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World’s biggest untold story

The world’s third-largest democracy, and Asean’s biggest market, Indonesia is well on track for an economic growth of 6.3 percent in 2007, up from 5.6% last year. While the economy is driven mainly by its rich natural resources – oil and gas, gold, nickel, bauxite, coal, and timber – and agricultural products - the government has been pushing hard to diversify the export product mix, including the services sector.

Indonesia a key producer of global brand name products such as Mattel’s Barbie Dolls, MAC cosmetics of Toronto and Japan's Shu Uemura, etc, but its great potential as a hub for investors has often been overlooked. On her global campaign trail to boost exports and lure investors, Trade Minister Mari Elka Pangestu, an ethnic Chinese Christian who holds a PhD in economics from the University of California at Davis, made this remark: “Indonesia is the world's biggest untold story.”

In a recent interview with ASEANAFFAIRS, Dr. Pangestu told us about Indonesia’s efforts to boost exports and shared her views on free trade and the future of Asean.

Q: What are the growth areas that will boost Indonesian exports this year? What are your plans to sustain this growth?

Answer: I think commodity export is continuing to grow. Today the numbers are showing that for mineral exports, plantation base exports, such as palm oil and rubber, the growth is still high, because of the commodity prices, mainly, although there are also some volume increases. Those are the main growth areas. At the same time we are still hoping that manufacture exports will at least maintain the stable growth rate.

"  I think the biggest
competitor for us is Vietnam because of the size of the market
and the cost of labour  "

Q: Why is it necessary for Asean to hold free trade negotiations with European Union? Please share your views.

A: EU is the largest partner for all the Asean countries. And since we are doing FTA with all our dialogue partners except the USA, and EU is also one of our dialogue partners, we thought it would be a good cooperation to have the FTA between the two regions, and it will be one of the first agreement between such big regions.

Q: Indonesia and Australia have agreed to launch a feasibility study on a free trade pact since July. How will the FTA deal, if it is signed, will benefit Indonesia?

A: We will hopefully finish study by March and if the study shows that it is beneficial for both sides, then we will start negotiations and it will surely take a little bit of time. And the advantage for Indonesia will be to access the Australian market which for us is some of the highest interests. That would benefit us. As many other countries do, we face problems in exporting to Australia because they have quite high technical health standards for agricultural products. This is something we would have in the agreement. What we would like to do is the capacity building to meet their agricultural standards. And one more big benefit is that FTA would provide greater certainty for Australian
investors to Indonesia.

Q: What is the progress made so far in the free trade talks between Asean and Australia, and India? Are there delays or obstacles?

A: We're still on the study stage and so far it is going well.

Q: How has Indonesia been doing in drawing investment inflows? Is there a race among Asean members to attract foreign direct investment?

A: It is not a race, it is just a competition. All of the countries want to increase foreign investment and investment in general. I think the biggest competitor for us is Vietnam because of the size of the market and the cost of labour.

Q: What is the present state and prospects for Russia-Indonesia bilateral trade?

A: We're exporting to Russia palm oil, coconut, tea, tobacco, some electronic products and cocoa. We import iron and steel, minerals, nitrogen, chemical products, wood pulp etc. Total trade with Russia in 2006 was 690 million dollars. Our export to Russia has been lower than our import. Export was 273 million and import from Russia was 416 million dollars. The growth rate hasn't been very high. It was 1% only. But in the first six months of 2007 trade was 413 million dollars and that shows the 29% increase in comparison with the previous period. So there seems to be an upward trend. Our export in January-June 2007 has increased 53% comparing to the previous period and our import increased 15.3%. So there is potential for greater trade connections between the two countries. Hopefully we will send a trade commission to Russia next year. Its aim will be to strengthen the trade connections between the two countries and to discuss what are the obstacles to do business with each other. I think the main problem is still a banking problem. Also, we'll need to discuss transportation and logistic problems because there are no direct transportation links between Russia and Indonesia.

Interviewed for ASEANAFFAIRS in Jakarta by RIA Novosti's Ekaterina Kuznetsova


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