Peter Varghese: Australia-Indonesia partnership lacks ‘genuine resilience’

By Peter Varghese

Sunday August 2, 2015

Former DFAT secretary Peter Varghese.

Australia and Indonesia face an immense gap in community awareness and understanding. When he addressed the Australian Parliament in 2010, former President Yudhoyono said:

“In Indonesia, there are people who remain afflicted with Australiaphobia — those who believe that the notion of White Australia still persists, that Australia harbours ill intention toward Indonesia and is either sympathetic to, or supports, separatist elements in our country.”

That view — as SBY made clear then — was, of course, woefully out of date. But five years on, these outmoded perceptions remain.

Likewise, the broad Australian understanding of Indonesia is poor. According to the recent Lowy Poll’s “feelings thermometer”, Australians feel as warm towards Indonesia as they do to Russia, and well below Malaysia and China. And only 34% regard Indonesia as a democracy.

That is the case notwithstanding the success of Indonesia’s democracy — one of the seminal developments of the past two decades — and the widely-experienced warmth of its people.

The last 50 years have seen profound changes in Indonesia: not just the transition to democracy, but also far reaching decentralisation, the growth of a strong civil society, economic development and a culture of political debate underpinned by a robust media, including a penetration of social media that has made Jakarta the twitter capital of the world.

I’d like to sketch out the significance of Indonesia to Australia, and in particular the importance of Indonesia’s continued economic success, which we hope will be to hold to the path of ever-greater openness and integration into the region.

Indonesia’s strategic importance

Indonesia is a nation of first order strategic significance to Australia.

It is the world’s largest archipelagic state, located at the fulcrum of the Indian and Pacific Oceans and straddling the world’s most important sea lanes — like Australia, an Indo-Pacific nation.

Around 50% of global shipping trade (in tonnage) and around 70% of Australian merchandise trade, by value, passes through Indonesian waters each year.

Its economy, currently the 16th largest, is projected to be the fourth largest by 2050, and will eclipse Australia’s in nominal terms by 2030.  In purchasing power parity terms, it is already bigger than the Australian economy.

Indonesia has a young population, with around 45% under 25 years of age.  And its demographics are changing rapidly — Indonesia’s consumer class, currently at around 50 million, is expected to grow to as many as 135 million by 2030.

Indonesia’s size, geographical location and growing economic weight — making up more than a third of ASEAN’s GDP — make it the region’s centre of economic gravity. It is an important member of the G20 and the East Asia Summit, and has played a key leadership role within ASEAN since its inception in 1967.

“We have an extensive web of officials’ level engagement … over 20 federal agencies cooperating with Indonesian counterparts in more than 60 discrete activities.”

Indonesia is the natural leader of ASEAN and the direction of its strategic policy and the strength of its economy will have a large influence on ASEAN’s standing.

An Indonesia that is stable, prosperous and democratic, capable of addressing its political, security and economic challenges, and able to contribute positively to regional stability and economic growth, is firmly in Australia’s interests.

As its economic weight grows, the potential for Indonesia to exercise greater strategic heft may also increase, although this could be a much longer-term prospect given the predominantly domestic focus of Indonesia’s military and its low defence spending, under 1% of GDP.

Despite recent slower growth, its fundamentally positive growth trajectory offers important opportunities for the Indonesian people and also for Australia, and our neighbourhood.

Australia and Indonesia

For all the bumps in the relationship, it is worth reminding ourselves that since the end of the New Order period, our two countries have come a long way together.

Today, we have an extensive web of officials’ level engagement with, by DFAT’s calculation, over 20 federal agencies cooperating with Indonesian counterparts in more than 60 discrete activities.

We have made real progress in building the partnership at a government to government level, particularly since 1998.

Since the Bali bombings in 2002, we’ve built extensive and effective cooperation on counter-terrorism and law enforcement.

In 2010, we elevated our relationship to a strategic partnership and buttressed it with stronger bilateral architecture, including annual leaders meetings. Australia is the only Asia-Pacific country to have a foreign and defence ministers (2+2) meeting with Indonesia.  And Indonesia is one of only five countries with which Australia has a 2+2 meeting.

“We have yet to see that network of relationships … that give a relationship the ballast it needs to cope with momentary political crises or differences in policy.”

But yet, as we have seen over many decades, the relationship sometimes struggles to remain on an even keel.

The reality of the Australia-Indonesia relationship is that despite the efforts we have made in government on both sides, we have not yet built the broader constituencies that would give the relationship genuine resilience.

Outside of academic and government circles, we have yet to see that network of relationships across government, business and the community that give a relationship the ballast it needs to cope with momentary political crises or differences in policy.

There are many reasons for this. Our structural links are not deeply embedded. We come from different historical and cultural backgrounds which means the points of congruence in our world views are less than they might otherwise be. Our strategic reference points are different although more recently they have moved much closer together. And, importantly, the economic, investment and commercial relationship has not yet achieved its full potential.

Indonesia is ranked today only as our 12th largest trading partner.

Until now, we have both been large commodity-exporting economies working somewhat in parallel, often with the same customers. We both look north.

Beyond tourism, we have not had a connection in the kind of services trade which is now becoming possible with the growth of the Indonesian consuming class.

As the Indonesia expert Jamie Mackie has written: “No attempts to improve relations between our two countries will achieve much unless trade, investment and business contacts between us develop much more vigorously.”

The future of the relationship

The good news is that as the 21st Century unfolds, there is more and more scope for us to work together.

Provided we both resist the siren calls of protectionism and economic nationalism, provided we both remain committed to openness, economic reform and active participation in a competitive global economy, the prospects should be bright for us to work more closely together in many more ways.

Like Australia, Indonesia has experienced a growing number of its citizens travelling to the Middle East to fight with terrorist organisations.

So it is vital that Australia and Indonesia continue to build counter-terrorism cooperation, including to deal with emerging challenges such as foreign fighters and countering violent extremism.

Our cooperation since the Bali bombings in 2002 provides a good platform for facing the challenges we will inevitably face as trained foreign fighters return home. Ninety five of the 111 Australians who have died in terrorist attacks since 2001 were in Indonesia. We have a shared interest in defeating the threats posed from violent extremism.

We’ve long had a development partnership, but it is now time to take our relationship to a more strategic and innovative level, recasting our cooperation around an economic partnership between two G20 economies.

Foreign Minister Julie Bishop wants to reframe our aid program in this way: to make it a broader, more modern economic partnership centred around how we can work together to drive growth, involve the private sector and find innovative ways of dealing with development challenges.

As Indonesia’s middle class grows there are obvious synergies between our national strengths and Indonesia’s emerging needs.

Working together, we should be able to tap into ever-greater regional and global value chains.

Australia can be a major provider of services to Indonesia’s emerging middle class.

Nowhere is this clearer than in the education sector. And not just in terms of Indonesians coming to Australia to study. We want to see a two way flow so we are delighted that Indonesia has responded so enthusiastically to the New Colombo Plan.   Indonesia has been among the most popular destinations for NCP scholars, with 1173 out of 4600 Australian students choosing to study or work in Indonesia. Let us hope this signals a beginning of the end to the decline in Indonesian studies that we have seen in Australian universities in recent years.

Over time, this will help build greater understanding between future leaders in both countries.

The importance of reform

But for the relationship to grow we both have to remain committed to sound economic reform and remain active regional players.

We have much to lose by not staying the course on reform, or by turning inwards and adopting protectionist policies grounded in economic nationalism.

These are a huge deterrent to investors and undermine long-term economic growth.

The Australian Government emphasises economic diplomacy — that is, using all the political, diplomatic, aid and other levers at our disposal to strengthen our economic and commercial relationships. On this front, we see great potential in the health, education, infrastructure and maritime sectors.

Indonesia has a long history of cooperation with regional and global partners to promote international trade and investment, including through the establishment of APEC, negotiation of the ASEAN-Australia-New Zealand Free Trade Agreement, the Regional Comprehensive Economic Partnership and progress towards the ASEAN Economic Community.

Our FTA agenda — including the proposed Australia-Indonesia Comprehensive Economic Partnership Agreement — can be an important part of facilitating these opportunities.

This cooperation and the long-term trend across the region towards greater economic integration and openness to foreign trade and investment will help fulfil Indonesia’s significant economic potential. As ASEAN launches its Economic Community in December of this year, Indonesia’s role as a regional leader will again be highlighted.

“Depth and resilience will come from much greater business engagement, from much greater trade and investment, and a better community understanding between our two nations.”

What Australia wants for Indonesia is what Indonesians themselves wish for their country: a stable, prosperous and democratic Indonesia, capable of addressing its political, security and economic challenges and able to contribute positively to regional stability and economic growth.

Depth and resilience will come from much greater business engagement, from much greater trade and investment, and a better community understanding between our two nations.

For Australia a productive partnership with Indonesia is a clear national interest. We see Indonesia as a neighbour, a key regional state and a multilateral partner. It is an important relationship in its own right but Indonesia also has a big role to play in Australia’s broader Indo-Pacific agenda. So much of that agenda turns on an Australia-Indonesia relationship which is close, multi-layered and anchored in mutual interests.

This is an edited extract of a speech by Peter Varghese to the ANU Indonesia Project at the Crawford School of Public Policy in Canberra on July 30, 2015.

Read more at The Mandarin: Gareth Evans: Retribution warranted, but cutting Indonesia aid wrong

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