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Why Indonesia Needs to Drive Integration EASTEcoNOMics, POLitics AND PUBASIALic POLicy IN East Asia ANDFORUM THE PaciFic Vol.5 No.4 October-December 2013 $9.50 Quarterly Indonesia’s choices Mahendra Siregar and others Seizing the infrastructure opportunity Hugh White Old-world assumptions in Australian relations Dewi Fortuna Anwar Reinvention in Indonesia’s foreign policy strategy Djisman Simandjuntak Towards ‘escape velocity’ Edward Aspinall Change of pace ahead after the SBY stasis and more . AsEaN institutional investors, and others, by co-financing and/or underwriting Why Indonesia projects in innovative ways. If Indonesia, and perhaps Asia Pacific and some other G20 needs to governments, make early decisions to be stakeholders in the new AIIB, the stage will be set for cooperation drive integration between, as well as healthy competition among, all development banks. This could help to rekindle DIONISIUS NARJOKO foundation of a fully integrated global economic recovery by filling and equitable ASEAN are yet to be some of the yawning gaps in global S THE biggest country in achieved. With 2015 now just the year economic infrastructure. A Southeast Asia, Indonesia after next, time is running out, and Indonesia must lead by example. is a natural leader of ASEAN. For the need to address the challenges and It will benefit from these regional decades since the association was obstacles to realising the AEC was and global initiatives if it puts its own established in 1967, Indonesia has acknowlegded by ASEAN leaders at house in order, including improving played an important role maintaining their 2012 Phnom Penh meeting. domestic connectivity. Regional and geopolitical stability in the region. This The RCEP is a new regional trade global initiatives on infrastructure leadership has recently become more agreement built upon the ASEAN- investment must be supported by a demanding due to border disputes centered free-trade agreements (FTAs) domestic reform agenda that makes within ASEAN and China’s territorial involving, all six ASEAN dialogue them central to national priorities. claims in the South China Sea. partners (Japan, China, South Korea, EAFQ Indonesia also assumes leadership Australia, New Zealand and India). on ASEAN economic matters, albeit, Because of its structure, RCEP is Mahendra Siregar is Chairman of some would argue, not sufficiently perceived as a new trade bloc that Indonesia’s Investment Coordinating actively. Still, at the Bali Summit in consolidates all of ASEAN’s ‘plus-one’ Board and was formerly Indonesia’s 2003, Indonesia was bold enough to FTAs, with the objective of creating G20 Sherpa. introduce the establishment of an a broader and deeper engagement Andrew Elek is a Research Associate at ASEAN Economic Community (AEC) with significant improvement over the Crawford School of Public Policy, by 2020 (later accelerated to 2015) the existing FTAs. This means Australian National University. He was as the central ASEAN objective and, harmonising the trade and regulatory the inaugural Chair of APEC Senior more recently, during the Bali Summit rules between ASEAN members and Officials in 1989. in 2011, putting in place the Regional their FTA partners and minimising Maria Monica Wihardja is an Comprehensive Economic Partnership trade-diverting effects. economist, consultant at the World (RCEP) by 2015. It is important for ASEAN to Bank. But progress toward establishing make convincing progress in RCEP the AEC has been modest. While there negotiations, set conveniently to The views in this article are the have been some notable achievements, conclude and coincide with the authors’, and do not necessarily reflect critical targets for laying a robust commencement of the AEC in 2015. those of their institutions. ASEAN has now arrived at a critical juncture where the AEC’s credibility This article is based on the authors’ Analysis. insight. will require ASEAN to choose the forthcoming book chapter, ‘G20 and path of bold action to improve the Regional Organisations’ , in Peter On line. rules governing ASEAN FTAs. This is Drysdale and Kemal Dervis, eds. G20 Twice daily. deeply linked with RCEP’s goals, and at Five, to be published by Brookings while it is not necessary for ASEAN to Institution Press in 2014. first complete all of its AEC Blueprint measures to conclude the RCEP, 14 EAST ASIA FORUM QUARTERLY OCTOBER – DECEMBER 2013 picture: Brunei informatiOn department / aFp phOtO/ aap more open commitments to foreign commercial presences in their domestic economies. On this, a more open investment regime is necessary to create incentives for firms to invest across ASEAN countries. But there are obstacles to Indonesian leadership in ASEAN too. For one, Indonesia faces a number of domestic economic challenges. Issues in infrastructure development, a high dependence on natural resources for generating income, a more rigid labour market, and continuing development gaps between regions within Indonesia are just some of the key concerns. All these are known to have eroded the country’s overall competitiveness in the past decade or so, especially in comparison with other ASEAN Joining together: aSean leaders in Brunei in april 2013. indonesia set the creation of an aSean economic countries. These challenges also community by 2015 as the group’s central objective but progress to date has been modest. indicate that the country’s economic structure is (or will be) changing, and meaningful progress, in at least some for AEC’s realisation. As a number will likely still be doing so for many of the more difficult areas, like services of studies have suggested, non-tariff years to come, continuing the process liberalisation, is important. This is measures and services liberalisation started in the early 2000s. critical for ASEAN if it is to reach the stand out. The best way forward would be for required ASEAN common position ASEAN has been successful in tariff Indonesia to engage both challenges— vis-à-vis the dialogue partners for elimination but not so in reducing domestic economic reform and reform RCEP negotiations. barriers stemming from non-tariff of ASEAN leadership—together. Moreover, deeper intra-ASEAN measures. Significant non-tariff Commitment to achieving AEC and integration is a prerequisite for a barriers applied by ASEAN member RCEP by 2015 will have the effect broader East Asian integration led by states can negate the positive impact of instilling discipline at home for ASEAN. ASEAN functions as a ‘hub’ of tariff elimination. And dealing implementing the necessary domestic with linkages or spokes to countries with non-tariff measures is even reforms. Even if the 2015 deadlines (the dialogue partners); at the same more important, given that some are not met, a decisive resolution time, the hub serves as a platform for of them can be used for short-term to Indonesia’s domestic issues will networks of production involving all protectionist purposes, especially benefit the country’s competitiveness, countries connected through the hub during downturns. regardless of whether the region is (or ASEAN). Services liberalisation, meanwhile, fully integrated. At the same time, In short, now is the time for is critical—especially for services improvements to competitiveness will ASEAN to really focus on its economic needed as inputs for production create momentum for increasingly integration agenda, and Indonesia— such as logistics, transport and bringing Indonesia into a more as the most influential country in business services. Probably the integrated region. EAFQ ASEAN—should take a leading role in biggest challenge for ASEAN in this. services liberalisation (pursuant to Dionisius Narjoko is a researcher at Given the impending 2015 deadline, the ASEAN Framework Agreement the Economic Research Institute for Indonesia should focus on issues on Services) is how ASEAN member ASEAN and East Asia, Jakarta. that are difficult to solve but critical states can arrive at substantially EAST ASIA FORUM QUARTERLY OCTOBER – DECEMBER 2013 15.
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