Change in South-East Asia: Indonesia and Burma

23 February 2012 FDI Team

Change in South-East Asia: Indonesia and Burma

Speech Given to ‘Left-Right Think Tank’, 21 February 2012

Leighton G. Luke, Manager, Future Directions International Indian Ocean Research Programme


We live in interesting times, ladies and gentlemen – and in an interesting corner of the world.

Tonight I am going to talk to you about two fascinating countries near to us that are experiencing tremendous changes in a time when the currents of history are swirling again. 

One of those countries is seemingly well-known to us: the world’s largest Muslim nation and fourth-most populous country. The other, all but off limits for most of the last five decades.

I shall highlight some of the broader changes that have taken place in two key South-East Asian states: Indonesia and Burma, and some of the challenges and opportunities that lie ahead.

As one of the states framing the eastern reaches of the Indian Ocean and, indeed, as one of the Indian Ocean region’s key states, FDI has been looking at developments in Indonesia.

In fact, we anticipate devoting more of our efforts to studying Indonesia in greater detail; such is its importance and potential.

One of the outcomes of our research to date has been a recognition that, in a very real sense, Australia has “taken its eye off the ball” in regard to Indonesia.

Perhaps, as a country, we have been dazzled by the spectacular rise of China and India.

There is, it seems, a certain lag in perceptions of Indonesia, which – beyond the images of Bali as a holiday playground – too often seem to be stuck in visions of the country and its foreign policy as they were back in the late-1990s and early 2000s.

That is regrettable, because it fails to recognise the tremendous changes that have taken place in Indonesia since then.

For a long time, Indonesia was, in many respects, a South-East Asian equivalent of Brazil: a giant land of tremendous potential never quite realised – always a land of the future.

The long-standing joke among Brazilians was that theirs was the country of tomorrow — and always would be!

It was a sentiment that could have been applied equally to Indonesia, too.

 Now, however, as in Brazil, that future has arrived, and Indonesia may now be in a position to at last enjoy its own tomorrow.

For instance, since the fall of Suharto:

  • Democracy has been embedded and continues to flourish.
  • The Indonesian middle class has grown.
  • The government has, with significant assistance from the US and Australia, made great progress in confronting religious extremists.
  • Indonesia now stands as a model of democracy and tolerance for the Muslim world.
  • The country has enjoyed good rates of economic growth, leading some analysts and commentators to call for it to be included in the famous “BRIC” grouping, along with Brazil, Russia, India and China.

As consequence, Indonesia has become more confident of itself, is more outward-looking and is willing to adopt a greater regional leadership role.

As ever, of course, challenges remain. Some of the key challenges that will confront Indonesia in the near future include:

  • Being unable to achieve its fullest potential because economic growth is stifled by infrastructure inadequacies.
  • Continuing instances of:
  • Religious violence and intolerance
  • Corruption
  • The effects of government subsidies (but, also, the consequences of their removal)
  • Disagreements over land ownership and management; and,
  • Uncertain public finances.

Now, let’s look at just a few of these key points in more detail, beginning with the “not-so-positive”.

If we take corruption first: it is probably the single biggest challenge currently confronting Indonesia. While some progress has been made in reducing the level of corruption, it has been small.

Meanwhile, well-publicised instances of corruption involving officials, legislators and the judiciary continue to appear in the media.

One of the most recent high-profile cases involves former Democratic Party treasurer Muhammad Nazaruddin, who is currently on trial for allegedly accepting bribes worth 191.7 billion rupiah – or just under A$ 20 million – during the construction of an athlete’s village for the South-East Asian Games, held in Sumatra last year. 

Public patience, it seems, is also wearing thin with politicians’ claims that they will eliminate corruption.

While current president Susilo Bambang Yudhoyono is far from unpopular, there is disappointment that he has failed to curb corruption.

Constitutionally barred from seeking a third term in office, SBY’s track record in tackling corruption would be something of a hindrance if he were able to stand again.

Equally, a certain amount of scepticism reigned in the blogosphere, when a leading candidate for the 2014 presidential election, former general, Subianto, announced that, if elected, he would successfully tackle corruption.

The misuse of public funds brings us, in a roundabout way, to the issue of government subsidies – a tricky issue and definitely a double-edged sword.

While obviously helping to offset the cost of living in a country where just over 13 per cent of the population live below the nationally-defined poverty line of US$ 2.50 per day, and many more living just above it, the subsidies, principally on such things as oil, gas, coal and electricity, nonetheless distort the government’s budget by siphoning off – if you’ll excuse the term – large sums which could have been allocated to other, possibly more pressing and strategic, issues.

For instance, the editor of the Bulletin of Indonesian Economic Studies at the ANU Crawford School of Economics and Government, Associate Professor Ross McLeod, writes in the East Asia Forum, that:

‘… the 2011 national budget devotes about A$ 15 billion to energy subsidies instead of using these funds to create new infrastructure and to provide better and more extensive education and health services.’[1]

Although they do benefit low-income earners, the greatest beneficiaries of the subsidies are the members of Indonesia’s growing middle class, who have comparatively greater energy footprints and disposable incomes compared to their low-income counterparts.

In that sense, with their across-the-board nature, the subsidies are indeed a form of middle class welfare, but their removal, while often promised, is invariably postponed, due to the high political cost that would be incurred by any government brave enough – or, perhaps, reckless enough, to do so.

While there have been reductions – and more are planned – the overall retention of subsidies remains a challenge that will need to be faced in the future, as does the issue of infrastructure touched on in the quote from Professor McLeod.

Over the last decade, Indonesia’s economy has certainly been a success story, having weathered the global financial crisis in good shape.

Despite contracting in 2010, the economy grew by 6.5 per cent last year. Indeed, the Indonesian economy is probably in its best shape since before the 1997 Asian financial crisis.

But that growth is constrained by infrastructure deficiencies. With some much-needed investment in infrastructure, economic growth rates of nine per cent – comparable to those of China and India – could be expected – although how sustainable that might be is questionable.

In the meantime, failings in transport and energy infrastructure restrict productivity and growth.

A related issue, because it affects the public-private partnerships favoured for the construction of such projects, is the uncertainty of the government funding allocated to them.

Only last weekend, the Jakarta Post reported that the consortium charged with building a bridge across the Sunda Strait, linking Java and Sumatra, doubts that the vital project has enough government support to proceed as planned.  

Lastly, but certainly not least, religious extremism continues to exist in Indonesia, although it is being challenged by the state as never before.

While tensions between Muslims and Christians remain in traditional hotspots like Ambon and the Moluccas, sectarian violence has increased in recent years as extremists target the mosques, imams, congregations and even graves of those belonging to the Ahmadiyya Muslim Community.

Like Christian victims before them, the Ahmadis have suffered violence and killings at the hands of religious extremists. Likewise, they have complained of police apathy in protecting them from extremists. At the moment, such attacks look likely to flare again.

Fortunately, as I said earlier, things are not entirely bleak – not by any means. Let’s look now at some of the most important successes that Indonesia can rightly claim.

On the positive side of the ledger:

Democracy is embedded in Indonesia and, barring certain extremists, enjoys widespread support. Although the mechanics of actually operating an election may need greater clarity – the high number of informal votes was a concern in the 2009 vote – elections in Indonesia are generally considered to be free and fair.

Millions of Indonesians have been lifted out of poverty in recent times, and the country is home to a growing middle class.

While income inequalities continue to be a very real and pressing problem, that is still no mean feat and Indonesia has a place at the G-20 to show for it.

Such are the country’s economic achievements – despite some of the limitations noted earlier – and its sheer potential, that some analysts have even called for Indonesia to be included in the famous “BRIC” grouping.

With high growth rates, favourable demographics, a wealth of natural resources and a burgeoning domestic market, Indonesia certainly seems to have many of the right ingredients for future BRIC membership.

Since the Bali bombings of 2002 and the subsequent bombings in Jakarta and elsewhere, Indonesia has vigorously confronted terrorism.

Australia and the United States have both been key partners in those efforts, which have included initiatives such as training and funding for the élite anti-terrorist unit, Densus (or Detachment) 88.

Although not entirely without controversy, the unit has recorded notable successes against Jemaah Islamiah and other like groups.

Equally successful have been various de-radicalisation programmes, although much still remains to be done. In any event, with the imprisonment or death of large numbers of extremists, Indonesia is able to point to some very real success in this regard.

While religious violence does occur, it is nonetheless the work of extremists and runs counter to the beliefs of the vast majority of Indonesians, who do subscribe to their country’s national motto: “Unity in Diversity”.

Taken together with its successful democratic transition, such changes make Indonesia one of a very select group of countries capable of acting as a model of democracy and tolerance for the Muslim world.

I think, now, it’s time to shift focus from the domestic to the international, and to briefly take a look at Indonesia’s geostrategic situation and what might be in store there.

Indonesia’s location as an archipelagic state at a crossroads between Asia and Australia, and the Indian and Pacific Oceans, indelibly colours its geostrategic postures.

As Indonesia’s prosperity has grown, so too, has its confidence as a nation, and this is reflected in its increasingly outward-looking focus and willingness to adopt a greater leadership role in the region.

This is not entirely a new development, of course. Indonesia is a founding member of both ASEAN – headquartered in Jakarta – and the East Asia Summit.

Indonesia is an enthusiastic supporter of the Indian Ocean Rim Association for Regional Co-operation (also known by the rather unwieldy acronym, IOR-ARC) and will assume the position of Vice-Chair when Australia assumes the role of Chair in 2013.

Given that IOR-ARC needs all the help it can get, some Indonesian energy would be most welcome.

Working with Malaysia and Singapore, Indonesia has contributed to the successful control of piracy in the Malacca Strait – one of the world’s key energy and trade chokepoints.

Jakarta has also attempted to mediate in the Thai-Cambodian border dispute. Although its efforts have so far borne little fruit, it confirms a willingness to play a role in resolving regional disputes.

The South China Sea territorial disputes among China, Taiwan and many of Indonesia’s neighbours loom large and Indonesia’s growing role as a regional leader could offer scope for increased influence in ASEAN. Thus, Indonesia may yet be called upon to act as a moderator in the South China Sea disputes.

Although Indonesia views an expanding Chinese military with some caution, various high-level visits and bilateral training exercises have taken place. The official line from Jakarta is that it views the peaceful rise of China as an opportunity, not a challenge.

Regardless, engagement with ASEAN, the United States, India and Australia offers Indonesia a means of counterbalancing China. Jakarta certainly would not wish to see the US leave South-East Asia.

But, like Australia, Indonesia may find itself caught between its economic links with China and its security interests, which require a continuing US presence in South-East Asia.    

A certain amount of juggling is therefore required, and the Indonesian protests at the deployment of US Marines to Darwin, are probably best seen in that light.

Having briefly touched on the notion of great power rivalry, let’s now take a look at Burma, as it is cautiously welcomed back to the global community, and as it aims to now balance, not just two, but three of those powers.

Change is afoot in Burma and these are exciting times for the Burmese people and Burma-watchers alike.

Since the coming to power of the quasi-military government of former general Thein Sein, some remarkable changes have occurred, not the least of which were the release of opposition leader and pro-democracy campaigner, Aung San Suu Kyi and the visit to Burma of US Secretary of State Hillary Clinton.

President Sein’s exact motives for the reforms remain unknown, although he is widely perceived by many – including Aung San Suu Kyi herself – to be genuine in his desire for change.

It is quite possible that the reforms are influenced by a desire to avoid an overreliance on China, Burma’s strongest ally, rather than the sanctions regime per se, although the Burmese leadership is now looking for the lifting of Western sanctions.

With no Western competition, China has had largely unrestricted access to Burma’s natural resources. It has frequently outflanked India as New Delhi has attempted to secure greater access to Burmese raw materials.

While closer to China, the generals have historically been adept at playing India and China off against each other.

China views Burma as an energy source and, perhaps even more importantly, as a means of bypassing the Strait of Malacca chokepoint.

Port facilities and pipelines into south-western China enable Beijing to escape its “Malacca Dilemma” and aid in the development of those provinces.

As the International Crisis Group noted back in 2009, Beijing was fully aware that the failure of the Burmese military government to deliver basic economic development and social progress had the potential to undermine both Burma’s stability and China’s ability to advance its own economic wellbeing.

Although it may have differed in its motivation and methods of attempting to influence change within Burma, China wished to see progress just as much as the West.

Indeed, it is arguable that China has more invested in Burma’s progress, due to its being so economically involved there. For example, Chinese investments in Burma totalled almost $8.3 billion in the 2009-10 financial year.

With the two countries sharing a very porous border, if Burma were to boil over at some point in the future, China would have the most at stake.

Beijing would therefore have been very interested in encouraging any forward movement that might lead to a more stable – though, of course, maybe not necessarily democratic – Burma.

The promising US-Burmese rapprochement cannot yet be taken for granted and uncertainty surrounds the role of former dictator, Senior General Than Shwe.

While the authorities are keen to emphasise his retirement, given his own past form – and that of his predecessor, Ne Win – it would seem unlikely that he does not continue to take a close interest in government policy.

Leading Than Shwe protégées and hardliners hold many key posts in the government and have reportedly disagreed with a number of President Sein’s initiatives, particularly the release of political prisoners.

On the plus side, though, Secretary Clinton’s visit and the US engagement thus far have apparently helped to consolidate President Sein’s authority over prospective opponents within the government.

Beyond that, however, the ability of outsiders to influence developments in Burma remains limited.

But, the steps taken so far, if not derailed, have the potential to see Burma make a long overdue return to the international community and, thus, must be cautiously applauded.

As I hope this synopsis has shown, there have been some tremendous changes taking place recently in South-East Asia, a region of great importance to countries such as the United States, China and Australia.

Both Indonesia and Burma hold great potential for their citizens, and, while any number of challenges remain, in both cases, it is possible to discern an upward trajectory – and that is something that can only be of benefit to all.

They are fascinating countries undergoing remarkable changes and I urge you to join me in watching them as history unfolds.


Thank you.




[1] McLeod, R., ‘Indonesia’s Economy: Strong Growth, Resilient Corruption’, East Asia Forum, 22 April 2011.

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International.

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