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Australia and Indonesia: building our business relationship: speech at a joint function for the Australia Indonesia Business Council and Indonesia Australia Business Council, Darwin.



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Department of Foreign Affairs and Trade Speech

Australian Minister for Trade and Deputy Leader of the National Party, Mark Vaile at a joint function for the Australia Indonesia Business Council and Indonesia Australia Business Council

 

Darwin, 12 July 2001

Australia and Indonesia: Building Our Business Relationship

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Introduction

I’m delighted to be here in Darwin for this joint function of the Australia Indonesia and Indonesia Australia Business Councils.  It’s great to see the two Councils working together in this way to advance the business relationship between our two countries.  I’d like, in particular, to thank Bruce Fadelli, President of the Northern Territory Branch of the Australia Indonesia Business Council, for his invitation to speak to you today. 

I’d also like to take this opportunity to welcome visitors from Indonesia to Australia.  Darwin is a tremendous gateway to Indonesia, and indeed South East Asia more generally, for Australia.  Here we inevitably get reminded how very close we are as neighbours, and how much our two nations share a common destiny in this part of the world. 

Today, I want to talk in general terms about our bilateral relationship, before focussing on our trade and investment relationship in particular.  I also want to say something about our cooperation in the Cairns Group, which is a good demonstration of our partnership on the wider international stage. 

Our bilateral relationship

It’s very pleasing to report that the bilateral relationship between Indonesia and Australia is progressing well. 

We in Australia have just had the great pleasure of welcoming President Wahid on the first visit by an Indonesian President to Australia since 1975.  Personally, I was delighted to have the opportunity to meet the President again, and to share in the wide-ranging discussions that he and his Ministerial party had with the Prime Minister and other senior Australian Ministers.

The visit was undoubtedly an historic occasion and emphasised the fact that Australia and Indonesia attach real importance to their bilateral relations.  It underlined a renewed effort to forge even closer ties between our two peoples and our two economies.  During the visit, the Prime Minister emphasised that

the stability and wellbeing of Indonesia is vital to the security of the region, and that a united and prosperous Indonesia is in the best interests of Australia. 

Significantly, both leaders sought not to dwell on the differences we have had over East Timor.  And President Wahid emphasised that cooperation between Australia and Indonesia would be closer following his visit.

The visit demonstrated for everyone to see that the political relationship between our two nations is back on track after the inevitable difficulties we experienced over East Timor.  It built on the successful Australia-Indonesia Ministerial Forum, held in Canberra last December, and the High LevelInvestment Mission that I led to Jakarta in February, about which I shall have more to say shortly.

What we might call the practical aspects of the relationship are in good shape.  Trade ties, educational links, cultural relations and the whole range of people-to-people links have been continuing as normal. 

For example, the number of Indonesian students studying in Australia remains at around 18,000.  This is the largest number of overseas students studying in Australia, and probably the largest number of Indonesians studying in any overseas country.  Their presence, of course, provides us with a tremendous opportunity to build stronger linkages between our two countries that will last for many years to come.

It is noteworthy that, throughout the Asian financial crisis and the political tensions over East Timor, Australia and Indonesia continued to enjoy a sound commercial relationship.  Indeed, commercial ties have been the bedrock for our relationship over recent years.  Over 400 Australian companies currently maintain a presence in Indonesia, and a large Australian expatriate community underpins the business relationship.

Our trade relationship

The trade relationship between the Australia and Indonesia is in a healthy state.  Indonesia is Australia’s 10th largest market for merchandise exports and 12 th largest source of imports.  In calendar year 2000, two-way merchandise tradewas worth approximately $A5.6 billion (up 13.4% year-on-year).  There was a surplus in Australia’s favour of A$188 million. 

In 2000, major Australian exports to Indonesia included wheat, cotton, aluminium, live animals and bovine meat, and passenger motor vehicles.  Major Australian imports included crude petroleum, machinery and transport equipment, non-monetary gold, paper manufactures and paper.

It’s a feature of our trade that the key export items are those that can be value added and re-exported.  For example, cotton is value added by a factor of about 8 then mainly re-exported, including to Australia.

Preliminary data suggests that two-way services trade between Australia and Indonesia grew by several percentage points in 2000, with tourism and education leading the way.

Our investment relationship

Australia is also a significant investment partner for Indonesia. 

The most recent Indonesian Investment Coordination Board (BKPM) data ranks Australia as Indonesia's 10th biggest realised investor.  In fact, Australia was Indonesia’s second largest approved investor last

year.  The mining and financial services sectors have received the largest share of investment from Australia.  We calculate that cumulative investment approval by Australian companies stands at USD10 billion.

High Level Investment Mission to Indonesia

In February this year, I was very pleased to lead a successful investment mission of senior business executives from Australia to Indonesia.  This visit followed on well from the publication of a report on investing in Indonesia by the East Asia Analytical unit of my Department entitled Indonesia: Facing the Challenge, and a visit to Australia last December by the Indonesia Bank Restructuring Agency to promote investment in Indonesia. 

The investment mission was very timely, given the changes that Indonesia is undergoing, and gave Australian companies an opportunity to express directly to the Indonesian Government those issues that are of concern to them.  This point was well expressed by Barry Cusack, the CEO of Rio Tinto.  Asked about Australia’s attitude to investment in Indonesia, Mr Cusack said:  “This is a time of change in Indonesia, as that change goes on, there are many laws that need to be enacted….It is very important to be here as these laws are being developed so we can voice our views.” 

Sixteen companies, with current investments in Indonesia totalling A$6 billion, were represented on the delegation.  As a result of the visit, $550 million in new investment deals were agreed.  Members of that Ministerial mission forecast further investments of about $800 million over the next five years.  That gives you some idea of the bright future that lies ahead for our bilateral investment relationship!

This was my second visit to Indonesia as Trade Minister.  I met with a number of senior figures in the Indonesian government, including President Wahid, Minister for Industry and Trade Luhut Panjaitan, the then Economic Coordinating Minister Rizal Ramli and Foreign Minister Alwi Shihab.  I was impressed during my visit, as I was again during the recent visit to Australia by President Wahid, by the high level of commitment by the Indonesian Government to the future of our bilateral relationship.

Future opportunities in our trade and investment relationship

Both governments are clearly committed to the expansion of the commercial relationship between Indonesia and Australia.  And we look to the private sectors in both countries to work together, and with us, to develop the opportunities that exist for the future development of that relationship.

The strong complementarity between our two economies, recent trade liberalisation, Indonesia’s large and growing population and an expanding middle class make Indonesia a strong prospective growth market for Australian exporters - particularly in the longer term.  Australian companies should also be alert to opportunities that will be found in a number of specific sectors over the short to medium term.  In particular, export-oriented Small and Medium Enterprises (SMEs) in Indonesia continue to do well and provide good niche opportunities for Australian businesses to supply industrial inputs, raw material and services.

Overall, sectors that appear to offer prospects for future commercial activity between Australia and Indonesia include agricultural production and processing, automotive components, education and health services, light manufacturing for local requirements, professional services relevant to corporate and financial restructuring, supply of physical infrastructures, and tourism services.  There may also be good

future prospects in oil and gas, and general mining, provided that Indonesia addresses problems that have been identified in this sector. 

Helping Indonesia to meet its challenges

Indonesia’s GDP growth reached 4.8% in 2000, largely due to strong growth in consumption and exports, particularly in the transport and communications sector.  Economic recovery in Indonesia will depend in part on achieving economic stability and continuing reform.

Australia remains committed to helping Indonesia to meet the challenges of its substantial reform agenda and address the needs of vulnerable communities through a cooperation program of A$121.5 million.  Three significant new initiatives are beginning this year:

support for economic and financial policy development through a $8 million program of technical assistance over the next two years; ●

a two year $5 million legal reform program to develop functional, accountable and competent legal institutions; and ●

assistance to NGOs and civil society organisations through a $13 million 5 year Community Development and Civil Society Program.  ●

These initiatives build on the substantial assistance already provided by Australia to accelerate economic recovery and improve governance.  This includes a $70 million multi-year package to build capacity in economic and financial management, and assistance in debt restructuring, banking sector reform, fiscal management, fraud awareness and detection, and the fiscal aspects of decentralisation.  It is noteworthy too that AusAID has funded an SME development program as one of the investment initiatives implemented since my visit to Indonesia last August. 

These initiatives demonstrate Australia’s commitment to making its trade and investment relationship with Indonesia work and, moreover, the fact that a united and prosperous Indonesia is firmly in our national interest. 

Indonesia - a very important partner for Australia

It is axiomatic that Indonesia is a very important partner for Australia.  In my own portfolio area, this is shown by our cooperation in the Cairns Group. 

We attach great importance to Indonesia’s participation, as a founding member, in the Group and welcome the close dialogue we have on agricultural trade liberalisation.  And, of course, better market access conditions in a world free of trade-distorting subsidies are essential for the development goals of countries such as Indonesia. 

The Cairns Group is making efforts to strengthen its dialogue with developing countries outside the Group.  To this end, Australia and Indonesia will co-host an international roundtable on developing country interests in agriculture liberalisation on 19-20 July in Jakarta.  The roundtable will aim to increase developing countries’ awareness of the long-term benefits of multilateral reform in agriculture.  Senior officials from Australia, Indonesia, India, Malaysia, New Zealand, Pakistan, the Philippines and Thailand will attend.

I welcome our cooperation on this initiative, which is a very practical demonstration of the value of our

partnership in broader international relations. 

Conclusion

There is no doubt that the bilateral relationship between Indonesia and Australia is very important to both countries.  We in Australia are pleased that the relationship is moving forward for our mutual benefit. 

In particular, our commercial relationship is progressing well.  Further trade growth is building on an already solid base, and the bilateral investment relationship is substantial.  There are strong people-to-people ties, and the Government-to-Government relationship is back on track. 

I’m optimistic about the future of our relationship, and I encourage the private sectors of both countries to play their part in developing it further.  More trade and investment between Australia and Indonesia makes good sense.  I can assure you that the Australian Government is doing all that it can to support that outcome, and I know that your two Business Councils will too. 

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