Year 70: The United States and Indonesia

The last several decades of bilateral cooperation have been tremendous for Indonesia’s development. With a few changes, imagine what the next 70 years will be like.

Year 70: The United States and Indonesia AFP Photo/Adek Berry

Today is a great opportunity to take stock of Indonesia’s progress toward an open, prosperous economy, and it could not have come at a better time. The year 2019 is a major milestone for both of our countries as we mark the 70th anniversary of US-Indonesia diplomatic relations. This yearlong celebration will be an opportunity to not only highlight our past achievements, but also to look forward to the next 70 years of US-Indonesia ties. In the years to come, we aim to strengthen our relationship on the foundation of our shared belief in democracy, respect for human rights and the promotion of peace, stability and economic prosperity.

Just before coming to Jakarta to meet with President Joko Widodo last August, US Secretary of State Mike Pompeo announced the American government’s strategy for economic engagement with this region at the Indo-Pacific Business Forum in Washington. It was no accident that the US Chamber of Commerce hosted that forum, which, like last September’s US-Indonesia Investment Summit, underscored the importance of the private sector in fueling growth and commercial engagement that benefits both the United States and the Indo- Pacific region.

As part of his remarks, Secretary Pompeo noted the foundational, facilitating role the United States played in enabling the growth, development and wealth we see across this region today. And he noted that private sector trade, investment and business engagement is at the center of this success. Facilitating this

Nike is celebrating its 30th anniversary of sourcing from Indonesia this year.

engagement in Indonesia is one of my key goals as the American ambassador here. Indonesia’s history since reformasi has been a story of great social and economic progress, and the United States is proud of the ways in which we have contributed to that success. This progress is something we see every day around us, but sometimes take for granted. Just think of the contrast between Indonesia’s current situation and that of the not-so-distant past. For example, 20 years ago poverty afflicted almost 25 percent of Indonesians. Today, the poverty rate is less than 10 percent, the lowest level in Indonesia’s history. Twenty years ago, fewer than one million Indonesians, less than 1 percent of the population, had used the Internet. Today, Indonesia is fast becoming a crossroads for the digital economy, with new private projects and public-private partnerships such as the Palapa Ring, bringing Internet access to more than half of the country – more than 143 million people – according to the Indonesian Association of Internet Service Providers. And 20 years ago, no city in Indonesia had a modern mass transportation system, and Jakarta was among the largest cities in the world without a subway. Today, we can see the signs of progress as MRT entrances and elevated rail tracks spring up along the capital’s main thoroughfares.

On these and many other measures, Indonesia has shown a record of success in development. Of course, there is much yet to be done, but there is also undoubtedly much for Indonesia to be proud of. US companies can also be proud of the role they have played as partners in this success.

American investment touches nearly every sector of the Indonesian economy, ranging from commodities to manufacturing to services. This investment has played a key role in Indonesia’s economic success, providing billions of dollars in capital and helping to create jobs for millions of Indonesian workers. Nike, for example, is celebrating its 30th anniversary of sourcing from Indonesia this year. More than 171,000 workers employed in Nike’s contract factories churned out about 143 million pairs of shoes and 41.5 million units of equipment and apparel in fiscal year 2018, sending those products to markets

AFP Photo/Adek Berry

worldwide. Nike is just one of many US companies with a longstanding commitment to doing business in Indonesia.

For example, Chevron, throughout its 90 years in Indonesia, has provided local, high-quality jobs that raise income levels and generate government revenues of close to $200 billion (almost 3 quadrillion rupiah) for Indonesia. Not only are 97 percent of Chevron’s 4,700 employees here Indonesian, but Local Business Development (LBD) programs in Riau, East Kalimantan and West Java provinces have led to more than 7,800 contracts for Indonesian companies, creating nearly 52,000 jobs and procuring more than $120 million in goods and services from LBD partners. In the case of another major US investor in Indonesia, PT Freeport Indonesia contributed more than $1.6 billion in community development funding between 1992 and 2017. That is in addition to the $17.3 billion paid to the Indonesian government over the same time in taxes, royalties and dividends. As I noted during a visit to Papua Province last September, I fully endorse President Joko’s vision of a win- win outcome on Freeport’s operating rights extension negotiations with the Indonesian government. A win-win solution will provide certainty for Freeport’s future investment, and ensure a continued commitment to human and economic development in the Papua district of Mimika and beyond.

US companies’ investments in Indonesia extend to the latest technologies as well. Last September, Cisco announced at a meeting with President Joko that Indonesia will become the first country in Southeast Asia to join its Country Digital Acceleration program. This program will help Indonesia make public services more efficient, increase local innovation and digitize the country’s small- and medium-sized businesses. This commitment is on top of the 212,000 Indonesian students Cisco has already trained with the latest information technology skills needed to succeed in the global IT work force and the modern digital economy.

Not to be outdone, other US tech companies are investing in Indonesian entrepreneurs. Google is training 100,000 Indonesians to develop Android apps nationwide. Facebook Indonesia just launched Laju Digital, a program aimed at giving digital literacy training to small- and medium-sized businesses, regional governments, students and communities in 15 cities, including 10 cities in eastern Indonesia such as Gorontalo, Kupang, Manokwari and Mataram. The US government also has a long history of providing assistance to overcome barriers to trade and investment, and enabling private sector partnerships that build prosperity for citizens of both our countries.

Last year, President Joko inaugurated Indonesia’s first commercial-scale wind farm at Sidrap, in Sulawesi. That project was developed by the private sector, a US-based firm named UPC Renewables, and was made possible by the US government’s Overseas Private Investment Corporation, which provided $120 million in financing. Today, 70,000 Indonesian households are able to enjoy clean, affordable, reliable power as a result of this partnership. These projects help to address gaps in power, infrastructure and connectivity development, not through a government mandate, but by facilitating partnerships between the private sector and the local partners who know best how to meet Indonesia’s needs.

Indonesia and the Indo-Pacific strategy

Although I am sure we could name dozens of other examples of US engagement, it’s time to talk about the future of the US- Indonesia economic relationship. Keeping in mind the progress we have seen in the past 20 years, to say nothing of the past 70 years, what should our aspiration be for the coming decades? Driven by its young population, growing middle class and expanding use of new technologies, Indonesia will play an even greater leadership role in the integration and development of the Indo-Pacific region.

Certainly, one of our aspirations for Indonesia’s future is a flourishing trade relationship with the United States. I was especially pleased to see Minister of Trade Enggartiasto Lukita lead a delegation of private businesses to Washington in July 2018 to explore ways to expand our bilateral trade, and I welcome his call to increase bilateral trade to $50 billion a year. The United States believes that our bilateral trade should be free, fair and reciprocal so that it can grow to its full potential, whether that is $50 billion, $100 billion or $150 billion in the years to come.

As I wrote earlier, Secretary Pompeo has unveiled the US strategy for advancing a free and open Indo-Pacific. America, and the entire world, has a stake in the prosperity and stability that flows from that vision. Indonesia lies, quite literally, at the center of this region. America wants to contribute to Indonesia’s prosperity, fostered through the private sector partnerships that naturally develop from fair and reciprocal trade, open investment environments, transparent agreements between nations and improved connectivity.

Let me be clear: We are committed to expanding our economic engagement in the Indo-Pacific region and in Indonesia. We will continuously strive toward the goal of a trade and economic relationship that abides by the principle of partnership economics – freedom and openness, a commitment to democracy and good governance, and respect for local autonomy and national sovereignty. As part of “America’s Indo-Pacific Economic Vision,” we announced a number of initiatives focused on enhancing the development of energy, infrastructure and the digital economy – sectors essential to the Indo-Pacific’s economic future. Through the Digital Connectivity and Cybersecurity Partnership, the Infrastructure Transaction and Assistance Network, and the Asia Enhancing Development and Growth through Energy initiatives, the US government will support the efforts of world-class US private sector companies to develop markets and to build partnerships.

Meeting the needs of Indo-Pacific nations in energy, infrastructure, digital economy and human resources development will take a staggering amount of investment. The Asian Development Bank has estimated that $26 trillion will be needed by 2030. Indonesia’s current infrastructure push likewise needs trillions of rupiah to succeed. We recognize that no government can mobilize the resources to accomplish these tasks alone. But we also know there is more than $50 trillion of private capital sitting on the sidelines in banking centers such as London, New York and elsewhere. By using government resources to catalyze private business opportunities and creating a level playing field for US firms to compete in Indonesia, we can create the conditions that will bring this private investment off the sidelines and

The treatment of current economic partners is one of the most powerful signals that a government sends to the world about its readiness for greater economic partnership

into productive enterprise. Only then will we be able to achieve our vision for the Indo- Pacific and a vibrant US-Indonesia economic partnership.

To catalyze private sector economic engagement, government regulations should foster, rather than stifle, private initiative. Rules made with the best intentions often have unintended consequences. Local content and manufacturing requirements, for instance, may aim to increase opportunities for local firms, but have the effect of discouraging economic partnerships. High-technology companies think twice about investing in Indonesia when they hear that they may have to manufacture locally in order to hold a patent. Internet and financial services companies slow down the introduction of new services when they learn about limitations sharing data across borders. As private businesses stay on the sidelines, options dwindle for Indonesian consumers and entrepreneurs, who see higher prices for fewer products.

I often say that the best advocates for new investors in Indonesia should be the investors and businesses who are already here. In fact, the treatment of current economic partners is one of the most powerful signals that a government sends to the world about its readiness for greater economic partnership. Conversely, when longstanding market participants depart a country because of perceived changes in the rules or contracts, or unfair treatment by partners or governments, it sends a warning to potential investors to think carefully before entering a market.

For example, US companies remain keen on investing in Indonesia’s infrastructure sector through an open bidding process. But it can be discouraging to these potential investors when they see other American companies that are ready to invest more than $3 billion in power generation in Indonesia, but are frustrated by an incumbent monopoly. And when US companies that have long operated in Indonesia and that planned to invest tens of billions of dollars in the years ahead are seemingly treated differently than state-run companies, it can send the wrong message that Indonesia views foreign investment with suspicion.

Economic engagement and partnership between US and Indonesian firms has been essential to building Indonesian prosperity and creating the conditions for continued success. For this reason, it remains important for Indonesia to continue to improve its investment climate to attract foreign investment and pursue policies that treat companies equitably, regardless of whether they are domestic or foreign. A level playing field for competition best serves everyone’s interests.

The United States – our government, our companies and our people – stands ready to expand our economic relationship with Indonesia. We are grateful to have been partners with Indonesia during the past 70 years. We look forward to continued cooperation to create an environment that maximizes the shared potential of our people and businesses to achieve even greater success in the years to come.

Joseph R Donovan Jr is the United States ambassador to Indonesia. This essay is adapted from an address he gave at the opening of the US-Indonesia Investment Summit 2018 in Jakarta last September.

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