Embracing ASEAN Economic Community 2025: Unlocking Prospects and Overcoming Obstacles in Indonesia

June 12, 2023/in ASEAN Notes/by aseansc

Imagine businesses of all sizes, effortlessly trading goods and services across ASEAN borders, tapping into diverse markets, and seizing growth opportunities. Picture investors eagerly exploring investment prospects in ASEAN, fueling economic growth and creating job opportunities. Envision entrepreneurs, armed with innovative ideas and regional market access, expanding their businesses and contributing to prosperity. The ASEAN Economic Community (AEC) Blueprint seeks to create such an environment, where businesses of all sizes can thrive and contribute to inclusive development in the region. The AEC Blueprint serves as a roadmap to transform this vision into reality, propelling ASEAN towards a new era of economic integration for inclusive development in the region.

The AEC Blueprint 2025 outlines five reinforcing characteristics for ASEAN’s economic integration, namely: (i) A Highly Integrated and Cohesive Economy; (ii) A Competitive, Innovative, and Dynamic ASEAN; (iii) Enhanced Connectivity and Sectoral Cooperation; (iv) A Resilient, Inclusive, People-Oriented, and People-Centered ASEAN; and (v) A Global ASEAN. These characteristics provide a roadmap for ASEAN’s economic integration efforts, emphasizing the need for integration, competitiveness, innovation, connectivity, inclusivity, resilience, and global engagement (ASEAN, 2015). We are currently two years away from achieving the dream, and as ASEAN continues to evolve as a regional bloc, the AEC Blueprint still presents both opportunities and challenges for member countries, including Indonesia, in its pursuit of greater economic cooperation towards 2025 and beyond.

Unleashing Underestimated Economic Sector

The AEC Blueprint 2025 presents a plethora of opportunities for Indonesia. In essence, the blueprint creates greater market opportunities for ASEAN members. The integration of ASEAN markets under the AEC framework will hopefully drive Indonesia to improve competitiveness and efficiency for intra-ASEAN trade. This collective effort among ASEAN member countries has the potential to unlock underestimated economic sectors.

The services sector, despite its contribution of over 64.4% to the global GDP (World Bank, 2021b), has often been colloquially referred to as the “Cinderella sector”. This stems from the belief held by economists, industrial relations researchers, and innovation scholars who regard the sector as relatively unproductive compared to other sectors, despite its potential to bring significant value to the economy (Miles & Boden, 2015). In fact, William Baumol went so far as to suggest that the expansion of this low-productivity services sector could potentially hinder economic growth due to limited productivity improvement, potential labor cost savings, and price-inelastic demand (Baumol, 1967). This concept is now known as “Baumol disease”. Interestingly, the services sector’s share in Indonesia’s GDP is relatively high compared to other sectors, contributing 42.8% to its total GDP, highlighting the significant opportunities that can be tapped into for the economies (World Bank, 2021a).

However, Indonesia still faces challenges in its services sector, as indicated by the OECD’s Services Trade Restrictiveness Index. It reveals that Indonesia demonstrates high levels of restrictiveness, particularly in legal services (scoring 0.9), accounting (scoring 0.7), and telecommunication (scoring 0.6), where a score of zero indicates complete openness and a score of one indicates complete closure to foreign services (OECD, 2022). These restrictions can potentially limit the availability of high-quality services and productivity. Opening up the services market can effectively address these quality issues and provide opportunities for Indonesia to access higher quality services from abroad, and of course benefiting other economic sectors as well. Just like goods, high-quality and efficient services do not necessarily have to be produced domestically. Services trade allows Indonesia to access the immediate benefits of better quality services from abroad which can support other economic sectors.

Enhancing Manufacture, Fisheries and Agriculture Sector

Indonesia, being the ASEAN country with the largest population and GDP, holds other significant opportunities from the AEC Blueprint. The country’s abundant natural resources, particularly in agriculture and fisheries, further amplify its potential for economic gains through the AEC. Despite these favorable demographic and economic factors, recent industrial performance in Indonesia has been subpar. The fisheries and agricultural sectors, in particular, face weak competitiveness within ASEAN. Additionally, Indonesia faces competition from Vietnam in prawns and textiles, as well as from Thailand in the automotive supply chain within ASEAN (Aswicahyono & Soedjito, 2016). To achieve competitiveness within ASEAN, Indonesia must focus on developing a robust manufacturing base and enhancing the quality of its human capital. However, the country is grappling with persistent challenges related to infrastructure, including logistics, energy supply, and transportation, as well as an inefficient bureaucracy and corrupt institutions.

Unfortunately, Indonesia’s Business Freedom Index by The Global Economy had a decline in its value from 71 in 2021 to 67 in 2022, giving Indonesia just 57th in the Business Freedom ranking amongst 175 countries (Global Economy, 2022). In addition to that, Indonesia only ranks 95th on the Corruption Perception Index (Global Economy, 2021), indicating that practices of administrative and political corruption are still high. In order to combat these problems, Indonesia should focus on improving the regulatory environment to enhance business freedom. This may include simplifying and streamlining business regulations, reducing bureaucratic red tape, and enhancing transparency and efficiency in administrative processes. This could help create a more conducive environment for businesses to operate, attract investment, and foster economic growth in strategic sectors like agriculture and fisheries, while also giving strict regulations to mitigate the practice of corruption.

A Shift to Green Economy

The AEC Blueprint 2025 indeed emphasizes the importance of environmental sustainability and the integration of green principles into the economic policies and practices of ASEAN member states; it is specifically stated in the second characteristic of its framework, “A Competitive, Innovative, and Dynamic ASEAN”. This includes efforts to reduce GHG emissions, promote renewable energy, enhance resource efficiency, and address climate change impacts. The Blueprint also encourages the adoption of sustainable production, consumption patterns, and the promotion of sustainable agriculture, forestry, and fisheries practices (ASEAN, 2015). But even so, its implementation to shift to a greener economy is not as good as its vision. In fact, The Regional Comprehensive Economic Partnership (RCEP), the largest economic cooperation initiated by ASEAN countries to accomplish AEC’s visions, does not include a single chapter or regulation about the environmental consideration (CECPHILS, 2023). Provisions of RCEP for reducing tariffs could make non-renewable energies such as fossil fuel cheaper and more accessible to member countries. This may lead to an escalation in their utilization, particularly in Indonesia, which relies heavily on coal production and consumption. In addition, a recent study revealed that if all tariffs were eliminated among RCEP members, it could significantly increase approximately 3.1% in global carbon dioxide emissions from fuel combustion annually. This would effectively double the average annual growth rate of global CO2 emissions observed in the last decade (Tian et al., 2022).

Bright Future for Indonesia and ASEAN

As ASEAN advances towards the realization of the AEC 2025, Indonesia faces a dual landscape of opportunities and challenges that must be addressed within a limited timeframe of approximately two years. While the AEC 2025 offers prospects for increased economic integration that could benefit Indonesia’s economy, challenges such as the need for structural reforms, increasing competitiveness, and environmental impact mitigation must be effectively navigated. Strategic planning, policy coordination, and stakeholder engagement are crucial for Indonesia to maximize the potential of the AEC 2025 and promote sustainable and inclusive economic growth. This will not only contribute to Indonesia’s prosperity and resilience but also to that of the broader ASEAN region.

About Writer

M. Tora Bhanu Pandito is an undergraduate student at the Faculty of Economics and Business of University of Brawijaya. His interests extend beyond the classroom, as he is deeply invested in foreign policy issues, writing research articles, and enhancing the creative economy. He had the privilege of serving as the Head of Creativepreneur for the Student Executive Board, leading several university initiatives aimed at empowering MSMEs and fostering entrepreneurship that promotes sustainable economy. Contact can be made through his email at torapandito@gmail.com.

Bibliography

ASEAN. (2015). ASEAN Economic Community Blueprint 2025. In ASEAN Economic Community Scorecard. https://doi.org/10.1355/9789814414296-012
Aswicahyono, H., & Soedjito, A. (2016). Trade in Goods under the AEC: A New Map of Competitiveness for Indonesia. CSIS Working Paper Series No. 02 – 2016, (November). Retrieved from https://s3-csis-web.s3.ap-southeast-1.amazonaws.com/doc/Trade_in_Goods_un_Indonesia.pdf?download=1
Baumol, W. J. (1967). Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis. The American Economic Review, 57(3), 415–426. Retrieved from http://www.jstor.org/stable/1812111
CECPHILS. (2023). The Regional Comprehensive Economic Partnership (RCEP) and its impacts on the environment. Retrieved from https://www.cecphils.org/read-the-regional-comprehensive-economic-partnership-rcep-and-its-impacts-on-the-environment/
Global Economy. (2021). Indonesia: Corruption perceptions – Transparency International.
Global Economy. (2022). Indonesia: Business freedom. Retrieved from https://www.theglobaleconomy.com/Indonesia/herit_business_freedom/
Miles, I., & Boden, M. (2015). Services and the Knowledge-Based Economy. New York: Routledge.
OECD. (2022). Services Trade Restrictiveness Index. Retrieved May 26, 2023, from https://stats.oecd.org/Index.aspx?DataSetCode=STRI
Tian, K., Zhang, Y., Li, Y., Ming, X., Jiang, S., Duan, H., … Wang, S. (2022). Regional trade agreement burdens global carbon emissions mitigation. Nature Communications, 13(1), 408. https://doi.org/10.1038/s41467-022-28004-5
World Bank. (2021a). Indonesia Services (% of GDP).
World Bank. (2021b). Services (% of GDP). Retrieved from https://data.worldbank.org/indicator/NV.SRV.TOTL.ZS

Latest Articles

ASEAN Spice: The Connecting Culture of Southeast AsiansJune 1, 2024 - 3:49 am
RELIGION: BOON OR BANE FOR DEMOCRACY?December 20, 2023 - 12:32 am
Redefining Commodities in International Trade: ASEAN Blue Carbon Initiative and Its Role in Navigating Climate Crisis in the Southeast Asia RegionDecember 18, 2023 - 12:05 am
Korea-Indonesia Cooperation Forum in Commemoration of the 50th Anniversary of Diplomatic RelationsDecember 6, 2023 - 3:53 am

Facebook

RELIGION: BOON OR BANE FOR DEMOCRACY?December 20, 2023 - 12:32 am
In December 2022, the Indonesian government passed a law that penalizes sex outside marriage. This is only one of the many changes in the criminal code that observers warn of the increasing conservatism in the country.

Indonesia houses the largest Muslim population in the world and is also a republic whose democratic experiences and milestones have been widely studied by scholars within and beyond the region. This makes Indonesia a compelling case for reflection on the nexus and tensions between religion and democracy. Is religion compatible with democracy? What opportunities and challenges does the “Islamic Renaissance” entail in the country? Democracy on Religion

Liberal democracy espouses secularism, the separation of church and state, and freedom of religion. In an “ideal” democratic system, the state must not endorse nor support any specific religion while guaranteeing the free exercise of religion among citizens. This is essential in a democracy for many reasons. Religious freedom is a crucial civil right that enhances citizens’ individuality and relations with others. It stops one religion from dominating society, hence promoting diversity and co-existence. At the same time, it prevents policies from being framed according to religious beliefs, which may result in discrimination and repression of fundamental human rights.

Religion and its Tensions with Democracy: The Case of Indonesia

This is particularly important for Indonesia. While the country is predominantly Muslim, Indonesia also has many ethnolinguistic groups with different cultures and practices. It is a challenge in itself to build one nation with an immensely heterogeneous society. The diversity in the country resulted in years of ethnic conflict and violence. Even a religious minority, the Ahmadiyya, faces intimidation and oppression in the exercise of their faith. Indonesia’s dilemma points to the longstanding debate in human rights discourse and practice – are human rights universal, or are they relative to culture and local customs? While I am more inclined to support the former, it is important to be aware and carefully consider the context of a country when designing human rights advocacy and interventions.

However imperfect, the democratization process in Indonesia has assisted in facilitating efforts for reconciliation and balancing competing interests in the country. Recently, the President stunned the world when he acknowledged past grave human rights abuses in the country, including an anti-communist purge in the ’60s and the arrest of democracy activists during the Suharto presidency.

Indonesia sits in between secularism and theocracy. The country’s fundamental law espouses Pancasila, which is the foundational political theory of Indonesia. Through its five principles, Indonesian society believes in one God and aspires to create a just and civilized humanity, unity, democracy, and social justice for all. This tells us that, by principle, Indonesia gives importance to pluralism and citizenship. Scholars and practitioners of the law also adopt legal pluralism and believe that different legal systems are complementary rather than contradictory. For example, community practices and customs are considered along with national and local regulations in settling disputes and conflicts at the village level.

However, in recent years, Indonesia has seen the expanding role of Islam in the country’s social and political life. Aside from Islam being a “source of ethical and cultural guidance”, many Islamic organizations have secured formal power, which allows them to easily introduce measures within the state apparatus that cement their own interests. Hardliner Islamic groups have also proliferated, and fundamentalist thought and practices are becoming more and more widespread. Islamic identity politics have also been evident since Widodo coalesced with conservative Islamic factions and appointed Amin, an influential Islamic figure, as his vice president. The new penal code tends to be more religious than secular. This has implications for Indonesia’s supposed secularism and diversity. How can the Indonesian government best represent the interests and aspirations of all?

As Indonesia continues to modernize and extend its economic and political ascendancy in the region, rapid changes in its social relations and dynamics are also expected. This demands a more careful look at the kind of laws and “social controls” that the government enforces. Suppose conservative forces are forwarding laws in the name of protecting tradition and keeping Indonesian values in check. In that case, it should not be at the expense of fundamental civil and political liberties, nor should it be to repress vulnerable groups even further, such as women, LGBT+, and ethnic communities. Admittedly, this is easier said than done. Hence, political representation must reflect the diversity and vibrance of Indonesian society. If only one group dominates political and policy discourse, it ultimately jeopardizes the general will.

When religion becomes the yardstick for crafting rules and policies, it creates biases, whether intended or not. Propositions that are credible and necessary but “contradictory” to a certain religion may be rejected simply because they do not fit the personal convictions of decision-makers. Integrating religion into politics usually leads to oppressive and harmful policymaking. Religion is also a form of heuristics or cognitive shortcut that devalues deliberation and discussion. Instead of scrutinizing issues, people may resort to using their religion as the sole basis for their position on a particular matter. Democracies ought to be deliberative and pluralistic.

Human rights activists and organizations in Indonesia have sounded the alarm on many changes in the criminal code that could stifle individual freedoms and lead to setbacks in the country’s democratic progress. Aside from banning sex outside marriage, the government also reinstated laws that criminalize insulting the President and other state officials and institutions. They also increased the punishment for blasphemy. These laws can be disproportionately used against individuals and groups with legitimate criticisms and concerns about the government. It may also render already marginalized communities even more vulnerable. Religion, Populism, and Repression

This trend is not only unique to Indonesia. Much of the world has seen the rise of “nationalist” movements, often within the pretext of religion and safeguarding culture. India’s Modi has exhibited Hindu nationalist tendencies, which have meant greater intolerance against the Muslim minority in the country. Myanmar’s Tatmadaw has weaponized Buddhism to rally support from the public and account for its atrocities.

The use of religion to justify repressive and oppressive regimes is apparent. Religion is an effective tool to unify a group of people and subject them to a specific set of beliefs and values, which may be highly prejudiced and absurd. Religion acts as a moral compass that defines what is right and what is wrong. Because religion is subjective, it can easily be manipulated to serve political objectives. Populists and autocrats can bastardize religion to create a public enemy, instill an “us vs them” mentality, and sow further polarization.

Failed democracies thrive out of fear, whether it is real or manufactured. Religion can be a potent force to ingrain this fear. This hysteria against change and modernization is easy to whip up when people already have preexisting beliefs. It is not too difficult to segregate people and label them as the “other”. When this distinction is entrenched, it is convenient to normalize discrimination and violence.

It is said that Indonesia is a model for “Moderate Islam” when compared to the Middle East; the “Indonesian way” can complement Western values and democracy. It also has the potential to correct Islamophobia and promote Islam as a religion of peace. On the other hand, if Indonesia cannot find its balance and condone fundamentalist and hardliner Islamic groups to flourish, Indonesia will certainly regress in its hard-won democratic gains.

Religion has inherent contradictions with democracy. Subscribing to a religion and structuring a supposedly diverse society using its tenets is monopolistic and can bring about intolerance. It is paramount for democracies to ensure that civil, political, and socioeconomic rights are not deprived based on religion and other forms of cleavages. The access and exercise of power should be as widely distributed as possible. Public office should not be limited to certain political clans or religious organizations. For instance, at the village level, cultural and socioeconomic elites must share power and administration with vulnerable and historically marginalized groups. There are more reasons and illustrative cases, present and past, to posit that religion is more of a bane than a boon to democracy. At the moment in world history when (dis)information is fast and instant, we must maintain vigilance in dealing with autocratic agendas in the guise of “respecting” values and tradition. It is easier to believe and conform than to reflect and deliberate. But democracy dies when we rely on shortcuts to define what is good for us. Democracy dies, slowly and deliberately, when we allow a few to sabotage our freedoms and liberties to increase their own. Demagogues and despots are usually cunning and do things “in the name of God”.

REFERENCES

Evans, M. S. (2014). Religion and political decision making. Journal for the Scientific Study of Religion, 53(1), 145–163. http://doi:10.1111/jssr.12088

Evans, T. (2012). Separation of Mosque and State in Indonesia. Policy, 27(4), 35–39.

Głodek, A., & Grzywacz, A. (2020). Indonesia – between religion and democracy, Warsaw: Boym Institute. Retrieved from https://instytutboyma.org/en/indonesia-between-religion-and-democracy

Jaffrey, S. (2020). Is Indonesia Becoming a Two-Tier Democracy?, Washington D.C.: Carnegie Endowment for International Peace.

Jamaluddin, M., Chen, H. & Watson, A. (2022). Indonesia bans sex outside marriage as parliament passes sweeping new criminal code, Jakarta: CNN.

Klinken, G. v. (2019). Living in a Sacred Cosmos: Indonesia and the Future of Islam. Journal of the Humanities and Social Sciences of Southeast Asia, 175(1), 81–135. http://doi:10.1111/jssr.12088

McWilliams, E. (2018). Democracy in Indonesia: A Progress Report, Washington D.C.: The Foreign Service Journal.

Nagda, A. (2020). The Diplomat. [Online] Available at: https://thediplomat.com/2020/03/the-islamization-of-indonesias-foreign-policy/

Omelicheva, M. & Ahmed, R. (2018). Religion and politics: examining the impact of faith on political participation. Religion, State, and Society, 46(1), 4–25.

The World Factbook. (2023). Indonesia, s.l.: Central Intelligence Agency.

Wieringa, S. E. (2006). Islamization in Indonesia: Women Activists’ Discourses. Signs: Journal of Women in Culture and Society, 32 (1), 40–27.

Short Biography:

Kay Conales is a student of the Asia Pacific-Master of Arts in Human Rights and Democratization of the Institute of Human Rights and Peace Studies (IHRP) of Mahidol University (Thailand). She also studied in the Faculty of Social and Political Sciences (FISIPOL) of APMA’s partner-university Universitas Gadjah Mada (Indonesia). She can be reached through e-mail at ksconales@gmail.com.

Embracing ASEAN Economic Community 2025: Unlocking Prospects and Overcoming Obstacles in Indonesia

ASEAN STUDIES CENTER UGM

CONTACT US