Q What are the current geopolitical undercurrents in Indonesia in relation to the ASEAN bloc of nations?

A

We are entering a period of relative stability and economic prosperity under the new government of Susilo Bambang Yudhoyono. It must be said that the leadership role of Indonesia among the ASEAN member countries over the past five years has been almost non-existent. My job is to put Indonesia back on the radar screen.

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Asia is currently the fastest growing region in the world. The only exception to this trend in recent years was the general slowdown of economies during the Asian economic crisis.

We are seeing a shift in relations between China and India. They have had a cold relationship in the past but that is changing fast. We have to find ways to co-operate with these two giants; and south-east Asia and ASEAN as a whole have to find ways to work with them.

Q What are Indonesia’s current trade patterns?

 

A

There seems to be a strong regional production centre emerging in Asia. There is a lot of demand for machinery, spare parts, components, electronics and consumer goods. It is very important for a country like Indonesia to be part of this regional production centre.

Looking at the export growth rate of the first five months in 2005, Indonesia has achieved almost 30% growth but it is more in value terms. To be blunt this increase is caused more by the price increase in commodities like coal, iron ore and crude palm oil rather than merely the performance of the overall economy.

When you look at exports within ASEAN member countries, Indonesia is currently exporting only about $2bn compared with Malaysia, which exports about $4.3bn, while Singapore’s exports are almost $4bn.

There is a need to improve our relationship with our ASEAN dialogue partners: China, India, South Korea and Japan. Japan occupies the number one position among our trading partners with a surplus of $9.3bn; South Korea is in the number two position at $2.8bn.

Q How important are China and India as trading partners?

A

With China, Indonesia enjoys a trade surplus of $1.3bn. India is still a relatively small trading partner, contributing a surplus of less than $1bn. However, we are seeing a pick-up in trade with India, driven by a free trade agreement between the two regions. With a population base of 1.3 billion in China and 1.1 billion in India, we realise they offer huge market potential for Indonesia.

India is an untapped market for us. There have been strong indications of Indian investors coming to Indonesia. For instance, TVS Motors from India has unveiled a five-year plan for building and assembling motorcycles in Indonesia and has announced it would spend up to $50m on setting up a manufacturing centre from scratch.

China, on the other hand, has established global brands like Haier and Legend in the consumer electronics field. An important lesson that Indonesia can learn from India and China is that they offer higher levels of technology when compared with Indonesia. We should look at their technology, which is priced much lower compared with technology imported from Japan, Europe or the US. Indonesia should consider these value propositions as alternative technology investments in the long run.

Q How do India and China fit into Indonesia’s growth strategy?

A

Indonesia would be looking at niche areas where it has an advantage over goods or products manufactured in China, for instance. It would be good to synergise and forge partnerships with China, especially in areas where we have a strong core competency.

We are also forging a closer relationship with India. We have not exactly decided what role we can play with regards to India but we would have an advantage when we talk about consumer goods exported into India as compared with China.

That, again, depends on several factors from lower tariffs and lower barriers of entry into India to its rather strong flavour of nationalism that has been restrictive to even international icons like Coco-Cola, which still cannot be directly represented in India today.

Indonesia has identified a broader strategy to enhance 11 core sectors, including the automotive, natural resources, service, healthcare, agriculture, aquaculture, garment, manufacturing and retail areas. The take-up rate for some of these sectors has been rapid while for others it has been slower than anticipated.

Q In what ways is ASEAN promoting free trade?

A

Like other ASEAN member countries, Indonesia has adopted the ASEAN+1 concept. We have also implemented the ‘early harvest’ programme, which has been in effect since 2004. China, for example, is one of the countries that has opted to reduce its tariffs programme with Indonesia. This is due to the fact that China does not fear competition from its trading partners.

ASEAN has agreed on reducing tariffs on a range of products by the initial deadline of 2010, with the exception of 304 items that are deemed sensitive. For these 304 items, we intend to reduce tariffs by 20% before 2012 with perhaps a further reduction of up to 5% by 2018.

We have started working towards a deadline for tariffs of products that are deemed sensitive to be reduced by up to 50% in some cases by 2015. We are looking at products across the board and reducing their tariffs and levies for imports – this includes products like spare auto parts, textiles and ceramics, and agricultural products like sugar, rice, corn and soybean.

Even among ASEAN members, we have differences of opinion when it comes to the East Asia Free Trade Area (EAFTA). China and Malaysia have agreed to it while Singapore, Thailand and Indonesia have not done so. What we are considering currently is the notion of ASEAN+3 where Australia, New Zealand and India become part of the greater ASEAN community. And, more importantly, free trade agreements (FTAs) are in vogue, with several ASEAN countries scrambling to sign them.

Q Are closer bilateral relations an answer to the failure of ASEAN integration?

A When China emerged as an economic powerhouse five years ago, we realised that ASEAN needed to be integrated into one entity in order to compete. There was a push for economic integration but we seem to be moving more slowly than anticipated.

We have a programme to complete economic integration among ASEAN countries by 2020 if not earlier. This deadline has been heavily criticised in the past; however, we are optimistic about achieving our target by 2010.

In terms of bilateral policy we are following what is known as a multi-track strategy. We are negotiating with the World Trade Organization over tariffs and levies but we seem to be moving very slowly on this. We are striving to reduce tariffs and protectionist measures among importing countries and, at the same time, to create easier access for our products in Japan, Europe and the US, as well as developing countries like India.

India, for instance, used to impose a tariff as high as 80% on Indonesian crude palm oil (CPO). Malaysia, on the other hand, had much lower tariffs put on its CPO and refined palm oil. We managed to get equal tariff treatment with exports from Malaysia once India realised that we are equally capable of exporting high-grade CPO and refined palm oil.

We have recently adopted a new strategy in bilateral relationships by signing FTAs – similar to the success Singapore had in ratifying FTAs with its trading partners. We are exploring FTAs with Japan, Australia and the US, and eventually with India and China.

Q What does AFTA bring to the table?

A

Since the Asia Free Trade Agreement (AFTA) was signed, global companies have been consolidating their production centres.

Unilever and Proctor & Gamble are two good examples of companies that have taken advantage of AFTA by consolidating their production operations and producing a range of products in ASEAN countries. They are looking at economies of scale and identifying the most efficient producers. Indonesia has an advantage when they consider the population base of 230 million people that would be a potential market to absorb their products directly.

Q Is FDI a catalyst for international trade?

A

Although I am a trade minister, I have realised that nothing will happen in trade unless investment flows into the country. Investment is the key element in driving trade. We need to have a better investment climate and be able to market ourselves better internationally.

For example, we have seen global outsourcing trends in which transnational companies with a global footprint cannot afford to rely on a single country for their outsourcing needs. That is where Indonesia could be attractively repackaged with a value proposition of being a reliable outsourcing arm for transnational firms.

We need a strategic vision to enable this swing and to attract FDI into Indonesia. We can take a cue from Singapore during its early years when it used door-to-door salesmanship with foreign investors and identified key growth areas for FDI.

So far, Indonesia has increased total FDI from $2.5bn in 2004 to more than $4.9bn this year. We expect Indonesian exports to be about 6%-8 % this year.