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Remarks to Indonesia Global Investment Forum

Remarks to Indonesia Global Investment Forum

E. Anthony Wayne, Assistant Secretary for Economic and Business Affairs

New York City
September 15, 2005

Thank you, President Yudhoyono for sharing your views on the key economic issues facing Indonesia today. We are encouraged by your willingness to engage in public dialogue on Indonesia's economic reform and are committed to working alongside your government in promoting sustainable economic growth.

Today we have a rare opportunity to discuss directly economic issues critical to Indonesia's future with so many of Indonesia's key actors present. I look forward to engaging in the dialogue that ensues and thank Institutional Investor for organizing this event.

We meet at a time in Indonesia's history that poses a unique opportunity for us to make progress on economic reforms. Strong political will exists on the part of the Government of Indonesia. President Yudhoyono began his term in office announcing a rigorous economic reform program, placing priorities on economic growth, poverty reduction, and anti-corruption. He continued to show a commitment to moving his agenda forward. This is President Yudhoyono's second trip to the United States during his first year in office. During his May visit, he and President Bush discussed ways to strengthen U.S.-Indonesian economic cooperation. President Yudhoyono invited Americans to participate in helping Indonesia meet its infrastructure development needs. The two Presidents also announced their support for the G-8 pilot project to assist Indonesia in its efforts to improve the business climate a development that symbolizes the political support of the G-8 countries for Indonesia's private sector-led development strategy.

We all know corruption has made doing business in Indonesia difficult, but strong political will from the government to change, combined with eager investors and donor assistance, may provide the right combination for effective reform. We are eager to see President Yudhoyono move forward, as more than 300 U.S. companies have investments in Indonesia valued at a total of more than $7.5 billion, and an estimated 3,500 U.S. business people work in Indonesia.

President Yudhoyono's forward looking economic program also symbolizes Indonesia's recovery from the 1997-98 financial crisis. Indonesia's per capital GDP recovered to its pre-crisis level only in 2004. Once again, Indonesia is poised to be a strong regional economic leader. Indonesia's economy has persevered in the face of a formidable series of challenges over the past year, including the Tsunami, high world oil prices, avian influenza, and polio outbreaks. Indonesia's economy has grown in the 5-6 % range since the fourth quarter of 2004, and actual foreign direct investment inflows increased by 70 % in the first half of 2005. The government has manged to increase investor confidence, attack corruption, and make a push for infrastructure development and increased foreign investment.

Most visible have been President Yudhoyono's very public efforts to combat corruption. He required his cabinet appointees to sign an anti-corruption pledge and has pursued prosecution of several high-profile corruption cases, focusing on sectors that need it most, such as banking, taxation, and customs. We are encouraged by these actions, and hope for more at all levels. The U.S government's own assistance includes helping the Government of Indonesia set up an anti-corruption court, reform the commercial courts, and strengthen the Corruption Eradication Commission, or KPK. The Yudhoyono government's critical efforts to change the culture of corruption offer the most significant opportunity of all - a chance to work together to see an Indonesia that is open for investment and trade, and open to international investors playing a prominent role in the country's economic development.

The purpose of today's meeting is to discuss investing in Indonesia, particularly to meet the country's infrastructure needs. The Government of Indonesia estimates that over $70 billion in investment is needed to finance infrastructure projects on roads, ports, airports, energy, and telecommunications. Last November, the government hosted an Infrastructure Summit in Jakarta to outline Indonesia's infrastructure development priorities, announce a timetable for regulatory reform, and hold discussions with potential investors on infrastructure projects. Since the summit, we have been working closely with Indonesia's development partners to help the government make progress on reforming the laws and regulations that are holding back infrastructure development in Indonesia. We understand there will be a second infrastructure summit in February 2006, and have counseled Indonesia that the best way to draw in potential investors is to finalize one or two high quality public-private infrastructure projects as soon as possible.

Allow me to highlight a particular infrastructure project that the United States Agency for International Development is currently undertaking as part of our tsunami assistance to Indonesia. After the tsunami, the road connecting major commercial flows alongside Aceh's west coast was virtually destroyed. This road spanned over 200 kilometers, from the cities of Banda Aceh to Meulaboh. In close collaboration with the Government of Indonesia, we created a proposal to rebuild this road, valued at $245 million, and have closely coordinated with other donors who are interested in assisting in the process. We broke ground on the road last month, with representatives from our USAID Mission, Embassy, and the Government of Indonesia's Rehabilitation and Reconstruction Agency for Aceh and Nias. This venture proves an excellent example of a collaborative effort that partners our private sectors as well as our governments. We hope this effort will encourage more American and foreign investors to invest in Indonesia's infrastructure.

Another recent success story I would like to highlight is the resumption of the U.S. - Indonesia energy policy dialogue. The oil and gas sector remains an important component of the Indonesian economy, with oil and gas revenues comprising about 23% of the Government's total domestic revenues. Approximately 80% of U.S. investment in Indonesia is in the energy sector alone, although U.S. firms are also very active in the manufacturing and services industries. During President Yudhoyono's May visit, we resumed our energy policy dialogue with Indonesia after a seven year hiatus, offering us an opportunity to work together to expand U.S. investment and promote our energy security policies. Delegations from the U.S. and Indonesia made progress on a set of priority issues in the oil, natural gas, coal, and electric power sectors during the first Working Group meetings of this dialogue held in Jakarta on August 29. We came away from the meetings with the sense that the U.S. interest in expanding the supply of oil to global markets fits very well with President Yudhoyono's drive to increase Indonesia's oil production. We hope to build on our clear harmony of our interests in the energy sector to discuss in detail the types of policies that will encourage crucially needed investment in exploration. President Yudhoyono has already taken one crucial step - in addition to articulating a vision for expanding Indonesia's oil production, he has also stated that Indonesia will make it a top priority to accelerate the development of existing fields, including the Cepu and Jeruk fields in East Java.

Growing U.S. investment in Indonesia will help that great nation make progress towards its overarching goals of long-term economic growth, job creation, and poverty reduction. The United States supports Indonesia's development goals. Sound economic policies and good governance are the key contributors to economic growth and sustainable development. We believe the Government of Indonesia is on the right track in setting its ambitious agenda to curb corruption, attract investment, and stabilize the economy. The creation of a sound foundation for economic growth will enable improvements in basic education, the delivery of health care and job creation, which in turn further strengthen Indonesia's economic potential. The U.S. strongly believes that countries' own efforts to rule justly, invest in their people, and encourage economic freedom will be the main factor that leads to economic development.

The democratic election of President Yudhoyono last October was a very telling political development -- it revealed that Indonesians want stable, effective institutions, political and economic, after decades of dictatorship. Now is the time to support President Yudhoyono and his highly qualified economic team in implementing economic reforms that will strengthen and make more efficient Indonesia's institutions at all levels of government. We will be by Indonesia's side as it seeks to improve the investment climate to raise growth, steps up anti-corruption efforts to improve governance, and ensure that the benefits of growth flow to the poor.

It is my hope that the rich conversation underway in Indonesia on investment climate reform, improving governance, and infrastructure development continues and is strengthened. I understand that Coordinating Minister for Economic Affairs Aburizal Bakrie is leading a similar process in Jakarta -- the Consultative Group for Indonesia on which business government and donors exchange views on the investment climate. On behalf of the United States government, I thank President Yudhoyono and his delegation for giving us the opportunity to strengthen our economic ties, once more, during their second trip to our country.

It is now my pleasure to introduce Aburizal Bakrie, the Coordinating Minister for Economic Affairs. He was appointed by President Yudhoyono in October 2004, the first career businessman to serve in this position. As many of you already know from your involvement with Indonesia, he was chairman of the Indonesian Chamber of Commerce and Industry, or Kadin, from 1999 to 2004, and deserves much of the credit for initiating the reforms at Kadin that have transformed it into a modern business advocacy organization He is one of Indonesia's most successful and respected businessmen, with investments in the manufacturing, energy, and telecommunications industries, among others. Since he became Coordinating Minister, Mr. Bakrie has impressed the international business community with his determination to improve Indonesia's investment climate, and under his leadership, we understand the Government will introduce sweeping amendments to the investment law in the very near future.

Please join me in welcoming Minister Bakrie.

Released on September 20, 2005


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