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Jakarta Post

Jokowi'€™s visits to Japan and China: What'€™s in it for us?

Dinna Wisnu
Jakarta   ●   Tue, April 7, 2015

Last month, President Joko '€œJokowi'€ Widodo conducted his first state visit to Japan, followed by his second
visit to China. Let'€™s discuss what Jokowi brings to Indonesia and the Indonesians.

First, how will President Jokowi follow up those investment pledges to stakeholders in Indonesia, particularly the political parties, lawmakers, local councillors and local regional leaders? Most of the projects outlined in Jokowi'€™s programs (called the Nine Agenda or Nawacita) concern improvements in infrastructure and job access in the regions. Jokowi specifically mentioned his desire to prioritize building the '€œperipheries'€.

Under the 10-year-tenure of former president Susilo Bambang Yudhoyono, the challenge of doing business in the peripheries existed largely because of the autonomy of local governments and legislative councils. With projects brought in by the central government, these local institutions either chose to wait-and-see '€” not mutually responding with improved services or facilities '€”  or pursued complicated follow-up measures concerning taxes or land concessions.  

The fast-track projects for the first and second phases of the 35,000 megawatts (MW) power plant-building project failed because of the failure to achieve political consensus on land issues.

How Jokowi will handle such challenges remains to be seen. The Japanese investors, for instance, seek land that will be strategic for long-term investment. If we follow what the investors'€™ desire, such as areas with ready-to-use infrastructure, modern living facilities, etc. then we would witness, yet again, investor-crowding on Java.

So, will these new investments be located in Java? Or will they be located in more remote areas like Kalimantan or Papua?   

Second, how will President Jokowi follow up those investment pledges with his Cabinet members. This is important because of the notorious sectoral egos of Indonesia'€™s ministries.  What one ministry has discussed and agreed upon with another ministry may not bear any fruit if that ministry cannot seal similar deals with other ministries.

Hopefully, President Jokowi can manage this challenge better. At least the ministers he appointed to lead the transportation sector, communications, infrastructure, marine and fisheries, national planning board and energy are professionals.

They are supposed to execute orders from the President, though whether they will do so remains to be seen. So far, ministers are reluctant to elaborate upon the details of agreements with China. Interestingly, their response suggests dissatisfaction rather than approval.

With China, investment deals may display the lack of Indonesia'€™s bargaining power.  Some investment pledges may not suit government plans, but must be approved under one package of a cooperation deal.

Take the investment for the Jakarta-Bandung fast train signed by State-Owned Enterprises Minister Rini Soemarno with the Chinese Commission on Reform and National Development in Beijing in late March.

The commitment contradicts the earlier stance of Transportation Minister Ignasius Jonan, who rejected such investment while he was director of railway company PT Kereta Api Indonesia.

He said that investment in fast trains in Jakarta did not reflect fair infrastructure access for other provinces. He also said that with such investment approved, the Bandung-Jakarta train ticket price would rise to approximately US$200.

The Indonesia Chamber of Commerce and other businesspeople also rejected the plan, but the deal has been signed.

Third, there is no such thing as a free lunch. Investment deals should include some give-and-take.

What has Indonesia given up in return for the investment deals? This is opaque to us.

If we link these deals with the promise of Jokowi to create jobs, then we have yet to see the connection. We heard that Indonesia would soon benefit by exporting two-wheel and four-wheel vehicles from Toyota Motor Corp. and Suzuki Motor Corp. Also, the seafood processing, metal and construction industries should smile, given pledges from some Japanese investors worth $3 billion in these industries.

Will these additional investments absorb sufficient Indonesian workers? The Japanese had voiced desire for more Japanese workers with undergraduate diplomas to get visas to work in Indonesia.

If this aspiration is not handled properly, Indonesian workers will be biting their nails. The transfer of technology has been a real challenge with these investors for decades. If negotiations do not lead to clauses on the sharing of technology or management leadership, the chronic transfer-of-technology problems will remain unsolved.

Also, we have yet to see Japan or China agreeing to buy the top export commodity from Indonesia: crude palm oil (CPO). With non-tariff barriers on environment enacted upon CPO by Europe and the US, the commitment of support from Japan and China is a deal to seek.

Fourth, how does investment policy link to diplomacy and foreign policy? Jokowi voiced  his desire to make Indonesia an honest broker in the South China Sea tension.

He signaled his wish to keep the region stable, free from open conflicts that may disrupt economic growth. He thus undermined the nine-dash-line claim of China while agreeing to develop defense cooperation with Japan.

Yet being a broker in the regional tension requires respect from China. While so far China has been eager to engage Indonesia on many geo-strategic issues '€” even inviting many Indonesian officials to visit Beijing '€” it is relatively hard to seal commitments from China.

 In business, Indonesia'€™s Investment Coordinating Board (BKPM) said China'€™s track record in materializing investment commitments was 1:10 compared to Japan, which was 1:6.5. The signing of the Declaration of Conduct in the South China Sea in 2002 did not precipitate any agreement from China '€œto promote peace and stability on the basis of consensus'€, as affirmed in the declaration.  

In short, Indonesia needs to improve its own bargaining power vis a vis China. President Jokowi should embrace more of the elements that support his presidency.

For instance, President Jokowi needs to empower micro, small and medium enterprises (MSMEs) that have sustained the economy.

Instead of focusing on bringing in investors from abroad, President Jokowi should think about adding value to products made by these MSMEs.

Jokowi should link these industries to the value-chain supply in the region, or push Japan and China to make room for products made by Indonesian MSMEs in their own markets.

These enterprises have long operated with minimal guidance, training and information on what the region offers in terms of market access and skill development.

The larger corporations operate without sufficient monitoring on how they access loans in foreign exchange. These larger corporations also have very minimal synergy with these MSMEs.

This is a pity, because when managed well, the potential of these enterprises is what would differentiate Indonesia from other countries who also wish to get investments from Japan or China, such as African nations.  

The writer is a cofounder and director of the Paramadina Graduate School of Diplomacy at Paramadina University, Jakarta.