The Jakarta Globe - 05 July 2023
Indonesia tries to find balance between US-China with IPEF
By Jayanty Nada Shofa
Indonesia might be trying to strike a balance with both the rivaling US and China by joining the Washington-led Indo-Pacific Economic Framework for Prosperity (IPEF), according to research institution ISEAS-Yusof Ishak Institute.
US President Joe Biden last year launched the four-pillared IPEF framework in a bid to build a connected and resilient economy. The IPEF, however, is not a traditional free trade agreement and does not include tariff reduction negotiations.
The IPEF has 14 founding participating countries and altogether represent 40 percent of the world’s gross domestic product (GDP). The framework includes seven ASEAN member states — Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.
Australia, Fiji, India, Japan, South Korea, and New Zealand are also part of the IPEF.
“There is this perception that it is important for Indonesia to participate in the IPEC because of the strategic balancing act. So as not to be cut off from the US, while also maintaining good relations with China,” Siwage Dharma Negara, a senior fellow at the ISEAS-Yusof Ishak Institute, told a hybrid conference on Tuesday.
"This aligns with Indonesia’s free and active foreign policy, which is trying to benefit [from relations] with as many major powers," Siwage said.
Indonesia mostly relies on the Chinese market for its exports. The 2021 Indonesia Exports Complexity Index reported that 22 percent of the goods that the Southeast Asian country shipped went to China that year. Followed by the US (10.6 percent), Japan (7.5 percent), India (5.87 percent), and Singapore (5.23 percent). Data also shows that Indonesia mainly exported coal briquettes (11.5 percent), palm oil (11 percent), and petroleum gas (3.25 percent).
“Indonesia expects to balance its exports market through the IPEF by not relying so much on China, but also [diversifies its exports] to the US and other IPEF members. Indonesia can also increase the sophistication of its exported products,” Siwage said.
It is also important for Indonesia to engage with the US from foreign direct investment (FDI) source standpoint. Siwage added: “There has been a spike in Chinese investment in Indonesia since 2015 or when President Joko “Jokowi” Widodo began to take office. So there is an interest to balance these FDI sources.”
Policymakers in Jakarta also believe the IPEF can complement other economic initiatives, including the world’s largest trade deal Regional Comprehensive Economic Partnership (RCEP), according to Siwage. China is a signatory to the RCEP. This agreement is set to eliminate up to 90 percent of the tariffs imposed on the goods traded between its signatories over 20 years of coming into force.
According to the 2023 State of Southeast Asia Survey, 34.7 percent of the surveyed Indonesians believed that the overall impact and effectiveness of IPEF would be positive, while 52.1 percent of others were unsure of the outcomes.
Around 45.2 percent of the Indonesians who saw IPEF positively said that the framework would signal US commitment to be economically engaged in the region. The survey had 1,308 respondents from the ten ASEAN countries. About 9.3 percent of the respondents were Indonesians.