What Indonesia’s rise means for Australia

Large and close but poor and weak, Indonesia holds a shadowy place in Australia’s world view. We have never known quite what to make of it, or how seriously to take it. Soon there will be no option but to take it very seriously indeed, because Indonesia is changing fast. In the Asian century, it may matter to Australia as much as China and the US. It may even become our most important ally.
Indonesia was barely a blip on Australia’s strategic radar until the Pacific War, when Japan seized it from the Dutch and attacked Australia from bases there. Indonesia won independence after the war and, for the first time, Australia had a neighbour big enough and close enough to threaten it directly.

This raised new and unsettling questions about our security. Australia’s distant allies might see a clash with Indonesia as just a little local conflict irrelevant to their interests, so we could not assume they would offer much help. During the 1950s, the possibility that we might need to defend ourselves from our new neighbour unaided became a central issue in Australia’s defence and foreign policy. Fortunately, the threat never materialised. Australia’s relationship with Indonesia was uncomfortable under President Sukarno’s rule, but the country remained poor and militarily weak, especially at sea. Then, after Suharto took over in 1967, he replaced Sukarno’s nationalist adventurism with a more cautious and constructive foreign policy. He fostered regional links through the Association of South East Asian Nations (ASEAN), and encouraged coolly cordial relations with Australia.

Even so, Indonesia has never lost its special place in Australian defence planning. In the decade and a half after Vietnam, when the military missions of the Australian Defence Force (ADF) were limited to local defence, Indonesia remained the only conceivable threat. Since the 1970s, Australia’s armed forces have been primarily designed to defend against the kind of pinprick raids on our territory that are all Indonesia’s military could manage. Indeed, behind the diplomatic evasions, the government’s 2013 defence White Paper, released in May, makes clear this is still the ADF’s priority.

The strategic assumptions of the 1970s are now way out of date. Across Asia the post-Vietnam regional order is being overturned as China challenges US primacy. Indonesia is emerging as one of the key powers in Asia, with a dynamic economy and growing strategic potential. The balance of wealth and power between Australia and Indonesia is shifting Indonesia’s way. This makes Indonesia more important to Australia than it has ever been before. In a more turbulent Asia, the stronger Indonesia becomes – economically and militarily – the more Australia has to fear from it as an adversary, and the more Australia can draw hope from Indonesia as an ally.

Economic power is the foundation of national power, and Indonesia is one of the world’s fastest growing economies. For the past decade, its economy has grown at an average of around 5% per year. This is slow compared to China’s 10%, but still faster than almost every-where else. As a result, Indonesia is steadily moving up the economic league table. About three years ago its GDP overtook Australia’s. Indonesia will have the tenth largest economy in the world in 2030, when its GDP will be twice the size of Australia’s, according to a recent study by PricewaterhouseCoopers. By 2050 it will be ranked seventh, with a GDP perhaps three times Australia’s.

All this is well understood elsewhere. In the US, Europe and our own region, Indonesia’s rise is one of the big stories of the Asian century. It is seen as a future great power in Asia, coming just behind China and India. In Australia we have contrived to ignore it. Partly this is because our trade with Indonesia remains sluggish. It is only our 12th biggest partner, worth just one tenth of our trade with China, and growing only half as fast. There is another, deeper reason we have not woken up to what’s happening next door. Indonesia’s growing wealth and power fits neither our image of it as a poor country, nor Australia’s image of itself as relatively rich and strong.

Of course, no matter how fast their economy grows, Indonesians will, on average, remain much poorer than Australians. But GDP is what underpins national power – not GDP per capita. South Korea’s GDP per head is three times China’s, but no one doubts that China is the more powerful country. The contrary illusion – that national power depends on GDP per head more than on GDP overall – is just one of the many ways in which the West evades the implications of the redistribution of power and influence that is happening as poor countries grow rich. Being wealthy and powerful is no longer the preserve of the West; Indonesia’s rise is simply part of a bigger trend. Australia, as a Western country abutting Asia, finds itself right on the fault line.

Many assume that Indonesia’s growth will falter. This is a mistake. There is no reason to think Indonesia’s success is an aberration that will soon correct itself, because it is predicated on Indonesia’s size. The size of any country’s economy is determined by the number of workers it has and the amount each worker produces. In countries like China and Indonesia, even small increases in per-capita output multiplied across huge working populations mean big increases in GDP. Indonesia’s population today stands at almost 250 million – ten times Australia’s and the fourth biggest in the world. Indonesia’s workforce is growing proportionally faster than ours, too, as a large young population reaches working age. This means that each Indonesian needs only to produce one fifth as much as each Australian for their economy to be twice the size of ours.

It will not be easy because in almost every dimension of national life – geography, history, economics, religion, language and culture – Australia is as different from Indonesia as two countries can be.

How fast this will happen depends largely on Indonesia’s political trajectory. Most experts agree that Indonesia would have grown even faster if barriers such as pervasive corruption, a weak legal system and often dysfunctionally decentralised decision-making had been lowered. President Susilo Bambang Yudhoyono (SBY) has done less than he could have to push such reforms. The question is whether Indonesia’s still evolving political system will produce new leaders strong enough to do any better. The fall of Suharto in 1998 saw his dictatorship replaced by a much more open and democratic political milieu, but democratic politics has yet to translate into strong and effective government. Many foreign observers doubt that this will ever change, but many doubted that Indonesia would ever escape military-backed authoritarianism, too. A lot of economic potential is there to be tapped if the right choices are made in Jakarta. Effective reforms could push growth as high as 8% per year over the next few decades. If that happens, Indonesia will jump a few more places on the economic league table, possibly to fourth by 2050, as predicted by a 2011 Citibank study.

Even if Indonesia’s growth stays at 5%, it is quickly going to become a bigger player in Asia. For the first time Australia will have to deal with a great power as a near neighbour, which is among the toughest of diplomatic tasks. We cannot afford to get it wrong because Australia’s future may well be shaped as much by Indonesia as by the US or China. It will not be easy because in almost every dimension of national life – geography, history, economics, religion, language and culture – Australia is as different from Indonesia as two countries can be. This means both countries will have to work hard to overcome the rivalry and suspicion that readily flourish even when neighbours do share common ground. The relationship can never be taken for granted.

But that is just what Canberra has been doing for the last 15 years. The government says the relationship “has never been better”. This is patently untrue. The formal meetings and consultative forums might have multiplied, but successive governments have avoided real policy substance in favour of routine exchanges of well-known views on well-worn topics. There is no evidence of genuine personal engagement between leaders. Otherwise how could Australian ministers possibly have announced the US marine deployments to Darwin or the suspension of live-cattle exports without having first talked to their counterparts in Jakarta?

In reality, Canberra deals with Jakarta only when it must. Sometimes there is valuable co-operation on important questions – as there was on terrorism after the Bali bombings. More often, though, our diplomacy degenerates into a series of edgy and fractious transactions in which, at best, Australian demands aimed at deflecting domestic political pressure over issues like people smuggling, live-cattle exports and tourists in trouble are met by Indonesia’s resentful acquiescence. The relationship is dominated by our demands on Indonesia. How long has it been since Australia did something for them? Is there indeed anything Indonesia wants that we are in a position to help with? Does that tell us something?

Compare this with the sense of possibility and opportunity that characterised the relationship in Paul Keating’s time, both as treasurer and prime minister. Keating tried to build the kind of partnership that could harness Indonesia’s potential as a strategic and diplomatic partner. But since the mid 1990s, events have conspired to push Indonesia back to the margins of our international outlook. The 1997 East Asian financial crisis persuaded a whole generation of politicians that Indonesia and other so-called tiger economies need not be taken seriously. The fall of Suharto made Keating’s careful cultivation of him seem ill advised, and when violence overtook East Timor after the ballot for independence in August 1999, feelings on both sides ran high. In Australia, anger at the actions of Indonesia’s military quickly turned to hostility towards the whole country. Indonesians saw Australia’s leading role in helping East Timor as a deliberate attempt to embarrass their country and win a strategic advantage when they were struggling economically and politically. Many Indonesians now deplore the violence in East Timor and welcome its independence, but nevertheless they resent Australia’s role in the crisis, and regard us still with unease and suspicion. Australia claims the credit for having “liberated” East Timor, when it was Indonesia’s President BJ Habibie who took both the decisions and the risks.

Since then, the most vibrant part of the relationship with Indonesia has been Australia’s aid program. Over the past decade it has grown dramatically. In 2003 it was worth $120 million a year. Today Australia gives over half a billion. This has become a substitute for serious political and diplomatic engagement, but aid will not help to build the relationship with Indonesia we need. Most aid money is spent on projects supposed to foster economic growth, but even advocates agree there is little evidence that aid actually promotes growth. So what is the point? The answer may have as much to do with psychology as with policy. Australians like to think that Indonesia needs our help to succeed, and that Indonesians will be grateful to us when this happens. These are delusions. Australian aid makes negligible difference to Indonesia’s economic growth, and it will earn Australians no lasting gratitude. No one likes receiving charity because giving is, among other things, an expression of power – especially between states.

Meanwhile, Indonesia has become a vigorous democracy. Yet Australians still think of the country as it was under Suharto, and pay it less attention than when it was under his rule, or indeed at any time since Indonesia’s foundation. The extraordinary collapse in the study of the Indonesian language in schools and universities shows how our engagement has slumped just as the country itself has become more interesting, more accessible and more important.

This means that Australia has missed a great opportunity. In particular, it has wasted overtures made by Indonesia’s first elected president, Abdurrahman Wahid (Gus Dur), who knew Australia well and was willing to foster better links during his 1999–2001 term. Most egregiously, Australia has misspent the time current president Susilo Bambang Yudhoyono has been at the helm. No Indonesian leader has ever offered such chances to build a new relationship with Jakarta, but they have been squandered. SBY’s ten-year term ends next year, and the race to replace him has begun. Much depends on its outcome. Figures from the Suharto era still dominate politics, and a new generation of politicians is only now beginning to challenge them. None of the older generation offers any promise for Australia’s links with Indonesia, and one of the frontrunners, Prabowo Subianto, would pose a real problem, given his authoritarian tendencies and record of human-rights abuses during his time leading Indonesia’s special forces.

Even if the presidency passes to one of the new-generation candidates, like Jakarta’s governor, Joko Widodo, the relationship is going to be very hard to manage. SBY himself gave Australia the clearest possible warning of the challenges in a remarkably candid and sombre speech to the federal parliament in March 2010. “We should not be complacent,” SBY said. “The worst step we can take is to take this partnership for granted.” He spoke of the misperceptions that Indonesians and Australians have of one another: “There are Australians who still see Indonesia as an authoritarian country, as a military dictatorship, as a hotbed of Islamic extremism or even as an expansionist power.”

Rarely, if ever, has a visiting leader spoken so frankly, or delivered a message so important, and yet we have completely ignored it.

In Indonesia, he said, “There are people who remain afflicted with Australiaphobia – those who believe that the notion of White Australia still persists, that Australia harbours ill intention toward Indonesia and is either sympathetic to or supports separatist elements in our country.”

SBY also gave a blunt reminder of why separatism is such a neuralgic issue:

"Indonesians are proud people who cherish our national unity and territorial integrity above all else. Our nationalism is all about forging harmony and unity among our many ethnic and religious groups. That is why the success of peace and reconciliation in Aceh and Papua is not trivial but a matter of national survival for us Indonesians. We would like Australians to understand and appreciate that."

He went on to describe with startling honesty the problems that mutual misperceptions can cause.

"There were periods when we were burdened by mistrust and suspicion at both ends. There were times when it felt like we were just reacting to events and were in a state of drift. There were moments when we felt as if our worlds were just too far apart. During the East Timor crisis in the late 1990s our relations hit an all-time low."

Rarely, if ever, has a visiting leader spoken so frankly, or delivered a message so important, and yet we have completely ignored it. SBY was not trying to provoke us. He wanted to warn us that Indonesians do not trust Australia because they think it supports separatism, which threatens their country. In particular, he was warning us that West Papua is a source of trouble. Deep-seated separatism there meets an often brutal response from Jakarta, and there is a real risk that some act of brutality, especially if caught on video, will cause outrage in Australia, forcing Canberra to a strong reaction, which in turn would anger Jakarta. The consequences can be gauged from the way Australia’s handling of a group of West Papuan refugees in 2006 became a diplomatic fracas in which Jakarta recalled its ambassador for the first and only time. Anything Australia did in response to such an outrage would be seen by most Indonesians as encouraging Papuan separatism, and as confirming that Australia’s real ambition is to strengthen itself in the eastern part of the archipelago at their expense – as they believe Australia set out to do over East Timor in 1999. It is hard to know where this could lead, but it would be unwise to assume that on either side heads would be cool enough to prevent lasting ill will or even enmity. Many would say that this is a price Australia should be willing to pay to uphold its values and protect West Papuans’ human rights. But those who say we should ignore the diplomatic consequences perhaps do not realise how much is at stake.

The Howard government had this kind of problem in mind when it signed the Lombok Treaty in 2006. This document was intended to provide a new basis for ties with Jakarta. Article 3 of the treaty commits both governments not to support any action that threatens the other’s territorial integrity, and to forbid anyone on their territory from “supporting or encouraging” such activity. So Canberra has given a solemn undertaking not to allow anyone in Australia to encourage Papuan separatism. This is a promise Canberra has neither the intention nor the ability to keep, and our bad faith will only exacerbate Jakarta’s anger when it is put to the test, as it most probably will be. One way to respond to SBY’s candid warning is to do more to make unambiguously clear Australia’s support for Indonesian sovereignty over West Papua. That could not happen without a serious debate here in Australia, but it is a debate we have to have, and better to have it now rather than during a crisis. Australians have real concerns about West Papua, including the legitimacy of its original incorporation into Indonesia, the impact of transmigration from elsewhere in Indonesia, and the conduct of the police and military. These concerns need to be set against the growing importance of good relations with Indonesia, the chances of our attitude making much difference to the situation, and the deeper question of whether independence for West Papua would in fact be better for its people.

Where does all this leave our thinking about Indonesia as a potential military threat? The possibility of war between the two countries has done much to shape Australia’s views on Indonesia, but fire has only been exchanged during Sukarno’s shadow war of confrontation (Konfrontasi) in the early 1960s, when Australia helped to resist Jakarta’s armed opposition to the establishment of Malaysia. One reason peace has otherwise been maintained is that the two countries’ militaries are curiously asymmetrical. Indonesia’s army has always been big, but it has been designed for the purposes of internal security, not for fighting foreign wars. More importantly, its weak air and naval forces have meant it has never been able to project its land forces beyond the archipelago. Conversely, Australia has much stronger air and naval forces than Indonesia but a smaller and weaker army. It could project land forces onto Indonesian territory, but these could not achieve anything once they got ashore. Nor could the ADF’s modest long-range strike forces do enough damage to really worry Jakarta. Hence Indonesia has never posed a serious threat to Australia, and Australia has never posed much of a threat to it.

This could change if Indonesia’s military posture shifts. Indonesia is the world’s biggest archipelago, so one would naturally expect it to be a major maritime power. Indonesia’s growing economy will allow it to spend more on its armed forces, especially on sophisticated aircraft, ships and submarines, and it may feel compelled to do so as Asia’s wider strategic environment changes. In May, SBY took the unusual step of saying that Indonesia would in future need armed forces superior to those of its neighbours, including Australia. One can see why he said this. For the past 40 years, Indonesia, like the rest of Asia, has enjoyed the luxury of living under the protection of US maritime primacy. Now US primacy is being challenged, which makes Indonesia’s strategic future much less clear. If strategic, and especially maritime, rivalries escalate over the next few decades, Indonesia will no longer be able to take its external security for granted, and there will be good reason to build a larger navy and air force. Indonesia is indeed already investing in larger and more advanced air and naval platforms, though it would take many years of much more concentrated effort before it became a major maritime power. Nonetheless, Australia would be wise to expect that Indonesia will make that effort.

Should Australia respond? Even if the US remains a major military power in Asia, which is not certain, it might not always support Australia, any more than it has in the past. Fifty years ago the US would not back Australia’s opposition to Jakarta’s plans to take over West Papua for fear of pushing Indonesia into China’s arms. It would face similar choices today. The US already values Jakarta’s support in Asia, and Indonesia’s importance to the US will grow as its – and China’s – power does. No one should be surprised if the US increasingly sees its interests in Indonesia as different from Australia’s, and puts its interests first.

So Indonesia will become a more serious potential military threat to Australia. It is only half the story, however, and not the more important half. The same trends mean that Indonesia will become a potentially vital ally to Australia. Its strategic weight will allow Indonesia to become a major maritime power with the capacity to protect its own maritime approaches from hostile intrusions, and in doing so protect Australia’s as well. Australian defence policy has long identified the Indonesian archipelago being in friendly hands as one of Australia’s enduring strategic interests. Even before World War Two, what was called the Malay Barrier was already seen as Australia’s first line of defence, including the key British naval base at Singapore. This is still true today. If the stabilising influence of uncontested US primacy wanes, Indonesia’s help and strength will become more important. Indeed, if in future decades the US withdraws from Asia, as it may, Australia could have no one else to turn to.
Fortunately, in purely military terms, Indonesia’s value as a friend will be greater than its threat as an enemy, because at sea defence is much easier than attack. That means if Australia invests wisely in new forces, it would find it relatively easy to defend the country against an attack by an Indonesia with bolstered sea and air forces. Those defence forces would also curtail any intrusion into Indonesia, and towards Australia, by a major power such as China.

None of this is going to happen soon, but things can change fast – faster than Australia might be able to change its policy settings in anticipation. Defence capabilities take decades to build, so if these trends have implications for the kinds of forces Australia might need, the decisions have to be taken now. Equally, our relationship with Indonesia cannot be turned around overnight. If Indonesia’s strength is to enhance rather than undermine Australia’s security, we will need to start thinking now about how to make that happen.

This is what Paul Keating had in mind when he tried to create a strategic alliance with Indonesia by signing the ‘Agreement on Maintaining Security’ in 1995. It didn’t survive the East Timor crisis, because ultimately neither country was ready to view the other as an ally, and we are further still from that position today. Geography, however, offers promise. Any external threat to Indonesia would pose a major threat to Australia, too, and vice versa. This makes Indonesia a much more natural ally than Japan, for example. How sure are we that we would always want to go to Japan’s aid if it was attacked? How sure are we that they would come to ours? Japan’s values might be closer to ours than Indonesia’s, but its strategic interests are not.

This alignment of basic interests with Indonesia gives us something to work on, but it does not mean an alliance is there for the asking. SBY’s warnings show Australia has a lot to do to make the relationship work well enough for this to become possible. Whether we can build a co-operative alliance with Indonesia as its power grows will depend more than anything else on whether we insist that the terms of the relationship be set by us, in accordance with our values. In the nearly 70 years of its existence, Indonesia has never shown any aggression towards Australia, nor has it tried to intervene in Australia’s internal affairs or in our conduct towards other neighbours.

The times of tension between the two states have all been driven by Australia’s concerns about Indonesian conduct – over West Papua and Malaya in the 1960s, over East Timor from the 1970s to the late 1990s, and over Papua again today. In each case Australia has been responding to Indonesia’s actions, either internal or against its neighbours. This is instructive. It does not mean we have been in the wrong over these issues, but it does go to the heart of the way we think about foreign policy, and the way we see our position in Asia. It means rethinking the balance between interests and values, or more accurately, the way we weigh some values against others.

As power shifts in Asia, some hard choices will have to be made. For example, Australia will have to weigh the value of human rights in West Papua against the value of peaceful and co-operative relations with Indonesia. We are apt to be shocked by the suggestion that we should make such choices, but that is only because Australia has become used to seeing itself as stronger than Indonesia. As our neighbour grows stronger than us, and more important to us, these choices will become more pressing. In the Asian century, Australia not only needs a new kind of relationship with Indonesia, but a new way of thinking about foreign policy.

Hugh White

Hugh White is a professor of strategic studies at the Strategic and Defence Studies Centre, Australian National University.