The Role of AIIB in the ‘New Normal’ Era for Indonesia and ASEAN
| Published date | 01 November 2019 |
| DOI | http://doi.org/10.1111/1758-5899.12744 |
| Date | 01 November 2019 |
| Author | M. Chatib Basri |
The Role of AIIB in the ‘New Normal’Era for
Indonesia and ASEAN
M. Chatib Basri
University of Indonesia
Abstract
History shows that trade and industrialization were the keys to economic development in East Asia and Southeast Asia. But
situations change. The current rise in economic nationalism leads one to ask: Can Southeast Asian nations, including Indone-
sia, still use the old recipe of open trade and industrialization? Does economic cooperation still have a place? Against the
backdrop of a changing trade environment and creeping protectionism under the Donald Trump US administration and amid
lackluster global growth, the question that we must ask is, what can Indonesia and other Southeast Asian nations do given
these conditions? This essay will specifically examine how the Asian Infrastructure Investment Bank (AIIB) can play a role in
this situation. This essay argues that to overcome the anti-globalization sentiment, it is necessary to create regional coopera-
tion success stories from policies that are politically feasible and economically sound. There are several candidates for such
success stories, including using the ASEAN Infrastructure Fund to develop ASEAN connectivity. The AIIB together with the ADB
can play an important role here.
Change is rapid, uncertainty is certain. Oil and commodity
prices fluctuate and the risk of a trade war haunts the world
economy. It could be long-lasting, as the tensions between
the US and China surpass trade issues. It is a tension
between rising powers and established powers. The symp-
toms are visible, and the issues arising also encompass tech-
nological competitiveness. At the same time, we see a rise
in anti-globalization sentiment, as evidenced in the increase
in anti-immigrant stance in Europe and America, and the
rise in economic nationalism in Europe, Asia and America as
well as creeping protectionism. These developments have
important implications for development and trade strategies
in many countries, including Southeast Asian nations and
Indonesia.
History shows us that trade and industrialization were the
keys to economic development in East Asia and Southeast
Asia (Hughes, 1988; World Bank, 1993). But situations
change. The current rise in economic nationalism leads one
to ask, can Southeast Asian nations, including Indonesia, still
use the old recipe of open trade and industrialization? Does
economic cooperation still have a place?
Against the backdrop of a changing trade environment
and creeping protectionism under the Donald Trump US
administration and amid lackluster global growth, the ques-
tion that we must ask is, what can Indonesia and other
Southeast (SE) Asian nations do given these conditions?
This essay will specifically examine how the Asian Infras-
tructure Investment Bank (AIIB) can play a role in this
situation.
New normal?
The changing trade environment is pushing the world
toward a ‘new normal’. The study by Park (2018) shows that
trade in Asia is focused on the trade of intermediary goods
in which the most influential end-buyer is the US. This
means that when the US slows or weakens, the demand for
intermediary goods also weakens, and thus, in turn, impacts
internal trade in Asia.
For Southeast Asian nations, China also has a big impact.
Pangestu and Armstrong (2018) and Park (2018) show that
the impact for Asia is even deeper as China is also facing an
economic slowdown. Ties to China are increasingly impor-
tant as Asian nations are part of China’s production network.
As a result, when China’s economy slows, trade in Asia also
experiences a sharp slowdown. Of course, there are also
new opportunities here, as investors relocate their invest-
ments from China to other countries to maintain access to
US markets.
In the case of Indonesia, the impact of the Trade War
should be relatively limited compared to countries like
Singapore, as the share of trade in Indonesia’s GDP is
only 30 per cent, compared to Singapore at more than
200 per cent. Still, Indonesia must be cautious. The indi-
rect impact is the most concerning. China is the center of
Asian production networks. Many Southeast Asian nations,
including Indonesia, export intermediary goods and raw
materials to China. A slowdown in China’s economy will
lead to a decrease in mining and commodity exports for
Indonesia.
Given these trends, there is a risk that the East Asia
economy will slow and enter a ‘new normal’. A slowdown
in economic growth will affect job creation and poverty.
Therefore, East and Southeast Asian nations must continue
to strive to increase economic growth which has
improved welfare generally and decrease poverty rates
significantly.
©2019 University of Durham and John Wiley & Sons, Ltd. Global Policy (2019) 10:4 doi: 10.1111/1758-5899.12744
Global Policy Volume 10 . Issue 4 . November 2019
614
Special Section Article
To continue reading
Request your trial