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Indonesia country brief

Overview

Indonesia is one of Australia’s most important bilateral relationships. Our countries enjoy a highly productive and broad-based partnership that encompasses business, education, defence, security and people-to-people links. The strength of the relationship can be seen in the depth and breadth of high level exchanges between leaders, ministers and prominent people of both countries.

Australia and Indonesia cooperate in practical ways on a wide range of international and regional issues particularly in multilateral forums such as the East Asia Summit, the G20 and APEC. Australia is also committed to a long-term development partnership with Indonesia.

More information on Australia's development assistance to Indonesia

Close cooperation between Australia and Indonesia on security matters is underpinned by the Lombok Treaty (2006), which provides a treaty-level framework for addressing traditional and non-traditional security challenges. Australia and Indonesia signed a Defence Cooperation Arrangement in September 2012 and have agreed to increase defence collaboration.

Political overview

Government and politics

Indonesia is a unitary state, headed by a President and Vice President who are directly elected for a five-year term by popular vote. The President and Vice President govern with the assistance of an appointed Cabinet. Indonesia's 692-member parliament includes a 560-member House of Representatives (DPR), elected by proportional representation, with the authority to make legislation, determine the budget and oversee the implementation of legislation by the Cabinet. A 132-member advisory body called the House of Regional Representatives (DPD), with four representatives from each of Indonesia's 33 provinces, completes the parliament.

Indonesia is the third largest democracy in the world after India and the United States. A robust media and civil society, combined with direct and fair elections, are at the heart of Indonesia’s political institutions.

President Susilo Bambang Yudhoyono was elected to a second and final five year term in presidential elections in July 2009. Receiving around 61 per cent of the national vote and winning ballots in 28 of 33 provinces, President Yudhoyono was the first Indonesian president to be re-elected to office in free and fair elections. Now nearing the end of his second term, President Yudhoyono is justifiably proud of the boost to Indonesia’s stature achieved during his tenure. He has been an influential voice in the UN, EAS and G20 and is credited with leading Indonesia through a period of extended political stability, consolidated democratisation and economic growth.

Bilateral relationship

Australia and Indonesia’s relationship is strong and multifaceted, with a broad agenda for bilateral cooperation. Both governments elevated the relationship to a comprehensive strategic partnership in March 2010.

Prime Minister Abbott made his first official overseas visit to Indonesia from 30 September-1 October 2013, accompanied by Minister for Foreign Affairs Bishop and Minister for Trade and Investment Robb, as well as a delegation of senior Australian business people. Prime Minister Abbott and President Yudhoyono released a joint communique which welcomed the continued enhancement of the bilateral comprehensive partnership and underscored the importance of continuing to work closely within regional and global frameworks. President Yudhoyono welcomed Prime Minister Abbott’s invitation for Indonesia to be one of the first destinations for young Australians to work and study in Asia in the pilot implementation of the New Colombo Plan.

Prime Minister Abbott addressed a breakfast meeting of business leaders from both countries, encouraging Australian and Indonesian businesses to increase two-way trade and investment flows. Mr Abbott also announced the establishment of an Australian Centre for Indonesian Studies, to be based at Monash University, to strengthen understanding of the Australia-Indonesia relationship.

On his first official overseas visit, Trade and Investment Minister Robb focused on enhancing bilateral trade, building stronger business and investment links with Indonesia, as well as deepening regional economic integration. He also met with key ministerial counterparts and representatives of Indonesian business, including in the agriculture sector.

President Yudhoyono has visited Australia four times during his presidency, more than any of his predecessors. President Yudhoyono last visited Australia from 2-4 July 2012 for the Australia Indonesia Leaders’ Summit in Darwin.

The second Indonesia-Australia Dialogue was held in Sydney on 3-4 March 2013. The Dialogue explored new ways to deepen and expand people-to-people links. It drew together high-calibre delegations from both countries, led by former Ambassador to Indonesia John McCarthy and the Centre for Strategic and International Studies (Jakarta) Executive Director, Rizal Sukma. The next dialogue is currently scheduled to take place in late 2014.

Development assistance

Australia is the largest bilateral grant-based donor to Indonesia, providing a wide range of technical and economic support to the country. Australia provides predictable, effective and high quality assistance to Indonesia in line with its own national priorities. For more information see Australian Aid.

Indonesia is the largest partner-country program of the Australian Centre for International Agricultural Research’s (ACIAR). This is due to both its proximity and strategic importance to Australia and to the imperative of reducing the proportion of its population living in poverty. The agricultural sector accounts for 40% of employment but only 14% of GDP. This indicates the high proportion of the poor engaged in agriculture, and the consequent importance of strengthening the sector in order to reduce poverty. More information on ACIAR’s Indonesia page.

Cooperation on counter-terrorism

Australia and Indonesia share a strong commitment to mutually beneficial engagement and cooperation to combat terrorism. Australian and Indonesian authorities have cooperated closely to investigate several major terrorist attacks in Indonesia, including the 12 October 2002 Bali bombings, the 9 September 2004 bombing of the Australian Embassy in Jakarta, the 1 October 2005 Bali bombings and the 17 July 2009 bombings of the Ritz-Carlton and Marriott hotels in Jakarta. Indonesian authorities have proven highly effective in disrupting terrorist plots and networks. There have been more than 800 terrorism-related arrests and 600 convictions since 2002.

Counter-terrorism (CT) cooperation has grown significantly and now involves wide-ranging partnerships with Indonesian agencies, notably in the areas of law enforcement, legal framework development, criminal justice, CT financing, defence, transport and border security, intelligence, and the security of chemical, biological, radiological, nuclear and explosive (CBRNE) materials. The Jakarta Centre for Law Enforcement Cooperation (JCLEC), an Australia-Indonesia initiative, has become an important regional centre for law enforcement training. More than 13,000 officials from 68 countries have completed over 540 training courses at JCLEC. Regional participation in JCLEC courses since 2004 has helped strengthen networks and collaboration among law enforcement officials across Southeast Asia in addressing transnational crimes, such as people smuggling and money laundering, as well as terrorism.

Cooperation on people smuggling

Australia and Indonesia work closely together to combat people smuggling, including through co-chairing the Bali Process on People Smuggling, Trafficking in Persons and Related Transnational Crimes. During Prime Minister Abbott’s visit to Indonesia from 30 September-1 October 2013, he and President Yudhoyono committed to further strengthening Australian and Indonesian leadership of regional efforts to counter people smuggling and human trafficking. The leaders also reaffirmed their commitment to working closely in pushing forward the full and effective implementation of the Jakarta Declaration, the outcome of the ad hoc Special Conference on Irregular Movement of Persons hosted by Indonesia in Jakarta on 20 August 2013. Australia will continue to strongly support cooperative measures with Indonesia to improve border integrity and law enforcement. We will also continue to work with our regional partners to build our capacity to combat trafficking, strengthening legal frameworks and boosting the capability of criminal justice agencies and civil society.

Education

Indonesia and Australia enjoy a strong education relationship. Australia’s education and training links with Indonesia are formalised under the Memorandum of Understanding (MoU) on Cooperation in Education and Training between the Department of Education (then DEEWR) and the Ministry of Education and Culture (MoEC, then Ministry of National Education) which dates back to 1992. As of December 2012 there were 17,514 Indonesian students enrolled in Australian educational institutions. Indonesia is currently the fifth most popular destination in Asia for international study experiences by Australian university students, Indonesia will be one of the first countries to participate in the pilot implementation of the New Colombo Plan, a signature initiative to encourage the best and brightest young Australians to work and study in the Asia Pacific region.

The Building Relationships through Intercultural Dialogue and Growing Engagement (BRIDGE) Program was established in 2008 by the Australia-Indonesia Institute (AII) within the Department of Foreign Affairs and Trade. BRIDGE uses technology to builds links between Australian and Indonesian teachers and students. It is expected that by the end of 2015, a network of 254 schools and 512 teachers across Australia and Indonesia will be established. This will engage around 1800 Australian and 2500 Indonesian teachers, and 100,000 Indonesian students and 76,000 Australian students. BRIDGE plays a critical role in increasing Asia literacy in Australian children and is an innovative model for linking Australian schools with partner schools in Asia. The intercultural benefits that flow from BRIDGE and the opportunities for Australian and Indonesian children to learn about each other’s cultures and religions offer unique and tangible benefits for both countries.

Australia's development assistance in Indonesia has a significant education component. This assistance is aligned to the Indonesian Government's goal to achieve universal access to nine years of good quality education.

The Australia Awards program for Indonesia is the largest and longest running scholarship program of its kind offered by the Australian Government to any of its development partner countries. The program is valued by Indonesia as a high quality, merit-based, scholarships program.

For the 2013 intake a total of 571 new awards were offered in Indonesia, comprising 472 long term and 99 short term awards. A total of 2029 long term awards and 911 short term awards were provided to Indonesia from 2007–2012.

Australia Awards focused on areas of importance to the development of Indonesia’s human resource gaps, including those aimed at strengthening economic governance and the delivery of services in health and education.

Regional Interfaith Dialogue

Australia is also a co-sponsor of the Regional Interfaith Dialogue, together with Indonesia, the Philippines and New Zealand. In addition to the co-sponsoring countries, the eight remaining ASEAN countries also participate in the Dialogue, as well as Timor-Leste, Papua New Guinea and Fiji. The Dialogue has been held on six occasions, most recently in Semarang, Indonesia in March 2012. The theme of the Semarang Dialogue was "Strengthening Collaborative Communities to Promote Regional Peace and Security". The Semarang Dialogue followed on from a positive history of regional Dialogues: the Yogyakarta Dialogue on Interfaith Cooperation (December 2004), the Cebu Dialogue on Regional Cooperation for Peace, Development and Human Dignity (March 2006), the Waitangi Dialogue on Building Bridges (May 2007), the Phnom Penh Dialogue on Interfaith Cooperation for Peace and Harmony (April 2008), the Perth Dialogue on Future Faith Leaders: Regional Challenges and Co-operation (October 2009).

The Plan of Action from the sixth Dialogue is available here: Semarang Plan of Action

The Australia-Indonesia Institute

Established in 1989, the Australia-Indonesia Institute (AII) aims to develop relations between Australia and Indonesia by promoting greater mutual understanding and expanding areas of contact and exchange between our two peoples. The AII has a number of fantastic flagship programs including BRIDGE, the Australia Indonesia Youth Exchange Program (AIYEP) and the Muslim Exchange Program (MEP). The AII also runs public grant rounds which fund innovative programs in arts and culture, education, religion and society, media, youth, women and girls and science and technology. These opportunities and many more can be accessed at the AII website.

Economic overview

With an estimated population approaching 250 million, a swelling middle class of around 45 million people and an economy soon expected to join the trillion dollar club, Indonesia’s economic potential is significant. Indonesia, already the largest economy in Southeast Asia, is projected to be the world’s 7th largest economy by 2030.

Over the past ten years, Indonesia’s GDP growth has averaged over 5.8 per cent a year, well above growth in the previous decade. In 2012, Indonesia’s GDP grew by 6.3 per cent. Growth of 5.6 per cent is expected in 2013, following an expected slowdown in investments.

Strong economic growth is helping the country reduce poverty levels — the World Bank reports that between 1999 and 2011, the national poverty rate fell from 23.4 per cent to 12.5 per cent. Indonesia has also invested in basic services, particularly education.

Bilateral economic and trade relationship

Indonesia’s middle or ‘consuming’ class now numbers around 45 million and is forecast to increase to 135 million by 2030. Rising Indonesian demand for consumer goods and services, particularly in education, finance, healthcare, ICT and tourism, aligns well with Australian industry capabilities There is good potential to grow the economic relationship between our two countries.

Australia’s two way trade with Indonesia was worth $14.6 billion in 2012, making Indonesia our 12th largest trade partner. Two-way trade in goods decreased to $11.1 billion in 2012 (down 1.9 per cent from 2011). Australia’s major merchandise exports to Indonesia are:

Indonesia is also Australia’s third largest agriculture market, with exports worth $2.3 billion in 2012. Australia’s main agricultural exports to Indonesia are: wheat, cotton, live animals, meat, horticultural products and sugar.

Two way trade in services reached almost $3.6 billion in 2012. Australian services exports to Indonesia grew by 2.5 per cent in 2012, and reached $1.26 billion, while services imports from Indonesia to Australia grew by 3.5 per cent to reach 2.2 billion.

Australian investment in Indonesia is growing. In 2012, it grew by 35.5 per cent to reach $6.7 billion. Indonesian investment in Australia was around $600 million in 2012.

Australian businesses in Indonesia

As Indonesia's economy develops and diversifies, Australian investment in Indonesia is also growing. Austrade estimates that more than 250 Australian companies now have a presence in Indonesia. Many have significant investments or are planning additional investments.

Australian investment in the banking, finance and insurance sectors is an important growth area. Australia's leading banks are prominent in Indonesia's financial services sector. ANZ is one of Indonesia's ten largest private commercial banks. The Commonwealth Bank has operated in Indonesia since 1997 and specialises in retail and small business banking and insurance. A number of other prominent Australian financial services providers, including Macquarie Group and IAG also have operations in Indonesia.

Australian companies in Indonesia are well-regarded for the quality of their work and their contributions to local communities through corporate social responsibility programs. Thirty-eight Australian-listed companies are active in more than 120 mining ventures across Indonesia, including BHP Billiton, Newcrest, Leighton and Thiess.

Australian companies are also active in agribusiness, and are increasing their profile in the services, infrastructure, clean energy and environmental sectors.

With Indonesia and Australia as the two largest economies in the region, there is considerable potential to take advantage of the size, proximity and complementarities of our economies to increase bilateral trade and investment, which lags behind other aspects of the relationship. The Australian and Indonesian Governments are working actively to create the right environment for continued strong growth in bilateral business and investment.

Australian businesses seeking to invest in Indonesia should ensure that they conduct due diligence and familiarise themselves carefully with the business environment on the ground.

Austrade’s team in Indonesia focuses on trade and investment opportunities and would be able to assist Australian businesses in the following sectors:

Australian trade and investment strategies

A strong and comprehensive legal framework underpins our growing economic and commercial ties.

Australia continues to work closely with Indonesia in in multilateral, global and regional fora, including the World Trade Organization (WTO), APEC and the G20, to support global and regional trade liberalisation and economic growth. Indonesia and Australia work together in the Cairns Group of Agricultural Fair Traders (the Cairns Group) to increase liberalisation in international trade in agricultural products during the current round of WTO negotiations.

The entry into force of the Agreement establishing the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) provides greater certainty to both Indonesian and Australian businesses and dramatically reduces tariffs on two-way trade. Negotiations have also commenced on a Regional Closer Economic Partnership agreement (RCEP), which will build on the outcomes of AANZFTA and promote liberalisation and growth in the region.

Negotiations have begun on an Indonesia-Australia Comprehensive Partnership Agreement (IA-CEPA), to further liberalise bilateral trade, encourage greater foreign direct investment in Indonesia and provide a framework for greater economic cooperation.

ASEAN-Australia-New Zealand Free Trade Area (AANZFTA)

The Agreement Establishing the ASEAN (Association of Southeast Asian Nations)-Australia-New Zealand Free Trade Area (AANZFTA) was signed by Australia, New Zealand and ASEAN countries, on 27 February 2009 in Hua Hin, Thailand.

AANZFTA is the largest FTA Australia has concluded. ASEAN and New Zealand together account for 18 per cent of Australia's total trade in goods and services, worth $110 billion in 2011.

AANZFTA contains regional rules of origin and substantial tariff reduction and elimination commitments, as well as World Trade Organization (WTO)-plus commitments in other areas such as services, which will provide commercially-meaningful benefits to Australian businesses and further strengthen Australia's commercial ties with ASEAN.

AANZFTA is in force for all 12 signatory countries of the Agreement: Australia, Brunei Darussalam, Burma, Cambodia, Indonesia, Laos, Malaysia, New Zealand, Philippines, Singapore, Thailand and Vietnam. The Agreement entered into force for Indonesia on 10 January 2012.

Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) negotiations

Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) negotiations commenced in Jakarta in September 2012. Two rounds of negotiations have been held to date.

The IA-CEPA aims to strengthen and expand the trade, investment and economic cooperation relationship between Australia and Indonesia. It will help bring the region's two largest economies closer together and will form a key part of Australia's regional economic integration.

The IA-CEPA will cover trade in goods and services, investment and economic cooperation and will build upon the ASEAN-Australia-New Zealand FTA.

Regional Comprehensive Economic Partnership negotiations

The Regional Comprehensive Economic Partnership (RCEP) is an ASEAN-centred proposal for a regional free trade area, which would initially include the ten ASEAN member states and those countries which have existing FTAs with ASEAN — Australia, China, India, Japan, Republic of Korea and New Zealand. RCEP will build on and expand Australia’s existing FTA with ASEAN and New Zealand, AANZFTA.

The objective of launching RCEP negotiations is to achieve a modern, comprehensive, high-quality and mutually beneficial economic partnership agreement that will cover trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement and other issues.

Market access

Australia continues to encourage Indonesia to maintain liberalised trade and investment regimes. The Australian Government takes every opportunity to seek reductions in tariffs and remedies for non-tariff barriers affecting Australian exports, bilaterally and through multilateral and regional trade forums.

The Australian Government is currently pursuing a number of market access issues with Indonesia, including tariff and quarantine issues related to horticulture products and recent changes to Indonesia's import regulations affecting a range of products including fruit, live animals, meat products and manufactured goods.

Updated January 2014