Jakarta, 14 April 2022: The ASEAN Framework Agreement on Services (AFAS) is an initiative designed to promote regional integration and the services sector in ASEAN. Adoption of this initiative means that Indonesia will open up its service sector and expose certain industries to international competition. As the initiative comes with both opportunities and challenges, extensive research on its implication is necessary.

ERIA’s Senior Economist, Dr Fauziah Zen, presented her recent research findings on the implications of AFAS for Indonesia’s economy to the representatives of Bank Indonesia, Financial Service Authority (OJK), and the Ministry of Finance of Indonesia. The presentation brought up three main points: first, Indonesia’s commitment to AFAS; second, the sectoral impact of AFAS specifically on the financial service sector and the manufacturing sector; and third, the impact of AFAS on financial inclusion. The first point highlighted an insignificant difference between Indonesia’s current liberalisation and AFAS commitments which encourage the adoption of AFAS. The second point emphasised that with more liberalisation the domestic market will encounter more competition thus increasing efficiency in the market and providing greater market surplus. Although current market actors may experience lower profits, the loss can be offset by greater productivity of the manufacturing sector and the aforementioned surplus. Finally, greater liberalisation has the potential to provide better financial inclusion to reach Indonesia’s unbanked.

The discussion among participants centred around the potential hazard of liberalisation and the steps needed to prepare for the inevitable regional market integration. Furthermore, there is a consensus on what to improve from the current market landscape as described by Dr Lili Yan Ing, ERIA’s Lead Advisor on Southeast Asia, who pointed out the need to provide better consumer protection regulation and the potential of Indonesia’s financial sector growth beyond AFAS by utilising digitalisation.