Indonesia’s effort to reshape the perception of the OECD

Authors: Rania Teguh, ANU and Fajar B Hirawan, CSIS Indonesia

Indonesia’s pursuit of the Organisation of Economic Co-operation and Development (OECD) membership is an opportunity for it to develop advanced economy credentials and for partners, including Australia, to actively promote an emerging regional power.

Indonesian Coordinating Minister for Economic Affairs Airlangga Hartarto announced on 20 July 2023 that Indonesia has already gained in-principle support for its eventual membership from OECD Secretary-General Matthias Cormann. Cormann met with Indonesian President Joko Widodo in Jakarta in early August 2023. Indonesia cited its return to upper-middle income status and its successful G20 presidency as key enablers for its OECD bid. Indonesia’s decision to bid for membership is likely driven in part by positive exposure to the OECD through its G20 presidency — a stark contrast to the usual perceptions held by emerging economies — and its long-term status as OECD Key Partner.

This is not just the first time that an ASEAN member has sought OECD membership but also the first time a G20 emerging economy has sought membership since the G20 was formed in 1999. Indonesia would only be the third Asian economy to receive membership, joining Japan and Korea to contribute to the OECD’s transition from a primarily Eurocentric institution.

As de facto leader of ASEAN, Indonesia can reshape both Southeast Asian perceptions of the OECD and the OECD’s perceptions of the region. Its membership would address criticisms of the OECD as an ‘advanced economy club’ and would ensure that the views of Southeast Asian states are accurately reflected within OECD products. Indonesia would also be able to provide additional transparency regarding OECD practices to ASEAN states and could encourage members to consider joining initiatives such as the OECD Anti-Bribery Convention and the G20/OECD Multilateral Instrument on Base Erosion and Profit Shifting.

Seeking membership signals to advanced economies that Indonesia is actively preparing to become a constructive advanced economy in its own right. It provides further legitimacy to Indonesia’s interests in ensuring free, fair and open markets and safeguarding the international rules-based order in support of a resilient, inclusive, innovative, and sustainable global economy. It also provides external pressure for Indonesia to undertake necessary reforms to align its domestic and international policy positions, including through regular OECD Economic Surveys and the OECD’s contributions to international rulemaking efforts.

But Indonesia’s political reality is greatly misperceived by Western governments, as epitomised by the lacklustre July 2023 Indonesia–Australia leaders declaration.

As a rapidly developing economy with a large, young population, the country envisions itself as the Indonesia of 2045. Jakarta is implementing policies that reflect this aspiration, including establishing Nusantara and exploiting its demographic dividend. In contrast, Australia views Indonesia through the lens of the Asian Financial Crisis — as a struggling economy in need of paternal assistance rather than a regional leader in its own right.

The Indonesia–Australia leaders’ communique demonstrates the gap between Australian support and Indonesian need. The headline figure — AU$50 million for clean energy development — is effectively a rounding error intended to mobilise private finance rather than a meaningful contribution in its own right. And despite repeated reference to scholarship opportunities for Indonesian students seeking to study in Australia, the total number of Australia Award Scholarships has fallen from 4204 in 2017 to 2075 in 2022.

Indonesia’s OECD membership pursuit offers a unique opportunity for Australia to step up and actively partner with Indonesia. Not only would this amplify Indonesia’s bid but it would also allow Australia’s self-positioning as Indonesia’s ‘partner of first choice’ to progress beyond rhetoric and lip service.

Australia invested heavily in appointing former finance minister Mathias Cormann as OECD Secretary-General in 2021, positioning his appointment as ‘a voice … that understands the Indo-Pacific’. This is a chance to fulfil that promise and encourage an OECD which not only seeks to understand the region but is directly informed by representatives from the region. Australia should move from simply conveying the Indo-Pacific perspective to actively promoting Indo-Pacific voices as they speak on their own behalf.

By partnering with Indonesia through its accession, Australia could also position itself to support Indonesia with necessary reforms as it pursues advanced economy status by 2045. Foremost among these is addressing the widespread corruption within the Indonesian political system. Indonesia will be expected to ratify the OECD Anti-Bribery Convention as part of its membership and Australia should leverage the relationship it built as 2022 co-chair of the G20 Anti-Corruption Working Group to actively support Indonesian reform.

Australia could also work with Indonesia to address the legacy political ideas currently espoused by its public figures, including President Widodo’s proclamation that Indonesia will continue nickel downstreaming ‘despite facing lawsuits in the WTO and warnings from the IMF’.

Indonesia’s experience in pursuing OECD membership is likely to define the approach of other rapidly emerging economies. If Indonesia is actively supported by its friends and allies and treated with respect by OECD members throughout the process, this is likely to pave the way for future membership bids. But if Indonesia’s pursuit of membership is met with censure, this may instead signal the beginning of the OECD’s slow retreat from relevance.

Rania Teguh is Pacific Trade and Development Scholar at the Crawford School of Public Policy, The Australian National University.

Fajar B Hirawan is Head of Economics Department, CSIS and Lecturer at Indonesian International Islamic University.

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