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Cablegate: Scenesetter for U/S Jeffery's September 9-12 Visit To

VZCZCXRO9105
PP RUEHCHI RUEHDT RUEHHM
DE RUEHJA #2335/01 2361025
ZNR UUUUU ZZH
P 241025Z AUG 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 5928
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS

UNCLAS SECTION 01 OF 02 JAKARTA 002335

SIPDIS

SIPDIS
SENSITIVE

FROM AMBASSADOR HUME TO U/S REUBEN JEFFERY

E.O. 12598: N/A
TAGS: EFIN EINV ECON ENRG KCOR PGOV ID
SUBJECT: SCENESETTER FOR U/S JEFFERY'S SEPTEMBER 9-12 VISIT TO
INDONESIA


1. (SBU) Embassy Jakarta welcomes you to Indonesia. Yours will be
the first high-level State Department economic visit here in several
years. We have structured your visit to highlight the important
themes of investment climate reform, anti-corruption efforts, energy
security and climate change, and U.S. engagement with ASEAN. You
will also spend a day in Medan, the capital of North Sumatran
province.

Investment Climate Reform
-------------------------

2. (SBU) While Indonesia's economy is growing at over six percent
per year, the investment climate remains difficult. Investors
complain of poor infrastructure, leaden bureaucracy, and judicial
corruption. The government has a team of reform-minded technocrats
(including Minister of Trade Mari Pangestu whom you will meet). But
a lack of consensus between reformers and economic nationalists
hobbles progress on opening up the investment climate. For example,
the recently passed investment law contains a number of progressive
elements on transparency and equal treatment for foreign investors.
Unfortunately it also includes a negative list limiting foreign
ownership in a large number of sectors. You will have the
opportunity to meet with both American and Indonesians business
people to get their views on doing business in Indonesia. In
addition to the trade minister, you will also meet with the
Coordinating Minister for the Economy and the Director of the
Investment Coordinating Board.

Anti-Corruption Efforts
-----------------------

3. (SBU) Indonesia is making progress in reducing corruption. The
Corruption Eradication Commission (KPK) and an associated
Anti-Corruption Court (ACC) have had success over the past few years
in investigating and prosecuting high-profile corruption cases. The
KPK and ACC coordinate with the Attorney General's Office, the
National Police, the Supreme Court and others. You will have a
chance to visit the KPK to discuss the challenge that corruption
issues pose to Indonesia's further development.

4. (SBU) Despite Indonesia's efforts, as of 2006 Indonesia's score
on anti-corruption indicators remained below the minimum level for
Indonesia to qualify as an MCC Compact Country. To accelerate
progress, USAID and GOI signed a $5 million agreement in November
2006 for a Millennium Challenge Corporation (MCC) Threshold Program,
managed by USAID. Program implantation began in April 2007 and will
run until April 2009. The program includes a $35 million Control of
Corruption component that will address Supreme Court reforms,
judicial transparency, anti-money laundering enforcement and
prosecution of public corruption cases.

Energy Security and Climate Change
----------------------------------

5. (SBU) Indonesia is focused on making the December COP-13 climate
change meeting in Bali a success. They are very concerned that the
President's Major Economies Initiative - to which they've been
invited - may detract from COP-13. The recent visit of the Chairman
of the Council on Environmental Quality James Connougton did much to
alleviate their concerns. Indonesia hopes to use COP-13 to develop
processes to reward "avoided deforestation;" they want to receive
compensation for protecting their rainforests.

6. (SBU) Sitting somewhat oddly against their problems with
deforestation (they have the fastest rate of deforestation in the
world), Indonesia has developed an ambitious five-year,
multi-billion dollar investment plan to boost biofuel production,
largely through palm oil. You will have the opportunity to discuss
climate change and energy security in meetings with the Ministry of
Energy and in a roundtable with various energy and environmental
experts.

The U.S and ASEAN
-----------------

7. (SBU) Your visit to ASEAN and meeting with Deputy Secretary
General Dammen will help reassure ASEAN officials that we value our
relationship. ASEAN officials remain disappointed that President
Bush postponed the US-ASEAN Summit, which was to be hosted by
Singapore on September 5, 2007 to commemorate 30 years of dialog
relations. While our substantive, issue-based engagement remains
robust, we have lost momentum in relationship building through "face
time." (Note: ASEAN has over 700 meetings per year and neighboring
China engages in many more than the U.S. does.) In recent meetings
at the ASEAN Secretariat, ASEAN officials have focused on the
positive role the US plays in ASEAN in terms of economic
cooperation, technical assistance and balancing the influence of
China.


JAKARTA 00002335 002 OF 002


A Visit to Sumatra
------------------

8. (SBU) You will also visit Medan, the capital of North Sumatra
province. North Sumatra is Indonesia's most religiously diverse
region and home to more than three million people. The province is
an excellent case study of the impact of the old Java-centric
development model in an outer island: despite its strong export
performance and contributions, the province's airport, road network,
public utilities, and education system lag well behind those of
comparable regions of Java. North Sumatra is an important center for
finance and agribusiness and, because of the close proximity of
Malaysia and Singapore, the business community tends to have closer
ties to those countries than they do to Jakarta. Until the 1970s
the U.S. was the most important foreign investor in the province,
but declining oil production in the early 1980s and falling rubber
prices led to a withdrawal of virtually all American business from
the region. You will be the highest ranking State Department
visitor to Medan in several years (though several, including former
Presidents Bush and Clinton, Secretary Rice and Deputy Secretary
Zoellick have been to post-tsunami Aceh.)

High-Level Economic Visitors to Indonesia
-----------------------------------------

9. (SBU) Treasury Deputy Assistant Secretary for Asia Robert Dohner
visited most recently July 16. (Secretary of Treasury Paulson has
been invited to the Finance Ministers side meeting of the Bali
UNFCCC COP-13 Climate Change conference December 10-11.) Secretary
Rice visited in March 2006 and again in November 2006 with President
Bush, during which we signed agreements on multi-hazards warning,
customs cooperation, and combating illegal logging. EAP Assistant
Secretary Christopher Hill visited in May 2007. While USTR sends

SIPDIS
visitors fairly regularly (most recently Assistant USTR Barbara
Weisel in May 2007) we believe we have not had a State Under
Secretary for Economic Affairs here since 2002.

SIPDIS

HUME

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