Building U.S.-Indonesia Mutual Understanding Since 1994

USINDO Special Event: Indonesia’s Economic Outlook Minister of Trade Dr. Mari Pangestu

Dr. Mari Pangestu, Indonesia’s Minister of Trade, offered insight into the government’s plans for growth and reform at a special USINDO breakfast on May 5.

Minister Pangestu was in Washington, DC as part of the Southeast Asian Economic Community Road Show which featured trade and economic ministers from ASEAN. The Road Show aimed to showcase the region’s investment opportunities to American audiences. In this capacity Dr. Pangestu met with members of Congress, the business community, and government officials to highlight the growing importance of Southeast Asia, and the role of Indonesia therein. She noted that the economies of China, India, and Indonesia grew the most worldwide in 2009, while the remaining countries of Southeast Asia also experienced significant rebounds from the global economic turmoil.

Minister Pangestu announced that Indonesia’s economic growth was expected to be a rate of 5.8 percent in 2010, with targets of 6.5 to 6.8 percent over the next decade. These figures are predicated on the continued growth in domestic demand, which already helped to offset the effect of the global financial crisis on Indonesia. In addition, the macroeconomic situation remains stable, with inflation at 3 percent, and exports picking up again in the last half of 2009 and into 2010. The first three months of 2010 saw month-on-month exports growing at 50 to 80 percent, with China as the primary destination for non-oil exports as well as the largest source of imports.

Indonesia also has a demographic dividend: 50 percent of the population is under 29 years of age. For the next 15 years the productive population (ages 16 to 64) will be greater than the non-productive population. In contrast, Japan’s demographic dividend has already reversed, and China will see a shift within five years; China is already experiencing labor shortages and increasing costs of labor. As a result, there has already been some relocation of investment from China to Indonesia and other countries of Southeast Asia. ASEAN is also moving forward in plans for economic integration, with more Free Trade Agreements (FTAs), and the accomplishment of the ASEAN Economic Community targeted for 2015.

Indonesia remains committed to an infrastructure investment program. Pangestu acknowledged that the country must increase its supply and generation of power, improve roads and harbors, and focus on telecommunications. Given Indonesia’s ambitious plan to reduce greenhouse gas emissions over the next decade, Dr. Pangestu noted how the importance of renewable energy to meet the country’s power needs has grown, and how renewable energy presents both an investment opportunity and area for cooperation between the United States and Indonesia. Indonesia’s investment incentives are also designed to prioritize energy conservation.

The process of de-bureaucratization, important to promoting investment in Indonesia, is also an important area for reform; her Ministry has targeted the reduction in burden for obtaining licenses. Minister Pangestu noted that the government has also worked to increase transparency to make clear which sectors are open to 100 percent foreign ownership and which still have restrictions; the so-called negative investment list. The government has targets for bureaucratic reform and a five-year plan that will require shifts in mindsets and institutional changes, as well as leadership at the top level to ensure the reforms are carried out in the fullest sense.

Minister Pangestu observed that, based on her meetings during the Road Show, there is a general lack of knowledge about Southeast Asia in the United States. She notes, however, that President Obama’s planned visit to Indonesia demonstrates a willingness on the part of the United States to further engage with Southeast Asia. Indonesia intends to increase its own engagement and socialization efforts with the United States, especially at the level of small and medium-sized enterprises, which tend to be less knowledgeable about Indonesia.


Q: Has the potential for an Indonesian-Chinese FTA and the growth of Chinese exports and imports mitigated the anxiety in Indonesia over the Central American Free Trade Agreement (CAFTA)?
A: Not quite yet. However, the numbers show that over the first two months of 2010 exports rose 130 percent and imports 150 percent; as a result the deficit, while it still exists, is declining. We have discussed with the Chinese the Indonesian domestic situation and the anxiety within the iron and steel, textiles and clothing, and footwear sectors. We agreed to monitor trade flows, especially within these sectors, and work to encourage Chinese investment to revitalize them. This was a major news story in December and January, as people were asking many questions. Ministry officials lead seminars almost daily to educate people about the Indonesian-Chinese FTA and what it means for the country and for globalization and competitiveness in general. There are regional governments that are very proactive and pro-business, so the Ministry is going to work more with these regional governments.

Q: Is there a way to get the Doha round of the World Trade Organization negotiations back on track?
A: That depends on where U.S. trade policy is going. The U.S. has an Ambassador in place through a recess appointment, which is a start, but the message that Indonesia keeps repeating is that if the United States wants to double exports and create jobs, then the Doha Round needs to be completed. However, while those negotiations are stalled, trade agreements are accelerating at the regional level. Thus, what happens regionally is a significant issue, as the role of FTAs and FTAs + 1 increase in importance. This is an important question for Indonesia, and important for the United States to better understand.

Q: What is Indonesia’s new policy for addressing intellectual property rights (IPR)?
A: Indonesia created an IPR task force, which brought together all agencies with a stake in the process, and have developed an action plan that works to socialize IPR. Indonesia was taken off the U.S. Trade Representative (USTR) watch list for IPR for a few years, and although it is back on the list the government is working hard to get off it again.

Q: What are the government’s views on the Obama Administration’s Trans-Pacific Partnership Agreement (TPP) – an area of President Obama’s trade policy where there has been some initiative?
A: Indonesia continues to observe the developments of the TPP, but the bar for participation is high and the requirements for environment and labor are still difficult for a country like Indonesia to fulfill.

Q: On the issue of bureaucratic reform, what is the public’s perception of the success of reducing corruption within the government ministries?
A: The public response, outside of the most recent issues with the Tax Department, has been very positive. Surveys on the cost of doing business have shown improvement on reducing the licensing and tax burden, but there are still issues at the regional level. Reform on trade licenses are occurring, but have not been consistently implemented at the regional level. Over the next few years, the focus will be on monitoring the implementation at the regional level, and linking implementation to budgetary rewards. The Trade Ministry is working to ensure that the number of days it takes to receive a trade license falls from 14 to three days, and this program is part of a Presidential-level effort for monitoring the effectiveness of the ministries.

Pangestu 5-5-10