VZCZCXRO9105
PP RUEHCHI RUEHDT RUEHHM
DE RUEHJA #2335/01 2361025
ZNR UUUUU ZZH
P 241025Z AUG 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 5928
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS

UNCLAS SECTION 01 OF 02 JAKARTA 002335 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
FROM AMBASSADOR HUME TO U/S REUBEN JEFFERY 
 
E.O. 12598: N/A 
TAGS: EFIN EINV ECON ENRG KCOR PGOV ID
SUBJECT: SCENESETTER FOR U/S JEFFERY'S SEPTEMBER 9-12 VISIT TO 
INDONESIA 
 
 
¶1. (SBU) Embassy Jakarta welcomes you to Indonesia.  Yours will be 
the first high-level State Department economic visit here in several 
years.  We have structured your visit to highlight the important 
themes of investment climate reform, anti-corruption efforts, energy 
security and climate change, and U.S. engagement with ASEAN.  You 
will also spend a day in Medan, the capital of North Sumatran 
province. 
 
Investment Climate Reform 
------------------------- 
 
¶2. (SBU) While Indonesia's economy is growing at over six percent 
per year, the investment climate remains difficult.  Investors 
complain of poor infrastructure, leaden bureaucracy, and judicial 
corruption.  The government has a team of reform-minded technocrats 
(including Minister of Trade Mari Pangestu whom you will meet).  But 
a lack of consensus between reformers and economic nationalists 
hobbles progress on opening up the investment climate.  For example, 
the recently passed investment law contains a number of progressive 
elements on transparency and equal treatment for foreign investors. 
Unfortunately it also includes a negative list limiting foreign 
ownership in a large number of sectors.  You will have the 
opportunity to meet with both American and Indonesians business 
people to get their views on doing business in Indonesia.  In 
addition to the trade minister, you will also meet with the 
Coordinating Minister for the Economy and the Director of the 
Investment Coordinating Board. 
 
Anti-Corruption Efforts 
----------------------- 
 
¶3. (SBU) Indonesia is making progress in reducing corruption.  The 
Corruption Eradication Commission (KPK) and an associated 
Anti-Corruption Court (ACC) have had success over the past few years 
in investigating and prosecuting high-profile corruption cases.  The 
KPK and ACC coordinate with the Attorney General's Office, the 
National Police, the Supreme Court and others. You will have a 
chance to visit the KPK to discuss the challenge that corruption 
issues pose to Indonesia's further development. 
 
¶4. (SBU) Despite Indonesia's efforts, as of 2006 Indonesia's score 
on anti-corruption indicators remained below the minimum level for 
Indonesia to qualify as an MCC Compact Country.  To accelerate 
progress, USAID and GOI signed a $5  million agreement in November 
2006 for a Millennium Challenge Corporation (MCC) Threshold Program, 
managed by USAID.  Program implantation began in April 2007 and will 
run until April 2009.  The program includes a $35 million Control of 
Corruption component that will address Supreme Court reforms, 
judicial transparency, anti-money laundering enforcement and 
prosecution of public corruption cases. 
 
Energy Security and Climate Change 
---------------------------------- 
 
¶5. (SBU) Indonesia is focused on making the December COP-13 climate 
change meeting in Bali a success.  They are very concerned that the 
President's Major Economies Initiative - to which they've been 
invited - may detract from COP-13.  The recent visit of the Chairman 
of the Council on Environmental Quality James Connougton did much to 
alleviate their concerns.  Indonesia hopes to use COP-13 to develop 
processes to reward "avoided deforestation;" they want to receive 
compensation for protecting their rainforests. 
 
¶6. (SBU) Sitting somewhat oddly against their problems with 
deforestation (they have the fastest rate of deforestation in the 
world), Indonesia has developed an ambitious five-year, 
multi-billion dollar investment plan to boost biofuel production, 
largely through palm oil.  You will have the opportunity to discuss 
climate change and energy security in meetings with the Ministry of 
Energy and in a roundtable with various energy and environmental 
experts. 
 
The U.S and ASEAN 
----------------- 
 
¶7. (SBU) Your visit to ASEAN and meeting with Deputy Secretary 
General Dammen will help reassure ASEAN officials that we value our 
relationship.  ASEAN officials remain disappointed that President 
Bush postponed the US-ASEAN Summit, which was to be hosted by 
Singapore on September 5, 2007 to commemorate 30 years of dialog 
relations.  While our substantive, issue-based engagement remains 
robust, we have lost momentum in relationship building through "face 
time."  (Note: ASEAN has over 700 meetings per year and neighboring 
China engages in many more than the U.S. does.) In recent meetings 
at the ASEAN Secretariat, ASEAN officials have focused on the 
positive role the US plays in ASEAN in terms of economic 
cooperation, technical assistance and balancing the influence of 
China. 
 
 
JAKARTA 00002335  002 OF 002 
 
 
A Visit to Sumatra 
------------------ 
 
¶8. (SBU) You will also visit Medan, the capital of North Sumatra 
province.  North Sumatra is Indonesia's most religiously diverse 
region and home to more than three million people.  The province is 
an excellent case study of the impact of the old Java-centric 
development model in an outer island: despite its strong export 
performance and contributions, the province's airport, road network, 
public utilities, and education system lag well behind those of 
comparable regions of Java. North Sumatra is an important center for 
finance and agribusiness and, because of the close proximity of 
Malaysia and Singapore, the business community tends to have closer 
ties to those countries than they do to Jakarta.  Until the 1970s 
the U.S. was the most important foreign investor in the province, 
but declining oil production in the early 1980s and falling rubber 
prices led to a withdrawal of virtually all American business from 
the region.  You will be the highest ranking State Department 
visitor to Medan in several years (though several, including former 
Presidents Bush and Clinton, Secretary Rice and Deputy Secretary 
Zoellick have been to post-tsunami Aceh.) 
 
High-Level Economic Visitors to Indonesia 
----------------------------------------- 
 
¶9. (SBU) Treasury Deputy Assistant Secretary for Asia Robert Dohner 
visited most recently July 16.  (Secretary of Treasury Paulson has 
been invited to the Finance Ministers side meeting of the Bali 
UNFCCC COP-13 Climate Change conference December 10-11.)  Secretary 
Rice visited in March 2006 and again in November 2006 with President 
Bush, during which we signed agreements on multi-hazards warning, 
customs cooperation, and combating illegal logging.  EAP Assistant 
Secretary Christopher Hill visited in May 2007.  While USTR sends 
 
SIPDIS 
visitors fairly regularly (most recently Assistant USTR Barbara 
Weisel in May 2007) we believe we have not had a State Under 
Secretary for Economic Affairs here since 2002. 
 
SIPDIS 
 
HUME