A ballad of free trade
FTA's are fine for Indonesia, except when they threaten jobs
13 November 2016
By: Duncan Graham

During his visit last year to the United States President Joko Widodo suddenly started singing enthusiasm for multinational free trade agreements (FTA).

He told American businesses that Indonesia has an “open economy” with a large and hungry population so intended to join the Trans-Pacific Partnership (TPP). He’d been persuaded that this would also seduce foreign investors.

The TPP had taken years to orchestrate. Twelve nations representing around 40 per cent of the world’s GDP had agreed to join. President Joko thought a place in the choir alongside Malaysia, Singapore and other neighbors was a smart idea, although the archipelago has long chanted protectionism.

In the following months nervous political and economic advisers composed a revised song sheet. By February this year the president was humming a different tune in a lower key.

During another US trip he released his new TPP album – Fading Love. The lyrics included “caution is of the utmost importance … everything must be calculated for the sake of national interests. It’s all still in process.”

In a backing track the then Trade Minister Thomas Lembong chorused that his leader’s original enthusiasm was “to improve our economy and create jobs”.

FTA opponents disagree; they claim agreements favor efficient producers like Australian wheat growers and Chinese steelmakers, but can damage importing nations. They get lower prices but at the cost of local jobs. Slack businesses demand compensation or fail. 

Indonesia’s state-owned enterprises, known for poor management, lack of competitiveness and allegedly as “wet areas” (where corrupt politicians and bureaucrats can prosper) feel threatened by FTAs.

Some of this is now academic as US President-elect Donald Trump says he’ll rip up all TPP negotiations authorized by President Barack Obama.

This would get President Joko off the hook on which he’d hung himself last year. But then came another twist.

Before abruptly changing his mind about visiting Canberra this month, allegedly because of violent demonstrations in Jakarta, the president told journalists of plans for his official three-day agenda Down Under.

Top was trade and sealing the Indonesia-Australia  Comprehensive Economic Partnership Agreement by the end of 2017. Another surprise – discussions on this deal only restarted in March after stalling for three years because political tensions were high.

Harvard-educated Lembong, a former investment banker who now chairs the Indonesia Investment Coordinating Board (BPKM), has the task of meeting the deadline. He’ll get no opposition from Australia.

Australia’s Trade Minister Steve Ciobo says signing the agreement will be his “most significant priority,’ while the Indonesia-Australia Business Partnership Group has pledged enthusiastic support

Small wonder; Indonesia’s expanding middle class market is tipped to reach 140 million consumers with tastes for beef and bread by the end of this decade, provided trade barriers don’t rise.

In its paper Two Neighbors: Partners in Prosperity the Group said trade and investment is underperforming. “Given the proximity and size of the Indonesian and Australian economies … there are vast untapped areas of complementarity [sic] and potential.”

According to Australia’s Department of Foreign Affairs and Trade, the Republic is the island continent’s 12th largest trade partner, mainly importing wheat, beef and sugar.

Indonesia sells oil and some manufactured goods. Total two-way trade is worth about A$15 billion ($11.4 billion). One trade agreement is already in place embracing Australia, New Zealand and ASEAN nations, including Indonesia.

Why the Jokonomics flip-flop?  Eve Warburton of the Australian National University has written in the latest Bulletin of Indonesian Economic Studies:


“The president’s leadership style and decision-making process are unpredictable. Jokowi surrounds himself with very different kinds of economic thinkers. At times he embraces the ideas of pro-market advisors, but then pursues statist-nationalist policies endorsed by his personal partisans.”


Free trade sounds like a fine idea – nations sell to and buy from each other in an open market without tariffs, taxes and other impediments. There are compounding factors in play, like subsidies and dumping of surplus goods, but good deals can satisfy customers wanting low prices.

Those consumers are also workers. If their employers turn off lathes because they can’t compete against Chinese low-cost sweatshops they get grumpy. In democracies that anger can threaten politicians, as Hillary Clinton knows well.

FTAs are particularly sensitive in agriculture. Food security is a political issue in Indonesia where a proverb says “a meal without rice is not a meal”. Annual personal consumption of around 114 kilograms can no longer be met by local farmers. 

So stocks of the nation’s staple carbohydrate held by state agency Bulog (the Bureau of Logistics) are being topped up with imports from Thailand.  

Production in Thailand is largely mechanized with combines and bulk-load trucks moving the crop from paddy to mill. In Indonesia the rural scene is more middle ages with workers cutting and threshing by hand, then carting by bike.

If these laborers lost their jobs through a FTA they’d face limited alternative employment. According to the World Bank 70 per cent of Indonesia’s poor (earning less that $2 a day), live in the countryside.

FTA at the veggie roots level

Ibu Wasita has little interest in international agreements, but her suppliers, who are mainly her friends, could be victims. She currently sells two types of carrots from her vegetable stall in Malang’s Oro-Oro Dowo traditional market.

The cheaper, uneven ones cost Rp8,000 ($0.60) a kilogram. They were grown in Batu on the cooler flanks of Mount Welirang.

The other carrots are evenly graded, clean and trimmed of leaves. They are packed in plastic and cost almost twice as much. They come from China and appeal to choosy buyers.

Also from Batu are apples. Just one variety, Manalagi for Rp20,000 ($1.50) a kilo. They are blemished and to modern palates more billiard balls than Eve’s offering. But in the supermarkets there’s a wide choice of plump, quality fruit – from China, the US and New Zealand.

The prices are higher but the polished apples roll off the shelves into high-end shoppers’ trolleys. Should FTAs get signed with Australia and other countries prices will tumble – but Indonesian farmers’ incomes will shrink if they don’t change their production and marketing practices.

Batu is Central East Java’s vegetable garden. It’s also a weekend escape for the well off, so a hotel and entertainment park construction boom is underway. For every 10,000 square meters flooded with concrete there’s one hectare less to grow food. 

It’s a pattern across Java as the national population is tipped to rise from the present 260 million to more than 320 million by 2050.

Australian pens are poised to sign an agreement. However Lembong – dubbed by the Australian media as an “apostle of liberalization” – will find it near impossible to persuade Indonesian politicians to ink any document seen as threatening jobs.

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