09 August 2016

Indonesia’s Economic Growth in ASEAN: Hopes and Challenges

The realization of the ASEAN Economic Community has became opportunities as well as major challenges for Indonesia, especially in improving its economy.

Since December 31st, 2015, the ASEAN region has been united in a community that hopes of creating a free market in Southeast Asia in order to attract foreign investments. The injection of foreign capital to the region is expected to provide new jobs, enhance the economic integration, and improve the welfare of the residents in the region. ASEAN Economic Community (AEC) supports the development of human resources and the acknowledgment of professional qualifications especially in certain occupations, such as doctors, nurses, etc. Some major characteristics of AEC are the existence of single market and production basis and the equal economic development across the region. This concept is applied based on the examples of the European Union which reformed the economic policies in its region, although ASEAN is not fully adopt the European Union concepts and supports the independency in certain matters such as the monetary policies of each member state.


How does the ASEAN Economic Community implementation affect the overall economic improvement of Indonesia? With the free market at hands, Indonesia must prepare to face the competition among member-states in which the movement boundaries are diminishing. In order to be prepared, the government must create solid regulations for the sake of creating a healthy business competition space while at the same time safeguarding our national interests. The policies of which the government is implementing will serve as keys to victory in the ever harsh competitions.

During the recent HSBC Economic Outlook 2016 event which focused on the theme “ASEAN Economic Community: Indonesia to Punch Above Its Weight”, Thomas Lembong, Chariman of Indonesia Investment Coordinating Board (BKPM), explained the latest situation in our economy with its hopes and challenges. The economic condition in Indonesia is predicted to improve in 2016 despite the moderate rate of such growth. This growth is marked by the decrease in poverty rate at 9-10%, the reduction of open unemployment rate to 5.2-5.5%, stable inflation rate at 4.7%, and the projected growth for next year at 5.3%. Meanwhile, investment realizations went up by 17.8% at 545 trillion rupiahs in 2015 and the realization of the 1st quarter of 2016 went up to 146.5 trillion rupiahs or up 17.6%.

Government Support to the Local Businesses to Strive in the AEC

These relatively remarkable growth numbers during the global economic slowdown trend are triggered by a series of infrastructure policies and regulation packages. During President Joko Widodo’s leadership, the government continues to push the regional infrastructure development projects in order to enhance the regional economic potentials which remain open with economic hubs in the process of development in various islands and economic sectors such as manufacturing, tourism, maritime, etc.

The government also realizes that we are a few steps behind Vietnam, Philippines, and Malaysia, in ensuring a comfortable business climate for foreign investments. This makes Indonesia relatively uncompetitive compared to the neighbor countries. Vietnam, for instance, has extended its invitation to foreign investors such as Samsung and they are willing to adjust the regulations to ensure that Samsung would increase their investment in the country. The result: Samsung has exported their products out of Vietnam with the estimated value at 40 billion US dollars. Vietnam also initiated Free Trade Agreements (FTA) bilaterally and collectively such as the Comprehensive Economic Partnership Agreement (CEPA) with the European Union (EU). These movements also affected us due to the lack of CEPA support for Indonesian products to enter those markets, resulting in the imposing of tariffs against our products at 12-17%.

Regarding the comprehensive partnership agreement with the EU, Indonesia has recently completed the scoping analyses of such agreement which would become a reference in mapping out the trading activities between Indonesia and the EU. Such scoping, which was completed last April, is expected to serve as a basis to the CEPA which is targeted to finish within 2 years. Meanwhile, Indonesia is also in the process of discussing bilateral Free Trade Agreements (FTA), such as the discussion with Australia, which is expected to finish next year. These steps are necessary to ensure the open access for Indonesian products to the international markets without hindrances such as tariffs, etc.

Regulation Packages Offered by the Indonesian Government

In order to catch up the momentum against other ASEAN countries and to attract more foreign investments, a series of policy reform packages has been implemented since September 2015. In order to ensure the ease of doing business, the government has simplified the procedures and minimal requirements in setting up business in terms of capital and duration. From the previous 13 procedures which could take up to 47 days, such procedures now only require 7 steps within 10 days. The previous 5 categories of business licenses have now been reduced to 3 categories. Other packages also on the table include the formulation of wage, reduction of production costs, tax cuts, simplification of export procedures and tariffs, credit access, and investment protection.

Hopes and Goals for the Industries in the AEC Era

In order to keep up the conducive economic growth momentum, businesses are expected to respons with pro-active attitudes in welcoming business investments and global inquiries to ensure such investments proceeded smoothly in Indonesia. A ‘Mental Revolution’ in the economy is absolutely needed. While we used to sit down passively and await foreigners to come to us looking for commodities they need and all we needed to do was to sell them, it is now the time for us to pro-actively seek new opportunities in conducting businesses and attracting investments.

Finally, the roles of the government in creating the regulations in order to safeguard the national interests will not work without the support of the business community who conduct their daily businesses within the global competition. With the synergy between the government and the business community, we shall be able to transform such challenges in the AEC to become opportunities to seek profits in order to improve the economy of the country more positively in the future.

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