Developmental Gap between ASEAN Members

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The Developmental Gap betweenThe Developmental Gap between

the ASEAN Member Countriesthe ASEAN Member CountriesThe Perspective of IndonesiaThe Perspective of Indonesia

Roky Kartiko :: Karina Adistia :: Anandita Rizki :: Felix Wisnu

Dionisius A. Narjoko and Puspa Delima Amri

ASEAN Economic Bulletin Vol. 24, No.1 (2007), pp. 45-71

Faculty of Economics and Business

Gadjah Mada University



The Developmental Gap between ASEAN Member Countries

Dev¶t Gap : ASEAN-6 and CLMV

ASEAN Economies




ASEAN Economies

Contents

Introduction1

Policies Affecting Industrialization in in Indonesia and Other ASEAN

Countries: A Summary2

Industrialization in Indonesia and Selected ASEAN Countries:

A Comparative Analysis3

Main Challenges Faced by Indonesia4

Indones ia and the Econom ic Integration Initiative5

Sum m ary and Conclusion




Introduction

ASEAN Economies

ASEAN

ASEAN Economic Community

Rencana AEC

ASEAN terbentuk pada 8 Agustus 1967

AEC mempunyai rencana untuk menjadikan sebuah single market dan

produksi yang didasarkan atas karakteristik bebas aliran barang, jasa dan

modal pada tahun 2015

Berdiri ASEAN Economic Community (AEC) Januari 1993

oktober




ASEAN Economies

Policies Affecting Industrialization in in Indonesia

and Other ASEAN Countries: A Summary

11

Pengaruh

industrialisasidi Indonesiadan Negara-

negara ASEANyang lain

22

Pengaruhindustrialisasi

di Negara-negara ASEAN




ASEAN Economies

Pengaruh industrialisasi di Indonesia dan

Negara-negara ASEAN yang lain

Intervensi ekonomi

menjadi ekonomi berorientasi pasar

pergeseran kembali intervensi pemerintah

yang lebih besar dan bergerak terhadap

kebijakan proteksionis pada perdagangan.

(1986) Substitusi impor

menjadi promosi ekspor

IndustrialisasiIndustrialisasi

di Indonesiadi Indonesia




Pengaruh industrialisasi di Negara-negara ASEAN

ASEAN Economies




ASEAN Economies

Industrialization in Indonesia and Selected ASEAN

Countries: A Comparative Analysis

11

Perubahan

Struktural

22

Kinerja danStruktur

Ekspor

Forei nDirect

Investment




Perubahan Struktural

ASEAN Economies




ASEAN Economies




Export Performance and Structure

ASEAN Economies



The Developmental Gap between ASEAN Member CountriesAverage Annual Manufacturing Exports Growth in some ASEAN

countries (in percentage)

ASEAN Economies




Export growth declined in Indonesia

ASEAN Economies

oliti ang tida sta il di Indonesia tah n

enola an etter o Credit dari Indonesia pada

masa risis (Johnson

Ketida mamp an man a t r Indonesia nt

meman aat an networ di Asian region

Indonesia s

Export

rowth




ASEAN Economies



The Developmental Gap between ASEAN Member CountriesShare of Manufacturing Exports in Some ASEAN countries by

Factor Intensity Groups (in percentages)

ASEAN Economies




ASEAN Economies




ASEAN Economies

Foreign Direct Investment

BermulaBermula padapadamasamasa setelahsetelah krisiskrisis

IndonesiaIndonesia memilikimemiliki pergerakanpergerakan lainlaindalamdalam halhal FDIFDI dibandingdibandingnegaranegara ASEAN yang lainASEAN yang lain

KetertinggalanKetertinggalan dalamdalammengembangkanmengembangkan teknologiteknologi dandan

capitalcapital--intensiveintensive industriesindustries

masamasa setelahsetelah

krisiskrisis

PergerakanPergerakan

lainlain dlmdlm FDIFDIKetertinggalanKetertinggalan




ASEAN Economies

Bukti-Bukti

PertamaPertama

KeduaKedua

KetigaKetiga

share dari I flow di bidang te hnology-dan apital intensive industries keIndonesia, relatif lebih ke il dibandingdengan negara ASEAN yang lain

share I flow antara 2 periode,1999±2001 and 2002±2003,mengalami penurunan.

Share I dari Jepang yang merupakannegara utama penginvest di Asia Tenggara

hanya memiliki persentase yang ke il.




ASEAN Economies




Average Annual Share of FDI Flow into Some ASEAN Countries, 1999-2003

(in percentage)

ASEAN Economies




Average Annual Share of FDI flows into Indonesia By source of Region

ASEAN Economies

Average Annual Share of FDI flows into ASEAN countries by apan




ASEAN Economies




ASEAN Economies

Why?Why?

e ¶t

industri liz tion

F I

inflow

in estors




Domestic StructuralProblems

Indonesia¶sWeak

IndustrializationPerformance

Indonesia¶sWeak

IndustrializationPerformance

ASEAN Economies

Labour Policy

Changes

DeterioratingInfrastructure

in en es ce n onesi




Labour Policy Approach Post-1997/98

Economic Crisis

ASEAN Economies

Less F eedo x ess ve F eedo

Pr e risis Pos risis




ASEAN Economies

Important Policy Changes that held back FDI

MinisterialMinisterial DecreeDecree 1 01 0/th/th..20002000� Severance pay & Compensation

� Encouraged workers to make

excessive claims & to resort strikes

DeterminationDetermination of of minimumminimum wageswages� New decentralization

programme (2001)

�Central gov¶t

Provincial Gov¶t

IncreasedIncreased

Cost of FirmsCost of Firms

AndAnd

CreatedCreated

Uncertainty inUncertainty inthethe Level of Level of

WagesWages




New Labour Law«

To strike a balance between investorsand labours

Seen as compromise between business(APINDO) and big labor unions

But still considered pro-labour

ASEAN Economies




ASEAN Economies

� Indonesia as one of the countries with

high rigidity in hiring and firinghigh rigidity in hiring and firingworkersworkers

� Indonesia has very high cost of firingvery high cost of firingdue to : severance payment, high

minimum wages, bureaucracy, non-transparent lay-off regulation

World Bank/Int¶lFinanceCooperation (2006)World Bank/Int¶lFinanceCooperation (2006)




Challenges to Improve Infrastructure

ASEAN Economies

Deteriorating

infrastructure

Corruption

Inadequate

funds for

local govt

EconomicCrisis

Poor

institution &

regulatoryframework

Made Indonesia ess

competiti e is-à- is theother S countries




The Key to Improve Infrastructure

ASEAN Economies

The Ke to

ImproveInfrastructure

World an 2005

Certaint inre ulator

framewor

The abilit

of ovt to

attract

domestic

and forei n

private

investors




Why reforms are not effective?

ASEAN Economies

1

No clea

specificationin t eobjective of t eregulation.

3

The reforms

are of tenunderminedb otherinstitutionswithin thegov¶ t

2

The absebce

of implementingregulation andinstitution.




Indonesia and the Economic Integration

Initiative

ASEAN Economies

S o rogress o recover

rom economic crisis

omestic economic ro ems

onstraints

Indonesia

romcontri ting

signi icantto ridge

dev¶t ga

Struggling-to-recover Indonesia is hampering overallefforts towards the integration of ASEAN.

Constraing Indonesia from playing abigger role inaccelerating capacity building & other efforts tonarrow the dev¶t gap.




ASEAN Economies

Dev¶t GapDev¶t GapProgress of

Regional EconIntegration

Progress of Regional Econ

Integration

ASEAN Economic

Community

ASEAN Economic

Community

How to narrow the gap?

Advancing ASEAN integration itself

(through integrating CLMV Countries intothe regional and global market)




Rationale for ASEAN-6 to integrate CLMV into global & regional market

CLMV Economies : central planning to market economies,inward-looking to outward-looking

A growing consciousness that region¶s stability, peace, andprosperity depends largely on the economic welfare of eachand everyone of their members

ASEAN Economies




ASEAN Economies

ASEAN has agreed on accelerating12 priority sectors throughprogressive elimination of tariffs

Indonesia is supporting ASEAN¶s efforts toaccelerate economic integration by takinga lead in automotives sector




Progress towards AEC

ASEAN Economies

AFAS &

AIA

Facilitate movementof persons &accelerate integrationof the 12 prioritysectors

AEC




Trade in Goods Liberalization

ASEAN Economies

Tariff reduction : from 0-5% to zero tariff Tariff reduction : from 0-5% to zero tariff

Tariff reduction on 85% products in the 12 priority sectors :ASEAN-6 (2007) & CLMV (2012)Tariff reduction on 85% products in the 12 priority sectors :ASEAN-6 (2007) & CLMV (2012)

Intra-ASEAN

share of ASEAN

¶s total exports remained stagnantIntra-ASEAN

share of ASEAN

¶s total exports remained stagnant




ASEAN Economies

Trade in Service Liberalization

FLEXIBILITIES� Faster

liberalization for

modes 1 & 2

� Slower

liberalization for

modes 3 & 4

ASEAN¶sEfforts

ASEAN MinusX Formula2 or more countries

could go ahead and

negotiate services

trade liberalization for

specific sectors, w/

other members canchoose to join later .




Investment

AIA aims at opening up industries and granting national treatment to investmentfor ASEAN member countries and from external sources.

Negative List Approach

Originally confined to the manufacturing sector, but later opened also toagriculture, mining, forestry and fishery, and services incidental to these sectors.

ASEAN Economies

Sensitive list should be opened

Transfering SL to TEL for investment in 12 priority sectors

The application of this provision should be extended to cover all manufacturing sectors and not juts the 12 priority sectors




Special Schemes for Narrowing the Gap

� Older members offer preferential tariffs to the CLMV on avoluntary and bilateral basis, based on the list of productsoffered by CLMV.

� Low utilization rate of AISP

� The AFTA Council Meeting called for ASEAN-6 to further improve the preferences given to CLMV

AISP(January 2002)

AISP(January 2002)

� Enhancing productivity capacity in CLMV countries andmaking their economies more competitive in meeting thechallenges ahead.

� A Work Plan that will ensure dynamic and sustained

growth of the sub-region and prosperity of the peoples.� Four Areas : infrastructure (Cambodja), ICT (Maynmar),

HRD (Laos), Capacity-Building (Vietnam)

IAI(November 2000)

IAI(November 2000)

ASEAN Economies




The Role of Official Development Assistance:The Case of the Mekong Basing Development

ASEAN Economies

Greater Mekong Sub-region (GMS)

GMS¶s Members

GMS¶s Programme

GMS¶s Contribution & benefits




ASEAN Economies




Cont¶d..

ASEAN Economies

Berdasarkan pendekatan Holistik dan Multisektoral ada

lima kekuatan pendorong strategis :

memperkuat hubunganinfrastruktur

memfasilitasiperdagangan lintas-

perbatasan dan

investasi

meningkatkanpartisipasi sektor swasta

dan daya saing

pengembangan sumber daya manusia dan

kompetensiketerampilan

melindungimempromosikanlingkungan dan

pemanfaatan secaraberkelanjutan sumber daya alam bersama




Indonesia¶s Role and Contribution and the

Challenges Faced by Indonesia

ASEAN Economies

PartisipasiIndonesiakepadaCLMV

KeterbatasankontribusiIndonesia

Penyebabminimnyakontribusi




ASEAN Economies




Cont¶d«.

ASEAN Economies

Fakta minimnya disajikan pada Tabel 12. kontribusi Indonesia tercatat sangat minim.

Pada masa mendatang sangat diharapkan

peranan Indonesia secara krusial dalammendukung dalam mempersempitkesenjangan pembangunan

Pemulihan ekonomi Indonesia dan transisipolitik yang sukses menuju demokrasi juga

penting bagi perkembangan ASEAN secarakeseluruhan.




Summary and Conclusion

ASEAN Economies

Tiga a ia isasi

Pera a a elema a esia a g

terlibat di ASEAN

Ara ada erbaika ekonomi diIndonesia pemulihan pada kinerja I

perubahan struktural, kinerja ekspor dan infrastruktur, dan

aliran FDI ke negara-negara ASEAN



FACULTY OF ECONOMICS AND BUSINESS

GAD AH MADA UNIVERSITY

Developmental Gap between ASEAN Members

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