Making Sense of Indonesia’s Economic Diplomacy

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Making Sense of Indonesia’s Economic Diplomacy

Looking back at the country’s at-time contradictory approach to multilateral trade governance.

Making Sense of Indonesia’s Economic Diplomacy
Credit: Kepresidenan Indonesia

During the second term of his presidency, Indonesian President Joko “Jokowi” Widodo has instructed the Ministry of Foreign Affairs to prioritize the economic sector in its diplomacy agenda over the next five years. Jokowi envisages that economic diplomacy will be harnessed to strengthen economic cooperation at the bilateral, regional, and international levels.

Two reasons underlie the decision to push economic diplomacy as a priority. First, the condition of global economic uncertainty accentuated by the ongoing U.S.-China trade war. Second, Jokowi’s domestic policy agenda from the start has focused on reforming the bureaucracy. Official studies have shown that Indonesia’s economic diplomacy outreach has indeed been successful, particularly in terms of opening up new markets and attracting inward foreign investment.

Yet many observers argue that Jokowi’s economy-centric foreign policy agenda has to some extent reduced Indonesia’s activism in regional and global platforms. In contrast to the economic diplomacy approach favored by Jokowi, under Susilo Bambang Yudhoyono’s presidency from 2004 until 2014, foreign policy was directed more toward greater engagement by Jakarta in a wide variety of global issues ranging from democracy and climate change to trade. Under Yudhoyono’s leadership, a strong sense prevailed that Indonesia was keen to play a more significant role at the international level.

However, Yudhoyono’s foreign policy aim to play an enhanced role at the global level was to some extent marked by ambivalence regarding Indonesia’s commitments in this arena. A case in point for such ambivalence is Jakarta’s role in the WTO, particularly related to the Doha Development Round.

With a vision to catapult Indonesia’s role in the Doha Development Round, Yudhoyono’s government tried to maximize the impact it could have by positioning itself a key player, seen as capable of reviving the Doha negotiations. Indonesia’s support for the return of the Doha talks became a key indicator of the success of its multilateral diplomacy efforts within the framework of the WTO.

However, playing a central global role required Indonesia to appear consistent in its rhetoric and action by liberalizing its domestic markets. Despite its talk of pro-market liberalization, Indonesia’s domestic trade policy in the Yudhoyono era showed inconsistency. For the most part of his tenure, Indonesia appeared to head back toward protectionism.

This could be seen particularly clearly during Yudhoyono’s second term in office. The Indonesian government had begun banning exports of unprocessed mining materials in order to boost local industries and create new jobs. As a result, the main factor that hampered Indonesia’s role as a supporter of liberalization on the global stage was the desire of the Indonesian government to strengthen its domestic base, rather than harmonize domestic trade policy fully with WTO rules.

This rhetoric-performance gap can be attributed to Indonesia’s careful balancing act – between its pro-liberalization agenda, so that Indonesia remained trusted by the international community as a voice for developing countries that supported the strengthening of global institutions, and between its effort to accommodate demands for protectionism from domestic economic stakeholders.

During Jokowi’s first term as president, from 2014-2019, there were attempts to reduce the noted rhetoric-performance gap through his economic policies, which focused on a deregulation program. The program is evident in the issuance of 16 economic packages to ensure that Indonesia’s economic and trade policies were closer in line with the broader liberalization agenda.

Through these packages, Jokowi’s government is committed to reducing regulation and simplifying bureaucratic structures in order to improve industrial competitiveness. In the last meeting between Jokowi and the director-general of the WTO – Roberto Azevedo – in April 2016, Jokowi reiterated the importance of Indonesia’s deregulation programs and its commitment to trade liberalization.

However, despite Jokowi’s attempts to synchronize Indonesia’s trade and foreign policy agendas through the implementation of integrated economic diplomacy, Indonesia’s engagement in the WTO continues to be characterized predominantly by its rhetoric, around enhancing trade liberalization.

This is because Indonesia’s ambivalent role at the Doha Development Round does not only stem from domestic demands, but also due to its ambivalent position in its engagement with multilateral trade governance. Since the start of Doha Development Round in the early 2000s, Indonesia has taken two seemingly conflicting roles.

First, Indonesia is the co-founder of G-33 group: a coalition of countries in the WTO that seeks to fight for the national interests of its members in agriculture by submitting Special Products (SP) and Special Safeguard Mechanism (SSM) proposals. The group is defensive in regard to the liberalization agenda in the Doha Development Round. At the same time, Indonesia is a member of the Cairns Group of 20 agricultural-exporting nations that aims to liberalize global trade in agriculture products. Its members aim to remove export subsidies and domestic support, which distort trade for agricultural products.

Indonesia’s seemingly contradictory position in the Doha Development Round reflects its domestic economic structure as both an exporter and importer nation. Indonesia needs to liberalize the global market for its products, such as palm oil; but at the same time, strives to protect its vulnerable farmers.

This ambivalent role has created a different, somewhat balanced voice projected by Indonesia in the Doha Development Round: it voices the need to protect farmers in developing countries, while at the same time is a member of a group that advocates the removal of domestic help that distorts trade. Indonesian policymakers appearing ready to persist with this dualism of Indonesia’s position in the Doha Round, which could undermine Indonesia’s image as a rising middle power with greater responsibility.

Indonesia’s economic diplomacy, particularly seen through the Doha Development Round, should continue to address these two key issues. Jakarta must maintain a balance between its foreign policy commitments and outreach, and its trade domestic policy and relative negotiation positions. To do so will enable Jakarta to maintain a strong voice and predicated position in multilateral trade governance.

Moch Faisal Karim is Assistant Professor in the Department of International Relations, at Jakarta’s Bina Nusantara University. His current research focuses on Indonesian foreign policy, digital economy, neo-liberalism in Indonesia, and the role of emerging powers in global governance.

This article is a shorter-form version of a research paper published in The Pacific Review, a journal focused on the international interactions of the countries of the Pacific Basin. The Pacific Review has a particular interest in how the region is conceived of and organized, and covers transnational political, security, military, economic, and cultural exchanges in seeking greater understanding of the region.