VZCZCXRO8074
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #2438/01 2480220
ZNR UUUUU ZZH
R 050220Z SEP 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 6070
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHKO/AMEMBASSY TOKYO 0736
RUEHBJ/AMEMBASSY BEIJING 4271
RUEHBY/AMEMBASSY CANBERRA 1108
RUEHUL/AMEMBASSY SEOUL 4166
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 03 JAKARTA 002438 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR EAP/MTS AND EB/IFD/OMA 
TREASURY FOR IA-BAUKOL 
SINGAPORE FOR BAKER 
COMMERCE FOR 4430/BERLINGUETTE 
DEPARTMENT PASS FEDERAL RESERVE SAN FRANCISCO-FINEMAN 
DEPARTMENT PASS EXIM BANK 
 
E.O. 12958: N/A 
TAGS: EINV ECON EFIN PGOV ID
 
SUBJECT: INDONESIA - CORPORATE SOCIAL RESPONSIBILITY REQUIREMENT 
CREATES CONFUSION 
 
 
¶1. (U) Summary.  The new limited liability company law has created 
great confusion in the business community by mandating that "natural 
resources" companies engage in corporate social responsibility (CSR) 
activities.  The law is very vague and domestic business leaders 
have already raised objections.  International businesses chambers, 
including the American Chamber of Commerce are still unsure what the 
potential impact could be.  Attention is now focused on the Ministry 
of Finance, which will draft the implementing regulations  t flesh 
out the precise CS requireements companie will face.  End Summary. 
 
Limited Liability Legilation: 
Surprise on Corporate Social Responsibilty 
------------------------------------------- 
¶2. (SBU) Parliament (DPR) passed draft a new law n limited 
liability companies on July 20, 2007, hich awaits Presidential 
signature and numbering. Article 74 of this law has created a great 
dealof concern among both foreign and domestic busineses in 
Indonesia.  The article states that "resouce based" companies are 
obligated to contribute o corporate social responsibility (CSR) 
programs. (See unofficial translation at paragraph 7).  The 
inclusion of this article came as a surprise to any business 
leaders and was reportedly insertedat the last minute by Members of 
Parliament. 
 
ndonesian Business Objects 
-------------------------- 
 
¶3. (U) The Indonesian Chamber of Commerce KADIN) and other business 
associations have issud a joint statement object ing to Article 74. 
KADN Chairman Hidayat noted that KADIN would firmly rject any 
implementing regulations (which have yetto be promulgated by the 
Ministry of Finance) tht would require a certain percentage of 
profit b diverted to CSR.  Accordi(ng to KADIN, such a requrement 
would simply constitute a tax on business  Rafendi Djamin, 
coordinator of Human Rights Wath Group, said a legal instrument is 
needed to foce companies to be socially responsible and was plased 
that Indonesia woul(d be the first country t pass such  a law. 
 
Intenational Business Confused 
------------------------------- 
 
¶4. (SBU) The American Chamber of Commr"ce (AmCham) held a 
well-attended meeting of ove  20 companies on August 9 to discuss 
the CSR legislation.  AmCham members commented that Article 44 - as 
currently drafted and in the absence of ip lementing regulations - 
is unclear on several cuunts.  Specifically, the new law: 
 
-- fails to df"ine CSR; 
-- does not designate a government agency to oversee CSR 
activities; 
-- does not discuss possible sanctions for noncompliance; 
-- desiga te approved recipients of CSR funds; or 
-- clarffy what is meant by a "natural resource" company. 
 
 
 
Not all AmCham members are worried.  One representative of a major 
oil and gas company suggested hhat western firms have "nothing to 
worry about" i(nce they already have significant CSR programs.AAmCham members concluded it would be wise to team p  with other 
business chambers, to discuss international best practices of CSR 
with the relevant mnnistries, and to educate GOI officials and 
Parliament about what many businesses are already doing in CSR. 
 
Re-Election Pork? 
----------------- 
 
¶5. (SBU) There are several theories about what led Parliament to 
insert this last-minute clause into the legislation.  One theory is 
that it is all about pork;  since many officials are being elected 
for the first time, the CSR Article 74 may be an attempt by Members 
of Parliament to show constituencies they are improving their 
localities.  This may be an attempt to bring re-election pork to 
home districts.  Another theory suggests that domestic and regional 
companies are more the target than western companies.  Domestic and 
 
JAKARTA 00002438  002 OF 003 
 
 
Asian companies, as a generalization, tend to do less community 
development and CSR than western ones.  A related issue is that 
under current law, extractive industry companies are required to 
make an environmental impact statement and then file an 
environmental mitigation plan to the Ministry of Environment.  Once 
they are finished extracting the resources, they are required to 
implement the environmental mitigation plan.  However, many smaller 
Indonesian firms go out of business at the end of the resource 
extraction and never implement the mitigation plan, leaving the 
clean-up to the GOI or sub-national governments.  Thus one goal of 
the Article 74 may be to receive CSR benefits "up front" from 
domestic companies. 
 
Comment: No implementation? 
--------------------------- 
 
¶6. (SBU) The CSR Article 74 seems to be an example of inexperienced 
legislators, who lack both expert staff and an adequate consultative 
process, passing confused and confusing legislation.  The business 
community has three months to provide comments on the law to the 
Ministry of Justice and Human Rights before implementing regulations 
are formulated.  Prominent business leader and Chairman of the 
Indonesian Employers' Association, Sofyan Wanandi, is recommending 
that the CSR requirement not be implemented, according to the head 
of the International Business Council, Peter Fanning.  Many pieces 
of legislation in Indonesia which can neither be properly 
implemented nor enforced, simply die on the vine.  Alternately, the 
relevant Ministry delays the regulations for years.  The CSR Article 
74, is so garbled, confused and hastily drafted (without 
consultation), it may suffer a similar fate. 
 
¶7. (U) Text of Article 74, Unofficial Translation. 
 
BEGIN TEXT 
---------- 
 
Limited Liability Company Law, Chapter V, Social and Environmental 
Responsibility, Article 74. 
 
(1) Limited Liability Companies that conduct their businesses in the 
area of and/or related to natural resources are obligated to conduct 
Social and Environmental Responsibility. 
 
(2) Social and Environmental Responsibility as referred to in line 
(1) is the obligation of the Limited Liability Company, which is 
budgeted and calculated as the cost of the Limited Liability 
Company, whereby its implementation is carried out by considering 
the sense of propriety and regularity. 
 
(3) Limited Liability Companies that do not carry out their 
obligations as referred to in line (1) shall be sanctioned according 
to the stipulations of the legislation. 
 
(4) Further stipulation on the Social and Environmental 
Responsibility shall be further regulated under Government 
Regulations. 
 
Elucidation of Article 74 
 
Line (1) This stipulation is aimed to maintain the establishment of 
a harmonious, balanced and compatible relationship between the 
Limited Liability Company and environment, values, norms and 
cultures of the local community.  "Limited Liability Companies that 
conduct their businesses in the area of natural resources" refers to 
Limited Liability Companies, whose business activity manages and 
utilizes natural resources or whose business activity has an impact 
on the functions of natural resource capacity. 
 
Line (2) Self explanatory. 
 
Line (3) "Shall be sanctioned according to the stipulations of the 
legislation" refers to penalty by sanction to be regulated in the 
respective legislation. 
 
Line (4) Self explanatory. 
 
JAKARTA 00002438  003 OF 003 
 
 
 
END TEXT 
 
HUME