The World Bank (WB) says the country's commitment to opening up the services sector to its Southeast Asian neighbours will largely up its competitiveness and in turn benefit the economy.
Upon the full implementation of the ASEAN Economic Community (AEC) next year, some of the commitments in the services sector will help improve the country's manufacturing industry and boost its competitive edge in exports, according to the Washington-based global lender.
"Services liberalization is increasingly becoming very important for manufacturing, enabling you to get cheaper services. When you allowforeign investors to come in and operate logistics, that will lower export costs," WB chief economist for East Asia and Pacific region
Sudhir Shetty said on Wednesday.The content of services in Indonesia's exports is still lower compared to other neighbouring countries, standing at around 20 percentto its gross exports in 2013, according to an estimate by the Geneva-based International Center for Trade and Sustainable Development.
Indonesia is working to revise its regulatory environment in compliance with the ASEAN Framework Agreement on Services (AFAS), which covers liberalization in 128 subsectors across 12 business sectors. Based on the accord, each ASEAN member will permit foreign investors to control up to 70 per cent stake in business entities operating within its territory, higher than the current 51 per cent.
Under prevailing regulations, foreign ownership in firms operating in Southeast Asia's largest economy is still limited to between 49 per cent and 60 per cent, depending on the sector.
On regional integration, Shetty said that thus far, commitments made by members of the regional grouping did not represent "huge liberalization" and that there was still a lot of work to do to address constraints hampering its full implementation, such as synchronizing domestic rules across nations.
"The next step should be looking at those domestic regulations and seeking ways to harmonize them across countries, which is not an easy thing to do. But, it's certainly something that needs attention sooner or later," he said.
Shetty expressed optimism that the 10-member bloc might materialize the necessary reforms toward continued regional integration.
"The good news is that this is a very open region. The fact that there's talk of TPP [Trans-Pacific Partnership], talk of RCEP [Regional
Comprehensive Economic Partnership] and various FTAs [Free Trade Agreements] gives you a sense there's an appetite for opening up to the rest of the world, recognising that is still the way forward for this region," he said.
Real steps to allowing integration in the services sector in the short-term are underway. Earlier this week, financial and banking authorities in ASEAN signed the umbrella agreement for the ASEAN Banking Integration Framework (ABIF).