Monday, April 28, 2014

Redefining Indonesia-Australia Relations Within Jakarta’s East Asian Approach

The relationship between Indonesia and Australia has not always been smooth. From President Sukarno’s era until the beginning of Suharto’s administration, their relationship had been uncomfortable. Suharto’s foreign policy was much more cautious and constructive, for he fostered regional links through ASEAN and encouraged a cordial relationship with Australia, but both had their relations downgraded during the disintegration of East Timor (now Timor Leste) in 1999. Last year, Indonesian Foreign Minister Marty Natalegawa asked for Canberra’s apology after their intelligences were proven spying the telephone conversation belonging to Indonesian president, and his member of inner circle in 2009.

Jakarta then applied pressure on trade relations with Australia. Despite of the threat, Abbott’s administration refused to apologize. Meanwhile, another tension occurred after Australian border patrol boats entered Indonesia’s water without permission as a part of their attempt to stop asylum seekers. For this case, Australia finally expressed their apology although border issue between the two countries always remains vulnerable. In short, relationship between the two countries has always been covered with ego.

However, the rise of Asian economy has shifted the regional structure. US influence in Asia Pacific is now greatly challenged by China, since China’s economy and military are becoming stronger. Even ASEAN countries are likely to be polarized among the two major powers. Although geographically being sandwiched between the two elephants, Indonesia keeps playing an important part in the region as one of the players.

The ASEAN-6 fastest growing economy

Asian economies are expected to grow by 6.9% per annum in 2014-18, and the real GDP growth rate in the Southeast Asian region is projected to average 5.4% per annum at the same period, according to OECD Development Centre’s Medium-Term Projection Framework for 2014 edition of Economic Outlook for South East Asia, China and India. The revival of democracy in 1998 has given lesson to Indonesia to bounce back from its collapsed economy.

The Diplomat (2014) reported that starting from 2001, the country has averaged 5.4 percent growth, far faster than the global average. The growth has helped lowering the gross governmental debt from 95.1 percent of GDP in 2000 to around 26 per cent. Such an impressive leap in just fifteen years. Indonesia is projected to be the fastest-growing economy within the ASEAN-6 (Brunei, Indonesia, Malaysia, Singapore, Philippines, and Thailand) with an average annual growth rate of 6.0% in 2014-18. Not to mention that she already overtook Australia’s GDP based on purchasing power parity in 2004 and is thirty per cent bigger as per today. McKinsey Global Institute (2012) predicted Indonesia to become the world’s 7th largest economy by 2030, surpassing Germany and UK.

Growing population and workforce

Population growth will be the one of supporting factor for Indonesian economic outlook. According to Badan Pusat Statistik Indonesia (Indonesian Agent of Statistic Center) in 2010, Indonesian population is projected to increase 28.6 % to be 305.6 million people by 2035 with 68.1 % workforce. The World Bank remarked Indonesian total labor force 118,378,606 between 2009-2013, showing up a huge gap with Australia who has only 12,026,320 people in the same period.

This growing population is also followed by the growing middle class. The Boston Consulting Group predicted that Indonesia will have approximately 141 million people of middle-class in 2020. The buying power will increase along with the growing domestic demand.

Gate to Asian market and investment destination

A research by Australian Bureau of Agricultural and Resource Economics and Science in 2012 stated that the most of the world’s projected agrifood demand in 2050 will be from Asia. This is supported by the growing population and buying power. Having a comparative advantage in the agricultural production and geographical location, Australia is in a good position to meet some of this higher demand.

The Asian financial crisis in 1997 might made Australia look down on Indonesia as a strategic partner, but today they should think the other way around. Geographically located down in the corner from the southeast Asia, Australia cannot ignore Indonesia’s importance as a gate to Asian growing market.

Indonesia has four freeports (Batam, Bintan, Tanjung Balai Karimun and Sabang) which support free trade. The most strategic freeport, Sabang, which is located at the western part of Malaka straits and facing toward the Indian Ocean and Andaman Sea, had been considered by the late Dutch Colonial as the gate to access Asian, European, and African market.

OECD also remarked that investment growth is projected to remain strong in Asia, supported by government infrastructure spending to drive long-term development plans. Indonesia has set up a plan of acceleration and expansion of economic development in all of its regions. In 2011, Indonesian government launched the Master Plan of Acceleration and Expansion of Indonesia Economic Development 2011-2025 (MP3EI). The project aims at maximizing all region’s economic potentials, both as supplier and as market. The integrated plan includes improvement on distribution network, production efficiency, and innovation. The key factors that support Indonesia’s economic expansion are their demographic potentials, the abundance of its natural resources, and its geographical advantages.

Rising defense budget

The economic growth has facilitated a sharp annual defense budget for Indonesia such as 9 per cent increase as announced by the president Yudhoyono in August 2013, or USD 7.91 billion which is equal to about 0.9 per cent of the GDP for 2014. Indonesia’s Defense Plan in 2010 announced $15 billion kit for a modernization and equipment procurement, including a navy of 274 ships and 12 submarines, a modernized air force including 10 fighter squadrons and a more agile army with tanks and attack helicopters – all by 2024. Not to mention the purchase of six Sukhoi Su-30MK2s which completed a squadron of advanced air-superiority fighters consisting of sixteen Su-27 SKM and Su-30 MK2 jets, dozens of F-16 and Su-35 fighters, advanced air defense systems from Thales, Boeing AH-64 Apache Longbow gunship helicopters and more than hundred world-renowned German Leopard tanks. Although the spending remains modest, it is still possible for Indonesia to improve its military capacity in the following years as long as the economic growth remains positive.

China’s Indo-Pacific move and Indonesia’s leadership in ASEAN

China’s economic power is inevitable, and its assertiveness toward Asian countries’ natural resources has created problem, especially to the preserve of natural gas in the South China Sea. There has been a security issue in the South China Sea involving China and the southeast Asian countries (Vietnam, Philippines, Brunei, Malaysia and Indonesia) after China claimed these countries’ water as its territory. The Philippines has protested China’s claim over Spratly islands. Indonesia seek for clarity on China’s intention after her water territory appeared to surpass the Natuna Island waters on China’s passport.

ASEAN countries are likely to be polarized in this issue. Vietnam has little defense since it has economic dependence with China, while the Philippines (that has little economic tie with China) refused to accept China’s win-win gas exploration solution.

However, Indonesia’s leadership is still prominent amongst ASEAN members, especially as a role model in the practice of democracy. Many disputes between the members have been mediated by Indonesia through ASEAN dialogs, including the one between the Philippines and China.


In the years where the Western countries are trying to overcome their economic crisis, many are looking for alliance with countries that offer economic advantages. Indonesia is just a fellow next door for Australia. Its demographic advantages, its abundance of natural resources and its geographic position are the keys for foreign investments and market access.

In terms of defense, Indonesia’s rising economy will allow it to spend more on its armed forces, especially on aircraft, ships and submarines, which might slowly release its dependency from the major power. As it strengthened its military, Indonesia’s role in the balance of power of the region is becoming more appealing for the US to strengthen a coalition to counter China’s assertiveness. Australia should begin to view its neighbor differently.

Indonesia, whoever the next president will be, is challenged to develop a better foreign policy in the region. Of course Indonesia’s ‘free and active’ policy will always be the principle, but it must be able to gain a better bargaining power on the Indonesia-Australia relations.

The Journal of Turkish Weekly
By Aryati Dewi Hadin

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