It was Indonesia that led its ASEAN partners
down the path towards the ambitious ASEAN Economic Community (AEC). The AEC was
signed onto in Kuala Lumpur at the ASEAN leaders meeting in November.
This was
the year of delivery. Well, perhaps but not exactly — and that is probably an
apt descriptor of where Indonesia is at on many fronts after the first year of
the Joko Widodo (Jokowi) presidency. Not quite there yet, but still relied upon
to deliver.
The AEC
is a major enterprise to realise a single market and production base, allowing
the free flow of goods, services, investment and skilled labour, and the freer
movement of capital across Southeast Asia. If ASEAN were one
integrated economy, it would be seventh largest in the world with a combined
GDP of US$2.6 trillion in 2013. It could be fourth largest by 2030 given recent
growth trends. With over 625 million people, ASEAN’s potential market is larger
than the European Union or North America. Next to China and India, ASEAN has
the world’s third largest work force and, unlike China, it is young and
the demographic is favourable.
ASEAN is
also among the most open economic regions in the world, with total merchandise
exports of over US$1.2 trillion — nearly 54 per cent of total ASEAN GDP and 7
per cent of global exports. Yet, intra-ASEAN trade is still only around 25 per
cent (ranging from 14 per cent for Vietnam to 65 per cent for Laos).
The AEC
has four objectives: creating a single market and production base; increasing
competitiveness; promoting equitable economic development; and the further
integration of ASEAN into the global economy. On its 40th anniversary in 2007,
ASEAN adopted the ASEAN Economic Community Blueprint, and advanced the
completion target to 2015 from 2020.
While
ASEAN leaders duly signed on to the AEC in Kuala Lumpur last month, to avoid
missing the deadline they had set themselves, the agreement is expected to have
very little immediate practical effect. ASEAN citizens will be allowed to
work in other ASEAN countries but in only eight sectors, including engineering,
accountancy and tourism. These sectors comprise only 1.5 per cent of regional
jobs. As this year’s chair of ASEAN, Prime Minister Najib Razik of Malaysia
said, while tariff barriers are low within the region, the work of building the
institutional frameworks that will ensure freer movement of people and capital,
and remove the barriers that hinder growth and investment has yet to
be fully embraced.
The major
question mark that hangs over the AEC, of course, is about where Indonesia, its
largest and most important member, is now going on these issues that are at the
core of its economic and diplomatic rationale.
In this week’s lead essay — which begins our annual Year
in Review series analysing developments around the region over the
past year and the forces that will shape them in the year ahead — David Nellor
observes that the Indonesian government is yet to convince the international
economic jury that it has turned the corner towards more constructive economic
policy and that it has the political leadership and capacity to implement that
policy. While Indonesian economic policy remains in limbo, the whole ASEAN
enterprise remains uncertain, along with the potential of Indonesia itself
to return to more respectable rates of growth and break through to middle
income status. Growth has dived towards 4 per cent from rates over 6 per cent
in recent years.
‘Over the
past few years a plethora of regulatory interventions have discouraged
investment and widened the infrastructure gap. The government’s loss of policy
credibility, owing to a lacklustre track record and difficult external
environment, magnifies the challenge’, says Nellor. ‘The jury is undecided on
whether the Jokowi government’s reform efforts are sufficient to tackle the
challenge’.
What
reform there has been so far has focused on areas that reflect wariness about
taking on the vested interests that resist exposure to competition and use
political power to protect their monopoly rents. Liam Gammon explains that proposals that aim at market
reform ‘are politically toxic in Indonesia — and at odds with Jokowi’s own
track record. His ministers spent much of this year re-capitalising state-owned
enterprises with taxpayers’ money, raising tariffs and promoting the misguided goal of “food
self-sufficiency”’.
‘The defining blunder of Jokowi’s presidency came in
February when he nominated a venal but politically-connected officer as
the new police chief after intense lobbying from party
bosses. The ensuing public outrage saw the appointment cancelled but Jokowi’s
anticorruption credentials have never recovered’, writes Gammon.
Nellor
sees some signs that fundamental reform is re-entering the policy debate in the
past few months. Gammon identifies presidential rhetoric that has been prepared
to acknowledge the interests of foreign investors as evidence that Jokowi has
taken some criticisms seriously. But there is still a long way to go in
confronting the politics that infect Indonesia’s investment climate and scare
long-term investors away.
The
conflicts that bedevil a reliable investment environment are partly about
entrenched ideological attitudes but they are more about access to rents, says Eve Warburton. ‘Contract extensions for large-scale
projects are a feeding frenzy for Indonesia’s rent-seeking elites. Different
factions within the politico-business class vie for influence over the terms of
lucrative contracts, trying to gain preferential access to service contracts or
cheap company shares’.
Certainly
the times require some fateful choices. The international environment has
delivered a blow to Indonesian growth based as it was in recent times on the
easy takings from the bull run for resource exports. Actual growth has no
chance of reaching potential growth of 7 per cent or more unless Jokowi takes
on the hard politics of deep structural reform. Without a proactive economic
agenda, Indonesia’s diplomatic leadership in ASEAN and more broadly in the region
will continue to ebb away. This is the theatre in which Indonesia will need all
the diplomatic leverage it can muster to support a national reform agenda — not
to be found in the ludicrous aspiration to join the TPP. There are signs that
serious technocratic players both understand this and are trying to energise
the politics to deliver. But time is running out for Indonesia and perhaps
for ASEAN.
Peter Drysdale
Peter
Drysdale is the editor of the East Asia Forum.
Business & Investment Opportunities
Saigon Business Corporation Pte Ltd (SBC) is incorporated
in Singapore since 1994.
No comments:
Post a Comment