Indonesians ditch gold; buy cell phones, air tickets

SINGAPORE (Reuters) - Many Indonesians have dumped gold for trendy handphones and used their money to travel or buy motorcycles as consumption patterns shift in Southeast Asia's largest consumer, a senior industry official said on Tuesday.

Jewellery demand rose 1.96 percent to 15.6 tonnes in the first quarter of 2007 as the rupiah firmed and gold dropped from a 26-year high of $730 an ounce hit in May last year, but Leo Hadi Loe, a consultant with Jewellery Indonesia, was not upbeat.

"There's a change in consumption trends. Even a maid now has two handphones. They are saving money to buy new products," Loe told Reuters by telephone.

Jewellery Indonesia is a Jakarta-based firm that promotes gold in the world's largest archipelago. Indonesia holds 96.4 tonnes of gold in its reserves.

Migrant workers such as housemaids, factory and construction workers as well as drivers would buy jewellery to show off when they returned to their villages during holidays. About 70 percent of Indonesia's jewellery consumers live in rural areas, said Loe.

But now, many Indonesians are using their money to buy motorcycles or handphones. A second-hand handset may cost 200,000 rupiah ($22.14) -- only slightly more expensive than a gram of gold, he said.

Spot gold was steady around $653.40 an ounce on Tuesday.

"Everyone now has a handphone. You have to pay the monthly bill. It eats up the savings."

Indonesia's cell phone sector has grown at a robust pace in recent years with analysts expecting the number of users to rise more than 40 percent to 100 million by 2010 from the current 70 million.

"The motorcycle business is in such a boom in Indonesia that with only 500,000 rupiah ($55.34) you can afford to buy one," said Loe, referring to the downpayment needed to obtain a loan.

"You have to pay your monthly installments for maybe two to three years."

Indonesia's jewellery consumption dropped 26.1 percent to 57.7 tonnes in 2006, according to the World Gold Council.

Last year's demand fell as Indonesians cashed in their gold after a rise in government-set fuel prices pushed inflation to more than 18 percent to a six-year high in late 2005, said dealers. High prices of basic essentials also curbed purchases.

There are no estimates yet for consumption in 2007 but Loe said the emergence of dozens of budget airlines in Indonesia also restricted demand for gold as consumers took advantage of the cheap air fares.

Air travel in Indonesia, home to 220 million people, has grown substantially since the liberalization of the airline industry after the Asian financial crisis in the late 1990s.

"Air fare is really cheap and affordable," said Loe.

"Factories are not running in full capacity. People will be overjoyed whenever they receive orders," said Loe, referring to the country's 35 jewellery makers.

Price rises are a sensitive issue in impoverished Indonesia. In 1998, it triggered widespread protests that helped topple former President Suharto.

($1=9,035 rupiah)