U.S. ASEAN BUSINESS COUNCIL MISSION

UNCLAS SECTION 01 OF 03 JAKARTA 002016 SENSITIVE SIPDIS E.O. 12598: N/A TAGS: ECON ETRD EINV ID SUBJECT: U.S. ASEAN BUSINESS COUNCIL MISSION ¶1. (SBU) This telegram is Sensitive but Unclassified. It contains business sensitive information. Please protect accordingly. ¶2. (SBU) Summary: Twenty-six U.S. company leaders from the ASEAN Business Council used high-level meetings to address company-specific issues with some success. The delegation, however, lacked a common focus and therefore missed an opportunity to address more systemic issues. The U.S. ASEAN Business Council (USABC) annual mission to Jakarta included several Ministerial meetings (October 20-23, 2008) and a visit to Trade Expo Indonesia. End Summary. Vice President Kalla - "Main Street is longer than Wall Street" - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ¶3. (SBU) Indonesian VP Jusuf Kalla stressed that the Indonesian economy has limited exposure to the current downturn in overseas financial markets and was fundamentally stronger than during the 1997 financial crisis, with demand for natural gas, coal, and palm oil staying strong. Musing that "Main Street is longer than Wall Street in Indonesia," he estimated the downturn would translate to only a one-half percentage point drop in the growth rate for Indonesia. USABC participants thanked Kalla for his help on instituting the Hills Governance Center at the University of Indonesia, programs on maternal and children's health, and supporting U.S. investment in agriculture and railways. Regarding difficulties by Coca Cola Indonesia to import refined sugar from Thailand, VP Kalla stated that if Coca Cola can demonstrate its use of the full amount of the sugar in production, it may be possible to arrange an import license. Kalla also agreed to ask the Ministry of Health to look into the non-renewal of marketing authorizations for pharmaceutical companies, and other unintended consequences resulting from changes in investment laws. DPR Leadership - Don't panic, stay open to foreign investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ¶4. (SBU) Speaker of the DPR Agung Laksono, Chair of Commission I Theo Sambuaga, and Parliamentarian Murdaya Widyawimarta (Poo) engaged USABC on mining, gas exploration, good governance, maternal health, foreign direct investment and protectionism. The legislators expressed concern about a possible reduction in US investment in Asia in light of the financial crisis. USABC members responded that "ignoring Asia is not an option" and that although the overall investment picture might shrink a bit, they don't believe Indonesia's portion will be reduced. The legislators responded to inquiries about protectionist sentiments by saying that the Indonesian government and DPR cannot panic and must remain open to international investment. USABC participants said they were committed to the idea of ASEAN and looked forward to the establishment of a commerce clause, where goods can flow back and forth freely. Health sector businesses offered input on the health bill which the DPR is currently working on with the Ministry of Health. Foreign Ministry - Need to spur FDI - - - - - - - - - - - - - - - - - - ¶5. (SBU) Foreign Minister Hassan Wirayuda said that the Indonesian Government was not protectionist and was about to adopt a new tax and fiscal policy, providing new motivation for foreign direct investment (FDI). Wirayuda added Indonesia needs to develop a labor law, friendly not only to laborers but also to business. The Government has been increasing regional autonomy since 2003, which can create confusion for the business sector. The FM urged the USABC to spend more time engaging ASEAN to help it succeed, and welcomed USABC efforts to establish a governance center at the University of Indonesia. USABC hoped the Minister of Health's upcoming visit to Egypt (subsequently cancelled) would provide an opportunity to resolve the avian influenza sample sharing issue. The FM replied that Indonesia wants to resume sharing samples but believes WHO's sharing mechanism needs to be overhauled to allow greater equity and transparency. Trade Minister - "To the Extent We Can" - - - - - - - - - - - - - - - - - - - - ¶6. (SBU) Minister of Trade Mari Pangestu said the Indonesian government acted quickly and sought to send the "right signals" by adjusting budget outlays and economic growth projections in response to the global economic crisis. USABC members raised a number of investment issues including the status of the Indonesian government's review of its "negative list" on foreign investment. USABC expressed concern that Indonesia's investment climate issues damaged ASEAN's attractiveness as a single market. Pangestu responded that the government's review of the negative list is better described as an "update" to address implementation issues. She acknowledged the ambiguity and confusion resulting from sectoral ministries initiating restrictions on foreign investment independent of the negative list. She described the negative list as a new policy instrument that other government Ministers did not yet fully JAKARTA 00002016 002 OF 003 understand. Pangestu reaffirmed Indonesia's commitment to ASEAN and insisted that in times of economic crisis all countries should labor to stave off protectionism "to the extent we can." Investment Chief - "Call My Office" - - - - - - - - - - - - - - - - - - ¶7. (SBU) Muhammad Lutfi, Chairman of Indonesia's Investment Coordinating Board (BKPM) advised foreign companies to invest in priority sectors: infrastructure, agriculture, energy, and industry. He placed most emphasis on opportunities in the resource and extractive industries. USABC members raised several investment concerns, including questions on the implementation of the Investment Law and Indonesia's "negative list." He made repeated references to conversations with "my President" while characterizing himself as a lone reformer pushing for change against a reluctant bureaucracy. Several members raised specific issues and problems with their investments or operations in Indonesia. Lutfi's standard response was a variation of "call my office, and we'll fix that." Energy and Mineral Resources - Defense of contract renegotiation - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ¶8. (SBU) Former Directors General Luluk Sumiarso and Simon Sembiring discussed energy and minerals investment opportunities in Indonesia, including upstream production and downstream processing opportunities. (Minister Purnomo was traveling with the President to China.) Ministry officials encouraged investment in a broad range of industries and services in addition to production, including smelting, refining, LNG and natural gas pipelines, coal liquefaction, and coal gasification. Ministry officials also stressed opportunities in new and renewable energy projects, including coal bed methane and geothermal. Although questions from the delegation were few, a representative from PSEG, a New Jersey utility, asked about a recent move to cancel long-term coal contracts. Simon Sembiring defended his ministry's decision to renegotiate long-term, fixed-price contracts on the notion that it is 'unfair' to maintain fixed-price contracts when the commodity price rises. Pointing out that the government must approve all contracts, he indicated that they must always be in the maximum public interest. Ministry of Communication and Information - Population, geography, and infrastructure challenges - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ¶9. (SBU) Despite Indonesia's information and communications technology (ICT) successes, Minister Muhamad Nuh stated Indonesia's geographic diversity and infrastructure deficiencies remain challenges. The President created the ICT National Council to mobilize resources focused on increasing legal software (anti-piracy),improving the internet infrastructure backbone, and upgrading government computer infrastructure. The Minister's broadcasting media advisor said the sector objectives are to protect consumer rights and tackle the challenge of migrating to a digital signal. On telecommunications, the advisor said the challenge remains limited capacity and infrastructure. He noted that bidding for spectrum allocations (in the 2.3-3.3 GHz range) would begin before the end of the year for implementation in 2009. He said the new Electronic Information and Transaction Law approved in April is the country's first "cyber law" and lays out how to build an information society. The objectives are increasing access, improving infrastructure, and increasing affordability through competition. Intel and Oracle representatives highlighted corporate social responsibility activities to increase internet connectivity especially in schools. FedEx raised a negative list issue regarding courier companies which creates legal uncertainty and is impeding courier investment. Ministry officials responded that the regulations needed to be clarified, but they seek to balance the interests of consumers and local businesses. Ministry of Industry - Incentives, but not enough electricity - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ¶10. (SBU) Minister Fahmi Idris said that consumption is the main contributor to Indonesia's GDP and investment is the main growth engine. He noted 80 percent of non-oil and gas exports are in the priority sectors: ICT, transportation, agriculture, creative industry, and small and medium industry. The President's policy on industry aims to revive the investment climate, set prudent macroeconomic policies, promote a rational energy policy, optimize natural resource allocation, and increase employment. He said the Investment Law provides legal protection for investors and incentives for priority industries. The incentives include reduced income taxes, tariff redemption, one-stop services, simplified immigration system, and right of use of estate for 95 years. ¶11. (SBU) USABC representatives said uncertainty remains the biggest barrier to investment. The Minister said the negative list is being updated to give local business a chance to compete. He welcomed JAKARTA 00002016 003 OF 003 recommendations on the list. However, some products will remain permanently on the negative list like weapons and psychotropic drugs. Dow and others said electricity supply limitations are a burden that discourages new investment. The Minister and an Indonesian state electricity company (PLN) staffer said they expected to solve the electricity problem in coming years as they ramp up capacity, particularly to meet growing industrial demand. Electricity generator AES complained about PLN's electricity prices being set by regulation. He added that VAT and customs fees previously were not included in the target electricity price, but the necessary regulation was repealed. He said energy producers will need these exemptions to make electricity generation costs competitive. HUME