Ditching global financial bodies, welcoming the AIIB

Yet, regionalism has come to occupy an increasingly prominent place in international affairs. Though Europe is often viewed as the precursor of this trend – it has certainly had an important catalytic effect on other regions – no region, regardless of size, stage of development or civilisational outlook, can be immune to the trend.

The Asia-Pacific region is no exception to the rule. Exclusion from regionalism will only lead to marginalisation. Therefore, the general idea is how to make it work.

Later, Jokowi’s speech turned out to be a political gimmick that gives way to China. A plan announced by the Finance Ministry signals a move in which Indonesia will seek funding from the Asian Infrastructure Investment Bank (AIIB), a new Beijing initiative to rival the Japan and US sponsored ADB. This is a fatal move since it leaves out a prominent partner for Indonesia: Japan.

With the absence of Japan, China’s strategy will have a negative impact economically given her shallow and unclear strategy in trade and investment in Indonesia.

Moreover, the Indonesian Investment Coordinating Board (BKPM) shows a ratio of only one in 10 Chinese investment projects being realised, compared to Japan’s investment ratio of 6.5 realised projects out of every 10.

China has also excluded sensitive sectors and issues that may be difficult to deal with in the short term, such as intellectual property protection, dispute settlement mechanisms, special sector liberalisation, the environment and labour standards.

China’s trade and investment strategies are widely seen as an example of dominance in geopolitical considerations in its engagement in Southeast Asia. A worrying and uncomfortable region can only be a distraction from focusing on economic development. China also accepts a very flexible plan, which concludes with a shallow strategy that has no long-term goal.

The greater flexibilities demonstrated by China unilaterally also demonstrate that reaching agreements with Indonesia will meet its political and foreign policy objectives, instead of reaching economic targets such as gross domestic product growth. In fact, Chinese officials admitted that geopolitical considerations trumped any economic benefit when China was negotiating economic issues with its neighbouring countries.

This is quite understandable since the rivalry between Asean members, especially Indonesia, and China has rumbled on and on. This can lead to painful domestic structural adjustments within Asean in the short run.

Then again, the mind-set in viewing economic opportunities or threats depends on whether China’s economy is perceived as complementary or competitive vis-a-vis individual Asean economies and on whether the latter economies are able to exploit their complementary opportunities and overcome such threats.

In constituting regionalism, leadership plays a very important role. The Korea Herald (October 10, 2002) once asked, “Which country is capable of taking the lead? It boils down to either China or Japan.” Sino-Japanese antagonism and aspirations of leadership on both sides have been a major source of structural change in the region, resulting in a dynamic interplay between bilateral and multilateral institutions. 

It is important for Indonesia and Asean to give Japan an extensive role in designing trade and investment strategies given the shallow impact of China’s investment in the region.

Japan’s comprehensive trade strategy is already proven to have brought the region to a sound economic level. Having Japan as an ideal leader is quite difficult, but it is worth trying given the potential effects of enhancing regional welfare.

 

FITHRA FAISAL HASTIADI is research and community engagement manager in the School of Economics at the University of Indonesia.