Indonesia to intensify preparation to face AEC

Government efforts are underway to reform pre-customs clearances at the country's majorseaports, including Indonesia's busiest port Tanjung Priok (pictured), to improve efficiency.
PHOTO: The Jakarta Post

The ASEAN Charter, signed in 2007, serves as the legal basis for the establishment of the ASEAN Economic Community (AEC). In the Charter, the 10 ASEAN member countries agreed to bring the AEC starting date forward from 2020 to the end of 2015.

The AEC has the objective of enhancing regional economic integration between ASEAN nations with the following key characteristics: a single market and production base, a highly competitive economic region, a region of equitable economic development and a region fully integrated into the global economy.

The AEC areas of co-operation include human resources development and capacity building, recognition of professional qualifications, closer consultation on macroeconomic and financial policies, trade financing measures, enhanced infrastructure and communications connectivity, development of electronic transactions through e-ASEAN, integrating industries across the region to promote regional sourcing and enhancing private sector involvement for the building of the AEC. In short, the AEC will transform ASEAN into a region with free movement of goods, services, investment, skilled labour and a freer flow of capital.

The AEC will combine the markets of the 10 ASEAN member countries into one giant bloc with a combined gross domestic product (GDP) of US$2.7 trillion (S$3.8 trillion).

With the AEC around the corner, the intriguing question now is how ready Indonesia is to face the AEC, and what steps the government has taken since the agreement was made.

Indonesia has conducted preparatory efforts to prepare itself for the beginning of the AEC 2015. These include the preparation for the Master Plan for the Acceleration and Expansion of the Indonesian Economy (MP3EI), financial inclusivity programs, improvements of regulations related to foreign investment, a national product utilization drive and efforts to downstream the national industry.

The government has also issued and implemented Presidential Decree No. 11, 211 on the Implementation of the AEC Blueprint Commitment, and Presidential Decree No. 6, 2014 on the Enhancement of Competitiveness. Similar measures have also been taken by provincial governments through meeting forums involving governors across the country. Discussions about preparation for the AEC 2015 has been held in these forums several times.

The AEC serves as a means of achieving national economic and political interests, especially in anticipation of the dynamic and rapid economic growth in East Asia and India.

The formation of the AEC is important for Indonesia, given the country's significant presence in ASEAN, in terms of both population and GDP. Therefore, ASEAN economic integration, growth, prosperity and competitiveness are now inseparable from Indonesia.

Certainly, more significant measures are still needed in terms of inclusive participation from all elements of Indonesian society in boosting their self-preparation for the AEC.

Meanwhile, Business groups have said that the upcoming AEC) will create more opportunities than threats to local businesspeople as they will gain greater access to a bigger market. The Association of Indonesian Automotive Manufacturers (Gaikindo), Indonesian Retailers Association (Aprindo) and Indonesian Food and Beverage Association (Gapmmi) have come with one voice, positively welcoming the single market, which is set to open at the end of this year.

"For us, the single market is an opportunity for Indonesian car makers as the market could expand," Gaikindo secretary-general Noegardjito said recently.

The country has huge potential, particularly in car exports to its ASEAN neighbours, as it supplies only around 222,000 units for the Southeast Asian region, where demand hit around 3.2 million units a year.

Indonesia's car manufacturers produced 740,385 units during the January-August period of this year, of which 30 per cent was exported to ASEAN countries.

The country is now the secondlargest car manufacturer in the region after Thailand, which produced over 1.8 million units last year.

According to data from Gaikindo, Indonesia's auto production gradually increased from 1.07 million units in 2012 to 1.29 million last year, while Thai production declined from 2.4 million units in 2012 to 1.8 million units last year.

A process, not an event

It should be understood that the AEC 2015 is a process, not an event. Despite 2015 being a political target of regional leaders, ASEAN economic integration does not end there; it will only become increasingly intense. Essentially, the process will become increasingly attractive, highly competitive and effective so as to make it remain relevant in the everchanging global economy.

The President of the Republic of Indonesia has displayed his strong commitment to the country's preparation for the AEC 2015 by issuing a series of policy instrument that ministries, institutions, regional governments and other stakeholders can use as a reference to drive collaboration in enhancing Indonesia's preparatory efforts.

In regards to the support of liberalization of the service sector, especially related to the movement of skilled manpower, ASEAN member countries signed the Mutual Recognition Agreement (MR A) on Nov. 19, 2007.

The MR A is an initial important step to promote the movement of skilled workers. To date, eight MRA and MRA frameworks have been agreed upon covering technical services, architects, nurses, medical practitioners, dentists and dental service workers, accountants, surveyors and tourism professionals.

With the establishment of the AEC, the integrated ASEAN market of over 600 million people will be wide open to small and medium-sized enterprises (SMEs). If Indonesia's SMEs can control the domestic market, then they will control 40 per cent of the ASEAN market.

Further measures have been implemented by the government to enhance the ability of SMEs to compete in the ASEAN market by, among other things, providing them with easy access to capital and information, enhancing their human resources capacity and acquisition of knowledge and technology.

Given the poor quality of human resources that will potentially hamper competition in the global market, the government has pledged to make a continual effort to develop and empower SMEs, with a focus on the enhancement of human resources and product standards so as to increase product competitiveness.

On top of that, the government is also striving to speed up technology transfers to allow Indonesia's SMEs to be more innovative, which is integral to compete with foreign SMEs. It is important that Indonesia's SMEs acquire information technology and communications to boost their competitiveness in facing the increasingly tight competition.

Other solutions the government has proposed to potential issues that may arise in the AEC include changing the focus of the economy from consumption to production so as to reduce spending and increase income and enhancing the competitiveness of certain products to increase the customer demand for things that Indonesia produces with guaranteed quality.

It is also important to diversify and raise the added value of feedstock from abundant natural resources into exportoriented products and to boost the competitiveness of human resources because the key to the country's advancement is not the wealth of its natural resources, but its human resources and how prepared university graduates are of competing at the ASEAN level.