Forbidden Bank Interest

Accruing bank interest for Muslim Indonesians will remain a taboo for sometime. The Indonesian Ulemas Council (MUI) has agreed to confirm the decision of the all-Indonesian Fatwa (Islamic ruling) Commission that came out in the middle of December last year.

MUI Chairman Umar Shihab explained that the MUI Leaders Executive Board had reached this consensus with regards to the substance of the decision issued by the Fatwa Commission on Tuesday last week.

The agreement now only needs official confirmation. However, the MUI decision is now already a foregone conclusion. The MUI Leaders Executive Board is convinced that the Fatwa has its foundations in Islamic law and is therefore justifiable. However, Islamic community organizations, like the Muhammadiyah, will allow their members to choose.

The issuance of the Fatwa was originally delayed because of the concern that it would trigger a public debate, because Bank Indonesia predicted the Fatwa would result in the mass withdrawal of around Rp88 trillion from conventional banks as well as Syariah banks.

This amount is equivalent to 10.3 percent of all third party funds in the banking system, which currently amount to Rp850 trillion. Currently in Indonesia there are two Syariah public banks, eight Syariah business units and 84 People’s Credit Banks, which are backed by 340 branches.

Daendels Project Begins

It was the dream of Herman Willem Daendels, the Governor General of the Dutch East Indies, to construct a road running from Ujung Kulon (Banten) to Panarukan (East Java). Now, the Department of Resettlements and Regional Infrastructure has proposed a similar project. Called the Java Arterial Road Network System, it will connect the capital city of Jakarta with Surabaya (East Java), a distance of some 540 kilometers.

Syarifuddin Alambai, Managing Director of the state toll roads and road construction company PT Jasa Marga, estimates that the costs of making the road across the island of Java will run between Rp30 billion and Rp35 billion per kilometer.

Construction will be carried out in stages, starting with the 120 kilometer long, 70 meter wide Cikampek-Palimanan, Cirebon section, passing through Sadang-Subang-Dawuan-Palimanan. The costs of this first stage, which amount to some Rp3.5 trillion, are guaranteed by an investor from Malaysia, PT Sugih Sinar.

Back in 1809, Daendels only needed one year to realize his 1,000-kilometer dream road. With his fist of steel, he mobilized thousands of people as forced labor, to work day and night.

But the mega-project of the Department of Resettlements and Regional Infrastructure is different. Overall construction will take 15 years. As in Java, several toll roads are to be constructed in Sumatra and Kalimantan.

Record for JSX

It seems the New Year has heralded a new beginning for the Jakarta Stock Exchange (JSX). The Jakarta Composite Share Index (IHSG) reached its highest level since the monetary crisis six years ago.

At the close of the first day’s trading session last week (Monday, January 5), the IHSG jumped almost three percent (20.9 points) to the 725.472 level.

This was not as high as the 740.83 level that was reached on July 8, 1997. However this previous record was passed on Friday last week when the IHSG rocketed up to the 753.692 level.

Haryajid Ramelan, Head of Research for PT Rifan Financindo Securities, suspects that the current enthusiasm at the stock exchange is very much a temporary phenomenon. This is because at the beginning of every year, share prices usually rise due to the fact that investors often increase their share portfolios. This is usually referred to as the “January effect.”

Gas Production Critical

The reduction in production at the Arun gas field, which is managed by ExxonMobil, has resulted in the government having to import two cargo loads of liquid natural gas (LNG) in order to be able to meet export contracts to Japan and South Korea.

The age of the gas fields is the main reason for the reduced production. In fact, since August last year, supply of gas to fertilizer manufacturers had often been held up. As a direct result of this, during November and December last year, PT Pupuk Iskandar Muda and PT ASEAN Aceh Fertilizer experienced losses in the region of Rp42 billion.

Kardaya Warnika, Deputy Head of the Oil & Gas Upstream Activities Board, explained that the import of gas was a short-term solution because the buyers had rejected the proposed postponement of the shipping of their orders. Because of the imports, it has been possible to supply fertilizer manufacturers with gas from Arun so they can start operations again.

Now the government is busy lobbying gas producing countries having an excess capacity of natural gas. These include Qatar, Malaysia and Nigeria.

Bayer Going Private

If you currently own shares in PT Bayer Indonesia Tbk., get prepared to receive a real windfall.

Bayer Aktiengesellschaft (Bayer AG) is planning to execute an offer to buy back Bayer Indonesia shares owned by the public at four times the market price. There are two types of shares to be bought back: series A (ordinary shares) and series B (preferential shares). Prices of Rp28.000 and Rp35.000 per share are being offered respectively.

The repurchase of the share is part of the plan to change the status of Bayer Indonesia from a public listed company (Tbk) back to a privately-owned company. This process is usually referred to as “going private.”

Currently the majority shareholder (87.41 percent) in Bayer Indonesia is Bayer AG. Following the privatization, the company will be de-listed from the Jakarta Stock Exchange.