Reference ID: 07JAKARTA1957    

Created: 2007-07-19 06:05    

Released: 2011-08-30 01:44       

Classification:  UNCLASSIFIED//FOR OFFICIAL USE ONLY    

Origin: Embassy Jakarta

             


VZCZCXRO6777

RR RUEHCHI RUEHDT RUEHHM

DE RUEHJA #1957/01 2000605

ZNR UUUUU ZZH

R 190605Z JUL 07

FM AMEMBASSY JAKARTA

TO RUEHC/SECSTATE WASHDC 5475

INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS

RUCPDOC/DEPT OF COMMERCE WASHDC

RUEATRS/DEPT OF TREASURY WASHDC

RUEHKL/AMEMBASSY KUALA LUMPUR 2354

RUEHBK/AMEMBASSY BANGKOK 8045

RUEHGP/AMEMBASSY SINGAPORE 6085


UNCLAS SECTION 01 OF 02 JAKARTA 001957

 

SIPDIS

 

SINGAPORE FOR SUSAN BAKER

 

SIPDIS

SENSITIVE

 

DEPT FOR EAP/MTS, EAP/RSP, EB/TPP, EB/TPP/BTA

COMMERCE FOR SBERLINGUETTE

USTR FOR DKATZ, RBAE

TREASURY FOR IA-BAUKOL

 

E.O. 12598: N/A

TAGS: CASC ASEC EINV ECON KCOR ID

SUBJECT: GOI PROMISES SWIFT RESPONSE TO NIKE TRADE DISPUTE

 

¶1. (SBU) Summary.  On July 18, Ambassador Hume met with Muhammad

Lufti, Chairman of the Government of Indonesia (GOI) Investment

Coordinating Board (BMPK)at Lufti's request to discuss the

escalating trade dispute between U.S.-based Nike Corporation and

their local business partner, Central Cipta Murdaya (CCM).  Lufti

was designated by the GOI to resolve the situation and promised both

security guarantees and CCM cooperation if Nike representatives

would consider returning to Indonesia.  Both Ambassador and Lufti

agreed that a swift GOI response to resolve the dispute was in the

interest of all parties.  End Summary.

 

SBY is in the Loop

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

¶2.  (SBU) Lufti explained that President Susilo Bambang Yudhoyono

(SBY) directed Lufti, the GOI Minister of Trade, Minister of

Industry, and Minister of Manpower to meet with Vice-President (VP)

Kalla to discuss Nike's case.  SBY designated Lufti to coordinate

GOI response.  Lufti acknowledged GOI fell short in key areas,

notably security, but assured Ambassador that SBY was personally

engaged on the issue.  Lufti promised GOI security for all employees

and gave his personal guarantee that Nike executives would not be

detained by authorities even in the event of civil litigation. Lufti

offered to fly to Singapore to meet with Nike executives personally.

 He asked Ambassador to call Nike to encourage them to return to

Indonesia.

 

¶3.  (SBU) Ambassador Hume agreed to call Nike executives, but

reminded Lufti that security assurances must come from GOI directly.

 He explained that Nike executives were likely less anxious in the

immediate sense, but still wary of entering a litigation trap upon

return to Indonesia. Lufti responded that he would "escort them to

the airport and put them on a plane myself before allowing that to

happen."  Both Ambassador and Lufti agreed on the need to handle

disputes quietly and not in the press or the streets.

 

¶4.  (SBU) The Ambassador asked Lufti about CCM's culpability and

willingness to participate in a resolution.  Lufti responded that he

already spoke with CCM and promised Murdaya family cooperation.

Lufti claimed GOI is pressuring the family to fulfill CCM's

financial obligations and accept a "reasonable and fair" phase-out

proposal from Nike.  While promising to play a facilitating role,

Lufti hinted that Nike concessions on the terms of the phase-out

would be helpful.  Ambassador offered to make a public statement

once a negotiated agreement is successfully realized.

 

Background

-----------

¶5.  (SBU) Four Nike executives abruptly departed Jakarta for

Singapore on July 16 after thousands of protesters descended upon

their Jakarta headquarters, instigated by one of Nike's estranged

local business partners, CCM.  Nike executives informed CCM on July

6 that Nike would end their business relationship with CCM at the

end of 2007. Nike explained the decision was based on the factory's

inability to meet the company's minimum contractual product quality

and delivery standards.  CCM responded by ceasing all Nike factory

production and directing disgruntled employees to Nike's downtown

offices. CCM also made veiled personal threats directed at the Nike

executives.  The ensuing protest alarmed Nike executives, who

received Embassy assistance in obtaining protection from local

police and safe passage to the airport.  Ultimately, the crowd

dispersed peacefully and Nike executives were able to leave their

offices.  Nike executives, accompanied by the FSN Investigators,

were then taken to Soekarno-Hatta airport via police escort where

they departed the country.

 

An Infamous Local Partner

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

¶6. (SBU) COMMENT:  Business contacts tell us that the Murdaya family

"plays hard ball" and has been known to use their money and

influence to harass foreign investors, even having them arrested in

some cases. According to Forbes, Siti Hartati Murdaya is ranked 16th

among the 40 richest people in Indonesia.  Hartati's husband,

Murdaya Poo, is a Member of Parliament from the Indonesian

Democratic Party of Struggle (PDI-P) representing East Java.  GOI's

Cabinet level response to this latest incident reflects growing GOI

awareness of the need to reassure foreign investors already spooked

by the Newmont Mining and Asian Pulp and Paper (APP) scandals.  END

COMMENT

 

 

JAKARTA 00001957  002 OF 002

 

 

HUME