Strengthening Indonesia’s links, position, contribution at the G20

Posted on April 25, 2012


Maria Monica Wihardja, Jakarta | Wed, 04/25/2012 7:41

Indonesia’s geopolitical position has been raised to the international level by its G20 membership. However, many still see it as the “elephant in the room” with its huge population and large entourage but little contribution. One of its most praised contributions and examples of leadership was its ability to phase out fossil-fuel subsidies in 2008. But, a probable failure to phase out fossil-fuel subsidies this year in the midst of increasing oil prices that threaten the national budget may be a setback to its reputation. Another widely recognized leadership example is its unilateral commitment to reduce greenhouse gas emissions by 26 percent and 41 percent with international support by 2020. However, this commitment lacks both solid evidence and a coherent implementation plan. The challenge for Indonesia now is how to strengthen its links, position and contribution at the G20; how to become an active rather than passive or reactive reformer with regard to not only national but also global issues; and how to assume a leadership role in global governance that has been in a vacuum with the decline of the old Western powers but without, as yet, the strong emergence of the new Eastern powers. In order to avoid the “elephant in the room” syndrome, Indonesia must adopt a few strategies to strengthen its links, position and contributions. Economic, political and social stability must be maintained at home. Strong, sustainable and balanced growth at home is itself a contribution to global economic recovery. However, credibility and soundness of national policies and authorities must precede this; they are not substitutes for any regional and international commitments that are not translated into domestic policies. G20 commitments must be backed by solid evidence and coherent implementation plans. The government should not use international commitments, such as efforts to mitigate climate change, just to win international community support. It must have clear scientific evidence of why such a commitment will serve the interests of the country and whether such a commitment can be feasibly implemented and undergoes a consultation period with different stakeholders at home. By looking at the trade balances of countries with the largest deficits and surpluses in the world, there is no sign of a reduction in global imbalances. Global imbalances will not disappear anytime soon. Some experts even see global rebalancing as a myth and an issue that only exists between Washington and Beijing. The highly inter-regionally integrated portfolio investment in Asia to the Europe and the US, with less than 10 percent of intra-regional integration, means that current-account rebalancing without being accompanied by capital-account rebalancing and financial development in Asia, will not be enough. For Indonesia, as it is not contributing much to the global imbalance, its focus must continue to be on increasing domestic competitiveness if it wants to catch up in the global trade supply chain, and to reorient export destinations to nontraditional market countries. Infrastructure would help toward the much-needed, long-term structural adjustments for Indonesia. It must be noted that the lack of infrastructure in Indonesia is not only a problem of financing, but a problem of institutional, especially regulatory, issues. Moreover, to ensure enough financing for infrastructure in the future, there must be huge fiscal reform, especially in phasing out energy subsidies. The regional and international appeal to finance its infrastructure development may not seem so credible if it is seen as not being serious in its own domestic fiscal reform, either because of a fragmented parliamentary system, a lack of leadership or a lack of support from the public because of a “trust deficit” due to previously high fiscal “leakages”. Despite the fact that G20 countries are committed to avoiding protectionism, they are responsible for 80 percent of the significant increase of trade-restrictive measures introduced during the second half of 2011. The number of protectionist measures in the third quarter of 2011 alone was as high as during the peak of the global financial crisis in 2008 – 2009. With increasing skepticism over globalization, Indonesia must not back down to political interests at home, but remain committed to improving the global trade environment as a whole. Indonesia may come up, for example, with initiatives to help countries who are adversely affected by free trade. Currently, Indonesia may be experiencing a “reform crisis” at home. There is no pressure to reform in a sound macroeconomic environment. But, normalcy and good times should not be excuses for complacency. Reforms must be institutionalized and not only implemented when there is a crisis, although such periods of time are the best for reform. Moreover, commitments to reform must not only be based on subjective judgments with an amount of political aroma, but objective, scientific- and data-based studies adjusted to national institutional and implementational constraints. The writer is a researcher at the Centre for Strategic and International Studies in Jakarta and a lecturer at the University of Indonesia’s school of economics.