Australia sees improvement in ties with RI

Veeramalla Anjaiah, The Jakarta Post/Jakarta

After the successful conduct of the first-ever direct presidential election in Indonesia, Australians are increasingly optimistic about improvements in economic relations with its near neighbor, despite some residual problems.

"Australians are very much impressed by the remarkable change -- from an authoritarian regime to a strong democracy -- in Indonesia. This and the new government's economic agenda will push Australian businesses to rethink Indonesia," Australian Foreign Minister Alexander Downer said on Tuesday during a breakfast meeting with members of the Indonesia Australia Business Council (IABC) in Jakarta.

"At the recent ASEAN (Association of Southeast Asian Nations) summit in Laos, it was decided to make efforts to establish an ASEAN-Australia-New Zealand free trade area. Once this is established, there will be even more trade opportunities for Australia in Indonesia and in other ASEAN countries," he added.

But Downer said that Indonesia still has a lot of work to do in order to improve its investment climate.

"In order to attract foreign investment, there should be an open market with free flow of capital in and out, a reliable legal system, good corporate culture, competitive taxes, viable labor market and finally good governance," Downer, who came to Indonesia on Monday to attend the International Dialog on Interfaith Cooperation in Yogyakarta, told the gathering of Indonesian and Australian businesspeople.

Downer, who met several Indonesian officials including Defense Minister Juwono Sudarsono and National Police Chief Gen. Da'i Bachtiar during his stay in Jakarta, said Australia is placing a lot of importance on good governance. A large portion of our A$160 million (US$123.2 million) annual development assistance to Indonesia is for the improvement of good governance in Indonesia.

Downer also announced at the meeting that Canberra would double its anti-terrorism funding for Indonesia to 20 million Australian dollars (US$15.4 million) over the next five years.

With its small population of just 20 million people and an impressive US$570 billion Gross Domestic Product (GDP), Australia is the second biggest foreign investor in the world's only superpower, the United States. It is also the fifth largest trading partner of that country.

Despite its huge market of 220 million people, and abundant natural resources and geographical proximity, Indonesia has failed to attract Australian investment in recent years.

Indonesia, Australia's sixth largest export market and 11th biggest import market, approved 33 projects worth $125 million from Australian investors in 2003.

Last year, Indonesian exports to Australia reached US$6.1 billion and imports from Australia $3.25 billion.

There are a number of reasons for this, including corruption, lack of legal certainty, lack of incentives, higher wages, security and high costs.

"Doing business in Indonesia is costly. The production costs -- both legal and illegal -- have been increasing at a tremendous pace. It will be very difficult for us to compete with countries like China, Vietnam and Bangladesh," Hendro O. Husodo, the president of PT Sinar Central Sandang Spinning Mills, told The Jakarta Post on the sidelines of the meeting.

IABC president Noke Kirayan announced at the meeting that a high level delegation from the Indonesian Chamber of Commerce and Trade (Kadin) will be visiting Australia in March 2005 to try and boost the economic relationship.

Commenting on the overall relationship with Indonesia, Downer acknowledged that political ties between Australia and Indonesia were developing at a tremendous pace.

"The Bali bombing and the attempt to bomb our Embassy in Jakarta brought both countries closer together. Over the past two years there were 42 ministerial and prime ministerial visits from Australia to Indonesia. This reflects our growing ties with Indonesia," Downer said.