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Cablegate: Success of Indonesia's Mcc Threshold Program

VZCZCXRO4296
PP RUEHLMC
DE RUEHJA #3135/01 3170432
ZNR UUUUU ZZH
P 130432Z NOV 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 7011
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEHLMC/MILLENNIUM CHALLENGE CORP 0046

UNCLAS SECTION 01 OF 03 JAKARTA 003135

SIPDIS

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: ECON KMCA KCOR KJUS TBIO ID
SUBJECT: SUCCESS OF INDONESIA'S MCC THRESHOLD PROGRAM


1. Summary: Indonesia's two-year, $55 million Threshold Program
focuses on the Control of Corruption ($35 million) and Immunization
Coverage ($20 million), two areas where Indonesia fell short on its
FY 2006 MCC indicator Scorecard. The Threshold Program projects,
operational since April 2007, have already yielded results and
continue to demonstrate the GoI's strong commitment to the Threshold
Program as well as its goal of achieving Compact eligibility.
Indonesia's performance on its Threshold Program to date bolsters
the country's improved MCC indicator scores as a reason for its
serious consideration as a Compact eligible country when the MCC
Board meets on December 12. End Summary.

Background of the Threshold Program
-----------------------------------

2. At its November 2005 Board meeting, MCC selected Indonesia to
participate in the Threshold Program. The United States-Government
of Indonesia bilateral agreement for Indonesia's Millennium
Challenge Corporation (MCC) Threshold Program was subsequently
signed in November 2006. USAID Indonesia and the Economic Section
worked closely with the Government of Indonesia (GoI) to support
development of its Threshold Plan as well as to support the MCC
Investment Board's review and analysis of the Threshold Plan. While
acknowledging the final Threshold Plan is ambitious there was
consensus to move forward. Indonesia's MCC Threshold Program is a
two-year, $55 million grant program focused on the Control of
Corruption and Immunization coverage indicators, two indicator areas
where Indonesia fell short on its FY05 Scorecard. The Threshold
Program projects, managed by USAID Indonesia, have been operational
since the first quarter of CY 2007.

Control of Corruption
---------------------

3. The Control of Corruption component of the Threshold Program
totals $35 million. One component, consisting of a $24 million
project, builds capacity at the Corruption Eradication Commission
(KPK); the Financial Transaction Reports and Analysis Center
(PPATK); the Supreme Court; and the National Development Planning
Agency's (BAPPENAS) e-procurement pilot project. A second
component, managed by the Department of Justice's International
Criminal Investigative Training Assistance Program (ICITAP) through
an interagency agreement with USAID, consists primarily of the
procurement of specialized equipment for the KPK and PPATK to
enhance their communications and surveillance capacity as part of
their mandates to combat corruption and money laundering.

Judicial Sector Reform
----------------------

4. There is a consensus among donors and the GoI itself that reform
of the Supreme Court and the broader judicial sector is of paramount
importance in successfully combating corruption in Indonesia.
Judicial reform is the most challenging of the MCC Threshold Program
components: the Supreme Court is an independent branch of the
government and where entrenched interests and opportunities for
corruption are abundant. Nonetheless, Post has been impressed by
the commitment to judicial reform of senior GoI officials as well as
key senior Supreme Court Justices and bureaucrats.

5. Threshold Program activities have begun in earnest and include:


-- Developing the curriculum for, and training judges on, the
newly-adopted Judicial Code of Conduct.

-- Training senior-level court personnel on wealth reporting and
wealth report monitoring requirements.

-- Developing job descriptions and performance standards.

-- Improving the Court's budgeting process and accountability.

-- Publishing Supreme Court decisions online and enhancing the
Court's website (see http://www.putusan.net/app-mari/putusan).

-- Implementing public complaint procedures and distributing
corresponding public awareness materials.

-- Developing guidelines to publicly release disciplinary
information concerning court personnel and the judiciary.

The Supreme Court has sent a letter to MCC expressing its commitment
to continue key elements of the Threshold Program after the

JAKARTA 00003135 002 OF 003


conclusion of the project.

Improved Capability of the Financial Transaction
Reports and Analysis Center (PPATK)
--------------------------------------------- ---

6. The PPATK is a committed and effective government organization
and a strong proponent of combating money-laundering in Indonesia.
Indonesia was removed from the FATF Non Cooperating Countries and
Territories list on February 11, 2005 and from its direct monitoring
list in February 2006. Yunus Hussein, head of the PPATK, is also a
supportive counterpart on other USG assistance efforts to combat
money laundering. Key PPATK-related components of the Threshold
Program include:

-- Enhancing the "Know Your Customer" education and public awareness
campaign by introducing it to non-bank financial institutions to
detect and report suspicious transactions that may indicate money
laundering activity.

-- Increasing the capacity to receive and analyze online financial
transaction reports.

-- Establishing an online communications system between PPATK and
law enforcement agencies to enhance their information-sharing
ability.

Improve the Capability of the
Corruption Eradication Commission (KPK)
---------------------------------------

7. The KPK is Indonesia's lead agency in combating corruption and
has delivered on its mandate with a significant conviction rate over
the past year. The current KPK Board's tenure is coming to an end
and a new Board is in the process of being vetted, selected and
appointed. The KPK works closely with Post on a variety of projects
and engagements. Key KPK-related components of the Threshold
Program include:

-- Providing equipment and training to improve the KPK's technical
capabilities to investigate and prosecute corruption cases.

-- With the assistance of Transparency International - Indonesia,
expanding collection of data for a Bribery Index and an expanded TI
Corruption Perception Index.

-- Procuring specialized communications equipment to support
corruption investigations and prosecutions.

Implement Electronic Government Procurement (e-GP)
--------------------------------------------- -----

8. BAPPENAS's Center for Development of Public Procurement Policy is
tasked with developing and promoting the e-GP system and has created
the Indonesian National E-Procurement Center. The Threshold Program
supports the national endeavor by:

-- Supporting establishment of five regional government
e-procurement centers.

-- Supporting collection of baseline data from the five centers to
reduce single-source procurements and help identify suspicious and
inappropriate activity.

Promoting Increased Immunization Coverage Rates
--------------------------------------------- --

9. The GoI proposed a very ambitious immunization component to its
Threshold Plan, reflecting its renewed emphasis on basic
immunization and investing in people. The GoI recently initiated a
World Health Organization (WHO) standard "cluster survey" to gain
greater data, analysis and insights into actual immunization
coverage rates. The Threshold Plan provides technical assistance
supporting the GoI's efforts to rapidly increase routine
immunization coverage rates among infants, enabling Indonesia to
score above 80.5% coverage on the MCC Immunization Coverage
indicator. Specific areas of support include:

-- Providing technical assistance for developing revised national
immunization strategies for routine services.

-- Increasing commitment from policy makers at national, provincial
and district levels.


JAKARTA 00003135 003 OF 003


-- Building capacity of immunization health staff in both public and
private sectors.

Threshold Program Already Yielding Results
------------------------------------------

10. While the GoI and the people of Indonesia deserve credit for
undertaking bold reform initiatives, the MCC Threshold Program
support has yielded some key results to date.

-- The KPK has exceeded its Threshold Program target of monitoring
Supreme Court sessions in the greater Jakarta area.

-- The KPK met its Threshold Program target for the number of KPK
corruption prosecutions of high-level government officials.

-- PPATK has exceeded the percentage targets of suspicious
transaction reports (STRs) filed by non-bank financial
institutions.

-- These are but three key examples of specific targets that have
already been achieved under the Threshold Program.

Threshold Program Performance Supports Compact Eligibility.
Indonesia's ambitious Threshold Program is one part of the GoI's and
President Yudhoyono's overall reform agenda to support a democratic,
free-market Indonesia that is a responsible and active member of the
international community. Indonesia's performance on its Threshold
Program to date bolsters the country's improved MCC indicator scores
and further argues for its serious consideration as a Compact
eligible country when the MCC Board meets on December 12.

HUME

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