Indonesia’s quest to join the OECD and become a high-income country

Author: John West, Asian Century Institute

Many raised eyebrows when the Indonesian Coordinating Minister for Economic Affairs Airlangga Hartarto announced that Indonesia had formally expressed an interest to join the OECD. The move seemed surprising given that the OECD is reputed to be a ‘developed countries’ club’ and Indonesia’s GDP per capita in 2022 was only US$4788 compared with the OECD average of US$43,261.

But the OECD has been recently opening up to emerging economies. In 2023, the OECD has 38 member countries, after accepting 8 new member countries since 2010. These are Chile, Estonia, Israel and Slovenia in 2010, Latvia in 2016, Lithuania in 2018, Colombia in 2020 and Costa Rica in 2021.

The last time the OECD admitted a new member from Asia was when South Korea joined in 1996. This means that the OECD only has two members (the other being Japan) from the world’s most economically dynamic region.

The OECD prides itself on being ‘a global policy forum that promotes policies to preserve individual liberty and improve the economic and social well-being of people around the world’. The inclusion of Indonesian perspectives can only enrich it.

Since the 1997 Asian financial crisis, Indonesia has established itself as an impressive emerging democracy. It is ranked 54th out of 167 countries surveyed by the Economist Intelligence Unit in its Democracy Index 2022. Joining the OECD would represent Indonesia’s firm commitment to democracy at a time when an estimated half of democratic governments around the world are in decline while authoritarian regimes are deepening their repression.

Indonesia has one of the world’s most important economies, ranking 16th globally in GDP based on market prices and 7th based on purchasing power parity (PPP). On a PPP basis, only three OECD members — the United States, Japan and Germany — have bigger economies than Indonesia. Indonesia is home to the world’s fourth largest population, with 275 million people. This is surpassed in the OECD only by the United States’ 333 million population.

It is significant that Indonesia is the first emerging G20 economy and ASEAN member to seek OECD membership. Indonesia’s importance to the G20 was clear during its 2022 G20 presidency when it was able to showcase its leadership of the premier forum for international economic cooperation and setting the global agenda.

Indonesian President Joko ‘Jokowi’ Widodo has reportedly said that Indonesia is also studying possible membership in the Brazil, Russia, India, China and South Africa (BRICS) group which has very different political orientations.

Indonesia’s interest in OECD membership did not come out of the blue. The OECD designated Indonesia as a ‘Key Partner’ in 2007, along with Brazil, China, India and South Africa. The OECD’s 2022–25 Joint Work Programme supports the implementation of Indonesia’s Medium-Term National Development Plan 2020–25. Being well integrated already into the OECD’s work, the Indonesian government is hoping for the membership process to be completed by 2026.

There is little doubt that OECD membership would benefit Indonesia in its quest to become a high-income country. The rigorous accession process scrutinises the quality of many policies, notably openness to international and domestic competition and governance quality, including for state-owned enterprises.

New members must also accede to the values shared by OECD members, including the preservation of individual liberty, the values of democracy, the rule of law and the protection of human rights.

Indonesia is not the only country in the OECD queue. Accession discussions are well underway with five candidates — Brazil, Bulgaria, Croatia, Peru and Romania. When the Ukraine war comes to an end, Ukraine will likely be invited to become an OECD member too.

Accepting new members is equally important for the OECD. Secretary-General Mathias Cormann has noted that ‘OECD membership remains the most direct and effective way to ensure the adoption and dissemination of our shared values, principles and standards across the world’. His August 2023 visit to Jakarta to meet with President Jokowi and relevant ministers in support of Indonesia’s application is a sign of the OECD’s enthusiasm.

Cormann has pointed out that ‘candidate countries will be able to use the accession process to promote further reforms for the benefit of their people’. The OECD process may help Indonesia’s reformers following the change in administration after the general election on 14 February 2024.

As a former Australian minister for finance, Cormann will no doubt be pleased if Australia’s closest large neighbour joins the OECD and consolidates its market-oriented democracy under his watch.

Welcoming Indonesia into the fold carries many benefits for the grouping. Helping the largest ASEAN economy open its doors will stimulate the group’s economic dynamics. The move also deepens the OECD’s connection with Asia and the Global South, while bolstering its role as a guardian of the rules-based international order.

John West is Executive Director at Asian Century Institute and Adjunct Professor at Sophia University in Tokyo.

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