Reference ID: 08JAKARTA853    

Created: 2008-04-29 07:01    

Released: 2011-08-30 01:44    

Classification: CONFIDENTIAL    

Origin: Embassy Jakarta

                   


VZCZCXRO0402

RR RUEHCHI RUEHCN RUEHDT RUEHHM

DE RUEHJA #0853/01 1200701

ZNY CCCCC ZZH

R 290701Z APR 08

FM AMEMBASSY JAKARTA

TO RUEHC/SECSTATE WASHDC 8855

INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS

RUEHBK/AMEMBASSY BANGKOK 8413

RUEHHI/AMEMBASSY HANOI 0596

RUEHKL/AMEMBASSY KUALA LUMPUR 2470

RUEHML/AMEMBASSY MANILA 3207

RUEHGP/AMEMBASSY SINGAPORE 6298


C O N F I D E N T I A L SECTION 01 OF 02 JAKARTA 000853

 

SIPDIS

 

SIPDIS

 

DEPT FOR EAP/MTS; EB/TPP; EV/TPP/BTA

DEPT PASS USTR FOR KELHERS

 

E.O. 12958: DECL: 04/28/2018

TAGS: ETRD EINV ECON PGOV ID

SUBJECT: SCENESETTER FOR USTR AMBASSADOR SCHWAB VISIT TO

INDONESIA

 

Classified By: Ambassador Cameron R. Hume for reasons 1.4 (b) and (d).

 

 Â¶1. (C)  Summary:  Your trip to Indonesia comes at a time

when we are having difficulty finding traction in our

bilateral trade and investment relationship.  The dual forces

of democratization and decentralization that have made

Indonesia a political success story have been accompanied by

a desegregation of power that confuses investors, inhibits

policy coordination and hinders Indonesia's ability to

formulate a cohesive vision on trade and investment issues.

Maintaining lines of communication through our Trade and

Investment Framework (TIFA) discussions is critical to

developing our economic engagement with Indonesia.  However,

our success will also depend on strengthening our

relationships with institutions and constincuencies that can

help advance our trade and investment agenda.  End summary.

 

Trade Policy: No Traction

-------------------------

¶2.  (C)  The Government of Indonesia (GOI) has been lukewarm

on advancing a trade agenda with the U.S. despite our

continued dialogue under the TIFA. Exploratory discussions on

the possibility of entering negotiations toward a Bilateral

Investment Treaty (BIT) have been scheduled, but the GOI's

seriousness and commitment remain unclear. The GOI has

expressed concerns that it is unable to meet the high

standards of a U.S. BIT.  The GOI has however completed trade

agreements with other partners, including an Economic

Partnership Agreement (EPA) with Japan.  It is also

negotiating an investment treaty with Canada.  Ministry of

Trade officials pointedly note that trade capacity assistance

from Japan was included as part of the EPA and hint that

similar assistance may be expected from other trade partners

in future agreements.

 

Investment Policy: Lack of Coordination

----------------------------------------

¶3.  (C)  Investment policy in Indonesia is characterized by a

multitude of competing voices, a lack of institutional

coordination and the absence of an overall vision

articulating Indonesia's outlook on foreign investment.

Investment policy is more often shaped by interagency

negotiation and compromise among bureaucratic vested

interests than by economic theory or an organizing principle.

 As a result, policy outcomes are often confusing and

investors receive mixed signals.  An example is the 2007

negative list of sectors closed or limited to foreign

investment.  While on the one hand it represents a step

toward greater transparency and legal certainty, it is widely

seen by the business community as a step backward in terms of

signaling Indonesia's openness to foreign investment.

 

Investment Climate: Disputes Outnumber New Investors

--------------------------------------------- -------

¶4.  (C)  At the same time Indonesia continues to be bedeviled

by a series of high profile investment disputes that damage

its reputation among international investors.  Intel, Mars,

Kraft, Manulife, Newmont, Nike and General Electric are just

a few of the list of large international companies to

encounter problems with their investments in Indonesia.  Many

of the issues can be traced to Indonesia's  basket of

investment climate challenges, including the need for legal

reform, anti-corruption reform and labor law reform.  The

lack of coordination and absence of a clear vision undermine

any systematic approach to addressing these issues.

 

Agenda: The Ball is in Our Court

--------------------------------

¶5.  (C)  Ministry of Trade officials tell us that they

"welcome ideas" on how to invigorate the bilateral trade and

investment relationship, but offer none of their own.  Our

challenge: to find areas of mutual self-interest to engage

Indonesia and develop our trade and investment ties.  We

should seek to support the positive steps made by Indonesia

to address some of these issues institutionally.  For

example, the GOI's National Team for the Promotion of Exports

and Investment (PEPI) has the potential to serve as a

coordinating mechanism for investment policy while providing

objective analysis and sound policy recommendations to the

Indonesian Government.  American business contacts report

positive experiences with PEPI in resolving investment

disputes.  Despite PEPI's success it remains underfunded and

understaffed.  For our own benefit, we should encourage

 

JAKARTA 00000853  002 OF 002

 

 

Indonesia to support this institution with proper staff and

funding.

HUME