VZCZCXRO3970
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #1055/01 1030935
ZNR UUUUU ZZH
R 130935Z APR 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 4331
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHKO/AMEMBASSY TOKYO 0468
RUEHBY/AMEMBASSY CANBERRA 0659
RUEHBJ/AMEMBASSY BEIJING 4046

UNCLAS SECTION 01 OF 03 JAKARTA 001055 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EB/TPP/MTA AND EAP/MTS 
TREASURY FOR IA-SEARLS 
USDOC FOR SBERLINGETTE/4430 
DEPT PASS USTR DKATZ 
 
E.O. 12958: N/A 
TAGS: ETRD EINV ECON KIPR ID
SUBJECT: INDONESIA TRADE AND INVESTMENT HIGHLIGHTS - MARCH 2007 
 
 
¶1.  Summary:  After lengthy negotiations, Parliament passed a new 
Investment Law on March 29 that is now awaiting presidential 
approval.  The new law will require further implementing regulations 
to come into force.  Members of the G-33 met in Jakarta from March 
20 to 21, with the G-33 claiming it clarified and reduced by half 
the indicators it would use to determine which agriculture products 
would receive special protection in the Doha Development Round 
negotiations.  Indosat, Indonesia's second largest telecom company, 
reported $154.8 million in 2006 profits on March 23, a 13.1% profit 
decline from 2005.  The Minister of State Owned Enterprises 
appointed Mustafa Abubakar as the new chairman of the State Logistic 
Agency (Bulog) on March 21 after the previous chairman was arrested 
on corruption allegations.  On March 26, the Indonesian Chamber of 
Commerce and Industry (Kadin) identified 10 prime industrial 
clusters needing increased development in order to transform 
Indonesia into an industrialized and commercially developed country 
by 2030.  The GOI re-affirmed its commitment to privatization of 
unprofitable state owned enterprises(SOEs) at a conference held 
April 12.  End summary. 
 
Parliament Passes Investment Law 
-------------------------------- 
 
¶2. On March 29, Parliament passed a new Investment law aimed at 
improving Indonesia's investment climate and attracting greater 
foreign investment into Indonesia.  The law, which replaces the 1967 
Foreign Investment Law and the 1968 Domestic Investment Law, is now 
waiting for President Susilo Bambang Yudhoyono's signature to come 
into force.  The law establishes basic investment protections 
including the following: 
 
-- Equal treatment for domestic and foreign investors. However, 
equal treatment is not applicable to investors from countries which 
obtain, "special rights based in an agreement with Indonesia." 
 
-- The Government of Indonesia (GOI) will not undertake any 
nationalization action, unless by law.  In the event that the GOI 
"takes action to nationalize," it will grant compensation with 
specified amount based on the market value or arbitration if the two 
parties do not agree. 
 
-- Investors may freely transfer assets to other parties, as long as 
assets are not determined (by law) to be state assets. 
 
-- Investors may transfer and repatriate capital, profits, 
royalties, income from asset sales, and other sources, in foreign 
currency, in accordance prevailing laws and regulations.  However, 
this does not restrict the right of the GOI to receive taxes or 
royalties or implement laws and regulations requiring reporting of 
the transfer of funds.  The GOI may also implement laws to protect 
the rights of creditors and to avoid losses to the State. 
 
-- Investments disputes between the Government and Investors may be 
settled through international arbitration based upon prior agreement 
between the parties. 
 
¶3. In addition, the law requires investors to give priority to 
Indonesian manpower.  After mediation attempts and tripartite 
proceedings, disputes between investors and labor will ultimately be 
settled through the industrial courts.  The law contains a new 
provision requiring the GOI to terminate agreements or cooperation 
contracts with investors following a binding court decision that 
they have committed a corporate crime (including a tax crime or 
inflating recovery cost and/or other mark-ups) resulting in loss to 
the state.  The law also specifies that certain sectors are closed 
to foreign investment or open with restrictions, and requires the 
GOI to determine open and closed sectors through a Presidential 
Regulation. 
 
¶4. The new law also appears to increase the authority of the 
Investment Coordinating Board (BKPM)in both implementing and 
proposing investment policy.  The BKPM's duties under the law 
include coordinating and implementing one door integrated services, 
developing an investor roadmap, provide consultation to investors 
seeking capital investments, and others.  Although the law contains 
no provision authorizing BKPM to approve investments, BKMN approval 
is needed in order for investors to receive immigration facilities 
or investment incentives.  The law requires the GOI to launch a 
"one-stop" service facility to speed up investment approval.  It 
also provides the authority for the GOI to issue a range of 
incentives to both domestic and foreign investors, including: 
 
 
JAKARTA 00001055  002 OF 003 
 
 
--exemptions or reductions of income tax, import duties, and value 
added tax; 
--accelerated asset amortization and depreciation, and; 
--exemption or reductions from land and building taxes. 
 
¶5. Minister of Trade Mari Pangestu noted during a March 29 plenary 
meeting that the new investment law offers a strong legal basis for 
investment, easier access to obtain permits, including those 
regarding taxes, and land rights. 
Like many Indonesian laws, the Investment law will require further 
implementing regulation.  Such regulations will clarify open and 
closed sectors (negative list), provisions for granting incentives, 
and procedures for "one stop" integrated investment services. 
 
G-33 Meeting in Jakarta 
----------------------- 
 
¶6.  Indonesia hosted a Group of 33 (G-33) meeting March 20-21 to 
assess the progress of negotiations on the Doha Development Agenda 
(DDA) and reflect on the course of action on Special Products (SP) 
and the Special Safeguard Mechanism (SSM).  Press reports noted that 
the G-33 continues to press for the acceptance of the SP and SSM 
proposals, which allow for the exemption of tariff cuts on certain 
products specific to each country.  Chair of the G-33, Minister of 
Trade Mari Pangestu, emphasized unity and solidarity in the process 
of DDA negotiations, noting that ministers and high officials 
pledged their full support toward addressing the issues of food 
security, protection of livelihoods, and promotion of rural 
development in developing countries.  Pangestu told the press on 
March 21 that the G-33 had agreed on three points: early removal of 
trade distorting subsidies in developed countries that pose 
significant market barriers to developing countries; upholding the 
developing countries proposal to cut agriculture subsidies to 
developed country farmers; and the need for developed countries to 
show leadership and move the multilateral negotiations forward by 
creating detailed and specific offers.  The G-33 also claimed it 
clarified and reduced by half the indicators it would use to 
determine which agriculture products will receive special 
protection. 
 
¶7. Pangestu also noted that the meeting was not about the G-33 
finding a "breakthrough" on major differences with the G-4, but 
rather committing to engage constructively toward a solution. 
Meeting participants included WTO Director General Pascal Lamy, 
Brazilian Minister of External Affairs Celso Amorim, G-10 
Representative, Japanese Minister of Agriculture Toshikatsu Matsuka, 
and European Commissioner for Trade Peter Mandelson. 
 
Indosat Net Profit Down 
----------------------- 
 
¶8. Indonesia's second largest telecom firm, PT. Indosat, reported 
net profits of Rp 1.41 trillion ($154.8 million) in 2006, a 13.1% 
decrease year-on-year from Rp 1.54 trillion ($169.1 million) in 
¶2005.  Indosat's mobile subscriber base failed to keep pace with 
industry growth, growing only 15% last year to 16.7 million, and 
lagging behind the rapid growth of the industry.  Indonesia's mobile 
phone industry has grown rapidly in recent years and analysts 
predict the number of users will top 100 million by 2010 from 65 
million last year. Attractive growth has also attracted new entrants 
into the increasingly crowded telecom market. 
 
GOI Replaces Logistic Chief 
--------------------------- 
 
¶9.  On March 21, the Indonesia's State Owned Enterprises Ministry 
appointed a new head at the State Logistic Agency (Bulog) following 
the arrest of the previous chief on corruption charges.  The new 
head is Mustafa Abubakar, a former senior official at the Ministry 
of Marine Affairs and Fisheries and former World Bank consultant to 
Bank Rakyat Indonesia and Bank Indonesia.  Previous to his current 
post, Abubakar served as Inspector General at the Ministry of Marine 
Affairs and Fisheries from 1999 to 2006. 
 
¶10. Abubakar's appointment comes after the Attorney General's office 
arrested former chief Widjanarko Puspoyo on March 20 over 
allegations of graft involving imports of cattle from Australia in 
2001 that caused an estimated $1.2 million in losses to the state. 
Bulog was established in 1967 to strengthen Indonesia's food supply 
and distribution.  Its main function today is to stabilize prices of 
commodities such as sugar and rice. 
 
 
JAKARTA 00001055  003 OF 003 
 
 
KADIN Identifies 10 Prime Industries in Roadmap 
--------------------------------------------- -- 
 
¶11. The Indonesian Chamber of Commerce and Industry (Kadin) 
identified 10 prime industrial clusters needing increased 
development in order to transform Indonesia into an industrialized 
and commercially developed country by 2030.  Kadin called for 
appropriate policies at the national level to promote increased 
investment and better management in industries.  Kadin also 
recommended re-orienting government policy away from promoting the 
export of raw materials toward directing raw materials to supplying 
domestic production.  Kadin Head of Industry and Technology, Rahmat 
Gobel, expressed concern over the future competitiveness of 
Indonesian industry, noting that tariff cuts starting in 2010 will 
intensify competition in the ASEAN market.  Gobel also said that in 
this increasingly competitive environment, national industrial 
restructuring will be vital to boost competitiveness in key sectors 
and ensure business survival.  The 10 prime Industries are: 
 
-- Textile and footwear; 
-- Electronic and parts thereof; 
-- Automotive and parts thereof; 
-- Shipping; 
-- Infrastructure Developers, such as power plants, toll roads, 
telecommunication, construction, cement, steel and ceramic; 
-- Capital goods and machineries; 
-- Upstream petro-chemical, including fertilizer; 
-- Fisheries; 
-- Agriculture, poultry, forestry and plantation, including food and 
beverage; and 
-- Cultural and traditional based industry, such as traditional 
medicine, handicrafts, and batik. 
 
Government Commits to Privatization 
----------------------------------- 
 
¶12. The GOI re-affirmed its commitment to privatization of 
unprofitable state owned enterprises(SOEs) at a conference held 
April 12. President Susilo Bambang Yudhoyono and State Minister for 
State-Owned Enterprises Sugiharto called for the 20 current 
unprofitable SOEs to be privatized.  Sugiharto restated his 
commitment to selling a 30% stake in state toll road operator Jasa 
Marga and to privatizing Bank Negara Indonesia (BNI), the country's 
second largest bank. Both Sugiharto and the President said they 
expect privatization activities to start this quarter. 
 
 
HEFFERN