Years of living prosperously – economic diplomacy with Indonesia

Despite the dominance of security issues and geo-politics in the media, on the business side of things Indonesia and Australia are long-standing economic partners.

Years of living prosperously – economic diplomacy with Indonesia

By Tim Harcourt  December 02, 2015

Despite the dominance of security issues and geo-politics in the media, on the business side of things Indonesia and Australia are long-standing economic partners.

In fact, it was symbolic that Australian Prime Minister Malcolm Turnbull – like one of his predecessors, Paul Keating – visited Indonesia first after assuming the highest office in the land, rather than following the tradition of past prime ministers who made London or Washington their first port of call.

If you go back in history, there is there is strong evidence of Australia supporting Indonesia as an economic partner and vice versa.

After all, Indonesia is probably the Australian continent's first trading partner when indigenous Australians fished and traded sea cucumber and other goods with their Makassan counterparts (Makassar is in the south-west of what is now called Sulawesi).

And in the 1940s, during the early struggles for Indonesian independence, Australia was there working together with Indonesia on trade, investment and education ties.

This is the recollection of an early instigator of Indonesian-Australian trade relations, the esteemed Australian labour economist, arbitrator and professor, Joe Isaac, who was honoured in Sydney last month.

According to Isaac, who went on William Macmahon Ball's mission to what was then called Batavia (Jakarta) in the Dutch East Indies in November 1945, Australian ties were strong right from the start of the Indonesian independence struggle against the Dutch soon after the Japanese surrender in World War II. As Isaac recalls:

"We were able to meet Sukarno soon after our arrival, and we met twice thereafter … Mac outlined the purpose of his mission … and that Australia was sympathetic to the political aspirations of the Indonesians; and he canvassed Sukarno's reaction to the despatch by the Australian government of a boat load of medical supplies. No doubt thinking of the action of the Australian waterside workers (who refused to load Dutch ships hostile to Indonesian independence), Sukarno expressed gratitude for the support of the Australian people."

This support was a big deal at the time for the newly independent nation. As Isaac notes, the famous Australian diplomatic-academic Indonesian specialists, Tom Critchley and Jamie Mackie, "attribute the Indonesian government's confidence in nominating Australia to the Good Offices Committee to the action of the waterside workers in banning the loading of Dutch ships and to the support Australia had shown for Indonesia in the UN Security Council".

These close Indonesian-Australian economic ties continued 50 years later during the Asian financial crisis of 1997-99 when the Reserve Bank of Australia, particularly thanks to deputy governor Stephen Grenville, who has been a diplomat in Jakarta, clashed with the International Monetary Fund (IMF) and US Clinton administration in their analysis of the Indonesian economy.

The then Australian treasurer, Peter Costello, took Grenville and RBA governor Glenn Stevens's advice on Indonesia and stared down the IMF and Clinton's economics team, and took a very different tack to the Indonesian economy than Washington.

Consequently, the Indonesian economy fared much better, recovered quickly and avoided the pitfalls of other developing economies that took the IMF prescription.

As a result, in 2015, Indonesia is a vital trade partner with Australia (worth $16 billion in two-way trade), and also a vital education partner.

In fact, in the greater scheme of things, Indonesia is a much underrated economic partner. As well as big names such as ANZ, Leighton, Commonwealth Bank, Orica and Bluescope, more than 2400 Australian businesses export goods to Indonesia and many corporates have received rates of return four times that of China and India. But there are only 250 Australian companies with a presence in Indonesia, compared with more than 3000 in other markets such as China.

There is indeed much more to be done. Last month, Australian Trade and Investment Minister Andrew Robb accompanied a 360-strong business delegation to Indonesia for Indonesia Australia Business Week 2015. The businesses represented diverse industries including infrastructure, advanced manufacturing, agriculture and food sustainability, premium food and beverage, health and aged care, resources and energy, education and tourism.

Says Robb: "Indonesia-Australia Business Week is an opportunity to build the relationships needed to sustain and grow our business links, and to explore ways to tap into the rapidly growing market of more than 250 million people right on our doorstep, which includes a rising middle class."

And economic diplomacy towards Indonesia is also bipartisan, with even the Shadow Treasurer Chris Bowen learning Bahasa as a tribute to how important Indonesia is to Australia's present and future in terms of economic relations.

We can only conclude that in terms of economic diplomacy, Indonesia and Australia have had strong trade ties in the past, but we can be confident that they will expand, widen and deepen in the years ahead.

Tim Harcourt moderated BusinessThink | Indonesia, a landmark event held in Jakarta in November. Hosted by  UNSW Australia Business School, BusinessThink I Indonesia brought together Indonesia's senior government and entrepreneurial leaders to share exclusive insights into the current and future state of business in Indonesia.

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