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Can Indonesia balance globalisation with economic populism?

Niruban Balachandran says in Indonesia, which has promoted inclusiveness at home and pragmatism abroad, the government needs to push globalisation’s benefits as populist concerns mount

PUBLISHED : Wednesday, 27 June, 2018, 1:02pm
UPDATED : Wednesday, 27 June, 2018, 8:21pm

Is Indonesia protectionist? “No,” insists President Joko Widodo, responding to a question about whether the nation is experiencing a spate of economic nationalism.

Globalisation has been second nature to Indonesia for centuries. Today, Indonesia is kaleidoscopic, a sprawling, 3,000-year-old civilisation with more than 360 ethnicities, 707 languages, dozens of religions and some of the world’s most extraordinary hospitability.

Perhaps this diversity and openness to trade and exchange contribute to Indonesians’ embrace of globalisation: a 2016 international poll found that 72 per cent of Indonesians agreed with the statement that globalisation is “a force for good” – one of the highest percentages of any country. In addition, a 2017 Australian-led survey found that 53 per cent of Indonesians polled “favour” international trade agreements, while 20 per cent opposed them and 28 per cent took a neutral position.

With subnational elections this week and a general election on the docket for 2019, a key question for observers and the Indonesian electorate is: does the Widodo government embrace globalisation as much as most Indonesians express in polls? Jakarta strives to balance globalisation with an inclusive domestic economy that benefits more than a minority of the population. Still, the looming threat of a populist electoral backlash is all too real, and a recent Council on Foreign Relations report warns that “Indonesia risks political instability if it cannot foster greater economic and social inclusion”.

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Supporters point out that the Widodo government allowed overseas universities to open in Indonesia with greater numbers of international faculty – expecting that driving youth capacity will gradually transform lagging domestic industries. The relative success of Indonesia’s four unicorns – Go-Jek, Tokopedia, Traveloka and Bukalapak, companies reaching a valuation of US$1 billion or more – led by Indonesians educated overseas, is testament to this strategy.

On the other hand, the government has displayed a proposal for foreign workers to be proficient in the Bahasa Indonesia language, while tightening visa restrictions and price controls. Indonesia ranks 108 out of 140 countries measured on the DHL Global Connectedness Index, scoring low on human connectedness in particular: its rate of migrants, tourists and international students flowing both inwards and outwards is relatively low.

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Respected Indonesia scholars Richard Robison and Vedi Hadiz offered an influential, if blistering, critique of the so-called “global Indonesia rising” narrative: “There is little evidence that Indonesia is serious about projecting its economic footprint beyond national borders. We look in vain for the sort of investments in infrastructure, including in ports or electricity grids, in mining, energy or agriculture now being undertaken by China and other Northeast Asian nations across Southeast Asia or Africa and in Australia.

“There are no Indonesian railways or roads, no Indonesian development banks or even educational programmes to compare with those of other Northeast Asian nations or Singapore. Even its foreign aid programme is derisively small. Indonesia spends around US$10 million annually, compared to around US$2 billion for China.”

According to the Lowy Institute’s newly published Asia Power Index, though Indonesia’s global diplomatic influence remains relatively high among regional peers, some of its lowest rankings occur in economic relationships: capacity to influence other indexed countries through trade dependencies, foreign investor clout, participation in trade agreements and inward aid flows all fall short of levels expected for an economy of Indonesia’s size and geostrategic location.

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Jakarta has sought to stay true to its foreign policy of “pragmatic equidistance” towards the great powers and multilateral to the core. Such neutrality becomes more difficult as Indonesia actively juggles its membership in the G20, the G77, the Asia-Pacific Economic Cooperation forum, the Organisation for Islamic Cooperation, the Association of Southeast Asian Nations, the Organisation of the Petroleum Exporting Countries and other powerful international blocs.

Given its position, Indonesia has so far largely avoided siding completely with either Washington or Beijing. It has not been identified as one of the 16 countries over-committed or vulnerable to Beijing's regional “debtbook diplomacy”: a Harvard study warns that China has provided predatory loans worth hundreds of billions of dollars to the Philippines, Cambodia, Malaysia, Sri Lanka and other countries “to gain economic leverage and strategic and military prowess in the Asia-Pacific region”. Jakarta has also largely resisted Beijing’s proposed “China-led” regional architecture.

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Despite Widodo’s abundance of caution in taking sides, he depends on the Middle Kingdom’s “Belt and Road Initiative” infrastructure projects to upgrade slums, build rail networks and accelerate urbanisation, totalling US$45.98 billion alone across Kalimantan, Sulawesi, Sumatra and Bali. His dilemma? “Widodo’s relationship with China is shaping up as an election issue,” said Keith Loveard of Jakarta-based Concord Consulting. An influx of too many Chinese construction workers risks inflaming local resentment, thereby losing the president votes.

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To prevent a populist backlash, the Widodo government must continue to deliver public goods to its citizens. For example, an empirical study found that rural Indonesian villages with good infrastructure such as paved roads and economic and bank access tended to vote for Widodo in the 2014 general election. In fact, the probability of Widodo winning a majority of votes increased by almost 2 per cent in the villages with good infrastructure.

McKinsey and others have predicted that the Indonesian economy could enter the G7 by 2030, then grow to become the world’s fourth-largest economy by the middle of the century. Knitting together a diverse population throughout 13,000 islands, sensibly integrating into the world economy without significant job losses, was never going to be an easy responsibility. Much depends on political candidates conveying an understanding of globalisation, the ability to negotiate with the big powers and persuading Indonesian voters that all segments of society will benefit.

Niruban Balachandran is a 2017 graduate of Harvard University’s John F. Kennedy School of Government. Reprinted with permission from YaleGlobal Online