Prime Minister John Key was welcomed by Indonesian President Susilo Bambang Yudhoyono's at his official residence the Istana Merdeka this morning with full military honours including a 19 gun salute.

Mr Key yesterday said talks with President Yudhoyono would focus on building trade and political ties.

This morning, before he attended a wreath laying ceremony at Jakarta's Kalibata National Heroes Cemetery, Mr Key said he would not raise the issue of seriously ill New Zealand man Simon Donaldson who is being held by mother in Western Indonesian city Surabaya by his mother.

However Mr Key has said he will raise some difficult issues with the president.


Discussions with the president would generally be "about how we can build that long term relationship with Indonesia".

"We'll be discussing everything from Papua right through to where the see the region going what they see as risks and concerns, and progress that we might make."

Mr Key said the Transpacific Partnership trade talks would also be on the agenda.

President Yudhoyono has expressed some concerns about the TPP saying Indonesia is unlikely to join it immediately "Mostly we'll be trying to build on the good work that the Asean Australia New Zealand Free Trade Area's established."

However despite that free trade agreement coming into force in January, New Zealand beef imports in Indonesia have been curbed by as much as a third by protectionist measures Mr Key said.

"Technically that's almost certainly a breach of the free trade agreement.

"It's having an impact not only on New Zealand but also Australia and the United States. So that is an issue we are attempting to resolve."

"We don't think it's in the spirit of the FTA. And we need to work that through with the authorities.


We'll raise it in a way that is respectful but makes our point."

The risks and concerns facing Indonesia at present include terrorist activity that saw the Marriott Hotel in Jakarta attacked by a suicide bomber three years ago.

American businessman and international investor James Castle, who survived the blast which killed New Zealander Tim Mackay, was one of the guests at an Indonesia-New Zealand Friendship Council Gala dinner last night.

Security measures including a pair of armoured vehicles guarding the entrance are tight at the Mandarin Oriental Hotel where Mr Key and a 26 strong New Zealand business delegation are staying and where the gala dinner was held.

The delegation includes Fonterra chief executive Theo Spierings who yesterday announced a $20 million investment in a new blending and packaging plant.

Mr Spierings said Indonesia had not even been in the top 30 markets for Fonterra five or six years ago. Now it was tenth "and I think over a time frame of five years it can easily sit in the top five".

Fonterra would continue its investment in Indonesia by bringing over a team of farming experts to investigate how Fonterra can access fresh milk from local producers.

"If we can have access to fresh milk which is quite a big proportion of the total milk consumption here we can and will address the daily dairy nutrition situation in the cities here."