Opinion

US – Indonesia economic
ties, in search of synergy

The pros and the cons of President Barack Obama’s visit to Indonesia attracted my attention to the new form of economic relations the United States and Indonesia should be pursuing.

As a woman who grew up in a naturally rich land in the most controversial province in Indonesia, I had seen first-hand the widespread social problems that arose alongside the massive US investment in liquid natural gas (LNG) projects in my beloved homeland.

To some extent, the project itself often became the source of tension between local people and the Indonesian central government at the time.

As a young girl living such a life, and as many regular Indonesians of my age might have thought back then, the US was nothing more than an economic giant, pursuing its economic agenda for its own economic well-being.

In those days, the Indonesian autocratic government under president Soeharto, with minimum transparency and almost no balancing power from parliament, was believed to have smoothed economic interests in Indonesia’s abundant natural resources in favor of the US. Something almost undeniable.

Today, as the world is moving toward a rebalancing, marked by the end of the Soviet Federation, the integration of Europe, the emergence of Asia, and most recently the rise of China and India, the US and Indonesia, not so much by their own choice rather through other forces, have, and should have, entered a new era of economic relations.

As Indonesians have long been waiting, as have the majority of Asians, the upcoming visit of President Obama to Indonesia (scheduled for June 2010) should really be seen, be felt, and be bought as a partnership offer rather than US economic expansion as it was in the past.

Asia is waiting. A win-lose relationship is no longer in the interests of the Asians. A win-win relationship is something expected today more than ever before.  

In the rising speed of the race between the US and China over economic and political influence in Southeast Asia that has been widely discussed in the international media, the visit of President Obama to Indonesia could, and should, mark a swing to prove how the US economic agenda is so much in the interests and in favor of the majority of Indonesians, and Southeast Asia in a broader context.

As many US analysts noted, the US economic agenda that will be brought by President Obama on his trip to Indonesia is seen as rather thin from the US side, whereas from the other side the Indonesian government is believed to be not ready to take the initiative.

Since both countries are trying to find a synergy from an economic standpoint that will enhance the ties of the two countries in a broader context, to my view, energy initiatives could be something that would definitely fall into the so-called win-win cooperation.

In 2004, Indonesia became a net oil importer. Although Indonesia produces oil, its oil production has declined in recent years since most of its oil fields became mature and declined in output.

In 2008, Indonesia’s net oil imports amounted to 74.8 million barrels a year, an increase of 1.8 million barrels from 73 million barrels in 2007.

Although Indonesia is still the leading net LNG exporter (second to Qatar) and coal, Indonesia is facing a wide range of challenges in energy supply and demand.

To illustrate further, the oil subsidy has and will always be the major battle between the country’s stakeholders at large.

The supply of electricity is one of the most challenging problems for Indonesia. The shortage of supply combined with the increasing demand has, and in such magnitude, offset the vast economic potential Indonesia might have otherwise achieved. The bottom line, there has been serious underinvestment in Indonesia’s electricity sector.     

PLN, the state-owned power company which supplies three-quarters of Indonesia’s electricity operates 45 power plants, 86 percent of the supply for which is derived from conventional thermals using oil, LNG and coal.

The underinvested sector is not only lagging in supply, but is also cornered for generating a wide range of pressures on carbon emission reduction targets.

Electricity demand is projected to grow by 6.5 percent annually and reach 57,442 megawatts in 2018. Despite the current government fast-tracking the program with additional 10,000-megawatt projects to be completed by 2011, Indonesia will still only attain a total capacity of 35,571 megawatts. A huge supply gap.  

Time will soon run out. Bold action is needed.

So … where could the opportunity come from for a US-Indonesia economic cooperation, given Indonesia’s underlying energy problem?

In the search for synergy, the desperate need for a renewable energy initiative from Indonesia’s side should, in my view, perfectly match the competitive advantage US investors could offer from the other.

The biggest potential could come from geothermal energy, given the fact that the 17,000-island country sits on the Ring of Fire with more than 167 volcanoes.

The challenges are never easy to resolve. They range from complicated Indonesian government bureaucracy to the uncertainty of investment regulations and the reluctance of US investors to invest in such a complicated business environment as Indonesia’s.

To quote from Duncan Graham who recently wrote in The Jakarta Post, it takes two to tango, this time, it is time for President Obama and President SBY to do the tango, and let the rest get the party going.
   
The challenges range from complicated government bureaucracy to the uncertainty of investment regulations.


The writer is a graduate student of the International Business School, Brandeis University, Massachusetts, United States.

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