Indonesia’s
projected rise as a medium power may see at least two likely scenarios. The
first is one of power diffusion while the second sees Indonesia asserting a
greater leadership role in the Asia Pacific. What are the implications for the
region?
INDONESIA RECOVERED from the detrimental impact
of the 1997 Asian financial crisis and came through relatively unscathed from
the 2008 global financial turmoil. In fact, the ‘Asian Tiger’ has emerged much
stronger and is currently ranked the 16th largest economy in the world. The
McKinsey Global Institute (MGI) forecasts that such promising trends would
continue in the future. MGI predicted that by 2030, Indonesia would overtake
Germany and the United Kingdom as the world’s seventh most powerful economy,
trailing behind only China, the United States, India, Japan, Brazil, and
Russia.
Sustainable
Growth Pattern
The Global Competitiveness Report in 2010 and
the recent MGI report served to confirm Indonesia’s potential as an economic
power. According to McKinsey, this growth has been due to several changes.
Firstly, in addition to Jakarta, growing middle-sized cities such as Medan,
Surabaya, and other regional cities will contribute significantly to GDP.
Secondly, Indonesia’s economic growth is not only driven by its rich natural
resources, but also by domestic consumption and services. Thirdly, Indonesia’s
productivity gains also came primarily from the improvement in various sectors.
In this case, Indonesia’s economy is now built on a more stable and diversified
foundation than many external observers have assumed.
Whether we adopt a favourable or sceptical
view of the MGI report, the fact is that Indonesia does have potential
capacity. One prominent factor is an expanding productive workforce. According
to the Indonesian Central Statistics Agency (BPS), in 2012, those aged between
1-29 years old comprised approximately 55 per cent of total population.
Following such trends, MGI argued that in 2030, 135 million people will become
part of the consumer or middle class and 113 million skilled workers will join
the labour force as a result of individual empowerment and urbanisation.
In the future, an expanding middle class
should raise Indonesia’s potential by increasing savings and spending power,
while enhancing productivity. The resulting economic growth will make Indonesia
stronger than any Asian economy other than China and India.
The broader resurgence of Asia will also
benefit Indonesia as the unprecedented economic transformation of China and
India will increase the demand for energy. For example, in 2010, China became
the largest export destination for Indonesian coal and was generating
approximately USD 3.6 billion in revenue; followed by India’s purchase of USD
2.0 billion in coal exports. Therefore, the resurgence of Asia’s economies will
accelerate demand for a range of resources and commodities supplied by
Indonesia.
Competition
Or Cooperation?
Indonesia, however, is confronted with a
security dilemma given the current uncertainty in international politics in the
Asia Pacific; the geopolitical turbulence especially in disputed waters; and
the emergence of new sources of conflict involving resources.
Against this backdrop, Indonesia’s quest to
improve its military capability, if realised, will influence the regional
balance. In previous years, Indonesia was never able to meet its defence
budget. For example, in 2008 only 28% of the overall budget was fulfilled by
the government. Economic growth should help Indonesia to unleash its full
potential to build up its military. Indonesia has recently passed a Defence
Industry Law, demonstrating a political will to increase its military
capability. But as the regional power balance shifts, it could potentially
stimulate a reaction from neighbouring countries such as Australia, Malaysia
and Singapore, especially over border issues, such as the unresolved dispute
over Ambalat with Malaysia.
The alternative scenario is that Indonesia
will increase its importance by fostering a peaceful regional order
particularly within ASEAN, and promoting cooperation between conflicting
stakeholders, such as China and the US. Engaging the big powers via a regional
platform where they can communicate their interests is important to avoid
misperceptions, particularly amidst the current volatile atmosphere in the
Asian region.
Geopolitical tensions could draw Indonesia
and other regional countries into a protracted conflict and set back peace and
economic development. Against this backdrop, Indonesia chose to play a
constructive role by forging a consensus to manage the maritime disputes in the
wake of the failure of the recent ASEAN Ministerial Meeting on the South China
Sea issue. Recently, Indonesia also circulated a draft code of conduct in the
South China Sea to ASEAN foreign ministers as a confidence-building measure.
This diplomatic initiative is a manifestation of Indonesia’s benign rise, which
should be a positive force for regional peace.
Key
Determinants
There are at least three key determinants in
Indonesia’s future rise. The first is the vision of Indonesia’s future
president after 2014, whoever the leader may be, which will determine the next
phase of Indonesia’s foreign policy. Secondly, domestic sentiments on certain
issues are also important in terms of their impact on Indonesia’s foreign
policy posture. Islamic nuances in foreign policy are already evident as a
consequence of domestic pressures, for example raising concerns about the
plight of the Rohingya community in Myanmar; advocating an anti-blasphemy law
in the United Nations; and Foreign Minister Marty Natalegawa’s recent call for
nations in the UN to review diplomatic ties with Israel and to boycott its
products in solidarity with Palestine.
The final determinant is whether Indonesia
will be able to effectively play its part in institutionalising regional
cooperation to face the growing competition and quest for influence between the
US and China.
Indonesia still faces domestic problems such
as corruption, inequality, issues of governance and government effectiveness,
and communal tensions, which can stand in the way of its rise. Therefore,
whether Indonesia can fulfill its potential as an emerging medium power really
depends on how successfully it can capitalise on its current growth trajectory
to leap into the future.
Emirza Adi Syailendra
Business & Investment Opportunities
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