Can the U.S. Bring Indonesia onto Its Team?
Indonesia, an archipelago state situated at the intersection of the Pacific and Indian Oceans, holds significant geopolitical importance. Although the United States is building a military bloc against China in the region, including major countries like Japan, South Korea, Taiwan, the Philippines, and Singapore, Indonesia does not appear interested in joining. Whichever side Indonesia decides to align with will gain a substantial strategic advantage, but Indonesia is advocating for non-alignment, as it did during the Cold War. But Many expect escalating tensions might force it to choose a side, especially given China’s proximity. In this situation, the United States certainly does not want Indonesia to align with China, but its relationship with Indonesia is not as strong as it is with Malaysia and Singapore. The United States has not put as much effort into engaging Indonesia as it has with Malaysia or Singapore. Given Indonesia’s strong demand for investment and its growing reluctance to accept additional Chinese funding, this could be an opportune moment for the United States to strengthen its relationship with Indonesia.
Indonesia’s rapid population growth and significant infrastructure developments have heightened the country’s investment needs. Recently, President Joko Widodo began working from the presidential palace in Indonesia’s ambitious new administrative capital. This modern city, being developed amidst rainforests, is set to be one of the largest investment ventures in the nation’s history. Despite being a centerpiece of Widodo’s two terms, the project has encountered delays. Announced in 2019 with a $33 billion budget, it is currently behind schedule and facing investment challenges.
The project has been marred by confusion, as expected investments have failed to materialize. Indonesian Maritime Affairs and Investment Coordinating Minister Luhut Panjaitan had estimated the total investment needed to be between $30 and $40 billion, which is a lot of money for Indonesia. In 2022, the Japanese SoftBank Group withdrew due to concerns about returns. But the President Jokowi has assured investors that the project will advance regardless of the outcome of the 2024 Indonesian presidential election, stressing that Nusantara represents a valuable investment opportunity. As of August 2023, the government had allocated only 20% of the needed funds, while investors were reluctant to cover the remaining amount due to political uncertainty and Indonesia’s track record of underinvestment in infrastructure. By November, Jokowi acknowledged that no foreign investors had yet committed funds to Nusantara.
The lack of investors in the megaproject poses a significant challenge for Prabowo once he assumes the presidency. Having promised continuity as part of his campaign platform, Prabowo has pledged to continue Widodo’s landmark projects, including Nusantara. However, the relocation project has already placed considerable strain on the economy. The need for foreign investors is urgent, and there are three potential sources to consider. One option is investment from Gulf countries. Indonesia has strengthened its ties with Islamic nations, and countries like Saudi Arabia, Qatar, and the UAE have previously made significant investments. However, as these nations are now focusing on policies to protect their own economies, the likelihood of substantial investment in Indonesia is low.
Another option is the People’s Republic of China, a major trading partner for Indonesia. Despite the ongoing South China Sea disputes, China has made significant investments in Indonesian infrastructure, including the newly inaugurated bullet train. However, with China grappling with economic challenges and growing concerns about its influence, Indonesia has responded by imposing tariffs of up to 200 percent on various Chinese goods in 2024. Additionally, Indonesia is working to restrict Chinese investment in new nickel mining and processing projects, aligning with U.S. efforts to limit Beijing’s influence on the electric vehicle supply chain.
This situation presents an opportunity for the United States. By increasing investments in Indonesia, similar to their approach in Malaysia, the U.S. could foster development and potentially integrate Indonesia into a regional bloc that includes Japan, South Korea, Taiwan, and the Philippines. Such alignment could boost investments from these countries and relief from reliance on Chinese goods, promoting growth and stability in the region.
There are still a lot of issues to resolve between Indonesia and the U.S. Public sentiment may be unfavorable due to the ongoing Gaza issue. it is certain that China will closely monitor the situation and attempt to align Indonesia with its interests, which could challenge the U.S.. But now, For Indonesia, cooperation with the U.S. seems to be a great option for advancing its infrastructure projects and boosting the economy.
