracts under this article are held for a maximum of 40 years ; this is the term under which the for- eign oil companies are operating at present. Since some aspects of the Mining Law are not considered acceptable to the Indonesian Govern- ment, preparation of new laws was undertaken several years ago. Until passage of the new laws, 7 the granting of concessions to foreign companies is likely to be limited to special instances. Mining concessions are granted by and regis- tered with the Department of Mining (Djawatan Pertambangan) of the Ministry of Economic Affairs. Industrial Regulations The Industry Regulations Ordinance of 1934 requires that a Government license be obtained for the establishment of new industries and the expan- sion of existing industries designated by Govern- ment decrees. According to this ordinance, its purpose is to prevent destructive competition through overexpansion, prevent the establishment of undesirable enterprises, regulate the tempo of developments in certain fields, and protect eco- nomically weak groups (native enterprises). The ordinance has been applied to rice milling, rubber remilling, spinning, weaving, knitting, and other textile manufacture, cigarette manufacture, print- ing, icemaking, and the manufacture of pans, and to dock and warehouse companies. The establishment of an industrial enterprise or the expansion of an existing plant in these regu- lated fields must be licensed by the Department of Industry (Djawatan Perindustrian) of the Min- istry of Economic Affairs. Application for the establishment or extension of an enterprise should be submitted through the regional offices of this department, but the final authority for granting the license is in the hands of the central office in Djakarta. Under an administrative procedure, instituted several years ago, firms established in nonregu- lated industries, i. e., in fields other than those named above, are required to have an "identifica- tion card," if the company plans to import machin- ery or raw materials. This card, which may be obtained upon application from the central office of the Department of Industry or from its various regional offices, is used in connection with appli- cations requesting foreign exchange for the import of materials in support of the enterprise. All firms employing more than 50 workers or having a power capacity of 10 hp. or more are required to provide certain data concerning labor conditions, output, raw materials consumed, and type of power. Although this "registration" is primarily for the purpose of providing statistical data for use in compilations of the Central Bureau 7 Reportedly, two new laws are being prepared — one dealing with hydrocarbons and the other with other mineral products. no of Statistics, it is carried out by the Department of Industry through its central and regional offices. Administratively, the Department of Industry has also used this registration procedure to some degree to control industry. As for agriculture, and mining, consideration is being given to changing the present laws and regu- lations relating to the establislnnent of manufac- turing enterprises. A new law is known to have been drafted as of 1955. Fields Closed to Foreigners Before the transfer of sovereignty the Nether- lands Indies Government maintained a monopoly on salt, opium, pawnshops, and the post, telegraph, and telephone services. It also operated or con- trolled certain railroads, harbors, dredging serv- ices, hydroelectric plants, coal and tin mines, for- ests, and agricultural estates. It granted what were in effect exclusive rights to interisland air and shipping services to Dutch companies. These activities and monopolies have been continued by the Republic of Indonesia, with certain changes and additions. Today, the Government owns and operates the Bangka tin mines, and those of Billiton and Sing- kep are under partial public ownership and man- agement. The petroleum properties in North Sumatra of Bataafsche Petroleum Maatschappij (BPM) have been placed under Government con- trol. Most of the railways and the interisland air- line are nationalized, and a Government-owned interisland shipping company has been estab- lished. Waterworks and electrical works are under partial Government ownership and manage- ment. A number of statements by Indonesian officials in the past few years indicate plans to further nationalize public utilities, including transporta- tion facilities. 8 Although the Government is op- erating in other economic fields — particularly mining and manufacturing — no intention to na- tionalize such fields has been expressed. Some In- donesian leaders have pointed out that Govern- ment management in some of its present operations has been uneconomic and they have questioned the wisdom of future expansion of Government op- erations. Where nationalization has occurred the Indo- nesian Government has given compensation. The provisions of the prewar Expropriation Ordi- nance are still applicable 9 in the nationalization 8 The latest such statement was that included In the announce- ment of Government policy on foreign investment made on December 8, 1955. According to this announcement "social en- terprises" and public utilities, such as railways, telecommunica- tions, interisland navigation, domestic air service, electricity, irrigation and water supply, munitions plants, and nuclear energy, must be Government owned. "This is in accordance with article 133 of the Provisional Con- stitution, by which prewar regulations were declared in force until the establishment of new provisions, and article 27, which states that "expropriation of any property or right for the general benefit cannot take place except with indemnification and in accordance with regulations as established by law." of an industry in which foreign capital is in- vested. Moreover, a recent Government, policy announcement states that privately owned enter- prises, either national or foreign, which are not in the field of public utilities or considered as social enterprises will not be nationalized except by agreement with the owners. 10 In addition to the sectors indicated above which are to be Government operated, the Indonesian Government considers certain spheres of economic activities as properly Indonesian and has accord- ingly issued regulations limiting these fields to nationals. They have included trade activities, harbor and warehousing services, and small-scale industries. In 1953-54 virtually all import trade was restricted to Indonesians; in late 1955, how- ever, procedures were modified to permit foreign firms to operate. A decree issued in early 1955 re- quires that most harbor services, including lighter- age, stevedorage, and wharfage, be performed by Indonesian companies. 11 The general policy to re- serve small-scale industries — which have tradi- tionally been operated by Indonesians — for na- tionals has been indicated in various Government statements, including the recent policy statement on foreign investment. Participation of Nationals There is no legal requirement for national par- ticipation in business enterprises operating in Indonesia, and many companies that are fully foreign owned carry on business there. In the period since independence, however, the Indo- nesian Government has indicated its desire for greater national participation in many fields of industry, including a majority ownership in some fields. The most recent pronouncement, included in the policy statement on foreign investment of December 1955, states that Indonesia will move toward giving greater control of "basic indus- tries" to Indonesians by limiting foreign invest- ment to 49 percent, although some of these in- dustries will be excepted for an undesignated period. Enterprises in fields other than those reserved for the Government and nationals and those con- sidered "basic" will, according to this most recent statement, be open to foreign as well as national investment, provided they are in line with the "Government's economic policy." Regulations have not yet been issued to implement this policy statement. BUSINESS ORGANIZATION The following types of business organizations are found in Indonesia: 1. Limited-liability company. This type of 10 Policy statement of December 8, 1955, on foreign investments. a These are services which have long been carried out by Dutch companies. Ill concern is most commonly used, particularly for large enterprises. 2. Full partnership, in which every partner is fully responsible. This type of firm is also in common use. 3. Limited partnership, in which one or more partners are silent and are responsible only up to the amounts they contribute as their share in the capital. Full responsibility falls on the manag- ing partners. 4. Cooperative society. This type of associa- tion is common among the farmers and other small entrepreneurs. It has been used only oc- casionally by foreign concerns. 5. Sole proprietorship or individual enter- prise. 6. Branch of a foreign business firm. At present, companies incorporated outside Indonesia may carry on business without the formality of registration or without having an establishment in the country. 12 However, since nonregistered companies may be subject to assess- ment of taxes on the income of the parent company abroad and cannot acquire or sell property without authorization from the foreign exchange authori- ties, most foreign firms consider it advantageous to organize a subsidiary Indonesian company under the provisions of the Commercial Code. The limited-liability company is generally con- sidered the most satisfactory for foreign-owned enterprises and is used by the largest number of direct investors. vided in the United States between directors and officers. The limited-liability company must be con- tracted for a definite period, but extensions may be made after expiration of the period. The ar- ticles of incorporation may not specify a fixed rate of interest; and dividends are paid out of income after deduction of all expenses. The com- pany cannot commence to function until at least 10 percent of the subscribed capital has been paid in. Control, as well as approval, of management rests with the shareholders. Managers must sub- mit, at least once a year, a profit-and-loss state- ment, which may be presented at the general meeting or sent direct to each shareholder. There are no restrictions as to the citizenship of stockholders of an Indonesian company. How- ever, a nonresident cannot act as a founder with- out the consent of the foreign exchange authorities. Two methods of incorporation are, therefore, pos- sible: (1) With consent of the foreign exchange authorities, and using capital imported from abroad or available locally; and (2) Indonesian resident participation in incorporation. No legal limits apply on foreign capital partici- pation. However, the Indonesian Government is more likely to give encouragement to prospective new investors who accept Indonesian capital par- ticipation as well as participation of Indonesian personnel. 13 Other Forms of Business Organization Limited-Liability Company A limited-liability company must be registered in accordance with provisions of the Commercial Code (see articles 36 through 56 of the code, given in appendix D). Its articles of incorporation must be submitted to the Minister of Justice for approval and, after approval, the complete docu- ment must be registered at the Records Office of the Council of Justice within the territory where the company is to be located and also published in the official journal. A limited-liability company can be set up in as simple or as complex a manner as conditions warrant. The capital of the company is divided into shares in the name of a person or to bearer. Shareholders are not responsible beyond the full amount of the shares. No shares to bearer may be issued until the full amount is paid to the com- pany. Unlike their American counterparts, In- donesian corporations do not have directors and officers but, similar to Dutch corporations, have only one organ which consists of one or more man- agers who exercise all the functions normally di- 13 According to the policy on foreign Investment announced in December 1955, however, companies operating wholly or largely in Indonesia must be established in Indonesia and incorporated under Indonesian laws. Partnership. — A partnership must be legalized by notarial deed, and an announcement of its for- mation, together with salient clauses of the con- tract, must be published in the official journal. A similar procedure is required for the establish- ment of limited partnerships. Articles 15-35 of the Commercial Code are concerned with partner- ships (see appendix D). Cooperative society. — A cooperative society is formed in a manner similar to that for limited- liability companies. Few foreign enterprises have used this form of business, and it is believed that no businesses involving United States capital have been so organized. Sole proprietorship. — Indonesia does not main- tain a complete register of all types of commercial operations. No formality is required, therefore, for the establishment of a sole proprietorship. The owner is only responsible under law as a citi- zen or as an alien resident. Branch. — Similarly, no formality is required for the opening of a branch office by a foreign firm. All that is necessar}^ is the procurement of office or factory space and the appointment of a person to manage the branch. The manager, who is an 13 See preceding section, which indicates policy statements on this matter. 112 employee of the foreign company, must, however, possess valid powers of attorney. A branch is generally considered to be less satis- factory than a subsidiary corporation for carry- ing on business in Indonesia, where both types of operation are feasible. As a foreign concern, an Indonesian branch cannot buy or sell property unless licensed in each instance by the foreign exchange authorities, a procedure which may make business cumbersome. A branch also has disadvantages taxwise. The income derived from Indonesian sources through a branch of a foreign company is subject to Indo- nesian income tax. The Indonesian tax authori- ties may not be able to ascertain the tax liability without receiving a full report of the company's activities and may therefore require such a report in order properly to allocate profits and expenses to the Indonesian portion of the operation. Under United States law the income earned abroad by a branch is subject to taxation when earned, whereas income earned by a foreign sub- sidiary is generally not taxable until distributed. Moreover, it can be expected that the Indonesian Government Avill generally regard a branch, which is part of a foreign corporation, less favorably than a subsidiary, which is an Indonesian corpora- tion. In deciding the form in which business should be carried oat in Indonesia, full considera- tion should be taken of all the circumstances of the particular business. 14 Agency. — Indonesian law recognizes two forms of agency, depending on whether or not the agent discloses the name of his principal. If he does not disclose the name, he is called a commissionaire and his legal status is covered by articles 76-85a of the Commercial Code (see appendix D). The principal acquires no direct claim against the In- donesian customer or supplier, nor is he liable to him. If the agent discloses his principal, direct legal relations are created between the two. This rela- tionship is regulated by articles 1792-1819 of the Civil Code. A partnership or a corporation, as well as an individual, may be appointed as agent. Fees in Connection With Establishment For the establishment of limited-liability com- panies and cooperative societies a stamp duty of 2y 2 percent is levied on the capital paid in at the time of establishment and a similar rate is levied when the remaining amount of capital is paid up. In addition, there is a notarial fee charged on a sliding scale ; this latter fee also applies to partner- ships and limited partnerships. 14 For advice on this as well as other matters concerning oper- ations in Indonesia businessmen will wish to consult counsel. A list of lawyers practicing in Indonesia (dated October 1055) is available for $2 from the Office of Intelligence and Services, Bureau of Foreign Commerce, U. S. Department of Commerce, Washington 25, D. C, or from the Department's Field Offices. In addition to the stamp duty and the notarial fee, certain other small charges must be paid, for example, the costs of publication in the official journal and the cost of providing copies of deeds. Bookkeeping and Reporting Requirements The accounting provisions contained in articles 6-12 of the Commercial Code (see appendix D) simply require everyone operating a business to maintain records which will indicate his rights and obligations at all times. The financial rec- ords must be retained for 30 years, while corres- pondence and telegrams must be saved for 10 years. According to a regulation which became effec- tive in August 1952, amending the company tax ordinance of 1925, "bookkeeping (for tax pur- poses) must be maintained in the Indonesian language with the use of Latin characters and the customary numerals (Arabic numerals)." Prior to that date books could be kept in Dutch or English. To facilitate the Government's carrying out its labor policy, regulations were issued in 1953 re- quiring all productive enterprises paying wages to report certain information to offices of the Ministry of Labor. 15 PATENTS, TRADEMARKS, COPYRIGHTS The basic regulations covering industrial prop- erty in Indonesia are still based largely on prewar Dutch laws. A new law has been drafted for patents, however, and in anticipation of its ratification the Ministry of Justice issued pro- visional regulations in August 1953 which made some changes in the prewar laws. Patents New patents must be registered in Djakarta with the Office of Industrial Property, Ministry of Justice. Patents which were issued in the Netherlands prior to Indonesia's sovereignty are, however, still valid since these private legal rights were assumed by Indonesia. Under the Dutch law a patent right was granted to the holder of the registered patent. Violations of these rights are prosecuted in the courts of the Kepublic of Indonesia according to pertinent Dutch patent laws. 16 The provisions of the inter- national Paris Convention of 1883 are applicable to Indonesia. 15 Statute No. 23 of 1953 on the "Obligation to Report Enter- prises" and Government Regulation No. 41 of 1053. 16 These patent laws are included in De Wetbocken Wetten en Verordeningen Benevans de Voorlopige Groundwet van de Re- publiek Indonesie, by W. A. Engelbrecht, Leiden, 1954. 113 Applications for patents must be in the Indo- nesian language or in the language of the appli- cant. In the latter case an Indonesian transla- tion must be submitted within 6 months. Appendix II includes a translation of the 1953 provisional regulation of the Ministry of Justice for the application of patents. It also contains a newspaper summary of the provisions of the proposed patent law, which was approved by the Indonesian Cabinet in January 1955 but has not yet been acted upon by the Parliament. Trademarks The Dutch laws on trademarks which were effec- tive prior to the transfer of sovereignty are still valid. 17 Indonesia has also accepted responsibili- ties under three international conventions in the matter of trademark protection to which the Netherlands was a signatory : The Paris Conven- tion of 1934; The Hague Convention of 1925 (re- vised in London in 1934) ; and the Neuchatel Con- vention of 1947. Indonesia has not been bound to the international Agreement of Madrid on Trade- marks since 1936 and therefore only the interna- tionally registered trademarks up to that year are considered valid. The right to use a trademark is granted to the person or firm which has first-user rights. Regis- tration is now with the Office of Industrial Prop- erty of the Ministry of Justice in Djakarta, al- though pre- 1949 trademarks which were registered in the Netherlands are still valid. Copyrights The legislation in force regarding copyrights in Indonesia includes the Copyright Law of 1912 and the international Berne Convention of 1931. The basic law 17 provides copyright protection to the works of foreign authors — for example, an American citizen — which are for the first time pub- lished in Indonesia. Under the Berne Convention the works of foreign authors which are published for the first time in another country included in the convention are protected. 17 Engelbrecht's volume mentioned in footnote 16 also includes a discussion of trademark as well as copyright laws. 114 APPENDIX A Statistical Data Table I. — Area and Population of Netherlands Indies, by Divisions, J 930 1 Table III. — Population of Principal Indonesian Cities, J 930 and 1953 Division Area (square miles) Population as of Octo- ber 1930 51, 032 164, 148 41,718,364 7, 677, 826 19,219 15,088 36,619 10, 135 11,113 33, 342 17,345 21, 387 12,235 4,611 1,866 208, 286 1, 910, 298 1, 042, 583 1, 693, 200 323, 123 361, 563 1, 098, 725 245, 272 1, 003, 062 298, 225 205, 363 Billiton .- -- 73, 429 2, 168, 661 56, 664 151, 622 72, 986 802, 447 1, 366, 214 4, 231, 906 Celebes 38, 786 34, 200 191,681 3, 093, 251 1, 138, 655 893, 400 75, 820 115, 861 24, 450 3,973 400, 642 Ternate - 492, 758 1, 657, 376 1, 802, 683 735, 268 60, 727, 233 1 The last full census was in 1930. 2 Includes Netherlands New Guinea (West Irian). Source: Netherlands Indies Census of 1930. Table //. — Population, by Administrative Divisions, 1 952 * Province Popula- tion Area (square kilo- meters) Density per square kilo- meter 4, 798, 750 3, 714, 137 3, 092, 602 16, 277, 603 17, 200, 014 17, 749, 376 3, 586, 309 5, 872, 733 6, 128, 483 683, 416 141, 761 173, 682 158, 163 46, 113 38, 426 43, 313 539, 460 189, 035 73, 615 86, 862 34 Central Sumatra 22 South Sumatra. . . 20 353 448 East Java 410 Kalimantan.. . . 7 Sulawesi . 31 70 Moluccas.. . -. . 8 1 These figures, which are presumably official or semiofficial, are lower than estimates given in chapter III, which allow for increases since 1952. Source: Ekonomi dan Keuangan Indonesia, September 1955. The figures are included as an appendix to an article by S. K. Dey, head of the United Nations Technical Assistance Administration in Indonesia. City lava: Djakarta Surabaja Jogjakarta Semarang Bandung Surakarta (Solo) Malang Bogor Tjeribon Sumatra: Medan Palembang. Kalimantan: Bandjarmastn... Pontianak Sulawesi: Makasar 1930 cen- sus 533,015 341, 675 136, 649 217,716 166,815 165, 484 86, 640 65, 421 n. a. 76, 584 108, 145 65, 698 45, 169 84, 855 Latest esti- mate (1953, except as in- dicated) ' 2, 500, 000 3 926, 000 500, 000 335, 000 3 724, 000 340, 000 I 300, 000 120, 000 141, 000 5 338, 000 238, 000 150,000 120, 000 265, 000 n. a. — Data are not available. 1 1952 estimate. Some estimates place the Djakarta metropolitan area at about 3.5 million. 2 Some estimates plsce Surabaja as over 1 million. 3 Other estimates for Bandung are considerably lower— about 300,000 to 350,000. * Other recent estimates for Malang range from 265,000 to 400,000. 6 1954 estimate. Other estimates place Medan at about 200,000 as of 1953. Sources: Figures for 1930 are from the official census. Estimates for recent years are from various sources, official, semiofficial, and private. Some of these are based on the 1930 data, with a percentage increase applied across the board. Many of the estimates, therefore, are subject to a very wide margin of error. Table IV. — Production of Large-Scale 1 Indonesian Industries, 7 952-53 Type Canned foods: Vegetables metric tons Meat ...do.. Fish do_. Jam do.. Bottled foods: Vegetables do.. Jams do.. Chocolate products: Chocolate powder do.. Chocolate butter do.. Miscellaneous do.. Vegetable oils: Margarine.. do__ Frying oil do.. Alcohol: Spirits (denatured) 1,000 liters Pure alcohol do__ Beverages: Beer million liters Lemonade million bottles Soda water do__ Syrup. do.. Tobacco products: Cigarettes (conventional) millions.. Others (kreteks, etc.) do.. Pipe tobacco, etc... tons See footnote at end of table. 1952 28.7 124.7 4.6 606. 3 7.7 233. 8 296. 9 4.5 1, 334. 2 8, 574. 4, 485. 2, 248. 1,194.0 19.3 43.4 6.9 12,000.0 651.0 79.0 1953 158.8 417.8 5.0 360.3 11.4 66.7 384.2 12.9 1, 389. 1 10, 072. 5, 954. 2, 608. 2, 149. 23.6 n. a. n. a. 14, 000. 640.0 235.0 115 Table IV. — Production of Large-Scale 1 Indonesian Industries, I 952-53 — Continued Table V. — Indonesian Exports of Principal Commodities, 1 953—54 — Continued Type Woven cloths: Sarongs ___ millions.. Unbleached cloths million meters.. Tussor and tropical do Shirting, poplin, etc do Bath towels do Knitted clothes: Singlets and polo shirts.. __1,000 dozen.. Swimming trunks dozen. _ Leather and rubberware: Shoes... million pairs. _ Sandals do Cases and bags thousands.. Umbrellas do Paper: Writing and printing... metric tons.. Packing do Cigarette ...do Other _do____ Cardboard do Tires: Passenger and truck thousands. _ Motorcycle do Bicycle do Other do Tubes: Passenger and truck __do Motorcycle ..do Bicycle. -. do Other.. __ _ do Stationery supplies: Writing ink (pen) metric tons.. Writing ink (fountain pen) ..do Printing ink do Glue do Chalk do Ink ribbon. thousands. . Carbon paper .million sheets.. Matches million boxes. . Toothpaste metric tons.. Glassware: Beer bottles millions Soft-drink bottles ...do.. Medical bottles do.. Drinking glasses do Flasks _. do... Cement 1,000 metric tons. Tinware: Gasoline cans. metric tons. Margarine and frying oilcans do... Paint cans do... Tableware: Enamel washbasins thousands. Enamel plates ...do Aluminum plates do Electrical appliances: Storage batteries. do Bulbs do Radio sets do Dry batteries .millions.. Vehicles (assembly): Passenger cars.. ...thousands.. Trucks do Cycles do 1952 7.1 17.5 3.8 3.4 3.2 344.2 2, 380. 3.5 2.2 59.8 n. a. 4, 413. 179.0 162.0 981.0 388.0 271.7 22.1 2, 577. 7 5.4 295.7 32.6 2, 060. 4 .4 78.0 32.0 22.0 85.0 165.0 556.0 48.0 34.0 720.0 2.0 1.3 10.7 .04 2.0 138.0 28.0 1, 696. 515.0 539.0 627.0 69.0 28.0 5, 257. 46.0 14.9 1.5 3.0 18.7 1953 545. 100.0 5.0 2.3 48.0 35.0 4, 437. 120.0 215.0 1, 229. 907.0 296.7 12.4 3, 045. 1 4.1 277.0 34.6 2, 815. 11.8 94.0 61.0 56.0 77.0 81.0 364. 44.0 42.0 932.0 2.4 2.0 15.7 .2 2.6 149.0 75.0 1, 717. 619.0 630. 444.0 95.0 40.0 5, 951. 61.0 18.0 .9 3.3 32.4 n. a.— Data are not available. 1 Includes production of plants hiring over 50 workers or using 5 horsepower or more. Some data here vary from data in other sources. Source: National Planning Bureau of the Indonesian Government. Table V. — Indonesian Exports of Principal Commodities, I 953-54 Commodity Tapioca roots, dried, coarsely ground Sugar, factory -refined Coffee, shelled, green _ Tea Pepper Copra oilcakes ._ ._ Tobacco , leaf Copra Pal m kernels Palm oil-. Rubber, crude, in sheets, slabs, and balls Agave fiber Petroleum, crude . 1,000 liters. Qasol ine do . . . Quantity (metric tons, except as indicated) 1953 19, 099 97, 369 33, 575 33, 003 7,605 114,379 14, 577 311,029 43, 403 135,962 712,134 24, 293 2, 467, 357 2,731,429 1954 140.314 212,829 38, 232 44, 973 12,927 141,241 19,494 296, 855 42, 595 140,106 749, 754 23, 347 2, 725, 080 2, 457, 167 Value (thou- sands of dollars) 1953 881 10,216 30, 871 23, 734 16, 202 7,333 31,386 57, 773 6,119 28, 559 273,716 5, 074 13,904 78, 822 1954 5,384 22, 372 39, 943 39, 800 12,822 6,702 32, 118 50, 946 4,904 25, 539 265, 945 4, 259 32, 357 69, 762 Commodity yuntity (metric tons, except as indicated) Value (thou- sands of dollars) 1953 1954 1953 1954 Kerosene... 1,000 liters . Diesel, solar, and similar motor oils 1,000 liters __ Fuel oils.. ... do Paraffin 857, 781 2, 624, 761 2, 782, 624 41, 178 47,449 156,341 20, 219 29, 632 5,713 988, 422 2, 417, 569 2,885,719 76, 486 48,254 16, 776 24, 064 30, 013 4,813 20,452 46, 143 34, 654 5,372 SO. , r ,ss 6,992 2,767 4,492 4,732 49, 463 23,915 44, 205 40, 943 10, 365 Tin ore, slag, and ash 59, 457 Scrap iron 606 Betel nuts 2,953 Rattan . _. 3,980 Kapok, ginned 4,099 Other merchandise 52,688 Total 840, 245 856, 064 Source: Official Indonesian trade data issued by the Central Bureau of Statistics. Note. — Value figures have been converted at the official rate of exchange (1 rupiah equals US$0.08772). Table VI. — Indonesian Imports of Principal Commodities, 1953—54 Commodity Milk, cream, and yoghurt, fresh, canned, or prepared Fish and fish preparations Rice, not in the husk.. Wheat flour Cloves and clove stems Tobacco, leaf, including stemmed... Chemical elements and compounds Pharmaceutical products and prepara- tions. -. Coal-tar dyes .. Fertilizers Chemical products and preparations, other Paper, paperboard, and manufactures — Cotton, raw and waste Weaving yarns wholly of staple fibers Cotton weaving yarns Fabrics of artificial textile fibers Cotton fabrics of standard type Clothing and footwear _ Gunny sacks Textile fibers, yarns, fabrics, and made- up goods, other.. Petroleum, crude.. 1,000 liters.. Fuels, lubricants, and related products, other Cement Glass and glassware Iron and steel in bars, including concrete iron Iron and steel sheets and plates and hoop iron Iron and steel tubes and pipes. Nonferrous base metals and alloys, un- wrought or simply worked. Base metals, ores, and manufactures, other Internal combustion and explosion motors Nonelectrical machinery, apparatus, and parts, other.. Telegraph, telephone, radio, and tele- vision apparatus. __ Electrical machinery, apparatus, and equipment, other Electric locomotives number. Railway passenger cars do Motor buses and trucks do Road motor vehicles, chassis, bodies, and parts, except electric, other Cycles, not motorized, and parts, except electric. Seagoing motorships number. Other merchandise Total - Quantity (metric tons, except as indicated) 1953 18, 742 39, 690 371, 500 137, 847 3,333 8.866 46, 111 1,644 2,567 100, 936 29, 768 78, 096 5,348 8,287 12, 959 10,519 74, 040 4,917 28,286 11,836 162, 299 199, 352 30, 189 59, 652 90, 669 29, 996 5,834 83, 705 8,027 32, 269 1,639 19, 970 27 123 4,474 10,943 20, 990 30 18, 821 39, 084 258, 762 108, 397 7,722 6,995 42, 422 1,404 2,532 104, 528 23,889 73, 554 5,565 8,400 14, 369 4,360 58, 851 3,725 24,546 9, 956 2,550,145 131. 575 290, 569 38, 955 27, 062 96, 525 22, 659 8,426 113,111 4,365 32, 959 1,236 14, 989 5 205 2, 930 8,844 19, 263 Value (thousands of dollars) 1953 7,796 9,413 80, 372 18, 779 6,252 10, 522 9,608 5,447 4,583 7,456 16,548 18, 974 4,638 11,118 18, 156 18, 387 136, 369 10, 170 7,094 19,642 42, 954 11,120 6,067 5,112 8,144 21, 907 7,854 4.196 31, 714 14, 178 39, 896 7,076 16, 694 6,631 1, 551 9,256 14, 877 17, 844 7,408 70, 807 766, 610 1954 6,605 8,310 48,947 12, 302 8,281 9,034 8,590 5,803 5,312 6,991 12, 271 16, 879 4,845 10, 083 20, 485 9,321 107, 614 7,177 5,951 17,439 38,200 8,693 8,059 5,623 20, 873 5,414 8,552 24, 541 8,120 38, 144 5,338 12,813 293 9,205 5,920 11,174 14, 197 2, 543 62, 091 629, 099 Source: Official Indonesian trade data issued by the Central Bureau of Statistics. Note.— Value figures have been converted at the official rate of exchange (1 rupiah equals US $0.08772). 116 Table VII. — Trade of Indonesia With Principal Countries, 1 953—54 [In thousands of dollars] Table IX. — Principal Imports of Indonesia From the United States, 1953-54 Country Imports Exports 1953 1954 1953 1954 United States. 139, 090 17, 733 3,828 23, 207 6,031 44, 421 567 2,793 6,721 50, 368 54, 883 19,044 8,058 10, 496 9,374 127, 135 1,162 89, 792 2,513 44 470 j 29, 065 10, 118 11,661 6, 093 16, 559 53, 899 19,644 90, 779 12, 918 7,541 13, 602 5,836 30, 478 0) 7,766 9,748 43, 069 37, 734 14,119 7,915 30, 086 733 136, 758 848 65, 819 2,722 186 243 / 2, 097 \ 3, 863 4,978 10, 025 6,272 15,883 34, 123 32, 958 172, 197 19, 480 37 5,139 1,639 140 8,374 160 8,787 39, 965 12, 324 5, 668 11, 270 1,776 14, 693 37, 876 13, 607 193, 718 5,335 10,871 7,022 } 860 180, 781 5,370 32 7, 339 17, 410 58, 375 143, 478 Australia . .. _ 30,253 Austria.. . Belgium-Luxembourg. ... British East Africa. 15 5,556 33 Burma. . 629 Curacao . . 700 Czechoslovakia . . . ...... France. .. . 3,758 8,533 Germany... Hong Kong. 39, 582 39, 970 India ..... 702 Indochina. Iraq. 8,647 865 Italy 15,184 Japan . _ .... Malaya . . Netherlands.. ._ 50,100 12, 599 165, 132 Norway. 2,193 Penang _ 20, 609 Philippines... Sarawak _ 10, 327 I 0) \ 406 Brunei.. ... . ... Singapore ... 185, 987 Sweden 5,119 Switzerland . . Thailand (Siam). 51 8,445 United Kingdom 2 . 39, 937 Other countries 57,254 Total 764, 769 629, 099 840, 245 856,064 1 Not reported. 2 Includes Ireland. Source: Official Indonesian trade data as issued by the Central Bureau of Statistics. Note.— Data have been converted at the official rate of exchange (1 rupiah equals US$0.08772). Table VIII. — Principal Exports of Indonesia to the United States, I 953-54 Commodity Coffee, shelled, green. Tea. Pepper Tobacco, leaf Palm oil Rubber, crude, in sheets, slabs, and balls Agave fiber.. Manila fiber. _ Petroleum, crude 1,000 liters- Tin ore, slag, and ash Kapok, ginned Other merchandise Total. Quantity (metric tons, except as indicated) 1953 2,593 3,608 2,600 267 3,258 281, 516 8,546 2,110 2, 348, 210 10,124 2,404 1954 790 4,293 1,428 334 8,670 242. 455 7,224 369 2,095,218 10, 867 1,540 Value (thou- sands of dollars) 1953 2,331 2,894 5, 804 2,651 515 118,680 1,547 919 12,924 17,516 2,027 4,389 172, 197 1954 825 4,598 1,574 1,822 1,571 90, 443 1,001 117 24, 179 13, 295 1,292 2,761 143, 478 Source: Official Indonesian trade data issued by the Central Bureau of Statistics. Note.— Value figures have been converted at the official rate of exchange (1 rupiah equals US$0.08772). Commodity Rice, not in the husk Wheat flour Tobacco, leaf, including stemmed Caustic soda Disinfectants, insecticides, and fungicides con taining DDT... Pharmaceutical preparations, packaged for retail sale. Newsprint. _ Packing paper of old newspapers and of unfinished printed matter C igarette paper __- Cotton, raw and waste --. Fabrics of artificial textile fibers, other than velvets, plushes, and sarongs Cotton fabrics, bleached, dyed, or printed, other than velvets, plushes, and sarongs 1,000 meters. . Coal Lubricating oils 1,000 liters. _ Petroleum asphalt Iron and steel in bars, including concrete iron Iron and steel wire, bare or coated, not insulated Iron and steel sheets and plates except corrugated or perforated, but including galvanized roofing sheets Tubes, pipes, and fittings of iron, cast iron, and steel Rails and joints for railways, including portable tracks and level crossings Tools, except agricultural Other base metals, including ores and manufactures Internal combustion and explosion mo- tors, except for aircraft. number. . Agricultural machinery Office machinery Refrigerators and other cooling and air- conditioning devices Pumps and other apparatus for the ele- vation and transfusion of liquids Hoisting, lifting, transporting, excavat- ing, and dredging machinery Machinery and apparatus for printing and the graphic arts Machinery and apparatus for working hard materials, mechanically driven. _. Ventilators, compressors, exhausters, air pumps, and similar machines, n. e. s., including spraying appliances.. Mining machinery and apparatus, un- specified Machinery and apparatus for industrial and commercial plants, unspecified Ball, roller, and similar bearings and parts Electric dynamos, motors, and rotary converters, n. e. s number.. Electric batteries and accumulators Telegraph, telephone, radio, and tele- vision apparatus Electrical appliances for motor vehicles, cycles, and explosion motors Electric locomotives for railway and tramway number. . Tractors, other than steam tractors do.... Motorcars do Motorbuses and trucks -do Chassis, other than for motorcars, diesel trucks, and similar trucks using heavy oils number.. Parts of automobiles, trucks, buses, and tractors, except bodies -. Pine resin Scientific, medical, and optical instru- ments and apparatus Films, plates, and paper for photography. Motion-picture films — Dredges, floating drydocks, elevators, sand pump dredges, floating gins, and similar floating engines Other merchandise Total. Quantity (metric tons, except as indicated) 1953 50, 682 24, 834 6,971 1,365 1,380 149 17 11,452 310 4,568 278 SO, 402 14, 243 20, 789 19, 952 8,128 417 15, 203 5,645 1, 635 283 3,337 3,566 477 100 537 1,518 268 606 422 117 1,428 318 213 235 26 225 740 3,261 516 2,637 2,379 100 32 28 1,448 1954 (') 12,046 6,641 6,708 1,941 290 3,104 15, 432 1,228 5,280 23, 065 21,202 17, 824 11, 606 1.057 626 9,646 1,950 18, 414 115 963 1,128 209 87 112 333 308 37 262 286 429 379 72 1,609 182 224 138 1 79 1,234 2,169 461 1,336 6,911 97 39 31 0) Value (thousands of dollars) 1953 1954 11,946 3,248 9,541 117 661 1,332 6 899 210 4,122 726 24, 754 330 3,871 1,124 1,224 194 3,277 1,505 241 825 2,318 5,771 415 638 177 857 1,825 554 2,378 511 820 841 481 776 239 2,196 444 6,523 1,843 1,182 6,074 3,526 487 852 168 374 2,468 23,341 139, 090 l Not reported. Source: Official Indonesian trade data issued by the Central Bureau of Statistics. 117 APPENDIX B U. S. Firms ^^ith Enterprises in Indonesia N. V. Caltex Pacific Petroleum Maatschappij (Caltex Pacific Oil Co.), 52 Kebon Sirih, Djakarta, Java. Exploration, de- velopment, and production of petroleum. Parent company: Standard Oil Co. of California, San Francisco, Calif., and the Texas Co., New York, N. T. Goodyear Nabara Landbouw Mij, N. V., Dolok Merangir. Post Office: Serbalawan, Sumatra East Coast. Opera- tion of rubber estates and factory. Parent company: Goodyear Tire and Rubber Co., Akron, Ohio. Goodyear Tire and Rubber Co., Ltd., Djalan Kebon Pedes, Bogor, Java. Manufacture of tires, tubes, and repair materials. Parent company: Goodyear Tire and Rubber Co., Akron, Ohio. Hawaiian Sumatra Plantations, Ltd., Kwala Gunung Estate. Post Office : Lima Puluh, Sumatra East Coast. Rubber plantation. Parent company: Hawaiian Sumatra Plantations, Ltd. Agent: Bishop Trust Co., Honolulu, Hawaii. N. V. Hollandsch-Amerikaansche Plantage Mij.