Indonesia’s prospective membership in the Organisation for Economic Co-operation and Development (OECD) by 2027 is a significant development for both the country and the broader region. As Indonesia seeks to elevate its international status by joining an elite group of mostly high-income nations, the implications of this move are vast. This article explores the potential impacts of Indonesia’s OECD membership on its domestic policies, including concerns about increasing Western hegemony and the potential rise of political protectionism and resource nationalism, particularly concerning its vital oil and mineral resources.
Understanding the OECD and Indonesia’s Path to Membership
The OECD, founded in 1961, serves as a platform for its 38 member countries to discuss, develop, and promote policies that improve the economic and social well-being of people around the world. It is often seen as a “club” of developed nations, though in recent decades it has increasingly engaged with emerging economies. The organization’s work spans a wide range of issues, including economic policy, education, environment, labor, and trade, all underpinned by a commitment to market economies and democratic governance (OECD, 2023).
Indonesia’s path to OECD membership has been driven by its impressive economic growth over the past two decades, its strategic importance in Southeast Asia, and its ambition to play a more prominent role on the global stage. Since becoming a Key Partner of the OECD in 2015, Indonesia has steadily increased its engagement with the organization, participating in numerous OECD committees and adopting various OECD standards and recommendations (OECD, 2023). The decision to pursue full membership by 2027 reflects Indonesia’s desire to align more closely with global economic standards and practices, while also hoping to benefit from the OECD’s wealth of knowledge and best practices.
Economic Impacts of OECD Membership
Enhanced Investment Climate and Economic Growth
One of the most significant economic benefits of OECD membership is the potential to enhance Indonesia’s attractiveness as a destination for foreign direct investment (FDI). Membership in the OECD is often perceived as a mark of a country’s commitment to good governance, transparency, and market-oriented policies. This perception could lead to an influx of FDI, which is crucial for sustaining Indonesia’s economic growth and development. Foreign investors are likely to view Indonesia as a more stable and predictable investment environment once it is part of the OECD, which could boost confidence and reduce the cost of capital for Indonesian businesses (OECD, 2023).
Access to OECD Expertise and Best Practices
As an OECD member, Indonesia will have access to the organization’s extensive research, data, and policy recommendations, which can help the country refine its economic management and improve its competitiveness. The OECD’s work on taxation, for example, could assist Indonesia in modernizing its tax system, thereby increasing tax revenues and reducing reliance on volatile natural resource revenues. Similarly, OECD guidelines on corporate governance, anti-corruption, and competition policy could help Indonesia create a more transparent and efficient business environment, fostering sustainable economic growth (Basri & Rahardja, 2021).
However, these economic benefits come with significant challenges. To fully capitalize on the opportunities presented by OECD membership, Indonesia will need to undertake comprehensive reforms in areas such as tax policy, labor market regulation, and environmental protection. These reforms may be politically sensitive and could face resistance from various domestic stakeholders.
The Question of Western Hegemony
Western Influence in the OECD
The OECD has long been dominated by Western countries, particularly the United States and European nations, which have played a central role in shaping the organization’s agenda and policies. This has led to concerns that Indonesia’s OECD membership could expose it to increased Western influence or even hegemony, potentially constraining its policy autonomy. Critics argue that the OECD’s standards and practices reflect the interests and values of its Western members, which may not always align with the priorities and challenges of emerging economies like Indonesia (OECD, 2023).
Potential Risks of Policy Convergence
One of the risks associated with OECD membership is that Indonesia may be pressured to adopt policies that prioritize Western interests over its own national development goals. For example, the OECD’s emphasis on liberalization, deregulation, and market-oriented reforms could lead to policy convergence, where Indonesia’s domestic policies are increasingly aligned with those of Western countries. While this could enhance Indonesia’s integration into the global economy, it could also limit its ability to pursue alternative development strategies that may be better suited to its unique context (Hameiri, 2019).
Balancing National Interests with Global Standards
To mitigate these risks, Indonesia will need to strike a careful balance between aligning with OECD standards and protecting its national interests. This may involve selectively adopting OECD recommendations that are most relevant to Indonesia’s development needs while resisting external pressures to implement reforms that could undermine its sovereignty or exacerbate social inequalities. Indonesia’s leadership will need to navigate these challenges carefully, ensuring that OECD membership strengthens rather than compromises its ability to pursue its own development agenda (Basri & Rahardja, 2021).
Boosting Political Protectionism and Resource Nationalism
Indonesia’s Resource Wealth
Indonesia is endowed with significant natural resources, including oil, gas, coal, and minerals, which have long been central to its economy. These resources have also been a source of political power and contention, with successive governments grappling with how to manage and exploit them in a way that maximizes national benefits while minimizing environmental and social costs. The issue of resource nationalism, where the state seeks greater control over natural resources to ensure that they primarily benefit the domestic economy, has been a recurring theme in Indonesian politics (Warburton, 2017).
The Role of Resource Nationalism
In recent years, Indonesia has seen a resurgence of resource nationalism, driven by concerns that foreign companies have historically reaped the lion’s share of profits from the country’s natural resources. This has led to the implementation of policies aimed at increasing state control over resource extraction and ensuring that more of the benefits are retained domestically. Examples include the 2009 Mining Law, which required foreign companies to divest majority ownership in mining projects to Indonesian entities, and the 2017 ban on the export of unprocessed minerals, designed to promote domestic value addition (Warburton, 2017).
OECD Membership and Resource Nationalism
Indonesia’s accession to the OECD could have complex implications for its resource nationalism policies. On one hand, OECD membership could pressure Indonesia to liberalize its resource sector and create a more favorable environment for foreign investment. This could involve relaxing restrictions on foreign ownership, reducing state intervention in resource management, and adopting more market-oriented policies. Such changes could attract greater FDI and potentially boost resource extraction and export revenues (OECD, 2023).
On the other hand, Indonesia may seek to use its OECD membership to bolster its resource nationalism agenda by leveraging the organization’s emphasis on sustainable development and social equity. For example, Indonesia could argue that greater state control over natural resources is necessary to ensure that resource extraction is conducted in an environmentally sustainable manner and that the benefits are more equitably distributed among the population. This could involve advocating for OECD standards that support responsible resource management and the fair distribution of resource revenues (Warburton, 2017).
Political Protectionism in the Face of Globalization
Indonesia’s growing focus on resource nationalism could also lead to increased political protectionism, particularly in the context of its OECD membership. As Indonesia becomes more integrated into the global economy through the OECD, it may face pressures to open up its markets and reduce barriers to trade and investment. However, in response to these pressures, Indonesia could adopt protectionist policies designed to shield its domestic industries from foreign competition and to protect its strategic resources from external exploitation (Hameiri, 2019).
For example, Indonesia could implement measures such as tariffs, export restrictions, and local content requirements to protect its resource industries and ensure that they contribute more directly to national development. While such policies could help preserve Indonesia’s economic sovereignty and promote domestic industrialization, they could also lead to tensions with other OECD members, who may view them as inconsistent with the organization’s commitment to free trade and market liberalization (OECD, 2023).
Navigating the Balance: Sovereignty and Global Integration
Indonesia’s Strategic Dilemma
Indonesia’s OECD membership presents a strategic dilemma: how to balance the benefits of deeper integration into the global economy with the need to protect its sovereignty and national interests. On one hand, OECD membership offers Indonesia access to valuable resources, expertise, and networks that can support its economic growth and development. On the other hand, it could also expose Indonesia to increased external pressures to adopt policies that may not align with its domestic priorities (Basri & Rahardja, 2021).
To navigate this dilemma, Indonesia will need to adopt a pragmatic approach that maximizes the benefits of OECD membership while minimizing the risks. This may involve selectively engaging with the OECD on issues that are most relevant to Indonesia’s development goals while maintaining a degree of policy autonomy in areas where national interests are at stake. Indonesia’s leadership will need to be proactive in shaping the terms of its engagement with the OECD, ensuring that its membership strengthens rather than undermines its ability to pursue its own development path (Hameiri, 2019).
Regional and Global Implications
Indonesia’s OECD membership could also have broader regional and global implications. As the first Southeast Asian country to join the OECD, Indonesia’s membership could serve as a model for other emerging economies in the region and beyond. It could also enhance Indonesia’s influence in regional and global forums, including ASEAN, the G20, and the United Nations, where it could advocate for policies that reflect the interests and priorities of developing countries (OECD, 2023).
At the same time, Indonesia’s OECD membership could create tensions with other emerging economies, particularly those that are not yet members of the organization. There is a risk that Indonesia’s membership could be seen as aligning more closely with the interests of developed countries, potentially alienatingsome of its regional partners. To mitigate these risks, Indonesia will need to maintain a balanced and inclusive approach to its OECD membership, ensuring that it continues to engage actively with regional initiatives and maintains its leadership role within ASEAN (Warburton, 2017).
Conclusion: The Path Forward for Indonesia
Indonesia’s anticipated membership in the OECD in 2027 represents a significant milestone in the country’s development and its integration into the global economy. As an OECD member, Indonesia will gain access to valuable resources, expertise, and international networks that can support its economic growth, social development, and environmental sustainability. However, the process of joining the OECD also presents significant challenges, including the need to navigate the complexities of Western influence, manage the potential rise of political protectionism and resource nationalism, and balance the demands of global integration with the protection of national interests.
To maximize the benefits of OECD membership, Indonesia will need to demonstrate strong political leadership, effective coordination, and a commitment to aligning with OECD standards while protecting its sovereignty and national interests. This will require a clear vision for how OECD membership can contribute to Indonesia’s broader development goals, as well as a sustained effort to implement the necessary reforms in a way that is transparent, inclusive, and aligned with national priorities.
In the coming years, Indonesia’s journey towards OECD membership will be closely watched by both domestic and international observers. If successful, Indonesia’s accession to the OECD could set a new benchmark for emerging economies and contribute to the organization’s mission of promoting better policies for better lives. At the same time, Indonesia’s experience as an OECD member will provide valuable lessons for other countries seeking to join the organization and to advance their own development goals.
