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ASEAN STOCK WATCH Asean Affairs   19 April 2012

ASEAN Markets will open lower today after falls on Wall St overnight.

By Shayne Heffernan Ph.D.

Again Europe is the problem

Following on from the disastrous Greece Default, the ECB, IMF and World Bank are ready for the Sequel, Spain.

As the IMF demands Austerity, growth in Europe is scarce, budget cuts have already put Europe in a recession and the misguided Austerity push will make that worse.

The default in Greece was one of the worst moments since the 2008 financial crisis, part of the European Union defaulted on their debt and with the help of the ECB, World Bank and IMF strong armed bond holders in to accepting massive write offs.

Italian and Spanish bonds led losses among Europe’s higher-yielding government securities on speculation European authorities will struggle to stop the region’s debt crisis from spreading.

As I warned at the time, this type of action supported by the ECB, World Bank and IMF clearly values Europe’s sovereign debt at cents on the dollar and institutions holding or invested in that debt should be writing down the valuations.

The International Monetary Fund warned Wednesday that European banks are under pressure to preserve capital and could cut back sharply on lending over the next two years, slowing the region’s growth.

The predicted credit crunch is a major reason why Europe’s economy is expected to suffer a mild recession this year and barely grow in 2013, the IMF said in a report on the global financial system released Wednesday.

The 17 countries that use the euro will see their economies shrink by 0.3 percent this year, and expand by only 0.9 percent in 2013, the IMF has forecast.

The International Monetary Fund fanned those fears, saying Spain was facing ”severe” challenges. It insisted that last week’s strict budget must be put into practice to cut its deficit.

”Clearly the challenges Spain is facing are severe. Market sentiment remains volatile,” said IMF spokesman Gerry Rice.

Large banks based in the European Union may reduce their balance sheets — which include outstanding loans, securities and other assets — by as much as $2.6 trillion through the end of 2013, the IMF said. That’s about 7 percent of their total assets.

About one-quarter of that reduction will come from reduced lending and could shrink the amount available for credit by 1.7 percent.

Some reduction in credit, or “deleveraging,” is necessary, the IMF said. Banks aren’t able to borrow as freely as in the past and governments are requiring them to hold more capital.

Deleveraging simply means banks will sell assets, stocks, real estate and businesses adding to the pressure on already fragile European markets and also impacting their USA holdings.

Indonesia in Focus

Bali, gateway for tourism industry and food

The Bali-Nusa Tenggara Economic Corridor is home to Indonesia’s most famous and popular province.

Tourism is the obvious strength, yet agriculture is closely linked in the corridor’s strategy to maintain a Green, all-organic economy.

Combined, Bali and Nusa Tenggara have 15% of Indonesia’s national hotel capacity, and account for 21% of national hotel income.

Bali received nearly 40% of foreign tourist visits in Y 2010. The Master Plan (MP3EI) highlights that there is much unrealized tourism potential, especially in terms of average tourist spending per day and average length of stays, which are both low in comparison with Thailand and the Maldives.

To turn these trends around, the government intends to improve security, refine its marketing tactics, promote the development of tourist destinations “Beyond Bali” with a focus on services and facilities, and improve human resources development.

In addition, the 2 provinces can be marketed as a major tourist destination for meetings, incentives, conventions and exhibitions, cruises and yachts.

“We have to improve the quality of the tourism industry,” explains Made Pastika, Governor of Bali. “We do not want to increase the quantity of tourists, but rather the quality.”

The Master Plan addressed the need to increase capacity and services at airports, develop road and rail infrastructure, raise harbors and marinas to international standards, and move towards more renewable energies and cleaner fuels.

In the area of food support, Bali-Nusa Tenggara focus is on fisheries and animal husbandry, 2 of its primary strengths.

Currently, fisheries contribute 13.2% to the food agricultural sector, they do not operate at their full potential.

The Master Plan plans to boost the production of fishery products and raise the production of high value-added processed products, improve infrastructure and build water treatment plants to support aquaculture and marine product processing.

In the area of animal husbandry, Beef Cattle afford the most potential for development in the region, while staying within the ‘Green’ concept. Beyond meat, leather and milk, cow urine (used as organic fertilizer) and cow feces, as natural manure and for bio-gas energy.

Sulawesi, Center for production and processing for Agriculture, Plantations, Fisheries, Oil & Gas, and Mining

The Sulawesi Economic Corridor, is in the center of Indonesia, and positioned to be the center for production and processing of agriculture, plantation, fisheries, oil & gas, and mining.

Now agriculture, rice, corn, cocoa, soybean and cassava, is the largest contributor to the region’s Gross Regional Domestic Product (GRDP) and uses about 50% the total workforce, the sector is hindered by a lack of adequate economic and social infrastructure: roads, electricity, water and healthcare.

Sulawesi is the 3rd largest food producer in Indonesia, but its productivity is lower compared to other regions owing to low fertilizer use, a limited access to modern agricultural equipment, and a proper irrigation network.

The Master Plan I for Sulawesi focuses on the optimization of land use, the creation of new rice paddy fields, and the rehabilitation and conservation of agricultural land.

The plan also addresses financing for farmers, the creation of quality storage to reduce potential loss of quantity and value of post-harvest products, and improving access roads and irrigation facilities.

In addition, a downstream sector need to be developed to add value to Sulawesi’s commodities.

Dr. Syahrul Yasin Limpo, Governor of South Sulawesi, says, “We expect that our agriculture sector can become a agro-industry in the future.”

Within Southeast Asia, Indonesia is the largest producer of fishery products, and Sulawesi is the biggest producer nationally.

The industry is a powerful contributor to the Corridor’s economic growth but over fishing has raised red flags in its continued expansion. The Master Plan wants to develop aqua-culture as well as increase added-value products and activities for seaweed processing.

Another of Sulawesi’s strengths lies in Nickel: it boasts the most advanced Nickel production, Indonesia ranks 4th among Global Nickel producers. The national government wants to see more growth in downstream Nickel product refining.

Agriculture and cattle

The cultivation of crops – rice, corn, cassava, vegetables and fruit – probably puts to work more people than any other economical activity. Rice is mainly grown on sawah’s, but in some areas the rice fields are dry. The rice culture is concentrated on the fertile, irrigated southern peninsula, from which a big surplus is exported to other parts of Indonesia.

North-Sulawesi also grows a lot of it’s own food, but the main agrarian wealth comes from tree crops, especially coconuts and clove, and nutmeg. Much money is still being made in the trade of clove – mainly in Minahasa, which are mainly used to produce kretek cigarettes. North-Sulawesi produces about 30 per cent of the country’s clove. The ‘clove-fever’ has spread over the entire island in the last decades however, because even a few trees in the back yard can bring in a small fortune.

Commercial crops, coffee in South-Sulawesi and cacao in western Southeast-Sulawesi, are getting more important as well as secundary crops like soybeans. The agricultural production on the island is small scaled and big companies are rare. Most agriculture is done by small farmers on pieces of ground that are in the hands of the family. Cattle is important – South-Sulawesi is the third cattle-producing province of the country-, but growing still takes place at small scale, there are only a few big companies.

Fishery, forests and mines

Fishery employs a big number of residents of Sulawesi. In the coastal fishery, traditional boats and techniques are used, but modern fisheries and processing points can also be found on Sulawesi nowadays. The most remarkable development is the installation and extension of the coastal fishing farms and shrimp farms, mainly in the south. Much money can be earned with freezing shrimps for exports to Japan.

Other important natural resources are forestry and mining. Due to it’s expensive tropical wood, Central-Sulawesi has important income from forestry. Southeast-Sulawesi produces teak wood. Ratten is valuable as well.In the past, wood and rattan were exported without processing it first, but the government has banned the exports of unprocessed forest products.

Mining is dominated by the nickle mines from Inco in Saroako, South-Sulawesi; where ore of low quality is partially processed for the export; only recently the company succeeded in reaching the break-even point. Nickle ore is also mined in Pomalaa in Southeast-Sulawesi, and asphalt on Pulau Buton. The recent years were known for it’s gold rush in Indonesia; for what Sulawesi concerned, this ‘fever’ was limited to the northern district of Bolaang Mongondow. Deposits of copper in North-Sulawesi and a number of other minerals offer good expectations for mining in the future.

Limited industry

Unless the richness of natural resources the industry has only contributed a little to the economical development. Small scale processing of agricultural products and production of food are fairly widespread. In Makassar, a big wheat-mill is used and in North-Sulawesi are several plants which produce coconut-related products. Several concrete-plants and limestone mines in South-Sulawesi supply for the huge demand and south of Makassar is a paper mill. Recently, sugar plants have been built in the district of Bone.

On the whole, Sulawesi has to deal with the big distances to important local markets. It has small groups of local population and high cost of labour, compared to the densely populated Java, where most Indonesian factories are.

The service sector, like transport and tourism, is getting more important. Due to the extension of the road system, transport over land is light years ahead compared to the situation in the 1960′s. Air connections between the provincial capitals and some smaller points are also in development.
Sulawesi has been famous for it’s sea transport for centuries. The armada of sailing shops from South- and Southeast-Sulawesi, mainly motorized by now, still is used for much of the inter island transport. High expectations of the government go to a much more recent branch: tourism. Until now this development has been limited to South-Sulawesi and a little bit to the north, the only two areas with enough infrastructure.

Finally, the last economic anchor of the Master Plan for Sulawesi is Oil and Gas. Although reserves of these fossil fuels are considered to be low, they have not likely not been properly identified and explored. And, as Indonesia’s overall Crude Oil reserves are declining, Sulawesi may help prolong their lifeline.

A roaring start

About 250 million years ago the earth was made up from two big continents, Laurasia (the current North-America, Europe and a big part of Asia) and Gondwana (the current South-America, Africa, India, Australia, Antarctica and the remaining part of Asia). Until ten years ago it was accepted that the geological history of Indonesia and the surrounding areas, Malacca, Sumatra, Jawa, Borneo and West-Sulawesi were a part of Lauriasia and were separated from East-Sulawesi, Timor, Seram and other islands that were part of the more southern Gondwana a short time (geologically seen) ago.

This image was changed due to recent geological survey. Proven is that Southern-Tibet, Burma, Thailand, Malakka and Sumatra were in fact a part of Gondwana and that they got detached from the Australian – New-Guinea part of the continent. It is assumed that West-Sulawesi, together with Sumatra, Borneo and other islands detached from Gondwana about 180 million years ago. About 90 million years ago East-Sulawesi separated itself together with New-Guinea, Maluku and Australia from Antarctica and hurried towards the north with a speed of about 10 centimeters a year.

About 15 million years ago the current East-Sulawesi Detached from New-Guinee and collided with another islands. It touched the current West-Sulawesi like an arrow and caused the southwestern peninsula to rotate anti-clockwise since then. The Gulf of Bone was formed between South- and Southeast-Sulawesi and the northern peninsula turned around 90 degrees clockwise.

People said, that West-Sulawesi collided with East-Borneo about 3 million years ago, which caused the Selat Makassar to be closed, this is not proven however. Evidence for this theory is missing, but submarine contours from East-Borneo exactly match those of West-Sulawesi. Thick layers of sediment in Selat Makassar tell that this strait has been open for at least 25 million years.

The sea level has fluctuated dramatically in the last 10 million years, under the influence of ice ages. During periods with a low sea level islands surfaced, mainly in the south. At times that the sea level was 100 meters lower than it is now, there should have been an almost uninterrupted land mass between Southeast Borneo and Southwest-Sulawesi.

Then seas were high, Sulawesi should have been several islands which were cut off by straits near Gorontalo and Danau Tempe. The last climax of the sea level took place about 4000 years ago, when sea levels were four to six meters higher than nowadays. Inhabitants of Sulawesi tell storied about a time that travelers didn’t have to go around the southern tip of the island, but they could cut through from the Gulf of Bone to Selat Makassar through the silty Danau Tempe. Active fault lines stretch from Gorontalo, from Palu to the south to Koro, through Danau Matana and near Lawuk. The main island still undergoes a process of fragmentation; it could form a group of islands in the far future, separated from each other by small straits, like currently on the Philippines.

Coasts and reefs

With it’s long and thin peninsula’s, Sulawesi has a lot of coastal areas in comparison to it’s land mass, in fact it has most coasts than any other Indonesian island. Not a single point on the main island is further away than 90 kilometers from the sea and most points only 50 kilometers. Above all, the provinces conclude over 110 islands with a surface larger than 1,5 sq.km.

Along most coasts you can find coral reefs. The most easy to reach (and the most damaged because of that) are the 16.000 sq.km. reefs in the Sangkarang- or Spermonde archipelago. The reefs around Bunaken and the neighboring islands north of Manado are also reasonably good accessible. The coral reefs of the Togian Islands and the Tomini Bay are less well-known. These are unique in Indonesia because all important reef environments can be found here. Sulawesi also has a number of remote and almost untouched reefs and cliffs, for example the end of the Tukang Besi Islands in Southeastern Sulawesi.

Sulawesi is mainly mountainous. The biggest part of the island is higher than 500 meters above sea level, and one fifth is higher than 1000 meters. The highest peaks can be found in Central-Sulawesi and in the northern part of South-Sulawesi; the highest point of the island is Rantemario, north of Enrekang, on 3450 meters. This mountain can be climbed from the southern side. The ascend to the peak is intense and cold, and probably takes several days.

In South-Sulawesi are several dead volcanoes. The rubble of these has contributed to the fertility of the surrounding plains, just like on Java. The most important is Lompobatang (‘swollen belly’), southeast of Makassar.

The volcanoes of North Sulawesi are all but dead. In 1983, a powerful eruption exhausted a flume 15 kilometers into the atmosphere, some of it came down 900 kilometers away in Southeast Kalimantan. The explosion exterminated the small Pulau Unauna in Teluk Tomini. Luckily all islanders were evacuated. In 1991, Gunung Lokon erupted. A Swiss doctor which wanted to see the crater from a close location, died.

Sulawesi has 11 active volcanoes (Java has 17 and Sumatra has 10) and many fumaroles (exhausts through which hot gasses escape) and boilers. Most of them are in Minahasa in North-Sulawesi. In the last decade Sopotan Aeseput, Lokon Empung and Api Sia (on the island Siau between the mainland and Pulai Sangihe) the most tough volcanoes. Another volcano on the Sangihe Talaud-archipelago, the Awu, erupted in 1966, and killed over 7300 people.

These volcanoes are active because the seabed north of Tolitoli and east of the Minahasa and Sangihe Islands moves towards the northern arm of Sulawesi. Instead of piling up in a mountain, the seabed is forced under the existing island. The enormous power and friction which is caused by this causes earthquakes and a heat which is so intense that the rock melts. Normally the molten rock cools down deeper in the earth, but sometimes it’s forced up by a weak spot in the earths crust, to the volcano on top of it erupts.

Parts of Sulawesi (in the south and southeast) have the biggest concentration of low pH rock in the worked. Because of the high level of magnesium and heavy metals the soil is very infertile. The spread of ultra low pH material is marked by the border of cultivated and uncultivated grounds (with exception of a very ambitious resettlement programs or cultivation projects, in which they tried to cultivate the soil, which no farmer wanted to try before).

Minerals

Sulawesi is blessed with numerous mineral deposits. Parts of the north are going trough a ‘gold rush’ now, in which private people and small companies on one side are trying to extract metals with traditional methods. On the other hand the joint-ventures of Indonesian and foreign companies have extensive surveys and have ultramodern mining. Besides this, oilfields have been found, but they aren’t commercially exploited on a large scale yet. A deposit has been found south of the eastern arm of Sulawesi, near Luwuk. Near Danau Tempe is liquid natural gas. The island Buton under Southeast-Sulawesi contains the biggest reserves of natural asphalt in Asia.

The biggest mine of the country, near Saroako at the coast of Danau Matana, exploits a big amount of nickle of low quality. The Canadian company Inco started here in 1968 with putting down a big production machine. The ore in the ultra low pH rock formations have changed the life of many farmers in the village completely. The once impenetrable jungle, the source of their existence, has been flattened.

Lakes and rivers

Sulawesi has 13 lakes (danau) which are larger than 5 sq.km., among them Towuti and Poso, the second and third biggest lakes in Indonesia. During the wet season Danau Tempe equalizes the surface of Danau Poso: surrounded by lowlands it can swell to three times it’s normal size, from 10,000 hectares to 35,000 hectares. Some lakes, like the Tondano- and Moat lake in North-Sulawesi, are located in the craters of old volcanoes, while others were formed by landslides. Several waters, like Danau Matana, are very deep. The deepest point lays over 450 meters below the surface and 160 meters under sea level.

The form of Sulawesi makes the development of big rivers (sungai), like those which can be found on Sumatra or Kalimantan, impossible. The longest river on Sulawesi, Sungai Lariang, which mouths south of Palu in Selat Makassar, is hardly 200 kilometers long.

Climate

From September the cooler northwestern winds over the South China Sea, take in moisture. They arrive over the Sulawesi Sea somewhere in November in North-Sulawesi. Similar winds reach the western coast of South-Sulawesi around the end of November and come from the Jawa Sea. The western coast of Central-Sulawesi, protected from these winds because Borneo is so close, is relatively more dry.

Around April the changing humid winds blow from the southeast towards East-Sulawesi. Between this month and June there are precipitation peaks along the southeastern coast and a little later in the northeast. Southeastern winds from the then dry and wintery, large area of Australia become more strong and more dry and influence the southern tips of Sulawesi. On the Southwestern peninsula, Jeneponto has a long dry season between April and November, while Manado on the northern peninsula has a short dry season from August to October.

The western coast of Sulawesi normally has most precipitation in December, while the eastern coast has the most wet period around May. In between are areas with two dry seasons. Valleys which run north-south are almost year-round protected from the rain. Because the central part of Sulawesi is kind of protected, the Palu Valley is one of the most dry areas of Indonesia, with an annual rain fall of less than 600 mm. Here, and on the dry tip of the southwestern peninsula, the wealthy cactus is evidence of the consistence of the climate.

In Asia Yesterday

As we predicted Asian markets opened lower then bounced back from recent loses following some much-needed positive news out of Europe and an IMF report forecasting global growth would be stronger than expected.

Technology and financial shares were boosted by strong earnings in the United States, while the euro and dollar gained against the yen as traders felt confident to buy riskier assets.

Tokyo surged 2.14 percent, or 202.55 points, to 9,667.26 and Seoul rose 0.97 percent, or 19.23 points, to 2,004.53 while Sydney added 1.37 percent, or 58.9 points, to 4,347.7.

Hong Kong climbed 1.06 percent, or 218.42 points, to 20,780.73 and Shanghai rallied 1.96 percent, adding 45.86 points to 2,380.85.

– Singapore ended 0.47 percent, or 13.99 points, higher at 3,000.58.

Singapore Telecom was up 0.32 percent at Sg$3.12 and DBS Bank fell 0.15 percent to Sg$13.51.

– Taipei rose 0.25 percent, or 19.13 points, to 7,605.00.

Taiwan Semiconductor Manufacturing Co. gained 1.43 percent to Tw$85.0 while leading smartphone maker HTC was 1.03 percent lower at Tw$480.0.

– Manila closed 0.56 percent, or 28.92 points, higher at 5,186.20.

Megaworld was up 0.05 percent at 2.04 pesos, Metropolitan Bank and Trust added 3.45 percent to 92.95 pesos and BDO Unibank gained 1.43 percent to 67.45 pesos.

– Wellington rose 1.21 percent, or 42.22 points, to 3,522.76.

Telecom rose 1.81 percent to NZ$2.53, while Fletcher Building was up 0.48 percent at NZ$6.29 and Air New Zealand was steady at NZ$0.87.

– Jakarta rose 0.21 percent, or 8.87 points, to 4,166.24.

Bank Negara Indonesia gained 1.3 percent to 3,975 rupiah, while tin miner Timah rose 1.8 percent to 1,750 rupiah and consumer goods producer Unilever Indonesia gained 0.8 percent to 19,050 rupiah.

– Kuala Lumpur climbed 0.17 percent, or 2.67 points, to 1,598.86.

Malayan Banking rose 0.68 percent to 8.87 ringgit, while telecoms firm Axiata Group rose 0.19 percent to 5.37 ringgit. Petronas Chemicals Group lost 0.15 percent to 6.70 ringgit.

– Bangkok rose 0.67 percent, or 7.82 points, to 1,168.05.

– Mumbai rose 0.20 percent, or 34.45 points, to 17,392.39.


Shayne Heffernan Ph.D.  
Linda Johnson, Business Development Director - Private Client Group, Heffernan Capital Management
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