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Cablegate: Vp Kalla On the Courts, Mcc, Peace Corps and Middle

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P 230726Z OCT 06
FM AMEMBASSY JAKARTA
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INFO RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/FAS WASHDC 0040
RUEHLMC/MILLENNIUM CHALLENGE CORP 0030
RUEHVV/OIC COLLECTIVE

UNCLAS SECTION 01 OF 04 JAKARTA 012798

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR EAP/MTS AND
DEPT PASS USTR FOR WIESEL/KATZ
USDA/FAS FOR
DEPT PASS OPIC FOR SIMON AND PITNEY
NSC FOR MORROW AND WILDER

E.O. 12958: N/A
TAGS: ECON ETRD EFIN EINV PGOV PREL KMCA PHUM ID
SUBJECT: VP KALLA ON THE COURTS, MCC, PEACE CORPS AND MIDDLE
EAST

1. (SBU) Summary. Vice President Jusuf Kalla told the
Ambassador on October 20 that the Supreme Court is "not
using logic" in its approach to the Munir case, and that
people are rightly not happy with the Pollycarpus verdict.
He said the Supreme Court would soon reconsider its decision
taking into account the obvious fact that Munir's killer
must have been on the airplane. Kalla said he has sent
"tough instructions" to the Education Ministry to improve
educational standards, and added that an eventual Millennium
Challenge Corporation (MCC) compact could be very important
in this process. Kalla noted it would be very good if U.S.
Peace Corps volunteers could help raise Indonesia's English-
language proficiency up to levels in India, Pakistan, and
Bangladesh. Kalla gave an overview of the ethnic conflict
in Central Sulawesi and opined that economic development was
the key to ending the violence. He observed that the Israel-
Palestine conflict has led to higher oil prices that have
harmed 70 percent of Muslim nations, including Indonesia.
He said Muslim countries should make their assistance to
Palestine "conditional" on efforts to solve the conflict,
with the U.S. and other Western countries playing the same
role vis-a-vis Israel. The Ambassador noted that the U.S.
is serious about finding ways to increase our assistance to
Indonesia, and said that the U.S. wants to talk closely with
Indonesia about possible investments in Iran so Indonesia
understands U.S. sanctions laws. End Summary.

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Economic, Trade and Finance Issues
----------------------------------

2. (SBU) The Ambassador and Vice President Kalla met for 75
minutes at Kalla's office on October 20. The Ambassador
began by congratulating Kalla for his very successful
September 2006 trip to Washington, noting it had won
Indonesia a lot of favorable attention from potential U.S.
investors. Washington is sincere in its desire to help
Indonesia, the Ambassador noted, and wants to figure out
concrete ways of expanding our assistance. Kalla replied
that he is following up his conversations in Washington with
ExxonMobil, Chevron, and Newmont (concerning a possible new
mine development) and other companies, as well as with the
World Bank. He said he is looking forward to President
Bush's upcoming visit to Indonesia, which would be "short
but very high quality." There should be "not so many
receptions, but good discussions," Kalla observed. The MCC
and avian influenza are important topics for discussion, as
well as the "standard" security cooperation issues, he said.

3. (SBU) The Ambassador and Kalla then discussed a number of
specific economic, health, and development issues:

--Revised OPIC Investment Incentive Agreement (IIA): The
Ambassador noted that 68 countries have signed an IIA
substantially similar to the draft the Embassy has provided
the GOI. He said the U.S. is pleased that the Ministry of
Finance (MOF) is working on the draft agreement, and added
the U.S. hopes to sign the revised IIA prior to the
President's visit. OPIC's negotiator is scheduled to visit
Jakarta November 6-7, the Ambassador noted, but we could ask
him to visit earlier if the GOI would be interested in
signing a revised agreement at the November 1-3
Infrastructure Forum. Kalla responded that the GOI is
trying to move the agreement forward, and said his office
has sent a memo instructing the MOF to move forward. The
Vice President's office will meet with the MOF and the
National Development Planning Agency (Bappenas) after the
holiday break to discuss the draft agreement. The GOI "does
not have much problem with the issues," Kalla noted.

--Aceh Road: The Ambassador thanked Kalla for his
assistance acquiring the right-of-way for the road, and
noted that things are moving forward with construction on
the first 40 kilometers underway.

--Fruit Flies (Decree 37): The Ambassador noted that there
has been lots of back and forth on the issue but still no
solution. Indonesia runs a $7 billion trade surplus with
the U.S., so it seems gratuitous to shut off $50 million in
U.S. apple and grape exports. U.S. apples don't compete
with Indonesian apples, the Ambassador noted, and with apple
season beginning now, U.S. apple exports are under threat.

JAKARTA 00012798 002 OF 004


Kalla responded that he had received a letter on the issue
from USTR Schwab and Agriculture Secretary Johanns, and had
asked the Agriculture and Trade ministries to report on
their efforts to resolve the issue. (Note: Embassy has
since received written confirmation from the Ministry of
Agriculture agreeing to a visit to California and Washington
for November 5-11. This visit had been previously proposed
three times without success by USDA.)

--Avian Influenza: The USG is working to get more money to
assist Indonesia with AI, the Ambassador noted, but
additional U.S. funding is dependent on the GOI's own
resource decisions. It is very important for the GOI to
support the National AI Committee as well as Ministry of
Agriculture (MOA) poultry culling and vaccination efforts.

--Lapindo Mudflow Problem: The U.S. companies working at
the mudflow site were very upset over the weekend of October
14-15 because they had not been paid, the Ambassador said,
and had threatened to pull out. However, Minister of Energy
and Mineral Resources Purnomo Yusgiantoro had interceded and
guaranteed payment. Nonetheless there are constant delays,
making it important to keep a close eye on Lapindo. The
U.S. companies remain confident they will succeed in
shutting down the mudflow in the end, but the effort will
take time and money. Kalla visibly grimaced at the mention
of this problem and said he would speak to the GOI official
in charge of the Lapindo case.

Investment Climate and Court Reform
-----------------------------------

4. (SBU) The Ambassador noted that U.S. Chamber of Commerce
President Tom Donohue's November 12-14 visit should help
build confidence among U.S. investors. However, Indonesia's
court system remains a big worry among U.S. investors, the
Ambassador said. The recent Supreme Court ruling on the
Munir case and the Newmont trial in North Sulawesi are not
helpful. If the Newmont trial goes the wrong way, the
Ambassador added, the impact on the investment climate could
be severe, particularly since the prosecution has presented
no credible evidence despite more than a year of testimony.

5. (SBU) Kalla responded that he understands the problem
with the courts, which he said suffer from "triple control"
via the Supreme Court, the Constitutional Court, and the
Judicial Commission. He said he had discussed the Munir
case with Supreme Court Chief Justice Bagir Manan, and told
Manan that the Court was "not using logic." The killer was
obviously in the airplane, Kalla said, and people are
rightly not happy with the Pollycarpus verdict. Kalla said
the Supreme Court would reconsider its decision soon using
this logic. He also claimed many Indonesians believe the
courts are too strong because they hand out ten-year
sentences for Rp 1 billion (US $109 thousand) corruption
cases, as had happened in the case of the Election
Commission. He added that the Karaha Bodas investment
dispute has also not made the GOI happy, and it is difficult
for the GOI to understand why it should have to pay $300
million in compensation for a $50 million investment.

The MCC's Role in Improving Educational Standards
--------------------------------------------- ----

6. (U) The Ambassador said Indonesia's $55 million Threshold
Program is currently under review by the MCC. The program
focuses on anti-corruption and immunization and will be
implemented by USAID. Indonesia needs to continue making
progress on these areas to qualify for compact eligibility,
the Ambassador noted. Should Indonesia qualify, MCC compact
eligibility and an eventual grant award would bring with it
more resources, which the GOI could devote to its top
priorities--perhaps infrastructure, health, education, or
other areas. Unlike current assistance programs, it would
be structured like a business contract with a strong
emphasis on benchmarks.

7. (U) Kalla agreed that a potential MCC compact should be
results-oriented. The GOI's own development programs tend
to focus on setting up projects rather than on the quality
of the results, Kalla noted, particularly in the Education

JAKARTA 00012798 003 OF 004


and Public Works ministries. The Education Ministry only
cares about the number of degrees awarded, not their
quality, Kalla said. I have given "tough instructions" to
the Education Ministry, Kalla said. We need new standards
for curriculum, teachers, and school buildings to raise the
quality of education, Kalla noted, and the MCC could be very
important in this process.

8. (U) Indonesia is a democratic country, Kalla continued,
but if people don't see their lives improving, they say "for
what?" That's why the MCC is important for Indonesia, Kalla
noted, and why he raised it with Secretary Rice. Kalla
noted it was ironic that when Indonesia was not a democracy
and not open, the Government sent many people overseas to be
educated. But now that Indonesia is a democratic and open
country, the situation has reversed, with less money
available for foreign education.

The Peace Corps--Raising Foreign Language Skills
--------------------------------------------- ---

9. (SBU) Kalla and the Ambassador agreed that a Peace Corps
program would be good for Indonesia. Kalla and President
Yudhoyono have both made public statements calling for
increasing Indonesia's foreign language capability, and the
Peace Corps would be a good fit for the country. Kalla said
it would be "very good" if Peace Corps volunteers could help
improve instruction in English-language proficiency.
Getting a group of dedicated foreigners out into Indonesia's
schools could help with efforts to modernize them. Kalla
emphasized that he "agrees with the Peace Corps idea." He
also suggested they might train on information technology
(IT) issues. Indonesia's higher education system faces two
main problems, he said: a lack of IT in schools, and an
overall lower level of English-language proficiency than
India, Pakistan, and Bangladesh. Kalla said he had had
discussions with Microsoft about improving the level of IT
in Indonesia's schools. Having a resident Peace Corps
volunteer would also raise the prestige of schools, and
build lasting friendships with the U.S.

Economic Factors Behind Central Sulawesi Conflict
--------------------------------------------- ----

10. (SBU) Kalla said the eight-year-old inter-religious
conflict in Central Sulawesi had almost been resolved, until
fresh violence again increased tensions. Traditionally,
Kalla said, Poso's 60/40 split between Christians and
Muslims was comparable to Lebanon. However, economic
development and previous transmigration policies encouraged
Madurese and even his fellow Bugis to flow into the area,
eventually creating a Muslim majority. The appointment of
local leaders on a proportional basis in the Soeharto era
kept a lid on ethnic tensions, but local direct elections
ushered in a Muslim majority to the provincial assembly and
installed Muslim leaders at all levels of local government.
As a result, Christians felt marginalized and threatened.

11. (SBU) Kalla opined that economic development in the
conflict area, non-existent since fighting began, was a key
to solving the on-going violence. The police numbered close
to 7,000 in the Poso area and used cell phone monitoring to
pursue those behind the violence, but the bombs and the
killing have continued. The Ambassador added that the U.S.
was sympathetic to the police effort against the "thugs"
that promoted continued attacks, and noted that the conflict
was a breeding ground for a new generation of fighters that
the GOI must now control. Kalla said he was able to control
the mujahideen and Laskar Jihad fighters, who actually
constituted only a small number of the conflict's
combatants. He said economic incentives were important, and
added that the young men in the conflict area would do
anything for as little as US $10. Kalla said the solution
must involve "intellectual sponsors" who can communicate and
reason with the people.

Impact of Middle East Politics on Muslim Countries
--------------------------------------------- -----

12. (SBU) Kalla noted he had met Saudi Foreign Minister Saud
Al-Faisal in Jeddah and told him that the oil producing

JAKARTA 00012798 004 OF 004


nations of the Middle East are rich largely because the
Israel-Palestine conflict has driven oil prices up. But 70%
of Muslim nations, including Bangladesh, Pakistan,
Indonesia, Turkey, and Sudan are negatively affected by high
oil prices. Muslim countries should push to solve the
problem, Kalla said, without giving unconditional support to
Palestine. By the same token, the U.S. and other Western
countries should push Israel to compromise. Indonesia
simply doesn't gain from the current situation. "It makes
us poorer and creates more problems in the economy", Kalla
said. If we could solve the Israel-Palestine problem, we
could also deal with Hezbollah, Hamas, and other extremist
groups. Kalla said he had spoken with Organization of
Islamic Conference Secretary and told him that the victims
of the Middle East conflict are Islamic countries.

13. (SBU) The Ambassador noted that the U.S. wants to work
closely with Indonesia on this and other issues. Kalla
responded that Indonesia could play a role in helping
convince Muslim countries to take a more conditional
approach to their assistance to Palestine. He said he had
told the Palestinian Ambassador in Jakarta "we will support
you, but with conditions." Secretary Rice's comments about
Palestine had been very good, Kalla added. "We can solve
every problem through personal relationships," he concluded.
"We want to build a new fertilizer factory in Iran, but want
a good price for the natural gas feedstock." Kalla had
explained this to the Iranian side. However, "We can't talk
to North Korea because we have no relationship--the North
Koreans are upset with President Yudhoyono because he has
cancelled his visit," Kalla noted.

14. (SBU) The Ambassador concluded by noting U.S. and Arab
concerns about Iranian actions. He said we wanted close
discussions with Indonesia on dealing with Iran. There are
tough U.S. sanctions on Iran, the Ambassador said, and "we
want to make sure you have complete information to avoid
problems."

New Embassy Building
--------------------

15. (SBU) The Ambassador noted that the new Embassy project
is moving forward, with an attractive preliminary design
that should be satisfactory to the GOI. There have been
close consultations with the Jakarta city government.
However, we are still facing difficulties securing user
rights for two parcels of land within the present Embassy
compound that the USG does not own. Although negotiations
with the MOF have not yet touched on the issue of price, one
possible option might be to swap an Embassy-owned parcel of
land near the Hotel Aryaduta for the two parcels on the
Embassy compound. This might be an ideal solution and be
easier to arrange than an outright sale, the Ambassador
said.

PASCOE

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