Indonesia plays a key energy and economic role. Together with its demographic and geopolitical weight, it has consolidated this country as one of the main Asian markets and tigers. With around 230 million people, it is estimated that by 2030 Indonesia will become one of the world's leading economies.
The Republic of Indonesia is becoming increasingly influential in the Asia-Pacific region. Its strategic relevance in energy and economic terms, combined with its demographic and geopolitical weight, has consolidated this country as one of the main Asian markets and tigers. Indonesia is today the largest Islamic democracy in the world and the largest economy in Southeast Asia.
According to McKinsey Co. consulting firm, Indonesia could surpass Germany and the United Kingdom by 2030, becoming the seventh largest economy in the world. It could also add 90 million people to its "consumer class" in that time, the largest number after China and India.
During the early years of the 16th century, European travelers (Spanish, Portuguese, British and Dutch) began to explore the archipelago. The Portuguese were the first to arrive in Indonesia in 1512. However, the Netherlands, through the Dutch East India Company, established a colony in Java.
At the beginning of the 20th century, the birth of the current Indonesian state began to take shape, where the figure of Sukarno is inextricably linked. Sukarno not only headed the Indonesian Nationalist Party since 1927, but was also the visible head of anti-imperialism. This prominent role caused him to be exiled to Sumatra in 1938.
Image 1: Sukarno. Retrieved from: https://thepoliticalroom.com/indonesia-un-nuevo-tigre-asiatico/
During World War II (1939-1945), most Indonesians happily welcomed the Japanese as liberators from their Dutch colonizers. Sentiment changed, however, when Indonesians noticed that they were expected to endure more hardship for the Japanese war effort.
Unlike the Dutch, the Japanese educated, trained and armed many young Indonesians and gave political voice to their nationalist leaders. After WWII, Sukarno returned from exile and together with Muhammad Hatta signed the proclamation of independence in August 1945.
This independence was not recognized by the Netherlands and a national revolution began from that year until 1949. After this bloody war, Indonesia finally achieved international recognition as a sovereign and independent state.
Before gaining independence, Sukarno spread a new doctrine called pancasila in a speech. Pancasila was articulated around five principles: belief in one true God, deference to a just and civilized humanity, unity of Indonesia, promotion of deliberative democracy based on the inner wisdom of the people's representatives, and social justice for the people of Indonesia.
Pancasila has remained the ideology of the state throughout the 20th century to the present day. Moreover, this doctrine has allowed the fractured archipelago to cohere and forge a dissident voice with the bipolar system during the Cold War. It is worth mentioning that, in 1955, Indonesia was the host and driving force behind the Bandung conference, which established the Non-Aligned Movement.
Post-colonial Indonesia was characterized by high political instability, to which Sukarno tried to respond by establishing a fragile "guided democracy" in 1959. In addition, the ideological division between the Indonesian Communist Party (PKI) and the Indonesian Armed Forces led to a rarefied athmosphere.
La democracia guiada de Sukarno había generado malestar entre las potencias occidentales y algunos sectores del Ejército, fruto de esta inestabilidad, en 1966, Suharto logró obtener por la vía de la fuerza toda la autoridad del país.
During the thirty years that Suharto governed, measures were taken to liberalize the economy, which would allow Indonesia to begin an economic take-off that would last for decades. This economic progress came at the cost of a mandate marred by scandalous corruption, an exercise accustomed to the use of violence, and a territorial policy of integration and centralization that brought about several clashes with secessionist movements in New Guinea and East Timor.
Map 1: Ethnocultural composition of Indonesia. Retrieved from: https://elordenmundial.com/indonesia-una-potencia-islamica-dormida-en-el-sudeste-asiatico/
This first Indonesian economic take-off was cut short by the Southeast Asian crisis. The devaluation of the Thai currency (batt) in 1997, exacerbated by the application of IMF austerity prescriptions, was to wreak enormous havoc on the Indonesian economy. GDP contracted by 14%, poverty increased from 20 to 80 million people in one year and the cycle of near 7% GDP growth achieved in the preceding years experienced a drastic decline.
Figure 1: Annual GDP growth in Indonesia. Retrieved from: http://i.investopedia.com/u53487/indonesia_3.jpg
In 1998, Suharto was forced out of power due to protests and was replaced by his vice president Bacharuddin Jusuf Habibie. Habibie turned to economic technocrats to deal with the financial crisis.
Habibie's cabinet measures were to prove successful. Beginning in mid-1998 and continuing throughout 1999, inflation declined and non-oil exports revived, bringing about a gradual improvement in Indonesia's economy.
In recent years, Indonesia underwent a major structural change with the holding of the first democratic elections in 2004. During these years, Susilo Bambang Yudhoyono, the candidate of the Democratic Party (SBY) became the first democratically elected president.
During SBY's term, the production of coal, palm oil and sugars increased significantly, boosting the Indonesian economy. However, this liberalization had limited results on issues crucial to fiscal sustainability and was limited by the country's endemic corruption.
Internationally, the SBY took advantage of Indonesia's position as an enclave adjacent to the busy Indo-Pacific maritime trade routes, and established strategic partnerships with China, India and the U.S. In addition, it would maintain a non-interference line with the policy of "a thousand friends and zero enemies" and a favorable position to boost its foreign trade and investments.
In 2014, the outsider Joko Widodo, known as Jokowi, came to power, promising a profound transformation of the national political chessboard. One of Jokowi's priorities was to revive the country's economic growth to 7% of GDP by facilitating investment and entrepreneurship, through attracting foreign capital and technology industries.
Jokowi has been unable to prevent the slowdown in growth rates and reduce the country's infrastructure gap. Today, 80% of Indonesia's economic growth is generated in the western part of the country, namely on the island of Java.
President Jokowi shortly after winning his second term in 2019 announced the relocation of the capital from present-day Jakarta in Java to Kalimatan on the island of Borneo. The aim is partly to relieve pressure on congested Jakarta and to symbolically centralize the government, which is seen as too Java-centric. Due to the current SARS-CoV-2 pandemic, Kalimatan is expected to be the capital in 2024.
SARS-CoV-2, contracted Indonesia's economy, by 2% year-on-year in 2020 and, the government has attempted to balance the economy and public health in the midst of the pandemic. Although the economy appears to be over the worst of the crisis, its future trajectory remains unclear.
On October 14, 2021, the Indonesian government decided to reopen Bali to international visitors. Tourism to the island is vital to plans to invite more foreign investors and host the G20 summit in 2022. Indonesia intends to use the global event to showcase its ability to control the pandemic and contribute to international agendas on pandemic recovery, climate change and digitalization.
However, investment growth this year has not returned to its pre-pandemic level. Household consumption, the largest component of GDP, also remains weak, despite a huge fiscal stimulus, equivalent to about $51.7 billion, due to bureaucracy and tight government controls on different local authorities.
Added to this, there has been a rise in religious radicalism in recent years. A survey of 4,200 students by Alvara Research Consulting in 2017 revealed that one in five students support the formation of a caliphate to change the Indonesian system of government.
In foreign policy, Jokowi has shifted from the "thousand friends and zero enemies" line to maritime dominance, specifically in the fishing industry and coastal protection, to prevent intrusions of foreign vessels on its shores.
It was recently reported in the Israeli press that Israel is in contacts to normalize relations with Indonesia. A senior Israeli Foreign Ministry official confirmed that contacts are taking place behind the scenes, facilitated by the United States.
Both Israel and the United States have expressed their desire for the normalization agreements to be extended to include other Arab and Muslim nations. It should not be forgotten that Indonesia has the largest Muslim population in the world, with 231 million inhabitants.
Recommended bibliography:
2020. Indonesia Energy Sector Assessement, strategy and road map. [ebook] Asian Development Bank. Available at: https://www.adb.org/sites/default/files/institutional-document/666741/indonesia-energy-asr-update.pdf
Rajah, R., 2018. Indonesia's economy: Between growth and stability. [online] Lowyinstitute.org. Available at: https://www.lowyinstitute.org/publications/indonesia-economy-between-growth-and-stability
Original article published in summer 2020, at ThePoliticalRoom. For further information: https://thepoliticalroom.com/indonesia-un-nuevo-tigre-asiatico/