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em>President Susilo Bambang Yudhoyono visited China last month to improve a bilateral economic relationship that has been characterized by growing trade imbalances following the signing of a free trade agreement under the ASEAN framework in 2005. Industry Minister Mohammad S. Hidayat, who accompanied the President during the trip, spoke to The Jakarta Post’s Bagus Saragih and explained how the visit would build momentum for a more favorable partnership between the two countries. Below are excerpts from the conversation.

Question: We made a good number of deals in Beijing. How do you see the prospects in terms of Indonesia’s industry sector?

Answer: We all know that Indonesia’s trade with China, so far, has been unbalanced. First, in terms of the types of commodities, China makes more ready-to-use products, while our exports are still dominated by raw materials such as crude palm-oil (CPO) and coal. This is not good for our industry. Second, in terms of volume, we also suffer losses, regardless of China’s claim of different export-import data, which show that they also suffer from a trade deficit. We want to change these phenomena and the agreements we just signed were part of the government’s strategy.

The goal of the strategy is to end the imbalances. We don’t want Indonesia to just become China’s potential market for the selling of their commodities. All the ministers who were included in Indonesia’s delegation agreed to push for this aim together. The 15 Memoranda of Understanding (MoUs) we made were mostly supportive of our downstream industry program. For example, among the signings was the agreement on investing in the Indonesia nickel smelter and stainless steel project between Indonesia’s PT Daya Anugrah Semesta and China’s Henan Xibao Metallurgy Materials Group. This is in support of our plan to end nickel exports in the form of raw materials. Previously, we also made similar deals, such as the investment in cement production in West Papua and South Kalimantan provinces. This kind of cooperation must continue to be promoted — otherwise our trade will not be healthy. Exporting raw materials will support the industry in export destination countries but bring only minimum benefits to Indonesia. We must maximize the positive effects of our national products.

A few years ago, then trade minister Mari Elka Pangestu spoke to her counterpart from China, Chen Deming, resulting in an agreement to end the trade imbalance, but we haven’t seen good progress until today. Chinese Premier Wen Jiabao, on a visit to Jakarta last April, also pledged US$19 billion in investment credits for Indonesia, including $9 billion of soft and commercial loans for infrastructure development, aiming at bringing more Chinese businesses to invest in our raw material processing industry, but that has not also been implemented yet. It is indeed hard to gain a surplus when trading with a powerful country like China. Therefore, we need to develop good preparations and comprehensive strategic plans.

Chinese businesses might have been comfortable with the current situation. Is there any resistance from the Chinese side regarding this objective?

Naturally, but we want to be more decisive from now on. Chinese businesses have kept persuading Indonesia not to stop exporting our raw materials. For example, they urge Indonesia to continue exporting CPO to China. This will only benefit their side and is supportive of their CPO-processing industry, such as cooking oil and margarine. Yet, a significant number of the products, which are made from Indonesian CPO, are also exported to Indonesia. Thus, we continue to ask them to invest in Indonesia, for example, by joining local investors. After processed in Indonesia, the products will then be able to be exported to China. If they are reluctant, then we must push for domestic investment instead.

How about the government’s incentive policy to support this program?

We began to impose disincentives for any raw CPO and cacao exports, such as by imposing customs duties. Conversely, foreign investors who are eager to invest to help process raw materials in Indonesia, will enjoy incentives. After 2014, there will be no more raw mining materials allowed for export. Similar regulations will also be imposed in the plantation sector. We have begun calling on mining industries to create business plans so they can have their own smelters by 2014. They were reactive, and we understand that. But many corporations have also voiced interests in investing in constructing smelters.

Are there going to be other types of commodities subject to this kind of policy?

In mining, there is bauxite, copper, and iron ore. In other sectors, a good example is rattan. The government has in fact banned exports of raw rattan. Simultaneously, we have also intensified measures to promote the local rattan processing industry. For example, numerous rattan industry centers will also be developed in producing areas such as South Kalimantan as well as South and Central Sulawesi. There will be difficulties during the early years, but we don’t have to be afraid because 90 percent of the world’s rattan supplies are from Indonesia. I have also talked to the Disadvantaged Regions Ministry and we have agreed to supply schools in remote regions with rattan tables and chairs. This program will begin next year and will be financed by the state budget. This is also part of the effort to revive the ailing local rattan industry.

What about the legal aspects, such as the potential for increasing smuggling?

Bans on raw exports will definitely have consequences, and rampant smuggling attempts are one of those consequences. We have urged the customs office to heighten monitoring and surveillance measures. Today, transferring goods between islands within Indonesia has not been as easy as in the past. A method used by smugglers was manipulating their goods’ destination. For example, CPO from Kalimantan was registered to be shipped to Java but somehow, in the middle of its journey to Java, major portions of the shipment were transferred to another boat headed for Singapore.