Wednesday, February 27, 2008

Asia — A Vision for 2015

Asia is taking an ever bigger role on the global stage. However, income disparity between countries — or even within one country — is still on the rise. What specifically needs to be done to reduce poverty in the region? Matthew Hulbert provides his perspective

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When Asian leaders gathered in London in early March 2006 to discuss regional development under the title “Asia 2015,” the famous dictum issued by Mao in 1958, which set China’s goal to “surpass Britain and catch up with America” — was ringing loud in many Western years.

As well it might, given that China’s economy is already overtaking the United Kingdom. And by 2040, will be larger than the United States, according to Goldman Sachs.

India, for its part is set to outstrip the Japanese economy by 2032. In total, Asia not only accounts for 40% of the world’s population, but garners a fifth of global production.

Poverty stricken

The exponential growth of the Asian economy is not the whole story, of course. For all its successes, Asia remains home to two-thirds of the world’s poor who live on less than a dollar a day.

The UK Department for International Development predicts that by 2015 some 309 million South Asians and Chinese will still live in poverty, which compares to 366 million in the whole of Africa.

Millennium Development Goals

Thus, if the Millennium Development Goals (MDGs) are to be realized, Asia would be a good place to start. To facilitate this, both the politics and economics of the region will have to be realigned in a "pro-poor" direction — rather than running along the contours of Beijing, Delhi and Tokyo politics.

Inequality levels are currently rising in Bangladesh, Indonesia and Vietnam — while poverty is rising sharply in China’s rural provinces.

The result has been to derail a number of income and non-income MDG targets for human development such as in hunger, Measles, Mumps and Rubella (MMR) and sanitation.

Inequality and corruption

Such inequality is reinforced by gender, caste, religious, ethnic and social discrimination that reduces people’s ability to benefit from economic growth.

Governance is also a significant problem, with the Kaufman, Kraay & Mastruzzi (KKM) Index showing that corruption and political instability are never far removed from the Asian political landscape.

Increasing disparities

Even assuming a "Golden Era" for Asia — where growth rates continue to rise and political conflict is held in abeyance — disparities will increase between regions within the larger countries

Migration will increase rapidly to where the jobs are located. And South Asia would still have in excess of 268 million people in poverty by 2015. Should growth rates dip by a mere 1%, many countries would not even halve their income poverty.

Per capita incomes will thus remain low, and although aggregate spending power will be significant, the average consumer will not feel the benefits in a situation where the biggest economies do not translate into being the richest. Worse still, Asian growth is also starting to come without additional job creation.

Critical initiatives

Domestically, this suggests that redistributive policies, fiscal transfers and infrastructure provision are called for in countries across Asia. Enhancing participatory political structures in a stable manner will also be critical to Asia’s success.

Other policy imperatives include enhancing the role of the private sector, improving the effectiveness of the state through improved public spending and most crucially promoting internal and international trade.

Marginalizing economic shocks

It is only with such effective firewalls in place that climate change, natural resource depletion, the spread of diseases and the impact of economic shocks can be marginalized.

This is particularly true for states that, while crossing from Low Income Country (LIC) to Middle Income Country (MIC) status, remain precariously balanced at the bottom end of the middle income scale.

India and Vietnam will keep a sharp focus on this challenge around 2012-14 as they make the transition, as will Pakistan and Bangladesh around 2020.

Political paralysis

Despite such trends, the world is remarkably bad at taking out insurance policies when needed. As the former IMF Chief Economist Kenneth Rogoff remarks, “in the light of risks to the global economy, today’s policy climate seems marked by a discouraging level of political paralysis”.

“Paralysis” is perhaps not a fitting diagnosis of Asia, but cooperation is at a formative stage. And many have argued, the “noodle bowl” of regional trade agreements are at best suboptimal — at worst, counterproductive — to this crucial part of poverty reduction in Asia.

Important bilateral trade agreements

According to the Asian Development Bank (ADB), no less than 15 trade and investment initiatives have been sealed in Asia since 1998 — with a further 20 under negotiation and 16 more proposed. Much of the drive for such bilateral trade agreements has come from Japan in a bid to counter China’s regional influence.

Koizumi has plans to conclude a further 15 agreements by the end of the year, including one with ASEAN by 2010. South Korea already concluded such an agreement at the start of 2006.

The use of bilateral agreements undoubtedly creates new trade opportunities, but they can also often end up diverting trade from one country or region to another.

Economic powerhouses

The Asian Development Bank has already argued that the best way of bringing clarity to the situation would be through a trilateral deal between China, Japan and South Korea.

This could attract other Asian countries to join these three economic powerhouses. While this may be true in economies today, it perhaps overlooks the politics of the region.

Asia’s balancing act

Far more likely is that the process will work in the opposite direction whereby ASEAN becomes the common denominator to link up these major players, including that of India.

With this in mind, the creation of an ASEAN Economic Community by 2015 could be a distinct possibility rather than in 2020 — provided all the political pieces fall into place. This will be politically difficult, but economically required. Any pause in Asian growth would have global implications for commodity prices, inflation and productivity.

If the "grand vision" is enacted, redistributive policies, fiscal transfers and infrastructure provision across Asia will become all the more critical — if growth is to remain sustainable. This will be a major factor underlying Asia’s delicate social, political and economic balancing act.

Enabling ASEAN's Economic Vision

January 29, 2008

by Walter Lohman and Anthony B. Kim

At 40 years of age, the Association of Southeast Asian Nation (ASEAN)--which encompasses the five original member countries of Indonesia, Malaysia, the Philippines, Singapore, and Thailand and the newer member countries of Brunei, Cambodia, Laos, Burma, and Vietnam--is the oldest and largest organization of its kind in Asia. ASEAN countries have a combined population of more than 500 million people--larger than the population of the European Union. Their combined gross domestic product (GDP) exceeds $1 trillion, which is the 11th largest in the world, ahead of Russia and India.[1]

ASEAN has committed itself to making the most of its collective strength by achieving an integrated, lib­eral market. Ten years ago in Kuala Lumpur, ASEAN launched ASEAN Vision 2020, which calls for creat­ing "a stable, prosperous and highly competitive ASEAN Economic Region in which there is a free flow of goods, services and investments, a freer flow of capital, equitable economic development and reduced poverty and socio-economic disparities."[2] This is ASEAN's guiding economic vision. It is echoed throughout ASEAN documents, including the new ASEAN Charter.

Despite its pledges, however, economic integration remains more aspiration than reality. Today, ASEAN is not a single integrated market. It is 10 separate mar­kets that are no more economically integrated with each another than they are with economies outside of ASEAN. Intra-ASEAN trade accounts for only about 25 percent of its global trade.[3] Intra-ASEAN foreign direct investment (FDI) amounts to 11 percent of total FDI into ASEAN.[4]

Even these figures give an inflated picture of the current state of economic integration, because not all ASEAN countries contribute equally. For in­stance, Singapore, which has a world-class econ­omy, contributes far more to intraregional trade and investment than less-developed Laos contributes.

The measure of ASEAN's integration is not only intraregional trade and investment flows, but also its attractiveness as an investment destination. From the 1992 launch of the ASEAN Free Trade Area (AFTA) to the signing of its Economic Community Blueprint in November 2007, achieving economy of scale in ASEAN has always meant attracting greater levels of foreign investment. Yet even as it has sought ever new ways to stay competitive as a region, it has lagged behind market-leader China-- particularly since the 1997 Asian financial crisis. (A few years prior to the crisis, ASEAN actually led China as an investment destination.)

It has been famously said that what East Asian economic integration needs now is management, not vision.[5] While ASEAN's dizzying array of agree­ments, initiatives, and commitments clearly lacks adequate management, ASEAN's vision is also unre­solved. The member countries' less-than-resolute commitment to free markets contributes directly to the management problem. It forces ASEAN to pur­sue a lowest-common-denominator path to integra­tion that leaves it short of its ambitious economic goals. True commitment to economic freedom would ease integration by eliminating obstacles and feeding the market forces that are responsible for whatever real cross-border economic activity is tak­ing place.

The ASEAN countries need to decide that ASEAN Vision 2020 is where they want to go, make the difficult choices at the national level that are required to achieve that vision, and exercise the necessary political will to follow through. With the right level of commitment, managing ASEAN economic integration will become easier, and an integrated, liberal East Asian market will become a reality.

Managing ASEAN Economic Integration

ASEAN's integration machinery is unique. Each year, official summits produce new initiatives aimed at furthering economic integration. Some initiatives are cursory and self-executing. Many are detailed and aimed at fulfilling previous commitments. Taken together, the scale of the planned restructur­ing of the regional economy is extraordinary, and the task of managing it is massive.

To ease implementation and provide a rationale commensurate with its challenges, in 2003, ASEAN brought all of these efforts under the one conceptual roof of ASEAN Economic Community.

ASEAN Economic Community. ASEAN has identified its effort to establish "a single market and production base" through the "free flow of goods, ser­vices, investment and a free flow of capital"[6] with the explicit goal of achieving an "economic community."

It has since accelerated the timetable for comple­tion from 2020 to 2015 and developed detailed implementation plans. The ASEAN Economic Community (AEC) is intended to strengthen exist­ing agreements--principally the ASEAN Free Trade Area, the ASEAN Investment Area, and the ASEAN Framework on Services--and to accelerate integra­tion in priority sectors.[7] ASEAN's progress in man­aging ASEAN economic integration must begin with an assessment of these agreements and their economic impact.

ASEAN Free Trade Area. By far ASEAN's most successful effort toward building a competitive economy of scale has been the ASEAN Free Trade Area (AFTA). AFTA was signed in 1992 and is largely on track. The ASEAN-6 include ASEAN's major national economies--Indonesia, Malaysia, the Philippines, Singapore, and Thailand--as well as Brunei.

The ASEAN-6 have reduced tariffs to from 0 per­cent-5 percent on nearly 99 percent of the products covered under AFTA and are moving toward full tariff elimination by 2010. As of August 2007, the ASEAN-6 had eliminated tariffs on more than 70 percent of the products covered by the AFTA.[8] (For these econo­mies, almost all of their trade in goods is covered.)[9] The lesser developed ASEAN countries are on a slower schedule but are also making respectable progress. Laos and Burma must reduce tariffs to the 0 percent-5 percent range by 2008, and Cambodia must do so by 2010. They and Vietnam are then obliged to eliminate tariffs completely by 2015.[10]

Coverage and compliance are good. However, when it comes to actual trade, AFTA is not fully uti­lized for a number of reasons. Its broad benefits are brought to bear on only 5 percent of intra-ASEAN trade. So while ASEAN can claim double-digit growth in intra-ASEAN trade,[11] it cannot claim that the increases are driven by AFTA. In fact, even with­out applying AFTA, the amount of trade among ASEAN countries is rising no faster than ASEAN's trade with the rest of the world.[12]

Underutilization of AFTA points to several key problems. The application procedure for AFTA is unclear and not well publicized. More important, the marginal savings over the standard most-favored-nation rate is often not sufficiently greater than the processing cost. It is simply not worth the trouble to apply.

This points to a fundamental problem: ASEAN's low-ball definition of free trade and slow schedule for tariff elimination. ASEAN's interim tariff level of 5 per­cent is above the tariff rates to which industrialized countries are committed under the Uruguay Round.[13] Where the tariff reductions under AFTA are significant, non-tariff barriers (NTBs) often remain. This makes NTBs a major obstacle on ASEAN's road to economic integration. The organization's efforts to remove them have been largely ineffectual.[14]

Finally, a clear, trusted, effective mechanism for addressing non-compliance is a necessary part of any trade agreement. ASEAN has a dispute settle­ment mechanism with application to AFTA commit­ments, but it has never been used.

ASEAN Framework Agreement on Services. In 1995, ASEAN launched the ASEAN Frame­work Agreement on Services (AFAS) to "eliminate substantially restrictions to trade in services" by going beyond General Agreement on Trade in Ser­vices (GATS) commitments to achieve a "free trade area in services."[15] There have been six packages of commitments under the AFAS. To ease implementation, ASEAN has employed its ASEAN-X mechanism, which means that coun­tries ready to move forward with new commit­ments may do so without the immediate participation of all ASEAN members.

AFAS implementation has been slow and uneven. On balance, more than 10 years since the agreement was signed in Bangkok, "member coun­tries' commitments have not been significantly bolder and more far-reaching" than their commit­ments to liberalize under GATS.[16] While intra-ASEAN barriers to trade in services have fallen for every ASEAN country and are now 10 percent lower for intra-ASEAN trade than for countries out­side ASEAN, Singapore and Malaysia, the two big­gest providers of services in ASEAN, provide no substantial benefit to their ASEAN neighbors above their global GATS commitments.[17]

Beyond this structural problem, AFAS has been hampered by the poor quality of regulations, lack of proper governance, and unpredictability.[18] Trans­parency requires more than posting commitments on ASEAN's Web site, which it does to its credit. It means that commitments should not be subject to ongoing, unpredictable modification and that infor­mation on new policies, laws, and regulations should be made generally available for comment before they are enforced.[19] ASEAN is not meeting this standard.

The ASEAN Investment Area. In 1995, ASEAN endorsed investment liberalization as a basis for enhancing its collective "attractiveness and compet­itiveness" for investment. In 1998, it followed through on this mandate by creating the ASEAN Investment Area (AIA).[20] The AIA declared an "immediate opening up of all industries for invest­ment, with some ASEAN investors by 2010 and to all investors by 2020." It also declared "immediate national treatment" on the same schedule.[21]

The agreement is in effect more modest. It covers five economic sectors--manufacturing, agriculture, fisheries, mining, and quarrying--and services inci­dental to these sectors. This excludes two-thirds of the most attractive areas for FDI from the outset.[22]

Still, the AIA is an important part of realizing ASEAN's economic vision. The devil is in the excep­tions. The member countries drew up the lists of exceptions, some of which were to be phased out. For instance, Brunei, Indonesia, Malaysia, Myanmar (Burma), the Philippines, Singapore, and Thailand had until January 1, 2003, to phase out their excep­tions for manufacturing. As of 2006, three continu­ing exceptions remained on that list. Cambodia, Laos, and Vietnam have until 2010 to phase out their 28 exceptions for manufacturing.

Exceptions in "sensitive areas" are not required to be phased out but are to be reviewed and phased out if and when the governments are ready. As of 2006, the list of such sensitive sectors contained 148 measures in manufacturing.[23]

Over and above both of these categories, there is the General Exception List, which covers "indus­tries and investment measures that cannot be opened up for investment or granted national treat­ment because of reasons of national security, public morals, public health or environmental protec­tion."[24] For these sectors, not only is there no requirement that they ultimately be phased in, but there is no requirement that they be considered for inclusion in the AIA.

In 2004, a report by the well-respected Thailand Development Research Institute shed some light on how an agreement intended to open up intraregional investment has managed to fall so far short:

[S]ome member countries list all manufac­turing industries in the negative list.... Other member countries, including Thai­land, simply reproduce the list of restric­tions under current laws or regulations and compile them into the sensitive list, which require occasional review but no phasing-out commitments.[25]

On the positive side, across the industries cov­ered by the AIA, 14 exceptions on the original lists have been phased out, while another 51 have been transferred from the sensitive list to the phase-in list. However, if the purpose of the AIA is to create an open investment environment across ASEAN, the limited coverage, exceptions, and progress to date are major problems. As a result, after 10 years, the agreement "has not had a discernable effect on FDI inflows."[26]

Fast-Tracked Priority Sectors. In 2004, ASEAN singled out 11--later expanded to 12--sectors for integration.[27] They were fast-tracked in the context of full economic integration by 2015. The priority sectors are agro-based products, automotives, e-ASEAN, electronics, fisheries, health care, textiles and apparel, wood-based products, rubber-based products, tourism, air travel, and logistics. In 2004, these sectors accounted for more than 50 percent of intra-ASEAN trade. The ASEAN-6 (Brunei, Indone­sia, Malaysia, the Philippines, Singapore, and Thai­land) were to eliminate all import duties in these areas by 2007, and the other ASEAN members were to eliminate them by 2012. This constituted an acceleration of their AFTA commitments by three years. Beyond tariffs, a number of other impedi­ments to trade were targeted for elimination includ­ing NTBs associated with product standards and regulations, testing certification, investment facilita­tion, and overlapping authorities at the products' points of entry.[28]

Progress in meeting these commitments has been broadly characterized as "far from complete and generally slower than anticipated."[29] One detailed study criticized compliance in removing NTBs in these sectors as follows: "[NTBs] continue to exist in all priority sectors in all ten countries, and there is no evidence that their height or incidence has declined."[30] The same study characterized liberal­ization in the priority service sectors as "extremely low" and the NTBs as "sizable."

ASEAN Economic Community Blueprint. On November 20, 2007, ASEAN leaders signed the Declaration on the ASEAN Economic Community Blueprint. Conceptually, the blueprint brings the constituent parts of the AEC, which includes the above-referenced agreements and other commit­ments, together with measures to deepen integra­tion. It also features a master implementation plan. The blueprint is an admirable effort to compile and organize the AEC task list.

Among its positive details, the blueprint pro­vides for a review of both the ASEAN Investment Area and a long-standing agreement that specifically provides investment protection.[31] It aims to bring the two together in a new stronger, inclusive agree­ment called the ASEAN Comprehensive Investment Agreement. The blueprint places renewed focus on completely removing NTBs. It also initiates a regional discussion on competition policy--some­thing that most ASEAN members lack.[32]

These are excellent initiatives. ASEAN's recom­mitment to its objectives is an encouraging demon­stration that it recognizes its shortcomings. Better organizing them is some indication that it takes its commitments seriously. Yet until it actually implements these commitments, the blueprint is just another ASEAN document. The AEC's 2015 deadline offers a bright benchmark against which progress can be measured.

The ASEAN Charter. ASEAN leaders well know that a blueprint alone will not lead to economic integration and the economy of scale that they need to stay competitive. ASEAN needs to find a "new ASEAN way"[33] that is rule-based and governed by stronger institutions. Hadi Soesastro, executive director of the Centre for Strategic and International Studies in Indonesia, has noted:

There is no point in pursuing an advanced and demanding notion as an AEC without deeper and testable commitment of the Member States and stronger institutions or a detailed treaty from the outset. Without endowed ASEAN institutions, without a treaty, without transfer of powers, and with­out any budget, one should not expect a credible ASEAN Economic Community to emerge.[34]

Hence, in 2005, ASEAN agreed to establish an organizational charter--something ASEAN had been without since it was founded in 1967. An Eminent Persons Group (EPG) was established with a man­date to make recommendations for the charter. The recommendations were made on schedule, and a charter was drafted and approved on schedule on November 20, 2007, in Singapore.

The Singapore summit was overshadowed in the international press by concern about repression in Burma and ASEAN's failure to address effectively what even its own members termed revolting[35] behavior by one of its member countries. Accord­ingly, criticism of the charter focused largely on ASEAN's impotence in dealing with repression in Burma and the irony that the historic charter required the signature of the miscreant regime.[36]

The focus on Burma was fair. The violent crack­down on pro-democracy demonstrators in Septem­ber 2007 and the manner in which the ASEAN heads of state handled it two months later cast doubt on ASEAN's commitment to its own princi­ples at the very time when it was enshrining those principles in the charter. One of the charter's pur­poses is "to strengthen democracy, to enhance good governance and the rule of law, and to promote and protect human rights and fundamental free­doms."[37] ASEAN's failure to deal effectively with such a glaring breach of its principles as the Septem­ber events in Burma raises serious doubts about whether or not the ASEAN Charter can provide the basis for forging a regional community.

If ASEAN finds a way to address this concern, the charter does contain some of the seeds for an effective institution. ASEAN largely adopted the EPG's recommendations. The charter creates a streamlined structure that makes inherent good sense and should help ASEAN to monitor and implement its various plans and road maps. More frequent meetings of its leaders should help ASEAN to shoulder more responsibility for out­comes and process. The creation of a formal appeal process for non-compliance with agreements, enshrining the principle of ASEAN-X, and endorse­ment of dispute settlement and arbitration are all very positive signs.

On the downside, the charter does not allow appeal to majority vote as recommended by the EPG. Instead, the charter reinforces the principle of "consultation and consensus" in ASEAN decision making, which has historically prevented it from making the tough decisions. Disputes that cannot be worked out using current procedures can be referred to the ASEAN heads of state. However, referral to the heads-of-state level will likely be seen as a "nuclear option." There is the distinct risk that decisions will remain unresolved indefinitely out of respect for the offending parties' sensibilities and that the dispute settlement process will go unused. In the event that a decision does reach the heads of state, they will be sorely tempted to avoid an embar­rassing confrontation by delegating the decision back down to a lower level without making a final determination.

The EPG also recommended enforcement mech­anisms and penalties including "suspension of rights and privileges," but not expulsion. However, the current charter does not include these. As regards ASEAN's finances, the EPG recom­mended--and ASEAN accepted--continued appli­cation of "equal contribution" to the ASEAN budget. This means that the poorest and the richest make the same level of financial contribution, effec­tively capping contributions at the lowest level and handicapping an organization that is already woe­fully short of needed resources.[38]

At this point, the charter appears to lack at least two of the four criteria that Dr. Soesastro laid out in 2005: It does not provide for an adequate bud­get, and it does not transfer enforcement power. The charter is a living document, open to review and amendment. Time and the ratification process will tell whether the ASEAN Charter marks a watershed in ASEAN's history or is just another document that bestows legal personality on ASEAN and makes ASEAN a more efficient struc­ture but does little else.

Ultimately, even with the charter, economic integration comes down to political will. Without the political will, ASEAN economic integration will not occur.

Economic Freedom in ASEAN

ASEAN may not have achieved the basis for effective management of its economic commit­ments, yet that is only half of the battle. Any review of ASEAN's ground-level economic environment points to the continuing need for vision.

Enhancing economic freedom is crucial to eco­nomic development and sustained prosperity in today's increasingly integrated global market. Eco­nomic growth and prosperity depend on maintain­ing and improving an environment in which entrepreneurial activities and innovation can flour­ish. Economies with higher degrees of openness and flexibility benefit from the free exchange of com­merce and thereby enjoy sustainable economic growth and prosperity.

The Index of Economic Freedom, published by The Heritage Foundation and The Wall Street Journal, systematically and empirically documents this rela­tionship by evaluating countries' economic freedom based on such things as ease of doing business, tariff and non-tariff barriers, property rights, corruption, and investment regimes. Each year, it uses data from internationally authoritative sources--the Interna­tional Monetary Fund, World Bank, World Trade Organization, Transparency International, and oth­ers--to calculate a economic freedom rating for each country.

The Index paints a disparate, disappointing pic­ture of ASEAN's economy. Each ASEAN country's overall score and scores for each of the 10 eco­nomic freedoms are presented in Table 1. The scores range from 0 (completely repressed) to 100 (completely free).

Chart 2 compares the simple average economic freedom score of ASEAN over the past decade with the averages for the Asia-Pacific region and the world. ASEAN's economic freedom score has been stagnant and below both the world average and the Asia- Pacific average. ASEAN's 2008 average economic free­dom score is 57.9, which is below both the world average score of 60.3 and the Asia- Pacific score of 58.7.

ASEAN performs considerably better than the world average only in fiscal freedom and government size. (See Chart 3.) The high scores in these two freedoms reflect that the ASEAN governments have more fis­cal policy options at their disposal. However, ASEAN's overall economic freedom is severely hampered by lack of other freedoms, particularly busi­ness freedom, investment freedom, financial freedom, freedom from cor­ruption, and property rights

Business Freedom. ASEAN's busi­ness freedom score is 58.3, or 4.5 percentage points below the world average of 62.8 percent. Business free­dom is a measure of how free entre­preneurs are to start businesses, how easily they can obtain licenses, and how easily they can close a business. Impediments to any of these three components deter business activity and, therefore, job creation.

Trade Freedom. ASEAN'S trade freedom score is 70.7, lower than the world average score of 72. ASEAN's total trade with the world is more than $900 billion. Its weighted average tar­iff rate is around 7.2 percent, which is lower than the global average, but non-tariff barriers such as quotas, bur­densome regulations and standards, and bureaucratic delays still signifi­cantly impede open commerce.

Fiscal Freedom. ASEAN's fiscal freedom score is 79.9, which is 5 points higher than the global average score of 74.9. The top tax rate on individual income averages around 32 percent, and the top tax rate on corporate income averages around 28 percent.

Government Size. ASEAN's score on government size, which measures government spending as a percent­age of GDP, is 89.6. This is consider­ably higher than the global average score of 67.7. However, this high score does not mean that the ASEAN economies enjoy less government intervention. Government intervention in the economy is also reflected in investment and financial freedom scores and in other freedom scores.

Monetary Freedom. ASEAN enjoys a high level of monetary stability with a monetary freedom score of 72.7, which is slightly lower than the global aver­age. The ASEAN economies' inflation rates have been moderate despite recent inflationary pressures from China. However, many ASEAN member econ­omies maintain price controls on certain commodi­ties through government intervention.

Investment Freedom. Capital flows are still severely restricted in ASEAN. ASEAN's average financial freedom score is 36.7, which is 13 points lower than the global average. Only Singapore, with a score of 80, enjoys high investment freedom. Most ASEAN countries are significantly deficient in investment freedom, with scores of less than 50, which means that their overall investment climates are dampened by government restrictions.

Financial Freedom. Openness of ASEAN's bank­ing and financial system scores 37.8. Many financial institutions are still controlled by the governments de­spite measures to strengthen legal systems, promote more transparent regulatory systems, and improve effective governance in capital markets. Burden­some and inconsistent banking regulations also re­duce opportunities and restrict financial freedom.

Property Rights. Strengthening property rights is still a work in progress. ASEAN scores lowest in property rights with a score of 34.4. This is more than 10 percentage points lower than the world average. Although Singapore strongly protects property rights, earning a score of 90, most ASEAN countries score less than 50.

Freedom from Corruption. ASEAN's score of 35.7 on freedom from corruption indicates that many ASEAN economies still suffer from persistent and systematic corruption. Regrettably, they have shown little progress. Singapore scores over 90, Malaysia scores 50, and the others have scores below 40. Freedom from corruption is ASEAN's sec­ond-lowest score among the 10 factors.

Labor Freedom. ASEAN enjoys a relatively high level of labor freedom of 63.1 percent, reflecting fewer restrictions on wages, hours, and hiring and firing workers. The world average score for labor freedom is 62.1.

Integrating Vision and Management

The record shows a few things very clearly. First, ASEAN is lagging in its effort to create an economic community. Without fundamental changes, it will likely not reach its goals by 2015. Second, to the extent that the economies have benefited from cross-border economic activity, it has been driven by market forces. No evidence suggests that the offi­cial ASEAN processes are significantly driving eco­nomic integration. Third, ASEAN as a whole has a long way to go on its road to economic freedom.

The management task of achieving an ASEAN Economic Community by 2015 is massive. How­ever, the lack of resolve in ASEAN's vision is greatly complicating matters. The lack of progress in ASEAN's landmark economic agreements is a symp­tom of a bigger problem, and the ratings in the Index of Economic Freedom identify the causes. Govern­ments, sectors, and businesses acting in their most narrowly defined interests have hampered ASEAN's development and pose the greatest threats to realiz­ing an ASEAN Economic Community.

Better management and more resources are needed, but only a resolution of vision will lead ASEAN to its goals. In turn, commitment to reform at the country level will make the management task easier. When fewer areas of non-compliance need to be addressed, the exceptions list goes away, transpar­ency is improved, and tariffs and NTBs are removed, fewer things will need to be managed. Managing commitments when they are being energetically met is much easier than uncovering non-compliance and enforcing or cajoling compliance. Addressing issues of economic freedom will enable market forces to work effectively and to support compliance with agreements intended to unleash them.

Why ASEAN's Economic Integration Matters to America

U.S. interests in Asia begin with a stable, secure geopolitical and economic order that is friendly to free commerce. Central to this is an ASEAN that can confidently hold its own, particularly in the face of China's incredible economic growth and rise as a global power. ASEAN needs an integrated, liberal economy of scale to meet the challenge.

Without energetic American engagement with ASEAN's integration effort, there are two possible scenarios.

Scenario #1: ASEAN integration is achieved but remains essentially incomplete and becomes a cover for closer political association with larger regional economic powers. China, by virtue of its large mar­ket, mesmerizing growth, and masterful, full-range diplomacy, becomes the preeminent power in ASEAN's economic calculations. Economic dynam­ics lead to political pressures and identification, and ASEAN gradually loses its historical global orienta­tion. The Asia-Pacific region ultimately realigns in a way that squeezes the American presence.

Scenario # 2: ASEAN integration fails, and the members drift apart in pursuit of their individual interests. Without the economic rationale to hold it together, ASEAN's political purpose also fails. ASEAN has achieved its greatest success as a politi­cal organization, mitigating conflict among its diverse membership, serving as a united front in dealing with threats, and providing a neutral forum for the interaction of Pacific powers. Its demise would create a dangerous vacuum.

Neither scenario would be good for America. ASEAN is at a crossroads. Its best future lies in cre­ating a compelling economic story that can stand up to the scrutiny of investors and encompass the dis­parate economies of the region in a competitive, lib­eral economy of scale. The U.S. has a major interest in helping ASEAN to reach this goal.

What the U.S. Should Do

The United States should:

* Stabilize the American diplomatic commitment to ASEAN. Despite the U.S. government's best efforts at publicizing its interests and assets in ASEAN, there is a widespread perception that America's commitment to the region is declining. The sporadic involvement of the U.S. Secretary of State in the ASEAN Regional Forum and the Pres­ident's recent cancellation of a heads-of-state sum­mit with the ASEAN leaders have reinforced this perception and set back two years of progress in U.S.-ASEAN relations. Without high-level dem­onstrations of U.S. interests in the region, Amer­ica's initiatives and advice are less effective, and the credit for its assistance will remain unclaimed.
* Intensify U.S. Trade Representative involve­ment with the ASEAN economic ministers and associated forums. Ambassador Susan Schwab's resumption of dialogue with her ASEAN coun­terparts two years ago is an important part of U.S. engagement. USTR officials have worked extensively with their counterparts. The consis­tency of this commitment is critical.
* Expand the U.S.-ASEAN Trade and Invest­ment Framework Arrangement (TIFA) work program to address non-tariff barriers, barriers in cross-border services trade, and investment issues. In 2006, the U.S. and ASEAN signed a TIFA that established a process for addressing ASEAN-wide trade issues. The initial work pro­gram focuses on harmonizing select industry standards and facilitating trade flows. Progress has been made in these areas. The agenda should be expanded to include new areas that are critical both to current ASEAN commitments on inte­gration and to American trade and investment.
* Stay focused on an eventual U.S.-ASEAN free trade agreement (FTA). The TIFA is an excellent plan B, and it can also help to lay the ground­work for an FTA. Ultimately, however, no instru­ment will drive ASEAN integration along a gold standard track like an FTA with the United States. Reconciling and harmonizing regulations across ASEAN for negotiations with the U.S. and ultimately committing to liberalization in the context of a WTO-compliant, enforceable FTA would decisively lock in the economic reforms at the heart of ASEAN integration. The U.S. will not--and should not--negotiate an FTA that includes the Burmese junta, but it also should not allow Burma to block all forward progress on U.S.-ASEAN economic relations.
* Continue looking for bilateral FTA opportuni­ties. Concluded broadly through the region, individual FTAs with the U.S. would commit the ASEAN countries to a common gold standard that can be applied on an intra-ASEAN basis. The U.S. should try to advance bilateral negotia­tions already opened (Thailand and Malaysia) and look for new opportunities, both bilateral and plurilateral.
* Fully fund the ASEAN Development Vision to Advance National Cooperation and Economic Integration (ADVANCE). ADVANCE is a five-year, $150 million project to strengthen ASEAN and support its integration. It contributes most of the nuts and bolts to the ASEAN-U.S. Enhanced Partnership inaugurated by President George W. Bush in 2005 to provide a compre­hensive framework for the U.S.-ASEAN relation­ship. The current level of funding is a good start, but the U.S. could do much better at matching its vision with resources.


ASEAN's ambition is clear, its record in imple­menting agreements to facilitate economic integra­tion is spotty, and its commitment to economic freedom is subpar. ASEAN requires a resolution of vision to get to ASEAN Economic Community by 2015. It also needs the tools and resources to man­age the undertaking effectively.

The U.S. cannot give ASEAN the political will that it needs, but by being involved in ASEAN's economic life at every important level, the U.S. can ensure that its advice and concerns are taken into account. The U.S. can also engage at the technical level in a way that enables the group to meet its objectives.

Walter Lohman is Director of the Asian Studies Center and Anthony B. Kim is a Policy Analyst in the Center for International Trade and Economics at The Heritage Foundation.

[1]World Bank, "Total GDP 2006," World Development Indicators database, July 1, 2007, at
S/Resources/GDP.pdf (January 18, 2008).

[2]Association of Southeast Asian Nations Secretariat, "ASEAN Vision 2020," December 15, 1997, at (December 4, 2007).

[3]Michael G. Plummer, "The ASEAN Economic Community and the European Experience," Asian Development Bank, Office of Regional Economic Integration Working Paper on Regional Economic Integration No. 1, July 2006, at (December 3, 2007). By contrast, intra-EU trade accounts for 66 percent of the EU's global trade.

[4]Michael G. Plummer and David Cheong, "FDI Effects of ASEAN Integration," paper for "Is Free Trade Still Relevant in the 21st Century?" conference at International Business School, Brandeis University, June 15, 2007, at
ch/Plummer_Cheong.pdf (December 3, 2007).

[5]Richard E. Baldwin, "Managing the Noodle Bowl: The Fragility of East Asian Regionalism," Graduate Institute of International Studies, Geneva, January 2006.

[6]Association of Southeast Asian Nations Secretariat, "Declaration of ASEAN Concord II (Bali Concord II)," October 7, 2003, at (December 5, 2007).

[7]Ibid. The priority sectors are agro-based products, automotives, e-ASEAN, electronics, fisheries, health care, textiles and apparel, wood-based products, rubber-based products, tourism, air travel, and logistics.

[8]Association of Southeast Asian Nations Secretariat, "Joint Media Statement," August 23, 2007, at (December 3, 2007).

[9]Ludo Cuyvers, Philippe DeLombaerde, and Stijn Verherstraeten, "From AFTA Towards an ASEAN Economic Community...and Beyond," Center for ASEAN Studies, January 2005.

[10]Association of Southeast Asian Nations Secretariat, "ASEAN Economic Community Blueprint," November 20, 2007, at
tent/download/819/6832/version/1/file/AEC.pdf (January 17, 2008). There are exceptions and "flexibilities" for sensitive products.

[11]Association of Southeast Asian Nations Secretariat, ASEAN Statistical Yearbook 2006, p. 61, at (December 28, 2007).

[12]Denis Hew, ed., Brick by Brick: The Building of an ASEAN Economic Community (Singapore: Institute of Southeast Asian Studies, 2007), p. 211.

[13]John Ravenhill, "Fighting Irrelevance: An Economic Community 'with ASEAN Characteristics,'" Australian National University, Department of International Relations Working Paper No. 2007/3, July 2007, at (December 12, 2007).

[14]Loreli C. de Dios, "Non-Tariff Barriers to Trade in the ASEAN Priority Goods Sectors," in Hew, ed., Brick by Brick, pp. 101-102.

[15]Association of Southeast Asian Nations Secretariat, "ASEAN Framework Agreement on Services," December 15, 1995, at (December 11, 2007).

[16]Hew, ed., Brick by Brick, p. 211.

[17]Do Vo Tri Thanh and Paul Bartlett, "Ten Years of ASEAN Framework Agreement on Services (AFAS): An Assessment," Regional Economic Policy Support Facility, Project No. 06/004, July 2006, at (January 4, 2008), p. 34.



[20]Association of Southeast Asian Nations Secretariat, "Framework Agreement on the ASEAN Investment Area," October 7, 1998, at (December 7, 2007).

[21]Association of Southeast Asian Nations Secretariat, "ASEAN Investment Area: An Update," at (December 4, 2007) (emphasis added).

[22]Plummer and Cheong, "FDI Effects of ASEAN Integration." Information available upon request from the authors.

[23]Ibid. Information available upon request from the authors.

[24]Association of Southeast Asian Nations Secretariat, "ASEAN Investment Area."

[25]Deuden Nikomborirak, "An Assessment of the Investment Regime: Thailand Country Report," International Institute for Sustainable Development, March 31, 2004, p. 11, at
report_thailand.pdf (December 12, 2007).

[26]Plummer and Cheong, "FDI Effects of ASEAN Integration." Information available upon request from the authors.

[27]Association of Southeast Asian Nations Secretariat, "ASEAN Framework Agreement for the Integration of Priority Sectors," November 29, 2004, at (December 26, 2007).

[28]Media release, "ASEAN Accelerates Integration of Priority Sectors," Association of Southeast Asian Nations Secretariat, November 29, 2004, at (December 12, 2007).

[29]Ravenhill, "Fighting Irrelevance."

[30]Christopher Findlay, "An Investigation into the Measures Affecting the Integration of ASEAN's Priority Sectors (Phase 2)," Regional Economic Policy Support Facility, Project No. 06/001a, April 2007, at (January 17, 2008).

[31]Association of Southeast Asian Nations Secretariat, "Agreement for the Promotion and Protection of Investment," December 15, 1987, at (January 17, 2008).

[32]Association of Southeast Asian Nations Secretariat, "ASEAN Economic Blueprint."

[33]Hadi Soesastro, "Accelerating ASEAN Economic Integration: Moving Beyond AFTA," Centre for Strategic and International Studies (Jakarta, Indonesia) Economics Working Paper, March 2005, at (December 27, 2007).


[35]George Yeo, ASEAN Chair and Singapore Minister for Foreign Affairs, statement, September 27, 2007, at (January 4, 2008).

[36]"Fifth from the Right Is the Party-Pooper," The Economist, November 24, 2007.

[37]"Charter of the Association of Southeast Asian Nations," November 20, 2007, at (January 17, 2008).

[38]"The [European] Community administrative apparatus is beyond comparison with that of ASEAN (21,000 European officials as opposed to 177 in ASEAN, of whom 135 are recruited locally and only 42 due to their professional capacity." Laurence Henry, "The ASEAN Way and Community Integration: Two Different Models of Regionalism," European Law Journal, Vol. 13, No. 6 (November 2007), p. 862.

Gates: U.S. will aid Indonesian military

By Lolita C. Baldor, Associated Press Writer

JAKARTA, Indonesia — U.S. Defense Secretary Robert Gates vowed Monday to help Indonesia reform its military, saying the U.S. was ready to help provide airlift and other maritime capabilities the country needs.

And in what appeared to be a response to previous Indonesian criticism that the United States can be overbearing in its foreign and military policies, Gates said the U.S. can play a supportive role as countries like Indonesia map out their own futures.

"From time to time, we have strayed from our ideals and we have been arrogant in dealing with others," Gates said in a speech to the Indonesian Council on World Affairs. "In the end, we have always realized that our own democracy's strength ultimately depends on the strength and independence of other democracies around the world — including new ones such as Indonesia."

He emphasized America's ongoing commitment to the region, but also said nations in the area must also work more together.

"Countries have sometimes found it hard to work with us, or with each other," Gates said. "But we believe that the nations of the region must move in a more multilateral direction in order to deal with the most pressing threats in this era."

Gates said that while the U.S. and Indonesian government have been through some rocky times, he knows that "the American and Indonesian peoples share the same principles of tolerance, pluralism, and religious freedom."

He also said that regional cooperation would be played out against a backdrop of the rise of India, the growth in China's military might and the ongoing threats from North Korea.

Those challenges, he said, are complicated by the rise of rogue nation states, terrorism threats, continued piracy problems on the high seas, and the emergence of deadly diseases — which could include avian flu.

Facing those challenges will require countries to work on a broad cooperative basis, not just with individual partners, he said.

After 13 years of estrangement, the United States has been trying to improve military relations with Indonesia, which can play a key role in a region dominated by worries about North Korea's nuclear ambitions and China's military buildup.

Senior defense officials traveling with Gates said that lingering suspicions of Indonesia's connections to terrorist networks do not reflect significant changes in recent years.

This is not, said one senior official, "your father's Indonesia" that was known primarily for its Jemaah Islamiyah terror network, military dominance in government affairs and human rights abuses.

Instead, there will be efforts to allay Jakarta's concerns that the U.S. could again pull back, risking future military sales.

And they said Gates is looking to acknowledge Indonesia's leadership role in the region, and discuss possible increased military sales to Jakarta. The officials spoke on condition of anonymity in advance of Gates' meetings with Indonesian Defense Minister Juwono Sudarsono and President Susilo Bambang Yudhoyono.

Asked earlier about terror links, Gates acknowledged that Indonesia-based terrorists may continue to have contact with al-Qaeda.

"I assume that those contacts have been maintained but I don't have any sense from the last few weeks or months that there's been a significant increase in those contacts or a particular strengthening of the JI," he said, referring to the Jemaah Islamiyah network.

Just last week, an Indonesian terror suspect — a member of the JI — and two Filipinos were arrested during a raid on their hide-out in the southern Philippines.

The U.S. cut all military ties with Indonesia in 1992, after its army and militia proxies devastated East Timor during its break from Jakarta.

In 2005, the U.S. began to aggressively rebuild relations, but just a year later, then-Defense Secretary Donald Rumsfeld got a somewhat frosty welcome to Jakarta. During Rumsfeld's visit, Sudarsono lectured him, saying the U.S. needs to counter perceptions that it is overbearing and let other countries decide how best they should fight terrorism within their own borders.

One topic of Gates' talks will be Indonesia's efforts to modernize its military, including its desire to purchase military airplanes. Jakarta's fleet of 22 C-130 aircraft is aging and in need of refurbishment, and government officials have long sought to purchase replacement parts.

During the 13-year break between the two countries, the U.S. was prohibited from such sales, but those restrictions were lifted in late 2005.

Gates is visiting five countries during an eight-day tour, and will make stops later this week in India and Turkey.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Gates presses Indonesia to pursue abuse cases

The Defense secretary says the U.S. is willing to sell weapons to the key Southeast Asian ally.

By Peter Spiegel, Los Angeles Times Staff Writer

February 26, 2008

JAKARTA, INDONESIA -- Defense Secretary Robert M. Gates said Monday that the U.S. was still willing to sell Indonesia new weaponry, particularly for its navy and air force. But he cautioned that democracies must have firm civilian control of their militaries, which must be disciplined for human rights abuses.

Gates praised Jakarta for moving to professionalize its military, which for decades under former President Suharto ruled the archipelago with an iron fist until the dictator was deposed a decade ago.

Although Gates did not criticize the Indonesian military's current conduct, he emphasized that democracies must investigate and prosecute allegations of corruption or abuse within their armed forces.

"In addition to the importance of civilian control of the military, there cannot be even a taint of corruption or a hint of tolerance for human rights abuses," Gates told the Indonesian Council on World Affairs.

During the last three years, the Bush administration has moved to lift restrictions on military ties between the two countries, which were first cut after the Indonesian military committed atrocities in East Timor in 1991. Congress has moved to withhold some of the aid until military abuses are accounted for, and human rights groups have argued that the armed forces still are not fully answerable to civilian authorities.

Gates' address followed meetings with Indonesian President Susilo Bambang Yudhoyono and Defense Minister Juwono Sudarsono. U.S. officials traveling with Gates said he pushed to deepen security ties with Indonesia, the world's most populous Muslim country and a key ally in the region and a model of the secular Muslim state the Bush administration hopes to replicate elsewhere.

Although Indonesia has become the second-largest recipient of U.S. military aid in the region, at about $15.7 million this year, officials have expressed frustration with the slow pace of U.S. military sales.

Indonesia has discussed acquiring weapons from China and Russia, with Russian President Vladimir V. Putin vowing during a visit here in September to sell Jakarta $1 billion of advanced weaponry.

The discussions with the Russians and Chinese were seen by analysts as a hedge, but Gates said all U.S. restrictions on arms sales to Indonesia were lifted by the Bush administration in November 2005. At a news conference with Gates after their talks, Indonesia's defense minister said his consideration of non-U.S. weaponry was sound acquisition policy.

Indonesian minister accuses West of 'exploiting' bird flu

Mark Forbes, Jakarta
February 20, 2008

INDONESIAN Health Minister Siti Fadilah Supari claims the United States and World Health Organisation are part of a global conspiracy to profit from the spread of bird flu, and the US may use samples to produce biological weapons.

The views of Dr Supari, outlined in her new book, It's Time for the World to Change, threaten to undermine efforts to control the spread of avian influenza and prevent it becoming a global pandemic.

Indonesia is the new hot spot for the virus, with recent deaths raising the local toll to 104, nearly half the world's total.

Despite claims by Dr Supari — described on the book's cover as the "divine hand behind avian influenza" — that she has forged a new agreement to share virus samples and allow all nations access to resulting vaccines, Indonesia still blocks the sharing of samples from human victims.

Inquiries by The Age reveal the ban has been widened to include samples from chickens, which are infected across Indonesia. More than 200 have not received export permits to be sent to an Australian laboratory for analysis.

Tracking the spread of the virus and its mutations is essential to guard against it jumping into human communities on a larger scale, experts say.

In her book, Dr Supari says WHO laboratories forwarded influenza viruses to Western companies so they could profit by selling vaccines back to developing countries. "The system of world health management has been very exploitative," she says. "It has been controlled by inhumanly (sic) desires, based on the greediness to raise capital and to control the world."

Some Indonesian samples were sent to a US Defence Department laboratory, Dr Supari says. She says she had to act because "some of our seed viruses had been in a laboratory known as a facility developing biological weapons in a superpower country".

Privately, foreign experts and officials say Dr Supari's belief that she is engaged on a God-driven crusade against an evil and "neo-colonialist" world health system have caused her to lose touch with reality.

Compromise solutions to ensure vaccines are shared are being ignored, they say.

International officials are dismayed that Indonesian President Susilo Bambang Yudhoyono appears to have endorsed the book, writing its introduction.

Flying in the face of the facts, Dr Yudhoyono supports Dr Supari's claim that the spread of the virus is under control in Indonesia, stating that the "occurrence rate and the number of affected areas are decreasing".

WHO refused to comment on the book or the virus-sharing stand-off. A spokesman said: "This matter is a sensitive case at present."

No US officials were available for comment. They are believed to have protested, resulting in the book being withdrawn from sale almost as soon as it was released last week. Few copies were sold, but the publisher said the Government-funded book would be available again soon.

In it, Dr Supari says Indonesia's bird flu victims did not die in vain: "They all died as martyrs of humanity for the betterment of the world health management."

She also alleges WHO's virus-sharing system exploits the blood, cells and antibodies of the powerless. "And perhaps it would be more dangerous when in the end they would take our brain cell(s) as well, to be re-engineered and create a new generation of slaves."

Jakarta attacks Burma’s draft constitution

By John Aglionby in Jakarta and Amy Kazmin in Bangkok

Published: February 21 2008 23:12 | Last updated: February 21 2008 23:12

Indonesia became the first big developing country on Thursday to criticise Burma’s draft constitution, which entrenches military rule by banning leading opposition activists from politics, including Aung San Suu Kyi, the Nobel prize-winning democracy advocate.

Hassan Wirajuda, Indonesia’s foreign minister, said the constitution should be revised before being put to a national referendum in May, to ensure that the interests of opposition and minority groups were protected.

His comments were made days after Burma’s military rulers publicly clarified that Ms Suu Kyi, now a widow, would be prohibited from contesting Burma’s planned 2010 elections because she had married a foreigner.

“We hope that in the period between now and May, a process of consultation will take in input from these groups so that the draft constitution which will be voted on will be comprehensive, meaning that it will accommodate their interests,” Mr Hassan told the Financial Times.

The Burmese junta insists its charter will lay the foundation for a “disciplined democracy” suitable for Burma’s multi-ethnic ­population.

But opposition groups have denounced it as an attempt to legalise military rule, while Ms Suu Kyi’s National League for Democracy has complained that the army’s “unilateral” referendum plans “did not support meaningful political dialogue or the national reconciliation process”.

Under the proposed constitution, 25 per cent of parliamentary seats will be reserved for the military, while the army chief can appoint key ministers, and declare a state of emergency, seizing widespread powers. Protection of basic rights and civil liberties will be highly conditional, and easily curbed by the military.

The constitutional provisions governing election eligibility also make it clear that political dissidents can easily be excluded from running for public office.

“It’s already rigged,” said Aung Naing Oo, a Burmese political analyst in exile. “Anyone who has been an active campaigner for democracy, or has been against the military at some point, or has the potential to do so, will be disqualified.”

The charter bars from office anyone married to a foreigner, or whose spouse or children have foreign citizenship, as well as Buddhist monks and other religious figures. It also bars political prisoners and civil servants, except for soldiers.

Parliamentary candidates must have lived in Burma for 10 consecutive years.

Copyright The Financial Times Limited 2008

Suu Kyi tops UN envoy’s agenda

By John Aglionby in Jakarta

Published: February 23 2008 01:16 | Last updated: February 23 2008 01:16

A United Nations envoy will hold talks with Burma’s ruling junta over the country’s “road map to democracy”, including its plans to bar opposition leader Aung San Suu Kyi from taking part in elections.

Early this month the junta said it would hold a referendum in May on a new constitution, followed by elections in 2010. However, Ms Suu Kyi has been banned from the vote because she is the widow of a foreigner.

“This is one of the issues I intend to discuss with the authorities in Myanmar [Burma],” Ibrahim Gambari, the UN secretary-general’s special envoy on Burma, said on Friday in Jakarta, as part of his regional tour before going to the country early next month.

Burma, he said, should revise the proposed constitution to include the interest of opposition and minority groups before it is put to a referendum. Otherwise it would have no credibility, he said.

Mr Gambari said the military should immediately push talks with Ms Suu Kyi to a more substantive level, allow her National League for Democracy party to open offices across the country, and free the thousands of political prisoners so that they can take part in the constitutional debate.

“The proper thing to do is to give [the transition process] the credibility that not only meets our expectations but also internally,” he said. “It’s still possible to make changes before the referendum.”

Mr Gambari applauded Burma’s neighbours for increasing pressure on the junta to democratise the country, but urged them to do more. “Even at this late stage, south-east Asian nations, China and India should be sending the right signals,” he said.

Mr Gambari said Indonesia, which over the last decade has been transformed from a military-run autocracy to a fully fledged democracy, could be used as a template for Burma. Indonesia this week became the first big developing country to criticise Burma’s draft constitution.

Copyright The Financial Times Limited 2008

RI-Germany eye cooperation around renewable energy sources

Tony Hotland, The Jakarta Post, Jakarta

Indonesia and Germany said Wednesday they want to work together in the energy sector to generate renewable, cleaner sources of energy, in efforts to curtail climate change.

Germany's foreign minister and Vice-Chancellor Frank-Walter Steinmeier is on a three-day visit to build relations with Indonesia and has met with President Susilo Bambang Yudhoyono, his counterpart Hassan Wirayuda and the secretary-general of the Association of Southeast Asian Nations (ASEAN) Surin Pitsuwan.

Steinmeier should fly to Singapore on Thursday and then on to Vietnam.

Hassan said, "We discussed energy cooperation to provide electricity, whether from nuclear-fired power plants or other types of plants, especially looking at Germany's specialty in coal-fired plants".

"We hope we can produce cleaner energy," he said.

Indonesia is heavily dependent on its depleting fossil fuel reserves. It has become a net oil importer is now searching for suitable technology for renewable energy sources.

To help mitigate climate change, Hassan said Germany had offered some 24 million euros (about US$35.5 million) for reforestation programs in Indonesia.

Indonesia had the fastest pace of deforestation in the world between 2000-2005, with an area of forest equivalent to 300 soccer pitches destroyed every hour, Greenpeace said.

But Indonesia has said it wants industrialized countries to pay developing nations to preserve their forests under the Kyoto Protocol's Clean Development Mechanism.

Germany and Indonesia have signed five debt swap deals, with Indonesia's debts totaling 143.57 million euros written-off for advanced educational programs, assistance to small and medium-sized firms and programs fighting AIDS, tuberculosis and malaria.

Bilateral trade in 2006 reached $3.48 billion up from $2.49 billion in 2002, with German investment at $18.5 million in 2007.

International relation analyst Dewi Fortuna Anwar of the National Institute of Science (LIPI) said Germany was expanding its partnership toward growing markets in the region.

"Now that Germany's done with its reunification process and assisting Eastern European countries, it is seeking new fields," she said.

"Indonesia is in dire need of renewable energy and Germany is well-known for its technology."

Steinmeier also took note of the integration of ASEAN, to take place by 2015 with a combined population of 568 million, saying Germany had assured during its European Union presidency last year that an EU-ASEAN enhanced partnership was in place.

He and ASEAN's Pitsuwan concluded Wednesday a two-million-euro German-ASEAN cooperation project on capacity building for the ASEAN secretariat.

"I'm pleased to see the direction ASEAN is taking toward a free flow market of capital and trade," Steinmeier said.

"We are ready to support financially for that process," he said.

Indonesia Tackling Corruption, Conflict in 2009 Elections

By Chad Bouchard

International agencies are helping Indonesia prepare for a massive country-wide election in 2009 that will include local offices in hundreds of districts. As Chad Bouchard reports from Jakarta, election officials hope to avoid past mistakes.
Indonesia is getting an early start as the country prepares for presidential and local elections next year.

It will be the second democratic presidential election since President Suharto stepped down in 1998.

The UN Development Program's country director in Indonesia, Haakan Bjorkman, says the international community wants Indonesia's elections to be clean and fair.

"Indonesia has emerged as the strongest and most healthy democracy in Southeast Asia, so we predict in 2009 that all eyes will be on Indonesia to see if the election assistance can work in a good way. And that this success story can continue," said Bjorkman. "The stakes are very high for this region."

Indonesia's parliament is considering a bill that would set up a system to certify political parties and schedule elections for April 5 next year. Election officials fear delays in passing the bill could postpone the elections.

The bill would cap campaign donations at $100,000 per person and $500,000 for companies.

Political analyst Wimar Witoelar says getting polling stations ready and distributing ballots are the least of Indonesia's election concerns.

"But how to get the influence of money out of the system, especially now that Suharto's money has been temporarily left unscathed and running around and that bodes very ill for the attempts we have," said Wimar. "So ours is a very big political problem, not a mechanical problem of elections."

Kevin Evans is an experienced election observer working on reconstruction in Indonesia's Aceh province. He says some voters wrongly accused Indonesia's election commission of graft in 2004 and attacked election staff. He says this time around officials are making it clear that the election commission oversees the election process, but does not carry out the polling.

Evans says confusion over the balance of power between the commission and the local government led to chaos during the last general election.

"And I think when you have an imbalance between those rights and responsibilities and authorities, then you are opening up an integrity trap," he said. "And so I think that one of the important findings of those earlier elections has been addressed."
Earlier this month, Transparency International, Corruption Watch, and other groups announced plans to issue a blacklist of politicians suspected of corruption to raise awareness among voters.

On Wednesday, the Indonesian Election Commission and the UN Development Program signed an agreement to formalize foreign help for the 2009 elections.

Indonesia: Journalists To Seek Judicial Reviews On Defamation

JAKARTA, INDONESIA: Press organisations in Indonesia will request the Constitutional Court to review defamation articles in the Criminal Code, following the district court's conviction of senior journalist Bersihar Lubis.

The Depok District Court sentenced Bersihar to one month in prison Wednesday (20 Feb), before suspending his sentence and requiring three month's probation.

Bersihar was put on trial for insulting the Attorney General's Office (AGO) with his opinion article in Koran Tempo daily newspaper, titled Kisah Interogator yang Dungu (The Story of Stupid Interrogators).

The court found him guilty, saying he violated article 207 of the Criminal Code on insulting public institutions.

Presiding judge Suwidya said while Bersihar was an opinion writer, he should be accountable for the content of his work.

Press Legal Aid executive director Hendrayana said the organisation would ask for judicial reviews of the Criminal Code articles, including article 207, which had violated the freedom of the press.

"We will appeal for the review of some articles, including 207, 310 and 316 in mid March," he told The Jakarta Post.

Hendrayana said the organisation would coordinate the appeal for Bersihar and journalist Risang Bima Wijaya, the former general manager of Radar Yogyakarta daily, who was sentenced to six months in prison.

Sleman District Court, Yogyakarta, found Risang guilty of insulting Kedaulatan Rakyat daily owner Soemadi M Wonohito. Risang has been in prison since January this year.

Indonesian Press Council head Ichlasul Amal said the organisation had long planned to request judicial reviews of several articles.

"The problem is that appeals must be requested by those who are directly affected by the articles, not us," Amal told the Post.

He said the council would discuss the matters at a plenary session Feb 29.

"We will call on those who have been 'victimized' by the articles to request the reviews with us."

Alliance of Independent Journalists head Heru Hendratmoko said the organisation would support Bersihar in the judicial review.

"The articles are no longer relevant for a democratic country like Indonesia," he said.

Heru said he was hopeful the court would void those articles.

"There is a high possibility the articles will be annulled, because the Constitutional Court has already scrapped three other articles of defamation on the President and Vice President," he said.

In December 2006, the Constitutional Court made history by scrapping articles 134, 136 and 137 of the Criminal Code, which ruled that burning pictures of the President and Vice President and mocking them in public were insults.

The court reviewed the code as requested by lawyer Eggi Sudjana and activist Pandapotan Lubis.

Pandapotan was arrested after insulting the President at a rally, while Eggi was charged with defaming President Susilo Yudhoyono with his statement that Yudhoyono and his son had received Jaguar sedans from businessman Hary Tanoesudibjo. The report turned out to be fabricated.

The three articles made it difficult for people to criticise the President and his deputy, Court chief Jimly Asshiddiqie said during the hearing.

The articles undermined the country's process toward democracy by causing confusion as they were open to subjective interpretation, he said. (The Jakarta Post/ ANN)

Indonesia’s Constitutional Court annuls articles on insult against president

The Alliance of Independent Journalist (AJI) Indonesia welcomes a Constitutional Court ruling stating that three articles of law prohibiting insult of the president - namely, Article 134, Article 136 bis, and Article 137 of the Criminal Code - are not legally binding because they violate the 1945 Constitution.

According to local news site “Tempo Interaktif”, in July 2006, lawyer Eggy Sudjana and political activist Pandapotan Lubis applied for a constitutional review of the articles, which they said violated Article 27 point (1), Article 28, Article 28E point (2) and point (3), Article 28F, and Article 28j point (1) and point (2) of the 1945 Constitution.

In its ruling on the matter on 6 December 2006, the Constitutional Court stressed that the provisions were invalid because they were overridden by the principle of equality before the law. The provisions also curbed freedom of expression, freedom of information and the principle of legal certainties. The provisions created legal uncertainties because of its arbitrary interpretation of protests and statements of opinion as criticisms or insults against the president.

However, “Tempo Interaktif” reports that the verdict was not unanimous, with four out of nine judges on the panel dissenting. They viewed that Eggy and Pandapotan’s cases were about the legal implementation by investigators, not about the Constitution.

“Kompas Daily” quoted Eggy Sudjana’s attorney as saying that the ruling was a constitutional victory for a society that upholds democracy.

AJI Indonesia President Heru Hendratmoko said, ”We welcome the ruling of the Constitutional Court because so far, the provisions on insults against the president in KUHP have been used to protect government officials from criticisms expressed by the people.”

AJI’s records show that the articles prohibiting insult against the president did not only ensnare students and activists, but also journalists. Supratman, executive editor of “Rakyat Merdeka”, was charged with insulting the president for publishing a news report that was deemed to be insulting to former President Megawati. The South Jakarta District Court sentenced him to six months on probation. Supratman is appealing the verdict.

AJI Indonesia urges the Constitutional Court to be proactive in reviewing provisions in the Criminal Code which have the potential of violating freedom of expression, freedom of assembly, freedom of the press and other human rights.

AJI Indonesia demands that efforts to revise the criminal law through the drafting of the new Criminal Code should reject provisions that control freedom of expression and freedom of the press.

AJI Indonesia wishes to remind the Indonesian government that since it accepted the need to protect human rights in the Constitution through the second amendment of the 1945 Constitution and the ratification of the International Covenant on Civil and Political Rights through the Law No. 12 Year 2005, it is obliged to streamline the national legal system to respect and protect human rights.