Economy Learning

Despite the complication caused by some delays and coordination matters related to the official visit of the US President Barack Obama to Indonesia, which was later postponed to June this year, the essence of the visit itself signals an important message to Indonesia and to the rest of the world.
To Barack Obama, Indonesia is not only a childhood home where he spent four happy years with family and friends, but a source of political and economic power that he needs to keep his political and economic agenda moving forward.

How could Indonesia, a country that was overlooked for almost a decade as a global forum and global influence suddenly become so important to Obama and to the US, both from political and economic standpoints?

The importance of Indonesia as having the world’s largest Muslim population nation has often been discussed in media, particularly Indonesia’s strategic position in its relation to the Middle East conflict.

The fact that Indonesia has been praised by the US as the role model where democracy and Islam prosper harmoniously adds to the list of Indonesia’s political capital in the global forum.  
Indonesia is the largest nation in ASEAN (Southeast Asian Nations), which comprises 10 Southeast Asian countries. Indonesia is also ASEAN’s largest economy with 2009 GDP at US$514 billion.
Indonesia is one of the founding nations of ASEAN together with Thailand, Malaysia, Singapore and the Philippines.

Since ASEAN was founded in 1967, Indonesia has always been playing important role in ASEAN. Indonesia’s former president, Soeharto, was one of the most respectful ASEAN figures.

The East Asian integration, often called ASEAN + 3, which refers to China, Japan and South Korea, now has moved further in policy implementation.

One major achievement that had integrated the region more closely is noted by the signing agreement of ACFTA in January 2010, an agreement that unites China and ASEAN economies with 0 tariff on goods and services crossing each borders.

The East Asian integration itself would bring about an integration of $12.2 trillion of world economy, with a total population of 2.1 billion people.

The integration of East Asian economies both as the Asian production platform and as the world’s growing domestic market has become much more important particularly since East Asia has proven that it can weather global recession relatively smoothly.

Asia is believed to be the source of world economic growth in the future. Led by China, the East Asian economy is projected to contribute to three quarters of 2.5 percent of world economic growth in 2010.

What unique about East Asian integration, in some extent has become a source of concern among other economies in the rest of the world, is the fact on how countries in East Asia are trading and investing between each other at a much faster pace and much larger volume than ever before.  

Although there are increasing concerns within each ASEAN nation about the decline of country’s competitiveness compared to China, the world’s largest production base is believed to also offer a huge export opportunity that could offset the decreasing competitiveness of certain industries in ASEAN countries.  

As the policy implementation is in progress, where adjustments in ASEAN economies are also taking place, we would need some more time to further evaluate how this integration would improve Asia’s economic status.

In such context, Indonesia is becoming more and more important both for the US and China.
Both countries would need to maintain their close relationships with Indonesia to secure their
economic stakes in East Asian

economy, particularly because US-China economic relations are often tenuous.

The US is China’s largest export market. In 2008 and 2009, China’s exports to the US accounted to $252.3 billion and $296.4 billion respectively.

However, China’s domestic market is well developed enough to absorb its massive production capacity if US market declines due to the economic recession.

Therefore, China needs the US to continue to import from it to assure there won’t be massive lay off workers at companies and factories in China.

The continuation of Chinese government investing in US Treasury Bonds providing the US government loans shows the complexity of US-China relations.

Today, China holds $755 billion in US government treasury bonds. The complication is increased by the US’s accusation that China is manipulating its currency to prevent the yuan from increasing while most experts believe the Chinese currency should have appreciated due to the increasing value of yuan’s real exchange rate.

The Chinese government’s effort to keep yuan stable against the US dollar is believed to have effectively maintained Chinese competitiveness in the global playing field.

With the rise of its importance among the two world economic powers, Indonesia is now entering its most important economic and political milestone in the global forum.

How Indonesia makes the most of this, given its rising role, would determine Indonesia’s position in the future, politically and economically.