Australia and Indonesia: working together in the Asian Century

Address to the Jakarta Foreign Correspondents' Club

Speech, check against delivery

22 March 2012

Thanks Joe [Cochrane, President of the Jakarta Foreign Correspondents Club].

I’m delighted to be here — thank you to the club for giving me the opportunity to talk today about the relationship between our two countries.

I’m told it might have been quite some time since an Australian Minister has spoken at this Foreign Correspondents’ Club — longer, perhaps, than the living memory of the journalists here today.

Some have suggested that the last time an Australian Minister spoke at this forum might have been back in the 1980s.

That reality could make me nervous or excited.

As an incurable optimist I can report to you that it is the latter, since so much that is good has happened since the 1980s.

And I can say this of the Australia-Indonesia partnership: our best days are ahead of us.

The changes that have taken place in Indonesia and Australia since the 1980s have been truly monumental.

In the 1980s, Australia was a nation only beginning to find its feet in its own region.

We were still living with the legacy of decades of closed-shop protectionism, based on the foolish belief that Australians were better off buying and selling to each other instead of seeking to seize the boundless opportunities of our region.

Indonesia, too, was still coming to grips with its own challenges and was years away from the embrace of democracy that has occurred over the last decade.

As our two countries — our two democracies — have grown, so has our friendship.

And I put to you today this proposition: never has our friendship been warmer.

You don’t need to rely solely on my assessment.

A survey released just this week by the Lowy Institute in Australia found that Australians are warmly regarded by Indonesians — much more so than in the past.

To illustrate, more than 60 per cent of Indonesians would be in favour of a company, bank or investment fund controlled by the Australian government buying a controlling stake in an Indonesian company.

Having made such good progress, the question for the present is: how do we go about strengthening the ties that bind us?

The answer to that question lies in the formula for our recent success.

In the 1980s I was an economic adviser to Prime Minister Bob Hawke.

We understood how important it was to reshape the Australian economy.

From the 1980s on, Prime Minister Hawke — and then Paul Keating — implemented fundamental economic reforms.

They floated the dollar, deregulated the financial sector and dismantled our high trade barriers, opening us up to competition from overseas.

By beginning the work of enmeshing our economy into the Asian region, they gave us immense strengths that have served us well in the crises that have come since.

Most recently, we were able to avoid the worst of the global financial crisis because of the resilience of our open, competitive economy, even as most of our developed country peers fell into recession.

For us, economic reform wasn’t just a domestic question, although that was certainly important.

We understood that our own prosperity was tied as well to the success of the region around us, that economic reforms in other parts of Asia would help us as well.

Now, in the second decade of the Asian Century, ours is the most vibrant region on Earth.

We are living through a time of extraordinary industrial, economic, social and political transformation, from one side of Asia to the other.

The landscape we will face in 2050 will be dramatically different to our world today.

But Australia and Indonesia are in the right place at the right time.

Both our countries have recognised the importance of being open to the opportunities the Asian Century will bring.

For Indonesia, already the largest economy in South East Asia, the country’s enormous potential is being realised.

The economy’s 6 per cent plus growth rates are the highest since 1996.

A growth rate driven by oil, coal and LNG exports, in tune with the current commodities cycle, alongside the sheer weight of demand from the country’s rising middle class.

Indonesia’s sovereign debt ratings upgrades late last year and earlier this year reflect the optimism of international investors about current economic performance, as well as future prospects flowing from a young population and untapped natural resources.

Strategically, Australians will need to appreciate Indonesia as a neighbour that will be more prosperous and influential in the decades to come — a development we warmly welcome.

More than 400 Australian companies are already active in the Indonesian market and are well represented in industries in which we are strong — such as in mining, mining services and banking.

These are just some of the industries in which Australia has a lot to offer.

We have a two-way trading relationship worth almost $14 billion, dominated by several big items.

On the Australian side, agriculture exports and education.

And on the Indonesian side, crude petroleum exports and tourism.

Indeed, Indonesia enjoys a substantial trade surplus with Australia. 

But we cannot be satisfied with where we are.

Marty Natalegawa said it the other day after the 2+2 Ministerial meeting in Australia: despite the strengths of our relationship, there is plenty of scope for enhancing our trade, investment and interpersonal relationships.

In many discussions with my counterpart and friend, Gita Wirjawan, we have agreed that the Australia-Indonesia economic relationship is underdone.

There is enormous untapped potential.

Indonesia is a large part of the Asian success story.

Its economy has grown at 5 per cent per annum for a decade.

And if Indonesia continues to grow at the rate used in the IMF's latest five-year forecast, its economy will roughly double in size over the next decade.

This means that from half the size of Australia’s economy just three years ago, Indonesia's economy will match Australia's by around 2025.

By 2030, Indonesia could very well have a place in the Top 10 economies in the world.

If you are contemplating investing in Indonesia, you are making the right decision.

Whether you are Indonesian investors or Australian investors, this is the place to be.

It is a giant of an economy, with the fourth-largest population on earth.

Australia’s nearest neighbour; right here on our doorstep.

And how exciting is that for our two countries, the two biggest economies in the Southeast Asian region?

Australia has no better friend or partner in the Asian region than Indonesia.

That is clear from the way in which we work together in the institutions that underpin our regional cooperation and integration: APEC, ASEAN, and the East Asia Summit.

It is clear from the way we work together in international forums like the WTO and the G20.

And it is clear from our mutual commitment to building our economic and trade relationship.

The ASEAN-Australia New Zealand Free Trade Agreement and an Indonesia-Australia Comprehensive Economic Partnership provide good platforms on which we can work together.

AANZFTA earlier this year entered into force here.

By the time the accord is fully implemented, 100 per cent of Indonesia’s exports to Australia will receive tariff-free entry. 

Indeed, from the date of entry-into-force, 99 per cent of its exports to Australia by value have been eligible for tariff-free entry.

And those exports cover a very wide range of items: paper, glass and glassware, furniture, electrical equipment, rubber products, machinery and machinery parts, clothing, wood, processed foods, plastic products and iron and steel products.

Many Australian exporters to Indonesia will also benefit from improved access to the Indonesian market.

AANZFTA will lift the proportion of Australia’s recent merchandise exports that currently enter Indonesia tariff-free from 56 per cent to 92 per cent.

And another 5 per cent of Australia’s exports will face tariffs of no greater than 5 per cent.

But as good as it is, Australia-Indonesia economic cooperation will not end at AANZFTA.

Building on our recent collaboration on AANZFTA, the IA-CEPA is aimed at improving further the trade, investment and regulatory environment in which our businesses operate.

It will be much broader than a traditional trade agreement, encompassing capacity-building, services and investment.

The emphasis here is on the “P”, the “Partnership” part of the Comprehensive Economic Partnership Agreement.

As partners, Indonesia and Australia have agreed that the initial work on economic cooperation will be in four areas: agriculture, minerals, services and the green economy.

Through a process of business consultation by both governments, including with business associations such as APINDO, KADIN and HIPMI on the Indonesian side, we are working towards an agreement that brings benefits to all businesses small and large.

And we are keen to support Indonesian business associations, where practicable, in their efforts to socialise the benefits of IA-CEPA through Indonesia.

I want to give an example of this: a pilot economic cooperation project, designed to assist Indonesia in meeting its expanding food production requirements, is already underway.

The three-year beef pilot project seeks to transfer knowledge and develop skills to improve Indonesia’s cattle breeding performance.

If farmers are helped to rear cattle for market faster and more efficiently, they will be able to sell an extra animal per year - potentially doubling their incomes.

Some farmers will be able to move from being a manager of other people’s cattle to being a producer of their own.

Meat and Livestock Australia/LiveCorp and the Australian Government are jointly funding this activity.

Yesterday I announced the IndoBeef project, through the Australian Centre for International Agricultural Research (ACIAR), which is aimed at lifting productivity and improving livelihoods of more than 75,000 smallholder cattle producers.

The A$20 million program will run over six years starting from 2013.

This continues ACIAR's efforts over the past decade to help smallholder farmers in eastern Indonesia through better cattle management, health and feeding practices.

These measures have assisted farmers to double their incomes.

Cattle are often the only way rural households can accumulate capital as a pathway out of poverty.

Current average annual consumption by Indonesians of beef is two kilos per person.

Indonesia sees this climbing to 20 kilos per person over time.

That would be a massive increase in total demand, and Australia is perfectly placed to help meet that demand, complementing improvements in domestic productivity, which Australia also supports.

So it’s better to think in terms of cooperation and collaboration rather than substitution between the two countries — a positive sum game instead of a zero sum game.

It is through this sort of targeted capacity-building program that the IA-CEPA can enhance trade and investment in basic sectors such as agriculture.

And we do want to collaborate in agriculture because we have relevant expertise built up over a very long period of time, and in an era where global food security is going to be an increasingly pressing problem.

The food production task is monumental.

The Food and Agriculture Organization estimates production will need to increase 70 per cent by 2050.

A big shift in the composition of food demanded will make food production more land-intensive.

Huge emerging middle classes in countries such as Indonesia, as well as China, Brazil and India, will demand higher-protein foods.

Animal protein sourced from beef, sheep, chickens, pigs and fish will displace grains as a food source in these burgeoning middle class populations.

Attaining food security, like minerals and energy resource security, will involve more than shipping bulk cargoes.

It will require deeper integration of trading economies such as Australia and Indonesia.

Nor will the food production task entail one country producing more food and others producing less.

All, or most, will need to produce much more to meet fast-growing global demand.

But through the operation of market forces, countries will specialise according to their comparative advantage in different types of food production.

Hence, countries such as Indonesia, India, Bangladesh, Thailand, Vietnam, and China will continue to grow rice and other grains.

We want to work with Indonesia to help solve the pressures associated with food shortages in our region.

In Australia, I have issued a fresh challenge: that with greater investment in our agriculture sector, we could be the food bowl for Asia.

And I acknowledge that Indonesia has also announced an intention to boost its own food production to meet its own needs and also to export.

Together, there is scope for Australia and Indonesia to form a mutually beneficial trading supply chain that can provide consumers in the region and around the world the access and choice they need.

This means capacity-building in both countries.

It means lifting the ability of Indonesia to produce its own food for its own people and to have it done by people producing that food and earning the incomes that go along with that.

And that’s our commitment to Indonesia as a partner; as a friend.

It is a great humanitarian endeavour but it is also very important as a business endeavour as well.

Because this is the sort of economic opportunity Indonesia has indicated it would like to achieve through IA-CEPA.

Working together, as true “Partners”, we will also help nurture a more internationally competitive beef industry in Indonesia that will attract further investment, including from overseas.

There are, of course, other possible areas of co-operation, such as infrastructure and financial services.

Again, as a pretty dry continent we’ve developed some real expertise in water conservation and in water supply systems.

And we’ll be very happy to work through our businesses and at the government-to-government level to help again ease the water constraints that confront Indonesia, and including in Indonesia’s cities.

Again, I think this is a great example of friendship and cooperation and the utilisation of technical expertise that we have out of necessity assembled over a very long period in our capacity as the driest continent on earth.

So what we are seeking to do through IA-CEPA and the cooperation between our business groups is to make a real difference to the lives of everyday Indonesians.

We must socialise the benefits and spread the benefits to everyday Indonesians so that they become champions of what we’re doing.

Because there’s something in it for them.

And so that is a very strong commitment.

We want regional Indonesian communities to be able to take full advantage of our partnership agreement.

If we work together, combining capacity-building activities with opening up new markets and promoting two-way investment, we’ll make a positive and enduring change to the lives of the everyday people in our two countries.

Because we should never forget the basics.

The challenge is to make the “P”, in the partnership in IA-CEPA, beneficial to all our people.

Australia and Indonesia are strong partners.

We’ve grown together to a place which would have been hard for anyone to imagine thirty or so years ago.

We have done so by keeping a commitment to reform, to opening our economies to the region and working together.

As always, we face challenges to that commitment.

But if we can hold fast, we will make even more of the next decades of the Asian Century than we have of the first.

Thank you.

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