Tag Archives economic diplomacy

Indonesia’s Ascent to OECD Membership: A step closer toward gender-responsive climate change solutions?

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Indonesia’s interest in approaching developed country status is reflected in President Joko Widodo’s plan to join the OECD (Organisation for Economic Cooperation and Development) instead of the (Brazil, Russia, India, China) alliance. The historical relationship between Indonesia and the OECD has become stronger since 2007, promoting initiatives for growth and information sharing. Access to information, materials, and money for gender-inclusive climate programmes would be easier with the OECD’s support, improving transparency and accountability and allowing adaptive management to handle gender and power dynamics effectively. In this blog, a PhD researcher at the International Institute of Social Studies Irma Nugrahanti poses questions on the potential of the membership.

Image by Ahmad Syahrir on Pexels.

Recently, President Joko Widodo has expressed an interest in joining the Organization for Economic Co-operation and Development (OECD) as a member instead of the BRICS (Brazil, Russia, India, China, and South Africa) coalition. During his G20 visit to India, he started to seek support from OECD countries such as France.

 

Indonesia is already a familiar face to the OECD

Indonesia is not new to OECD partnership having been a critical partner of the OECD since 2007, where the nation’s relationship with the Organization has greatly deepened. For example, in order to participate in knowledge exchange on creative ideas to accelerate development, Indonesia joined the OECD Development Centre in 2009. In 2012, Indonesia became the first Key Partner of the OECD to sign a Framework of Cooperation Agreement (FCA), and a Privileges and Immunities Agreement in 2013. Furthermore, Indonesia opened the OECD’s first Southeast Asian regional office in Jakarta in 2015. Additionally, Indonesia helped establish the OECD Southeast Asia Regional Programme in 2014 and held one of its initial co-chair positions from that year to 2017.

This application comes with an expectation to increase Indonesia’s per capita income. The average annual per capita income of OECD members is over $10,000 USD. According to a World Bank report, Indonesia’s current gross national income (GNI) per capita is $4,500, and it is categorized as an upper-middle-income country. The goal is for this GNI to increase to $5,500 in 2024.

If Indonesia’s application is successful, this means Indonesia will move closer to becoming an ‘economically developed’ country. Indonesia can use the OECD standards as a benchmark and as best practices and will also receive support for its development initiatives. Indonesia will be the third Asian country (after Japan and South Korea) to become an OECD member. With a GDP that ranks 16th internationally based on market prices and 7th based on purchasing power parity (PPP), Indonesia has one of the most significant economies in the world. Only three other OECD nations have economies that are larger than Indonesia on a PPP basis: the United States, Japan, and Germany.

 

What does this mean to climate change and gender inequality issues in Indonesia?

Since 2014, Indonesia has been using climate change budget tagging to differentiate between climate-relevant and development expenditures based on the intended impact of the activity. This practice followed the objective-based definitions of climate-relevant activities and expenditures from OECD Rio Markers. The adoption of Indonesia’s climate budgeting, which is also responsive towards gender, has the potential to move significantly with Indonesia’s membership in the Organization for Economic Co-operation and Development (OECD).

First, this participation can make it easier for the country to have access to crucial knowledge and best practices, such as technical help and policy guidance, improving the government’s capacity to incorporate gender issues into climate budgeting successfully. Additionally, better data collecting and research assistance would help Indonesia detect and rectify gender inequities in climate policies. Indonesia could benefit from studying how OECD members incorporate gender-responsive budgeting into their policies to address environmental and climate concerns. For instance, examining the practices of OECD countries such as Ireland, where the development of a tagging system has been instrumental in linking budget allocation line items to key dimensions such as equality, green initiatives, well-being, and alignment with Sustainable Development Goals (SDGs). Additionally,  Austria has demonstrated the efficacy of gender budgeting methods, extending their implementation to the city level since 2006. The budgeting method played a crucial role in shaping sustainable practices, as seen in the development of green cities. Third, by fostering peer review and accountability systems, the OECD would encourage transparency and accountability in the allocation of funds for gender-inclusive climate programs. Indonesia can have better access to climate finance sources that give priority to projects that take gender equality into account, enhancing its ability to address the unique climate-related difficulties faced by both men and women.

Lastly, Indonesia can generate accurate performance measurements for its climate policies, particularly those pertaining to gender equality, by using OECD markers and indicative lists. This makes it possible to monitor development more effectively and spot potential problem areas. On the basis of OECD principles, regular monitoring and evaluation can help with adaptive management, enabling Indonesia to modify its climate policies and projects in response to gender dynamics and power relations.

Even though Indonesia has to go through a rigorous process to become an OECD member, Indonesia could benefit a lot from the OECD to achieve a stronger economic and inclusive governance system. The ongoing endeavour of the Indonesian government entails the implementation of a budget tagging system, designed to identify and monitor expenditures in accordance with the nation’s climate objectives while placing gender sensitivity first. By incorporating gender and climate change considerations into government budgeting and planning, this procedure aims to increase the efficiency, accountability, and fairness of resource allocation. Indonesia can further enhance its approach by linking budget allocations to various equality dimensions and Sustainable Development Goals, in accordance with OECD principles. Complemented by the knowledge-sharing initiatives with OECD members, this will ensure that a gender-responsive climate budget adheres to global standards. Overall, Indonesia’s membership in the OECD presents a significant opportunity for it to improve its gender-responsive climate budgeting procedures and, as a result, contribute to more just and efficient climate action.

References:

Antara (2023) Indonesia’s OECD Bid: Jokowi Requests for Support from France, Tempo. Edited by P.G. Bhwana. Available at: https://en.tempo.co/read/1770317/indonesias-oecd-bid-jokowi-requests-for-support-from-france (Accessed: 19 September 2023).

Muthiariny, D.E. (2023) Indonesia Seeks OECD Membership, to Be First in ASEAN, Tempo. Available at: https://en.tempo.co/read/1758337/indonesia-seeks-oecd-membership-to-be-first-in-asean (Accessed: 19 September 2023).

The OECD Development Assistance Committee (DAC) (no date) OECD DAC Rio Markers for Climate, OECD DAC. Available at: https://www.oecd.org/dac/environment-development/Revised%20climate%20marker%20handbook_FINAL.pdf (Accessed: 19 September 2023).

OECD (no date) Key Partner Indonesia – OECD & Southeast Asia, The OECD and Southeast Asia. Available at: https://www.oecd.org/southeast-asia/countries/indonesia/ (Accessed: 19 September 2023).

OECD (no date a) Accession to the Organisation – OECD, OECD Legal Affairs. Available at: https://www.oecd.org/legal/accession-process.htm (Accessed: 19 September 2023).

World Data (no date) The 50 largest economies in the world (no date) Worlddata.info. Available at: https://www.worlddata.info/largest-economies.php (Accessed: 19 September 2023).

World Bank (2022) GNI per capita, Atlas method (current US$) – Indonesia, World Bank Open Data. Available at: https://data.worldbank.org/indicator/NY.GNP.PCAP.CD?locations=ID (Accessed: 19 September 2023).

World Bank (2023) Gross domestic product 2022, PPP – World Bank, World Development Indicators database. Available at: https://databankfiles.worldbank.org/public/ddpext_download/GDP_PPP.pdf (Accessed: 19 September 2023).

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About the author:

Irma Nugrahanti is a Ph.D. researcher at the International Institute of Social Studies of Erasmus University Rotterdam. She is a six-time scholarship recipient and a gender equality and inclusive governance enthusiast. Her doctoral research focuses on the link between gender-responsive climate budgeting and climate change policies in Indonesia. Combining her years of experience in finance and policy advocacy with her research project, she aspires to fill the knowledge gap in understanding the intersectional gender-responsive budgeting practice to ensure the promotion and implementation of equity-responsive policies for climate change adaptation and mitigation responses in Indonesia.

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Economic diplomacy: bilateral relations in a context of geopolitical change by Peter A.G. Bergeijk and Selwyn J.V. Moons

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Economic diplomacy, although perceived as marginally important by neoclassical economists, is a highly relevant topic first and foremost because it works in practice, but also because it provides an essential policy answer to the increasing uncertainty of international transactions. In this article, Peter A.G. van Bergeijk and Selwyn J.V. Moons, editors of the recently released Research Handbook on Economic Diplomacy, briefly introduce the topic of economic diplomacy and highlight the value of the new publication, to which several ISS researchers have contributed.

The eminent breakdown of multilateralism and supranationalism due to Trump and Brexit has led to a revival of the debate on economic diplomacy, properly understood as a broad field that comprises those aspects of diplomacy that are aimed at:

  • the opening of markets to stimulate bilateral cross-border economic activities such as imports, exports, mergers and acquisitions and greenfield foreign direct investments;
  • the building and use of bilateral cultural, political and economic relationships between countries in order to assist domestic companies; and
  • the use of bilateral economic relationships, including (the threat) to discontinue these activities, as a tool of diplomacy.

Neoclassically oriented economists in the past have considered this topic of marginal interest only. Their analysis typically heralds the costs of government intervention and the benefits of free international trade and investment flows. Consequently, the economic analysis of positive and negative diplomatic interactions did not feature prominently on their research agenda. But it is increasingly being recognised that economic diplomacy is  a highly relevant topic, especially in Development Studies, (a) because economic diplomacy works (Moons 2017, 2018, Muniz 2018), (b) because it is more important for developing countries and emerging markets (Rhana 2018) and (c) because it provides an essential policy answer to the increasing uncertainty of international transactions (Bergeijk and Moons 2018).

Surprise and confusion

The international economic reality of 2018 is surprising and confusing. Europe struggles with its trans-Atlantic ally, and the UK’s exit and a new Italian government with an anti-EU attitude contribute to this sense of confusion. America is separating itself from its traditional partners (the EU, NAFTA, and the OECD). The trade relationships between the world’s economic #1 and #2 are more strained than ever before. Trust in the multilateral backbone of the world economy evaporates and US hegemonism is weakening. Clearly a new and better understanding of the interactions between governments is necessary because of the changing playing field and dynamics.

Brave new world

Four key stylized facts that apply to this new environment make the Research Handbook on Economic Diplomacy: Bilateral relations in a context of geopolitical change timely and highly relevant:

  1. In the brave new world of Trump and Brexit, trade and investment uncertainty increases significantly with a negative impact on trade and investment;
  2. Trump’s open confrontational approach to foreign policy as a form of negative diplomacy bears costs both in the US and abroad;
  3. Bilateral relationships become more relevant and valuable, especially for developing and emerging economies; and
  4. Bilateral economic diplomacy needs to be carefully designed and properly managed in order to generate optimal impact.

9781784710835Representing a move away from Eurocentric books on the topic, the Research Handbook offers relevant and focused contributions that provide three valuable lessons for current and future policies. First, in addition to the full coverage of positive interactions, our contributors also explicitly consider the impact of negative interaction. Second, the Research Handbook in addition to the analysis of OECD markets provides a comprehensive set of detailed empirical analyses of developing and emerging economies in Africa, Asia and Latin America. The contributions by 31 leading experts from industrial nations, emerging economies and developing countries in five continents provide a unique perspective on both the heterogeneous dynamics of economic diplomacy and the tools to analyse the impact and efficiency of economic diplomats both qualitatively (case studies, interviews) and quantitatively (macro-economic gravity models, micro-economic firm level data, surveys, meta-analysis, cost benefit analysis). Third, the Research Handbook provides detailed discussions of information requirements, data coverage and the impact of (changes in) the level and quality of diplomatic representation. The studies in the Research Handbook thereby reveal how and under which conditions economic diplomacy can be effective, providing clear guidance for evidence-based policy.

Evidence base

What are the major findings and implications of recent research? First, economic diplomacy works and this is true both for positive and negative interaction. One can build on positive interaction to strengthen economic ties and similarly the twitter tsunami of the current US president and his increasing reliance on economic sanctions will carry a significant cost (Rose, 2018). Second, uncertainty itself already reduces international specialisation: the threat of trade disruption and discontinuation of treaties in itself influences perceptions and thereby the behaviour of consumers, firms and governments. Third, a one-size-fits-all approach does not work. Economic diplomacy should be aimed at the niche where its contribution can be most significant: complex products, complex markets and countries with diverging political, cultural and historical background (Moons 2017).

Relevance for developing countries and emerging markets

Bilateral economic diplomacy is important for building a good country image and to promote an emerging market as a reliable trading partner with high quality export products, especially in developing countries. It is a relatively more significant determinant of bilateral exports among African states compared to regional integration (Afesorgbor 2018). New modes of economic diplomacy and (development cooperation) are being developed based on China’s pioneering approach to development (De Haan and Warmerdam 2018). Economic diplomacy, however, is not a panacea as Maharani (2018) clarifies while discussing challenges such as lacking exporter preparedness, substandard logistic infrastructure and budgets that remain below those of neighboring countries.

References:
Afesorgbor, S.K., Economic Diplomacy in Africa: The Impact of Regional Integration versus Bilateral Diplomacy on Bilateral Trade chapter 20 in Research Handbook on Economic Diplomacy: Bilateral Relations in a Context of Geopolitical Change, editors P.A.G. van Bergeijk en S.J.V. Moons, Edward Elgar: Cheltenham, UK
Bergeijk, P.A.G. van en S.J.V Moons (2018) ‘Introduction to the Research Handbook on Economic Diplomacy’, chapter 1 in Research Handbook on Economic Diplomacy: Bilateral Relations in a Context of Geopolitical Change, editors P.A.G. van Bergeijk en S.J.V. Moons, Edward Elgar: Cheltenham, UK
Bergeijk, P.A.G. van, S.J.V. Moons en C. Volpe-Martincus (2018) ‘The future of economic diplomacy research’, chapter 23 in Research Handbook on Economic Diplomacy: Bilateral Relations in a Context of Geopolitical Change, editors P.A.G. van Bergeijk en S.J.V. Moons, Edward Elgar: Cheltenham, UK
Arjan de Haan and Ward Warmerdam China’s foreign aid: towards a new normal? chapter 22 in Research Handbook on Economic Diplomacy: Bilateral Relations in a Context of Geopolitical Change, editors P.A.G. van Bergeijk en S.J.V. Moons, Edward Elgar: Cheltenham, UK
Moons, S.J.V (2017) Heterogenous Effects of Economic Diplomacy: Instruments, Determinants and Developments. PhD thesis ISS.

pag van bergeijkAbout the authors: 

Peter van Bergeijk (www.petervanbergeijk.org) is Professor of International Economics and Macroeconomics at the ISS.

DJ_20170714_0642Selwyn Moons has a PhD in economics from ISS. His research focus is international economics and economic diplomacy. Selwyn is currently working as Partner in the public sector advisory branch of PwC the Netherlands. Previously he worked in the Dutch ministries of Economic Affairs and Foreign Affairs.