Reasons why the OECD is important for Indonesia's sustainable growth

Indonesia begins the process of accession to the OECD, with the aim of accelerating sustainable economic growth.

BIRO PERS SEKRETARIAT PRESIDEN/LUKAS

President Joko Widodo received a delegation from the Organization for Economic Cooperation and Development (OECD) at the Merdeka Palace in Jakarta on Thursday, August 10, 2023.

In February this year, the Organization for Economic Co-operation and Development (OECD) decided to begin an accession review for Indonesia's membership. This decision can be categorized as historic considering that the implementation of this accession is the first for a country in Southeast Asia.

The first ministerial level meeting to discuss Indonesia's entry process into the OECD took place in Paris, France, on 2-3 May 2024. On that occasion, the Coordinating Minister for Economic Affairs who is also the Chief Executive of the OECD National Team Airlangga Hartarto said that the opportunity for Indonesia to become an OECD member will be utilized to achieve the target of becoming a high per capita income country by 2045.

Becoming a part of OECD, which represents around 80% of world trade and investment, would be very strategic for Indonesia, which requires sustainable economic growth. This organization can serve as a guide to help Indonesia remain adaptive to global developments.

Having a permanent member that is a country with the largest economy in Southeast Asia, as well as the world's third largest democracy, would certainly be very meaningful for the OECD.

In addition to the aforementioned reasons, Airlangga also stated that obtaining membership status in the OECD is very important so that Indonesia is encouraged to apply high standards in all legislative processes, from the process of forming legislation to the types of regulations and standards applied to ministries and institutions.

As an international organization dedicated to promoting economic growth, OECD is known to have played a long-standing role in the formulation of regulations and the production of various proposals and policy guidelines tailored to meet needs. This is done through the collection of data on best practices and conducting reviews among member countries.

From OECD's perspective, Indonesia is a democratic country with the largest population and territory in Southeast Asia, one of the dynamic economic growth regions in the world. Having a permanent member that is the largest economy in Southeast Asia and the third-largest democratic country in the world would certainly be significant for OECD.

KOMPAS/AGNES THEODORA

Coordinator Minister for Economic Affairs Airlangga Hartarto, together with Secretary-General of OECD Mathias Cormann, held a meeting at the Ministry of Coordinator for Economic Affairs building in Jakarta on Thursday (10/8/2023).

On another aspect, the OECD pays attention to the still high financing gap for achieving existing targets, especially for developing countries. In line with this, gaps are also present in the Southeast Asian region. It can be said that Indonesia can become a bridge connecting the OECD with the growth and development of Southeast Asia.

Currently, OECD consists of 38 countries, mostly high-income countries with an average gross national income (GNI) per capita of USD 44,886 in 2022.

The forerunner of this organization was the Organization for European Economic Cooperation (OEEC) which was formed on April 16 1948. This organization was part of the idea of ​​US Secretary of State George Marshall (Marshall Plan) to helped Western European countries recover from the devastation caused by World War II.

The OEEC manages, allocates, and distributes aid to Western European countries. With its success in restoring the European economy, a permanent organization was formed in 1961 (OECD) to continue the recovery efforts. Its membership was also expanded to include Canada and Japan.

Also Read: Reasons the Government is "Desperate" to Join the Club of Developed Countries

Geopolitical and international relations analyst Dian Wiringjurit in his article, "Forward with the OECD?" (Kompas, 12/28/2023), said the Marshall Plan for the US had provided a market for its products and created reliable trading partners and supported the development of free markets.

As a continuation of the Marshall Plan, the OECD seeks to create policy coherence for the development of its member countries and the world in establishing global partnerships. The OECD synergizes policies between developed and developing countries to align with international standards.

Indonesia still has a long process to go through before finally being designated as a permanent member of the OECD. There are three phases or stages that a candidate country needs to go through to become a permanent member of the OECD, namely pre-accession, accession, and post-accession stages.

KOMPAS/AGNES THEODORA

Minister of Economy Coordination Airlangga Hartarto, accompanied by Deputy Foreign Minister Pahala Nugraha Mansury, hosted a group of ambassadors from OECD member countries at the Langham Hotel in Senayan, Jakarta on Wednesday (28/2/2024) evening. This is part of Indonesia's welcoming gesture after its admission process was approved by 38 OECD member countries.

The accession process begins when the OECD Council decides to initiate accession discussions. Following that, the OECD Council will adopt an accession roadmap to be implemented by candidate countries.

In the implementation process there are a number of stages that candidate countries need to go through, including submitting an initial memorandum, coordinating accession with the OECD Council, then the implementation process will be assessed before receiving approval and granting accession. After this, there is still a post-accession process where new member countries must immediately complete all the homework given by the OECD Council.

Long process

After completing accession discussions at the first OECD ministerial level meeting in Paris, Indonesia confirmed the launch of the Indonesian Accession Roadmap at the end of May 2024. As the next step, Airlangga has confirmed that Indonesia will submit an initial memorandum in early 2025.

The implementation process, often referred to as domestic reform, takes 3-7 years based on countries that have relatively recently joined, such as Costa Rica, Colombia, and Lithuania.

Also Read: To Paris, Airlangga and Sri Mulyani Manage OECD Membership

The experience of the third new member countries of OECD, as well as the countries in the process of accession such as Argentina and Brazil, is very valuable as lessons for Indonesia to understand what kind of reforms are being carried out and what their results are.

Indonesia has both opportunities and challenges at the same time. As the world's third-largest democracy, with 50 million millennial generations, and being an archipelagic country with more than 17,000 islands, Indonesia must realize higher quality growth and increase its growth rate to 6-7 percent in the next 20 years.

By becoming a member of OECD, Indonesia can catalyze all domestic potential to increase its attractiveness for investment, as well as participate in the formation of OECD standards.

Negotiation readiness with OECD committees, national coordination, and beginning to inventory issues that are of international concern, such as trade and investment liberalization, anti-bribery convention, regulatory simplification, and environmental issues are required.

However, there are still some challenges that need to be anticipated. Each member country of the OECD will be encouraged to carry out reforms and implement certain policy and regulatory standards to foster higher quality economic growth.

The government must race against time to comply with OECD standards and instruments. For this reason, it is necessary to be prepared to negotiate with OECD committees, national coordination, and start taking an inventory of issues of international concern, such as trade and investment liberalization, the anti-bribery convention, simplification of regulations, and environmental problems. life.

However, the road that Indonesia must go through to become an OECD member is still very long and winding.