Thank you Pak Dimas for that kind introduction.
Distinguished guests, Ladies and Gentlemen,
I’d like to thank Ibu Dewi Fortuna Anwar and Ambassador Dino Djalal and the entire Foreign Policy Community of Indonesia for your invitation to come here today to share some of my impressions of U.S-Indonesian trade and investment ties. The FPCI has done Indonesia a real service by establishing this platform for discussion and debate about foreign affairs and I wish you all the best in your efforts to create a dialogue around these important issues for Indonesia. Also special shout outs to Antara and the Americas Committee of KADIN for co-sponsoring this event.
As you may know, I have been in Indonesia for a very short time – I’m coming up on six months in a few weeks. But during that time I’ve been able to visit many parts of this beautiful country from Sabang to Jayapura and to meet some amazing people from all walks of life. One thing that I didn’t expect to happen in these first few months was to have the opportunity to welcome Vice President Mike Pence and his family to Indonesia. Vice President Pence’s decision to include Indonesia on his first trip to Asia was no accident. As the Vice President made very clear during his visit, the Trump Administration is committed to our Strategic Partnership with Indonesia and has a deep respect for Indonesia’s democratic achievements and its practice of moderate Islam.
President Jokowi and Vice President Kalla graciously welcomed the Vice President for talks on our multi-faceted relationship. Vice President Pence also had a moving discussion with interfaith leaders at the Istiqlal mosque that showcased our shared values of tolerance and respect for religious diversity. Equally important, the Vice President reaffirmed our commitment to ASEAN by announcing that President Trump would attend the EAS, ASEAN, and APEC Leaders Summits later in the year.
Vice President Pence’s visit demonstrates the seriousness with which our administration takes our relationships in Asia. It was not an isolated event. His visit should be seen in the context of Foreign Minister Marsudi’s meetings with the Vice President and Secretary of State Tillerson in Washington last week, as well as Finance Minister Sri Mulyani’s meeting with Treasury Secertary Mnuchin in Washington around the same time.
As you can see, we are working closely with Indonesia, and with other states in the region. And there is a good reason for this. I would like to assure you all here today that U.S. foreign policy towards Asia has been and is always going to be rooted in a clear-eyed assessment of America’s national interest. Put simply, we believe America’s prosperity and security are inextricably linked to the dynamic Asia Pacific region. And we believe that a prosperous, democratic and secure Indonesia is good for the U.S., good for the region, and good for the world.
Today I would like to focus on the prosperity aspect of our ties with Indonesia. I’m a big believer in the power of stories. The most effective stories are those that can distill a complicated set of circumstances into a handful of lines that illustrate a few key points. So allow me to tell some stories that capture my impressions about where we’ve been, where we are and where I hope we can go.
Business ties between the United States and Indonesia go back a long time. U.S. companies have been in Indonesia since well before independence. Goodyear first set up operations in Indonesia in 1917. Oil and gas giant Standard Oil of California, today’s Chevron, began exploration in Riau in 1924. In 1932, Coca-cola was produced for the first time in Indonesia. These companies and many others have grown alongside Indonesia – investing in your country and your people for many decades. Through the struggle for Indonesian independence, through economic booms and busts, through political upheavals and reforms, up to today, American companies have proven their commitment to Indonesia – employing thousands of Indonesians, training Indonesian workers, paying taxes to the Indonesian government and contributing to Indonesian communities.
While others have joined the United States in seeing the opportunities in Indonesia, U.S. companies remain among the largest investors here. A 2015 report from the American Chamber of Commerce in Indonesia identified US$65 billion of realized U.S. investment from just 35 American companies between 2008-2014. The total number is no doubt even higher. Those investments have continued since the Jokowi administration took office, with significant investments by American companies in the consumer goods sector, natural resources, and digital content. Some of these companies are attracted by Indonesia’s natural wealth in oil and gas, minerals, and plantation agriculture. Others are interested in the size of your domestic market and the potential for further growth in Indonesia’s middle class. But U.S. investors are increasingly attracted to Indonesia because they see opportunities to serve not only Indonesian consumers, but the 600 million plus ASEAN consumers, or even billions of global consumers. That’s what drives companies like Mattel to invest here – Indonesia is now the biggest source of Barbie dolls and Hot Wheels cars in the world. Honeywell makes the famous airplane “black boxes” for the world at its manufacturing facility here in Bintan. Other U.S. companies are working with local partners to produce furniture, textiles, and consumer goods destined for markets around the world. As other producers become more expensive, Indonesia has a chance to capture more of that business and increase its links to international supply chains. U.S. firms can help you to do so.
Investments by U.S. companies support Indonesian growth, but perhaps even more importantly, American companies help train and equip Indonesians with the skills and expertise to compete globally. These Indonesian executives and employees don’t always stay put – many of them take their skills and put them to good use at other international or domestic companies or even start their own firms. One of my favorite stories was shared by my good friend Pak Batara Sianturi, head of Citibank here. Pak Batara has worked for Citi for many years, in Indonesia, the U.S., and around the world – he headed Citi’s offices in Romania and the Philippines before coming back to head Citi’s Indonesia operations. He told me that former Citi executives now serve in leadership positions in the financial sector across Indonesia – many of the banks in Indonesia are headed by Citi alums, others are heading SOEs and two former Citi executives are currently serving Indonesia as Ministers.
It’s not just the large U.S. companies that are making a difference here in Indonesia. Smaller companies are also playing an important role in developing Indonesian industry and providing good jobs for Indonesians. East Bali Cashews is one of my favorite examples. In 2012, an American entrepreneur landed in Bali for a few months of volunteer work before taking up a new challenge. Working in a small village in one of the poorest parts of East Bali, he discovered that the local farmers sold all of their raw cashews to middlemen who shipped them to Vietnam to be processed. With the help of a few friends, he started a small cashew processing plant that allowed local farmers to capture more of the value of their products. He hired local villagers to staff and run the plant and as it quickly grew he was able to attract more investment from Indonesian, American and other investors. He took his profits and invested them back into the small community of Desa Ban, hiring more workers, improving sanitation, and even building a pre-school for local children. In just a few short years, Desa Ban has gone from a small village where most people either engaged in subsistence agriculture or left to find work in Denpasar, to a thriving village, where most people have access to a regular source of income, can afford health care, and enroll their children in school. We were very proud to see East Bali Cashews win the U.S. Secretary of State’s Award for Corporate Excellence in 2016 and even happier to learn that the company is expanding, including by adding an eco-tourism park that they hope will allow them to provide even greater opportunities for the cashew farmers of eastern Bali.
That’s what U.S. investment has brought and can continue to bring to Indonesia – opportunities, skills, and prospects for an even brighter future. American companies are here to make a profit, but they are also working to build Indonesia. My point here is that Indonesia benefits from an open, inclusive approach that welcomes U.S. entrepreneurs and executives to work in Indonesia. Far from exploiting your nation, U.S. businesses enrich it.
We often hear from our friends in Indonesia about the size and attractiveness of the Indonesian market. It’s true, Indonesia has tremendous potential – last year U.S. exporters sent over $6 billion worth of agricultural products, aircraft parts, machinery and other capital goods. The U.S. is also an important market for Indonesian products. In fact, in 2016 the United States was Indonesia’s largest export market. Last year, Indonesia sent over $19 billion worth of textiles and apparel, shoes and rubber products, electronics and machinery, seafood and furniture to eager buyers in the United States. This two way trade creates jobs and raises living standards in both of our economies.
Recently my staff had the opportunity to visit some large textile manufacturers in Central Java. These are massive operations, employing thousands of workers. In the manufacturing centers they visited, workers were busily making products for such well-known brands as Ralph Lauren or American Eagle – with most of the production destined for the United States. Similarly, Indonesia is one of the global centers of production for sportswear and shoes bearing well known American marks such as Nike, New Balance and Reebok. And while these American companies often work with local partners to make these products, they don’t outsource their commitment to quality or to high standards of worker protection. That’s why these Indonesian manufacturing facilities can make products that can compete in quality and price with goods made anywhere in the world and why Indonesian workers like to stay in these jobs. In one textile manufacturing facility my staff visited, over half of the 1000 workers had been with the company for over ten years. That’s a great story about how U.S.-Indonesia business ties improve the livelihoods and welfare of Indonesians across the economic spectrum.
A similar story can be told in the agricultural sector. The U.S. is an important market for Indonesian agricultural products, including seafood and spices. I recently returned from Papua where I was able to visit a facility for processing vanilla, cloves and nutmeg. Many of you may know that vanilla is now one of the most valuable commodities in the world and Papua grows some of the best. An American investor is working there with local farmers to increase both quantity and quality and ensure that local producers are getting the maximum profit from their land and labor. With support from USAID, these farmers are able to connect more directly to global spice markets while maximizing their profits today and for years to come by ensuring that they are processing their crops in a sustainable way.
The Future is Bright – But Needs Hard Work
We’ve done a lot to promote trade between the U.S. and Indonesia – particularly in helping to raise standards of quality and efficiency. But as Vice President Pence said during his visit, the United States and Indonesia can do much more to improve our trade relationship. American exports have fallen by 30% in the last four years. And it’s not for lack of trying. Whether it’s extending electricity to communities that lack it, or building infrastructure to connect Indonesia’s 17,000 islands, American businesses are ready and willing to do more here. President Jokowi and Vice President Pence agreed that we can and will do more to expand our trade – trade that is both free and fair – that will create a win-win relationship for both our nations and all of our people.
In fact, much of Vice President Pence’s discussions with President Jokowi and Vice President Kalla focused on our mutual desire to increase bilateral trade and investment ties. Vice President Pence also listened to the Indonesian and American business communities here to learn from them as to what we can do to expand our ties. I hope you can see that, contrary to some reports, our approach is to expand trade and investment ties, not restrict them.
Strong business ties between U.S. and Indonesia have benefitted both sides. And U.S. firms are eager to do more in Indonesia, if the circumstances are right. As I noted before, many investors find the Indonesian market potential very attractive – the fourth largest population in the world, with a growing middle class that is increasingly digitally connected – Indonesia has a lot to offer. But there are still challenges to doing business here. In my view, President Jokowi’s efforts to improve Indonesia’s infrastructure and the ease of doing business are the right approach. Many of our companies look at the obstacles Indonesia is trying to overcome and see opportunities to bring high quality U.S.-produced goods and services to help Indonesia to achieve its full economic potential.
Shortly after taking office, President Jokowi identified insufficient electric power as a key constraint on economic growth and announced his plan to build 35,000 megawatts of new electric power by 2019. As soon as he made the announcement, we saw an opportunity to match Indonesian ambitions with American technology, know-how, and investment. When we first organized a briefing for interested companies on opportunities to meet Indonesian power needs, we were overwhelmed by the response. We created the Power Working Group for Indonesia in 2015, a loose collection of U.S. manufacturers and service providers in the power sector that now numbers over 60 companies, ranging from producers of turnkey diesel and gas powered plants to wind and geothermal power companies. U.S. companies have an outstanding reputation for efficiency, quality, and service and we’ve already seen several successful projects moving forward including GE’s partnership with Marubeni and Pertamina to build Indonesia’s biggest powerplant – Java 1. American company UPC is partnering with an Indonesian company to build wind power projects in Yogyakarta and South Sulawesi. The U.S. government is supporting UPC’s Sidrap wind project in South Sulawesi with up to $120 million in financing from our Overseas Private Investment Corporation (OPIC). Many of the Power Working Group companies would also like to invest in smaller communities. For example, Electric Vine Industries already provides solar power electricity to remote villages in Papua and is eager to develop microgrid systems in more communities.
We are hard at work with our Indonesian partners to find more American solutions to meet Indonesia’s power needs and I was particularly delighted that Vice President Pence was able to witness the signing of several new agreements in the power sector worth over $10 billion while he was here – including a biomass to energy project, geothermal projects and natural gas sales – all of which will help Indonesia to meet its power needs.
Since 2015 we’ve also been partnering with Indonesia under the auspices of our U.S.-Indonesia Aviation Working Group, which brings more than forty leading private aviation firms and experts together with government representatives to address Indonesia’s aviation infrastructure priorities. We believe American companies are particularly well placed to deliver high quality technology and services to meet Indonesia’s growing aviation needs. You already know that Boeing provides a lot of planes to Indonesia’s major airlines – Garuda and Lion both have hundreds of Boeing aircraft in their fleets with more on order and Sriwijaya only flies Boeing 737s – but U.S. aviation technology is also making air travel safer for everyone. We’re especially pleased that MITRE, a U.S.-based non-profit entity, has partnered with the Indonesian Ministry of Transportation on plans for Indonesia’s Modernization of Air Traffic Systems, or IMANS. The first step in IMANS is the upgrade of the Jakarta Air Traffic Management System – something near and dear to all of us who fly in and out of Soekarno-Hatta’s busy airspace. More recently, MITRE signed an MOU with Airnav to provide a technical assessment of air traffic control and aviation navigation safety requirements for Eastern Indonesia. The U.S. Trade and Development Agency has also been an important player in aviation here; in February USTDA sponsored a reverse trade mission to the United States for twelve Indonesian officials to visit government and industry facilities in Washington, D.C., Florida, Massachusetts, and California to learn about aviation security and safety best practices and to see first-hand some of the leading technologies in the world today. USTDA has also provided a grant of USD 718,000 to AirNav to recommend improvements to aviation safety in eastern Indonesia.
We have a trade dialogue through our Trade and Investment Framework Agreement (TIFA) where we can discuss ways to improve the trading relationship for both sides and to identify and hopefully eliminate barriers to trade. In March we partnered with the Ministry of Trade to hold a workshop on good regulatory practices with speakers from the U.S. and Indonesia sharing best practices in making regulations consistent and coherent across ministries and departments. Indonesia is an important partner in the G-20 and APEC and is a strong and welcome voice in both of those forums for a stronger, more resilient global economic architecture. We would like to better use these opportunities to improve our cooperation – we are long overdue for a TIFA meeting, postponed twice by the Indonesian side, and our plans for a dialogue with the Ministry of Finance have been delayed. President Jokowi and Vice President Pence agreed that we need to strengthen our partnership and we are ready to engage. In one piece of good news, our TIFA talks have been rescheduled for June and we hope they will not only immediately promote trade and investment but also identify future steps to boost economic cooperation.
The Solution to Every Economic Challenge Should Not Be More Protectionism
President Jokowi and his economic team deserve a tremendous amount of credit. They’ve identified many of the problems that are keeping Indonesia from reaching its full economic potential: infrastructure, education, macroeconomic stability, the ease of doing business, rule of law, among others. Together they have announced reforms and policies that address many of these challenges: the 35,000 megawatt power plan, initiatives to shorten dwelling times at the port of Tanjung Priok, 14 Economic Reform Packages to reduce excess regulation, revisions of the DNI list to open new sectors to foreign investment, and the world’s most successful tax amnesty program. These are good news stories that demonstrate that President Jokowi and his team are committed to improving Indonesia’s business environment. But there is still much more that can be done, to improve the business and investment climate in Indonesia.
Some people ask me why I don’t do more to attract U.S. investment to Indonesia. I think they misunderstand the role of the U.S. Embassy in this regard. Our primary job is to help American companies make informed decisions as to whether they can earn a fair rate of return by doing business in Indonesia or whether it is better for their shareholders if they do business elsewhere. It’s also our job to help the Indonesian government understand where there are barriers to fair trade. We are committed to working with the Indonesian government to create a truly level playing field where all businesses have an equal opportunity to compete in this market. In addition to building infrastructure, that also means improving protections for intellectual property, increasing transparency, and addressing barriers to trade like local content requirements or barriers to investment. These are issues that we often hear that discourage American businesses here and lead some to go elsewhere.
These are all important because while Indonesia is a big market, ASEAN is bigger, Asia is bigger, and the global marketplace is bigger yet. In today’s global economy, companies draw on the skills and resources of the world to produce products for global consumers.
I’m sure you’re all familiar with the story of the iPhone – you know an iPhone requires materials and components from suppliers in 26 different countries, including Indonesia, to build it. Indonesia is no stranger to the global supply chain – as an example, some of those textile factories I mentioned earlier import high quality American cotton, which they then spin and weave into cloth that is made into clothes that in turn are shipped to consumers in America and around the world. The global supply chain makes Indonesia one of the biggest apparel producers in the world, and creates literally hundreds of thousands of jobs here.
Now, a few of the jobs in these firms are filled by expats, particularly at the senior management and technical expert levels. And I’ve heard some say that all these jobs should be filled by Indonesians. I feel quite confident when I say that in almost all cases, most international firms would generally prefer to hire Indonesians over expatriates. Usually, it just makes financial sense. There are definitely talented people here. But the fact is that there are still not enough to go around. It’s not just American companies that have a hard time finding employees with the right skills and experience, but Indonesian companies too. That’s why even some Indonesian companies, for example in digital commerce, resort to hiring from overseas or even outsourcing their technical and back office operations to other countries like India. How did a country like India develop its tech sector? Part of the answer lies in their ability to invite in international partners who shared knowledge and skills that helped to help create the critical mass of local workers that have the skills that both Indian and international companies need. Today, India’s IT sector is one of the strongest in the world.
I’d like to highlight this point – openness to the rest of the world drives economic growth and development. The opposite is also true. A country that closes itself off to opportunities to increase two-way trade, to welcome foreign investment, and to test itself against global competition loses opportunities to grow and develop. Protectionism may serve the interests of some people, but it is not a pathway to development or prosperity for one’s people. Protectionism ensures that an economy will not be able to compete globally or maximize benefits to all of the people and will fall behind other countries in having standards and other measures on the competitive global arena.
President Jokowi clearly understands this principle – he’s been a vocal proponent of competition to encourage reform, increase efficiency and improve productivity – all crucial if Indonesia is to succeed in today’s globalized world. The fact is that reducing restrictions on trade and investment often helps domestic companies to grow as much or more than international companies; first through access to new—and often bigger markets—overseas, but also through increased energy and activity in the local market that creates opportunities for everyone. I’ve heard some companies say that the Indonesian market is big enough for them. But ASEAN is a much bigger market with even bigger opportunities to grow. Asia and the world offer even more opportunities. And contrary to what some might fear, there is no reason Indonesian companies cannot compete and win in Indonesia, in ASEAN, in Asia and beyond. Indonesia has been very vocal in its drive to attract more investment, yet at the same time, Indonesia has introduced barriers, like local content regulations that make it more difficult for global supply chains to include Indonesia. As global competition for investment heats up, Indonesia has an opportunity to take steps to create an attractive business environment for overseas firms that encourages domestic innovation and healthy competition.
I’d add that Indonesia’s existing foreign investors are potentially your best advocates for Indonesia as an investment destination. If these companies believe that Indonesia welcomes their investments, that the prospects for doing business here are getting brighter, that they can see concrete improvements both in words and deeds, they will lead the pack in putting their money where they see opportunities. The converse is also true. If companies have concerns about the legal transparence or respect for contracts, if they see reforms slowing or backsliding,if they cannot be sure of getting stay permits for their expat positions with undue hardship, if a growing chorus of nationalist voices makes existing investors worry that they won’t be treated fairly, well, you know what they say – nothing travels faster than bad news. Those negative impressions spread quickly and discourage new money from coming in. and these companies may chose instead to go elsewhere in the region.
In conclusion, We know that our prosperity is linked to the Asia Pacific Region. We see tremendous opportunities to expand our trade and investment ties with Indonesia. Now is the time for us to work together to create more success stories that demonstrate the win/win nature of our economic relationship. The U.S. has been a partner for Indonesia over the past decades. What I suggest is that the U.S. can be an even better partner in the future, as Indonesia moves to the creative, information-driven, advanced economy that President Jokowi has called for. Indonesia’s aspirations and U.S. strengths are well aligned.
For that partnership to be successful, we need to see a continuation of the growing trend toward openness and better, clearer regulation in Indonesia, as envisioned by your leaders. If Indonesia opens its doors to the best ideas from the United States, you will find many U.S. firms deeply interested in Indonesia’s talent and creativity. They can also help Indonesia more fully integrate into global supply chains. We need to keep the doors open in both directions for exports that are tied to jobs and prosperity for the people of both Indonesia and the United States.
Thank you very much.