Funding for aircraft industry withdrawn

FINANCIAL TURMOIL IN INDONESIA

The “sacred cows” of the Indonesian economy – the national car project, IPTN airline projects and Bulog’s monopoly – suffered severely as Jakarta agreed to sweeping reforms.

DERWIN PEREIRA checks out with analysts in Jakarta on their perceptions of the latest announcements and their likely effect on the national economy.

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STATE-OWNED Nusantara Aircraft Industry (IPTN) will no longer get budget support and credit facilities for its projects.

Observers said foreign investors would welcome this as the airline projects were perceived to be a waste of public funds given that many here did not support the idea that the country can leapfrog into high-technology status in a short time.

“It was impossible. IPTN projects have always been very unpopular and a lot of investors want to see it go,” said an analyst from a local brokerage firm.

He said that government funds for the IPTN, which some believe to be US$2 billion (S$3.46 billion) annually, could now be put to better use in other areas of the economy. “This has traditionally been a big budget project. There will be a lot of funds available for other uses now,” he said.

IPTN president-director B.J. Habibie, who is also Research and Technology Minister, has all along argued that Indonesia could no longer rely on its agricultural base but had to develop advanced technology.

IPTN launched its newest product, the CN-235 aircraft, in 1996. It also signed an agreement with PT Dua Satu Tiga Puluh (DSTP), set up by President Suharto in his personal capacity, to produce Indonesia’s first passenger jet.

Under the agreement, DSTP would provide US$2 billion for IPTN to design, develop and produce two prototypes of the N-2130 passenger jet and obtain at least three international certificates for the aircraft from the United States and Japan.

The N-2130, which is the second plane to be designed and engineered in Indonesia, is scheduled to enter the market by 2005.

With the IPTN hit by budget cuts, Mr Suharto yesterday expressed hope that foreign investors would fund its programmes, in particular the N-2130 plane.

Observers believe that foreign investment would be crucial to see the project through.

Noted one analyst: “IPTN is basically crippled without government funds and will now have to get backing from foreign investors and the private sector.”

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