VZCZCXRO9666
RR RUEHLMC
DE RUEHJA #2009/01 3050456
ZNR UUUUU ZZH
R 310456Z OCT 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 0485
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/NSC WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP 0093
RHEHOMB/WHITE HOUSE OMB WASHINGTON DC

UNCLAS SECTION 01 OF 02 JAKARTA 002009 
 
SENSITIVE 
SIPDIS 
 
MCC FOR AMBASSADOR DANILOVICH 
DEPT FOR E - U/S JEFFREY 
USAID FOR ADMINISTAROT FORE 
TREASURY FOR A/S LOWERY AND IA BAYLY 
DEPT PASS USTR SCHWAB 
OMB FOR JACQUELINE STRASSER 
MCC ALSO BENT, MORFORD, LONGI 
STATE ALSO EAP MARCIEL AND EB NELSON 
USAID ALSO FOR DEPUTY ADMINISTRATOR KUNDER, ANE WARD/SOLAT, ODP 
TUNER/DELP 
USTR ALSO FOR AUSTR WEISEL, EHLERS, BRYAN, HEUGEL 
 
E.O. 12598: N/A 
TAGS: EINV ECON KMCA EAID PRESL ID
SUBJECT: INDONESIA SHOULD BE AWARDED MCC COMPACT STATUS 
 
¶1. (SBU) Summary.  The Millennium Challenge Corporation Board should 
declare Indonesia Compact eligible at its December meeting.  Over 
the past decade, Indonesia has transformed itself from an 
authoritarian state to the world's third-largest democracy committed 
to policies that promote political and economic freedom, investments 
in education and health, control of corruption, and respect for 
civil liberties and the rule of law.  Indonesia now meets the 
criteria for Compact eligibility.  We should recognize this 
progress.  We should also recognize Indonesia as an increasingly 
important bilateral partner with growing influence in the 
international community.  Naming Indonesia as Compact eligible will 
give Indonesian reformers additional confidence to continue their 
efforts to build a modern, free-market and democratic nation.  As 
funding decisions are made, it is essential to factor in Indonesia's 
size, complexity and strategic importance.  End summary. 
 
¶2. (SBU) Ten years ago, Indonesia was a mess.  Its authoritarian 
ruler had been overthrown after three decades in power.  In 1998 the 
economy shrank by nearly 14 percent in the wake of the Asian 
financial crisis.  Social violence erupted in parts of the country. 
Compare that picture of the world's fourth-largest country and 
largest Muslim-majority nation with today's Indonesia.  Indonesia is 
now firmly democratic; while the upcoming 2009 parliamentary and 
presidential elections are newsworthy, the fact that they are 
happening is not news.  In fact, last year Freedom House named 
Indonesia the freest country in Southeast Asia.  And this year, 
Indonesia passed the "Control of Corruption" indicator for the first 
time after several years of consistent, continuous improvement. 
This is no accident.  President Yudhoyono came to power in 2004 with 
a pledge to fight corruption.  Indonesia has made remarkable 
progress in battling corruption; on its first MCC scorecard five 
years ago it ranked at the 11th percentile.  It is now at the 56th 
percentile.  Our MCC threshold program provided key support to this 
effort. 
 
¶3. (SBU) Similar advances have been made on the economic front. 
While it has not been able to escape the impacts of the current 
financial crisis, Indonesia is operating from a sound macroeconomic 
base that it has purposefully put into place over the past several 
years.  Economic growth is slowing, but is still projected to exceed 
five percent this year and next.  And the current government has 
demonstrated an ability to act sensibly in the face of crisis. 
Earlier this year it took the politically unpopular decision to 
reduce fuel subsidies in order to minimize its budget deficit. 
Challenges clearly remain.  Despite increased expenditures (the 
government has committed to devote 20 percent of the budget to 
education), much work needs to be done to build effective health and 
education systems in this vast island nation.  And with more than 
100 million people living on under $2 per day, Indonesia has almost 
twice as many poor as the combined total populations of the other 
three countries being considered for Compact eligibility.  This 
demography, in conjunction with the Indonesian government's 
anti-poverty programs, offers the United States a huge opportunity 
to demonstrate the impact of an MCC compact on poverty alleviation. 
 
 
¶4. (SBU) Declaring Indonesia to be Compact eligible would 
acknowledge the progress of the past decade and give the government 
additional confidence to carry out further reforms.  While President 
Yudhoyono and team have made steady progress in transforming this 
country, nationalist and protectionist sentiment remains strong. 
This nationalism will be given voice in the 2009 Parliamentary and 
Presidential elections campaign.  MCC Compact status would give the 
reformers added credibility as the elections approach. 
 
¶5. (SBU) MCC Compact eligibility would also allow us to work more 
closely with Indonesia as a partner on issues of joint interest.  By 
recognizing and rewarding Indonesia for its progress and providing 
assistance to help it continue on it reform path, we will also 
deepen and broaden the structure of our relationship.  We are 
already finding more and more areas where we can work together with 
Indonesia.  We are cooperating on a host of environmental issues 
that could reduce deforestation and combat climate change.  We have 
invited Indonesia to participate in the upcoming financial summit. 
And economically, Indonesia will continue to grow in importance; it 
is the only G-20 country eligible for MCC Compact status and Goldman 
Sachs estimates that in four decades Indonesia's economy will be 
 
JAKARTA 00002009  002 OF 002 
 
 
bigger than Japan's.  We should be working together with Indonesia 
now as it becomes more and more important regionally and globally. 
 
¶6. (SBU) We understand that the MCC budget will be tight and 
competition intense.  But Indonesia - through its own hard work - 
has met the criteria for MCC Compact eligibility.  An MCC Compact 
here could potentially have a greater impact on poverty reduction 
than in any other country in the world.  It would generate further 
reforms.  And it would help build our relationship with an important 
Muslim-majority country that has demonstrated that Muslim-majority 
countries can also be democratic and secular.