China-US Showdown and Indonesian Foreign Policy

TWO TO TANGO. President Susilo Bambang Yudhoyono is reportedly not at the same wavelength with his Foreign Minister Marty Natalegawa on the US plan to build military base at Darwin, Australia. In contrast to the cucumber-cool Yudhoyono, the Australia-educated Marty insisted that the US Darwin plan would increase tension in Asia-Pacific region and create a "vicious cycle of mistrust" among neighborhood countries. 

(Photo by Ikhwan Yanuar)

Has Indonesian foreign policy transgressed from the initiative of the country’s founding fathers?

As the recent string of events in Asia-Pacific shows, the relevancy of Indonesian foreign policy of Free and Active (bebas aktif), which was once a landmark on how Indonesia dealt with its foreign policy matters in its post-independence era, is currently in question.

Strategically located in the heart of Asia-Pacific, a region where countries are currently busy stockpiling their economic wealth and bracing against each other to strengthen regional influence, early signs showed that Indonesia is currently in the brink of being insubstantial.

To lead is easier said to be done, especially when Indonesia is living in an embattled region whose influence is being fought by two powerful forces such as China and United States. Yet there is no doubt that Indonesia could do much, much better rather than “sit down and watch the battle between two giants unfolds” as its present stance suggests.

As the United States proceeds with its plan to establish a military base in Darwin, Australia, deploying roughly 2,500 US marines in the area, the standpoint of President Susilo Bambang Yudhoyono somewhat shows that Indonesia responds lightly to the issue.   

Foreign Minister Marty Natalegawa, who previously denounced the Darwin plan as “creating a vicious cycle of tensions and mistrust”, was reportedly at odds with his boss Yudhoyono. Apparently, Yudhoyono sided with US President Barack Obama, the Darwin plan’s initiator who was reportedly irked with Marty’s statements and directly assured Yudhoyono during the ASEAN forum in Bali that the Darwin military base, which was only 850-kilometer away from Indonesia, was “nothing special”.

Imagine having Soekarno instead of Yudhoyono as president; then the US would think more than twice to establish a military base in Darwin.

Economics affairs might not be the best expertise of Soekarno, who proclaimed Indonesian independence and became the country’s first president yet ended up being toppled from power because of his clumsy economic management. In terms of foreign affairs, however, Soekarno’s track record is historical: He successfully put Indonesia, a young country that only gained independence a few years back at that time, in the world map.

Despite his political ideology that was more frequently associated with communism and Soviet Union, Soekarno, impressively, still managed to earn reverence from the US as well. During his presidency, Soekarno was even deemed as a daunting figure to the US. At that time under the leadership of John F. Kennedy, the US tried to “win over” Soekarno from the Soviet Union’s hands by inviting the president to Washington and providing Indonesia with billions of dollars in civilian and military aid in the early 1960s.

Soekarno, however, impressively managed to remain impartial on the Cold War that pits the US and the Soviet Union, even leading the plan to intercede the hostilities between the two countries by establishing the Non-Aligned Movement (Gerakan Non-Blok) whose members comprised of third-world countries’ leaders.

Reflecting Indonesia’s scrawny stance on the US Darwin military base issue: does Yudhoyono lean to the United States? Or is he merely being insubstantial due to his weak leadership, especially when he was benchmarked to Soekarno? If both questions are answered with a “yes”, then it’s fair to say that Indonesia is not independent and not active –thus going astray from the nation’s highly acclaimed Free and Active foreign policy.

As the last troops of US military step out from their exhausting wars in Afghanistan and Iraq, the 2012 and after will be the years when the US will focus its foreign policies –as well as its multi-trillion dollar military budget– from Middle East to Asia-Pacific.  

Bolstering influence in the Asia-Pacific and ASEAN region is especially necessary for the US considering Obama is currently eyeing to execute the ambitious Trans-Pacific Partnership (TPP Free Trade Agreement); an economic deal that will include the US in the free trade agreement with ASEAN.

So far, six countries in the Asia Pacific region –China, India, Japan, Korea, Australia, and New Zealand– have implemented free trade agreements with the ASEAN. Considering ASEAN’s massive population and market potential, it is thus a rational strategy for the US to follow their footsteps in the mission to restore their tattering economy.

The world may usher the era of power transition with growing economies in the Asia-Pacific region, at the same time when the economies in the Europe and the US are declining. The boisterous economy of China’s especially leads Asia-Pacific region to become the world’s new centre of gravity, while ASEAN’s strong domestic market was also perceived as crucial to save the recession-plagued economies of Western countries.

For Indonesia, a nation that is frequently referred as the central figure in the ASEAN region, the year of 2012 would be pivotal. For Indonesian President Yudhoyono, this should be the year to revive the Free and Active foreign policy in the upcoming China-US encounter whose battleground will take place at the coruscating region of Asia-Pacific. 

Euro Crisis: Bleak Future for Single Currency

ONE-HAND BATTLE. In Europe, the implementation of Euro is actually weakening most of the European economies as it limits their monetary independence and prevent them from implementing monetary policies for their own benefits.

Economists and policymakers in Euro-adopter countries are having stormy weather outside their office windows now.

Early this month the Portuguese government declared its inability to pay its debts and requested financial assistance from the European Union (EU). After the economies of Greece and Ireland collapsed last year, Portugal was the third Euro-adopter countries which failed to pay its debts and asked for bailout.

Besides, it may not be the last nation to follow the path of Greece and Ireland, and quite a few analysts claimed that debt-laden economies like Spain, Italy, France, and Belgium could be the next dominoes to fall.

The single currency policy in Euro was supposedly to be great idea at the beginning; but looking at how recent events unfolded, some optimists however started become skeptics: Is the Euro responsible for recent Europe’s mess?

The best way to understand the single currency’s predicament is to imagine a nation’s economy operates like a huge Transformers robot.

Every nation – be it Portugal, Germany, Greece, Ireland, Spain, and others– has its own robot model, with each of the robots has unique characteristics against each other. What’s similar about them is all robots are armed with two guns both on their right and left hands (as seen on the movie), so they can protect themselves from their enemies and their overall stability can be assured.

Suddenly, robots from European countries come up with a seemingly great idea that they, apparently, could become stronger if they just unite and combine their small guns into one gigantic weapon. This could be done only if each robot is willing to sacrifice the gun on their left-hand, so it can merge with other robots’ guns to be transformed into one gigantic and powerful weapon.

Several robots from Croatia and England refuse the offer, but almost all European-built robots agree with this proposal. In the end, those robots boast a one-for-all gigantic and massive weapon as the reward of their unification, with the expense of having only one gun in their right hand as they continue their survival.

Today, the importance of those missing hands starts to be felt; but unfortunately now is simply the point of no return for those European nations.

Basically, to fix problems and avoid crises in the economy, a policymaker is equipped with two powerful “weapons”: A monetary policy which is related with interest rates and currency, and a fiscal policy which is related with tax and government spending. For example, United States implemented both fiscal and monetary policies in the form of a 1 trillion dollar tax cut (fiscal) and slashing interest rate to the level of 0.25 percent (monetary) to resuscitate its economy during the last financial crisis.

But when Euro-adopter country like Spain suffer from high unemployment rate like today, Spanish policymaker could not simply adjust the interest rate (monetary) to shoot down the problem. Because they decide to use Euro as a single currency, all policies that related to currency –which are monetary policies– have to be thoroughly discussed and carefully implemented for the sake of the EU members as a whole, not a single country like Spain alone.

During this situation, other European countries like Germany or France may have different economic interests than Spain’s, and slashing interest rate –a policy which would devalue the Euro– perhaps would make those countries worse-off.

In other words: It’s true that those robots sacrifice one of their hands and hold share in the massive weapon, but one simply could not use the weapon as he pleases –because other robots, presumably, may have different type of enemies to shoot.

What exacerbates the problem is not all European robots are armed with right-hand weapon that is powerful enough to cover their left-hand weapon’s loss. Some countries like Germany and Finland have strong fiscal position, while the balance book of countries like Greece and Ireland are full of debts and could not really afford to spend much money for fiscal policies.

The consequences are predictable: The economies of Greece and Ireland defaulted, and EU member countries with strong fiscal position suffered enormous economic losses as they had to provide the multi-billion bailouts to help those ill-fated economies.

Meanwhile, Indonesia and its neighbors in ASEAN region have been weighing the possibility of having a single currency like Euro for years.

Some ASEAN representatives and economic ministers believed that the implementation of single currency in ASEAN could bring economic community in the region to the next level, as it would enhance economic development in the area and forge stronger ties among ASEAN countries.

But current Europe’s crisis is a lesson to learn for Indonesia and ASEAN as the risk and the potential economic losses if the single currency policy fails is indeed massive.

Yes it is true that the single currency has boosted trade numbers in EU by as little as 10 percent since it was first implemented. But as recent events show, Europe’s single currency in Euro turns out to be a monetary trap and makes some economic problems more complex than they actually are.

If Euro fails in those Europe’s developed and high-welfare economies, adopting single currency in ASEAN –a region where developing and developed economies are living side-by-side and economic gaps among them are obvious– is definitely not a wise idea. At least not for now.

Indeed, after a decade full of applauds for Europe and its success story of single currency implementation, today is the day when the credibility of single currency policy is being put on its highest test.

This article was published in The Jakarta Post on Wednesday, April 20 2011