Where Is Indonesia on China’s Belt and Road Initiative?

By Prashanth Parameswaran

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Last week, reports surfaced of discussions between Indonesia and China to set up a new special fund under Beijing’s Belt and Road Initiative (BRI). The reports reflect a broader reality where Jakarta, while wary of the challenges inherent in engaging BRI, still remains open to realizing the opportunities within it as well as the initiative continues to evolve.

As I have noted before in these pages, Southeast Asia in general and Indonesia in particular have been important to the advancement of the BRI since it was first unveiled in 2013 – indeed, the “Road” component was initially rolled out by President Xi Jinping during a visit to Indonesia. In part, China has perceived that it can build on several advantages it has with the subregion that it does not enjoy in other areas to the same degree, be it geographic proximity to its southern provinces or the geopolitical leverage that comes with its growing clout felt in its near abroad.

In spite of some more extreme readings, the reception to BRI has in fact been mixed in Southeast Asia thus far. Indonesia, for its part, has been wary of concerns about of ongoing BRI projects, but has remained open to ways to address how to manage opportunities and challenges with China. This is not surprising given its own priority on infrastructure development under President Joko “Jokowi” Widodo, who just secured reelection earlier this year, as well as the mixed record of Chinese investment in Indonesia more generally that had preceded the BRI.

As a consequence, while officials had previously laid out the conditions that would guide Indonesia’s assessment of how projects would be approved – including environmental sustainability; the use of local labor; transfer of technology and knowhow; value creation for upstream and downstream industries; and private-sector led projects not reliant on government guarantees – that has not stopped Jakarta from working out ways to work with Beijing, including at the Second Belt and Road Forum in April where, according to Indonesia’s Coordinating Minister for Maritime Affairs, Luhut Pandjaitan, Indonesia had offered China involvement in 28 projects worth around $91 billion, with the expectation that at least a few of them would be approved.

Last week, Indonesia’s role within China’s BRI was in the headlines again with suggestions of an establishment of a special fund. Per Reuters, Indonesia’s Finance Minister Sri Mulyani Indrawati told reporters that Jokowi had made the request for a special fund under the BRI framework during a meeting with Xi on the sidelines of the G-20 meeting in Japan.

The discussion of such a mechanism comes as no surprise. It further reinforces the fact that, even though Indonesia still sees challenges within China’s BRI, it has not given up on trying to manage them while still actively looking for ways to take advantage of opportunities that are in its own interest. It is also consistent with what Indonesian officials have said previously about Jakarta wanting to have more of a say on the terms under which it would receive Chinese investment.

Thus far, few specifics have been publicly available about the special fund. Indeed, Indrawati herself candidly said that she was still currently conducting a study about specifics, including the form of the special fund, its size, costs, and the criteria for the loans that would come for it. Those details will be key to assessing hows this fund actually factors into Indonesia’s broader, evolving approach to the BRI and to China more generally.

With such details still not finalized, it is too early to draw conclusions about what exactly this special fund would do and how it would affect Indonesia’s role within China’s BRI. And for all the focus on BRI, it is also important to keep in mind that it is only one aspect of Sino-Indonesian economic collaboration, which is in turn only one realm of a complex bilateral relationship, which has its share of challenges as well including on the South China Sea. Nonetheless, given the continued traction the initiative has in the region and Indonesia’s geopolitical heft, it will be important to see how Jakarta advances this in the months and years to come.