American-Indonesian business ties enjoy long history

Rendi A. Witular The Jakarta Post/Jakarta

It was Standard Oil that pioneered the arrival of U.S. companies in Indonesia during the Dutch East Indies days in the late 19th century.

After years of trying to gain entry here, the company finally managed to start oil prospecting and production in Pelembang, South Sumatra, in 1897. The production facility it established was its first in Southeast Asia.

Following in the footsteps of Standard Oil, the United States Rubber Company -- which later became the Uniroyal Tire Co. -- came to the Indies and established a vast rubber plantation at Kisaran in North Sumatra. The plantation eventually became one of the largest in the world.

In the 1930s, tire company Goodyear Tire & Rubber Company came here to establish rubber plantations, and Caltex arrived to prospect for oil.

With the establishment of these companies, the Dutch East Indies became the third most important destination for United States direct investment in Asia before the Second World War erupted.

After Indonesian independence in 1945, U.S. companies began to play a dominant role in the country's economy, expanding into a wider range of activities, including the manufacturing, financial and service sectors.

In today's Indonesia, it is common even in the villages to see instantly recognizable icons of U.S. business, such as Coca Cola, Pepsi, McDonald's, Kentucky Fried Chicken, Starbucks, and many more.

While the United States has become Indonesia's main trading partner, its companies have been investing less and less since the 1998 Asian financial crisis and the 2001 terrorist attacks on New York and the Pentagon.

Based on a report from the Investment Coordinating Board (BKPM), the United States came ninth on the list of the biggest investors in Indonesia in 2004 and in the first five months of this year.

The American Chamber of Commerce in Indonesia (AmCham), a lobby group which represents over 300 U.S. companies in Indonesia, has said that the high level of economic risk and uncertainty have reduced the appetite of foreign investors to come here.

The risks and uncertainty include problems such as corruption, policy inconsistency, weak law enforcement, and poor coordination among government departments, as well as between central, provincial and local governments.

"From an investor's point of view, major concerns in Indonesia are transparency and the quality of regulations, the control of corruption, the rule of law and regulatory certainty, as well as overall government effectiveness," AmCham president Joe C. Bartlett said in a presentation last year.

Box How Stanvac came into being

Following a U.S. Supreme Court ruling in 1911, Standard Oil was dissolved, and the Standard Oil Trust was split into 34 companies, Two of these companies were Jersey Standard, which eventually became Exxon, and Socony ("Standard Oil Company of New York"), which eventually became Mobil.

In the Asia-Pacific region, Jersey Standard had oil production facilities and refineries in Indonesia but no marketing network. Socony-Vacuum had Asian marketing outlets supplied remotely from California.

In 1933, Jersey Standard and Socony-Vacuum merged their interests in the region into a 50-50 joint venture. Standard- Vacuum Oil Co., or "Stanvac," operated in 50 countries, from East Africa to New Zealand, before it was dissolved in 1962. Nevertheless, PT Stanvac Indonesia remained in operation until in 1995 when it was taken over by PT Medco Energi Corp, and renamed into PT Exspan Sumatera.

In 1988, Exxon Corp and Mobil Oil merged into ExxonMobil Corp, one of the world's oil giants.

Source: nationmaster.com at http://www.nationmaster.com/encyclopedia/Socony

Investment approvals in 2004

Country Investment value

1. Saudi Arabia US$3.01 billion 2. Japan US$1.68 billion 3. United Kingdom US$1.31 billion 4. Singapore US$617 million 5. Australia US$481 million 6. South Korea US$403 million 7. Switzerland US$299 million 8. Netherlands US$258 million 9. United States US$133 million 10. New Zealand US$107 million

Ranking of investment approvals (From January to May 2005)

Country Project Value 1. United Kingdom 34 US$873 million 2. Canada 4 US$533 million 3. Singapore 92 US$503 million 4. Netherlands 16 US$349 million 5. Japan 27 US$322 million 6. Malaysia 59 US$173 million 7. South Korea 126 US$162 million 8. Taiwan 22 US$90 million 9. United States 17 US$61 million 10. China 35 US$56 million

Source: The Investment Coordinating Board