SHOWDOWN BETWEEN PRESIDENT AND VP OVER REFORM UNIT

C O N F I D E N T I A L SECTION 01 OF 03 JAKARTA 013173

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/08/2016
TAGS: PGOV KDEM KISL ECON EFIN KCOR PINR ID
SUBJECT: SHOWDOWN BETWEEN PRESIDENT AND VP OVER REFORM UNIT

REF: A. JAKARTA 7941 (WORRIES ABOUT SBY'S POSITION)

B. 05 JAKARTA 16504 (DYNAMICS BEHIND RESHUFFLE)

C. 05 JAKARTA 6383 (VICE PRESIDENT JUSUF KALLA)

D. 04 JAKARTA 12661 (KALLA WINS CHAIR OF GOLKAR)

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Classified By: Ambassador B. Lynn Pascoe, reasons 1.4 (b) AND (d).

SUMMARY
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1. (C) President Yudhoyono and Vice President Kalla have
skirmished publicly over SBY's decision to advance the
President's reform agenda. Although referred to in general
terms for months, the "Presidential Work Unit on Managing
Policy and Reform Programs (UKP3KR)" was reportedly designed
and unveiled without being discussed with the VP.
Presidential spokesperson Andi Mallarangeng publicly
introduced UKP3KR on October 26 and it promptly incurred the
wrath of several Golkar party officials (Note: Vice President
Kalla is the Chairman of Golkar (REF D),Indonesia's largest
political party),as well as Kalla's surrogates in the
Indonesian House of Representatives (DPR),who decried the
measure as a means of sidelining the Vice President. Several
of the President's cabinet ministers, with State Secretary
Yusril Mahendra leading the charge, also actively opposed the
new group.


2. (C) On November 3 Kalla himself publicly called for the
unit to be disbanded and then requested a meeting with the
President to express his displeasure over the proposed body.
In the wake of their meeting, the President appeared to back
off a bit on his plans for UKP3KR, notably excluding the
unit's head from a November 6 cabinet meeting. Kalla's
supporters interpreted the unit head's absence as a clear
victory for Kalla in what amounted to a very public dustup
between the President and the Vice President. However, two
contacts close to the President suggested SBY would proceed
with his plans for the reform unit, an indication perhaps
that Kalla's celebration might be premature. The creation of
UKP3KR was the President's most recent attempt to augment his
executive authority. The President needs more than ever to
counter mounting criticism of the economy and the slow pace
of reform, and a decision to cave to Kalla's pressure could
be politically disastrous. End Summary.

THE PRESIDENTIAL WORK UNIT
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3. (SBU) On September 26, President Yudhoyono signed
Presidential Decree No 17/2006 authorizing the creation of
UKP3KR. The move was welcomed by investors, economists, and
advocates of reform. The intellectual brainchild American
analyst Adam Schwarz, UKP3KR was given a three-year mandate
to strengthen the President's reform agenda by focusing on
five areas: improving the investment climate, implementing
bureaucratic reform, improving the performance of state
enterprises, expanding the role of small and medium
enterprises, and improving law enforcement. The unit itself
was a compromise, as ideas for broader civil service reform
efforts and a national security council were eventually
judged by the President and his team as too difficult and
politically risky. The decree had been delayed for several
months. The President tapped three well known reformers for
the unit: former Cabinet Secretary and Attorney General
Marsilam Simanjuntak as chair the and retired Lieutenant
General Agus Widodo and Chairman of the Board of Bank Mandiri
and former head of the Indonesian Bank Restructuring Agency
(IBRA) Edwin Gerungan were as deputies.


4. (SBU) UKP3KR was modeled after Tony Blair's Delivery Unit,
a group the British Prime Minister created in 2001 to help
him deliver on key public policy promises. Marsilam
Simanjuntak, who is also advising the Ministry of Finance on
tax reform, announced UKP3KR would function similarly,
working in close coordination with the cabinet ministers to
assess the pace of reform and focus the President's attention
accordingly. SBY has been handicapped in pushing through
reforms by the absence of a dedicated policy implementation,
coordination and monitoring body: the State Secretariat
(SekNeg) plays an administrative, and unhelpful gate keeping
role. Both Marsilam and the President's spokesperson, Andi
Mallarangeng, emphasized the unit would complement the work
of the cabinet ministers and not supplant them.


5. (C) A World Bank official familiar with the history of the

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UKP3KR's evolution told us the President handled its rollout
poorly and never really sold key cabinet ministers on its
utility. Yusril Mahendra, in particular, only gave the
President his support under duress, and reportedly worked
behind the scenes (as he has on other reform initiatives) to
ensure its failure. According to the World Bank official,
other ministers feared the unit could ultimately succeed in
its mission, thereby jeopardizing their ability to profit
from their positions and dispense patronage. The ministers
also resented the fact that an outsider developed the idea
for UKP3KR and that it was modeled after a British
initiative.

KALLA AND GOLKAR REACT
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6. (C) According to Mahendra Siregar, an Economic Affairs
Ministry Deputy, and other post contacts, Golkar and SekNeg
officials tried to sideline UKP3KR from the beginning. Vice
President Kalla and Golkar reacted swiftly and aggressively
to the public unveiling of the body and interpreted the
unit's creation as a challenge to Kalla and Golkar's
policy-making influence, as well as a public slap at the
cabinet, to which Golkar is the largest partner (REF B).
Kalla pulled out all the stops to undermine the new unit,
enlisting the support of Indonesia's two largest mass Islamic
organizations.


7. (C) Golkar's public condemnations of the unit focused on
two lines of attack: a)UKP3KR was redundant and cabinet level
positions already existed to carry out the unit's mandate and
b) the President violated the spirit of the SBY-Kalla
pre-election compact(REF C). A key unstated reason for
Golkar's unhappiness was that Marsillam Simandjuntak, as the
Attorney General in 2001, recommended that Gus Dur disband
Golkar, and party officials throughout Golkar clearly
relished the opportunity to mete out revenge through
opposition to UKP3KR.


8. (C) Vice President Kalla publicly joined the anti-working
group chorus on November 3 and then privately met the
President to air his grievances. According to Poempida
Hidayatulloh, the Golkar Deputy Treasurer, the Vice President
appealed to the President's sense of honor by observing the
President's failure to consult him on UKP3KR constituted a
breach of their pre-election gentlemen's agreement to consult
each other on important policy decisions. According to
Poempida, he then threatened that he would have difficulty as
Golkar chair enlisting Golkar's continued support for
government policies if the President insisted on appointing
an avowed enemy of Golkar like Marsillam to a key
policy-making position.


9. (C) According to Poempida, the President took Kalla's
points and expressed his surprise at the controversy
surrounding the working group. Poempida said the President
then apologized for the unintentional affront and vowed to
sideline the group quietly. Kalla reportedly in exchange
agreed the group should not be disbanded or undermined
publicly, as such a move would damage the President's
credibility. Poempida told us the Vice President was
confident he had persuaded the President to stand down on the
working group and then viewed Marsillam's exclusion from the
subsequent November 6 cabinet meeting as confirmation the
President would abide by his word.

WHAT NOW?
--------------


10. (U) On November 6, following the cabinet meeting, the
President's spokesperson addressed questions about
Marsillam's absence from the cabinet meeting by claiming
UPK3R would "remain in existence" but that the President
would redesign its parameters to meet certain "working
standards" and clarify "technical functions." The comments
were widely publicized in the Indonesian media and generally
treated as evidence the President had acquiesced to Kalla's
concerns over the body.


11. (C) A confidante of the President's told the Ambassador
that SBY was angry with Golkar for returning to its "devious,
untrustworthy" political ways. The President was
particularly incensed the Vice President decided to object to
UKP3KR publicly. According to the contact, the President was
also frustrated by Golkar's arrogance and evident disregard

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for the fact that SBY had been elected President by an
overwhelming margin without Golkar's support.


12. (C) Two Presidential contacts told us SBY planned to
proceed with his plans for UKP3KR at his own pace. They both
claimed SBY would not reverse his decree and would not be
cowed by Golkar's veiled threats to pull out of the
government. SBY expressed frustration with the need to deal
with Golkar, but was nevertheless fully aware the party's
options were limited and that he had the upper hand as
President.

COMMENT
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13. (C) This public sparring has damaged the President's
public standing. The battle underscored the fragile nature
of the SBY/Kalla/Golkar union. Perhaps more disturbingly,
the President's inability to outmaneuver Golkar and possible
capitulation to the party's demands to emasculate UKP3KR
highlight the obstacles SBY faces in his effort to carry out
meaningful reform. Golkar is above all else the party of
entrenched interests and the President's deal with the party
has always been somewhat cynical in nature. On one hand the
alliance has been helpful for the President in crafting a
majority in the DPR, while on the other, Golkar has
demonstrated its ability to block reform and protect its
interests. Indonesia's largest political party is
simultaneously the President's most useful ally and
determined foe.


14. (C) Everyone is watching the President to see how he will
respond to an obvious campaign of intimidation and bullying
on the part of Kalla, Golkar and a political class long
accustomed to feeding at the public trough. The showdown
over the UKP3KR is seen as a test of the President's mettle
and capacity to deliver on his reform promises.
PASCOE