Indonesia has long been one of South Korea’s top 10 trading partners.
The bilateral economic relations between Indonesia and Korea gained a greater momentum when the Joint Declaration on Strategic Partnership to promote friendship and cooperation was signed in December 2006 by President Susilo Bambang Yudhoyono of the Republic of Indonesia and President Lee Myung-bak of the Republic of Korea.
This declaration boosted both countries to have closer ties and cooperation that is more realistic. Moreover, the trend of investment and trade between the two countries has been increasing.
To carry out the economic, trade and investment cooperation, both countries agreed to establish the Indonesia-Korea Joint Task Force on Economic Cooperation (JTF-EC) which has held a meeting annually since 2007.
By maintaining close economic relations for many years between the two countries, South Korea contributes significantly to the Indonesian economy. Data show that the number of investment from Korea increased significantly last year.
In 2010, the number of foreign direct investment from Korea was $328.5 million, and increased to $1.22 billion in 2011. The investment from Korea in the first quarter of 2012 was $510.47 million, ranking Korea the third biggest investor in Indonesia after Singapore and Japan.
South Korean investment in Indonesia is focused on sectors such as electronics retail, telecommunications, construction, automotive, mining, oil, drinking and fresh water, banking, equipment of airplane and hotel. A recent expansion of multibillion investments of the Korean big businesses such as POSCO, Hankook Tire, Lotte Group, and Cheil Jedang Group in Indonesia has served as an evidence of the high level of trust from South Korean investors. Their decisions are followed not only by their affiliated and vendor companies, but also by other Korean companies to invest in Indonesia.
Indonesia’s abundant natural resources, stable economy and large domestic market are some of the advantages perfectly to be combined with the abundant capacity of investment from Korea.
Ample rooms for complementary relations are wide open. Indonesia opens investment for value-added its natural resources, encourage high-tech investment, R & D, infrastructure, transportation, industries, energy, electricity and others.
Indonesia also pursues active participation of Korea investors in the Master Plan for the Acceleration and Expansion of Indonesian Economic Development (MP3EI).
With a population of 240 million people, Indonesia has a large domestic market to offer, over 50 percent of which lives in urban areas and adopt a modern lifestyle. A growing and affluent middle class supports GDP growth with more than 50 percent of GDP accounting for private consumption.
The significant increase in bilateral economic cooperation of both countries is also reflected on an increase in trade volume between the two countries. Total trade volume between Indonesia and Korea in 2011 amounted to $30.78 billion, which grew significantly to 34.5 percent compared to 2010.
President Susilo Bambang Yudhoyono of the Republic of Indonesia and President Lee Myung-bak of the Republic of Korea have targeted the trade relations between the two countries of $50 billion in 2015 and $100 billion in 2020. This target is also supported by the planning of the two countries to establish bilateral Comprehensive Economic Partnership Agreement (CEPA), in complementing the existing regional cooperation of Asean-ROK Free Trade Area (FTA) Agreement.
Largest Economy in Southeast Asia
Indonesia is the third fastest growing economy in Asia and the largest economy in Southeast Asia representing 40 percent of Asean’s aggregate economy.
The fact that Indonesia’s economy can grow more than 6 percent amid unfavourable global economy condition shows that the foundation of Indonesia economy is quite strong to prevent external shock due to sound fiscal condition and less dependent to external factors.
The favourable statistics have led to a rise of Indonesia’s credit ratings. Agencies such as Moody’s and Fitch Ratings have upgraded Indonesia’s sovereign rating to investment grade, and Indonesia’s outlook to stable/positive. Indonesia is now the world’s 15th largest economy by GDP per capita. Its goal is to be among the top ten. The IMF has forecast that, Indonesia’s economy will keep getting larger in the years ahead.
Now as Indonesia reaches for middle-income status, by seeking to move away from a commodity-based to an industrialising and thereafter a knowledge-based economy, the role of foreign direct investment has become even more important. Opportunities for investment in Indonesia’s infrastructures and industrial developments have also increased, due to its vigorous implementation of the Master Plan for Acceleration and Expansion of Indonesia’s Economic Development (MP3EI).
Through MP3EI, the Indonesian government facilitates investment that mostly originates from the business and commercial world, in order to support the economic development in six corridors, which are the Eastern part of the Sumatra and Banten, Java, Kalimantan, Sulawesi, Bali and Nusa Tenggara, and the Papua-Maluku.