Tuesday, July 23, 2024
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Indonesian President Joko Widodo’s visit to Australia this week, likely his last while in office, comes at a time when Indonesia and Australia confront their biggest strategic choices for decades. Through the visit, Widodo aspires to frame a bilateral relationship fit for the times and cement his legacy as a global statesman. The visit follows the success of his administration’s hosting of the G20 in 2022 and its leadership — as the Chair of ASEAN — in implementing the Regional Comprehensive Economic Partnership (RCEP) Agreement in 2023.

The ambition of both countries should be no less than to reframe the bilateral relationship into an effective global partnership. This will future-proof the relationship as the balance of economic and diplomatic heft between the two nations continues to shift rapidly in favour of Indonesia, destined by the success of Indonesia’s development trajectory to join the world’s top four economic powers.

Indonesia and Australia share vital interests in defending a free and open global economy and securing prosperity and stability in their region — all of which are being undermined by the reassertion of great-power rivalry in Asia. Governments on both sides of the Pacific have resorted to traditional security responses — unwinding economic interdependence, prioritising military deterrence as means of preventing conflict, weaponizing economic interdependence for coercive purposes and threatening military force to achieve political ends.

These dynamics risk global political and economic fragmentation, or worse, that would have a huge impact on the Southeast Asian economy, especially that of Indonesia. An early OECD estimate suggests that the impact of decoupling on ASEAN economies would be an 11 per cent drop in their incomes, wreaking regional economic and political havoc. The bottom line is that neither the political and economic bifurcation of Asia nor its dominance by a single power are acceptable outcomes for the vast majority of Asia’s states.

Against this backdrop, smaller and middle powers like Australia and Indonesia have the incentive to articulate together an alternative to the zero-sum logic of great-power geopolitical competition. Renewed commitment to an open, pluralistic and cooperative regional order will reinforce regional political stability and economic prosperity. Both countries need to be united in their commitment to safeguarding the international rules-based order and achieving global goals that address climate change and realise sustainable development.

These foundational interests supply the rationale for bringing the Australia–Indonesia relationship into a new phase, elevating the coordination of national policy strategies bilaterally and in regional and global forums to respond to heightened uncertainty caused by geopolitical tensions. Climate and technological change in the coming decades will also force massive transformation in their economies and the structure of trade and investment between Australia and Indonesia.

These structural changes are disrupting and rewiring economies all over the world, where the transition to a new international economy is being shaped by mega-trends such as decarbonisation, technology transformation, digitalisation and demographic challenges. The scale of these changes presents opportunities and challenges in both countries’ approaches to economic policy making and for realising the full potential of the Australia–Indonesia bilateral relationship.

In both countries, there is a growing gap in the alignment of high-level economic policy strategies with actual policy delivery on the ground — with a miscellany of ill-directed export embargoes and investment distortions in Indonesia, and the drift towards inward-lookingness, trade protectionism and a deteriorating foreign investment climate in Australia. Getting the strategic objectives right is the first step in closing these gaps, as was evident in 2022 when Indonesia confronted the inconsistency in its bans of palm oil exports and its G20 responsibilities.

Australia and Indonesia can deepen ties through a better integrated strategy in pursuing their common domestic and international policy priorities. The strategy can build upon the bilateral relationship’s existing foundations, including the flagship Indonesia–Australia Comprehensive Economic Partnership Agreement, RCEP and the ASEAN–Australia–New Zealand Free Trade Agreement. Indonesia seeks closer consultation in response to the Indo-Pacific Economic Framework and to leverage new plurilateral mechanisms, including initiatives that it is now taking within ASEAN and towards dialogue partners.

As the 2023 ASEAN Chair, Indonesia is seeking to reinforce arrangements with the group’s dialogue partners that will anchor ASEAN centrality as the institutional basis of regional security. President Widodo made clear in a pre-departure interview with the Australian Financial Review that the warmth of the political relationship is contingent on Australia’s understanding that its AUKUS initiative and participation in the Quad arrangement ‘must be supportive of efforts to build peace and stability in the region. [And that the] spirit must be engagement, not containment’.

The agenda for the meeting between President Widodo and Australia’s Prime Minister Anthony Albanese is ambitious. The agenda should upgrade the annual bilateral economic policy dialogues that were put in place after the last presidential visit to Australia and charge the dialogues to set out strategies for long term investment and trade cooperation in managing energy and sustainable industrial transformation. The agenda should also seek to develop a program that dramatically lifts personnel exchanges, particularly for young people, between both countries.

It should revitalise collaboration in international economic forums, identifying common actions and initiatives to shape regional and global governance reforms. This will help the region to actively shape global rule-making. And it should strengthen knowledge partnerships between universities and think tanks, including to reinforce evidence-based best practice economic policy making to guide the relationship’s trade and industrial transformation towards a sustainable carbon-neutral future. This bilateral agenda should begin to lay the foundations of a step up in the relationship that expresses both countries’ shared and equal ambitions for a partnership that makes their region and the world both more secure and more prosperous.


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