EXHIBIT 2 

to Defendants’ Motion for Summary Judgment 

Declaration of John R. Coleman

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UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF MICHIGAN 

KEVIN J. MURRAY 

 CIVIL NO. 08-15147 

 Plaintiff, 

 HON. LAWRENCE P. ZATKOFF 

 -vs- MAG. JUDGE MONA K. MAJZOUB 

TIMOTHY F. GEITHNER, Secretary, U.S. 

Department of the Treasury, and BOARD OF 

GOVERNORS OF THE FEDERAL 

RESERVE SYSTEM, 

 Defendants. 

 / 

DECLARATION OF JOHN R. COLEMAN

I, John R. Coleman, declare as follows: 

1. I am a trial attorney with the Department of Justice, Civil Division, Federal Programs 

Branch, and have been a trial attorney since October 2, 2006. I am lead counsel for 

defendants in Civil Action No. 08-15147. I submit this declaration in support of 

Defendant’s Motion for Summary Judgment. The statements herein are based on my 

personal knowledge and information obtained in the course of my official duties. 

2. Attached hereto as Exhibit A is a true and correct copy of the Written Testimony of 

Secretary of the Treasury Timothy F. Geithner submitted to the House Committee on 

Oversight and Government Reform for its January 27, 2010 hearing entitled, “The 

Federal Bailout of AIG.” 

3. Attached hereto as Exhibit B is a true and correct copy of the Written Testimony of 

former Secretary of the Treasury Henry M. Paulson, Jr. submitted to the House 

Committee on Oversight and Government Reform for its January 27, 2010 hearing 

entitled, “The Federal Bailout of AIG.” 

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4. Attached hereto as Exhibit C is Exhibit 21 of the Form 10-K filing of American 

International Group, Inc. (“AIG”) with the Securities and Exchange Commission 

(“SEC”) for the year ending December 31, 2009. Exhibit 21 to AIG’s 2009 Form 10-K is 

a listing of AIG’s subsidiaries. I obtained Exhibit 21 to AIG’s 2009 Form 10-K from the 

SEC’s EDGAR database on May 24, 2010. It is publicly available at 

http://www.sec.gov/Archives/edgar/data/5272/000104746910001465/a2196553zex21.htm. 

5. I have counted the direct and indirect subsidiaries of AIG listed in Exhibit 21. According 

to my count, as of December 31, 2009, AIG had approximately 290 direct and indirect 

subsidiaries. 

6. Attached hereto as Exhibit D is a press release issued by AIG on December 1, 2009 

entitled, “Risk Specialists Companies Announces First Takaful Homeowners Product for 

U.S.” 

7. Attached hereto as Exhibit E are selected portions AIG’s Form 10-K filing with the SEC 

for the year ended December 31, 2009. Specifically, Exhibit E consists of Item 1 in 

AIG’s 2009 Form 10-K filing, which discusses AIG’s consolidated business, and Item 6 

of AIG’s 2009 Form 10-K filing, which presents selected financial data of AIG and its 

subsidiaries. The entirety of AIG’s Form 10-K filing with the SEC for the year ended 

December 31, 2009 is publically available at 

http://www.sec.gov/Archives/edgar/data/5272/000104746910001465/a2196553z10-

k.htm#ca15501_item_1._business. 

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8. AIG’s Form 10-K filing with the SEC for the year ended December 31, 2009 states that 

AIG and its subsidiaries generated total premiums of $64.702 billion and total revenue of 

$96.004 billion. See Selected Financial Data at p. 33 (Ex. E). 

9. Attached hereto as Exhibit F is the United States Department of State’s Background Note 

on the Kingdom of Saudi Arabia, available at http://www.state.gov/r/pa/ei/bgn/3584.htm, 

which I accessed on June 2, 2010. According to Exhibit F, Islam is the only recognized 

religion, and “the Holy Qur'an is the constitution of the country, which is governed on the 

basis of Islamic law (Shari'a).” 

10. Attached hereto as Exhibit G is the United States Department of State’s Background Note 

on the Kingdom of Bahrain, available at http://www.state.gov/r/pa/ei/bgn/26414.htm,

which I accessed on May 25, 2010. According to Exhibit G, 98% of the population of the 

Kingdom of Bahrain is Muslim. 

11. Attached hereto as Exhibit H is the United States Department of State’s Background Note 

on Malaysia, available at http://www.state.gov/r/pa/ei/bgn/2777.htm, which I accessed on 

June 2, 2010. According to Exhibit H, over 60% of the population of Malaysia is 

Muslim. 

12. Attached hereto as Exhibit I is the United States Department of State’s Background Note 

on the Republic of Indonesia, available at http://www.state.gov/r/pa/ei/bgn/2748.htm,

which I accessed on June 2, 2010. According to Exhibit I, over 86% of the population of 

Indonesia is Muslim. 

13. Attached hereto as Exhibit J is a true and correct copy of selected portions of the 

deposition transcript of Michael Hsu, a former official of the United States Department of 

the Treasury. 

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EXHIBIT A 

to the Declaration of John R. Coleman

Geithner Prepared Remarks 1.27.10

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Secretary Timothy F. Geithner 

Written Testimony 

House Committee on Oversight and Government Reform 

January 27, 2010 

Chairman Towns, Ranking Member Issa, members of the Committee on Oversight and 

Government Reform, thank you for the opportunity to testify today. 

Let me begin by saying how important it is that the government’s decisions regarding American 

International Group, Inc. (AIG), as well as our broader strategy to address this financial crisis, 

are subject to careful, independent review and analysis. 

The decisions regarding AIG have already been the focus of thoughtful examinations by the 

Government Accountability Office (GAO) and the Treasury Special Inspector General for the 

Troubled Asset Relief Program (SIGTARP). They have also been the focus of many hearings by 

this and other committees in Congress. And recently, with my full support, Chairman Bernanke 

asked the GAO to conduct another review. 

I welcome the Committee’s attention to this issue. And the Administration will continue to work 

closely with all relevant oversight bodies to make sure they have the information they need to 

properly assess the government’s actions. 

The decision to rescue AIG was exceptionally difficult and enormously consequential. 

At that time, our economy stood at the brink. The financial institutions that Americans rely on to 

protect their savings, help finance their children’s education, and help pay their bills were at risk 

in ways few had ever experienced. The institutions and markets that businesses rely on to make 

payroll, build inventories, fund new investments, and create new jobs were threatened like at no 

time since the Great Depression. Across the country, people were rapidly losing confidence in 

our financial system and in the government’s ability to safeguard their economic future. 

Action was required. The world was watching. And the government did not have the luxury of 

time. 

The steps the government took to rescue AIG were motivated solely by what we believed to be 

in the best interests of the American people. We did not act because AIG asked for assistance. 

We did not act to protect the financial interests of individual institutions. We did not act to help 

foreign banks. We acted because the consequences of AIG failing at that time, in those 

circumstances, would have been catastrophic for our economy and for American families and 

businesses. 

The government responded to this crisis in a coordinated way. The Federal Reserve Bank of 

New York (FRBNY) did not act alone. It did not have the authority to do so. Every action it 

took was under the direction of the Board of Governors of the Federal Reserve and in 

cooperation with the Department of the Treasury and the Executive Branch. 

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Almost a year and a half removed from that terrible week in September 2008, I believe that the 

government’s strategy regarding AIG was essential to our success in confronting the worst 

financial crisis in generations. Government support for AIG and our financial system more 

broadly will ultimately cost taxpayers far less than many feared. And importantly, if Congress 

adopts the President’s proposed Financial Responsibility Fee, American taxpayers will not have 

to pay one cent for the rescue of our financial system. 

The government has not yet repaired all the extensive damage caused by this crisis. For every 

American out of work, for every family facing foreclosure, and for every small business facing a 

credit crunch, this recession remains acute. But everyone should realize that because of the 

actions of the Treasury and the Federal Reserve, the American financial system is now in a 

position where it can provide the credit necessary for economic growth, not stand in its way. 

That is an important achievement necessary to lay the foundation for job growth and long-term 

economic stability. 

AIG and the Great Recession 

The extraordinary events surrounding AIG took place during what was already the most severe 

financial crisis the United States and the global economy had seen since the Great Depression. 

This context is critical to understanding the decisions we made. 

Over the two decades preceding the crisis, the financial system had grown rapidly in an 

environment of economic growth and stability. Ample credit and accommodative monetary 

policy around the world fueled an unsustainable housing boom in the first half of the last decade, 

and when the housing market inevitably turned down, starting in early 2006, the pace of 

mortgage defaults accelerated at an unprecedented rate. By mid-2007, rising mortgage defaults 

were undermining the performance of many investments held by major financial institutions. 

The current financial crisis began in the summer of 2007, gradually increasing in intensity and 

momentum over the course of the following year. A series of major institutions, including 

Countrywide Financial, Bear Stearns, and IndyMac collapsed; and Fannie Mae and Freddie Mac, 

the largest players in the mortgage market, came under severe stress. 

By September 2008, for the first time in 80 years, the United States risked a complete collapse of 

our financial system. Americans were starting to question the safety of their money in the 

nation’s banks, and a growing sense of panic was producing the classic signs of a generalized 

run. Peoples’ trust and confidence in the stability of major institutions, such as AIG, and the 

capacity of the government to contain the damage was vanishing. 

AIG is one of the largest and most complex financial firms in the world. At its peak, AIG had 

more than $1 trillion in assets, with its core businesses divided into two parts. AIG was the 

largest provider of conventional insurance in the world, with approximately 75 million individual 

and corporate customers in over 130 countries. Those insurance activities were organized in 

separate subsidiaries that were regulated and supervised independently. 

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More ominously, AIG’s parent holding company, which was largely unregulated, engaged in a 

broad range of financial activities that strayed well beyond the business of life insurance and 

property and casualty insurance. Operating in Wilton, Connecticut, and in London and Paris, 

AIG’s Financial Products subsidiary (AIGFP) expanded rapidly into some of the newest, riskiest, 

and most complex parts of the financial system. 

AIG used its strong credit rating, which was based on the strength and profitability of its 

insurance subsidiaries, to become one of the largest providers of credit and rate-of-return 

protection for other financial products. Imprudent risk-taking in better times meant that, when 

the financial cycle turned, AIG had hundreds of billions of dollars in commitments without the 

capital and liquid assets to back them up. 

Such excessive risk-taking should not have been allowed. But it was. Despite regulators in 20 

different states being responsible for the primary regulation and supervision of AIG’s U.S. 

insurance subsidiaries, despite AIG’s foreign insurance activities being regulated by more than 

130 foreign governments, and despite AIG’s holding company being subject to supervision by 

the Office of Thrift Supervision (OTS), no one was adequately aware of what was really going 

on at AIG. 

It is important to remember that the Federal Reserve, under the law, had no role in supervising or 

regulating AIG, investment banks, or a range of other institutions that were at the leading edge of 

crisis. But Congress gave the Federal Reserve authority to provide liquidity to the financial 

system in times of severe stress. Given that responsibility, the Federal Reserve had to act. The 

Federal Reserve was the only fire station in town. 

Three Days in September 

On Friday, September 12, 2008, AIG officials informed the Federal Reserve and the Treasury 

that the company was facing potentially fatal liquidity problems. 

As we obtained more details about AIG’s financial condition, it became clear they had massive 

liquidity needs and faced huge losses. Moreover, neither AIG’s management nor any of AIG’s 

principal supervisors -- including the state insurance commissioners and the OTS -- understood 

the magnitude of risks AIG had taken or the threat that AIG posed to the entire financial system. 

That weekend, we brought together a team of people from the Federal Reserve, the New York 

State Insurance Department, and other experts to consider how to respond to AIG’s problems. 

We addressed two basic questions: 

1. How would the failure of AIG affect the financial system and the broader economy? 

2. What were the options for containing the damage from an AIG failure? 

By Sunday night, it became clear that we did not have a willing buyer for Lehman Brothers and 

that it would have to file for bankruptcy. At that moment, we knew the crisis was about to 

intensify and spread more broadly. We also knew AIG was highly vulnerable. Nonetheless, 

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even with those new complications, it still seemed inconceivable that the Federal Reserve could 

or should play any role in preventing AIG’s collapse. 

The pressures that had caused the failure of Lehman Brothers and had brought AIG to the edge 

of collapse were symptoms of a broader adjustment moving swiftly through the financial system. 

In mid-September 2008, virtually all financial institutions were aggressively shedding risk that 

had been acquired over the long run-up to the crisis. Confidence was fragile and financial firms 

were trying to shore up their balance sheets by selling risky assets, reducing exposure to other 

financial institutions, and hoarding cash. 

The impending Lehman bankruptcy added to that destructive cycle. Starting Sunday night, we 

saw not just an escalating run on banks, but also a broad withdrawal of funds from money market 

funds. These funds, always thought of as one of the safest investments for Americans, had begun 

trading at a discount. The run on these funds, in turn, severely disrupted the commercial paper 

market, which was a vital source of funding for many brick and mortar businesses. 

The panic spread. Major institutions such as Washington Mutual and Wachovia experienced 

debilitating deposit withdrawals, eventually collapsed, and were acquired by competitors. These 

pressures spilled over to virtually all credit markets. Markets for instruments backed by 

consumer loans, such as auto loans, credit card receivables, and home-equity lines of credit 

collapsed, and in response banks tightened standards and sharply curtailed the issuance of new 

loans. 

These events had real and immediate economic consequences. State and local governments 

halted public works projects because they couldn’t obtain financing. School construction and 

renovation projects stopped. Hospitals postponed plans to add beds and equipment. Universities 

across the nation faced difficulty paying employees. High school students changed plans for 

college education, which suddenly appeared much more expensive. Ships that transport goods 

sat empty, in part because trade credit was simply unavailable. Factories were closing and 

millions of Americans were losing their jobs. 

That was the world we were facing as the team of officials from the Federal Reserve and the 

New York State Insurance Department, working through the weekend, sought to answer those 

two basic questions about AIG. 

How would the failure of AIG affect the financial system and the broader economy? 

The team concluded that AIG’s failure would be catastrophic. AIG was much larger than 

Lehman, it was spread across more countries than Lehman, and while it posed many of the same 

basic risks as Lehman, they were actually greater because of AIG’s role as an insurance 

company. 

AIG was one of the largest life and health insurers in the United States. AIG was also one of the 

largest property and casualty insurers in the United States, providing insurance to 180,000 small 

businesses and other corporate entities, which employ about 100 million people. History 

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suggests that the withdrawal of a major underwriter from a particular market can have large, 

long-lasting effects on the households and businesses that rely on basic insurance protection. 

AIG’s failure directly threatened the savings of millions of Americans in ways that the Lehman 

bankruptcy did not. AIG had provided financial protection to municipalities, pension funds, and 

other public and private entities through guaranteed investment contracts and products that 

protect participants in 401(k) retirement plans. 

More broadly, if AIG had failed, the crisis almost certainly would have spread to the entire 

insurance industry. Life insurance posed a particular threat. Many life insurance products are 

effectively a form of long-term savings. In the wake of a failure of AIG, policy holders could 

have sought to liquidate life insurance policies underwritten by AIG. Doubts about the value of 

AIG life insurance products could have generated doubts about similar products provided by 

other life insurance companies, opening up an entirely new channel of contagion. 

And, at that time, with the world economy under severe stress, the failure of a large, global, 

highly-rated financial institution that had written hundreds of billion dollars of insurance on a 

range of financial instruments would have dramatically amplified the crisis. Investors around the 

world would have pulled back from funding, out of fear that other financial institutions would 

fail as well. Investors would have completely lost confidence in their ability to evaluate the 

financial sector and distinguish between firms that were viable and those that were not. Financial 

firms would have been forced into even more dramatic selling of assets. 

This damage would have rapidly spread beyond Wall Street. Borrowing costs for businesses 

would have increased dramatically, the value of pension funds would have fallen even more 

sharply, and job losses would have skyrocketed. We were witnessing these effects in the wake 

of Lehman’s failure. The effects of the failure of AIG would have been much worse. 

What were the options for containing the damage from an AIG failure? 

As they were trying to evaluate the potential systemic risk of AIG, the team also explored, at my 

direction, a range of questions pertaining to containing the damage of AIG’s failure: Was there a 

private sector solution that could have avoided putting taxpayer dollars at risk? Were there 

effective existing mechanisms for limiting the damage from the failure of an insurance company 

like AIG? If AIG were to fail, did we have the ability to limit contagion by providing support to 

other vulnerable institutions? 

Because of the scale of AIG’s losses and its financial needs, and because of the force of the 

storm enveloping the rest of the financial system, there was no capacity for a consortium of 

private firms to find the resources necessary to solve this without government assistance. 

The team concluded that there was no effective existing mechanism to limit the damage of an 

AIG failure. There was no legal tool available to handle the failure of AIG, comparable to the 

one available to the Federal Deposit Insurance Corporation for managing the orderly wind-down 

of a troubled bank. In particular, we did not have the ability to quickly separate the stable 

underlying insurance businesses from the complex and dangerous financial activities carried out 

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primarily by the parent holding company. Experts suggested that achieving that separation 

would take several years. 

Without assistance, the AIG parent holding company would have been forced to file for 

bankruptcy protection like Lehman Brothers, resulting in default on over $100 billion of debt, as 

well as trillions of dollars of derivatives. Such a filing would have caused insurance regulators 

in the United States and around the world to take over AIG’s insurance subsidiaries, potentially 

disrupting households’ and businesses’ access to basic insurance. And since many of the 

insurance products that AIG sold were a form of long-term savings, the seizure by local 

regulators of AIG’s insurance subsidiaries could have delayed Americans’ access to their 

savings, potentially triggering a run on other institutions. 

Finally, the team concluded that the tools then available to the government to limit contagion in 

the wake of a failure of AIG to other insurance companies were not likely to be effective. 

The Choice 

On Monday, September 15, 2008, Fitch Ratings, Moody's Investors Service, and Standard and 

Poor’s downgraded AIG’s credit rating, which generated new demands for AIG to post $20 

billion in additional collateral at a time when raising new cash was virtually impossible for the 

company. 

It was clear to everyone that AIG did not have the resources to meet such obligations. 

That left us with probably the most difficult choice we faced in this entire financial crisis: 

whether to rescue AIG by putting billions of taxpayer dollars at risk, or to let AIG fail and accept 

potentially catastrophic damage to the economy. 

It is worth repeating that this choice fell to the Federal Reserve because Congress had given it 

unique responsibility and policy tools to protect the stability of the financial system. No one else 

could act in the same manner as the Federal Reserve. The only authority the President of the 

United States had, before Congress authorized the Emergency Economic Stabilization Act 

(EESA), was to close markets or declare a bank holiday. None of the agencies with supervisory 

authority over AIG -- the OTS, insurance commissioners, or regulators in Connecticut, London 

or Paris -- had any tools to help directly meet the funding requirements of AIG. And no one in 

the federal government had a mechanism, as we do for banks, to provide for the orderly 

unwinding, dismantling, selling, or liquidating of a global, non-bank financial institution like 

AIG. 

Aware that we were the only ones capable of acting, and convinced that the failure of AIG would 

be catastrophic for a financial system already in free fall, the Federal Reserve and the Treasury 

determined that it was in the best interests of the United States to rescue AIG in order to slow the 

panic and prevent further damage to our economy. 

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In that moment, making that wrenching decision, we could not be certain it would work. We 

could not be confident, given the significant risks, that our actions would be enough or that our 

initial investment would be our last. 

But we knew that not acting would have caused enormous damage, putting the country and the 

savings of millions of Americans and businesses in greater economic jeopardy. Congress 

granted the Federal Reserve emergency authority precisely so that the government had some 

capacity to act to contain a systemic financial crisis. Not to have used that authority at that time 

would have been deeply irresponsible. 

The Restructuring of AIG 

On the afternoon of September 16, 2008, the Federal Reserve extended AIG an $85 billion line 

of credit, secured by a substantial proportion of the assets of AIG. In addition to that collateral, 

U.S. taxpayers received a 79.9% ownership stake in what was still the world’s largest insurance 

company. 

The government’s offer required AIG’s CEO to step down. Immediately after AIG agreed, the 

government began the process of changing the Board of Directors. In designing our intervention, 

the government made sure that there were appropriately tough conditions that put the burden of 

failure on AIG’s existing equity holders and management and started the process of designing a 

comprehensive restructuring plan. 

From the beginning, it was clear that AIG needed a durable restructuring of its balance sheet and 

operations. The credit provided on September 16th stemmed the bleeding by satisfying AIG’s 

immediate liquidity needs, but that was not enough. The problems at AIG were so deep that we 

had to design and implement a more permanent restructuring. 

Of course, as Federal Reserve and Treasury officials were considering options for AIG in the 

second half of September and October, we were facing escalating challenges on many fronts. 

The actions we took to meet these challenges were without precedent. They were exceptionally 

complicated to design and execute. 

Between September 16th and November 10th, the following actions were taken: 

• To provide liquidity in U.S. dollars to overseas markets, the Federal Reserve expanded 

the scope and scale of its swap lines with central banks (Sep. 18, 24, 26; Oct. 14, 29). 

• To stop the run on money market funds—key providers of short-term credit in our 

economy and investment vehicles for millions of Americans—Treasury established the 

Money Market Guarantee Program (Sep. 19). 

• To protect the critical commercial paper market, the Federal Reserve established AssetBacked Commercial Paper Money Market Fund Liquidity Facility (Sep. 19) and the 

Commercial Paper Funding Facility (Oct. 7). 

• Washington Mutual was closed by the Office of Thrift Supervision and taken over by the 

FDIC (Sep. 25). 

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• Congress passed EESA (Oct. 3). EESA provided Treasury with the authority to purchase 

or guarantee assets in financial institutions. EESA also increased the limit on FDIC 

deposit insurance to $250,000 per account. 

• As part of an unprecedented coordinated action, the Federal Reserve and other central 

banks lowered short-term rates (Oct. 8). 

• Treasury announced a plan to inject up to $250 billion of capital into U.S. financial 

institutions using EESA authority (Oct. 14). As the first step of this plan, nine of the 

largest U.S. banks received $125 billion. 

• To stabilize and restore confidence in U.S. financial institutions, the FDIC established the 

Temporary Liquidity Guarantee Program to guarantee senior bank debt and transaction 

accounts above $250,000 (Oct. 14). 

• To provide additional liquidity for short-term credit markets, the Federal Reserve 

established the Money Market Investor Funding Facility (Oct. 21). 

• The Federal Reserve lowered the Federal Funds rate further, to 1.0 percent (Oct. 29). 

 

In this chaotic environment, AIG remained extremely vulnerable to the ongoing and intensifying 

financial crisis. Falling asset prices generated both substantial losses on its balance sheet and 

increases in required payments to AIG’s counterparties under the terms of its credit protection 

contracts. These factors undermined market confidence in AIG and put its investment-grade 

credit rating again at risk. 

Avoiding any downgrade of AIG’s credit rating was absolutely essential to sustaining the firm’s 

viability and protecting the taxpayers’ investment. Under credit protection contracts that AIG 

had written and the terms of various funding arrangements, further downgrades would have 

forced additional payments to AIG’s counterparties. 

In addition, further rating downgrades of the AIG parent holding company would have 

significantly undermined confidence in its insurance subsidiaries. People do not buy insurance 

products from firms they do not believe have the financial capacity to make good on those 

commitments over the long term – firms that they do not believe will pay out a life insurance 

policy or compensate a business if a factory burns down. Credit ratings are central to how 

people judge that viability. 

As Federal Reserve and Treasury staff considered options for AIG, it became clear that two 

things were needed. First, AIG needed capital, not just a line of credit. Second, the vulnerability 

of AIG’s balance sheet to further deterioration in financial conditions generally, and in AIG’s 

own financial position, had to be reduced. 

On November 10, 2008, the Federal Reserve and the Department of the Treasury jointly 

announced a package of actions designed to achieve these goals. 

To address AIG’s need for capital and to reduce its leverage, the Treasury Department agreed to 

invest $40 billion in senior preferred stock of AIG under the authority recently granted by EESA. 

This investment provided new equity capital to AIG, a tool not available to the U.S. government 

at the time the initial credit line was provided in September 2008. 

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To reduce potential demands on AIG’s balance sheet, the FRBNY helped establish and fund two 

new companies. The purpose of these companies was to purchase troubled assets that AIG had 

either acquired or insured, and to manage those assets for the benefit of the taxpayer. Purchasing 

those assets removed significant exposure from AIG’s balance sheet and helped prevent the 

company from being downgraded and failing. One company, Maiden Lane II, purchased assets 

from AIG’s insurance subsidiaries. The other company, Maiden Lane III, purchased securities 

from third parties and insured by AIG’s Financial Products subsidiary. This vehicle is described 

in more detail later. 

The Board of Governors of the Federal Reserve and the FRBNY worked closely together in 

establishing these vehicles. We believed then, and I continue to believe today, that without these 

transactions, AIG would have failed. 

AIG Counterparties 

This brings me to the question that has been the source of so much understandable concern and 

frustration among the American people: the question of how we treated AIG’s counterparties 

when we purchased securities in establishing Maiden Lane III. 

While the financial contracts involved were complex, basically, AIG had agreed to insure the 

value of certain risky securities called multi-sector CDOs. The value of these securities was tied 

to pools of other assets, mostly subprime mortgages. As the financial crisis intensified, the value 

of the securities fell sharply and AIG incurred losses on these contracts and had to post collateral 

or make payments on the insurance. 

To help understand this kind of contract, imagine AIG had provided insurance on the value of a 

tangible asset, such as a house, to the homeowner. If the price of the house fell, AIG would be 

required to post collateral, or essentially make a payment to the owner, equal to the decline in the 

value of the house. So, if the house was originally worth $200,000, and fell to $125,000, AIG 

had to give $75,000 to the homeowner as collateral and would incur a loss of the same amount. 

In addition, if AIG’s credit rating fell, it would have to post even more collateral because the 

homeowner would be concerned about whether AIG could ultimately pay on the insurance. 

The problem was AIG had written billions of dollars of such insurance without sufficient capital. 

AIG was fine as long as the prices of the assets they were insuring -- housing prices, in the 

example -- didn’t fall, and their own credit rating didn’t fall. But if either happened, it would be 

in trouble. In the fall of 2008, both events occurred. The value of the assets and AIG’s credit 

rating fell, bringing AIG to the brink of bankruptcy. 

By August, AIG had already paid out over $16 billion on contracts similar to the ones that 

Maiden Lane III was designed to address. When the Federal Reserve established the credit 

facility on September 16th, it knew that there would be substantial further demands of this sort. In 

the midst of the ongoing financial crisis, the underlying securities were likely to continue to fall 

in value. 

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We faced the following options: let AIG default on these contracts; continue to lend AIG money 

so it could meet its obligations; or restructure these contracts so that we could stop the 

hemorrhaging, and potentially recover value for the taxpayers in the future. 

If we had let AIG default, it would have gone into bankruptcy, triggering all the disastrous 

economic consequences we had feared since September. 

If we had simply continued to lend AIG money, it could have made these payments, but this 

would have increased AIG’s debt at a time when the rating agencies felt AIG already had too 

much leverage. Again, any downgrade by the rating agencies would have threatened AIG’s 

viability, driving more uncertainty and panic through the entire financial system. And simply 

lending AIG the money to make payments could have been an open-ended commitment by 

taxpayers and would not have given them any assets in return. 

Instead, we sought to restructure the contracts. In order to cancel the insurance, we purchased 

the assets. We paid the fair market value at that time for the assets. Going back to the housing 

example, we paid $125,000 for a house that AIG had insured at $200,000. The counterparties 

kept what they already had -- in our example, the $75,000 cash collateral. Taken together, these 

two amounts essentially equaled par value. 

This simple example does not capture the complexity of the transactions. But, essentially what 

the Federal Reserve did was to purchase these securities (CDOs) with a par value of $62 billion 

for the purchase price of $27 billion. In designing and implementing this transaction our 

objective was, as it always is, to get the best deal for the taxpayer. We made judgments about 

these transactions carefully with the advice of outside counsel and financial experts. 

However, we faced constraints. The counterparties held insurance entitling them to full or par 

value of the contract. We could not credibly threaten not to pay. That meant putting AIG into 

bankruptcy. At the time, we were working desperately to rebuild confidence in the financial 

system. Any suggestion that we might let AIG fail would have worked against that vital aim. 

We could not risk a protracted negotiation. AIG’s financial position was deteriorating rapidly 

and the prospect of a downgrade was imminent. 

Some have suggested that the FRBNY should have used its regulatory authority, or some other 

means, to effectively coerce AIG’s counterparties to accept concessions. This was not a viable 

option either. Once a company refuses to meet its full obligations to a customer, other customers 

will quickly find other places to do business. If we had sought to force counterparties to accept 

less than they were legally entitled to, market participants would have lost confidence in AIG 

and the ratings agencies would have downgraded AIG again. This could have led to the 

company’s collapse, threatened our efforts to rebuild confidence in the financial system, and 

meant a deeper recession, more financial turmoil, and a much higher cost for American 

taxpayers. 

Operating with these constraints, the FRBNY and AIG initiated discussions with the major 

counterparties about whether they would be prepared to accept concessions on the prices of the 

securities. We knew that the likelihood of success was modest. Relatively quickly, and not 

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11 

unexpectedly, we discovered that most firms would not, on any condition, provide such a 

concession. One said that it was willing, but only if everybody else would agree to equal 

concessions on their prices. 

In the end, the prices paid for the securities were their fair market value. Because of the way the 

contracts worked, those prices were essentially equal to the difference between the par value of 

the CDOs and the payments that counterparties had already received. 

Since Maiden Lane III purchased these securities, they have generated significant cash flows that 

have been used to pay down the FRBNY’s loan by more than 25 percent. We expect Maiden 

Lane III to pay the FRBNY back in full and to generate a substantial profit for U.S. taxpayers. 

I strongly believe that strategy that the Federal Reserve and the Treasury pursued in establishing 

Maiden Lane III will generate a better outcome than any alternative. 

Disclosure 

I had no role in making decisions regarding what to disclose about the specific financial terms of 

Maiden Lane II and Maiden Lane III, and payments to AIGs counterparties. 

On November 24th, President-elect Barack Obama announced that he intended to nominate me to 

be Secretary of the Treasury. And after consulting with the Chairman of the Federal Reserve 

Board, the General Counsel of the Federal Reserve Board, the General Counsel of the FRBNY, 

the Chairman of the Board of Directors of the FRBNY, and the President-elect’s advisers, I was 

asked to stay on as President of the Federal Reserve Bank of New York on an interim basis. We 

made this judgment, in part, to protect the independence of the Federal Reserve, and, in part, 

because I was going to be spending the bulk of my time helping shape the President-elect’s 

economic strategy. 

Starting on November 24, I withdrew from involvement in monetary policy decision, policies 

involving individual institutions, and day-to-day management of FRBNY. In accordance with 

established practice, my colleagues at the Federal Reserve Bank of New York, led by the First 

Vice President, Christine Cumming, carried out the day-to-day management decisions in close 

cooperation with their colleagues in at the Federal Reserve Board. 

The Broad Strategy 

More than a year has passed since the Federal Reserve and Treasury decided to rescue AIG, and 

substantial challenges remain for our financial system. The economic crisis is not over. Too 

many Americans face unemployment and too many families face the risk of foreclosure. Many 

small banks are still experiencing significant losses. That is contributing to a contraction in bank 

lending, which hurts small businesses especially. Many parts of the financial system remain 

impaired. 

But the broad strategy that the government adopted to contain the financial crisis has been 

remarkably effective at stemming the crisis and repairing the damage. This has been achieved at 

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12 

a much lower cost in terms of taxpayer resources than many people anticipated. I want to 

highlight some important facts that I don't think are well understood in the Congress or among 

the American people. 

We have already recovered two-thirds of TARP investments in banks that my predecessor 

appropriately made in the fall of 2008. And we have earned $17 billion on those investments 

through dividends and warrants. That means that the American government has a dramatically 

smaller stake in banks than it had when I came into office, and the taxpayer is earning a profit on 

those investments. The rapid repayment and income from TARP investments in banks are the 

direct result of government financial policies. In February, the Administration announced a 

strategy to get private capital to replace public investments and carry the burden of repairing our 

financial system. The stress tests of our largest financial institutions provided the transparency 

and confidence necessary for those institutions to raise substantial capital in private markets. 

Since the results of the stress tests were announced in May, these institutions have raised over 

$140 billion in high-quality capital and over $60 billion in non-guaranteed unsecured debt. 

The Government is terminating the exceptional guarantee programs that were put in place during 

the darkest days of the fall of 2008. In September, Treasury closed its Money Market Fund 

Guarantee Program at a profit. At its peak, the program guaranteed $3.2 trillion in assets. 

October was the last month to issue new debt under the FDIC's Temporary Liquidity Guarantee 

Program (TLGP). That program has generated roughly $10 billion in net income. The FDIC's 

TLGP transaction account guarantee program is scheduled to terminate in June. In sum, 

guarantees through these exceptional programs have been reduced by more than 75 percent since 

this Administration took office. The Capital Purchase Program, under which the bulk of support 

to banks was provided, has been closed. 

The expected cost of financial stabilization efforts has fallen sharply since last year. In President 

Obama's February Budget, the projected impact of financial stabilization efforts on the deficit 

was over $550 billion, including TARP and a reserve in case of continued instability. Today, the 

Treasury expects that impact will be less than $120 billion. If Congress adopts the President’s 

proposed Financial Responsibility Fee, American taxpayers will not have to pay one penny of 

loss for the financial rescue. 

Over the past year and a half, credit conditions for American consumers and businesses have 

improved. Rates on consumer and business loans have fallen substantially. Securities markets 

have reopened. The housing market is more stable. 

AIG Today 

The situation of AIG today is substantially better than it was six or twelve months ago. AIG’s 

insurance subsidiaries are open for business and generating positive returns. A number of those 

subsidiaries are attracting attention from external investors. We anticipate that AIG will generate 

substantial proceeds from the sale of some of those entities. Under the terms of the support we 

have provided, the first call on the proceeds from any sales of AIG’s subsidiaries will be to repay 

the support that the U.S. government has provided to AIG. 

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13 

It is also important to note that AIG has made substantial progress in winding down its Financial 

Products subsidiary, the division where AIG’s problems were concentrated. The gross value of 

AIGFP derivatives positions are down by more than half since September of 2008, and the 

company actually generated a profit in the last two quarters for which public information is 

available. 

The U.S. government is still exposed to substantial risk of losses on its investments in AIG. That 

risk was inevitable, was unavoidable and we cannot know at this point what the scale of those 

looses will be. While the Federal Reserve’s investments in Maiden Lane II and Maiden Lane III 

are likely to earn a profit, based on what we know now, the government is unlikely to fully 

recover the direct costs of Treasury’s capital investments in AIG. But, today, on the basis of a 

range of measures, those losses are likely to be substantially lower than we expected even just a 

few months ago. And I want to emphasize if Congress adopts the President’s proposed Financial 

Responsibility Fee, American taxpayers will not have to pay one cent for the rescue of our 

financial system. 

Our latest audited financial statements show that, as of September 30, 2009, Treasury had 

invested $43 billion in AIG under TARP. At that time, the “market value” of that investment 

was $13 billion, implying an expected loss of about $30 billion. We believe that, depending on 

market conditions and the future performance of AIG’s businesses, the actual recovery on the 

Treasury’s Preferred stock could be significantly higher. We are confident that the FRBNY 

Credit Facility, its loans to Maiden Lane II and Maiden Lane III, and its preferred interests in 

certain of AIG’s subsidiaries will be fully repaid, and FRBNY should earn a profit on its 

financial support of AIG. 

Financial Reform 

There are two central lessons from this crisis, both applicable to AIG, that have guided the 

President’s proposals and the legislation now working through Congress to reform our financial 

system. 

First, we need the ability to limit risk-taking for institutions that threaten the overall stability of 

the system and can cause extraordinary damage to the American economy. We need this ability 

not just for banks, but for institutions that operate like banks. These non-bank financial 

institutions have existed alongside banks and yet were not subject to those constraints in this 

crisis. We also need to make sure that regulators have clear accountability and enforce sensiblydesigned constraints on risk. 

As I underscored earlier in my testimony, AIG, one of the largest and most complex financial 

institutions in the world, was allowed to take on an enormous level of risk that eventually 

threatened our entire financial system. None of the regulators overseeing AIG or any of its 

subsidiaries understood anything close to the complete scope or scale of that risk. And they 

clearly failed to contain it. That failure of oversight must not happen again. 

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14 

Second, the federal government must have the ability to resolve failing major financial 

institutions in an orderly manner, with losses absorbed not by taxpayers but by equity holders, 

unsecured creditors and, if necessary, other large financial institutions. 

Under our proposed special resolution authority, a failing firm, such as AIG, would be placed 

into an FDIC-managed receivership. The purpose of the receivership would be to unwind, 

dismantle, sell, or liquidate the firm in an orderly way that protects the financial system at the 

lowest cost to taxpayers. 

Shareholders and other providers of regulatory capital of the failing firm would be forced to 

absorb losses, and managers responsible for the failure would be replaced. Such an approach 

allows the government to reduce the risk that failure would result in panic by creditors and 

shareholders of other firms and helps maximize recovery of the value of the firm’s assets. 

I join the American people and Members of Congress in feeling a deep sense of outrage over this 

crisis, and over the fact that better tools were not available for the government to confront it. For 

that reason, we should be working as hard as possible to make sure we put in place a set of 

financial reforms that would create a safer, more stable financial system, where opportunity can 

rise, risk can be mitigated, and where there are stronger protections for consumers, investors, and 

taxpayers. 

Conclusion 

It is very hard to judge a decision through the prism of hindsight and on the basis of the events 

that followed. The crisis that unfolded was so severe, damaging the lives of so many Americans, 

that it’s hard for people to imagine how things could have been dramatically worse if AIG had 

been allowed to default. But I am personally very confident that if we not acted, the crisis would 

have caused more devastation and would have cost far more money. 

Many Americans look at what happened with AIG, and the rest of the financial rescue, and 

simply ask: Why was it necessary? Why was it fair for the government to take taxpayer money 

and put it into an institution that had mismanaged itself to the edge of collapse? 

The answer is that it was not fair, and it was not something our government should ever have to 

do. But those Americans, those families and business owners who played by the rules and 

played no role in giving rise to this recession, should understand that if the government had 

failed to act, that failure would have unleashed substantially greater damage upon them. 

There is an adage the President cites, that if your neighbor’s house is burning, even if they’ve 

acted irresponsibly, your first priority is to put out the fire before it spreads to your own house. 

If we had not put out the fire that was AIG, it would have spread. And if you have any doubt, 

look at what happened after the failures of Lehman Brothers, Washington Mutual, Wachovia and 

Countrywide. Look at the impact not just on the savings of Americans, which fell by over 10 

trillion dollars, but on the thousands of businesses that had to close, and the millions of workers 

who were laid off. 

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15 

Some people have criticized the actions of the Federal Reserve and Treasury. They argue that 

we should have done nothing and that government intervention would sow the seeds for an even 

greater crisis. 

 

I suspect such critics would have agreed with one of my predecessors, who eight decades ago, 

facing another moment of severe crisis said, “Liquidate labor, liquidate stocks, liquidate the 

farmer, liquidate real estate. It will purge the rottenness out of the system.” 

That crisis, of course, was the Great Depression. And the Great Depression became the Great 

Depression because Andrew Mellon was not alone in his beliefs. In 1930, many people thought 

that the financial system was going through a necessary adjustment, that the healthy process was 

to let the fire burn itself out, and that the best thing the government could do was to do nothing. 

Today, few believe that. Today, we know that when confronting a severe economic crisis the 

government must respond with overwhelming force. That is the basic lesson of the Great 

Depression. That is the basic insight that informed every judgment we made. And that is the 

reason we are now emerging from a recession and not still in the midst of a second Great 

Depression. 

In confronting this crisis, we learned from the past. Now we must learn from more recent 

failures, especially those that required AIG’s rescue. 

If we had stronger supervision and regulation in place, the government could have acted sooner 

to avert the crisis. If we had better crisis management tools in place, the government would have 

had better options. If we could have done it any differently, we would have done it differently. 

Instead, we had no other choice. That is the basic lesson of this great recession. 

In the future, when another generation of Americans confronts a new crisis born of new risks, the 

question will be whether we provided them the tools we did not have, whether we turned our 

collective outrage into concrete action, whether we passed comprehensive financial reform. 

I hope we will. 

Thank you. 

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EXHIBIT B 

to the Declaration of John R. Coleman

Paulson Prepared Remarks 1.27.10

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Embargoed until: 

10:00 a.m. 

January 27, 2010 

Testimony by Henry M. Paulson 

Before the House Committee on 

Oversight and Government Reform 

January 27, 2010, 10:00 a.m. 

Chairman Towns, Ranking Member Issa, and distinguished Members of the Committee. 

I appreciate the invitation to testify before the Committee. 

I was Secretary of the Treasury in 2008. In that role, I had the privilege to work with the 

many talented men and women in government and the private sector who labored to pull 

our nation back from the brink of disaster. 

The decision to rescue AIG was correct, and I strongly supported it. An AIG failure 

would have been devastating to the financial system and the economy. 

Today’s hearing relates to payments to AIG’s credit default swap counterparties. I was 

not involved in any of the decisions made with respect to those payments, nor was I 

involved in any of the decisions about AIG’s public disclosure of those payments. Those 

matters were handled by the Federal Reserve Bank of New York and the Federal Reserve 

Board. They sought to make appropriate decisions on those matters, and I am confident 

that this review will show that they did. 

* * * 

I have limited knowledge on the topic of immediate interest to the Committee, but I will 

share my observations. 

The basic facts of the government’s involvement with AIG are well known. I will 

recount them only in brief. On September 16, 2008, the Federal Reserve Board, with the 

full support of Treasury, announced that it was authorizing the Federal Reserve Bank of 

New York to lend up to $85 billion to AIG pursuant to its authority under the Federal 

Reserve Act. This loan was secured by AIG’s ownership interest in its subsidiaries, and 

the U.S. government received a 79.9% equity interest in AIG. Simultaneously, the CEO 

of AIG was replaced. In early October, the New York Fed extended AIG another $37.8 

billion in credit. 

Unfortunately, these actions did not sufficiently abate the problems at AIG. The 

company faced mounting losses, and it faced potential ratings downgrades which would 

trigger tens of billions of dollars in collateral calls which, without an equity infusion, 

would have led to its failure—a failure that would have collapsed our financial system 

and devastated millions of Americans. 

To address these problems, on November 10, 2009, Treasury and the Federal Reserve 

announced plans to restructure AIG’s finances. Treasury announced that it would 

provide $40 billion from its TARP funds to stabilize AIG’s capital structure, in return for 

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January 27, 2010 

 - 2 - 

senior preferred shares in AIG and stringent restrictions on golden parachutes and 

executive bonuses. At the same time, the Federal Reserve announced that it had 

authorized the New York Fed to set up two facilities which would handle certain AIG 

assets that were subject to the greatest risk of a devastating collateral call in the event of 

ratings downgrades. 

The combined actions of Treasury and the Fed were effective. Despite AIG’s 

breathtaking third-quarter losses, the company did not fail, and we avoided the disastrous 

consequences that would have accompanied such a failure. Although the road to 

complete recovery is slow and unemployment is still high, had AIG failed I believe we 

would have seen a complete collapse of our financial system, and unemployment easily 

could have risen to the 25% level reached in the Great Depression. 

* * * 

The rescue of AIG was necessary, and I believe that we in government who acted to 

rescue it—including Secretary Geithner, Chairman Bernanke, and me—acted properly 

and in the best interests of our country. The reasons the rescue of AIG was necessary are 

well worth examining. I believe they are representative of the causes of other aspects of 

the crisis and indicate where regulatory reform is necessary. There are three reasons we 

needed to intercede to save AIG that stand out in my mind. 

First, AIG was incredibly large and interconnected. It had a $1 trillion dollar balance 

sheet; a massive derivatives business that connected it to hundreds of financial 

institutions, businesses, and governments; tens of millions of life insurance customers; 

and tens of billions of dollars of contracts guaranteeing the retirement savings of 

individuals. If AIG collapsed, it would have buckled our financial system and wrought 

economic havoc on the lives of millions of our citizens. 

Second, AIG was seriously under-regulated. Although, many of AIG’s subsidiaries—

including its insurance companies—were subject to varying levels of regulation, the 

parent entity was, for all practical purposes, an unregulated holding company. 

Consequently, there was no one regulator with a complete picture of AIG or a 

comprehensive understanding of how it was run. It was not until AIG started to fail, that 

regulators began to understand how badly managed it had been and how much the toxic 

aspects of parts of its business had infected otherwise healthy parts. 

Third, AIG could not be effectively wound down. Unlike failed depository institutions 

which can be taken over by the FDIC with little or no harm to depositors, or the GSEs 

which were seamlessly placed into conservatorship by Treasury and the Federal Housing 

Finance Agency, there was—and is—no resolution authority available to wind down a 

failing institution like AIG. The only option is bankruptcy, a process that is simply not 

capable of protecting the millions of Americans whose finances are intertwined with 

AIG’s. 

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The government rescue of AIG in the Fall of 2008 was directly shaped by these realities. 

We had to protect the economy and the finances of millions of Americans; we could not 

have anticipated the magnitude of AIG’s problems; and we had no way of letting it fail 

without disastrous collateral consequences. We had to intervene, and I am thankful that 

we did. 

I do not mean to say that I am happy that we needed to intervene. Taxpayer money 

should not have to be spent to save a mismanaged and misguided enterprise. But the 

fundamental problem lies not in how we intervened, but in why we needed to intervene. 

We need to modernize our regulatory structure by creating a systemic risk regulator and 

resolution authority so any large firm that fails can be liquidated without de-stabilizing 

the system. Large financial enterprises in this country will always play a role that is 

essential to our economic growth, but they must only be permitted to grow and 

interconnect throughout our economy under careful oversight and with a mechanism for 

allowing those connections to be broken safely. 

Thank you, and I would be happy to answer any questions. 

Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 25 of 146
EXHIBIT C 

to the Declaration of John R. Coleman

AIG Subsidiaries

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EX-21 7 a2196553zex-21.htm EXHIBIT 21 

American International Group, Inc., and Subsidiaries 

Exhibit 21 

Subsidiaries of Registrant 

As of December 31, 2009

Jurisdiction of

Incorporation or

Organization

Percentage

of Voting

Securities

held by

Immediate

Parent(1)

American International Group, Inc.(2) Delaware (3)

AIG Capital Corporation Delaware 100

 AIG Capital India Private Limited India 99.99(4)

 AIG Global Asset Management Company (India) Private Limited India 99.99(5)

 AIG Consumer Finance Group, Inc. Delaware 100

 AIG Holdings Andes I Cayman Islands 100

 AIG Holdings Andes II Cayman Islands 100

 Inversora Pichincha S.A. Compania de Financiamiento Comercial Colombia 89.98(6)

 AIG Bank Polska S.A. Poland 99.92

 AIG Credit S.A. Poland 100

 Compania Financiera Argentina S.A. Argentina 100

 AIG Credit Corp. Delaware 100

 A.I. Credit Consumer Discount Company Pennsylvania 100

 A.I. Credit Corp. New Hampshire 100

 AICCO, Inc. Delaware 100

 AICCO, Inc. California 100

 AIG Credit Corp. of Canada Canada 100

 Imperial Premium Funding, Inc. Delaware 100

 AIG Equipment Finance Holdings, Inc. Delaware 100

 AIG Commercial Equipment Finance, Inc. Delaware 100

 AIG Commercial Equipment Finance Company, Canada Canada 100

 AIG Rail Services, Inc. Delaware 100

 AIG Finance Holdings, Inc. New York 100

 AIG Global Asset Management Holdings Corp. Delaware 100

 AIG Asset Management (Asia) Limited Hong Kong 100

 AIG Asset Management (U.S.), LLC Delaware 100

 AIG Asset Management Services, Inc. Delaware 100

 AIG Global Real Estate Investment Corp. Delaware 100

 AIG Ports America, Inc. Delaware 100

 Port America Holdings, Inc. Delaware 100

 Ports America, Inc. Delaware 100

 Ports Insurance Company, Inc. New York 100

 AIG Securities Lending Corp. Delaware 100

 Brazos Capital Management, L.P. Delaware 100

 PineBridge Capital Partners, LLC.* Delaware 100

 AIGCP RTA Advisors, LLC* Delaware 100

 PineBridge Global Investments LLC* Delaware 100

 PineBridge International Services LLC* Delaware 100

 PineBridge Investments LLC* Delaware 100

 PineBridge Securities LLC* Delaware 100

 American General Finance, Inc. Indiana 100

 American General Auto Finance, Inc. Delaware 100

 American General Financial Services of Alabama, Inc. Delaware 100

 American General Finance Corporation Indiana 100

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 Merit Life Insurance Co. Indiana 100

 MorEquity, Inc. Nevada 100

 Wilmington Finance, Inc. Delaware 100

 Ocean Finance and Mortgages Limited England 100

 Yosemite Insurance Company Indiana 100

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American International Group, Inc., and Subsidiaries

As of December 31, 2009

Jurisdiction of

Incorporation or

Organization 

Percentage

of Voting

Securities

held by

Immediate

Parent(1)

 CommoLoCo, Inc. Puerto Rico 100

 International Lease Finance Corporation California 100

AIG Federal Savings Bank USA 100

AIG Financial Advisor Services, Inc. Delaware 100

 AIG Global Investment (Luxembourg) S.A. Luxembourg 100

AIG Financial Products Corp. Delaware 100

 AIG-FP Matched Funding Corp. Delaware 100

 AIG Matched Funding Corp. Delaware 100

 Banque AIG S.A. France 90(7)

AIG Funding, Inc. Delaware 100

AIG Global Services, Inc. New Hampshire 100

AIG Israel Insurance Company Ltd. Israel 50.01

AIG Kazakhstan Insurance Company S.A. Kazakhstan 60

AIG Life Holdings (International) LLC Delaware 100

 AIG Star Life Insurance Co., Ltd. Japan 100

 American International Reinsurance Company, Ltd. Bermuda 100

 AIG Mexico Seguros Interamericana, S.A. de C.V. Mexico 100

 AIA Aurora LLC Delaware 99(8)

 AIA Group Limited Hong Kong 100

 American International Assurance Company, Limited Hong Kong 100

 American International Assurance Bhd Malaysia 100

 AIA Takaful International Bhd Malaysia 100

 TH Central Holdings Limited Hong Kong 100

 AIA Australia Limited Australia 100

 AIA Financial Services Limited Australia 100

 American International Assurance Company (Bermuda) Limited Bermuda 100

 AIA (Vietnam) Life Insurance Company Limited Vietnam 100

 PT AIA Financial Indonesia 80(9)

 PT Asta Indah Abadi Indonesia 100

 The Philippine American Life and General Insurance Company Philippines 99.78

 BPI-Philam Life Assurance Corporation Philippines 51

 Philam Equitable Life Assurance Company, Inc. Philippines 95

 Tata AIG Life Insurance Company Limited India 26

 Nan Shan Life Insurance Company, Limited* Taiwan 97.57

 AIG Edison Life Insurance Company Japan 90(10)

AIG Life Holdings (US), Inc. Texas 100

 AGC Life Insurance Company Missouri 100

 AIG Life of Bermuda, Ltd. Bermuda 100

 American General Life Insurance Company of Delaware Delaware 100

 American General Life and Accident Insurance Company Tennessee 100

 American General Bancassurance Services, Inc. Illinois 100

 American General Property Insurance Company Tennessee 100

 American General Life Insurance Company Texas 100

 AIG Enterprise Services, LLC Delaware 100

 American General Annuity Service Corporation Texas 100

 American General Life Companies, LLC Delaware 100

 The Variable Annuity Life Insurance Company Texas 100

 VALIC Retirement Services Company Texas 100

 American International Life Assurance Company of New York New York 100

 The United States Life Insurance Company in the City of New York New York 100

 Western National Life Insurance Company Texas 100

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 American General Assurance Company Illinois 100

 American General Indemnity Company Illinois 100

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American International Group, Inc., and Subsidiaries

As of December 31, 2009

Jurisdiction of

Incorporation or

Organization 

Percentage

of Voting

Securities

held by

Immediate

Parent(1)

 American General Investment Management Corporation Delaware 100

 American General Realty Investment Corporation Texas 100

 Knickerbocker Corporation Texas 100

AIG Life Insurance Company (Switzerland) Ltd. Switzerland 100

AIG Liquidity Corp. Delaware 100

AIG Lotus LLC Delaware 100

AIG Retirement Services, Inc. Delaware 100

 SunAmerica Life Insurance Company Arizona 100

 SunAmerica Annuity and Life Assurance Company Arizona 100

 SunAmerica Asset Management Corp. Delaware 100

 SunAmerica Capital Services, Inc. Delaware 100

 SunAmerica Investments, Inc. Georgia 100

 AIG Advisor Group, Inc. Maryland 100

 SagePoint Financial, Inc. Delaware 100

 Advantage Capital Corporation New York 100

 Financial Service Corporation Delaware 100

 FSC Securities Corporation Delaware 100

 Royal Alliance Associates, Inc. Delaware 100

 SunAmerica (Cayman) Co., Ltd. Cayman Islands 100

 First SunAmerica Life Insurance Company New York 100

AIG Trading Group Inc. Delaware 100

 AIG International Inc. Delaware 100

AIUH LLC Delaware 100

 Chartis Holdings, Inc. Delaware 100

ALICO Holdings LLC Delaware 100

 American Life Insurance Company Delaware 100

 AIG Hayat Sigorta A.S Turkey 100

 ALICO Mexico, Compania de Seguros de Vida, S.A. de C.V. Mexico 99.99(11)

 ALICO Akcioardslco Dnistvoza Zivotno Osiguranje Serbia 99.9(12)

 ALICO Asigurari Romania SA Romania 98(13)

 ALICO (Bulgaria) Zhivotozastrahovatelno Druzhestvo EAD Bulgaria 100

 ALICO Colombia Seguros de Vida, S.A. Colombia 94.99(14)

 ALICO Compania de Seguros de Retiro Argentina 90(15)

 ALICO Compania de Seguros de Vida, S.A. Uruguay 100

 ALICO Compania de Seguros S.A. Argentina 90(16)

 ALICO, S.A. France 100

 ALICO European Holdings Limited Ireland 100

 "Master-D" ZAO Russia 100

 ZAO ALICO Insurance Company Russia 51(17)

 ALICO Italia S.p.A. Italy 100

 ALICO Life International Limited Ireland 100

 ALICO Operations Inc. Delaware 100

 American Life Insurance Company (Pakistan) Limited Pakistan 66.47

 

American Life Insurance Company Gestora de Fondos y Planos de 

Pensiones, S.A. Spain 100

 AMSLICO AIG Life poist'ovna a.s. Slovakia 100

 First American Polish Life Insurance & Reinsurance Company, S.A. Poland 100

 Hellenic ALICO Life Insurance Company Ltd. Greece 27.5

 International Technical and Advisory Services Limited Delaware 100

 Inversiones Interamericana S.A. Chile 99.99(18)

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 La Interamericana Compania de Seguros de Vida S.A. Chile 100

 Inversiones Inversegven, C.A. Venezuela 50

 Seguros Venezuela, C.A. Venezuela 92.79

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American International Group, Inc., and Subsidiaries

As of December 31, 2009

Jurisdiction of

Incorporation or

Organization 

Percentage

of Voting

Securities

held by

Immediate

Parent(1)

 El Pacifico-Peruano Suiza Compania de Seguros S.A. Peru 14.94(19)

 Pacifico S.A. Empresa Prestadora de Salud Peru 100

 El Pacifico Vida Compania y Reaseguros Peru 61.99(20)

 Pharaonic American Life Insurance Company Egypt 74.88(21)

 UBB-ALICO Insurance Company JSC Bulgaria 40

American Security Life Insurance Company, Ltd. Liechtenstein 100

Chartis Inc. Delaware 100

 Chartis U.S., Inc. Delaware 100

 AIG Risk Management, Inc. New York 100

 American Home Assurance Company New York 100

 American International Realty Corp. Delaware 31.5(22)

 Chartis Non-Life Holding Company (Japan), Inc. Delaware 100

 Fuji Fire & Marine Insurance Company, Limited Japan 18.13(23)

 American Fuji Fire & Marine Insurance Company Illinois 100

 Fuji Life Insurance Company, Limited Japan 100

 Fuji International Insurance Company Limited United Kingdom 100

 Pine Street Real Estate Holdings Corp. New Hampshire 31.47(24)

 Audubon Insurance Company Louisiana 100

 Audubon Indemnity Company Mississippi 100

 Chartis Aerospace Insurance Services, Inc. Georgia 100

 Chartis Property Casualty Company Pennsylvania 100

 Chartis Insurance Agency, Inc. New Jersey 100

 Chartis Insurance Company of Canada Canada 100

 Commerce and Industry Insurance Company New York 100

 The Insurance Company of the State of Pennsylvania Pennsylvania 100

 Landmark Insurance Company California 100

 National Union Fire Insurance Company of Pittsburgh, Pa Pennsylvania 100

 Chartis Claims, Inc. Delaware 100

 Chartis Select Insurance Co. Delaware 100

 Chartis Excess Limited Ireland 100

 Chartis Specialty Insurance Company Illinois 70(25)

 Lexington Insurance Company Delaware 70(26)

 JI Accident & Fire Insurance Company, Ltd. Japan 50

 Mt. Mansfield Company, Inc. Vermont 100

 National Union Fire Insurance Company of Louisiana Louisiana 100

 National Union Fire Insurance Company of Vermont Vermont 100

 United Guaranty Corporation North Carolina 45.88(27)

 AIG Centre Capital Group, Inc. North Carolina 100

 A.I.G. Mortgage Holdings Israel Ltd. Israel 100

 E.M.I. – Ezer Mortgage Insurance Company Ltd. Israel 100

 AIG United Guaranty Agenzia di Assicurazione S.R.L Italy 100

 AIG United Guaranty Insurance (Asia) Limited Hong Kong 100

 AIG United Guaranty Mexico, S.A. Mexico 99.99(28)

 AIG United Guaranty Mortgage Insurance Company Canada Canada 100

 AIG United Guaranty Re Limited Ireland 100

 United Guaranty Insurance Company North Carolina 100

 United Guaranty Mortgage Insurance Company North Carolina 100

 United Guaranty Mortgage Insurance Company of North Carolina North Carolina 100

 United Guaranty Partners Insurance Company Vermont 100

 United Guaranty Residential Insurance Company North Carolina 75.03(29)

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 United Guaranty Credit Insurance Company North Carolina 100

 United Guaranty Commercial Insurance Company of North Carolina North Carolina 100

 United Guaranty Mortgage Indemnity Company North Carolina 100

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American International Group, Inc., and Subsidiaries

As of December 31, 2009

Jurisdiction of

Incorporation or

Organization 

Percentage

of Voting

Securities

held by

Immediate

Parent(1)

 United Guaranty Residential Insurance Company of North Carolina North Carolina 100

 United Guaranty Services, Inc. North Carolina 100

 New Hampshire Insurance Company Pennsylvania 100

 Chartis Casualty Company Pennsylvania 100

 Granite State Insurance Company Pennsylvania 100

 Illinois National Insurance Co. Illinois 100

 New Hampshire Insurance Services, Inc. New Hampshire 100

 Risk Specialists Companies, Inc. Delaware 100

 A.I. Risk Specialists Insurance, Inc. Massachusetts 100

 Agency Management Corporation Louisiana 100

 The Gulf Agency, Inc. Alabama 100

 Design Professionals Association Risk Purchasing Group, Inc. Illinois 100

Chartis International, LLC Delaware 100

 AIG Egypt Insurance Company S.A.E. Egypt 95.02

 AIG Global Trade & Political Risk Insurance Company New Jersey 100

 AIU Insurance Company New York 100

 Chartis Insurance Company China Limited China 100

 Chartis Taiwan Insurance Co., Ltd. Taiwan 100

 Chartis Africa Holdings, Inc. Delaware 100

 Chartis Kenya Insurance Company Limited Kenya 66.67

 Chartis Latin American Investments, LLC Delaware 100

 Chartis Central Europe & CIS Insurance Holdings Corporation Delaware 100

 Chartis Ukraine Insurance Company CJSC Ukraine 74.08(30)

 UBB-AIG Insurance and Reinsurance Company JSC Bulgaria 40

 Chartis Memsa Holdings, Inc. Delaware 100

 AIG Hayleys Investment Holdings (Private) Ltd. Sri Lanka 100

 CHARTIS Insurance Limited Sri Lanka 100

 Chartis Iraq, Inc. Delaware 100

 CHARTIS Lebanon S.A.L. Lebanon 100

 Chartis Libya, Inc. Delaware 100

 Tata AIG General Insurance Company Limited India 26

 Chartis Overseas Limited Bermuda 100

 Chartis Overseas Association Bermuda 67(31)

 Chartis Malaysia Insurance Berhad Malaysia 100

 Chartis North America, Inc. New York 100

 CHARTIS Sigorta A.S Turkey 100

 American International Underwriters del Ecuador S.A. Ecuador 100

 AIG Metropolitana Compania de Seguros y Reaseguros S.A. Ecuador 32.06(32)

 Chartis Chile Compania de Seguros Generales S.A. Chile 100

 CHARTIS Cyprus Ltd Cyprus 100

 Chartis Europe Holdings Limited Ireland 29.52(33)

 Chartis Europe, S.A. France 91.32(34)

 Chartis Insurance Ireland Limited Ireland 100

 Chartis UK Holdings Limited England 100

 AIG Germany Holding GmbH Germany 100

 Chartis UK Financing Limited England 100

 Chartis UK Sub Holdings Limited England 100

 Chartis Insurance UK Limited England 100

 Chartis UK Services Limited England 100

 Chartis Insurance Hong Kong Limited Hong Kong 100

 Chartis Insurance (Thailand) Company Limited Thailand 100

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 CHARTIS MEMSA Insurance Company Limited United Arab Emirates 100

 Chartis Philippines Insurance Inc. Philippines 100

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American International Group, Inc., and Subsidiaries

As of December 31, 2009

Jurisdiction of

Incorporation or

Organization 

Percentage

of Voting

Securities

held by

Immediate

Parent(1)

 Chartis Seguros Brasil S.A. Brazil 100

 Chartis Seguros Columbia S.A. Colombia 100

 Chartis Seguros Guatemala, S.A. Guatemala 100

 Chartis Seguros, El Salvador, Sociedad Anonima El Salvador 99.99(35)

 Chartis Seguros Uruguay S.A. Uruguay 100

 Chartis Uganda Insurance Company Limited Uganda 100

 Chartis Vida, Sociedad Anonima, Seguros de Personas El Salvador 100

 Chartis Vietnam Insurance Company Limited Vietnam 100

 Hellas Insurance Co. S.A. Greece 50

 Inversiones Segucasai, C.A. Venezuela 50

 C.A. de Seguros American International Venezuela 93.72

 Johannesburg Insurance Holdings (Proprietary) Limited South Africa 100

 Chartis South Africa Limited South Africa 100

 Chartis Life South Africa Limited South Africa 100

 Latin American Investment Guarantee Company Ltd. Bermuda 50

 PT Chartis Insurance Indonesia Indonesia 61.01

 Richmond Insurance Company Limited Bermuda 100

 Richmond Insurance Company (Barbados) Limited Barbados 100

 Underwriters Adjustment Company, Inc. Panama 100

 Uzbek American Insurance Company Uzbekistan 51

 Arabian American Insurance Company (Bahrain) E.C Bahrain 100

 CHARTIS Takaful-Enaya B.S.C.(c) Bahrain 100

 Chartis Insurance Company — Puerto Rico Puerto Rico 100

 La Meridional Compania Argentina de Seguros S.A. Argentina 95(36)

 Chartis Technology and Operations Management Corporation New York 100

 Travel Guard Worldwide, Inc. Wisconsin 100

 Livetravel, Inc. Wisconsin 100

 Travel Guard Group, Inc. Delaware 100

 Travel Guard Group Canada, Inc. Canada 100

Delaware American Life Insurance Company Delaware 100

MG Reinsurance Limited Vermont 100

PineBridge Investments Schweiz GmBH Switzerland 100

(*) In connection with AIG's asset disposition plan, through February 26, 2010, AIG has entered into agreements to sell this company. 

(1) Percentages include directors' qualifying shares. 

(2) Substantially, all subsidiaries listed are consolidated in the accompanying financial statements. Certain subsidiaries have been omitted from the tabulation.

The omitted subsidiaries, when considered in the aggregate as a single subsidiary, do not constitute a significant subsidiary. 

(3) The common stock is owned approximately 10.5 percent by C.V. Starr & Co., Inc., Edward E. Matthews, Maurice R. Greenberg Starr International

Company, Inc., Universal Foundation, Inc. (according to an amended Schedule 13D dated June 5, 2009 and filed on that date). 

(4) Also owned 0.01 percent by PineBridge Investments LLC. 

(5) Also owned 0.01 percent by AIG Capital Corporation. 

(6) Also owned 10 percent by AIG Andes Holdings I. 

(7) Also owned 10 percent by AIG Matched Funding Corp. 

(8) Also owned 1 percent by American International Group, Inc. 

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(9) Also owned 20 percent by PT Asta Indah Abadi. 

(10) Also owned 10 percent by a subsidiary of AIG Financial Assurance Japan K.K. 

(11) Also owned less than 0.01 percent by International Technical and Advisory Services Limited. 

(12) Also owned 0.1 percent by International Technical and Advisory Services Limited.

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American International Group, Inc., and Subsidiaries

(13) Also owned 1 percent by International Technical and Advisory Services Limited and 1 percent by Societatea de Asigurari AIG Romania SA. 

(14) Also owned 5.01 percent by International Technical and Advisory Services Limited. 

(15) Also owned 10 percent by International Technical and Advisory Services Limited. 

(16) Also owned 10 percent by International Technical and Advisory Services Limited. 

(17) Also owned 49 percent by American Life Insurance Company. 

(18) Also owned 0.01 percent by International Technical and Advisory Services Limited. 

(19) Also owned 2.77 percent by Chartis Overseas Limited and 2.38 percent by Inversiones Interamericana S.A. 

(20) Also owned 38.01 percent by American Life Insurance Company. 

(21) Also owned 7.5 percent by Chartis Egypt Insurance Company S.A.E. 

(22) Also owned by 9 other AIG subsidiaries. 

(23) Also owned 10.36 percent by AIU Insurance Company, 2.76 percent by American Home Assurance Company, 7.73 percent by Chartis Europe, S.A., and

2.58 percent by Chartis Overseas Limited. On January 21, Chartis International, LLC announced that it had reached an agreement, subject to regulatory

approval, to increase it stake from 41.55 percent to 54.65 percent. 

(24) Also owned by 9 other AIG subsidiaries. 

(25) Also owned 20 percent by the Insurance Company of the State of Pennsylvania and 10 percent by Chartis Property Casualty Company. 

(26) Also owned 20 percent by the Insurance Company of the State of Pennsylvania and 10 percent by Chartis Property Casualty Company. 

(27) Also owned 35.12 percent by New Hampshire Insurance Company and 19 percent by The Insurance Company of the State of Pennsylvania. 

(28) Also owned less than 0.01 percent by United Guaranty Services, Inc. 

(29) Also owned 24.97 percent by United Guaranty Residential Insurance Company of North Carolina. 

(30) Also owned 20.18 percent by American International Group, Inc. and 5.73 percent by Steppe Securities, L.L.C. 

(31) Also owned 12 percent by New Hampshire Insurance Company, 11 percent by National Union Fire Insurance Company of Pittsburgh, Pa., and 10 percent by

American Home Assurance Company. 

(32) Also owned 19.72 percent by Chartis Overseas Association. 

(33) Also owned 66.92 percent by Chartis Overseas Association, 2.01 percent by Chartis Bermuda Limited, and 1.55 percent by Chartis Luxembourg Financing

Limited. 

(34) Also owned 8.68 percent by Chartis Overseas Limited. 

(35) Also owned 0.01 percent by Chartis Latin America Investments, LLC. 

(36) Also owned 4.99 percent by Chartis Global Management Company Limited.

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EXHIBIT D 

to the Declaration of John R. Coleman

AIG Press Release 12.1.08

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Contact: Peter Tulupman 

 Public Relations Manager 

 (212) 770-3141 

RISK SPECIALISTS COMPANIES ANNOUNCES FIRST TAKAFUL HOMEOWNERS 

PRODUCT FOR U.S.

NEW YORK, December 1, 2008 -- Risk Specialists Companies, Inc. (RSC), a subsidiary of AIG 

Commercial Insurance, today announced it is introducing a Takaful Homeowners Policy, the first 

installment in Lexington Takaful Solutionssm, a series of Shari’ah-compliant (Takaful) product 

offerings in the U.S. The newly announced Takaful products are compliant with key Islamic 

finance tenets and based on the concept of mutual insurance. 

 “The introduction of Takaful products in the U.S. represents an important and emerging 

growth opportunity for AIG Commercial Insurance. We are pleased to offer socially responsible 

solutions to this segment of the domestic market,” said Matthew F. Power, President, Risk 

Specialists Companies, Inc. 

 The Takaful Homeowners Policy is underwritten through RSC member company A.I. 

Risk Specialists Insurance, Inc., in conjunction with Lexington Insurance Company and in 

association with AIG Takaful Enaya. Headquartered in Bahrain, AIG Takaful Enaya was 

established in 2006 to provide a range of Takaful products, including accident and health, auto, 

energy, property and casualty products. AIG Takaful Enaya is licensed by the Central Bank of 

Bahrain and its Shari’ah Supervisory Board is composed of well known Shari’ah scholars Sheikh 

Nizam Yaquby, Dr. Mohammed Ali Elgari and Dr. Muhammad Imran Usmani. 

 “This is truly a global effort on the part of AIG” said Abdallah Kubursi, Global Head of 

AIG Takaful Enaya. “Being first to market in the U.S. is a testament to Lexington, RSC and AIG 

Takaful Enaya’s commitment to offer consumers greater choice based not only on need but also 

social preference.” 

 According to Ernst & Young’s 2008 World Takaful Report, Takaful was estimated to be 

a $5.7 billion market globally with over 130 providers in 2006. The Takaful market is estimated 

to be in excess of $10 billion by 2010. 

The Takaful Homeowners Policy builds on LexElite®, the highly successful Homeowners 

policy from Lexington Insurance Company that combines broad coverages, high limits and 

individually tailored coverages to thousands of customers throughout the United States. Takaful 

Homeowners Policy is available in all 50 states. 

 Risk Specialists Companies, Inc. is a leader in the U.S. surplus lines brokerage industry, 

providing access to specialty casualty, property and personal lines insurance from Lexington 

Insurance Company and other AIG companies. 

-moreCase 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 41 of 146
Risk Specialists Companies Announces First Takaful Homeowners Product for U.S. 

December 1, 2008 

Page two 

 For more information on Takaful Homeowners Policy, contact Jim Crain at 617-345-

4105 or jim.crain@aig.com. 

 AIG Commercial Insurance serves a wide range of entities from multinational and 

middle-market companies to non-profit organizations and small entrepreneurs. Its extensive 

product offerings include general and excess liability, property, management and professional 

liability, workers' compensation, accident and health, environmental liability, and integrated 

global programs for multinational companies. AIG Commercial Insurance also maintains 

dedicated industry groups to serve the insurance needs of the aviation, energy, marine, 

healthcare, construction, financial institution, real estate and education sectors. 

 AIG Commercial Insurance is the marketing name for the domestic commercial property 

casualty insurance operations of American International Group, Inc. For additional information, 

please visit our website at www.aig.com. All products are written by insurance company 

subsidiaries of AIG Commercial Insurance Group, Inc. Coverage may not be available in all 

jurisdictions and is subject to actual policy language. Non-insurance products and services may 

be provided by independent third parties. 

 American International Group, Inc. (AIG), a world leader in insurance and financial 

services, is the leading international insurance organization with operations in more than 130 

countries and jurisdictions. AIG companies serve commercial, institutional and individual 

customers through the most extensive worldwide property-casualty and life insurance networks 

of any insurer. In addition, AIG companies are leading providers of retirement services, financial 

services and asset management around the world. AIG's common stock is listed on the New 

York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo. 

# # # 

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EXHIBIT E 

to the Declaration of John R. Coleman

AIG 2009 Form 10-K (Selected Portions)

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EXHIBIT F 

to the Declaration of John R. Coleman

Saudi Arabia Background Note

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On this page:

Profile

People

History

Government

Political Conditions

Economy

Foreign Relations

U.S. Relations

Travel/Business

Background Notes A-Z

April 5, 2010 Bureau of Near Eastern Affairs

Background Note: Saudi Arabia

Official Name: Kingdom of Saudi Arabia

PROFILE 

Geography

Area: 1,960,582 million sq. km. (784,233 sq. mi.), slightly more than one-fifth the size of the 

continental United States. 

Cities (2006 est.): Capital--Riyadh (pop. 4.3 million). Other cities--Jeddah (3.4 million), 

Makkah, (1.6 million), Dammam/Khobar/Dhahran, (1.6 million). 

Terrain: Primarily desert with rugged mountains in the southwest. 

Climate: Arid, with great extremes of temperature in the interior; humidity and temperature are 

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both high along the coast. 

People 

Nationality: Noun--Saudi(s). Adjective--Saudi Arabian or Saudi. 

Population (July 2008 est.): 28 million (22.6 million Saudis, 5.6 million foreign nationals). 

Annual growth rate: (2008 est.): 1.9%. 

Ethnic groups: Arab (90% of native pop.), Afro-Asian (10% of native pop.). 

Religion: Islam. 

Language: Arabic (official). 

Education: Literacy--total 78.8% (male 84.7%, female 70.8%). 

Health: Infant mortality rate (2008 est.)--12.01 deaths/1,000 live births. Life expectancy--male 

74 years, female 78 years. 

Work force: 6.49 million, about 35% foreign workers (2005 est.); industry--25%; services

(including government)--63%; agriculture--12%. 

Government

Type: Monarchy with Council of Ministers and Consultative Council. 

Unification: September 23, 1932. 

Constitution: The Holy Qur'an (governed according to Islamic Law), Shari'a, and the Basic 

Law. 

Branches: Executive--King (chief of state and head of government; rules under the title 

Custodian of the Two Holy Mosques). Legislative--a Consultative Council with advisory 

powers was formed September 1993. Judicial--Supreme Court, Supreme Judicial Council, 

Islamic Courts of First Instance and Appeals. 

Administrative divisions: 13 provinces. 

Political parties: None. 

Economy

GDP (2008 est.): $527 billion. 

Annual growth rate (2008 est.): 6.1%. 

Per capita GDP (2008): $21,062. 

Natural resources: Hydrocarbons, gold, uranium, bauxite, coal, iron, phosphate, tungsten, 

zinc, silver, copper. 

Agriculture: Products--dates, grains, livestock, vegetables. Arable land--1.76%. 

Industry: Types--petroleum, petrochemicals, cement, fertilizer, light industry. 

Trade (2008 est.): Exports--$364 billion: petroleum and petroleum products. Imports--$103 

billion: manufactured goods, transportation equipment, clothing and textiles, processed food 

products. Major trading partners--China, France, Germany, Italy, Japan, Singapore, South 

Korea, Taiwan, U.K., U.S. (2006). 

PEOPLE

Saudi Arabia's 2008 population was estimated to be about 28 million, including about 5.6 

million resident foreigners. Until the 1960s, most of the population was nomadic or 

seminomadic; due to rapid economic and urban growth, more than 95% of the population now 

is settled. Some cities and oases have densities of more than 1,000 people per square 

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kilometer (2,600 per sq. mi). 

Saudi Arabia is known as the birthplace of Islam, which in the century following the Prophet 

Muhammad's death in 632 A.D. spread west to Spain and east to India. Islam obliges all 

Muslims to make the Hajj, or pilgrimage to Makkah, at least once during their lifetime if they 

are able to do so. The cultural environment in Saudi Arabia is highly conservative; the country 

officially adheres to the strict Wahhabi interpretation of Islamic religious law (Shari'a). Cultural 

presentations must conform to narrowly defined standards of ethics. Men and women are not 

permitted to attend public events together and are segregated in the work place. 

Most Saudis are ethnically Arab. Some are of mixed ethnic origin and are descended from 

Turks, Iranians, Indonesians, Indians, Africans, and others, most of whom immigrated as 

pilgrims and reside in the Hijaz region along the Red Sea coast. Many Arabs from nearby 

countries are employed in the kingdom. There also are significant numbers of Asian 

expatriates mostly from India, Pakistan, Bangladesh, Indonesia, and the Philippines. 

Westerners in Saudi Arabia number under 100,000. 

HISTORY

Except for a few major cities and oases, the harsh climate historically prevented much 

settlement of the Arabian Peninsula. People of various cultures have lived in the peninsula 

over a span of more than 5,000 years. The Dilmun culture, along the Gulf coast, was 

contemporaneous with the Sumerians and ancient Egyptians, and most of the empires of the 

ancient world traded with the states that existed on the peninsula, which lay along important 

trade routes. 

The Saudi state began in central Arabia in about 1750. A local ruler, Muhammad bin Saud, 

joined forces with an Islamic reformer, Muhammad Abd Al-Wahhab, to create a new political 

entity. Over the next 150 years, the fortunes of the Saud family rose and fell several times as 

Saudi rulers contended with Egypt, the Ottoman Empire, and other Arabian families for control 

on the peninsula. The modern Saudi kingdom was founded by the late King Abdul Aziz Al 

Saud (known internationally as Ibn Saud, or "Son of Saud"). In 1902, Abdul Aziz recaptured 

Riyadh, the Al Saud dynasty's ancestral capital, from the rival Al-Rashid family. Continuing his 

conquests, Abdul Aziz subdued Al-Hasa in the east, the rest of the central Nejd region, and 

the Hijaz along the Red Sea coast between 1913 and 1926. In 1932, Abdul Aziz declared 

these regions unified as the Kingdom of Saudi Arabia. 

Boundaries with Jordan, Iraq, and Kuwait were established by a series of treaties negotiated 

in the 1920s, with two "neutral zones"--one with Iraq and the other with Kuwait--created. The 

Saudi-Kuwaiti neutral zone was administratively partitioned in 1971, with each state 

continuing to share the petroleum resources of the former zone equally. Tentative agreement 

on the partition of the Saudi-Iraqi neutral zone was reached in 1981, and partition was 

finalized by 1983. The country's southern boundary with Yemen was partially defined by the 

1934 Treaty of Taif, which ended a brief border war between the two states. A June 2000 

treaty further delineated portions of the boundary with Yemen. The location and status of 

Saudi Arabia's boundary with the United Arab Emirates is not final; a de facto boundary 

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reflects a 1974 agreement. The border between Saudi Arabia and Qatar was resolved in 

March 2001. The border with Oman also is not demarcated. 

King Abdul Aziz died in 1953 and was succeeded by his eldest son, Saud, who reigned for 11 

years. In 1964, Saud abdicated in favor of his half-brother, Faisal, who had served as Foreign 

Minister. Because of fiscal difficulties, King Saud had been persuaded in 1958 to delegate 

direct conduct of Saudi Government affairs to Faisal as Prime Minister; Saud briefly regained 

control of the government in 1960-62. In October 1962, Faisal outlined a broad reform 

program, stressing economic development. Proclaimed King in 1964 by senior royal family 

members and religious leaders, Faisal also continued to serve as Prime Minister. This 

practice has been followed by subsequent kings. 

The mid-1960s saw external pressures generated by Saudi-Egyptian differences over Yemen. 

When civil war broke out in 1962 between Yemeni royalists and republicans, Egyptian forces 

entered Yemen to support the new republican government, while Saudi Arabia backed the 

royalists. Tensions subsided only after 1967, when Egypt withdrew its troops from Yemen. 

Saudi forces did not participate in the Six-Day (Arab-Israeli) War of June 1967, but the 

government later provided annual subsidies to Egypt, Jordan, and Syria to support their 

economies. During the 1973 Arab-Israeli war, Saudi Arabia participated in the Arab oil boycott 

of the United States and Netherlands. A founding member of the Organization of Petroleum 

Exporting Countries (OPEC), Saudi Arabia had joined other member countries in moderate oil 

price increases beginning in 1971. After the 1973 war, the price of oil rose substantially, 

dramatically increasing Saudi Arabia's wealth and political influence. 

In 1975, King Faisal was assassinated by a nephew, who was executed after an extensive 

investigation concluded that he acted alone. Faisal was succeeded by his half-brother Khalid 

as King and Prime Minister; their half-brother Prince Fahd was named Crown Prince and First 

Deputy Prime Minister. King Khalid empowered Crown Prince Fahd to oversee many aspects 

of the government's international and domestic affairs. Economic development continued 

rapidly under King Khalid, and the kingdom assumed a more influential role in regional politics 

and international economic and financial matters. 

In June 1982, King Khalid died, and Fahd became King and Prime Minister in a smooth 

transition. Another half-brother, Prince Abdallah, Commander of the Saudi National Guard, 

was named Crown Prince and First Deputy Prime Minister. King Fahd's full brother, Prince 

Sultan, the Minister of Defense and Aviation, became Second Deputy Prime Minister. Under 

King Fahd, the Saudi economy adjusted to sharply lower oil revenues resulting from declining 

global oil prices. Saudi Arabia supported neutral shipping in the Gulf during periods of the Iran

-Iraq war and aided Iraq's war-strained economy. King Fahd played a major part in bringing 

about the August 1988 cease-fire between Iraq and Iran and in organizing and strengthening 

the Gulf Cooperation Council (GCC), a group of six Arabian Gulf states dedicated to fostering 

regional economic cooperation and peaceful development. 

In 1990-91, King Fahd played a key role before and during the Gulf war, helping consolidate 

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the coalition of forces against Iraq and define the tone of the operation as a multilateral effort 

to reestablish the sovereignty and territorial integrity of Kuwait. Acting as a rallying point and 

personal spokesman for the coalition, King Fahd helped bring together his nation's GCC, 

Western, and Arab allies, as well as nonaligned nations from Africa and the emerging 

democracies of Eastern Europe. He used his influence as Custodian of the Two Holy 

Mosques to persuade other Arab and Islamic nations to join the coalition. 

King Fahd suffered a stroke in November 1995. From 1997, Crown Prince Abdallah took on 

much of the day-to-day responsibilities of running the government. Upon King Fahd's death on 

August 1, 2005, Abdallah assumed the throne as King. Prince Sultan, Minister of Defense and 

Aviation, became Crown Prince and First Deputy Prime Minister. Since ascending to the 

throne, King Abdallah has continued to pursue an incremental program of social, economic, 

and political reforms. In September 2009, he inaugurated the King Abdallah University of 

Science and Technology (KAUST), a graduate-level research institution and Saudi Arabia’s 

first co-educational university. 

GOVERNMENT AND POLITICAL CONDITIONS 

The central institution of Saudi Arabian Government is the monarchy. The Basic Law adopted 

in 1992 declared that Saudi Arabia is a monarchy ruled by the sons and grandsons of King 

Abd Al Aziz Al Saud, and that the Holy Qur'an is the constitution of the country, which is 

governed on the basis of Islamic law (Shari'a). There are no political parties or national 

elections; however, the country held its first municipal elections in 2005. The king's powers 

are limited because he must observe the Shari'a and other Saudi traditions. He also must 

retain a consensus of the Saudi royal family, religious leaders (ulema), and other important 

elements in Saudi society. In the past the leading members of the royal family chose the king 

from among themselves with the subsequent approval of the ulema. In November 2006, King 

Abdallah established an Allegiance Commission that will select future crown princes, a step 

designed to help formalize the selection process. 

Saudi kings gradually have developed a central government. Since 1953, the Council of 

Ministers, appointed by and responsible to the king, has advised on the formulation of general 

policy and directed the activities of the growing bureaucracy. This council consists of a prime 

minister, the first and second deputy prime ministers, 20 ministers, two ministers of state, and 

a small number of advisers and heads of major autonomous organizations. 

Legislation is by resolution of the Council of Ministers and the Shura Council, ratified by royal 

decree, and must be compatible with Shari'a. Justice is administered according to Shari'a by a 

system of religious courts. A 2007 law created a new Supreme Court to replace the Supreme 

Judicial Council (SJC) as Saudi Arabia’s highest court authority. The same law transfers 

powers that the Ministry of Justice formerly exercised to the SJC, such as the authority to 

ability to establish and abolish courts, and name judges to the Courts of Appeal and First 

Instance. The independence of the judiciary is protected by law. The king has the authority to 

hear appeals and has the power to pardon in cases where the punishment is not ordained in 

the Qur'an. Access to high officials (usually at a majlis, or public audience) and the right to 

petition them directly are well-established traditions. 

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The kingdom is divided into 13 provinces governed by princes or close relatives of the royal 

family. All governors are appointed by the King. 

In March 1992, King Fahd issued several decrees outlining the basic statutes of government 

and codifying for the first time procedures concerning the royal succession. Fahd's political 

reform program also provided for the establishment of a national Consultative Council, with 

appointed members having advisory powers to review and give advice on issues of public 

interest. It also outlined a framework for councils at the provincial level. 

In September 1993, King Fahd issued additional reform decrees, appointing the members of 

the national Consultative Council and spelling out procedures for the new council's operations. 

He announced reforms regarding the Council of Ministers, including term limitations of 4 years 

and regulations to prohibit conflict of interest for ministers and other high-level officials. The 

members of 13 provincial councils and the councils' operating regulations also were 

announced in September 1993. In February, March, and April 2005, Saudis voted in the 

country's first municipal elections in more than 50 years. Women and male members of the 

military were not permitted to vote. 

In July 1997, the membership of the Consultative Council was expanded from 60 to 90 

members, and again in May 2001 from 90 to 120 members. In 2005, membership was 

expanded to 150 members. Membership has changed significantly during expansions of the 

council as many members have not been reappointed. The role of the Council is gradually 

expanding as it gains experience. 

In November 2006, King Abdallah announced the formation of an Allegiance Commission 

which, in the future, will select crown princes upon the death or incapacitation of the king or 

crown prince. A December 2007 royal decree named the initial members of the Commission, 

all of whom are sons, grandsons, or great-grandsons representing each branch of the 

descendants of the Kingdoms' founder, King Abdul Aziz. Only direct male descendants of 

Abdul Aziz are eligible to become crown prince or king. 

Principal Government Officials 

King, Prime Minister, Custodian of the Two Holy Mosques--King Abdallah bin Abd al-Aziz Al 

Saud 

Minister of Foreign Affairs--Prince Saud al-Faisal bin Abdul Aziz Al Saud 

Ambassador to the U.S.--Adel al-Jubeir 

The Embassy of the Kingdom of Saudi Arabia is located at 601 New Hampshire Avenue NW, 

Washington, DC 20037; tel. 202-342-3800. 

ECONOMY

Oil was discovered in Saudi Arabia by U.S. geologists in the 1930s, although large scale 

production did not begin until after World War II. Oil wealth has made possible rapid economic 

development, which began in earnest in the 1960s and accelerated spectacularly in the 

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1970s, transforming the kingdom. 

Saudi oil reserves are the largest in the world, and Saudi Arabia is the world's leading oil 

producer and exporter. Oil accounts for more than 90% of the country's exports and nearly 

75% of government revenues. Proven reserves are estimated to be 263 billion barrels, about 

one-quarter of world oil reserves. 

More than 95% of all Saudi oil is produced on behalf of the Saudi Government by the 

parastatal giant Saudi ARAMCO. In June 1993, Saudi ARAMCO absorbed the state 

marketing and refining company (SAMAREC), becoming the world's largest fully integrated oil 

company. Most Saudi oil exports move by tanker from Gulf terminals at Ras Tanura and 

Ju'aymah. The remaining oil exports are transported via the east-west pipeline across the 

kingdom to the Red Sea port of Yanbu. 

Due to a sharp rise in petroleum revenues in 1974 following the 1973 Arab-Israeli war, Saudi 

Arabia became one of the fastest-growing economies in the world. It enjoyed a substantial 

surplus in its overall trade with other countries; imports increased rapidly; and ample 

government revenues were available for development, defense, and aid to other Arab and 

Islamic countries. 

But higher oil prices led to development of more oil fields around the world and reduced global 

consumption. The result, beginning in the mid-1980s, was a worldwide oil glut, which 

introduced an element of planning uncertainty for the first time in a decade. Saudi oil 

production, which had increased to almost 10 million barrels per day (b/d) during 1980-81, 

dropped to about 2 million b/d in 1985. Budgetary deficits developed, and the government 

drew down its foreign assets. Responding to financial pressures, Saudi Arabia gave up its role 

as the "swing producer" within OPEC in the summer of 1985 and accepted a production 

quota. Since then, Saudi oil policy has been guided by a desire to maintain market and quota 

shares and to support stability in the international oil market. 

Saudi Arabia was a key player in coordinating the successful 1999 campaign of OPEC and 

other oil-producing countries to raise the price of oil to its highest level since the Gulf War by 

managing production and supply of petroleum. That same year saw establishment of the 

Supreme Economic Council to formulate and better coordinate Saudi economic development 

policies in order to accelerate institutional and industrial reform. 

In response to increasing international demand for oil, Saudi ARAMCO engaged in an 

expansion of its oil production capacity and planned to raise its capacity from 11 million 

barrels/day (mb/d) to 12 mb/d by 2009. Saudi ARAMCO is also increasing production of 

associated and non-associated natural gas to feed the expanding petrochemical sector. 

Notably, Saudi Arabia has awarded contracts to foreign companies to conduct gas exploration 

in selected regions of the country--the first such foreign participation in the petroleum sector 

upstream since the nationalization of ARAMCO began in the 1970s. 

Saudi Arabia continues to pursue rapid industrial expansion, led by the petrochemical sector. 

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The Saudi Basic Industries Corporation (SABIC), a parastatal petrochemical company, is now 

one of the world's leading petrochemical producers, and the government promotes private 

sector involvement in petrochemicals. The government also plans new investments in the 

mining sector and in refining, 

After Saudi Arabia announced its intention to join the World Trade Organization, negotiations 

focused on increasing market access to foreign goods and services and the timeframe for 

becoming fully compliant with WTO obligations. In April 2000, the government established the 

Saudi Arabian General Investment Authority to encourage foreign direct investment in the 

country. Saudi Arabia signed a Trade Investment Framework Agreement with the U.S. in July 

2003, and joined the WTO in December 2005. 

Through 5-year development plans, the government has sought to allocate its petroleum 

income to transform its relatively undeveloped, oil-based economy into that of a modern 

industrial state while maintaining the kingdom's traditional Islamic values and customs. 

Although economic planners have not achieved all their goals, the economy has progressed 

rapidly. Oil wealth has increased the standard of living of most Saudis. However, significant 

population growth has strained the government's ability to finance further improvements in the 

country's standard of living. Heavy dependence on petroleum revenue continues, but industry 

and agriculture now account for a larger share of economic activity. The mismatch between 

the job skills of Saudi graduates and the needs of the private job market at all levels remains 

the principal obstacle to economic diversification and development; about 4.6 million nonSaudis are employed in the economy. 

Saudi Arabia's first two development plans, covering the 1970s, emphasized infrastructure. 

The results were impressive--the total length of paved highways tripled, power generation 

increased by a multiple of 28, and the capacity of the seaports grew tenfold. For the third plan 

(1980-85), the emphasis changed. Spending on infrastructure declined, but it rose markedly 

on education, health, and social services. The share for diversifying and expanding productive 

sectors of the economy (primarily industry) did not rise as planned, but the two industrial cities 

of Jubail and Yanbu--built around the use of the country's oil and gas to produce steel, 

petrochemicals, fertilizer, and refined oil products--were largely completed. 

In the fourth plan (1985-90), the country's basic infrastructure was viewed as largely complete, 

but education and training remained areas of concern. Private enterprise was encouraged, 

and foreign investment in the form of joint ventures with Saudi public and private companies 

was welcomed. The private sector became more important, rising to 70% of non-oil GDP by 

1987. While still concentrated in trade and commerce, private investment increased in 

industry, agriculture, banking, and construction companies. These private investments were 

supported by generous government financing and incentive programs. The objective was for 

the private sector to have 70% to 80% ownership in most joint venture enterprises. 

The fifth plan (1990-95) emphasized consolidation of the country's defenses; improved and 

more efficient government social services; regional development; and, most importantly, 

creating greater private-sector employment opportunities for Saudis by reducing the number 

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of foreign workers. 

The sixth plan (1996-2000) focused on lowering the cost of government services without 

cutting them and sought to expand educational training programs. The plan called for 

reducing the kingdom's dependence on the petroleum sector by diversifying economic activity, 

particularly in the private sector, with special emphasis on industry and agriculture. It also 

continued the effort to "Saudiize" the labor force. 

The seventh plan (2000-2004) focused more on economic diversification and a greater role of 

the private sector in the Saudi economy. For the period 2000-04, the Saudi Government has 

aimed at an average GDP growth rate of 3.16% each year, with projected growths of 5.04% 

for the private sector and 4.01% for the non-oil sector. The government also has set a target 

of creating 817,300 new jobs for Saudi nationals. 

The eighth plan (2005-2010) again focuses on economic diversification in addition to 

education and inclusion of women in society. The plan calls for establishing new universities 

and new colleges with technical specializations. Privatization as well as emphases on a 

knowledge-based economy and tourism will help in the goal of economic diversification. 

FOREIGN RELATIONS

Saudi foreign policy objectives are to maintain its security and its paramount position on the 

Arabian Peninsula, defend general Arab and Islamic interests, promote solidarity among 

Islamic governments, and maintain cooperative relations with other oil-producing and major oil

-consuming countries. 

Saudi Arabia signed the UN Charter in 1945. The country plays a prominent and constructive 

role in the International Monetary Fund, the World Bank, and Arab and Islamic financial and 

development assistance institutions. One of the largest aid donors in the world, it still gives 

some aid to a number of Arab, African, and Asian countries. Jeddah is the headquarters of the 

Secretariat of the Organization of the Islamic Conference and its subsidiary organization, the 

Islamic Development Bank, founded in 1969. 

Membership in the 11-member OPEC and in the technically and economically oriented Arab 

producer group--the Organization of Arab Petroleum Exporting Countries--facilitates 

coordination of Saudi oil policies with other oil-exporting governments. As the world's leading 

exporter of petroleum, Saudi Arabia has a special interest in preserving a stable and longterm market for its vast oil resources by allying itself with healthy Western economies which 

can protect the value of Saudi financial assets. It generally has acted to stabilize the world oil 

market and tried to moderate sharp price movements. 

The Saudi Government frequently helps mediate regional crises and supports the IsraeliPalestinian peace negotiations. A charter member of the Arab League, Saudi Arabia supports 

the position that Israel must withdraw from the territories which it occupied in June 1967, as 

called for in United Nations Security Council Resolution 242. Saudi Arabia supports a 

peaceful resolution of the Arab-Israeli conflict but rejected the Camp David accords, claiming 

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that they would be unable to achieve a comprehensive political solution that would ensure 

Palestinian rights and adequately address the status of Jerusalem. Although Saudi Arabia 

broke diplomatic relations with and suspended aid to Egypt in the wake of Camp David, the 

two countries renewed formal ties in 1987. In March 2002, then-Crown Prince Abdallah 

offered a Middle East peace plan, now known as the Arab Peace Initiative, at the annual 

summit of the Arab League in which Arab governments would offer "normal relations and the 

security of Israel in exchange for a full Israeli withdrawal from all occupied Arab lands, 

recognition of an independent Palestinian state with Jerusalem as its capital, and the return of 

Palestinian refugees." In March 2007 the Arab League reiterated its support for the Arab 

Peace Initiative by emphasizing that it could be the foundation for a broad Arab-Israeli peace. 

In November 2007, Saudi Foreign Minister Prince Saud al-Faisal attended the Annapolis 

Conference, along with more than 50 representatives of concerned countries and international 

organizations. The Conference was convened to express the broad support of the 

international community for the Israeli and Palestinian leaders' courageous efforts and was a 

launching point for negotiations designed to lead to the establishment of a Palestinian state 

and the realization of Israeli-Palestinian peace. 

Saudi Arabia supports the establishment of a unified, independent, and sovereign Iraq. The 

Kingdom is a charter member of the International Compact with Iraq and participates in the 

Expanded Iraq Neighbors process. In January 2008, Foreign Minister Prince Saud al-Faisal 

reiterated Saudi Arabia's intention to open a diplomatic mission in Baghdad and appoint an 

ambassador. 

In 1990-91, Saudi Arabia played an important role in the Gulf War, developing new allies and 

improving existing relationships between Saudi Arabia and some other countries, but also 

suffering diplomatic and financial costs. Relations between Saudi Arabia and Tunisia, Algeria, 

and Libya deteriorated. Each country had remained silent following Iraq's invasion of Kuwait 

but called for an end to violence once the deployment of coalition troops began. Relations 

between these countries and Saudi Arabia have returned to their pre-war status. Saudi 

Arabia's relations with those countries which expressed support for Saddam Hussein's 

invasion of Kuwait--Yemen, Jordan, and Sudan--were severely strained during and 

immediately after the war. For example, several hundred thousand Yemenis were expelled 

from Saudi Arabia after the Government of Yemen announced its position, thus exacerbating 

an existing border dispute. Saudi Arabia’s relations with the Yemeni Government have 

improved, but the current instability in Yemen remains a significant concern to the Saudi 

Government. The Palestine Liberation Organization's support for Iraq cost it financial aid as 

well as good relations with Saudi Arabia and other Gulf states. Recently, though, Saudi 

Arabia's relations with Jordan and the Palestinian Authority have improved, with the Saudi 

Government providing assistance for the Palestinian Authority. 

During and after the Gulf War, the Government of Saudi Arabia provided water, food, shelter, 

and fuel for coalition forces in the region, and also made monetary payments to some 

coalition partners. Saudi Arabia's combined costs in payments, foregone revenues, and 

donated supplies were $55 billion. More than $15 billion went toward reimbursing the United 

States alone. 

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Since ascending to the throne, King Abdallah has followed a more activist foreign policy, 

offering Saudi assistance and support in efforts to resolve regional crises in Lebanon, Sudan, 

and Somalia; fostering Israeli-Palestinian peace efforts; and increasing Saudi diplomatic 

engagement around the world. In particular, he has pursued an Interfaith Dialogue Initiative to 

encourage religious tolerance on a global level, which was endorsed in a session of the UN 

General Assembly in November 2008. 

U.S.-SAUDI ARABIAN RELATIONS

Saudi Arabia's unique role in the Arab and Islamic worlds, its possession of the world's largest 

reserves of oil, and its strategic location make its friendship important to the United States. 

Diplomatic relations were established in 1933; the U.S. embassy opened in Jeddah in 1944 

and moved to Riyadh in 1984. The Jeddah embassy became a U.S. consulate general. The 

U.S. consulate general in Dhahran opened in 1944 in response to the growing oil-related U.S. 

presence in eastern Saudi Arabia. 

The United States and Saudi Arabia share common concerns about regional security, oil 

exports and imports, and sustainable development. Close consultations between the U.S. and 

Saudi Arabia have developed on international, economic, and development issues such as 

the Middle East peace process and shared interests in the Gulf. The continued availability of 

reliable sources of oil, particularly from Saudi Arabia, remains important to the prosperity of 

the United States as well as to Europe and Japan. Saudi Arabia is one of the leading sources 

of imported oil for the United States, providing more than one million barrels/day of oil to the 

U.S. market. The U.S. is Saudi Arabia's largest trading partner, and Saudi Arabia is the 

largest U.S. export market in the Middle East. 

In addition to economic ties, a longstanding security relationship continues to be important in 

U.S.-Saudi relations. A U.S. military training mission established at Dhahran in 1953 provides 

training and support in the use of weapons and other security-related services to the Saudi 

armed forces. The United States has sold Saudi Arabia military aircraft (F-15s, AWACS, and 

UH-60 Blackhawks), air defense weaponry (Patriot and Hawk missiles), armored vehicles 

(M1A2 Abrams tanks and M-2 Bradley infantry fighting vehicles), and other equipment. The 

U.S. Army Corps of Engineers had a long-term role in military and civilian construction 

activities in the Kingdom. The U.S., as part of the Gulf Security Dialogue with individual Gulf 

Cooperation Council (GCC) members, has announced plans to sell advanced, primarily 

defensive, military equipment to GCC members, including Saudi Arabia, to support the efforts 

of these countries to increase their capacity for self-defense. 

In August 2003, following the U.S.-led war in Iraq in March and April 2003, the United States 

withdrew its troops stationed in Saudi Arabia. 

Saudi Arabia's relations with the United States were strained after the September 11, 2001, 

terrorist attacks in which 15 of the suicide bombers were Saudi citizens. In May 2003, a 

terrorist organization directly affiliated with al-Qaeda launched a violent campaign of terror in 

Saudi Arabia. On May 12, suicide bombers killed 35 people, including nine Americans, in 

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attacks at three housing compounds for Westerners in Riyadh. On November 8, 2003 

terrorists attacked another compound housing foreign workers from mainly Arab countries. At 

least 18 people, including 5 children died in this attack, and more than 100 were injured. On 

May 1, 2004 terrorists killed two Americans in the Yanbu oil facility in the western part of the 

country. On May 29, 2004 terrorists killed one American and wounded several others in 

attacks on an official building and housing compound in al-Khobar in the Eastern Province. On 

June 6, terrorists shot and killed a BBC journalist. On June 9 and June 12, 2004 terrorists 

killed Americans Robert Jacobs and Kenneth Scroggs. On June 18, 2004 terrorists kidnapped 

and beheaded American Paul Johnson. On December 6, 2004 terrorists attacked the U.S. 

Consulate in Jeddah, killing five consulate employees. Terrorists also targeted and killed other 

foreign nationalities during this time. 

Saudi security services have waged an active counterterrorism campaign that has largely 

neutralized this terrorist organization, though sporadic instances of terrorism still occur. In May 

2006, terrorists attempted to attack the major ARAMCO oil-processing facility at Abqaiq. In 

February 2007, four French nationals were killed in western Saudi Arabia in a suspected 

terrorist attack. In August 2009, an Al Qaeda in the Arabian Peninsula (AQAP) suicide bomber 

attempted to assassinate a Saudi royal and senior Ministry of Interior official. 

Saudi Arabia is an important partner in the campaign against terrorism, providing military, 

diplomatic, and financial cooperation. Counterterrorism cooperation between Saudi Arabia 

and the United States increased significantly after the May 12, 2003 bombings in Riyadh and 

continues today. In February 2005, the Saudi Government sponsored the first ever CounterTerrorism International Conference in Riyadh. 

Human Rights

Despite generally good relations, the United States remains concerned about human rights 

conditions in Saudi Arabia. Principal human rights issues include abuse of prisoners and 

incommunicado detention; prohibitions or severe restrictions on freedom of speech, press, 

peaceful assembly and association, and religion; denial of the right of citizens to change their 

government; systematic discrimination against women and ethnic and religious minorities; and 

suppression of workers' rights. 

Principal U.S. Officials 

Ambassador--James Smith 

Deputy Chief of Mission--Susan Ziadeh 

Counselor for Consular Affairs--Daniel Goodspeed 

Counselor for Economic Affairs--Laird Treiber 

Counselor for Management Affairs--Sandra Muench 

Counselor for Political Affairs--Lisa Carle 

Counselor for Political-Military Affairs--Scott McGehee 

Counselor for Public Affairs--John Moran 

Consul General, Dhahran--Joe Kenny 

Consul General, Jeddah--Martin Quinn 

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The U.S. Embassy in Saudi Arabia is located in the Diplomatic Quarter of Riyadh (tel. 966-1-

488-3800). The Consulate General in Jeddah is located on Palestine Road, Ruwais, Jeddah 

(tel. 966-2-667-0080); and the Consulate General in Dhahran is located between ARAMCO 

Headquarters and the King Abdul Aziz Airbase (tel. 966-3-330-3200). The embassy and 

consulates are open for business Saturday through Wednesday, in accordance with the 

official workweek of Saudi Arabia. 

TRAVEL AND BUSINESS INFORMATION

The U.S. Department of State's Consular Information Program advises Americans traveling 

and residing abroad through Country Specific Information, Travel Alerts, and Travel Warnings. 

Country Specific Information exists for all countries and includes information on entry and 

exit requirements, currency regulations, health conditions, safety and security, crime, political 

disturbances, and the addresses of the U.S. embassies and consulates abroad. Travel Alerts

are issued to disseminate information quickly about terrorist threats and other relatively shortterm conditions overseas that pose significant risks to the security of American travelers. 

Travel Warnings are issued when the State Department recommends that Americans avoid 

travel to a certain country because the situation is dangerous or unstable. 

For the latest security information, Americans living and traveling abroad should regularly 

monitor the Department's Bureau of Consular Affairs Internet web site at 

http://www.travel.state.gov, where the current Worldwide Caution, Travel Alerts, and 

Travel Warnings can be found. Consular Affairs Publications, which contain information on 

obtaining passports and planning a safe trip abroad, are also available at 

http://www.travel.state.gov. For additional information on international travel, see 

http://www.usa.gov/Citizen/Topics/Travel/International.shtml.

The Department of State encourages all U.S. citizens traveling or residing abroad to register 

via the State Department's travel registration website or at the nearest U.S. embassy or 

consulate abroad. Registration will make your presence and whereabouts known in case it is 

necessary to contact you in an emergency and will enable you to receive up-to-date 

information on security conditions.

Emergency information concerning Americans traveling abroad may be obtained by calling 1-

888-407-4747 toll free in the U.S. and Canada or the regular toll line 1-202-501-4444 for 

callers outside the U.S. and Canada.

The National Passport Information Center (NPIC) is the U.S. Department of State's single, 

centralized public contact center for U.S. passport information. Telephone: 1-877-4-USA-PPT 

(1-877-487-2778); TDD/TTY: 1-888-874-7793. Passport information is available 24 hours, 7 

days a week. You may speak with a representative Monday-Friday, 8 a.m. to 10 p.m., Eastern 

Time, excluding federal holidays.

Travelers can check the latest health information with the U.S. Centers for Disease Control 

and Prevention in Atlanta, Georgia. A hotline at 800-CDC-INFO (800-232-4636) and a web 

site at http://wwwn.cdc.gov/travel/default.aspx give the most recent health advisories, 

immunization recommendations or requirements, and advice on food and drinking water 

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safety for regions and countries. The CDC publication "Health Information for International 

Travel" can be found at http://wwwn.cdc.gov/travel/contentYellowBook.aspx.

Further Electronic Information

Department of State Web Site. Available on the Internet at http://www.state.gov, the 

Department of State web site provides timely, global access to official U.S. foreign policy 

information, including Background Notes and daily press briefings along with the directory 

of key officers of Foreign Service posts and more. The Overseas Security Advisory Council 

(OSAC) provides security information and regional news that impact U.S. companies working 

abroad through its website http://www.osac.gov

Export.gov provides a portal to all export-related assistance and market information offered 

by the federal government and provides trade leads, free export counseling, help with the 

export process, and more.

STAT-USA/Internet, a service of the U.S. Department of Commerce, provides authoritative 

economic, business, and international trade information from the Federal government. The 

site includes current and historical trade-related releases, international market research, trade 

opportunities, and country analysis and provides access to the National Trade Data Bank.

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EXHIBIT G 

to the Declaration of John R. Coleman

Bahrain Background Note

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On this page:

Profile

People

History

Government

Political Conditions

Economy

Defense

Foreign Relations

U.S. Relations

Travel/Business

Background Notes A-Z

January 29, 2010 Bureau of Near Eastern Affairs

Background Note: Bahrain

Official Name: Kingdom of Bahrain

PROFILE 

Geography

Area: 727 sq. km. (274 sq. mi.); approximately four times the size of Washington, DC. Bahrain 

is an archipelago of 36 islands located off the eastern coast of Saudi Arabia. The four main 

islands are joined by causeways, and make up about 95% of the total land area. 

Cities: Capital--Manama, pop. (2002 est.) 148,000. Other cities--Al Muharraq. 

Terrain: Low desert plain (highest elevation point--122 m). 

Climate: Hot and humid from May-September, with average highs ranging from 30o-40o C 

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(86o-104o F). Maximum temperatures average 20o-30o C (68o-86o F) the remainder of the 

year. 

People

Nationality: Noun and adjective--Bahraini(s). 

Population (January 2008 est.): 1,046,814, including about 517,368 non-nationals. 

Annual growth rate (2008 est.): 3.6%. 

Ethnic groups: Bahraini 63%, Asian 19%, other Arab 10%, Iranian 8%. 

Religions: 98% Muslim (approximately Shi'a 70%, Sunni 30%), with small Christian, Jewish, 

Baha’i, and Hindu communities. 

Languages: Arabic (official), English, Farsi, and Urdu are also widely spoken. 

Education: Education is not compulsory, but is provided free to Bahrainis and non-nationals at 

all levels, including higher education. Estimated net primary school attendance (1991-2001)--

84%. Adult literacy, age 15 and over (2003 est.)--89.1% for the overall population (male 

91.9%, female 85%). 

Health: Infant mortality rate (2007 est.)--16.18 deaths/1,000 live births. Life expectancy--72 

yrs. males, 77 yrs. females. 

Work force (2006 est.): 352,000 of which 44% are foreigners. 

Government

Type: Constitutional hereditary monarchy. 

Independence: August 15, 1971 (from the United Kingdom). 

Constitution: Approved and promulgated May 26, 1973; suspended on August 26, 1975; the 

National Action Charter was approved by a national popular referendum on February 14-15, 

2001, and a new constitution was issued on February 14, 2002. 

Branches: Executive--King (chief of state); Prime Minister (head of government); Council of 

Ministers (cabinet) is appointed by the King and headed by the Prime Minister. Legislative--

The bicameral parliament (al-Majlis al-Watani) consists of a 40-member elected Council of 

Representatives (elected in December 2006; next election scheduled for 2010) and a 40-

member Shura (Consultative) Council appointed by the King. Members of both chambers 

serve four-year terms. Judicial--High Civil Appeals Court. The judiciary is independent with 

right of judicial review. 

Administrative subdivisions: 12 municipalities (manatiq): Al Hidd, Al Manamah, Al Mintaqah al 

Gharbiyah, Al Mintaqah al Wusta, Al Mintaqah ash Shamaliyah, Al Muharraq, Ar Rifa' wa al 

Mintaqah al Janubiyah, Jidd Hafs, Madinat Hamad, Madinat 'Isa, Juzur Hawar, Sitrah. 

Political societies represented in parliament: al Wifaq, al Asala, al Minbar, al Mustaqbil. 

Suffrage: Universal at age 18. 

Economy

GDP (2007 est.): $18.44 billion. 

Real GDP growth rate (2007 est.): 6.7%. 

Per capita GDP (2007 est.): $17,615. 

Natural resources: Oil, aluminum, textiles, natural gas, fish, pearls. 

Agriculture (less than 1% of GDP): Products--fruit, vegetables, poultry, dairy products, shrimp, 

fish. 

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Industry: Types--oil and gas (13.1% of GDP), manufacturing (12.4% of GDP), aluminum. 

Services: Finance (24.2% of GDP), transport and communications (8.9% of GDP), real estate 

(9.2% of GDP); government services (14.8% of GDP). 

Trade (2006 est.): Exports--$12.62 billion: oil and other mineral products, aluminum, textiles. 

Major markets-- Saudi Arabia (3.2%), U.S. (3%), Japan (2.3%). Imports--$9.04 billion: crude 

oil, machinery and appliances, transport equipment, foodstuffs. Major suppliers--Saudi Arabia 

(37.3%), Japan (6.8%), U.S. (6.2%), U.K. (6.2%), Germany (5%), U.A.E. (4.2%). 

PEOPLE

Bahrain is one of the most densely populated countries in the world; about 89% of the 

population lives in the two principal cities of Manama and Al Muharraq. Approximately 66% of 

the indigenous population is originally from the Arabian Peninsula and Iran. Bahrain currently 

has a sizeable foreign labor force (about 49% of the total population). The government's 

policies on naturalization remain controversial. In June 2002, the King issued a decree 

allowing citizens of the Gulf Cooperation Council (GCC) to take up dual Bahraini nationality. 

Opposition political groups charge that the government is granting citizenship to foreign 

nationals who have served in the Bahraini armed forces and security services to alter the 

demographic balance of the country, which is primarily Shi'a. According to passport officials, 

about 40,000 individuals have been naturalized over the past 50 years (about 10% of the total 

population). 

The indigenous population is 98% Muslim. Although some two-thirds of the indigenous 

population is Shi'a Muslim, the ruling family and the majority of government, military, and 

corporate leaders are Sunni Muslims. The small indigenous Christian and Jewish 

communities make up the remaining 2% of the population. Roughly half of foreign resident 

community are non-Muslim, and include Christians, Hindus, Baha'is, Buddhists and Sikhs. 

Bahrain has invested its oil revenues in developing an advanced educational system. The first 

public schools for girls and boys were opened in the 1920s. The government continues to pay 

for all schooling costs. Although school attendance is not compulsory, primary and secondary 

attendance rates are high, and literacy rates are currently among the highest in the region. 

Higher education is available for secondary school graduates at the Bahrain University, 

Arabian Gulf University and specialized institutes including the College of Health Sciences--

operating under the direction of the Ministry of Health--which trains physicians, nurses, 

pharmacists, and paramedics. The government has identified providing educational services 

to the Gulf Cooperation Council as a potential economic growth area, and is actively working 

to establish Bahrain as a regional center for higher education. 

HISTORY

The site of the ancient Bronze Age civilization of Dilmun, Bahrain was an important center 

linking trade routes between Mesopotamia and the Indus Valley as early as 5,000 years ago. 

The Dilmun civilization began to decline about 2,000 B.C. as trade from India was cut off. 

From 750 B.C. on, Assyrian kings repeatedly claimed sovereignty over the islands. Shortly 

after 600 B.C., Dilmun was formally incorporated into the new Babylonian empire. There are 

no historical references to Bahrain until Alexander the Great's arrival in the Gulf in the 4th 

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century B.C. Although Bahrain was ruled variously by the Arab tribes of Bani Wa'el and 

Persian governors, Bahrain continued to be known by its Greek name Tylos until the 7th 

century, when many of its inhabitants converted to Islam. A regional pearling and trade center, 

Bahrain came under the control of the Ummayad Caliphs of Syria, the Abbasid Caliphs of 

Baghdad, Persian, Omani and Portuguese forces at various times from the 7th century until 

the Al Khalifa family, a branch of the Bani Utbah tribe that have ruled Bahrain since the 18th 

century, succeeded in capturing Bahrain from a Persian garrison controlling the islands in 

1783. 

In the 1830s the Al Khalifa family signed the first of many treaties establishing Bahrain as a 

British Protectorate. Similar to the binding treaties of protection entered into by other Persian 

Gulf principalities, the agreements entered into by the Al Khalifas prohibited them from 

disposing of territory and entering into relationships with any foreign government without 

British consent in exchange for British protection against the threat of military attack from 

Ottoman Turkey. The main British naval base in the region was moved to Bahrain in 1935 

shortly after the start of large-scale oil production. 

In 1968, when the British Government announced its decision (reaffirmed in March 1971) to 

end the treaty relationships with the Persian Gulf sheikdoms, Bahrain initially joined the other 

eight states (Qatar and the seven Trucial Sheikhdoms now the United Arab Emirates) under 

British protection in an effort to form a union of Arab emirates. The nine sheikhdoms still had 

not agreed on terms of union by 1971, however, prompting Bahrain to declare itself fully 

independent on August 15, 1971. 

Bahrain promulgated a constitution and elected its first parliament in 1973, but just two years 

later, in August 1975, the Amir disbanded the National Assembly after it attempted to legislate 

the end of Al-Khalifa rule and the expulsion of the U.S. Navy from Bahrain. In the 1990s, 

Bahrain suffered from repeated incidents of political violence stemming from the disaffection 

of the Shi'a majority. In response, the Amir instituted the first Bahraini cabinet change in 20 

years in 1995 and also increased the membership of the Consultative Council, which he had 

created in 1993 to provide advice and opinion on legislation proposed by the cabinet and, in 

certain cases, suggest new laws on its own, from 30 to 40 the following year. These steps led 

to an initial decline in violent incidents, but in early 1996 a number of hotels and restaurants 

were bombed, resulting in several fatalities. Over 1,000 people were arrested and held in 

detention without trial in connection with these disturbances. The government has since 

released these individuals (see Government and Political Conditions Section below for 

details). 

GOVERNMENT AND POLITICAL CONDITIONS 

Shaikh Hamad bin Isa Al Khalifa acceded to the throne in March 1999, after the death of his 

father Shaikh Isa bin Hamad Al Khalifa, Bahrain's ruler since 1961. He championed a program 

of democratic reform shortly after his accession. In November 2000, Shaikh Hamad 

established a committee to create a blueprint to transform Bahrain from a hereditary emirate 

to a constitutional monarchy within 2 years. The resulting "National Action Charter" was 

presented to the Bahraini public in a referendum in February 2001. In the first comprehensive 

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public vote in Bahrain since the 1970s, 94.8% of voters overwhelmingly endorsed the charter. 

That same month, Shaikh Hamad pardoned all political prisoners and detainees, including 

those who had been imprisoned, exiled or detained on security charges. He also abolished 

the State Security Law and the State Security Court, which had permitted the government to 

detain individuals without trial for up to 3 years. 

On February 14, 2002, one year after the referendum endorsing his National Action Charter, 

Shaikh Hamad pronounced Bahrain a constitutional monarchy and changed his status from 

Amir to King. He simultaneously announced that the first municipal elections since 1957 would 

be held in May 2002, and that a bicameral parliament, with a representative lower house, 

would be reconstituted with parliamentary elections in October 2002. As part of these 

constitutional reforms, the government created an independent financial watchdog 

empowered to investigate cases of embezzlement and violations of state expenditure in July 

2002. 

Turnout for the May 2002 municipal elections was 51%, with female voters making up 52% 

percent of voters. Turnout for the 2002 parliamentary elections--the first in almost three 

decades--was 53% in the first round and 43% in the second round, despite the fact that four 

political societies, including the largest Shi'a society, organized a boycott to protest 

constitutional provisions enacted by the King that gave the appointed upper chamber of 

parliament voting rights equal to the elected lower chamber. The new parliament held its first 

joint sitting in December 2002. Bahrain held its second set of parliamentary and municipal 

elections in November and December 2006. All registered political societies participated in the 

elections and a Shia society, Al Wifaq, now represents the largest single bloc inside the 

Council of Representatives. Thirty-two of the Council's 40 members represent Sunni and Shia 

Islamist societies. One woman, Lateefah Al-Qauod, ran uncontested and became the first 

woman elected to parliament in Bahrain. 

Bahrain has a complex system of courts, based on diverse legal sources, including Sunni and 

Shi'a Sharia (religious law), tribal law, and other civil codes and regulations created with the 

help of British advisers in the early 20th century. In 2001, Shaikh Hamad created the Supreme 

Judicial Council to regulate these courts and separate the administrative and judicial branches 

of government. 

Principal Government Officials 

King--Shaikh Hamad bin Isa Al Khalifa 

Crown Prince and Commander in Chief of the Bahrain Defense Force--Shaikh Salman bin 

Hamad bin Isa Al Khalifa 

Prime Minister--Shaikh Khalifa bin Salman Al Khalifa 

Deputy Premier--Jawad bin Salem Al Arrayed 

Deputy Premier--Shaikh Mohammad bin Mubarak Al Khalifa 

Deputy Premier--Shaikh Ali bin Khalifa Al Khalifa 

Foreign Minister--Shaikh Khalid bin Ahmed Al Khalifa 

Ambassador to the United States--Houda Nonoo 

Ambassador to the United Nations--Tawfeeq Al-Ahmed Al-Mansoor 

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Bahrain maintains an embassy in the United States at 3502 International Drive NW, 

Washington, DC 20008; tel: [1] (202) 342-1111; fax: [1] (202) 362-2192. The Bahraini Mission 

to the UN is located at 866 Second Avenue, New York, NY 10017; tel: [1] (212)223-6200; fax 

[1] (212) 319-0687. 

ECONOMY 

The first Gulf state to discover oil, Bahrain's reserves are expected to run out in 10-15 years. 

Accordingly, Bahrain has worked to diversify its economy over the past decade and has 

stabilized its oil production at about 40,000 barrels per day (b/d). Revenues from oil and 

natural gas currently account for approximately 10% of GDP yet currently provide about 75% 

of government income. The state-owned Bahrain Petroleum Company refinery built in 1935, 

the first in the Gulf, has a capacity of about 260,000 b/d. Saudi Arabia provides most of the 

crude for refinery operation via pipeline. Through an agreement with Saudi Arabia, Bahrain 

also receives half of the net output and revenues from Saudi Arabia's Abu Saafa offshore 

oilfield. 

The Bahrain National Gas Company operates a gas liquefaction plant that utilizes gas piped 

directly from Bahrain's oilfields. Gas reserves should last about 50 years at present rates of 

consumption. However, rising domestic demand spurred by a recent development boom has 

highlighted the need to increase gas supplies. The Gulf Petrochemical Industries Company is 

a joint venture of the petrochemical industries of Kuwait, the Saudi Basic Industries 

Corporation, and the Government of Bahrain. The plant, completed in 1985, produces 

ammonia and methanol for export. Growth in the hydrocarbons sector will be contingent upon 

new discoveries--Bahrain awarded exploration rights to Malaysia's Petronas and the U.S.'s 

Chevron Texaco after the resolution of Bahrain's long-standing territorial dispute with Qatar, 

but no meaningful finds have been announced to date. Bahrain's other industries include the 

majority state-owned Aluminum Bahrain (Alba)--which operates the largest aluminum smelter 

in the world outside Eastern Europe with an annual production of about 843,000 metric tons 

(mt) in 2005 after the completion of an expansion program--and related factories, such as the 

Aluminum Extrusion Company and the Gulf Aluminum Rolling Mill. Other plants include the 

Arab Iron and Steel Company's iron ore pelletizing plant (4 million tons annually) and a 

shipbuilding and repair yard. 

Bahrain's development as a major financial center has been the most widely heralded aspect 

of its diversification effort. Bahrain is a regional financial and business center; international 

financial institutions operate in Bahrain, both offshore and onshore, without impediments, and 

the financial sector is currently the largest contributor to GDP at 30%. Over 370 offshore 

banking units and representative offices are located in Bahrain, as well as 65 American firms. 

Bahrain has also made a concerted effort to become the leading Islamic finance center in the 

Arab world, standardizing regulations of the Islamic banking industry. It currently has 32 

Islamic commercial, investment and leasing banks as well as Islamic insurance (takaful) 

companies--the largest concentration of Islamic financial institutions in the Middle East. 

Bahrain is working to develop other service industries such as information technology, 

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healthcare and education. The government has used its oil revenues to build an advanced 

infrastructure in transportation and telecommunications. The state monopoly--Batelco--was 

broken in April 2003 following the establishment of the Telecommunications Regulatory 

Authority (TRA). Since that time, the TRA has granted some 63 licenses in the interest of 

promoting healthy industry competition. 

Bahrain plans to expand its airport, one of the busiest in the Gulf. More than 4.8 million 

passengers transited Bahrain International Airport in 2005. A modern, busy port offers direct 

and frequent cargo shipping connections to the U.S., Europe, and the Far East. To boost its 

competitiveness as a regional center, Bahrain is building a new port and has privatized port 

operations. 

The government of Bahrain moved toward privatizing the production of electricity and water by 

licensing Al Ezzal to construct an independent power plant at a cost of $500 million. The 

company commenced operations in May 2006. In January 2006, the government announced 

the sale of the Al Hidd Power Plant for $738 million to Hidd Power Company, a consortium of 

British, Japanese, and Belgian companies. 

Regional tourism is also a significant source of income. The government continues to favor 

large-scale tourism projects. It opened the only Formula One race track in the Middle East in 

2004, and has awarded tenders for several tourist complexes. New hotel and spa projects are 

progressing within the context of broader real estate development, much of which is geared 

toward attracting increased tourism. 

Government revenues continue to be largely dependent on the oil industry. Bahrain has 

received significant budgetary support and project grants from Saudi Arabia, Kuwait, and the 

United Arab Emirates. Buoyed by rising oil revenues, the 2007-2008 budget approved by the 

parliament in July 2006 provided for sizable increases in urban development, education, and 

social spending. Ministry of Defense spending was expected to account for 13% of current 

spending in 2007 and 2008 based on the new budget. The Ministry of Education and Ministry 

of the Interior also received substantial budget allocations. Significant capital outlays were 

allocated to improving housing and infrastructure in line with government efforts to raise the 

standard of living of the Shi'a population and to attract foreign investment. 

The government has also started to extend protections to workers. Private sector employees 

won permission to form unions in late 2002; King Hamad has given his tentative approval for 

the formation of unions in government departments. In June 2006, Bahrain passed laws 

legalizing the existence of multiple trade federations and codifying several protections for 

workers engaged in union activity. As part of the government's labor reform program, it has 

formed a Labor Market Regulatory Authority and established a fund to support the training of 

Bahraini workers 

In 2006, bilateral trade exceeded $1 billion for the first time, representing almost 50% growth 

over 2005. The U.S.-Bahrain Free Trade Agreement took effect on August 1, 2006 and is 

generating increased U.S. commercial interest in Bahrain. 

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DEFENSE 

The Bahrain Defense Force (BDF) numbers about 12,000 personnel and consists of army, 

navy, air force, air defense, and royal guard units. The public security forces and the coast 

guard are separate from the BDF and report to the Ministry of the Interior. Bahrain also has a 

national guard that consists of about 1,200 personnel. Bahrain's defense spending since 1999 

has been steady. The government spends around $630 million annually on the military, about 

20% of current expenditures. The parliamentary process has produced spirited debate over 

government spending, particularly defense spending, but no actual reductions. 

With the help of the U.S. and the Gulf Cooperation Council (GCC), Bahrain has made 

significant efforts to upgrade its defense systems and modernize its armed forces over the last 

20 years. In 1982, the GCC gave Bahrain $1.7 billion for this purpose. Since the 1991 Gulf 

War, the U.S. has provided military and defense technical assistance and training to Bahrain 

from Foreign Military Sales (FMS), commercial sources, excess defense article sales (EDA) 

and under the International Military and Education Training (IMET) program. The U.S. Office 

of Military Cooperation in Bahrain is attached to the U.S. Embassy and manages the security 

assistance mission. U.S. military sales to Bahrain since 2000 total $1.4 billion. Principal U.S. 

military systems acquired by the BDF include eight Apache helicopters, 54 M60A3 tanks, 22 F

-16C/D aircraft, 51 Cobra helicopters, 9 MLRS Launchers (with ATACMS), 20 M109A5 

Howitzers, 1 Avenger AD system, and the TPS-59 radar system. Bahrain has received $195 

million in FMF and $410 million in U.S. EDA acquisition value delivered since the U.S.-

Bahraini program began in 1993. The Bahrain Defense Force also placed orders for 9 UH60M Blackhawk helicopters and 2 Mk-V Fast Patrol Boats. Delivery of both systems was 

planned for 2009. 

Military exercises are conducted on a regular basis to increase the BDF's readiness and 

improve coordination with the U.S. and other GCC forces. The BDF also sends personnel to 

the United States for military training. This training includes courses from graduate level 

professional military education down to entry level technical training. 

FOREIGN RELATIONS 

Since achieving independence in 1971, Bahrain has pursued a policy of close consultation 

with neighboring states. Bahrain became a member of the United Nations and the Arab 

League in 1971. In 1981 it joined its five neighbors--Saudi Arabia, Oman, Kuwait, the U.A.E. 

and Qatar--to form the strategic Gulf Cooperation Council (GCC). Bahrain has complied with 

GCC efforts steps to coordinate economic development and defense and security planning. In 

December 1994, for example, Bahrain concurred with the GCC decision to drop secondary 

and tertiary boycotts against Israel. Bahrain also responded positively to Kuwait's request to 

deploy the GCC collective defense force, "Peninsula Shield," during the buildup and execution 

of Operation Iraqi Freedom (OIF) in 2003. 

In addition to maintaining strong relations with its largest financial backers, Saudi Arabia, 

Kuwait and the U.A.E., Bahrain has worked to improve its relations with Qatar and has proper, 

but not warm, relations with Iran. Bahrain-Iran relations have been strained since the 

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discovery in 1981 of an Iran-sponsored coup plot in Bahrain. Bahraini suspicions of the 

Iranian role in local unrest in the mid-1990s remain. On March 16, 2001, the International 

Court of Justice (ICJ) announced its judgment on the long-standing maritime delimitation and 

territorial dispute between Bahrain and Qatar. The binding judgment awarded sovereignty 

over the Hawar Islands and Qit'at Jaradah to Bahrain and sovereignty over Zubarah (part of 

the Qatar Peninsula), Janan Island and Fasht ad Dibal to Qatar. The peaceful settlement of 

this dispute has allowed for renewed co-operation, including plans to construct a causeway 

between the two countries. 

Bahrain's strategic partnership with the U.S. has intensified since 1991. Bahraini pilots flew 

strikes in Iraq during the 1991 Gulf War, and the country was used as a base for military 

operations in the Gulf. Bahrain also provided logistical and basing support to international 

Maritime Interdiction efforts to enforce UN sanctions and prevent illegal smuggling of oil from 

Iraq in the 1990s. Bahrain also provided extensive basing and overflight clearances for a 

multitude of U.S. aircraft operating in support of Operation Enduring Freedom (OEF) and 

Operation Iraqi Freedom (OIF). Bahrain also deployed forces in support of coalition operations 

during both OEF and OIF. Bahrain has delivered humanitarian support and technical training 

to support the reconstruction of the Iraqi banking sector, and has offered support for each 

stage of Iraq's political transformation. Bahrain has also cooperated effectively on criminal 

investigation issues in support of the campaign on terrorism; the Bahrain Monetary Agency 

(which became the Central Bank of Bahrain in September 2006) moved quickly to restrict 

terrorists' ability to transfer funds through Bahrain's financial system. In October 2006, Bahrain 

joined the U.S. and 23 other countries in a Proliferation Security Initiative interdiction 

exercise in the Persian Gulf. 

U.S.-BAHRAINI RELATIONS 

The American Mission Hospital, affiliated with the National Evangelical Church, has operated 

continuously in Bahrain for more than a century. Bahrain has also been a base for U.S. naval 

activity in the Gulf since 1947. When Bahrain became independent, the U.S.-Bahrain 

relationship was formalized with the establishment of diplomatic relations. The U.S. embassy 

at Manama was opened September 21, 1971, and a resident ambassador was sent in 1974. 

The Bahraini embassy in Washington, DC, opened in 1977. In October 1991, Amir Isa bin 

Salman Al Khalifa made a state visit to Washington. In 2001, Amir Hamad bin Isa Al-Khalifa 

made his first visit to the U.S. after succeeding his father in 1999. He returned to Washington 

on an official visit in January 2003. King Hamad made an official visit to Washington in 

November 2004 to meet with President George W. Bush and cabinet-level officials. In January 

2008, President Bush made the first visit by a sitting President to Bahrain. King Hamad visited 

Washington in March 2008. 

Bahrain and the United States signed a Defense Cooperation Agreement in October 1991 

granting U.S. forces access to Bahraini facilities and ensuring the right to pre-position material 

for future crises. Bahrain is the headquarters of the U.S. Navy's Fifth Fleet. The U.S. 

designated Bahrain a Major Non-NATO Ally in October 2001. Bahrain and the United States 

signed a Free Trade Agreement in 2004. 

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Principal U.S. Embassy Officials 

Ambassador--Adam Ereli 

Deputy Chief of Mission--Christopher Henzel 

Political/Economic Section Chief--Steven Butler 

Economic/Commercial Officer--Benjamin Thomson 

Consular Section Chief--Nausher Ali 

Public Affairs Officer--Rachel Graaf 

Management Officer--George Navadel 

The U.S. Embassy in Bahrain is located off Sheikh Isa Highway, at Building 979, Road 3119, 

Block 321, Zinj, Manama, Bahrain. The mailing address is P.O. Box 26431, Manama, Bahrain; 

tel: [973] 242-700; fax: [973] 272-594. The embassy's hours of operation outside of Ramadan 

are 8:00 a.m. - 4:00 p.m., Sundays-Thursdays. 

TRAVEL AND BUSINESS INFORMATION

The U.S. Department of State's Consular Information Program advises Americans traveling 

and residing abroad through Country Specific Information, Travel Alerts, and Travel Warnings. 

Country Specific Information exists for all countries and includes information on entry and 

exit requirements, currency regulations, health conditions, safety and security, crime, political 

disturbances, and the addresses of the U.S. embassies and consulates abroad. Travel Alerts

are issued to disseminate information quickly about terrorist threats and other relatively shortterm conditions overseas that pose significant risks to the security of American travelers. 

Travel Warnings are issued when the State Department recommends that Americans avoid 

travel to a certain country because the situation is dangerous or unstable. 

For the latest security information, Americans living and traveling abroad should regularly 

monitor the Department's Bureau of Consular Affairs Internet web site at 

http://www.travel.state.gov, where the current Worldwide Caution, Travel Alerts, and 

Travel Warnings can be found. Consular Affairs Publications, which contain information on 

obtaining passports and planning a safe trip abroad, are also available at 

http://www.travel.state.gov. For additional information on international travel, see 

http://www.usa.gov/Citizen/Topics/Travel/International.shtml.

The Department of State encourages all U.S. citizens traveling or residing abroad to register 

via the State Department's travel registration website or at the nearest U.S. embassy or 

consulate abroad. Registration will make your presence and whereabouts known in case it is 

necessary to contact you in an emergency and will enable you to receive up-to-date 

information on security conditions.

Emergency information concerning Americans traveling abroad may be obtained by calling 1-

888-407-4747 toll free in the U.S. and Canada or the regular toll line 1-202-501-4444 for 

callers outside the U.S. and Canada.

The National Passport Information Center (NPIC) is the U.S. Department of State's single, 

centralized public contact center for U.S. passport information. Telephone: 1-877-4-USA-PPT 

(1-877-487-2778); TDD/TTY: 1-888-874-7793. Passport information is available 24 hours, 7 

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days a week. You may speak with a representative Monday-Friday, 8 a.m. to 10 p.m., Eastern 

Time, excluding federal holidays.

Travelers can check the latest health information with the U.S. Centers for Disease Control 

and Prevention in Atlanta, Georgia. A hotline at 800-CDC-INFO (800-232-4636) and a web 

site at http://wwwn.cdc.gov/travel/default.aspx give the most recent health advisories, 

immunization recommendations or requirements, and advice on food and drinking water 

safety for regions and countries. The CDC publication "Health Information for International 

Travel" can be found at http://wwwn.cdc.gov/travel/contentYellowBook.aspx.

Further Electronic Information

Department of State Web Site. Available on the Internet at http://www.state.gov, the 

Department of State web site provides timely, global access to official U.S. foreign policy 

information, including Background Notes and daily press briefings along with the directory 

of key officers of Foreign Service posts and more. The Overseas Security Advisory Council 

(OSAC) provides security information and regional news that impact U.S. companies working 

abroad through its website http://www.osac.gov

Export.gov provides a portal to all export-related assistance and market information offered 

by the federal government and provides trade leads, free export counseling, help with the 

export process, and more.

STAT-USA/Internet, a service of the U.S. Department of Commerce, provides authoritative 

economic, business, and international trade information from the Federal government. The 

site includes current and historical trade-related releases, international market research, trade 

opportunities, and country analysis and provides access to the National Trade Data Bank.

Back to Top

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EXHIBIT H 

to the Declaration of John R. Coleman

Malaysia Background Note

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On this page:

Profile

People

History

Government

Political Conditions

Economy

Foreign Relations

U.S. Relations

Travel/Business

Background Notes A-Z

January 28, 2010 Bureau of East Asian and Pacific Affairs

Background Note: Malaysia

Official Name: Malaysia

PROFILE 

Geography 

Area: 329,748 sq. km. (127,315 sq. mi.); slightly larger than New Mexico. 

Cities: Capital--Kuala Lumpur. Other cities--Penang, Ipoh, Malacca, Johor Baru, Shah Alam, 

Klang, Kuching, Kota Kinabalu, Kota Baru, Kuala Terengganu, Miri, Petaling Jaya. 

Terrain: Coastal plains and interior, jungle-covered mountains. The South China Sea 

separates peninsular Malaysia from East Malaysia on Borneo. 

Climate: Tropical. 

People 

Nationality: Noun and adjective--Malaysian(s). 

Population (2009): 28.3 million. 

Annual growth rate: 2.0%. 

Ethnic groups: Malay 53.3%, Chinese 26.0%, indigenous 11.8%, Indian 7.7%, others 1.2%. 

Religions: Islam (60.4%), Buddhism (19.2%), Christianity (9.1%), Hinduism (6.3%), other/none 

(5.0%). 

Languages: Bahasa Melayu (official), Chinese (various dialects), English, Tamil, indigenous. 

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Education: Years compulsory--6. Attendance--90.1% (primary), 60.0% (secondary). Literacy--

93.5%. 

Health: Infant mortality rate (2007)--6.7/1,000. Life expectancy (2007)--female 76.4 yrs., male 

71.9 yrs. 

Work force (10.89 million, 2007): Services--57%; industry--28% (manufacturing--19%, mining 

and construction--9%); agriculture--15%. 

Government 

Type: Federal parliamentary democracy with a constitutional monarch. 

Independence: August 31, 1957. (Malaya, which is now peninsular Malaysia, became 

independent in 1957. In 1963 Malaya, Sabah, Sarawak, and Singapore formed Malaysia. 

Singapore became an independent country in 1965.) 

Constitution: 1957. 

Subdivisions: 13 states and three federal territories (Kuala Lumpur, Labuan Island, Putrajaya 

federal administrative territory). Each state has an assembly and government headed by a 

chief minister. Nine of these states have hereditary rulers, generally titled "sultans," while the 

remaining four have appointed governors in counterpart positions. 

Branches: Executive--Yang di-Pertuan Agong (head of state and customarily referred to as 

the king; has ceremonial duties), prime minister (head of government), cabinet. Legislative--

bicameral parliament, comprising 70-member Senate (26 elected by the 13 state assemblies, 

44 appointed by the king on the prime minister's recommendation) and 222-member House of 

Representatives (elected from single-member districts). Judicial--Federal Court, Court of 

Appeals, high courts, session's courts, magistrate's courts, and juvenile courts. Sharia courts 

hear cases on certain matters involving Muslims only. 

Political parties: Barisan Nasional (National Front)--a coalition comprising the United Malays 

National Organization (UMNO) and 12 other parties, most of which are ethnically based; 

Democratic Action Party (DAP); Parti Islam se Malaysia (PAS); Parti Keadilan Rakyat (PKR). 

There are more than 30 registered political parties, including the foregoing, not all of which are

represented in the federal parliament. 

Suffrage: Universal adult (voting age 21). 

Economy (2008) 

Nominal GDP: $211.1 billion. 

Annual real GDP growth rate: 5.9% (2006); 6.3% (2007); 4.6% (2008). 

Nominal per capita income (GNI): $7,355. 

Natural resources: Petroleum, liquefied natural gas (LNG), tin, minerals. 

Agricultural products: Palm oil, rubber, timber, cocoa, rice, tropical fruit, fish, coconut. 

Industry: Types--electronics, electrical products, chemicals, food and beverages, metal and 

machine products, apparel. 

Trade: Merchandise exports--$188.0 billion: electronic products, manufactured goods, 

petroleum, palm oil, liquid natural gas, apparel, timber, rubber. Major markets--U.S. 12.1%, 

Singapore 14.7%, Japan 10.8%, China 9.5%. Merchandise imports--$147.8 billion: electronic 

products, machinery, chemicals, manufactured goods, petroleum products. Major suppliers--

Japan 12.5%, China 12.8%, Singapore 11.0%, U.S. 10.8%. 

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PEOPLE 

Malaysia's multi-racial society contains many ethnic groups. Malays comprise a majority of 

just over 50%. By constitutional definition, all Malays are Muslim. About a quarter of the 

population is ethnic Chinese, a group which historically played an important role in trade and 

business. Malaysians of Indian descent comprise about 7% of the population and include 

Hindus, Muslims, Buddhists, and Christians. Non-Malay indigenous groups combine to make 

up approximately 11% of the population. 

Population density is highest in peninsular Malaysia, home to some 20 million of the country's 

28 million inhabitants. The rest live on the Malaysian portion of the island of Borneo in the 

large but less densely-populated states of Sabah and Sarawak. More than half of Sarawak's 

residents and about two-thirds of Sabah's are from indigenous groups. 

HISTORY 

The early Buddhist Malay kingdom of Srivijaya, based at what is now Palembang, Sumatra, 

dominated much of the Malay peninsula from the 9th to the 13th centuries AD. The powerful 

Hindu kingdom of Majapahit, based on Java, gained control of the Malay peninsula in the 14th 

century. Conversion of the Malays to Islam, beginning in the early 14th century, accelerated 

with the rise of the state of Malacca under the rule of a Muslim prince in the 15th century. 

Malacca was a major regional commercial center, where Chinese, Arab, Malay, and Indian 

merchants traded precious goods. 

Drawn by this rich trade, a Portuguese fleet conquered Malacca in 1511, marking the 

beginning of European expansion in Southeast Asia. The Dutch ousted the Portuguese from 

Malacca in 1641. The British obtained the island of Penang in 1786 and temporarily controlled 

Malacca with Dutch acquiescence from 1795 to 1818 to prevent it from falling to the French 

during the Napoleonic war. The British gained lasting possession of Malacca from the Dutch 

in 1824, through the Anglo-Dutch treaty, in exchange for territory on the island of Sumatra in 

what is today Indonesia. 

In 1826, the British settlements of Malacca, Penang, and Singapore were combined to form 

the Colony of the Straits Settlements. From these strongholds, in the 19th and early 20th 

centuries the British established protectorates over the Malay sultanates on the peninsula. 

During their rule the British developed large-scale rubber and tin production and established a 

system of public administration. British control was interrupted by World War II and the 

Japanese occupation from 1941 to 1945. 

Popular sentiment for independence swelled during and after the war. The territories of 

peninsular Malaysia joined together to form the Federation of Malaya in 1948 and eventually 

negotiated independence from the British in 1957. Tunku Abdul Rahman became the first 

prime minister. In 1963 the British colonies of Singapore, Sarawak, and Sabah joined the 

Federation, which was renamed Malaysia. Singapore's membership was short-lived, however; 

it left in 1965 and became an independent republic. 

Neighboring Indonesia objected to the formation of Malaysia and began a program of 

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economic, political, diplomatic, and military "confrontation" against the new country in 1963, 

which ended only after the fall of Indonesia's President Sukarno in 1966. Internally, local 

communists, nearly all Chinese, carried out a long, bitter insurgency both before and after 

independence, prompting the imposition of a state of emergency from 1948 to 1960. Small 

bands of guerrillas remained in bases along the rugged border with southern Thailand, 

occasionally entering northern Malaysia. These guerrillas finally signed a peace accord with 

the Malaysian Government in December 1989. A separate, small-scale communist insurgency 

that began in the mid-1960s in Sarawak also ended with the signing of a peace accord in 

October 1990. 

GOVERNMENT 

Malaysia is a constitutional monarchy, nominally headed by the Yang di-Pertuan Agong, 

customarily referred to as the king. The king is elected for 5-year terms from among the nine 

sultans of the peninsular Malaysian states. The king also is the leader of the Islamic faith in 

Malaysia. 

Executive power is vested in the cabinet led by the prime minister; the Malaysian constitution 

stipulates that the prime minister must be a member of the lower house of parliament who, in 

the opinion of the Yang di-Pertuan Agong, commands a majority in parliament. The cabinet is 

chosen from among members of both houses of parliament and is responsible to that body. 

The bicameral parliament consists of the Senate (Dewan Negara) and the House of 

Representatives (Dewan Rakyat). All 70 Senate members sit for 3-year terms, which are 

normally extended for an additional 3 years; 26 are elected by the 13 state assemblies, and 

44 are appointed by the king following the prime minister's recommendation. Representatives 

of the House are elected from single-member districts by universal adult suffrage. The 222 

members of the House of Representatives are elected to parliamentary terms lasting up to 5 

years. Legislative power is divided between federal and state legislatures. 

The Malaysian legal system is based on English common law. The Federal Court reviews 

decisions referred from the Court of Appeal; it has original jurisdiction in constitutional matters 

and in disputes between states or between the federal government and a state. Peninsular 

Malaysia and the East Malaysian states of Sabah and Sarawak each have a high court. 

The federal government has authority over external affairs, defense, internal security, justice 

(except civil law cases among Malays or other Muslims and other indigenous peoples, 

adjudicated under Islamic and traditional law), federal citizenship, finance, commerce, 

industry, communications, transportation, and other matters. 

Principal Government Officials 

Prime Minister--Dato' Sri Mohd Najib bin Tun Haji Razak 

Foreign Minister--Datuk Anifah Haji Aman 

Ambassador to the U.S.--Dato' Sri Jamaludin Jarjis 

Ambassador to the UN--Datuk Hamidon bin Ali 

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Malaysia maintains an embassy in the U.S. at 3516 International Court NW, Washington, DC 

20008, tel. (202) 572-9700; a Consulate General at 550 South Hope Street, Suite 400, Los 

Angeles, CA 90071, tel. (213) 892-1238; and a Consulate General at 313 East 43rd Street, 

New York City, NY 10017, tel. (212) 490-2722/23. 

POLITICAL CONDITIONS 

Malaysia's predominant political party, the United Malays National Organization (UMNO), has 

held power in coalition with other parties continuously since independence in 1957. The 

UMNO coalition's share of the vote declined in national elections held in May 1969, after 

which riots broke out in Kuala Lumpur and elsewhere, mainly between Malays and ethnic 

Chinese. Several hundred people were killed or injured. The government declared a state of 

emergency and suspended all parliamentary activities. 

In the years that followed, Malaysia undertook several initiatives that became integral parts of 

its socioeconomic model. The New Economic Policy (NEP), launched in 1971, contained a 

series of affirmative action policies designed to benefit Malays and certain indigenous groups 

(together known as bumiputera or "sons of the soil"). The constitution was amended to limit 

dissent against the specially-protected and sensitive portions of the constitution pertaining to 

the social contract. The government identified intercommunal harmony as one of its official 

goals. The previous alliance of communally based parties was replaced with a broader 

coalition--the Barisan Nasional (BN) or National Front. The BN won large majorities in the 

1974 federal and state elections. 

Mahathir Mohamad was Prime Minister between 1981 and 2003, leading UMNO and BN to 

successive election victories. Mahathir emphasized economic development during his tenure, 

in particular the export sector, as well as large-scale infrastructure projects. Mahathir 

attributed the success of the Asian tiger economies to the "Asian values" of its people, which 

he believed were superior to those of the West. Mahathir sharply criticized the International 

Monetary Fund (IMF), international financiers such as George Soros, and Western 

governments during the sharp economic and financial crisis that affected Asia in 1997-1998, 

and denied that the downturn was due to the failures of corruption and "crony capitalism." 

The end of Mahathir's tenure was marred by a falling out with his deputy and presumed 

successor, Anwar Ibrahim. In September 1998, Mahathir dismissed Anwar and accused him 

of immoral and corrupt conduct. Although Anwar was convicted on both charges in 1999 and 

2000, the trials were viewed as seriously flawed. Malaysia's Federal Court eventually freed 

Anwar after overturning his immoral conduct conviction in September 2004. 

Mahathir stepped down as Prime Minister in October 2003 after 22 years in power, and his 

successor, Deputy Prime Minister Abdullah Ahmad Badawi, was sworn into office. Abdullah 

called elections and won an overwhelming victory in March 2004. Abdullah, an Islamic 

scholar, promoted the concept of "Islam Hadhari" or "civilizational Islam," emphasizing the 

importance of education, social harmony, and economic progress. His relationship with 

Mahathir eventually soured, with Mahathir expressing regret at supporting Abdullah to be his 

successor. 

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Malaysia held national elections in March 2008. UMNO and its coalition allies in the BN won a 

simple majority of the seats in the national parliament, but for the first time in history failed to 

gain the two-thirds majority necessary to amend the constitution. A loose coalition of 

opposition parties, called the Pakatan Rakyat or Peoples Alliance, led by Anwar Ibrahim, won 

82 of 222 seats in parliament and took control of the state-level assemblies in five of 

Malaysia's thirteen states. However, in February 2009 the opposition Alliance lost control of 

one of the states through defections of its assembly members to the National Front. Prime 

Minister Abdullah, taking responsibility for his party’s poor showing in the March 2008 general 

election, stepped down as Prime Minister in a carefully timed transfer of power to his deputy, 

Najib Tun Razak, in April 2009. 

ECONOMY 

Since it became independent, Malaysia's economic record has been one of Asia's best. Real 

gross domestic product (GDP) grew by an average of 6.5% per year from 1957 to 2005. 

Performance peaked in the early 1980s through the mid-1990s, as the economy experienced 

sustained rapid growth averaging almost 8% annually. High levels of foreign and domestic 

investment played a significant role as the economy diversified and modernized. Once heavily 

dependent on primary products such as rubber and tin, Malaysia today is a middle-income 

country with a multi-sector economy based on services and manufacturing. Malaysia is one of 

the world's largest exporters of semiconductor devices, electrical goods, and information and 

communication technology (ICT) products. 

The government continues to actively manage the economy. Malaysia's New Economic Policy 

(NEP), first established in 1971, was a 10-year plan that sought to rectify a situation whereby 

ethnic Malays and indigenous peoples (“bumiputera”), who comprised nearly 60% of the 

population, held less than 3% of the nation’s wealth. Policy makers implemented a complex 

network of racial preferences intended to promote the acquisition of economic assets by 

bumiputera. In 1981 when the racial preferences were set to expire, the government extended 

the NEP for another 10 years, stating that its goals had not been achieved. The policies again 

were extended in 1991 and in 2001. The Malaysian Government plans to release a new 

economic model in 2010 which will modify and in some cases eliminate NEP measures in an 

effort to stimulate higher levels of investment and GDP growth over the next decade. 

The Malaysian economy went into sharp recession in 1997-1998 during the Asian financial 

crisis, which affected countries throughout the region, including South Korea, Indonesia, and 

Thailand. Malaysia's GDP contracted by more than 7% in 1998. Malaysia narrowly avoided a 

return to recession in 2001 when its economy was negatively impacted by the bursting of the 

dot-com bubble (which hurt the ICT sector) and slow growth or recession in many of its 

important export markets. The global financial crisis threw Malaysia into recession again in 

2009, and the government expects a contraction in GDP of around 3% for the year. 

Economists expect Malaysia to return to a positive growth path in 2010. 

In July 2005, the government removed the 7-year-old peg linking the ringgit's value to the U.S. 

dollar at an exchange rate of RM 3.8/U.S. $1.0. The dollar peg was replaced by a managed 

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float against an undisclosed basket of currencies. The new exchange rate policy was 

designed to keep the ringgit more broadly stable and to avoid uncertain currency swings 

which could harm exports. 

The Malaysian financial system exhibited noteworthy resilience to the 2008 global financial 

crisis. Malaysian banks are well capitalized and have no measurable exposure to the U.S. sub

-prime market. The central bank maintains a conservative regulatory environment, having 

prohibited some of the riskier assets in vogue elsewhere. However, decreasing demand in the 

U.S. and elsewhere is taking a toll on Malaysian exports, resulting in negative GDP growth for 

2009 with recovery expected in 2010. 

FOREIGN RELATIONS 

Regional cooperation is a cornerstone of Malaysia's foreign policy. It was a founding member 

of the Association of Southeast Asian Nations (ASEAN) and served as the group's chair most 

recently in 2005-2006. It hosted the ASEAN Summit and East Asia Summit in December 

2005, as well as the ASEAN Ministerial and the ASEAN Regional Forum in July 2006. 

Malaysia is an active member of the Asia Pacific Economic Cooperation (APEC) forum, the 

Organization of the Islamic Conference (OIC), the Non-Aligned Movement (NAM), and the 

United Nations. It was chair of the OIC until March 2008 and has also chaired the NAM. 

Malaysia is a frequent contributor to UN and other peacekeeping and stabilization missions, 

including recent deployments to Lebanon, Timor-Leste, Philippines, Indonesia, Pakistan, 

Sierra Leone, and Kosovo. 

U.S.-MALAYSIAN RELATIONS 

The United States and Malaysia share a diverse and expanding partnership. Economic ties 

are robust. The United States is Malaysia's largest trading partner and Malaysia is the 

sixteenth-largest trading partner of the U.S. Annual two-way trade amounts to $44 billion. The 

United States and Malaysia launched negotiations for a bilateral free trade agreement (FTA) 

in June 2006. 

The United States is the largest foreign investor in Malaysia on a cumulative basis. American 

companies are particularly active in the energy, electronics, and manufacturing sectors. The 

U.S. direct investment position in Malaysia for 2007 was $15.7 billion. 

The United States and Malaysia cooperate closely on security matters, including 

counterterrorism, maritime domain awareness, and regional stability. The relationship 

between the U.S. and Malaysian militaries is also strong with numerous exchanges, training, 

joint exercises, and visits. The U.S. and Malaysia signed a Mutual Legal Assistance Treaty 

(MLAT) in July 2006 during the visit to Kuala Lumpur by Secretary of State Condoleezza Rice. 

The United States and Malaysia have a long history of people-to-people exchanges. Well over 

100,000 Malaysians have studied in the U.S. At any one time there are over 7,000 Malaysians 

studying at U.S. universities. Last year approximately 130 Malaysians took part in U.S. 

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Government-sponsored exchange programs for professional development and study. Each 

year, about 50 Americans travel to Malaysia under U.S. Government auspices to share their 

experience as visiting academics or speakers. 

There are approximately 1,500 alumni of the International Visitor Leadership Program (IVLP) 

and 2,000 from the Fulbright, Humphrey, Eisenhower, and Youth Exchange for Study (YES) 

programs. Prominent Malaysian alumni include federal ministers, deputy ministers, and 

members of parliament from both the ruling party and opposition parties. At least four current 

and past chief ministers (state governors) are alumni, and former Prime Minister Mahathir is 

an alumnus of a 1973 program. These alumni have used their educations to create a stronger 

Malaysian society and have built enduring understanding between Malaysia and America. 

Their contributions to Malaysian society will continue for many years to come. 

Principal U.S. Embassy Officials 

Ambassador--James R. Keith 

Deputy Chief of Mission--Robert G. Rapson 

Political Counselor--Brian D. McFeeters 

Economic Counselor--Matt J. Matthews 

Commercial Counselor--Nasir A. Abbasi 

Public Affairs Officer--Marrie Y. Schaefer 

Agricultural Attache--David W. Cottrell 

Consul General--Charles J. Wintheiser 

The U.S. Embassy in Malaysia is located at 376 Jalan Tun Razak, 50400 Kuala Lumpur (tel. 

60-3-2168-5000, fax 60-3-2142-2207). 

TRAVEL AND BUSINESS INFORMATION

The U.S. Department of State's Consular Information Program advises Americans traveling 

and residing abroad through Country Specific Information, Travel Alerts, and Travel Warnings. 

Country Specific Information exists for all countries and includes information on entry and 

exit requirements, currency regulations, health conditions, safety and security, crime, political 

disturbances, and the addresses of the U.S. embassies and consulates abroad. Travel Alerts

are issued to disseminate information quickly about terrorist threats and other relatively shortterm conditions overseas that pose significant risks to the security of American travelers. 

Travel Warnings are issued when the State Department recommends that Americans avoid 

travel to a certain country because the situation is dangerous or unstable. 

For the latest security information, Americans living and traveling abroad should regularly 

monitor the Department's Bureau of Consular Affairs Internet web site at 

http://www.travel.state.gov, where the current Worldwide Caution, Travel Alerts, and 

Travel Warnings can be found. Consular Affairs Publications, which contain information on 

obtaining passports and planning a safe trip abroad, are also available at 

http://www.travel.state.gov. For additional information on international travel, see 

http://www.usa.gov/Citizen/Topics/Travel/International.shtml.

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The Department of State encourages all U.S. citizens traveling or residing abroad to register 

via the State Department's travel registration website or at the nearest U.S. embassy or 

consulate abroad. Registration will make your presence and whereabouts known in case it is 

necessary to contact you in an emergency and will enable you to receive up-to-date 

information on security conditions.

Emergency information concerning Americans traveling abroad may be obtained by calling 1-

888-407-4747 toll free in the U.S. and Canada or the regular toll line 1-202-501-4444 for 

callers outside the U.S. and Canada.

The National Passport Information Center (NPIC) is the U.S. Department of State's single, 

centralized public contact center for U.S. passport information. Telephone: 1-877-4-USA-PPT 

(1-877-487-2778); TDD/TTY: 1-888-874-7793. Passport information is available 24 hours, 7 

days a week. You may speak with a representative Monday-Friday, 8 a.m. to 10 p.m., Eastern 

Time, excluding federal holidays.

Travelers can check the latest health information with the U.S. Centers for Disease Control 

and Prevention in Atlanta, Georgia. A hotline at 800-CDC-INFO (800-232-4636) and a web 

site at http://wwwn.cdc.gov/travel/default.aspx give the most recent health advisories, 

immunization recommendations or requirements, and advice on food and drinking water 

safety for regions and countries. The CDC publication "Health Information for International 

Travel" can be found at http://wwwn.cdc.gov/travel/contentYellowBook.aspx.

Further Electronic Information

Department of State Web Site. Available on the Internet at http://www.state.gov, the 

Department of State web site provides timely, global access to official U.S. foreign policy 

information, including Background Notes and daily press briefings along with the directory 

of key officers of Foreign Service posts and more. The Overseas Security Advisory Council 

(OSAC) provides security information and regional news that impact U.S. companies working 

abroad through its website http://www.osac.gov

Export.gov provides a portal to all export-related assistance and market information offered 

by the federal government and provides trade leads, free export counseling, help with the 

export process, and more.

STAT-USA/Internet, a service of the U.S. Department of Commerce, provides authoritative 

economic, business, and international trade information from the Federal government. The 

site includes current and historical trade-related releases, international market research, trade 

opportunities, and country analysis and provides access to the National Trade Data Bank.

Back to Top

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EXHIBIT I 

to the Declaration of John R. Coleman

Indonesia Background Note

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On this page:

Profile

People

History

Government

Political Conditions

Economy

Defense

Foreign Relations

U.S. Relations

Travel/Business

Background Notes A-Z

January 21, 2010 Bureau of East Asian and Pacific Affairs

Background Note: Indonesia

Official Name: Republic of Indonesia

PROFILE 

Geography 

Area: 2 million sq. km. (736,000 sq. mi.), about three times the size of Texas; maritime area: 

7,900,000 sq. km. 

Cities: Capital--Jakarta (est. 8.8 million). Other cities--Surabaya 3.0 million, Medan 2.5 million, 

Bandung 2.5 million. 

Terrain: More than 17,500 islands; 6,000 are inhabited; 1,000 of which are permanently 

settled. Large islands consist of coastal plains with mountainous interiors. 

Climate: Equatorial but cooler in the highlands. 

People 

Nationality: Noun and adjective--Indonesian(s). 

Population (July 2009 est.): 240.3 million. 

Annual population growth rate (2009 est.): 1.136%. 

Ethnic groups (2000 census): Javanese 40.6%, Sundanese 15%, Madurese 3.3%, 

Minangkabau 2.7%, others 38.4%. 

Religions (2000 census): Muslim 86.1%, Protestant 5.7%, Catholic 3%, Hindu 1.8%, others 

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3.4%. 

Languages: Indonesian (official), local languages, the most prevalent of which is Javanese. 

Education: Years compulsory--9. Enrollment--94% of eligible primary school-age children. 

Literacy--90.4% (2007). 

Health: Infant mortality rate (2009 est.)--29.97/1,000. Life expectancy at birth (2009 est.)--

70.76 years. 

Work force: 111.5 million (2008). Agriculture--42%, industry--12%, services--44%. 

Government 

Type: Independent republic. 

Independence: August 17, 1945 proclaimed. 

Constitution: 1945. Embodies five principles of the state philosophy, called Pancasila, namely 

monotheism, humanitarianism, national unity, representative democracy by consensus, and 

social justice. 

Branches: Executive--president (head of government and chief of state) elected by direct 

popular vote. Legislative--The People's Consultative Assembly (MPR), which includes the 560

-member House of Representatives (DPR) and the 132-member Council of Regional 

Representatives (DPD), both elected to five-year terms. Judicial--Supreme Court is the final 

court of appeal. Constitutional Court has power of judicial review 

Suffrage: 17 years of age universal, and married persons regardless of age. 

Economy 

GDP (2007): $433 billion; (2008 est.): $511 billion. 

Annual growth rate (2007): 6.3%; (2008): 6.1%; (2009 est.): 3.5%. 

Inflation (2007): 6.6%; (2008): 11.1%; (2009 end-February): 8.6%. 

Per capita income (2008 est., PPP): $3,900. 

Natural resources (11.0% of GDP): Oil and gas, bauxite, silver, tin, copper, gold, coal. 

Agriculture (14.4% of GDP): Products--timber, rubber, rice, palm oil, coffee. Land--17% 

cultivated. 

Manufacturing (27.9% of GDP): Garments, footwear, electronic goods, furniture, paper 

products. 

Trade: Exports (2008)--$136.8 billion including oil, natural gas, crude palm oil, coal, 

appliances, textiles, and rubber. Major export partners--Japan, U.S., Singapore, China, 

Malaysia, and Republic of Korea. Imports (2008)--$128.8 billion including oil and fuel, food, 

chemicals, capital goods, consumer goods, iron and steel. Major import partners--Singapore, 

China, Japan. 

PEOPLE 

Indonesia's approximately 240.3 million people make it the world's fourth-most populous 

nation. The island of Java, roughly the size of New York State, is the most populous island in 

the world (124 million, 2005 est.) and one of the most densely populated areas in the world. 

Indonesia includes numerous related but distinct cultural and linguistic groups, many of which 

are ethnically Malay. Since independence, Bahasa Indonesia (the national language, a form 

of Malay) has spread throughout the archipelago and has become the language of most 

written communication, education, government, business, and media. Local languages are 

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still important in many areas, however. English is the most widely spoken foreign language. 

Education is compulsory for children through grade 9. In primary school, 94% of eligible 

children are enrolled whereas 57% of eligible children are enrolled in secondary school. 

Constitutional guarantees of religious freedom apply to the six religions recognized by the 

state, namely Islam (86.1%), Protestantism (5.7%), Catholicism (3%), Hinduism (1.8%), 

Buddhism (about 1%), and Confucianism (less than 1%). On the resort island of Bali, over 

90% of the population practices Hinduism. In some remote areas, animism is still practiced. 

HISTORY 

By the time of the Renaissance, the islands of Java and Sumatra had already enjoyed a 1,000

-year heritage of advanced civilization spanning two major empires. During the 7th-14th 

centuries, the Buddhist kingdom of Srivijaya flourished on Sumatra. At its peak, the Srivijaya 

Empire reached as far as West Java and the Malay Peninsula. Also by the 14th century, the 

Hindu Kingdom of Majapahit had risen in eastern Java. Gadjah Mada, the empire's chief 

minister from 1331 to 1364, succeeded in gaining allegiance from most of what is now modern 

Indonesia and much of the Malay archipelago as well. Legacies from Gadjah Mada's time 

include a codification of law and an epic poem. Islam arrived in Indonesia sometime during 

the 12th century and, through assimilation, supplanted Hinduism by the end of the 16th 

century in Java and Sumatra. Bali, however, remains overwhelmingly Hindu. In the eastern 

archipelago, both Christian and Islamic proselytizing took place in the 16th and 17th centuries, 

and, currently, there are large communities of both religions on these islands. 

Beginning in 1602, the Dutch slowly established themselves as rulers of Indonesia, exploiting 

the weakness of the small kingdoms that had replaced that of Majapahit. The only exception 

was East Timor, which remained under Portugal's control until 1975. During 300 years of rule, 

the Dutch developed the Netherlands East Indies into one of the world's richest colonial 

possessions. 

During the first decade of the 20th century, an Indonesian independence movement began 

and expanded rapidly, particularly between the two World Wars. Its leaders came from a small 

group of young professionals and students, some of whom had been educated in the 

Netherlands. Many, including Indonesia's first president, Soekarno (1945-67), were 

imprisoned for political activities. 

The Japanese occupied Indonesia for three years during World War II (1942-1945). On 

August 17, 1945, three days after the Japanese surrender to the Allies, a small group of 

Indonesians, led by Soekarno and Mohammad Hatta, proclaimed independence and 

established the Republic of Indonesia. They set up a provisional government and adopted a 

constitution to govern the republic until elections could be held and a new constitution written. 

Dutch efforts to reestablish complete control met strong resistance. After four years of warfare 

and negotiations, the Dutch transferred sovereignty to a federal Indonesian Government. In 

1950, Indonesia became the 60th member of the United Nations. 

Shortly after hostilities with the Dutch ended in 1949, Indonesia adopted a new constitution, 

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providing for a parliamentary system of government in which the executive was chosen by 

and accountable to parliament. Parliament was divided among many political parties before 

and after the country's first nationwide election in 1955, and stable governmental coalitions 

were difficult to achieve. The role of Islam in Indonesia became a divisive issue. Soekarno 

defended a secular state based on Pancasila, five principles of the state philosophy--

monotheism, humanitarianism, national unity, representative democracy by consensus, and 

social justice--codified in the 1945 constitution, while some Muslim groups preferred either an 

Islamic state or a constitution that included a preambular provision requiring adherents of 

Islam to be subject to Islamic law. At the time of independence, the Dutch retained control 

over the western half of New Guinea (known as Irian Jaya in the Soekarno and Suharto eras 

and as Papua since 2000) and permitted steps toward self-government and independence. 

Negotiations with the Dutch on the incorporation of Irian Jaya into Indonesia failed, and armed 

clashes broke out between Indonesian and Dutch troops in 1961. In August 1962, the two 

sides reached an agreement, and Indonesia assumed administrative responsibility for Irian 

Jaya on May 1, 1963. The Indonesian Government conducted an "Act of Free Choice" in Irian 

Jaya under UN supervision in 1969 in which 1,025 Papuan representatives of local councils 

agreed by consensus to remain a part of Indonesia. A subsequent UN General Assembly 

resolution confirmed the transfer of sovereignty to Indonesia. Opposition to Indonesian 

administration of Papua gave rise to small-scale guerrilla activity in the years following 

Jakarta's assumption of control. In the more open atmosphere since 1998, there have been 

more explicit expressions within Papua calling for independence from Indonesia. 

Unsuccessful rebellions on Sumatra, Sulawesi, West Java, and other islands beginning in 

1958, plus a failure by the constituent assembly to develop a new constitution, weakened the 

parliamentary system. Consequently, in 1959, when President Soekarno unilaterally revived 

the provisional 1945 constitution that provided for broad presidential powers, he met little 

resistance. From 1959 to 1965, President Soekarno imposed an authoritarian regime under 

the label of "Guided Democracy." He also moved Indonesia's foreign policy toward 

nonalignment, a foreign policy stance supported by other prominent leaders of former colonies 

who rejected formal alliances with either the West or Soviet bloc. Under Soekarno's auspices, 

these leaders gathered in Bandung, West Java, in 1955 to lay the groundwork for what 

became known as the Non-Aligned Movement. In the late 1950s and early 1960s, President 

Soekarno moved closer to Asian communist states and toward the Indonesian Communist 

Party (PKI) in domestic affairs. Though the PKI represented the largest communist party 

outside the Soviet Union and China, its mass support base never demonstrated an ideological 

adherence typical of communist parties in other countries. 

By 1965, the PKI controlled many of the mass civic and cultural organizations that Soekarno 

had established to mobilize support for his regime and, with Soekarno's acquiescence, 

embarked on a campaign to establish a "Fifth Column" by arming its supporters. Army leaders 

resisted this campaign. Under circumstances that have never been fully explained, on 

October 1, 1965, PKI sympathizers within the military, including elements from Soekarno's 

palace guard, occupied key locations in Jakarta and kidnapped and murdered six senior 

generals. Major General Suharto, the commander of the Army Strategic Reserve, rallied army 

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troops opposed to the PKI to reestablish control over the city. Violence swept throughout 

Indonesia in the aftermath of the October 1 events, and unsettled conditions persisted through 

1966. Right-wing gangs killed tens of thousands of alleged communists in rural areas. 

Estimates of the number of deaths range between 160,000 and 500,000. The violence was 

especially brutal in Java and Bali. During this period, PKI members by the tens of thousands 

turned in their membership cards. The emotions and fears of instability created by this crisis 

persisted for many years as the communist party remains banned from Indonesia. 

Throughout the 1965-66 period, President Soekarno vainly attempted to restore his political 

stature and shift the country back to its pre-October 1965 position. Although he remained 

President, in March 1966, Soekarno transferred key political and military powers to General 

Suharto, who by that time had become head of the armed forces. In March 1967, the 

Provisional People's Consultative Assembly (MPRS) named General Suharto acting 

President. Soekarno ceased to be a political force and lived under virtual house arrest until his 

death in 1970. 

President Suharto proclaimed a "New Order" in Indonesian politics and dramatically shifted 

foreign and domestic policies away from the course set in Soekarno's final years. The New 

Order established economic rehabilitation and development as its primary goals and pursued 

its policies through an administrative structure dominated by the military but with advice from 

Western-educated economic experts. In 1968, the People's Consultative Assembly (MPR) 

formally selected Suharto to a full five-year term as President, and he was reelected to 

successive five-year terms in 1973, 1978, 1983, 1988, 1993, and 1998. In mid-1997, 

Indonesia suffered from the Asian financial and economic crisis, accompanied by the worst 

drought in 50 years and falling prices for oil, gas, and other commodity exports. As the 

exchange rate changed from a fixed to a managed float to fully floating, the rupiah (IDR or Rp) 

depreciated in value, inflation increased significantly, and capital flight accelerated. 

Demonstrators, initially led by students, called for Suharto's resignation. Amid widespread civil 

unrest, Suharto resigned on May 21, 1998, three months after the MPR had selected him for a 

seventh term. Suharto's hand-picked Vice President, B.J. Habibie, became Indonesia's third 

President. President Habibie reestablished International Monetary Fund (IMF) and donor 

community support for an economic stabilization program. He released several prominent 

political and labor prisoners, initiated investigations into the unrest, and lifted controls on the 

press, political parties, and labor unions. 

In January 1999, Habibie and the Indonesian Government agreed to a process, with UN 

involvement, under which the people of East Timor would be allowed to choose between 

autonomy and independence through a direct ballot held on August 30, 1999. Some 98% of 

registered voters cast their ballots, and 78.5% of the voters chose independence over 

continued integration with Indonesia. Many people were killed by Indonesian military forces 

and military-backed militias in a wave of violence and destruction after the announcement of 

the pro-independence vote. 

Indonesia's first elections in the post-Suharto period were held for the national, provincial, and 

sub-provincial parliaments on June 7, 1999. Forty-eight political parties participated in the 

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elections. For the national parliament, Partai Demokrasi Indonesia Perjuangan (PDI-P, 

Indonesian Democratic Party of Struggle, led by Megawati Sukarnoputri) won 34% of the vote; 

Golkar ("Functional Groups" party) 22%; Partai Kebangkitan Bangsa (PKB, National 

Awakening Party, linked to the conservative Islamic organization Nadhlatul Ulama headed by 

former President Abdurrahman Wahid) 13%; and Partai Persatuan Pembangunan (PPP, 

United Development Party, led by Hamzah Haz) 11%. The MPR selected Abdurrahman 

Wahid as Indonesia's fourth President in November 1999 and replaced him with Megawati 

Sukarnoputri in July 2001. 

The constitution, as amended in the post-Suharto era, provides for the direct election by 

popular vote of the president and vice president. Under the 2004 amendment, only parties or 

coalitions of parties that gained at least 3% of the House of Representatives (DPR) seats or 

5% of the vote in national legislative elections were eligible to nominate a presidential and 

vice presidential ticket. 

The 2004 legislative elections took place on April 5 and were considered to be generally free 

and fair. Twenty-four parties took part in the elections. Big parties lost ground, while small 

parties gained larger shares of the vote. However, the two Suharto-era nationalist parties, PDI

-P and Golkar, remained in the lead. PDI-P (opposition party during the Suharto era) lost its 

plurality in the House of Representatives, dropping from 33% to 18.5% of the total vote (and 

from 33% to 20% of the seats). The Golkar Party (Suharto’s political party) declined slightly 

from 1999 levels, going from 22% to 21% of the national vote (from 26% to 23% of DPR 

seats). The third- and fourth-largest parties (by vote share) were two Islamic-oriented parties, 

the United Development Party (PPP) (8% of the votes, 10.5% of the seats) and National 

Awakening Party (PKB) (10.5% of the vote, 9.45% of the seats). Susilo Bambang 

Yudhoyono’s nationalist Democratic Party (PD) won 7.45% of the national vote and 10% of 

the DPR seats, making it the fourth-largest party in the DPR. Seven of the 24 parties won no 

DPR seats; six won 1-2 seats, and the other six won between 2%-6% of the national vote 

(between 5-52 DPR seats). 

The first direct presidential election was held on July 5, 2004, contested by five tickets. As no 

candidate won at least 50% of the vote, a runoff election was held on September 20, 2004, 

between the top two candidates, President Megawati Sukarnoputri and retired General Susilo 

Bambang Yudhoyono. In this final round, Yudhoyono won 60.6% of the vote. Approximately 

76.6% of the eligible voters participated, a total of roughly 117 million people, making 

Indonesia's presidential election the largest single-day election in the world. The Carter 

Center, which sent a delegation of election observers, issued a statement congratulating "the 

people and leaders of Indonesia for the successful conduct of the presidential election and the 

peaceful atmosphere that has prevailed throughout the ongoing democratic transition." 

In 2009, national legislative elections were held on April 9 and presidential elections were held 

in July. They were peaceful and considered free and fair. New electoral rules required that a 

party win 2.5% of the national vote in order to enter parliament. A total of thirty-eight national 

and six local (Aceh only) parties contested the 2009 legislative elections. At least 171 million 

voters registered to vote in these elections. Voter turnout was estimated to be 71% of the 

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electorate. Nine parties won parliamentary seats in the House of Representatives (DPR). The 

top three winners were secular nationalist parties: President Yudhoyono’s Partai Demokrat, 

with 20.85% of the vote; Vice President Jusuf Kalla’s Golkar Party, 14.45%; and former 

president Megawati’s opposition PDI-P party, with 14.03%. The next four largest parties were 

all Islamic-oriented parties: PKS, PAN (6%), PPP (5.3%), and PKB (4.9%). Only PKS 

maintained its 2004 vote share (7.88%); the other three declined significantly in popularity. 

The smallest two parties in Parliament, Gerindra and Hanura, with 4.46 and 3.77% of the vote 

respectively, are run by retired Suharto-era army generals Prabowo Subianto and Wiranto 

(one name only). The 2009 DPR members took their seats October 1. 

Also in 2009, the threshold was revised so that only parties or coalitions of parties that gained 

at least 20% of the House of Representatives (DPR) seats or 25% of the vote in the 2009 

national legislative elections would be eligible to nominate a presidential and vice presidential 

ticket. Partai Demokrat, Golkar, and PDI-P parties, the top winners in the legislative elections, 

nominated presidential candidates. To win in one round, a presidential candidate was required 

to receive more than 50% of the vote and more than 20% of the vote in 17 of Indonesia’s 33 

provinces. If no candidate did so, the top two candidates would have competed in a second 

round in September 2009. 

Three tickets competed in the presidential elections. Incumbent President Yudhoyono and his 

running mate, non-partisan former Central Bank Chair and Economics Minister Boediono, won 

the election with such a significant plurality--60.6%--that it obviated the need for a second 

round of elections. Main challenger and former president and opposition leader Megawati 

Sukarnoputri and running mate Prabowo Subianto trailed with 28%. Meanwhile, Vice 

President Jusuf Kalla and running mate Wiranto came in last at 12.7%. Indonesia’s 

Consultative Assembly (MPR) inaugurated President Susilo Bambang Yudhoyono for his 

second term as president on October 20, 2009. 

Natural disasters have devastated many parts of Indonesia over the past few years. On 

December 26, 2004, a 9.1 to 9.3 magnitude earthquake took place in the Indian Ocean, and 

the resulting tsunami killed over 130,000 people in Aceh and left more than 500,000 

homeless. On March 26, 2005, an 8.7 magnitude earthquake struck between Aceh and 

northern Sumatra, killing 905 people and displacing tens of thousands. After much media 

attention on the seismic activity on Mt. Merapi in April and May 2006, a 6.2 magnitude 

earthquake occurred 30 miles to the southwest. It killed more than 5,000 people and left an 

estimated 200,000 people homeless in the Yogyakarta region. An earthquake of 7.4 struck 

Tasikmalaya, West Java, on September 2, 2009, killing approximately 100 people. On 

September 30, 2009, a 7.6 magnitude earthquake struck Western Sumatra. There have been 

no official statistics released on deaths and injuries; however, press reports indicated more 

than 1,100 fatalities. 

GOVERNMENT AND POLITICAL CONDITIONS 

Indonesia is a republic based on the 1945 constitution providing for a separation of executive, 

legislative, and judicial power. Substantial restructuring has occurred since President 

Suharto's resignation in 1998 and the short, transitional Habibie administration in 1998 and 

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1999. The Habibie government established political reform legislation that formally set up new 

rules for the electoral system, the House of Representatives (DPR), the People's Consultative 

Assembly (MPR), and political parties without changing the 1945 Indonesian constitution. 

After these reforms, the constitution now limits the president to two terms in office. 

Indonesia adopted a bicameral legislative system following the establishment of the DPD 

(Regional Representatives Council), which was first elected in 2004. The DPD is composed of 

four representatives from each of Indonesia’s 33 provinces. Although it can make proposals 

and submit opinions on legislative matters concerning the regions, it does not have the power 

to create legislation. The MPR consists of both the DPD and the DPR. The MPR has the 

power to inaugurate and to impeach the president (upon the recommendation of the DPR). 

The current Speaker of the MPR is Taufik Kiemas (from the opposition PDI-P Party) and the 

Speaker of the DPR is Marzuki Alie (from the ruling Democrat Party). These speakers and 

four deputy speakers for the DPR and MPR took up their positions on October 5, 2009. The 

largest party in the DPR, now President Yudhoyono’s Partai Demokrat, filled the influential 

DPR speaker position. 

The president, elected for a 5-year term, is the top government and political figure. The 

president and the vice president were elected by popular vote for the first time on September 

20, 2004. Previously, the MPR selected Indonesia's president. In 1999, the MPR selected 

Abdurrahman Wahid, also known as Gus Dur, as the fourth President. The MPR removed 

Gus Dur in July 2001, immediately appointing then-Vice President Megawati Sukarnoputri as 

the fifth President. Megawati brought a certain amount of stability to Indonesia, yet there were 

concerns over progress on combating corruption and encouraging economic growth. In 2004, 

Susilo Bambang Yudhoyono was elected to succeed Megawati. He was re-elected in 2009. 

The president, assisted by an appointed cabinet, has the authority to conduct the 

administration of the government. 

President Yudhoyono's Partai Demokrat (PD) holds 145 of the 560 seats in the House of 

Representatives (DPR), making it the largest political party represented in the legislature as of 

September 2009. Partai Demokrat has a coalition with the four largest Islamic parties. The 

coalition holds a majority of the seats in the DPR. The People's Consultative Assembly (MPR) 

has 692 members, including 560 members of the DPR and the 132 representatives of the 

Council of Regional Representatives (DPD). Since 2004, citizens have elected legislators for 

the DPR and DPD, but their vote was based on a party list system. This ensured that the party 

elite, placed at the top of the party candidate lists, were voted into office. In 2009, a “majority 

vote wins” system allowed voters for the first time to directly put the candidate who won a 

plurality of votes into office. 

Prior to 2004, some legislative seats had been reserved for representatives of the armed 

forces. The military has been a significant political force throughout Indonesian history, though 

it had ceded its formal political role by 2004. The armed forces shaped the political 

environment and provided leadership for Suharto's New Order from the time it came to power 

in the wake of the abortive 1965 uprising. Military officers, especially from the army, were key 

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advisers to Suharto and Habibie and had considerable influence on policy. Under the dual 

function concept ("dwifungsi"), the military asserted a continuing role in socio-political affairs. 

This concept was used to justify placement of officers in the civilian bureaucracy at all 

government levels and in regional and national legislatures. Although the military retains 

influence and is one of the only truly national institutions, the wide-ranging democratic reforms 

instituted since 1999 abolished "dwifungsi" and ended the armed forces' formal involvement in 

government administration. The police have been separated from the military, further reducing 

the military's direct role in governmental matters. Control of the military by the democratically 

elected government has been strengthened. 

As a reaction to Suharto's centralization of power and reflecting historically independent 

sentiment, Hasan di Tiro established the Free Aceh Movement (Gerakan Aceh Merdeka, 

GAM) in December 1976 to seek independence for Aceh. Some 15,000 died in military 

conflict in Aceh over the following three decades. Through peace talks led by former Finnish 

President Martti Ahtisaari, a peace agreement between GAM and the Indonesian Government 

that provided wide-ranging autonomy for Aceh was signed on August 15, 2005. By December 

2005, GAM declared that it had disbanded the military wing of its organization, and the 

Indonesian Government had withdrawn the bulk of its security forces down to agreed levels. 

On December 11, 2006, Aceh held gubernatorial and district administrative elections, the first 

democratic elections in over half a century in Aceh, resulting in the election of a former 

separatist leader as governor. In 2009, Aceh participated in the national legislative and 

presidential elections and elected its own provincial legislature. 

Principal Government Officials 

President--Susilo Bambang Yudhoyono 

Vice President--Boediono 

Minister of Foreign Affairs--Marty Natalegawa 

Ambassador to the United States--Salman Al-Farisi (Charge d’affaires) 

Ambassador to the United Nations--Deputy Permanent Representative Hasan Kleib (acting) 

The Embassy of Indonesia is at 2020 Massachusetts Avenue NW, Washington, DC 20036 

(tel. 202-775-5200-5207; fax: 202-775-5365). Consulates General are in New York (5 East 

68th Street, New York, NY 10021, tel. 212-879-0600/0615; fax: 212-570-6206); Los Angeles 

(3457 Wilshire Blvd., Los Angeles, CA 90010; tel. 213-383-5126; fax: 213-487-3971); Houston 

(10900 Richmond Ave., Houston, TX 77042; tel. 713-785-1691; fax: 713-780-9644). 

Consulates are in San Francisco (1111 Columbus Avenue, San Francisco, CA 94133; tel. 415

-474-9571; fax: 415-441-4320); and Chicago (2 Illinois Center, Suite 1422233 N. Michigan 

Avenue, Chicago, IL 60601; tel. 312-938-0101/4; 312-938-0311/0312; fax: 312-938-3148). 

ECONOMY

Indonesia has a market-based economy in which the government plays a significant role. 

There are 139 state-owned enterprises, and the government administers prices on several 

basic goods, including fuel, rice, and electricity. 

In the mid-1980s, the government began eliminating regulatory obstacles to economic activity. 

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The steps were aimed primarily at the external and financial sectors and were designed to 

stimulate employment and growth in the non-oil export sector. Annual real gross domestic 

product (GDP) growth averaged nearly 7% from 1987-97 and most analysts recognized 

Indonesia as a newly industrializing economy and emerging major market. The Asian financial 

crisis of 1997 altered the region's economic landscape. With the depreciation of the Thai 

currency, the foreign investment community quickly reevaluated its investments in Asia. 

Foreign investors dumped assets and investments in Asia, leaving Indonesia the most 

affected in the region. In 1998, Indonesia experienced a negative GDP growth of 13.1% and 

unemployment rose to 15-20%. In the aftermath of the 1997-98 financial crisis, the 

government took custody of a significant portion of private sector assets via debt restructuring, 

but subsequently sold most of these assets, averaging a 29% return. Indonesia has since 

recovered, albeit slower than some of its neighbors, by recapitalizing its banking sector, 

improving oversight of capital markets, and taking steps to stimulate growth and investment, 

particularly in infrastructure. GDP growth has steadily risen this decade, achieving real growth 

of 6.3% in 2007 and 6.1% growth in 2008. While the government reduced its 2009 growth 

forecast to 4.2%-4.7% given reduced global demand, the consensus forecast was for growth 

of 3.5%. 

In reaction to global financial turmoil and economic slowdown in late 2008, the government 

moved quickly to improve liquidity, secure alternative financing to fund an expansionary 

budget and secure passage of a fiscal stimulus program worth more than $6 billion. Key 

actions to stabilize financial markets included increasing the deposit insurance guarantee 

twentyfold, to IDR 2 billion (about U.S. $174,000); reducing bank reserve requirements; and 

introducing new foreign exchange regulations requiring documentation for foreign exchange 

purchases exceeding U.S. $100,000/month. As a G-20 member, Indonesia has taken an 

active role in the G-20 coordinated response to the global economic crisis. 

Economic Policy: After he took office on October 20, 2004, President Yudhoyono moved 

quickly to implement a "pro-growth, pro-poor, pro-employment" economic program. He 

appointed a respected group of economic ministers who announced a "100-Day Agenda" of 

short-term policy actions designed to energize the bureaucracy. President Yudhoyono also 

announced an ambitious anti-corruption plan in December 2004. The State Ministry of 

National Development Planning (BAPPENAS) released in early 2005 a Medium Term Plan 

focusing on four broad objectives: creating a safe and peaceful Indonesia; creating a just and 

democratic Indonesia; creating a prosperous Indonesia; and establishing a stable 

macroeconomic framework for development. President Yudhoyono reshuffled his cabinet in 

December 2005, appointing former Finance Minister Boediono as Coordinating Minister for 

Economic Affairs and moving Sri Mulyani Indrawati from the National Development Planning 

Agency to the Finance Ministry. In May 2008, President Yudhoyono appointed Boediono as 

Governor of Bank Indonesia, the central bank. In June 2008, President Yudhoyono appointed 

Finance Minister Sri Mulyani Indrawati to also serve as Coordinating Minister for Economic 

Affairs. He re-appointed her as Finance Minister in his new cabinet in October 2009. 

The Yudhoyono administration targeted average growth of 6.6% from 2004-2009 to reduce 

unemployment and poverty significantly. Indonesia's overall macroeconomic picture is stable. 

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By 2004, real GDP per capita returned to pre-financial crisis levels. In 2008, domestic 

consumption continued to account for the largest portion of GDP, at 61%, followed by 

investment at 27.7%, government consumption at 8.4%, and net exports at 0.6%. By all 

measures, investment realization has climbed in each of the past several years. 

Following a significant run-up in global energy prices in 2007/2008, the Indonesian 

Government raised fuel prices by an average of 29% on May 24, 2008 in an effort to reduce 

its fuel subsidy burden. Fuel subsidies had been projected to reach Rp 265 trillion ($29.4 

billion) in 2008, or 5.9% of GDP. The fuel price hikes, along with rising food prices, led 

consumer price inflation to a peak of 12.1% in September 2008. To help its citizens cope with 

higher fuel and food prices, the Indonesian Government implemented a direct cash 

compensation package for low-income families through February 2009 and an extra range of 

benefits including an expanded subsidized rice program and additional subsidies aimed at 

increasing food production. Subsequent declines in oil and gas prices allowed the government 

to reduce the prices for subsidized diesel and gasoline. As of March 2009, gasoline was 

selling for market rates but was subject to a subsidized price cap in the event of an increase in 

prices. 

Banking Sector: Indonesia currently has 124 commercial banks, of which 10 are majority 

foreign-owned and 28 are foreign joint venture banks. The top 15 banks control about 70% of 

assets in the sector. Four state-owned banks (Bank Mandiri, BNI, BRI, BTN) control about 

37.4% of assets. The Indonesian central bank, Bank Indonesia (BI), announced plans in 

January 2005 to strengthen the banking sector by encouraging consolidation and improving 

prudential banking and supervision. BI hopes to encourage small banks with less than Rp 100 

billion (about U.S. $11 million) in capital to either raise more capital or merge with healthier 

"anchor banks" before end-2010, announcing the criteria for anchor banks in July 2005. In 

October 2006, BI announced a single presence policy to further prompt consolidation. The 

policy stipulates that a single party can own a controlling interest in only one banking 

organization. Controlling interest is defined as 25% or more of total outstanding shares or 

having direct or indirect control of the institution. BI planned to adopt Basel II standards 

beginning in 2009 and to improve operations of its credit bureau to centralize data on 

borrowers. Another important banking sector reform was the decision to eliminate the blanket 

guarantee on bank third-party liabilities. BI and the Indonesian Government completed the 

process of replacing the blanket guarantee with a deposit insurance scheme run by the 

independent Indonesian Deposit Insurance Agency (also known by its Indonesian acronym, 

LPS) in March 2007. The removal of the blanket guarantee did not produce significant deposit 

outflows from or among Indonesian banks. Sharia banking has grown in Indonesia in recent 

years, but represents only 2.05% of the banking sector, about $4.1 billion in assets as of 

November 2008. 

Exports and Trade: Indonesia's exports grew to a record $136.8 billion in 2008, an increase 

of 10% from 2007. The largest export commodities for 2007 were oil and gas (19.4%), 

minerals (18.8%), electrical appliances (13.27%), rubber products (6.8%), and textiles (3.6%). 

The top four destinations for exports for 2008 were Japan (12.8%), the U.S. (11.6%), 

Singapore (9.4%), and China (7.2%). Meanwhile, total imports rose to $128.8 billion in 2008. 

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The U.S. trade deficit with Indonesia increased 1.9% in 2007 to $10.1 billion ($4.2 billion in 

exports versus $14.3 billion in imports). 

Oil and Minerals Sector: Indonesia left the Organization of Petroleum Exporting Countries 

(OPEC) in 2008, as it had been a net petroleum importer since 2004. Crude and condensate 

output averaged 977,000 barrels per day (bpd) in 2008. In 2008, the oil and gas sector is 

estimated to have contributed $25.3 billion of government revenues, or 31.5% of the total. 

U.S. companies have invested heavily in the petroleum sector. Indonesia ranked eleventh in 

world gas production in 2007. In early 2007, Qatar passed Indonesia as the world's number 

one exporter of liquefied natural gas (LNG). Despite the declining trends, Indonesia's oil and 

gas trade balance remained positive at $2.3 billion for 2006 and $156 million in 2007, 

according to unofficial statistics. 

Indonesia has a wide range of mineral deposits and production, including bauxite, silver, and 

tin, copper, nickel, gold, and coal. Although the coal sector was open to foreign investment in 

the 1990s, new investment was closed again after 2000. A new mining law, passed in 

December 2008, opened coal to foreign investment again. Total coal production reached 

189.7 million metric tons in 2008, including exports of 140.3 million tons. Two U.S. firms 

operate two copper/gold mines in Indonesia, with a Canadian and a U.K. firm holding 

significant investments in nickel and gold, respectively. In 2007 Indonesia ranked fifth among 

the world's top gold concentrate producers. Since 1998, the number of new mines has 

declined compared with previous years. This decline does not reflect Indonesia's mineral 

prospects, which are high; rather, the decline reflects earlier uncertainty over mining laws and 

regulations, low competitiveness in the tax and royalty system, and investor concerns over 

divestment policies and the sanctity of contracts. 

Investment: President Yudhoyono and his economic ministers have stated repeatedly their 

intention to improve the climate for private sector investment to raise the level of GDP growth 

and reduce unemployment. In addition to general corruption and legal uncertainty, businesses 

have cited a number of specific factors that have reduced the competitiveness of Indonesia's 

investment climate, including: corrupt and inefficient customs services; non-transparent and 

arbitrary tax administration; inflexible labor markets that have reduced Indonesia's advantage 

in labor-intensive manufacturing; increasing infrastructure bottlenecks; and uncompetitive 

investment laws and regulations. In each of the past three years, the Government of 

Indonesia has announced a series of economic policy packages aimed at stimulating 

investment and infrastructure improvements and implementing regulatory reform. A new 

investment law was enacted in 2007, which contains provisions to restrict the share of foreign 

ownership in a range of industries. The government is considering a review of Indonesia's 

negative list, but proposed revisions had not been enacted as of March 2009. 

On September 2, 2008, the DPR passed long-awaited tax reform legislation. The legislation 

reduced corporate and personal income tax rates as of January 1, 2009. Corporate income 

tax rates fell from 30% to 28% in 2009 and will decline to 25% in 2010, with additional 

reductions for small and medium enterprises and publicly listed companies. The legislation 

raises the taxable income threshold for individuals, cuts the maximum personal income tax 

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from 35% to 30%, and provides lower marginal personal income tax rates across four income 

categories. Taxes on dividends will also fall from a maximum of 20% to a maximum of 10%. 

Long-planned labor reforms have been delayed. 

The passage of a new copyright law in July 2002 and accompanying optical disc regulations 

in 2004 greatly strengthened Indonesia's intellectual property rights (IPR) regime. Despite the 

government's significantly expanded efforts to improve enforcement, IPR piracy remains a 

major concern to U.S. intellectual property holders and foreign investors, particularly in the 

high-technology sector. In March 2006, President Yudhoyono issued a decree establishing a 

National Task Force for IPR Violation Prevention. The IPR Task Force was intended to 

formulate national policy to prevent IPR violations and determine additional resources needed 

for prevention, as well as to help educate the public through various activities and improve 

bilateral, regional, and multilateral cooperation to prevent IPR violations. It has yet to fully 

realize these aims. In 2007, Indonesia was removed from the U.S. Trade Representative's 

"Priority Watch" list and placed on the "Watch" list. 

Environment: President Yudhoyono's administration has significantly increased Indonesia's 

global profile on environmental issues, and U.S.-Indonesia cooperation on the environment 

has grown substantially. Indonesia is particularly vulnerable to the effects of climate change, 

which include rising sea levels and erosion of coastal areas, increased frequency and 

intensity of extreme weather events, species extinction, and the spread of vector-borne 

diseases. At the same time, Indonesia faces challenges in addressing the causes of climate 

change. Indonesia has the world's second-largest tropical forest and the fastest deforestation 

rate, making it the third-largest contributor of greenhouse gas emissions, behind China and 

the U.S. In December 2007, Indonesia hosted the 13th Conference of the Parties of the 

United Nations Framework Convention on Climate Change (UNFCCC), and led efforts to 

highlight the importance of forests and deforestation in the climate debate. 

In 2004, President Yudhoyono initiated a multi-agency drive against illegal logging that has 

significantly decreased illegal logging through stronger enforcement activities. The State 

Department and the U.S. Trade Representative negotiated with the Indonesian Ministries of 

Trade and Forestry the U.S. Government's first Memorandum of Understanding on Combating 

Illegal Logging and Associated Trade. Presidents George W. Bush and Yudhoyono 

announced the MOU during President Bush's November 2006 visit to Indonesia. 

Implementation of the MOU includes collaboration on sustainable forest management, 

improved law enforcement, and improved markets for legally harvested timber products. This 

effort will strengthen the enabling conditions for avoiding deforestation, specifically addressing 

the trade issues that are involved. 

The U.S. Government contributed to the start of the Heart of Borneo conservation initiative to 

conserve a high-biodiversity, transboundary area that includes parts of Indonesia, Malaysia, 

and Brunei. The three countries launched the Heart of Borneo initiative in February 2007. In 

2009, the Governments of Indonesia and the U.S. concluded a Tropical Forest Conservation 

Act (TFCA) agreement. The agreement reduces Indonesia's debt payments to the U.S. over 

the next 8 years; these funds will be redirected toward tropical forest conservation in 

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Indonesia. 

Indonesia is also home to the greatest marine biodiversity on the planet. President 

Yudhoyono called for a Coral Triangle Initiative (CTI) in August 2007. The Coral Triangle 

Initiative is a regional plan of action to enhance coral conservation, promote sustainable 

fisheries, and ensure food security in the face of climate change. In December 2007, the U.S. 

Government announced its support for the six CTI nations (Indonesia, Malaysia, Philippines, 

Timor-Leste, Papua New Guinea, and Solomon Islands). Since then, the United States has 

provided $8.4 million to this initiative. With projected funding of $32 million over five years, the 

U.S. is the largest bilateral donor to CTI, and President Bush endorsed the CTI proposal 

formally at the 2007 Asia-Pacific Economic Cooperation (APEC) Summit. 

Indonesia hosted the first-ever World Oceans Conference in Manado, North Sulawesi, May 11

-15, 2009. The World Oceans Conference was also the venue for the Coral Triangle Initiative 

Summit, at which leaders from the six CTI nations launched the CTI Regional Plan of Action. 

Top government officials and other leaders discussed the scientific interplay between ocean 

degradation, climate and weather patterns, and fishing stocks. 

NATIONAL SECURITY 

Indonesia's armed forces (Tentara Nasional Indonesia, or TNI) total approximately 350,000 

members, including the army, navy, marines, and air force. The army is the largest branch 

with about 280,000 active-duty personnel. Defense spending in the national budget accounts 

for 1.8% of GDP, but is supplemented by revenue from many military businesses and 

foundations. 

The Indonesian National Police were a branch of the armed forces for many years. The police 

were formally separated from the military in April 1999, a process that was completed in July 

2000. With 250,000 personnel, the police represent a much smaller portion of the population 

than in most nations. 

Indonesia has peaceful relations with its neighbors. Without a credible external threat in the 

region, the military historically viewed its prime mission as assuring internal security. Military 

leaders have said that they wish to transform the military to a professional, external security 

force, providing domestic support to civilian security forces as necessary. 

Throughout Indonesian history, the military maintained a prominent role in the nation's political 

and social affairs. A significant number of cabinet members have had military backgrounds, 

while active duty and retired military personnel occupied a large number of seats in the 

parliament. Commanders of the various territorial commands played influential roles in the 

affairs of their respective regions. With the inauguration of the newly-elected national 

parliament in October 2004, the military no longer has a formal political role, although it 

retains important political influence. 

FOREIGN RELATIONS 

Since independence in 1945, Indonesia has espoused a "free and active" foreign policy, 

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seeking to play a role in regional affairs commensurate with its size and location but avoiding 

involvement in conflicts among major powers. Indonesian foreign policy under the "New 

Order" government of President Suharto moved away from the stridently anti-Western, antiAmerican posturing that characterized the latter part of the Soekarno era. Following Suharto's 

ouster in 1998, Indonesia's Presidents have preserved the broad outlines of Suharto's 

independent, moderate foreign policy. The traumatic separation of East Timor from Indonesia 

after an August 1999 East Timor referendum, and subsequent events in East and West Timor, 

strained Indonesia's relations with the international community. 

A cornerstone of Indonesia's contemporary foreign policy is its participation in the Association 

of Southeast Asian Nations (ASEAN), of which it was a founding member in 1967 with 

Thailand, Malaysia, Singapore, and the Philippines. Since then, Brunei, Vietnam, Laos, 

Burma, and Cambodia also have joined ASEAN. While organized to promote common 

economic, social, and cultural goals, ASEAN acquired a security dimension after Vietnam's 

invasion of Cambodia in 1979. The security policy aspect of ASEAN expanded with the 

establishment of the ASEAN Regional Forum in 1994, in which 22 countries participate, 

including the United States. At ASEAN's Singapore Summit in November 2007, the 

organization's members signed a new charter, a small step toward the agreed goal of creating 

an ASEAN Community to propel greater integration in the areas of political and security 

affairs, economics, and socio-cultural affairs. Indonesia was a strong proponent of further 

integration. Indonesia also was one of the founders of the Non-Aligned Movement (NAM) and 

has taken moderate positions in its councils. As NAM Chairman in 1992-95, Indonesia led 

NAM positions away from the rhetoric of North-South confrontation, advocating instead the 

broadening of North-South cooperation in the area of development. Indonesia continues to be 

a prominent leader of the Non-Aligned Movement. 

Indonesia often supports NAM and Group of 77 (G-77) foreign policy views, taking positions 

regarding human rights contrary to the United States. In May 2005, the Yudhoyono 

administration, in a major effort to reinvigorate its leadership of the NAM and reset the 

movement's future course, hosted an Asia-Africa Summit to commemorate the founding of the 

NAM in Bandung, Indonesia in 1955. 

A secular state, Indonesia has the world's largest Muslim population and is a member of the 

Organization of the Islamic Conference (OIC). It carefully considers the interests of Islamic 

solidarity in its foreign policy decisions while providing a moderating influence in the OIC. 

President Wahid, for example, pursued better relations with Israel; Foreign Minister Noer 

Hassan Wirajuda participated in the November 2007 Middle East peace conference in 

Annapolis. 

After 1966, Indonesia welcomed and maintained close relations with the donor community, 

particularly the United States, Western Europe, Australia, and Japan, through the 

Intergovernmental Group on Indonesia (IGGI) and its successor, the Consultative Group on 

Indonesia (CGI), which have provided substantial foreign economic assistance. Donors in 

recent years have expanded assistance to Indonesia, due to its rapid democratic 

consolidation. 

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Indonesia has been a strong supporter of the Asia-Pacific Economic Cooperation (APEC) 

forum. Largely through the efforts of President Suharto at the 1994 meeting in Bogor, 

Indonesia, APEC members agreed to implement free trade in the region by 2010 for 

industrialized economies and 2020 for developing economies. 

In 2008, Indonesia finalized its Economic Partnership Agreement (EPA) with Japan, a 

significant trade partner and Indonesia's biggest foreign investor. The agreement is 

Indonesia's first bilateral free trade deal and exempts Indonesia from 90% of Japanese import 

duties. 

President Yudhoyono has sought a higher international profile for Indonesia. In March 2006, 

Yudhoyono traveled to Burma to discuss democratic reform and visited several Middle 

Eastern countries in April and May 2006. Yudhoyono delivered a major speech in Saudi 

Arabia, encouraging the Muslim world to embrace globalization and technology for greater 

social and economic progress. In November 2006, Indonesia sent about 1,000 peacekeeping 

troops to southern Lebanon to be part of the UN Interim Force in Lebanon (UNIFIL) and 

replaced those troops with a second contingent a year later. In 2007 and 2008, Indonesia held 

a non-permanent seat on the UN Security Council. President Yudhoyono has also developed 

strategic partnerships with several countries, including the Netherlands. In November 2008, 

President Yudhoyono suggested the U.S. and Indonesia work together to build a 

comprehensive partnership. Secretary of State Clinton’s February 2009 visit to Indonesia 

helped move that partnership forward in a number of key areas. Since her visit, bilateral 

cooperation on education, climate change, science and technology, health, and other issues 

has continued to progress. 

U.S.-INDONESIAN RELATIONS 

The United States has important economic, commercial, and security interests in Indonesia. It 

remains a linchpin of regional security due to its strategic location astride a number of key 

international maritime straits, particularly the Malacca Strait. Relations between Indonesia and 

the U.S. are positive and have advanced since the election of President Yudhoyono in 

October 2004. The U.S. played a role in Indonesian independence in the late 1940s and 

appreciated Indonesia's role as an anti-communist bulwark during the Cold War. Cooperative 

relations are maintained today, although no formal security treaties bind the two countries. 

The United States and Indonesia share the common goal of maintaining peace, security, and 

stability in the region and engaging in a dialogue on threats to regional security. Cooperation 

between the U.S. and Indonesia on counterterrorism has increased steadily since 2002, as 

terrorist attacks in Bali (October 2002 and October 2005), Jakarta (August 2003 and 

September 2004), and other regional locations demonstrated the presence of terrorist 

organizations, principally Jemaah Islamiyah, in Indonesia. The United States has welcomed 

Indonesia's contributions to regional security, especially its leading role in helping restore 

democracy in Cambodia and in mediating territorial disputes in the South China Sea. During 

Secretary’s Clinton’s visit to Indonesia in early 2009, she and Foreign Minister Wirajuda 

announced that the U.S. and Indonesia would begin discussions on developing a 

comprehensive partnership between the two countries. 

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The U.S. is committed to consolidating Indonesia's democratic transition and supports the 

territorial integrity of the country. Nonetheless, there are friction points in the bilateral political 

relationship. These conflicts have centered primarily on human rights, as well as on 

differences in foreign policy. The U.S. Congress cut off grant military training assistance 

through International Military Education and Training (IMET) to Indonesia in 1992 in response 

to a November 12, 1991, incident in East Timor when Indonesian security forces shot and 

killed East Timorese demonstrators. This restriction was partially lifted in 1995. Military 

assistance programs were again suspended, however, in the aftermath of the violence and 

destruction in East Timor following the August 30, 1999, referendum favoring independence. 

Separately, the U.S. had urged the Indonesian Government to identify and bring to justice the 

perpetrators of the August 2002 ambush murders of two U.S. teachers near Timika in Papua 

province. In 2005, the Secretary of State certified that Indonesian cooperation in the murder 

investigation had met the conditions set by Congress, enabling the resumption of full IMET. 

Eight suspects were arrested in January 2006, and in November 2006 seven were convicted. 

In November 2005, the Under Secretary of State for Political Affairs, under authority delegated 

by the Secretary of State, exercised a National Security Waiver provision provided in the FY 

2006 Foreign Operations Appropriations Act (FOAA) to remove congressional restrictions on 

Foreign Military Financing (FMF) and lethal defense articles. These actions represented a 

reestablishment of normalized military relations, allowing the U.S. to provide greater support 

for Indonesian efforts to reform the military, increase its ability to respond to disasters and 

participate in global peacekeeping operations, and promote regional stability. 

Under the terms of the FY 2008 FOAA, signed into law in December 2007, Congress did not 

reimpose restrictions. However, it prevented a portion of U.S. security assistance from being 

released before the Secretary of State reported on the status of certain measures of military 

reform, of accountability for past human rights abuses, of public access to Papua, and of the 

investigation into the 2004 murder of a prominent human rights activist. 

Regarding worker rights, Indonesia was the target of several petitions filed under the 

Generalized System of Preferences (GSP) legislation arguing that Indonesia did not meet 

internationally recognized labor standards. A formal GSP review was suspended in February 

1994 without terminating GSP benefits for Indonesia. Since 1998, Indonesia has ratified all 

eight International Labor Organization core conventions on protecting internationally 

recognized worker rights and allowed trade unions to organize. However, enforcement of 

labor laws and protection of workers' rights remain inconsistent and weak in some areas. 

Indonesia's slow economic recovery has pushed more workers into the informal sector, which 

reduces legal protection and could create conditions for increases in child labor. 

Development Assistance from the United States to Indonesia 

The U.S. Agency for International Development (USAID) and its predecessor agencies have 

provided development assistance to Indonesia since 1950. Initial assistance focused on the 

most urgent needs, including food aid, infrastructure rehabilitation, health care, and training. 

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Throughout the 1970s and 1980s, a time of great economic growth in Indonesia, USAID 

played a major role in helping the country achieve self-sufficiency in rice production and in 

reducing the birthrate. Today, USAID assistance programs focus on basic and higher 

education, democratic and decentralized governance, economic growth, health, water, 

sanitation, and the environment. Future programs will place a greater emphasis on energy. 

The United States was one of the lead donors in the reconstruction efforts in the tsunami-hit 

area of Aceh. Most of the U.S. tsunami relief program is complete, although our efforts toward 

the construction of the Aceh west coast highway continues. The U.S. will remain actively 

engaged in conflict prevention and resolution efforts in Aceh. 

Improving the Quality of Education: In October 2003, President Bush announced a $157 

million Indonesia Education Initiative for 2004-2009 to improve the quality of education in 

Indonesia. This initiative is a cornerstone of the U.S. Government assistance program in 

Indonesia, directly responding to Indonesia's priorities and reflecting a joint Indonesia-U.S. 

commitment to revitalize education for the next generation of Indonesia's leaders. Since the 

initiative began in 2005, more than 1,476 schools, 23,612 educators, and 345,983 students 

have benefited from the assistance to improve teaching and learning, education governance, 

community involvement in school management, and public-private alliances. The initiative has 

also sparked donor interest toward increased coordination and cooperation both at the 

national and field levels. By 2010, the program will promote ownership of new methods for 

delivering basic education assistance directly to the local level where it can be more 

effectively and accountably targeted. Programs include: 

Decentralized Basic Education (DBE): As the main component of the Indonesia Education 

Initiative, the Decentralized Basic Education Project focuses on improving the quality and 

relevance of basic education in primary and junior secondary schools. Through technical 

assistance and training, the program has three goals: to assist local governments and 

communities to manage education services more effectively; to enhance teaching and 

learning to improve student performance in key subjects such as math, science, and reading; 

and to ensure that Indonesia’s youth gain more relevant life and work skills to better compete 

for jobs in the modern economy. USAID successfully utilizes public-private alliances to 

mobilize corporate sector resources for education. In partnership with ConocoPhillips, USAID 

is helping rehabilitate schools damaged by the May 2006 earthquake in Yogyakarta as well as 

Central Java; and Intel is helping teachers use technology in their classrooms. Partnerships 

with three U.S. universities--the University of Pittsburgh, Florida State University, and the 

University of Massachusetts--and 14 Indonesian universities are enabling teachers 

participating in the program to receive academic credit for their work, helping them meet new 

Government of Indonesia recertification requirements. DBE also promotes the use of 

information technology for education; the importance of early childhood education; in-service 

teacher training; and non-formal work and life skills. 

Opportunities for Vulnerable Children: This program prepares the foundation for an inclusive 

education system by focusing on the educational rights and needs of children with visual 

impairments (blindness and low vision) by using an effective model for inclusion of students 

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with visual impairments within the public education infrastructure that benefits both students 

with visual impairments and other disenfranchised populations. These activities have led to a 

substantial increase in the number of children with visual impairments attending school, and 

increases in the availability and quality of inclusive education services. Replicable models are 

being developed to expand the reach of the program to Aceh, South Sulawesi, and Central 

Java. In partnership with Indonesian local universities and Hilton Perkins International, a preservice university-level program is developed to equip new teachers with effective teaching 

strategies and clear understanding of children with special needs. 

Sesame Street Indonesia/Jalan Sesama: In partnership with the Sesame Workshop, USAID is 

supporting the development of a new Indonesian co-production of the renowned Sesame 

Street television show. Indonesia’s “Jalan Sesama” is one of the largest partnerships between 

USAID and the Sesame Workshop. By watching “Jalan Sesama” millions of Indonesian 

children will be better equipped to start and stay in school. The program went on the air in 

2007 and more than 3 million Indonesian children have viewed the broadcast. The show is 

currently ranked second in its time slot. 

Higher Education: The Indonesia Education Initiative, run by the Public Affairs Section (PAS) 

of the U.S. Embassy, complements USAID’s Basic Education Programs with a range of 

educational scholarships and exchanges, and English language learning opportunities. A 

partnership with the University of Kentucky is assisting three Indonesian universities to 

upgrade their academic programs in areas critical for economic growth such as agriculture, 

business, engineering, and public administration. A three-way partnership between USAID, 

the Government of Aceh Province, and Chevron supports the development of the Aceh 

Polytechnic, a new institution to provide quality education in applied technology fields such as 

information technology and electrical engineering that are in high demand in the region. 

Effective Democracy and Decentralized Governance: This objective aims to support 

democratic reforms by supporting effective and accountable local governance, addressing 

conflict and encouraging pluralism, and consolidating national-level democratic reforms. 

Mitigation of Conflict and Support for Peace: USAID is a key donor working to mitigate conflict 

and build peace in post-conflict areas, such as Aceh, Papua, Central Sulawesi, and Maluku. 

Assistance activities focus on: conflict resolution/mitigation; civilian-military affairs; livelihoods 

development in conflict areas; drafting and monitoring of relevant legislation; and emergency 

and post-conflict transitional assistance to conflict-affected persons. 

Fighting Trafficking in Persons: USAID has assisted the Government of Indonesia and civil 

society to develop policies and procedures to prevent trafficking in women, girls, and men and 

provide protection to survivors of trafficking. The USAID Trafficking in Persons program was 

expected to end in late 2009. 

Justice Sector Reforms: This includes support for the bureaucratic reform efforts of the 

Attorney General’s Office through technical assistance and training for prosecutors. USAID 

also works with the Supreme Court and the Constitutional Court to develop a more effective, 

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professional, transparent, accountable, and independent executive branch. 

Legislative Strengthening: USAID provides institutional support to the National House of 

Representatives, National Regional Representative Council, and over 60 district legislative 

councils. Activities include promoting constituency and media outreach; developing the 

capacity to draft and analyze legislation and operational budgets; and supporting legislative 

commissions to carry out their functions. 

Local Governance Strengthening and Decentralization Support: This activity supports 

Indonesia’s decentralization through assistance to more than 60 local governments to 

increase governmental accountability and transparency, strengthen the local legislative 

process, promote citizen engagement, improve the planning and budget process, and 

promote more responsive public services. At the national level, USAID supports the 

Government of Indonesia and civil society to improve decentralization policies. 

Promoting Democratic Culture: USAID supports civil society organizations and government 

institutions to strengthen democratic civic culture, respect for pluralism, religious diversity, and 

the rights of women and minority groups. Activities under this program include civic education, 

advocacy, engaging traditional leaders, building networks to support tolerance and pluralism, 

and assisting the government in reviewing policies that conflict with the constitution and 

human rights standards. 

Elections and Political Process: USAID supported the 2009 parliamentary and presidential 

elections through an elections support package that included political party development, 

election administration, voter education, election monitoring, and oversight and strengthening 

of the legal framework. 

Tsunami Reconstruction: The U.S. Government was one of the first donors to respond to 

the disaster. Through numerous grants to non-governmental organizations (NGOs), 

international organizations, and UN agencies, USAID has helped stabilize the humanitarian 

situation in Aceh, avert a public health crisis, and provide relief services to survivors. 

Rebuilding Shelter and Key Infrastructure: USAID is assisting communities by providing much 

needed shelter, working with the Indonesian Government to rebuild key infrastructure and 

ensuring proper mapping and planning is considered through local cooperation. 

Restoring Livelihoods: USAID enables communities to direct capacity building to benefit 

people at the local level. USAID's Community Based Recovery Initiative is working with 59 

villages to organize local capacity-building initiatives. 

Strengthening Capacity and Governance: USAID is providing assistance to restore local 

government services in Aceh, working to increase governmental accountability and 

transparency, strengthen the local legislative process, promote citizen engagement and civil 

service reform, and improve the delivery of basic services. 

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Economic Growth Strengthened and Employment Created: Assistance to the Indonesian 

Government and private sector focuses on sustaining growth and creating jobs by improving 

the trade and investment climate, increasing competitiveness in key agribusiness and industry 

sectors, and enhancing the safety and soundness of the financial system. USAID is working 

with Indonesians to ensure that future generations enjoy an increasingly prosperous, 

democratic, and stable country. 

Trade and Investment Climate: Efforts to promote a transparent and predictable legal and 

regulatory business climate aim to reduce the hidden costs of doing business, increase 

certainty, promote good governance, enhance trade and investment, and create jobs. 

Agribusiness and Industry Competitiveness: Assistance to leading agribusiness and industry 

sub-sectors fuels growth, exports, and jobs. These efforts also drive increased productivity 

and national competitiveness through the forging of public and private partnerships. 

Financial Sector Safety and Soundness: Assistance to key financial and non-bank financial 

institutions helps build a sound financial infrastructure through improved oversight, 

transparency, and governance. 

Improving the Quality of Basic Human Services: The USAID Basic Human Services Office 

provides assistance to Indonesia through an integrated strategy that aims to improve the 

health of local communities through support for maternal and child health, disease 

surveillance and control, food and nutrition, and access to safe drinking water through better 

watershed management and water treatment. 

Environmental Services: This program supports better health through improved water 

resources management and expanded access to clean water and sanitation services. With a 

ridge to reef approach, partners improve water resource management from watershed 

sources, along rivers, through cities, and to coastal reefs. In the upper watershed, the 

program promotes forest management, biodiversity conservation, and land use planning to 

protect a steady, year-round source of clean water. Further downstream, the program 

strengthens municipal water utilities to improve and expand piped water and sanitation 

services to communities. Stakeholder forums link upstream and downstream communities to 

build consensus on water and waste management issues. Marginalized urban communities 

also benefit from the introduction of safe drinking water through Air Rahmat, a home 

chlorination product being introduced to the market through a public-private partnership. 

Under the Maintaining Healthy Ecosystem special objective, the Orangutan Conservation 

Service program is targeting selected wild orangutan populations in Kalimantan and Sumatra. 

The USAID program will: 1) reduce the level of threat to select orangutan populations, 2) 

develop strategies that garner support by a multi-stakeholder constituency, 3) establish 

networks to support improved law enforcement and conservation management, and 4) set up 

sustainable financing schemes for long-term conservation at the sites. This project will not 

support orangutan rehabilitation, re-introductions, or translocation efforts. This approach is 

consistent with the scientific consensus that the first priority in orangutan conservation must 

Indonesia Page 21 of 24

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Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 124 of 146
be the protection of habitat and populations in the wild. 

Health Services: Working with the government, NGOs, and other partners, USAID focuses on 

maternal, neonatal, and child health; reproductive health; nutrition; HIV/AIDS, tuberculosis, 

malaria; and decentralization of the health sector. USAID works to strengthen government 

commitment to improve health services, ensure sustainability and local ownership, and to 

build capacity to expand and improve access to quality health services including health 

centers, hospitals, private providers and laboratory services; the principal beneficiaries include 

women, newborns, and children, and high-risk populations for HIV/AIDS and infectious 

diseases. Improved health-seeking behaviors within communities link key hygiene promotion 

interventions, such as hand-washing with soap to reduce diarrheal disease, a major cause of 

childhood death, and increased testing and treatment for infectious diseases. Engagement of 

civil society and the private sector to increase equity and access to health services is an 

important element of USAID’s programs in the health arena. 

USAID's avian influenza (AI) program includes integrated public and private sector AI 

surveillance and response for both animal and human outbreaks and behavior change 

communications to minimize behaviors that facilitate the transmission of AI to both poultry and 

people. 

Food and Nutrition: Improving the nutritional status of Indonesians, USAID food assistance 

targets poor communities. These activities directly affect women and children through 

targeted supplemental feeding and nutritional education activities. The food assistance 

program works with villages to construct public latrines, washing facilities, and protected water 

stations and to organize solid waste disposal efforts to better protect community health. Over 

one million people will be direct recipients of USAID food assistance under this program. 

Principal U.S. Embassy Officials

Ambassador--Cameron R. Hume

Deputy Chief of Mission--Ted Osius 

Minister Counselor for Political and Economic Sections--Peter D. Haas 

Political Counselor--Darcy Zotter 

Economic Counselor--Debra Juncker 

Management Counselor--Michael C. Mullins 

USAID Director--Walter E. North 

Defense Attache--COL Kevin E. Richards 

Consul General--Jeffrey S. Tunis 

Public Affairs Officer--Michael H. Anderson 

Commercial Counselor--Joseph B. Kaesshaefer 

Department of Agriculture Office--Dennis Voboril 

Regional Security Officer--Jeffrey D. Lischke 

Office of Defense Cooperation--LTC James O. Robinson 

Legal Attache--(Acting) David C. Smith 

Department of Justice Office--Gerald H. Heuett Jr. 

Indonesia Page 22 of 24

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Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 125 of 146
The U.S. Embassy in Indonesia is located at Jalan Medan Merdeka Selatan 3-5, Jakarta (tel. 

(62-021) 3435-9000). U.S. mail to the Embassy may be addressed to FPO AP 96520. 

The U.S. Consulate General in Surabaya is located at Jalan Dr. Sutomo 33, Surabaya, East 

Java (tel. (62-31) 568-2287). 

Principal Officer--Caryn R. McClelland 

The U.S. Consulate in Medan is located at Jl. Walikota no. 13, Medan, North Sumatra (tel. (62

-61) 415-2200). 

Principal Officer--Sean Stein 

The U.S. Consular Agency in Bali is located at Jalan Hayam Wuruk 188, Bali (tel. (62-361) 

233-605. 

The State Department lifted its travel warning for Indonesia in May 2008 due to objective 

improvements in the security situation in the country. 

For information on economic trends, commercial development, production, trade regulations, 

and tariff rates, contact the International Trade Administration, U.S. Department of 

Commerce, Washington, DC 20230. 

TRAVEL AND BUSINESS INFORMATION

The U.S. Department of State's Consular Information Program advises Americans traveling 

and residing abroad through Country Specific Information, Travel Alerts, and Travel Warnings. 

Country Specific Information exists for all countries and includes information on entry and 

exit requirements, currency regulations, health conditions, safety and security, crime, political 

disturbances, and the addresses of the U.S. embassies and consulates abroad. Travel Alerts

are issued to disseminate information quickly about terrorist threats and other relatively shortterm conditions overseas that pose significant risks to the security of American travelers. 

Travel Warnings are issued when the State Department recommends that Americans avoid 

travel to a certain country because the situation is dangerous or unstable. 

For the latest security information, Americans living and traveling abroad should regularly 

monitor the Department's Bureau of Consular Affairs Internet web site at 

http://www.travel.state.gov, where the current Worldwide Caution, Travel Alerts, and 

Travel Warnings can be found. Consular Affairs Publications, which contain information on 

obtaining passports and planning a safe trip abroad, are also available at 

http://www.travel.state.gov. For additional information on international travel, see 

http://www.usa.gov/Citizen/Topics/Travel/International.shtml.

The Department of State encourages all U.S. citizens traveling or residing abroad to register 

via the State Department's travel registration website or at the nearest U.S. embassy or 

consulate abroad. Registration will make your presence and whereabouts known in case it is 

necessary to contact you in an emergency and will enable you to receive up-to-date 

information on security conditions.

Indonesia Page 23 of 24

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Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 126 of 146
Emergency information concerning Americans traveling abroad may be obtained by calling 1-

888-407-4747 toll free in the U.S. and Canada or the regular toll line 1-202-501-4444 for 

callers outside the U.S. and Canada.

The National Passport Information Center (NPIC) is the U.S. Department of State's single, 

centralized public contact center for U.S. passport information. Telephone: 1-877-4-USA-PPT 

(1-877-487-2778); TDD/TTY: 1-888-874-7793. Passport information is available 24 hours, 7 

days a week. You may speak with a representative Monday-Friday, 8 a.m. to 10 p.m., Eastern 

Time, excluding federal holidays.

Travelers can check the latest health information with the U.S. Centers for Disease Control 

and Prevention in Atlanta, Georgia. A hotline at 800-CDC-INFO (800-232-4636) and a web 

site at http://wwwn.cdc.gov/travel/default.aspx give the most recent health advisories, 

immunization recommendations or requirements, and advice on food and drinking water 

safety for regions and countries. The CDC publication "Health Information for International 

Travel" can be found at http://wwwn.cdc.gov/travel/contentYellowBook.aspx.

Further Electronic Information

Department of State Web Site. Available on the Internet at http://www.state.gov, the 

Department of State web site provides timely, global access to official U.S. foreign policy 

information, including Background Notes and daily press briefings along with the directory 

of key officers of Foreign Service posts and more. The Overseas Security Advisory Council 

(OSAC) provides security information and regional news that impact U.S. companies working 

abroad through its website http://www.osac.gov

Export.gov provides a portal to all export-related assistance and market information offered 

by the federal government and provides trade leads, free export counseling, help with the 

export process, and more.

STAT-USA/Internet, a service of the U.S. Department of Commerce, provides authoritative 

economic, business, and international trade information from the Federal government. The 

site includes current and historical trade-related releases, international market research, trade 

opportunities, and country analysis and provides access to the National Trade Data Bank.

Back to Top

Indonesia Page 24 of 24

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Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 127 of 146
EXHIBIT J 

to the Declaration of John R. Coleman

Deposition Transcript of Michael Hsu (Selected Portions)

Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 128 of 146
MURRAY v. GEITHNER, ET AL

MICHAEL HSU

November 18, 2009

Prepared for you by

Bingham Farms | Ann Arbor | Detroit | Flint | Grand Rapids | Jackson | Lansing | Mt. Clemens

PHONE: 248.644.8888 FAX: 248.644.1120

www.bienenstock.com

Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 129 of 146
MICHAEL HSU

November 18, 2009

10 (Pages 34 to 37)

Page 34

1 Q. Such as?

2 A. The General Accounting Office, the Special Inspector

3 General for TARP, the Congressional Oversight Panel.

4 Q. And the inquiries other than ownership and the

5 trustees, what other type of inquiries were being made?

6 A. Why did Treasury do what it did with regards to AIG?

7 I mean, the -- there were wide-ranging questions with regards

8 to, to the AIG restructuring.

9 Q. In responding to these various inquiries, did you

10 gain any information relative to the purpose behind the

11 provision of the credit facility by the Federal Reserve Bank

12 of New York?

13 MS. STRAUS: I'll just instruct the witness that to

14 the extent your answer may include deliberative process

15 information, don't answer that segment.

16 THE WITNESS: In, in generality, yes; but I think I

17 could safely say that all of the public, all of the published

18 responses by Treasury to any questions about the trustees

19 reflects the full extent of my knowledge with regards to the

20 trust and its purpose and its -- and anything related to it,

21 quite frankly.

22 BY MR. YERUSHALMI:

23 Q. Let me ask you a broader question then.

24 A. Sure.

25 Q. And your answer might be exactly that.

Page 35

1 A. Okay.

2 Q. After the Federal Reserve Bank of New York provided

3 the $85 billion credit line --

4 A. Mm-hmm.

5 Q. -- under the credit facility --

6 A. Mm-hmm.

7 Q. -- it was determined at some later point by Treasury

8 that AIG needed additional funds and it needed to apply those

9 funds to pay down that credit facility because AIG's risk

10 rating was at -- was threatened primarily because of too much

11 debt; and what I would like to ask you is do you have any

12 information regarding the Treasury Department's analysis and

13 decision about paying the additional monies under TARP to pay

14 down that credit facility?

15 A. No.

16 MS. STRAUS: I give the same instruction but --

17 THE WITNESS: Yeah. No.

18 BY MR. YERUSHALMI:

19 Q. No?

20 A. No.

21 Q. So you were not part of any analysis or

22 deliberations or anything else relating to that decision?

23 A. No.

24 Q. And if you had any information, it would just simply

25 be the public information that we all have?

Page 36

1 A. Yes.

2 Q. I'd like to come back to the March restructuring.

3 Do you have any information regarding the conditions of the 30

4 billion equity line that was provided under that March

5 restructuring by the Treasury Department to AIG?

6 MS. STRAUS: Same instruction.

7 THE WITNESS: Sorry. Do I have --

8 BY MR. YERUSHALMI:

9 Q. Any information regarding the conditions of that

10 particular equity line?

11 A. I mean, I recall that -- I'm sorry. The conditions

12 -- to my -- if I understand your question correctly, the

13 conditions to that facility are in the agreement itself, and

14 the agreement is publicly available. So I have nothing to add

15 to that, I guess.

16 Q. So you would not have any knowledge, personal

17 information or knowledge regarding that particular

18 transaction, other than what's publicly available?

19 A. I do because it was part of my responsibilities in

20 the period preceding, but it would be deliberative, highly

21 deliberative.

22 Q. Meaning you were not -- when you say deliberative,

23 it was not any final analysis or final conclusions by the

24 Treasury? It was just part of its deliberating on what

25 positions it was going to take?

Page 37

1 A. What's the --

2 Q. In other words, I want to understand what you

3 understand to be deliberative process.

4 A. You want to understand --

5 Q. I know you're an attorney, but just so you and I can

6 be speaking the same language.

7 A. Sure. My understanding of the deliberative process

8 with regards to the March transaction would be that to the

9 extent there's conversations, discussions, analysis, debate in

10 the period leading up to and related to that transaction,

11 those would be deliberative.

12 Q. I think that's a pretty good definition.

13 A. Okay.

14 MS. STRAUS: You passed.

15 BY MR. YERUSHALMI:

16 Q. In your capacity working at AIG working on -- excuse

17 me. In your capacity of working at the Treasury on matters

18 relating to AIG -- and I'm speaking now any time period while

19 you were at the Treasury --

20 A. Okay.

21 Q. -- did you have any knowledge of AIG's Shariah22 compliant insurance product businesses?

23 A. Only when I was informed of the lawsuit.

24 Q. So --

25 A. This particular lawsuit.

Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 130 of 146
MICHAEL HSU

November 18, 2009

11 (Pages 38 to 41)

Page 38

1 Q. -- while you were employed by the Treasury, you had

2 no idea?

3 A. I'm sorry?

4 Q. While you were employed at the Treasury, you had no

5 idea?

6 A. No. I, I was -- this particular suit against the

7 Secretary was brought to my attention while I was at Treasury.

8 Q. Oh, I see. I misunderstood. You were pointing to

9 the Notice of your deposition.

10 A. No, I'm sorry. So, so, so when I was informed of

11 this particular suit while I was at Treasury, that was the

12 first time I became aware of the -- that AIG had a Shariah13 compliant product.

14 Q. And where did you learn of this information?

15 A. I believe Joe --

16 Q. Joe?

17 A. Joe Samarias.

18 Q. Oh.

19 A. -- informed me that there was a lawsuit against the

20 Treasury Department, against the Secretary, related to AIG,

21 it's a First Amendment case, and he wanted to ask me about --

22 MS. STRAUS: I'll just instruct the witness --

23 THE WITNESS: Oh, this is client -- attorney/client

24 stuff.

25 MR. COLEMAN: Yeah, not --

Page 39

1 MS. STRAUS: -- not to discuss anything --

2 MR. COLEMAN: -- the content of your conversation.

3 I think --

4 MS. STRAUS: Yeah.

5 MR. COLEMAN: -- you answered the question about how

6 you learned about it.

7 THE WITNESS: Okay. So I learned about it from Joe

8 Samarias.

9 MR. COLEMAN: Agency counsel.

10 THE WITNESS: Agency counsel. Sorry.

11 BY MR. YERUSHALMI:

12 Q. You indicated that you had worked on -- strike that.

13 You had indicated that you had gained some knowledge prior to

14 late December '08 about AIG in the context of the Treasury's

15 developing the SSFI program guidelines; correct?

16 A. I would say I was made aware of, that there was a

17 situation with AIG because of the drafting of those

18 guidelines. So I didn't have any information as to AIG at

19 that time.

20 Q. Were you given any information regarding what those

21 program guidelines were at the time?

22 A. No. I was not directly involved in that.

23 Q. Prior to your work on AIG beginning in late December

24 '08, are you aware of anyone else at the Treasury Department

25 who was doing risk analysis or analyzing AIG?

Page 40

1 A. No, no.

2 Q. And is that because you're simply not aware or you

3 know that there was no one else doing that work?

4 A. I was not aware.

5 Q. There could have been other people doing that work?

6 A. Yes, there could have been.

7 Q. You may or may not recall when you and I spoke on

8 the phone in terms of arranging the subpoena, I had indicated

9 that one of the issues that I would like to ask about would be

10 your interaction with people at AIG or Federal Reserve people

11 at AIG or Treasury people at AIG. I want to get into that

12 area a little bit. I will assume -- and you can correct me if

13 I'm wrong -- that you had no contact with AIG or any federal

14 employees who might be working on the AIG matter prior to late

15 December '08.

16 A. I certainly had no contact with anybody at AIG prior

17 to December of '08. I had -- in my course of my duties at the

18 SEC, I had lots of contact with the New York Fed throughout

19 2007 and 2008. So I, I did know Steve Manzari and Sarah

20 Dahlgren prior to December of '08, and Mike Alix who is at the

21 New York Federal Reserve now was previously the Chief Risk

22 Officer at Bear Stearns. We supervised Bear Stearns for a

23 number of years so I knew Mike Alix from that time period. So

24 I knew them prior to December of '08.

25 Q. So during this --

Page 41

1 A. Sorry. Go ahead.

2 Q. During this time period prior to December '08, you

3 were dealing with these individuals who obviously had contact

4 with AIG and were involved. Was your contact with these

5 individuals relating to AIG or other matters?

6 A. No. Other matters.

7 Q. So at the SEC you had no responsibilities relating

8 to AIG?

9 A. No.

10 Q. From this time period, December '08 when you began

11 working on AIG, what contact did you have, if any, with any --

12 A. I'm sorry. Let me go back for one second.

13 Q. Okay.

14 A. When I was at the SEC, there was one matter which

15 came up related to AIG and I don't remember the time frame.

16 AIG has a small broker dealer.

17 MR. COLEMAN: Again, I mean, we don't represent the

18 SEC; but to the extent this is an investigation that the SEC

19 was conducting, it's not --

20 THE WITNESS: It was not an investigation. This

21 was, this was -- it was a -- there was a regulatory filing

22 required of all broker dealers under the -- we just dub it

23 17 H. I'm not sure what -- it's just a filing.

24 BY MR. YERUSHALMI:

25 Q. Right.

Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 131 of 146
MICHAEL HSU

November 18, 2009

16 (Pages 58 to 61)

Page 58

1 * * *

2 ACKNOWLEDGMENT OF DEPONENT

3 I, MICHAEL HSU, do hereby acknowledge that I have

4 read and examined the foregoing testimony, and the same is a

5 true, correct and complete transcription of the testimony

6 given by me, and any corrections appear on the attached Errata

7 sheet signed by me.

8

9

10

11 (DATE) (SIGNATURE)

12

13

14

15

16

17

18

19

20

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Page 59

1 CERTIFICATE OF SHORTHAND REPORTER

2 I, Janet A. Steffan, Registered Diplomate Reporter

3 and Notary Public before whom the foregoing deposition was

4 taken, do hereby certify that the foregoing transcript is a

5 true and correct record of the testimony given; that said

6 testimony was taken by me stenographically and thereafter

7 reduced to typewriting under my direction and that I am

8 neither counsel for, related to, nor employed by any of the

9 parties to this case and have no interest, financial or

10 otherwise, in its outcome.

11 IN WITNESS WHEREOF, I have hereunto set my hand this

12 30th day of November, 2009.

13

14

15

16

17

18 Registered Diplomate Reporter

19

20

21

22

23

24

25

Page 60

1 E R R A T A S H E E T

2 IN RE: MURRAY vs. GEITHNER

3 RETURN BY:

4 = = = = = = = = = = = = = = = = = = = = = = = = = = = = =

5 PAGE LINE CORRECTION AND REASON

6

7

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Page 61

1 E R R A T A S H E E T

2 IN RE: MURRAY vs. GEITHNER

3 RETURN BY:

4 = = = = = = = = = = = = = = = = = = = = = = = = = = = = =

5 PAGE LINE CORRECTION AND REASON

6

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Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 132 of 146
EXHIBIT K 

to the Declaration of John R. Coleman

Deposition Transcript of Jim Millstein (Selected Portions)

Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 133 of 146
MURRAY v. GEITHNER, ET AL

JIM MILLSTEIN

November 17, 2009

Prepared for you by

Bingham Farms | Ann Arbor | Detroit | Flint | Grand Rapids | Jackson | Lansing | Mt. Clemens

PHONE: 248.644.8888 FAX: 248.644.1120

www.bienenstock.com

Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 134 of 146
JIM MILLSTEIN

November 17, 2009

Page 1

 IN THE UNITED STATES DISTRICT COURT

 FOR THE EASTERN DISTRICT OF MICHIGAN

KEVIN J. MURRAY, :

 Plaintiff, :

 v. :

TIMOTHY F. GEITHNER, in his : Case No. 08-CV-15147

official capacity as Secretary, :

U.S. Department of Treasury; :

BOARD OF GOVERNORS OF THE :

FEDERAL RESERVE SYSTEM, :

 Defendants. :

 30(b)(6) DEPOSITION OF THE BOARD OF GOVERNORS OF THE

 FEDERAL RESERVE BOARD

 BY AND THROUGH ITS REPRESENTATIVE JIM MILLSTEIN

 Washington, D.C.

 Tuesday, November 17, 2009

 9:06 a.m.

Job No. 32-168061

Pages: 1 - 91

Reported by: Janet A. Steffan, RDR

Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 135 of 146
JIM MILLSTEIN

November 17, 2009

2 (Pages 2 to 5)

Page 2

1 30(b)(6) DEPOSITION OF THE BOARD OF GOVERNORS OF THE

2 FEDERAL RESERVE BOARD, BY AND THROUGH ITS REPRESENTATIVE JIM

3 MILLSTEIN, held at the office of:

4

5

6

7

8 Center for Security Policy

9 1901 Pennsylvania Avenue, Northwest

10 Suite 201

11 Washington, D.C. 20006

12

13

14

15

16

17

18

19

20

21

22

23 Pursuant to Notice, before Janet A. Steffan,

24 Registered Diplomate Reporter and Notary Public in and for the

25 District of Columbia.

Page 3

1 A P P E A R A N C E S

2 ON BEHALF OF THE PLAINTIFF:

3 DAVID YERUSHALMI, ESQUIRE

4 Law Offices of David Yerushalmi, P.C.

5 P.O. Box 6358

6 Chandler, Arizona 85246

7 (646) 262-0500

8 ON BEHALF OF THE DEFENDANT:

9 JOHN R. COLEMAN, ESQUIRE

10 JULIE STRAUS, ESQUIRE

11 Federal Programs Branch

12 U.S. Department of Justice

13 20 Massachusetts Avenue, Northwest

14 Washington, D.C. 20001

15 (202) 514-7857

16

17 ALSO PRESENT:

18 JOSEPH J. SAMARIAS, ESQUIRE

19 Attorney-Advisor

20 U.S. Department of the Treasury

21 Office of Financial Stability

22 Washington, D.C.

23

24

25

Page 4

1 I N D E X

2 EXAMINATION OF JIM MILLSTEIN PAGE

3 By Mr. Yerushalmi............................ 5

4

5 E X H I B I T S

6 (Attached to the transcript)

7 Plaintiff's Deposition Exhibit

8 No. 29 Notice of Deposition to US Department of..... 5

9 Treasury Pursuant to FRCP 30(b)(6)

10 No. 30 Testimony by Edward M. Liddy, Chairman....... 58

11 and CEO, AIG, before House Financial Services

12 Committee March 18, 2998

13 No. 31 Testimony by Edward M. Liddy, Chairman and... 60

14 CEO, AIG, before the House Committee on

15 Oversight and Government Reform May 13, 2009

16 No. 32 Statement of Chester Feldberg before the..... 62

17 Committee on Oversight and Government Reform

18 US House of Representatives

19 May 13, 2009

20

21

22

23

24

25

Page 5

1 P R O C E E D I N G S

2 -----

3 (Plaintiff's Deposition Exhibit No. 29 was marked

4 for identification.)

5 JIM MILLSTEIN,

6 a witness herein, being duly sworn, testified as follows:

7 -----

8 EXAMINATION

9 -----

10 BY MR. YERUSHALMI:

11 Q. State your name for the record and spell your last

12 name, please.

13 A. It's Jim Millstein, M-I-L-L-S-T-E-I-N. My legal

14 name is James.

15 Q. Mr. Mallstein?

16 A. Millstein.

17 Q. Millstein. Mr. Millstein, would you take a look at

18 the exhibit, what's been marked as Exhibit No. 1. This is the

19 Notice of Deposition that you should have received.

20 A. I don't mean to be difficult, but it's marked as

21 Exhibit No. 29.

22 Q. I'm sorry. No. 29. Please correct me. Exhibit 29.

23 A. Yep. I have it.

24 Q. And are you familiar with this document?

25 A. I am now.

Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 136 of 146
JIM MILLSTEIN

November 17, 2009

3 (Pages 6 to 9)

Page 6

1 Q. Did you see this document before today?

2 A. I can't say that I did.

3 Q. Would you please review on page 2, beginning at page

4 2, the three marked paragraphs 1, 2 and 3. Let me know when

5 you've reviewed those.

6 A. Yes, I've reviewed this.

7 Q. Paragraph 1 refers to the September 2008 transaction

8 between the Federal Reserve Bank of New York and AIG, and I

9 will refer to the American International Group, Inc. as AIG

10 and the credit facility of $85 million. Do you see that?

11 A. Billion dollars.

12 Q. Billion dollars. Do you see that?

13 A. Yes, I do.

14 Q. And are you prepared to testify as to that

15 transaction on behalf of the Treasury today?

16 A. I am. Recognizing I didn't participate in the

17 transaction, but I am familiar with it.

18 Q. You are here today as a 30(b)(6) deponent. Are you

19 aware of that?

20 A. I am.

21 Q. And you're testifying on behalf of the Treasury, not

22 in any personal capacity; is that correct?

23 A. Correct.

24 Q. Are you prepared to testify as to the substance of

25 the $85 billion transaction referenced in paragraph 1?

Page 7

1 A. I am.

2 Q. And the same question with regard to the Treasury

3 Department's November 2008 purchase of AIG preferred stock

4 pursuant to the Emergency Economic Stabilization Act of 2008

5 referenced in paragraph 2. Are you prepared to testify to

6 that transaction?

7 A. I am.

8 Q. And similarly with regard to paragraph 3,

9 information made available to the Office of Special Inspector

10 General and the Troubled Asset Relief Program, SIGTARP, are

11 you prepared to testify as to that?

12 A. I am.

13 Q. Thank you. Before we begin, Mr. Millstein, is there

14 any reason why I should not be taking your deposition today?

15 Are you on any medication that might impair your hearing or

16 your answering the questions?

17 A. No, I'm, I'm competent.

18 Q. And you've had your deposition taken before, as I

19 understand?

20 A. I have.

21 Q. So you understand that you'll need to respond to

22 each question audibly, and if you don't understand any

23 question, you'll ask me to rephrase it so you can respond

24 appropriately?

25 A. (Witness nodded head.) Yes.

Page 8

1 Q. Cute. Okay.

2 A. I'm just turning off my phone. Okay. Sorry.

3 Q. Let me ask you, Mr. Millstein, what have you done to

4 prepare for this deposition today? Have you reviewed any

5 materials, had any conversations with anyone?

6 A. I spoke with counsel.

7 Q. Any other preparation?

8 A. No.

9 Q. You did not review any other -- any documents?

10 A. I am generally familiar with these documents in my

11 capacity at Treasury.

12 Q. What exactly is your role at the Treasury

13 Department? And let me just for clarification purposes, I'm

14 going to try -- because later in this deposition it will be

15 important. I'm going to try to, when I'm referring to the US

16 Department of Treasury, to say the Treasury Department; and if

17 I refer to the treasury, I mean literally whatever that is,

18 and I hope to get some answers from you, the US treasury.

19 What is your role at the Treasury Department?

20 A. My title is chief restructuring officer within the

21 Office of Financial Stability, which is a separate office at

22 the Treasury Department.

23 Q. Okay. I'm going to ask you just to speak up a hair.

24 I'm a little hard of hearing, so --

25 A. My title is chief restructuring officer.

Page 9

1 Q. In what department or --

2 A. The Office of Financial Stability.

3 Q. And what does that role entail?

4 A. Direct supervision of the department's investment in

5 AIG, among others.

6 Q. And what might the others be? Are there any other

7 specific companies?

8 A. Generally when there are -- when issues pertaining

9 to the restructuring of any of the department's TARP

10 investments, I'm generally consulted.

11 Q. And who is your immediate supervisor?

12 A. The Assistant Secretary, Herb Allison. Herb

13 Allison, A-L-L-I-S-O-N.

14 Q. AIG has received funds under the Emergency Economic

15 Stabilization Act; correct?

16 A. Yes.

17 Q. And other than the -- well, let me ask you this.

18 Are you familiar with the TARP funds that are provided under

19 the Emergency Economic Stabilization Act which I will refer to

20 as EESA?

21 MR. COLEMAN: Objection; vague. Are you referring

22 to all the TARP funds or to AIG?

23 BY MR. YERUSHALMI:

24 Q. You may answer.

25 A. Yeah. The TARP is a colloquialism referring to the

Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 137 of 146
JIM MILLSTEIN

November 17, 2009

12 (Pages 42 to 45)

Page 42

1 let's just move on. We'll get through it.

2 THE WITNESS: In March of 2009 the Treasury

3 Department committed to provide AIG with an incremental 30

4 billion -- no, not 30 billion, sorry -- 29.86 or 84 billion

5 dollars of incremental preferred stock financing; and that is

6 a sort of standby equity commitment that can be drawn by the

7 company so long as it hasn't filed for bankruptcy prior to the

8 draw.

9 BY MR. YERUSHALMI:

10 Q. And as of today, how much of that equity commitment

11 has been drawn down?

12 A. Approximately $3 billion.

13 Q. And how have those funds been used by AIG?

14 A. Generally to recapitalize its -- certain of its

15 insurance subsidiaries, certain of its insurance subsidiaries.

16 Q. And is the Treasury Department aware of exactly

17 these funds have been invested by AIG?

18 MR. COLEMAN: Objection; scope.

19 THE WITNESS: Yes. Before they draw the funds, they

20 review use of the draw with us.

21 BY MR. YERUSHALMI:

22 Q. And does the Treasury Department have the authority

23 to deny an equity drawdown based upon use of funds?

24 MR. COLEMAN: Objection; scope.

25 THE WITNESS: No. Under the terms of the Series F

Page 43

1 preferred stock facility, the conditions to draw are, are very

2 limited. The conditions precedent to AIG's ability to draw

3 the funds are very limited.

4 BY MR. YERUSHALMI:

5 Q. Are there any restrictions on use of funds at all?

6 A. The --

7 MR. COLEMAN: Objection; scope.

8 THE WITNESS: No. The Federal Reserve credit

9 facility requires a -- requires the -- effectively requires

10 the Federal Reserve Board to -- I'm sorry, the Federal Reserve

11 Bank of New York to approve any financing; and so this is

12 financing within the meaning of that credit facility, and

13 therefore indirectly the proceeds -- the use of proceeds have

14 to be approved by the Federal Reserve effectively.

15 BY MR. YERUSHALMI:

16 Q. By the Federal Reserve Bank of New York?

17 A. Yes. But the Treasury Department does not have a

18 specific consent right to use the proceeds.

19 Q. Does the Federal Reserve Bank of New York have

20 specific restrictions on use of funds when they do their

21 review?

22 MR. COLEMAN: Objection; scope.

23 THE WITNESS: The credit facility I think speaks for

24 itself, but they have -- the credit, the terms of the credit

25 facility have limitations on use of proceeds.

Page 44

1 BY MR. YERUSHALMI:

2 Q. So if someone wanted to find out what those

3 restrictions are, you would just look at the credit

4 facility --

5 A. That's correct.

6 Q. -- to determine that?

7 A. That's correct.

8 Q. What -- strike that. You indicated that the funds

9 have been used to recapitalize certain insurance subsidiaries;

10 correct?

11 A. Correct.

12 Q. Do you know which subsidiaries those are?

13 MR. COLEMAN: Objection; scope.

14 THE WITNESS: Yes.

15 BY MR. YERUSHALMI:

16 Q. What are they?

17 MR. COLEMAN: Objection; scope.

18 THE WITNESS: The -- I'm -- the only reason I'm

19 hesitating is some of the -- I cannot -- sitting here now, I

20 cannot distinguish in my own mind as to which draws -- with

21 regard to the draws that have already been made, which

22 insurance companies the Series F proceeds went to recapitalize

23 versus draws that may be made in the future. So I'm having

24 trouble distinguishing.

25 MR. COLEMAN: If you don't remember.

Page 45

1 THE WITNESS: Can't remember.

2 MR. COLEMAN: It's publicly available.

3 MR. YERUSHALMI: Where would it be publicly

4 available?

5 MR. COLEMAN: In the filings of the company.

6 MR. YERUSHALMI: I'm sorry?

7 MR. COLEMAN: SEC filings of the company.

8 BY MR. YERUSHALMI:

9 Q. Why did the Treasury Department authorize the Series

10 F transaction?

11 MR. COLEMAN: Objection; scope. And to the extent

12 it seeks deliberative process privilege, I instruct you not to

13 answer.

14 BY MR. YERUSHALMI:

15 Q. And let me refine my question given the objection.

16 I'm not looking for the internal deliberations. I'm looking

17 for the final rationale for that decision.

18 MR. COLEMAN: Objection; scope.

19 THE WITNESS: AIG required more liquidity in order

20 to satisfy its auditors that it was a going concern. In

21 connection with the audit of a company's annual financial

22 statements, the auditors issue a letter and say that they have

23 reviewed the company's financial statements and that those

24 financial statements fairly present the financial condition of

25 the company.

Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 138 of 146
JIM MILLSTEIN

November 17, 2009

13 (Pages 46 to 49)

Page 46

1 The words "fairly present" is a -- in quotes,

2 "fairly presents" -- is a term of art that embraces a number

3 of standards; and among the standards embraced by those words

4 is that the company has sufficient capital and liquidity

5 available to it for the next 12 months or 15 -- some depends

6 on which company, but 12 to 15 months after -- from the date

7 of the auditor's opinion to meet its obligations in the

8 ordinary course of business. Sufficient capital and liquidity

9 to meet its obligations in the ordinary course of business.

10 And the auditors of AIG were concerned in March of

11 2009 that AIG might not have sufficient capital and liquidity

12 to meet its obligations in the ordinary course of business

13 and, therefore, required incremental capital to be available

14 to AIG in order to maintain its status as a going concern.

15 If AIG failed to be a going concern in the eyes of

16 its auditors, that would have led to a ratings downgrade and

17 the entire parade of horribles that the rescue theretofore had

18 been intended to prevent would have once again ensued. So it

19 was determined to provide AIG with an incremental $30 billion

20 of potential liquidity in the form of the Series F stock.

21 BY MR. YERUSHALMI:

22 Q. And would it be fair to say that the Treasury

23 Department made this decision because private sources were not

24 available?

25 MR. COLEMAN: Objection; scope.

Page 47

1 THE WITNESS: Yes. I think we were -- I think the

2 company had -- could not obtain the funding from other

3 sources.

4 BY MR. YERUSHALMI:

5 Q. And this was the Treasury Department's determination

6 at that time?

7 A. Yes.

8 MR. COLEMAN: Objection; scope.

9 BY MR. YERUSHALMI:

10 Q. Same question with regard to the Series D preferred

11 shares. That purchase was authorized by the Treasury

12 Department because AIG did not have those kinds of funds

13 available to it in the private sector?

14 A. Because AIG could not obtain them elsewhere, yes.

15 Q. Since September 2008 until the passage of EESA, did

16 the Treasury Department have any officials or employees on

17 site at AIG?

18 MR. COLEMAN: Objection; scope.

19 THE WITNESS: Not that I'm aware.

20 BY MR. YERUSHALMI:

21 Q. After the passage of EESA until today, does the

22 Treasury Department have any employees on site at AIG?

23 MR. COLEMAN: Objection; scope.

24 THE WITNESS: From time to time. At least since the

25 beginning of the new administration there have been, there

Page 48

1 have been employees of the Treasury Department on site at AIG

2 offices in New York from time to time.

3 BY MR. YERUSHALMI:

4 Q. And by the new administration you mean the Obama

5 administration?

6 A. Yes.

7 Q. And what is their role on site at AIG?

8 A. Just --

9 MR. COLEMAN: Objection; scope. Objection to the

10 extent that -- well, you can answer the question.

11 THE WITNESS: Yeah. We're just -- we are monitoring

12 AIG's performance.

13 BY MR. YERUSHALMI:

14 Q. What exactly are they monitoring?

15 A. The -- its business and operations and the progress

16 they are making in the development of its strategic plan to

17 repay the taxpayers.

18 Q. Do they just monitor or do they also provide

19 supervision or instruction?

20 MR. COLEMAN: Objection; scope.

21 THE WITNESS: We are -- the Treasury Department is a

22 significant investor in the equity of AIG. The Federal

23 Reserve Bank of New York has established a trust into which a

24 Series C preferred stock has been deposited. That Series C

25 stock is convertible into 79 percent of their common equity

Page 49

1 and votes with the common, and therefore is -- trustees have

2 significant influence over the election of directors.

3 BY MR. YERUSHALMI:

4 Q. What do those trustees have to do with the Treasury

5 Department?

6 A. They are part of the -- they're part of the

7 architecture of our investment as a government in this entity.

8 Q. When you say our investment, you mean the Treasury

9 Department?

10 A. I mean the government as a whole.

11 Q. I'm going to show you what has been previously

12 marked Exhibit 6. Are you familiar with this document?

13 A. Yes.

14 Q. What is that document?

15 A. That's the credit agreement dated as of September

16 22nd, 2008, between AIG as borrower and the Federal Reserve

17 Bank of New York as lender.

18 Q. And that is the credit facility that we have been

19 referring to when we've been speaking of the $85 billion

20 credit facility?

21 A. Yes, sir.

22 Q. I'm also going to show you what was marked as

23 Exhibit 7 in an earlier deposition. Are you familiar with

24 that document?

25 MR. COLEMAN: Take the time to review it.

Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 139 of 146
JIM MILLSTEIN

November 17, 2009

23 (Pages 86 to 89)

Page 86

1 the US Treasury. That's what we understand.

2 Q. You had indicated earlier that the trustees consult

3 with and receive information from the Treasury Department, but

4 that the Treasury Department never instructs them how to act

5 in this capacity as trustee; is that correct?

6 A. I have testified that I have not and I don't believe

7 anyone at the Treasury Department sitting in my seat before me

8 has instructed them how to vote their shares.

9 MR. YERUSHALMI: Let me just review my notes and I

10 think we're done.

11 (Discussion off the record.)

12 MR. YERUSHALMI: That's it, Mr. Millstein.

13 THE WITNESS: Thank you very much.

14 MR. YERUSHALMI: Thank you.

15 THE WITNESS: Appreciate your expedition.

16 MR. COLEMAN: Let me just take the opportunity to

17 request the opportunity to review the transcript. And also,

18 David, we haven't really discussed this, but the terms of the

19 protective order that was entered by the court, I think, you

20 know, we need an opportunity to review the transcripts and I

21 think AIG probably will as well to see whether or not they

22 want to designate any portion of the transcript testimony as

23 protected by the protective order. That's in the terms of the

24 protective order, so, just so we're clear on that.

25 MR. YERUSHALMI: Okay. I'm not going to agree to

Page 87

1 that. I'll need to look at the protective order.

2 MR. COLEMAN: That's fine. But we'll work out the

3 logistics of that.

4 MR. YERUSHALMI: Okay.

5 (Whereupon, signature having not been waived, the

6 30(b)(6) deposition of JIM MILLSTEIN was concluded at 12:15

7 p.m.)

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Page 88

1 * * *

2 ACKNOWLEDGMENT OF DEPONENT

3 I, JIM MILLSTEIN, do hereby acknowledge that I have

4 read and examined the foregoing testimony, and the same is a

5 true, correct and complete transcription of the testimony

6 given by me, and any corrections appear on the attached Errata

7 sheet signed by me.

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Page 89

1 CERTIFICATE OF SHORTHAND REPORTER

2 I, Janet A. Steffan, Registered Diplomate Reporter

3 and Notary Public before whom the foregoing deposition was

4 taken, do hereby certify that the foregoing transcript is a

5 true and correct record of the testimony given; that said

6 testimony was taken by me stenographically and thereafter

7 reduced to typewriting under my direction and that I am

8 neither counsel for, related to, nor employed by any of the

9 parties to this case and have no interest, financial or

10 otherwise, in its outcome.

11 IN WITNESS WHEREOF, I have hereunto set my hand this

12 30th day of November, 2009.

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18 Registered Diplomate Reporter

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JIM MILLSTEIN

November 17, 2009

24 (Pages 90 to 91)

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1 E R R A T A S H E E T

2 IN RE: MURRAY vs. GEITHNER

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Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 141 of 146
EXHIBIT L 

to the Declaration of John R. Coleman

Third Tranche Report to Congress 12.2.08

Case 2:08-cv-15147-LPZ-MKM Document 67-3 Filed 06/07/10 Page 142 of 146
UNITED STATES DEPARTMENT OF THE TREASURY 

THIRD TRANCHE REPORT TO CONGRESS 

DECEMBER 2, 2008 

I. INTRODUCTION

This Third Tranche Report to Congress meets the requirement for reporting at the $200 billion 

commitment level under section 105(b) of the Emergency Economic Stabilization Act of 2008 

(EESA). The recent transaction with American International Group (AIG) under the 

Systemically Significant Failing Institution Program, when combined with the previous $161 

billion of transactions under the Capital Purchase Program, exceeded the $200 billion 

commitment level. Treasury will submit the next report when transaction levels reach the $250 

billion level. 

The Report addresses the following six areas: 

• A description of all the transactions made during the reporting period. 

• A description of the pricing mechanism for the transaction. 

• A justification of the price paid for, and other financial terms associated with, the 

transactions. 

• A description of the impact of the exercise of such authority on the financial system. 

• A description of the challenges that remain in the financial system, including any 

benchmarks yet to be achieved. 

• An estimate of additional actions under the authority provided pursuant to EESA that 

may be necessary to address such challenges. 

II. TRANSACTION INFORMATION BY PROGRAM 

This Third Tranche Report reflects transactions under two programs. On November 17, 2008, 

Treasury closed $2.97 billion in transactions under the Capital Purchase Program (CPP). 

Treasury also closed a $40 billion transaction with AIG under the Systemically Significant 

Failing Institution (SSFI) Program on November 26, 2008. A report of these transactions was 

posted on Treasury’s web site and is attached here as Appendix 1. 

Capital Purchase Program 

The purpose of the CPP is to encourage U.S. financial institutions to build their capital base, 

which in turn increases their capacity to lend to U.S. businesses and consumers and to support 

the U.S. economy. Under the CPP, Treasury will purchase up to $250 billion of senior preferred 

shares on standardized terms. The Program is available to qualifying U.S. controlled banks, 

savings associations, and certain bank and savings and loan holding companies engaged solely or 

predominately in financial activities permitted under the relevant law. We reported in detail on 

the CPP in Treasury’s First Tranche Report to Congress and Second Tranche Report to 

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2

Congress. There have been no changes to the purpose or use of the CPP since our last report. 

To date, Treasury has signed final agreements under the CPP with 53 financial institutions, 

which is reflected in Appendix 1. 

Systemically Significant Failing Institution Program 

On November 25, Treasury issued guidelines for the SSFI Program and completed the first 

transaction under this program, a $40 billion purchase of senior preferred shares from AIG. 

The SSFI Program is designed to provide stability and to prevent disruption to financial markets 

from the failure of a systemically significant institution. Unlike the CPP, participation in the 

SSFI Program is on a case-by-case basis. When considering an institution for this program, 

Treasury may consider these and other factors: 

1. The extent to which the failure of an institution could threaten the viability of its 

creditors and counterparties because of their direct exposure to the institution. 

2. The number and size of financial institutions that are seen by investors or 

counterparties as similarly situated to the failing institution, or that could otherwise be 

likely to experience indirect contagion effects from the failure of the institution. 

3. Whether the institution is sufficiently important to the nation’s financial and 

economic system that a disorderly failure would, with a high probability, cause major 

disruptions to credit markets or payments and settlement systems, seriously 

destabilize key asset prices, significantly increase uncertainty or losses of confidence 

thereby materially weakening overall economic performance. 

4. The extent and probability of the institution’s ability to access alternative sources of 

capital and liquidity, whether from the private sector or other sources of government 

funds. 

The Federal Reserve Board, the Federal Reserve Bank of New York (FRBNY), and Treasury 

agreed that AIG’s failure would pose a systemic risk. As was determined at the time of 

FRBNY’s intervention in mid-September, AIG’s failure would likely have severe repercussions 

for global financial markets and the economy. In order to protect the financial system, a 

comprehensive U.S. government sponsored restructuring plan was needed to stabilize the current 

AIG financial situation. 

Under that plan, Treasury purchased $40 billion in the form of senior perpetual preferred stock in 

AIG, priced at par. The equity has been used to pay down $40 billion of FRBNY’s $85 billion 

senior secured credit facility. Following Treasury’s investment, the FRBNY’s revolving credit 

facility will be reduced from $85 to $60 billion, and the draw down rate will decline from 

Libor+850 basis points to Libor+300 basis points. The length of the facility will also be 

extended to five years. The TARP’s participation in the restructuring plan should create a more 

sustainable capital structure for AIG, which will in turn improve the ability of the firm to 

successfully execute the asset disposition plan. This will reduce AIG’s exposure to troubled 

assets will be reduced, as well its their leverage ratios. 

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3

Appendix 2 contains the term sheet for the AIG transaction, which was posted to Treasury’s web 

site on November 10, 2008. 

III. ASSESSMENT OF CURRENT MEASURES AND THE CHALLENGES AHEAD 

Impact of the Transactions 

Treasury continues to act aggressively to implement EESA’s Troubled Assets Relief Program 

(TARP). Through the CPP, Treasury has committed over $161 billion to financial institutions 

of all sizes, increasing their capital strength and enabling them to increase lending and take 

losses as they write down or sell troubled assets. We expect banks to increase their lending over 

time as a result of these efforts and as confidence is restored. Treasury also averted a significant 

risk to the financial system by investing $40 billion under the SSFI Program in AIG. With these 

measures, we are pursuing the right strategy to stabilize the financial system and to support the 

flow of credit into our economy, but the journey ahead will continue to be difficult. 

Challenges That Lie Ahead

Although actions announced to date have had a positive effect on the market, significant 

challenges remain. Equity, credit, and funding markets remain under considerable strain, as 

banks have been forced to reduce their leverage dramatically and have lowered their risk 

appetite. In addition, the primary and secondary mortgage finance markets are impaired with 

reduced liquidity in the agency market. There is no single action the Federal Government can 

take to eliminate the financial market turmoil and the economic downturn. We are focused, 

therefore, on developing the most effective combination of tools to alleviate the pressure points 

in our system. 

Treasury and the Federal Reserve announced one of those tools on November 25, a facility to 

finance the issuance of non-mortgage asset-backed paper. This facility will support lending to 

consumers and small businesses for such needs as auto loans, student loans, and credit cards. 

Issuance of asset-backed securities in these areas reached an estimated $240 billion in 2007, but 

credit market stresses led to a steep decline in the third quarter of 2008, and the market 

essentially came to a halt in October. As a result, millions of Americans cannot find affordable 

financing for their basic credit needs. To address this need and to support the return of consumer 

lending, the Treasury will provide $20 billion of credit protection to the Federal Reserve in 

connection with its $200 billion Term Asset-Backed Securities Loan Facility. By providing 

liquidity to issuers of consumer asset-backed paper, the Federal Reserve facility will enable a 

broad range of institutions to step up their lending, giving borrowers greater access to lower cost 

consumer finance and small business loans. The facility may be expanded over time and eligible 

asset classes may be expanded later to include other assets, such as commercial mortgage-backed 

securities, non-agency residential mortgage-backed securities, or other asset classes. 

On November 24, the Federal Government announced a comprehensive assistance plan for 

Citigroup. As part of that plan, Treasury will use $20 billion of TARP authority to purchase 

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4

additional preferred shares,∗ and will guarantee up to $5 billion of potential losses on a pool of 

Citigroup assets. These actions, in conjunction with those of the Federal Reserve and FDIC, will 

provide additional assurance to the market and further support overall financial stability. 

Treasury is actively engaged in developing other programs to strengthen our financial system so 

that lending flows into our economy. These include programs to mitigate mortgage foreclosures, 

provide additional capital, and insure troubled assets as authorized by Section 102 of EESA. 

 

∗

 Treasury purchased the first group of preferred shares from Citigroup under the CPP on October 28, 2008. 

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