Indonesia: 8,000 Islands in a Sea of Trouble?
The Indonesian archipelago is a place of relative calm in a restive neighborhood. To its north, China and its neighbors are disputing Beijing’s man-made islands in the South China Sea, North Korea is developing nuclear weapons and ballistic missiles, and democracy is on the wane in Thailand; to the west, India and Pakistan are glowering at each other, and Afghanistan is, well, Afghanistan.
Indonesia is the world’s fourth-largest country, its third-largest democracy, and its largest Muslim-majority country, so it is important that the Trump administration make an early approach to Indonesia to confirm Washington’s long-standing relationship with Jakarta and to seek new opportunities for cooperation and commerce.
Indonesia’s most visible characteristic is its position astride the Strait of Malacca, which connects the Pacific Ocean to the Indian Ocean and offers the shortest sea route from China to India. The strait is the world’s busiest shipping lane, hosting more than 80,000 passages in 2016 alone. And the strait isn’t just busy: its daily traffic includes a significant amount of liquefied natural gas shipments and 15 million barrels of oil, a quarter of the world’s seaborne oil, mostly bound for China, Indonesia, and Japan. More than 40 percent of the world’s seaborne trade traverses the strait each year.
All that cargo traffic attracts the attention of two parties: pirates and China. In the early 2000s, piracy increased to a point where the strait was the site of 40 percent of piracy worldwide by 2004. A concerted effort in 2005 by Indonesia, Malaysia, and Singapore to increase patrolling and coordination reduced the incidence of piracy.
China views Indonesia through the lens of what it calls “the Malacca Dilemma”: Beijing is over-reliant on the strait, and it has few alternatives. Though China and Indonesia have a territorial dispute in the South China Sea, there are opportunities for cooperation on maritime security. The strait is one of the reasons China intends to develop a blue-water navy. Beijing fears a blockade of oil from the Persian Gulf and of its manufactured goods headed west.
Indonesia is seeking more foreign direct investment from China, which is Indonesia’s largest trading partner and recently displaced the United States as Indonesia’s third-largest foreign investor. The administration of President Joko Widodo forwarded an economic stimulus package that aims to increase FDI by opening 35 industrial sectors to 100 percent foreign ownership. Indonesia is now ranked as the world’s 41st most competitive economy. It has slipped recently because of the need for improvements in health and education, as well as rigidities in the labor market such as the low labor force participation rate of women.
Indonesia’s steady progress as an attractive destination for investment has been validated in internationally recognized league tables. It climbed 15 places in the World Bank’s ease of doing business index for 2017, from 106 to 91, but political and business leaders must stay focused as the country has demonstrated only incremental progress fighting corruption over the past five years.
Indonesia is a growing destination for Western and Asian FDI, but it hasn’t fully leveraged cultural ties through its Islamic faith to attract investment from Gulf Cooperation Council countries, and it has even lagged its Muslim-majority neighbor Malaysia in this regard. Saudi King Salman’s month-long trip to Asia is emphasizing the kingdom’s non-oil exports, and Saudi Aramco has already notched a $6 billion agreement with Indonesia’s state-owned oil and gas concern, PT Pertamina, for refinery projects. However, Indonesia’s uneven application of sharia in resource-rich but corruption-prone Aceh Province may prove off-putting even for Islamic investors and institutions.
As a country that is reconciling Islam and modernity, Indonesia can be a leader in the Muslim world. The country is over 80 percent Muslim, with a small ethnic Chinese population that is active in business and controls much of the country’s wealth, leading to tensions with the majority Javanese population. Basuki Tjahaja Purnama, a popular corruption-fighting Chinese-Christian politician, is running for re-election as governor of the capital, Jakarta, while on trial for blasphemy in a process that will illustrate whether minorities are susceptible to public pressure over religious issues.
As its wealth and political heft increase, Indonesia is taking an interest in regional security issues. Closest to home, Indonesia and Papua New Guinea share a 470-mile border which is a source of conflict between Indonesian security forces and refugees from Indonesia’s West Papua province seeking safety in Papua New Guinea. Indonesia supports U.N. peacekeeping efforts, where it is the largest troop contributor of the ASEAN nations. Indonesia and Australia formalized their security relationship in the 2006 Lombok Treaty and followed with a defense cooperation agreement in 2012, which will facilitate their keen interest in counterterrorism. Indonesia has mooted the possibility of Indonesian-Australian joint naval patrols of the South China Sea in the wake of China’s assertion of overlapping claims to waters close to Indonesia’s Natuna Islands.
Indonesia and the United States have historically had friendly relations, and the United States is viewed positively by the Indonesian public. The U.S. Agency for International Development has provided development assistance to Indonesia since 1950, and recently the United States and Indonesia have expanded military cooperation to improve Indonesia's defense readiness.
This recent cooperation, along diplomatic engagement, intelligence sharing, and ongoing U.S. upgrades to Indonesia’s stock of defense equipment, will lay the foundation for a solid working relationship between the new Trump administration and a friendly country in a region critical to regional security and the world’s economy.