Commentary: Indonesia Needs to Warm Up to Cross-Border Integration

Chairman of the Association of Southeast Asian Nations (Asean) and host Malaysian Prime Minister Najib Razak, at the 26th Asean summit in Kuala Lumpur in April. (EPA Photo/Bernama Handout)

By : Yosua Nainggolan | on 9:31 PM December 07, 2015
Category : Opinion, Commentary

Ten to fifteen years ago, “globalization” was perhaps the biggest buzzword thrown around in most classrooms, essays and even political campaigns. The idea of a unified playing arena for trade and economies was, and is, a dream come true for the biggest, most efficient nations in the world. It was the best chance for those that were already ahead in the game to gain ever more ground by outplaying weaker opponents. Unfortunately, for everyone else, including Indonesia, globalization felt like being helplessly mugged.

Ten to fifteen years ago, this fear was perhaps warranted and necessary to protect our then-infant, post-crisis economy. It was true for most of our neighboring countries as well. Together, in the name of nationalism and regional brotherhood, we directly and indirectly opposed the idea of a rushed globalization that was proposed by the giants of the West. Today, those same neighbors are the ones waving the banner of "integration," a smaller and supposedly tamer version of globalization

The Asean Economic Community (AEC) invites member countries to “think globally” and “prosper regionally.” The initiative, and the large number of sub-initiatives under it, aims to transform Southeast Asia into a robust economic hub that will shine and prosper on the world stage.

On paper, this goal makes complete sense in that Southeast Asia has all the necessary ingredients to become a global powerhouse. We have a highly advanced trade hub, seemingly bottomless oil and mineral producers, and industrial manufacturing centers practically within earshot from each other – not to mention the coveted demographic bonus that will last for a while still. An integrated Southeast Asia will be a force to be reckoned with.

However, this integration is truly nothing more than globalization on a smaller scale. The same risk of predatory relationships between nations will still be present. An advanced, more cost-efficient, and talent-laden nation will take advantage of the resources of a less-developed but naturally blessed neighbor country.

Unfortunately for Indonesia, we are more of the latter. Taking an example in the capital markets, where changes and reforms toward borderless markets usually take effect at a much faster rate compared to the more tangible real sectors, today’s Indonesia may perhaps become the biggest supplier of investors, spelling a huge wave of capital flowing out of the country and into the better-branded money managers of Malaysia and Singapore. From an investor’s standpoint, this isn’t all that bad. After all, if it was your money, you would choose the best money managers you are allowed to invest in, wouldn’t you?

So how do we approach this issue? We know that regional integration is necessary for Asean to contend globally, but we also know that regional integration may bonsai some of our homegrown domestic industries.

A change of perspective is needed. For Indonesia, these past couple of years have mostly been filled with questions such as "What’s in it for us?” “How do we politely say 'no'?” and “How can we defer from responding?”

These questions (and excuses) will only keep us and our region from reaching the fullest potential. Inevitably, we will have to join somewhere down the road. If we keep on avoiding and defering, we will be joining past the point where we can actually have a say in shaping the integration structure itself. To really grow as a region, and most importantly as a nation, we need to ask ourselves “What do we have to prepare so that we, Indonesia, may join this integration?”It’s already almost the end of 2015 and the AEC’s integration is about to kick off. We still have time to ask ourselves these very questions, and answer with a detailed and realistic game plan.

Fortunately, the government and regulators of our markets and industries are starting to realize that the priority now is identifying the preconditions to joining any integration efforts. Is this something new? No. However, in the past, we have always decided on extremely high and unachievable preconditions as means of protectionism and shielding ourselves from joining. We have to set realistic domestic industry, talent and regulatory development goals that, when achieved, can allow us to benefit from, and take advantage of this integration

Identifying and fulfiling these preconditions will be no simple task. First of all, we need to be able to take a sober and thorough look at our current condition, at the areas where the competitive disadvantage is just too big to change in a couple of years, and put these areas in maintenance mode. After that, we identify the strategic areas where we can reasonably improve and even excel, and focus our efforts in achieving the preconditions for those specific areas. It would take a miracle for Singapore to be a profitable coal exporter, or for Thailand to become an Islamic finance hub, two goals that are actually within striking distance for Indonesia. Such is the mindset we need to have in order to integrate successfully – we need to accept our weaknesses and sharpen our strengths.

So, “what’s in it for us?” – as much as we’re willing to prepare for!

Yosua Nainggolan is an investment management policy developer for Indonesia's Financial Services Authority (OJK). The views expressed here are his own.

Show More