Jusuf Kalla, Tokyo
The theme of this conference, The Road to an Asian Community, is quite timely, because although we are only at the beginning of this journey, we in fact are already on the road to an Asian Community. From my perspective, there are some potential aspects that make Asian integration and the Asian Community essential and possible.
Over the last few decades, Asia, the largest and most densely populated continent in the world, has become richer faster than any other continent. Some studies have shown that the rapid development of Asia, most particularly in the East Asian countries, was the result of the fast technological catch-up in these economies, with Japan as the pioneer, followed by South Korea and more recently China and other East Asian countries.
Besides the use of modern and efficient technology, a more open market, high quality labor and efficiency have also contributed to the East Asian countries' success. Investment and export orientation, often called the ""engine of growth"" also seem to be pulling whole economies forward and appear to generate beneficial spillover effects for the rest of the economies of Asia. Intra-Asian trade has grown very quickly and accounted for US$625 billion in 2005, in which high-income economies like Japan, China, South Korea Korea and Singapore took the major shares.
However, despite the success stories of East Asian economies, many countries in Asia are still low-income, developing countries facing problems and challenges such as imbalanced development among different regions and lack an innovative capacity of their own. The disparity of income per capita among Asian economies is huge, with the majority of Asians having an annual income of less than $1,000 and a very few with an income of more than $25,000.
With an average income per capita of less than $1,000, none of Asia's developing economies can rely on their own strength to accelerate their development and cope with challenges, hence it is necessary for Asian countries to cooperate and interlink their economic capacity and open up their markets to achieve mutual benefits and win-win results in order to obtain a prosperous and stable region.
How can ASEAN play a role in creating the Asian Community?
ASEAN, with a combined gross domestic product of about $750 billion, total exports of about $653 billion and a population of some 592 million people, is already emerging as a powerful economic bloc, both regionally and globally. Building on its intrinsic strengths of abundant natural resources, a skilled labor force, and technological capabilities, ASEAN countries could establish closer ties not only among each other but also with the rest of Asia and the world.
The ASEAN economies aspire to become a single market and production base, aims the ASEAN Economic Community embarked on at the end of 2003. ASEAN leaders seek to complete the ASEAN Economic Community by 2020. The preparations are being made to accelerate its implementation and to bring forward its completion date to 2015.
With its international production networks and players in regional supply chains, Southeast Asian economies can play an important role in creating an embryonic Asian Community.
Given its large population of 250 million and abundant natural resources, Indonesia in itself is a potential market for Asians to trade with and invest in.
However, the disruption of oil supplies in the Middle East and some oil-producing countries and the subsequent sharp increase in global oil prices has pushed up the cost of doing business in many parts of Asia, including Indonesia.
To cope with the energy crisis, the government has sought more energy sources and undertaken policy measures converting the use of oil to gas, liquid natural gas, biofuel, biogas and coal for energy. These programs will actually increase the opportunities for public-private partnerships in Asia. To support the programs, the government has undertaken some regulatory reforms.
Just recently the Indonesian government announced deregulation packages aiming at simplifying bureaucracy and licensing procedures, removing barriers and creating more transparent trade and investment regimes. As part of this policy package, the government has submitted the draft of a new investment law to parliament for approval.
The most important change in the draft of this investment law is the adoption of the principle of national treatment, ensuring equal treatment to foreign and domestic investors.
The procedures for investment will also be simplified and streamlined. To open a business in Indonesia usually takes about 150 -- now it will be cut to a maximum of 30 days.
Another key element of the new policy package is infrastructure. A well-developed infrastructure is a key factor to taking part in regional supply chains. All infrastructure sectors are now open for private sector involvement.
The other element of the policy package is taxation. The reforms will include a gradual reduction of the corporate tax rate from the current 30 percent to 25 percent by 2010. The distorting effects of various regional taxes and surcharges will also be addressed.
Under the new regional autonomy, regional governments have been granted greater leeway to collect local taxes. I do admit that this opportunity is not always wisely used by local governments and has often resulted in either a high cost economy or an unattractive investment climate. But I can assure you that we are continuously improving our capacity to manage the negative excesses of the decentralization.
The latest policy initiative by the government, which is not in the policy package but is being seriously contemplated by the government, is the setting up of special economic zones (SEZ). A government team involving several ministers was organized in April to develop the SEZ concept for Indonesia and oversee its implementation.
The SEZs will have their own economic zone laws. They can by-pass existing laws and regulations that hamper their smooth operation. There will be exclusive authority for activities within each zone with as little interference as possible from central and regional governments.
The SEZs will not be developed from scratch. The government plans to transform existing areas of industrial concentrations into such SEZs. We are considering several areas with high economic growth such as Banten, West Java, Central Java, and East Java, North Sumatra, East Kalimantan and South Sulawesi. They will complement the two free trade zones on the islands of Batam and Bintan, near Singapore, which we will also improve.
Indonesia-Japan relations may be one of the key important elements supporting the Asian integrity and Asian Community. The relationship, which has been developed over a long time, has been most valuable to Indonesia.
Both sides have many common interests and share the same values and commitment to peace and democracy and we intend to strengthen our relations by concluding a good and mutually beneficial Economic Partnership Agreement. This will be Indonesia's first such bilateral agreement and therefore it must clearly demonstrate to the public that there are gains to be had from this agreement.
The article is condensed from Indonesian Vice President Jusf Kalla's speech at Nihon Kezai Shimbun's 12th international conference on ""The future of Asia: The road to an Asian Community"" in Tokyo on May 26.
