"In Indonesia, Hindrances to U.S. Exports"
By Howard Schneider
Washington Post Staff Writer
Saturday, November 6, 2010; A08
In plotting a path to boost U.S. exports, the Obama administration has turned a keen eye to the trillions of dollars Indonesia and other Asian nations plan to spend on power plants, transportation and other infrastructure in coming years, expecting it to boost American makers of heavy equipment and other top companies. But the view offered by Indonesian and business officials familiar with the country is more measured: Don't bet on it.
China, Japan and South Korea have made deep inroads into the Indonesian market over the past 15 years, even as the United States slipped as a source of its imports, and nearby countries such as Malaysia and Australia are aiming to benefit from increasingly tight regional ties. Often backed by government financing, firms from other Asian nations already are putting up the power plants, building the roads and coordinating major projects. Local energy companies boast of importing new bulldozers and machinery from China, and when Indonesia announced the first 10 exploration contracts under a major geothermal energy program, U.S. firms were held to a minor role - a disappointing outcome in a market the White House has set as a priority.
As part of an effort to kindle the American presence, President Obama has scheduled a stop here next week on his tour of Asian nations considered vital to the U.S. economy.
The Obama administration hopes to double total U.S. exports in the next few years to generate American jobs. The administration has identified six countries where officials believe the United States can do better, and Indonesia is by far the biggest of those target markets.
U.S. firms are long-established here in the energy and mining industries, and Boeing is in the midst of supplying upstart discount carrier Lion Air with dozens of new planes. The latest group of 30 aircraft was financed with help from the Export-Import Bank.
But U.S. officials say that recent regulations adopted by Indonesia - rather than opening the market in areas of U.S. expertise - have heightened restrictions on industries important to U.S. exports, such as pharmaceuticals, energy and telecommunications. Indonesia has long favored local companies over foreign ones. It also coaxes foreign business partners to create jobs locally rather than back home. Several new Indonesian policies aim at reinforcing those trends, according to a recent Commerce Department report.
"The Indonesian government has not really decided what role it wants the private sector to play," said James Castle, a longtime business consultant here and vice president of the American Chamber of Commerce in Indonesia.
He said Indonesia gives an edge to companies from countries willing to grant concessions. Other nations "come with money to support their businesses. The U.S. government does not, then we complain about access," Castle said, pointing to Japan's recent commitment of $54 billion to improve roads and shipping facilities.
As the world's largest Muslim-majority country and a developing democracy, Indonesia figures prominently in U.S. thinking about Asia.
The country is also a major emerging economy, with 230 million people, rich natural resources and an expanding middle class. After a crippling financial crisis in the 1990s, the country opened its capital markets and banking sector, and imposed tight rules on lending. Its government debt and annual deficits are conservative even by Asia's modest standards. The country has also tried to combat the cronyism and corruption long rampant here.
Nor was it badly hurt by the recent downturn in the global economy. With economic planners putting a premium on developing the country's internal manufacturing and consumer markets, Indonesia is not that reliant on exports for growth, so the decline in overall world trade was not that damaging.
Indonesia's economic policy remains a work in progress. Some here describe it as "plutocrats versus technocrats" - with certain government agencies pushing to open the economy while others hew to economic nationalism or work to protect influential local interests.
The anti-corruption drive might in theory make competition fairer, but it has also created difficulties. Some contracting officials are now so price-sensitive - for fear of being accused of taking kickbacks - that U.S. and European firms whose higher-quality goods and services are relatively expensive are put at a disadvantage. New power plants built by Chinese firms, for example, came cheap but rely on outmoded coal technology, local officials say.
And there are other hurdles for U.S. exporters. Major Asian car companies already manufacture vehicles here, and, in the case of Toyota, Indonesia has become an export hub as well. Imported cars with larger engines - the sort American dealers might sell - are hit with stiff tariffs. Nor did the United States emerge as a major supplier of military equipment. An embargo on military sales, which Washington had imposed in the 1990s because of human rights abuses by the Indonesian armed forces, was lifted in 2005. Two years later, officials in Jakarta announced an arms deal worth $1 billion with Russia, saying it would help Indonesia remain independent of the United States.
Yet there is enormous commercial potential in helping Indonesia develop its infrastructure. The needs are stark, requiring about $218 billion over the next five years, according to the state planning agency. Jakarta, an ill-planned megacity of roughly 10 million, can't generate enough electricity. The capital's badly congested transportation system needs redesign and expanded public transit. The country's rail system is overburdened and its ports inadequate.
Planning Minister Armida Alisjahbana said the government can only pay for about a quarter of what Indonesia needs. So when a country such as Japan comes along offering to help build a light-rail line to the airport or a subway for Jakarta, there's a receptive audience. Bids for initial subway work are to go out next year, said one Indonesian official. But under the terms of the financing offered by the Japanese, only Japanese firms can compete.
"What I've seen in the developed countries, their interest in us is evolving and it has been very good," Alisjahbana said. "Japan, Australia, others, they've laid a basis for better cooperation."
Indonesian officials, heartened by their country's success in avoiding the worst of the global economic crisis, see little reason to lighten up and give foreign companies a free pass to sell exports here.
"The Americans who come here are doing well," said Sofjan Wanandi, chairman of the Employers Association of Indonesia, a business lobby. "But they only want to sell. We want investment and added value. . . . Put a refinery here. Put a petrochemical plant here. Negotiate."
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