Trade standoff over Timor

Business Asia, Sept 30, 1999 by Cameron Cooper

Indonesia threatens key export sectors

Business leaders are trying to salvage relations with Indonesia as fallout from Australia's peacekeeping role in East Timor starts to harm trade relations.

Australia has played down the trade threat -- noting that Indonesia is only its 10th-largest trading partner -- but major export industries such as wheat, cotton and mining could suffer.

Anti-Australian sentiment stems from Canberra's high-profile role in pushing East Timor's independence vote -- and its subsequent leadership of a United Nations peacekeeping force in the troubled former Portuguese colony.

As Business Asia went to press, Australia's monopoly wheat exporter AWB Ltd was in negotiations after its Indonesian customers had reportedly banned Australian wheat imports.

Indonesia's wheat millers agreed to stop imports from Australia, citing deteriorating relations over events in East Timor, a report in the Jakarta Post said.

"I do know the meeting was held and that was their decision," said Joan McGovern, public affairs manager at AWB, commenting on the report.

Indonesia is Australia's biggest customer for wheat, taking 2.4 million metric tons in the year ended September 30, 1998, or about 16 per cent of total wheat exports.

Maria Manning, company secretary at Queensland Cotton Holdings, said "we're relatively relaxed at this stage".

"Most of our shipments for the year have been completed. We do still have some ships to go to Indonesia but certainly not as many as a few weeks ago," she said.

A number of Australian mining companies, which produce metals and minerals including coal, gold and copper in Indonesia, have reacted by removing non-essential employees from the country.

BHP and Rio Tinto recently removed expatriate executives and their families from Kalimantan province after anti-Australia protests.

In Jakarta, it has been suggested that Australia's threatened economic embargo against Indonesia could actually work to Indonesia's advantage.

Professor H. Suroso Imam Zadjuli, of the Surabaya-based Airlangga University, noted that Australia-Indonesia international trade had always been in deficit to the former. He said the value of Australian trade in Indonesia made up only 1 per cent of the total of Indonesia's international trade.

"Japan tops the list with 40 per cent of foreign investment in Indonesia. Australia makes up just 1 percent," said Professor Zadjuli. "An embargo will only benefit Indonesia's domestic trade because local entrepreneurs will grab the opportunity to develop commodities which have been heretofore supplied by Australia."

Noted Indonesia business analyst James Castle, of the Castle Group in Jakarta, said investors' interest in Indonesia was under a cloud because of anti-Western feelings in Jakarta.

"Any Western investor will say, `Well, if they are like that with the Australians or the Americans ... then this can't be a very good place for us right now'," he said.

Castle stressed that not all Indonesians were critical of Australia's role in East Timor.

However, he was highly critical of the decision to pursue East Timor's independence vote.

"You can't be so in love with the process that the outcome doesn't matter," he said. " ... The push for the referendum was a tragic mistake. Not to excuse any behaviour of the Indonesian military but it was criminally irresponsible and those who pushed for it should have to answer for it -- and that would include people in the UN, the US government and Australia," he said.

"Everyone knew there would be violence. They should have waited until the new government came in and tried to get that government behind it with the same threat of economic sanctions that they are using today ..."

THE TRADE TALE

* Indonesia's population of 211 million is more than 10 times that of Australia, though its 1998 domestic product of US$88 billion was less than one-quarter of Australia's US$364 billion.

* Australian exports to Indonesia in 1998 were A$2.2 billion, or 2.4 per cent of Australia's total overseas shipments. In the same year, Australia imported A$3.6 billion of goods from Indonesia, or 3.7 per cent of total imports.

* Australia was Indonesia's eighth-largest export destination in 1998, and fifth largest source of imports.

-- Additional reporting by Bloomberg and Asia Pulse