EU says Indonesia ties not changed by terror fears

EU says Indonesia ties not changed by terror fears

Agencies, Jakarta

European Union Trade Commissioner Pascal Lamy said on Saturday the EU had not reviewed its trade policy with Indonesia despite fears the world's most populous Muslim nation might become a breeding ground for terrorist networks.

"Apart from strengthening our political dialog (with Indonesia) ... nothing has changed dramatically," Lamy told Reuters during a whirlwind visit to Jakarta.

"Obviously there is more sensitivity here because it's the biggest Muslim area in the world but there has not been any sort of evidence (Indonesia) is siding with al-Qaeda," he said, referring to the terrorist network blamed for the Sept. 11 attacks on New York and Washington.

Indonesia has come under growing pressure in recent months to do more in the war on terror, especially compared to Malaysia, Singapore and the Philippines which have rounded up dozens of Muslim militants.

Lamy, who estimated the EU's annual trade with Indonesia at 15 billion euros (around US$13.5 billion), said he was heartened by growing political stability in the vast nation and the government's economic reforms.

"... I get a sense that things have moved on here ... There have been political changes and with these we hope prospects for economic reform will increase," he earlier told a news conference.

Lamy, who arrived in Jakarta late on Friday for a two-day visit, is in Southeast Asia to strengthen regional and multilateral trading links.

Meanwhile, Lamy and the Minister for Settlement and Regional Infrastructure Soenarno signed on Saturday a 6.62 million euro financing agreement for the development of irrigated agriculture in Buleleng and Karang Aseam, Bali, a press statement said.

The EU is contributing 6.12 million euro to the project, which is aimed at improving the living conditions of low-income rural households by means of improved irrigation system.

Elsewhere, Lamy offered an optimistic view of the Southeast Asian economy despite increasing diversion of investments to China, saying the region had democracy as one of its assets.

"The fact is that because of its size, because of the consistency of its policy, because of the track record China has in terms of growth in the last 10 years, they have a track record which is attractive, which others may not have," Lamy was quoted by AFP as saying.

"Investors are looking at that, but then the next question is so what?

"This region has assets. I mean it has positive assets in terms of democracy for instance, which sometimes makes a decision more difficult than easy. But it has assets," he said, in an interview on Saturday.

China has been getting the lion's share of foreign direct investments into Asia at the expense of Southeast Asia as investors take advantage of the regional giant's potential market of more than one billion people.

Lamy however said much of investment funds diverted from Southeast Asia to China was in fact "local money".

"It's not sucking money out of this region. A lot of this money is local money, including Chinese money, by the way, in this region," he said.

"When you look at $40 billion' positive foreign direct investment in China a year, we all know that a part of that is rescinding money," he said.

Southeast Asia's 500 million population made it a viable marketplace for investors, Lamy said.

"With developing countries like Vietnam, Cambodia and Laos joining the group in an efficient way, in a positive way, it's a good sign," he said.

"There's no fatality in this. Look at Japan, it was a big history 20 years ago," he said.

He said the ASEAN Free Trade Area (AFTA), which came into force on Jan. 1, had also received stronger support from member countries.

The Association of Southeast Asian Nations (ASEAN) groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Under the AFTA scheme, six of ASEAN's wealthier members have cut tariffs on most goods traded within the region to between zero and 5 percent. Newer members Cambodia, Laos, Myanmar and Vietnam have until 2005 to follow suit.

There have also been proposals for an ASEAN free trade accord with China -- a potential combined market of 1.7 billion people.

Philippines President Gloria Arroyo and Singapore trade minister George Yeo have both called on ASEAN to hasten economic integration if it wants to compete with China, which is enjoying rapid growth.