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Indonesia, ASEAN should move ahead in tandem

17 Nov Indonesia, ASEAN should move ahead in tandem

By Simon Tay and Sarah Loh
For Jakarta Post

At the Group of 20 Summit, Indonesia as the next chairperson announced “Recover Together, Recover Stronger” as the theme for 2022. President Joko “Jokowi” Widodo stressed that fair and equitable vaccine distribution and stronger health systems are crucial to revitalising the global economy.

Just a week before the G20, during the ASEAN Summit, Indonesia took a similar position to move beyond the restrictions and lockdowns enforced over the past months. This is timely as its daily caseload stood at around 500 by end-October – a sharp positive compared to the worst times in July, when cases exceeded 50,000 per day.

Indonesia is not alone in seeing caseloads plateau and turn for the better.  Across ASEAN, other key economies are moving to reopen as accelerated vaccinations increase protection.

In contrast to the surge experienced from mid-2021, the time now seems ripe for the region to support a shift away from a target of “zero COVID” and embrace an “endemic” approach. Growth prospects are looking up, with opportunities for businesses and workers. But risks remain, and there will be challenges not only to recover but to also be more competitive and connected.

Although still less than fully prepared, ASEAN appears to be on the right track. Yet ready or not, there is little option but to reopen. Economic needs are severe with business closures and unemployment rising to unprecedented levels. In September, the Asian Development Bank (ADB) revised the region’s gross domestic product (GDP) growth from 4 to 3.1 percent.

To support the country’s poor, the Indonesian government increased the social safety net and upped healthcare expenditure but there is clearly limited room for more fiscal expenditure. There are also limits in terms of monetary policy given signs of inflation, especially in essentials, as signals grew that the United States Federal Reserve would shift away from the low interest rate policies that had shored up many economic activities in the depths of the pandemic.

Reopening is thus imperative to return to growth. The hope is that reopening at this juncture can reap from rising external market demand, especially in manufactured goods and commodities.

Significantly, Indonesia’s factory activity picked up from January to June 2021 as compared to the same period in 2020. With its demographic advantages, Indonesia can capitalise on manufacturing trends and the relocation of factories from China given ongoing Sino-American tensions.

Tourism also looks set to be a pathfinder as the region’s key economies gradually reopen borders. From November, tourism-reliant Thailand opened to visitors from more than 60 countries without the need for quarantine. Similarly, Indonesia, Malaysia and Singapore have also made plans to loosen border restrictions.

Reopening can and should go beyond tourists to include workers. Before the pandemic, ASEAN recorded the world’s largest flows of people across borders. To support ASEAN’s single market, more can also be done to step up intra-ASEAN movement. Notably, Indonesian President Jokowi called for expedited efforts for an ASEAN travel corridor during the ASEAN Summit held in October. Still, harmonizing standards and processes will take time and detailed work.

There moreover remains considerable apprehension among segments of society, including the upper middle class who are more concerned over health risks than economic impacts. Adapting to a “new normal” and reopening can help restart economic activity but can also give reason and space for political dissent to intensify.

The political situation will be more volatile for Thailand and Malaysia, where political differences that predate the pandemic have sharpened with the surge. But other member states with seemingly more stable political climate should also not let down their guards.

In Indonesia, a survey by Indikator Politik showed a decline in President Jokowi’s popularity, possibly due to the perception that his administration could have responded better to the Delta surge. Nonetheless, with an optimistic outlook for the economy, if Indonesia can build back better, this may well consolidate Jokowi’s position as president given the lack of any credible opposition.

There are indeed opportunities for the region to move up the value chain, push forward for reforms and increase competition. This can set the stage for a broad and sustained economic recovery, which will offer relief and hope to beleaguered businesses and workers, especially in the lower paid and informal sectors.

Singapore convened a high-level Emerging Stronger Taskforce to report on strategies to position the country to shift and grow as the pandemic receded. Vietnam, too, rolled out incentives to attract more investments in higher-valued industries. In Thailand, infrastructure and plans for its Eastern Economic Corridor have been emphasized.

For Indonesia, a focus on infrastructure projects helped create jobs and increase connectivity. Plans to upskill the country’s workforce and implement the Omnibus Law on Job Creation have also been envisioned to help small and medium enterprises connect to global supply chains and stimulate foreign investment.

Add to this the optimism about the digital economy, with opportunities for regional interoperability, integration, and economic growth. Indeed, the pandemic has increased internet penetration and digital adoption regionwide with some 80 percent of ASEAN consumers projected to adopt digital technology by the end of 2021.

The economic potential of digital transformation for Indonesia bears watching, with a report from Indonesia’s Ministry of Finance and the ADB suggesting that technological transformations could add US$2.8 trillion to the economy by 2040. To capitalise on this, Indonesia must improve its information technology infrastructure. Relative to ASEAN, it continues to lag in 5G technology. Furthermore, increasing protectionism such as the imposition of value-added tax on 16 foreign digital companies in August 2020, could also prevent Indonesia from reaching its full digital potential.

There are also reasons to anticipate efforts to transform and upgrade in the areas connected to climate commitments and sustainability. This will help the region align to sustainability standards of not only from domestic consumers, but especially investors, and consumers in economies that have taken up commitments for carbon neutrality.

Besides the global economy and health, climate change and sustainable development have also been highlighted as focuses for Indonesia’s G20 chairmanship next year, with President Jokowi stressing the importance of energy security, accessibility, and affordability.

There is much that Indonesia can do on its own. But even more can be achieved in tandem with ASEAN. These include information and experience sharing on reopening, as well as lending assistance. Reconnecting the region can help ASEAN move forward and indeed upward by linking recovery with reform.

***

Simon Tay is associate professor at the National University of Singapore Faculty of Law and chairman of the Singapore Institute of International Affairs (SIIA). Sarah Loh is a policy research analyst (ASEAN) at the SIIA.


Source: This article was first published in The Jakarta Post with the title “Indonesia, ASEAN should move ahead in tandem – Academia – The Jakarta Post” on 17 November 2021. Reprinted with permission.