MS Risk Blog

Indonesia’s rise as an international power

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Indonesia’s President Joko Widodo, popularly known as Jokowi, has received international attention after visiting Kiev and Moscow in late June. During his visit, Widodo offered himself as a mediator between Russia and Ukraine to reach a point of agreement between the parties regarding the war in Eastern Europe. On top of that, Widodo, who is the president of the next G20 summit, has decided to use his role as host this year of the G20, the group of industrial powers and emerging countries, to build bridges between Russia and Ukraine from the classic Indonesian “non-alignment”, a position without much support between European nations and the USA. These moves by Indonesia could be interpreted from a domestic and international point of view. Jokowi, who came to power in 2014 and was re-elected in 2019, has seen a decrease in his domestic approval ratings. This visit (to Ukraine and Russia), made in tandem with the G7 agenda, was seen as an opportunity to increase popular support in Indonesia. Internationally, this visit allowed him to improve his image with the United States and the West.” Regardless of the motives, the fact is that this trip by Widodo is just the last proof that Indonesia is rising both as a regional and international power.

Regionally, Indonesia is a key player in the Asia-Pacific area. With a population of more than 250 million, Indonesia is today the largest Islamic democracy in the world and the largest economy in Southeast Asia.

Its strategic relevance in energy and economic terms, combined with its demographic and geopolitical weight, has consolidated this country as one of the main Asian markets and tigers. This dominant position will moreover be consolidated in the next decades by the construction of a new capital (called Nusantara) in the island of Borneo, which will substitute Jakarta as the political centre of the country. An example that shows Indonesia’s importance regionally was the visit of Australian Prime Minister Albanese to the country. During that visit, Australia praised Indonesia’s active support for bilateral strategic and economic interests, including ‘green’ investment and trade.

With these regional ties, Widodo aims at attracting foreign investments and industries with a high technological load. Jokowi has maintained the priority of relaunching economic growth up to 7% of GDP with measures aimed at facilitating investment and entrepreneurship. Indonesia has experienced a significant economic expansion in recent years, with a notable flow of investment received and an outstanding dynamism of internal demand with a growing consumer class. The economic development of Indonesia has taken place in its most immediate environment, and that is why ASEAN has become the cornerstone of Indonesian foreign policy. In 2023 Indonesia will hold the rotating chairmanship of the Association of Southeast Asian Nations (ASEAN). During Indonesia’s chairmanship of the organization, the country is expected to promote the ASEAN’s influence in the region vis-à-vis the traditional powers (China and the United States). The role of ASEAN has become a regular point of conversation between Jokowi and his interlocutors in the region, especially with Australia, India and Japan.

Internationally, Indonesia has for years been considered an emerging economy; a country that was “punching below its weight” in every sense. In 2022 however, Indonesia has proved its global influence in two ways: its role as president of the G20 (already explained), and the coal export ban. At the beginning of the year Indonesia was in the spotlight because of the coal ban that was imposed from 1st to 31st of January. Despite the ease of the ban on 15 January, Japan, South Korea, China, Malaysia and the Philippines asked Jakarta to lift the export ban, which immediately caused a global spike in coal prices and left China, the world’s largest coal importer, temporarily reeling.

Since the war in Ukraine started in February, Indonesia’s abundance of natural resources (such as coal, iron, nickel and palm oil) has placed the country in a privileged position. The disruption of supply chains and the rising commodity prices contrast with Indonesia’s record-high exports, which have allowed the country to shore up its economic resilience. Apart from the record-high exports, Indonesia has enjoyed modest inflation and a strong currency (the rupiah), which could also help in the long run in Widodo’s ambitions to make Indonesia a rich nation by 2045. In order to consolidate this economic resilience, President Widodo has proposed a plan to promote industrial “downstreaming” – moving up the commodity processing chain to the country, rather than just exporting raw materials. With this move, which is being pursued through law, Widodo plans to diversify Indonesia’s exports and to further strengthen capital flows with foreign direct investment. Parallel to these economic developments, Indonesia’s international influence could increase if the country becomes a member of the BRICS group. This organization, composed by Brazil, Russia, India, China, and South Africa, is looking for other major developing countries to join as full members.

Despite these optimist outlooks for Indonesia, the country’s influence in the region is still limited by a political, territorial, and ethnic-religious structure marked by profound divisions and nuances. Apart from that, Indonesia still must solve its massive infrastructure gap to guarantee the adequate connection between its 17,000 islands, especially in the underdeveloped (and secessionist) Papua province.

Indonesia’s rise has not been meteoric, but it has been steady and is likely to continue despite its internal challenges. The economic, demographic and predictably strategic importance of this sleeping power suggests that its role in the region and internationally will increase in the coming years.