Ambassador Donovan’s Opening Address at the U.S. – Indonesia Investment Summit 2017

Ambassador’s Opening Address at the U.S.-Indonesia Investment Summit 2017 (State Dept. / Budi Sudarmo)

Distinguished guests, ladies and gentlemen,

Selamat pagi. Good morning. Selamat datang ke Jakarta to our guests who have joined us from the United States or from elsewhere in the region. I want to thank the members and staff of the American Chamber of Commerce in Indonesia and the U.S. Chamber of Commerce in Washington for organizing today’s summit.

It’s fitting that we’re here today discussing trade and investment, on the eve of President Trump’s first official visit to Asia. The President arrives in Hawaii tomorrow, then to Japan, South Korea, and China before attending APEC Leaders’ Week in Vietnam, where he’ll be joined by other Asia-Pacific leaders. The President will end his trip in the Philippines, where he’ll celebrate the 50th anniversary of ASEAN and the 40th anniversary of U.S.-ASEAN relations.

In his speech at the APEC CEO’s Summit, the president will present the U.S. vision for a free and open Indo-Pacific and underscore the important role the region plays in advancing America’s economic prosperity. The President will make clear that the United States is committed to working with our partners to advance an economic and trade architecture that opens markets, promotes high standards, and achieves free and fair trade.

The Indo-Pacific, home to more than three billion people in the countries of the Indian Ocean, the Western Pacific, and the nations that surround them, will be the most consequential part of the globe in the 21st century. A free, open, and thriving Indo-Pacific is in the interests of both the United States and Indonesia. President Trump and Secretary Tillerson have made clear, and will emphasize throughout their travels to Asia, that the United States is committed to working with any nation in the region that shares our vision of an Indo-Pacific where sovereignty is upheld and a rules-based system is respected.

This is the context for the U.S.-Indonesia Strategic Partnership. We share strong, dynamic ties firmly based on shared principles of democracy and good governance, respect for human rights, and the promotion of peace, stability, and economic well-being. In our economic partnership, we strive for a predictable, open, and transparent economic policy framework, one that promotes fair competition and the protection of intellectual property rights, to facilitate freer, fairer, and more balanced two-way trade and investment and to promote private sector-led economic growth.

But government policy can only take us part of the way. Translating these high-level priorities into economic growth for our two economies requires partnership with the private sector, and that’s why I am honored to address this audience today.

We often hear from our friends about the size and attractiveness of the Indonesian market. It’s true, last year U.S. exporters sent over 81 trillion Rupiah ($6 billion) worth of agricultural products, aircraft parts, capital goods like machinery and other products. The U.S. is also an important market for Indonesian products. Last year, Indonesia sent over 250 trillion Rupiah ($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, raises living standards, and delivers needed products and services in both of our economies. However, we are concerned that U.S. exports to Indonesia are declining, while Indonesia’s exports to the United States are increasing.

There’s so much more we can and must do to level the playing field and ensure free and fair trade. I’ve now spent nearly a year as the U.S. Ambassador to Indonesia, which means I have far less experience on these issues than many of you, but it’s enough time to form my thoughts on our economic priorities under the Strategic Partnership, a partnership that holds tremendous promise for both our countries.

If you’ve heard me speak before, you know that I’m a big believer in the power of stories. Let me try to use a few stories here to discuss where we are and where I hope we can go.

In September, I had the pleasure of visiting ExxonMobil’s Banyu Urip oil field in East Java, where I saw first-hand how ExxonMobil and the Regency of Bojonegro are partnering to improve the future of local communities. Banyu Urip, a partnership between ExxonMobil, Pertamina and local government-owned enterprises, generates one quarter of Indonesia’s daily crude oil production and will contribute 59.7 trillion rupiah ($44 billion) to government revenues at an oil price of $50 per barrel. Bojonegoro has gone from one of East Java’s poorest regions into the province’s fastest-growing economy. I met the team manning Banyu Urip’s state-of-the-art control room. They were all from Bojonegoro and neighboring areas, recruited by ExxonMobil, sent to countries including the United States for training, and then returned to run Indonesia’s second-largest oil field. Since 2007, ExxonMobil has contributed more than 405 billion rupiah ($30 million) in community projects focused on health, education, and local economic development. I visited one of Bojonegoro’s Teacher Learning Centers, the result of the regency’s partnership with ExxonMobil. The teachers there were learning how to incorporate technology and other creative teaching methods into their classrooms, something I told them I had failed at as an English teacher in Korea many years ago. It was inspiring to see their dedication to their profession and I was proud that American investment had played a role in making it happen.

U.S. firms help form the backbone of Indonesia’s growing aviation sector. Indonesia’s largest airlines rely on Boeing airframes and U.S. engines to connect Indonesia’s 17,000 islands. U.S. technology is also helping Indonesia make its dream of a domestically produced aircraft a reality through Honeywell’s agreement to sell 34 engines to be used in the production of PT Dirgantara Indonesia’s new generation NC212i aircraft – an agreement witnessed by Vice Presidents Pence and Kalla last April.

This August, a consortium of seven firms, including several U.S. and Indonesian companies such as RTI and PT Telkom Indonesia, announced the completion of one of the world’s longest fiber-optic cables: the Southeast Asia – United States Cable System. The consortium’s 3.4 trillion Rupiah ($250 million) investment runs nearly 9,000 miles between Manado, Sulawesi, and Long Beach, California, providing an initial 20 terabits of capacity per second.

The cable is a physical reminder of the growing connection between our two nations and the possibilities for further growth in our high-technology partnership. Indonesia has placed great emphasis on developing infrastructure and this project is a tangible example of how our companies can forge win-win solutions that will help Indonesia develop its digital economy and create increased opportunities for Indonesia’s technology firms.

Any story about our mutually beneficial trade relationship isn’t complete without mentioning our agricultural trade, which was valued at 10.4 trillion Rupiah ($7.6 billion) in 2016. Our agricultural trade truly has the potential to be a win-win arrangement with each of our countries exporting to the other products in which we hold a competitive advantage. Indonesia’s leading agricultural exports to the United States are aquaculture products, palm oil, rubber, cocoa, coffee, and spices. The main U.S. agricultural exports to Indonesia are soybeans, cotton, wheat, fruits, livestock feed, and dairy products. These products serve as crucial raw materials for many of Indonesia’s key sectors, including tempe and tofu, textiles, instant noodles, and meat manufacturing. Similarly, the products Indonesia sends to the United States are key ingredients for our multi-billion dollar rubber, confectionary, beverage, and food service industries. In addition, this trade underpins many of our most labor intensive sectors, providing employment and food security to our citizens.

It is a mistake to hinder this healthy trade with import restrictions, as Indonesia has been doing recently. We understand Indonesia’s desire to assist rural producers to boost their incomes. However, this can best be accomplished through research and development to increase productivity and improving rural infrastructure to shorten supply chains. We also understand Indonesia’s interest in having food security. But food security doesn’t have to mean self-sufficiency. Supporting local agricultural production can go hand-in-hand with imports to achieve a stable and reliable domestic food supply. I think you would all agree that we don’t want to see our mutually beneficial agricultural trade relationship negatively impacted by short-sighted protectionist policies that only distort markets and increase consumer prices.

Our economic partnership has many success stories, of which I offered just a few.

U.S. firms are eager to sell more goods in Indonesia, if the circumstances are right. Many firms find the Indonesian market potential promising – 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 significant challenges to doing business here. In my view, President Jokowi’s efforts to improve Indonesia’s infrastructure and the ease of doing business have the potential to address these challenges.

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: ambitious power generation and electricity-access goals, initiatives to shorten dwelling times at the port of Tanjung Priok, 16 economic reform packages to reduce excess regulation, and revisions of the negative investment list to open new sectors to foreign investment. But many of these announcements still need to be implemented. These are all good news stories that demonstrate that President Jokowi and his team are taking initial steps to improve Indonesia’s business environment. However, despite these good intentions, we still see the issuance of many regulations that continue policies that seem counter to these announcements.

In that spirit, let me suggest several concrete ways the Indonesian government can continue its efforts to help increase foreign investment and trade.

First, the Indonesian government should continue its efforts at regulatory reform. President Jokowi has rightly highlighted this issue as essential for promoting healthy competition and creating incentives for the private sector to invest and generate employment. I believe good regulatory practices, such as meaningful and transparent consultations with stakeholders, public comment periods for draft regulations, and adherence to Indonesia’s international commitments, are essential for increasing market confidence and certainty.

Structural barriers in the economy, such as local content requirements, contribute to a significant and persistent trade imbalance between our two countries, as well as limit potential benefits to Indonesia. Eliminating local content requirements across all sectors would allow Indonesia to benefit from global expertise and technology and better integrate into global supply chains, and has the potential to spur further investment. For example, there are a number of U.S. solar companies interested in helping develop Indonesia’s solar industry. However, the Ministry of Industry is considering enforcing regulation 5/2017, which mandates that solar power plants use 40 percent local content in solar modules, increasing to 50 percent in 2018, and 60 percent in 2019. The same regulation also requires that solar power plants use 100 percent local content for services. Such policies hinder Indonesia’s power generation goals by driving up costs and hampering access to the most innovative technologies and companies.

In some cases, efforts to invest are derailed by regulations that cap both the ownership percentage and investment return for foreigners. For example, SeaPower is a provider of cutting edge coal-fired power barges that can both reduce the cost of power while meeting strict environmental standards. Together with their Indonesian partners, they are eager to invest and deploy this technology to bring power to remote regions. Unfortunately, they have run up against onerous restraints that limit both the percentage of their ownership as well as their allowed investment return.

American businesses have invested upwards of one trillion Rupiah (hundreds of millions of dollars), and are seeking to invest even more, in Indonesia’s thriving tech and e-commerce sectors. These investments have helped Indonesia establish its first “unicorns,” recent start-ups valued at more than $1 billion dollars. But more importantly, these tech startups are helping make life better for the average Indonesian. Whether by providing better transportation options that cut down on pollution and traffic, providing access to new educational opportunities through online courses, or helping micro, small, and medium enterprises serve vast new markets, Indonesia’s internet is driving economic growth and opportunity. But Indonesia must be cautious not to undermine this success. Government regulations can have unintended consequences that stifle innovation. Local content requirements have limited Indonesian consumers’ access to the latest 4G devices. Requirements to have a local presence or use local data storage can restrict choices and raise costs, making it harder for fledgling startups to take off.

Regulations that restrict foreign ownership in the payments sector, and in other sectors, leave consumers with fewer choices, less security, and undermines Indonesia’s recent progress in revising the negative investment list. The end result is a diminished payments ecosystem that does not live up to its full potential. Instead, Indonesia should create a system that treats foreign companies fairly, provides regulatory certainty for all market players, and is in line with Indonesia’s international trade commitments. We understand the desire for interoperability in domestic payment systems, but we ask that Indonesia consider other approaches that permit robust private sector participation and maximize consumer choice.

Second, the government and its state-owned enterprises should move forward on pending opportunities. In April, U.S. investor Pacific Infra Capital and PLN subsidiary ICON+ signed an agreement in front of Vice Presidents Kalla and Pence to deploy smart meters in Java and Bali. If implemented, the project would bring impressive benefits to Indonesia. The project requires no investment from PLN as Pacific Infra Capital would invest the entire project cost of 27 trillion Rupiah ($2 billion). The smart meters would save PLN upwards of 4 trillion Rupiah ($300 million) annually by improving the efficiency of PLN’s electricity networks. Indonesia would also benefit from the transfer of the world’s best smart-metering technology and the project would be an important part of helping achieve President Jokowi’s objective of lowering the cost of electricity. We hope that Indonesia can realize these benefits by immediately restarting the implementation process.

PowerPhase, a Florida-based company, is hoping to work with PLN subsidiaries to dramatically improve the efficiency and power output of existing gas-fired power plants. PowerPhase could rapidly deploy up to 2 GW of additional power in Indonesia. Notably, the cost of this technology is cheaper than coal-fired power at only 4 cents per kilowatt hour. The technology is also fully financed by PowerPhase with an investment of up to 20 trillion Rupiah ($1.6 billion). Reduced gas consumption would save Indonesia 145 trillion Rupiah ($11.6 billion) in power generation costs over 20 years. We hope PLN will take advantage of this outstanding opportunity and quickly move the project forward.

U.S. firms would like to bring cutting-edge technology to Indonesia to help connect communities and respond to disasters. For example, Google X ‎would like to introduce its Loon project to parts of Indonesia. This project would fly high-altitude balloons that travel above areas that lack telecommunications and internet service. The balloons would help expand the range of communications infrastructure by retransmitting signals from terrestrial stations. These balloons can help Indonesia provide internet access to remote communities, allowing them to benefit from the internet’s power to enhance economic and educational opportunities. More than that, Loon can be used to quickly reestablish communications after a natural disaster. In fact, Loon is flying right now over Puerto Rico, helping thousands of people affected by Hurricane Maria reconnect with loved ones and restart their lives. Indonesia can benefit from this technology, too. All that’s needed is a flight clearance, not even a law or a regulation.

I mentioned the power of stories to crystallize the key issues in complex circumstances. These stories can clarify models for success that others can replicate. But stories can also warn off potential partners. When investors hear of companies stuck in uncertain legal proceedings, or who have had commercial disagreements turned into criminal accusations, hear that they can’t import products without a mandatory investment, or who feel that the rules have changed after they have invested time, equity, and know-how to build a partnership, it is a deterrent to investment. It’s critical that Indonesian businesses and officials make sure that well-meaning foreign firms playing by the rules are treated fairly by Indonesian courts and government agencies.

Indonesia’s existing investors are potentially your best advocates. If these companies believe that Indonesia truly welcomes their investment, that the prospects for the future 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 they have concerns about the rule of law or respect for contracts, if they see reforms slowing or backsliding, if a growing chorus of nationalist voices makes existing investors worry that they won’t be treated fairly, those negative impressions discourage new money from coming in.

Prosperity in the 21st century and beyond will depend on nimble problem solving that harnesses the power of markets and emerging innovations. With its growing, digitally connected middle class and strategic location in the heart of the Indo-Pacific, Indonesia is well positioned to play a leading role in the decades ahead.

I hope at next year’s investment summit we can tell more success stories in our win-win economic partnership. By following through with economic reforms, by working to continually improve the ease of doing business, by standing up to those protectionist voices who advocate for closing Indonesia off from the global economy, Indonesia can create the conditions that benefit its people and tell a positive story to the world.

Thank you again for the opportunity to speak today.

Dubes Donovan Berikan Sambutan di U.S. – Indonesia Investment Summit 2017