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

45-71

The Developmental Gap between

the ASEAN Member Countries
The Perspective of Indonesia
Dionisius A. Narjoko and Puspa Delima Amri

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

Faculty of Economics and Business

Gadjah Mada University
 The Developmental Gap between ASEAN Member Countries
Dev’t Gap : ASEAN-6 and CLMV

ASEAN Economies
 The Developmental Gap between ASEAN Member Countries

Contents
1 Introduction

Policies Affecting Industrialization in in Indonesia and Other ASEAN

2 Countries: A Summary

Industrialization in Indonesia and Selected ASEAN Countries:

3 A Comparative Analysis

4 Main Challenges Faced by Indonesia

5 Indonesia and the Economic Integration Initiative

6 Summary and Conclusion

ASEAN Economies
 The Developmental Gap between ASEAN Member Countries
Introduction
ASEAN

•ASEAN terbentuk pada 8 Agustus 1967

ASEAN Economic Community

oktober 1993
•Berdiri ASEAN Economic Community (AEC) Januari

Rencana AEC
•AEC mempunyai rencana untuk menjadikan sebuah single market dan
produksi yang didasarkan atas karakteristik bebas aliran barang, jasa dan
modal pada tahun 2015

ASEAN Economies
 The Developmental Gap between ASEAN Member Countries

Policies Affecting Industrialization in in Indonesia

and Other ASEAN Countries: A Summary

1 2

Pengaruh
industrialisasi Pengaruh
di Indonesia industrialisasi
dan Negara- di Negara-
negara ASEAN negara ASEAN
yang lain

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 The Developmental Gap between ASEAN Member Countries

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 Industrialisasi
kebijakan proteksionis pada perdagangan. di Indonesia

(1986) Substitusi impor

menjadi promosi ekspor

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 The Developmental Gap between ASEAN Member Countries
Pengaruh industrialisasi di Negara-negara ASEAN

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 The Developmental Gap between ASEAN Member Countries
Industrialization in Indonesia and Selected ASEAN
Countries: A Comparative Analysis

1 2 3

Perubahan Kinerja dan Foreign

Struktural Struktur Direct
Ekspor Investment

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Perubahan Struktural

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ASEAN Economies
 The Developmental Gap between ASEAN Member Countries
Export Performance and Structure

ASEAN Economies
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Average Annual Manufacturing Exports Growth in some ASEAN
countries (in percentage)

1990-1995 1995-2000 2000-2005

2.8 Indonesia
3.7 7.1
17.1 Indonesia Indonesia
19.6 5.5 10.2 Malaysia
Malaysia Malaysia 7.2
5.6 Filipina
Filipina Filipina
21.8 Singapura
19.7 Singapura Singapura 0.5
Thailand
Thailand 28.3 Thailand 11.8
15.2

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 The Developmental Gap between ASEAN Member Countries
Export growth declined in Indonesia

Indonesia’s
Export Politik yang tidak stabil di Indonesia tahun 1998
Growth
Penolakan Letter of Credit dari Indonesia pada
masa krisis (Johnson 1998)

Ketidakmampuan manufaktur Indonesia untuk

memanfaatkan network di Asian region

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Share of Manufacturing Exports in Some ASEAN countries by
Factor Intensity Groups (in percentages)

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Foreign Direct Investment

masa setelah Pergerakan

Ketertinggalan
krisis lain dlm FDI

Indonesia memiliki pergerakan lain

dalam hal FDI dibanding
negara ASEAN yang lain

Bermula pada Ketertinggalan dalam

masa setelah krisis mengembangkan teknologi dan
capital-intensive industries

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 The Developmental Gap between ASEAN Member Countries
Bukti-Bukti

share dari FDI flow di bidang technology-

dan capital intensive industries ke
Pertama Indonesia, relatif lebih kecil dibanding
dengan negara ASEAN yang lain

share FDI flow antara 2 periode,

Kedua 1999–2001 and 2002–2003,
mengalami penurunan.

Share FDI dari Jepang yang merupakan

Ketiga negara utama penginvest di Asia Tenggara
hanya memiliki persentase yang kecil.

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Average Annual Share of FDI Flow into Some ASEAN Countries, 1999-2003
(in percentage)

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

Average Annual Share of FDI flows into ASEAN countries by Japan

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The Developmental Gap between ASEAN Member Countries

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investors

FDI
inflow

Why?
industrialization

Dev’t Gap

ASEAN Economies
 The Developmental Gap between ASEAN Member Countries

Main Challenges Faced by Indonesia

Labour Deteriorating
Policy Infrastructure
Changes

Domestic Structural Problems

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 The Developmental Gap between ASEAN Member Countries
Labour Policy Approach Post-1997/98
Economic Crisis
What
Pre-Crisis Post-Crisis
kind of
policy
changes
that held
back
FDI?

Less Freedom Excessive Freedom

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 The Developmental Gap between ASEAN Member Countries
Important Policy Changes that held back FDI

Increased
Ministerial Decree 150/th.2000 Cost of Firms
• Severance pay & Compensation And
• Encouraged workers to make
Created
excessive claims & to resort strikes
Uncertainty in
the Level of
Determination of minimum wages Wages
• New decentralization
programme (2001)
• Central gov’t  Provincial Gov’t

New Labour Law

ASEAN Economies
 The Developmental Gap between ASEAN Member Countries
New Labour Law…

To strike a balance between investors and labours

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

But still considered pro-labour

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UDY
T S T
EN
REC

World Bank/Int’lFinance Cooperation

(2006)

●
Indonesia as one of the countries with high rigidity in hiring
and firing workers
●
Indonesia has very high cost of firing due to : severance
payment, high minimum wages, bureaucracy, non-
transparent lay-off regulation

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 The Developmental Gap between ASEAN Member Countries
Challenges to Improve Infrastructure
Economic Corruption
Crisis
Deteriorating
Poor infrastructure Inadequate
institution & funds for
regulatory local gov’t
framework

Made Indonesia less

competitive vis-à-vis the
other ASEAN countries

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 The Developmental Gap between ASEAN Member Countries
The Key to Improve Infrastructure

World Bank (2005)

The ability
The Key to of gov’t to
Improve Certainty in
attract
regulatory
Infrastructure domestic
framework
and foreign
private
investors

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 The Developmental Gap between ASEAN Member Countries
Why reforms are not effective?

1 2 3

No clear The absebce The reforms

specification of are often
in the implementing undermined
objective of regulation and by other
the institution. institutions
regulation. within the
gov’t

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 The Developmental Gap between ASEAN Member Countries
Indonesia and the Economic Integration
Initiative

Slow progress of recovery Constraints

from economic crisis Indonesia
from
contributing
significantly
Domestic economic problems
to bridge
dev’t gap

Struggling-to-recover Indonesia is hampering overall efforts towards the integration of

ASEAN.

Constraing Indonesia from playing abigger role in accelerating capacity building & other
efforts to narrow the dev’t gap.

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 The Developmental Gap between ASEAN Member Countries

Progress of
ASEAN Economic
Dev’t Gap Regional Econ
Community
Integration

How to narrow the gap?

Advancing ASEAN integration itself

(through integrating CLMV Countries into
the regional and global market)

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 The Developmental Gap between ASEAN Member Countries
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, and prosperity depends largely on the
economic welfare of each and everyone of their members

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 The Developmental Gap between ASEAN Member Countries

 ASEAN has agreed on accelerating

12 priority sectors through
progressive elimination of tariffs

 Indonesia is supporting ASEAN’s efforts to

accelerate economic integration by taking
a lead in automotives sector

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Progress towards AEC

AEC

Facilitate
movement of
e p r o g r e s s
persons & Th
accelerate
lat i ve l y s low
AFAS & AIA integration of the re
12 priority sectors

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Trade in Goods Liberalization
Tariff reduction : from 0-5% to zero tariff

Tariff reduction on 85% products in the 12 priority sectors : ASEAN-6

(2007) & CLMV (2012)

Intra-ASEAN share of ASEAN’s total exports remained stagnant

i z at i o n o f
e y : l i b eral
K s p e c i ally
n t , e
investme
for CLMV

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 The Developmental Gap between ASEAN Member Countries

Trade in Service Liberalization

ASEAN’s
Efforts

FLEXIBILITIES ASEAN Minus

• Faster
liberalization for X Formula
modes 1 & 2 2 or more countries
• Slower could go ahead and
liberalization for negotiate services
modes 3 & 4 trade liberalization
for specific sectors,
w/ other members
can choose to join
later.

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Investment

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

Negative List Approach

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

p t i m al a n d Sensitive list should be opened

sub- o
t o b e t ot a ll y
need
reformed
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

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 The Developmental Gap between ASEAN Member Countries
Special Schemes for Narrowing the Gap

●
Older members offer preferential tariffs to the CLMV on a

AISP (January
voluntary and bilateral basis, based on the list of products
offered by CLMV.
●
Low utilization rate of AISP
2002) ●
The AFTA Council Meeting called for ASEAN-6 to further
improve the preferences given to CLMV

●
Enhancing productivity capacity in CLMV countries and making
their economies more competitive in meeting the challenges

IAI ●
ahead.
A Work Plan that will ensure dynamic and sustained growth of
the sub-region and prosperity of the peoples.
(November 2000) ●
Four Areas : infrastructure (Cambodja), ICT (Maynmar), HRD
(Laos), Capacity-Building (Vietnam)

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 The Developmental Gap between ASEAN Member Countries
The Role of Official Development Assistance:
The Case of the Mekong Basing Development

eater Mekong Sub-region (GMS)

MS’s Members

MS’s Programme

MS’s Contribution & benefits

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Cont’d..
Berdasarkan pendekatan Holistik dan Multisektoral ada
lima kekuatan pendorong strategis memfasilitasi
memperkuat
memperkuat :
perdagangan lintas-
hubungan perbatasan dan
infrastruktur investasi

meningkatkan pengembangan
partisipasi sektor sumber daya manusia
swasta dan daya dan kompetensi
saing keterampilan

ASEAN Economies
melindungi mempromosikan
 The Developmental Gap between ASEAN Member Countries
Indonesia’s Role and Contribution and the
Challenges Faced by Indonesia

Partisipasi
Keterbatasan
Penyebab
Indonesiakontribusi minimnya
kepada CLMV Indonesia kontribusi

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ASEAN Economies
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Cont’d….

Fakta minimnya disajikan pada Tabel 12. kontribusi

Indonesia tercatat sangat minim.

Pada masa mendatang sangat diharapkan peranan Indonesia secara krusial

dalam mendukung dalam mempersempit kesenjangan pembangunan

Pemulihan ekonomi Indonesia dan transisi politik yang sukses menuju

demokrasi juga penting bagi perkembangan ASEAN secara keseluruhan.

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Summary and Conclusion

Tiga aspek Industrialisasi

perubahan struktural, kinerja ekspor dan infrastruktur, dan
aliran FDI ke negara-negara ASEAN

Peran, atau kelemahan Indonesia yang

terlibat di ASEAN

Arah pada perbaikan ekonomi di

Indonesia pemulihan pada kinerja FDI

ASEAN Economies
FACULTY OF ECONOMICS AND BUSINESS
GADJAH MADA UNIVERSITY