From Volume 4, Issue Number 37 of EIR Online, Published Sept. 13, 2005

World Economic News

China To Make Major Investments in Indonesian Infrastructure

While the economic hitmen have unleashed another assault on Indonesia's currency and economy, China is investing billions in Indonesia infrastructure development. The visit to Beijing at the end of August by Indonesian Vice President Jusuf Kalla resulted in agreements totalling about $20 billion over the next 15-20 years, including a gas transmission line from Kalimantan (southern Borneo) to Java, an iron mine in Kalimantan, an aluminum smelter, housing development, telecom infrastructure, hybrid rice development, and a geothermal plant in North Sumatra.

On Sept. 5, it was also announced that China will build a $2.1 billion coal-fired power plant in Jambi, Sumatra. This is in addition to $7.5 billion in energy and infrastructure projects signed during President Susilo Bambang Yudhoyono's visit to Beijing in July.

Indian Gov't Raises Petrol, Diesel Prices

The Indian government raised petrol (gasoline) and diesel prices Sept. 6, because of ever-rising crude-oil prices. Kerosene and cooking gas prices were not raised, however. India public-sector oil companies have lost about $3.2 billion this fiscal year, due to having to sell fuel below cost; they will now be compensated for still-uncovered fuel costs by the government issuing oil bonds. Without the price hike, public-sector oil retailing firms would have become bankrupt, the Press Trust of India reported Sept. 6.

Costs will rise 3 rupees (about 2 cents) a liter.

Petroleum Minister Mani Shankar Aiyar said that the "government has decided that bonds will be issued to oil companies (IOC, BPCL, HPCL and IBP). The value of bonds, the structure and duration (tenure) will be decided by Finance Ministry in consultation with Petroleum Ministry." Petrol is currently underpriced by Rs 7.45 a liter and diesel by Rs 5.15 per liter.

S&P Puts Squeeze on Indonesia

Standard & Poor's is putting the squeeze on Indonesia, complaining that President Susilo Bambang Yudhoyono has tended to be "slow, reactive, and incremental" in regard to fuel subsidies, which increased from 3% of GDP to 5.3% as a result of oil price speculation, the Wall Street Journal reported from Singapore Sept. 5. Indonesia has shown an "inability to craft and implement appropriate policy measures"—i.e., to lift subsidies, starve the population, and provoke riots nationwide—and thus the outlook has been cut from "positive" to "stable."

Not to worry, says the rating arm of the economic hitmen, if Indonesia takes "credible and timely policy action to alleviate distortions (particularly the fuel subsidy)," they may be so charitable as to restore the positive outlook.

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