US Rapprochement with Indonesia: From Problem State to Partner — A Response

Much has been made about the positive state of US-Indonesia ties. The election of Barack Obama as US President in 2008 and the promulgation of the Comprehensive Partnership Agreement (CPA) has ushered in a new chapter in relations between the world's second and third largest democracies. Historical impediments are slowly being removed and political prejudices are gradually dissolving, laying the foundation for a stronger cooperative framework.

However, nearly half-way into Obama's presidential tenure, and a year past President Susilo Bambang Yudhoyono's resounding reelection, the enthusiasm towards the bilateral relationship built up since Obama's election seems to have waned. Irrespective of progress on the political front, perceptions of the bilateral relationship has not grown with equal zeal. As explained further in this paper, the multiple cancellations of President Obama's visit to Indonesia, and the decline of the US as a primary destination of study for Indonesian students show that Indonesia-US ties are still a long way from being the envisioned partnership. Despite the optimism generated, US-Indonesia ties are proving yet again to be full of potential, without ever being fully realized.

The preceding paper by Dr Murphy has accurately highlighted the developments, undercurrents and potentials in the bilateral relationship, and there is little, if any, that can be faulted from the facts and conclusions presented. The political enthusiasm of re-engagement is evident in the flurry of diplomatic activity over the past year to flesh out the CPA. Yet while the CPA and other diplomatic gestures are significant, they cannot fully explain the true nature of the relationship.

The Politics of Economy

While the CPA helps to promote bilateral relations, it is worth asking if the US-Indonesia relationship would be worse off without it? Ultimately the answer to this question can be found by comparing the CPA with other similar declarations of political cooperation signed by Jakarta. For example, technically, how unique is the CPA compared to the Strategic Partnership signed by Indonesia and China in 2005?

A comparative exercise helps demonstrate the difference in approach that may impact Indonesian perceptions towards the US and China. It also helps flesh out trends that go beyond declarations and diplomatic niceties. A comparative exercise, then, indicates that while China approaches agreements as a political venture, the United States seems focused on concrete deliverables.

In her paper, Ann Marie Murphy quotes US Commerce Secretary Gary Locke as saying that "economic nationalism, regulatory uncertainty, unresolved investment disputes and lack of transparency gives pause to American companies seeking to do business in Indonesia". Locke is undoubtedly correct. And it cannot be doubted that Indonesia has a long way to go in improving its image as "one of the world's most corrupt countries". Yet Indonesians wonder why US companies dive in regardless of questionable political circumstances into a country like China, the world's largest non-democratic state.

Statistics from the Indonesian Ministry of Trade reveal that in the first five months of this year US-Indonesia trade increased by 34.1 per cent compared to the same period in 2009.¹ Most notably though, trade saw a significant slump from $20.2 billion in 2008 to $17.9 billion in 2009, largely as a result of the economic crisis in the United States. But this increase in the volume of two-way trade belies the lethargy over the previous five years: between 2005 and 2009, US-Indonesia bilateral trade grew by a modest 8.8 per cent, far too small for the third and fourth most populous nations in the world.

On the surface, US investment in Indonesia has demonstrated an upward trend: in 2009, the Indonesian Investment Coordinating Board ranked the US in seventh place behind countries such as Singapore, the Netherlands, Japan, South Korea and the Seychelles.² Nevertheless when put into context, these numbers tell a different story. The $171.5 million in US investments accounted for just 1.6 per cent of total foreign direct investment (FDI) in Indonesia in 2009. It is far too modest a figure coming from a...