Cablegate: U.S. Asean Business Council Mission

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

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