VZCZCXRO6983
PP RUEHLMC
DE RUEHJA #2798/01 2960726
ZNR UUUUU ZZH
P 230726Z OCT 06
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 1554
INFO RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/FAS WASHDC 0040
RUEHLMC/MILLENNIUM CHALLENGE CORP 0030
RUEHVV/OIC COLLECTIVE

UNCLAS SECTION 01 OF 04 JAKARTA 012798 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/MTS AND 
DEPT PASS USTR FOR WIESEL/KATZ 
USDA/FAS FOR 
DEPT PASS OPIC FOR SIMON AND PITNEY 
NSC FOR MORROW AND WILDER 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN EINV PGOV PREL KMCA PHUM ID
SUBJECT: VP KALLA ON THE COURTS, MCC, PEACE CORPS AND MIDDLE 
EAST 
 
¶1. (SBU) Summary. Vice President Jusuf Kalla told the 
Ambassador on October 20 that the Supreme Court is "not 
using logic" in its approach to the Munir case, and that 
people are rightly not happy with the Pollycarpus verdict. 
He said the Supreme Court would soon reconsider its decision 
taking into account the obvious fact that Munir's killer 
must have been on the airplane.  Kalla said he has sent 
"tough instructions" to the Education Ministry to improve 
educational standards, and added that an eventual Millennium 
Challenge Corporation (MCC) compact could be very important 
in this process.  Kalla noted it would be very good if U.S. 
Peace Corps volunteers could help raise Indonesia's English- 
language proficiency up to levels in India, Pakistan, and 
Bangladesh.  Kalla gave an overview of the ethnic conflict 
in Central Sulawesi and opined that economic development was 
the key to ending the violence.  He observed that the Israel- 
Palestine conflict has led to higher oil prices that have 
harmed 70 percent of Muslim nations, including Indonesia. 
He said Muslim countries should make their assistance to 
Palestine "conditional" on efforts to solve the conflict, 
with the U.S. and other Western countries playing the same 
role vis-a-vis Israel.  The Ambassador noted that the U.S. 
is serious about finding ways to increase our assistance to 
Indonesia, and said that the U.S. wants to talk closely with 
Indonesia about possible investments in Iran so Indonesia 
understands U.S. sanctions laws.  End Summary. 
 
Economic, Trade and Finance Issues 
---------------------------------- 
 
¶2. (SBU) The Ambassador and Vice President Kalla met for 75 
minutes at Kalla's office on October 20.  The Ambassador 
began by congratulating Kalla for his very successful 
September 2006 trip to Washington, noting it had won 
Indonesia a lot of favorable attention from potential U.S. 
investors.  Washington is sincere in its desire to help 
Indonesia, the Ambassador noted, and wants to figure out 
concrete ways of expanding our assistance.  Kalla replied 
that he is following up his conversations in Washington with 
ExxonMobil, Chevron, and Newmont (concerning a possible new 
mine development) and other companies, as well as with the 
World Bank.  He said he is looking forward to President 
Bush's upcoming visit to Indonesia, which would be "short 
but very high quality."  There should be "not so many 
receptions, but good discussions," Kalla observed.  The MCC 
and avian influenza are important topics for discussion, as 
well as the "standard" security cooperation issues, he said. 
 
¶3. (SBU) The Ambassador and Kalla then discussed a number of 
specific economic, health, and development issues: 
 
--Revised OPIC Investment Incentive Agreement (IIA):  The 
Ambassador noted that 68 countries have signed an IIA 
substantially similar to the draft the Embassy has provided 
the GOI.  He said the U.S. is pleased that the Ministry of 
Finance (MOF) is working on the draft agreement, and added 
the U.S. hopes to sign the revised IIA prior to the 
President's visit.  OPIC's negotiator is scheduled to visit 
Jakarta November 6-7, the Ambassador noted, but we could ask 
him to visit earlier if the GOI would be interested in 
signing a revised agreement at the November 1-3 
Infrastructure Forum.  Kalla responded that the GOI is 
trying to move the agreement forward, and said his office 
has sent a memo instructing the MOF to move forward.  The 
Vice President's office will meet with the MOF and the 
National Development Planning Agency (Bappenas) after the 
holiday break to discuss the draft agreement.  The GOI "does 
not have much problem with the issues," Kalla noted. 
 
--Aceh Road:  The Ambassador thanked Kalla for his 
assistance acquiring the right-of-way for the road, and 
noted that things are moving forward with construction on 
the first 40 kilometers underway. 
 
--Fruit Flies (Decree 37):  The Ambassador noted that there 
has been lots of back and forth on the issue but still no 
solution.  Indonesia runs a $7 billion trade surplus with 
the U.S., so it seems gratuitous to shut off $50 million in 
U.S. apple and grape exports.  U.S. apples don't compete 
with Indonesian apples, the Ambassador noted, and with apple 
season beginning now, U.S. apple exports are under threat. 
 
JAKARTA 00012798  002 OF 004 
 
 
Kalla responded that he had received a letter on the issue 
from USTR Schwab and Agriculture Secretary Johanns, and had 
asked the Agriculture and Trade ministries to report on 
their efforts to resolve the issue.  (Note: Embassy has 
since received written confirmation from the Ministry of 
Agriculture agreeing to a visit to California and Washington 
for November 5-11.  This visit had been previously proposed 
three times without success by USDA.) 
 
--Avian Influenza:  The USG is working to get more money to 
assist Indonesia with AI, the Ambassador noted, but 
additional U.S. funding is dependent on the GOI's own 
resource decisions.  It is very important for the GOI to 
support the National AI Committee as well as Ministry of 
Agriculture (MOA) poultry culling and vaccination efforts. 
 
--Lapindo Mudflow Problem:  The U.S. companies working at 
the mudflow site were very upset over the weekend of October 
14-15 because they had not been paid, the Ambassador said, 
and had threatened to pull out.  However, Minister of Energy 
and Mineral Resources Purnomo Yusgiantoro had interceded and 
guaranteed payment.  Nonetheless there are constant delays, 
making it important to keep a close eye on Lapindo.  The 
U.S. companies remain confident they will succeed in 
shutting down the mudflow in the end, but the effort will 
take time and money.  Kalla visibly grimaced at the mention 
of this problem and said he would speak to the GOI official 
in charge of the Lapindo case. 
 
Investment Climate and Court Reform 
----------------------------------- 
 
¶4. (SBU) The Ambassador noted that U.S. Chamber of Commerce 
President Tom Donohue's November 12-14 visit should help 
build confidence among U.S. investors.  However, Indonesia's 
court system remains a big worry among U.S. investors, the 
Ambassador said.  The recent Supreme Court ruling on the 
Munir case and the Newmont trial in North Sulawesi are not 
helpful.  If the Newmont trial goes the wrong way, the 
Ambassador added, the impact on the investment climate could 
be severe, particularly since the prosecution has presented 
no credible evidence despite more than a year of testimony. 
 
¶5. (SBU) Kalla responded that he understands the problem 
with the courts, which he said suffer from "triple control" 
via the Supreme Court, the Constitutional Court, and the 
Judicial Commission.  He said he had discussed the Munir 
case with Supreme Court Chief Justice Bagir Manan, and told 
Manan that the Court was "not using logic."  The killer was 
obviously in the airplane, Kalla said, and people are 
rightly not happy with the Pollycarpus verdict.  Kalla said 
the Supreme Court would reconsider its decision soon using 
this logic.  He also claimed many Indonesians believe the 
courts are too strong because they hand out ten-year 
sentences for Rp 1 billion (US $109 thousand) corruption 
cases, as had happened in the case of the Election 
Commission.  He added that the Karaha Bodas investment 
dispute has also not made the GOI happy, and it is difficult 
for the GOI to understand why it should have to pay $300 
million in compensation for a $50 million investment. 
 
The MCC's Role in Improving Educational Standards 
--------------------------------------------- ---- 
 
¶6. (U) The Ambassador said Indonesia's $55 million Threshold 
Program is currently under review by the MCC.  The program 
focuses on anti-corruption and immunization and will be 
implemented by USAID.  Indonesia needs to continue making 
progress on these areas to qualify for compact eligibility, 
the Ambassador noted.  Should Indonesia qualify, MCC compact 
eligibility and an eventual grant award would bring with it 
more resources, which the GOI could devote to its top 
priorities--perhaps infrastructure, health, education, or 
other areas.  Unlike current assistance programs, it would 
be structured like a business contract with a strong 
emphasis on benchmarks. 
 
¶7. (U) Kalla agreed that a potential MCC compact should be 
results-oriented.  The GOI's own development programs tend 
to focus on setting up projects rather than on the quality 
of the results, Kalla noted, particularly in the Education 
 
JAKARTA 00012798  003 OF 004 
 
 
and Public Works ministries.  The Education Ministry only 
cares about the number of degrees awarded, not their 
quality, Kalla said.  I have given "tough instructions" to 
the Education Ministry, Kalla said.  We need new standards 
for curriculum, teachers, and school buildings to raise the 
quality of education, Kalla noted, and the MCC could be very 
important in this process. 
 
¶8. (U) Indonesia is a democratic country, Kalla continued, 
but if people don't see their lives improving, they say "for 
what?"  That's why the MCC is important for Indonesia, Kalla 
noted, and why he raised it with Secretary Rice.  Kalla 
noted it was ironic that when Indonesia was not a democracy 
and not open, the Government sent many people overseas to be 
educated.  But now that Indonesia is a democratic and open 
country, the situation has reversed, with less money 
available for foreign education. 
 
The Peace Corps--Raising Foreign Language Skills 
--------------------------------------------- --- 
 
¶9. (SBU) Kalla and the Ambassador agreed that a Peace Corps 
program would be good for Indonesia.  Kalla and President 
Yudhoyono have both made public statements calling for 
increasing Indonesia's foreign language capability, and the 
Peace Corps would be a good fit for the country.  Kalla said 
it would be "very good" if Peace Corps volunteers could help 
improve instruction in English-language proficiency. 
Getting a group of dedicated foreigners out into Indonesia's 
schools could help with efforts to modernize them.  Kalla 
emphasized that he "agrees with the Peace Corps idea."  He 
also suggested they might train on information technology 
(IT) issues.  Indonesia's higher education system faces two 
main problems, he said: a lack of IT in schools, and an 
overall lower level of English-language proficiency than 
India, Pakistan, and Bangladesh.  Kalla said he had had 
discussions with Microsoft about improving the level of IT 
in Indonesia's schools.  Having a resident Peace Corps 
volunteer would also raise the prestige of schools, and 
build lasting friendships with the U.S. 
 
Economic Factors Behind Central Sulawesi Conflict 
--------------------------------------------- ---- 
 
¶10. (SBU) Kalla said the eight-year-old inter-religious 
conflict in Central Sulawesi had almost been resolved, until 
fresh violence again increased tensions.  Traditionally, 
Kalla said, Poso's 60/40 split between Christians and 
Muslims was comparable to Lebanon.  However, economic 
development and previous transmigration policies encouraged 
Madurese and even his fellow Bugis to flow into the area, 
eventually creating a Muslim majority.  The appointment of 
local leaders on a proportional basis in the Soeharto era 
kept a lid on ethnic tensions, but local direct elections 
ushered in a Muslim majority to the provincial assembly and 
installed Muslim leaders at all levels of local government. 
As a result, Christians felt marginalized and threatened. 
 
¶11. (SBU) Kalla opined that economic development in the 
conflict area, non-existent since fighting began, was a key 
to solving the on-going violence.  The police numbered close 
to 7,000 in the Poso area and used cell phone monitoring to 
pursue those behind the violence, but the bombs and the 
killing have continued.  The Ambassador added that the U.S. 
was sympathetic to the police effort against the "thugs" 
that promoted continued attacks, and noted that the conflict 
was a breeding ground for a new generation of fighters that 
the GOI must now control.  Kalla said he was able to control 
the mujahideen and Laskar Jihad fighters, who actually 
constituted only a small number of the conflict's 
combatants.  He said economic incentives were important, and 
added that the young men in the conflict area would do 
anything for as little as US $10.  Kalla said the solution 
must involve "intellectual sponsors" who can communicate and 
reason with the people. 
 
Impact of Middle East Politics on Muslim Countries 
--------------------------------------------- ----- 
 
¶12. (SBU) Kalla noted he had met Saudi Foreign Minister Saud 
Al-Faisal in Jeddah and told him that the oil producing 
 
JAKARTA 00012798  004 OF 004 
 
 
nations of the Middle East are rich largely because the 
Israel-Palestine conflict has driven oil prices up.  But 70% 
of Muslim nations, including Bangladesh, Pakistan, 
Indonesia, Turkey, and Sudan are negatively affected by high 
oil prices.  Muslim countries should push to solve the 
problem, Kalla said, without giving unconditional support to 
Palestine.  By the same token, the U.S. and other Western 
countries should push Israel to compromise.  Indonesia 
simply doesn't gain from the current situation.  "It makes 
us poorer and creates more problems in the economy", Kalla 
said.  If we could solve the Israel-Palestine problem, we 
could also deal with Hezbollah, Hamas, and other extremist 
groups.  Kalla said he had spoken with Organization of 
Islamic Conference Secretary and told him that the victims 
of the Middle East conflict are Islamic countries. 
 
¶13. (SBU) The Ambassador noted that the U.S. wants to work 
closely with Indonesia on this and other issues.  Kalla 
responded that Indonesia could play a role in helping 
convince Muslim countries to take a more conditional 
approach to their assistance to Palestine.  He said he had 
told the Palestinian Ambassador in Jakarta "we will support 
you, but with conditions."  Secretary Rice's comments about 
Palestine had been very good, Kalla added.  "We can solve 
every problem through personal relationships," he concluded. 
"We want to build a new fertilizer factory in Iran, but want 
a good price for the natural gas feedstock."  Kalla had 
explained this to the Iranian side.  However, "We can't talk 
to North Korea because we have no relationship--the North 
Koreans are upset with President Yudhoyono because he has 
cancelled his visit," Kalla noted. 
 
¶14. (SBU) The Ambassador concluded by noting U.S. and Arab 
concerns about Iranian actions.  He said we wanted close 
discussions with Indonesia on dealing with Iran.  There are 
tough U.S. sanctions on Iran, the Ambassador said, and "we 
want to make sure you have complete information to avoid 
problems." 
 
New Embassy Building 
-------------------- 
 
¶15. (SBU) The Ambassador noted that the new Embassy project 
is moving forward, with an attractive preliminary design 
that should be satisfactory to the GOI.  There have been 
close consultations with the Jakarta city government. 
However, we are still facing difficulties securing user 
rights for two parcels of land within the present Embassy 
compound that the USG does not own.  Although negotiations 
with the MOF have not yet touched on the issue of price, one 
possible option might be to swap an Embassy-owned parcel of 
land near the Hotel Aryaduta for the two parcels on the 
Embassy compound.  This might be an ideal solution and be 
easier to arrange than an outright sale, the Ambassador 
said. 
 
PASCOE