US-ABC PROMOTES BILATERAL TRADE AND INVESTMENT

UNCLAS SECTION 01 OF 04 JAKARTA 000202

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E.O. 12598: N/A
TAGS: ECON ETRD EAGR EINV ID
SUBJECT: US-ABC PROMOTES BILATERAL TRADE AND INVESTMENT


1. Summary. A delegation of business representative from The
U.S.-ASEAN Business Council (US-ABC) sent a delegation of U.S.
business representatives to Jakarta from January 25-28 for a series
of meetings with senior Indonesian officials to discuss Indonesia's
investment climate. Council members encouraged greater transparency
in the regulatory process, more stakeholder input into legislation,
legal reform for greater contract sanctity, transparent dispute
resolution, and reliable enforcement of decisions. US-ABC
representatives praised Indonesia's G-20 role and stated that this
was a clear sign of respect for Indonesia's global economic power.
US-ABC members also urged a successful conclusion to negotiations of
an updated OPIC agreement. End Summary.


2. US-ABC's delegation included more than 40 representatives of
around 20 companies that are already established or seeking to do
business in Indonesia. The sectors that these businesses represent
include agribusiness, energy and resources, food processing,
infrastructure, car and heavy equipment manufacturers, chemicals,
pharmaceuticals, and communications and IT equipment producers.
US-ABC stressed that its members' foreign direct investment (FDI) in
Indonesia has a positive multiplier effect through the transfer of
technology, growth of local jobs, benefits of a local supply chain
distribution system, and significant corporate social responsibility
programs. Because of the diversity of the delegation and the need
for multiple companies to participate, many of the high-level
meetings lacked the focus that organizers had planned.

Vice President Boediono
--------------


3. Vice President Boediono highlighted Indonesia's recently released
100-day report, stating that Indonesia is determined to accelerate
development of infrastructure and improve people's economic and
social welfare. Boediono said Indonesia is also looking for "quick
wins" on the environment, education and improvements to the
investment climate. He stated that the country will participate in
the global market while formulating an explicit policy to promote
its domestic market. He encouraged biotechnology, especially for
rice, to promote food security.


4. The Ambassador pointed out that this delegation reflects
increasing U.S. interest in expanding business ties and relations
with Indonesia. He said that President Obama's visit will focus our
attention so that we can strike deals which will demonstrate that
Indonesia is a good partner for international businesses. Rod
Hills, Vice Chairman of US-ABC and President & CEO of the Hills
Companies, told the Vice President that University of Indonesia's
Center for the Study of Governance planned to release a report with
suggestions to increase jobs in both countries.

Coordinating Ministry of the Economy
--------------


5. Coordinating Ministry of the Economy Deputy Director for
Macroeconomics and Finance Dr. Erlangga Mantik stated that Indonesia
was committed to improving its investment climate. Under President
Yudhoyono's 100-day plan, Indonesia had recently completed
amendments on land zoning regulations, adopted a mechanism for
financing infrastructure development, and enacted new energy
regulations. In addressing the delegation's specific concerns, he
noted that food security is important to the cabinet, specifically
through plans to develop food security programs in Papua. Prior
legislation on public-private partnerships had been unsuccessful,
and officials are working to improve this legislation. Indonesia is
aware of the need to make the oil and gas sector more attractive to
investors, and Mantik wants to solve cost recovery problems in the
near term.


6. Members brought up additional concerns. Cargill highlighted its
work on food security issues but stressed that food security does
not equate to elimination of imports. Monsanto hopes to develop
biotech corn in Indonesia, if relevant regulations are enacted. GE
seeks to improve infrastructure in Indonesia and was enthusiastic
about its geothermal project. GE referred to an impending
locomotive deal thanks to EXIM financing. Phillip Morris encouraged
private sector input on health legislation. Time Warner expressed
concern that regulations limiting foreign content do not support
growth of the film industry in Indonesia. Mantik committed to
raising these issues with the relevant ministries.

Minister of Finance Sri Mulyani Indrawati
--------------


7. Finance Minister Sri Mulyani Indrawati stated that Indonesia's
rising prominence is the result of successful policy efforts and

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institution-building. She declared that the top echelon of civil
servants had taken ownership of reform efforts. Indrawati
acknowledged reform "failures" in President Yudhoyono's recently
completed first term, due to the lack of consistency and
implementing capacity. Indonesia is still committed to reform,
despite the distraction of recent "headlines," a reference to the
controversy over the bailout of Bank Century. Indrawati wants to
return to the pre-2009 fiscal policy when economic conditions allow,
and she hopes that good coordination among members of the G-20 will
provide a forum to look at a stimulus exit policy. The Finance
Ministry remains focused on increased health, education,
infrastructure, and defense spending. The Minister stressed that
businesses must also consider local government when making
investment decisions. She defended the cap on oil and gas cost
recovery, claiming that it is to mitigate the effects of unfair
contracts from previous administrations. US-ABC representatives
encouraged the Minister to provide additional business incentives
and direction on existing tax policies, and to address issues of oil
and gas cost recovery.

Vice Minister of Trade Siregar
--------------


8. Vice Minister of Trade Mahendra Siregar welcomed the delegation
and expressed optimism about Indonesia's improving business climate.
He stressed Indonesia's commitment to ASEAN and discussed his
government's efforts to improve "domestic connectivity." He
cautioned US-ABC members to not be overly harsh in their appraisal
of Indonesia's investment climate. Siregar argued that most of the
concerns member companies have are not unique to Indonesia, but are
common among large emerging economies. Siregar also commented on
Indonesia's recent inclusion in the G-20, describing it as
"unexpected." Siregar argued for "quick wins" in the bilateral
relationship to build momentum toward greater cooperation.

Minister of Industry Hidayat
--------------


9. Minister of Industry Hidayat welcomed all participants and spoke
of his hopes to lay the foundation in Indonesia for a fundamental
change in the domestic business sector. Minister Hidayat noted
President Yudhoyono's support for removing bottlenecks in the
investment process and expressed his optimism that opportunities
will grow over the next five years. He assured attendees that the
Bank Century scandal was being adequately managed. Hidayat hopes to
position Indonesia as the center of ASEAN, and he called for a
strong business relationship between Indonesia and the United
States. Hidayat asked participants to speak directly with his
office about company-specific concerns.

Minister of Information and Telecoms Sembiring
-------------- -


10. Minister of Information and Telecoms Tifatul Sembiring remarked
on the continuing problem of the "digital divide" and noted the IT
goals in Yudhoyono's 100-Day Plan. He provided an update on the
Palapa Ring, a fiber-optic cable project that will connect the
entire country. He advised that the west side of the project is
still 2-3 years from completion. Sembiring also highlighted his
Ministry's recent anti-cyber-crime efforts.


11. US-ABC participants cited the emphasis President Yudhoyono
placed on infrastructure and telecommunications. Intel noted the
low levels of broadband availability and the need for a clear policy
for spectrum frequency development, procurement, and allocation in
Indonesia. UPS asked about the new Postal Law and possible impact
on courier and logistics services. Sembiring promised that there
would be a public comment period for the Postal Law implementing
regulations. (Note: the public comment period has already closed.
End note.) He defended measures promoting development of local
capacity in the IT and telecoms sector.

Minister of Foreign Affairs Natalegawa
--------------


12. Foreign Minister Marty Natalegawa lauded the council for its
corporate social responsibility activities. He encouraged increased
U.S.-Indonesian business ties in line with Indonesia's democratic
transformation, sturdy economy, and progress in the U.S.-Indonesia
and U.S.-ASEAN relationships. Natalegawa enlisted US-ABC's help on
business innovations to combat climate change.


13. US-ABC members noted that the OPIC agreement discussions are a
positive signal to U.S. investors that Indonesia is a good place to
invest. Microsoft told the FM about its work on the Foreign

JAKARTA 00000202 003 OF 004


Ministry computing system, and Sampoerna Foundation asked that the
MFA consider stakeholder input on the new health bill.

Vice Minister of Transportation Susantono
--------------


14. Vice Minister of Transportation Bambang Susantono discussed
Indonesia's transportation development, a plan to develop a "6
Corridor" Special Economic Zone program that will form the backbone
of a national logistics system, and efforts to take more of the
Ministry's processes online. Susantono said Indonesia is
considering the ASEAN Open Skies agreement, but he takes the view
that domestic carriers should be given preference. McDermott pointed
out that Indonesia's cabotage rules limit marine construction
vessels, which currently need to be approved on a case-by-case
basis. There are no Indonesian-flagged marine construction vessels
available. Susantono agreed that the policy needed to be more
transparent but stressed that Indonesia's cabotage policy exists to
protect the domestic fleet.

BKPM Chair Wirjawan
--------------


15. Chairman of the Investment Coordinating Board Gita Wirjawan
reassured the members that Indonesia's investment climate was
heading in the right direction. He announced that the government
was considering revisions of Indonesia's negative list on foreign
investment in the areas of creative industries, health, education
and telecommunications. He explained that he needed to "show the
delta" to make the case to other ministries of the advantages to
opening up sectors to foreign participation. In response to a
question from the Motion Picture Association, Wirjawan used his
positive experience with the Ministry of Health as a model of how to
persuade ministries "using quantifiable data" to allow foreign
participation and majority ownership. Wirjawan also proposed
seconding select BKPM staff members to US-ABC companies to give them
private sector insights and perspective. An MPA representative
suggested that several of the studios may be interested to follow up
on that proposal.

Minister of Energy and Mineral Resources Saleh
-------------- -


16. Minister of Energy and Mineral Resources Darwin Saleh welcomed
the group and discussed the Ministry's goal of changing Indonesia's
energy mix to rely less on oil and more on resources that are still
plentiful in the country: coal, gas, and renewable energy. A
number of companies, including Marathon Oil, Caterpillar, GE, and
McDermott highlighted their interest in investing more in Indonesia,
but stressed the need for regulatory and contractual clarity. A few
raised specific issues, including the impact of cabotage rules and
fuel standards implementation. Ministry of Energy officials stated
that they were working on solutions to both issues, although
resolution would not be as quick as industry would like.


17. The Director General of Mining Bambang Setiawan pointed out that
Chinese investors were now overtaking Western companies in terms of
new mining investment. DG Setiawan claimed that because the Chinese
had never operated under the old Contract of Work system,
arrangements under the new mining law provided encouragement. He
asked that Western mining companies invest in Indonesia under
current rules.

Parliamentarian Dinner
--------------


18. Deputy Speaker Pramono Anung (PDI-P) told the group that the DPR
is committed to supporting business relations in a transparent
manner, noting that most current MPs have business backgrounds. He
expressed support and appreciation for Freeport, Boeing, and GE.
Anung said that Indonesia and the DPR must protect people who come
to do business here, not stand by idly, for example, as Freeport
workers are shot at. About 15-20 members of parliament (including
chairs) from the agriculture, trade, energy, and banking commissions
attended.


19. Peter Gontha of the Indonesian Chamber of Trade and Industry
(KADIN) noted that this MP meeting was the first of its kind for
US-ABC (he joked that he expected only 1-2 members to show up).
Gontha told the MPs that the council would like to have items
removed from the negative list, such as communications.

ASEAN Secretariat
--------------


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20. Anna Robienol, Head of ASEAN's External Economic Relations
Division, said that the organization's free-trade agreements with
its regional dialogue partners -China, India, Korea, Japan,
Australia and New Zealand - were central to ASEAN's economic
integration strategy and effort to retain a central position in
Asia's emerging regional architecture. Ms. Robienol expressed
ASEAN's desire for more robust work under the U.S.-ASEAN Trade and
Investment Framework Agreement (TIFA),and she said that the
organization was eager to participate in a "road show" of ASEAN
Economic and Trade Ministers in the United States later this year.
Answering questions from U.S. business representatives, Ms. Robienol
commented on a lack of institutional compatibility between ASEAN,
APEC and the Trans-Pacific Partnership. Ms. Robienol added that
ASEAN was suffering from a major lack of capacity to deal with the
pace of activities being pursued under its auspices.

BPOM Chair Kustantinah
--------------


21. BPOM Chair Kustantinah listened to the delegation's concerns
regarding labeling imports, and approvals of biotech crops and food.
She acknowledged that Indonesia must move forward on biotech
products, although with her limited tenure at the head of BPOM, she
was not yet able to offer a specific path forward. She did,
however, commit to improving communications with Indonesia's trading
partners on food safety issues.

HUME