This policy paper aims to review the current situation of regional development and human resources in Indonesia, the main themes in the ‘Master Plan: Acceleration and Expansion of Indonesia Economic Development 2011-2025 (MP3EI)’, and to deliberate ways for the long-term economic cooperation between Korea and Indonesia. MP3EI is an ambitious and comprehensive plan which contains strategies and policies for serious development of the Indonesian economy, based in the Indonesia Economic Development Corridor(IEDC). Through the plan, Indonesia is attempting to introduce new institutions, review established systems, and forge a new direction for infrastructure development.
Chapter two reviews the current situation of economic cooperation between Korea and Indonesia. Indonesia is Korea’s tenth biggest trade partner, and trade between the two countries shows that the volume continues to increase and the sector is concentrated on natural resources. Korean investment to Indonesia is focused on the manufacturing sector with increasing investment in large scale projects. Because trade and investment are centered on natural resources and the petrochemicals sector, they could be vulnerable to external shocks from fluctuations in crude oil prices. Therefore, it is necessary to diversify sectors in terms of trade and investment. Presently, Korean assistance to Indonesia is concentrated in infrastructure, regardless of grant or credit. Since Korean assistance geared mainly for infrastructure makes it difficult to show Korea’s competence, it is necessary for Korea is necessary to find out and diversify the assistance areas where Korea has an advantage.
Chapter three examines the current situation of the economic cooperation between Indonesia and Japan, China, and Singapore. Japan is ① the largest official development assistance (ODA) donor to ② the largest importer from and ③ the second biggest investor to Indonesia. Since the late 1960s, Japan has employed ODA to Indonesia as a tool for natural resource diplomacy by providing assistance for infrastructure and securing natural resources in return. Currently, Japan has extended economic cooperation with Indonesia even to fields such as renewable energy and energy saving. It is also peculiar that Japan has aligned competitiveness of the Japanese firms with Indonesia’s demands for utilizing ODA. China has seldom provided ODA to Indonesia since the economic cooperation between two countries began, but has become the second largest trade partner for Indonesia both in exports and imports. China also considers Indonesia a supplier of natural resources and approaches it in sectors such as electricity and machinery, where it possesses price competitiveness. It implies that Korean firms would have stiffer competition in Indonesia from Chinese firms as well as from Japanese firms. China, as the sixth largest investor to Indonesia, has invested much more than Korea since 2004. Singapore secures the position of the largest exporter and investor to Indonesia, due to its proximity to Indonesia. With ODA programs in technology cooperation, Singapore contributes to human resource development in Indonesia. In the process of establishment and operation of special economic zone (SEZ) of Indonesia, Singapore has been deeply involved in building industrial complexes and developing resorts. Regarding this, Korea could consider participating in establishment and operation of SEZs in Indonesia. It would be necessary for Korean firms to consider expanding investment towards sectors Indonesia wants to invite Korea into. We should also watch for designation of additional SEZs in Indonesia, which the Indonesian government is deliberating nowadays.
Chapter four discusses regional development of Indonesia. We study the plan for regional development centered on IECD which the Indonesian government is currently promoting. In addition, we review the metropolitan priority area(MPA) project, being driven forward by Japan. Japan has played a central role in the process of establishing a regional development plan for Indonesia. In terms of regional development of Indonesia, Japan is proceeding with economic cooperation emphasizing infrastructure development and improvement of the environment for Japanese firms.
Chapter five reviews human resource in Indonesia. Currently, the strategies and policies for human resource development in Indonesia is not tightly related to MP3EI. Therefore, the Indonesian government should connect MP3EI concretely to strategies and policies for human resource development and back up economic development by developing necessary education and technology. To sustain high economic growth, Indonesia should transform the economic structure and the source of competitiveness from ‘low wages’ to the higher value-added sectors and service industries. To effect changes in the economic structure of Indonesia, however, would require a highly educated and skilled labor force with a fair amount of mobility. In order to do that, Indonesia could consider benchmarking Korea’s success in enhancing competitiveness and transforming the economic structure, accompanied by rapid increase of productivity. Currently, the centralized education and training system of Indonesia does not fit the demands of the market and is not well aligned with industrial needs. Korean methods for consolidating human resource development with economic development could serve as a reference point for Indonesia. It would be a useful exercise to adapt Korean education policies to the Indonesian situation.
Chapter six discusses policy implications for deepening the economic cooperation between Korea and Indonesia, focusing on the creation of an  implementation plan for MP3EI, policy measures for the economic cooperation, regional development, and human resource development.
In order for Korea to contribute to the creation of an MP3EI implementation plan, we must identify priorities in MP3EI implementation which the Indonesian government is contemplating, to reestimate project costs precisely, to evaluate any shortage of funds, and to readjust priorities of the projects. It is also necessary to review conformity of MP3EI to reform measures that the Indonesian government is considering. To do that, we should define the role of ‘the Jakarta executive office for economic cooperation (the Jakarta office)’ and clearly identify the tasks of  Korean research institutes and government. It is desirable that the Jakarta office, as a channel for cooperation, plays a coordinating role for affairs related to the formulation of the MP3EI implementation plan. The Korean research institutes should study the Indonesian laws and systems intensively to provide background information needed for the MP3EI implementation plan. The Korean government should also establish a framework for effective cooperation between the Jakarta office and the Korean research institutes, and coordinate their cooperation. It is also necessary that various Korean personnel communicate with their Indonesian counterparts in diverse ways. Regarding this, we must consider gaining, in particular, an understanding of the Indonesian system for public-private partnerships and employ it for economic cooperation between Korea and Indonesia.
It is necessary that the Korean ODA to Indonesia be closely connected to economic cooperation with Indonesia. To achieve it with ODA, we should consider developing natural resources efficiently, expanding infrastructure, and constructing industrial complexes related to SEZ development in Indonesia. It is also necessary to actively proceed with ODA that conform to the green growth strategy, because it is distinct from ODA strategies of other major countries. Korea could enhance the level of economic cooperation by sharing the policies and technologies related to green growth with Indonesia.
Korean firms should carefully consider entering IEDC projects unilaterally, as they might want to allow for Japanese initiative in the IEDC. Since the possibility of cooperation with Japanese firms is fairly high, it is desirable that Korean firms deliberate initially going into the IEDC projects with Japanese firms together. It is necessary that the Korean government set the basic policy direction in order to support the investment into Indonesia, first in the manufacturing sector in which Korea is competitive globally, and then allowing Korean firms to further expand economic cooperation with Indonesia.
With regard to regional development, Korea could consider participating in building new towns around Jakarta where urban development is urgent, because Korea has competitive advantage in urban development with experience in new town construction. With participation in setting up a master plan for new town development and by joining in the projects, Korea could contribute to improving living conditions through efficient provision of housing. We should especially take note of the ‘Sunda Strait Bridge(the Bridge)’. It is highly probable that development plans for Sumatra and Java could be impacted drastically if the two islands are connected with the Bridge. Considering this, it is necessary that Indonesia set up the MP3EI implmentation plan, allowing for the development of opposing coastline areas in the two islands along with construction of the the Bridge. Because the value involved in developing these areas is expected to increase with the Bridge, it is desirable that Korea take part in establishing a development plan for them at the early stage.
 As Korea devised a system that corresponds to the changing economic environment, Indonesia can learn from Korea by reforming the system of education and job training in order to adapt to the demands of the market. To enhance effectiveness, it is necessary that Korea offer help  to Indonesia by linking human resource development to industrial development, transferring some of Korea’s competitiveness to Indonesia. In order to do that, Korea should provide needed and appropriate technologies for Indonesia and share development experience, focusing on areas where Korea has an advantage; a very efficient way of human resource development.