Indonesia, slated to be among the top five economies by 2050, embraces globalization but resists debt and foreign competition for jobs.
By Niruban Balachandran*
Is Indonesia protectionist? “No,” insists President Joko Widodo, responding to a question about whether the world’s fourth most populous nation is experiencing a spate of economic nationalism – the tendency to restrict global trade and investment to protect domestic workers.
Globalization has been second nature to Indonesia for centuries. As far back as the 7th century, the interwoven arteries of the archipelago’s trade routes have pumped goods, belief systems, and variegated populations into and out of the archipelago, from ancient Persia, imperial China and other distant lands. Today, Indonesia is kaleidoscopic, a sprawling, 3,000-year-old civilization with more than 360 ethnicities, 707 languages, dozens of religions and a comfort with outsiders by yielding some of the world’s most extraordinary hospitability.
Perhaps this diversity and openness to trade and exchange contribute to Indonesians’ surprising embrace of globalization: A 2016 international poll found that 72 percent of Indonesians agreed with the statement that globalization is “a force for good” – one of the highest percentages of any country surveyed. In addition, a 2017 Australian-led survey found that 53 percent of Indonesians polled “favor” international trade agreements, while 20 percent opposed them and 28 percent took a neutral position. The same survey also found that 74 percent of Indonesians polled disagreed when asked if their country would be “better off in isolation and did not concern itself with the problems in other part of the world” – only 26 percent agreed.
With upcoming subnational elections on June 27 and a general election on the docket for 2019, a key question for observers and the Indonesian electorate is: Does the Widodo government embrace globalization as much as the majority of Indonesians express in polls? Jakarta strives to balance globalization with an inclusive domestic economy that benefits more than a minority of the country’s population. Still, the looming threat of a populist electoral backlash against perceived elites is all too real, and a recent Council on Foreign Relations report warns, “Indonesia risks political instability if it cannot foster greater economic and social inclusion.”
Supporters point out that the Widodo government allowed overseas universities to open in Indonesia with greater numbers of international faculty teaching Indonesian students – with the expectation that driving youth capacity will gradually transform lagging domestic industries. The relative success of Indonesia’s four unicorns – Go-Jek, Tokopedia, Traveloka and Bukalapak, companies reaching a valuation of US$1 billion or more – led by Indonesians educated overseas is testament to this strategy.
On the other hand, the Widodo government has displayed signs of economic nationalism in recent months: a proposal for foreign workers to be proficient in the Bahasa Indonesia language, tightened visa restrictions and price controls on goods from staple foods to fuel and coal. Indonesia ranks 108 out of 140 countries measured on the DHL Global Connectedness Index, scoring low on human connectedness in particular: The rate of migrants, tourists and international students flowing both inward and outward through Indonesia is relatively low.
Respected Indonesia scholars Richard Robison and Vedi Hadiz offered an influential, if blistering, critique of the so-called “Global Indonesia Rising” narrative: “There is little evidence that Indonesia is serious about projecting its economic footprint beyond national borders. We look in vain for the sort of investments in infrastructure, including in ports or electricity grids, in mining, energy or agriculture now being undertaken by China and other Northeast Asian nations across Southeast Asia or Africa and in Australia. There are no Indonesian railways or roads, no Indonesian development banks or even educational programs to compare with those of other Northeast Asian nations or Singapore. Even its foreign aid program is derisively small. Indonesia spends around US$10 million annually, compared to around US$2 billion for China.”
The two professors may have a point: According to the Lowy Institute’s newly-published Asia Power Index, though Indonesia’s global diplomatic influence remains relatively high among regional peers, some of its lowest rankings occur in economic relationships: Capacity to influence other indexed countries through trade dependencies, foreign investor clout, participation in trade agreements, and inward aid flows all fall short of the levels expected for an economy of Indonesia’s size and geostrategic location.
As an extension of the government’s mixed record on globalization, Jakarta has long been striving to stay true to its foreign policy of “pragmatic equidistance” toward the great powers – bebas aktif – non-aligned, “independent and active,” beholden to no single partner state, and multilateral to the core. Such attempted neutrality becomes more difficult by the day, as Indonesia actively juggles its membership in the G20, the G77, the Asia-Pacific Economic Cooperation forum, the Organization for Islamic Cooperation, the Association of Southeast Asian Nations, the Organization of the Petroleum Exporting Countries and other powerful international blocs.
Given its position as a global swing state in these organizations, Indonesia has so far largely avoided siding completely with either Washington or Beijing. Despite its various geostrategic vulnerabilities, Indonesia has not been identified as one of the 16 countries over-committed or vulnerable to Beijing’s regional “debtbook diplomacy”: A Harvard study warns that China has provided predatory loans worth hundreds of billions of dollars to the Philippines, Cambodia, Malaysia, Sri Lanka and other countries “in a bid to gain economic leverage and strategic and military prowess in the Asia-Pacific region.” Jakarta has also largely resisted Beijing’s proposed “China-led” regional architecture to date.
US-Indonesian trade and investment ties are at risk, too. “Simply preventing the economic relationship from getting worse is a worthy goal,” recommends Joshua Kurlantzick, with the Council of Foreign Relations, acknowledging the rise of populist economic nationalism in both Washington and Jakarta.
Despite Widodo’s abundance of caution in taking sides, he depends on the Middle Kingdom’s Belt and Road Initiative infrastructure projects to upgrade slums, build rail networks and accelerate urbanization, totaling $45.98 billion alone across Kalimantan, Sulawesi, Sumatra and Bali. His dilemma? “Widodo’s relationship with China is shaping up as an election issue,” said Keith Loveard of Jakarta-based Concord Consulting. An influx of too many Chinese construction workers risks inflaming local resentment, thereby losing the president votes.
To prevent a populist backlash in the upcoming elections, the Widodo government must continue to deliver public goods to its citizens: For example, an empirical study found that rural Indonesian villages with good infrastructure such as paved roads and economic and bank access tended to vote for Widodo in the 2014 general election. In fact, the probability of Widodo winning a majority of votes increased by almost 2 percent in the villages with good infrastructure.
McKinsey and others have predicted that the Indonesian economy could enter the G7 by 2030, then grow to become the world’s fourth largest economy by midcentury. Knitting together a diverse population throughout 13,000 islands, sensibly integrating into the world economy without significant job losses, was never going to be an easy responsibility. Much depends on political candidates conveying an understanding of globalization, the ability to negotiate with the big powers, and persuading Indonesian voters that all segments of society will benefit.
*Niruban Balachandran is a 2017 graduate of Harvard University’s John F. Kennedy School of Government.