VZCZCXRO9866
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #2016/01 3050858
ZNR UUUUU ZZH
R 310858Z OCT 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 0494
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS

UNCLAS SECTION 01 OF 03 JAKARTA 002016 
 
SENSITIVE 
SIPDIS 
 
E.O. 12598: N/A 
TAGS: ECON ETRD EINV ID
SUBJECT: U.S. ASEAN BUSINESS COUNCIL MISSION 
 
¶1. (SBU) This telegram is Sensitive but Unclassified.  It contains 
business sensitive information.  Please protect accordingly. 
 
¶2. (SBU) Summary:  Twenty-six U.S. company leaders from the ASEAN 
Business Council used high-level meetings to address 
company-specific issues with some success.  The delegation, however, 
lacked a common focus and therefore missed an opportunity to address 
more systemic issues.  The U.S. ASEAN Business Council (USABC) 
annual mission to Jakarta included several Ministerial meetings 
(October 20-23, 2008) and a visit to Trade Expo Indonesia. End 
Summary. 
 
Vice President Kalla - "Main Street is longer than Wall Street" 
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¶3. (SBU) Indonesian VP Jusuf Kalla stressed that the Indonesian 
economy has limited exposure to the current downturn in overseas 
financial markets and was fundamentally stronger than during the 
1997 financial crisis, with demand for natural gas, coal, and palm 
oil staying strong.  Musing that "Main Street is longer than Wall 
Street in Indonesia," he estimated the downturn would translate to 
only a one-half percentage point drop in the growth rate for 
Indonesia.  USABC participants thanked Kalla for his help on 
instituting the Hills Governance Center at the University of 
Indonesia, programs on maternal and children's health, and 
supporting U.S. investment in agriculture and railways.  Regarding 
difficulties by Coca Cola Indonesia to import refined sugar from 
Thailand, VP Kalla stated that if Coca Cola can demonstrate its use 
of the full amount of the sugar in production, it may be possible to 
arrange an import license.  Kalla also agreed to ask the Ministry of 
Health to look into the non-renewal of marketing authorizations for 
pharmaceutical companies, and other unintended consequences 
resulting from changes in investment laws. 
 
DPR Leadership - Don't panic, stay open to foreign investment 
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¶4. (SBU) Speaker of the DPR Agung Laksono, Chair of Commission I 
Theo Sambuaga, and Parliamentarian Murdaya Widyawimarta (Poo) 
engaged USABC on mining, gas exploration, good governance, maternal 
health, foreign direct investment and protectionism.  The 
legislators expressed concern about a possible reduction in US 
investment in Asia in light of the financial crisis.  USABC members 
responded that "ignoring Asia is not an option" and that although 
the overall investment picture might shrink a bit, they don't 
believe Indonesia's portion will be reduced.  The legislators 
responded to inquiries about protectionist sentiments by saying that 
the Indonesian government and DPR cannot panic and must remain open 
to international investment.  USABC participants said they were 
committed to the idea of ASEAN and looked forward to the 
establishment of a commerce clause, where goods can flow back and 
forth freely.  Health sector businesses offered input on the health 
bill which the DPR is currently working on with the Ministry of 
Health. 
 
Foreign Ministry - Need to spur FDI 
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¶5. (SBU) Foreign Minister Hassan Wirayuda said that the Indonesian 
Government was not protectionist and was about to adopt a new tax 
and fiscal policy, providing new motivation for foreign direct 
investment (FDI).  Wirayuda added Indonesia needs to develop a labor 
law, friendly not only to laborers but also to business.  The 
Government has been increasing regional autonomy since 2003, which 
can create confusion for the business sector.  The FM urged the 
USABC to spend more time engaging ASEAN to help it succeed, and 
welcomed USABC efforts to establish a governance center at the 
University of Indonesia.  USABC hoped the Minister of Health's 
upcoming visit to Egypt (subsequently cancelled) would provide an 
opportunity to resolve the avian influenza sample sharing issue. 
The FM replied that Indonesia wants to resume sharing samples but 
believes WHO's sharing mechanism needs to be overhauled to allow 
greater equity and transparency. 
 
Trade Minister - "To the Extent We Can" 
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¶6. (SBU) Minister of Trade Mari Pangestu said the Indonesian 
government acted quickly and sought to send the "right signals" by 
adjusting budget outlays and economic growth projections in response 
to the global economic crisis.  USABC members raised a number of 
investment issues including the status of the Indonesian 
government's review of its "negative list" on foreign investment. 
USABC expressed concern that Indonesia's investment climate issues 
damaged ASEAN's attractiveness as a single market.  Pangestu 
responded that the government's review of the negative list is 
better described as an "update" to address implementation issues. 
She acknowledged the ambiguity and confusion resulting from sectoral 
ministries initiating restrictions on foreign investment independent 
of the negative list.  She described the negative list as a new 
policy instrument that other government Ministers did not yet fully 
 
JAKARTA 00002016  002 OF 003 
 
 
understand.  Pangestu reaffirmed Indonesia's commitment to ASEAN and 
insisted that in times of economic crisis all countries should labor 
to stave off protectionism "to the extent we can." 
 
Investment Chief - "Call My Office" 
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¶7. (SBU) Muhammad Lutfi, Chairman of Indonesia's Investment 
Coordinating Board (BKPM) advised foreign companies to invest in 
priority sectors: infrastructure, agriculture, energy, and industry. 
 He placed most emphasis on opportunities in the resource and 
extractive industries.  USABC members raised several investment 
concerns, including questions on the implementation of the 
Investment Law and Indonesia's "negative list."  He made repeated 
references to conversations with "my President" while characterizing 
himself as a lone reformer pushing for change against a reluctant 
bureaucracy.  Several members raised specific issues and problems 
with their investments or operations in Indonesia.  Lutfi's standard 
response was a variation of "call my office, and we'll fix that." 
 
Energy and Mineral Resources - Defense of contract renegotiation 
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¶8. (SBU) Former Directors General Luluk Sumiarso and Simon Sembiring 
discussed energy and minerals investment opportunities in Indonesia, 
including upstream production and downstream processing 
opportunities.  (Minister Purnomo was traveling with the President 
to China.)  Ministry officials encouraged investment in a broad 
range of industries and services in addition to production, 
including smelting, refining, LNG and natural gas pipelines, coal 
liquefaction, and coal gasification.  Ministry officials also 
stressed opportunities in new and renewable energy projects, 
including coal bed methane and geothermal.  Although questions from 
the delegation were few, a representative from PSEG, a New Jersey 
utility, asked about a recent move to cancel long-term coal 
contracts.  Simon Sembiring defended his ministry's decision to 
renegotiate long-term, fixed-price contracts on the notion that it 
is 'unfair' to maintain fixed-price contracts when the commodity 
price rises.  Pointing out that the government must approve all 
contracts, he indicated that they must always be in the maximum 
public interest. 
 
Ministry of Communication and Information - Population, geography, 
and infrastructure challenges 
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¶9. (SBU) Despite Indonesia's information and communications 
technology (ICT) successes, Minister Muhamad Nuh stated Indonesia's 
geographic diversity and infrastructure deficiencies remain 
challenges.  The President created the ICT National Council to 
mobilize resources focused on increasing legal software 
(anti-piracy), improving the internet infrastructure backbone, and 
upgrading government computer infrastructure.  The Minister's 
broadcasting media advisor said the sector objectives are to protect 
consumer rights and tackle the challenge of migrating to a digital 
signal.  On telecommunications, the advisor said the challenge 
remains limited capacity and infrastructure.  He noted that bidding 
for spectrum allocations (in the 2.3-3.3 GHz range) would begin 
before the end of the year for implementation in 2009.  He said the 
new Electronic Information and Transaction Law approved in April is 
the country's first "cyber law" and lays out how to build an 
information society.  The objectives are increasing access, 
improving infrastructure, and increasing affordability through 
competition.  Intel and Oracle representatives highlighted corporate 
social responsibility activities to increase internet connectivity 
especially in schools.  FedEx raised a negative list issue regarding 
courier companies which creates legal uncertainty and is impeding 
courier investment.  Ministry officials responded that the 
regulations needed to be clarified, but they seek to balance the 
interests of consumers and local businesses. 
 
Ministry of Industry - Incentives, but not enough electricity 
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¶10. (SBU) Minister Fahmi Idris said that consumption is the main 
contributor to Indonesia's GDP and investment is the main growth 
engine.  He noted 80 percent of non-oil and gas exports are in the 
priority sectors: ICT, transportation, agriculture, creative 
industry, and small and medium industry.  The President's policy on 
industry aims to revive the investment climate, set prudent 
macroeconomic policies, promote a rational energy policy, optimize 
natural resource allocation, and increase employment.  He said the 
Investment Law provides legal protection for investors and 
incentives for priority industries.  The incentives include reduced 
income taxes, tariff redemption, one-stop services, simplified 
immigration system, and right of use of estate for 95 years. 
 
¶11. (SBU) USABC representatives said uncertainty remains the biggest 
barrier to investment.  The Minister said the negative list is being 
updated to give local business a chance to compete.  He welcomed 
 
JAKARTA 00002016  003 OF 003 
 
 
recommendations on the list.  However, some products will remain 
permanently on the negative list like weapons and psychotropic 
drugs.  Dow and others said electricity supply limitations are a 
burden that discourages new investment. The Minister and an 
Indonesian state electricity company (PLN) staffer said they 
expected to solve the electricity problem in coming years as they 
ramp up capacity, particularly to meet growing industrial demand. 
Electricity generator AES complained about PLN's electricity prices 
being set by regulation.  He added that VAT and customs fees 
previously were not included in the target electricity price, but 
the necessary regulation was repealed.  He said energy producers 
will need these exemptions to make electricity generation costs 
competitive. 
 
HUME