On the occasion of Indonesia’s 71st anniversary of independence in August 2016, President Joko Widodo announced that the country would continuously and actively encourage the settlement of disputes in the South China Sea through peaceful negotiations. This came just days after the decision of the Permanent Court of Arbitration in The Hague, rejecting China’s expansive maritime claims in the region. Even before this ruling, President Joko argued at the 2015 Asia-Africa Summit in the West Java capital of Bandung that that world needed a new perspective on the global economy in the 21st century.
Indeed, but how, specifically, should Indonesia focus and respond to the new geopolitical and geoeconomic landscape in the Asia-Pacific and beyond?
This essay argues that Indonesia must preserve an assertive “free and active” foreign policy that focuses on and responds to the new landscape. Indonesia has already played an active role, together with the Association of Southeast Asian Nations, in pushing for a code of conduct in the South China Sea for Asean member states and China. The crucial aim of the agreement is to preserve stability and create an open and peaceful maritime region for all parties. Economics will be a big part of this, given various new initiatives in the Asia-Pacific, including the (possibly dead) Trans-Pacific Partnership and the China-initiated Asian Infrastructure Investment Bank.
The geopolitical situation
Indonesia can be more active in supporting peace and stability in the region’s waters. It appears to be viewed as a possible mediator acceptable to South China Sea claimants including the Philippines, Vietnam, Brunei, Malaysia and China, given that President Joko asserts that Indonesia is not a party to the dispute despite three naval skirmishes with Chinese vessels inside Indonesia’s exclusive economic zone near the Natuna Islands in 2016. The most notable incident involved the Chinese Coast Guard ramming a Chinese fishing boat confiscated by Indonesian authorities and retaking possession of the vessel.
Mediator or not, this is nonetheless a geopolitical challenge for Jakarta. Indonesia and Japan have agreed to establish a maritime forum to ensure an open South China Sea and stable Asia-Pacific region. Yet, China’s land reclamation activities and deployments of missile and radar systems on disputed atolls and islands have heightened tensions and deepened divisions among both claimant and non-claimant states alike. In April 2016, for example, China, Cambodia, Brunei and Laos agreed that the South China Sea disputes must not impact Asean’s relationship with Beijing. This could have an impact on the grouping’s unity, in particular after the arbitration court overwhelmingly ruled against China’s sovereignty claims via the nine-dash line. (Ironically, the plaintiff in that case, the Philippines, is now cozying up to Beijing under President Rodrigo Duterte.) It could also negatively impact hopes for stability, given that Beijing rejected the court’s decision and has never been more assertive and aggressive regarding its territorial claims.
It will be interesting to see how – or whether – US President Donald J Trump’s foreign policy in Asia differs from that of the Obama administration, which exercised a geopolitical “pivot” toward Asia. Will Trump conduct a rational, transactional or isolationist US foreign policy in the Asia-Pacific region? He may expand America’s military presence in the South China Sea to protect and expand Washington’s strategic security and economic interests, including trade and investment in the region. This could maintain the US sphere of influence in Asia, while creating American jobs and economic growth back home.
Consequently, Indonesia should focus on maintaining Asean unity, in addition to pushing for the signing of a code of conduct after so many years of discussions. Such a code aims to preserve maritime security, ensure free and safe passage, preserve sea transportation lines and logistics, and maintain dialogue among claimant states on overlapping sovereignty claims. The main reason Indonesia needs to be a focal point of any solution in the South China Sea is that it will positively contribute to its own vision to be a global maritime fulcrum, as well as support the Asean Community.
There are many things that Jakarta can recommend, such as:
- Push Asean claimant and non-claimant states in the South China Sea to swiftly begin talks on a code of conduct, and halt military buildups and the creation of artificial islands.
- Establish a special maritime forum to exchange information and encourage confidence-building measures among claimant and non-claimant Asean states. Such a forum can also promote joint research and economic development cooperation among the Asean states.
- Encourage all parties to avoid unilateral actions that could escalate tensions and create instability. Indonesia could help increase communication among regional governments and China by pushing the establishment of a special hotline, which would be useful to respond to maritime emergencies in the South China Sea. The hotline was suggested last September during an Asean-China dialogue.
- Begin collective or joint maritime security patrols involving claimant and non-claimant states.
The new geoeconomic situation
President Trump quit the Trans-Pacific Partnership immediately after taking office in January. As such, our attention has shifted to establishing the Asian Infrastructure Investment Bank, known as the AIIB. The AIIB has 57 prospective founding members from around the world, opening the possibility that it can be a geopolitical game changer in the Asia-Pacific. (This would, however, also escalate great-power economic rivalries.)
There is a gap between Asia’s infrastructure needs and the funding capabilities of the World Bank and Asian Development Bank. Based on ADB data, Asia needs $800 billion a year for infrastructure between 2010 and 2020. The World Bank and other multilateral development banks have a capital foundation of around $500 billion. The ADB has a capital foundation of $160 billion (for infrastructure and other development sectors). The AIIB’s founding members have collected $100 billion so far, mainly focusing on infrastructure, and the fund could complement regional sources of infrastructure funding, bringing a new financing actor onto the scene.
First off, this means there is a new source of funding for Asia-Pacific nations aside from the World Bank and Asian Development Bank. Second, the AIIB not only receives support from Asian nations, but also from Europe including Austria, Britain, Denmark, Finland, France, Germany, Iceland, Italy, Luxembourg, Malta, Norway, Portugal, Russia, Spain and Switzerland. Third, the regional and international economic orders are like a marketplace that pushes international institutions in developing their approaches and improving services to existing creditors, as well as promoting offers to new prospective creditors such as reasonable requirements, suitable needs for creditors and competitive interests.
Consequently, the World Bank, ADB and AIIB can complement one another to fulfill Asia’s infrastructure development needs. The World Bank and ADB’s influence in the Asia-Pacific, however, will relatively decline while China’s economic influence will grow. These changes could erode American economic influence in the region and shape a new global economic governance.
As a result of these geoeconomic changes, and the fact that President Joko has agreed to join the AIIB, Indonesia’s position and strategy must be clear. As a founding member of the AIIB, Indonesia should push for terms favorable to its own national interests and those of other emerging economies during negotiations on the AIIB’s statutes, rules and regulations. Indonesia must also continuously put forward its experts and support those from other developing countries to fill executive-level positions in the AIIB.
In addition, Indonesia must perform a balancing act between its own internal economic development goals and its efforts to help establish bilateral and multilateral economic arrangements. Without strong domestic economic sectors and modern infrastructure, however, such arrangements could erode Indonesia’s own economic development and further widen the disparity gap between rich and poor Indonesians. The country’s trade deficit may also grow if Indonesia has less competitive economic sectors than developed countries and other emerging nations.
It’s all about being able to compete and respond to new geoeconomic dynamics. Indonesia must improve its human resources and economic sectors so they are competitive, creative a positive investment climate and also develop its infrastructure. Only then may the country take its place within the emerging dynamic regional economy.
Beginda Pakpahan is a political and economic analyst on global affairs at the University of Indonesia. The views expressed here are his own.
This essay was adapted from a book on Indonesia and Southeast Asia’s international relations, scheduled to be published in 2017.