ACFTA: Indonesia’s Next Agenda

on March 05, 2010

Facing the ASEAN-China Free Trade Agreement (ACFTA), workers and employers stand on the same
position. This is an unusual phenomenon.

Both are screaming for help facing tremendous consequences of the implementation of the free
trade agreement. Indeed, the FTA’s impacts are tough, both for the industry and workers. Therefore,
it is legitimate to ask: who did we think will benefit from the decision to join the ACFTA?

Particularly on the Indonesian case, we know have found out that the participation in the ACFTA was
decided without comprehensive qualitative and quantitative research with regards to the benefits
and losses of such agreement. Furthermore, the government has done very little preparations to
strengthen the economic structure and the country’s competitiveness in anticipating the FTA.

The Indonesian economy has shown negative responses to the implementation of ACFTA and the
previous AFTA. It is obvious that China will be more dominant than the ASEAN countries in the
ACFTA. One of the most crucial implications of such agreement is the increase of unemployment rate
as a result of the closures of the manufactures and other productive sectors.

At least, 10 sectors of Indonesia’s manufacture will have a hard time when the ACFTA is
implemented in full effect. The sectors are textiles and textiles products (TPT), food and beverages
industry, petrochemical industry, agricultural equipment and machinery industry, footwear industry,
synthetic fiber industry, electronics (including cable and electrical equipments), machinery industry,
constructions, and steel industry. The unemployment rate caused by industrial closures is expected
to reach 7.5 million, and it will subsequently lead to the increase of poverty rates.

Furthermore, the ASEAN countries also are less competitive with regards to capital financing. In
Indonesia, for example, interest rates reach 14 to 16 percent, while China’s are only 4 to 6 percent. It
will make Indonesia’s industrial climate tougher when implementing free trade amid the high
interest rates, which signal inefficiency in the country’s financial sector.

If we need to implement the ACFTA, we have to take systematic and quick actions. Among others are
targeted industrial strategy, which includes labor intensive sectors such as agricultures and fisheries.
The development of labor intensive sectors will have higher multiplier effect for the people’s
welfare.

In the monetary and banking sector, it is now the time for the state (not only the government) to
create a mechanism for banks to disburse funds to support industrialization. If needed, we have to
design an “Agricultural Bank” to support the plan, as happened in China and Thailand.

In the financial sector, we must stop, or reduce, the recent trend that banks merely take profits from
the financial markets and not acting as intermediary institution to the real sector. This must be
followed by policy schemes and incentives to make funds in the financial sector can help industrial
strategy in the real sector.

Based on the above perspective, we have to realize that a lot of preparations must be undertaken
prior to full implementation of the ACFTA. Therefore, what we need is not merely to postpone the
FTA, but also to significantly improve our economic system, financial system and social security
system.

http://www.martinmanurung.com/2010/03/acfta-indonesias-next-agenda.html