International leaders gained their first measure of Indonesia's dynamic new president Joko Widodo in the round of Asian summits in mid-November. At home, Widodo has a reputation as a populist, a problem solver, and a regular guy. Abroad, he was -- and still is -- a largely unknown quantity. Early signs point to a continuation of the "free and active" foreign policy philosophy that has prevailed since independence, and continued nationalism in economic policy.
During the previous presidency of Susilo Bambang Yudhoyono, the "free and active" tradition found expression in the mantra "a million friends, zero enemies." Yudhoyono's foreign minister, Marty Natalegawa, developed the same traditional Indonesian foreign policy impulse into a call for regional "dynamic equilibrium" -- a "new paradigm" in which there would be "no need for competition" (particularly between the U.S. and China) and where all countries would "prosper."
Whatever one calls it, Indonesian foreign policy since the fall of the authoritarian President Suharto in 1998 has meant accommodation of as many players as possible -- the U.S., China, even North Korea -- with little regard for direct threats to the peace and security of the region. In the notorious 2012 Phnom Penh incident, when disagreement over how to handle disputes in the South China Sea prevented the Association of Southeast Asian Nations from agreeing on a communique, it was Marty who stepped in to forge a compromise. His priority, however, was not addressing the maritime challenge posed by China; it was constructing an appearance of ASEAN unity around a statement of vague principles that simply kicked consideration of the threat down the road.
Security issues
In light of Widodo's own lack of foreign experience, the appointment as Foreign Minister of Retno Marsudi, a well-respected career diplomat, points to a continuation of this approach by the ministry, known by its Indonesian acronym Kemlu. Yes, Indonesian officials are becoming more concerned about Beijing's U-shaped claim to 90% of the South China Sea, which at its most extreme point encompasses Indonesian waters near the Natuna Islands. As a result of fresh Chinese assertions of sovereignty there, voices in the Indonesian military have raised the need for greater preparedness. But Kemlu has its own way of doing things, and seems determined to keep Indonesia on its path of accommodation.
To be sure, there are other influences in addition to Kemlu -- most prominently Rizal Sukma, a prominent national security adviser to Widodo, who appears much more concerned with the strategic challenge that China poses. But the business sector and economic ministries will reinforce Kemlu's careful instincts. China, after all, has more than $30 billion invested in Indonesia. According to the Heritage Foundation/American Enterprise Institute's China Global Investment Tracker, Indonesia is by far the largest recipient of Chinese investment in Southeast Asia, taking in more than twice as much as the second most significant, Malaysia.
Yet, there is one interesting wild card in this picture: Widodo's vision of Indonesia as a "Global Maritime Axis " -- a bid to make the best strategic use of Indonesia's position at the cross-roads between the Indian and Pacific oceans. It was the most distinctive foreign policy theme during his campaign, a focus in his inaugural address, and a clear influence on his cabinet appointments. He created a new super-minister position, Coordinating Minister for Maritime Affairs and Environment, and appointed a former navy chief of staff to the existing coordinating minister position covering political and security issues.
Widodo featured the concept very prominently in a speech at his first East Asian Summit in Naypyitaw in mid-November. There is certainly a security angle to it. His remarks referenced the implications it holds for defense budgets. It is also, however, a matter of domestic economic policy. As the world's largest archipelagic nation, it is only natural that Indonesia should seek to safeguard its sea lanes, and to view the maritime space as its most logical venue for economic development, including port construction and shipbuilding. Seaports were featured prominently among the "opportunities" Widodo presented at the Asia-Pacific Economic Cooperation grouping's CEO Forum in Beijing earlier in the month.
Time, and interaction with other national priorities, will determine the mix between security and economic policy that Widodo's maritime strategy represents. A word of warning, however, to anyone eager to incorporate Indonesia into a balancing strategy vis-a-vis China: In the end, the Global Maritime Axis may have little meaning in relation to China's territorial ambitions in the South China Sea. Widodo's remarks at the EAS regarding the South China Sea, in particular, were boiler plate Indonesian diplomacy -- a call for restraint, cooperation, and a code of conduct. Besides, the Chinese, too, will be bidding on the many investment opportunities Widodo highlighted at APEC. No "maritime silk road" -- the infrastructure financing program being pressed at the senior most levels of the Chinese leadership -- is conceivable without infrastructure improvements in Indonesia. If Beijing can reassure the Indonesian government that it has no designs on the Natunas and nearby resources, Jakarta will gladly set aside its worries in the cause of peace and development -- without regard to the broader territorial dispute between China and Indonesia's other ASEAN neighbors.
Economic nationalism
On international trade and investment policy, the indicators point to a continuation of Indonesia's economic nationalism. Yudhoyono has been blamed for intensifying this trend, but economic nationalism and protectionism are deeply ingrained in Indonesia's history and political culture. They are constants; only the players and the specific issues change.
At the APEC summit, his first multilateral meeting as Indonesian leader, Widodo proclaimed Indonesia "open for business," noting exciting opportunities for companies willing to invest. But there is nothing new about this. Indonesia has long sought foreign investment. It is the business climate that has always been in question, and Widodo's presentation offered very few answers.
What do investors want to hear? A U.S. Chamber of Commerce report released the day after the APEC summit makes detailed recommendations to the new government, largely revolving around issues of transparency in policy making, the rule of law, and bureaucratic efficiency.
Investors see many opportunities in Indonesia. The Chamber report says U.S. investors are poised to invest $61 billion over five years if their concerns about the business environment can be addressed. What they do not know is whether Widodo will provide the right environment.
The restraints on Indonesia's potential are, indeed, daunting. The World Bank's latest "Doing Business" ranking puts Indonesia 114th globally in terms of the ease of doing business. Five nations in Southeast Asia rank higher, including the Philippines and Vietnam. So does China. "Enforcement of contracts" is an issue of critical importance to many industries, particularly oil and gas, and mining; in this respect Indonesia ranks 172 out of 189. The weakness of contract law is one of many concerns that has been consistently raised by foreign investors since the late 1990s.
John Goyer, the U.S. Chamber's senior director for Southeast Asia, puts the situation thus: "Indonesia's challenge is attracting investment that will help it move up the value chain, diversify its economy, and improve the livelihoods of its people. The right policies will incentivize that investment; the wrong ones will deter it." Widodo's remarks at the APEC summit offered no assurance that he understands how the policy environment can enable investment and economic development. A project-by-project approach will never generate the kind of growth Indonesia requires.
Widodo was himself a very successful businessman, and there are some bright spots in his appointments of ministers handling economic portfolios. After getting to know the international business community as president and hearing their concerns directly, he may yet demonstrate the necessary understanding of their needs. He is also, however, an excellent politician, and foreigners do not vote. He will be hard pressed to side with business against his very Indonesian, populist instincts.
This is an exciting time in Indonesia. The country has a bright, energetic president who is dedicated to improving the lives of his fellow citizens, and to Indonesia's traditions of tolerance. On foreign policy and trade and investment, however, Widodo represents continuity more than change -- at least until he proves otherwise.
- Walter Lohman is Director of The Heritage Foundation's Asian Studies Center.
During the previous presidency of Susilo Bambang Yudhoyono, the "free and active" tradition found expression in the mantra "a million friends, zero enemies." Yudhoyono's foreign minister, Marty Natalegawa, developed the same traditional Indonesian foreign policy impulse into a call for regional "dynamic equilibrium" -- a "new paradigm" in which there would be "no need for competition" (particularly between the U.S. and China) and where all countries would "prosper."
Whatever one calls it, Indonesian foreign policy since the fall of the authoritarian President Suharto in 1998 has meant accommodation of as many players as possible -- the U.S., China, even North Korea -- with little regard for direct threats to the peace and security of the region. In the notorious 2012 Phnom Penh incident, when disagreement over how to handle disputes in the South China Sea prevented the Association of Southeast Asian Nations from agreeing on a communique, it was Marty who stepped in to forge a compromise. His priority, however, was not addressing the maritime challenge posed by China; it was constructing an appearance of ASEAN unity around a statement of vague principles that simply kicked consideration of the threat down the road.
Security issues
In light of Widodo's own lack of foreign experience, the appointment as Foreign Minister of Retno Marsudi, a well-respected career diplomat, points to a continuation of this approach by the ministry, known by its Indonesian acronym Kemlu. Yes, Indonesian officials are becoming more concerned about Beijing's U-shaped claim to 90% of the South China Sea, which at its most extreme point encompasses Indonesian waters near the Natuna Islands. As a result of fresh Chinese assertions of sovereignty there, voices in the Indonesian military have raised the need for greater preparedness. But Kemlu has its own way of doing things, and seems determined to keep Indonesia on its path of accommodation.
To be sure, there are other influences in addition to Kemlu -- most prominently Rizal Sukma, a prominent national security adviser to Widodo, who appears much more concerned with the strategic challenge that China poses. But the business sector and economic ministries will reinforce Kemlu's careful instincts. China, after all, has more than $30 billion invested in Indonesia. According to the Heritage Foundation/American Enterprise Institute's China Global Investment Tracker, Indonesia is by far the largest recipient of Chinese investment in Southeast Asia, taking in more than twice as much as the second most significant, Malaysia.
Yet, there is one interesting wild card in this picture: Widodo's vision of Indonesia as a "Global Maritime Axis " -- a bid to make the best strategic use of Indonesia's position at the cross-roads between the Indian and Pacific oceans. It was the most distinctive foreign policy theme during his campaign, a focus in his inaugural address, and a clear influence on his cabinet appointments. He created a new super-minister position, Coordinating Minister for Maritime Affairs and Environment, and appointed a former navy chief of staff to the existing coordinating minister position covering political and security issues.
Widodo featured the concept very prominently in a speech at his first East Asian Summit in Naypyitaw in mid-November. There is certainly a security angle to it. His remarks referenced the implications it holds for defense budgets. It is also, however, a matter of domestic economic policy. As the world's largest archipelagic nation, it is only natural that Indonesia should seek to safeguard its sea lanes, and to view the maritime space as its most logical venue for economic development, including port construction and shipbuilding. Seaports were featured prominently among the "opportunities" Widodo presented at the Asia-Pacific Economic Cooperation grouping's CEO Forum in Beijing earlier in the month.
Time, and interaction with other national priorities, will determine the mix between security and economic policy that Widodo's maritime strategy represents. A word of warning, however, to anyone eager to incorporate Indonesia into a balancing strategy vis-a-vis China: In the end, the Global Maritime Axis may have little meaning in relation to China's territorial ambitions in the South China Sea. Widodo's remarks at the EAS regarding the South China Sea, in particular, were boiler plate Indonesian diplomacy -- a call for restraint, cooperation, and a code of conduct. Besides, the Chinese, too, will be bidding on the many investment opportunities Widodo highlighted at APEC. No "maritime silk road" -- the infrastructure financing program being pressed at the senior most levels of the Chinese leadership -- is conceivable without infrastructure improvements in Indonesia. If Beijing can reassure the Indonesian government that it has no designs on the Natunas and nearby resources, Jakarta will gladly set aside its worries in the cause of peace and development -- without regard to the broader territorial dispute between China and Indonesia's other ASEAN neighbors.
Economic nationalism
On international trade and investment policy, the indicators point to a continuation of Indonesia's economic nationalism. Yudhoyono has been blamed for intensifying this trend, but economic nationalism and protectionism are deeply ingrained in Indonesia's history and political culture. They are constants; only the players and the specific issues change.
At the APEC summit, his first multilateral meeting as Indonesian leader, Widodo proclaimed Indonesia "open for business," noting exciting opportunities for companies willing to invest. But there is nothing new about this. Indonesia has long sought foreign investment. It is the business climate that has always been in question, and Widodo's presentation offered very few answers.
What do investors want to hear? A U.S. Chamber of Commerce report released the day after the APEC summit makes detailed recommendations to the new government, largely revolving around issues of transparency in policy making, the rule of law, and bureaucratic efficiency.
Investors see many opportunities in Indonesia. The Chamber report says U.S. investors are poised to invest $61 billion over five years if their concerns about the business environment can be addressed. What they do not know is whether Widodo will provide the right environment.
The restraints on Indonesia's potential are, indeed, daunting. The World Bank's latest "Doing Business" ranking puts Indonesia 114th globally in terms of the ease of doing business. Five nations in Southeast Asia rank higher, including the Philippines and Vietnam. So does China. "Enforcement of contracts" is an issue of critical importance to many industries, particularly oil and gas, and mining; in this respect Indonesia ranks 172 out of 189. The weakness of contract law is one of many concerns that has been consistently raised by foreign investors since the late 1990s.
John Goyer, the U.S. Chamber's senior director for Southeast Asia, puts the situation thus: "Indonesia's challenge is attracting investment that will help it move up the value chain, diversify its economy, and improve the livelihoods of its people. The right policies will incentivize that investment; the wrong ones will deter it." Widodo's remarks at the APEC summit offered no assurance that he understands how the policy environment can enable investment and economic development. A project-by-project approach will never generate the kind of growth Indonesia requires.
Widodo was himself a very successful businessman, and there are some bright spots in his appointments of ministers handling economic portfolios. After getting to know the international business community as president and hearing their concerns directly, he may yet demonstrate the necessary understanding of their needs. He is also, however, an excellent politician, and foreigners do not vote. He will be hard pressed to side with business against his very Indonesian, populist instincts.
This is an exciting time in Indonesia. The country has a bright, energetic president who is dedicated to improving the lives of his fellow citizens, and to Indonesia's traditions of tolerance. On foreign policy and trade and investment, however, Widodo represents continuity more than change -- at least until he proves otherwise.
- Walter Lohman is Director of The Heritage Foundation's Asian Studies Center.
Originally appeared in The Nikkei Asian Review
