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Cablegate: Reward Performance: Reselect Indonesia

VZCZCXRO5438
RR RUEHLMC
DE RUEHJA #1869/01 3160006
ZNR UUUUU ZZH
R 120006Z NOV 09
FM AMEMBASSY JAKARTA
TO RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RUEHC/SECSTATE WASHDC 3782
INFO RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 JAKARTA 001869

STATE FOR EAP/MTS, EAP/EP, EEB/IFD/ODF
AIDAC FOR ANE, EGAT
USTR FOR (EBRYAN)
TREASURY FOR (BPELTON)


SENSITIVE
SIPDIS


E.O. 12598: N/A
TAGS: EAID PREL PGOV ETRD ECON KMCA MCC ID
SUBJECT: REWARD PERFORMANCE: RESELECT INDONESIA

REF: STATE 108510

1. (SBU) SUMMARY. Embassy strongly supports MCC reselecting
Indonesia as eligible for compact. Indonesia deserves reselection
based on its performance both on and outside the indicators.
Failing to reselect Indonesia would dash Indonesian expectations
created by the U.S. government and would weaken the hand of
government officials pushing for economic reform, good governance,
and accountability. Embassy urges all agencies and board members to
support the reselection. See action request. END SUMMARY

2. (U) BACKGROUND. Embassy understands MCC is sounding out other
agencies on this year's selections for eligibility for compacts and
that an interagency meeting is set for November 12. Furthermore
Embassy understands the MCC board is set to meet on December 9 to
make the final selections.

3. (SBU) BASED ON PERFORMANCE INDONESIA DESERVES TO BE RESELECTED.
In general Indonesia has improved its absolute performance on a
range of the indicators and did not go down on the control of
corruption indicator. The only technical problem is that Indonesia
has graduated from a Low Income Country (LIC) to a Lower Middle
Income Country (LMIC) and hence is being compared to a more
competitive group. This graduation is questionable (See para 4).
Within the Low Income Country group Indonesia would pass without
difficulty. Even in the LMIC group Indonesia is only slightly off
(See para 5). In addition Indonesia performance includes major
accomplishments that should be recognized and rewarded (See para 6).
If MCC fails to reselect Indonesia, our partners here would
question U.S. commitment to the country and our reliability as a
partner (See para 7).

4. (SBU) INCOME GRADUATION IS QUESTIONABLE. The Gross National
Income per capita for Indonesia for 2007 was USD 1,650 and for 2008
it was USD 2,010. However there are serious methodology issues with
these numbers, particularly on the appropriate exchange rate to use
to convert Indonesian rupiahs into US dollars. The USD numbers used
show a per capita income gain of almost 22 percent in a single year.
However the real gain in per capita national income was only around
six percent. If six percent is applied to the original USD GNI per
capita figure, Indonesian 2008 income figure would only be USD 1,749
which is substantially less than the USD 1,856 which marks the
beginning of the lower middle income group. Hence Indonesia would
still be a low income country and would pass the indicators without
a problem.

5. (SBU) PERFORMANCE IS GOOD EVEN IN LMIC GROUP. Indonesia does
well against the increased competition of the Lower Middle Income
Countries. Indonesia has problems only with investing in people and
control of corruption. Indonesia is only off four hundreds of a
percent in passing primary education expenditures and hence passing
investing in people (1.93 versus 1.97). In control of corruption,
Indonesia's performance has not declined on an absolute basis, but
is only off slightly in a relative sense, only having to beat out
three more countries in the group to pass.

6. (SBU) INDONESIA HAS ACCOMPLISHED A LOT. Since being selected
last year, Indonesia has successfully carried out the largest single
time parliament and presidential elections in the world. Indonesia
has been a good partner of the U.S. in international fora, including
the G20, where we are now addressing key global economic issues,
including climate change and food and energy security. The
democratically reelected president has installed some excellent
economic ministers and committed the new government to major reform
efforts. While progress on compact preparation has been slower than
desired, Indonesia has formed a technical unit to advance progress
on the compact. The constraints analysis is being presented this
week and ambitious plans for public consultations have been put in
place.

7. (SBU) SERIOUS POLITICAL RISKS SURROUND A NEGATIVE DECISION. The
selection of Indonesia as eligible for a compact has received
substantial press and attention from Indonesia decision makers and
the general public. It was hailed as an important step in
U.S.-Indonesia relations. Failure to reselect Indonesia is likely
to trigger serious negative reactions within the GOI and the public,
leading them to question the U.S. government's reliability as a
partner. This is especially true as Indonesia has generally
performed quite well and does not meet a couple of performance
indicators because the standards have been changed as a result of a
growing economy and questionable converting.

8. (SBU) ACTION REQUEST. Embassy asks all involved agencies and
board members to support MCC reselecting Indonesia for a compact.


JAKARTA 00001869 002 OF 002


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