VZCZCXRO2717
PP RUEHLMC
DE RUEHJA #3130/01 3131027
ZNR UUUUU ZZH
P 091027Z NOV 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 7004
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEHLMC/MILLENNIUM CHALLENGE CORP 0043

UNCLAS SECTION 01 OF 03 JAKARTA 003130 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR E - U/S JEFFERY 
DEPT FOR EAP DAS MARCIEL AND EB/IFD DAS DIBBLE 
MCC FOR AMBASSADOR DANILOVICH AND MORFORD 
AID FOR DEPUTY ADMINISTRATOR KUNDER AND ANE WARD 
TREASURY FOR A/S LOWERY 
DEPT PASS USTR FOR SCHWAB 
 
E.O. 12958: N/A 
TAGS: EINV ECON KMCA KCOR ID
SUBJECT:  INDONESIA AND MCC COMPACT ELIGIBILITY 
 
 
¶1. (SBU) Summary:  Indonesia's strong performance on its FY08 MCC 
indicator scorecard is a testimony to the country's stunning 
progress of transforming into a modern, free-market, secular and 
democratic nation that plays a positive and active role in the 
international community. Recognizing these accomplishments is the 
right thing to do.  We should support and strengthen this 
transformation through the conveyance of Compact eligibility for 
technical reasons based on Indonesia's MCC indicator scores and 
Threshold Program performance as well as our own vital interests 
promoting democracy and development in the world's largest, 
Muslim-majority nation.  The MCC is the signature development 
program of the Bush Administration.  Helping Indonesia's 
transformation succeed would be a crowning achievement for this 
important program.  End Summary. 
 
Most Free in Southeast Asia 
--------------------------- 
 
¶2. (U) Indonesia was recently named the "freest country in Southeast 
Asia" by the Freedom House index, one of the many indicators of 
Indonesia's progress in the several years.  Indonesia ranked as the 
second best reformer in Asia on the World Bank's "Doing Business 
2008" indicators, second only to China.  Indeed, Indonesia appears 
to be an ideal MCC candidate country given its progression from the 
status of a non-recipient of MCC assistance, to award in November 
2006 of the largest MCC Threshold Program ($55 million), to its 
current status as a serious contender for MCC Compact eligibility. 
Based on its FY08 MCC Scorecard, Indonesia passes all three broad 
MCC categories of Ruling Justly, Investing in People and Economic 
Freedom.  Indonesia's dramatic indicator improvements from last year 
testify to the GoI's continued robust implementation of serious 
reforms. 
 
Great Year-on-Year Progress 
--------------------------- 
 
¶3. (U) In FY07, Indonesia passed 9 out of 16 (56%) of the MCC 
indicators and came up short in seven (44%).  Capturing the 
Government of Indonesia's (GoI) significant achievements, in FY08, 
Indonesia passed 12 out of 17 (71%) indicators, behind in only five 
(29%).  Significant improvements were made across all three broad 
categories in a number of indicators, including "Control of 
Corruption," "Government Effectiveness," "Rule of Law," "Primary 
Education Expenditures," "Regulatory Quality," and "Fiscal Policy." 
While Post recognizes that Indonesia scores at exactly but not above 
the median on its Control of Corruption indicator, Post highlights 
(and the GoI is keenly aware) that exceeding the median is not 
mandatory for Compact eligibility and, more importantly, there is 
clear, strong momentum and positive results in Indonesia's 
anti-corruption efforts. 
 
Significant Positive Trends 
--------------------------- 
 
¶4. (SBU) There is also a clear trend in indicator improvement, 
reflecting Indonesia's positive transformation over the years. 
Since its FY04 Scorecard (the first MCC published Scorecards), 
Indonesia has made marked improvements, including: 
 
-- Control of Corruption: Moving from the 11th percentile to 
achieving the median at the 50th percentile; 
 
-- Government Effectiveness:  Moving from the 69th to the 82th 
percentile; 
 
-- Rule of Law:  Moving from the 46th to the 54th percentile; 
 
-- Primary Education Expenditures:  Moving from the 10th to the 59th 
percentile; and 
 
-- Regulatory Quality:  Moving from the 52th to the 86th 
percentile. 
 
Indonesia Corruption Reform Achieving Results 
--------------------------------------------- 
 
¶5. (SBU) Indonesia is successfully breaking the endemic culture of 
corruption.  The Corruption Eradication Commission (KPK) has 
successfully pursued the prosecution and conviction of a number of 
key figures this year, including a governor, a minister, and two 
mayors.  In 2007, the KPK has successfully prosecuted 21 cases as of 
August 31, six of which involved high-level government officials. 
The KPK also won cases involving bribery scandals at the Supreme 
 
JAKARTA 00003130  002 OF 003 
 
 
Court.  The KPK is currently prosecuting a case against a senior 
Judicial Commission official.  These "big fish" cases are 
symbolically and substantively important: they put Indonesia's 
dynamic anti-corruption efforts in the public spotlight and put 
potential corruptors, large and small, on notice that times are 
changing.  Additionally, many of President Yudhoyono's appointments, 
including the Finance Minister and the Chief of Police are actively 
and effectively delivering on anti-corruption reforms. 
 
Threshold Program Success 
------------------------- 
 
¶6. (SBU) Through robust cooperation on its two-year, $55 million MCC 
Threshold Program, the GoI is demonstrating its strong commitment to 
the Threshold Program reforms which include ambitious results under 
the $35 million anti-corruption component and $20 million 
immunization coverage activity.  The GoI works closely with USAID 
Indonesia via the Project Steering Committee to jointly monitor and 
evaluate project status and ensure activities are contributing to 
the Threshold Plan goals.  The close USG-GoI cooperation on the 
Threshold Program, including daily interaction with Threshold 
Program counterparts at the Corruption Eradication Commission; the 
Financial Transaction Reports and Analysis Center; the Supreme 
Court; the National Development Planning Agency; and the Ministry of 
Health, demonstrates to the GoI's commitment and advances its 
dynamic reform agenda.  A separate cable on the Threshold Program is 
forthcoming. 
 
GoI Activism in International 
Anti-Corruption Efforts 
----------------------------- 
 
¶7. (SBU) On the international stage, Indonesia is taking a 
high-profile position in its anti-corruption efforts.  The KPK has 
hosted a number of international conferences in 2007, including the 
ASEAN-Senior Officials Meeting (SOM) Transnational Crime Expert 
Meeting; the Conflict of Interest International Seminar; the Asset 
Recovery International Seminar; the Procurement and Bribery 
International Seminar; and the upcoming International Association of 
Anti-Corruption Authorities Conference in November and the Second 
United Nations Convention on Anti-Corruption (UNCAC) Conference of 
State Parties in January 2008.  Recently, at the September UN 
General Assembly, President Yudhoyono met with World Bank President 
Zoellick and embraced the joint World Bank and United Nation's 
Office of Drugs and Crime newly launched StAR (Stolen Asset 
Recovery) Initiative, a bold move given the remaining political 
sensitivities regarding former President Suharto. 
 
Funding a Compact and Impacting Development 
------------------------------------------- 
 
¶8. (SBU) Post appreciates financial considerations related to MCC 
budget funding, and recognizes that any Compact for Indonesia will 
be significant given the desired transformative effect on the 
world's fourth most populous nation.  While recognizing that one 
Compact for Indonesia may financially equal several Compacts for 
smaller countries, it is imperative to remind ourselves of MCC's 
mission, namely to reduce global poverty through the promotion of 
sustainable economic growth. 
 
¶9. (SBU) The head of the Asia Foundation in Indonesia recently 
wrote, "That beguiling combination of political democracy and rapid 
economic growth appears to be within Indonesia's grasp yet the most 
important problem of all is poverty."  Although in 2007 there was a 
slight reduction in the national poverty rate over previous years, 
the numbers are daunting:  16.6% (just over 37 million people) live 
at or below the official poverty line...if those "near" absolute 
poverty is set at about US$2 a day then 45%, or over 100 million 
Indonesians, are poor." 
 
¶10. (SBU) The combination of the total populations of the top five 
MCC Compact countries in terms of Compact amounts is only 123 
million -- not all of those 123 million live in poverty.  The 
combined Compact amount of those top five is over $3 billion, less 
than any anticipated Compact for Indonesia.  If MCC wishes to impact 
the greatest number of poor, reduce global poverty and promote 
sustainable growth in a bell-weather country -- while still abiding 
by the technical eligibility criteria -- then Indonesia must be 
seriously considered for Compact eligibility. 
 
The Time for Compact is Now, under President SBY 
--------------------------------------------- --- 
 
 
JAKARTA 00003130  003 OF 003 
 
 
¶11. (SBU) With the indicators justifying Compact, the MCC Board 
should be aware of the political importance of Compact-eligibility 
and its potential impact on supporting President SBY and his reform 
campaign.  With elections in Indonesia scheduled for 2009, Compact 
eligibility - even if funds are not yet disbursed - could support 
President Susilo Bambang Yudhoyono (SBY), his reform-oriented 
platform and reform-minded appointments.  Post has strong relations 
with the current GoI administration and is in a position to 
positively engage in supporting and shaping Compact development. 
Several key transformative reforms are underway in a relatively 
early stage, including comprehensive civil service reform, customs 
and tax reform, and infrastructure development.  These would be 
prime areas in which to engage the GoI via Compact support.  If 
improvements do not come soon, will Indonesians start questioning 
their enthusiastic embrace of democracy?  We request the MCC Board 
seriously consider Indonesia for Compact eligibility. 
 
HUME