27 Indonesia
Smith
Exactly how Indonesia is accomplishing this growth is a really interesting story. It’s one of the few countries in the world that pivoted from being a manufacturing powerhouse to a natural resource exporter without slowing down, and is now trying to pivot back.
In addition to being an important potential market for U.S. goods, Indonesia could be a key location for “friendshoring” of U.S. supply chains. The recent U.S.-Indonesia agreement included a key piece about the semiconductor industry.
The U.S. government is preparing to give Indonesia advice on how to make itself a more suitable destination for manufacturing FDI. If that effort is successful, Indonesia’s attractiveness as an investment destination could go far beyond the chip sector. With its large mineral deposits, it could potentially help break China’s strangleholds on the processing of critical minerals and on battery manufacturing.
But Indonesia’s strategic importance to the U.S. goes beyond its economic potential. It lies along critical trade routes between the Indian Ocean and the Pacific Ocean — around 40% of China’s goods trade passes through the South China Sea. This trade has to pass through one of three Indonesian straits — Malacca, Sunda, and Lombok — or else go the long way around Australia.
Foreign infrastructure financing involves more than just lending — it also typically involves “concessional financing” (lending money at below-market rates, which is effectively a partial grant), and technical assistance. The U.S. basically didn’t do this. Japan — a key U.S. ally — has definitely stepped up, helping Indonesia build a metro train system in Jakarta, and pledging money for roads as well.
But the country that Indonesia has really turned to here is China. Under the Belt and Road initiative, China has poured billions of dollars of infrastructure loans into Indonesia, and pledged tens of billions more — an order of magnitude more than Japan. The most important and impressive Chinese-financed project has been Indonesia’s first high-speed railway, between Jakarta and Bandung.
And this infrastructure effort has helped cement broader economic ties between the two countries; China has taken over as Indonesia’s dominant trade partner, where Japan and the rest of Southeast Asia once dominated. Given all this, no wonder Indonesians think China is a more important economic power than the U.S.!
Nine of Indonesia’s BRI projects, worth a total of $5.2 billion, involve scandals, controversies, or alleged violations—the world’s second-most, behind only Pakistan…Indonesia’s debt to Chinese creditors continues to climb, reaching $22.01 billion in March 2022.
Indonesia came out a bit better than some other Belt and Road borrowers, because it dealt with China in a savvier way, refusing to put up its government budget as collateral for the money it borrowed from China. As a result, the cost overruns and other problems will be more of an annoyance than a trap.
What’s needed is a joint U.S.-Japan project to finance Indonesian infrastructure, where the U.S. puts up the bulk of the cash and Japan provides the technical assistance.
Instead, what the U.S. probably needs now are more targeted trade initiatives — measures to encourage Indonesia to provide the U.S. with goods like processed metals, batteries, and low-end semiconductors that America currently depends on China to provide.
The third thing the U.S. can offer Indonesia is manufacturing FDI. Widodo is intent on pivoting Indonesia back from resource exporting to industry, undoing some of the deindustrialization that has set in since the 1997 Asian Financial Crisis. The U.S. can help that by helping point companies looking to diversify away from China toward Indonesia.
Smith (2023) The U.S. must not ignore Indonesia
27.1 Jakarta Sinking
Tooze
Venice is sinking. So are Rotterdam, Bangkok and New York. But no place compares to Jakarta, the fastest-sinking megacity on the planet. Over the past 25 years, the hardest-hit areas of Indonesia’s capital have subsided more than 16 feet. The city has until 2030 to figure out a solution, experts say, or it will be too late to hold back the Java Sea.
Cue Anthoni Salim, the billionaire owner of PT Air Bersih Jakarta, the firm tapped by the government to expand piped water access to the city’s 11 million residents immediately, if not sooner. As of now, one in three Jakartans doesn’t have access to piped water, relying instead on the thousands of illegal wells that dot the city — and deplete the aquifers and weaken the ground, creating prime conditions for further sinking.