Sergiusz Prokurat: You are currently Minister of Tourism and Creative Economy of the Republic of Indonesia. I would first like to ask about tourism, because it is very important for economic growth. What are your exact plans and strategies for the Indonesian tourism sector?
Mari Pangestu: Our most important principle is increasing the number of foreign tourists coming to Indonesia. Apart from that, we have a large domestic market – we also want to develop it. The strategy we have adopted in order to develop tourism is all about sustainable growth, which means that you have to make sure that this sector is ecologically, socially and economically sustainable – it has to engage the local community living close to the given tourist attraction. This community has to be engaged in the tourist activities and perceive the benefits of this. In other words tourism should be culturally sustainable and function in such a way as to not destroy the local culture.
Indonesia is a country of many tourist attractions. Everyone knows Bali and some even think that Indonesia is part of Bali! Meanwhile Bali is just one out of 17,000 islands in Indonesia, that’s why we are proposing many destinations in various parts of Indonesia. We have developed a plan to promote 15 destinations apart from Bali. Komodo is such a destination – its main attraction are the dragons, which look like prehistoric lizards. Moreover there are eight UNESCO cultural heritages sites in Indonesia. One of them is Borobudur, the biggest Buddhist temple in the world, located in Yogyakarta, which is one of the destinations we are promoting. Another destination is Jakarta and other sites, which are focused on diving and other attractions. We also want to develop the sector we call „special interest tourism” – thanks to it we hope to acquire high-quality tourists. It is based on nature, history and cultural heritage as well as sports and recreation tourism (diving, golf, cycling, marathon, triathlon). Because 80% of Indonesia’s territory is ocean we have one of the highest biodiversities in the world in this aspect. We also have cruise ship tourism, which is growing rapidly, as well as shopping and culinary tourism, based on incentive trips, conferences and events, as well as spas and wellness tourism. We will be taking part in this year’s ITB Berlin. ITB Berlin is the biggest tourism fair in the world and this year we will be the official partner country, because we consider Europe as a very important market. We will have a very significant presence at the ITB Berlin – it will be opened by German chancellor Angela Merkel and the President of the Republic of Indonesia Susilo
Bambang Yudhoyono – all this is scheduled according to the official state visit of our president.
Sergiusz Prokurat: When I lived in Indonesia I saw how creative Indonesians can be in terms of handicrafts, produce or even music. Your are also Minister of Tourism and Creative Economy of the Republic of Indonesia. What is the state of Indonesian entrepreneurship and what plans do you have in this regard?
Mari Pangestu: As you mentioned Indonesians can be very creative and this is exactly what we think should be the new source of Indonesia’s competitive advantage. We have resources, developed industry, so we have to take the next step and take advantage of the creativity of our society in order to generate value added. This is the main aim of the ministry, which was created one and a half years ago. In 2007 we started thinking how we can liberate the creative potential of our economy. We went through a long process of asking questions such as: what is entrepreneurship, how can we define it, what sectors are included, and how to win on global markets thanks to its influence. Finally the President decided that the process was advanced enough for us to create a ministry, which would be responsible for this area. We created a certain strategy, defining 15 sectors, which we define as „creative”. Some of them are based on culture and art (such as performing arts, fine arts), including the art market, film, music, handicrafts –these are the sectors based on culture. Then we have the media, design, digital content and the sector based on research. These include promotion, publishing and printing – digital content, TV, radio, mobile phones, and animation, comics, games, mobile apps, architecture and design – which means a lot of things. It can be product design, fashion, furniture design, or research and development and the culinary sector. What do we want to achieve in each of these sectors? We’re trying to come up with an action plan in each of the sectors to empower and support creative people. In my opinion two key issues facing these people are intellectual property rights – protecting their ideas – that is to say how we can provide them with a creative environment, in the same time making sure that their ideas are protected. So the scope of our actions touches on many issues related to trade. The other issue is the fact that many of the mentioned sectors are service sectors – in Indonesia we do much animation and games outsourcing and we are part of a certain value chain of delivering products. For example Garfield, which is being created in Batam, Indonesia. If you read Superman comics then you will want to know that over a third of the drawing is done in Indonesia. So there is a lot of outsourcing and that is in fact a service sector. E-commerce is also important – ever more business is conducted online. There are new and interesting business models appearing. They can function thanks to the possibility of using the internet. The last issue is access to capital – another important question. Our goal is to facilitate the cooperation with the creative class in order for them to be active and generate value added – which means that they have to become an industry. A good example is handicrafts – it is always the same problem – one day you order a product and receive good quality, while the next day the quality is different. When producers of handicrafts goods receive a large order, they are not able to fulfil it. That is why we need to study and understand how a manufacturer can become an industry and how they can gain market share and acquire capital.
If you were to encourage Polish companies to do business in Indonesia, what products and services would you say are especially important for Indonesia? What can Indonesia import from Poland besides the products you have already mentioned?
Indonesia is going through a significant push for infrastructure development and this is a great opportunity for Polish firms, as heavy equipment, such as construction machinery, is required. We are building sea and airports, roads, electric plants, and these are the main needs as far as infrastructure is concerned. Another important area of growth owing to the size of Indonesia and its rising middle class are consumption goods. Mobile phones’ popularity has exploded. Everything related to digital content, connectivity by phone, and telecommunications businesses is also a high-growth sector. Also in regard to the issue of goods, services and investment I am of the opinion that these areas are very promising in the medium term.
Allow me to return to the issue of economic cooperation between Poland and Indonesia. IN the World Bank’s Doing Business Index report, Indonesia is ranked quite low, at 128. How do you see the problem of barriers and overcoming them institutionally?
It is basically about how to create a more transparent and clear business process. Such a process should be enhanced – you need certain documents, it will take a given amount of time, and you can also find out where your application is stuck. I introduced this in the ministry of trade. When I started work in the ministry you needed to go to various offices in order to receive a signature, say in order to receive an import license you had to go to 12 different offices. I made this a one-stop system in 2007 or 2008 and we made this system to be like a bank – very clear, as for the documents which are required, the costs and where your application is stuck. Up to 2014 everything will be done online in the trade ministry. Other ministries are conducting the same process. Our problem is decentralisation. Some licenses, such as the trade license, are issued by district offices, so while Jakarta or Surabaya may be quite good at this, other places may even not have a computer, which on average makes us not look that good in comparison with other countries. How can you compare Singapore, which is just one island, with such a big country as Indonesia, where we have about 400 districts, each of them with authority in terms of issuing licenses and investment. Part of our problem is decentralisation. A trade license is needed by any small company, which wants to be a legal entity – this is the easiest category issued. As minister of trade I sent out guidelines, such as that licenses should be issued in three days, there should be no fees for this process and they should be issued indefinitely rather than renewed each year. Meanwhile, according to a survey we conducted, there are very different costs, issuing times and rules governing renewing licenses in each district. I couldn’t effectively enforce compliance with these guidelines. The average was still 14 days despite that I had introduced this policy. Nevertheless we want to improve substantially. The problem is that SMEs are most affected, big companies can absorb such costs.
Part of the reforms I championed was passing a new investment law in 2007 which abolished national treatment, also divestment requirements were eliminated. In the past companies entering the Indonesian market had to divest their foreign ownership. We introduced these measures in order to improve the service. Currently we have a very transparent list of open and closed sectors. We have a negative list – whatever is not on the list is open. Our current job is improving Indonesia’s rank in Doing Business.
You have defended free trade for a very long time as Trade Minister, for example during the rattan export crisis in Indonesia in 2011. I would like to ask about subsidies, which play an important role in the Indonesian budget. An example would be fuel subsidies (on kerosene and gasoline). It is a concept used to a differing degree in various ASEAN countries, as well as in Venezuela and Saudi Arabia. What are the advantages and disadvantages of fuel subsidies and do you believe that subsidies are sustainable in the long run? –some Asian countries, such as India, have abolished or are currently abolishing fuel subsidies.
We believe that raising the price of fuel will primarily affect the poor, so we have to do this gradually. We experienced this in 2005. If however you raise the price of fuel, everything else will go up: food prices and services such as public transport, so we need to compensate, especially in the case of poor and vulnerable people. You should also use the funds saved from the subsidies for programmes which help the poor and promote growth. This is still our principle. Politically speaking we are still trying conducting crisis management – we will raise the price of fuel only if the global price of oil will rise significantly and such a model will become unsustainable. Last year we needed the parliament’s permission to reduce subsidies. But this year budget law does not require us to seek the consent of parliament. In the current situation we will not raise prices, but we will concentrate on having programmes which promote growth (stimulating growth and infrastructure development) and secondly we will ensure that the poor have access to effective programmes. We need to make sure that the subsidy programmes (including the fuel subsidies) are effective, for which reason we are trying to limit the number of people or groups which are entitled to fuel subsidies. There is currently substantial discussion on the matter. For instance a private sedan should not receive the subsidy, while public transport and motorbikes should be able to do so. So we don’t want to wipe out the whole system, but we want to gradually limit the number of subsidy users and introduce substitutes. As for kerosene, on Java we introduced a programme (which is nearing its end) of substituting kerosene for LPG gas. The government provided free gas cylinders and stoves and this programme is slowly decreasing the use of kerosene. We are aware that this is an important issue of fiscal policy. We want to switch to alternative fuels.
I would like to ask you about your priorities as potential Director General of the WTO. Finishing the Doha round has been the pledge of G20 leaders for some time now and this is difficult to do. Maybe you would like to address other priorities? To conclude, what is the role of the WTO in the world and what would be your priorities if you were to become Director General of this institution?
WTO is not just about free trade, it also promotes opening up markets and solving trade problems, so you can always use anti-dumping measures or safeguards in the face of problems and these are allowed by the WTO. These rules exist not to prevent protectionism, but rather in order to minimise what could happen. I clearly remember that in 2008 everyone was worried that we would have a trade war, but this in fact did not happen, all countries took some steps to protect their domestic markets but these were not extreme measures and this is what the WTO is for. The business community agrees, the WTO has recently conducted a survey, according to which 95% of businesspeople think that the WTO is an indispensable element of the business world. 72% is of the opinion that the WTO in effectively ensuring government compliance in terms of its pledges. They are not so optimistic on Doha, but they support the WTO. As Trade Minister of a large developing country which Indonesia is and a member of a reform movement entering government I could observe how trade changed my country. It is a means to an end – thanks to trade efficiency and fairness are on the rise and groups which engage in rent-seeking activities in the economy are eliminated; also a transparent system is designed, but you also have to take care of the sectors or groups which arte negatively affected by these changes. This is a challenge – coming up with complementary policies and compensation for those who are negatively affected by opening economies up to trade. This is a challenge! Every country has its challenges, but you have to be able to solve them.
As for the second part of your question I have four priorities. The first priority is to continue strengthening the WTO as an institution – that is the part which currently is working well and appreciated by the business community as well as by small and developing countries. It is a rules-based system, in which if a small country thinks that unfair trade is taking place, it can start a dispute with a large country. We have been on both sides of this equation – we brought other countries to disputes and we also were the targets of disputes. Undoubtedly this helps small countries –I think that for small countries the multilateral trade system is the fairest. If you have a bilateral relation with a larger partner you won’t have the same bargaining power. Secondly, Doha is still important. Despite the pessimism, finishing the negotiations will have a positive impact on the economy. I call this the „costless stimulus”, because you don’t need to spend fiscal money, because once you finish Doha you receive market access and then you update the rules. The EU is a strong supporter of finishing negotiations, but for us the most important question is how do we do it? How can we achieve this? We have to be pragmatic and realistic. The third priority is addressing the new issues in trade such as environmental investment (investment isn’t part of the Doha negotiations, however investment is very much linked to trade) and all the regional and bilateral agreements – we have to make sure that they are complementary and consistent with the WTO and that they don’t become exclusive. A lot of small and less-developed countries are not part of any of these regional agreements – they will be left out if we don’t implement a process of their inclusion. The multilateral trade system is the most inclusive system of them all. Bearing in mind all these competing interests only the WTO and the multilateral trade system can ensure inclusive and fair trade. So these are a few of these issues. As for my last priority – I think that the WTO under Pascal Lamy has done a lot in terms of outreach and making trade a better understood issue among the population. If not then all that’s left is a big building in Geneva with many international bureaucrats and negotiators, who speak in a strange language nobody understands and use mysterious acronyms. So the priority is better outreach among NGOs, the media, the business community. I think that the benefits of trade don’t interest people any more. People talk more about the threats of globalisation, job loss, etc. So we have to make sure that specific benefits of trade for individuals become the topic of conversation. Which people am I talking about? For instance people in the street, SMEs, a person working in handicrafts in Yogyakarta. This is the next priority.
And how do matters stand in the negotiations between ASEAN and the EU? As far as I know Asian politicians and economists prefer negotiating with the EU as a group of countries. I would like to ask about the free trade zone, which has been negotiated since 2007 – what are the challenges and how are negotiations going and would you like to, if possible, hurry these negotiations?
We started the EU-ASEAN negotiations in 2006 or 2007 – this was the first year of Peter Mandelson as trade commissioner – this is how I remember it. Pascal Lamy (the European Union commissioner for foreign trade, the current head of the WTO) as trade commissioner did not specifically push for bilateral agreements with the EU. Then Mandelson took over and we started discussions. But for political and other reasons it was very difficult to negotiate as the ASEAN and EU. Therefore currently the EU is negotiating with particular countries. As you know Singapore is near the end, negotiations are being held with Malaysia and Vietnam, in the case of Indonesia we have already finished the study on the comprehensive trade partnership agreement EU – Indonesia. Currently we are conducting scope analysis. Scope analysis consists of reaching a compromise on what will be covered by the agreement. We hope that we can start negotiations soon. The process of conducting the study has already begun, after which we will involve the business community from both sides in order to discuss what issues should be included in the negotiations. Currently we are addressing some remaining issues in order to be able to start negotiations soon. Looking at the EU-Korea FTA, which has already been implemented, it seems as a good model to follow. It basically is a comprehensive agreement, because it is wider in scope than the issues covered by the WTO. It includes goods, investment, services, and also the environment and I believe it also covers competition policy and intellectual property. Some of these issues are not included in the WTO negotiations. Also capacity building is worth mentioning, because Indonesia, in comparison with the EU, is still a developing economy, while the EU is very developed, so we have capacity building built into the negotiations.
What is your opinion on the forecasts for the world economy? Are we bottoming out or will it still get worse? Which regions would you mention as those which will first recover from the crisis?
We are seeing some signs of a stronger recovery. I think that probably the US is in better shape than other countries. Yet forecasts for 2013/2014 still suggest a slower recovery, even in developing countries. Before the crisis developing countries were growing at 6% and they are currently at 5%. Meanwhile Europe is still contracting. The current year in the world economy will be similar to the past year and there will only be a slight recovery in 2014. East Asia is growing a bit quicker this year at 7.9% in comparison with 7.5% in the previous year. Nevertheless data on world trade are not that positive. Last year we only had growth of 2.5%, this year it will achieve 4,5%. In comparison with 5.4% in the last 20 years and 6% before the crisis, which means that we’re growing at about a 1-2% slower rate in world trade and in the global economy. So we are actually experiencing slower growth and not a crisis. I think that the return of economic growth to Europe will take longer because it has to go through its financial crisis, after which structural reforms will be necessary, which isn’t easy and takes a lot of time. You also need fiscal discipline, which also isn’t easy, as is the case in bank restructuring, which also takes much time. Therefore it is very important for Europe to find sources of growth outside of Europe in terms of market share growth and investment. In a meeting with me the Environment Minister mentioned investment – he would like Polish investment to venture more out of Europe. Concluding, Poland should finish Doha – what you need is growth in multilateral trade and more market access.