Promoting economic ties with Indonesia<\/p>\n
Dr. Yul Kwon, researcher at Korea Institute for International
\nEconomic Policy (KIEP)<\/p>\n
Economic relations between Indonesia and Korea have expanded
\nsignificantly over the past decades.<\/p>\n
Corresponding to Indonesia's potential as one of the largest
\nemerging markets, Korea's trade with Indonesia has been growing
\nremarkably and the attractiveness of Indonesia as an investment
\nlocation for Korean companies has consolidated the economic
\nrelationship between the two countries.<\/p>\n
In 2000, Indonesia became Korea's 10th largest trading partner
\nand its third largest investment destination in cumulative terms.
\nThis largely derives from the complementary industrial structures
\nand efforts by the private and public sector.<\/p>\n
Although bilateral trade and investment between the two
\ncountries decreased sharply due to the Asian economic crisis,
\neconomic relations between the two counties have rapidly
\nrecovered.<\/p>\n
In particular, bilateral trade rebounded to US$5.9 billion at
\nthe end of 1999 and expanded to $8.8 billion last year, higher
\nthan the precrisis level.<\/p>\n
Korean exports to Indonesia increased 38 percent to hit $3.5
\nbillion in 2000 while imports from Indonesia reached $5.3
\nbillion, which included crude oil ($1.1 billion) and Liquefied
\nNatural Gas ($1.8 billion).<\/p>\n
Currently Korea's exports to Indonesia are concentrated in
\nelectronics, chemical products, textile and machinery.<\/p>\n
As Indonesia develops, bilateral trade in machinery and
\nequipment has increased since the l990s, and its abundant
\nresources, which made it an attractive location for labor-
\nintensive electronics as well as textiles, have resulted in
\ngreater linkages of the two countries.<\/p>\n
This implies that the rapid expansion of bilateral trade has
\nbeen partly the result of an increase in Korea's investment in
\nIndonesia.<\/p>\n
Since the mid-1980s, Korean firms have looked to Indonesia as
\na source of inexpensive labor as well as abundant natural
\nresources.<\/p>\n
Korean firms also exported manufactured goods produced in
\nIndonesia to developed countries. Such a strategy allowed these
\nfirms to avoid trade barriers to Korean products in third country
\nmarkets.<\/p>\n
As a result, Korean investment in Indonesia began to increase
\nin the late 1980s and it was concentrated in labor-intensive
\nindustries such as footwear, textiles and electronics.<\/p>\n
Even though Korea's investment in Indonesia declined in 1993
\nand 1994 because many Korean companies invested heavily in China,
\nit again increased as large Korean conglomerates began investing
\nin Indonesia.<\/p>\n
As purchasing power in Indonesia became diversified, Korean
\nfirms also began to shift their investment pattern to market-
\noriented investment after the middle of 1990s.<\/p>\n
As of December 2000, Korea has invested $1.7 billion in 448
\nprojects in Indonesia, as the third largest investment
\ndestination.<\/p>\n
Technology transfer is becoming an important aspect in the
\nflow of Korean investment in Indonesia.<\/p>\n
At the early stages, technology transfer accompanying Korean
\ninvestment in Indonesia was scarce because most investment headed
\nto small and medium-size enterprises that lacked transferable
\ntechnology.<\/p>\n
However, as Korean companies' investments in Indonesia have
\ndiversified, the technology transfer is growing recently.<\/p>\n
Also, Korea intends to maximize mutual gains through
\nincreasing industrial cooperation through technology transfer.<\/p>\n
There are many promising industries for increased bilateral
\ncooperation such as information and technology, construction and
\nthe energy development sector.<\/p>\n
In particular, the partnership of Korean and Indonesian
\nbusiness in energy development can produce the most remarkable
\nresults.<\/p>\n
Indonesia has been a stable supplier of energy and natural
\nresources for Korea, it is Korea's sixth largest supplier of oil
\nand provides two-thirds of all LNG that Korea consumes.<\/p>\n
In this respect, Indonesia's abundant energy resources promise
\ngreater future partnership prospects for bilateral industrial
\ncooperation.<\/p>\n
This is because Indonesia and Korea will greatly benefit
\nthrough the joint utilization of the capabilities and know-how in
\nIndonesia's oil and gas development projects.<\/p>\n
Thanks to economic structural changes and continuing reform
\nmeasures in the two countries, the economic relationship between
\nIndonesia and Korea have recovered rapidly.<\/p>\n
The two countries need to make more efforts to build upon a
\nnew foundation for bilateral cooperation in order to accelerate
\nthe growth of bilateral economic activities in the 21st century.<\/p>\n
First of all, to further increase industrial cooperation, we
\nhave to enhance the bilateral partnership in the private sector.<\/p>\n
In this respect, the transfer of appropriate technology and
\nexpanding capital inflows are major instruments with which we can
\npromote industrial cooperation between Indonesia and Korea.<\/p>\n
Industrial cooperation will be highly productive if it is
\nconducted in areas such as the transfer of IT technology and the
\ndevelopment of human and natural resources.<\/p>\n
If this is coupled with the transfer of Korean industrial
\ntechnology to Indonesia, it will enhance the overall effect of
\nthe bilateral economic cooperation on the industrial and economic
\ndevelopment in Indonesia.<\/p>\n
This cooperation promises good results in the key areas of
\nIndonesia's industrialization. We have to formulate a
\ncomprehensive and concrete long-term plan encompassing industrial
\nand technological cooperation as well as resource development.<\/p>",
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