Obama May Find US Firms a Tough Sell in Indonesia

November 07, 2010
US President Barack Obama is planning to visit Indonesia this week in the hopes of improving business relations between the two countries. Analysts say he has his work cut out for him (AP Photo/Charles Dharapak) US President Barack Obama is planning to visit Indonesia this week in the hopes of improving business relations between the two countries. Analysts say he has his work cut out for him (AP Photo/Charles Dharapak)

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In plotting a path to boost US 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, US 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 two-day stop here, beginning Tuesday, on his tour of Asian nations considered vital to the US economy.

The Obama administration hopes to double total US 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.

US 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 US officials say that recent regulations adopted by Indonesia — rather than opening the market in areas of US expertise — have heightened restrictions on industries important to US 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 US government does not, then we complain about access,” Castle said, pointing to Japan’s commitment of $54 billion to improve roads and shipping facilities.

As the world’s largest Muslim country, Indonesia figures prominently in US thinking on Asia.

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 recent anticorruption 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 US 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.

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.

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.”

http://www.thejakartaglobe.com/business/obama-may-find-us-firms-a-tough-sell-in-indonesia/405411
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