Yudhoyono.
During this century, all eyes have focused on Asia’s two giants, China and India. But there is another juggernaut in the making. It’s Indonesia. It’s the world’s fourth biggest country by population — a staggering 250 million and growing. It is also predominantly Muslim. Over the past several years, Indonesia’s economy has been racing along with a growth rate in the 6- to 7-percent GDP range. That’s a bit slower than China or India, but still impressive compared to developed and emerging economies. Its GDP is now getting close to $1 trillion. Indonesia is also a member of the G20, the world’s most exclusive economic club.
This is reason alone for Canada to ramp up its engagement with the Asia-Pacific’s Muslim newest juggernaut, but there are other reasons that extend to our mounting security interests in the Asia-Pacific and our desire to advance democracy and pluralism in the world.
Much of Indonesia’s growth now comes from its booming industrial sector. According to one recent study, industry now accounts for the largest share of Indonesia’s GDP (47 percent). That sector is dominated by manufacturing as Indonesia now competes with China with its comparatively lower wage structure. Indonesia’s natural-resource sector, which is concentrated in mining, accounts for 12 percent of GDP although this sector is still the country’s largest employer. The country has also become an important hub for tourism, particularly the lush tropical island of Bali, which is something of a Shangri-La for Australian tourists who take advantage of its low-cost hotels and resorts where they can enjoy some of the finest beaches in the world. The tourist sector alone contributes some 14 percent to Indonesia’s GDP.
PriceWaterhouseCoopers, in a recent analysis of Indonesia’s economic prospects, notes the country has one of Asia’s fastest-growing middle classes, projected to reach 90 million by 2030. Recent reforms to its industrial and financial sectors have contributed to its impressive economic performance. So, too, have a series of reforms, which have opened up the political system to greater public scrutiny, transparency and accountability.
For many years, the country laboured under military rule and the increasingly heavy-handed and corrupt ways of General Suharto, who governed the country from 1967 until 1998. Following massive public unrest after the Asian financial crisis that sent Indonesia’s economy into a tailspin, he was forced out of office. One could almost say that the “Arab Spring,” which engulfed the Arab world 15 years later, had its precursor — at least in terms of the Muslim world — in Indonesia and Suharto’s overthrow. However, unlike the Arab world today, Indonesia’s political and economic transformation has been generally successful.
President B.J. Habibie, who succeeded Suharto, moved quickly to do what the International Monetary Fund had asked Indonesia to do in terms of economic stabilization and financial reforms. He also responded positively to donor calls to liberalize the political system by holding elections in local, provincial and national parliaments in 1999 and by allowing for greater freedom of speech and association.
Indonesia’s military also returned to its barracks. Its soldiers can’t vote in order to prevent them from being manipulated by unscrupulous generals and politicians.
But all has not been smooth sailing since, by any stretch of the imagination. Habibie’s successors confronted a series of domestic crises as mounting inter-ethnic and religious strife wracked the nation and separatist movements, notably in Aceh and Irian Jaya, gathered momentum while East Timor successfully fought for its independence in 2002. Recent upticks in economic nationalism and a slight weakening in the economy and investor confidence (the World Bank projects a growth rate at 5.3 percent in its latest report) are perhaps more related to political posturing and poor policy-making exacerbated by the lead-up to the 2014 legislative and presidential elections. (President Susilo Bambang Yudhoyono ends his second and final term this year.)
However, what is remarkable is that these events have not derailed Indonesia’s steady internal path towards democratization and growth. And economically, the deck is stacked in Indonesia’s favour with its relatively young population and rapidly growing levels of urbanization.
One of Indonesia’s biggest internal challenges today is religious radicalization and the growing influence of vigilante Islamic groups in its big cities. As Khairil Azhar of Paramadina Foundation in Jakarta points out, Indonesia has had a long history of religious “puritanism” dating back to the 18th Century and groups that are similar to the Wahhabi radical Islamic movement on the Arabian Peninsula. In addition to the constant threat of terrorism that comes from radical Islamist extremists, the country also has to contend with growing Islamization in ordinary daily life. Islamists are targeting Indonesia’s educational system just as the government is expanding access to education across the country and making real progress to achieve its Millennium Development Goal targets for basic education, including gender parity and literacy.
The paradox of Indonesia’s political scene today is that Muslim-based parties, which adhere in some form to Islamic religious tenets, are actually losing public support as measured by their performance in recent elections at the civic or legislative level. In the 2009 election, they only reaped 26 percent of the popular vote compared to 44 percent in the country’s first free election shortly after Indonesia gained its independence. However, the country’s mainstream political parties are increasingly wrapping themselves in Islamist garb by, for example, supporting Sharia law in basic legislation.
Canada is a major investor in Indonesia. Canadian foreign direct investment, much of it concentrated in the natural resource sector, now exceeds $3.2 billion. Two-way trade amounts to roughly $3 billion annually. A recent survey of business attitudes by the Asia-Pacific Foundation finds Canadian companies rank Indonesia as the best place to do business in the region, alongside Singapore.
Indonesians have not forgotten that Canada for many years was — and continues to be — an important source of foreign aid to the country, which has bolstered economic growth and political stability. Our official development assistance (ODA) has helped alleviate the significant disparities in wealth and income in a country that is fragmented and divided by thousands of miles of ocean. Much of our current aid is now directed to helping one of the poorest regions, the island of Sulawesi, the country’s third most populous.
There is still unrealized economic potential to tap in our relationship with Indonesia. However, the need for strategy and engaged leadership is critical, including the involvement of key groups such as the Canadian Chamber of Commerce and the Canadian Council of Chief Executives to promote stronger business ties between the two countries. Canada cannot afford to continue to fall behind, as it has in other Asian markets, by yielding ground to its competitors and arriving late — if not last — to the game. Government and business must move quickly to seize the potential in this key emerging market. Although Canada and Indonesia are not about to initiate free trade talks any time soon, they have been discussing a Foreign Investment Promotion and Protections (FIPA) agreement that would promote and protect investment within a legal framework.
As a champion of human rights, pluralism and democracy, Canada has much to contribute to Indonesia’s own political development and consolidation of democracy. Indonesia is also a key ally in the area of counter-terrorism co-operation, where our authorities continue to work closely with their Indonesian counterparts, and in defence, through Canada’s Military Training Co-operation Program (MTCP).
To the extent that Canada wants to be a bigger and more significant player in the Southeast Asian region as a whole and in the region’s evolving security architecture, Indonesia is a sine qua non to that engagement. Indonesia’s support will be critical to Canada’s bid for membership in security councils in the region, particularly the ASEAN defence ministers meeting-plus (ADMM-Plus) which is now the key venue for strategic dialogue on defence and security issues among ASEAN and its eight dialogue partners, Australia, China, Japan, India, Republic of Korea, New Zealand, Russia and the United States.
As Canada rises to meet the demands of a rapidly changing world, Indonesia must be central to that strategy and the reshaping of our international economic and security policies and priorities.
Fen Osler Hampson is Distinguished Fellow and Director of Global Security at the Centre for International Governance Innovation (CIGI) and Chancellor’s Professor at Carleton University.
