~By Lee Hye-min,

~By Lee Hye-min, Economic Counselor, Korean Embassy in Jakarta

The Indonesian and South Korean economies greatly complement each other. On the one hand, Indonesia is richly endowed with a wide variety of natural resources, the home to a potentially vast consumer market with its population of more than 210 million and boasting a huge pool of easily trainable labor. On the other, Korea possesses the expertise, technology and financial capital that can be deployed to develop those resources for the people's welfare. This deeply complementary and mutually beneficial aspect is at the core of rapidly expanding bilateral economic relations. Rich natural resources have long attracted Korean investment, beginning in the late 1960s. Korean investors initially focused their attention on developing such natural resources as forests and minerals for exports to Korea itself and other countries. But as Korean labor- intensive manufacturing became less competitive, many Korean companies relocated their light industrial factories, such as textiles, garments, toys, footwear, furniture and electric appliances, to Indonesia. In line with the progress of Indonesian economic development, Korean investors also expanded to such medium and high-technology areas as electronics, automobile and telecommunications. As in most other countries, investment also spurred trade. Indonesia initially exported mostly raw commodities as logs, fish and minerals, but, with the development of a broader base and a higher capacity in manufacturing, it was required to import more basic and intermediate materials. It is now capable of exporting a wider range of manufactured goods. No wonder that today Korea is Indonesia's fourth largest trading partner and seventh largest foreign investor. Conversely, Indonesia is Korea's ninth largest trading partner and the third largest destination for its overseas investment. Korean cumulative investment in Indonesia now amounts to more than US$4 billion spread across a wide range of industries, such as textiles and garments, wood and furniture, footwear, electronics and telecommunications, mining, as well as several others. The economic crisis that engulfed both countries in the late 1990s did affect bilateral relations. The number of new Korean investment projects fell from 41 in 1996 to 36 in 1997, and had dropped to 20 by 1999, before increasing again to 58 in 2000, 63 in 2001 and 56 in 2002. Two-way trade also decreased immediately after the economic crisis but has risen again to reach $7.7 billion and $8.8 billion annually in the period 2000-2002. However, due largely to Korea's great demand for oil and natural gas and several other commodities from Indonesia, two-way trade has always been in favor of Indonesia to the tune of more than $1.5 billion a year. Economic cooperation expanded further in the early 1990s when Korea became a donor member of Indonesia's consortium of international creditors under the Consultative Group on Indonesia (CGI). Korea has cumulatively provided Indonesia with $20 million in grants and $160 million in soft loans. At the last CGI meeting in Bali in January, Korea pledged $3.1 million in grant assistance and $20 million in soft loans to Indonesia. The complementary nature of both economies will continue to contribute to a broadening and deepening of economic ties between the two countries, especially with the strengthening of political, macroeconomic and security stability in Indonesia. Indonesia will remain one of the favorite sites for Korean overseas investment, shown by the many Korean businesspeople who have worked in the country for years and become familiar with local culture and customs. Many analysts, foreign chambers of commerce and international institutions have provided a long list of targets for the government to fulfill to regain full investor confidence. Most of these reforms are being implemented and many of them may take years to complete, but it's important to note that steady progress has been made in the improvement of the overall condition for economic activities. Now it is up to the Indonesian government to continue pushing forward with its reform measures, notably in upholding the rule of law, to improve overall economic efficiency and draw more investors.

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