Indonesia in Global Economic Map: Reflection from APEC Leaders’ Week in San Francisco
APEC Economic Leaders’ Meeting was successfully held on November 16 and 17, 2023, in San Francisco. The event was organized under the main theme of Creating a Resilient and Sustainable Future for All in a recognition that a fragmented APEC will only jeopardize all cooperation and collaboration among APEC’s 21 economies to maintain their trajectory to recover from poly-crisis confronting the region for the last three years or so.
As put by Statista on 20 April 2023, we have been witnessing a great continental shift where the gravity of economic power moves significantly to Asia, and Indonesia is amongst a few Asian countries that will make its way to the center of gravity. Indonesia recently entered the group of 10 largest economies in terms of Purchasing Power Parity. The fourth-largest country by population is destined to become the sixth-largest economy by 2028, provided that the country is able to accelerate its growth trajectory. There is no exaggeration to submit that the “Asian century” is in the making, and Indonesia together with China and India is at the center of such a great shift in the modern history of humankind.
Seen from such a perspective, Indonesia’s intensified engagement at the regional and international stages should not be belittled. Last year, Indonesia was praised for its role as the host of the G-20 Summit and the chair of ASEAN. Indonesia’s participation in the G-7 Summit in Hiroshima last May, the BRICS Summit in Johannesburg last August, and the third Summit of the Belt Road Forum in China last October, as well as the holding of the first-ever Archipelagic and Island States Forum in Bali also in October -- to name just a few -- is a clear testament to Indonesia’s strong quest for a bigger role in regional and global issues that will impact on Indonesia’s future.
Such a profile was further heightened when President Joko Widodo visited the United States for APEC Economic Leaders’ Summit and some bilateral meetings organized on the sidelines of the Summit. While the main agenda of any APEC meetings and summits is always regional and global economy and related issues, members of this non-binding regional grouping usually take up non-economic issues either at the group or bilateral levels. APEC Leaders’ gathering in the United States this year is no exception.
One particular issue on which Indonesia made its stanch crystal-clear to its APEC partners is the ongoing genocide of Palestinians by Israel in Gaza. Before raising the issue at the Summit, President Joko Widodo managed to convey his messages and strong views on conflicts in Gaza to President Joe Biden on 13 November 2023 in the White House. It was reported that after the meeting, and due to similar pressures from others, President Joe Biden sent out a blunt message to Tel Aviv that Israel’s effort to occupy Gaza is a big blunder. What we witnessed in the following days is Israel easing access to Gaza for humanitarian supplies.
As the saying goes, respect is something to be earned -- not claimed. It is plausible therefore to believe that strengthened Indonesia’s posture in the international arena is the result of the world-class performance of Indonesian diplomats and negotiators combined with Indonesia’s remarkable achievements at home. For sure, the former could not have materialized should the latter is not observable. Perhaps among the most salient successes of the current government in managing the country is in the economic sphere, particularly in response to the continued trade war between the United States and China and all of its adverse impacts on other countries, the global economic stalemate caused by Covid-19, and continued global uncertainties as a result of the war in Ukraine and geo-political rivalries among major powers.
Indonesia managed to go through a difficult and complex reform process in the last ten years. This includes but is not limited to overhauling the fuel subsidy scheme, developing infrastructure in physically challenging areas, simplifying hundreds of laws and regulations through the omnibus law in order to cut down established practices of red tape, reforming the health sector, developing the processing industries to climb up the ladder of value chains, and other measures including those that were unpopular at first. As a result, Indonesia was able to maintain an average economic growth of 5 percent in the last ten years, and per capita income has more than tripled from $1,222 in 2004 to $4,580 in 2022. What has been missing from the observation of many critics is that such an accomplishment was made through the difficult time of Covid-19 and the great disruption of global value chains never encountered by the previous governments.
Looking forward, Indonesia could and should position itself better and bolder on the global economic map. Some challenges await and they need to be addressed as soon as possible if Indonesia is to maintain its strong growth and development trajectory. Domestically, the fourth-most populous country needs to urgently capitalize on its demographic dividend since such a bonus will turn into a liability by the early 2030s if the Indonesian government misses the opportunity to improve its education system and boost the capacity of its young generation. Another domestic challenge is establishing a good regulatory practice to create policy certainty deemed by national and foreign businesses and investors to be in short supply. Yet, another task is equally challenging: keep the economy open and keep opening the economy.
It is perhaps the most popular proposition for Indonesia to be more inward-looking and adopt a protectionist policy. At times when globalization is challenged these days by its own proponents and winners, a call for raising barriers to trade and investment is quite appealing. However, as Adam Smith described it in his book “Wealth of Nations” published in 1776, countries will continue to exchange with one another to meet demands that cannot be met by local supplies. There has been indeed an unprecedented disruption to the global value chains, but at the same time, we can observe the rise of a new variant of global value chains where countries with shared economic and geo-strategic interests collaborate to create what they commonly dub a resilient supply chain. This is what the United States has been championing since early 2022, that is, to invite like-minded countries to join the Indo-Pacific Economic Partnership for Prosperity or IPEF. There are 13 countries joining US-led IPEF: Australia, Fiji, India, Japan, New Zealand, South Korea and seven ASEAN member states of Brunei Darussalam, the Philippines, Indonesia, Malaysia, Singapore, Thailand, and Vietnam.
It is unfortunate that the trade pillar of IPEF could not be concluded during the APEC Leaders’ week in San Francisco due to domestic political considerations in Washington DC. But perhaps it is high time for Indonesia to focus instead on the full and faithful implementation of the Regional Comprehensive Economic Partnership or RCEP. The agreement was signed on November 15, 2020, among Australia, China, Japan, New Zealand, South Korea and all the 10 ASEAN Member States. RCEP was first introduced by Indonesia in 2011 to its ASEAN colleagues. After gaining support from all ASEAN FTA Partners, the RCEP negotiation was launched in November 2012 in Phnom Phen -- Cambodia, and the first substantive negotiation commenced in May 2013 in Brunei Darussalam.
The implementation of RCEP has become effective since June 2023 for all its parties except Myanmar. It is considered the largest trade bloc ever due to its size in terms of RCEP shares to world GDP, trade, investment and market or population. Some analysts predicted that it would offer significant economic gains for signatory nations, boost economic recovery, and pull the economic center of gravity back towards Asia. In fact, the strategic importance of RCEP in today’s geopolitical tensions cannot be underestimated. In their assessment of the agreement, Professor Peter Petri and Professor Michael Plummer maintained in the Brookings Institution Journal in November 2020 that the RCEP will link around 30 percent of the world’s output and people and, in the right political settings, will generate significant gains: adding $209 billion annually to world incomes and $500 billion to global trade by 2030.
Comparing RCEP and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP, Petri and Plummer further argued that the two agreements could offset global losses from the US-China trade war, although not for China and the United States. The agreements will allow the economies of North and Southeast Asia more efficient by linking their strengths in technology, manufacturing, agriculture, and natural resources. Although RCEP is not as rigorous as the CPTPP, the two Professors believed that RCEP will incentivize supply chains across the region while catering to political sensitivities.
In the context of better positioning itself in the future global economic map, Indonesia needs to develop a robust internal and external agenda to meet the vision of Indonesia's Golden Year 2050. This requires not only the right policy-mix to address the short and medium-term challenges, but also a strong leadership with the right world views who knows the way, shows the way, and leads the way.
Iman Pambagyo is a former Director General of International Trade Negotiation of the Trade Ministry and a former Indonesian Ambassador to the World Trade Organization. The views expressed in this article are those of the author.