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Cablegate: Yogyakarta's Opportunity to Learn From California

VZCZCXRO0637
RR RUEHJS
DE RUEHJA #1735 2881015
ZNR UUUUU ZZH
R 151015Z OCT 09
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 3592
RUEHJS/AMCONSUL SURABAYA 2549
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS JAKARTA 001735

SIPDIS

DEPT FOR EAP/MTS AND EEB/IFD/OIA
STATE PASS TO USTR EHLERS
COMMERCE FOR 4430/NADJMI
TREASURY FOR T RAND AND G RAO

E.O. 12958: N/A
TAGS: ECON EINV ETRD ID
SUBJECT: YOGYAKARTA'S OPPORTUNITY TO LEARN FROM CALIFORNIA

1. SUMMARY: Yogyakarta's economy has weathered the global financial
downturn reasonably well in 2009, bolstered by tourism and
education. Local leaders search for ways to attract foreign direct
investment (FDI). Action by the local government to renew a dormant
partnership with the California Chamber of Commerce could help
Yogyakarta learn how to attract FDI. END SUMMARY

STABLE LOCAL ECONOMY
--------------------

2. Yogyakarta business leaders and government officials were
recently confident that the local economy would weather the global
economic downturn. Major sectors such as tourism and the city's
large education industry continue to drive growth in the city.
Yogyakarta officials claimed that tourism from Europe remains
robust, despite economic difficulties elsewhere. Nur Syhahrir
Rahardjo, head of Yogyakarta's Regional Board of Cooperation and
Investment estimated Yogyakarta's economy would grow by 4% for
calendar year 2009.

STATE OF FDI
------------

3. In order to encourage further growth the Yogyakarta Board of
Cooperation and Investment wishes to attract FDI in agriculture,
heritage industries, infrastructure, telecommunications and tourism.
Government officials and business leaders are unsure as how to
attract new foreign investment to these sectors and were also unsure
how to leverage the human capital that Yogyakarta's education sector
develops each year.

4. Currently, Yogyakarta's FDI is concentrated in consumer goods and
tourist based companies such as Carrefour and Hyatt. Wasesa, Head of
Development for City of Yogyakarta, said the presence of
multinational companies creates jobs for local residents and also
supports the creation of low level food vendors. However, he has
concerns as to how Yogyakarta can attract a higher level of FDI in
such industries as telecommunications and software.

5. S.R. Yunastuti Daud of the Yogyakarta Chamber of Commerce and
Industries said the city hopes to someday have an information
technology (IT) center and has spoken with companies from Singapore
and Malaysia about potential IT projects. In addition, she hinted at
the possibility of the city competing with Bali as a site for
business conferences. She admitted that complex regulations and
uncertainty over regulatory implementation are still prominent
barriers to FDI.

YOGYAKARTA AND CALIFORNIA
-------------------------

6. S.R. Yunastuti Daud referred to a 1997 memorandum of
understanding between the California Chamber of Commerce and the
Yogyakarta Chamber of Commerce outlining the goal to broaden
economic relations. S.R. Yunastuti Daud said that while the chambers
signed the agreement, local ministers were confused as to why
California would wish to partner with Yogyakarta and never pursued
it. As recent as 2006, Governor Arnold Schwarzenegger called the
Governor of Yogyakarta to discuss the partnership. According to S.R.
Yunastuti Daud the two never spoke and later Yogyakarta's official
contacted the foreign ministry in order to end the partnership.

7. Embassy official advised S.R. Yunastuti Daud that a partnership
with the California Chamber of Commerce represented an enormous
learning opportunity on how to attract FDI, just as Palo Alto and
Santa Clara leverage local universities Stanford and Santa Clara to
attract high-tech multinational corporations. A partnership could
help Yogyakarta attract FDI from California. S.R. Yunastuti Daud
responded enthusiastically to this idea and asked how the
relationship might be revived. Embassy will follow up with
California state officials to re-establish a dialogue between the
regions.

OSIUS

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