I. the other side, the AEC obviously also

I.       
Introduction

The
implementation of ASEAN Economic Community or AEC which formally established on
31 December 2015, principally emphasized on the integration of economic
activity within ASEAN countries as its main agenda.  This economic integration aims the
elimination or minimization of boundaries/obstacles across the region, in
context of goods and services distribution, investment and trade.  Furthermore, according to Kurniawan (2015),
AEC has four main objectives which are1) Creating ASEAN as a single market and
international production base; 2) Creating ASEAN as a competitive economic
region; 3) Creating equitable economic development in ASEAN region, particularly
the initiative for ASEAN integration
CMLV countries (Cambodia, Myanmar, Laos, and Vietnam) and Small and Medium
Enterprises (SMEs) development; and 4) Creating integration with global
economy.

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The
existence of AEC is inevitable and of course will create consequences or
impacts for ASEAN countries including Indonesia as one of the members, in forms
of positive and negative impacts.  This essay
attempts to analyze the impacts of AEC implementation for Indonesia, in context
of opportunities, challenges, and its readiness. 

 

II.    
Discussion

A.   
Opportunities

Indonesia
is the biggest and most populated country in Southeast Asia, which becomes a
very potential market – nearly 42 percent of the total population inside the
ASEAN market (Indonesia-Investment, 2016) – for other ASEAN countries in the
context of AEC implementation.  On the
other side, the AEC obviously also can bring significant economic opportunities
for Indonesia, in terms of the expansion of its goods and service marketing
across other ASEAN countries.  Moreover,
the AEC mechanism also will bring benefits such as the cheaper process of
exports and imports activity and also the transfer of workforces across ASEAN
countries, which mean Indonesian labors (TKI) can work freely in other ASEAN
countries and vice versa.  But this
transfer of labors only limited to skilled workforces for example nurses, doctors,
architects etc.

Based
on the estimation by the World Bank, the implementation of AEC will bring
around 28 to 63 percent of Foreign Direct Investment (FDI), which is essential
for Indonesia, in terms of maintaining its economic growth particularly when
export is declining (Kurniawan, 2015). 
Furthermore, the implementation of AEC will also significantly affect
the development of Indonesian business, in context of other relevant economic
entities such as competition, policies, and employment.

 

B.    
Challenges

In my opinion, there are three main challenges
that will be faced by Indonesia regarding the implementation of AEC:

1)   The creation of single
market and free trade of goods and services mechanism will enable products from
other ASEAN countries penetrate Indonesian market easier and quicker, which
could bring negative effects for Indonesia’s domestic products and market due
to its low competitiveness.  As stated by
Rakhmat (2016), only around 1% of Indonesia’s national products that had robust
competitiveness in 2015.  In the meantime,
there are about 30% of Indonesia’s domestic industry products with medium-level
of competitiveness that could be threatened due to the AEC implementation if
Indonesian Government does not conducted serious treatments about it.  Moreover, this low competitiveness problem
mainly caused by lack of supporting infrastructures for domestic industries or
businesses which resulted in high logistics and production costs.  If this condition continues to occur, as the
result, Indonesia only becomes as a marketplace or consumer for other ASEAN
countries products and services, not as an active player, which can jeopardize
the existence of domestic market and businesses.

2)   Low quality of Indonesian
labors compares to other ASEAN countries, particularly Singapore and
Malaysia.  In the majority, Indonesian
workforces are non-skilled with low levels of education and also low wages
rates. Based on The Global Human Capital Index 2017 issued by The World
Economic Forum, Indonesia is in 65th rank from 130 countries in
overall.  This position still below other
ASEAN countries such as Singapore (11th place), Malaysia (30th
place), Thailand (40th place), Brunei Darussalam (58th
place), and Vietnam (64th place). 
This result is not good for Indonesia in context of AEC
implementation.  With the majority of
non-skilled labors, Indonesia provides a big gap of opportunities for skilled
workers from other ASEAN countries to fill it, which will bring negative
implication for local workforces’ wage rates (they will be paid lower than
foreign workers). The continuity of this condition will significantly affect
the rise of unemployment number and also local human resources development if
the Government does not handle it wisely.

3)   Problems that related to
the industrial and manufacturing sector. 
Currently, Indonesia’s industrial sector condition is categorized weak
due to its dependency on imported raw materials and semi-finished
products.  Moreover, in context of
manufacturing industry, Indonesia’ performance in this sector is still under
other countries in ASEAN region in the context of productivity and growth.  This condition occurs mainly caused by the
deficiency in fields such as slow reform within the industry, infrastructure,
technology, and gas/electricity supplies. 

 

 

C.   
Readiness

 

In my opinion, the level of Indonesia’s
readiness regarding the implementation of AEC is still in the range of low to
medium level.  My opinion is based on the
assessment of two important aspects:

1)   Indonesian Government’s
policies in the context of infrastructures development policy,
industrial/business investment policy. Under Jokowi’s administration,
infrastructures development become a top priority by emphasizing on building
Indonesia from periphery through equal infrastructures development across the
nation.  Based on National Medium Term
Development Planning 2015-2019, Jokowi’s administration is targeting the
reduction of logistics cost from 23.5% to 19% through the development of 2,650
kilometres of new roads, 15 new airports, 24 seaports, 3,258 kilometres of
railway network, providing additional 35,000 megawatts electricity supply,
building new refineries, and providing broadband services across Indonesia
(Simorangkir, 2017).  Moreover, in industrial/business
sector, Jokowi’s administration has issued several economic stimulus packages
to create the better climate for foreign investment and strengthen the domestic
businesses for example through deregulation and simplify the bureaucracy
process, particularly related to business permit.  As the result, these efforts by Jokowi’s
administration are already well appreciated by international society.  Based on The Global Competitiveness Report
2017-2018 issued by The World Economic Forum, Indonesia ranks in 36th
position from 137 countries in overall, up from 46th place from the
previous year.  This is a good
achievement for Indonesia, even though this position still below Singapore (3rd
place), Malaysia (23rd place) and Thailand (32nd place).

2)   Indonesian Government’s
policies regarding the improvement of Indonesian workers’ quality and SMEs
development.  In this context, from my
opinion, Indonesian Government still not able to create an integrative policy
that can solve the problem regarding the improvement of Indonesian labors and
SMEs’ quality and competitiveness in facing the implementation of AEC.  For example, in SMEs sector, even though the
government has already issued a program known as Kredit Usaha Rakyat (KUR) or the People’s Business Credit program
by providing capital supports as well as labor training program, i think is
still not enough because it does not support by other adequate and relevant
policies such as promotion, marketing, and networking policy.

 

III.   
Conclusion

1)    In terms of readiness, I
categorized Indonesia is still in the range of low to medium level in facing
AEC implementation.

2)    The current government has
shown strong commitment and effort in improving infrastructures and creating a
better investment climate for doing business in Indonesia.  These two actions are crucial as the basis
for Indonesia to face the implementation of AEC.  But, on the other side, the government also
must wisely consider the protection of the national interest in form of
domestic economy/industry and natural resources protection through special
policies (e.g. policy that obligated FDI must produce value-added benefits for
domestic industries and also transfer of technology and knowledge to domestic
firms or SMEs), in order not to be overexploited by other countries.

3)    To improve the quality and competitiveness of
Indonesian workers and SMEs, the Government should create an integrative policy
that can accommodate the needs of Indonesian labors, SMEs, and big companies.  For instance, policies that can improve the
quality of labor training programs and education, particularly vocational
education in high schools and universities level, by giving more emphasized on
practical application through cooperation and networking with big companies and
SMEs. Furthermore, policies for Indonesian SMEs can be in forms of improving
technical-assistance and capacity-building programs and also through
cooperation and networking with big companies and educational institutions
(vocational high schools and universities). 
These policies also must support other relevant policies such as
promotion and marketing that connected with other industrial sectors, for
example, tourism industry.

References

Indonesian & ASEAN Economic Community
(AEC)-introduction. (2016, January 16). indonesia-investment.
Retrieved December 13, 2017, from  https://www.indonesia-investments.com/news/todays-headlines/indonesia-asean-economic-community-aec-introduction/item6386?.

Kurniawan, H. (2015, October 6).  AEC 2015: Benefits and challenges for
Indonesia. Thomson Reuters.  Retrieved December 13, 2017, from  https://tax.thomsonreuters.com/blog/onesource/aec-2015-benefits-and-challenges-for-indonesia/

Rakhmat, M.Z. (2016, January 11).
Indonesia is in no need of ASEAN Economic Community 2015. Huffington Post. Retrieved December 13, 2017, from  http://www.huffingtonpost.co.uk/muhammad-zulfikar-rakhmat/indonesia-is-in-no-need-o_b_8954038.html.

Simorangkir, E. (2017, December 14).  Jokowi punya 245 proyek strategis, begini
progresnya Jokowi has 245 strategic projects, here are the progress.  Detik
finance.  Retrieved December 17,
2017, from  https://finance.detik.com/infrastruktur/3769257/jokowi-punya-245-proyek-strategis-begini-progresnya

World Economic Forum.  (2017). 
The Global Competitiveness Report
2017-2018.  Retrieved December 17,
2017, from  http://www3.weforum.org/docs/GCR2017-2018/05FullReport/TheGlobalCompetitivenessReport2017%E2%80%932018.pdf

World Economic Forum.  (2017). 
The Global Human Capital Report
2017.  Retrieved December 17, 2017,
from  https://weforum.ent.box.com/s/dari4dktg4jt2g9xo2o5pksjpatvawdb.