VZCZCXRO6690
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #2874/01 2840947
ZNR UUUUU ZZH
R 110947Z OCT 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 6650
INFO RUEAWJB/DEPT OF JUSTICE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHKO/AMEMBASSY TOKYO 0950
RUEHBJ/AMEMBASSY BEIJING 4404
RUEHBY/AMEMBASSY CANBERRA 1364
RUEHUL/AMEMBASSY SEOUL 4243
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 02 JAKARTA 002874 
 
SIPDIS 
 
STATE FOR U/S JEFFERY 
STATE FOR EAP/MTS 
MCC FOR AMBASSADOR DANILOVICH AND MORFORD 
DEPT PASS USTR FOR AMBASSADOR SCHWAB 
TREASURY FOR IA - BAUKOL 
USAID FOR ANE/AA WARD 
 
SENSITIVE 
SIPDIS 
 
AIDAC 
 
E.O. 12958: N/A 
TAGS: ECON PGOV KJUS KPAO ID
SUBJECT: YOGYAKARTA: CHALLENGES, OPPORTUNITIES FOR DECENTRALIZATION 
 
 
JAKARTA 00002874  001.2 OF 002 
 
 
¶1. (SBU) Summary and Introduction: Yogyakarta's decentralization 
framework is robust, yet its implementation and results incomplete. 
Following major earthquake damage and economic decline in 2006, the 
Special Province of Yogyakarta is working to attract investment and 
improve the investment climate through one-stop business licensing 
centers, the Yogyakarta Business Center, and adequate 
infrastructure.  The Yogyakarta Governor has established the Change 
Management and Innovation Center to improve public service delivery. 
 These innovations have created notable models for decentralization 
and government support for economic growth; however, tangible 
benefits are slow to appear. 
 
¶2. (U) We traveled to Yogyakarta on September 27-28 to meet with 
local government officials, civil society leaders, and university 
administrators and students.  Local government meetings included the 
regional planning board (BAPEDA), the District Attorney's Office 
Special Crimes Unit, and the Yogyakarta Mayor's Office for 
Infrastructure.  The Partnership for Governance Reform regional 
office set up a roundtable with the private and public ombudsmen as 
well as the head of the government's Change Management and 
Innovation Center.  We engaged in public outreach events at the 
University of Gadjah Mada, Muhammadiyah University, Sanata Dharma 
University, Rotary Club, and the Center for Anti-Corruption Studies 
(PUKAT).  (See septel for additional reporting on PUKAT, 
anti-corruption reform, and improving accountability in Yogyakarta.) 
 End Summary and Introduction. 
 
Recovering from the Earthquake 
------------------------------ 
 
¶3. (U) Divided into four districts and one city, Yogyakarta relies 
on small and medium-sized enterprises (SMEs) for 80-90% of its 
employment and an equal if not larger portion of its GDP, according 
to regional planning board officials.  Furniture, silver, leather, 
and other crafts account for much of the SME economy, while dairy, 
hand tools, textiles, and light bulbs (specifically a GE factory) 
account for the larger-sized enterprises in Yogyakarta. 
 
¶4. (U) With a mix of regional pride and actual results, the people 
of Yogyakarta have recovered from the devastating May 2006 
earthquake, which killed 5,700 people, injured over 37,000, and left 
over 1.5 million homeless.  The disaster led to 3.7% economic 
decline and double-digit inflation in 2006.  Local leaders conveyed 
a perception that earthquake relief had concluded as financial 
assistance is largely disbursed and many people were returning to 
their normal routine.  We toured Yogyakarta villages with Rotary 
leaders to view earthquake damage and subsequent reconstruction 
efforts.  Many reconstruction projects appeared to be completed. 
However, we saw severe earthquake damage in some areas as well as 
the continued use of emergency tents. 
 
Right Reforms, Slow Output 
-------------------------- 
 
¶5. (SBU) Yogyakarta provides a model for the speed and creativity of 
its governmental responses to providing services under 
decentralization; however, positive results for business development 
are still limited.  Regional planning board officials highlighted 
the one-stop centers for business licenses and paperwork, the 
Yogyakarta Business Center, and the six regional centers for SMEs as 
examples of Yogyakarta's efforts to attract investment and improve 
the business climate.  Civil society leaders pointed to the 
province's push to provide digital government services.  In 2007, 
the Governor established the 60-person Change Management and 
Innovation Center to evaluate government performance, specifically 
public services.  Despite these impressive innovations, ombudsmen 
officials said that it takes 240 days to start a business in 
Yogyakarta, significantly longer than the national average of 80-90 
days. 
 
¶6. (SBU) Infrastructure for business development is adequate.  An 
infrastructure official in the regional planning office said that 
only ten percent of the roads were in poor condition.  Public 
 
JAKARTA 00002874  002.2 OF 002 
 
 
transportation is old, but not an impediment to business 
development.  Water supply is a contentious issue as rice farmers 
and fisheries compete for limited water supply.  Only 40% of 
Yogyakarta residents receive water supplies from the state water 
company.  Eighty percent of Yogyakarta residents receive electricity 
from state-owned electricity company PLN, second best for Central 
Java.  While it could be improved, infrastructure is not the 
principal stumbling block for economic growth in Yogyakarta. 
 
Decentralization: Many Regulations, More Challenges 
--------------------------------------------- ------ 
 
¶7. (SBU) Although a special province in Indonesia, Yogyakarta has 
confronted new challenges since the start of Indonesia's ambitious 
decentralization.  Civil society leaders said that the 
province-district relationship remains unclear.  National regulation 
38/2007 on sharing and assigning functions, roles and authority 
across levels of government and national regulation 41/2007 on the 
structure of regional government have yet to be fully implemented. 
Parliament is considering further revisions to Indonesia's 
decentralization Law 32/2004, which could further complicate 
matters.  Overlapping jurisdictions and multiple laws continue to 
confuse and delay local government operation.  Local business 
development is also hampered as the investment rules and licenses 
are unclear.  As shown by the 2006 earthquake, disaster management 
is another issue not addressed adequately by current 
decentralization law and regulations.  In addition, a 1960 Land Law 
needs to be updated. 
 
Public Outreach Opportunities Abound in Yogya 
--------------------------------------------- 
 
¶8. (U) Yogya is Indonesia's university center, with over 120 
universities.  We met with the Dean and students of the Economics 
Faculty at Gadjah Mada University, academic home of Coordinating 
Minister for Economic Affairs Boediono and many top economists in 
Indonesia.  In a public forum, we spoke with 120 economics students 
about the importance of the US-Indonesian relationship, particularly 
economic reform.  We fielded questions ranging from US involvement 
in the 1965 coup to the prospects of implementing the UN/World 
Bank-sponsored Stolen Asset Recovery (StAR) initiative in Indonesia. 
 We also visited Muhammadiyah University-Yogyakarta and met with the 
Rector before participating in a panel discussion on corporate 
governance.  We spoke with 120 students, highlighting key issues for 
US-Indonesian cooperation, particularly anti-corruption reform. 
Muhammadiyah professor Masyhuid Muqorobin stated that corruption 
contradicts Islamic values and argued that the concept of 
trusteeship (amanah) in Islam should guide Indonesian leaders in 
combating corruption. 
 
¶9. (U) We later met with Rotary Club leaders, including the Rotary 
Indonesia President and President Elect.  With over 100 clubs in 
Indonesia, Rotary has assisted with Yogyakarta earthquake relief and 
implements other community service projects throughout Indonesia. 
Returning to Gadjah Mada, we met with the Center for Anti-Corruption 
Studies (PUKAT), an NGO established in December 2006 to work on 
various public policy efforts regarding anti-corruption in 
Indonesia.  PUKAT is designed to be a model organization for other 
universities interested in working on anti-corruption reform.  See 
septel for PUKAT meeting points. 
 
¶10. (U) We met with the Rector, Vice Rector, an English professor, 
and three students at Sanata Dharma University, a small private 
university in Yogyakarta.  The discussion centered on exchange 
projects, specifically the university's goal to establish an annual 
exchange program with an American university.  We answered questions 
ranging from student visa applications to the social life of young 
Americans. 
 
HEFFERN