Petrol problem in India:

Indian reIineries which import crude Irom Iran are running around in circles. With the third
week oI July over, Tehran has not intimated whether crude will be sent in August. The
message: India has to Iind a solution to the payments crisis triggered in December by US
Iinancial sanctions.
India imports 400,000 barrels oI crude Irom Iran a day but because no bank is prepared to
handle the transactions Ior Iear oI sanctions, it has no means to pay Ior them. India now owes
Iran $ 5 billion and the debt is rising.
There are Iour reasons why the crisis is especially diIIicult Ior India to Iind a solution.
One is that India exports very little to Iran and imports a lot, almost all crude. So there is no
way to use barter to bypass the sanctions.
Two, India`s unwillingness to make the rupee a Iully convertible currency also means it must
use a mutually acceptable currency. Thus the international banking system must be used and
which is why the sanctions can bite. South Korea and Japan trade without hassle because they
denominate it in their own currencies which are convertible.
Three, both the US and Iran are squeezing India. The Iormer to shutter one oI the largest
remaining Iranian energy markets. The latter to get India to break the sanctions regime. How
is Iran pressing us? It is not as iI there are no products Iran can import Irom India to balance
at least a part oI the oil imbalance. New Delhi has identiIied a number oI them, including
automobile parts, tea, and machinery and so on. But Tehran declines to let them in,
presumably as part oI its own brinkmanship game.
Four, prestige is involved. India does not want to seem to backing down under US pressure.
And it does not want to be overly dependent on Saudi Arabia, which has been moving into
replace the Iranians in the Indian and other markets. The Saudis have already killed oII
Reliance`s long-standing trade oI reIining and then re-exporting Iran`s heavy crude. But
given Riyadh`s close links with Pakistan and its Wasabi ideology, India would preIer Iran to
Saudi Arabia iI it had a choice.
What will India do? Personally I don`t think Iran will go through with their incipient August
threat. They gain nothing accept a market. Their sour crude has limited international clientele
because reIining is so diIIicult.
But presume that it does, India should keep the Iollowing principles in mind.
One, Iran is a Iriend, but not an ally. Tehran has been helpIul in AIghanistan, but a pain on
issues like the Nuclear Non-proliIeration Treaty and a bit oI a waIIle on Kashmir. India
doesn`t owe Iran anything, even iI it would like to remain on good terms t
Two, while US sanctions are a pain, India supports the purpose oI the sanctions: Iorcing Iran
to reconsider its pursuit oI nuclear weapons. Iran`s going nuke would set oI a nuclear domino
eIIect in the region, driving Saudi Arabia and Pakistan together, and otherwise making it a
bigger mess. India supports the strategic goal, does not support the tactical means to
accomplish it.
Three, India must avoid some oI the crazier ideas being mooted around by those in New
Delhi inIuriated by the US sanctions. These include turning to the Chinese and using the
Yuan. Helping make the Yuan a reserve currency without Beijing making its monetary policy
market-based would be severely inimical to Indian interests. Much worse, in time, than not
buying Iranian crude.
Finance is remarkably Ilexible, so I`m sure some accounting wizardry will come about.
During Hillary Clinton`s visit, US Treasury oIIicials said a solution was in sight. But at least
this has helped India Iocus its mind on what global engagement is all about making tough
decisions and learning to set priorities.



Indonesia economy:
Indonesia has a market-based economy in which the government plays a signiIicant
role. There are 139 state-owned enterprises, and the government administers prices on
several basic goods, including Iuel, rice, and electricity.

In the mid-1980s, the government began eliminating regulatory obstacles to economic
activity. The steps were aimed primarily at the external and Iinancial sectors and were
designed to stimulate employment and growth in the non-oil export sector. Annual
real gross domestic product (GDP) growth averaged nearly 7 Irom 1987-97 and
most analysts recognized Indonesia as a newly industrializing economy and emerging
major market. The Asian Iinancial crisis oI 1997 altered the region's economic
landscape. With the depreciation oI the Thai currency, the Ioreign investment
community quickly revaluated its investments in Asia. Foreign investors dumped
assets and investments in Asia, leaving Indonesia the most aIIected in the region. In
1998, Indonesia experienced a negative GDP growth oI 13.1 and unemployment
rose to 15-20. In the aItermath oI the 1997-98 Iinancial crises, the government
took custody oI a signiIicant portion oI private sector assets via debt restructuring, but
subsequently sold most oI these assets, averaging a 29 return. Indonesia has since
recovered, albeit slower than some oI its neighbours, by recapitalizing its banking
sector, improving oversight oI capital markets, and taking steps to stimulate growth
and investment, particularly in inIrastructure. GDP growth has steadily risen this
decade, achieving real growth oI 6.3 in 2007 and 6.1 growth in 2008. Although
growth slowed to 4.5 in 2009 given reduced global demand, Indonesia was the
third-Iastest growing G-20 member, trailing only China and India. Growth has
rebounded in 2010, with the consensus Iorecast Ior growth oI 6.0. Poverty and
unemployment have also declined despite the global Iinancial crisis, with the poverty
rate Ialling to 13.3 (March 2010) Irom 14.2 a year earlier and the unemployment
rate Ialling to 7.4 (February 2010) Irom 7.87 (August 2009).

Indonesia`s improving growth prospects and sound macroeconomic policy have many
analysts suggesting that it will become the newest member oI the 'BRIC grouping oI
leading emerging markets. Its solid track record has also resulted in credit upgrades
Irom each oI the major ratings agencies in the past year, with Fitch rating Indonesia
sovereign debt one level below investment grade, while S&P and Moody`s rate it two
levels below investment grade.

In reaction to global Iinancial turmoil and economic slowdown in late 2008, the
government moved quickly to improve liquidity, secure alternative Iinancing to Iund
an expansionary budget and secure passage oI a Iiscal stimulus program worth more
than $6 billion. Key actions to stabilize Iinancial markets included increasing the
deposit insurance guarantee twentyIold, to IDR 2 billion (about U.S. $222,000);
reducing bank reserve requirements; and introducing new Ioreign exchange
regulations requiring documentation Ior Ioreign exchange purchases exceeding U.S.
$100,000/month. As a G-20 member, Indonesia has taken an active role in the G-20
coordinated response to the global economic crisis. In the Iace oI surging portIolio
inIlows in 2010, Bank Indonesia has implemented a number oI measures to encourage
inIlows toward less volatile, longer tenor instruments.

conomic Policy:
AIter he took oIIice on October 20, 2004, President Yudhoyono moved quickly to implement
a "pro-growth, pro-poor, pro-employment" economic program, which he has continued in his
second term. The State Ministry oI National Development Planning (BAPPENAS) released a
Medium-Term Development Plan Ior 2010-2014 Iocused on development oI a 'prosperous,
democratic and just Indonesia. The Medium-Term Development Plan targets average
economic growth oI 6.3-6.8 Ior the period, reaching 7 or above by 2014,
unemployment oI 5-6 by the end oI 2014, and a poverty rate oI 8-10 by the end oI
2014. President Yudhoyono`s economic team in his second administration is led by
Coordinating Minister Ior Economic AIIairs Hatta Rajasa. Sri Mulyani Indrawati continued
as Finance Minister until May 2010, when she resigned to take a senior position at the World
Bank. She was succeeded by Agus Martowardojo, a well-respected banker who had led
Indonesia`s largest state-owned bank. In July 2010, Indonesia`s DPR Commission XI
approved the appointment oI Darmin Nasution as Governor oI Bank Indonesia, Iollowing a
14-month vacancy oI the position aIter Iormer Governor Bowdoin stepped down to become
Yudhoyono`s running mate. In May 2010, President Yudhoyono established a National
Economic Committee to provide strategic recommendations to accelerate national economic
development and a National Innovation Committee to provide input and recommendations to
increase national productivity, create a culture oI innovation, and speed up economic growth.

Indonesia's overall macroeconomic picture is stable. By 2004, real GDP per capita returned to
pre-Iinancial crisis levels and income levels are rising. In 2009, domestic consumption
continued to account Ior the largest portion oI GDP, at 58.6, Iollowed by investment at
31.0, government consumption at 9.6, and net exports at 2.8. Investment realization
had climbed in each oI the past several years, until the global slowdown in 2009. It is again
rebounding in 2010.

Following a signiIicant run-up in global energy prices in 2007-2008, the Indonesian
Government raised Iuel prices by an average oI 29 on May 24, 2008 in an eIIort to reduce
its Iuel subsidy burden. Fuel subsidies had been projected to reach Rp 265 trillion ($29.4
billion) in 2008, or 5.9 oI GDP. The Iuel price hikes, along with rising Iood prices, led
consumer price inIlation to a peak oI 12.1 in September 2008. To help its citizens cope with
higher Iuel and Iood prices, the Indonesian Government implemented a direct cash
compensation package Ior low-income Iamilies through February 2009 and an extra range oI
beneIits including an expanded subsidized rice program and additional subsidies aimed at
increasing Iood production. Subsequent declines in oil and gas prices allowed the government
to reduce the prices Ior subsidized diesel and gasoline, but with oil and gas prices recovering,
the energy subsidy bill has again swelled in 2010.

il and Minerals Sector in Indonesia:
Indonesia leIt the Organization oI Petroleum Exporting Countries (OPEC) in 2008, as it had
been a net petroleum importer since 2004. Crude and condensate output averaged 948,000
barrels per day (bpd) in 2009, down slightly Irom 2008. In 2009, the oil and gas sector is
estimated to have contributed $19.8 billion oI government revenues, or 19.5 oI the total.
U.S. companies have invested heavily in the petroleum sector. Indonesia ranked tenth in
world gas production in 2009. Despite the declining oil production, Indonesia's oil, oil
products, and gas trade balance was negative in 2008 with a $1.4 billion deIicit, but became
positive again in 2009 with a $29.4 million surplus, according to oIIicial statistics.

Indonesia has a wide range oI mineral deposits and production, including bauxite, silver, and
tin, copper, nickel, gold, and coal. Although the coal sector was open to Ioreign investment in
the 1990s through coal contracts oI work, new investment was closed again aIter 2000. A
new mining law, passed in December 2008, opened coal to Ioreign investment again,
although it eliminated the diIIerence between Ioreign and domestic ownership structures.
Total coal production reached 208.0 million metric tons in 2009, including exports oI 161.3
million tons. Two U.S. Iirms operate two copper/gold mines in Indonesia, with a Canadian
and a U.K. Iirm holding signiIicant investments in nickel and gold, respectively. In 2007
Indonesia ranked IiIth among the world's top gold concentrate producers. Although coal
production has increased dramatically over the past 10 years, the number oI new metals
mines has declined. This decline does not reIlect Indonesia's mineral prospects, which are
high; rather, the decline reIlects earlier uncertainty over mining laws and regulations, low
competitiveness in the tax and royalty system, and investor concerns over divestment policies
and the sanctity oI contracts.

In early 2010, the Government oI Indonesia also Iormally decided to become a candidate
country oI the Extractive Industries Transparency Initiative (EITI), which will increase
accountability and transparency in energy revenue transactions between the government and
oil, gas, and mining Iirms

Indian-Indonesian politic relationship:
Indian-Indonesian relations reIer to the bilateral relations oI India and Indonesia. The Indian-
Indonesian relationship stretch back Ior almost two millennia. In 1950, the Iirst President oI
Indonesia - Sukarno called upon the peoples oI Indonesia and India to "intensiIy the cordial
relations" that had existed between the two countries "Ior more than 1000 years" beIore they
had been "disrupted" by colonial powers.
|3|
FiIteen years later in Jakarta, government-
inspired mobs were shouting: "Down with India, the servant oI imperialists" and "Crush
India, our enemy."
|4|
Yet in the spring oI 1966, the Ioreign ministers oI both countries began
speaking again oI an era oI Iriendly relations.
India had supported Indonesian independence and Nehru had raised the Indonesian question
in the United Nations Security Council.
India has an embassy in Jakarta
|5|
and Indonesia operates an embassy in Delhi.
|6|
India
regards Indonesia as a key member oI ASEAN. Both nations had agreed to establish a
strategic partnership

Indonesia-India relationship moving into splendid phase:
The relationship between Asia's two major regional powers -- India and Indonesia -- is
moving into a splendid phase, with an unprecedented surge oI interaction in various sectors,
including trade, investment and culture,
Both countries had agreed to establish a strategic partnership during the visit oI President
Yudhoyono to India in 2005. The strategic partnership marks a new step Iorward in the
relationship oI two old allies, who have cooperated closely since their respective struggles Ior
Ireedom against colonial powers. India and Indonesia, who are maritime neighbours,
maintained "soIt links" -- a combination oI trade and culture -- Ior more than 2,000 years

Indonesia is currently India's third largest trading partner in Southeast Asia. With bilateral
trade valued at US$6.55 billion, it trails only Singapore ($13 billion) and Malaysia (more
than $8 billion).
Thanks to the growing economies in India and Indonesia, trade between the two countries has
grown by leaps and bounds in the last Iour years. Last year, trade surged to $6.55 billion, a
huge jump Irom $2.40 billion in 2003. In the Iirst quarter oI 2008, trade was valued at $2.34
billion, a year-on-year increase oI 74.61 percent Irom $1.34 billion.

India buys 2 million tons oI crude palm oil, worth more than $2 billion, per year Irom
Indonesia. It also imports huge quantities oI coal. The most interesting thing about the
economic relations between India and Indonesia was the enormous interest oI Indian
companies to invest in Indonesia.
In 2007, the Tata group bought a 30 percent stake, worth $1.1 billion, in PT Bum Resources,
the owner oI Indonesia's biggest coal mines.
In May 2008, Jindal Stainless Steel oI India signed a joint venture agreement with PT Aneka
Tambang to establish a nickel smelting and stainless steel Iacility in Southeast Sulawesi, with
an investment oI $800 million.

India exported 35,000 motor vehicles to Indonesia in 2007. This will double to 70,000
vehicles this year," Nanda said.