Two countries also agree on $10b currency swap

JAKARTA ― The leaders of South Korea and Indonesia on Saturday agreed to conclude free trade negotiations within the year, reaffirming the goal of more than tripling bilateral trade by 2020.

After their summit in Jakarta Presidents Park Geun-hye and Susilo Bambang Yudhoyono announced that the two countries would aim to sign a comprehensive economic partnership agreement, or CEPA, before the end of the year to cut tariffs and promote industrial and investment cooperation.

Separately, finance ministers from the two countries agreed in Washington on Saturday to sign a currency swap deal worth $10 billion amid growing concerns about possible U.S. monetary tapering.

 

President Park Geun-hye and Indonesian President Susilo Bambang Yudhoyono hold a news conference after their summit in Jakarta on Saturday. (Yonhap News)

The agreement would be effective for three years and could be extended, the Finance Ministry said.

“Sharing the view that the CEPA would help the two countries achieve our trade goal, and institutionalize bilateral economic cooperation, our leaders agreed to conclude the negotiations by the end of this year,” Park said during a joint press conference with Yudhoyono.

Park was referring to the goal of increasing bilateral trade volume from last year’s $30 billion to $50 billion by 2015 and $100 billion by 2020.

The summit capped her eight-day tour of Indonesia and Brunei to attend regional forums and cement ties with geostrategically crucial, resource-rich Southeast Asian nations.

A CEPA has a wider scope of cooperation than a free trade agreement. It stipulates not only the level of market opening, but also bilateral industrial cooperation and investment.

Through the envisioned deal with Indonesia, South Korea expects a higher level of trade liberalization than what its FTA with the 10-member Association of Southeast Asian Nations mandates.

South Korean makers of automobiles, petrochemical products, ships and steel would largely benefit from lower tariffs.

Indonesia is expected to see more investment and technological cooperation from South Korea.

The two countries started CEPA negotiations in July 2012 but made little progress until recently.

Seoul was thought to be likely to gain more trade benefits from the deal than Jakarta, whose main exports are mostly mineral resources. During the negotiations, Jakarta was said to have focused on enhancing investment and industrial cooperation with Seoul.

With the world’s fourth-largest population of nearly 250 million, Indonesia has emerged as one of the most promising markets in the ASEAN region.

The country ― the only ASEAN member of the Group of 20 ― is South Korea’s eighth-largest trading partner and second largest gas supplier and eighth largest oil provider.

Their trade volume has increased 150-fold to $30 billion last year from $200 million in 1973 when they established diplomatic relations. Annual people-to-people exchanges also rose during the period to 450,000 last year, from 3,000 40 years earlier.

In 2006, they established a strategic partnership to expand the scope and depth of their relationship.

After the summit, the two countries signed four agreements on cooperation in developing special economic zones, forest recreation and ecotourism and the creative content industry, and expanding financial support for Indonesia’s development projects.

The agreement on ecotourism aims to deepen and widen their forest development cooperation, which has so far been centered on developing wood resources and biomass energy.

The two sides also agreed to deepen their cooperation in the defense industry. South Korea has so far inked two major contracts ― worth $1.4 billion in total ― to sell 16 T-50 trainer jets and three submarines to Indonesia.

The previous day, South Korean firms signed a series of agreements on issues including technology sharing in energy and natural resources; power plant construction; joint exploration and development of resources; and establishing energy-related infrastructure.

During the summit, Park also asked the Indonesian leader to support South Korean firms’ participation in the country’s major infrastructure projects such as constructing the Sunda Straits Bridge, Karian Dam and Soekarno-Hatta International Airport.

Park arrived in Jakarta on Thursday night for a three-day state visit after attending the Asia-Pacific Economic Cooperation summit in Bali and several forums with 10 Southeast Asian nations and other regional partners in Bandar Seri Begawan, Brunei.

Indonesia is the destination for Park’s fourth overseas trip after the U.S., China and Vietnam.

By Song Sang-ho, Korea Herald correspondent

(sshluck@heraldcorp.com)