Saturday, April 10, 2010

The Readiness of Indonesia in Facing AEC

ASEAN Economic Community (AEC) in 2015 has been signed by 10 ASEAN countries at the 13th ASEAN summit on November 2007 in Singapore. The purpose of AEC is to achieve regional economic integration so that ASEAN becomes a single market and production area. There are 5 pillars reinforcement performed from the economic side, which are; the free flow of goods, services, investment, skilled labor and more freely capital flows 2. All of these pillars are implemented gradually in accordance with the strategic schedule which has been agreed together. In general, since 2008 AEC has gradually liberalized each pillar. The stages are monitored by the ASEAN mechanism scorecard.

Opportunities and challenges in Indonesian foreign policy in facing AEC:
The first is the readiness of Indonesian industry in dealing with the current ASEAN free trade 2015. According to An Investigation into The measures Affecting the Integrating of ASEAN's Priority Sectors (phase 2) (Oktaviani, Rifin and Reinhardt: 2007), Indonesia has advantages in the five sectors, which are wood-based products, agriculture, fisheries, rubber and electronic products. Indeed, Indonesia can use it to encourage exports which have comparative advantage toward other countries.

The challenge is, with current relatively high human resources, Indonesia has to give vale added to the Indonesian prime and superior exports since other ASEAN countries also have a comparative advantage in some similar areas with Indonesia that could lead to exports substitution of Indonesian goods. For example; Indonesian society prefer Thai rice than the local rice because of the price and better quality, the market for semiconductors from Indonesia compete with Malaysia, etc.

In addition, with the largest number of population, geographic area and GDP in ASEAN, it should be a valuable asset for Indonesia in order to play its role as a major player in AEC.

Indonesia's main problem today is Indonesia's competitiveness is deteriorating due to the lack of human competitiveness compared with other AEC countries. To be able to take advantage of economic expansion due to regional integration, the Indonesian labor should be able to improve their skills in accordance with the mutual recognition agreement which has been approved. Besides the problem of human resources, Indonesia has not had a good investment climate yet and there are still some infrastructure limitations in various fields.
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