Minister Boediono's Speech on Foreign Investment and Indonesia-US

Tuesday, 28 March 2006
Speech by H.E. Boediono
Coordinating Minister for Economic Affairs
At The United States-Indonesia Society (USINDO) Corporate Outreach Dinner
On
“Advancing the Partnership between the United States and Indonesia”
and
“Recognition of Corporate and Major Donors to USINDO’s Aceh School Program”
March 23, 2006

It is indeed my great pleasure to speak in front of this distinguished forum this evening.
Let me first take this opportunity to join you in commending those of you who have in various ways extended your support to us in coping with the impacts of the most devastating natural disasters I can remember ever happened in this country. I know that the presence of US troops,
medical and rescue teams in the very first days after the tsunami did make a lot of difference to the survivors in Aceh. Subsequently, generous contributions and supports from people, corporations and governments all over the world has made life after the tsunami more bearable for the people in Aceh and Nias. Now, we are all delighted to see that Aceh is on the road to recovery and peace.
It is ironic but true that you need a heart touching disaster to bring peoples closer together. President Clinton was quoted as saying that one third of American households contributed to the tsunami victims, an unprecedented display of human solidarity and sympathy indeed.


Ladies and Gentlemen,
If you live here or visit for more than a few days, you must have observed how vibrant our democracy is. Almost every major issue – regional, national, or international – is openly and vigorously debated in public. Sometimes it takes the form of streets protests with a lot of noise and, regrettably at times, it is accompanied with violence. But if we are willing to see through all these, what is behind those dynamics, we observe progress, slow but unmistakable progress.
One such dynamic that must have raised a question in your mind is about the public attitude toward foreign investment. If you follow the media lately, some of you may get the impression that anti-foreigner and anti-foreign investment sentiment are on the rise in this country. Perhaps some of you may even have a sense that such negative attitudes are specifically directed toward Americans and American investments, and they are getting stronger.
I would submit to you that such a perception is not entirely correct. What we are actually seeing is democracy at work. What we see is a form that dominates substance. But there indeed is a substance in it, though it is not one of rising anti-foreigner, anti-foreign investment, anti-American and anti-American investment sentiment. In my view it is a form of growing awareness among the public here that business and economic activities by domestic or foreign companies must produce tangible benefits for the ordinary people especially those around the localities, not just for a small group of people. This, I think, is a legitimate demand and it can surely be accommodated without violating fair business practices and without spoiling the business and investment climate. The government and the business community can work together in earnest to meet such demands. But at the same time, it is important that the government must take a firm and clear stance toward unreasonable demands that eventually spoil the healthy business and investment climate in the country.
The government, and I think most of the thinking public here, believe that our future rests on our success in opening ourselves up to the world. The only route forward for us is to intelligently participate in globalization. Yes, some of us still see the specter of intense competition and rapid tempo of change with weary eyes. But deep in our heart we believe that closing our borders is not the solution. The best strategy is to prepare ourselves, our institutions, our people to meet squarely the challenges


Ladies and Gentlemen,
Now let me say something about US-Indonesia relations. As the oldest democracy, I am sure the US would like to see Indonesia progress well, as the third largest democracy and the largest one among Moslem nations. Our success will resonate strongly among other Moslem nations and Asian countries.
It is within this context, I look at the development of the bilateral relations between our two nations as very encouraging. The recent visit of Secretary Rice to Jakarta reaffirmed just that.
The two governments are committed to work together on issues of mutual interests such as the maintenance of international peace and security by defending freedom, advancing democracy, and promoting prosperity, as well as building a stronger relationship to support Indonesia’s economic reform and growth.
On economic relations, I am happy to see the renewed vigor in our cooperation within the US-Indonesia Trade and Investment Framework Agreement or the TIFA. I hope the Trade and Investment Council Meeting next month in Washington, DC will solidify the foundation for both sides to embark upon a more strategic economic relationship. On development cooperation, we welcome the US initiatives to help Indonesia to get access to the Millennium Challenge Account (MCA). Last but certainly not least, we welcome the steady recent revival of interest of US corporations to explore business opportunities in this country.
During my meeting with Secretary Rice, I asked her support to encourage American investors and businessmen to take part in our efforts to accelerate economic development. Dr. Rice’s response to the idea was forthright and she said that she would like to see more US investors come here, and hopes the two governments can work together to make corporations see what an extraordinary opportunity now emerges again in Indonesia after the difficult period of adjustment and transition after the crisis.
We fully understand that, on our part, Indonesia needs to make special efforts to improve our investment and business climate to attract more investment. On this, let me very briefly update you on Indonesia’s recent economic development and our policy priority to improve the investment climate.


Ladies and Gentlemen,
On the macro economic front things seem to be moving in the right direction. Economic growth is slowly but surely recovering. A 5.6% annual growth last year was still well below our pre-crisis performance, but it was the highest growth performance since the crisis. Barring exceptional circumstances we expect our economy to grow by close to 6 percent this year and in the range of 6 to 7 percent in the subsequent two to three years.
On the stability front the trend in the past 4 years has been toward sustainable
macroeconomic balances. Last year, due to both internal and external factors our financial markets experienced a short but sharp turbulence. But we are now witnessing a dramatic recovery from the set back. We believe that this recovery reflects a growing market confidence and the anticipation of a dramatic turn-around in growth later this year and next. The Rupiah is now trading at around Rp.9,100, per USD significantly stronger than the Rp.11,000 per USD level of only 6 months ago.
On the monetary policy front our independent central bank, Bank Indonesia, has been increasingly more adept in managing monetary and financial stability. In handling last year’s financial “mini crisis” for instance, Bank Indonesia took a decisive step by raising interest rate by over 5 percent in a series of moves beginning in mid 2005. Bank Indonesia has been consistent in its message, and reinforced in its policy, that its prime objective is to bring inflation down into single digits by the end of 2006 and to regional averages over the next few years.


Ladies and Gentlemen,
While growth and stability are necessary macroeconomic goals, what matters most to the ordinary people (and this is crucially important in a democracy) is whether there is any improvement in their welfare. One of most basic conditions for such improvement is the creation of more jobs and here we have our greatest challenge. The latest data indicate that the economy is currently adding a net 1.2 to 1.4 million jobs a year. However, with new additions to the workforce at approximately 1.6 to 1.8 million workers, we are not making progress, in fact we are losing ground especially when you factor in those already unemployed that need jobs.


Ladies and Gentlemen,
We understand that addressing the challenges of macro stability, economic growth and job creation requires an agenda with clear priorities. And most important for sustaining growth is to capitalize on the current momentum of increasing confidence to boost private investment. Let me now briefly turn to the reform strategy designed to do just that.


Reform Strategy
We have decided to adopt a three pillars strategy designed to create incentives for private investment. First, we need to address the investment climate issues that are faced by all firms including importantly the infrastructure sector. Second, we need to take steps to expedite the implementation of high profile cases that are important in their own right but maybe even more important for the perceptions they create. Finally, we need to address some issues in the financial sector to restart lending, facilitate access to financing and improve the structure of capital markets more broadly.
The first pillar is not difficult to describe as we have just issued policy packages in
infrastructure and investment that include numerous measures in multiple areas. In both cases these packages are based on numerous surveys and discussions with stakeholders which allowed us to identify areas where there are obstacles for all or almost all investors. From this list we created policy matrices where issues are dealt with according to a clear timetable and responsibility at the Ministerial level.
The two policy packages on infrastructure and investment aim at improving the
investment climate. The second pillar of the strategy of our reform involves the acceleration of some key outstanding high profile cases. These cases take special handling as they are important in and of themselves, and they often reflect unique circumstances to influence broader perceptions. Thus we have adopted a more proactive policy, for example in the case of the Cepu oil field project which was resolved last week. Earlier there was an agreement with Newmont on the civil charges around Buyat Bay. Currently, we are looking at the problems holding up the execution of 91 projects that we offered for investment in the infrastructure summit last year.
The final reform pillar includes access to credit at reasonable cost and appropriate
maturities. Financing is normally not an important problem for international investors but it is often a crucial one for domestic investors, especially for small and medium enterprises. The availability of adequate and reasonably priced sources of financing for small and medium enterprises is economically and politically important, and the more so because we have opted to take the democratic route to development. To do this we have agreed with Bank Indonesia that an additional package addressing financial sector reforms is needed and this is underway. We believe strongly that this third pillar is needed to support the reforms in pillars one and two.


Ladies and Gentlemen,
Let me close my remarks by commending USINDO for what it has done together with all “its supporters” to promote deeper and broader bilateral relations between the US and Indonesia.
It is therefore my profound hope that I would be able to count on your continued support for the next chapter of Indonesia’s maturing open-market democracy.


Thank you very much.
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