Greater Indonesian-Pakistani economic cooperation likely

Greater Indonesian-Pakistani economic cooperation likely

By Salman Farooqi

Pakistani Prime Minister Benazir Bhutto's visit to Indonesia
is taking place at a time when bilateral relations between the
two brotherly Moslem countries are to be weighed in the context
of the new wave of globalization of economy.

Much has changed since the Bandung Conference 40 years ago,
but the spirit of Pancasila, which brought the two countries into
the fold of the Non-Aligned Movement in the subsequent decades,
is still guiding their political and economic relations. The
essence of Pancasila is peaceful coexistence, which has gone much
beyond in connotation in these four decades to more meaningful
and tangible ties developed in the international context through
their association in the group of 77 and later in the system of
the World Trade Organization.

In the regional context, Pakistan's relations with Indonesia
will find a new perspective in the context of its approach
towards the ASEAN of which Indonesia is a core member and of
which Pakistan is already a sectoral dialog partner, while it is
seeking the status of a full dialog partner.

Bilaterally, Pakistan and Indonesia are enjoying good
relations politically, while there is a big scope for expanding
economic relations. Presently, Pakistan's total annual trade with
Indonesia (exports and imports) US$200 million or less, which is
very insignificant in the context of Indonesia's foreign trade of
over $68 billion. Main articles of export are limited to rice,
fruit, raw cotton and cotton goods, while main imports are tea,
fruit and nuts, paper and paperboard, and pulp and waste paper.

With this restricted trade in the background, the visit of the
strong contingent of Pakistani businesspeople and industrialists
accompanying the prime minister to Indonesia, offers them a
unique opportunity to diversify the import and export of their
products. It will help in opening new vistas of cooperation in
the fields of cotton textiles, agrofood products, timber and
plywood, rubber processing, engineering goods, palm oil
refineries, and petrochemical, cement and sugar plants. Pakistan
has a standing offer of supplier's credit of $50 million for its
engineering goods to Indonesia, particularly cement and sugar
plants.

It is to be mentioned in this connection that in complying
with its commitment to the World Trade Organization, Pakistan has
opened its trade extensively with the elimination of paratariff
and nontariff barriers and the reduction of tariffs under a
phased reforms program. While Pakistan offers an attractive array
of products and services, its products are being manufactured
strictly according to international standards and they meet
European and North American specifications. Indonesia and its
sister countries in ASEAN represent the world's fastest growing
market and it offers Pakistan excellent trade prospects. The team
of Pakistani businesspeople accompanying the prime minister
represents businesses covering a wide range of products, and
contact with their Indonesian counterparts will be helpful in
identifying new products of trade.

As regards to cooperation in investment, the prospects of
investments from Indonesia and other ASEAN countries in Pakistan
are to be seen in the fact that with the liberalization of trade
and investment, Pakistan has become a haven for foreign direct
and portfolio investments. This has been recognized
internationally with the declaration of Pakistan by the
International Finance Corporation as one of the seven emerging
markets in the world. While this is true for all sources of
foreign direct investment, industry and service specific
incentives and opportunities provided by Pakistan can attract
substantial investment from Indonesia and other ASEAN countries,
for two obvious reasons. First, the experience and expertise
gained in the entrepreneurship of industries and services in
Indonesia and other ASEAN countries can be utilized gainfully,
while investing in the same industries and services in Pakistan.
Second, as Pakistan is a base of a number of market outlets in
the region, particularly in the Gulf and Central Asian countries,
ASEAN investors who develop production bases in Pakistan will
find expanding markets beyond its borders with lesser marketing
and freight costs than their home-based ones.

Investors from Indonesia and ASEAN countries will also find a
very attractive investment environment in Pakistan. Private
sector investment is safe in Pakistan. One reasons is the
relevant law which provides protection to private sector
investment against nationalization. A second reason is that all
political parties in Pakistan are committed not only to protect,
but also to make private sector investment fully market-oriented.
With this political commitment, the facilities, opportunities and
incentives provided by the government for foreign investment, are
highly attractive, often more attractive than those in
neighboring countries and parallel economies. The incentives
begin with the facility of repatriation of capital and profits,
besides tax reliefs.

Indonesia and ASEAN investors can take part in Pakistan's
infrastructure projects which have been opened to foreign
investment. These projects include energy, port development, road
and rail development, oil and gas development and the tourism
industry. Joint venture projects can also be set up in the palm
oil industry, hotel industry, plantation and agriculture, cotton
textiles, timber and plywood, rubber processing and tire
industries, small ships and aircraft, pulp and paper and modern
furniture industry.

Indonesia is exporting large quantities of coal to various
countries and is perhaps finding difficulty in exploring new
markets. Indonesian entrepreneurs can set up joint ventures with
the private sector in Pakistan for power plants, using Indonesian
coal. A Hong Kong investor has already established such a plant
in Pakistan.

However, prospective areas of investment can be identified in
an organized manner by launching detailed studies bilaterally.
Pakistan has taken a number of initiatives for pooling investment
information at bilateral levels. It recently appointed commercial
counselors in all ASEAN countries' capitals. The job of amassing
investment information could also be facilitated by the inclusion
of Pakistan's economic ministries and their commercial offices
abroad in the e-mail network, while their inclusion in the
Internet is at different stages of progress. This is occurring at
a time when information networks are being fully liberalized in
Indonesia and other ASEAN countries.

For ready reference, Pakistan has conducted a study on the
present status and future prospects of cooperation between
Pakistan and Indonesia and other members of ASEAN. Covering the
main four areas of trade, industry, investment and environment,
the study will be available in the form a book at the time of the
visit of the Pakistani prime minister to the Indonesian capital.

Secondly, Pakistan is holding investment conferences in the
capital cities of ASEAN countries. Two such conferences have
already been held. One in Kuala Lumpur and the other in Singapore
last year. The next one is being planned for Indonesia. There are
also proposals for holding investment conferences, in cooperation
with the ASEAN secretariat, both at the regional and bilateral
levels.

During her visit to Jakarta, the Pakistani prime minister, her
ministers and senior officials will sign a number of agreements
and memorandums of understanding with the Indonesian government
to facilitate the commercial and economic cooperation between the
governments and businesspeople of the two countries. These
agreements and memorandums relate to protection of investment,
economic and commercial cooperation, cooperation in agriculture,
banking and trade in specific items.

There is also the Indonesia-Pakistan Cultural and Economic
Cooperation Organization which, set up in 1965 following joint
declaration of the two governments, is the main instrument to
boost trade relations. Regular meetings of this organization
could play a key role in this regard. It is, however, unfortunate
that its last meeting was held some six years ago. It is
necessary to make it an annual event, as originally designed.

Indonesia hosts a number of exhibitions every year and
Pakistan's participation in them could help introduce Pakistani
products like carpets, engineering goods, real and imitation
jewelry, surgical instruments, table cutlery, building materials,
sanitary fittings, modern furniture etc. which have started to
break ground in other markets of the world. Pakistan is holding a
single-country exhibition in Jakarta during the prime minister's
visit. This participation could be more meaningful with the
mutual cooperation between the businesspeople of the two
countries through their top representative bodies like the
Indonesian Chamber of Commerce and Industry and the Federation of
Pakistan Chambers of Commerce and Industry.

There are, however, certain constraints of trade between the
two countries because of the geographical distance. The distance
between them makes both business trips and cargo shipments
expensive. There is no direct two-way shipping line between
Pakistan and Indonesia. There is no doubt that a direct shipping
line would greatly enhance bilateral trade. Shipping companies of
the two countries could discuss the possibility of direct
shipping for trade and business expansion. Similarly, there are
shortages of direct flights which also hinders contact. But,
while these facilities can be planned, they may emerge when
demand is created by the expansion of business contact between
the two countries. Here, businesspeople and industrialists of
both countries can do a lot with their initiative and expertise.

It is needless to say in this connection that frequent visits
of trade delegations can help in furthering bilateral trade
relations. During 1995, five commercial and trade delegations
from Pakistan visited Indonesia and succeeded in developing
useful business contacts. Similarly, visits of delegations from
Indonesia to Pakistan can also provide good opportunity to
explore new avenues of bilateral trade and investment.