Last November, Jokowi formally announced that Indonesia would be joining the recently founded Asian Infrastructure Investment Bank, or AIIB. Like the World Bank (WB) and Asian Development Bank (ADB), the AIIB is another multilateral financial institution that will provide capital in the form of loans for various countries to finance development projects. What differentiates the AIIB from the other two aforementioned banks is that the AIIB’s focus will be narrowed down solely to Asia and solely to infrastructure projects. The other primary difference is the key stakeholders behind these banks – the World Bank is controlled by the United States, the Asian Development Bank is most heavily influenced by Japan, while the AIIB is being led by China.
Jaysa Rafi Prana | Staff Kajian Kanopi 2013 | Ilmu Ekonomi 2012
Jakarta, March 13, 2013
The idea of integrating US and Europe economy first came to notion after Obama delivered his State of Union address in the beginning of February. This idea is strongly supported by several prominent leaders in Europe such as Angela Merkel from Germany and David Cameron from England, who reacted very positively after Obama gave a statement that mark the beginning of a new era of cooperation between two biggest economy in the world. US and Europe, which accounted for 50% of world’s GDP, are working on reducing tariff and removing regulatory barrier by harmonizing standards and norms in doing business. By making some reform and agree to an agreement which is believed will help the recovery process of economic condition of both sides, applying these agreement both sides will be benefited by more economic growth that will increase by 1,5%; secures an estimate 15 million jobs. Furthermore, according to EU Trade Commissioner Karel De Gucht, this plan will be the cheapest stimulus plan that will save about 32 billions of dollars yearly that is resulted from the cut in tariff and other barriers. Nevertheless, there are still some challenges that may hinder the transatlantic trade agreement that will be discussed in these following paragraphs.
Compared to Europe, US condition is more stable in terms of growth and other macroeconomic indicator such as inflation and unemployment rate. In 2012, us economy grew at about 2% which is not a very bad number considering there are still a lot of nation that booked 0% of growth or even negative like what has been happening in Europe. Furthermore, the unemployment rate in US reaches its lowest at 7.7% rate for the first time in five years with the index of dow jones also reached its highest points in early march that brought up confidence on us economy followed by good response from all over the world on the financial sector trading. Although US economy is growing and heading into a better direction, its political condition is still in a really bad shape. For instance, almost all the bill those have to be passed never get majority vote and facing a gridlock like what happened for the fiscal cliff and the recent budget cut bill that resulted in the cut of 85 billion annual spending this year and obligation to cut 1,2 trillion dollars in the next ten year. On the contrary, Europe is still in a very bad situation in terms of economy and politics. Many of the countries in Europe still have negative growth and high employment rate. Let me take one example of Italy which is one of Europe biggest economy, its economy shrink by 2.2% with its debt to ratio reaching 126% and its unemployment rate is still hanging on 11.7% (Reuters). Moreover, on the last election there is no clear winner and the country left with no majority ruler that can be very bad in decision making process. This catastrophic economic condition is also occurred in Spain and Greece which have twice of unemployment rate as Italy does.
There are two main obstacles in reaching this transatlantic agreement as far as I’m concerned. The first one is the two sides already have a pretty low tariff barrier by now with average tariff levels are only 3% which the products they consume and produce are not much different as well as the similar standard of living. For instance, both sides are more likely have high skilled workers, similar or almost the same technological advancements and minimum wage, so there will be no significant different that may occur by pushing any freer market. Another thing is both sides have a calamitous political condition that will only be deteriorated by pushing another long term agreement if each of them alone cannot overcome their short-term drama in making local regulations. Furthermore, making a treaty with this magnitude must be a very difficult and time consuming as the very detail of this agreement need to accommodate both sides’ needs and preferences.
In brief, while there are many benefits that can be gained by pushing Transatlantic Trade Agreement such as boosting economic growth and creating jobs, yet the obstacles that lay ahead Europe and US are still severe and needing their utmost attention to get things done. Therefore, in my opinion, this Transatlantic Trade has no urgency to be constructed and implemented in the near future. Countries across the Europe and US itself still need to fix their political and economic condition before they want to push any huge international trade agreement.