The Motivation for Hillary’s Courtship of Indonesia

Indonesia was among the list of countries that Hillary visited during her inaugural trip to Asia. One speculation for its inclusion was that President Obama has special feelings for Indonesia, a place where he stayed when he was a boy, and Hillary’s call was a preamble for his trip to the country. This theory oversimplifies the real motive behind the outing. Hillary chose to be in Indonesia on the eve of the 14th ASEAN (Association of Southeast Asian Nations) summit, not without reason.

Indonesia is the largest country in Southeast Asia and is where the ASEAN headquarters is located. Hillary’s call on Indonesia implied America’s intention to focus more on the region. During her stay in Jakarta, Hillary stressed that the U.S. would not ignore Southeast Asia and committed to attend future ASEAN foreign ministers’ meetings.

In contrast to her predecessor, Condaleezza Rice, who only sent her deputy to such meetings, Hillary has shown her respect for the region in a way that was loud and clear. In addition, she expressed the inclination of the U.S. to pursue the accession to the Treaty of Amity and Cooperation in Southeast Asia, signaling the shift in American policy towards the region.

The Indonesian government experienced a painful lesson from the Asian Financial Crisis in 1997 about the strings tied to IMF loans. China, on the other hand, made a significant contribution to the Asian Financial Crisis.

The current financial tsunami that originated in the U.S. has hit Indonesia, the largest economic body in Southeast Asia. On October 28, 2008, the Indonesian foreign exchange rate plummeted to 11,800 Rupiah to 1 U.S. dollar, the lowest level in seven years. On the same day, while most Asian markets gained, Jakarta Composite Index fell by 4.7 percent to close below 1,200 at 1,111.3, the lowest in 28 months. In that month alone, the Indonesia Rupiah depreciated 12 percent. The index has shed more than 60 percent of its value from the peak in January.

To stabilize its financial system and economy in the face of the global financial crisis, the Indonesian government introduced 10 new measures as early as October 28, 2008. These measures include a deal with central banks in other ASEAN members, such as China, Japan and Korea, to swap currencies in times of need.

Indonesia and China have built up their strategic partnership with deepening political trust and bilateral trade and investment ties, especially in the areas of infrastructure, energy, telecommunication, agriculture, disaster management and environment. Indonesia-China bilateral trade amounted to more than 31.5 billion U.S. dollars in 2008, a target that Indonesian and Chinese leaders expected to hit in 2010, and an amount that was 10 billion U.S. dollars more than Indonesia-US bilateral trade.

The former American secretary of state, Rice, visited Indonesian President Susilo and his ministers on March 14-15, 2006. During the meetings, Rice proposed a series of economic cooperation measures aimed at promoting economic growth, reform and democracy in Indonesia. These measures include the eradication of poverty, elimination of corruption, promotion of investment and trade, and the enhancement of Indonesian exports to America and others. Moreover, the U.S. offered to mediate disputes arising from bilateral trade and investment agreements with Indonesia. From the American point of view, these measures would help the Indonesian economy recover.

At that time, the U.S. respected Indonesia as the largest Muslim country in the world, noted its significance, and was eager to boost its ties with the nation. The Americans provided a series of economic and military cooperation packages to Indonesia with a dual purpose. On one hand, it hoped to have Indonesia as its anti-terrorism ally in Southeast Asia; on the other, it wanted to counter the rising Chinese influence in the region.

With the rapid economic development in the Asia-Pacific region, Southeast Asia has become an important trading partner for the U.S. The Americans are looking at the most opportune time to influence and participate in the integration of the region. As ASEAN is the core of the integration, the move to consolidate its strategic relationship with Indonesia will enable the U.S. to enlarge economic and safety cooperation with the regional body.

The U.S. is a core member of APEC and an observer state of the ASEAN Regional Forum. It is the most important export destination and investment source for Indonesia. In 2008, Indonesia-U.S. trade reached 20.5 billion U.S. dollars and exports to America comprised almost 30 percent of the Indonesian economy.

American companies have invested a total of 106 billion U.S. dollars in the country; however, Indonesian exports to the U.S. have been free falling since the financial crisis erupted. Indonesian President Susilo emphasized the importance of keeping the bilateral trade stable during his meeting with Hillary. The U.S. and ASEAN have established a strong interdependent relationship and both sides hope to have more effective cooperation in specific areas.

The U.S. reflected on its failure to table an irregular item for agenda during the 12th APEC meeting in November 2006 and ASEAN’s rejection of its proposal to suspend Myanmar’s membership during the 13th Summit in November 2007. In order to curb the Chinese influence in the region and to avoid the repeat of past mistakes, Hillary made a trip Indonesia before the commencement of the 14th ASEAN Summit.

Hillary told Indonesian Foreign Minister Dr. Hassan Wirajuda on February 18, 2009, that the U.S. might offer financial assistance to Indonesia. On the same evening, when Hillary met ASEAN Secretary-General Surin, she mentioned that the U.S. would initiate the mechanism to be a signatory of the Treaty of Amity and Cooperation in Southeast Asia to establish closer ties with the region.

ASEAN’s resolution to integrate the regional economies and to work with East Asia to overcome the financial crisis could not be deterred. Instead, the denouncement of trade protectionism and concerns over the “Buy America” clause in American stimulus plan became the main theme of the summit.

On February 27, 2009, Hua Hin, Thai Deputy Prime Minister Suthep Thesuban, voiced ASEAN’s concerns over the “Buy America” clause and announced its stand against protectionism in trade. During the press conference on the same day, he reiterated that trade protectionism would not benefit the resolution of the current global financial crisis. Instead, ASEAN members would monitor the current crisis closely and would work together in the face of economic difficulties. Suthep also stated that the push for ASEAN integration would help the members to buffer the blow of the crisis.

During the 14th ASEAN summit, how to handle the spread of the global financial crisis was the hot topic among the leaders present. One strong message emerged: Strengthen regional cooperation and eliminate trade protectionism.

ASEAN members have reached consensus on the inter- and extra-regional alliances, safeguarding regional economic and financial stability and cooperation in the face of global challenges. ASEAN Secretary-General Surin stated that regionalism was the best strategy against the global financial crisis. At the crux, China and ASEAN would make effective partners to fight the financial crisis. The good news is that not only are they already doing it, but they also gotten other countries in the region involved.

In this area, the financial cooperation mechanism under the ASEAN+3 (China, Japan and Korea) umbrella, established after the Asian Financial Crisis in 1997, has set a strong precedent and continues to play a positive role in the current situation.

The Special ASEAN + 3 Finance Ministers’ Meeting announced the Action Plan to Restore Economic and Financial Stability of the Asian Region on February 22 in Phuket. According to the plan, the countries would accelerate the actualization of the Chiang Mai Initiative Multilateralization in building a regional foreign reserve pool to avoid currency shortage. ASEAN+3 members showed their determination to work together in this emergency. In the press release by the 14th ASEAN Summit, the importance of ASEAN+10 mechanism in promoting regional financial cooperation and in resolving the crisis were reinforced.

According to a report dated March 5, 2009, ASEAN hoped to ease the restriction on the currency swap operations among its members, China, Japan and Korea. The deputy governor of the Indonesian Central Bank, Hartadi Sarwono, said that ASEAN wanted at least 50 percent of the swaps removed from the rules that require economic austerity measures. At the present time, 80 percent of the swap was released under this requirement.