Part 2 of 2: The future of ASEAN's competitiveness

Susilo Bambang Yudhoyono, Vientiane/Laos

But that's not all -- the road to success is much tougher than that. To gain maximum benefit from integration, we need to meet other conditions. First of all, governments -- and I am speaking of my country as well -- we all need to increase the efficiency of all economic transactions in the region. The quality of these transactions are vital because if they are good, then individuals will be prompted to improve their skills, and companies will be prompted to increase their capital and output.

Of course, as with most everything else in this globalized world, it's all about connectivity. And these transactions that I speak of depend on an array of economic institutions, as well as on the quality of physical infrastructure.

Simply speaking, a country where property rights are absent, trade policies are highly restrictive, and corruption is rampant, is unlikely to enjoy rapid economic growth -- regardless of the size of its domestic market, its human capital, or its production technology.

Our main challenge today is to deepen our economic integration. Why? Two words: India, and China. I am sure that everybody in this room is familiar with the presence, and potential, of those two emerging economic powers. China is a behemoth for foreign investors, in many ways unbeatable as a manufacturing outlet.

But in my meetings with investors, I have also learned that businesses seek to reduce risks and investing too much in one location increases those risks. We have to take advantage of their strategy of diversification, and lure them to our region. ASEAN, as a single entity, can be as attractive as those two economic giants, but it is our responsibility to make it so.

Here is where diversity can be an asset. We can leverage this diversity into a complementary factor, one that allows the region to attain economies of scale. And if we make regional production networks more manageable, then producers can break up a production activity into many, separated, location-specific steps. This would greatly increase intra-regional trade.

And for those skeptics who think this is wishful thinking, I say to them, niches for labor-intensive activities are constantly being created in areas that are traditionally viewed as capital- or technology-intensive, such as electronic products. That's why the promotion of a single production base brings benefits to all its members, the more advanced as well as the less advanced.

We can also enhance our competitiveness in the service sector. We can promote low-cost, but high-quality service industries. I can name many possibilities: we can position ASEAN as a global outsourcing hub, a tourism hub, or a health and well-being industry hub. We can take advantage of all these potential industries. After all, efficient services are also vital to national and regional competitiveness as a whole.

Having outlined to you the vision and rationale for having the AEC, I also want to say that this has been a year of progress and achievements. My ASEAN colleagues and I will be signing an important document: the ASEAN Framework Agreement for the Integration of Priority Sectors.

By providing concrete action plans and road maps for the integration of eleven economic sectors, this agreement is the first major installment to the realization of the single production base and market. And the industries affected run the gamut, including electronics, textiles, automotive, fisheries, wood-based and rubber-based industries, as well as key service sectors such as air travel, tourism, health-care, and e-ASEAN, our version of e-commerce.

Now, let me reiterate again that I am a believer in free trade and open investment. I believe that those two factors are essential elements of this great undertaking before us, they are the main drivers of our regional integration. Our initiative in 1992 to form the ASEAN Free Trade Area, or AFTA, was a bold step. The subsequent plan for an ASEAN Investment Area, or AIA, was another giant leap. If we build on these initiatives, I am confident that ASEAN will be one step closer to realizing its full potential.

Here is where I will put, so to speak, my chips on the table. Under my leadership, Indonesia is pledging to accelerate our efforts with other ASEAN members to deepen this economic integration. The priority of our administration is to boost investment, exports, and infrastructure building -- aims that I am sure all of you share with me.

We know that this aim will not happen without a plan -- so we are formulating a road map that will enhance business transactions and improve our investment climate. How? We will streamline our bureaucracy and all the red tape that comes with it, including in vital areas such as customs, taxation, transportation, and standards.

In January 2005, we will hold a very key meeting: an Infrastructure Summit, as the prelude to a five-year infrastructure-building program. I strongly believe a well- functioning infrastructure is essential to a well-functioning economy. Indonesia needs a total of US$ 72 billion to finance the building of roads, railways, ports, airports, power plants, clean water systems and irrigation facilities. Funding will come from government and private investments. It is my hope that those of you interested can come to our summit.

A healthy partnership between the government and the private sector is also a necessity. As President, I have reiterated my wish to have regular direct consultations with the business community. On its part, the Indonesian Chamber of Commerce and Industry (Kadin) will also include representatives of foreign businesses in Indonesia through the foreign chambers. I also look forward to inputs from you the business sector, the ones who are at the forefront of the realization of the ASEAN Economic Community, as to what more ASEAN can do to achieve the vision of a single production base and market.

My government is working hard on these issues. After all, the positive impact of our efforts will be felt not only by Indonesian producers and consumers, but also far beyond our national borders.

We all want ASEAN to succeed in economic cooperation. This success requires member nations to strengthen their abilities to play an active part in the cooperation. We need to look to each other for mutual support, providing exchange programs and other experience-sharing opportunities when needed.

This is an abridged text of keynote address given by President Susilo Bambang Yudhoyono at the 2nd ASEAN Business and Investment Summit in Vientiane, Laos, on Nov. 28 2004.