Indonesia hedges against US’ economic push


Australian Prime Minister Anthony Albanese, US President Joe Biden, Japanese Prime Minister Fumio Kishida, and Indian Prime Minister Narendra Modi wave to the media prior to the Quad meeting at the Kishida's office in Tokyo on May 24, 2022. - AFP

JAKARTA (Jakarta Post/Asia News Network): Indonesia supported the launch of a United States-led regional economic initiative this week but was also adamant about closely studying the proposal before making any concrete commitments, as Washington revelled in the limited fanfare of its “return” to Asia.

Through the Indo-Pacific Economic Framework (IPEF) that he unveiled in Japan on Monday, US President Joe Biden has pledged to “work together with close friends and partners in the region on challenges that matter most to economic competitiveness in the 21st century”.

The programme offers little in the way of a traditional free-trade deal, but foresees integrating partners through US-approved standards in four main areas: the digital economy, supply chains, clean energy infrastructure and anticorruption measures.

The White House claims to have “a dozen initial partners” on board to help expand US economic leadership in the region, but government officials confirmed on Wednesday (May 25) that Indonesia had only joined the launch event.

A virtual meeting was held to launch the framework, where each country was represented by a senior official. Trade Minister Muhammad Lutfi attended on behalf of President Joko 'Jokowi' Widodo.

“We welcome the United States and other countries’ intention to strengthen economic ties and cooperation in the Indo-Pacific. The launch of IPEF is proof of it,” Muhammad said in a prerecorded video statement on Monday.

He added that going forward, the framework must benefit all the countries involved, remain inclusive and beneficial in the long term, not obstruct development plans in the region as well as work harmoniously with existing frameworks like the Asean Outlook on the Indo-Pacific.

The Asean Outlook document is South-East Asia’s response to Indo-Pacific strategies by Western powers, which China accuses of forcing countries to take sides.

The ministry’s deputy director for Asean free trade negotiations, Ranitya Kusumadewi, explained that Indonesia is not technically a member of the IPEF, but rather “a US partner supporting” it.

She said that while Indonesia was keen to discuss the programme, it was still completing its due diligence.

“The concrete manifestation of this IPEF collaboration is still under examination. For instance, we are still discussing whether Indonesia would subscribe to all four pillars of the framework or if we’d select individual ones,” Ranitya told The Jakarta Post on Wednesday.

“More talks with the US must be had before we know how the partnership will be formed,” she added.

For the moment, Jakarta is keen to team up with the Biden administration on the digital economy, supply-chain security and gradual energy transitions. But in spite of those interests, Indonesia would still put Asean’s regional interests before the IPEF.

“What is certain is Indonesia and other Asean countries will collaborate within the IPEF only if its vision overlaps with the Asean Outlook document, which contains Asean aspirations for the Indo-Pacific,” she continued.

Even before the framework was launched, Indonesia and other nations from the region had been cautious not to commit too easily to whatever Washington threw its way.

Under the previous US presidency of Donald Trump, most of the engagement with South-East Asia and the Indo-Pacific was filtered through the lens of the US-China strategic rivalry or in terms of US trade deficits.

China is currently South-East Asia’s biggest trading partner, having funnelled millions of dollars into the region over the past decade while the US focused its economic priorities elsewhere.

But while Beijing has offered ample economic stimulus, countries still rely on the security benefits that Washington offers, especially when it comes to unresolved territorial disputes with China in the maritime space.

Yose Rizal Damuri, executive director of the Jakarta-based Centre for Strategic and International Studies (CSIS), described the IPEF as a vehicle for the US’ return to the region, after having spent years largely overlooking it.

The programme may have also been triggered by the increasing influence Beijing holds over the region, he added. And while much remains unknown about how IPEF will manifest, Yose told the Post that the framework is unlike conventional economic-trade blocs.

Classically, foreign trade deals would typically reward its participants with market access, a referral-based entry to mutual economic partners. But Washington is not offering anything like that.

“It is strange indeed that market access is not guaranteed to IPEF participants on the trade level. But I think the US will try to lure Indo-Pacific nations by giving monetary aid for development projects,” Yose said on Wednesday.

“How intensely these nations will support the US politically will depend on how captivating the bait is.”

Amid rising tensions between Washington and Beijing, having the Indo-Pacific nations remain politically neutral would benefit the US greatly, Yose said. And, while the financial incentives given by Biden’s administration are considered “second-rate” compared to Chinese President Xi Jinping’s, the contested region may benefit from having an alternate financier for its development undertakings.

“The US is expecting these countries to play by its rules, but the economic compensation is nothing compared to China’s. Do not expect Washington to be on the same level as Beijing. That being said, the US may be a good balancing figure to neutralise China’s geo-economic hold in the region,” said Yose.

“This is the US comeback in the region. We have no choice politically and economically but to participate. Even though the details are unclear, and the money is small, it is definitely going to grow in the future. Indonesia will be missing out if we bail on this.”

During its hosting of a special US-Asean Summit in mid-May, the US pledged US$150 million toward US efforts in the region, adding to the US$100 million that US Vice President Kamala Harris pledged during her trip to the region last year.

In contrast, China last year pledged $1.5 billion in development assistance over the next three years and a purchase of $150 billion in agricultural products from Asean countries in the next five years, on top of contributions to Asean’s Covid-19 response.

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