As the political, economic interest emerges from Malaysia and Singapore as export-oriented countries to establish stronger cooperation within ASEAN countries into the ASEAN Union, Indonesia still strongly resists the temptation.
Indonesia dominates 40 per cent of regional economic output and provides a large-scale market opportunity that many Indonesian economists called “big pie“ for capitalising the business. The Indonesian government claims the unbalance of economic development within South-east Asian Region would not give any advantage for ASEAN members that do not have the capability to compete with other ASEAN members, that have huge capital support.
President Joko Widodo (Jokowi) at the earlier stage of his foreign policy is quite different with previous President Susilo Bambang Yudhoyono (SBY), who was likely to pursue economic corporation through multi-lateral large-scale economic groups or International Corporation such as G20, ASEAN, and APEC. However, from Jokowi policy positioning it is clearly seen that Jokowi’s main interest is focused on the bilateral and multilateral economic corporation with any potential countries that have mutual benefits, focus on a country that has potential and interest to invest in the form of FDI infrastructure and has a mutual interest in foreign trade with Indonesia. It is very obvious Jokowi favours to cooperate with some Asian countries noted (China, Japan, Korea, Singapore, and Malaysia) and some other countries in African region to be trading partner especially in energy commodity (oil) with the government-to-government business model and targeting the USA for Indonesia fish market.
Despite that, Indonesia still faces huge domestic economic and political obstacles within provinces such as maldevelopment between Java and the eastern part of Indonesia. The turning point of the political system in Indonesia from centred model to decentralisation gives its challenges. Lack of political maturity and awareness creates a new oligopoly of power in many provinces, districts and sub-districts. Centred governmental model is accused to create a patrimonial governmental model, but decentralise model without political maturity creates an even bigger monopoly of power and money politics in each region. The existence of political dynasty in several areas such as Banteng, South Sulawesi, and Bankalan could be taken as examples. Structural abuse of power prevents healthy economic and political competition instead it would make the rent seeker presence in every line sector. That is the major obstacle for Indonesia economic development, and it needs to be seriously reformed.
The presence of the Corruption Eradication Commission (KPK) is not effective enough to prevent corruption in each region. The fact that KPK office is only located in Jakarta and the ratio between numbers of KPK investigator, which only 60 personnel compared with 4.5 million of total civil servants in 2014, shows the imbalance proportion with the number of the corruption case that can be handled by KPK. Therefore, it makes KPK favours targeting large-scale corruption around the circle of the central government in Jakarta. This condition makes corruption, collusion and nepotism thrives and rampant in the regional part of Indonesia, and makes abuse of power is higher but invisible in regional than in central government.
It is not that the Indonesian government does not aggressively implement institutional reform. However, the problem relies on the prescription of its reform. Many of policies are made for short-term reform and highly inefficient just to make the image of government looks better (imaginary campaign) and makes people feel better for a while but neglects realistic and substantial solutions to optimise government’s performance and achieve endogenous growth. Some a high impact social policy is made rather as a political policy than economic policy, for example, energy subsidies policy, which arguably as a policy product of rent seekers lobbyist who is taking profits from a large volume of oil import.
The continuous weakening of Rupiah against the dollar since 2011 is one of many pieces of evidence of how weak government performance in the economy. The Indonesian government under Susilo Bambang Yudhoyono (SBY) administration claimed that Indonesia economy was healthier compared with any others countries that had the worst impact from the 2007–2008 financial crisis, with 6.5 per cent of GDP performance. However, the government claim considered just a superficial act. In fact, 6.5 per cent of GDP growth was largely contributed from domestic consumption and high commodity price (especially coal). Indonesia enjoys a high volume of demand for the commodity from China as its main trading partner.
As China’s economy is slowing down, their demand for Indonesia community is also reduced. Many companies in the energy sector should cut their operations, and as a result, the government cannot get glorious income from fiscal. The Indonesian government cannot reach their income target in the fiscal sector, as a result following a huge national consumption on energy; the government still needs to cover a huge volume of oil import.
Unbalance income and spending, makes the value of rupiah against US$ depreciated 14 per cent and gave a tremendous effect on the current account deficit. Many diet programs should be shut down following budget efficiency policy. If the Indonesian government does not pay attention to industry and technology development to produce a high-value-added product, then ASEAN union will not be an opportunity instead it will be a real treat for Indonesia. Even the ASEAN economic community, which started in December 2015, should be wary of its potential threats in the financial sector.
Countries with a strong capital will be easy to take over the business in the financial sector, many of foreign banks will be easily set up their branch and control the outflow of money and Indonesia might lose this battle with other countries in Southeast Asia if they do not start to re-evaluate their monetary and banking sector. If Indonesia Central Bank is consistent with their high-interest policy, it will hurt the business sector. People will hesitate to borrow money, and the outflow of the business cycle will also stop, and the fiscal target will not be reached. A high-interest policy will just save rupiah to depreciate in a short-term but hurts industrial growth in the long term.