IEEJ: July 2011

Special Bulletin
A Japanese Perspective on the International Energy Landscape (48)June 24, 2011

Strategic Importance of Indonesia Boasting Growing Presence
Ken Koyama, PhD
Managing Director, Chief Economist
The Institute of Energy Economics, Japan

From June 20 through 22, I visited the Indonesian capital of Jakarta to attend aninternational conference sponsored by the International Energy Forum. I then had opportunities toexchange views with energy policy officials, energy industry people and energy experts in andoutside Indonesia at the conference and other places. Here, I would like to make a comment on thesituation of Indonesia that has been increasing its presence as a key Asian emerging economy.
No one can deny the fact that the presences of China and India among Asian emerging
economies are globally outstanding. It is not an exaggeration to say that China and India arebecoming a center of gravity in the world, as indicated by their great and fast-growing overallnational powers measured by various gauges including those regarding politics, economy andmilitary.
But Indonesia’s very robust growth or development over recent years highlights the nation
as the next Asian emerging economy chasing China and India. In the ASEAN region, Indonesia hascommanded a key geopolitical position facing the Straits of Malacca. It is geographically large,
measuring about 1.9 million square kilometers. Among the ASEAN countries, it has the dominantly
largest population (at 232 million at the end of 2009). Traditionally, Indonesia has been a great
power in the region. Its military size, of about 400,000 regular troops, and the country hosting theworld’s largest Islamic population, estimated at around 200 million, have also indicated Indonesia’spresence as a great and unique regional power.
After seeing its economic growth plunging on the Asian economic crisis, Indonesia hasrecovered smooth growth, sustaining firm growth of 5-6% since the early 2000s. In its latest World
Economic Outlook, the International Monetary Fund has projected the Indonesia economy to grow
6.2% in 2011 and 6.5% in 2012 after a 6.1% expansion in 2010. Indonesia is thus expected to sustain
relatively higher growth among the ASEAN countries. Various factors are cited as supporting therobust economy, including rich natural resources, as well as brisk domestic demand backed by thehuge population and the growing middle class.
Indonesia is a leading Asian producer/exporter of energy resources. In 2010, it produced
990,000 barrels per day of oil and 82 billion cubic meters of natural gas and exported 31.4 billion
cubic meters of liquefied natural gas. Indonesia is also rich with mineral resources including coal, tin,1

IEEJ: July 2011

copper, nickel and bauxite. As natural resources prices are rising globally, it is natural for Indonesia
to increase its presence as a resource-rich nation. But limits exist on conventional natural resourcesin areas that have been already developed. Oil production has thus followed a downward trend.
Nevertheless, expectations have been growing on unconventional gas resources such as coalbed
methane. Interests are growing in rich low-grade coal resources that have remained untapped.
Regarding energy resources, Indonesia also has rich potentials in geothermal power generation andbiofuel. Expectations are growing on their development as well.
Political stability over recent years is also cited as a factor behind Indonesia’s firm, stableeconomic growth. Indonesian President Susilo Bambang Yudhoyono was first elected in 2004 andreelected in 2009 for another five-year term lasting until 2014. His stable political management has
paved the way for his long period in office. Although there are various political management
challenges in this multi-racial country with a large poverty group, the long-term political stability
has worked to the advantage of Indonesia as a whole.
In addition to the robust economy and stable politics, Indonesia has a democratic
governance system where the top leader is elected in a presidential election every five years. It isbased on capitalism and market principles. Indonesia thus shares a wide range of values with theworld. This point is also emphasized as a factor behind its growing presence. On top of all of theabove points, China’s fast-growing presence and influences have been a particular factor behind thegrowing strategic importance of Indonesia.
As the Chinese economy has continued rapid growth, its economic, trade and investment
relations with Indonesia have grown closer. Chinese investors and companies have maintained astrong presence in the Indonesian economy over a long time so that China-Indonesia relations can beviewed as very deep. As Western countries and some Asian countries including ASEAN members
have grown more vigilant with regard to China due to its very rapid expansion of influences and its
enhancement of "assertive diplomacy" over recent years, however, Indonesia's strategic importancehas attracted more attention.
During his June 16-18 visit to Japan, Indonesian President Yudhoyono called at a region hit
by the March 11 Great East Japan Earthquake and offered Indonesia's solidarity with Japan inovercoming disasters. Japan and Indonesia then agreed to deepen their strategic partnership in a wide
range of areas from energy, infrastructure, trade and other economic areas to politics and security
and to enhance their cooperation in addressing Asian and global problems. The agreement can beinterpreted as indicating Japan's symbolic offer to give priority to Indonesia. With Indonesia,
however, the United States, European countries, the other ASEAN countries and China will also
continue moves to enhance or rebuild relations.
As a matter of course, Indonesia has challenges affecting its further growth anddevelopment. For example, even its energy sector, which has supported the nation's growth, isplagued with challenges including how to secure energy supply capacity meeting rapid energy

2

IEEJ: July 2011

demand growth, how to cope with energy subsidies that have contributed to accelerating demand
growth and generating huge government spending, and how to introduce foreign funds forproceeding with natural resources and infrastructure development. In some sense, Indonesia faces
many challenges that are not easy. The Indonesian situation, including responses to these challenges,
has been attracting global interest and attention. International energy market watchers must pay
attention to Indonesia's future development and growth, and its international situation.

Contact: report@tky.ieej.or.jp

The back issues are available at the following URL.
http://eneken.ieej.or.jp/en/whatsnew/JPOIEL.html

3