VZCZCXRO5608
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #4514/01 0971029
ZNR UUUUU ZZH
R 071029Z APR 06
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 2436
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHKO/AMEMBASSY TOKYO 9722
RUEHBY/AMEMBASSY CANBERRA 9304
RUEHBJ/AMEMBASSY BEIJING 3361

UNCLAS SECTION 01 OF 04 JAKARTA 004514 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EB/TPP/MTA AND EAP/MTS 
TREASURY FOR IA - ANNA JEWELL 
USDOC FOR GOLIKE/4430 
 
E.O. 12958: N/A 
TAGS: ETRD EINV ECON KIPR ID
SUBJECT: INDONESIA - TRADE AND INVESTMENT HIGHLIGHTS - 
MARCH 2006 
 
 
¶1.  Summary:  On March 2, the Government of Indonesia 
(GOI) announced an "Investment Climate Improvement 
Package" mapping out reforms to a number of laws, 
regulations, and procedures affecting the investment 
climate.  The Ministry of Trade (MOT) met the first key 
deadline in the package by submitting a new draft 
investment law to Parliament on March 22.  Vice President 
Kalla announced on March 16 that the GOI plans to 
establish eight new special economic zones to attract 
foreign investors.  The Ministry of Trade said on March 2 
it is considering anti-dumping measures against textile 
imports from China.  On March 3, the Ministry of Marine 
Affairs and Fisheries said it would apply international 
standards to Indonesian shrimp exports.  The ministry 
said it has banned seven Indonesian companies under 
investigation for illegal transshipment from exporting 
shrimp to the U.S.  Indonesia's footwear sector hopes to 
increase market share in the European Union (EU) 
following EU anti-dumping measures against Chinese and 
Vietnamese shoes.  On March 3, Microsoft Indonesia 
announced plans to provide affordable computers to 
millions of Indonesian customers.  State 
telecommunication company PT Telkom announced it would 
postpone a planned increase in fixed line telephone 
tariffs on March 6.  The Indonesian Textile Association 
(API) will hold a large Indonesian Textile and Apparel 
Fair September 21-24 in Jakarta.  End Summary. 
 
New Measures to Improve Investment 
---------------------------------- 
 
¶2. On March 2, the GOI announced an "Investment Climate 
Improvement Package" containing 85 regulatory and 
institutional reforms it plans to take in 2006 to improve 
the investment climate.  The package focuses on five 
areas: general investment policies; customs, excise and 
duties policies; taxation; labor; and small and medium 
enterprises (SMEs).  Key items in the package include: 
 
--Submitting a revised investment law to Parliament by 
March 2006. 
 
--Submitting revisions to Manpower Law (No. 12/2003) to 
Parliament by the end of April 2006.  The revised law 
would address business community concerns about worker 
severance costs, outsourcing and expatriate work permits. 
 
--Reaching a decision on the status of three draft tax 
laws now before Parliament by the end of April 2006. 
 
--The revitalization of the "National Team for the 
Enhancement of Exports and Investment" (PEPI) to better 
coordinate investment policies and help solve high 
profile investment disputes "quickly, cheaply and 
fairly". 
 
--The Ministry of Finance will accelerate customs 
processing times by June 2006 to 30 minutes for green 
lane shipments and three days for red lane shipments. 
 
--A reduction of the use of the red lane to just 10 
percent of shipments by December 2006. 
 
--The Ministry of Finance will establish tax facilities 
for certain business sectors by the end of June 2006, and 
revise rules and regulations on value added taxes (VAT) 
to coincide with passage of a package of amended tax 
laws. 
 
¶3. The Ministry of Trade met the first key deadline in 
the package by submitting a new draft investment law to 
Parliament on March 22.  The draft law would unify 
Indonesia's separate laws for foreign and domestic 
investors and provide traditional investment protections 
including national treatment, the right to repatriation 
of profits, and a guarantee against nationalization.  In 
conjunction with a new investment law, the GOI plans a 
number of other regulatory changes including a revised 
Government Regulation setting out "clear, simple, and 
transparent" criteria for the negative investment list; 
revisions to Government Regulation 25 on the 
responsibilities of local governments in the area of 
 
JAKARTA 00004514  002 OF 004 
 
 
investment; and regulations reducing the number of days 
needed to establish a business.  "A one-stop service for 
investors is part of the new package," Advisor to 
Coordinating Minister for the Economy Jannes Hutagalung 
said. 
 
GOI to Simplify Trade Licenses 
------------------------------- 
 
¶4.  As part of the investment climate improvement 
package, the Coordinating Ministry for the Economy 
announced on April 4 that the MOT had issued decrees 
simplifying application procedures and eliminating some 
bureaucratic requirements for nine separate trade 
licenses.  The eight licenses are the: 
 
a) trade business license (SIUP), 
b) trade company representation license, 
c) surveyor business activity license, 
d) franchise business registration document, 
e) agency and distribution registration document, 
f) alcoholic beverages trade business license, 
g) multi-level sales business license, and 
h) warehouse registration document. 
 
¶5.  Under Indonesian law, all companies must obtain a 
trade business license (SIUP) as part of the business 
establishment process.  In a 2005 survey, the 
International Finance Corporation estimated this step 
takes companies an average of 14 days.  The new decrees 
seek to shorten the SIUP issuance process to five days, 
reduce the number of documents required from six to four, 
and standardize fees throughout Indonesia. 
 
Indonesia to Create Special Economic Zones 
------------------------------------------ 
 
¶6.  In a March 16 keynote address at a business seminar, 
Vice President Jusuf Kalla announced the GOI would create 
eight new Special Economic Zones (SEZs) within a year to 
attract more foreign investment, in addition to the 
existing SEZ on Batam Island.  According to press 
reports, the GOI is considering creating new SEZs in 
Bojonegara (Banten Province), West Java, Central Java, 
East Java, East Kalimantan, North Sumatra, South Sulawesi 
and Aceh's Sabang Island.  Minister of Trade Mari 
Pangestu reportedly stated the new SEZs should be located 
where there is already a cluster of industries, developed 
infrastructure, receptive local government, and space to 
accommodate expansion.  She added that the GOI would set 
up a regulatory framework for the zones before finalizing 
the locations.  Pangestu told the press that the 
individual SEZs would likely focus on sectors already 
established in the area, such as petrochemicals in Banten 
(already home to several petrochemical plants); 
agribusiness in Sumatra; oil, gas and mining in 
Kalimantan; and manufacturing in Java. 
 
Anti-dumping Measures Against Chinese Textiles? 
--------------------------------------------- -- 
 
¶7.  Minister of Trade Mari Pangestu stated on March 2 
that the government would consider anti-dumping measures 
against textile imports from China.  Her comments were in 
response to a safeguards petition the Indonesian Textile 
Association (API) submitted to the Ministry of Trade- 
chaired Indonesian Trade Safeguard Committee (ITSC) 
claiming a surge of textile imports from China had caused 
injury to the domestic industry.  One issue the ITSC 
faces is that safeguard measures are only effective 
against legal imports, while many garments from China 
found in local markets enter Indonesia illegally.  The 
ITSC is an interagency committee that includes the 
Ministries of Industry, Finance, Agriculture, and 
Forestry, the Central Statistics Agency, and the 
Coordinating Ministry for Economic Affairs.  It 
implements Presidential Decree No. 84/2002 on "Domestic 
Industrial Safeguard Measures Resulting from a Surge in 
Imports". 
 
Shrimp Trade Update 
------------------- 
 
JAKARTA 00004514  003 OF 004 
 
 
 
¶8.  The Ministry of Marine Affairs and Fisheries (MMAF) 
announced on March 3 that the GOI would adopt 
international standards on exports of shrimp, 
particularly to the European Union and the United States. 
Director General for Fish Breeding Made L. Nurdjana 
stated the ministry expects to implement a 
standardization and certification program for breeding, 
cultivation and post-harvest handling of shrimp by mid- 
¶2006.  The program would meet the Code of Conduct of 
Responsible Fisheries (CCRF) regulated by the World Food 
and Agriculture Organization (FAO).  The United States is 
the largest buyer of Indonesian shrimp.  In 2005, 
Indonesian fish and shellfish to the U.S. reached USD 
726.6 million. 
 
¶9.  Minister of Fisheries and Marine Affairs Freddy 
Numberi acknowledged on March 6 that there had been 
incidents of illegal transshipment of shrimp from China 
through Indonesia.  The Minister said MMAF officials 
suspect at least seven shipping companies of re- 
exportation and re-labeling of Chinese shrimp to the 
United States.  He refused to name the companies, stating 
investigations are ongoing.  In the meantime, Numberi 
said his ministry has prohibited the seven companies from 
exporting shrimp to the U.S.  He promised tough 
punishment including revocation of licenses if 
allegations are confirmed. 
 
Indonesia Hopes to Expand EU Footwear Share 
------------------------------------------- 
 
¶10.  On March 3, Ansari Buchari, Director General of 
Metal and Textile Machine in the Ministry of Industry 
expressed hope that Indonesia would increase its share of 
the EU footwear market after the EU slapped anti-dumping 
surcharges of 19.4 and 16.8 percent on shoe products from 
China and Vietnam respectively.  The surcharges are set 
to last for five years effective April 2006.  Buchari 
said he is optimistic that Indonesia can benefit from the 
EU action, and hoped that major companies such as Puma, 
Adidas and others would invest in production facilities 
in Indonesia.  According to the Indonesian Footwear 
Producers Association, Indonesia exported USD 1.5 billion 
of footwear in 2005, an increase of 13.6 percent from USD 
1.32 billion reported in 2004. 
 
Microsoft to Provide Affordable Computers 
----------------------------------------- 
 
¶11.  Microsoft Corporation announced on March 3 that the 
company is planning to provide affordable computer 
packages, including its own software, to millions of 
Indonesian customers this year through its Indonesian 
affiliate PT Microsoft Indonesia (PTMI).  Under the 
program, PTMI will cooperate with local consumer finance 
firms to help consumers purchase computers who would 
normally have no access to credit.  These consumers would 
also benefit from a 40-60 percent discount from Microsoft 
that would bring the package of a computer system to Rp 6- 
7.2 million or USD 660-700. 
 
Telkom to Delay Phone Tariff Hike 
--------------------------------- 
 
¶12.  PT Telekomunikasi Indonesia (Telkom) announced on 
March 6 that the company would not increase fixed line 
telephone tariffs for an indefinite period.  Telkom 
President Director Arwin Rasyid said he has "no heart" to 
increase tariffs since many consumers are still reeling 
from October 2005 fuel price hikes.  According to Rasyid, 
the postponement will not affect Telkom's services. 
 
Indonesia to Hold Textile and Apparel Fair in September 
--------------------------------------------- ---------- 
 
¶13.  The Indonesian Textile Association (API) will hold 
an "Indonesian Textile and Apparel Fair" September 21-24, 
2006 in Jakarta, the largest gathering of its kind.  The 
fair will feature a textile exhibition, seminars and 
workshops on marketing Indonesia's products, exploration 
of business opportunities and a venue for producers and 
 
JAKARTA 00004514  004 OF 004 
 
 
buyers to come together.  API expects about 400 
exhibitors to participate in the event at the Jakarta 
International Expo center.  Minister of Trade Mari 
Pangestu expressed optimism that Indonesia's textile and 
garment exports would continue to grow in 2006. 
Indonesia's textile and garment exports reached USD 8.6 
billion in 2005, a 15.1 percent increase from 2004. 
Details on the textile and apparel fair are at 
www.itaaf.com. 
 
PASCOE