VZCZCXRO2365
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #2694/01 2670844
ZNR UUUUU ZZH
R 240844Z SEP 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 6414
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHKO/AMEMBASSY TOKYO 0848
RUEHBJ/AMEMBASSY BEIJING 4335
RUEHBY/AMEMBASSY CANBERRA 1240
RUEHUL/AMEMBASSY SEOUL 4212
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 02 JAKARTA 002694 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/MTS, EB/IFD/OMA 
TREASURY FOR IA-BAUKOL 
SINGAPORE FOR TREASURY-BAKER 
COMMERCE FOR 4430-BERLINGUETTE 
DEPARTMENT PASS FEDERAL RESERVE SAN FRANCISCO FOR TCURRAN 
DEPARTMENT PASS EXIM BANK 
 
E.O. 12598: N/A 
TAGS: EFIN ABLD EINV ECON PGOV ID
SUBJECT: FINANCE MINISTER MEETING WITH AMBASSADOR 
 
JAKARTA 00002694  001.2 OF 002 
 
 
¶1. (SBU) Summary: Minister of Finance (MOF) Sri Mulyani Indrawati 
told the Ambassador on September 24 that Indonesia's growth is 
strong but more infrastructure development is needed.  Indonesia 
needs to do more to get its good news story out, as the media paints 
a very negative picture.  The country's budget formulation process 
is in transition, creating an interesting dynamic as the Parliament 
takes on a greater role.  The non-commercial aspects of the Embassy 
land issue are approved: the land valuation issue will be handled by 
the Ministry of Finance's Secretary General Mulia Nasution and the 
Director General for Assets Mr. Hadiyanto.  End Summary. 
 
Strong Growth But Infrastructure Boost Needed 
--------------------------------------------- 
 
¶2. (SBU) Finance Minister Mulyani welcomed the Ambassador in a 
meeting on September 24, noting that the Indonesian economy is 
moving along well and it is a good time to be here.  The U.S. 
subprime problems impact on the global economy are still unclear. 
Indonesia has been slow to recover from the financial crisis of 
1997-98 and poverty and unemployment are still high, but exports and 
capital flows and reserves are now strong.  The role of foreign 
buyers of Indonesia's bonds and stocks has increased to 20% in the 
last two years.  It is not yet clear investors will re-profile their 
portfolios and risk assessments of emerging markets.  Mulyani 
expects continued strong growth in the second half of 2007 above 6% 
(Q2 GDP growth was 6.3%).  Infrastructure development will be needed 
to give growth a boost.  Slow infrastructure development is also 
hindering the growth of regions under decentralization.  Both the 
Members of Parliament (DPR) and the Cabinet are concerned with 
strong growth.  The elections of 2009 are still far away, but still 
close for many politicians.  The Ambassador responded that Indonesia 
had been more successful in attracting portfolio investment than 
long-term foreign direct investment (FDI). 
 
Praise for U.S. Technical Assistance 
------------------------------------ 
 
¶3. (SBU) Mulyani reiterated her appreciation of U.S. technical 
assistance to her Ministry, including in the Directorate General of 
Tax (DG Tax).  She has also consulted with the Internal Revenue 
Service and Treasury on ways to improve tax administration.  "The 
Ministry of Finance is very important and powerful," she noted, "but 
needs deep reform."  Many of these reforms were placed on hold after 
the financial crisis, but now is the time to clean up our own house 
internally.  Tax and customs reform are her highest priority. 
 
Budget Process in Transition 
---------------------------- 
 
¶4. (SBU) Mulyani noted that Indonesia's budget formulation process 
is in an interesting state of transition.  Under Soeharto, Indonesia 
had a rubber stamp Parliament, now it is exercising real power.  A 
new draft law will define more formally the DPR's role.  Many in the 
executive branch are not used to this new dynamic, which is creating 
some interesting debate.  "We are still searching for the right 
equilibrium," she noted.  She also said that under the executive 
branch, the budget process was still rather fragmented between the 
National Planning Ministry (BAPPENAS), the other line ministries and 
the Ministry of Finance. 
 
Getting Out the Good News Stories 
--------------------------------- 
 
¶5. (SBU) The Ambassador noted that he would be traveling to the U.S. 
to discuss with Microsoft the possibility of holding its Global 
Leadership Forum in Indonesia.  "Indonesia needs to help tell its 
story, otherwise there is gradual improvement but the world does not 
notice."  Mulyani concurred that at a recent Asia Pacific bankers' 
dinner, many of the participants had never been to Indonesia before 
and were pleasantly surprised at the positive developments, unlike 
what the media has frequently portrayed.  Indonesia needs to build 
up its own confidence and put the blame game behind it, she said. 
The Ambassador said that turning the page on some of the old cases 
and disputes still unsettled from the financial crisis could improve 
the perception of those outside the country and thus the overall the 
investment climate. 
 
 
JAKARTA 00002694  002.2 OF 002 
 
 
Embassy Land 
------------ 
 
¶6. (SBU) On the issue of Embassy land, the Minister noted that from 
the non-commercial aspects, all is clear.  The political agencies 
and City Planning Agency (DKI) have no problems.  Under Indonesian 
law, every transaction above Rp 100 billion ($11 million) requires 
DPR approval.  "I will have to defend the valuation in front of 
Parliament," she noted.  "The concern for my treasury is that my 
balance sheet shows we were paid the same price or higher."  She 
said in her Ministry, Secretary General Mulia Nasution would be 
coordinating the process with the Director General for Assets Mr. 
Hadiyanto. 
 
HUME