Indian Council of World Affairs

Abstract

This paper highlights the internal economic and security issues that continue to pose a challenge for President Jokowi as he begins his second term in office. His administration’s developmental agenda under the Global Maritime Fulcrum [GMF] – announced in 2014 – will have to navigate through an external environment which has undergone substantial changes and the impact of which was felt during his previous term. This paper explores the convergence of interests with India with which Indonesia enjoys good bilateral ties with a strong framework for cooperation through the bilateral Comprehensive Strategic Partnership.

Indonesian President Joko Widodo taking oath during his inauguration ceremony at the Parliament in Jakarta, October 20, 2019

Mr Joko Widodo took oath of the office of the President of Indonesia for the second time on October 20, 2019. According to the results of the April 2019 elections, he won 55.5 percent of the votes as compared to 44.5 percent received by his rival Mr Prabowo Subianto. This would be Jokowi’s final term in office since the Constitution of Indonesia allows the President to hold office for a total of two terms only. Two issues are expected to dominate his administration’s second term: the economy and the internal security challenges.

Indonesia’s economy since the Asian financial crisis of 1997 has not been able to achieve the high growth of 7 to 10 percent witnessed between 1960s and the early 1990s. The global financial crisis of 2008 further impacted its growth rate due to decline in global demand and the rise in protectionist tendencies globally. Indonesia’s economic growth stagnated between 5 to 6 percent as a result. The second challenge is posed by the post-9/11 security dimension. The issues of internal security and territorial integrity of the vast archipelago came into question due to increasing incidence of violence from various religious radical and separatist groups.     

Less than Favourable Economic Growth Story
Indonesia is the largest economy amongst the ASEAN states and the 16^th largest in the world, with its Gross Domestic Product [GDP] in 2018 estimated to be at US $ 1.042 trillion.^[1] According to the Asian Development Outlook 2019, Indonesia’s annual GDP is projected to grow at 5 percent between 2019 and 2020.^[2] Indonesia’s GDP highlighted in figure one indicates that, during Jokowi’s first term in office, the growth rate remained stagnant at about 5 percent. Further, the decline in the growth rate from 6 percent in 2012 indicates that apart from the external factors, the weaknesses of its internal economic structure limit Indonesia’s ability to expand its trade and competitiveness in the global market.  

Figure One: Indonesia’s Annual GDP Growth [in percentage], 2010-2018^[3]

The external factors such as the ongoing US-China trade war, and the decline in global demand since the 2008 financial crisis, have also put a downward pressure. While infrastructure projects through the Global Maritime Fulcrum received a major boost during President Jokowi’s first tenure, it failed to translate into a 7 percent growth rate as was expected. According to a report by the Mitsui and Co. Global Strategic Studies Institute, one of the factors for Indonesia’s moderate growth rate could be attributed to its declining manufacturing sector. The report opines that Indonesia has been experiencing premature “deindustrialisation”, a process where the performance of manufacturing industry declines well before a sufficient level of industrial development has been achieved. The primary factor that has resulted in the decline of Indonesia’s manufacturing sector could be attributed to the huge inflow of Chinese imports into its market ever since the establishment of the ASEAN-China Free Trade Agreement [FTA] in 2010. Indonesian markets prior to the FTA had remained insulated from Chinese imports due to Suharto’s anti-communist stance. Post- FTA, there has been a displacement of its manufacturing sector as a consequence of fierce competition from cheap Chinese manufactured goods. This resulted in Indonesia’s shift towards exporting agri-based products and natural resources to China while importing mechanical and electrical products, machinery and transport equipments, mobile telephones, textile yarns, and so on.[4] Indonesia has been consistently widening its trade deficits with China which has become its number one trading partner. Indonesia’s export to China increased marginally from US $ 23.05 billion in 2017 to US $ 27.1 billion in 2018, while its import increased from US $ 34.5 billion in 2017 to US $ 45.5 billion in 2018.^[5] The manufacturing sector in Indonesia has not been able to compete with the huge inflow of goods from China and weak global demand adds further pressure. Apart from the external factors, Indonesia also has several internal shortcomings such as the lack of skilled labour force for high-technology goods and services sector. This limits Indonesia’s capability to venture into the production and export of high-technology products which is the future growth area. For instance, trade in high-technology goods continues to grow at a much faster rate as compared to other goods and is estimated to constitute 25 percent of goods traded globally by 2030.

The promise to overcome the slowdown of the Indonesian economy was the major plank that won Jokowi his first term in 2014 but this remains unachieved. His second term would need to address some of the pressing economic challenges that are limiting Indonesia’s growth potential. By strengthening economic cooperation with other nations, Indonesia could push growth in order to help achieve the goal of making the Indonesian economy the fifth largest by 2045.

Internal Security and Challenge to Territorial Integrity 
Apart from the less than favourable economy growth numbers, internal security also remains a major issue. The period post-Suharto witnessed rise of assertion by regions outside Java which resented the highly centralised government system. These regions, due to their strong identity, began to aspire for independence after President Habibie offered to hold a referendum on independence in East Timor on January 27, 1999. Therefore, political conservatism along with increasing tensions as a consequence of rising identity politics, religious intolerance and radicalism began to pose a challenge to the security and stability of Indonesia. 

Figure Two: Political Map of Indonesia

Source: https://www.freeworldmaps.net/asia/indonesia/, Accessed on November 4, 2019

The separatist movements in Papua and the province of Aceh which lies on the north-western end of the island of Sumatra (Figure Two), continues to raise concerns on the stability and the future territorial integrity of the archipelago. The secessionist movement in these provinces over the issue of strong ethnic identity has been marked by rising insurgency and violence. For instance, in the province of Aceh, there remains a strong sense of identity which goes back to the sixteenth and seventeenth centuries. The province which constitutes two percent of the population of Indonesia has 100 percent following the Muslim faith. Aceh has witnessed a long-running war for independence along with military emergency which subsequently led to the signing of a peace accord between the Indonesian Government and the leaders of the Free Aceh Movement [the Gerakan Aceh Merdeka or GAM] in Helsinki on August 2005. Despite the positive development, a strong sense of identity remains amongst the Acehnese.[6] 

Pro-Independence Violence in Fakfak, West Papua, August 21, 2019

Over the years there has been greater integration of the province with the rest of Indonesia by undertaking measures such as offering its main pro-independence group the GAM to become a part of the regional government. However, recent incidents like the August 2019 violence in West Papua triggered by a racial slur indicates that the issue of identity is still well embedded amongst the various ethnics groups. This is a cause of concern as it could have a spill over effect into other autonomous provinces of Indonesia that include Aceh and Papua. The politics of identify based on religion and ethnicity continues to remain prevalent and a sensitive issue that pose a very serious challenge to Indonesia’s territorial integrity and security.

The India-Indonesia Partnership under Jokowi 2.0
This twin issue of economic and internal security would remain a major challenge during President Jokowi’s second term in office. To overcome this, Indonesia would need to strengthen the level of engagement with its neighbouring countries. As India continues to further strengthen its outreach into Southeast and East Asia, given Indonesia’s geography and its influence within ASEAN, makes Indonesia an important partner for India. In terms of trade, Indonesia remains India’s largest trading partner amongst the ASEAN countries. The bar diagram in figure three indicates the India-Indonesia bilateral trade from 2013 to 2018. There has been a fivefold increase in terms of bilateral trade from US $ 4.3 billion in 2005-06 to US $ 21.1 billion in 2018. India’s exports to Indonesia between 2013 and 2018 has  increased to US $ 5.2 billion.  In terms of products, coal and crude palm oil are the major items imported by India from Indonesia. Other imports included minerals, rubber, pulp and paper and hydrocarbons reserves. India exports to Indonesia included refined petroleum products, commercial vehicles, telecommunication equipment, agriculture commodities, bovine meat, steel products, and plastics.^[7]

Figure Three: India-Indonesia Bilateral Trade, 2013-2018 [in US $ billion]^[8]

During the visit of PM Modi to Jakarta in May 2018, both sides signed 15 agreements/MoUs that included cooperation in the railway, health, and pharmaceutical sectors. Both nations are also broadening the scope of their cooperation in the energy sector that includes oil and gas, coal, and renewable energy.[9] The ongoing negotiation between India and Indonesia for the establishment of the Comprehensive Economic Cooperation Agreement [CECA], if successfully concluded, would further elevate the partnership. This agreement would provide the basis for a deeper collaboration in the area of infrastructure development which is crucial for both countries’ future growth. Further, market access through the CECA would also provide opportunities for generating economic growth and employment as well as increase mutual investment flows into new areas. The Comprehensive Strategic Partnership established between India and Indonesia provides yet another platform to broaden the areas of cooperation and collaboration. The elevated partnership would enhance trade and investment; and build cooperation for sustainable development of marine resources including the development of the blue economy.  

The security challenge faced by both countries on account of acts of terrorism and insurgency poses a threat to human security and impacts the social fabric, central to nation building. As Indonesia has one of the most expansive landmass that stretches from the South China Sea, the Celebes Sea, the Pacific Ocean, and the Indian Ocean, this makes it most vulnerable to external threats. Further, the 26/11 terrorist attack which was carried out from the sea, highlighted the vulnerability that India faced and the need to improve its maritime security. India and Indonesia share a common maritime border with common maritime interests as well as challenges. Both nations have been cooperating through various initiatives and multilateral arrangements. However, given the changing nature of threat from non-state actors adopting non-traditional tactics, it becomes imperative for both countries to expand their bilateral security collaboration. The need is to move beyond the current security cooperation arrangements and expand cooperation through data and intelligence sharing, capacity and capability building, and so on.

During the visit of President Jokowi’s to India in December 2016, both side emphasised on the need towards strengthening bilateral maritime cooperation, as well as promoting close cooperation amongst other nations in the region. Both nations pledged to deepen their maritime cooperation, and to this end, issued a separate “Statement on Maritime Cooperation” that encompassed a broad range of areas, including: maritime security, maritime industry, maritime safety and navigation.[10]

As connectivity remains crucial for promoting economic growth and security both countries have been emphasising on deepening their cooperation. During the visit of the Indian Prime Minister to Indonesia in May 2018, a joint task force was announced which would undertake projects for port related infrastructure development in and around Sabang.^[11] India’s External Affairs Minister, S. Jaishankar during his visit to Indonesia on September 5, 2019, met with his counterpart, Retno Marsudi. Both sides agreed to further deepen bilateral ties with special emphasis on maritime cooperation including the area of connectivity between Andaman and Nicobar Islands of India and Aceh Province of Indonesia.[12]  This was further reiterated during the meeting between the Indian PM and the President of Indonesia at the sidelines of the ASEAN Summit in Thailand, on November 3, 2019. Both leaders expressed the need to further strengthen bilateral ties, with emphasis on security, trade, and connectivity.[13]

 
Indian Prime Minister meeting with Indonesian President at the sidelines of the ASEAN Summit in Bangkok on November 3, 2019

During President Jokowi’s second term, efforts would go into creating the necessary conditions that ensure economic development which is key for ensuring national security and territorial integrity of the archipelago. India and Indonesia are celebrating seventy years of their diplomatic ties based on commonality of shared ideals and interests. This forms the basis for the convergences being witnessed at the bilateral as well as at the multilateral level on issues ranging from the economy, security, sustainable development, as well as the emerging Indo-Pacific concept. Further, the internal challenges faced by India and Indonesia sets the tone for the need towards further strengthening the bilateral partnership.  With both India and Indonesia having completed their election processes in 2019, the emerging convergence in terms of interest and challenges provides the platform for building on their cooperation under the existing comprehensive strategic partnership framework.

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[1]See: https://data.worldbank.org/country/indonesia, Accessed on October 24, 2019.

[2] See: https://www.adb.org/countries/indonesia/economy, Accessed on October 24, 2019.

[3]“Indonesia’s Annual GDP Growth, 2010-2018”, World Bank, https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=ID, Accessed on October 24, 2019.

[4]Yuki Fukuoka, Indonesia’s Jokowi to Commence Second Term: Challenges of becoming a leading Economy by 2045”, Mitsui & Co. Global Strategic Studies Institute Monthly Report, July 2019, https://www.mitsui.com/mgssi/en/report/detail/__icsFiles/afieldfile/2019/08/13/1907c_fukuoka_e_1.pdf, Accessed on November 4, 2019.

[5] See: https://globaledge.msu.edu/countries/indonesia/tradestats, Accessed on December 2, 2019.

[6]Harold Crouch, Political Reform in Indonesia After Soeharto, (Institute of Southeast Asian Studies: Singapore, 2010), p. 280-282 and 305.

[7]“India-Indonesia Bilateral Relations”, Embassy of India, Jakarta, Indonesia,  https://www.indianembassyjakarta.com/pages?id=eyJpdiI6IldOSklXYVl5b3dvN3kwUmZ4RWRNa0E9PSIsInZhbHVlIjoiak13WXYyMkdcL0lRV0ZcLzUrVjNxbjVRPT0iLCJtYWMiOiJkY2NiNmJmZDA2MWI3YmE5ZGI0NGM2ZmZkYTQ2Yjk2YTk5YmUwZjJhMDY1OGFjYzg4MDcxN2JkNTRmMTRiZGM4In0=&subid=eyJpdiI6IlFGU0JrbWg3VU1vaTZycDN3VTlEclE9PSIsInZhbHVlIjoiWDgzSDFNWWtPUlA2OWpcL2RSUG1sRVE9PSIsIm1hYyI6IjZjZTVkZmMzNTJmZmE4ODUxN2ZmZTViNDZiZjQ4YzcxM2Q0M2RhYjE3NjM1MmEwZTgxMjY1M2M4YzRmOTU0ODQifQ==, Accessed on June 4, 2018.

[8]“India’s Bilateral Trade with Indonesia, 2013-2018”, Department of Commerce, Ministry of Commerce and Industry, Government of India,https://commerce-app.gov.in/eidb/Default.asp, Accessed on November 11, 2019.

[9]“India-Indonesia Economic and Commercial Relations”, Embassy of India, Jakarta, December 31, 2018, https://www.indianembassyjakarta.gov.in/users/assets/pdf/menu/ECRmenu.pdf, Accessed on November 4, 2019.

[10]“India-Indonesia Joint Statement during the State visit of President of Indonesia to India”, Ministry of External Affairs, December 12, 2016, https://mea.gov.in/bilateral-documents.htm?dtl/27805/IndiaIndonesia+Joint+Statement+during+the+State+visit+of+President+of+Indonesia+to+India, Accessed on November 4, 2019.

[11]“India, Indonesia to set up task force to enhance connectivity between Andaman and Sabang”, The Economic Times, May 30, 2019, https://economictimes.indiatimes.com/news/politics-and-nation/india-indonesia-to-set-up-task-force-to-enhance-connectivity-between-andaman-and-sabang/articleshow/64385454.cms?from=mdr,

Accessed on October 24, 2019.

[12]“Official Visit of External Affairs Minister to Indonesia (September 04-06, 2019)”, Ministry of External Affairs, September 5, 2019,https://www.mea.gov.in/press-releases.htm?dtl/31800/Official_Visit_of_External_Affairs_Minister_to_Indonesia_September_0406_2019, Accessed on October 24, 2019.

[13]“PM’s Meeting with President of Indonesia”, PM India, November 3, 2019, https://www.pmindia.gov.in/en/news_updates/pms-meeting-with-president-of-indonesia/?comment=disable, Accessed on November 4, 2019.