President of the Rotary Club of Canberra, Dr. Michael Sargent,
Members of the Rotary Club of Canberra,
Ladies and gentlemen,

I am extremely happy to speak before you today on Indonesia's political and economic developments, and I thank the Rotary Club of Canberra and in particular Dr. Mike Sargent for this wonderful opportunity.

I am sure as one of our closest neighbours, Australia closely follows the developments in Indonesia and to some extent is aware that Indonesia confronts the many faceted problems at home.

But let me start by expressing my personal satisfaction over the excellent state of our bilateral relationship recently enriched by the visit of President Susilo Bambang Yudhoyono. Indeed, our two countries and peoples have gone through and shared many events together, some were tragic, others heroic.

Indonesians will never forget the political as well as economic investments Australia has made in Indonesia since Indonesia's inception till the present time. Similarly, Indonesia's sincere will to nurture a mature and mutually beneficial relationship should not be second-guessed. Our support of Australia's full integration into the region is one of the many examples. As we are all aware that during his visit to Australia, 3 - 6 March 2005, President Susilo Bambang Yudhoyono clearly stated that Indonesia supports the participation of Australia in the upcoming East Asia Summit, during which our leaders will discuss matters of common concern in an attempt to provide the region with stability and prosperity.

Let me also take this opportunity to thank once again all non-governmental organizations, in particular the Rotary Clubs around Australia, for participating in the humanitarian missions to help victims of the natural disasters in Aceh and in Nias.

Distinguished guests,
Ladies and gentlemen,

Significant changes have occurred in Indonesia's political landscape. The most important and fundamental development in recent Indonesian history was the reordering of Indonesia's house.

Indonesia has passed through the most difficult period in its transition to a vibrant democratic state, and what we have today was unimaginable even a few years ago.

The 1945 Constitution had been amended as to further pave the way for Indonesia's democratization. Amazingly, the Indonesian people have decided to insert into their constitution the fundamental human rights as enshrined in the United Nations' Declaration of Human Rights guaranteeing, inter alia, that all Indonesians are born equal. The implementation has thus far been very encouraging. It seems chaotic though, but we are determined to move forward, for we have reached a point of no return.

As you may be aware, Indonesia held three nation-wide elections last year, an enormous and extremely complex undertaking in a nation of over 220 million people, and yet they were conducted peacefully and skilfully. They demonstrated Indonesia's maturing political system, and at the same time strengthening the people's confidence and optimism in their own future, which are prerequisite for a country's political and economic success.

The election of President Yudhoyono in a landslide victory in our first direct presidential elections increased significantly the probability of Indonesia forming an effective, caring, and delivering government. The election strengthened our presidential system, while our parliament remains critical, thus ensuring a healthier system of checks-and-balances. Being elected directly by the people, President Yudhoyono has the legitimacy to deal with Indonesia's myriad of problems. Obviously, under his leadership domestic and international confidence in the government has continued to strengthen.

The government's decision to lessen the burden of its budget last February by reducing fuel subsides - a decision that had forced two governments to crumble - generated no mass protest as many had feared.

The Jakarta Stock Exchange composite index increased by more than one percent after the fuel price hike. Better still, the index has risen 33 percent since President Yudhoyono took office. Similarly, Indonesia's credit ratings have improved; for example, Fitch raised the ratings from B+ to BB- early this year, while S&P raised it from B to B+ in late last year.

Moreover, President Yudhoyono is assisted by a vice president who has a sound and solid knowledge in managing businesses. Indeed, Vice President Jusuf Kalla was once a successful businessman before he decided to get involved in politics.

Distinguished guests,
Ladies and gentlemen,

To follow up the reform agenda, at the beginning of this year, President Yudhoyono issued Presidential Directive Number 7/2005 on Indonesia's Medium Term Development Plan for 2005 - 2009, consisting of the following elements: firstly, it focuses on re-building and strengthening policy institutions rather than simply physical targets. The social sector and the political agenda are considered to be as important as the economic agenda; and, secondly, it seeks to shift the boundaries of government - society relations to reflect increasing demands from the community for the consolidation of political and economic reforms.

The first agenda focuses on creating a safe and peaceful Indonesia, addressing issues such as crime, including transnational crime, as well as sectarian and regional conflicts. We have moved to strengthen bilateral and regional relations jointly to combat trans-national crime.

The second agenda focuses on the consolidation of political and legal reforms, the rebuilding of modern institutions, and good governance. This agenda also involves reforming the legal sector, improving public services, and rectifying implementation weaknesses with decentralisation. At a recent media briefing, the Chief of the National Police said that police had arrested 157 people this year for illegal logging offences in Papua. They included two high-ranking police and military officers, two top forestry officials, and ten foreign nationals.

Finally, the third agenda focuses on improving the welfare of Indonesians. The role of the government includes improving the accessibility, equity, and quality of basic social services, including education, health and family planning, and community services for the poor and vulnerable.

Distinguished guests,
Ladies and gentlemen,

As far as the economic development is concerned, Indonesian economy has become steady and is growing with full of opportunities. Indonesia is the last country among those affected by the 1997 Asian Financial Crisis to return to its pre-crisis levels. Let me pinpoint some of our recent achievements:

- Last year's (2004) GDP growth was 5.13 percent, exceeding the target of 4.8 percent and was the highest growth rate since 1996 (7.8 percent). Fourth quarter GDP growth accelerated to 6.7 percent. The share of investment and exports to GDP growth in 2004 expanded substantially.

- Investment in 2004 grew slightly over eleven percent from the previous year, and in Q4 the growth was 18.3 percent (year-on-year basis). This trend is consistent with the increase in imports of capital goods by 41.2 percent and the increase in imports of raw materials by 40.3 percent. Meanwhile, exports grew by 11.5 percent. While investment expanded, consumption growth decelerated to 3.8 percent in Q4 from 5.0 percent in Q3. In terms of net FDI, 2004 witnessed a turn around to a positive US$1.0 billion, which is the first positive balance since the crisis.

- Manufacturing is recovering as it grew by 7.2 percent in Q4 of 2004, which is the highest growth since Q4 of 1999. Transportation equipment, machinery and others (including electrical products) grew by 17.4 percent based on strong car and motorbike, and electrical product sales. However, oil and gas manufacturing declined by 4.6 percent, primarily due to the lack of investment since the crisis.

- In 2004 Indonesia also reached highs in exports and imports. Goods exports and imports reached US$71 billion and US$46 billion respectively.

- Macro economic stability has been preserved in 2004, despite pressures caused by the uncertainties of the US Dollar, oil prices, terrorism, and the Iraqi war.

- The economy's resilience was demonstrated when the stock market bounced back immediately after the bombing in front of the Australian Embassy, and by the fact that the Jakarta Stock Exchange's composite index enjoyed a 45 percent growth in 2004 to over 1,000 now.

- The Indonesian Rupiah is stable at around 9,000 to the American Dollar, while inflation has come down to around 6.4 percent in 2004 (as compared to 10 percent in 2002). Interest rates are, similarly, decreasing. Furthermore, Indonesia's delisting from the Financial Action Task Force's list of non-cooperating countries and territories will further strengthen confidence in Indonesia's currency, overseas transactions and credit rating.
- In the past five years, our debt-to-GDP ratio has decreased to around 35 percent.

- In 2003, average banking capital-to-asset ratio was close to 20 percent, while gross non-performing loans fell to 7.7 percent.

- Last but not least, foreign tourist arrivals reached 3.7 million in 2003 and are projected to increase by 24 percent in 2004, in spite of incessant issuing of travel warnings by a country or two. The number of Australian tourists coming to Indonesia has increased by 88% from 165.000 in 2003 to 310.000 in 2004. Indonesia has become the fourth favourite destination for Australian tourists.

The Indonesian government is aiming at accelerating economic growth from 4.5 percent in 2003 to 7.2 percent by 2009, or an average of 6.6 percent annually for the next five years. This is not impossible. The World Bank, for example, recently projected Indonesia's GDP growth for 2005 and 2006 at 5.5 and 6 percent in 2005 and 2006 respectively.

We also aim to decrease the unemployment rate from 9.5 percent in 2003 to 5.1 percent in 2009 and to reduce the poverty rate from 16.6 percent in 2004 to 8.2 percent in 2009. We are confident that these figures are achievable because economic and development activities will be placed on a much stronger and more stable footing in terms of the political, social and justice systems.

Bilateral trade between Australia and Indonesia stands at close to $5 billion US dollars. The balance of trade is in Indonesia's favour at US$ 273 million. Currently, Australia is Indonesia's eighth largest market and sixth largest source of imports. We still have plenty of opportunities to expand our trade relations. Indeed, Australia's robust economy and Indonesia's accelerating economy have many areas to link up.

Distinguished guests,
Ladies and gentlemen,

As requested, I tried to be brief but at the same time comprehensive. I do hope that this presentation would enable you to better understand Indonesia and the challenges it is currently confronted with.

Understanding and support are all that we need at this critical juncture of our history, in particular from Australia and Australians with which Indonesia shares common borders and destinies. And, I also hope I have strengthened your confidence in my country's future.

Thank you

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