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Indonesia in ASEAN: Vision and Reality; The ASEAN
Economic Community: A Work in Progress
Kiki Verico
To cite this article: Kiki Verico (2014) Indonesia in ASEAN: Vision and Reality; The ASEAN Economic Community: A Work in Progress, Bulletin of Indonesian Economic Studies, 50:3, 502-505, DOI: 10.1080/00074918.2014.938420
To link to this article: http://dx.doi.org/10.1080/00074918.2014.938420
Published online: 03 Dec 2014.
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and dynamics surrounded its development—a discussion of which might be useful for policymakers, academics, and analysts in countries trying to develop their Islamic banking sector. Furthermore, some chapters have very general titles, which do not accurately relect the contents of the chapters themselves. Take, for example, chapter 2, ‘Program to Develop Indonesian Islamic Banking’; aside from proposing programs for improving the industry’s performance, it provides a brief review of the development of the Islamic banking industry in Indonesia, includ
-ing legal aspects and its operation, performance, and challenges.
A brief chapter that integrates the discussions and analysis in the book would be helpful to readers. At present, the only such chapter is limited to liquidity risk management. Moreover, less relevant chapters (such as chapter 22, on Indonesian iscal policy) could be excluded, and chapters that share the same topic could be grouped into speciic clusters. Some typographical errors also need to be cor -rected.
Notwithstanding these shortcomings, the author should be praised for his efforts in producing a breakthrough book that is accessible to international read
-ers—there could hardly be a more important volume for those interested in Islamic banking in the world’s largest Muslim country. I recommend that academ
-ics, analysts, bankers, and policymakers interested in the industry in Indonesia adopt Ismal’s book as their main reference.
Rahmatina Kasri
University of Indonesia
© 2014 Rahmatina Kasri
http://dx.doi.org/10.1080/00074918.2014.980391
Indonesia in ASEAN: Vision and Reality. By Donald E. Weatherbee. Singapore:
Institute of Southeast Asian Studies, 2013. Pp. xiii + 109. Hardback: $15.90; ebook: $16.00.
The ASEAN Economic Community: A Work in Progress. Edited by Sanchita
Basu Das, Jayant Menon, Rodolfo C. Severino, and Omkar Lal Shrestha. Singapore: Institute of Southeast Asian Studies and the Asian Develop
-ment Bank, 2013. Pp. xxiv + 507. Hardback: $59.90; paperback: $49.90;.
These books discuss the political and economic aspects of ASEAN, covering two of the association’s three pillars (alongside the ASEAN SocioCultural Commu
-nity). Donald E. Weatherbee’s Indonesia in ASEAN focuses on the political aspect
of ASEAN and places Indonesia at the centre of its analysis, while Sanchita Basu Das et al.’s edited collection discusses issues essential to the ASEAN Economic Community (AEC).
In order to establish a central role in ASEAN, Weatherbee argues, Indonesia has put the association’s foreign policy interests before its own bebas dan aktif
(inde-pendent and active) foreign policy. Yet he inds that Indonesia can lead ASEAN
in the face of political crisis, as it did in stopping a potential border war between
Thailand and Cambodia in 2011 and in rescuing the South China Sea dispute in 2012. Yet under normal political circumstances, no one country, including Indone
sia, may dominate ASEAN, given its principles of consultation and consensus. It would be in Indonesia’s interest to maintain these principles.
Weatherbee expects the South China Sea dispute, which he considers to be ASEAN’s main maritime challenge, to again test the independence of Indonesia’s foreign policy (p. 86). At present, ive ASEAN member states rely on the support of the United States in asserting their separate territorial claims to parts of the South China Sea also claimed by China. Indonesia has made no such claim, even though its Natuna regency, administered by the Riau Islands, is in the South China Sea. Weatherbee argues that Indonesia’s ‘strategic independence’ in this dispute, its ability to use this independence to balance the powers of China and the United States, and its maritime status are examples of why Indonesia is a natural leader in building consensus in ASEAN’s maritime framework. In addition to this cen
-trality, Weatherbee talks about the religious factor (Islam) that inluences Indone
-sia’s foreign policy stance in ASEAN, using as an example Indone-sia’s response to the Buddhist–Muslim conlict in Burma (Myanmar) (p. 56). He states that this ‘Islamic factor’ has given Indonesia a positive image in the eyes of the US govern
-ment, because of Indonesia’s persistence in combating terrorism. This strategic independence is the future of Indonesia’s role in the APSC.
Das et al.’s book takes a broader view of ASEAN. As its title suggests, it con
-siders 2015 to be a milestone year in the development of the AEC, rather than a targeted year for its implementation. In this the book follows the basic theory of economic community derived from the experience of the European Economic Community, particularly from the late 1960s to the late 1980s—that is, that an eco
-nomic community is a process rather than a target (Eichengreen 2007). If Europe succeeded in forming an economic community by way of a customs union, can ASEAN do so without one? This book observes several indicators of ASEAN’s potential to achieve its objectives for the AEC.
The AEC will ultimately shift ASEAN’s economic cooperation from free lows of trade to free lows of investment. Given that the AEC will promote the free intraASEAN low of goods, services, and investment, and therefore intraregional production networks, Albert G. Hu (chapter 10) surveyed representatives of the ASEAN business community in order to scale irms’ awareness of the AEC. He found that most respondents were not aware of the AEC (pp. 442–43), which sup
-ports previous indings on the low use of the ASEAN FTA beneits by businesses (Hayakawa, Hiratsuka, Shiino, and Sukegawa 2009) and on the low use of the FTA to attract FDI inlows—a proxy for the AEC—in a recent business perspec
-tives survey by the Centre for Strategic and International Studies (2014).
For a singleproduction base, FDI has an essential role in ASEAN. Manu Bhaskaran (chapter 4) inds that FDI lows in ASEAN are more marketdriven than governmentdriven, and that crucial challenges happen at the country level, such as the emerging domestic protection limiting regional competition and the slow progress in attracting FDI inlows in a regional context. Bhaskaran recom
-mends that each member of ASEAN focus on its business climate and its cost of doing business. In addition he mentions that ASEAN must keep building its attractiveness to regional investors, using solid subregional connectivity of phys -ical infrastructures.
Razeen Sally (chapter 7) quotes Park, Park, and Estrada (2008) in making the point that economic modelling of the ASEAN–China FTA has indicated that trade
creation is higher than trade diversion. Hypothetically, investment creation, such as FDI inlows, will come from countries that beneit most from trade creation. The ACFTA’s economic modelling by Park, Part, and Estrada (2008) shows mutual gains from fullledged free trade in goods. China will beneit from ASEAN intra trade while ASEAN members will beneit from China’s increased investment in ASEAN. In this case, ASEAN member states can expect to receive FDI inlows from China. Yet neither Sally nor Bhaskaran discuss the possibility of any coun
-tries from the ASEAN Plus One FTA—China included—being the home country for FDI in ASEAN. The book also lacks a discussion on intraASEAN investment within the frameworks of the ASEAN Plus One freetrade area. Instead, it sees China and India, as part of ASEAN Plus One freetrade agreements, as competi
-tors to ASEAN in attracting FDI inlows (p. 144).
In theory and in practice, service liberalisation is even more complicated than liberalisation of trade in goods, because it needs stronger political will from the governments of ASEAN member states. Deunden Nikomborirak and Supunna
-vadee Jitdumrong (chapter 3) remind readers that member states have to show strong political will when reforming intraservice liberalisation. They ind that although the ASEAN Framework Agreement on Services has made some agree
-ments, their implementation has been limited (pp. 134–36). Helen E. S. Nesadurai (chapter 9) asserts that most of ASEAN’s potential problems lie in the disconnec
-tion between ‘great ideas and weak implementa-tion’ (pp. 412–13). She argues that ASEAN’s lexibility has caused this problem and that domestic unfriendliness has exacerbated it. Sally offers a similar analysis: ASEAN is good in its planning but weak in implementation and monitoring (p. 363). Nesadurai recommends that ASEAN puts in place a monitoring system for the implementation of the associa
-tion’s commitments, while Sally argues that ASEAN needs incremental reforms at a regional level and unilateral liberalisation at a country level.
IntraASEAN trade barriers still exist, owing to nontariff barriers (NTBs). These barriers will increase in 2015, when member states impose a zero tariff rate on ASEAN’s common effective preferential tariff. Myrna S. Austria (chapter 2) discusses the progress of NTBs in ASEAN. She inds that progress has been very slight, because ASEAN, like other regional associations, faces dificulties in iden
-tifying its NTBs, and has found it dificult to establish a singleproduction base. Austria recommends that ASEAN cooperate with the private sector in solving this problem by using onlinebased facilities to assess, monitor, and eliminate NTBs (pp. 77–79).
Any ensuing ASEAN Plus regional investment and production networks will need regulations governing competition policy and intellectual property rights. Ashish Lall and R. Ian McEwin (chapter 5) explain the importance of not only cooperation and coordination among ASEAN members but also harmonisation (pp. 255–56). In this vein, Locknie Hsu (chapter 8) adds that dispute settlement mechanisms must follow the ‘ASEAN Way’ while solving any disputes that may arise (p. 405).
Weatherbee’s book will interest readers with speciic knowledge of interna
-tional security issues and interna-tional politics related to Indonesia’s position within ASEAN. Das et al.’s ASEAN Economic Community will be useful for those
looking to understand this pillar of ASEAN, although the book focuses primarily on the AEC’s subregional aspect and offers little discussion of the AEC’s basic
theory and ‘open regionalism’ aspect. The latter aspect is useful for identifying the potential beneits to the AEC of the socalled ASEAN Plus frameworks.
Kiki Verico
University of Indonesia
© 2014 Kiki Verico
http://dx.doi.org/10.1080/00074918.2014.938420
Centre for Strategic and International Studies. 2014. Dampak FTA di Indonesia: Studi dan Hasil Survei Perspektif Bisnis 2013 [The impact of FTA in Indonesia: Study and business perspectives survey 2013] Jakarta: Centre for Strategic and International Studies. Eichengreen, Barry. 2007. The European Economy since 1945. Princeton, NJ: Princeton
Uni-versity Press.
Hayakawa, Kazunobu, Daisuke Hiratsuka, Kohei Shiino, and Seiya Sukegawa. 2009. ‘Who Uses Free Trade Agreements?’. ERIA Discussion Paper Series 22, Economic Research Institute for ASEAN and East Asia, Jakarta.
Park, Donghyun, Innwon Park, and Gemma Esther B. Estrada. 2008. ‘Prospects for an ASEAN–People’s Republic of China Free Trade Area: A Quantitative and Qualita-tive Analysis’. ADB Economics Working Paper Series 130, Asian Development Bank, Manila.
China’s Economic Engagement with Southeast Asia: Indonesia. By John Lee.
Trends in Southeast Asia. Singapore: Institute of Southeast Asian
Stud-ies, 2013. Pp. 40. Paperback: $9.90/S$12.90. PDF available at http:// www.iseas.edu.sg/documents/publication/Trends_20133.pdf.
Is China acquiring the economic levers to draw Indonesia into its political and strategic embrace? This is the core question in the second issue of a series on China’s economic engagement with Southeast Asia, from the Institute of South
-east Asian Studies, written by John Lee (who was also the author of the irst instal
-ment in the series, focusing on Thailand). The proposed answer is no, for three main reasons. First, there is little evidence that China is trying to use its economic weight to inluence Indonesia’s strategic decisions. Second, Indonesia’s economic structure—with substantial geographical and industrial diversity, relatively weak integration with regional value chains, and strong reliance on domestic demand and productivity growth as drivers of economic development—would make it dificult for China or any other foreign power to push Indonesia to act against its own interests. Third, Indonesia’s strong ambition to maintain its independ
-ence and autonomy means that it will be hesitant to enter into engagements that
threaten to reduce its strategic options.
Economic data appear to support these arguments. China is an increasingly important investor in Indonesia, but the Chinese share of inward foreign direct investment is still small, even in the sectors favoured by Chinese investors— energy, metals and minerals, and transportation and logistics. Hence, John Lee concludes that ‘there is no evidence that Indonesia is becoming overly reliant on Chinese capital’. The bilateral trade relation seems a bit more problematic. Trade with China has grown rapidly, accounting for more than 20% of Indonesia’s total trade. Indonesia is not only recording a deicit, but the structure of trade also
