Economy

Indonesia named the world's 10th largest economy, with China meanwhile predicted to emerge as the world's largest economy by the end of this year. By Hamish McDonald.

Indonesia grows rich waiting for an apology

Tony Abbott and Indonesia’s President Susilo Bambang Yudhoyono when they met in Jakarta last September.
Credit: AFP

Indonesia emerged as the world’s 10th largest economy in an interesting statistical exercise published just over a week ago by the World Bank’s International Comparison Program. 

This measured economies by so-called purchasing power parity, which is what their domestic earnings can actually buy, rather than by the more familiar system of conversion into US dollars.

Australia, whose leaders have been keen to trumpet our 12th or 13th place in the world economic league by the exchange-rate measurement, slipped to 20th place in the new PPP ranking of nearly 200 economies. That was thanks to one of the world’s highest levels of domestic prices. Only Switzerland, Norway and Bermuda are more expensive places to live than Australia. Think on that, Abbott government and business lobbies, as you seek to cut minimum wages and hold down welfare “entitlements”.

But the immediate point here is that Indonesia − despite a very low average income per capita, a rising inequality, and recently slowing growth − already has a sizeable weight in the world economy, along with other big non-Western economies in the top 12 such as Russia and Brazil.

Given that it is also one of our immediate neighbours, this makes the continuing awkwardness of Tony Abbott’s handling of the Indonesian relationship even more disturbing. Despite the election mantra of “More Jakarta, less Geneva”, his government has trampled on Indonesian sensitivities through its turn-backs of asylum seekers and the Edward Snowden leak about Canberra’s interception of Indonesian mobile phones, including those of President Susilo Bambang Yudhoyono and his wife. 

The Indonesians have shown their readiness to co-operate on the boat people, as long as Australia doesn’t trumpet it. Given the individuals involved, an apology for the mobile phone interceptions would have been in order, as Barack Obama made to Angela Merkel when Snowden revealed the United States had tapped her phone. Canberra hasn’t found it possible to do either. Australian Navy and customs ships have intruded into Indonesian waters, and Foreign Minister Julie Bishop pursued talks with counterpart Marty Natalegawa on a new “code of conduct” about intelligence operations.

Even so, Yudhoyono tried to end the breach with an invitation to one of his pet projects, a high-level gathering in Bali this week on open government in the region. After delaying a response, Abbott notified him last Sunday he couldn’t go because of budget preparations, and repeated this in a phone call to Yudhoyono on Tuesday. 

The real reason, it turns out, was that our border patrols were turning back a new boatload of asylum seekers. Canberra’s spin was that Abbott didn’t want this to mar the resumption of personal contact with the president, given the predictable Australia-bashing in Jakarta political circles. A less favourable interpretation is that Abbott was outraged that the end of the recent boat-free period showed the Manus-Nauru policy might be losing its deterrence value. 

A quick trip up to Bali, removed from Jakarta’s intrigue, might have shown a real willingness to invest in the relationship, which enters a new test with the election of Yudhoyono’s replacement in July. The presidential race looks like narrowing down to between the Sukarnoist party’s Joko Widodo and an as-yet-unchosen running mate on one hand, and a pairing of former general Prabowo Subianto and businessman-politician Aburizal Bakrie on the other. 

Some alarming names are being put forward for Widodo’s No. 2, including Ryamizard Ryacudu, the army general who praised the soldiers who murdered Papuan politician Theys Eluay. The Prabowo-Bakrie team would pair an authoritarian widely seen as a human rights violator with a crony capitalist.

On recent experience anyway, Abbott’s colleagues might have actually preferred the PM out of the budget warm-up. It is sad to see so much work on the Indonesian relationship over many years being so blithely thrown away.

The dark art of deterrence

China, meanwhile, emerged as closing in on the US in the World Bank comparison of purchasing power, and was predicted to emerge as the world’s largest economy by the end of this year.

In US dollar terms it is a decade or more from becoming No. 1 and Beijing was keen to suggest statistical flaws to dispute the finding. It wants to preserve its developing economy status as long as possible, and thereby avoid the various “responsibilities” in exchange rate management and so on that would otherwise be thrust upon it. But particularly as the Chinese are now producing advanced aircraft and ships at home, the yuan in their military budgets now goes a long way.

On Obama’s tour of Japan, South Korea, Malaysia and the Philippines, a constant question was whether America really would fight China in the worst-case scenario of armed clashes over territory. One problem is that everyone can see China’s navy and air force growing in size and capability, while the US forces in the western Pacific look much the same as they have for the past decade or more. 

This is an entirely misleading picture, according to some Washington-based defence experts with high-level security clearance. “Deterrence from the 1950s to 1989 was built on transparency: everyone knew exactly an adversary’s capabilities,” one of them said  last week. “The so-called ‘revolution in military affairs’ which coincided with the end of the Cold War has produced high levels of secrecy around military capabilities.” 

These capabilities use space, cyber and terrestrial surveillance and control systems to outwit more conventional forces. “In the foreign sphere the inability of the US to avoid secrecy around them impairs the American political position in the Asia-Pacific,” this expert said. “The perception of a closing gap permits argument in Australia to re-weight to China in policy and downgrade ANZUS.” 

What is really happening is the US defence relationship is getting more and more important for keeping the “technological edge” Canberra has sought to maintain since 1945 over potential rivals in the region, the source said. Notably, the “massive renovation” of Australia’s air force through links to US space systems, over-the-horizon radar, airborne early warning and control, new aircraft and drones were creating the most potent air defence to date.

Australia’s defence establishment understood this, the source said, “but can’t articulate it in a way that is politically salient yet”.

This article was first published in the print edition of The Saturday Paper on May 10, 2014 as "Indonesia grows rich waiting for an apology". Subscribe here.

Hamish McDonald
is The Saturday Paper’s world editor.  

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