Elevating bilateral relations a key aim for Indonesia

Since his first overseas trip as president in November 2014, to the APEC summit in Beijing, President Joko Widodo has taken a proactive role in strengthening and diversifying Indonesia’s bilateral relations. As the dominant political and economic power in ASEAN, Indonesia’s participation in the ASEAN Economic Community (AEC) will have a significant impact for the bloc. In February 2015 Widodo started his first bilateral trip to Malaysia, Brunei Darussalam and the Philippines, in a sign of the importance of the country’s relationship with its neighbours. Indonesia currently represents 45% of the region’s total GDP. In April 2016 Widodo said, “Indonesia is ready to become the gateway to ASEAN, and ... ASEAN must be ready to strengthen relationships with other economic blocs.”

United States 

In October 2015, just over a year after his inauguration, Widodo paid his first visit to the US, where he and his counterpart Barack Obama elevated bilateral ties to the level of a strategic partnership. The trip also saw a strengthening in security, through the issuance of a joint statement on comprehensive defence cooperation and a memorandum of understanding on maritime cooperation. In a boost for economic relations, Indonesia signed more than $20bn worth of business deals with US companies during the trip, a significant fillip to investment from the US, which totalled $65bn between 2004 and 2012. Widodo also told Obama of Indonesia’s intention to join the US-led Trans-Pacific Partnership free trade deal. Widodo returned to the US in February 2016 for the US-ASEAN summit, where he surprised the public with a speech in English in which he affirmed that Indonesia planned to do away with excessive licences and restrictions.

Europe 

During Widodo’s five-day trip to Germany, the UK, the Netherlands and Belgium in April 2016, the government secured investment commitments totalling $20bn. Investment from the four countries came to Rp106.8trn ($7.8bn) from 2010-15, according to the Indonesia Investment Coordinating Board (BKPM). The government also secured the first Forest Law Enforcement Governance and Trade licensing scheme with the EU, giving Indonesian timber producers an advantage over their global competitors.

In addition, the trip marked the completion of the initial phase of the Indonesia-EU Comprehensive Economic Partnership Agreement (CEPA), with formal negotiations launched in July 2016. According to the Centre for Strategic and International Studies, a successful CEPA could raise Indonesia’s exports to the EU by $1.1bn.

Widodo also went to Japan and China, two important countries that have been actively looking to increase their bilateral trade with Indonesia, as well as foreign direct investment in projects such as the High Speed Rail from Jakarta to Bandung. The two countries had been competing for the railway project’s tender, which in the end was awarded to China. Widodo visited both countries in April 2015 to help strengthen Indonesia’s relations with the Asian giants.

Japan 

The trip started in Japan, long a major investor in Indonesia and now the second-biggest after Singapore, contributing 10.5% of total investment into the country from 2010 up to the third quarter of 2015, in sectors ranging from transport to electronics. Widodo urged Japanese investors to participate in other sectors such as infrastructure and power generation, receiving interest from Japanese firms for investments totalling $8.9bn. He also signed a bilateral defence cooperation with the prime minister, Shinzo Abe. “We agreed to strengthen the strategic partnership between our two countries, which are major maritime democracies in Asia,” Abe told reporters.

Japan and Indonesia also held their first “two plus two” meetings, with foreign and defence ministers agreeing to start negotiations for the transfer of defence equipment and technology to Indonesia. Japan remains Indonesia’s top export partner, buying 12% of its exports in 2015. It is also its third-largest import partner, with 9% of Indonesian imports coming from Japan in 2015.

China 

After Japan Widodo visited Beijing, recognising the vast potential Chinese investment has to help fill the funding gap for Indonesia’s infrastructure. In April 2015 China entered the list of top-10 foreign investors in Indonesia, with $75.1bn in projects in the first quarter of that year. For 2016 BKPM targeted $30bn in Chinese investment, a goal that could be doubled to $60bn for 2017, showing the extent to which Indonesia expects China to increase its presence. In 2015 the country remained Indonesia’s top seller, responsible for 20% of its imports, and its third-largest buyer, taking 10% of Indonesian exports that year.

Yet while the potential of developing bilateral ties between the two countries is clear, and while trade and investment volumes have risen sharply in recent years, tensions in the South China Sea could be an issue. Unlike Malaysia, Brunei Darussalam, the Philippines and Vietnam, Indonesia is a non-claimant in the dispute, but China’s “ninedash line” includes parts of Indonesia’s Exclusive Economic Zones, which Beijing considers its traditional fishing grounds. On June 23, 2016 Widodo held a Cabinet meeting on a warship in the Natuna Islands, in what was seen as a strong message about Indonesia’s sovereign rights over the disputed waters. This was just days after Indonesia’s navy seized a Chinese-flagged vessel that was fishing illegally, detaining its crew.

Nonetheless, relations between the two countries are expected to remain positive. Before Widodo’s visit to China in September 2016 for the G20 meeting in Hangzhou, China’s ambassador to Indonesia, Xie Feng, wrote in the Jakarta Post: “This will be [Widodo’s] third visit to China and the fifth meeting between our two presidents. Such frequent high-level exchange is unprecedented in our bilateral history and demonstrates the high standards of performance of our relationship.”

In May 2016 Widodo made a state visit to South Korea, another important Asian partner, before heading to Russia. By the end of the visits, $18bn of investment commitments had been inked from South Korea and $16.2bn from Russia. These included $10bn in gas infrastructure from Korea Gas Corporation and $13bn for a refinery in Tuban, Java, in a deal signed between Russia’s Rosneft and Indonesia’s state-owned oil firm Pertamina.

South Korea 

In 2015 the value of Korean investment in Indonesia was $1.21bn, compared to $1.12bn in 2014, ranking fifth in the list of foreign investors. The two countries agreed to enhance cooperation on trading and investment, and in a meeting with President Park Geun-hye, Widodo invited South Korea to partner in Indonesia’s industrialisation. “Banking on the prospects of welcoming South Korean investment to the industrial sector, Indonesia intends to make South Korea a partner to accelerate industrialisation in Indonesia,” Widodo said. The two also agreed to cooperate in creative industries, with potential for Indonesia to take advantage of Korean experience, and signed an agreement in the maritime sector.

Russia 

In Russia, where he flew for the ASEAN-Russia Summit, Widodo held a bilateral meeting with Russian President Vladimir Putin, in which he pointed out that trade between Indonesia and Russia was down by 25%, after falling from $2.64bn in 2014 to $1.98bn in 2015. He highlighted the importance of eliminating tariff and non-tariff barriers on fisheries and agricultural products. Infrastructure development, one of the main priorities for investment, was also on the agenda. “We agreed to boost Russia’s investment in Indonesia in maritime, infrastructure such as railways and the port in Kalimantan, oil, energy and electricity,” said Widodo. The countries agreed to intensify intelligence sharing to combat terrorism. Indonesia also expressed interest in buying Russian equipment such as submarines and jet fighters, and the joint production of ammunition and arms.

Future Efforts 

Diplomatic efforts will have to continue in order to attract more international investors to fund infrastructure and power projects, and to boost Indonesian exports, which have been hampered by the slump in oil, gas and commodities. In addition, international cooperation is important in the global fight against terrorism, in which Indonesia can play an important role. Indonesia’s goal of becoming a global maritime axis will also require it to increase collaboration with its neighbours to better patrol territorial waters.