In mid-2017, in an essay for Strategic Review, I implored for and elaborated upon the concept of infrastructure diplomacy. The premise of the essay was modest: Indonesia is trying to bridge its huge infrastructure gap and will take whoever’s funds are available, despite knowing the fact - and even to some extent, embracing the fact that funding is in one way or another a form of soft power exercise by powerful economies. Titled “The art of infrastructure diplomacy,” the essay was later published under a content-sharing agreement with Stratfor, a US-based geopolitical intelligence platform, showing that there is a stroke of relevance within the international community.
Today, while the issue still remains very relevant in Indonesia, the country has brought in a new dimension to the equation, as it prepares to expand its very own infrastructure diplomacy abroad.
The infrastructure expansion
Day 1, in 2014, in wake of past periods of infrastructure underinvestment that put huge constraints on the nation’s growth, new Indonesian President Joko Widodo vowed that his administration would pay a great deal of attention to infrastructure building. Five years, 15 airports, and 24 seaports later, one could say the promise has been delivered: more than 2,000 miles of railways and 600 miles of toll roads have been completed. The country now also has a state-of-the-art MRT line which became a phenomenon because not only did it provide Indonesians with new means of public transportation, it redefines how Indonesians commute. They also helped Joko win re-election in 2019.
Despite these achievements, the World Bank states that the country still needs to bridge a gap of around $500 billion during the next five years. This is confirmed by the Ministry of National Development, which has laid out plans for a record $412 billion in investment in infrastructure. However, the plans also expose the constraints in making this more than just numbers on a piece of paper, as only around 40 percent of this is expected to be funded by the government.
It is true that Indonesia’s economy is growing rapidly, but so have its infrastructure needs.
Yet it was not the case that Indonesia has failed to narrow its infrastructure gap; it was based on the principle that the more a country develops, the more its ambitions grow, and the more needs it must address. In 2015, the government allocated infrastructure funds reaching $18 billion, while in 2019 the figure soared by 62 percent, reaching a record $29 billion. Moreover, the plans to relocate the capital from Jakarta to East Kalimantan Province is expected to cost another $34 billion. It is true that Indonesia’s economy is growing rapidly, but so have its infrastructure needs.
It is safe to say, by all means, that the country needs all the resources it can muster to bridge its infrastructure gap. It has caused some to raise an eyebrow, when Indonesia starts it infrastructure adventure in foreign lands, notably in Southeast Asia.
One of the country’s largest state-owned construction companies, PT Wijaya Kara (WIKA), has just completed the construction of the largest airport ever in Timor Leste, the Oe-Cusse International Airport, equipped with a 1,367-foot runway and a capacity of 500,000 commuters per year - almost half of Timor Leste’s 1.3 million population. PT WIKA also have other strategic infrastructure projects in East Timor, including the Komoro Bridge, and a couple of diesel-fueled power plant projects across the country. PT Industri Kereta Api (INKA), Indonesia’s train building enterprise, has partnered with Thai-based Thanakorn Co and the State Railway of Thailand to further set up a joint venture company, the INKA Thailand Co, to handle megaprojects in Thailand including the construction of a double-track railway worth for $3.63 billion. The partnership further indicated an expansion to projects in Cambodia, Laos, Myanmar and Vietnam. Yet PT WIKA and PT INKA are just two examples of a growing list of Indonesian construction companies flourishing abroad.
Indonesia’s infrastructure ventures with its Southeast Asian counterparts, however, is logical. The stability and prosperity of its neighbors is very much in Indonesia’s interests. Both under the framework of Asean and under its own foreign policy priorities, maintaining stability and prosperity in the region remains significant. Furthermore, the infrastructure projects are also an embodiment of the region’s ambitions towards the Master Plan on Asean Connectivity. Thus, cooperation in strategic areas in the Southeast Asian neighborhood is only natural.
But eyebrows were further raised as Indonesia expands beyond its neighborhood. One notable event, the launch of the Indonesia-Africa Infrastructure Dialogue (IAID). Held in June 2019, the dialogue brought together companies from numerous African nations. The event was a direct sequel to the previous year’s successful Indonesia-Africa Forum, which was the first time the country held an event of such caliber with its African counterparts since the historic Asia-Africa Conference in 1955. However, as its name suggests, the IAID has a more specific premise in mind: infrastructure cooperation. While one is a country, and one is a continent, the two parties share great ambitions in infrastructure development.
Debt trap diplomacy?
All will take their cup of tea and agree that managing the flow of investment is the key to stable economic growth. But not all will have the same expression when one bluntly states that infrastructure financing is but a part of their long-term investment. As is the case of some countries, even with a sincere facade of promoting international development and prosperity, indications show that infrastructure venture in developing countries are indeed investments both in economics and in politics.
Of course, this on its own is not wrong, but when infrastructure diplomacy is considered and treated as investment, things are a little different and opportunities arise for this to turn into a debt trap diplomacy.
The idea of debt trap is that it targets vulnerable countries with a lack of financing abilities, and plays upon the premise and the promise of infrastructure development while there is a larger stake at hand. In some cases, the failure of infrastructure to pay back its loans is very much in its interests, as it then can be leveraged for negotiations in other sectors. One nation that has in many instances been accused of resorting to debt trap diplomacy is China. The country has earned this moniker through the large involvement of its stakeholders in international infrastructure projects, and how it responds to failing infrastructure it helped build.
An infamous yet controversial example is how China traded part of its loans in the development of the Sri Lankan Hambantota Port for its day-to-day operation. This gave China the means to utilize the port as it pleases some have even pointed out unproven data that China has established military bases in their debt-for-equity swap projects. In this sense, it seemed that pushing countries into large debts it will not be able to pay is the means for a greater political motive. This could also be done, however, unintentionally as a last effort to reduce losses from infrastructure projects that turned out to be unsuccessful.
As such, Indonesia’s infrastructure ventures abroad should be of concern, particularly to Indonesia itself. The key for Indonesia not to get carried away and turn its infrastructure diplomacy into debt trap diplomacy is simple, albeit much simpler said than done. As all transactions ideally should be, upholding sincerity during all phases of infrastructure development remains a top priority. All parties involved must make sure that all of its stakeholders are there for nothing more than what they state, that there should not be a camouflaged greater motive.
The verdict
It is clear that Indonesia has no intentions of putting other nations into a debt trap. Politically, it is a far cry from the image it tries to establish, and economically, resorting to debt trap diplomacy is not beneficial for a country that needs all the funds it can get to bridge its own infrastructure gap, as trading its money for strategic infrastructure for example, will not financially be beneficial. It is imperative for Indonesia to plan its own venture carefully, making sure that this venture does not get out of hand trapping itself in debt trap diplomacy as a contingency to minimize and reduce losses from the failure of its infrastructure ventures.
Intentions aside, situations could force Indonesia to look for whatever means possible to cut losses from projects that fails to deliver. A deviation from infrastructure diplomacy to debt trap diplomacy is backwards progress for Indonesia. This is not how Indonesia pictures itself on the international stage. Thus, the country needs to reaffirm its vision in its infrastructure venture: building greater cooperation for prosperity for all.
Aswita
Frequent reader of Eriz' pieces and will still be! This point of view really help me to escape from govt perspective, written in tons of published reports or articles I read.