 to the balance sheets and only really in the last five years are Indonesian corporations ready to do business or is the Indonesian government ready to move forward. So we have our own challenges and now we're a democracy. The US is a democracy but often times when there are disputes in Indonesia the US expects the Indonesian democracy to function like a Chinese government system where everything just works top down. But democracy are democracies. Washington DC this week has its IRS scandal. We have our own. That's how democracies are and in Indonesia we're proud to be one as well. At the same time we should also remember that and I say this with all humbleness but I think if the US would like to see Indonesia as a partner it needs to be more consistent in acting in that way. Oftentimes and I'm just a bystander most times when I see how our governments interact with each other not to say that our government is perfect but there are a lot of ways in which I think the US government should also treat Indonesians as a partner and this is not a unique case. Oftentimes when you have countries or individuals or corporations that amass large amounts of wealth or power in a short period of time there is a rebalancing of power and there is a power struggle. And as Indonesia today we are different from how we were 10 years ago and the US must recognize that and we want to be treated as equals. Again we're not perfect but I think the recognition needs to go both ways that I think for our relationship to fulfill its expectations to fulfill its possibilities, work, there is work that needs to be done on both sides of the game. Thank you. Pat, I think about three years now or maybe four, sorry if I don't remember exactly since Exxom signed a new agreement to start working, start loaning again to Indonesian projects. Since that agreement how was Exxom's lending to Indonesia going? How quickly are your projects expanding? Well actually we've been open in Indonesia for some time. We did sign as part of the trade and investment framework agreement with ASEAN, an agreement on some of the economic outreach issues. And I'm happy to report that thanks to the strong efforts of AMCHAM and cooperation with Indonesian buyers and our ambassador, Ambassador Jalal here as well as Ambassador Masiel, things are going really well. Our portfolio has doubled in the last two years. We supported 280 million in exports to Indonesia in fiscal year 2010. And this year we've already hit 1.2 billion. The other good news is that our product portfolio is diversifying. We started with Lion Air, one of the biggest orders Boeing has ever placed. Also recently did something with Garuda, also an aircraft. But just this year we've also committed to fire trucks for the Jakarta airport, part of the safety initiative under the ASEAN Open Skies Agreement. And also very importantly, locomotive refurbishment kits to Pik Tik Ha. So we remain bullish. In fact we were bullish early on Indonesia last year in 2011 before the rating agencies Exxom actually upgraded the country risk rating for Indonesia. It will be challenging to maintain where we are. Indonesia as we all know is the fourth largest country and as of the end of last month our portfolio with Indonesia ranked number four amongst more than about 150 countries globally. So to get this growth, what strategies has Exxom developed? Well I think a lot of the things that have been mentioned here have been integral to our strategies. And it's really been a three point effort in cooperation with all of our stakeholders. One we targeted, number two we looked at earlier intervention in the purchase cycle. And thirdly, which is critically important, is we've tried to take a whole of government team USA approach. So if I might just illustrate that through the Pik Tik Ha transaction because I think that's a really good example of the great results we can get to the mutual benefits of international buyers as well as US exporters when we all work together. At the targeting stage, Exxom and USTDA, the Trade and Development Agency, both identified commercial opportunities that would flow out of regional policies. In this case the ASEAN Connectivity Initiative. So at our conference last year we invited Pak Jonan from Pik Tik Ha to come and speak about the connectivity implementation in the railway systems in Indonesia. And USTDA offered Pik Tik Ha a grant to assess the feasibility of their upgrading of their signalling system. Then we moved to the stage when we really need to qualify and identify the prospect and the foreign commercial service through Commerce Department and the embassy team including Ted Oceas who was DCM at the time in Jakarta did the heavy lifting. They came up with a list for us. I was in Indonesia and James Lewis, our Asia business manager who's here today and I met with Pik Tik Ha and we understood what they were looking for. And so after our meeting we got together with our underwriters and said, you know there's a lot of potential here. So before they even asked on an unsolicited basis we offered a letter of interest for 100 million. And finally as the deal, you know deals take time to close. But as the deal stalled a bit Ambassador Scott Marciel himself became the chief advocate to keep it together. And he was going back and forth between Pik Tik Ha and GE, the locomotive contractor and ourselves to make sure that everything came together and the financing was delivered on time. So I think this is a really good example of the cooperation element and collaboration element of our strategy. It's win-win-win when it's done well. Fuck yes Herman, I know you're pretty new in your job but from what you understand how do you think US investment is going compared to what the levels that it used to invest? Okay, thank you. I think my optimism is based on the data of the investment, US investment in Asia, Indonesia last year. Because last year US investment is the fourth largest in Indonesia without 1.2 billion US dollar. But this first quarter this year the investment of US investment in Indonesia around 0.9. I think it's quite an increase between Indonesia and its movement of US, Indonesia is getting better. And now in this position of US investment in Indonesia is the second largest one. I think it indicates time to time the condition, the Indonesian is the most promising countries, the destination for US investors to come. Could you tell us a little bit in what areas US investors are most active? Today last year we have more than 90 projects of US investment in Indonesia. It's a very, it's not only for the traditional one like mining, but we have like a restaurant hotel, also the transportation equipment business, and a pharmacy. I think the project is very time to time. I think it's a good indication for Indonesia. That's why we are here, my office here, IAPC is the representative of our cornering board of Indonesia, to become not only to promote the investment of Indonesia, try to be what you call it, clearing house agent also. So we can get closer to the business in Europe, in America. Even we have small office in the center of business in New York. I think it's a good time for me to be in New York and to be in America, try to learn. That's why it's an honor for me to be here in the last two weeks in America, try to get the atmosphere of business here, and what we're going to do because we try time to time to change about the investment regulation. For instance, this year we tried to revise our negative lease, and we hope in the end of this third quarter, we have new negative lease of investment. And the idea of the new negative lease is not to make more negative, but the spirit is to open the investment not for all sectors in Indonesia. That's why it's my optimism to be in America, try to get more inward. But today we have another job, how to manage our outward, because today Indonesia investor already here. I think it's a different condition. So that's why we have Sinarmas here, recognize that Sinarmas is already in America. So the condition is completely different compared to many years ago. Many years ago it's only one way, in America to Indonesia, but today we have similar conditions. Great, little bit. I think it's good. Great, thank you. Noop, you referred to the middle income trap in one of your comments earlier. Do you see Indonesia as potentially getting caught in the middle income trap and as part of that, are they spending enough on things like health education, skill labor development to partially at least be able to avoid the middle income trap? No. Sorry, I was asking, Noop, sorry. No, Noop. Well, I think, as I said, I think at the start, we looked at countries in other regions and we've seen that they have been affected by what is now called the middle income trap. You read a certain per capita GDP level. And there are a lot of lessons as to how you can avoid it. It helps to have good demographics, which Indonesia will have for many decades to come, and that really helps it. It has a fairly open economy. It's had an open investment policy for many years. It's growing integration. These are all positive factors, but a central point as you look at countries that have been able to avoid the middle income trap, including in Asia, Korea, and other countries, you've got to keep up your infrastructure capacity. You've got to keep ahead of the game. You've got to be creative and innovative and technologically move ahead. Economists call this productivity, total factor productivity. The reason I mentioned this is, experience tells us countries that reach this stage, which is called middle income, the likelihood is from experience that your productivity is going to fall, which means growth is going to fall. So if a country wants to avoid it, it's got to get its productivity not falling, increasing. And productivity is very difficult to achieve and to increase by focusing on investments and production in natural resources, oil, and those industries are very capital intensive. So it's very complicated to get your productivity back up and keep it high without spending on research and development, having a financial system that supports creativity and investment in research and development, and essentially it comes down to building up your manufacturing sector. This is important for Indonesia because Asia is also changing. The demand that Indonesia has benefited from by China's demand for coal and natural resources and fuel, if China changes its growth model and much of Asia changes its trading system, moves more towards a region that is supplying final demand within the region and is not a region that is exporting final products to the United States and Europe, if the whole growth model is going to change in Asia as it probably will need to, that is a second important reason why Indonesia will need to change also the anchors of its own growth. And I think in the end it comes down to how do you do this and you need to have more investment, it's not just in physical infrastructure, it's as much in educational. Indonesia is ahead of many countries in its educational achievements, it is ahead of them, but there's more room to go. Qatar is important for the creativity that is needed for being ahead of the game in sectors of growth. So I think the good news is it has a lot of advantages, it's got corporate and economic fundamentals, it's got demographics and there is no reason. And I remember some years back the finance minister who is now becoming the governor of Bank of Indonesia, he told me two years ago, he said the most important objective he has, he told me he's only one objective, to get Indonesia's infrastructure investment up and he recognized it's not just getting investment up, it also means implementing what you project. If you look at Indonesia's public finances, where they project and plan for higher capital investment, implementation always falls below the targets. And he told me two years ago, this is his number one objective and he was right. And if Indonesia can do this, there's every reason to believe he's got the comparative strengths to avoid the middle income trap, raise its potential growth and remain a growth leader. Doug, from your perch at the AMCAM, what do you see as some of the biggest challenges facing U.S. companies? And do you sense, like Pak Yoss Harman was saying, that there is an increasing level of investment? Oh, definitely. I mean, there's a huge amount of excitement among U.S. companies in Indonesia. AMCAM represents 250 of the largest American companies in the country. Basically, everyone wants to increase their investment. And so I think this is where the disconnect happens. There's that strong desire and a belief in Indonesia that investment, there are huge opportunities. And then companies find it difficult to realize those investments. And I think that's where the tension starts to come in. And I think we need to figure out, I think companies need to change the way they interact with Indonesia. Frankly, I'm going to pick up on something John just said. It is absolutely a two-way street. And I think that American companies, I mean, at AMCAM, I'll often talk to American companies, which will tell me how difficult it is to work in Indonesia and how darn hard it is. And they're big in India and they're big in China. And you can't tell me that India is much easier than Indonesia. And so I find this, so I think that we need to step, American companies need a step change in our attitude. We need to engage Indonesia no longer breathlessly as this incredible democracy success story. I think we should just accept that as the new normal for Indonesia. And it's the new normal in Indonesia as a democratic country. Rather let's engage Indonesia as we engage India and Brazil as a rising economic power. Then we change the way we think about the country. And I think, so part of it's our own way of approaching the country. And I think we need to acknowledge much more readily the laudable aspirations behind Indonesia's policies. Sometimes we may, and friends can disagree that the policy choices or the regulations might not be the right fit from where one sees sits. But we should appreciate that they're, I think on this issue of the investment of the middle income trap. Indonesian government officials are obsessed that the country avoid getting stuck in the lower middle income space. And I think we, but we never acknowledge that. And I think the other thing we never talk about from our trade side and our trade relationship is poverty. Indonesia is obsessed with reducing poverty. And we never have a discussion on how trade can contribute to Indonesia's goal of reducing poverty. So I think we talk past each other somewhat. And so if we engage Indonesia more as an emerging economy as one of the world's great economic growth stories rather than just continuously, recklessly repeating the praise for Indonesia as a successful democracy, we might take ourselves in a better, more constructive space. John, you alluded to some of these issues that Doug is referring to also. How, from your perch at Kikas, the U.S. Indonesia Committee in the Indonesian Chamber, how does this, how does some of these tensions, these differences look to you? And what suggestions do you have for how American companies might function more effectively in Indonesia? I share Doug's comments. I think it's a good way of looking at things which is the world we live in today is the new normal. We are now a democracy. We'll continue to be one. And in a democracy, things get messy. I think many U.S. companies are still doing extremely well in Indonesia anyways. So the question then becomes, it's a risk return profile for businesses. It's definitely a high return market. It's also a high risk market. Not an, I don't say, I don't mean political risk as in a political upheaval, but political risk in terms of regulatory risk and things like that. And those are things that businesses just have to deal with. And I think businesses at the end of the day have to decide whether they want to be businesses or they want to be NGOs. If you're an NGO, you take regulations and you try to change them. In a business, yeah, you try to change them. But at the end of the day, if it's A, you take it as A and you live with it. You price it into your model and you work with it. And I think U.S. companies are learning to do that. And number two, don't take things personally. All the issues you guys are angry about, Indonesian businesses are equally angry about. It's the government. What do you expect? But we can go to sleep at night knowing that at the end of the day, business is good. There's very few markets that we would rather be in than Indonesia. And it's a great place to be. And lastly, the question of intent. Many U.S. companies or government departments, every time a new regulation comes up or a new development takes place which is negative, you assume the worst. You assume intent on the part of Indonesian businesses. But as Doug said, the Indonesian government is very concerned about the mental income trap. That's exactly why they want to say they want to move up the value chain and things like that, which therefore leads to policies such as some of the ones in which, you know, the export bans and things like that. You may disagree with the regulation, but the intent of which I think is pretty, it's okay. We want to move up the value chain. We want to reduce poverty and things like that. Unfortunately, sometimes that intent manifests itself in ways that are not so good. But we're learning. And another thing to realize is I've started meetings between government G2G meetings where the U.S. side, you guys have two binders filled, everything indexed, color coded, everything. The Indonesian side walks in like this with the days at itinerary and some scribbles on the margins. You don't realize how blessed the U.S. is in terms of the depth of human capital. You have a Ph.D. expert for everything. We don't. Our ministry is stretched. You have one guy dealing with multilateral trade for Europe and Africa and the U.S. and the Americas. And we just don't have the capacity. And when people don't have the capacity, they don't feel secure. When people don't feel secure, they just can't open up. So sometimes what you see at the surface is not intent to sabotage the U.S. It's more out of just pure innocent, we're doing our best, but deal with us kind of thing. So my advice to U.S. businesses is stick in there. It's a great market. We're doing the same. Number one, realize that it's a new norm. Don't fight it. Accept it. We're not NGOs. We're businessmen. Number two, what was number two, Doug? Number two is number three. Don't assume the worst. Don't assume intent. We are far from perfect and it'll take a while for us to get there. So that's just how things are. Pat, last fall President Obama, when he was in Indonesia at the East Asia Summit, announced the U.S.-Asia-Pacific Comprehensive Partnership for Sustainable Energy. And it announced also there's going to be a total of about $6 billion in financing available from EXIM and OPEC. Do you see opportunities for U.S. companies, Indonesian companies out of this new initiative? Yes, definitely. And I think in fact both sides will benefit. So the facility that EXIM offered is $6 billion. And this is to help promote sustainable energy within the Asia region, but with special emphasis on ASEAN. As you know, Indonesia co-chairs the partnership with Brunei. And so when we looked after President Obama's announcement, we began looking at how we could utilize that facility. It's easy to offer a line. Getting it used is where the real challenge is. So we took a somewhat different approach from in the past. And in January, I convened a meeting with the ASEAN ambassadors to the U.S. with the U.S.-Asian Business Council, with the U.S. Chamber of Commerce, and with the whole of government. And our discussion was we have this line, you know, how do we use it? Because when it's used, that's when the Indonesia and the United States exporters really achieve the mutual benefit. If it's not used, then the next time we meet with Minister August, he's going to want to know why, you know, we're not drawing on that line. So we identified, each of the countries identified some of the areas where there's strong potential. And so I think that what we've come up with now is a list of projects that the ASEAN countries would like to see pursued. And we're also matching those with the interests of the private sector. To do a transaction, we need a buyer and a seller. And I think sometimes in the United States, we've always put the emphasis on the seller pushing product to the markets. And that's important. We're known for our aggressive sales efforts, and we do it very well. But the other side of the equation, and there are countries like Japan and Korea that do it better, they are really side-by-side with the buyer, defining what the buyer wants, helping them to write the RFP and achieve it. So in the case of Indonesia, some of the areas that have been identified include LNG, geothermal, and distributed generation. And we're now working to bring it down to the actual project level. Another thing I think, again, and just to follow on some of John's comments, I think sometimes as Americans, we put all of the emphasis on what people tell us. But in Indonesia, I find we need to study shadow puppetry a little bit. So last couple of years ago, we lost a very... XM was unable to do a very large deal that we had spent several years in, and it was a local consortium of banks that stepped up. That's fine, because if there's commercial financing, we don't need to be there. But then we also realized in looking at this that we have a gap. We needed an Indonesian bank to be working with. So in relation to this comprehensive partnership, we have now qualified B&I as a master... I'm going to get this wrong, but it's a master guarantee... We've signed a master guarantee agreement with B&I, which has a large energy portfolio. So we hope to have some deeper roots into the local marketplace. Before I open up to the floor, I'm going to ask one more question. It's probably on everybody's mind thinking about 2014. There's going to be both parliamentary and presidential elections. So John, looking ahead to these, do you guess that the elections will lead to any significant changes in the trade and investment space that companies will face in Indonesia? If our ambassador decides to run, maybe things might be different. Very diplomatic. So what's the real answer? Sorry, Dino. The real answer is sitting in front of us. I know, I know. It's a real deal. We have 32 registered parties in Indonesia, 11 of which have been qualified to participate in the elections. About six of them will pass the 3.5% parliamentary threshold. Which we'll give them representation in the parliament. And three of them will be able to put out a ticket to a candidate, a presidential slate. Of the three or four parties that will likely be able to do that, most of the parties already have a candidate, whether or not officially announced. So that's the base case. So the base case is status quo. It's either going to be one of the names referred and things like that. Now there's a few sort of what-ifs, and these are possible what-ifs. And if those what-ifs happen, things may change. But for the most part, I think we'll have status quo. We won't have a huge sort of breakthrough increase. But as Anup has said, a lot of the economic achievements we've achieved are not really active because of Indonesia, in spite of some of the policies. And therefore, a lot of those are structural reasons for why growth has happened. So those structural reasons will continue to be there. There's no reason to believe why if we have a different president, those structural things will change. In the longer term, those may be issues and concerns. But for now, the next 2014, 2019, I think pretty much status quo. And that's good news and bad news. But for the most part, it's actually good news. Thank you. Doug, do you agree? Yeah, I absolutely agree. I think we have heard, cage people have asked in Washington this week, as well as in Jakarta, will Indonesia become a riskier place depending on who wins the election? So the short answer to the question is no. I mean, the Indonesia that you would be comfortable investing in today will be more or less the same Indonesia in January 2015. And there's three reasons why, and then there's two wild cards. The first reason why Indonesia is not going to change is that the electorate is wary of dramatic changes. It's a very pragmatic, thoughtful electorate. Elections are generally well run, free and fair. There's a savvy middle class. And as John said so compellingly earlier, democracy is here to stay, and I see very, very little indication that that's going to change. But it's a conservative electorate, hence the weariness of dramatic change. So don't expect dramatic change one way or the other. The other is that regardless who wins, and by the who we mean president here, the countervailing and constraining forces in Indonesia today are vast, diverse, and powerful. They're geographically dispersed, they're dispersed throughout the community. You've got one of Asia's freest press. You've got one of the largest, most dynamic civil society movements in Asia. Any president, any winner has to contend with this same array of forces. Any president, any new president will have a coalition, likely a relatively weak coalition, much like president Yerion has had. So that's going to be, I think, the prevailing setup in Indonesia after the election. The two wildcards are the two most exciting potential forces in the race, and that's the current governor of Jakarta, Jokowi. You cannot have a discussion on Indonesia today. I'm sorry, Murray, unless you talk about Jokowi, Jokowi daughter of the governor of Jakarta, because as we all know in Jakarta, every single poll tells us, and this is the most polling research country in Southeast Asia, that if he runs, he's likely to win, run away with it. If he doesn't win, run, Prabowo will likely run away with it. So these are the two names you've got to put on the table, and Indonesia will be, there might be some difference in nuance, depending which one of those may win, but otherwise more or less the same investment climate, I think. Maybe I could just add one thing which we should not forget. If you look in the last 10, 15 years, you look at what Indonesia has done in improving its fundamentals, and you look around and see how difficult it is to get that done in other countries around us. If you look at what they've done on the corporate side, the financial side, the fiscal side, and public debt over 15 years, and they've kept it up. To me, that is a clear testimony that there has been a substantial political and social consensus to get it done. And assuming I'm right, it means there is a lot of consensus in the country on taking forward the economic reforms that need to be taken forward. I do think we should keep that in mind. Okay, it's your turn now. Now that the food is settling and you probably need to wake up to some people who want to jump up and ask questions, please, in the middle back here. And if you could, please introduce yourself, your affiliation, and if you are addressing your question to somebody in particular, please do that. Thanks. Thank you very much for a very informative panel. My name is Linda Yar. I'm with Partnerships for International Strategies in Asia, George Washington University. And my question to whoever would like to respond is, as one of the countries that is most vulnerable to climate change, how is the both government and private sector thinking about factoring in both the negative impacts and the positive opportunities for the future? Do we have a volunteer? Should I say next question? Anybody have any thoughts? Doug? No. The only thing I'd say is that on the business side, American companies involved in green technology alternatives and renewables are very high on Indonesia and see it as a much more promising investment space than some of the other more traditional energy forms. And I think that the government has put a lot more innovativeness and dynamism into thinking about and planning for the incorporation of renewables and alternatives into the country's new national energy strategy that President Yudhoyono announced a year and a half ago. So I think, I think actually I'm relatively high on the directionality from a business side and from a change in the energy mix in Indonesia side. Anup, did you have a... I was just going to make one comment on the broader issue of environmental change and environmental needs. And as you know, it's a big issue today. And that is of excessive energy consumption and its effects on the environment and the role that is being played across the world from energy subsidies. And Indonesia is a large country. If it's able to take the steps as with other countries to reduce this excessive energy consumption and open the door to new investments, green industries, there's a lot of potential. And I do believe they know they need to do that. Yes. And you know, just to refer back to one of another CSIS event last month, Ibu Karan from Pratamina was here and one of her key points is that they are... Pratamina is accelerating development of renewable energy sources. And I think that these kinds of initiatives hopefully helped through the U.S.-Asia Cooperative Energy Partnership will provide not only the technology and the international expertise but also the funding to do it. Energy security is a real issue throughout Asia and especially with the fastest growing countries. And one other thing I'd like to mention is that, you know, I think that there's a perception that the U.S. is getting to the point that we don't want to finance coal. I mean, we understand that coal is very important to the economies of these fast-growing countries. But we need to sometimes look at offsets. In that regard, there may be a model in India where we funded a coal plant but we also got a commitment to start and finance the largest solo operation in India. So that's a balance. Sometimes you can't have it just one way because renewable energy, number one, costs so much more and number two is not as productive as some other sources. But I think trying to find the balance that enables the countries to meet their growing needs and at the same time shows responsibility towards the environment is the way to go. I think in terms of investment in Indonesia, our new regulation about the tax holiday, one of the extra sectors included in the tax holiday is the green industry. So I think it's good things to know that Indonesia has much concern about this in terms of investment. I think that's good. Way in the back there as a hand. I'm Barbara Berska. I work for one of those companies interested in developing infrastructure in Indonesia and I'd like to address the elephant in the room which is the fuel subsidy and I would like to hear your views on whether Indonesia is likely to roll back the fuel subsidy before the elections or after and its impact on the investment climate because for example, S&P recently affirmed its rating of Indonesia but with negative implications due to the subsidy and from my perspective, I'm looking to put together a project finance package to finance, say, a power plant and with a multi-potentially decade payoff. So I'd like to better understand the investment climate from that perspective. Thank you. Somebody want to take a bat on when the fuel subsidies come off? Let me just make one comment on that and that is not an issue which is confined to Indonesia. It's an issue across many countries including in Asia, including in India. It's a situation that in many countries including Indonesia countries are spending more on subsidies including energy subsidies than they are on physical and human infrastructure. And that is a real problem across many countries. I will not in any way single out Indonesia. Now, in Indonesia, I think there is no doubt that it's an important issue and my own personal sense it's a strong commitment of the government to move ahead and I think of the last year and two, the government has tried to move this forward. It's a broader issue and because it's on the one hand it's energy subsidies which is well recognized across the world do not benefit the poor. Now, linked to that is why can't you do away with these subsidies in these countries and provide a better protection to the vulnerable? And I would say if we can make progress on that issue it will help us dealing with energy subsidies. And here I think we need to look across the world, across the regions because if you look at Latin America you've seen the success in that region including Brazil and others in building up these conditional cash transfers which have helped from a fiscal point of view and from targeting the poor and helping those who need to be helped. Now, Asia for some reason has not done that. What Asia has done is focus more on subsidies hoping they help the poor and not focusing on actual government cash transfers conditional transfers will directly help the poor and not take up fiscal resources. It is now happening. Philippines has started to build this quite significantly Indonesia is also starting to build this. And I think if you look at the next 5-10 years let's look beyond the next 12 months I think Asia as a whole including Indonesia needs to build up how do you help the poor more directly and not only is that needed it will free up incredibly large fiscal resources which can be better used and I do believe that is what the president of Indonesia is trying to do right now is to get the parliament to agree on these cash transfers to allow them to shift the focus from subsidies to actual cash transfers. This is a big issue across Asia. I think that's an excellent and very accurate economic assessment of fuel subsidies. If I may add a political angle to that the question was whether we can expect the fuel subsidies to be rolled back before the 2014 elections as a political matter that is extremely challenging we have to ask ourselves in whose interest is it to roll back these subsidies the current administration or the ruling coalition cannot roll it back or they have no political will to roll it back because if they do it can be easily painted as an anti-poor move as much as we know that it really isn't. At the same time the people who oppose a rolling back of the subsidies will also not allow the current administration to roll back the subsidies because if they do and they implement a cash transfer program then it gets a question of on the cash transfer card who's if people think it's the current government giving handouts they're going to do well in the elections so now there's talks about okay let's put every political party symbol on that little card the point is it's in no one's interest the current administration can't really roll it back it's going to be used against them but the opposition also don't want it to be rolled back because if they do and they put in place a cash transfer program that program may also be seen to be used to buy votes for the election so it's actually a lot more complicated than it's a complicated thing but I may we should note that the SBY government has twice I believe right cut fuel subsidies all the previous presidents before SBY would announce it about a year or so before the end of the term and then leave it to their predecessors their successes to deal with it SBY cuts up fuel subsidies twice this is when our ambassador was spokesperson and so I think he deserves some credit for that please Wayne Anup you mentioned manufacturing as a priority that Indonesia moves into at the same time John I remember your predecessor at Kikas after the president was elected came over with a cod in white paper and very high on the list of priorities and everyone thought okay this is something we're going to be able to do is changing the labor law now we've had 10 years of the same labor law in Indonesia which many companies see as a challenge for manufacturing investment so where does the labor law stand with and perhaps is it still on the back burner is it up front is it going to change to meet the goal that Anup has mentioned well I won't answer the question what's going to happen to it but let me just give some context again Indonesia is not alone in this but Indonesia is among the countries that has probably the largest informal sector people are employed not in the formal sector of the economy in the informal sector is got high youth unemployment to deal with these you need to change infrastructure but also you need to change the labor law and the need to do this is well known it's an issue again in many countries it's probably worse in India but the reality is it needs to happen to get people to work in the formal sector both from a social and an economic point of view so you're right in raising the issue as being critical that's a good question the labor law has been very contentious issues over the last few years if you ask me whether it is still on the cutting agenda then of course as businesses issues of minimum wage and labor law are always an issue but it's also a very complicated issue on the one hand the poverty in Indonesia is a serious concern the minimum wage prior to the increase is about $180 a month you cannot live in Jakarta with $180 a month trying to raise a family put kids to school and pay for rent it's impossible so that somehow has to increase at the same time from the point of business it's not a question of increase or decrease it's a question of productivity are they earning what they're getting then no matter what their living situation is they'll soon be out of a job so there's no easy solution and it's one that I think the businesses have fought tooth and nail to keep it down not kardin but primarily apindo has been more vocal on this issue the labor unions are much better organized these days they're much more sophisticated and they're doing a good job and they're laborers they need to fight for what they're fighting the issue right now is not so much the debate between labor and businesses it's some of the the inefficiencies the deadlock that has resulted from a lot of the demonstrations the protests the sabotaging of properties that's really what is a problem and this is where I think our government needs to step in our government needs to show leadership I mean businesses will fight for business labor unions will fight for the laborers but it's a government's role to come out with a statement and say listen guys this is how it is and try to mediate something to happen so that's I think what we're waiting for please sir hi I'm Ted Fishman I'm a writer this dovetails with questions if manufacturing is going to be the savior for Indonesia and bring it up to middle class and above for the poor population it needs a kind of manufacturing that can do that I'd like to ask you what kind of manufacturing is appropriate to do that if China starts outsourcing cutting so jobs and light industry jobs in Indonesia there will be very low wage jobs automation is also becoming pretty viable in all kinds of manufacturing that used to be very low wage and in the United States higher output is not correlated with higher employment in fact it's negative towards employment in manufacturing Indonesia has a creative industries initiative even have a cabinet minister on creative industries to have mass creative industries for the rest of the world to avoid this kind of China trap of low wage production jobs can it get where it needs to go economically for low income people with a creative industries initiative and then just related to that if creative industries are going to be big for Indonesia what's the prospect for trade in creative industries can it assert itself globally with creative industries and recently there's been some problems with creative industries getting into Indonesia maybe you can comment on that in your portfolio John the issue of manufacturing is a complicated one I share Anoops comments that if we are to overcome the middle income trap we must build a viable manufacturing sector at the same time we are now living in a world with great technological transformations when Jeff Immelt from Jakarta a number of months ago he gave a talk and he said today to build one refrigerator it only takes two hours of labor only two hours of labor and his point he was trying to illustrate a point that right now because of technology labor matters much less and less so for him what drives whether he's in a particular market is the market itself I want to be in market X because that's a huge consumer market for me it really doesn't quite matter if the cost of labor there is higher because it's only two hours everything else is technology and those two hours of man labor you can move it to someone with cheaper labor but you'll lose that because of the cost of shipping so it's unclear I don't know what's going on in the manufacturing sector from the point of view of Kadin we're not so concerned about that we think businesses will do what businesses do so as long as the government creates an environment that facilitates that to happen including infrastructure and certainty and labor laws and things like that businesses will come in so that's that with regard to your question on the creative industries yes this has been a concern I'm not an expert in this field but I do know that there are serious discussions about taking a number of industries off the negative list a number of digital agencies WPP amongst others have been having a lot of discussions with the government as to how they can be allowed to own and then be more invested in Indonesia so I think some of that is changing please, back here Rob Kalerina, AIS investments we have the benefit of manufacturing investment in Indonesia my question is more on the creditor and the class protection side so maybe Patricia and Anup you had mentioned some of the restructuring reforms on banking are there any significant highlights that go to protecting other creditor classes from secured debt and even sort of the unsecured class that would be helpful to know and also in John this is a follow up it would be interesting to hear about equity capital inflows and the material change that you've seen in the last few years that would be helpful I think in terms of the Indonesian banking system I should defer to my colleagues from Indonesia yes sorry, yeah the term of banking system in Indonesia we have some restriction of course because the condition of economy in Indonesia is based on the medium low economy I think is we have to what call it because it's I'm gonna say something about this because it's too far about the banking system is a little bit more concerned on our this is sorry about the banking system I think it's better to ask me about on factoring something about it's a new thing for Indonesia to talk because there's a lot of discussion to talk with the central bank of Indonesia to say something about this is there any Indonesian bank today attending this seminar I think it's good to get a perception about this I'll take note for this I think please like in the United States the change in labor and industry as a whole is far outstripping the ability of us to educate our young people in our populations to work in a knowledge based non-manual environment the one thing I haven't heard here today is are we doing what's going on educationally I know in your constitution you have an educational mandate of a certain percentage it seems to me that's the way to start to address perhaps not the current generation but the five year olds so at least there's a floor you've stopped the bleeding same thing we need to do here so I think that's a global problem thank you there's a question I mean I don't know if we have an educator here John I'll take that question and not so much a question I agree with you I think the single biggest factor long-term factor in economic growth and overcoming the middle income trap is education and the question is if Indonesia 20 years from now once we become an innovation economy whether we are educating students who will or can serve in that sort of an economy and that's sort of what we see in the US now we have many companies who say I can't find the kind of people I want at the same time unemployment is high there's a mismatch between what companies are looking for the same is happening in Indonesia so if we are to move on to a higher value out of the economy we need to make sure that we're educating kids who will be able to provide that function going forward I think there was a comment about capital inflows from Ross that I didn't answer yes we've seen a huge increase in equity flows coming in to Indonesia and some of the reasons for that is because our economy is doing so well but I think a big fact an even bigger factor is there's just a lot of liquidity right now in the market too much liquidity and I think we see that by how bonds are being priced by the performance of capital markets globally we're continuing to break sort of record highs so yes equities coming in extremely strong let me just make one comment on education even though Indonesia has many advantages including its constitutional requirement to spend a certain percentage of spending on education if you look across the ASEAN region including in Indonesia you look at how much spending per capita or per GDP has been of the last decade it has not increased much so we've been through a whole decade where there has been improvements in infrastructure spending not much in education overall and that is an issue not just for Indonesia but for many countries in the region Hi my name is Emily I'm with the Nature Conservancy thank you for everyone's remarks and this is probably focused mostly to the Indonesians on the panel maybe John in particular which obviously is a vast natural heritage and in terms of its marine world it's probably the epicenter of diversity in the planet and we know that sustainable management of those resources and let's talk about fisheries is absolutely critical to resilient trade and a healthy environment so you know the Conservancy is really focused on making those connections and I'm sure to what extent there's a focus on sustainability policies around fisheries trade in Indonesia at this point and thanks Thank you for the question Emily there's been a lot of talk about sustainability and moving towards that direction the reality is however there are many more urgent issues that our government is currently dealing with so in really I doubt to what extent is there really a strategic deliberate comprehensive plan to move in that direction so that's on the government level on the level of businesses because businesses I think up until today have not been held as accountable the awareness is also not quite there yet but I think that is changing businesses today realize that it is a sustainable long-term sort of competitive edge to be environmentally sensitive so unfortunately not much yet but I think the direction is positive Thanks Mike Billington with Lyndon LaRouche on the Executive Intelligence Review I'd like to ask the on the negative effect of the economic crisis in the West you now have Europe generally in freefall the US stagnated best at facing a financial bubble that's likely to blow very soon and John you just referred to the flood of liquidity this is largely the result of the fact that the West's approach to their economic crisis has been to print huge quantities of money through QE and bailouts and so on with very little going into the real economy so the breakdown in the West is I would assume having a significant effect on exports from Indonesia and Asia but more importantly I'd like you to expand on what you said about this liquidity are you looking at another hot money bubble Indonesia was crushed in 98 when the last bubble was specularly broken and are we looking at that kind of a crisis again and what do you think has to be done to deal with that in Asia and in the West maybe Anup can help me out with some of the economics here with regard to the impact of the slowdown in the West on Indonesia it's limited five years or six years after the old crisis some parts of the West have recovered better than other parts the US I think has recovered much better but remember that the Indonesian economy is about 66 or 70% domestic consumption exports only make up about 13% of GDP I believe that's correct if I'm not please correct but it's a small percentage compared to markets like Singapore for example where exports are 250% of GDP so the direct impact of a slowdown in the West is limited but this is however an indirect impact as a result of lowering prices of commodities which make up a large chunk of our exports and we felt that the prices of coal and all that have slumped and as a result many of those industries are just sort of drifting by but even that we are still maintaining sort of a 6% growth so not so bad with regard to your question on liquidity one round after another there's been the three rounds of quantitative easings in the US Europe huge amounts of stimulus now we have Japan continuing to pump in money into the system the US still doing the same thing so there's just a lot of liquidity going in I'm not so sure there's a bubble yet though especially in Indonesia prices are not cheap but I think it would be also far-fetched to say that there's a bubble do you want to comment? I'll just add a bit to that I think John is right in pointing out why Indonesia has been able to avoid some of the effects that we feared last year from the prices in Europe and I think he's made all the right points you asked about are there I think you asked are there financial imbalances now building up I think the reality is this there are domestic policies, financial policies and there's capital coming in two factors essentially many countries in Asia virtually all the countries including Indonesia have kept their financial policies to be quite accommodative what do I mean by accommodative a more direct way of saying it is keeping them loose keeping monetary policy accommodative or loose keeping fiscal policy accommodative they've done this because countries have feared the effects from Europe and the United States and they fear there will be new shocks coming from advanced economies and therefore as an insurance against new shocks financial policies in Asia and other emerging markets have been accommodative or loose but now we are in a situation where the risks from the rest of the world have gone down from Europe and United States those risks have gone down and you have countries now growing close to their potential Indonesia is growing over 6% that's clearly it's growing at a level of its potential there's probably no what you call output gap left so we are in a situation where countries like Indonesia are growing at their potential the output gap has disappeared there's no slack left there's capital coming in and your own policies are accommodative so judging by what and how central banks operate in North Asia in countries where growth is strong need to now tighten their policies in a way and take their financial policies back into a more neutral stance and the reason why they need to do that is because it is to be expected that if you don't do that and capital keeps coming in you're going to see financial imbalances build up financial imbalances mean you'll find that housing prices equity prices asset price bubbles developing and so across Asia and Indonesia the credit cycle the rate of growth of credit is high and across Asia this needs to be tightened because countries are growing well and capital is coming in so yes there is a risk of financial imbalances building there could be risks of housing prices but at this moment our assessment is it's not yet at the stage which causes great concerns you are seeing in sub segments cities and other asset prices of some bubbles but nationally in most of Asia it's a risk but it's not yet a reality and that is why we go back to being more neutral and less accommodative so we can accommodate capital coming in and not risk asset price bubbles developing Sir did you have a question you had your hand up earlier no Al Jager with the Putrus Emporna Foundation we focus on the power of education as a social and economic engine and a transformer and like Pak John we support international education and exchange and increase in the quality of education to follow up on the previous remarks today I've heard that from the panelists that we have a great need for modalities for trust that's international education exchange human and physical infrastructure development a need for strategies for growth a need for depth capacity of human capital and we know that education is the engine that provides all of those we know from recent studies and reports that Indonesia needs thousands or hundreds of thousands of architects engineers, accountants, technologists economists, agriculturalist to support the current level of growth and to extend it our interpolation of the recent McKinsey report shows something that we call it's called under toes or riptides where if they're not the managers not the world-class educated technologists to maintain and expand the economic growth so that there's a chance for retrograde movement so my question is how can we how can you support investment in world-class education opportunities for Indonesia and I would just point out that your ambassador here is one of the great ambassadors for education having traveled all over the United States making very motivational speeches encouraging Americans to come to Indonesia and I would suggest you take a look at his recent commencement address at the University of Florida to share in that kind of inspiration so my question is how can investments in international class higher education be made we know that China is not sending 170,000 students here a year just for the cultural experience their building capacity and creativity which has also been managed here thank you the president's national export initiative includes education as an export and that is when international students come to the United States that counts as an export that's the easy part the challenge is that we have looked at potential projects on funding education as you know XM is a $35 billion has a $35 billion asset portfolio and we have 400 employees so we need an intermediary to make it work and I think that you know we continue to look at proposals for scholarship institutions they're looking at low cost of funding we that's an area of interest to us how it's structured is critically important we can't be processing we need to be working with someone who can evaluate scholarship applications and has the knowledge in that area so we get a bundle in effect we can't be processing 500 individual scholarship applications number two the terms are different from what we normally finance usually the midterm for us is 5 to 7 long term is 10 million or more or 10 years so given the structure we need an institution that's willing to put up a guarantee a local national institution we're yet you know to make it mutually beneficial I think given the human resource capital need when in much of ASEAN including Indonesia a sovereign guarantee would also facilitate that so it becomes a partnership to promote education the last thing I would like to say is that I do think that we've encouraged our applicants particularly when they come from the government area to work side by side with our team by mid-career professional development training because the way we look at things I think the economic valuation over the life cycle is something that is not widely accepted in Asia yet people tend to look at price and that's because of the human capital shortness so actually it will help American exporters if we take a more holistic point of view of evaluating economic value and we welcome proposals in this area I will take any possible proposal to our policy department and our underwriters to try to make it work but it is challenging well I think we unfortunately I still see tons of hands out there we've unfortunately run out of time please join me in thanking our panelists for providing a lot of helpful information thank you great to have you on our panel thank you so nice to meet you John look forward to talking with you you know I'd love to now that we have more than one customer and in Asia