Some countries are known for “punching above their weight,” as a humorous Danish TV clip of President Barack Obama’s bilateral meetings showcased several years ago. Few would disagree that Indonesia, by contrast, punches notably below its weight class. The planet’s fourth most populous nation and the largest in the Muslim world, Indonesia is also geographically pivotal. It’s an archipelago so stretched out it’s the equivalent of spanning New York to Anchorage. Linking the Pacific and Indian Oceans, Indonesia straddles the crucial maritime artery on which east Asia’s biggest economies depend for their energy supplies and much of their exports. But Indonesia’s 4.3% annual growth rate over the past decade has lagged behind regional neighbors Philippines and Vietnam. And Indonesia’s per-capita GDP of around $4,500 is little more than half that of Thailand’s.  The central business district of Jakarta, Indonesia Photographer: Dimas Ardian/Bloomberg This week in the New Economy |
The nation of 273 million has struggled mightily with the infrastructure challenges inherent to a country spread across more than 900 inhabited islands, where moving goods and people around is very costly. President Joko Widodo, in office since 2014, has championed construction of new roads, railways and ports, and even a new capital. He’s also set a grand strategy of upgrading the country’s exports, focusing on refined and processed—rather than raw—commodities. The domestic development focus has meant Jokowi, as the president is known, hasn’t invested much time or political capital in foreign policy. Indonesia’s financing needs have, however, dovetailed with Chinese President Xi Jinping’s Belt and Road Initiative, and deepened the Southeast Asian nation’s ties with Beijing. China is by far Indonesia’s biggest trading partner, and in recent years has been its No. 3 investor, behind Singapore and Japan. Indonesia has long stood for the idea of a multi-polar world, hosting the Bandung Conference in 1955 that launched the non-aligned movement of nations wary of both Washington and Moscow during the Cold War. That history, and the crucial monetary ties with Beijing, are the backdrop for Jakarta’s reluctance to side with the U.S., western Europe and other countries all over the world in sanctioning Russia over its war on Ukraine. Indeed, the Indonesian government last month signaled plans to invite Vladimir Putin to the Group of 20 summit scheduled for Bali this year. (Indonesia is this year’s rotating head of the group of big developed and emerging countries.)  Joko Widodo, Indonesia’s president, speaks in a prerecorded video during the United Nations General Assembly last year. Photographer: Michael Nagle/Bloomberg The issue of Putin’s presence threatens to become a new source of tension between Jakarta and Washington. This week, U.S. Treasury Secretary Janet Yellen noted that “I’ve made clear to my colleagues in Indonesia that we will not be participating in a number of meetings if the Russians are there.’’ Relations with the U.S. weren’t the best to begin with. Jokowi hasn’t visited the White House since President Joe Biden took office, and kept Donald Trump at arm’s length. The latter chilliness was tied to the Republican’s decision to move the U.S. embassy in Israel to Jerusalem—something that sparked protests by thousands of people in the predominantly Muslim nation. The risk of deteriorating diplomatic ties with fellow democratic nations over the Russia question comes just as the Indonesian public is growing more skeptical about China. A new survey by the Australia-based Lowy Institute showed only 30% of Indonesians would be in favor of a Chinese firm taking majority control of an Indonesian company. And 60% thought “Indonesia should join with other countries to limit China’s influence.” With his nation’s economic recovery just beginning, it’s an awkward moment for Jokowi to risk U.S. pressure over Russia. Booming commodity prices have yielded a rare current-account surplus, supporting the exchange rate. The rupiah has depreciated less than 1% this year against the U.S. dollar, even though its central bank has refrained from raising interest rates while the Federal Reserve has telegraphed sharp hikes. And the stable exchange rate has helped keep inflation below 3%—a fraction of the pace seen in many developed nations. Kurt Campbell, the White House’s Asia czar, once said that Indonesia would rank first among countries most important to the U.S., but the least understood. The coming months will test the Biden administration’s ability to play the long game when it comes to this Southeast Asian giant. —Chris Anstey | 
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