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Emerging Markets

EAST ASIA: World view

Indonesia’s president <b>Susilo Bambang Yudhoyono</b> argues that East Asia’s regional vision is not enough to cushion the area from global economic turmoil. What’s needed is a global approach -- as embodied in the G20

Just a few years ago, Indonesia made headlines around the world for all the troubles that beset us: economic crisis, East Timor, Aceh, ethnic conflicts, terrorism, political crises. Back then, it seemed nothing could go right with Indonesia.

Some circles predicted that, after East Timor broke away from us, Indonesia would fall into “Balkanization”. It would shatter into bits and pieces. Others thought that Indonesia would crumble under the weight of a disorderly democratic transition.

But that picture of disorder and uncertainty no longer represents us today. After all our trials and tribulations, Indonesia today has become a remarkably resilient country. In a world wrecked by a devastating financial tsunami, Indonesia last year registered 6% growth – among the three highest in Asia. This year we expect a slower but still respectable 4.5% growth.

In a world that is still festering with ethnic conflicts, Indonesia has become more united by resolving the conflicts in Aceh, and promoting political and social reforms in Papua. Today, Indonesia is the third-largest democracy in the world – after India and the United States. We are south-east Asia’s largest and arguably strongest democracy.

And not just a democracy by name – we are a vibrant democracy, with a free press, a multi-party system and regular elections. We are a functioning democracy that has maintained our brand of moderation and tolerance.

Rapid change

We know that our international engagement is the key to our success, to our security, and to our prosperity. Our economy cannot survive while the global economy collapses. We cannot have a destiny that is separate from that of our immediate neighbourhood, south-east Asia, and our region, East Asia.

Indeed, it is not only Indonesia that is rapidly changing: south-east Asia is also a very different place today. It has experienced fundamental geopolitical and geo-economic shifts; it is no longer the war-torn region of yesteryear.

Once divided by Cold War politics, south-east Asia has become the Asean [Association of South-East Asian Nations] region. With the Asean Free Trade Agreement already in force, we have become the Asean Economic Community. The 10 economies of Asean have become a single market for goods and services and a single production base.

In East Asia, Asean leads the shaping of a new architecture for the region. This can be seen from the processes of Asean+3, which groups Asean with China, Japan and South Korea, and the East Asia Summit, which groups the Asean+3 countries with India, Australia and New Zealand.

In 1997, Asean+3 (APT) was established to address the Asian financial crisis. The APT Process gained such momentum that in 2004, Asean launched the idea of an East Asia Summit. To some, the East Asia Summit should comprise the APT countries, but Indonesia pushed for a more inclusive idea of East Asia, one that embraced India, Australia and New Zealand.

Redefining East Asia

Thus, Asean redefined the notion of East Asia so that it is no longer just a geographical, racial or cultural entity – but an entity formed over many years of habitual and intensive consultation and cooperation between Asean and its dialogue partners.

Like Indonesia itself with its immense diversity of ethnic cultures, East Asia is made up of countries that are widely varied, but are bound together and made one by a commonality of purpose and values. With this concept of a more inclusive East Asia, Asean remains at the centre not only geographically but also in terms of occupying the driver’s seat in this important process.

This is important because East Asia will continue to experience, in the short, medium and long terms, changing dynamics of power relationships. While power relationships remain fluid, it is important that a new equilibrium be reached, one that would provide mutual accommodation between the major powers, but in the form of a win-win relationship that would not be at the expense of medium and smaller powers.

And thus one day when East Asia is better crafted and more firmly institutionalized, the United States, Russia and the European Union could join the East Asia process as observers.

This is not to say that East Asia will become the Oriental clone of the European Union. Historically, culturally and even economically, the EU nations are so much more similar to one another than us in East Asia. At present we in East Asia are too diverse to place ourselves under a supra-government or to form a superbureaucracy. But we can integrate in real, dynamic and effective ways.

For instance, Asean has completed – or is nearly completing – a process of negotiating free trade area agreements with six dialogue partners, which can lead to the establishment of an East Asia free trade area by 2012 or 2015 at the latest. Here, we are talking about a group involving an aggregate population of 3.6 billion, and of combined powerhouses in Asia.

In a way, this will repeat the process within Asean soon after its founding in Bangkok, which makes use of economic cooperation as the driving force of its integration. Thus the new East Asia will be consolidated first through a process of economic integration before it goes all out for political cooperation.

Political unity

Nevertheless, we have made an early effort at political cooperation. Last December, Indonesia organized the Bali Democracy Forum, the first inter-governmental forum in Asia about democracy. At non-governmental levels, the region has had countless discussions on democracy, but this was the first time that a home-grown, Asia-wide dialogue among government officials took place about democracy.

Indonesia will sustain and support the Forum through an Institute of Peace and Democracy. Friends in the international community have indicated that they will help us in this effort.

This is Indonesia’s vision of the regional architecture of East Asia. It is a regional architecture that will strive for balance – balance among the component powers of that architecture and balance between economic development and political development.

Global vision

However, it is not enough to have a regional vision. We must also have a global vision, most especially at a time when the whole world, without exception, is reeling from the impact of a global economic and financial crisis. That is why Indonesia is deeply involved in the work of the G20, which is humankind’s best hope for the solution – or the beginning of a solution – to the crisis that has engulfed us all.

The G20 was created in 1999 after the 1998 Asian Financial Crisis as a forum of finance ministers and central bank governors. Given the severity of the global financial crisis that broke out in the second half of last year, the G20 has been elevated to the Leaders level. The G20 Summit has become de facto the world economy steering committee because it represents the major economies in the world, accounting for 80% of GDP and 90% of world trade. Developed and developing countries, and geographical regions are represented in this forum.

In facing this very serious challenge of overcoming the worst global recession in 60 years, the G20 Summit is crucial to the building of global confidence and global togetherness to get us out of this complex financial collapse, which has had a devastating impact on the world economy.

We have all undertaken countercyclical measures, and the ministers of finance, central bank governors and their officials have worked on an agenda of reform of the financial architecture and international financial institutions.

The US and other developed countries should give priority to the cleaning up of the toxic assets in the financial system. Otherwise it would be difficult to get financial flows going.

Second, Indonesia has sent a very strong message that in resolving this crisis we must not forget the developing and emerging countries that have limited resources to prevent the drying up of liquidity, investment and capital on their economies.

These developing and emerging countries have worked hard at building up their econ-omies, institutions and governance structures. They have undertaken difficult reforms – and achieved remarkable progress toward development goals such as poverty reduction. They must not be punished; they must not be left to suffer unmanageable increases in poverty.

There must be a global expenditure fund to serve as buffer and to provide these countries with needed financing so that their budgets can sustain development goals. There has been progress on this idea and we hope that there will be an announcement regarding the availability of this fund at this [G20] meeting.

Third, there must be financial architecture reforms and disciplines that will prevent another financial bubble from creating such unprecedented havoc, not only in the countries where the bubble originated – but also in the rest of the world.

Fourth, the multilateral agencies – the IMF, the World Bank and others – must rise to the challenge of this unprecedented world economic crisis. This means greater resources, flexibility in utilizing these resources and the reform and improvement of the governance of these institutions. This will entail a better system of representation at these institutions to reflect the changing geo-economics of the world.

Finally, I also believe that the world economy will not recover without the recovery of the real economy. Therefore, we must ensure that there will be no increased restrictions that will hamper the flows of trade, investment, capital and even people. The surest way to prevent protectionism is to ensure that the major economies (especially the US and India) return to the WTO Doha Round negotiations as soon as possible.

The process of recovery, the rebuilding of the financial architecture and the reform of multilateral institutions will take time. Over time it is likely that the G20 Summit will evolve into a regular summit and will be very focused on steering the world economy toward changes that will get us back to global stability.

Indonesia will therefore continue to be deeply involved in the processes of the G20 to ensure that the interests of developing nations, especially Asian countries, are taken into account. At the same time I can also assure you that in the face of this crisis, for Indonesia protectionism is not our choice. That is a firm political commitment.

Beyond the market

Man does not live by bread alone: he must also have his freedom and his ethics. By the same token, nations do not survive by the operation of the market alone: they must also get their governance and their politics right. That is the lesson that the United States learned in the months leading to its latest presidential elections; that is the bitter lesson that Indonesia learned in the midst of the Asian Crisis 11 years ago; that is the insight behind the Asean Charter. And that is the insight that will save us all from this global financial and economic crisis, if we accept it and act accordingly.

Indonesia will do its part in this great undertaking aimed at overcoming the crisis. I hope that our partners in the G20, the developed economies as well as the emerging economies, will also do theirs.

This article is based on an edited speech delivered by President Yudhoyono in London, March 31, 2009

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