Is ASEAN outdated for Indonesia?

By Terry Lacey

(October 07, Jakarta, Sri Lanka Guardian) Indonesia alone represents half of ASEAN. As the country consolidates membership of the G20 and heads for membership of the G8, it is going be an economic super-power. Is ASEAN moving fast enough to stay relevant for Indonesia ?

Rizal Sukma, Executive Director of the Jakarta-based Centre for Strategic and International Studies (CSIS), says we are entering the G20 world order, but will Indonesia be tempted to revive a new kind of G8 in a G20 world? (The Jakarta Post 05.09.09).

The Indonesian economy is expected to have overtaken South Korea by 2016, Japan by 2024, the UK by 2031 and Germany by 2040. (Standard Chartered Special Report 02.09.09).

You only need to look across from Batam Island to Singapore at night to see the bright lights of the island state, contrasted to the half development of Batam and the under-development of large parts of Eastern Indonesia.

In 2008 Indonesia´s PPP-based per capita was US$3,987, only 8 percent of Singapore´s. On average the purchasing power of a Singaporean today is 13 times higher than that of an Indonesian. Even the Palestinian Territories came higher on the UN Human Development Index than Indonesia in 2008. (The Jakarta Post 06.09.09).

But Indonesia has size on its side, with a population of 228 million, while Singapore musters 5 million. Indonesia maintained 4 percent growth, decoupled from Western recession, even at the lowest point of the global downturn, the third highest growth rate in the G20 after China and India.

Thailand, Singapore, Malaysia and Japan were all hit by recession but Indonesia was not. Indonesia grew at 6 percent in 2008, and is expected to get back to 5 percent in 2010 and 6 percent by 2011.

Conservative predictions show that Indonesian nominal GDP, which reached $2,246 in 2008 is expected to land between $8,661 and $10,187 by 2020. In other words purchasing power is going to quadruple in ten years, and as per-capita income hits $6,000 per year the economy, already 60 percent consumer driven, is going to take off.

The population is expected to hit 242 million by 2011 and 285 million by mid-century (Population Reference Bureau).

This will help move the economic and political center of gravity in the world from North to South, and from West to East. And within the Muslim world Indonesia will counterbalance the power of the Arab economies, and shift the Muslim balance of power from the Middle East to Asia.

Rizal Sukma of CSIS sees Indonesia developing a post-ASEAN foreign policy for a post-G8 world. What does this mean ?

Indonesia can now longer be constrained by the laggards in ASEAN. Most of ASEAN (and the Arab world) is now behind Indonesia in terms of democracy and political stability. It is this that will lay the foundations for Indonesia becoming a world economic power.

But there are threats to overcome on the road to being a world economic power.

The biggest technical problem is lack of administrative and management capacity to cope with the scope and pace of growth and the huge scale of inward investment needed for infrastructure, especially electric power, ports, roads and railways. The country needs about $150 billion for clean energy and energy efficiency alone over ten years.

Corruption, although a major problem, is less of a challenge than the need for comprehensive reform of public administration in a state where the national budget is over $100 billion and about 150 state-owned enterprises play a major role in economic development, buffering Indonesia from global weaknesses emanating from Western economies.

Finally Muslim extremists here are already defeated by massive popular support for economic development, but they will still try to undermine and spoil economic progress.

The Government needs to get into the driving seat and drive specifically Muslim modernization forward, reaching down to the grass roots, alongside the broader development of this multi-cultural multi-faith society.

Otherwise the more backward part of the Muslim community may resist change, if they cannot benefit from it through lack of skills and education. This economic, social and cultural under-development is now the Achilles Heel of Indonesia and the biggest threat to its global economic ambitions.

Terry Lacey is a development economist who writes from Jakarta on modernization in the Muslim world, investment and trade relations with the EU and Islamic banking.

-Sri Lanka Guardian