VZCZCXRO3404
PP RUEHCHI RUEHDT RUEHHM
DE RUEHJA #5582/01 1232359
ZNR UUUUU ZZH
P 032359Z MAY 06
FM AMEMBASSY JAKARTA
TO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
INFO RUEHC/SECSTATE WASHDC 3636
RUEATRS/DEPT OF TREASURY WASHDC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS

UNCLAS SECTION 01 OF 03 JAKARTA 005582 
 
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-NON-GOVERNMENT MEETINGS 
 
 
¶1.  (SBU) Summary.  During his April 27-28 visit to Jakarta, 
Department of Commerce Deputy Secretary David A. Sampson 
discussed Indonesia's economic reform efforts and U.S. 
interests in Indonesia and region with business leaders, 
academics and opinion leaders.  American Chamber of Commerce 
(Amcham) members lauded USAID and USG tsunami relief 
efforts, but noted that overall reconstruction efforts 
continue to face many challenges.  Amcham Board of Governors 
members said that significant changes are taking place in 
Indonesia and that the Yudhoyono Administration is working 
closely with the private sector on reforms.  Still, without 
more long-term capital investment, they said Indonesia faces 
the risk of another crisis in the near term.  Economists 
from Indonesian think tanks and international financial 
institutions noted that the macroeconomic picture is stable, 
but said reform is moving slowly.  More investment is needed 
to help Indonesia grow.  A delegation from the Indonesia 
Chamber of Commerce and Industry (KADIN) called for stronger 
U.S. - Indonesia business ties, particularly between smaller 
companies.  End Summary. 
 
¶2. (U) Department of Commerce Deputy Secretary David A. 
Sampson visited Jakarta April 27-28.  In addition to meeting 
Vice President Jusuf Kalla and the ministers of Finance, 
Science and Technology, and Industry, Dr. 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 Mr. Sampson's non- 
governmental meetings. 
 
Amcham Assesses Tsunamis Relief and Reconstruction 
--------------------------------------------- ----- 
 
¶3. (SBU) A group of Amcham company representatives lauded 
USAID's response to the December 26, 2004 Aceh tsunami and 
earthquake.  They said USAID responded quickly to the 
disaster by identifying immediate needs, providing emergency 
relief and assisting the American business community in 
identifying reliable NGO partners.  U.S. private and public 
sector contributions, particularly the USS Abraham Lincoln's 
emergency relief mission, had instilled in the Achenese 
people, and Indonesians in general, a much more positive 
view of America. 
 
¶4. (SBU) While the emergency relief effort had been a 
success, the AmCham representatives said reconstruction is 
proving more difficult because it involves greater strategic 
planning, closer donor coordination, and the resolution of 
difficult issues such as land titling, job creation, and 
community development.  Amcham members said that Aceh 
Reconstruction and Rehabilitation Agency (BRR) Head Kuntoro 
remains the right person for the job, but is dealing with a 
monumentally difficult task.  The government bureaucracy 
continues to delay progress.  Amcham members suggested that 
in response to future disasters, USAID should create and 
lead a task force made up of private sector donors and 
reputable NGOs to improve coordination.  This task force 
could then help the private sector match its resources more 
effectively with actual needs. 
 
Amcham Board Briefs on Business Environment 
------------------------------------------- 
 
¶5. (SBU) Members of the Amcham Board of Governor's informed 
Deputy Secretary Sampson that the Yudhoyono Administration 
continues to consult closely with the private sector on 
proposed policy reforms, a remarkable and new development 
for Indonesia.  They noted significant positive change is 
taking place, including in the area of corruption, but said 
the emergence of Chinese and other Asian countries had led 
to more "back room" business deals and caused transparency 
to slip, particularly in projects involving large state- 
owned enterprises (SOEs). 
 
¶6. (SBU) Several board members warned that international 
pension and hedge fund "hot money" is currently propping up 
Indonesia's currency and stock market.  However, they warned 
that Indonesia's first quarter investment figures were 
 
JAKARTA 00005582  002 OF 003 
 
 
disappointing, and said the GOI risks another financial 
crisis unless it can begin to attract new long-term fixed 
capital investments.  A new crisis would be an opportunity 
for Yudhoyono opponents and political extremists to 
undermine Yudhoyono Administration and its reform efforts. 
 
¶7. (SBU) Board members asked about the future presence of 
the Foreign Commercial Service (FCS) in Indonesia and noted 
the FCS has been vital in helping to level the playing field 
for U.S. companies.  They noted that, if given a choice, 
Indonesians generally preferred to work with U.S. companies 
since they offered opportunities for training and 
professional development.  With the right support and 
policies in place, American companies can provide the 
capital that Indonesia needs to create growth, jobs and 
economic stability.  Deputy Secretary Sampson said that the 
Department of Commerce (DOC) is currently performing a 
worldwide assessment of where the DOC should place FCS 
assets in the future.  Some factors that the DOC will 
consider include the maturity of markets, the difficulty of 
doing business in them, current levels of deals taking 
place, and U.S. private sector interest.  Finally, the Board 
members also stressed the critical need for increase Export- 
Import Bank involvement in Indonesia. 
 
Economists: Indonesia Stable but Reform Slow 
-------------------------------------------- 
 
¶8. (U) In a meeting with the World Bank, International 
Monetary Fund (IMF) and think tanks, Sampson noted the 
importance of the ASEAN region for U.S. trade and 
investment.  He said the U.S. hopes anti-corruption efforts 
will continue in Indonesia, as well as steps to improve IPR 
enforcement.  A think tank representative said that 
Indonesia's macro-economy is stable and its financial sector 
is vibrant, but unemployment is too high at about 11 
percent.  He suggested the U.S. could support Indonesia's 
efforts to create more special economic zones (SEZs).  A 
World Bank expert on investment climate noted that 
Indonesia's rigid labor regulations are holding back growth. 
The status of amendments to the labor law is unclear given 
labor union demonstrations against them--a very large labor 
demonstration (10-30,000) is scheduled for May 1 in Jakarta. 
The IMF representative noted that two thirds of the 
Parliament is fairly new, making consensus building on 
economic policy more of a challenge.  He said Indonesia's 
economy is still processing the fuel subsidy cuts from last 
year, but growth should pick up in the second half. 
 
¶9. (U) All participants agreed that Indonesia's oft-cited 
challenges remain issues of concern: lack of legal 
certainty, tax and customs problems, inflexible labor 
regulations, and infrastructure constraints.  The IMF 
representative noted that patience and persistence are 
needed for those who work on Indonesia, but said the new 
economic team is a strong positive.  The President, Vice 
President and Cabinet have also done a better job at 
marketing Indonesia overseas and generating interest in the 
country than in the past.  All participants also agreed that 
credible, sustainable investment reforms would be essential. 
The Government's Investment Climate Improvement Package 
package is good, but implementation will be key.  Sampson 
asked whether changes would happen fast enough to support 
President Yudhoyono's political agenda.  A think tank 
representative responded that Yudhoyono would probably win a 
second term because he is popular enough and has no strong 
opposition. 
 
Indonesia Chamber of Commerce and Industry (KADIN) 
--------------------------------------------- ----- 
 
¶10. (U) A five person delegation from KADIN's United States' 
Committee (KIKAS) briefed Deputy Secretary Sampson over 
lunch on the state of Indonesian economy and prospects for 
increasing U.S. - Indonesia trade and investment.  KIKAS 
Advisory Board member Didie Soewondho noted that although 
Indonesia's macroeconomic indictors are strong, the real 
economy has slowed noticeably since the October 1, 2005 fuel 
price hikes.  KADIN has very close relations with the GOI, 
Soewondho noted, and President Yudhoyono and his economic 
ministers consult frequently with the group.  Boosting 
investment is Indonesia's core challenge, he continued, and 
the January 2005 "Infrastructure Summit" and February 2006 
 
JAKARTA 00005582  003 OF 003 
 
 
infrastructure policy package have fixed about 40 percent of 
the 22 laws and regulations holding back investment in the 
infrastructure sector. 
 
¶11. (SBU) Deputy Secretary Sampson asked the KIKAS group 
whether there are particular sectors where American firms 
could be most helpful.  Soehondho responded that oil, gas, 
and petrochemicals are particularly strong sectors for U.S. 
companies, but added that Dow Chemicals and Dupont have kept 
a very low profile in Indonesia.  Andru Subowo of the 
private equity firm Bramadi Capital noted that the U.S. has 
very efficient distribution systems for goods and people, 
and that Indonesia could benefit from U.S. investment in 
these areas.  In contrast, Airlangga Hartarto of the 
Indonesian Association of Publicly Listed Companies noted 
that public sentiment has turned against U.S. companies in 
Indonesia because of the Freeport and Newmont controversies. 
However, when pressed by Deputy Secretary Sampson, Hartarto 
agreed that multi-national NGOs and political "free riders" 
were using foreign companies as targets in order to whip up 
public discontent.  The solution is to find a way to 
demonstrate that investment projects generate benefits for 
surrounding communities. 
 
¶12. (U) Several KIKAS participants commented on the 
importance of building business links between small and 
medium enterprises (SMEs) in the U.S. and Indonesia.  Large 
U.S. companies can implement projects on their own, Hartarto 
observed, but U.S. SMEs would need to partner with 
Indonesian SMEs, benefiting both sides.  KIKAS Advisory 
Board Member Daniel Iskandar noted that Indonesian SMEs have 
a hard time competing with Singapore, and suggested 
modifying U.S. trade agreements to provide concessions 
targeted at SMEs.  Deputy Secretary Sampson agreed with the 
importance of boosting SME cooperation, noting that one of 
Secretary Gutierrez's top policy goals is to increase the 
 
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number of U.S. SMEs involved in export markets.  William 
Zarit, Regional Director for East Asia and the Pacific at 
the Department of Commerce, briefed the KIKAS group on 
Foreign Commercial Service (FCS) programs targeting SMEs and 
encouraged them to contact the Jakarta FCS office. 
 
¶13. (U) Deputy Secretary Sampson asked the KIKAS delegation 
whether, as Indonesian businessmen, they are satisfied with 
the pace of economic reform.  Hartarto, who also serves as a 
Golkar member of parliament, was pessimistic, saying the GOI 
is "not in charge", has no direction, and always wants to 
wait around for Parliament to act.  Rather than submitting 
numerous draft laws to Parliament, each of which will take 
at least a year to pass, the GOI should enact a package of 
tax incentives.  Foreign companies need legal certainty, 
Hartarto said, but Indonesian companies need financing help 
now, not when the new tax law finally passes.  Another major 
problem is Indonesia's lack of an energy policy, which has 
hurt investment in the sector.  When questioned by Deputy 
Secretary Sampson, the KIKAS group agreed that China poses 
 
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the toughest regional competition for Indonesia, with India 
and Vietnam in second place. Soehondo added, however, that 
Vietnam offers a very attractive package for investors and 
is moving up fast. 
 
¶14. (U) Deputy Secretary Sampson's party reviewed this 
message. 
 
PASCOE