Asean needs to be more engaged with Indonesia

23 August, 2014
As appeared in

A vendor walks by rows of multi-coloured head wear for sale in the Tanah Abang market in Jakarta. Altogether 28 million Indonesians – equal to the whole population of Malaysia – still live below the poverty line. This is 11% of the Indonesian population, a huge proportion by any measure.

During the long campaigns for election to the legislative assembly in April and for the post of President in July, much concern from outside was expressed on how committed Indonesia would be to Asean arising from feisty statements on guarding national independence and protecting national interests by the candidates.

Indeed as Indonesia celebrated its 69th anniversary of independence just last Sunday, the main sentiment expressed was the need to fulfill the country’s sovereignty.

After leading an Independence Day ceremony at the national monument in Jakarta, President-elect Joko Widodo (popularly known as Jokowi) said: “Independence means managing and controlling this country independently, standing on our own feet … That would be the ultimate goal.” He added that the wealth gap between the rich and the poor is one of Indonesia biggest challenges.

However, it would be wrong to read these internalised and internal concerns as being against or turning away from Asean. They have been perennial issues with Indonesia. What other Asean member countries should be doing instead of being concerned with Indonesia turning inwards is to engage its leadership in addressing those issues together, some of which are certainly not absent among them.

The election of Jokowi presents a great opportunity for the countries in the region to truly and meaningfully work together to bring benefit to their peoples. This is why and how.

First, Jokowi is big on putting the people’s interest first. The Asean community blueprints are peppered with the desire to bring peace and prosperity to the people. In 2015, when Malaysia takes the chair, the theme will be the People’s Asean. Here we have good political convergence, unless Asean leaders do not mean what they say in the way Jokowi truly does.

Malaysia’s primary role as chairman is to work in this convergence in the run up to the end of 2015 and beyond so that Asean objectives serve and reach the people. Malaysia would have failed as the chair of Asean if this is not emphasised and achieved. Malaysia must take charge to build the Asean consensus and not hide behind the passive disposition that Asean only works on consensus. Without leadership the only consensus would be inaction.

The programmes to be undertaken are there boldly stated, particularly in the blueprint of the Asean Socio-Cultural Community (ASCC): human development; social welfare and protection; social justice and rights; environmental stability; Asean identity; and narrowing the development gap. But it is not just in the ASCC blueprint. While in the AEC (Asean Economic Community) blueprint the single production base, a competitive economic region and integration into the global economy are often emphasised, one other leg is equally important: equitable economic development.

A strong engagement with Indonesia in moving the Asean community forward, based on what is best for the people, stands a good chance of securing support from the Jokowi administration in making that integration more meaningful. Let’s not forget, coming on to US$1 trillion, the Indonesian economy is already the 10th largest in the world which would not make Asean’s US$2.3 trillion the seventh largest if it was subtracted from it.

Second, an Asean for the people would help address one of Indonesia’s greatest concerns – grinding poverty. Altogether 28 million Indonesians – equal to the whole population of Malaysia – still live below the poverty line. This is 11% of the Indonesian population, a huge proportion by any measure.

About half of them are from the farming sector. Indeed, across Asean as a whole, 45% of people still depend on agriculture for their livelihood, with the dependence particularly high in the CLMV (Cambodia, Laos, Myanmar, Vietnam) countries, reaching a peak of about 70% in Cambodia. This cannot be a neglected sector as it is a source of great income disparities.

Indonesia’s Gini coefficient of 0.41 is not sustainable in the long term and the differences in income would undermine political stability in Indonesia and the region. A leader like Jokowi would have appreciated the conclusion in the great work done by Thomas Piketty in “CAPITAL In the Twenty-First Century: The past devours the future.” (Based on the higher rate of return on capital against rate of growth of output and income – and capital is overwhelmingly owned by the already rich).

The poorest half of Indonesia actually saw zero or negative growth in consumption expenditure in the last couple of years. According to a World Bank 2013 report, this compares unfavourably against 4% across the entire population and 7% for the top 20% of the population.

This brings us to two other reasons why engagement with Indonesia with the right emphasis and attitude would be of benefit to Asean community building. One is still related to people and poverty: infrastructure to improve their lives. All too often this is approached from the standpoint of generating greater economic growth which, while they will benefit the people, will bring greater gain to owners of capital than to income-earners. What should be equally emphasised in infrastructure projects is that they bring huge improvement to the quality of life of the people: better roads, electricity and water supply.

Such an emphasis would give a better human face to capitalism. It would also help to sell the projects better than exclusive argument of resultant higher productivity and growth. There has to be greater socialisation of the profit motive, a wish present in a number of countries as well such as Myanmar and Vietnam which often feel they are held to ransom by powerful economic forces in more developed Asean member states.

In this connection, Indonesia’s indications to change equity limits, particularly in the financial and agricultural sectors, quite understandably cause concern among existing and potential foreign investors. However, this is not unique to Indonesia, and the uncertainty has always existed. Yet the investors are there because of Indonesia’s size and potential. A similar situation existed with regard to China: risks, fears, qualms – and the great upside. That is why foreign investors flocked there.

Having said this, chopping and changing – uncertainty – will damage the investment climate. This is partially why, probably, Jokowi had stated there would be no retrospective application. But, he does not control the legislature where Golkar and Gerindra and other allies have sworn to use their majority to make life a living hell for President Jokowi.

There is, however, the prospect of Golkar splitting up and the anti-Jokowi alliance in the legislature being weakened. But that is all work in progress. Foreign investors who feel the situation is impossible might want to get out. Actually, I would argue, it is not. It is fluid, difficult and uncertain. An engagement with Jokowi by Asean foreign investors already there and those who might want to come in that expresses their concerns while, at the same time, offering some creative ideas on how to address Indonesia’s main socio-economic concerns, would be beneficial.

For example, Asean affiliated banks in Indonesia could offer to set a quota of their loan assets for MSMEs (micro, small and medium enterprises) that constitute 99% of total enterprises in the country which have great difficulty in getting finance. They could also offer lessons and guidance to such enterprises on how to keep their books so as to make it possible for them to satisfy loan assessment requirements.

Foreign companies should also look into their wage levels as well as the social amenities and benefits they offer. An unadulterated profit motive without serving societal needs will not survive – anywhere – in the long term. Yes, there must be a meaningful sense of corporate social responsibility beyond occasional and high profile handouts.

Finally, a people’s Asean, while sitting well with Jokowi’s predisposition, is ultimately good for the region. Governments serve the people. Companies employ them and depend on them as consumers. The people, in turn, will have their needs better fulfilled and will feel empowered. All this is in line with the Asean community blueprints.

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