Japan needs another Meiji revolution, not PM Abe

Kornelius Purba, Jakarta | Opinion | Wed, January 09 2013, 1:06 PM

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Japanese Prime Minister Shinzo Abe started his first official day at work on Monday by singing the Japanese national anthem, Kimigayo, which Reuters said has often been perceived as a symbol of Japan’s past imperialism and militarism.

The hawkish leader has often talked about revising the country’s constitution so that Japan can develop its military without restrictions. There are fears that rightists and even ultranationalist politicians may come to dominate Japanese politics, sparking possibilities of a revival of a militaristic state.

However, Japan needs more than shallow slogans from the Liberal Democratic Party (LDP) to restore its position in the forefront of international community. Japan’s political system and its political elites are too rotten to undertake the massive changes that the nation needs.

Japanese people need to launch another Meiji Revolution to bring revolutionary reform to every aspect of Japanese life, just as that nation did in the 19th century.       

Only when the whole of the Japanese people are sufficiently united to say enough is enough will the nation develop the power to regain its position as a global leader.

Only when the Japanese are ready to humble themselves by following the examples and aspirations of developing countries, including those that went through the “Arab Spring”, will Japan be strong again.

Only when the Japanese find the wherewithal to undertake difficult and large-scale structural reforms, as has happened in several Southeast Asian nations, including Indonesia, will Japan stand tall again.

The results of the elections in December have unfortunately showed that the Japanese people are still not ready to transform their nation.

It is weird, indeed unbelievable, that voters awarded a landslide victory to the old-fashioned and corruption-tainted LDP and its chairman, Abe, who abruptly resigned as prime minister in 2007, to lead the nation to recover from economic stagnation.

For Japanese voters, the economy remains the most urgent issue, as continuous deflation, stagnant economic growth and rampant unemployment have hurt them for far too long. They hope that the LDP can find a recipe for economic success, although so far Abe has only talked about the necessity of reviving gigantic public works programs and of forcing the central bank to allow inflation to rise by increasing the money supply.

For Japan’s neighbors, especially China, North Korea and South Korea, the LDP’s return will have little impact, although Abe and his government will likely be more irritating for them. Abe’s government will likely use old tactics: Showing off Japan’s military strength and defending the history of Japan’s colonial rule over East Asia.

They will speak loudly, and the Chinese and Korean people will feel agitated. However, such games would only further isolate Japan in international arena.

For the 10-member Association of Southeast Asian Nations (ASEAN), the new government of Japan does not bring significant hope, especially in terms of foreign direct investment. Japan’s generously funded official development assistance (ODA) is much less popular now, especially in Indonesia, although Myanmar is now enjoying robust economic cooperation with Japan.

China has been very proactive in providing economic incentives for ASEAN members. The association’s member nations need China as an export destination and as a source of cheap loans, although at the same time, imports from China are often deadly for their domestic growth.

 But why have the Japanese voters entrusted their future to the LDP again? The people know very well that the LDP and Abe have little capacity to improve the state. The voters clearly wanted to punish opposition parties whose politicians have been even greedier and more corrupt than their LDP counterparts.

The people know that revolutionary changes are the only way to get rid of prolonged social political and economic problems. But it seems that the Japanese people are still in the process of searching for the right model of revolution, while at the same time they are not ready to leave their comfort zone.

When asked to mention a few reasons to be proud as the citizens of Japan, many will face difficulties in giving a firm answer. It is much easier to make a long list of the negative aspects of their nation and their government. A strong sense of skepticism, anger, frustration, even desperation, is evident among many Japanese now.

The Japanese people feel they can no longer endure the severe and prolonged pain they have had to bear from the humiliation and bullying of its former colony China over territorial disputes, while the country’s economy has remained stagnant for the last 15 years.

It is also painful to see how the once mighty economic power and influence in the world that the Japanese wielded in the world is also continuing to decline.

From the 1970s until the mid-1990s, Japan was the world’s leading lender, a generous grant provider for the developing world and top manufacturing investors, especially in Southeast Asia. People across the globe were once amazed by Japan’s corporate management philosophy, which became a nearly endless source of discussions and inspiration for people in the Third World. Japan was a role model for many other nations.

That enthusiasm has long since dissipated.

The government of Abe will not be able to bring about the significant changes needed to better Japan. Only the Japanese people can do that. The Japanese people should not hesitate to follow the path of poorer nations in creating a new Japan, although it could be very costly and painful for a long period of time.

Will the people have enough gut to launch another Meiji Revolution? Without dramatic change, Japan will only face more humiliation from its East Asian neighbors, like China, South Korea and North Korea.

The writer is senior managing editor at The Jakarta Post.

Can ASEAN achieve economic community?

Kiki Verico, Canberra | Opinion | Mon, December 24 2012, 9:27 AM

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The history of regional economic integration in Europe tells us that an economic community is an essential stage prior to achieving a common market (CM).

Economic community begins with the free flow of goods (trade integration) to the free flow of capital (investment integration), then service sector liberalization and the free flow of people.

These are all necessary conditions for a common market. ASEAN is attempting to achieve comprehensive regional economic integration through its economic community scheme, ASEAN Economic Community (AEC) 2015.

ASEAN is in the early stages of regional economic integration, which is in intra regional trade with the role of AFTA (ASEAN Free Trade Area). Although ASEAN intra-regional trade increased from 17.5 percent in 1990 (before the implementation of AFTA) to 24.5 percent in 2009 (after the implementation of AFTA), average ASEAN intra-investment share is still fairly small at around 14 percent of total FDI inflows in ASEAN.

To achieve economic community, ASEAN needs to enhance its trade and investment integration. The EU needs a custom union (CU), but ASEAN does not have a custom union. Yet, an ADBI study on the Asian-wide economic community highlights an attainable option for ASEAN: “Once a region-wide FTA is formed, it may also be easier for Asian Countries to establish a custom union […] as the European Economic Community did in 1968” (ADBI, 2010)

This shows that regional economic organizations in Asia could achieve economic community throughout the “region-wide frameworks”. ASEAN has two two frameworks: the ASEAN Plus and AFTA Plus One. Could these be ways for ASEAN to achieve economic community as the EU did?

There are two essential differences between ASEAN and the EU that explains why ASEAN’s economic integration pattern is dissimilar to the EU’s. But despite the differences, ASEAN could still attain economic community. First, ASEAN economic integration is slightly market-driven, while the EU is government-driven. The fact that ASEAN is market-driven makes it feasible for it to adopt “open regionalism” framework, which widens ASEAN’s economic cooperation to non-member states, whereas the EU’s custom union is an exclusive trade liberalization among its member states.

Second, ASEAN’s decision making process model is bottom-up with an intergovernmentalism mechanism known as soft regionalism, while the EU’s is top-down with a supra national body mechanism known as hard-regionalism. It is believed that the latter model helps accelerate the decision making process in the region. Yet the soft-regionalism model is compatible only with open-regionalism, therefore it is feasible for ASEAN to widen its regional economic cooperation to non-member states.

In Asia, trade creation effects are higher than trade diversion effects (Urata and Okabe, 2007). Trade creation is effective in the enhancement of intra regional investment. Recent data also shows that intra ASEAN investment has demonstrated significant growth, particularly after the Asian economic crises and the implementation of the CEPT in 2003. Since ASEAN’s trade creation is higher than trade diversion, the enlargement of ASEAN’s economic cooperation to non-member states will, in the long-run, increase FDI investment inflows in ASEAN.

Moreover, this will increase the effectiveness of AFTA in attracting FDI inflows. Recently, AFTA has only been effective in enchancing intra regional trade. The combination of AFTA and the enlargement of ASEAN regionalism to non-members using the “ASEAN Plus and AFTA Plus One” will help ASEAN achieve comprehensive trade and investment integration in the economic community.

In addition, this ASEAN-wide regionalism will create a “win-win solution” for the member states, non-member states and the multilateral agreements (WTO). For its member states, regional enlargement under the “ASEAN umbrella” will defunct the complicated direct individual Bilateral FTA (BFTA) among ASEAN’s members and non-members. ASEAN enlargement will also protect ASEAN member states from the “hub-spoke” problem that can emerge when a member state deals directly with non-member states (BFTA). In ASEAN’s case, BFTA also substitutes the role of AFTA in attracting FDI inflows while weakening ASEAN’s intra regional trade. The latter proves that a “noodle-bowl” exists in ASEAN (Verico, 2011).

For non-member states, regional-wide FTA will minimize discriminative action against non-members (Drysdale, 2006; Garnaut, 1994; Yamazawa, 1990). This effect is in line with the main objective of non-dicriminative action among countries (Most Favored Nation), and this confirms that a regional-wide arrangement is complementary to the WTO multilateral agreements (Lamy, 2007).

The world will see that a regional economic organization can achieve economic community through either the utilization of a custom union like the EU or the implementation of regional-wide frameworks such as ASEAN-wide regionalism. The latter will complete the WTO’s main purpose of reducing trade discrimination among countries and shifting the ASEAN economic integration from regional free trade area to regional economic community. Back to my initial question, is it possible for ASEAN to achieve economic community without facing major difficulties?

The writer, who obtained his doctorate from Waseda University in Tokyo, is a researcher at the Institute for Economic and Social Research Faculty of Economics, University of Indonesia (LPEM FEUI).

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SBY hopes for bright ASEAN-India future

Bagus BT Saragih, The Jakarta Post, Jakarta | World | Fri, December 21 2012, 12:29 PM

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President Susilo Bambang Yudhoyono has called on India and ASEAN countries to lower trade barriers and provide more incentives to businesspeople in an effort to achieve the US$100 billion 2015 trade target.

In his speech before participants at the ASEAN-India Commemorative Summit in New Delhi on Thursday, Yudhoyono asked for a more ambitious trade target for the next 20 years.

“India will remain one of ASEAN’s most important trading partners. The growing trade volume between ASEAN and India has surpassed the 2012 target. I am convinced that the 2015 target is achievable,” the President said, according to a copy of his speech sent to The Jakarta Post on Thursday.

“We have an opportunity to establish a new set of objectives that will further elevate our partnership and would synergize India’s ‘Look East Policy’ and ASEAN’s community building efforts. To that end, we need to set priority areas of strategic cooperation,” Yudhoyono told participants at the event to mark the 20th anniversary of ASEAN-India relations.

The meeting was led by Indian Prime Minister Mahmohan Singh and also attended by ASEAN leaders including Cambodian Prime Minister Hun Sen, Thai Prime Minister Yingluck Shinawatra, Brunei Darussalam Sultan Hassanal Bolkiah, Malaysian Prime Minister Najib Razak, and ASEAN Secretary-General Surin Pitsuwan.

With a combined population of 1.8 billion, preditcted to reach 2 billion in 2025, ASEAN and India must address the strategic issues of food and energy security, Yudhoyono added.

“I recommend that we task our relevant ministers and officials to initiate concrete efforts such as more joint research in the agriculture sector, and cooperation among centers of energy research in ASEAN and India,” he said.

The President called for maritime cooperation, given the Indian and the Pacific Ocean are vital for world trade and commerce.

“As much as 90 percent of intercontinental trade and two-thirds of all petroleum supplies travel through these shipping lanes. Seventy percent of the world’s petroleum products pass through the
Indian Ocean,” Yudhoyono said.

From Lisbon to Barcelona – all the forgotten EU instruments

Anis H. Bajrektarevic, Vienna | Opinion | Thu, December 20 2012, 9:33 AM

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There is a claim currently circulating the EU, both cynical and misleading: multiculturalism is dead in Europe. No wonder, as the conglomerate of nation-states/EU has silently handed over one of its most important debates — that of European identity — to the wing-parties, recently followed by several selective and contra-productive foreign policy actions.

Europe’s domestic cohesion, its fundamental realignment as well as the overall public standing and credibility within its strategic neighborhood lies in the reinvigoration of its transformative powers — stipulated in the Barcelona process of the European Neighborhood Policy as well as in the Organization for Security and Cooperation in Europe (OSCE).

By correlating hydrocarbons with the present political and socioeconomic landscape, scholar Larry Diamond revealed that currently 22 states in the world, which earn 60 percent or more of their respective gross domestic product (GDP) from oil (and gas) are non-democratic, authoritarian regimes.

All of them have huge disparities, steep socioeconomic cleavages, sharp political inequalities and lasting exclusion, not to mention poor human rights records.

These represent nearly half of the countries considered by the Freedom House’s annual reports as “not free” — the very same that are predominantly held accountable by the western media for domestic and regional insurgences, international armed conflicts, famines as well as for harboring and financing terrorists.

Hence, as many as nine of the 11 top crude exporters are usually labeled as dictatorships and/ or despotic monarchies.

Diamond calls it democratic recession. If so, there is not a single economic or political indicator in the Middle East — North Africa (MENA) region to imply any “Spring“ happening lately, but only a severe, lasting recession.

Indeed, modern history is full of examples where crude oil exporting countries’ development was hindered by the huge revenues. Far too often, the petro-cash flow did not assist but delayed or derailed necessary economic diversification and political reform.

It also frequently paved the way up for the elites, domestically felt as predatory, and externally used as — in CIA jargon — “useful idiots”.

 Conveniently though using revenues to buy and otherwise subsidize social peace, those regimes (or rentier states) were/are actually creating self-entrapment — ever stronger psychological and political dependence on hydrocarbons.

Therefore, a real “Arab Spring”, for the Middle East and the rest of us, will only come with a socio-economic decoupling and diversification, sociopolitical horizontalization, with a decisive de-psychologisation of and departure from oil-dependence. By no means, it will ever come by a purely cosmetic change of the resident in the presidential palace.

Fearing the leftist republican pan-Arabism and Nasserism, the US encouraged Saudi Arabia to sponsor the existing and establish a new large network of madrasahs all over the Middle East — Cleveland reminds us in his capital work: A History of the Modern Middle East.

In the last three decades, this tiger became “too big to ride“, as Lawrence Wright points out in his luminary book on al-Qaeda: The Looming Tower. Wright states that while representing only 1.5 percent of the world’s Muslims, Saudis fund and essentially control around 90 percent of the Islamic institutions from the US to Kazakhstan’ and from Norway to Australia.

By insisting on oversimplified and rigid, sectarian Wahhabi-Salafist interpretations of religious texts, most of these institutions along with their indoctrinated clerics are in fact both corrupting and preventing an important inner debate about Islam and modernity.

Self-detained in a limbo of denial, they largely (and purposely) keep the Arab and non-Arab Muslim world in a dangerous confrontational course with both itself and the rest of the world.

The sort of Islam Europe supported (and the means deployed to do so) in the Middle East yesterday, is the sort of Islam (and the means it uses) that Europe gets today.

Why and how?

Young generations of Europeans are taught in schools about the compact unity of an entity called the EU.

However, as soon as serious external or inner security challenges emerge, the compounding parts of the true, historic Europe resurface again. Formerly in Algeria, Egypt and Lebanon, then in Iraq (with
the exception of France) and now with Libya and Syria; Central Europe is hesitant to act, Atlantic Europe is eager, Scandinavian Europe is absent, Eastern Europe is bandwagoning and Russophone Europe is opposing.

The 1986 Reagan-led Anglo-American bombing of Libya was a one-time, head-hunting punitive action. This time, Libya (and currently Syria) has been given a different attachment: The considerable presence of China in Africa; successful circumventing pipeline deals between Russia and Germany (which will deprive Eastern Europe of any transit-related bargaining premium, and will tacitly pose a joint Russo-German pressure on the Baltic states, Poland and Ukraine); boldness (due to a petro-financial and strategic emancipation) of Iran; and finally the overthrow of the EU-friendly, Tunisian, Yemeni and Egyptian regimes — all combined — must have triggered alarm bells across Atlantic Europe.

Thus, in response to the MENA crisis, the EU has failed to keep up a broad, consolidated agenda and all-participatory basis with its strategic neighborhood, although having institutions, interest and credibility to do so — as it did before in its home; by silently handing over one of its most important questions, that of European identity, to escapist anti-politics (politics in retreat) dressed up in the Western European wing-parties. Eventually, Europe compromised its own perspectives and discredited its own transformative power’s principle.

It did so by undermining its own institutional framework: the Barcelona Process as the specialized segment of European Neighborhood Policy and the OSCE.

The only direct involvement of the continent ranged between a diplomatic delegitimization (by Goebbels-izing the media and punitive military engagement via the Atlantic Europe-led coalition of the willing (Libya, Syria). Confrontational nostalgia prevailed again over dialogue (instruments) and consensus (institutions).

Small wonder, that Islam in Turkey (or in Kirgizstan and in Indonesia) is broad, liberal and tolerant while the one in Northern Europe is a brutally dismissive, narrow and vindictively assertive.

The writer is Geopolitics of Energy editorial member and chairperson for international law and global political studies. This article is an excerpt from the key-note address: “From Lisbon to Barcelona — all the forgotten EU instruments” presented at the Crans Montana Forum, Oct. 18-20 in Geneva.

ASEAN, India conclude FTA talks on services, investment

Linda Yulisman, The Jakarta Post, Jakarta | Headlines | Thu, December 20 2012, 11:14 AM

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The 10-member Association of Southeast Asia Nations (ASEAN) concluded a long-bargained free trade agreement (FTA) with India on services and investment on Wednesday ahead of a two-day commemorative summit in New Delhi, India.

“The agreement will be able to significantly boost economic activities between India and ASEAN, as well as [those] between India and Indonesia,” Trade Minister Gita Wirjawan said in an SMS after the agreement was reached.

The FTA would also pave the way for discussions on a regional comprehensive economic partnership (RCEP) that ASEAN plan to seal with its six key trade partners, which includes India, Gita added.

The new agreement will add to the FTA on goods between ASEAN and India, said to have created one of the world’s biggest free trade areas with a market of around 1.8 billion people and a combined gross domestic product of US$2.8 trillion.

Bilateral trade between ASEAN and India totaled $55.4 billion in 2010, up 41.8 percent from 2009. During the 8th ASEAN-India Summit in 2010, leaders set the target to attain bilateral trade of $70 billion by 2012.

The trade in services and investment were not included in the FTA, which was signed in 2009 and took effect early last year, as both parties failed to reach agreement in time over several key issues.

India, for instance, demanded ASEAN open up its service sector further, including steps to cover independent professional services and contractual service suppliers at all levels.

The grouping has affected certain limitations on to the sector as well as protection and liberalization of investment.

However, the discussions have notably progressed since the ASEAN Summit in Phnom Penh, Cambodia, last month with ASEAN leaders showing stronger commitment to the expanded FTA.

Trade Ministry director general for international trade cooperation, Iman Pambagyo, said that the agreement was reached after various points were met by both sides, including India dropping its request for independent professional services and as a trade-off ASEAN dropping its request for prudential measures in financial services.

“ASEAN members and India will also put requirements and limitations of contractual service suppliers in its own schedule of commitment [of liberalization],” he said in a written statement.

Each country was expected to finalize legal documents for the pact on services and investment by February 2013, the signing is scheduled for August next year during a consultation between ASEAN Economic Ministers and India’s minister of commerce and industry in Brunei Darussalam.

“The completion of the FTA on goods and investment will smooth the process of RCEP talks as the features in this agreement is similar to other deals with ASEAN FTA partners, such as negative listings for investment and a positive approach for trade in services,” Iman said.

ASEAN and six partners — Australia, China, India, Japan, South Korea and New Zealand — will start first-round talks on the RCEP next year, which are expected to form the world’s economic bloc in 2015.

The trade pact has been considered a way for ASEAN to maintain its centrality after new challenges had arisen for other regional trade agreements, such as the Trans-Pacific Partnership (TPP), which does not include all 10 ASEAN member nations.

Why foreign aid for REDD+ implementation does not work here

Pungky Widiaryanto, East Lansing, US | Opinion | Tue, December 18 2012, 10:34 AM

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We are willing to pay as long as we can be sure that we are paying for actual emission reductions. Donor countries need credible figures as a basis for asking their parliaments for money for this,” said Norway’s chief negotiator to Point Carbon, when Reducing Emissions from Deforestation and Forest Degradation Plus (REDD+) was negotiated in Doha a few weeks ago, according to redd-monitor.org.

In relation to Norway’s commitment of around US$1 billion in assistance under the Letter of Intent (LoI) it signed with Indonesia in 2010, this statement clearly shows Norway will only disburse the rest of the funds ($800 million) if Indonesia can reduce carbon emissions. The initial funding of about $200 million is being used to prepare the REDD+ initiative, to be formulated by the REDD+ task force.

As we may be aware, every year the Forestry Ministry spends about $600 million, including for the salaries of around 15,000 employees scattered across Indonesia.

Some activists and experts, however, have blamed the country’s high deforestation rate on poor governance in the forestry sector. To make the REDD+ a success, Indonesia requires forest policy reform.

The notion of policy reform is to alter the current forest governance system, which is associated with bad governance practices, including corrupt administration.

The Forestry Ministry has initiated institutional reforms by participating in the “bureaucracy reform” process introduced by the Administrative Reforms Ministry. Arguably, this transformative initiative is characterized by reform in incentives through salary increases in order to enhance productivity and discourage corruption. Unfortunately, the House of Representative rejected this remuneration reform.

Ironically, with regard to the Norwegian funds, much of the initial $200 million has been spent on hiring international and national consultants, who earn much more than the Forestry Ministry, to prepare REDD+ mechanisms. The inequality in pay may spark resentment and skeptical views about REDD+ among forestry staff, and without the ministry’s full backing, the program will only remain an idea.

International donors that have committed to supporting REDD+ in Indonesia need to inject more assistance to support institutional reform within the Forestry Ministry.

Contestation among institutions in designing REDD+ agency initiatives is another challenge that may inhibit efficacy of foreign aid in supporting the program.

Indications rivalry appeared when the REDD+ task force proposed the establishment of a new REDD+ agency. The Forestry Ministry resisted the creation of a new agency from the beginning due to reasons related to the long history of forest governance in Indonesia.

Apparently, it’s all about power. Pelluso, a political-ecology expert from the University of California, explains in her book Rich Forest, Poor People that the Dutch colonial administration strongly influenced the forest governance system in Indonesia.

The colonial legacy has enabled the government to control forest resources until today. The government’s authority, adopted from the colonial system, includes institutions and rules. These components allow the application of this very specific form of power to control the forest and the communities living in the forests.

The system, described as an “extractive” institution by Acemoglu and Robinson in their book Why Nations Fail, sees only a few elites control the political and economic opportunities, including in the forest sector.

This system, they say, is the main reason why a nation cannot grow well in the long term. Almost all European colonial countries, including the Dutch, adopted this extractive institution, which has unfortunately been maintained by the Indonesian government.

On the other hand, Acemoglu and Robinson recommend an inclusive and pluralistic institution in forest management. It might be a reason why the REDD+ task force insists on establishment of a new REDD+ agency that is designed to accommodate many stakeholders including consultants, NGOs, civil society groups and government agencies.

Even though the complexity of this system may disturb the implementation of REDD+ in Indonesia, contestation has increased public awareness of the importance of forest policy reform in Indonesia.

With respect to support for deforestation, international donors should evaluate and learn from their previous projects. Historically, several environmental projects in Indonesia, more specifically in forestry sector, have left observers asking the question, “Where did all of the aid go?”

Many environment projects only produced dozens of reports just to meet donor requirements. Many skilled experts and bureaucrats have profited from these projects.

The experts were hired as consultants, while the bureaucrats became the brokers of the projects. Oftentimes, skilled government officials were recruited to work for the international donors’ project at the expense of Indonesian forestry institutions, which lost skilled administrators.

Has the Indonesian environment improved following those projects? It is not clear since deforestation, biodiversity loss and environmental degradation are still ongoing.

Again, the fundamental aspect of this failure is institutional, as highlighted by Acemoglu and Robinson. While institutional problems — the main driver of environmental degradation in Indonesia — are obvious, international donors keep their “top-down” strategy intact as they think it will work well in curbing environmental issues in Indonesia.

In order to make REDD+ assistance work, it is advisable that international donors take into consideration the political and economic conditions in Indonesia.

Understanding the history and local needs is important to support the success of REDD+ in Indonesia. If not, aid will not effectively help Indonesia realize the reduction of emissions from the forest and land use, and these donations will become “unhelpful help”.

The writer is currently studying international development and forest carbon management at the department of forestry, Michigan State University, USA.

Is RI’s economy immune to global turmoil?

D. Supratikto, Yogyakarta | Opinion | Wed, December 12 2012, 10:56 AM

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It is interesting to note that Indonesia could be immune to global turmoil as stated by Rintaro Tamaki, deputy secretary-general of the Organization for Economic Cooperation and Development (OECD) at the ASEAN Business Summit in Phnom Penh last month.

Indonesia’s economy will grow by an average 6.4 percent from 2013 to 2017 — the fastest among the 10 ASEAN member countries.

This reminds me of similar comments made by international financial organizations before the crisis in 1998, which praised the Indonesian economy as being healthy with stable economic growth that was
managed in prudent ways.

Everybody was optimistic about the Indonesian economy at that time and nobody expected a severe economic crisis with multidimensional impacts to strike.

Although the Indonesian economy is currently encouraging, it is good to remain alert to the dangers. Before the crisis in 1998, the property sector had been booming, as shown by the development of mega projects that absorbed a big portion of commercial funds.

The property sector became one of the main causes of a bubble economy that led to the crisis. Today, we witness mushrooming super bloc mega projects along Jl. Casablanca in Jakarta — just to mention an example.

There is an alarming sign that property development is aiming at high income groups only (Kompas Dec. 7).

Meanwhile, the government has acknowledged the shortage of funding to develop infrastructure projects, which have been neglected since the 1998 Asian crisis.

Therefore, the government has introduced the public-private partnership scheme in order to bring in private companies to undertake infrastructure projects.

This scheme has been initiated since 2005, but unfortunately progress is still slow in improving infrastructure.

As we know, the improvement of infrastructure is needed and vital to spur economic development.

It is laudable that Finance Minister Agus Martowardojo has introduced fiscal approaches in addressing the impact of global turmoil.

Those are to prepare the fiscal stimulus by increasing budget balances, to increase readiness in anticipating the crisis, to conceive a framework of bond market stabilization, to prepare a standby loan and to utilize the emergency fund of Chiang Mai Initiatives under the ASEAN+3 (China, Japan and Korea) cooperation.

However, the above fiscal approaches are not sufficient enough. These should be integrated in more comprehensive undertakings in order to build a strong economic foundation.

In fact, global economy is currently less conducive to supporting a country facing crisis. The European crisis is far from at an end and although the European Union succeeded in making decisions to fix Greece’s economy, still are still gaps.

Meanwhile, the US is busy with its own domestic economic problems, particularly addressing the threat of a fiscal cliff deepening the state of recession. Perhaps China is the only economic powerhouse expected to play a role, but it’s likely that China will adopt a strict inward-looking policy for protecting its domestic market.

At this critical juncture, Indonesia needs to improve its industrial capacity. The Indonesian economy cannot be sustained by only producing low quality products.

Understandably, Indonesia had received Japanese and Korean foreign direct investment (FDI) for export substitution for some years. But it’s hard to understand that Indonesia should again receive the relocation of FDI from China for the same reason, even with low quality products.

Therefore, it is important to note National Development Planning Minister Armida Alisjahbana’s statement when receiving the Chinese investment mission several weeks ago. She reminded that Chinese investment should be oriented toward exports, not for the Indonesian market.

Moreover, Indonesia should impose strict requirements on foreign companies to transfer their technology, if they want to gain market access.

These measures will hopefully drive constructive industrial development. This can promote high quality products leading to the improvement of labor welfare.

In addition, the agricultural sector also needs to be improved. It is always a vicious circle in managing the domestic agriculture market, especially in relation to several sensitive products like soya bean, rice, corn and beef.

Recently, people have had to deal with the hike in beef prices. Again, the reason is due to the shortage of supply, especially from domestic production. As a result, importers have enjoyed a price hike from these importations.

We never hear of farmers enjoying the increased prices of their own products. On the contrary, when they harvest their products the prices tend to decline.

A very recent case is in the Central Java town of Purworejo, where farmers ignored their chili trees because the price dropped sharply and the trees were too costly to maintain (Kedaulatan Rakyat, Dec. 6).

Perhaps by introducing a new price mechanism, Indonesian farmers can experience dignified lives, like what the farmers of developed countries have long enjoyed. Their governments stop importing similar products when harvest time arrives, so people only buy their own farmers’ products at reasonable market prices.

To sum up, Indonesia should be able to improve its industrial and agricultural sectors. These two strategic sectors have absorbed the most part of the labor force in Indonesia.

 This is certainly not an easy task, but it is a must for Indonesia in order to have a strong economic foundation. In doing so, then we can say that our economic immunity is not an illusion, but a reality.


The writer works at the Yogyakarta Cooperation and Investment Board. The opinions expressed are his own