Remarks at the U.S.-Indonesia Investment Summit on International Finance and Development
Deputy Assistant Secretary for International Finance and Development, Bureau of Economic and Business Affairs
Salamat Pagi. Thank you Brian for the introduction. Hello, and thank you for the warm welcome. It is a pleasure to be here and as we have heard from other speakers, we owe much thanks to the U.S. Chamber of Commerce, the American Chamber of Commerce in Indonesia, the Indonesian Investment Coordination Board – BKPM, the Indonesian Chamber of Commerce and Industry – KADIN, and the Indonesian Employers Association – APINDO, for all their efforts in putting together and co-hosting this event. I also welcome the support and participation of the Indonesian government more broadly.
Last year’s Investment Summit certainly was a momentous event, held during President Joko Widodo’s historic visit to Washington, DC. The meeting between our Presidents – Obama and Widodo – served as an affirmation of the special relationship between the United States and Indonesia. President Widodo’s declaration at that time of Indonesia’s intent to join the TPP sent an important signal to the world about Indonesia’s economic reform aspirations. Aspirations that we’ve heard this morning are shared by the Indonesian private sector. Since that visit, we’ve been building on the commitments of our leaders to promote deeper economic and political cooperation; working together to promote aviation safety, maritime development, healthier populations, new power projects, people to people exchanges; and working together in the G20 and other multilateral fora.
I am absolutely delighted to be here on my first trip to Indonesia, and I know that it is a country of great natural wealth and that for centuries nature’s bounty has underpinned Indonesia’s economy. Following the Asian Financial Crisis, Indonesia’s natural resources were the driver of economic growth and they helped the country recover through the first part of this century.
In fact, they turbocharged Indonesia’s own growth. When the world was booming, Indonesia prospered. But we have also seen that as global growth has slowed, Indonesia’s economy also slowed.
President Jokowi and his economic team recognize the need to diversify Indonesia’s sources of economic growth. Jokowi has emphasized that he wants to do this by improving the ease of doing business, encouraging investment, unclogging logistical and bureaucratic bottlenecks, and improving Indonesia’s infrastructure so it can compete in ASEAN and the world.
In the past year, we’ve seen ample evidence that this administration has taken initial steps on that path to growth: the creation of a one-stop shop at BKPM for investors, thirteen economic policy packages, the revision of the Negative Investment list, progress toward trade agreements with Australia, the EU and others, and President Jokowi’s announcement on the steps of the White House that Indonesia intends to join TPP.
These efforts all suggest Indonesia is committed to moving toward a more open economy that welcomes trade and foreign investment. These are important announcements, of course they need to be fully implemented, and further refined, including in the regulatory area, to deliver on the promise.
Indonesia’s interest in TPP is very understandable – because studies by Indonesian economists that have come out so far suggest Indonesia could benefit substantially from TPP membership. This interest in TPP is yet another indication that Indonesia is looking outward, rather than inward. For TPP membership though, Indonesia would need to position itself by continuing its reforms in the economic and trade areas. It would need to commit to the high standards in the agreement and work closely with TPP members to secure their approval for joining. For our part, right now we are pushing hard to see TPP ratified in the United States this year. It’s the right thing to do and will support sustainable economic growth and higher living standards – for all TPP members.
More generally, the United States is proud and eager to be a part of Indonesia’s prosperity – yesterday, today, and tomorrow. I think this audience knows that U.S. investment in Indonesia dates to 1924, when Standard Oil of California (now known as Chevron) began working in the Duri Field in Riau Sumatra. Since that time, U.S. companies have invested billions of dollars in Indonesia not just in natural resources, but also in infrastructure and power, manufacturing, agriculture and consumer goods. Over the years, these U.S. companies have provided good jobs for millions of Indonesians and have been fully invested in Indonesia’s success.
Today our bilateral goods trade tops $27 billion, while bilateral trade in services exceeds $3 billion (2015). But it’s also important to look behind those headline numbers to the deeper impact that U.S.-Indonesia economic engagement has on the domestic economy here. We’ll hear more about the study conducted by the U.S. Chamber and AmCham, but they estimate that total U.S.-Indonesia economic engagement last year is much larger than people may have imagined. It is a great start, but I believe that there is even greater potential given the right economic policies.
Our relationship with Indonesia fits into a broader policy to deepen U.S. engagement in the region. As reflected in President Obama’s participation in the recent ASEAN Summit, the Administration has made a concerted effort to bring Asia Pacific engagement and collaboration to the forefront of U.S. foreign policy. As you well know, the President's "rebalance" to the Asia Pacific recognizes that our economic growth and security are inextricably linked to this region.
It has been a longstanding goal of the U.S. Government that through constructive dialogue and collaboration, we can strengthen the international system and create an environment that promotes sustainable, balanced, and inclusive growth, and one which can withstand external shocks. Through engagement here in Southeast Asia – a region that in recent decades has seen new markets open, significant trade liberalization, and millions of people lifted out of poverty - we aim to encourage a system that promotes rule of law and stable economic growth.
We are continuing to support regional institutions, and bolster the role that APEC and ASEAN can play as economic fora to advance dialogue on open trade and investment. It is through initiatives such as our Partnership Dialogues with ASEAN and our support of the ASEAN Economic Community that we can deepen our regional trade and investment relations, as well as bilaterally with individual members.
With ASEAN, we have worked through the U.S.-ASEAN Trade and Investment Framework Agreement – TIFA – since 2006. This year, we built on its foundation through the endorsement of two documents; the ASEAN-U.S. Cooperation in Fostering International Investment, and the ASEAN-US Cooperation in Fostering Transparency and Good Regulatory Practices, and by launching the US-ASEAN Trade Workshops.
The ASEAN Connect initiative, announced by President Obama at the U.S.-ASEAN special Leaders’ Summit in Sunnylands this February, represents a new strategic framework for our economic engagement in the ASEAN region and we are already working to increase connections between the United States and Indonesia to support President Jokowi’s goals to increase power generation capacity and support renewable energy projects.
We’re also cooperating closely with local entrepreneurs to build bridges between Indonesia and mentors and venture capital in the United States as a way to promote the growth of new businesses here. It’s no coincidence that Indonesia’s first “unicorn” Go-Jek just raised over US$550 million from a U.S. firm. We look forward to working through U.S.-ASEAN Connect with Indonesian start-ups and seeing more of these kinds of investments in the years ahead.
The U.S. government seeks to strengthen our economic relationships in the region through a variety of bilateral, regional, and multilateral trade frameworks, including through TPP with 11 countries and through our Trade and Investment Framework Agreements (TIFA), under which we have worked together to build our trade ties and address issues between us. We also seek to improve conditions for cross-border investment throughout our economic relationships. This includes pursuit of high-quality bilateral investment treaties (BITs), including the United States’ ongoing BIT negotiation with China.
Our approach in negotiating international investment agreements is characterized by high standards, with strong provisions on openness to investment, investor protection, dispute settlement, and other key factors relating to investors’ and investments’ market access and market operation.
Why? Because investment is an important driver of economic growth around the globe. It creates jobs. It spurs innovation. And it drives trade. Investors train workers in these new jobs. They invest in education. They create opportunities for growth.
Investment is also a vital factor for development. An initiative that remains close to my heart is the effort concluded last year to develop the UN Sustainable Development Goals and the Addis Ababa Action Agenda. The latter specifically provided a framework for how to finance development. Importantly, both processes underscored that to realize sustainable development objectives, private capital plays a vital role.
When U.S. companies invest, they don’t just bring capital and economic activity. They are among the global leaders in responsible business conduct, including through their engagement with local communities, upholding the rule of law, and corporate social responsibility programs. They bring world class management practices.
One way in which the U.S. Government supports sustainable investment is through our development finance institution OPIC, the Overseas Private Investment Corporation. I’ll raise one example here; OPIC was pleased last year to commit a $3.7 million loan to help Big Tree Farms, a U.S. company headquartered in Oregon that advances sustainable agriculture practices, to expand processing and production centers in Indonesia, and to increase farmer training in sustainable agriculture and responsible land use.
An emerging area of interest in the area of development, in which the Economic Bureau of the State Department has been closely involved, is promoting expanded access to the internet. This objective is the focus of the Global Connect Initiative, which was announced on the margins of the UN General Assembly last year.
Global Connect seeks to bring 1.5 billion additional people online by 2020. It’s based on the notion that Internet connectivity is as important to economic growth and development as roads ports, bridges, and other infrastructure. I understand Indonesia has already made great strides. According to the ITU, Internet use has expanded from less than seven percent of the population in 2009 to 22 percent last year. A great start, and with room to go even higher.
Through Global Connect, the United States is seeking to raise the profile of this important issue. We are looking to work together with governments, non-governmental organizations, the private sector, and other stakeholders, each of whom has its own role to play in expanding connectivity. In ASEAN, the United States is working to advance the goals of Global Connect through a new initiative called the Digital Economy Series under U.S.-ASEAN Connect, which was announced by President Obama in Laos earlier this month. The Digital Economy Series will bring government and private sector experts together to share their knowledge on policies that contribute to expanded Internet connectivity and growth of the digital economy.
The global economy is evolving rapidly, and as countries become more intertwined, policy needs to keep a pace with this new environment, which is one where ideas, goods, and people connect and travel across borders on a daily basis.
We have found that investment policies that provide the foundation for open, non-discriminatory, and predictable economic conditions are the most advantageous. Investors and businesses need confidence that the legal and regulatory framework is rooted in the rule of law and provides effective dispute settlement mechanisms. Indeed, these are the types of investment principles that the United States and Indonesia have recently joined together to endorse in July as part of the G20 Investment Principles and in August in the ASEAN-U.S. Cooperation in Fostering International Investment.
In speaking with foreign and local businesses, it is clear that there is no shortage of reasons why investors look to the Indonesian market with excitement and enthusiasm – with a population of 250 million, a growing middle class, a median age of 28, there is significant potential for growth and innovation.
President Jokowi understands that Indonesia needs to increase both domestic and foreign investment if it hopes to reach his goal of 7% GDP growth by 2019. However, in speaking with local and foreign businesses here and those working in the region, I’ve heard several suggestions about how Indonesia could improve its investment climate to encourage greater investment. My division of the State Department coordinates the preparation of our annual “Investment Climate Statements,” which identify opportunities and challenges in the investment climates of more than 180 economies worldwide. I’ll note just a few of the steps we suggest Indonesia could take that would improve the investment climate:
First, as Myron Brilliant mentioned previously, Indonesia’s “Negative List” of sectors where investment is restricted or off limits could be shortened with the objective of a generally open and liberalized investment regime. We welcome the progress in May of this year with the opening up of once restricted sectors such as e-commerce, film, and tourism, but we would urge Indonesia to consider additional areas for market opening, which would allow U.S. investors to further contribute to Indonesia’s economy.
Second, Indonesia could eliminate existing local content requirements that protect entrenched interests, but disadvantage consumers and discourage investors.
Third, several factors related to the ease of doing business could be improved. In the World Bank Doing Business rankings, Indonesia ranks 109 of 189 economies in the world, well behind other major economies in the region, including Singapore (1), Malaysia (18), and Vietnam (90). President Jokowi’s ambition to see Indonesia in the top 40 is welcome and we look forward to seeing improvements.
And finally, very importantly, while Indonesia has made efforts to improve the legal and regulatory framework, more still can be done to show a clear commitment to improving transparency and predictability, and taking decisive steps to counter corruption.
Indonesia has accomplished a lot in the two short years that President Jokowi has been in office. But there is still much work to be done.
We look forward to further reform efforts by Indonesia. The U.S. government will continue to engage with Indonesia on investment issues, and we urge the government of Indonesia to continue to consult with U.S. industry on these issues as well.
I want to leave you with a final thought, which is my sense of hope and resolve that I bring and that I see throughout this room. The U.S. and Indonesia remain important partners, and we share a mutual interest in each other's economic growth and success.
Thank you and Terima Kasih.