Michael Schuman
Wall Street Journal
May 11, 2001

Indonesia’s government decided to pay a controversial claim to the overseas risk-insurance arm of the U.S. government, ending a long dispute impairing relations between the two countries.

Rizal Ramli, Indonesia’s coordinating minister of economic affairs, said the government will pay $260 million to the Overseas Private Investment Corp., a U.S. government body that ensures American corporate exporters and investors against political risk in developing countries. The payment was reduced, after negotiations, from the $290 million originally owed to OPIC.

Mr. Ramli said the government changed its relationship with Washington. “The U.S. is our strategic partner. We don’t want to have confrontation with the U.S. in regard to this issue,” he said.

In Washington, OPIC said it reached agreement with the Indonesian government “on the terms of a final settlement of the dispute” relating to the claim, and the “parties are working on documentation implementing the agreed terms and anticipate signing the final agreements by the end of the month.” It didn’t elaborate.

In 1999, OPIC compensated MidAmerican Energy Holdings Co. after Jakarta reneged on buying power from two power projects of the Iowa company and MidAmerican made a claim on its OPIC insurance. OPIC assumed debts owed to MidAmerican, then turned to the Indonesian government to make good on the payment.

Jakarta resisted paying OPIC, arguing that the power contracts signed under former President Suharto were overpriced and, after Asia’s 1997 financial crisis, the government simply couldn’t afford to buy power from MidAmerican’s plants. In the past, Indonesian officials have said that the projects, neither of which was won in an open-tender process, smacked of corruption, although MidAmerican has denied any wrongdoing and won an international arbitration case on the issue.

Indonesian officials have argued they shouldn’t bail out power projects they considered to be corrupt. Some foreign investors have been accused of cutting unfairly lucrative deals with the Suharto government that often involved members of his family.

However, Emir Moeis, a member of the national parliament, said lawmakers will support the decision to pay. “It’s concerning the image of Indonesia before the eyes of the foreign investors,” he said.