Saturday, May 5, 2012

Strengthening Indonesia’s contribution to the G20

As a member of the G20, Indonesia’s geopolitical position has been under the international spotlight. But with its huge population and only slight contributions to the G20, many still see it as the elephant in the room.

Moreover, the minimal contributions that Indonesia has made have lacked follow through. For instance, one of Indonesia’s most praised contributions and leadership examples was its efforts to phase out fossil fuel subsidies in 2008. But the battle to phase out fossil fuel subsidies this year looks increasingly likely to fail. This will prove a setback to Indonesia’s reputation, especially in the midst of increasing oil prices that threaten the national budget. Another widely recognised example of Indonesia’s leadership is its unilateral commitment to reduce greenhouse gas emissions by 26 per cent — or 41 per cent with international assistance — by 2020. But while this commitment may be a sign of strong leadership, it lacks a coherent implementation plan.

G20 commitments must be backed by solid research and coherent implementation plans. The Indonesian government should not use international commitments — including strategies to mitigate climate change — just to win the international community’s support. Before any such promises are made, the government must ensure that the proposed scheme will be effective and it must also consult with stakeholders at home to ensure international commitments can be feasibly implemented.

The challenge for Indonesia now is to strengthen its link with, position in, and contribution to the G20. Indonesia must show more initiative and take a more actively reformist stance on many local and global issues. It should likewise take a leadership role in the global governance order, at a time when the decline of the Western powers has already started but the new Eastern powers have not yet fully emerged.

Meanwhile, Indonesia must work to ensure economic, political and social stability at home because strong, sustainable and balanced domestic growth is a significant contribution to the global economic recovery in its own right. National policies and authorities must assert their own credibility before Indonesia can plausibly assume regional and international commitments, some of which have not been successfully implemented as domestic policy.

Infrastructure must also be an important aspect of any future initiatives as it helps foster sorely needed long-term structural adjustments. Indonesia’s recent proposal for a global financing initiative on infrastructure facilities and a framework to help develop the pipeline of bankable projects to boost infrastructure development in developing and emerging countries is commendable and shows Indonesia’s global leadership. But there are two issues to note here. 

Indonesia’s lack of infrastructure is not only a matter of financing, but of institutional and regulatory issues. Moreover, to ensure adequate financing for future infrastructure investments, wide-ranging fiscal reforms must be implemented to phase out energy subsidies. But a fragmented parliamentary system, lack of leadership and lack of public support can jeopardise the effectiveness of fiscal reform, with devastating consequences. Indonesia’s regional and international appeal to finance its infrastructure development may not seem very credible if its own domestic reforms lack zeal.

Despite the fact that G20 countries have pledged to avoid protectionism, member states adopted 80 per cent of all trade-restrictive measures that came into effect during the second half of 2011. Protectionist measures in the third quarter of 2011 alone were as high as during the peak of the global financial crisis. Even if the notion of globalisation is meeting with increasing scepticism, Indonesia must not back down to political interests at home. It must remain committed to improving the global trade environment as a whole, for example by developing initiatives to help countries that are adversely affected by free trade.

Indonesia may be experiencing a reform crisis at home — with a sound macroeconomic environment there is no immediate pressure to reform. But stability should not be synonymous with complacency. Reform must be institutionalised rather than implemented only in times of crisis — even if such periods of unsettlement are the best time to reform. Perhaps more importantly, commitments to reform must not be based on subjective judgments with political overtones, but objective, scientific and data-based research that takes into account the obstacles to implementation from national and institutional sources.

Maria Monica Wihardja is a researcher at the Centre for Strategic and International Studies, Jakarta, and a lecturer at the Department of Economics, University of Indonesia. She is currently on leave to work as a consultant at Bank Indonesia. She is also Associate Editor at the EAF Indonesia desk.

A version of this article was first published in the Jakarta Post on 25 April 2012.

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