Reading China's diplomatic strategy in Indonesia

DIPLOMATIC TOKEN? Corruption suspect Samadikun Hartono (center) was flanked by State Intelligence Agency chief Sutiyoso (left) and his deputy for foreign affairs Sumiharjo Pakpahan (right) in his arrival in Jakarta following the convict's recent arrest in Shanghai, China. 

Photo courtesy of Wendra Ajistyatama/Jakarta Post  

It is neither an intelligence nor a diplomatic coup if China recently agreed to extradite a major corruption suspect to Jakarta with no strings attached.

China has complied to Indonesia's demands to extradite Samadikun Hartono, a corruption fugitive who was alleged to embezzle Rp 169 billion (US$12.8 billion) of state bailout funds disbursed in the aftermath of the 1997-1998 Asian Financial Crisis, just moments after his arrest in Shanghai.

Initially, there were tittle-tattles that Beijing demanded the transfer of four Chinese Uyghurs, who were arrested by police in East Indonesia on terrorism charges, in a prisoner-swap agreement. But, China eventually agreed to send back the Indonesian corruption suspect without getting any tangible in return.

Yet focusing the diplomatic discourse on the prospect of prisoner-swap agreement means one is misunderstanding China's domestic politics and its foreign policy principles.

First, a prisoner-swap deal for the Uyghurs, who allegedly planned to set up terrorism acts in Indonesia, smacks no logic of China's foreign policy ideology. China has long been known as the upholder of "non-interference" foreign policy strategy, as Beijing always tries to back off from meddling in its interlocutors' internal affairs - in this case Indonesia's national security - when carrying out business or diplomatic relations.

This sets China apart from other Western countries, notably the US, which always scrutinizes and reproaches the human rights and political system principles of countries they are dealing with. All over the world, China's foreign aids neither impose specific political conditions nor require specific reprisals in return.

Second, although it is indeed every nation's responsibility to protect its citizens overseas, it is important to learn that bringing home the arrested Chinese Uyghur detainees would bring little political benefits for China domestically. The bitter truth is that the local Chinese Han people, who account for 90 percent of the Mainland's total population, rarely see Uyghur people as one of them, and vice versa.

The Uyghur Muslims, who have distinctive looks, different values and even their own native language, are proud of their own identity of being different with the Chinese Han people. Predictably, separatism or even terrorism movements become problems in their home province of Xinjiang, an autonomous administration in northwest China that is closer to the capitals of Kazakhstan and Afghanistan than to Beijing.

So, when Indonesian Law and Human Rights Minister Yasonna Laoly initially claimed that the extradition of Samadikun from Shanghai could not proceed smoothly as China had "demanded something in return", yet then suddenly Beijing reversed its course, we could cogently guess that the whole turn of events might actually be an astute diplomatic maneuver engineered to appease Jakarta.

Such a maneuver is relevant to be discussed because, in the future, we are likely to see more diplomatic "kindheartedness" from China - wrapped in no-strings-attached assistance or ostensibly generous political moves - as part of the Mainland's concerted and overarching foreign policy strategy to boost its regional soft power, an area that Beijing is lacking at the moment.

Within the international community, China still commands less respect than it actually deserves. China is respected no more but its economic and military might, given the nation's lack of diplomatic prowess and its absenteeism in strategic global issues.

However, while China tends to hold back from intervening in affairs in Middle East or Europe, it cares so much about issues pertaining its national interests, such as Taiwan or South China Sea.

As the South China Sea has seen intensifying tensions recently, surely there isn't any better chess move for China than winning the support from Pacific-Rim nations, and especially Indonesia, the largest economy in Southeast Asia and the de facto leader of ASEAN?

One possibility here is that China, perhaps, is feeling apologetic to Indonesia. From Indonesians' point of view, Beijing's response to the clash between a Chinese coast guard vessel and an Indonesian government sea patrol last month in Natuna waters near Riau Islands might look rude and somewhat ungracious, particularly if one sees it from the Javanese cultural perspective of President Joko Widodo, who so far has attempted to build stronger ties with China.

In that incident, China argued by including part of Natuna waters in its territorial map, according to a report by Indonesian state-run news agency Antara, which quoted Cmdre. Fahru Zaini, an assistant deputy to the chief Indonesian security minister. China's official statement also said that the vessel was in its traditional fishing grounds.

The least things that China should do now is affronting Indonesia, with which it supposedly has no overlapping territorial claims in the South China Sea, and offending Jokowi. Under the President's leadership, Indonesia became the co-founder of the China-led Asian Infrastructure Investment Bank (AIIB). The President has also granted China the rights to develop the archipelago's first high-speed railway connecting Jakarta to Bandung, thus snubbing the seven years lobbying of Japan, who was the first to float the idea.

The US$5.5 billion Jakarta-Bandung railway was particularly crucial as it is slated to be the entry point for Chinese investors to other lucrative infrastructure projects envisioned by Jokowi, such as dams and power plants, where Chinese firms are known to have the technological expertise.

Recently, in east Aceh waters, the Indonesian navy detained a Chinese vessel with 25 Chinese nationals and four Indonesians on board, for allegation of illegal fishing, trade and slavery. How China responds to this issue would be interesting: Beijing surely has learned that it could be counterproductive to deal with Jakarta with a rigid and overly assertive diplomatic approach.

Under President Jokowi, ties between the two nations now are arguably in the strongest level since the leftist leadership of President Sukarno more than 60 years ago. The Chinese might not want to make the bond untidy because strong diplomatic ties with Indonesia is crucial for the Mainland's own diplomatic and economic interests.

This article was published in The Jakarta Post on Monday, May 9 2016

Bank Indonesia is too late to save rupiah

For the local market players, the rupiah rate of 10,000 per US dollar is a sacred and crucial psychological threshold.

And that’s what Bank Indonesia (BI), the central bank, has failed to protect. The rupiah has ultimately hit the five-digit this week, a situation that some define as a perception of crisis. It happened mostly because BI apparently underestimated the magnitude of rupiah’s pressure in June, a period when the demand for dollars is usually at its heights due to surging companies’ earnings repatriation and foreign debt payments.

In April, the US-based JPMorgan Chase, a major player in foreign exchange (forex) business here, already reprimanded BI that foreign investors were beginning to become nervous about the availabilityof dollars in the upcoming months.

 In May, newly-appointed Finance Minister Chatib Basri warned that uncertainty over fuel subsidies could trigger massivecapital outflow, which could put pressure to the rupiah.

But BI stood still, keeping its monetary stance unchanged. The fruit of such negligence might be seen today, when both the aforementioned warnings become reality, with the rupiah’s sharp downswing already sending jitters to the market and prospective investors.

Under the leadership of Darmin Nasution, the central bank actually succeeded in coping with the escalating pressure of the rupiah in January, when BI was forced to heavily intervene in the market, splashing $4 billion of its forex reserves to prevent the rupiah from breaching the 10,000 barrier. The rupiah might already break the psychological level without the intervention, economists say.

And there are still weakening threats from offshore speculators using the rupiah as their wager. In January, an investigation in Singapore concluded that the rupiah rates there were actually manipulated by some banks, which colluded before submitting their respective rates, in order to reap short-term profits.

Facing escalating pressure for the rupiah, BI took action by hiking its overnight deposit facility rate (Fasbi) rate by 25 basis points to 4.25 percent on Tuesday evening. Hiking the rate would support the rupiah as BI could absorb excess liquidity in the market, as higher Fasbi rate means that lenders now have more incentives to make overnight deposits in the central bank.

But, isn’t this a step that is taken too late? Since beginning of the year, economists have warned that the spread between Fasbi and BI rate (now 5.75 percent, unchanged for 15 consecutive months) might be too wide, expecting a swift adjustment to support the under-pressure rupiah.

In fact, if BI had hiked its Fasbi rate one or two weeks earlier, the pressure for the rupiah might be well anchored, hence a strong possibility that the currency might have been still safe at 9,700-9,800 level at the moment.

The weakening rupiah is a threat for future inflationary pressure, as imported goods would soon become more expensive. Besides, it is worth noting that BI will most likely fail to meet its annual inflation target of 5.5 percent, with the central bank already forecasting that inflation this year could top as high as 7.8 percent due to the impending fuel price hike.

Weak rupiah is also a deterrent for bonds investors, who might find investing in Indonesia's bonds market as no longer attractive as their profits shrunk due to currency loss.

 Nevertheless, it’s not fair to blame BI too much from the current situation. The central bank should not be the one holding the biggest responsibility for the recent mess – BI, in fact, has been carrying way too heavy burden of maintaining stability at times when the government’s stupidity continues to systematically cripple the economy.

The pressure to the rupiah stems from the persistently high current account deficit, which continues to widen because of soaring oil imports. President Susilo Bambang Yudhoyono actually could solve the situation by hiking fuel prices (he has the authority to adjust fuel price without parliamentary approval), yet he remained undecided on the issue.

At times when our economy is facing challenging moments like this, the President even reshuffled its economic team, replacing Darmin with new Governor Agus Martowardojo in May.

With rupiah now heading into vicious depreciation cycle, that decision turned to be a howler: looking at Darmin’sreputation as an astute economic forecaster, there is strong possibility that he would be able to manage the situation better compared to Agus, who is still adjusting with his new life in BI.

With deliberation of fuel price hike is still ongoing, the hardball lies not only in BI, but also in the hands of the President and his fellow politicians in the House of Representatives.

And this time, they had better not be late. The uncertainty must be ended very soon to safeguard our economic sustainability, looking at how foreign investors now running away from the country in such rapid, alarming pace.

Surely we do not want massive capital outflow and exchange rate overshooting to continue, wrecking the economic fundamentals that we have carefully built since the 1997 financial crisis destroyed them all. 

This article was published in The Jakarta Post on Thursday, June 12 2013

Food Crisis: Hungry Citizens are Overthrowing Governments

BREAD TALK. The surge in foods and basic commodities price has sparked public unrests in many parts of the world especially in Mideast countries like Jordan, where a citizen here is seen using a baguette bread to vent his anger to Jordanian government during a street protest.

(photo by Kahlil Marzaawi)

On how to deal with middle and working class people, here’s one good advice that all world leaders (or dictators), could listen: Give them sufficient food and they would give less trouble for you –because food, after all, is the most important necessity that they need.

It was in the year of 1998 when working and middle class Indonesians conquered the streets to end the 32-year autocratic reign of Soeharto, but before those people were longing for the taste of democracy and liberty, it was actually their hungry stomach and bitter economic condition that provoked the transition in the first place.

Following the monetary crisis in 1997, the Indonesian economy was in its nadir and the ASEAN region was infected with currency crisis that was originated in Thailand; which eventually led to massive-scale currency depreciation in neighborhood countries like Indonesia, Malaysia, and Philippines.

In Indonesia, the crisis caused the price of basic commodities to rise beyond the reach of common people, and eventually increased the number of Indonesians who lived below poverty line. As people were pointless at that time and had no one to blame for their suffering, they challenged the autocracy and look for democracy as the solution.

Would Soeharto lose his power if the 1997 economic crisis did not occur? Of course, there were several other factors that contributed to his downfall. But if working-class mothers were not struggling to buy rice and basic necessities at that time, surely their husbands would not have the motive to illegally loot shopping stores and their children would not be so interested to join the street protests.

In November last year, the United Nations Food and Agriculture Organization (FAO) published Food Outlook report and warned against the rising price of basic commodities and the looming food crisis as bleak outlook in 2011.

Less than four months after the ‘prophecy’ was published, it has had its tolls already, as surging global price of foods and basic commodities triggered public uproars which were responsible for the ousting of dictatorial regimes in Tunisia and Egypt, and put other governments in balance.

Widespread corruption, unjust elections, and undemocratic government have long become concern for citizens in Mideast; but it was not until the symptoms of food crisis 2011 materialized that both Tunisian and Egyptian people truly fed up with their governments and decided to take the matter with their own hands.

In Tunisia, inflated food price and bloated unemployment rate were actually the initial motives behind the public unrest that led to the resignation of president Zine al-Abidine Ben Ali. The domino effect then went to Egypt, where people there ultimately realize that they are also experiencing the same problem as their neighbor in the west.

Egypt is the world’s largest importer on wheat; a commodity which has seen its price soaring for more than 50% since last year. In the country, food security has always become a major issue as Egyptians spend about 40% of their monthly income on food; compared to 28% for the Chinese or 6.1% for the Americans in estimations made by the US Department of Agriculture.

When the largest fraction of your income is spent on food, surely you will be the party that suffers the most if there is a hike in food price. Hence, makes no wonder if the Egyptians were among the firsts to take the bull by the horns:

“Hey life is getting harder these days, so why don’t we try the same thing with Husni Mubarak, just like the Tunisians did with their president?”

True, other causes also contribute to this 2011 Mideast revolution; such as greedy tyrants who had been clinging in their offices for too long, or ingrained corruption culture within the government that those tyrants have nurtured.

Or perhaps the influence of social media, which also deserves recognition as seemingly regimes in China, Iran, and North Korea so far have been able to evade the public uproar because their leaders have been notorious for isolating their own people from the internet.

But food crisis irrefutably played a part on the uprisings that lead to the 2011 Mideast revolution. Just recently, Rabah Arezki from the IMF and Markus Brückner from the University of Adelaide publish a research paper that confirms the relationship between international food prices and government stability. Interestingly, their research concludes that there is a positive correlation between food price increase in low-income countries and the likelihood of civil conflict and anti-government demonstrations.

The research is proven true and commonsensical in many ways. For instance, if you were about to join an anti-government demonstration, which issue that you are more likely to join: corruption or rising food prices?

For some people the answer may differ, but if surging price of basic commodities start to affect your earnings and your family, you will have a tendency to choose the latter than the former. Without doubt, people are more likely to go berserk on matters that directly affect them, such as rising food prices, compared to matters like corruption or others.

FAO recently reported that food price had reached a new record high in February; and the world is seemingly welcoming a resurgence of food crisis in 2011. The case of overthrown governments in Egypt and Tunisia is tangible proof that governments have indeed become more susceptible during these times.

This is a serious warning for all immortal-looking dictators from North Korea to Myanmar whose hungry citizens are perhaps next in line to demand revolutions.

This article was published in The Jakarta Post on Monday, March 21 2011