Obama trade goals face rocky road in Indonesia

Security is tight as India prepares to host President Obama. Obama hopes the trip will solidify economic ties.
Washington Post Staff Writer
Friday, November 5, 2010; 7:45 PM

IN JAKARTA -- 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.

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