JAPAN-INDONESIA SYMPOSIUM

Following up on Shingetsu Newsletter Nos. 4, 6, and 47, a final review of President Yudhoyono’s early June visit to Japan is in order. It is clear that this visit had a substantial effect on increasing Japanese investment in Indonesia. It is worthwhile to examine the reasons a little more closely. In late June, the Nihon Keizai Shinbun ran a large report on a symposium that it sponsored in Tokyo. Now, the Shingetsu Institute is providing a full English translation. Particularly interesting are the references to China and corruption in Indonesia.

Japan-Indonesia Symposium

Hoping for Doubled Japanese Investment
Indonesian President Susilo Bambang Yudhoyono

The Japan-Indonesia Symposium “to rebuild a strategic partnership” (sponsored by the Nihon Keizai Shinbun) was held in a hotel in Tokyo on the 2nd. President Yudhoyono revealed his ideas in the symposium that he wanted to work on the reform of the Indonesian economy so that the country would lure foreign investors. In a debate period, the panelists’ shared their views that it was beneficial for both sides to build a mutually complementary relationship by strengthening their ties with the other nations like China.

President Yudhoyono: It is estimated that the 2005 growth rate of Indonesia is going to be 5.5%. We will aim at 6.6% growth per year on average during the next five years till 2009. The deficit ratio of the nation economy is 0.8% this year, but we are thinking of achieving a balanced economy in 2009.

I expect that Japanese firms will join a wide range of industries from electronics and automobile industry which Japan is proud of, to basic industries like fibers or chemistry. I hope Japanese investment will double in the next 5 years.

A more efficient system of tax and clearance, better working conditions, promoting construction of infrastructure, and improving firms’ competence are necessary in order to activate the partnership between Japan and Indonesia. The Economic Partnership Agreement (EPA) with Japan will realize a comprehensive partnership and develop the economies of the two countries. The agreement means an exchange of technology and developing abilities as well as a transference of products, services, capital, and people.

Since the population of Indonesia is as much as 220,000,000, it is possible to consistently enhance the spending power in the market of the nation. The spending power of Indonesia is recovering to the standard of 1997, and the market range is getting ever larger. This is a good chance for foreigners to invest their money in our country.

I will pay much attention to rising personnel costs. Attention to every labor problem might be needed. We have to intervene in a way that won’t discourage companies, and at the same time we have to make efforts for better working conditions for employees. We will push for ideal policies that supervise the conditions of both employers and employees.

The Asia-Pacific Economic Cooperation (APEC) is the place where we can talk about cooperation in the field of economics, and preventing conflict with East Asian communities. If the purpose, subject, rules, and participants are clarified, we can cooperate with other partners. We want contribute to building a framework of regional cooperation as a member state of Association of Southeast Asian Nations (ASEAN).

I feel rather optimistic about the negotiations (with the armed separatist organization called the Aceh Liberation Movement). We will not admit their separation or independence. Instead, as an ultimate goal, we will grant them a special autonomy. What is wanted is a peaceful and stable state of Aceh as part of a united Indonesia.

Active Communication between the Two Countries
Indonesian Coordinating Minister for the Economy Aburizal Bakrie

Japan and Indonesia are both island countries, and have lots of similarities. For example, the culture of the two countries is not like that of the US or China, and both give weight to the relations with other countries. I believe cooperation between the two countries contributes to the maturation the region. It is necessary that we should count, not only on our economic partnership, but also upon human communication between the countries.

We are coordinating an environment that is attractive to investors, with a view to double the amount of foreign investment in five years. We plan to introduce a new investment law, and it is presumed that we will reach agreement on the law within two months. A new tax law and a labor law are also to be discussed in the parliament.

China has actively invested more than 1.2 billion dollars in the field of Indonesian energy. While Japanese investment is mainly in manufacturing, Chinese investment is focused on energy businesses. Besides, China is a promising market for Indonesian products.

Strive to be an Ideal State for Investment
Indonesian Minister of Trade Mari E. Pangestu

In order to build a strategic partnership between Japan and Indonesia, it is important to think in a large framework including China and India. However, the partnership between the two countries isn’t firm, and there’s a need for much more effort.

As for China, I don’t think it is a good idea that the companies of Japan or other nations should invest on one nation too much. Certainly, China is an attractive nation for investment, but companies should also think about dispersing their risks. What about having an eye on Indonesia, Vietnam, and Thailand, where they can reduce costs?

Indonesia is striving to become an ideal state for investment. As a government, we have plans for an investor-friendly environment, such as a reform of the tax law, introducing an investment law, simplifying investment procedures, and more.

Perils of Excessive Concentration on China
Ex-Ambassador to Indonesian Yukio Takeuchi

Indonesia is a democratic and peaceful country, and these conditions are favorable for Japan’s national interest and will lead to regional prosperity. Indonesia has been a stable provider of energy for a long time, and the relationship between the two countries is mutually comprehensive and strategic. We can take the lead in regional cooperation.

The international environment is drastically changing:

1. Measures against new threats since the post Cold War era
2. Bilateral relations within the growing regional cooperation in East Asia
3. Measures for dealing with China’s rise

Especially owing to China, the nations of the region have to make more efforts in production and investment.

For Japan, excessive concentration of investment on China comes with risks. Indonesia has to make efforts of enhancing its international competence, such as better education for skilled workers and consistent employment, and become an ideal state for investment.

Stable Politics is Indispensable
Teijin Advisor Shosaku Yasui

Teijin has invested 490 million dollars and employed 1500 Indonesians since its embarkation in 1973. We plan 50 million dollars in additional investment in the next three years. Stable politics is an indispensable condition for foreign investors. Indonesia is proceeding as a democracy.

Politics based on a law is necessary and I hope that more efforts will be made to eliminate corruption. I hope that they will work on reforming the labor law and cracking down on smuggling, and simplifying investment procedures.

I expect better education in Indonesia, while EPA negotiations with Japan will proceed smoothly. For more human communication, highly educated persons who have mastered Japanese or English are vital.

Discussion: Leading toward More Development for East Asia

Question: How is the present Indonesian economy?

Mr. Bakrie: The diplomatic position of Indonesia was lowered because of the Asian currency crisis in 1997. However, international confidence in our country is gradually being restored. The purpose of the new investment law is to establish a balance of domestic investment and foreign investment. The enactment of the new law is going to be advanced by reviewing government’s restrictions. We also aim at shortening the period that foreign companies will need to wait before they will get permission to make investments from the present period of 151 days to 30 days or so.

Mr. Takeuchi: Indonesia should make efforts independently to become an attractive investment market. I think it’s a good trend that Indonesia and Japan maintain joint ventures.

Question: Would you express your own view of the concept of an “East Asian Community”?

Ms. Pangestu: From now on, Indonesia should cooperate and lead the region in the East Asian Community. ASEAN aims at becoming a hub in East Asia, like China and Japan.

Mr. Bakrie: The population of an expanded East Asia, including India and Australia, accounts for more than 40% of the global population, and the region will have a wide framework for regional cooperation. It is important to form a system where the individual nations can develop together.

Question: What do you think about the rising Chinese economy?

Mr. Yasui: It is the case that China’s economic rise is notable and is still in the stage of growth. However, I don’t think that this situation will continue forever. Companies need to think about the risks which accompany investing in only one nation. ASEAN is a market consisting about half a billion people. The best choice is for ASEAN and China to cooperate and work together with Japan. I expect that ASEAN will become one united market, and we will focus our investment there on that assumption.

Mr. Takeuchi: It is true that China is an attractive market for consumption and investment. We should understand it well, and then think about a kind of development that creates regional harmony.

After the Symposium: Willing to Reform the Nation

The lecture of President Yudhoyono suggested a new era in Indonesia. The audience could tell how much he was motivated, as the first directly-elected president of the nation, to deal with the economic crisis, political disturbances, and rising Islamic radicalism.

His talk was concise. He took a look at the draft up until he started his lecture, and then expressed his hopes about Japan in his words. His hope was expressed when he set out substantial goals such as doubling Japanese investment.

He is searching for the country’s role, while at the same time he understands the current of economic cooperation within East Asia as a whole. This has never been seen in the past politics of that country. It is probably a point of progress that he wants to cooperate with financial circles like the Indonesian Board of Trade, even mentioning a specific plan like the maintenance of infrastructure.

Since 1998 when autocracy was kicked out of the country, Japanese who worked on Indonesian matters have been irritated with the fact the bilateral relations couldn’t move forward harmoniously. But now, they have a new hope for the Yudhoyono regime. Some say “If the new president can’t do a good job, then there’s no hope for Indonesia for some years.”

The Yudhoyono regime has to deal with quite a few problems. Corruption, which was actually “ordered” to some extent under the reign of tyranny, is now spreading and hinders foreign investment.

The government has embarked on the exposure of executives or company staff who are corrupt. However, some Japanese say that the past regulated politics was better.

The President clarified his view of democratization for reconstruction of the state at the press conference in Tokyo by saying, “We’ve learned that under a controlled government, the economy comes to a deadlock in the end. Pushing forward with democratization is the best way to prosperity.”

If Japan expects the Yudohyono regime to become a “strong Indonesia” again, officials and citizens will be asked for more assistance and patience.