APEC's messages and implications for Indonesia

Mari Pangestu, Economist, Centre for Strategic and International Studies, Shanghai

Another APEC year has passed. The meeting served up the usual APEC fare of improving the processes and mechanisms to clarify the road map to reach the Bogor goal of free trade and investment by 2010/2020. The actions to be taken include an agreement to broaden and update the Osaka Action Agenda in keeping with the changing conditions, and the pathfinder approach which allows economies ready to move ahead on APEC initiatives to do so ahead of others.

There were also improved actions for strengthening implementation mechanism, including strengthening the peer review of individual action plans of members and strengthening capacity building with the human capacity building initiative for the new economy.

This focus on getting the APEC basics back on track is an important achievement, and should be recognized as it has been overshadowed by the larger picture of crafting an APEC response to the Sept. 11 events.

Of course we will have to wait and see whether the implementation of this traditional fare of the Asia Pacific Economic Cooperation forum will be realized in the Mexican and Thailand years of 2002-2003.

The significance of the Shanghai year will however, be remembered because it was the first occasion where such a large number of world leaders gathered after the Sept. 11 terrorist attacks.

APEC is an economic cooperation forum and the first basic question that arose in crafting an APEC response in such difficult times is whether APEC should be responding to a political and security issue.

There are at least two important precedents where the meeting has played a significant role in regional security. First was when the U.S. and Chinese leaders met in 1993 in Seattle for the first time after the Tiananmen massacre, and second, when leaders in New Zealand in 1999 discussed the United Nations deployment to East Timor.

However, what the U.S. wanted this time was a strong call to counter terrorism as an official APEC statement.

Of course it would have been remiss if a meeting of such stature and with so many leaders from the world meeting did not say anything.

Furthermore, the response to terrorism and its aftermath need to be on all fronts: Economic, political, security and confidence building, and that all these aspects are interrelated.

Therefore, APEC as a forum where leaders meet is a place to make a statement and craft out the actions, which are in line with the APEC process.

The outcome was as expected. Leaders, within their Leaders Statement, condemned strongly the "murderous" acts, but also as expected fell short of endorsing the U.S. military response, as it is clear that a number of countries, including Indonesia, did not condone such a response.

The statement also said that the United Nations should play a major role in coordinating an international response. This general statement coming out of the leaders' declaration is the balanced approach that is in line with what China and Russia, as well as the Islamic nations of Indonesia, Malaysia and Brunei, wanted.

The specific APEC actions to counter terrorism was covered in a separate annex and relate to actions that pertain to the substance of APEC economic cooperation, and some of these actions have already started in APEC working groups.

They include cooperation to collectively curb the flow of funds to terrorists, improve and strengthen customs surveillance, increase air and maritime security and increase protection of the energy, transport and communications sectors.

APEC would be wise to stay true to its mission and essence of economic cooperation and not stray into a security organization which can counter terrorism, because that is not the original intention of APEC and institutionally it would not be able to deal with it.

There is in fact one other angle of the security issue, which links to economic effects, which we feel is still missing. Post Sept. 11, the issue of security standards of nations will be much in question and has and will affect investment and business decisions.

Economies who do not comply to acceptable level of security standards and their enforcement thereof, run the risk of economic isolation.

This is particularly relevant for Indonesia whose investment climate and confidence levels have been very much affected in recent weeks.

Given that the issue has profound economic implications, there is a role for APEC to do what it is good at, which is setting standards and best practices, and capacity building for their implementation to prevent further widening of differences between nations due to different security standards.

APEC also has a role to ensure that there are coordinated actions to prevent a severe recession of the world economy, given that two major economies the U.S. and Japan are its members; and in boosting confidence by ensuring that the Doha WTO Ministerial meeting in November yields a significant outcome to waylay fears of the breakdown of the world trading environment. This would be a further blow to an already fragile business and investment climate.

Indonesia will benefit from positive outcomes of these two approaches especially for its exports. However, the homework is there for Indonesia to firstly evaluate how it stimulates the domestic economy, given the budgetary constraints of a stimulating fiscal policy, and limits of monetary policy stimulus when one is combating inflation and still in the midst of restructuring the banking sector and corporate debts.

Secondly we need to have an integrated vision of economic development in Indonesia and what role trade is going to play. This will be needed before we can be clear on what preparations and anticipations are needed so that we can compete in the more open market, and is also important to guide our negotiating position in the WTO.