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Indonesia must address problems ahead of AEC

Jakarta--Unless Indonesia gets its act together soon, it will not be fully ready for the ASEAN Economic Community (AEC) in 2015. If so, it is likely that we will see a repetition of what happened when the China-ASEAN Free Trade Agreement (Caftan) came into force in 2010, with the Indonesian Chamber of Commerce and Industry calling for a postponement of implementation.

Fearing huge domestic losses, then-Industry Minister Fahmi Idris announced his intentions to ask President Susilo Bambang Yudhoyono to consider delaying the implementation of the free trade agreement (FTA).

Fahmi insisted that the FTA — which was expected to open up various sectors in both markets (China and ASEAN) through the gradual reduction of import duty tariffs — would bring Indonesia more harm than good, given China's superiority over Indonesia in terms of competitiveness.

With regards to the AEC, Indonesia has already succeeded in getting it launched at the end of 2015, instead of at the beginning of the year. But looking at Indonesia's progress, it is likely that another postponement will be called for.

Indonesia's huge market of 250 million makes it the largest economy in the region. However, local sentiments are such that it is also the least able to compete, judging from the state of its own manufacturing sector, and therefore will have the most to lose under the AEC. Even its most lucrative sectors, i.e. textiles, garments, electronics and automotive, will face fierce competition from other Asian states because of the number of jobs these sectors generate.

It does not help that xenophobia will grow as Indonesia will soon enter an election year. We are already seeing this trend among foreign companies. We have not seen any election candidates exploiting AEC as a threat to the Indonesian economy, but the issue will soon be too tempting for them to ignore.

Poor preparation for the AEC is a reflection of the lack of political leadership by the government. Yudhoyono has repeatedly reiterated the need for the country to prepare for AEC. But his words have not been translated into action, and in Indonesia, the AEC remains an alien concept while time is running out.

The media, which should know better, is lukewarm at best in its efforts to promote the idea. This is unfortunate, because the media is a key player in helping prepare the country for the AEC. Eventually the nation will no longer be able to ignore the issue. But when the time comes, can an unprepared Indonesia open up its economy to be a part of AEC?

Long Way to Go Before Removal of Non-Tariff Barriers

Local businessmen fear that other ASEAN markets will edge their businesses out, while analysts are pessimistic about a full launch of AEC.

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