INDONESIA'S 100-DAY PLAN: 15 PRIORITY PROGRAMS

UNCLAS JAKARTA 001901 SENSITIVE SIPDIS DEPARTMENT FOR EAP/MTS, EEB, OES, INL, S/CT, ECA, USAID TREASURY FOR IA - T.RAND ENERGY FOR PI-32 CUTLER AND COLOMBO USTR FOR EHLERS COMMERCE FOR 4430 NADJMI USAID FOR DEPUTY ASSISTANT ADMINISTRATOR ASIA MARGOT ELLIS E.O. 12958: N/A TAGS: ECON EAID EFIN ETRD EINV ENRG KCOR PREL PTER SENV ID SUBJECT: INDONESIA'S 100-DAY PLAN: 15 PRIORITY PROGRAMS ¶1. (SBU) Summary: President Susilo Bambang Yudhoyono (SBY) has identified 15 priority programs for his second administration in the government's 100-day plan. The heated dispute between Indonesia's police, Attorney General's Office and the Corruption Eradication Commission (KPK) prompted the president to move countering corruption and combating legal mafias to the top of his 100-day list. Two other notable priorities include establishing a new Counter-Terrorism Coordinating Agency and streamlining land acquisition regulations to facilitate stalled infrastructure development. Several of the 15 priority programs may facilitate our continuing efforts to build a broad-based partnership to advance progress on shared challenges such as global climate change, food security and reform in education and health. End summary. Removing Constraints to Higher Growth - - - - - - - - - - - - - - - - - - - ¶2. (SBU) The SBY-Boediono administration began work on an initial 100-day plan for the new administration in the weeks before the inauguration. Advisors close to Vice President Boediono worked to identify low-hanging fruit which could be harvested early and longer-term action needed to remove bottlenecks in physical infrastructure, soft infrastructure (including bureaucratic reform), social infrastructure (including providing a stronger social safety net with better targeting),and creative infrastructure. A three-day National Summit held October 29-31 launched a wider discussion between national and regional governments, the private sector and a variety of academic and other experts regarding national priorities, primarily relating to economic development. Significant consensus exists on the need to remove key obstacles to higher economic growth, such as inadequate infrastructure, weakness in governance and an educational system which does not provide the results needed to compete in a global economy. The current corruption-related political controversy has, however, shifted public attention away from SBY's wider economic growth agenda to the need for governance reform. Plan's Details Still Emerging - - - - - - - - - - - - - - - ¶3. (SBU) Coordinating and line ministers are currently developing the government's first 100-day plan, and more comprehensive one and five-year plans. Details which have emerged so far indicate a variety of planned actions, including establishing a new Counter-Terrorism Coordinating Agency, revising government laws and regulations to streamline land acquisition for public projects, and increasing operation of port and customs services to 24 hours per day. The Presidential Work Unit, headed by Kuntoro Mangkusubroto, is responsible for monitoring progress on implementation of the 100-day plan. Analysts have said some elements of the plan are promising steps to address impediments to clean governance and higher growth. However, they caution that other suggested measures remain vague, could deter investment and/or will require significant political support that may not be forthcoming. President's 15 Priorities for 100-Day Plans - - - - - - - - - - - - - - - - - - - - - - ¶4. (U) President Yudhoyono announced fifteen priorities for his second administration's 100-day plan: combating legal mafias in all state institutions and law enforcement agencies; revitalizing the defense industry; overcoming terrorism; providing electricity; food production and security; revitalizing fertilizer and sugar industries; rectifying inconsistencies in land-use and spatial planning; developing infrastructure; empowering small, medium and micro-enterprises; financing investment and development; climate change and the environment; reforming health services; reforming education; preparedness of disaster relief; and improving synergy between the central and regional governments. Brief overviews below describe possible opportunities for advancing U.S. interests in these areas. Priority Areas: An Overview - - - - - - - - - - - - - - - ¶5. (SBU) COMBATING "LEGAL MAFIAS": President SBY, who was reelected partly on his positive reform record, immediately made combating 'legal mafias' his top priority for his first 100 days in office. By legal mafias, SBY was referring to those seeking to use influence in legal cases to harm others for personal gain. These practices, which are pervasive in national and regional government institutions and law enforcement agencies, include case brokering, bribery, extortion, threatening witnesses and other parties, charging unofficial fees, and other rent seeking behavior. SBY said this mafia undermines justice and the rule of law, creating an uncertain investment climate in the nation. His focus on this issue came to a head during recent national attention to allegations of case brokering, extortion, and conspiracy in a dispute between the Indonesian National Police (INP),the Attorney General's Office (AGO),and the Corruption Eradication Commission (KPK) (see Jakarta 1845). SBY's initial response to this controversy was to designate a team of 8 respected academicians, attorneys, and civil society leaders to investigate the controversy between these organizations and to direct the public to report Mafioso-like behaviors in legal matters to a post office box. President SBY's focus on these issues provides opportunities to increase US-Indonesia collaboration in promoting good governance and the rule of law and establishing a better climate for foreign investment and entrepreneurship. ¶6. (SBU) REVITALIZING INDONESIA'S DEFENSE INDUSTRY: This has been a goal of the GOI for some time, although its inclusion in the 100-day plan elevates it to a higher priority. The sector's lack of development stems in part from the state-owned enterprise (SOE) status of producers such as small arms maker PT Pindad and shipbuilder PT PAL. Defense Minister Yusgiantoro told the press that as a first step to increasing those producers' capabilities and competitiveness, the GOI must clarify under which ministry they fall. The Indonesian defense industry's lack of ability to produce sophisticated armaments has resulted in a very small volume of third-country sales and what the GOI believes is an over-reliance on foreign manufacturers, particularly for the Navy and Air Force. A recently concluded Memorandum of Understanding between Bell Helicopters and an Indonesian SOE presents an opportunity for possible win-win collaboration in this sector. ¶7. (SBU) OVERCOMING TERRORISM (THE INCREASE OF CAPACITY IN THE RESTRUCTURING OF COUNTERTERRORISM INSTITUTIONS TO FURTHER INVOLVE ALL LAYERS OF SOCIETY): The government has proposed the establishment of a Counterterrorism Coordination Agency which would coordinate GOI CT policy and activities, and serve as a central crisis center in the event of a terrorist attack. The agency would be composed of governmental and social components, including most GOI Ministries, the Attorney General's Office, the National Police (INP),the National Intelligence Body (BIN),and the Armed Forces (TNI). The Coordinating Minister for Political, Legal, and Social Affairs would head the body and answer directly to the president. It has not yet been determined whether the agency would have operational capacities. In addition to ongoing U.S.-GOI CT cooperation between law enforcement agencies, elements of the agency would also coordinate with the Religious, Education, and Information Affairs Ministries to implement counter- and de-radicalization programs, another U.S.-GOI area of cooperation. Since the July 17 bombings, we have seen GOI efforts to tighten interagency law enforcement cooperation, including proposed amendments to existing counterterrorism law that would allow the TNI and BIN to work more closely with police on CT activities. The establishment of a CT Coordination Agency could enhance CT operational capabilities and intelligence sharing across GOI agencies if it is structured in such a way that participating agencies' responsibilities are clearly defined and there is an information sharing mandate that applies to all agencies. ¶8. (SBU) CLIMATE CHANGE AND THE ENVIRONMENT AND RATIONALIZING LAND-USE AND SPATIAL PLANNING: SBY's priority programs on climate change and environment, and harmonizing land-use and spatial planning, are consistent with his G20 commitment in Pittsburgh to reduce Indonesia's emissions - primarily from forestry and peat lands. The administration seeks to protect forests, combat illegal logging and fires, and protect marine habitats. It also seeks to address underlying land-tenure and governance ambiguities that undermine sustainable forest and land-use management. USAID is now concluding a highly successful year-long effort to establish the regional spatial plan for Papua, which the Governor touts as the "blueprint for development" of his Province. We expect to strengthen our partnership in these areas during the coming years. The new Minister of Forestry Zulkifli Hasan has declared that forest rehabilitation, peat land conversion, and spatial planning were among his short list of priorities for the ministry. The new Minister of Environment Gusti Muhammad Hatta has stated that resolving overlapping and conflicting spatial and land-use plans in coordination with other ministries is a priority, and the Minister of Agriculture has made similar statements. This is a promising start to what could be a whole-of-government effort to address climate change mitigation, with U.S. and international partners' support. Next year we will significantly increase USG support for forest management initiatives and GHG emissions reduction from deforestation. Although the Ministry of Marine Affairs and Fisheries has not yet spelled out its 100-day plan, it is likely to continue work on the Coral Triangle Initiative, of which the U.S. is the largest bilateral supporter. The new Minister Fadel Muhammad says SBY instructed him to focus on the livelihoods of fishermen, particularly small-scale, traditional ones. Next year, we will have a major effort involving USAID, NOAA and DOJ that will collaborate on these priorities as well as coastal community resilience, GOI capacity building, reducing illegal fishing, marine protected areas management, alternative livelihoods and sustainable fisheries in the face of climate change. ¶9. (SBU) PROVIDING ELECTRICITY: The SBY administration recognizes the hardships that electricity shortages are creating, but its proposed solutions offer little new and nothing that will rapidly solve the problem. The Minister of Energy and Mineral Resources has reiterated a commitment to the country's two 10,000 MW accelerated electricity development programs, Phase I (coal powered) and Phase II (geothermal, hydro, gas, coal). Phase I is behind schedule due to problems with financing and delays attributed to the Chinese contractors who are building most plants. The government has not yet begun Phase II due to pricing uncertainty and the inadequacy of the regulatory and tendering mechanisms that will be needed to bring in independent power producers. The Indonesian government has already approached the U.S. and other countries for help on many of the policy obstacles it faces. The only innovation suggested by the Ministry is contract renegotiations for about 50 independent power producer (IPPs) projects that have been stalled in the financing stage for years. Most of the 50 IPPs bid unrealistically low in the public tender phase, making their business models non-viable. Industry observers oppose contract renegotiations for these IPPs, believing that allowing these companies to get more favorable prices now would reward anti-competitive practices in future bids. To assist in these priorities, USAID will initiate a large new clean energy development program next year. ¶10. (U) FOOD PRODUCTION AND SECURITY: In October 2009, newly appointed Minister of Agriculture, Minister Ir. H. Suswono, stated that Indonesia will work to identify the regions most vulnerable to food insecurity through the development of a Food Security and Vulnerability Atlas (FSVA). Data from the FSVA will serve as a monitoring and early warning system the Government of Indonesia (GOI) will use to identify and target food insecure regions. GOI officials have told us their priority areas for food security include: the need for human resource development, focusing on research, education and extension; the need for investment in hard infrastructure (including irrigation facilities, ports and rural roads) to reduce the 40% loss rate from poor distribution and soft infrastructure, to include broadband links to agricultural universities and research centers; and Maternal and childhood nutrition targeting both rural and urban poor. The Embassy seeks to collaborate with Indonesia to address these priority areas. One way forward would be to establish Centers of Excellence on research, education and extension through partnerships with Land Grant Universities or Sea Grant Colleges. These University Partnerships could be based on principles outlined in the Global Food Security Act, introduced to the U.S. Senate in February, 2009 by Senator Richard G. Lugar. Any Center of Excellence would build on existing institutions or programs. Suggested research areas include Marine & Fisheries, AgroForestry, and Food & Agriculture. ¶11. (U) REVITALIZING FERTILIZER AND SUGAR INDUSTRIES: Mission will encourage the GOI to explore U.S. sources for fertilizers and farm equipment. Furthermore, we will encourage the GOI to address concerns regarding sugar production by exploring the use of biotechnology in its own sugar production system. ¶12. (SBU) DEVELOPING INFRASTRUCTURE: President Yudhoyono has vowed to invest in development of the country's infrastructure, an important part of his strategy to promote better economic integration nationwide. Experts here stress that the cost of transporting goods within Indonesia is well over the average in Asia, and double the cost in Europe. An improved road network is critical for linking provinces and major islands, but plans are complicated by contradictory regulations between multiple ministries. The new administration plans to build twenty-two toll roads by 2014 in collaboration with private investors. Also slated for improvement are port facilities, harbors, airports and infrastructure for transportation and fisheries. These are key areas for continued U.S. - Indonesia cooperation to promote the safe and secure movement of people and goods both domestically and internationally. Prioritizing civil aviation may help advance U.S. - supported improvements in the sector. Infrastructure development could spur more competitive logistics services, a key factor in attracting new investment in manufacturing and resources. Investment in infrastructure overall also has the potential to create a wealth of business opportunities for U.S. firms. ¶13. (U) EMPOWERING SMALL, MEDIUM AND MICRO-ENTERPRISES: The GOI has said it intends to increase the availability of financing to this important sector. The government of Indonesia, including members of the new legislature, appears receptive to U.S. efforts aimed at promoting entrepreneurship and engaging local entrepreneurs in Muslim-majority countries. Mission has facilitated contacts between Indonesian government officials and the private sector with U.S. entrepreneurship organizations, has requested Public Diplomacy entrepreneurship-focus speaker programs and is exploring with EEB/CBA possible entrepreneurship activities in Indonesia. There is also interest here for the possibility of Indonesia as host of a regional entrepreneurship summit. ¶14. (SBU) FINANCING INVESTMENT AND DEVELOPMENT: The government of Indonesia seeks to promote the financing of and investment into Indonesian infrastructure, electricity and food security activities. The U.S. continues negotiations with the GOI on an OPIC Investment Incentive Agreement which would allow OPIC to provide expanded financing, insurance, private investment fund and other services to those investing in Indonesia. We will also follow up on the interest expressed by Vice President Boediono to Ambassador Hume regarding a possible Bilateral Investment Treaty. Mission is also engaged in policy discussions with the Indonesian government regarding regulatory changes needed in order to encourage investment in Indonesia's energy sector, particularly in the area of clean and renewable energy. ¶15. (SBU) REFORMING HEALTH SERVICES: Indonesia's priority is no longer free medicine, but rather free health for the poor, therefore public health facilities must be given stronger capacity. Equitable access to quality health care for all is an important endeavor. A strong health system meeting the needs of an entire nation requires six fundamental building blocks: leadership and governance, human resources, medical products, financing, service delivery, and information systems. While stronger capacity to provide uniform standards of quality care must be built in the public health facilities, more attention must also be paid to engage private sector providers. The private sector's role has grown dramatically over the past decade and there is an overall wide acceptance among Idonesian consumers to use private sector providersfor a range of health services - even among the oorest socio-economic groups. Decentralization pses another challenge to equitable access to quality health care. There is little coordination between district health officials and central health officials or between the district health providers and private providers. A coordinated effort must include changing provider incentives, promoting partnership with private providers, and providing support to district and provincial health officials to focus on a limited set of critical health priorities. Through a variety of health programs, USAID is focused on building replicable models for quality services to increase access to quality health care. Mission will also continue to engage in policy discussions to encourage the GOI to ease market access restrictions and regulatory uncertainty which discourage foreign investors from investing in the health care sector. ¶16. (SBU) REFORMING EDUCATION: Innovation and critical thinking are essential to this era's knowledge-based, high-tech economy - and what educational institutions teach must be linked to the needs of the economy and workplace. The GOI has recognized this imperative in its priority for reforming education. Indonesian students must have the teaching and the technology they need to fulfill their personal potential as well as contribute productively to the economic advancement of their country. Our education partnership will help Indonesian students develop in these critical areas - by encouraging linkages with U.S. universities in priority areas such as science and technology, supporting English language teaching and learning, and exposing more Indonesian students to education in the U.S. Our efforts to expand science and technology cooperation and generally to encourage public-private partnerships, such as those to support U.S. IT in the classroom, will also support the GOI's efforts to improve education. As the new Minister's policies and plans evolve, we expect more explicit attention will be given to higher education reform, including policy changes that would encourage more private sector involvement, allow foreign investment in higher education, and increase the number of GOI-funded scholarships to U.S. universities. Mission will continue to encourage GOI to ease market access restrictions and regulatory uncertainty which discourage foreign investors. ¶17. (U) PREPAREDNESS OF DISASTER RELIEF: For many years the GOI focused its efforts on effective disaster response, but the frequency, damage and human/financial costs of natural disasters in Indonesia demonstrate on a continuing basis the importance of disaster preparedness. The lessons from the past few years including the recent Tasikmalaya and Padang earthquakes have clearly shown that disaster preparedness is the most effective and least expensive way to minimize financial and human losses from disasters. The National Disaster Management Agency (BNPB) that was formed in 2007 is slowly but surely increasing its capacity in disaster response and wishes to play a larger role in disaster preparedness. The USG has been one of the main donors in disaster response, including both civilian as well as military resources that have filled critical needs such as medical services water/sanitation, shelter and transportation logistics. Furthermore, the Embassy signed an MOU with the American Chamber of Commerce to augment existing USAID/OFDA emergency response capacity. We have also designed a disaster risk reduction program that will complement climate change adaptation activities in vulnerable coastal areas that we plan to initiate next year. ¶18. (SBU) IMPROVING SYNERGY BETWEEN THE CENTRAL AND REGIONAL GOVERNMENTS: The recognition of the need to improve synergy between the central and regional governments is a welcome one, especially if it results in greater clarity on the roles and responsibilities of the different levels of government. The prioritization of this issue could potentially be helpful in USAID's program providing assistance to regional governments to improve public service delivery by improving coordination between the different levels of government. However, it is unclear what can realistically be accomplished within 100 days to turn this priority into action.