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THE ROAD TO AN ASIAN COMMUNITY

May 25, 2006

M. Jusuf Kalla
Vice President of The Republic of Indonesia

Mr. Ryoki SUGITA,
President, Chief Executive Officer of the Nihon Keizai Shimbun,
Distinguished guests,
Ladies and gentlemen,

First of all, I would like to thank Mr. Ryoki Sugita for a warm welcome to today's conference. As we are all aware, this is the 12th time that the Nihon Keizai Shimbun has organized this prestigious conference and we have been invited to share our views and insights on a topic of vital importance to the future development of Asia, namely, "The Road to an Asian Community." On this occasion, allow me on behalf of the Government and the Republic of Indonesia to express our sincere appreciation to the Nihon Keizai Shimbun and the Government of Japan for their tireless efforts in promoting ideas to sustain continuous development of Asia. One way to expedite development in some parts of the world is through close cooperation, as we have seen in the experience of the Europe.

The development of a European community has been a long-term undertaking, from its idea, to its planning and implementation. The establishment of the European community has, without doubt, been an excellent example to the rest of the world, but it will take more than 40 years to fully unite this community. In comparison with Asia, the economic imbalances amongst European countries have been certainly relatively small, at least until the admission of Eastern European countries to the community.

The Asian region contains some two billion people and various forms of government and interpretations of democracy, as well as differing levels of economic development and per capita annual incomes varying between less than 1,000 to 30,000 U.S. dollars. Despite these differences, the Asian region should show clearly that it has great potential and work together to realize this potential.

In short, the Asian countries should begin to develop this basic idea into the concept of an Asian community and prepare for the future by seizing the great opportunity for economic progress that close regional cooperation offers. The establishment of an Asian community will ultimately reflect the synergy of the strengths of each Asian country, and this is an opportunity not to be missed.

I am sure that this conference will focus on the concept and planning of an Asian community as this is of great importance to the future of this region. We have made considerable advances toward this end, and how long it will take to establish the Asian community now depends entirely on us. It is certain, however, that a platform is needed with democratization and economic openness as its basic foundations. In this regard, I believe that in Asia the process of democratization will be completed sooner or later as this process will run parallel to the development of regional economies. At this point in time, we have several considerations.

Firstly, we must decide on how to improve economic development and reduce the economic gaps that exist between countries in Asia while at the same time maintaining relatively uniform levels of growth. As we are all aware, economic growth in Asia will depend greatly on Japanese technological and financial expertise and the input of China and South Korea. At the same time however, it should noted that ASEAN countries and India have already experienced a degree of economic growth.

Basically, I believe that we are all agreed that close cooperation between developing countries and the developed world will lead to both better and faster economic development.

Interrelationships between countries throughout the world are essential due to the economic advantages they offer, and such relationships, especially in the fields of trade and investment, should be designed to produce greater economic growth.

In previous decades there were different rates of economic development among Asian countries, and to reduce this problem those countries should strengthen their economic cooperation. This is indeed not a new concept as the Asian Development Bank has been promoting this as a means of achieving secure economic development for some time.

The second point we must consider is the creation of an effective Asian regional community.

Countries in the Asian region, particularly in South-east and Southern Asia, have been actively involved in regional cooperation and this has been a positive step toward the creation of an Asian community. In addition, ASEAN has successfully promoted cooperation in various fields such as political, economic, social and educational, and supported cooperation on security measures that have included anti-terrorism programs. These are significant steps and an important starting point from which to expand the regional community to a wider community that is Asia.

Moreover, ASEAN provides a clear process and time line for achieving targeted regional economic cooperation goals in the year 2020, but recent developments should accelerate this and bring forward the target year to 2015. The successful realization of these ASEAN targets will most surely help lead to the development of a greater Asian community. In parallel with this, there is a discussion within "ASEAN Plus" that reflects the concept of an Asian community.

Before ASEAN begins to play a greater role in the region however, each member -including Indonesia - must develop their economic strengths. At this juncture I would like to touch upon the measures Indonesia has taken.

Like other countries in Asia, Indonesia has made great efforts to enhance its competitiveness. The economic crisis just passed had a negative impact to be sure, but Indonesia has successfully overcome this crisis through its commitment to work hard to achieve its new development goals.

Following the political reforms implemented in 1998, the Tndanesian government has been able to focus on economic development, although it is not always an easy task to address the complex and sensitive issues of economic development and democratization at the same time. Nevertheless, this is the option that we have chosen and we will carry it out firmly.

Democracy generally runs in parallel with free-market mechanisms. Democracy fosters the competition of ideas while the free market fosters competition in producing goods and services. I firmly believe that democracy and free market will be accomplished through hard-work and cooperation between the government and private sector, including you here involved in our conference today.

I realize that there are many challenges in front of us, and at the same time we have to adjust by formulating and implementing new policies. As a country like Japan with an extensive coastline, the government of Indonesia should focus on the development of essential infrastructures such as roads, ports, airports, and telecommunications in order to establish proper transportation networks. Infrastructure development is an important economic activity that offers numerous business opportunities, and therefore the Indonesian government invites foreign investors to participate in this activity.

The Indonesian government is fully aware that to attract investors there is an urgent need for taxation reform. A new law on taxation is underway in Parliament in order to establish a more friendly and competitive business climate than our neighboring countries.

It is also, understood that the existing labor laws have created many critics, and therefore these are under review, with consultations being carried out between employees and employers to achieve a win-win solution for both sides.

In addition, there are concerns about corruption and bureaucracy in Indonesia, and the government of Indonesia has put a hJgh priority on tackling these issues by setting up a special agency and formulating new regulations.

If you were in Indonesia, you would soon notice that many government officials are being investigated and some sentenced to jail because of corruption. Indonesia is one of the few countries in Asia that has prosecuted many government officials, including former ministers, governors, members of local parliaments and high ranking security officials. In this way corruption is expected to be reduced. In addition, when laws are effectively enforced, and together with the openness and transparency of our mass media and the reformation of our bureaucracy, the result will be a further reduction in the intention of people to be corrupt.

Decentralization laws passed in the year 2003 have increased the role of regional governments, similar to those of the prefectural governments of Japan. The initiatives of regional governments together with planning by the central government have also been implemented. This mechanism has been applied to investment so that funding can be channeled through the central government or sent directly to the local government.

In an effort to provide greater opportunities for foreign investors through better incentives, the government is developing nine new special economic zones equipped with better infrastructures and power plants. In this regard, we are very open to foreign participation in developing these projects.

Given the above, the challenge is to see just how competitive we can make the Indonesian economy. We have a population of more than 200 million, which is quite a big market, and have developed our industrial and agricultural sectors. We realize however, that the crucial problem facing the world today is energy.

Although Indonesia is an oil producing country, it is no longer a major oil exporting one due to increasing domestic oil consumption over the past 20 years. We expect our new exploration in the Cepu oilfield over the next two years will remedy this. However, Indonesia has large natural gas and coal reserves, and this combination of market size and energy capacity will be accelerating factors for the Indonesian economy.

In the past, Indonesian energy policy has been "Energy follows industry", but this paradigm is now shifting to "Industry follows energy". In this regard however, Indonesia is in a good position. By forging economic cooperation with other countries, we can expect the result to be mutually beneficial progress and development. And furthermore, to ensure more sustainable industries and to achieve greater efficiency, we invite energy-dependent industries to set up in Indonesia.

Indonesian annual economic growth in 2005 was 5.6%, and with all our new efforts it is expected that growth in 2006 will reach 6%, and in the years to come should climb to 7%.

The Indonesia-Japan Relationship

The relationship between Indonesia and Japan has been very positive in all aspects, particularly in economic cooperation. Japan is a big investor in Indonesia, and Indonesia is a big market for Japan. Therefore, as Japan's birthrate falls and bilateral trade intensifies, Indonesia and Japan will need each other even more as close trading partners.

Indonesia requires Japanese technological know-how, markets, skills and the financial support of Japanese banks, as well as better networking with Japanese companies. On the other side, Indonesian natural resources, manufactured goods, energy skills, labour and industrial markets are certainly significant far Japan. Clearly, our relationship is very important.

Cooperation should be for the sake of both sides' interests, and for the realization of an Asian community the economic imbalances between countries should be reduced.

Negotiations on the Indonesia-Japan Economic Partnership Agreement are underway, and it should be concluded within the year 2006. Both parties concerned, however, have to move either one step forward or one step backward if cooperation is to be achieved.

Cooperation should not be measured merely by statistics but more importantly by the prosperity and the end-results which it will bring to the peoples of both countries.

Indonesia is fortunate to have the financial cooperation of Japan, and this financial cooperation will surely directly raise employment and people's incomes and thus allow that support to be repaid with considerable value added for both sides. This is our basic frame-work in pursuing financial cooperation.

The Emergence of China

We have witnessed rapid and dynamic changes in Shanghai and other cities in China recently, and as a result it is quite difficult to distinguish those cities from the modern cities of Japan. Furthermore, it is also quite interesting that such modern cities in China are providing better quality and reasonably priced goods and services.

China's economic development is similar to the stages of economic development of Japan and Korea in the past. Surely, China's development is having both positive and negative impacts on other countries, including Indonesia. A positive impact is the opening up of market opportunities; as an illustration, Indonesian and Chinese trade relations will have reached a value of US$ 20 billion within the next two years. Although this figure is not comparable with the bilateral trade between China and Japan, it is very significant for Indonesia and other developing countries.

On the other hand, Chinese economic development has negatively affected the Indonesian manufacturing and industrial sectors such as textiles, garments and semi-finished products due to the competitive pricing of Chinese products. However, this competition also promotes efficiency in Asia. At the same time, people with fixed incomes can increase their consumption due to lower priced products made by China.

Regional Stability

In addition to economic factors which are important, growth requires stability and cooperation so that collaboration in other sectors such as security can be strengthened for the greater development of all involved. Security does not simply refer to military forces however, and the threat of terrorism should be our common enemy. Most countries, including Indonesia, have had bitter experiences of terrorism.

Explosive devices that can be bought for as little as 500 U.S. dollars have disrupted an economy that is worth billions and has taken decades to develop. In addition, these acts of terrorism may reduce economic growth by up to 0.5 percent annually. Indonesia has taken tough counter-terrorism measures and at least 200 people have been arrested and brought to justice. In this regard, we firmly believe that further close international cooperation can ultimately eliminate the threat of terrorism.

In this respect, cooperation on the safety and security of sea lanes in the Malacca Straits has become essential due to the global importance of the Straits as an international transport route. To secure this area requires a certain amount of funds, and in this regard it should be understood by those using the Straits that there is, as they say, "No free lunch".

There has been considerable discussion of the above issues anal commitments have been made, but we are still waiting for the implementation of effective cooperation that will benefit all concerned.

Ultimately, to embark on the journey of building an Asian community through growth and progress and in the interests of the people, a well-formulated concept should be initiated and intensive cooperation should be implemented.

Therefore, we must work together closely. Each country has different capacities and weaknesses, but these unique characteristics will be complementary and form the basis of our Asian community.

To conclude, I believe each country should share its contribution sincerely and openly.

And in this spirit I hope and trust that we can achieve a better Asian community.

Thank you.

Titles of speakers, names of companies, etc., were correct as of the time when the forum was held.