Speech By Goh Chok Tong,Senior Minister, at the Launch Of CEO Circle, Jakarta - On A Flying Chariot

Vice-President Jusuf Kalla

Ladies and Gentlemen

I am honoured to address such a distinguished gathering.

Allow me to first convey the sympathies of myself and the people of Singapore to the people and Government of Indonesia for the recent earthquake off North Sumatra. Coming so soon after the tsunami disaster, the casualties and damage caused by the earthquake are indeed sad and unfortunate. Singapore stands with you. Singapore will support Indonesia's relief and rescue efforts. Indonesia is a resilient country. I am confident that the people and Government of Indonesia will overcome this latest natural disaster with fortitude.

The CEO Circle is a timely initiative to brainstorm business strategies for Indonesia and ASEAN. It enables top ASEAN CEOs to network and find ways to seize the opportunities in the region and beyond. Before entering politics, I ran Singapore's Neptune Orient Lines for some years. So I understand that how well a company does depends not just on itself but also on national economic performance and external conditions.

The theme of my speech tonight is how ASEAN countries can all prosper together by hitching its chariot to the two galloping horses of China and India. I will discuss how ASEAN countries can work collectively and individually to benefit from a dynamic and prospering Asia.

Reinvigorating ASEAN

Until 1997, ASEAN's prospects were bright. The region was seen as one of the most dynamic growth areas in the world. Investments poured in and our economies boomed. ASEAN's international reputation was high. ASEAN was held up as a model regional organisation.

All this changed abruptly with the Asian Financial Crisis of 1997-98. The crisis reduced our wealth and damaged our prestige. It also brought about profound political and economic changes in the region. The landscape in Southeast Asia was drastically and permanently altered. We struggled to recover. Just as things started to improve, the September 11 attacks shook the world. This shock was followed by the after-shocks of the Bali and Marriott Hotel bombings in Indonesia, and other terrorist acts in the region. The SARS outbreak and the avian flu further weakened business sentiments and investor confidence in ASEAN. Then came the December 26th earthquake and tsunamis. All these man-made and natural disasters cast a dark shadow over ASEAN.

For the past eight years, ASEAN countries have had a rough ride. But in adversity, we have shown resilience. Today, many ASEAN countries are growing again.

That said, we must admit that ASEAN has lost some shine. Perceptions of Southeast Asia are affected by the series of bad news - in particular, the overhanging sword of terrorism. Bilateral disputes, highlighted in the media, also appear to threaten ASEAN's cohesiveness. No wonder analysts perceive ASEAN to be in drift, an organisation mired in mid-life crisis.

Moreover, a gap is developing between Southeast and Northeast Asia. For the decade before the Financial Crisis, the growth of ASEAN matched that of China and surpassed India's. But since then, China has streaked ahead and India has caught up with ASEAN. China and India, not ASEAN, are now dominating the radar screen of international investors. They are the flying steeds of Asia.

How should ASEAN respond? I believe ASEAN should respond in three ways:

(1) First, by hitching ourselves to the two flying steeds.

(2) Second, by constructing a chariot together to do so.

(3) Third, by pressing on with reforms at the national level to produce strong riders.

Riding on Asia's Fastest Growing Economies

We are living in an era of rapid global change. In the next 20 years, we are likely to see a new global economic architecture. Globalisation has intensified competition and is reshaping the world. Asia will be the most dynamic growth region in the world, led primarily by China and India. As a sign of things to come, it was reported that the two countries may start negotiations on a Free Trade Agreement (FTA) soon.

ASEAN must position itself to ride on the dynamism of China and India. By hitching ASEAN to these two powerful steeds, we can fly together to greater prosperity.

India, China and ASEAN are natural partners for trade and commerce. We are linked through geography, culture and history. Our economies are also at different stages of development, and hence complement one another. ASEAN's total trade with China and India has grown significantly over the last 10 years and in 2003 amounted to US$55 billion and US$12 billion respectively. I expect this trend to continue.

ASEAN should speed up its negotiations to establish FTAs with China, India, Japan, South Korea, Australia and New Zealand. We must ensure that the FTAs signed are WTO-plus and of high quality. Once China and India sign an FTA, they may need ASEAN less. ASEAN must therefore work hard to ensure that FTAs with China and India are completed and fully implemented by 2010 and 2011 respectively. When these FTAs are completed, it requires little imagination and effort to move on to the next stage - the construction of an Asian economic community.

Constructing a Common Chariot

Individually, ASEAN countries do not have the same economic pull of either India or China. Even Indonesia with its 240 million people, cannot at this stage of its development, be considered an economic giant. To enhance ASEAN's attraction as a market and an investment destination, ASEAN must band together to maximise our strengths and attractiveness or what I call constructing a common chariot.

Individual ASEAN economies are too small or weak to achieve economies of scale. But through market allocation of resources and specialisation within ASEAN, efficiency and synergy can be achieved. Take television production. It is an example of how production chains have formed across the ASEAN region to the benefit of all. Semiconductor parts for televisions are manufactured in Malaysia, the Philippines and Singapore, while cathode ray tubes are produced in Malaysia, Thailand and Singapore. Other television components are sourced from Indonesia and Thailand. The assembly and testing of TV sets are then done in most ASEAN countries. This has enabled ASEAN to be a major global exporter of television sets.

Another example of ASEAN working together is Singapore's agreement with Vietnam to connect our two economies. Vietnam and Singapore are at two different stages of development and our economies are complementary. We are enhancing links in sectors like finance, aviation, tourism and telecommunications. The idea is for Vietnam to take advantage of Singapore's strengths. Singapore is a base for 7,000 MNCs. It is well-connected to other parts of the world in terms of trade, communications and transportation. Moreover, Singapore has capital, technology, and business expertise. By connecting our economies, Vietnam takes a short cut in plugging itself into the global economy, attracting investments and enhancing economic growth. It will develop faster than by going it alone. Singapore too will benefit. Our trade and investments will benefit from Vietnam's growth.

I am therefore happy to note that ASEAN Finance Ministers are working together to promote ASEAN investment opportunities to international investors. They held their first road show in New York last September and are meeting in Vientiane to discuss ways of reaching out to Europe-based investors at their next road show in London this September.

This is the way to go forward. The more we are seen to be working together, the more confidence others will have in us.

There is a common saying that when people are confronted with challenges, they should hang together or they will hang separately. ASEAN leaders certainly understand this. That was the reason why ASEAN was formed. This is why ASEAN leaders agreed at the Bali Summit in October 2003 to create an ASEAN Economic Community or AEC. I was one of those who pushed for such a community. When completed, the AEC will establish ASEAN as a unified production base and single market of 500 million people, with a free flow of goods, services and investments. A McKinsey study estimated that an integrated ASEAN market could boost the region's GDP by 10% and reduce operational costs by one fifth.

At the Vientiane Summit last year, ASEAN leaders committed to accelerate integration of 11 priority sectors, in which ASEAN as a whole enjoyed competitive advantage. This is a step in the right direction. We should step on the accelerator of ASEAN integration.

Pressing Reforms at National Level

While pursuing regional initiatives, individual countries also need to press on with national reforms. Regional prosperity is possible only if it is driven by national growth.

One major outcome of the Asian Financial Crisis was to force governments in the region to clean up their acts, tackle weaknesses in their financial and corporate sectors and implement much-needed structural reforms. The balance sheets of the financial and corporate sectors have generally shown solid improvement.

ASEAN countries should press on with structural reforms to strengthen their economies and continue with development plans to achieve sustainable growth.

Take the example of Singapore. We used the Financial Crisis to undertake extensive liberalisation of the financial sector. We put in place a new supervisory framework which emphasises risk-based supervision. We encouraged our domestic banks to consolidate. While our MNC-led growth has worked well in the past, we are now finding new niches to achieve growth.

As the largest country in ASEAN, Indonesia is the key to reinvigorating ASEAN.

It is no secret that Singapore wants Indonesia to prosper. A prosperous and stable Indonesia will benefit its neighbours. An impoverished and unstable Indonesia will destabilise the region.

ASEAN is at the heart of Singapore's foreign policy. It is in Singapore's interests to have a strong ASEAN. To have a strong ASEAN, we need Indonesia to play an active leadership role. Over the past few years, Indonesia has been preoccupied internally. Unless the largest member in ASEAN is able to play an active part in coalescing the other members towards achieving common goals, it will be difficult for ASEAN to regain its vibrancy and dynamism.

Indonesia's Prospects Are Good

Prior to 1997, for almost three decades, Indonesia focused on economic development, fostered friendly relations with its neighbours and created a climate of confidence and cooperation within ASEAN. Both Indonesia and ASEAN boomed.

But Indonesia has undergone wrenching changes since 1997, where its sudden economic collapse unleashed social upheavals and political uncertainties. In the last few years, Indonesia has re-established political stability and returned to the path of economic recovery. With the successful conclusion of Indonesia's first direct Presidential elections last October, Indonesia has achieved a major milestone in its political transition.

The new Indonesian Government, under the leadership of President Susilo Bambang Yudhoyono and Vice-President Jusuf Kalla, has the mandate to press on with the difficult reforms to get the country moving on a fast track. Indonesia has already made significant headway in financial sector reform. Macroeconomic indicators have been stable in the past few years, enabling Indonesia to exit from the IMF programme in December 2003. International debt rating agencies recently upgraded Indonesia's sovereign credit ratings. The new Administration has rightly focused on attracting foreign investments as the engine to drive the economy.

But Indonesia faces some challenges. Investors remain concerned about unclear and inconsistent regulations and labour laws. Security is also a major concern. President Yudhoyono wants to develop pro-business policies and reduce corruption. His government has shown that it is prepared to implement difficult but necessary measures such as reducing fuel subsidies. Such policies and measures will build investor confidence. It will be a long road ahead but with political will and determination, and a welcoming attitude towards foreign investments, Indonesia can resume the rate of growth that was disrupted by the Asian Financial Crisis.

Conclusion

Let me conclude. Singapore and Indonesia are both better off when we work together. While we may have some bilateral issues to resolve, we must not allow these to stand in the way of our larger interest of cooperating in other areas. These bilateral problems are not insurmountable. With patience, goodwill and understanding of each other's interests, they can and will be resolved.

Closer ties between Singapore and Indonesia contribute to regional integration, which in turn enables ASEAN to reap the advantages of a prospering Asia. On Singapore's part, we are committed to working with Indonesia for our mutual benefit and for the benefit of the region as a whole.

Thank you.