American Indonesian Chamber of Commerce



May 2022 


Commentary by Wayne Forrest

Since 1966 Indonesia has always often prioritized development over geopolitics. Other than its early years, Indonesia has usually kept a low profile internationally, subscribing to an international, mostly Western-driven, common consensus. Its famed practical neutrality is now being challenged by not just the Ukraine War but also the need for more investment. 2 binaries stand out:

•         Markets and international trade agreements vs. government intervention

•         Include vs exclude Russia in the G20

Indonesia might be wise to make a choice.

In the early days of the Republic, it was also all about political statements. Its founding President, Sukarno, assumed the leadership of newly independent nations (the Non-Aligned Movement) and made global headlines as he railed against colonialism and imperialism. If Twitter was available Sukarno would have been on it every day.

From 1966-1999, under President Suharto, the argument that development superseded politics justified what was charitably labeled “Indonesian Consensus Democracy”; political opposition and free speech were constrained within a system that, for all its faults (lack of rule of law, corruption), delivered tangible benefits to millions of Indonesians who rose out of poverty for the first time.  The 1997 Asian Financial Crisis forced his 1998 resignation, ushering in a series of long overdue reforms that gave Indonesians freedoms of speech, press as well as direct elections.

Most Presidents since have kept a relatively low international profile, navigating within whatever geopolitical framework was dominant, whether it be the West vs Soviet Union or the US vs China, trying not to take sides. In the view of most Indonesian leaders, job creation, reduction of poverty, and reasonable prices for daily necessities (rice, cooking oil, etc.) takes precedence. Indonesia’s political parties all have similar platforms, given that 65% of voters are employed informally, having incomes at near subsistence levels.

On the world stage, Indonesia wants to be acknowledged for its economic progress and stability, its peaceful and democratic values, as well as the size of its economy. It believes it needs to do business with everybody, and it does not want to be asked to take sides. But as was pointed out by former Indonesian ambassador to the US, Dino Djalal, when he spoke to AICC on March 31, this “free and active” foreign policy need not be neutral. He argued for a stronger Indonesian response to Russia’s unilateral attempt to absorb Ukraine by force, but he may be in the minority.

By the same token, when it comes to making economic policy that it believes is in its own interest, such as the recent sudden palm oil export ban to reduce local cooking oil prices which has wreaked havoc in international markets, Indonesia does not feel it need consult other nations. Similarly, a few years ago, it unilaterally banned the import of US fruit and meat products, curtailed access to its insurance markets, and banned the export of raw materials for stainless steel, all WTO violations.

I have no doubt that Indonesia policy makers believe they are justified in sudden policy shifts and geopolitical neutrality because of its development priorities. Each year 2,000,000 new job entrants compete for roughly 1,000,000 formal jobs. The world’s complex geopolitics and standing up to a large trading partner pale in comparison.  This is why Indonesia says little about China’s suppression of its Muslim Uighur population or its voice on the Russia-Ukraine war is muted. Similarly, President Jokowi had this cavalier reaction to the EU’s case at the WTO “We got sued by the EU once we stopped nickel ore export. The [lawsuit] is still ongoing, but no problem. I have already instructed [my officials] that we will stop exporting bauxite this year. So we will get another lawsuit”.

However, leaders such as former Ambassador Djalal, chair of an important foreign policy think tank, understand that there can be consequences for not seeing immorality or evil with clarity. For all the wonderful developments that have occurred in Indonesia an area that remains lacking is the rule of law.  Companies and countries notice Indonesia’s ambiguous international stances, for example its support for trade agreements such as the WTO while regularly violating it. Lawyers reviewing joint venture agreements see that Indonesia’s courts and regulatory bodies regularly ignore international arbitration decisions or other trade agreements it has joined often with spurious leaps of logic (the contract was not in the Indonesian language, or a local company did not have to repay a loan because it was technically bankrupt for two days). Some companies won’t risk investing in a top-down economy where the government can intervene at will in local markets. Joint venture agreements are constructed under Singaporean law.

I am a great admirer of Indonesia’s outreach for trade and investment. It is genuine, like the recent visit of a high-level delegation of KADIN (Indonesian Chamber of Commerce and Industry) who met with AICC members on April 21.  These are great friends and partners of US businesses and products, and they were in the US to maintain the momentum of the G20 and B20 scheduled for November in Bali.  They hope between them, the diplomats, and Ministers (such as Luhut Pandjaitan and Sri Mulyani) Indonesia can thread the needle and still have a successful event even though it is threatened by boycotts because Russia will still be involved.

But if this could be a teaching moment, I would offer to my Indonesian friends that sometimes the course of world events forces a choice. This is that time. Retreat from the neutrality that mutes your voice internationally. Join the Western nations to shun Russia until it modifies its behavior and, in addition, clarify your own economic policy to reduce the ambiguities, thereby creating a solid basis for job-creating investment and trade.