A ballad of free trade
During his visit last year to the
United States President Joko ‘Jokowi’ Widodo suddenly started singing
enthusiasm for multinational Free Trade Agreements.
He told American businesses that Indonesia
had an ‘open economy’ with a large and hungry population so intended to join
the Trans-Pacific Partnership. He’d been
persuaded that this would also seduce foreign investors.
The TPP had taken years to
orchestrate. Twelve nations representing
around 40 per cent of the world’s GDP had agreed to join. Jokowi thought a
place in the choir alongside Malaysia, Singapore and other neighbors was a
smart idea, although the Archipelago has long chanted protectionism.
In the following months nervous political
and economic advisers composed a revised songsheet. By February this year the President was
humming a different tune in a lower key.
During another US trip he released
his new TPP album – Fading Love. The
lyrics included ‘caution is of the utmost importance … everything must be
calculated for the sake of national interests. It’s all still in process.'
In a backing track the then Trade
Minister Thomas Lembong chorused that his leader’s original enthusiasm was ‘to
improve our economy and create jobs’.
FTA opponents disagree; they
claim agreements favor efficient producers like Australian wheatgrowers and Chinese
steelmakers, but can damage importing nations.
They get lower prices but at the cost of local jobs. Slack businesses demand compensation or fail.
Indonesia’s State Owned
Enterprises, known for poor management, lack of competitiveness and allegedly as
‘wet areas’ (where corrupt politicians and bureaucrats can prosper) feel
threatened by FTAs
Some of this is now academic as US
President-elect Donald Trump says he’ll rip up all TPP negotiations authorized
by President Barack Obama.
This gets Jokowi off the hook on
which he’d hung himself last year. But then
came another twist.
Before abruptly changing his mind about visiting Canberra this month,
allegedly because of violent demonstrations in Jakarta, the President told journalists
of plans for his official three-day agenda Down Under.
Top was trade and sealing the Indonesia Australia - Comprehensive
Economic Partnership Agreement by the end of 2017. Another surprise – discussions on this deal
only restarted in March after stalling for three years because political
tensions were high.
Harvard-educated Lembong, a former investment banker who now chairs the
Investment Coordinating Board (BPKM), has the task of meeting the deadline. He’ll
get no opposition from Australia.
Trade Minister Steve Ciobo says signing the agreement will be his ‘most
significant priority’ while the Indonesia-Australia Business Partnership Group
has pledged enthusiastic support
Small wonder; Indonesia’s expanding middle class market is tipped to
reach 140 million consumers with tastes for beef and bread by the end of this
decade provided trade barriers don’t rise.
In its paper Two
Neighbors: Partners in Prosperity the Group said trade and investment is
underperforming. ‘Given the proximity and size of the Indonesian and Australian
economies … there are vast untapped areas of complementarity (sic) and
potential.’
According to Australia’s Department
of Foreign Affairs and Trade, the Republic is the island continent’s 12th
largest trade partner, mainly importing wheat, beef and sugar.
Indonesia sells oil and some manufactured
goods. Total two-way trade is worth
about AUD $15 billion (US $11.4 billion). One trade agreement is already in place embracing Australia, New Zealand
and ASEAN nations, including Indonesia.
Why
the Jokonomics flip-flop? Eve Warburton
of the Australian National University has written in the latest Bulletin of Indonesian Economic Studies:
‘The president’s leadership style and decision-making
process are unpredictable. Jokowi surrounds himself with very different kinds
of economic thinkers. At times he embraces the ideas of pro-market advisors,
but then pursues statist-nationalist policies endorsed by his personal
partisans.’
Free trade sounds like a fine
idea – nations sell to and buy from each other in an open market without tariffs,
taxes and other impediments. There are compounding factors in play, like
subsidies and dumping of surplus goods, but goo deals can satisfy customers wanting
low prices.
Those consumers are also workers. If their employers turn off lathes because they
can’t compete against Chinese low-cost sweatshops they get grumpy. In democracies that anger can threaten
politicians, as Hillary Clinton knows well.
FTAs are particularly sensitive
in agriculture. Food security is a political issue in Indonesia where a proverb
says ‘a meal without rice is not a meal’. Annual personal consumption of around
114 kilograms can no longer be met by local farmers.
So stocks of the nation’s staple
carbohydrate held by state agency Bulog (the Bureau
of Logistics) are being topped up with imports from Thailand.
Production in the Kingdom is largely mechanised with combines and
bulk-load trucks moving the crop from paddy to mill. In Indonesia the rural scene is more Middle Ages
with workers cutting and threshing by hand, then carting by bike.
If these laborers lost their jobs through a FTA they’d face
limited alternative employment. According to the World Bank 70 per cent of
Indonesia’s poor (earning less that US $2 a day), live in the countryside.
FTA at the vegie roots level
Ibu Wasita has little interest in international agreements but her
suppliers, who are mainly her friends, could be victims. She currently sells two types of carrots from
her vegetable stall in Malang’s Oro-Oro Dowo traditional market.
The cheaper, uneven ones cost Rp
8,000 (US $0.60) a kilogram. They were grown in Batu on the cooler flanks of
Mount Welirang.
The other carrots are evenly
graded, clean and trimmed of leaves. They are packed in plastic and cost almost
twice as much. They come from China and
appeal to choosy buyers.
Also from Batu are apples. Just one variety, Manalagi for Rp 20,000 (US $1.50) a kilo. They are blemished and to modern palates more
billiard balls than Eve’s offering. But
in the supermarkets there’s a wide choice of plump, quality fruit – from China,
the US and New Zealand.
The prices are higher but the polished
apples roll off the shelves into high-end shoppers’ trolleys. Should FTAs get signed with Australia and
other countries prices will tumble – but Indonesian farmers’ incomes will
shrink if they don’t change their production and marketing practices.
Batu is Central East Java’s vegetable
garden. It’s also a weekend escape for
the well-off, so a hotel and entertainment park construction boom is underway. For every 10,000 square meters flooded with
concrete there’s one hectare less to grow food.
It’s a pattern across Java as the
national population is tipped to rise from the present 260 million to more than
320 million by 2050.
Australian pens are poised to
sign an agreement. However Lembong –
dubbed by the Australian media as an ‘apostle of liberalisation’ - will find it
near impossible to persuade Indonesian politicians to ink any document seen as
threatening jobs.
First published in Strategic Review 14 November 2016. See/sr-indonesia.com/web-exclusives/view/a-ballad-of-free-trade
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