President Joko Widodo shakes hands with Singapore Prime Minister Lee Hsien Loong after a signing of memorandum ceremony at the Istana in Singapore on Tuesday. (Reuters Photo/Edgar Su)

Joko Heads to Singapore in Hot Pursuit of Investment Deals


JULY 28, 2015

Jakarta. President Joko Widodo embarked on a formal state visit to Singapore on Tuesday, in pursuit of stronger economic ties with the regional economic powerhouse.

The president is scheduled to meet Singapore Prime Minister Lee Hsien Loong and President Tony Tan Keng Yam before attending a business meeting with 150 local chief executives.

In visiting the neighboring city state, Joko hopes to promote the diversification of Singaporean investment in Indonesia.

“I want to share [information about] our economic condition, investment opportunities in, say, ports, power plants, highways, mostly infrastructure,” Joko told reporters before his flight.

“I don’t want to sell out our natural resources,” he assured.

According to Agus Syarip Hidayat, a researcher with the Economic Research Center at the Indonesian Institute of Sciences (LIPI), Singapore remains integral to the future of Indonesia’s economy.

“Singapore is a significant partner for Indonesia in terms of both trade and investment. If we look at the share of Indonesian exports to Southeast Asian countries, the majority of our exports go to Singapore,” Agus said on Tuesday.

“In terms of investments, Singaporeans ultimately put a lot of money into Indonesia.”

In 2014, trade with Singapore was valued at $ 41.99 billion, second only to Indonesia’s trade partnership with China.

According to data from the Indonesia Investment Coordinating Board (BKPM), Singapore contributed $2302.62 million in foreign direct investment (FDI) realization in this year's January to June period, accounting for 16.5 percent of all FDI in Indonesia.

According to Agus, various sectors in Indonesia remain ripe for investment by regional partners, specifically those listed as the 12 priority integration sectors under agreements set forth by the Association of Southeast Asian Nations (Asean) Economic Community, or AEC.

“There are a lot of investors in Singapore who do not know about opportunities in the 12 priority integration sectors of the AEC," Agus said. “Joko needs to promote these types of sectors when inviting investors from Singapore to engage in building up investment projects in Indonesia."

The 12 sectors of strategic importance include healthcare, automotive, fisheries and tourism.

The current trip marks the president’s second official state visit to Singapore since rising to office last October. He made an impromptu visit to the city state in late March to attend the funeral of Singapore's first prime minister Lee Kuan Yew.

Accompanying Joko on the trade mission is Coordinating Minister for the Economy Sofyan Djalil,  Foreign Minister Retno L.P. Marsudi, Minister for Administrative and Bureaucratic Reform Yuddy Chrisnandi, and Youth and Sports Affairs Minister Imam Nahrawi.

Economic ambassadors

The president’s aim to strengthen economic ties with Singapore comes in the wake of renewed efforts to improve the business and economic capabilities of Indonesian diplomats.

"I told all diplomats, ambassadors and heads of consulates to focus their diplomacy on the economic sector. Our trade deficit can be turned into a surplus if our ambassadors can promote our commodities,” Joko said in February, signaling a clear intention to refocus Indonesia’s foreign policy strategy towards bringing in more foreign investment.

Despite this, experts note that Indonesia may face obstacles in bringing together trade and foreign relations, due in part to structural obstacles within the national government.

"In foreign countries, for instance Australia and New Zealand, the relevant ministry is called the Department of Foreign Affairs and Trade. In Indonesia, the two ministries are separated, which has caused problems for Indonesia when we deal with global economic issues,” said Teuku Rezasyah, director of the Indonesian Center for Democracy, Diplomacy and Defense (IC3D).

“With regard to the Asia-Pacific Economic Cooperation forum [APEC], we are finding difficulties in determining who is the captain on the Indonesian side. When it comes to negotiation, the Trade Ministry has a greater capacity, but when it comes to linking trade with global initiatives, the Ministry of Foreign Affairs has the upper hand."

In order to mitigate structural deficiencies, Rezasyah believes that national leaders must work towards building a proficiency in economics within the Foreign Ministry.

“If we see the structure at the moment, we need special experts and senior officers who are capable of linking economic and political affairs. I recall in the early 2000s, we used to have a director general for foreign economic relations. Since then, the structure has changed," he explained.

“As a consequence, we need to think about recruiting diplomats coming from economic backgrounds."

Rezasyah is also calling for increased communication among high-level officials in relevant Indonesian ministries as the nations seeks to establish a unified economic and foreign policy strategy.

“Say we have our Coordinating Minister for Economic Affairs and the Coordinating Minister for Political and Security Affairs. These two senior ministers need to better coordinate their work, so that lower ministries, like the Ministry of Foreign Affairs and the Ministry of Trade, can work towards a common vision,” Rezasyah said.

“The president has to remind the ministries to coordinate and communicate.”

The importance of uniting trade and investment goals with Indonesia’s foreign policy strategy has become increasingly apparent in the aftermath of British Prime Minister David Cameron’s landmark visit to Jakarta this Monday.

In an email interview with the Jakarta Globe on Sunday, Cameron stated that his government is ready to offer 1 billion pounds ($1.55 billion) of credit financing for infrastructure projects in Indonesia.

"I'm excited about what we can achieve together,” Cameron said.

Rezasyah believes that Indonesia’s successes in attaining crucial partnerships with foreign nations is in part due to Joko's skill in addressing economic issues on the global stage.

“President Joko has the ability to communicate the economic needs of Indonesia and the country’s capacity to better integrate with the global economy. This message has been well understood by the international community,” Rezasyah said, citing recent Indonesian appearances at the World Economic Forum.

“This is one of the key reasons why we’re being visited by David Cameron, who has brought with him heavyweights of the British business community."

Establishing trust

Trust in Indonesia on behalf of foreign investors may be difficult to ensure in a time where conflicting national interests has affected economic policy.

On July 9, the Ministry of Finance signed a series of new import taxes levying heavy fees on various products, largely consumption goods, in pursuit of increasing the competitiveness of local industries.

Alcoholic beverages in particular will face a 150 percent markup in import fees, while tariffs on cotton shirts will increase to 25 percent.

Agus warned that these new import tariffs, though potentially beneficial for local industries, must be implemented carefully for fear of affecting trade with foreign nations.

“In the short run, this policy could be good for domestic industries, which will move in to fill market gaps created by the tariffs. But the government should brace for possible retaliatory moves from countries that make significant exports to Indonesia,” Agus said.

“Indonesia imports a lot of consumption goods from Thailand  ̶  things like foods and beverages. If Thailand feels that this tariff policy could affect their exports to Indonesia, they could retaliate and introduce similar measures on incoming Indonesian products. The same thing applies to all nations, including Singapore.”

The new tax plan comes in spite of Indonesia’s commitment to removing trade barriers with partners in the region, especially Asean member states involved in the development of the economic community. The AEC, to come into effect by the end of 2015, calls for the reduction of import tariffs on key goods between the ten Asean nations.

Rezasyah believes that conflicting regulations and national policy aims could create obstacles in Indonesia’s integration with the global economy.

“When it comes to globalization, we still have overlapping rules and procedures inside the country, especially when it comes to infrastructure development," he said.

“We do not all share the same perspective. This will be an issue that the Indonesian government needs to settle, prior to committing to greater involvement in the globalization process."

Meanwhile, Agus believes that regional initiatives like the AEC remain integral to fostering close economic ties between Indonesia and Singapore.

“There needs to be mutual trust between these two countries. Indonesia gives opportunities to investors from all around the world, but in the case of Asean countries, we have established agreements under various AEC schemes and investment cooperations,” he said.

“With Singapore, we can forge stronger cooperation by utilizing these schemes, and proposing more specific, sector-based collaboration."