In a broader context, Indonesia still needs foreign capital, as the country’s domestic savings rate is still low. This saving-investment gap means that investment needs are not sufficiently met by domestic savings. Thus, Foreign Direct Investment (FDI) is needed to turbocharge the economy, if Indonesia is to become a developed country.
However, efforts to align regulations to OECD standards in order to create a more pro-investment climate do not signify that Indonesia should blindly accept all proposals to change existing regulations. Regulatory convergence and economic openness need to be adjusted to Indonesia’s own context and readiness, particularly their impact on micro, small and mid-sized enterprises (MSMEs). Convergence of regulations must be in line with Indonesia’s strategy to achieve just and equitable economic development.
It must be noted that simply joining the OECD will not automatically result in the desired economic acceleration. However, there is no doubt that OECD membership will actually open up many windows of opportunity to accelerate national economic growth. But being an OECD member also comes with the reputational imperative for Indonesia to live up to its elite status. This means that instead of resting on its laurels, the government must step up its efforts to drive investment performance, both foreign and domestic.
The OECD’s high standards in investment regulation and compliance are not easy to meet, considering that so far Indonesia’s efforts to attract investors tend to rely on its reputation alone, without the added value of being a member of international economic organizations. OECD membership will enable Indonesia to attract investments more widely, although of course it still has to compete with other member countries. The goal of investment is to promote economic growth, job creation, and ultimately, public welfare.
As the OECD advocates economic growth that is distributed fairly across society, Indonesia can take advantage of its membership to further its equitable and sustainable development goals. The key lies in the Government’s ability to manage and minimize the negative impacts of FDI on the domestic economy and society at large.
To be clear, there is a possibility that investment will increase, but only in certain sectors or in capital-intensive, instead of labor-intensive, sectors. While we should not oppose capital-intensive investments, the government needs to balance them with labor-intensive investments that can generate more meaningful jobs. In the Indonesian context, foreign investors should also be encouraged to invest outside Java to ensure equitable economic growth. While this will present its own set of challenges, finding the equilibrium between inbound investments and commitment to improve the welfare of the lower-middle class community needs to become a strategic focus within Indonesia’s OECD membership.
Vast potential
To put OECD economic might into perspective, its member countries accounted for 41.1 percent of global GDP, and 27.2 percent of global GDP growth in the decade from 2013-2023. This shows how strategic OECD is in the global economy. It is thus now wonder that OECD countries serve as magnets for global investors in various sectors, as they offer legal certainty, transparency, robust fraud prevention measures, respect for human rights, and care for the environment.
In terms of per capita income, in the past decade (2013-2023) the average GDP per capita of OECD member countries has increased by 21.4 percent, from US$43,905 to US$53,315, averaging 2.1 percent per year. This illustrates that over time the economy in OECD countries has seen significant growth, despite the challenges confronting the global economy in the period, contrary to common assumptions that developed countries tend to focus more on maintaining economic stability than pursuing high economic growth.