[Herald Interview] ‘Indonesia hub-and-spoke anchor of ASEAN economy’

Buoyed by nationwide reforms to raise its economic competitiveness, Indonesia is ripe for Korean business as the hub for the larger Southeast Asian market, according to the country’s industry minister.

In an exclusive interview with The Korea Herald, Indonesian Minister of Industry Airlangga Hartarto said his country welcomes Korean investment in infrastructure, energy and manufacturing, noting the government has undertaken ambitious reforms targeting these sectors.

“One of our key reforms is to eliminate the oil subsidy,” Airlangga stressed, referring to the earnest initiative by President Joko “Jokowi” Widodo to put an end to the state subsidy for gasoline. The goal is to encourage public transportation use and weed out bureaucratic inefficiencies and malfeasance emanating from the smuggling of cheap oil.

Instead, the money flowing from the $20 billion fund, which had benefitted the middle class more than low-income families, has been funneled into building transport and logistics infrastructures across Indonesia.

Jakarta also launched the 15th economic policy package in June aimed at improving logistics and seaport infrastructure throughout the country, the largest archipelago nation in the world comprising 17,000 islands across 5,000 kilometers.

The deregulation reform package targets enhancing transportation insurance, reducing costs for logistics services providers, strengthening the trade facilitation authority Indonesia National Single Window and slashing flows of prohibited goods.

“One of our priorities is to build an extra 3,000 kilometers of highways on Java, Sumatra and other islands through 2019,” according to Airlangga. Maritime shipping lanes created through public-private partnerships will better connect these islands, he added, mentioning investment opportunities in port infrastructure and operation. “Low-cost air carriers between Korea and Indonesia can also bolster two-way travel and access to different parts of Indonesia.”

Jokowi came to Korea in May last year -- then during the tenure of former Indonesian Ambassador to Korea John Prasetio -- to mark the 10th anniversary of bilateral strategic partnership. Jakarta and Seoul signed 11 memorandums of understanding covering infrastructure development, maritime cooperation, renewable energy and the creative industries, among others. 

Under Jokowi, who assumed office in 2014 with a strong mandate to reform the country for global business, Indonesia’s economic competitiveness improved significantly, moving up 15 spots to occupy the 91st place on the Global Competitiveness Index measuring the ease of doing business. The increase, according to the World Bank, is the result of bureaucratic and industrial reforms undertaken by the administration.

“We are now in the ranks of the world’s top 10 manufacturing economy as measured by the United Nations Industrial Development Organization,” the bureaucrat highlighted, adding Indonesia’s manufacturing has reached $200 billion, abetted by value addition, almost equaling the United Kingdom’s output.

Jakarta has chosen select islands and regions, including Java, Sumatra, Kalimantan, Sulawesi and Papua, as Special Economic Zones to be equipped with industrial estates. The government strives to develop areas beyond Java -- where capital Jakarta is located -- for value-added productions, encompassing minerals and raw materials extraction and plantation.

Pointing to the Association of Southeast Asian Nations’ Economic Community offering a harmonized business environment, Airlangga said, “Indonesia is the largest economy in ASEAN with an annual gross domestic product of $980 billion. ASEAN’s synergy is important for strengthening Indonesia’s competitiveness, but at the same time ASEAN can be a market for products produced in Indonesia.” 

The ASEAN market, comprising 630 million people and a combined gross domestic product of over $2.5 trillion, is focused on harmonizing its different economies and enhancing its competitiveness through economies of scale, the minister explained. “We are opening and liberalizing our market to professionals like engineers and doctors, also opening up our services market,” he added.

The ASEAN Economic Community’s vision for the next nine years, as laid out in the AEC Blueprint 2025, encompasses: a highly integrated and cohesive economy; a competitive, innovative and dynamic ASEAN; enhanced connectivity and sectoral cooperation; a resilient, inclusive and people-oriented region; and a global ASEAN.

Highlighting Korean investments in Indonesia, including by Hankook Tire, Hyundai Engineering and Construction, Samsung Electronics, LG Electronics, SK Chemicals, Posco and Lotte, Airlangga said the government provides various tax holidays, incentives and institutional support to outside investors.

Particularly more bilateral trade is possible, he said, advising entrepreneurs to draw on Hallyu’s popularity in Southeast Asia in sectors such as cosmetics, fashion and food.

By Joel Lee (joel@heraldcorp.com)