Published
October 25, 2024
With the October 20 inauguration of Indonesia’s new president, Prabowo Subianto, and the announcement of his cabinet, it will soon become clear how closely this administration hews to the policies of outgoing president Joko Widodo.
While the jungles of Kalimantan may yet take back Indonesia’s new capital city of Nusantara if Prabowo has other priorities, the government’s efforts to join the Organisation for Economic Cooperation and Development (OECD), the 38-member intergovernmental group founded to stimulate economic progress and world trade, are expected to stay on track.
Prabowo, who is more comfortable on the international stage than Widodo, is likely to view membership in the “club of the rich” as an opportunity to raise Indonesia’s international profile, access new markets, and make infrastructure projects investable to a wider pool of institutional funds from other OECD members. The accession process itself is also an opportunity to continue economic reforms promoted by both Indonesian officials and the international business community.
The Path to OECD Accession
In July 2023, Indonesia became the first Southeast Asian nation to apply for OECD membership. Formal discussions began this past February, and a proposed roadmap for accession was adopted in May. Sometime next year, Indonesia is expected to present an “initial memorandum,” setting out its current alignment with OECD conventions and kicking off a review process that includes in-depth evaluation by more than 20 technical committees.
As a result of these technical reviews, recommendations will be made on further areas for reform to align Indonesia’s legislation, policies, and practices with OECD standards. While there is no fixed timeline for accession, the process could take a decade or more - though Indonesian officials have given more optimistic estimates.
During a visit to OECD headquarters earlier this month, the U.S. Chamber held in-depth discussions with OECD legal staff, regional experts from the Secretariat, representatives from Business at the OECD (BIAC), the U.S. ambassador to the OECD, and the Indonesian and Thai ambassadors to the OECD. (Thailand has also now begun the accession process.) We came away from these meetings convinced that business has an opportunity to work with OECD members and the Indonesian government to move forward on much-needed reforms.
Opportunities for Reform
While progress has occurred over the past decade, efforts must deepen and accelerate to bring about Indonesia’s full economic potential and draw investment from the world’s most innovative and dynamic companies. As it stands, Indonesia’s business environment is challenging.
A common theme in our joint advocacy efforts with the American Chamber of Commerce in Indonesia (AmCham Indonesia) has been an emphasis on greater regulatory transparency and stakeholder engagement – practices that clarify the rationale behind new laws, prevent corruption, and ensure legislation and regulations are rigorously reviewed, which in turn lead to better policy outcomes.
In recent years, the Indonesian government’s omnibus laws—on job creation, the financial sector, and health—have made sweeping reforms and consolidations, streamlining and adding legislative clarity across broad portions of the economy and enabling a more efficient business environment.
The U.S. Chamber regularly brings business delegations to Jakarta for meetings with officials to ensure such legislation promotes innovation, treats foreign firms fairly, and aligns with international norms and Indonesia’s treaty obligations. Given the sweeping regulatory changes likely necessary to align Indonesian law with OECD standards, an OECD-specific omnibus bill could be a mechanism for the government to pursue.
An additional priority for the business community is digital trade. The U.S. Chamber’s Digital Trade Report highlights Indonesia as maintaining among the most restrictive digital trade policies, behind China, Russia, and India. Indonesia has taken steps to break with the decades-old “e-commerce moratorium” under which WTO members have agreed not to impose duties on electronic transmissions and is the first country to establish codes under the Harmonized Tariff System that allow its government to levy duties on the international transmission of data.
Such actions send a negative signal to current and potential international investors in Indonesia’s rapidly growing digital economy. It is difficult to see how a country could take these steps while simultaneously moving to align policies with OECD best practices.
Looking Ahead
The U.S. Chamber looks forward to discussions on these and other issues with the new Prabowo administration, partners at AmCham Indonesia, and the OECD at the 12th annual U.S.-Indonesia Investment Summit in Jakarta on November 26. Secretary-General Mathias Cormann will also lead an OECD delegation to Jakarta that week, and we expect many opportunities for engagement during this key phase of Indonesia’s accession process.
A new government well-acquainted with the previous administration’s successes and challenges, coupled with an opportunity to pursue needed institutional reforms via the OECD accession process, provides Indonesia a unique opportunity to promote greater prosperity. U.S. business is eager to contribute.
International Spotlight
About the authors
Shannon Hayden
Hayden is Senior Director for Southeast Asia at the U.S. Chamber of Commerce.
