Speech by the

Introduction

I am delighted tohave this opportunity to speak to such a distinguished gathering about Australian perceptions of Indonesia and the outlook for our relationship with Indonesia.

This is my fourth visit to Indonesia. Because I realise early on, when I was on the Opposition side of Parliament, that Australia's future lay in closer engagement with Asia. I have visited 19 Asian countries and, like more and more Australians, I feel a special affinity with the countries of our neighbourhood.

Because the Asia Pacific is where we Australians live. It is where, with our neighbours, we build our security and our prosperity.

That is why the new Australian Government has engagement with Asia as its highest foreign and trade policy priority.

And it is obvious that no country is more central to the process of engagement than Indonesia.

That is why Foreign Minster Downer's first overseas visit was to Jakarta. And it explains my pleasure at being invited by Minister Hartarto to participate in this conference scarcely two months after coming into government.

The past two days of discussion have been truly stimulating. The great depth of international interet in Indonesia, from the world's largest and most dynamic corporations and from the most influential global institutions,is as striking as it is justified.

Australia has a special perspective to offer on Indonesia, which results from our unique relationship with this country.

Australia and Indonesia: A Growing Awareness of Partnership

And it is indeed unique. It has often been said that there are no two countries in the world which are located so close together, but which are as dissimilar as Australia and Indonesia. Despite being separated by a strip of water just 244 kms across, our histories, our cultures and our economies have, until recently, developed along quite separate paths.

Over the five decades since Indonesian independence this combination of difference and proximity has, not surprisingly, occasionally produced misunderstandings and problems. The relationship has called for skilful diplomacy on both sides.

But the hallmark of the relationship today is an extraordinary rapid growth in the number of areas in which Australians and Indonesians are working together.

In an increasingly interdepedent world, flows of trade, investment, technology and ideas are the key to any nation's success. To a great extent, the dissimilarities between Australia and Indonesia have become the principal reason for growing partnership between us. We now see differences as complementaries - as opportunities to grow together.

That shift of perspective has brought rich rewards across the whole relationship. Economic linkages are booming, as are people-to-people links. In the security field, we are building on the Agreement on Maintaining Security signed late last year.

Each side is learning more about the other. More Indonesian students are heading for Australia than any other country.

These rewards are not just bilateral. Our work together on APEC and on building regional security dialogue is, I believe, making a strong contribution to shaping the future of the Asia Pacific. And we are increasingly active together on global issues like the environment, disarmament and nuclear proliferation.

That pattern of outward-looking cooperation comes together in Indonesia's support for our candidacy for the UN Security Council. We appreciate that vote of confidence. For our part, we are determined to see regional priorities fully addressed in the Council.

In short, a partnership between two unlikely neighbours is rapidly becoming a force for stability and prosperity in our region.

The International Context

I want to come back shortly to the growing economic paratnership between Australia and Indonesia, and its significance to the region.

But first I want to make some points about the broader international environment that helps to shape that partnership.

Our bilateral links have not developed in isolation. Trends in the global situation have had an important influence.

In recent years we have experienced one of the most exciting periods in the history of the world's economy. We have seen an unprecidented internationalisation and integration of the world economy, characterised by the opening of markets, falling trade and investment barriers and highly mobile international capital.

These trends have had a dramatic impact in Asia. Growth and structural economic change continue apace. The non-Japan East Asian region continues to record economic growth that far exceeds any other region in the world. We are seeing what amounts to a sea-change in the global economy. By the time APEC's commitments to trade and investment liberalisation flow through - up to and beyond 2020 - the Asia Pacific may well account for around 75 per cent of world output and world trade.

It must never be forgotten that free trade and investment has been the foundation principle of East Asia's growth. That foundation was initially provided largely by access to the giant United States market and to US capital. However, in recent decades the steady process of market opening and deregulation in East Asia has generated its own momentum. Intra-East Asia trade now amounts to almost half the total trade of the East Asian economies.

East Asian growth has rested, too, on hard-earned international competitiveness, high savings and a willingness to invest heavily in technology and education. Plentiful, competitively-priced labour has also been an important factor, allied with the disciplie of the market and responsible macroeconomic policies.

While the traditional sources of East Asian economic growth - particularly exports - will remain important, we expect new avenues of growth to emerge. First, through infrastructure development to meet the expanding needs of these rapidly developing economies. And second, through larger domestic consumption reflecting rising incomes.

Looking ahead, I am confident that rapid growth will continue and I am cautiously optimistic that we will see high rates in the period up to the year 2020. If you project the current growth outlook, using purchasing power parity estimates, the region should by then include china as the biggest economy in the world, India the third or fourth and Indonesia perhaps the fith.

Now I realise that PPP analysis does not give a direct read-out on a country's international economic weight, or its strategic potential. But it does tell us that we are talking about change on a historic scale.

Change on that scale will, I want to emphasis again, continue to depend on free trade and investment. It follows that all regional countries must now show greater commitment to strengthening the international trading system by removing barriers to trade and investment. As East Asian growth has shown, trade liberalisation is a win-win strategy.

Economic Change in Australia and Indonesia

I would now like to turn briefly to changes in the Indonesian and Australian economies.

As we have heard over the past two days, Indonesia has gone through the most remarkable economic transformation. If that transformation is sustained, Indonesia could reach the level of upper-middle income developing countries by 2010.

Indonesia has undergone a fundamental transition from an economy driven by commodities and petroleum to one substantially geared to industrial expansion and manufactured exports.

This transformation has been engineered with sound macroeconomic policies on the part of the Indonesian Government. Deregulation has restructured the economy to enable the private sector and non-oil exports to play a much larger role in providing growth in jobs, incomes and exports.

The economy is now more diversified, competitive and export-oriented than it was just a very few years ago.

Prudent fiscal policies, relative price stability, diversification of exports and a wider range of sources of government revenue have moved Indonesia decisively to the early stages of economic take-off. It now stands as proof of the power of the East Asia growth policies I referred to earlier.

Indonesia has been particularly successful in combining strong growth rates with a better life for its people. It has become a model for other countries striving to combine economic growth and the eradication of poverty.

In just over two and a half decades, Indonesia has lifted some 25 million of its people above the poverty line. Life expectancy has risen by 12 years to 63, and the illiteracy rate has been almost halved to 23 per cent. A remarkable achievement!

But the Indonesian Government is not resting on its laurels. It continues to drive the reform process along - in the past year, it has announced two further deregulation packages and another is in the pipeline.

In short, Indonesia is set to become one of the most powerful economies in the region. Australia sees that as an enormous opportunity and I am confident that we will be fully geared up to meet it.

Which brings me to changes in Australia.

Like Indonesia, Australia has become a more open, outward looking economy. Like Indonesia, our exports have diversified away from the traditional farm and quarry base, though that remains important.

Australian Governments have acknowledged that the inward-looking, protectionist habits of old no longer serve our interests. Governments and the private sector have acted on the basis that Australia's future prosperity depends on exposing our economy to the opportunities and challenges presented by competing in the international arena.

Rewards are now earned by hard work, good products, price competitiveness and well targeted marketing.

But there is more that we need to do to ensure that Australia takes its place among the dynamic nations of the Asia Pacific.

The new Australian Government sees a strong domestic economy and increased international economic competitiveness as an essential foundation for effective engagement with East Asia and the rest of the world.

Improving the competitiveness of the Australian economy is the key to more dynamic growth, increased investment and exports, and a sustainably higher standard of living.

Like Indonesia, we know that this is not an easy process. It requires courage and political will to overcome barriers to competitiveness. But there is no alternative.

Governments have to liberate the economic energies that alone can deliver growth in prosperity and jobs over the medium to long term.

The new Government will implement a comprehensive strategy to overcome these barriers with

. a responsible balance of macroeconomic policies;

. taking microeconomic reform even further, including in the areas of labour market reform, shipping and the waterfront, communications, transport and energy.

. accelerated competition reforms

. and a program to reduce the costs and complexities of regulation, including tax compliance.

Working Together to Strengthen Bilateral Economic Ties

What we do at home, of course, is only half the picture. The rest depends on how we pursue our relationships with the rest of the world, globally and regionally. The core of external policy - global or regional - is strong bilateral relationships.

So a central element of the new Australian Government's approach to economic engagement in the region is our greater emphasis on strengthening key bilateral relationships.

Australia's relationship with Indonesia is fundamental in this respect. Mr Downer's and my early visits attest to that. The Prime Minister hopes to make an early visit.

But the importance the Coalition attaches to increasing and broadening trade with Indonesia is nothing new. In 1959 the Menzies Government negotiated and signed the first-ever treaty between the Republic of Indonesia and Australia - the bilateral trade agreement. In 1972 the agreement was revised and updated and signed on behalf of the Coalition Government by my predecessor Doug Anthony.

We now need to redouble our effort to develop a partnership which maximises the benefits of emerging opportunities for both our countries.

Changes in the international economic environment and in our own economies have seen a growing convergence of commercial interests. We have become important to each other as markets and sources of goods, services, investment and skills.

Most importantly, our two private sectors have seen mutual advantage in doing business together and developing strategic alliances.

And as a result our trade relations have come a long way. Bilateral trade has doubled in the past five years to exceed A$3.5 billion - a fivefold increase from the figure of ten years ago.

Australian exports to Indonesia have more than doubled to A$2.4 billion in the past five years, lifting us from 14th to 5th in the list of Indonesia's import suppliers. Manufactures are the fastest-growing sector, accounting for 43 per cent of the total.

Indonesia has matched that performance. Its exports to us have doubled to A$1.3 billion. And manufactures now represent well over half the total.

Investment flows, too, are beginning to grow impressively. The more open investment climate in Indonesia is particularly welcome.

Last year, the Indonesian Government approved new Australian proposals worth US$3.7 billion, bringing the cumulative value of approved Australian investments to US$5.4 billion. Australia ranks about 6th amongst Indonesia's sources of implemented foreign direct investment. And an encouraging pointer for the future is that Australian investment is diversifying beyond its original mining base into manufacturing and services. The new prospects include chemicals, food processing, construction, banking and insurance.

Indonesian investment in Australia is small but growing. Although Indonesian interest in Australia has so far focussed largely on the property and portfolio markets, there are also notable investments in apparel, battery manufacturing and export cattle.

The Australian Government would like to see greater Indonesian investment in Australia. There are good profits to be made through direct investment in manufacturing and services, as I have pointed out to the Indonesian Ministers I have been talking to this week.

Mutual investment is the strongest form of economic linkage. Increased investment will boost trade, it will further enmesh our two economies, and it will lead to a greater ease in operating in each other's business environments. Australia has introduced fast-track business visa processing in order to assist the development of effective business relationships.

With Australians and Indonesians equally comfortable operating in either country, I can see more and more companies developing cross-border operations which make the most of both countries' competitive advantage.

Indeed, this makes a ersuasive csae for international corporations linking Austsralia and Indonesia in their regional trade and investment plans. This is also part of the logic for continuing efforts to develop practical areas of cooperation between the ASEAN Free Trade Area (AFTA) and the Closer Economic Relations (CER) agreement between Australia and New Zealand.

Such cross-border operations will allow companies from both nations to increase their economies of scale and hence lower their costs of production. It will also allow both nations to share technology and to compete more effectively on the world stage.

I have given some prominence to the role of the private sector because it is business which actually develops the products and makes the sales and investment that create wealth and jobs. But naturally I do not ignore the important role that Governments play in providing the policy environment that helps business to flourish.

Later this year, I hope to be visiting Indonesia again - for the third meeting of the Australia-Indonesia Ministerial Forum. The Ministerial Forum brings together key Indonesian and Australian economic ministers every two years to set the bilateral economic policy agenda, to address impediments to trade and investment, and to identify opportunities for commercial collaboration.

The Forum highlights the way in which Australia and Indonesia now work together to our mutual advantage in trade and investment.

In the lead up to this year's Forum meeting we will be looking at ways that the Forum can take us even closer to a real economic partnership.

Shortly after the Forum, I will be in Melbourne opening our annual National Trade and Investment Outlook Conference (or NTIOC). NTIOC has become a key event in our bilateral economic relationship, demonstrating the potential for growth in a range of industry sectors, including mining technology and services, telecommunications, financial services and food.

Over 40 per cent of Australian delegates surveyed at last year's NTIOC identified Indonesia as the market offering best prospects for trade and investment. And the seniority of Indonesian NTIOC delegations indicates that that interest is reciprocated. We look forward to welcoming a high-level delegation again this year.

So the prospects for the bilateral relationship are encouraging. We have done a lot together in a short time. But we should not be complacent. In a number of areas, both in trade and in investment, both countries could do significantly better. Indeed, we must do so if we are to realise the promise the economic relationship holds for the future.

Working Together in Regional and Multilateral Arrangements

Now more than ever before, bilateral relationships are affected by the broader regional and international economic systems. So Australia and Indonesia have important shared interests in achieving a fair and open international trading environment.

Besides building up our bilateral partnership, we also need to work together along what I call the multilateral and regional tracks.

It is the global rules overseen by the World Trade Organisation that provide the most comprehensive tools for securing trade liberalisation. Indonesia and Australia worked actively together during the Uruguay Round, and continue to do so in the lead up to the inaugural WTO Ministerial meeting hosted by Singapore in December.

That meeting will be a major opportunity to push ahead with comprehensive trade liberalisation. It is essential to start preparing now for further comprehensive liberalisation before the end of the century.

The Cairns Group of free traders in agriculture, which includes Indonesia and Australia, will be working at Singapore to ensure that WTO members maintain the momentum of agricultural trade reform. And it will be vital to prevent any backsliding on the Uruguay Round's commitments. So I look forward to working closely with Indonesia when I chair the Cairns Group meeting in Cartagena next month.

Our cooperation with Indonesia has been even more important to us in the APEC context.

One of APEC's most important achievements has been to provide leadership and a demonstration effect for the multilateral system. WTO Director-General Ruggiero has said the WTO needs to become at least as ambitious as the main regional trade agreements if it is to stay relevant to international trade and business. I agree with him.

The regional track is vital to the economies of this region. Because this is where they trade most and where they get most of their investment capital from. For example, nine out of Australia's top ten trading partners are in APEC.

It was President Soeharto's great feat of leadership at the Bogor Leader's Meeting that he recognised the full significance of APEC at a time when many others could see only uncertainties. He had the boldness and the stature to lead 18 independent-minded Leaders to adopt his vision and commit their economies to a liberalisation target.

That was the single most important event in APEC's development, so it is fitting that last night's Summit dinner was held at Bogor.

We will need Indonesia's commitment and energy no less this year. Because 1996 and 1997 will be years of hard, detailed work as APEC members work to put flesh on the bones of the Bogor commitment and the Osaka Action Agenda.

We in Australia are under no illusions that it will be an easy process. The Individual Action Plans which set out how members will give effect to their Bogor commitments are a totally new device in economic diplomacy. All APEC members will be engaged in a learning process as they work towards the Leaders Meeting in the Philippines later in the year.

But one point we must hold fast to in that process is that the benefits of liberalisation will flow most effectively to those economies which accelerate their efforts. Research in Australia indicates that delaying liberalisation means much smaller gains in the medium term. A ten-year delay in liberalisation by the developing countries of East Asia would, for example, reduce the gains to ASEAN countries in the year 2000 by 60 per cent.

Liberalisation is, as I remarked earlier, a win-win situation.

In that knowledge, Australia will table a progressive and comprehensive Individual Action Plan (or IAP) later this month. It addresses the key issues of tariffs, non-tariff barriers ( of which we have very few) and barriers to investment and trade in services. It incorporates the new Government's election commitments on microeconomic reform.

Our IAP also deals with trade facilitation, the second broad sphere of APEC work. One initiative we will pursue actively is introducing an APEC Business Travel Card to simplify entry procedures for business travellers.

Australia has done a lot to liberalise its markets and facilitate trade and investment. And the new Government expects to increase the pace of reform further. We clearly look forward to our APEC partners also continuing to liberalise vigorously.

Australia and Indonesia have been working together in APEC's third sphere of work: economic cooperation. My Government supports Indonesia's efforts to develop an active work program on infrastructure, and we welcomed the opportunity to contribute to the Public-Private Sector Dialogue on Infrastructure which Indonesia hosted in September 1995. The Dialogue's recommendations have now been taken up in the Osaka Action Agenda.

Intra-Regional and Sub Regional Cooperation

Opportunities offered by regional approaches do not stop with APEC. Along with other neighbouring economies Australia and Indonesia are working to achieve practical, commercial gains through activities at the intra-regional and sub-regional levels.

The second ASEAN-CER Ministerial in Jakarta later this year will provide us with a good opportunity to develop further CER-AFTA cooperation. The Ministerial meeting in Brunei last year has already established a work program that will promote trade and investment, and make it easier for business to find the facts about standards, qualifications and customs processes. That program has real, practical value for business people.

At the sub-regional level, rapid growth and restructuring is opening up new complementarities and commercial opportunities. The BIMP-EAGA growth triangle, which links Indonesia, Malaysia, the Philippines and Brunei, is one such opportunity for cooperation between Australian and Indonesian companies.

The BIMP-EAGA area has a wealth of natural resources. It is one of the world's richest fishing grounds, it has an abundance of minerals, oils and gas. Australia has the expertise and technology to make a full contribution to development and profitable business there.

CONCLUSION

And it is on that theme of business that I will conclude. Because the economic relationship between Indonesia and Australia that I have been describing today is founded on business. it is founded on the free flow of trade and investment between increasingly open market economies.

The work that our two Governments have put in - through APEC, through the WTO, through the Ministerial Forum - has been vital. The leadership of President Soeharto and his Ministers has been absolutely essential. But it is business people and their employees who ultimately make it all work - to the benefit of all Australians and all Indonesians.

Intra-Regional and Sub-Regional Cooperation

Opportunities offered by regional approaches do not stop with APEC. Along with other neighbouring economies Australia and Indonesia are working to achieve practical, commercial gains through activities at the intra-regional and sub-regional levels.

The second ASEAN-CER Ministerial in Jakarta later this year will provide us with a good opportunity to develop further CER-AFTA cooperation. The Ministerial meeting in Brunei last year has already established a work program that will promote trade and investment, and make it easier for business to find the facts about standards, qualifications and customs processes. That program has real, practical value for business people.

At the sub-regional level, rapid growth and restructuring is opening up new complementarities and commercial opportunities. The BIMP-EAGA growth triangle, which links Indonesia, Malaysia, the Philippines and Brunei, is one such opportunity for cooperation between Australian and Indonesian companies.

The BIMP-EAGA area has a wealth of natural resources. It is one of the world's richest fishing grounds, it has an abundance of minerals, oils and gas. Australia has the expertise and technology to make a full contribution to development and profitable business there.

CONCLUSION

And it is on that theme of business that I will conclude. Because the economic relationship between Indonesia and Australia that I have been describing today is founded on business. It is founded on the free flow of trade and investment between increasingly open market economies.

The work that our two Governments have put in - though APEC, through the WTO, through the Ministerial Forum - has been vital. The leadership of President Soeharto and his Ministers has been absolutely essential. But it is business people and their employees who ultimately make it all work - to the benefit of all Australians and all Indonesians.