Australia and Indonesia: Knowing Me, Knowing You

Indonesia is increasingly important globally – assuming a more assertive role on the world stage commensurate with its weight – but it is especially so for Australia. The world’s fourth most populous country, third largest democracy with the world’s largest Islamic population, is also Australia’s second-nearest neighbor. It straddles critical international shipping lanes, forms a natural defensive barrier and obstacle on the main approach to Australia, and flights from many Australian destinations travel through its airspace.

Indonesia is also an increasingly important developing economy. While it suffered badly during the 1997-98 Asian financial crisis, it has managed to maintain strong growth since then, even during the latest crisis. National income is rising – GDP per capita in purchasing power parity (PPP) terms was forecast to be external page $4,380 in 2010, up almost 40 percent since 2005.

Yet somewhat surprisingly – given their geographical closeness – Australia-Indonesia relations are in a deep rut that spans the governmental, businesses and popular levels.

Government ties are the strongest, but there has been a tendency to focus relations on a narrow set of negative security issues. This is unsurprising given that Indonesia has been host to a number of deadly attacks on Australian citizens as well as the Australian embassy in Jakarta. The attacks have helped create close and successful cooperation across a broad security agenda, especially policing. However, this focus has come at the cost of developing a broader and deeper relationship.

Even the Australian foreign ministry has become preoccupied with this narrow approach. In its introduction to the Indonesia relationship it external page states: “Australia and Indonesia cooperate in practical ways on a wide range of international issues, including counter-terrorism, illegal fishing, people smuggling, avian influenza, climate change and interfaith dialogue” with all of these issues focused, to some extent, on direct or indirect threats to Australia.

While the relationship on the governmental level at least has regular ministerial ties and security cooperation (there have beenexternal page 70 ministerial visits in both directions since 2007), the business and investment relationship remains severely stunted. Even with a population of well over 200 million people, decades of generally strong GDP growth and its location right on Australia’s doorstep, Indonesia was only Australia’s external page 13th largest merchandise trading partner in 2009.

Quite staggeringly, Australia’s two-way trade with New Zealand, with less than two percent of Indonesia’s population and around one-fifth of its GDP, was external page almost double that with Indonesia. On the investment front things are similarly stalled. Australia’s total stock of investment in Indonesia of external page $3.9 billion (2008) equates to just 0.38 percent of Australia’s total stock of investment abroad, while Indonesian investment in Australia totaled a rather modest $624 million.

If government, business and investment relations require work, popular level ties need a complete overhaul. Polling in both countries suggests mutual public perceptions are far from positive. The depth of this distrust has even surprised the senior leadership. In his address to the Australian parliament earlier this year Indonesia’s President Susilo Bambang Yudhoyono external page said:

I was taken aback when I learned that in a recent Lowy Institute survey 54 percent of Australian respondents doubted that Indonesia would act responsibly in its international relations. Indeed, the most persistent problem in our relations is the persistence of age-old stereotypes—misleading, simplistic mental caricatures that depict the other side in a bad light.

external page Lowy polling in Indonesia found Indonesians to be similarly wary of Australia.

While the Indonesian president admits that the relationship needs work, the reality is that with the Indonesian leadership preoccupied with the enormous challenges of developing the world’s fourth most populous nation there is going to be little time to spare for its southern neighbor. And while many Australians may still think of themselves as the dominant player in the relationship, the tables are inevitably turning.

Within a few weeks of taking up the top office, Prime Minister Gillard announced the appointment of career diplomat Greg Moriarty as Australia’s next ambassador to Indonesia. The appointment of such a skilled operator bodes well for the relationship, but Australia will need to take the lead in rebuilding relations – and will have to bring new ideas to the table if it wants to achieve any meaningful improvements.

One area where serious work is needed is the economic relationship. In August 2007, Australia and Indonesia commenced a joint feasibility study on a free-trade agreement (FTA), which has since been completed. While this is a positive development, there is a risk it could end up being perceived as just another FTA, and the independent estimate of its impact suggests it would be relatively modest. Additionally, there appears to be a limited appetite in Jakarta for major trade liberalization after the struggle to implement the ASEAN-China FTA.

Negotiations on a comprehensive FTA should push ahead, but Australia should also look to negotiate a multi-decade vision for the economic relationship. A blueprint for this type of agreement is the external page 1983 Closer Economic Relations agreement with New Zealand where the process of economic integration is still ongoing.

Australia and Indonesia could use a similar time horizon to set out a common approach for integrating the two economies with detailed commitments made gradually over an extended time period. This type of agreement would also serve to raise the profile of the relationship in the business community, particularly if accompanied by major efforts to encourage trade missions and business exchanges.

A second area for cooperation lies in education. The Australian Labor government has committed to increase Australia’s Official Development Assistance (ODA) to 0.5 percent of gross national income (GNI) by 2015–16, up fromexternal page 0.32 percent in 2008-09. The Australian aid agency will struggle to spend this, and one area it could seek to deploy these funds is in the Indonesian education sector with a view to providing affordable, quality tertiary and vocational education to thousands of Indonesians.

These efforts would need to be accompanied by parallel efforts in Australia to encourage the study of Bahasa Indonesia and Indonesian studies. Another potentially promising area for educational cooperation is vocational training. In 2007-08 around external page 350,000 Indonesians were undertaking vocational training in Indonesia. In Australia, with less than 10 percent of the population, 1.7 million people were enrolled in public vocational education and training in 2008, suggesting enormous unmet demand in Indonesia for this type of education.

With mutual public perceptions in such a poor state, there is also a clear need to re-examine the way both Australia and Indonesia conduct their public diplomacy.

Efforts to promote the relationship among both publics are quite modest. The annual expenditure of the Australia-Indonesia Institute, “external page established [...] to contribute to a more broadly based and enduring relationship between Australia and Indonesia and to project positive images of Australia and Indonesia in each other's country”, was just $1.36 million in 2007-08.

To address the serious public perception problem both countries suffer from, Australia and Indonesia need to take a new approach to public diplomacy – one that includes active steps to promote an accurate, broader-based and positive image of Indonesia in Australia with Indonesia doing the same.

The focus of the government-to-government relationship on negative ‘positives’, like terrorism, people smuggling, illegal fishing and illegal logging, also needs to change. The current emphasis on these negative issues gives the impression that Indonesia is more a source of threats than a close, fellow democracy.

There is also a need to shift toward a more outward-looking agenda. Cooperation at other levels is already occurring and much of the shift will be in rhetoric and tone. But there is also scope to expand the range of cooperation. Joint membership of the G-20 offers one such avenue to explore a broader range of common interests beyond security threats. Both governments could also agree on a set of regional and global issues on which they will cooperate to advance common interests.

There is no quick fix for either government here, but there are substantial opportunity costs to both sides if relations are left to stagnate.