Hard Wiring Malaysia Inc.

February 4, 2016

Hard Wiring Malaysia Inc.

by Dr. Munir Majid


Given many present challenges and new commitments, it is time to take a relook at Malaysia Inc.

DURING his time as Prime Minister, Tun Dr Mahathir Mohamad introduced the Malaysia Incorporated concept  inspired by the practice in Japan when he took office in 1981.

The good idea did not always work well in practice as some businessmen took advantage of their close association with the Government – usually the political leaders like Dr Mahathir himself – to ram things down the official throat. There was also the opportunity of enticement that was not always avoided. In time Malaysia Inc. became discredited.

However, the need for official and private sector cooperation for the benefit of the economy is perennial. The good and the bad of it depends on the conduct of the parties – as in any association.

Given many present challenges and new commitments it is time to take a relook at how Malaysia Inc. could be hard-wired in the interest of the nation.

Of course, Malaysia Inc. has not quite gone away even if it may have been left to wander. At the strategic level of the macro economy various bodies exist or are formed to address the broad issues.

Dialogues between the government and private sector take place as a matter of course, whether fixed or ad hoc, like the budget dialogues and those called by International Trade and Industry Ministry.

Particular industry sectoral concerns are also heard and furthered. Industry groups and business organisations form themselves to lobby their cause. Some get very political and others very technical with different levels of success. Professional bodies too air their views or grievances to expand or protect their turf.

There is thus plenty of occasion for private sector representation with government and officials. This, however, needs to be taken to the next level of projecting or protecting particular Malaysian interests in specific contexts in a highly globalised world.

It is a pity the TPPA debate was polarised and became a stick with which to beat the government. This should not, however, obscure the fact there are some valid contra arguments which could do with closer examination, even if Parliamentary approval has been obtained for the TPPA to be signed.

The test of good government is to engage wider society for the good it wishes to achieve.

The government led by Dato’ Seri Najib Tun Razak has been under attack for so long for the 1MDB issue and the huge donation of money that went into Najib’s account that Malaysia is in grave danger of losing the plot.

Malaysia will continue well after Najib. Malaysians – the government, the officials, the private sector and civil society organisations – should look into that future and think about the welfare of Malaysia.

Even if political leaders are distracted and are concerned only with the short-term, governmental institutions must function with a sense of permanence and the strength of great professionalism.

Look at Thailand where the bureaucracy and the private sector and opinion makers have continued to perform despite the frequent and often violent changes of government. That country would have gone to the dogs without them.

With respect to the TPPA, it would be necessary for the bureaucracy in Malaysia to be strengthened by the establishment of a high level committee comprising officials, businessmen and professionals, and functional bodies, to monitor its impact on the Malaysian economy and society at large.

Additionally, given the nervousness caused by the Investor-State Dispute Settlement (ISDS) provisions, it would be a good idea to set up a national technical committee in the Malaysia Inc spirit to simulate situations where the country might be dragged to court or, indeed, where Malaysian investors abroad could protect their interests.

This technical committee could also prepare a calm and collected background paper on the ISDS to get the national mind round it.

A better hard-wired and effective Malaysia Inc machinery should also be formed in respect of the ASEAN Economic Community (AEC). I can think of at least two worthwhile committees: one to identify opportunities and the other the challenges, particularly for the small and medium enterprises.

From my experience with the ASEAN Business Advisory Council, I find specific, focused and project work to be of greater benefit than the big ticket meetings – the so-called dialogues – where often the most tangible outcomes are photo shoots with ASEAN leaders and ministers.

There is a lot of work involved in hard-wiring Malaysia Inc. Industry bodies and persons must be truly committed. It is necessary for private sector representative bodies to be strengthened with both financial and human resources.

The internal organisation and processes have to be less political and more technical. It is all too easy – and lazy – to play racial politics also in bodies purportedly of commerce and industry.

On the official side, there is often a rush of meetings which comes in through one door and goes out the other. There has to be a discipline of detailed record-keeping and scheduling which do not result in good effort being wasted.

I remember many, many hours put in for a report on Malaysian foreign policy and its institutional support, leading up to a meeting chaired by the Prime Minister, with specific decisions made and absolutely nothing followed up after it. That was a couple of years ago.

This kind of waste obviously is not only discouraging but also causes loss of faith in the process of cooperation in a positive Malaysia Inc. spirit.

There is thus the unavoidable need for leadership and good management. In Malaysia we want almost entirely to rely on the Prime Minister.

This results in the centralisation and personalisation we all too often complain about. What about the other ministers? What about industry leaders getting together and bringing a strong proposal forward to them? What about top civil servants engaging members of the private sector or civil society with an idea?

We cannot keep mouthing the same points about the economy or social problems – like Malaysia has great economic fundamentals or that we are a model multi-racial society – just to curry favour. It will not solve anything.

Malaysia faces many serious political, economic and social problems. We seem to be stuck with the political, which would certainly ensure we will come unstuck with the economic and social challenges. We have to address the two latter challenges as well.

The world does not wait on Malaysia sorting out its politics. Indeed the rest of us Malaysians not involved in politics must act, especially those in the private sector, to secure our country.

A strengthening of our increasingly weak sinews through really a quite modest proposal to hard-wire Malaysia Inc would be a good start.

Tan Sri Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE IDEAS (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB ASEAN Research Institute.

TPPA–Time to Listen, not just be selective with Facts

January 20, 2016

TPPA–Time to Listen, not just be selective with Facts

by Wan Saiful Wan Jan


IWan Saiful Wan Jann a recent statement DAP Member of Parliament Charles Santiago, repeated his assertion that the Trans-Pacific Partnership (TPP) would affect access to affordable medicine.  He cited the case of Jordan and claimed that the prices of medicine there increased by 20 per cent and the generic drug industry was wiped out six months after they signed a free trade agreement with the United States in 2001.

“I fully support YB Charles Santiago’s demand for the Ministry of Health to be more engaged and work together with the Ministry of International Trade and Industry in communicating the impact of the TPP on healthcare in Malaysia,” said Wan Saiful Wan Jan, Chief Executive of IDEAS.


“But is regrettable that the DAP MP was selective with facts to support his arguments and he turns a deaf ear when answers are given to address his concerns.” What has been deliberately omitted from the story about Jordan by opponents of the TPP are the two major benefits the country enjoyed as a result of its free trade agreement (FTA) with the US.

Wan Saiful added: “Firstly, Jordan saw increased investment in research and development and the introduction of new, innovative and effective drugs into the market. Liberalisation of the regulatory environment led to 78 new launches of innovative medicines within ten years, more than double Jordan’s pre-reform rate. The reforms catalysed by the FTA spurred local healthcare entrepreneurial activities leading to more products being developed by Jordanian companies such as the Jordan Pharmaceutical Manufacturing Company. The FTA helped Jordanian consumers access to new and innovative medicines, and this is good.”

Charles Santiago

“Secondly, Jordan enjoyed the introduction of best practices and international standards in the country’s industry. Prior to the reforms, only one Jordanian company was certified for Good Manufacturing Practises (GMP) and this raised questions about the quality of locally produced generics before reforms. After reforms, at least four more Jordanian companies achieved international GMP certification, enabling for more Jordanian produced generics to be used locally and exported for the regional and international pharmaceutical markets. Today, post-reform, Jordan has become the leading Arab exporter of drugs, exporting   cent of their production to some 66 countries.”

“It is telling that in November last year, Thailand, a country that depends on generic medicines extensively in its universal healthcare coverage scheme, has expressed its intent to join the TPP. Is YB Charles saying that the Thais don’t understand what they are getting themselves into?  The fact is, the reduction of trade barriers will allow the price of generic medicines to go down and this is good for health. Since Malaysia wants to use mostly generics in our healthcare system, we should focus on the wider positive benefits of TPP on the pricing of generics.” said Wan Saiful.

Wan Saiful concluded that “YB Charles has been a consistent anti-liberalisation campaigner and I respect him for his persistence. I am sure he and other anti-liberalisation campaigners will continue nit-picking to oppose the TPP.  But being selective with facts and refusing to listen when answers are given is not the way to handle this issue.”

* IDEAS is an independent not-for-profit think tank dedicated to promoting market-based solutions to public policy challenges.

Future of Corporatism in 2016

January 17, 2016

Future of Corporatism in 2016

by James Hall



Economists, stock pickers and financial analysts are eager to play the forecast game. Clients of these erudite soothsayers would like you to believe that their study of trends and markets are founded on empirical maxims. What they carefully avoid admitting is that predicting the political climate is even more important than knowing the direction that monitory central banking will follow. 2016 promises to be a pivotal year. Depend upon the overactive drive of a lame duck President to complete his task of ruining the economy before he leaves office.

Add into this environment, the distractions from party campaigns that will gravitate towards non economic issues as much as possible, in face of factions pushing foreign policy fears to the top of the agenda. Terror at home will become the mainstay of the mass media. Why? The easy answer is that the continued deterioration in our standard of living could rally and become the central concern in the next election.

Corporatism will benefit that the spotlight will shine away from their consolidation and advancement in their monopolistic organization. In order to know what to expect, look to the success or failure of the “Free Trade” agreements that are moving forward and gaining ground for the globalist. TPP and TTIP if approved and implemented will seal the doom on any domestic prosperity.

Even in the EU, opposition to the TTIP is growing. Caving In to Corporatism: Endgame for Secret “Trade” Pact Negotiations states:

“The submission of governments to corporate interests is hardly a new phenomenon, but it is accelerating — particularly in Brussels, now home to almost as many lobbying groups as DC. Meanwhile, at Europe’s local level, opposition to TTIP continues to grow, and with good reason: while some parts of some countries might benefit handsomely, others stand to lose out enormously, resulting in widening economic imbalances across Europe’s regions.”

Remember, the European populace has never been able to block the dictates of the EU, especially on trade issues. The Corporatist will strengthen their strangle hold on international trade, which has become a function of favored political subsidy, more than competitive efficiency and superior product performance.

This relationship in transnational mercantilism does not enrich the population of producing countries or the consumers of imported goods, but does supercharge global conglomerates that operate under the special treatment from New World Order governments.

Thomas E. Woods Jr., makes the following argument and writes in, The Cultural Costs of Corporatism: How Government-Business Collusion Denigrates the Entrepreneur and Rewards the Sycophant.

“Through corporatism, ironically, government creates an economy that looks just like the socialist’s caricature of capitalism. The big get bigger while the small guys are frozen out. People with money make sure to buy off the powerful. It is a zero-sum game, and the game is rigged, with the rules constantly changing. And the incentives are all bad.

In a free market, commerce fosters virtue. A free economic exchange involves two parties voluntarily trading for their mutual benefit. Commerce doesn’t simply enrich a society; it also fosters community and trust. Diligence, reliability, friendliness, and honesty are all rewarded in the long run in a free market.

Under corporatism, commerce erodes virtue. Sycophancy is rewarded instead of insight. Cleverness is more valuable than innovation. Businessmen get the message: stay small, or be prepared to play ball with politicians. Everyone becomes a welfare recipient or sharecropper for government or big business.”

The conditions that create this unbalanced playing field are not likely to change for the better. What has a high probability is that the deflationary impact of a continuing retraction in world-wide activity will accelerate. Couple this with a pronounced slowing in the velocity of money, trade will decline.

Many economic gurus are warning of a major financial collapse in 2016. However, the balance sheets of companies have not accrued such high reserves in living memory. Low interest rates are still available, so as reported in, Business Mergers Soar in 2015, should maintain their pace in this coming year.

The clearest expectation is that unemployment will spike. Global unrest and the flood of migration into the EU cannot boost their economies. China is a shell of their engine of growth and Japan is still trying to keep their head above water. Where will economic expansion come from?

The prospect of war looks like the segment that has all factors pointing in their direction. Many Corporatists gravitate into becoming munitions industrialists. Governments always seem to make money available when global depressions are on the horizon.

So look for international tensions to translate into corporate contracts. In a world economy based upon a diminished need for labor, the inevitable contraction in consumer spending follows.

As government’s schemes amplify to maintain a minimum social network, companies will vie to become even more effective lobbyists. When escalation expenditures place additional demands on state budgets, the pressure to sell off public assets to crony companies will intensify.

Corporatism will streamline and become more far reaching at the same time. Reducing bureaucracy while increasing areas of profit centers will become the new corporate culture. The demands to step up their power grab can be gauged in their multiplicity to organize even bigger cartels.

Alliances, partnerships and joint ventures will become more common as the appearance of competition is discarded. A new definition of insider trading will emerge, which places a public relations spin that companies can collude for the betterment of the economy.

The natural backlash that comes when the struggling middle class continues to be devastated has less relevance as responsive electoral support for the political class diminishes. 2016 will prove to even the most establishment cheerleader and supporter that the economy is locked into a downward spiral.

“Make America Great Again” will not be fostered in corporate board rooms. Only an alternative Main Street marketplace based upon a merchant economy of small businesses can offer hope to a plummeting society. Domestic independence is the key to restoring a prosperous future.

James Hall – January 6, 2016


The Trans-Pacific Partnership Economic Enslavement


Transatlantic Trade and Investment Partnership Betrayal



TPPA: To Sign or Not to Sign

January 16, 2016

TPPA: To Sign or Not to Sign

by Lim Teck Ghee

The TPPA is neither a poison pill nor a panacea. While there is a price to pay, the Government has made the right choice by opting to join it. The discipline that the TPPA will demand will further the cause of the rule of law and force the Government to think twice before embarking on rule changes. Membership will force the Government to reconsider and amend existing rules that have the effect of furthering protective and rentier practices… [t] TPPA is also not the ultimate game changer for the country’s economic fortunes and future. Sound, prudent, competitive and merit-based policies together with much needed but still suppressed structural reforms along a broad front are the only way forward.–TG Lim


An array of disparate groups and individuals have emerged in the country to dissuade the Government from signing the Trans Pacific Partnership Agreement (TPPA). They include political parties, non-governmental organizations, individual academics and various professionals.

They join a number of trade unions, advocacy groups, activists and elected officials from other participating countries who have protested against the treaty, in large part because of the secrecy of negotiations, its all-compassing scope, and various controversial clauses contained in early drafts.

But does this diversity of national and international opposition signify that our Government has made the wrong decision in joining 11other Pacific Rim countries in this landmark agreement?First, it is necessary to note that the agreement’s stated goals are to “promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in countries; and promote transparency, good governance, and enhanced labor and environmental protections.”

Trade is seen by all the signatory countries as an instrument to help achieve national and regional economic and social goals that are desirable.Second, although the current agreement covers the initial 12 countries which have been engaged in the 7 years of negotiation, five other countries – Colombia, Philippines, Thailand, Taiwan and South Korea – have expressed interest in joining; whilst Indonesia has expressed intent to join.

All the Governments that have joined now or may join in the future can be presumed to have their own national interest at heart. Twelve have weighed the losses and benefits of the agreement and decided that it is in the best interests of their country and people to sign on.

Has the Malaysian Government somehow been taken for a ride, deceived or been derelict in protecting our national interests? How valid are the concerns expressed and should Malaysia stay out of the TPPA?

Many of the objections put forward in our country are cut and paste jobs mirroring those articulated by critics in the United States, New Zealand and some of the other Pacific Rim countries. Thus, a major concern has been over the special rights provided to foreign investors and what has been denounced as a straight jacket around policies and laws relating to GM labelling, foreign investment laws, price of medicines, etc.

These objections have been responded to by the Malaysian government which will be presenting two separate cost analyses on the agreement in Parliament soon.Looking beyond the lens of trade and a narrowly economic perspective, we can see three areas of larger concern stressed by the the TPPA’s critics and detractors in the country.

The first relates to the possibility that the TPPA will lead to or result in greater inequality in Malaysia due to its negative impact on the country’s access to affordable medicines, education, food security and employment generation.On this concern, it is possible that we will see greater inequality and wealth concentration take place in Malaysia in the foreseeable future. But this will not be because of the TPPA. In the last 20 and more years we have seen low wages and the high cost of living hurt our lower and middle class. Wealth concentration has led to a serious and increasing gap between the rich and the poor. At the same time corruption, extravagance and waste has resulted in less resources being made available to develop the nation and assist the poor.

At the heart of our inequality malaise is not trade policy. It is not how we have been or will be integrated into international markets and trading blocs.It is due to economic mismanagement and badly implemented policies, especially in education, which have squandered our comparative advantage and resulted in the inability to sustain our global competitiveness or raise our game when we had the opportunity with our strong post-independence head-start and the bonanza of oil and natural gas wealth in the 80s and 90’s.

A second concern is that we will have a loss in our national sovereignty by signing the agreement. The red flag of national sovereignty or national security, unsurprisingly, has been raised by Perkasa and other Malay rights groups and individuals who want NEP (New Economic Policy) and pro-Malay policies in the economy and society to continue indefinitely.

On this concern, developments in the drafting work point to the fact that the Minister of International Trade and Industry and his team have done a good job of negotiating an agreement which in Dato’ Seri Mustapa Mohamed’s words “ensures that our Constitution, sovereignty and core policies of the nation – including the interests of the Bumiputera community – are safeguarded and upheld.”

Whether the retention of pro-Malay policies in government procurement and other key areas will in fact work out to the advantage of the Malay community or will turn out to be a dead weight working against our national, including Malay interests, remains to be seen.

A third objection is that the TPPA is the creation of US multinationals and investors who, together with US foreign policy interests, are aiming at curbing the rise of China and Chinese economic dominance. It is possible that an anti-China bias is part of the agenda of some US multinationals and of US policy makers. But this really is not any concern of ours as a sovereign and non-aligned nation and is no reason for us to stay out.

At the same time, opposition against US foreign policy and dominance of the world is best expressed at the appropriate fora and various channels of state and public opinion – not in a multilateral trade agreement.


The arguments advanced by critics of the TPPA on the lack of trade benefits or losses especially those focusing on loss of national sovereignty are premature, exaggerated and overdrawn. Of course, we need to do due diligence to all chapters of the TPPA and ensure that our national interests are protected.

But at the end of the day, we must not avoid being integrated into the existing dominant trading system. We cannot afford a retreat into isolationism; neither should we fall prey to the romantic belief that we have special characteristics which can enable us to stand against the tide of global or regional economic integration.

We risk losing more especially if foreign businesses and investors stay on the sidelines or reduce their investment should we opt out of the TPPA. Without the TPPA too, it is likely that many local businesses will face greater international barriers in addition to the local and national constraints and handicaps already in place.

It is not only big local corporations and their workers that will be hurt. The Malaysian consumer and ordinary worker will also suffer from the direct and knock on effects of a closed or isolated economy. Look at Cuba, North Korea and Iran.

Most scholars and policy makers are in agreement that globalization and growth in trade have contributed to the reduction of poverty and raising of living standards in many countries. Unless contrary evidence is produced to show that this hypothesis does not apply to Malaysia, we can assume that our present and future prosperity and development rests with an open economy (and society).

The TPPA is neither a poison pill nor a panacea. While there is a price to pay, the Government has made the right choice by opting to join it. The discipline that the TPPA will demand will further the cause of the rule of law and force the Government to think twice before embarking on rule changes. Membership will force the Government to reconsider and amend existing rules that have the effect of furthering protective and rentier practices.

Finally, the TPPA is also not the ultimate game changer for the country’s economic fortunes and future. Sound, prudent, competitive and merit-based policies together with much needed but still suppressed structural reforms along a broad front are the only way forward.     


First Year of the ASEAN Community

January 6, 2016

First Year of the ASEAN Community

by Tan Sri Dr. Munir Majid


munir majidAT the start of every new year, there usually will be reflection on the last one just gone by, to learn from and build on it, and to resolve to do better.

In the past year, the ASEAN Community has been pronounced. But there are detractors. Does it really exist? What exists?There are national preoccupations that take priority. In four ASEAN member states there will be new or realigned political leadership. Political challenges are faced by all ASEAN countries, in different shades of the existential.

At different levels of threat, there are economic headwinds caused by depressed commodity prices, slower growth in China and increasing interest rates. While the ASEAN Economic Community has been pronounced, with all the potential of a single economy, each member state faces its particular challenges on its own to avoid social stresses and political consequences.

So what difference does the ASEAN community make?The first thing to remember is that ASEAN does not displace the individual nation-state. Each member state has chosen not to subsume any part of its sovereignty to a larger ASEAN institution or entity. Certainly in respect of internal affairs the principle of non-interference is sacrosanct. Therefore it would be misplaced to expect Asean to make a direct difference in the solution of the many challenges its members states will face in 2016.

However, all these problems could become more numerous and complicated if there was no ASEAN. For example, ASEAN cooperation makes it more difficult for terrorist groups to conduct their acts of violence within or outside individual countries. Clearly, abetment of internal insurrection has pretty well been absent as ASEAN grew and became member states seeking to be a community for peace, development and prosperity.

ASEAN Summit 2015

It is also often contended that if there was no ASEAN, the level of non-regional foreign interference would be so great as to divide South-East Asian states, even set them at loggerheads with one another.

This point is salient when we consider the situation in the South China Sea where four ASEAN states have territorial claims together with China (and Taiwan). How this matter is resolved – and with what level of extra-regional involvement – is something that affects the whole region and not just those four countries.

South China Sea

Will The South China Sea Dispute break up ASEAN?

That is why the South China Sea disputes have become the touchstone of the contention ASEAN keeps disturbing outside interlopers out and the region together. In 2016 – if there is to be any belief in the ASEAN political community – the absolute minimum must be the conclusion of the binding code of conduct on the South China Sea, as presaged in the Declaration of Conduct with China in 2002.

However, if China continues with establishing the series of fiat accompli through reclamation and other works while dragging its feet on the code of conduct, there has to be an ASEAN Plan B in 2016 on the involvement of the United States in the South China Sea disputes. That conversation some individual ASEAN states – like Singapore – have already had but has to be developed at the group level when ASEAN holds its summit with the Americans in California on February 15-16, 2016. (And not just for everyone to spend the time checking on progress of the Star Wars Theme Park in Disneyland).

ASEANn now has a strategic partnership with the United States. It has to work out in 2016 what this means. It has also, more immediately, to have that Plan B clear in the head. Otherwise we can look forward to a messy US-China struggle and the end of stability in the region which the ASEAN community is supposed to preserve.

ASEAN foreign ministries need to get moving in 2016 not only because of the deteriorating situation in the South China Sea. There is also the real danger of deep division being exposed this year under Lao PDR chairmanship which might be overly influenced by China – and then have the division accentuated when the Philippines takes the chair in 2017.

That ASEAN nightmare must be avoided. The community will crack before it is fully formed. If protected what is promised will begin to be experienced, even if not to the fullest extent. However there is work to be done in the first year of the ASEAN community to give an experience of being Asean to the common man. Many now laud the existence of ASEAN lanes at airports. It will not be a giant leap this year to make them available at ALL points of international entry in ALL ASEAN countries.

There are many other simple steps that should be taken in 2016 to give that ASEAN experience to the common man. It does not take much to have the ASEAN Business Travel Card given that there is already the Apec Business Travel Card among six ASEAN members states in APEC. Issue a supplementary card? Call it ASEANn instead of APEC? Anyone got a handle on this?

There are a few other simple propositions which I have enumerated ad nauseam in these columns. A good start to 2016 is to get cracking on them: ASEAN food stalls, cafes, boutiques, internships. Who has been put in charge to drive these things? It would not be a sovereignty-threatening move.

We are here talking about very simple measures in the context of the people-centered and people-oriented ASEAN community, made much of in its pronouncement and in Vision 2025. We are not even approaching issues such as greater protection of human rights and better governance which, realistically, would not be something to be expected in 2016, or at the near end of the Asean community.

But let me reflect finally on the ASEAN Economic Community (AEC) which has received the most attention among the three community pillars. AEC Vision 2025, as with the other pillars, sets another marker, but it should not be used as another date that pushes out the moment of truth.

Former Indonesian Trade Minister Gita Wirjawan, when speaking at the ASEAN Business and Investment Summit in November, related how when he first attended the ASEAN Economic Ministers Meeting (AEM) he had asked if having the AEC in 2015 meant at its start, in the middle of the year or at its end. Everyone sheepishly finally settled on December 31, 2015.

This instinct, to push out, and then to rush towards a minimalist end, is ASEAN. Apologists say this is the way ASEAN does not break up. But this is the way also ASEAN could crack up. Like against urgent issues such as the South China Sea disputes. Like with a young ASEAN population that is less patient and more enjoined with one another through social media as well as fast information flows.

ASEAN cannot continue to always push dates out and work like mad at the end of a period. Vision 2025 therefore must start in 2016. What was not achieved at the end of 2015 must be addressed at the start of 2016, not towards the end of 2025.

The AEC Vision 2025 talks about the non-tariff barriers (NTBs) that remain. ASEAN Economic Ministers committed to the Asean Business Advisory Council (ASEAN-BAC) that there will be a concentration on at least four sectors to remove the significant NTBs. This is supposed to be achieved in 2016. Let the work begin.

The role of the private sector is also supposed to be enhanced to drive the AEC integration process. This also has to be worked out at the start of 2016, including the strengthening of ASEAN-BAC and the involvement of well-resourced ASEAN and non-ASEAN business organisations.

As the dust settled at the end of the 27th ASEAN summit  last year, it felt rather like everyone packing up at the end of the school year, and then going away. There usually is a hang-over and a lot of scratching about as the new year starts. In ASEAN’s case, it should not be allowed to be as the new ten-year start.

Tan Sri Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB Asean Research Institute.


ASEAN: Indonesia’s Fateful Choices

December 19, 2015

ASEAN: Indonesia’s Fateful Choices

by Peter Drysdale



Kalau Pak Jokowi ingin menjadi raja dalam ASEAN, jangan mimpi saja, dong

It was Indonesia that led its ASEAN partners down the path towards the ambitious ASEAN Economic Community (AEC). The AEC was signed onto in Kuala Lumpur at the ASEAN leaders meeting in November. This was the year of delivery. Well, perhaps but not exactly — and that is probably an apt descriptor of where Indonesia is at on many fronts after the first year of the Joko Widodo (Jokowi) Presidency. Not quite there yet, but still relied upon to deliver.

The AEC is a major enterprise to realise a single market and production base, allowing the free flow of goods, services, investment and skilled labour, and the freer movement of capital across Southeast Asia. If ASEAN were one integrated economy, it would be seventh largest in the world with a combined GDP of US$2.6 trillion in 2013. It could be fourth largest by 2030 given recent growth trends. With over 625 million people, ASEAN’s potential market is larger than the European Union or North America. Next to China and India, ASEAN has the world’s third largest work force and, unlike China, it is young and the demographic is favourable.

ASEAN is also among the most open economic regions in the world, with total merchandise exports of over US$1.2 trillion — nearly 54 per cent of total ASEAN GDP and 7 per cent of global exports. Yet, intra-ASEAN trade is still only around 25 per cent (ranging from 14 per cent for Vietnam to 65 per cent for Laos).

The AEC has four objectives: creating a single market and production base; increasing competitiveness; promoting equitable economic development; and the further integration of ASEAN into the global economy. On its 40th anniversary in 2007, ASEAN adopted the ASEAN Economic Community Blueprint, and advanced the completion target to 2015 from 2020.

While ASEAN leaders duly signed on to the AEC in Kuala Lumpur last month, to avoid missing the deadline they had set themselves, the agreement is expected to have very little immediate practical effect. ASEAN citizens will be allowed to work in other ASEAN countries but in only eight sectors, including engineering, accountancy and tourism. These sectors comprise only 1.5 per cent of regional jobs.

As this year’s chair of ASEAN, Prime Minister Najib Razak of Malaysia said, while tariff barriers are low within the region, the work of building the institutional frameworks that will ensure freer movement of people and capital, and remove the barriers that hinder growth and investment has yet to be fully embraced.

The major question mark that hangs over the AEC, of course, is about where Indonesia, its largest and most important member, is now going on these issues that are at the core of its economic and diplomatic rationale.

In this week’s lead essay — which begins our annual Year in Review series analysing developments around the region over the past year and the forces that will shape them in the year ahead — David Nellor observes that the Indonesian government is yet to convince the international economic jury that it has turned the corner towards more constructive economic policy and that it has the political leadership and capacity to implement that policy.

While Indonesian economic policy remains in limbo, the whole ASEAN enterprise remains uncertain, along with the potential of Indonesia itself to return to more respectable rates of growth and break through to middle-income status. Growth has dived towards 4 per cent from rates over 6 per cent in recent years.

‘Over the past few years a plethora of regulatory interventions have discouraged investment and widened the infrastructure gap. The government’s loss of policy credibility, owing to a lacklustre track record and difficult external environment, magnifies the challenge’, says Nellor. ‘The jury is undecided on whether the Jokowi government’s reform efforts are sufficient to tackle the challenge’.

ASEAN Summit 2015

ASEAN–Still a long way to go

What reform there has been so far has focused on areas that reflect wariness about taking on the vested interests that resist exposure to competition and use political power to protect their monopoly rents. Liam Gammon explains that proposals that aim at market reform ‘are politically toxic in Indonesia — and at odds with Jokowi’s own track record. His ministers spent much of this year re-capitalising state-owned enterprises with taxpayers’ money, raising tariffs and promoting the misguided goal of “food self-sufficiency”’.

‘The defining blunder of Jokowi’s presidency came in February when he nominated a venal but politically-connected officer as the new police chief after intense lobbying from party bosses. The ensuing public outrage saw the appointment cancelled but Jokowi’s anti-corruption credentials have never recovered’, writes Gammon.

Nellor sees some signs that fundamental reform is re-entering the policy debate in the past few months. Gammon identifies presidential rhetoric that has been prepared to acknowledge the interests of foreign investors as evidence that Jokowi has taken some criticisms seriously. But there is still a long way to go in confronting the politics that infect Indonesia’s investment climate and scare long-term investors away. The conflicts that bedevil a reliable investment environment are partly about entrenched ideological attitudes but they are more about access to rents, says Eve Warburton. ‘Contract extensions for large-scale projects are a feeding frenzy for Indonesia’s rent-seeking elites. Different factions within the politico-business class vie for influence over the terms of lucrative contracts, trying to gain preferential access to service contracts or cheap company shares’.

Certainly the times require some fateful choices. The international environment has delivered a blow to Indonesian growth based as it was in recent times on the easy takings from the bull run for resource exports. Actual growth has no chance of reaching potential growth of 7 per cent or more unless Jokowi takes on the hard politics of deep structural reform.

Without a proactive economic agenda, Indonesia’s diplomatic leadership in ASEAN and more broadly in the region will continue to ebb away. This is the theatre in which Indonesia will need all the diplomatic leverage it can muster to support a national reform agenda — not to be found in the ludicrous aspiration to join the TPP. There are signs that serious technocratic players both understand this and are trying to energise the politics to deliver. But time is running out for Indonesia and perhaps for ASEAN.

Peter Drysdale is the editor of the East Asia Forum.