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Opportunites for cooperation between Australia and Indonesia: developing Eastern Indonesia

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"Opportunities for Cooperation Between Australia and Indonesia: Developing Eastern Indonesia"

Keynote Address by The Hon Alexander Downer, MP, Minister for Foreign Affairs, to the seminar on the Australia-Indonesia Development Area (AIDA), Sydney, 14 May 1997.



I am delighted to be here today. I extend a very warm welcome to Australia to the distinguished members of the Indonesian Chamber of Commerce and Industry.

Australia’s diverse and growing bilateral relationship with Indonesia is one of the most important that we have in the Asia Pacific region.

That is why I was so pleased with the success of my visit to Ambon last month. With Dr Hartarto, the Indonesian Coordinating Minister for Production and Distribution, I officially launched the Australia-Indonesia Development Area, or AIDA.

I believe that AIDA is an historic milestone in the bilateral relationship.

I am convinced that it will create real and lasting benefits for the private sectors of both countries and enhance the regional development of member areas.

But, first, as many of you know, the Australian Government’s budget was delivered last night. Its purpose was to establish a sustainable base for economic growth and development in Australia.

The budget reflects the Government’s key priorities for Australia’s long-term economic health. We aim to reduce the budget deficit in order to decrease pressure on public dissaving and interest rates. More than that, we aim to modernise Australia’s microeconomic structures, including industrial relations, the public sector and the waterfront.

The Government’s budget strategy and AIDA are linked. They both form part of our comprehensive and clear-headed effort to improve Australia’s export competitiveness and investment within the dynamic Asia Pacific region.

That is why there is no better time than the day after the budget is released to speak about the exciting new possibilities for Australian investment in one of our closest neighbours.

Part One - Australia’s Relationship with Indonesia : New Potential for Mutual Benefit

AIDA’s historic significance becomes very clear when set against the background of Indonesia’s recent economic transformation, and the strong commitment of the Australian and Indonesian governments to making our excellent bilateral relationship even stronger.

Without doubt, Indonesia offers exciting potential benefits and opportunities for business. Even the most cursory glance at the economic facts makes this abundantly clear. Indonesia’s impressive economic growth has averaged over seven percent during the last five years. Annual two-way trade with Indonesia over the same period has increased from AUD 2.9

billion to AUD 4.9 billion.



And the future looks even brighter: Indonesia’s estimated economic growth rate for 1997 is an impressive eight percent. With a population of 200 million people, Indonesia is likely to become the world’s fifth largest economy by the year 2020. This will present opportunities for trade and investment which Australian business simply cannot afford to miss.

Eastern Indonesia is a very important part of this enormous potential. The area that I am speaking about - which, in the AIDA context, sweeps from Bali in the west, up north to Kalimantan and Sulawesi, and through to the easternmost provinces of Maluku and Irian Jaya

- holds many possibilities for Australia’s private sector.

Apart from a population of 38 million people, the AIDA region is richly endowed with resources such as oil, gas, minerals, agricultural land, forestry and fisheries. More than that, Eastern Indonesia has infrastructure and services requirements that match closely the world class expertise and knowledge that Australia has to offer, particularly in transport and telecommunications, agribusiness, environmental management, and education and training.

Furthermore, I believe it is important to recognise that the development of Eastern Indonesia is a key political and national imperative in Indonesia. AIDA enjoys strong support at the highest levels in Indonesia. President Soeharto gave particular focus to Eastern Indonesia in his 1990 budget speech. Since then, the region has been receiving increased central government transfers and capital spending.

Of course, there are also a number of constraints or barriers to successful investment in the region. This should come as no surprise to our Indonesian guests - nor to the many Australian business representatives here.

The constraints I am talking about are characteristic of an economy undergoing the rapid transformation that we see in Indonesia today. For example, there are problems with the predictability and transparency of Government regulations; and foreign business people often encounter difficulties concerning work permits and overcoming other bureaucratic hurdles.

But I know that the Indonesian Government is moving to address these problems. And Indonesia is not alone in facing these sorts of difficulties. Last night’s budget is an excellent example of Australia’s determination to keep our economy as world class and competitive as possible.

So - within the context I have just outlined - AIDA has a vital role to play at two equally significant levels.

First, AIDA has great symbolic importance because it represents a very special commitment made by Australia and Indonesia. It is a commitment founded securely in the recognition that our mutual prosperity in the region - the well being of every Australian and every Indonesian - is inextricably linked, now and in the future.

AIDA heralds several ‘firsts’ for Indonesia and Australia. For Indonesia, AIDA is the first time that a sub-regional agreement has been developed outside ASEAN. For Australia, AIDA is the first time we have concluded a sub-regional agreement in the region.

Second, AIDA is an extremely practical and results-oriented initiative.


Its focus is on delivering real and mutual benefits to the people of both countries. It aims to increase trade and investment between Australia and Eastern Indonesia, to turn potential development opportunities and complementarities into dynamic growth for Eastern Indonesia, and to help Australian companies and their Indonesian partners profit and prosper to the fullest extent possible.

Part Two - What is AIDA’s Purpose?

It is clear from what I have just said that AIDA has a pragmatic purpose - to improve the enabling environment for investment and trade. This means that AIDA has a strong focus on removing the impediments to the conduct of business.

For AIDA to be a success, it must be driven by you, the private sector. That is why AIDA has a three-tiered structure of meetings that involve the private sector at all levels.

At the ground floor level, sectoral Working Groups - which are to be directed by the private sector - will provide input into periodic meetings of Senior Officials who, in turn, will report to an annual Ministerial Meeting. This structure is designed to provide the widest possible

opportunity for interaction between the Government and the private sector.

There are six sectoral Working Groups under AIDA in priority areas that were chosen by the private sector. These are: Agriculture, Fisheries and Animal Husbandry; Education and Training; Mining and Energy; Tourism; Transport; and Trade and Industry. The Working

Groups will focus on particular constraints to business activity and explore potential project opportunities.

I am very encouraged by the preliminary work already undertaken by these Working Groups. The sectoral Working Groups are open to all business people and provide an opportunity to meet with each other’s counterparts to identify and explore project opportunities.

I encourage interested business people to get involved. It is to your advantage to be as creative as possible in identifying possible areas of cooperative activity in AIDA.

I am also very pleased by the high level of participation of a wide range of Indonesian businesses in the Working Groups who are seizing the opportunity to seek possible venture partners for projects, and to expand their exports to Australia.

The AIDA initiative was born only six months ago, but significant, initial concessions and benefits have already been made by both Governments as a demonstration of our commitment.

For Australia’s part, when AIDA was formally launched at Ambon on 24 April, I announced several initiatives developed by the Government to improve the enabling environment for private sector activity in the AIDA region. I would like to outline these initiatives for you:

. Australia will be opening two honorary consulates in Eastern Indonesia. In addition, we signed with the Indonesian Government at Ambon a new Visitor Visa Agency Agreement to facilitate the issuance of Australian visas. More progress in this area will follow.


. Australia - through AusAID - will fund a major study of eastern Indonesia designed to identify the opportunities and challenges to trade and investment in the AIDA area.

. In recognition of the importance of developing the local private sector, Australia will contribute to a feasibility study on the establishment in Eastern Indonesia of an office of the World Bank’s International Finance Corporation.

. Focused on two key industries in the AIDA region, Australia is funding a pilot project on mining competency standards to be conducted in conjunction with the Indonesian Mining Industry Training Board, and the introduction of competency standards for the tourism industry in Indonesia.

. Finally, we have developed a technical and vocational education development assistance initiative aimed at increasing the industry relevance of Indonesia’s technical and vocational education providers, the Partnership in Skills Development Program.

From the Indonesian side, Dr Hartarto took the opportunity of the Ambon launch to announce eight specific actions which are already being undertaken by the Indonesian Government in direct response to concerns raised by the private sector during the preparatory meetings of the

Special Working Group. Those actions included:

. Relief from the fiscal clearance tax for Indonesians departing for Australia from the Indonesian AIDA region, and the exploration of its possible extension to Australian temporary residence permits holders in the Indonesian AIDA region.

. An undertaking to expand air services within AIDA and to develop new air routes.

. An invitation to Australian investors to take advantage of the fiscal incentives available for investment in Growth Node Areas (Kapets) located throughout the Provinces which are member areas of AIDA.

. In-principle approval to provide computerised customs services at certain AIDA ports which experience heavy international trade loads in order to improve efficiency of service.

. Greater market access for commercially driven education and training activities.

. A review of expatriate work permits in order to attract qualified Australians to assist private sector cooperative activities in AIDA.

. The extension shortly - to all AIDA international ports and airports - of the Indonesian Government’s decision to allow visa-free short-term entry to Indonesia for foreigners from specific countries, including Australia.

. Efforts towards establishing the appropriate mechanism to assist in facilitating investment and expediting investment approvals.

In addition to the eight specific actions - and most significantly - Indonesia announced at the Ambon launch that it would accord AIDA equivalent status with the three existing ASEAN sub-regional economic cooperative schemes: the Indonesia-Malaysia-Singapore Growth Triangle, the Indonesia-Malaysia-Thailand Growth Triangle, and, finally, the

Brunei-Indonesia-Malaysia-Philippines/East ASEAN Growth Area.


Symbolically, this places AIDA on a par with these schemes and - on a more practical level - it means that further benefits are likely to flow to AIDA.

Part Three - How can Business use AIDA ?

I am delighted to say that, although AIDA is very new, commercial opportunities are already emerging. I now want to highlight just a few of the areas of special business opportunity within AIDA.

First, better transportation links between Australia and Indonesia will not only encourage the development of trade and tourism, but will enhance investment in other sectors of the economy. I am pleased to note that civil aviation links are growing - the most recent development is the prospect of a resumption of the air link between Ambon and Darwin.

Indonesia - a nation of many islands - provides excellent opportunities for the provision of safe, cost-efficient ferry operations. Australian ferry builders and designers are already looking to the region for new opportunities. I had the pleasure to be in Ambon at the same time as an Australian fast ferry was on a demonstration run in Ambon harbour.

In the mining sector, good linkages already exist - particularly in Kalimantan - and these ties are expanding within the AIDA region to include Irian Jaya, North and Central Sulawesi and Sumbawa.

The agriculture sector also holds great potential - resources are abundant, and the eastern region is likely to take on more importance as rising land prices in Java make it a less viable location for agricultural production.

Agribusiness could be an area of vast potential in the development of commercial ties between Australia and Indonesia. I understand that the sectoral Working Group on Agriculture, fisheries and animal husbandry has already identified the cattle and prawn industries as areas for further exploration.

In servicing these sectors, there will be opportunities in the power generation area and the provision of other kinds of infrastructure. Demands for education and training will also be created.

This afternoon, you will be able to meet the convenors or key participants in AIDA’s sectoral Working Groups. This will provide a valuable opportunity for new participants to identify and make contact with other interested businesses from both sides, and to discuss and explore areas of mutual interest.

Each Working Group has a work program which needs to be developed and prioritised. Your involvement in the Working Groups is vital to the success of this process, and to the achievement of tangible outcomes through AIDA.

I look forward to hearing back from the Working Groups on the progress you make, and about the issues you consider need to be addressed in the AIDA context, at the time of the next AIDA Ministerial Meeting in 1998.

I cannot emphasise too much that AIDA is an open and inclusive process. The Working Groups are open-ended and new players are welcome.


Conclusion: The Spirit of Ambon - New Opportunities for Cooperation

In conclusion, I believe strongly that the Australia-Indonesia Development Area is a landmark development in the close bilateral relationship between Australia and Indonesia.

There is no clearer evidence of this than the fact that AIDA has been accorded equivalent status with the ASEAN sub-regional economic cooperative schemes.

This concession is an extraordinary vote of confidence in Australia by President Soeharto himself and the Indonesian cabinet which approved the concession.

Above all else, AIDA is about removing the barriers to development in Eastern Indonesia and giving the private sector the freedom to do what it does best - generate wealth, jobs and prosperity for Australia and Indonesia.

I am proud to say that AIDA is the third landmark step forward in the relationship which has occurred since March 1996. It follows the ratification of the Agreement on Maintaining Security last year and the signing of the historic Maritime Boundaries Delimitation Treaty in March of this year.

As I look back across history, it is clear that AIDA is but the latest manifestation of a partnership between Australia and Eastern Indonesia forged most memorably in the terrible cauldron of the Second World War.

In Ambon, silent but with imperishable eloquence, lie the graves of over one thousand Australian servicemen who died defending the island of Ambon. Countless Eastern Indonesians who fought bravely side-by-side with those young and defiant Australian ‘diggers’ also paid the ultimate price.

I believe that the same spirit of commitment, determination and close cooperation permeates everything that AIDA is and seeks to be.

Once again - this time in the competitive economic arena of the late 1990s - Australians and Indonesians from all walks of life are coming together in practical ways to seek mutual benefit and greater cooperation.

I am convinced that AIDA will give Australian investors the opportunity to play a role in the development of Ambon and other parts of Eastern Indonesia.

I am equally convinced that these exciting new trade and investment opportunities will bring rich rewards to Australian enterprises - and, ultimately, help secure a more prosperous future for all Australians.