Indonesia: Rising to regional challenges


Economic News

20 Jan 2012
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As Indonesia handed over its chairmanship of the Association of South-east Nations (ASEAN) late last year to another member, it could look back on a year of diplomatic and economic gains.

While Jakarta’s promotion of conflict resolution and encouragement of regional democracy garnered more headlines, it also oversaw significant improvements in trade conditions.

At the 19th ASEAN Summit held on November 17 in Bali, Indonesia led the bloc to adopt the “ASEAN framework for regional and comprehensive partnership”. The agreement will relax export procedures and boost trade volume with six nations ASEAN already has free-trade agreements with – China, Japan, India, South Korea, Australia and New Zealand.

Indonesian coordinating economic minister Hatta Rajasa told local media that the framework creates an ASEAN +6 that encompasses half of the world’s population (3bn people) with a combined GDP of $20trn in a region where the middle class is rapidly growing as their economies emerge.

At the East Asia Summit, held on Bali a day after the ASEAN conference, President Susilo Bambang Yudhoyono released a joint statement with US President Barack Obama stating that the two nations would work together with regional partners to address key challenges in the region, including maritime security, disaster preparedness and relief, and nonproliferation.

Another important issue in 2011 was managing ASEAN members' relations with the grouping's largest trade partner – China – as territorial disputes flared over the South China Sea. China claims almost all of the vast maritime area, while Brunei Darussalam, Malaysia, the Philippines and Vietnam claim parts.

With the issue dominating the sidelines of both summits, Yudhoyono urged delegates to finalise a set of guidelines entitled the “Declaration of Conduct between ASEAN and China”, noting that they have been under negotiation for nine years.

Also at the meeting, Indonesia handed the ASEAN chairmanship to Cambodia. Jakarta’s 2011 initiative to place observer troops at the site of a border conflict between Cambodia and Thailand over land adjoining an ancient Hindu temple has been praised by international observers.

“In trying to resolve the Thai-Cambodian clash, ASEAN, under Indonesia’s leadership, has laid out a methodology for dealing with future problems,” Jim Della-Giacoma, the director of International Crisis Group’s South-east Asia Project, said.

In further regional progress for democracy, Jakarta has praised Myanmar’s historically military-dominated government on its reform and opening up, with hints that it supported plans for Naypyidaw to take the helm of ASEAN in 2014, which has now been confirmed.

“I get the impression that there are changes in Myanmar and they are significant,” foreign minister Marty Natalegawa said last fall in Yangon.

He added in Bali on November 19 that by giving Myanmar the chance to chair ASEAN, the grouping was trying to ensure that the momentum of democratisation in Myanmar was maintained.

As ASEAN’s largest member and the 18th biggest economy in the world, Jakarta has used its chairmanship to encourage improved trade ties, particularly as the group prepares to establish the ASEAN Economic Community (AEC) in 2015. One of the country’s key aims was to improve trade facilitation, through introducing an ASEAN “trade repository” – a dynamic inventory and reference point for information on tariffs – and through improving the implementation of rule of origin.

Despite global financial uncertainty sparked by the woes in the eurozone and the slower-than-expected recovery in the US, ASEAN, with its total population of over 600m and collective GDP of $1.9trn, has enjoyed relative macroeconomic stability. The Asian Development Bank predicted in December that an “extreme scenario” of US and European meltdowns would only shave 1.2% off growth in 2012 in East Asia, adding that such a situation would be “serious yet manageable”.

As Indonesia passed the ASEAN chairmanship in November, officials took the opportunity to encourage members to stand together to attract investment and ensure economic stability.

“We have to create a single, competitive manufacturing and production base in ASEAN,” Indonesia Investment Coordinating Board (BKPM) chairman Gita Wirjawan said on November 18. “It’s important to recognise that each member country of ASEAN is at a different level of economic development. As such, the spirit of complementarity is there and will be there for a long time,” said Gita, as reported in the Jakarta Post.

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