VZCZCXRO3400
PP RUEHCHI RUEHDT RUEHHM
DE RUEHJA #5581/01 1232359
ZNR UUUUU ZZH
P 032359Z MAY 06
FM AMEMBASSY JAKARTA
TO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
INFO RUEHC/SECSTATE WASHDC 3632
RUEATRS/DEPT OF TREASURY WASHDC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS

UNCLAS SECTION 01 OF 04 JAKARTA 005581 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
STATE FOR EAP/MTS; EB/TRA/OTP; EB/TPP/BTA; EB/OMA 
COMMERCE FOR BGOLIKE/4430 
TREASURY FOR IA-JEWELL 
DOE FOR CUTLER/PI-32 AND NAKANO/PI-42 
 
E.O. 12598: N/A 
TAGS: BEXP EINV ETRD ECON PGOV KCOR ID
SUBJECT: DOC DEPUTY SECRETARY SAMPSON'S APRIL 27-28 VISIT TO 
JAKARTA--MEETINGS WITH GOVERNMENT OFFICIALS 
 
¶1.  (SBU) Summary.  Vice President Jusuf Kalla told visiting 
Department of Commerce Deputy Secretary David A. Sampson on 
April 27 that under Indonesia's new openness, small interest 
groups are capable of sensationalizing issues and causing 
significant damage to Indonesia's reputation and investment 
climate.  Kalla suggested that American companies engage in 
more community activities and better public relations as a 
way of counteracting negative publicity campaigns targeted 
at them.  Finance Minister Sri Mulyani Indrawati noted on 
the same day that growth and reform are not moving fast 
enough to reduce poverty and unemployment. She was 
appreciative of donor support for tax and customs reform, 
which she hopes will also improve the investment climate. 
State Minister of Research and Technology Dr. Kusmayanto 
Kadiman welcomed Deputy Secretary Sampson's offer of closer 
science and technology cooperation between Indonesia and the 
U.S., particularly with respect to tsunami early warning 
systems, where the National Oceanic and Atmospheric 
Administration (NOAA) has great expertise.  Minister of 
Industry Fahmi Idris praised the U.S. textile safeguard 
agreement with China as a great benefit for Indonesian 
textile manufacturers.  Idris encouraged Ford to select 
Indonesia as the site of a new auto plant and agreed with 
Sampson on the importance of stepped-up enforcement of 
intellectual property rights (IPR).  End Summary. 
 
¶2. (U) Department of Commerce Deputy Secretary David A. 
Sampson visited Jakarta April 27-28.  In addition to meeting 
Vice President Kalla and the ministers mentioned above, 
Sampson met a delegation from the Indonesian Chamber of 
Commerce and Industry, addressed an American Chamber of 
Commerce (AmCham) luncheon event and met the AmCham board, 
met U.S. companies involved in tsunami relief, held a 
roundtable with representatives of international financial 
institutions and Indonesian think tanks, officiated at the 
opening of a Citibank Call Center, and visited Caterpillar 
and Sarah Lee company facilities.  This cable reports on Dr. 
Sampson's government meetings. 
 
VP Kalla Says Misperceptions Hurting Investment 
--------------------------------------------- -- 
 
¶3. (SBU) In their April 27 meeting, Deputy Secretary Sampson 
congratulated Vice President Kalla for Indonesia's efforts 
to combat corruption, improve transparency, and reform laws 
to improve its overall investment climate.  He also noted 
that the completion of the ExxonMobil Cepu deal sent a very 
positive signal to investors.  Kalla said Indonesia is 
struggling to find a balance between greater democratic 
freedoms and maintaining political and economic stability. 
Indonesia's new openness means that any group can stage a 
protest, no matter how small its interests.  Unfortunately, 
sensational activities of some small groups are negatively 
impacting Indonesia's international reputation.  As a 
consequence, many foreign investors have shifted their 
attention to China where, ironically, democracy does not 
exist.  The Ambassador added that the head of one major U.S. 
company recently said the greatest deterrent to U.S. and 
European investment is the growing perception that radical 
groups in Indonesia are growing in influence. 
 
¶4.  (SBU) Kalla said most U.S. investors are interested in 
capital-intensive investments in the energy and mining 
sectors, and less in the manufacturing sector, which creates 
more jobs.  However, Kalla admitted that U.S. capital 
intensive investments generate important revenues for the 
Government of Indonesia.  In response to Sampson's concerns 
about recent protests against U.S. mining companies, Kalla 
said the actions were politically motivated, and suggested 
that U.S. companies pay more attention to community service 
and public relations.  The Vice President told Sampson that 
the U.S. could help Indonesia's economy by providing three 
things: more long-term capital investment, technology and 
finance, and greater access to U.S. markets. 
 
¶5.  (SBU) On market access, Kalla said that since the 
expiration of the Multi-Fiber Agreement, Indonesia crucial 
textiles and garments exports have faced tougher 
international competition.  While this may seem like a small 
issue for the U.S., it is important to Indonesia, perhaps 
just as important as chicken parts are to the U.S. 
Ambassador Pascoe responded that poor regulation and police 
enforcement was likely a greater hindrance to trade than any 
 
JAKARTA 00005581  002 OF 004 
 
 
U.S. market access restrictions.  He noted that shrimp 
transshipments, illegal logging and IPR violations threaten 
Indonesia's current access, deter potential investors, and 
ultimately hurt poor Indonesians while a few people get 
rich.  Sampson added that the U.S. appreciates Indonesia's 
recent IPR enforcement efforts and hopes the Government of 
Indonesia (GOI) would sustain them by handing out 
appropriate sentences to violators.  Kalla agreed the GOI 
needs to improve IPR enforcement, and said Microsoft 
officials had recently told him that the company could not 
invest in the local software industry, because they would 
incur large costs to develop products only to have them 
immediately pirated. 
 
Finance Minister Emphasizes Reforms 
----------------------------------- 
 
¶6. (SBU) Finance Minister Sri Mulyani Indrawati told Sampson 
that economic growth in Indonesia is not moving as fast as 
she would like to reduce poverty and unemployment.  She also 
expressed concern that anti-corruption efforts, while 
crucial for reform, have led to a slowdown in decision 
making and GOI spending.  She said she had told World Bank 
President Wolfowitz last week that "zero tolerance for 
corruption may lead to zero development activity."  Mulyani 
noted that changing the GOI's pay and incentive structure is 
important but hard to do on a large scale for both budget 
and bureaucratic reasons.  The Agency for Rehabilitation and 
Reconstruction of Aceh (BRR) was small enough that a 
different salary structure was possible: implementing this 
all over the Indonesian civil service would be another 
matter.  "I'm starting small," she said, "looking at ways to 
change the salary system at the Directorates General for Tax 
and Customs."  Sampson asked whether Parliament would have 
to approve further changes in tax and customs 
administration.  Mulyani replied that the Ministry of 
Finance has a lot of power and discretion, but 
implementation is key.  "We're just starting this battle," 
she said.  "Changing personnel is one thing, changing 
behavior throughout the bureaucracy is another." 
 
¶7. (SBU) Mulyani said the World Bank and International 
Monetary Fund (IMF) are offering assistance to the MOF"s 
reform program, and added that she is grateful for U.S. help 
as well.  She noted that President Yudhoyono had said 
recently "it seems like when Indonesia solves one issue, ten 
more pop up."  Mulyani emphasized that Indonesia "can't do 
this alone" and needs international assistance.  Sampson 
noted the high degree of optimism about the direction of 
Indonesia and its importance in the ASEAN region.  More 
foreign direct investment is needed to bring improvements 
and U.S. companies provide both capital and expertise.  On 
energy, Mulyani said that Indonesia's fuel price mechanism 
is not flexible enough.  High oil prices could still hurt 
despite subsidy cuts last year.  She was surprised during 
her recent visit to the U.S. that gas was over USD 3 per 
gallon. (Note:  Premium gasoline currently sells for USD 
1.90 per gallon in Indonesia.)  "There is a lot we need to 
do to make fiscal policy more efficient, she said, but 
everyone advises me I have to take one step at a time." In 
closing, Mulyani stressed the importance of high-level 
visits, such as Secretary Rice and Dr. Sampson, since they 
increase attention paid to Indonesia. 
 
Minister for Research and Technology 
------------------------------------ 
 
¶8. (SBU) Deputy Secretary Sampson conveyed greetings to 
State Minister of Research and Technology Dr. Kusmayanto 
Kadiman from Commerce Secretary Gutierrez, whom Kadiman had 
met at the Earth Observation Summit in Brussels last year. 
Sampson noted that the National Oceanic and Atmospheric 
Administration (NOAA) is making a lot of progress with the 
Global Earth Observation System of Systems (GEOSS) and 
tsunami early warning systems (EWS), including in the Indian 
 
SIPDIS 
Ocean.  He said the tsunami early warning centers in Hawaii 
and Alaska are very engaged in EWS activities and that 
robust EWS activities worldwide represent a positive 
development in light of the tsunami tragedy.  Minister 
Kadiman expressed gratitude and praise for U.S. scientific 
help, noting that Indonesian scientists had visited the 
Hawaii center and that the tsunami disaster had taught 
Indonesia a lot. 
 
JAKARTA 00005581  003 OF 004 
 
 
 
¶9. (SBU) In response to the Deputy Secretary's query about 
his Ministry's priorities, Minister Kadiman listed six focus 
areas: 
 
a) Food resilience (e.g., rice self sufficiency); 
b) New and renewable energy resources; 
c) Information Technology (IT); 
d) Transportation; 
e) Prescription drugs; and 
f) Defense Security Technology. 
 
Kadiman praised U.S. soybean productivity and hoped 
Indonesian scientific collaboration with U.S. universities 
would enhance its own productivity and thus reduce its 
dependence on rice.  He also expressed admiration for 
President Bush's speeches on the various uses of soybean 
(e.g. for medicine and bio-ethanol) and noted that Indonesia 
focuses on crude palm oil (CPO).  He touted Indonesia's 
geothermal potential as the world's largest, but admitted 
investors need the right incentives to undertake viable 
projects. 
 
¶10. (SBU) Kadiman said the GOI must stop IPR piracy to 
attract investment and noted his Ministry is working to 
address this problem.  He also expressed hope of promoting 
multimodal transportation (rail, sea and air), technology 
transfer in exploiting Indonesia's biodiversity to develop 
prescription drugs, and better cooperation with the global 
defense industry.  On the latter point, the Ambassador 
encouraged him to connect with the Defense Department as 
well as well as with Boeing and Lockheed Martin.  Kadiman 
also said his ministry was very active on avian influenza 
(AI) research.  In response to Kadiman's query about the 
recent decline in educational opportunities for Indonesian 
scientists at U.S. universities, the Ambassador noted that 
U.S. shift from higher to basic education was probably to 
blame.  He noted, however, that the Embassy is doing all it 
can to reverse the trend, such as promoting the Fulbright 
Program.  The Ambassador also noted that strong interest in 
Indonesia about the U.S. argued for closer cooperation in 
science and technology.  Kadiman agreed, describing ongoing 
cooperation with IBM, Hewlett Packard and Sun Microsystems. 
In closing, Kadiman expressed his interest in visiting the 
U.S. and Washington, DC in June and the Deputy Secretary and 
the Ambassador promised to facilitate his trip. 
 
Minister of Industry Fahmi Idris 
-------------------------------- 
 
¶11. (SBU) Minister of Industry Fahmi Idris praised 
Indonesia's growing trade relationship with the U.S., noting 
that the U.S. is currently the sixth largest foreign 
investor in Indonesia.  He repeatedly expressed appreciation 
for the recent U.S.- China memorandum of understanding (MOU) 
on textile quota safeguards, which "now helps the market for 
Indonesia for textiles and especially footwear export." 
Idris noted that China is a "big competitor" but that 
Indonesia does not view China as a threat.  China is an 
investor and partner, especially in areas such as 
infrastructure, textile manufacturing technology, and steel 
production.  He mentioned that Vice President Kalla would 
soon report on proposed agreements with China on 
construction of new power plants, which along with road 
construction are the two greatest needs in infrastructure 
development.  Idris mentioned agricultural processing as 
having "huge capacity," highlighting both palm oil and cocoa 
production, but said that Indonesia needs to better tailor 
products through improved technological techniques to the 
U.S. and global market.  Idris also underscored the need to 
control illegal logging, which would improve the competitive 
advantage of the Indonesian furniture industry. 
 
¶12. (SBU) Idris discussed the ongoing discussions between 
the GOI and Ford over the possible construction of a new 
plant in Indonesia that would employ up to 6000 people. 
Idris eagerly mentioned an existing and vacant plant that if 
suitable for Ford might be operational within six months, 
rather than projected two-year process to construct a new 
plant from the ground up.  Idris also mentioned that 
Jakarta's Tanjung Priok port is constructing an automobile 
export facility.  The GOI is considering designating the 
area as a free trade zone to encourage auto manufacturing 
 
JAKARTA 00005581  004 OF 004 
 
 
and export, part of a broader proposal for developing 
special economic zones (SEZs) for manufacturing in 
Indonesia.  Idris also noted a "big change" in the foreign 
investment law reducing the approval period from 151 days to 
30 days. 
 
¶13. (SBU) Deputy Secretary Sampson offered U.S. support for 
continued GOI efforts in anti-corruption and judicial 
reform.  Idris described the stepped-up efforts of the KPK 
(anti-corruption agency), as well as the GOI's expanded 
focus on anti-corruption within the Attorney General's 
office.  Sampson encouraged Indonesia to improve enforcement 
of intellectual property rights, a critical issue for many 
potential U.S. investors and exporters.  Idris agreed that 
Indonesia must "be serious about enforcing the IPR laws", 
increasing steps to punish violators, and frequent raids on 
places marketing illegal products, "some imported from 
China".  Idris requested more support from U.S. Customs to 
detect false certificates of origin on goods entering the 
U.S., especially textiles originating in China.  Sampson 
suggested that new technologies may help in this process, 
and agreed to investigate this for Idris.  Idris closed by 
underscoring that Indonesia is "committed to honoring 
contracts internationally, especially now that doors are 
wide open to investors." 
 
¶14. (U) Deputy Secretary Sampson's party reviewed this 
message. 
 
PASCOE