Australia-Indonesia: The Winning Team

Australia-Indonesia: The Winning Team

Opening Address by The Hon Alexander Downer, MP, Minister for Foreign Affairs, to the 24th Joint Conference of the Indonesia-Australia Business Council (IABC) and the Australia-Indonesia Business Council (AIBC), Denpasar, Bali, 16 June 1997.

I was delighted to accept your invitation to address this important gathering.

This is my fifth visit to Indonesia since the Government took office last year. My most recent visit was to Ambon in late April for the launch of the business-oriented Australia-Indonesia Development Area initiative. I am particularly pleased that Adelaide - in my home state of South Australia - has been chosen as the location of your next annual conference.

As you know, closer engagement with Asia is the Australian Government's highest foreign policy priority. Australia's future lies with Asia and the Government is committed to that future.

In that context Indonesia has a particular importance and focus for Australia, and the business community - as in so many other aspects of national life - has led the way.

Today I want to emphasize the Government's commitment to the bilateral relationship and businesses' role in that. I want first to outline what the Government is doing to advance the relationship, both through active bilateral initiatives and through domestic reform. I will then talk about how you, business, have been taking advantage of this to produce real and lasting contributions. Although much has already been achieved, I also want to examine some of the enormous potential that lies ahead of us.

Part One: A Dynamic Partnership in the Asia-Pacific Region

As the Australian Government has said on many occasions - and I have pleasure in re-emphasising today - Indonesia is of fundamental and enduring importance to Australia.

Indonesia is Australia's largest and most populous neighbour and our futures will always be inextricably linked. Indonesia's prosperity and stability is ours.

Indonesia is also a country enjoying the fruits of strong economic growth and development, and has a burgeoning middle class. Indonesia is likely to become the fifth largest economy by the year 2020. Business activity is very dynamic, and small and medium sized enterprises are on the rise.

The extraordinary range of people-to-people contacts between Australia and Indonesia - social, cultural, educational - are close and are growing stronger. Tourism is on the increase - in both directions. The number of students studying in Australia has been growing strongly and more and more Australians, particularly young ones, are learning Indonesian language and about Indonesian history, culture and economy. I am proud to say that my own eight-year old daughter is one such young Australian learning Indonesian.

Business links are exceptionally strong. There is no better demonstration of this vitality than your highly attended annual Business Council conferences. We were particularly pleased - during the hectic period of the Indonesian elections - to have received the very high level delegation from KADIN, led by Mr Aburizal Bakrie, last month. It was the pleasure of Prime Minister John Howard and six other Federal Ministers, including myself, to meet with them.

In short, Australians and Indonesians at all levels are creating the kinds of winning teams and the kinds of relationships based on mutual advantage and mutual respect, which is the theme of this Conference.

Since the Government took office, there have been three particularly significant achievements in the bilateral relationship with Indonesia that will reinforce its strength well into the next century. They are:

the ratification of the Agreement on Maintaining Security and its entry into force in July 1996
the historic agreement on a Maritime Boundaries Delimitation Treaty - which will provide greater certainty of our boundaries to both Indonesian and Australian investors in offshore oil and gas production.
the creation of the Australia-Indonesia Development Area (or AIDA) - which will be catalytic in engendering closer economic relations between Australia and the eastern Indonesian provinces, drawing on the initiatives of the private sector.

These are a manifestation of both Governments' commitment to developing the bilateral relationship. That commitment has also been reflected in the numerous official visits in both directions which have enabled productive and wide-ranging discussions between the political leaders of both countries.

Since taking office just over a year ago there have been thirteen visits by Australian Federal Government Ministers to Indonesia, including a visit by the Prime Minister in September 1996. In the same period ten Indonesian Ministers visited Australia.

I am also pleased to say that the Ministerial Forum process, the apex of the Government-to-Government institutional arrangements, is working very well. Last year's meeting, in Jakarta, was a great success - six Australian and nine Indonesian Ministers took part, and private sector representatives were directly involved for the first time. This marked the beginning of the trend of closer interaction with business - and now AIDA has taken it to an impressive new level.

Part Two: Domestic Economic Reform and More Open Markets - Two Key Priorities

I am sure you will agree with me that in an increasingly dynamic and competitive global economy, Australia and Indonesia face similar, equally demanding challenges in making our respective economies as world-competitive and productive as possible.

The Australian Government's economic reform agenda is designed to assist business and to build a sustainable base for economic growth and development in Australia. The most recent Australian Budget delivered in May sustains and expands this strategy - it aims to strengthen our macroeconomic structures by reducing the budget deficit and interest rates while encouraging savings.

More than that, the Government aims to modernise Australia's microeconomic structures, including industrial relations, the public sector and the waterfront. The Australian Government's domestic economic reform agenda is creating the right environment for business in the region, and it underpins the new push for better trade and investment links with Indonesia.

I note that the Indonesian economy continues to perform very impressively, even as growth slows a little elsewhere in the region. With 7.8 per cent growth in 1996 - and growth predictions for this year ranging from 7 to 7.5 per cent - the exciting dynamism of the Indonesian economy stands out even in a region of high economic achievers.

A key factor, without doubt, has been the significant deregulation of the Indonesian economy that has occured since the mid-1980s, which has enhanced the trade and investment climate. The Indonesian economy has become more internationally-oriented, placing it in a better position to meet the increasing challenges of a globalised and open world market place.

But no country in the region can afford to be complacent. Both our countries understand that to remain competitive further economic reform is essential.

I am convinced that the great challenge for Australia and Indonesia, and our other friends and partners across the region, is to continue to open up our markets. Liberalisation of trade and investment has already brought immense benefits to Australia and its regional neighbours, but there is more progress to be made.

For Australia's part, we have reduced our tariff levels to five per cent or less in most sectors. But liberalisation is only fully effective if all regional economies contribute. That is why Australia and Indonesia cooperate closely in APEC to advance trade liberalisation in the region.

Another important reason for pursuing more open trade and investment is that it can enable us to take full advantage of the many complementarities that exist between our two countries. The sort of complementarities I am talking about include:

the demands of Indonesia's growing urban middle class for a range of goods and services of increasing quality and quantity, and Australia's well-proven ability to provide them;
Indonesia's abundant and diverse natural resources - matched by Australia's capital resources and expertise in mining and related industries;
Indonesia's growing industrialisation and infrastructure requirements, and Australia's competitive expertise in power generation, advanced communications and information technology, and transport systems;
and significant new opportunities arising from the increasing trade in services - tourism, education, telecommunications, information technology, financial and professional services - to which I will return later.

Taking better advantage of these complementarities and harnessing the growth of our economies more effectively will bring cooperation to new levels of mutual benefit. A closer look at the trade and investment relationship makes this point abundantly clear.

Part Three: Bilateral Trade and Investment Links

I am pleased to say that Australia and Indonesia have a very strong bilateral trade and investment relationship - and growth in this area is accelerating.

Total trade was close to 4.9 billion Australian dollars last year, a rise of 30 per cent on the previous year. Indonesia is Australia's tenth largest trading partner, while Australia is Indonesia's eighth largest trading partner - we are its tenth largest export market and sixth largest source of imports. Australia is the eighth largest foreign direct investor in Indonesia and Australian investment is growing strongly. Indonesian investment in Australia is also growing strongly.

Both countries are taking a growing share in each other's markets. Over the past decade, Australia's market share has grown from under 4 per cent to well over 5 per cent now. Over the same period, Indonesia's share of the Australian market grew from under 1 per cent to over 2 per cent now. This is the result of practical policies pursued by both Governments over the past few years - and an indicator of a close and active partnership, at government and business levels.

Bilateral trade is also diversifying. New kinds of Indonesian products are succeeding in the Australian market, including higher value-added and more sophisticated goods and services. Indonesia's exports of electronics (computers and components, radio and sound equipment) and a range of other elaborately transformed manufactures - sporting goods and toys, to take two examples - stand out as particularly strong growth areas.

Australian investment in Indonesia is contributing to the development and diversification of Indonesian exports, and it can lead to substantial technology transfer, and intra-industry trade. For example, Petrosea, in Balikpapan, has developed vocational training workshops for local workers, increasing the level of skills, improving safety standards and reducing the need for foreign ventures to import foreign workers.

Private sector cooperation is also vital to the development of Indonesian industry. For example, the Metal Trades Industry Association and the Institution of Engineers of Australia - with the Indonesian Institution of Engineers and KADIN - are undertaking a major program to develop competency standards for engineers practising in Indonesia.

Australian investment also has positive spin-offs for other parts of the economy. CRA, for example, in Kalimantan, has set up the CRA Foundation (worth around A$1 million) for community development projects - including a training agricultural farm, a tuberculosis eradication scheme and a water pump installation program. So after the mine has gone, there will remain a viable community.

Of course, investment, exports and jobs across the region are closely interlinked, and no less so in the Australia-Indonesia relationship. Australian expertise which assists the development of Indonesian industry eventually ends up in exports to third markets, and even back to the Australian market, creating a pleasing balance and symmetry in our economic partnership.

As the business relationship gains more momentum, Australian business involvement is also extending into more provinces. The Australia-Indonesia Development Area (AIDA) initiative will help to accelerate that trend in respect of the eastern provinces.

Part Four: Looking to the Future - Enormous Potential for New Developments and Initiatives

4.1 AIDA's Vital Role

AIDA is symbolic of a very special commitment made by Australia and Indonesia and heralds several `firsts'. 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 with an ASEAN partner.

I am convinced that AIDA will create real and lasting benefits for the private sectors of both countries.

Eastern Indonesia is a very important part of Indonesia's enormous potential. Apart from a population of 38 million people, the AIDA region is richly endowed with natural and largely untapped resources. The infrastructure and service requirements of the region closely match the world class expertise and knowledge Australia has to offer.

For example, the Partnership for Skills Development Program under AIDA will support the development of technical and vocational education in eastern Indonesia by providing Australian expertise in the linking of schools with industry to develop an appropriately skilled workforce.

But eastern Indonesia poses challenges for those who want to invest or do business in the region. That is why AIDA has such a pragmatic purpose - to improve the enabling environment for investment and trade. AIDA has a strong focus on removing the impediments to the conduct of business.

To be a success, it must be driven by you, the private sector. That is also why AIDA's institutional mechanisms are designed to provide the widest possible opportunity for interaction between the Government and business. I very much encourage interested business people to become involved.

At the launch of AIDA earlier this year, Dr Hartarto and I both announced several initiatives that each of our Governments developed in order to respond to private sector concerns and to improve the operating environment for private sector activity.

Most significantly the Indonesian Government announced that it would accord AIDA equivalent status with the three existing ASEAN sub-regional economic cooperative schemes.

You should see these actions as a signal of our respective Governments' commitment to AIDA and to the bilateral commercial relationship as a whole.

4.2 Services Trade - The Engine for Future Growth

Allow me now briefly to touch on an area of commercial relations that looks to be an increasingly important part of the future trading relationship - that is in the area of trade in services.

The services sector is currently one of the fastest growing sectors in world trade. And trade in services between our two countries is moving ahead rapidly.

Over the past decade, Australia's services exports to Indonesia grew by 17 per cent. Indonesia ranks as Australia's tenth largest services export market. Over the same period, Indonesian services exports to Australia grew by 16 per cent.

Put simply, the potential for growth is enormous.

Tourism has been growing strongly in both directions. Indonesia continues to be a strong tourist destination for Australian travellers and holiday makers (numbering 238,000 in 1995/96).

And the numbers of Indonesian travellers to Australia are also growing strongly - they numbered 146,000 in 1995/96 (an increase of 15 per cent on the previous year), providing Australia with $400 million in export earnings. Indonesia is expected to become Australia's fourth largest inbound market by 2005.

The number of Indonesian students studying in Australia has been growing strongly. This year, I understand Indonesia has become one of the largest sources of full fee paying overseas students with well over 15,000 Indonesian students in Australia. Based on some estimates, in 10 years time there could be over 100,000 Indonesian alumni from Australian tertiary educational institutions.

The significant opportunities created by the dynamic services trade do not stop here. Indonesia's explosive growth is generating urgent needs for information technology, telecommunications, financial and professional services.

Australia has the world class expertise and know-how to help these sectors move forward, and thereby increase the competitiveness of the Indonesian economy. For example, the Australian Information Technology Engineering Centre in Adelaide is providing training in the technical aspects of telecommunications, business management and english language, to the employees of the PT Telekom KSO (or joint operation scheme) in Sumatra, which will allow this newly privatised telecommunications provider to prosper on its own. At the same time, Telstra is partnering the Central Java KSO and will be providing its expertise as a telecommunications operator and carrier as the KSO expands its network.

And it is a two-way flow. Australia will be importing Indonesian services, including through third country trade and embedded in Indonesia's increasingly transformed products.

Conclusion

In conclusion, I want to emphasise that both the Australian and Indonesian Governments must sustain their firm commitment to creating a strong enabling environment for the commercial relationship. I can assure you that the Australian Government is committed to this objective, and I know from my discussions with Indonesian ministers that the Indonesian Government is similarly committed.

The vitality of Australia's modern relationship with Indonesia - and, indeed, the strength of Australia's other partnerships across the region - should leave us in no doubt about the paramount importance of closer engagement with Asia. As a country, we are now passing through an historic transition from being a European outpost to becoming one of the most vital and exciting contributors to the Asia Pacific economic and security environment. That is not easy for everyone in Australia to understand.

There are dissonant voices in our society, most notably Pauline Hanson and the One Nation Party, which do not see Australia's future with Asia. I have said repeatedly over the last eight months - and I want to repeat again today - that those views promote an insular Australia, inward looking, narrow-minded, protectionist and separate from the region.

It is inevitable that in a society like Australia's all sorts of voices are heard, and all sorts of debates take place. That is the nature of Australia's democratic tradition, which allows a wide freedom of expression - even for views which are offensive or xenophobic, even for views which are highly inconvenient for a Foreign Minister!

Let me make it plain, however: overwhelmingly, private and public polling shows that support for Pauline Hanson is consistently low. I must add that I am constantly bewildered as to how someone who now consistently gets only around 10 per cent support in opinion polls attracts such extensive media coverage in Australia, which of course spills over into the region.

Public figures - be they in politics, academia or business - must understand that as part of the broader Australian polity they can have an influence over Australia's capacity to engage with its region. By that, I am saying they also have a responsibility to contribute to our great national endeavour of engagement with Asia.

Pauline Hanson clearly never thought of the import of her comments on our region. As a Members of Parliament - albeit an independent one - she has a responsibility to do so. I hope in future she will think about that. So should academics who go to cities in our region - such as Jakarta - and with irrational hyperbole attack our country.

And to those who are suddenly arguing that Australia should turn its foreign policy on its head and be the most publicly vocal, aggressive campaigner on human rights in Asia, rather than striving in a more Asian way to achieve results, I say they are not serious about engagement with Asia. They hanker for an earlier era. They too would confine Australia to a lonely future.

Australia is committed to the region for the long term. And there is no better example of that commitment than our increasingly practical and mutually beneficially links with Indonesia. The private sector has done a great deal in building the strong relationship we have today. The success of your Business Councils is testimony to the durability of the friendships and contacts formed over many years - and we need you to continue your indispensable work.

I encourage you to keep in close touch with Government on issues where you believe we can help you. Together, I am convinced that we can reap rich rewards for Australian and Indonesian enterprises, and ultimately help secure a more prosperous future for the people of both our nations.

Ultimately I am delighted at the work done by business from both countries in building trade and jobs and a better standard of living. That is your real contribution and one of which you would all be proud.