VZCZCXRO7600
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #2973/01 2970602
ZNR UUUUU ZZH
R 240602Z OCT 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 6776
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHKL/AMEMBASSY KUALA LUMPUR 2396
RUEHBK/AMEMBASSY BANGKOK 8197
RUEHGP/AMEMBASSY SINGAPORE 6191

UNCLAS SECTION 01 OF 02 JAKARTA 002973 
 
SIPDIS 
 
SINGAPORE FOR SUSAN BAKER 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR EAP/MTS, EAP/RSP, EB/TPP, EB/TPP/BTA 
COMMERCE FOR SBERLINGUETTE 
USTR FOR BWEISEL 
TREASURY FOR IA-BAUKOL 
 
E.O. 12598: N/A 
TAGS: CASC ASEC EINV ECON ID
SUBJECT: NATIONAL INVESTMENT TEAM VS NEGATIVE LIST 
 
 
¶1. (SBU) Summary.  The Government of Indonesia (GOI) reestablished 
its National Team for the Enhancement of Export and Investment 
(PEPI) to coordinate investment policy formulation and 
implementation in addition to investment promotion.  The institution 
was reinvigorated in response to complaints from the international 
business community over Indonesia's "negative list" of sectors 
limiting foreign investment.  GOI officials are already directing 
disgruntled foreign investors to this new national team, however 
PEPI's success (and ultimate longevity) may be determined by how 
well it achieves its first objective: clarifying the grandfathering 
provision of Indonesia's 2007 Investment law.  End Summary. 
 
Season of Discontent 
-------------------- 
¶2.  (SBU) PEPI was reestablished to assuage increasing investor 
anxiety over implementation of Indonesia's 2007 investment law. 
Investors have expressed concern over "mixed messages" from the GOI 
on several issues, most notably the retroactive application of 
investment limits to companies incorporated in Indonesia before 
enactment of the law.  GOI officials, (including Minister Pangestu), 
have repeatedly assured pre-existing foreign investors they would be 
"grandfathered" and not subject to the same requirements and 
restrictions as new investors.  Nonetheless some investors have 
complained of pressure from GOI officials to begin divesting. 
 
¶3.  (SBU) For example, the foreign owners of Jakarta-based security 
firms were recently called in to meet police officials who informed 
them that they would be expected to divest their majority shares by 
the end of the year.  The police officials had even "helpfully" 
identified local business partners ready to buy the divested shares. 
 When the foreign investors complained, the police officials 
insisted that that the investors had "misinterpreted" the 
grandfathering provision of the law. 
 
PEPI to the Rescue 
------------------ 
¶4.  (SBU) Bacelius Ruru, the newly designated Executive Secretary of 
PEPI, tells us that PEPI has prepared a draft recommendation 
clarifying the grandfathering provision.  Ruru explained that 
companies that applied for or received a business license prior to 
the enactment of the investment law would not be required to divest 
their shares.  In addition, those companies would also be allowed to 
expand their business (within the same sector) to the maximum 
ownership percentage allowed under the previous regulations.  If 
enacted as an implementing regulation, Ruru hopes the clarification 
will serve to calm investor anxiety as well as deter GOI officials 
from enforcing their own interpretation of the law on sectors they 
regulate.  While the recommendation has been endorsed by the 
ministerial-led working group, it is unclear how or when it will be 
ultimately codified as an implementing regulation. 
 
How it Works 
------------ 
¶5.  (SBU) PEPI was legally re-established in July 2007 through 
Presidential Decree but was not formally announced until September 
25 when Minister for Coordinating Economic Affairs Boediono 
presented it as part of the GOI's annual update on economic reforms. 
 PEPI used the interim time to identify office space and recruit and 
staff a full-time secretariat comprising over a dozen personnel. 
This latest version of PEPI is organized with three working groups: 
 
 
-- Investment Policy Formulation; 
-- Investment Policy Implementation; 
-- Investment Promotion. 
 
The three working groups are led by Minister Pangestu, (with 
Vice-Chair Minister of Transportation Djamal), Minister of 
Administrative Reforms Effendi (with Vice-Chair Investment Board 
Chairman Lutfi) and Minister of Industry Fahmi (with Vice-Chair 
Minister of Tourism Wacik) respectively.  While the Secretariat 
maintains its offices in the same building as the Investment 
Coordinating Board (BKPM), PEPI officials insist it is an autonomous 
institution with an independent budget that answers to the President 
through the ministerial working groups. 
 
¶6.  (SBU) The actual process for converting working group 
recommendations from proposals to policy is both unclear and 
untested.  As explained by PEPI officials, recommendations from the 
 
JAKARTA 00002973  002 OF 002 
 
 
working groups will go to the lead Ministers for endorsement, and 
then be forwarded to Coordinating Minister Boediono for provisional 
approval.  The Ministry for Coordinating Economic Affairs would then 
direct the recommendation either to the President's office for final 
approval and issuance as a Presidential Decree, or to the relevant 
line Ministry for issuance as a regulation. 
 
And For My Next Trick... 
------------------------ 
¶7.  (SBU) Ruru explained that PEPI's most important role is to serve 
as the government's coordinating mechanism on investment policy.  In 
addition, PEPI has responsibility for formulating a "more 
integrated" approach to investment promotion and providing 
recommendations on implementation of the investment law, including 
advising the government on future changes to the negative list. 
Ruru also expressed the willingness of PEPI to play an informal role 
in helping to mediate investment disputes, but conceded it had 
little direct authority.  Lastly, Ruru expounded on the technical 
challenges inherent to investment policy and requested assistance 
for PEPI in the form of advisors (statisticians, economists, 
investment specialists) like those provided to the Ministry of Trade 
by the USAID-funded Indonesia Trade Assistance Project (ITAP). 
 
The Verdict is Still Out, However... 
------------------------------------ 
¶8. (SBU) COMMENT:  In Indonesia, the setting up of a "National Team" 
to address any high-profile issue is a standard consensus-building 
strategy, and therefore not remarkable in itself.  The success 
record of these teams in other sectors is not encouraging.  Nor is 
the uncertainty of how PEPI will manage its relationship with the 
notoriously turf-conscious BKPM.  But PEPI's independent budget, 
full-time staff and confidence in taking on the contentious issue of 
grandfathering give cause for guarded optimism. 
 
HUME