November 08, 2010

This Weekend’s News: As President Obama Heads to Indonesia, U.S. Firms Look On

With the president preparing to depart India for Indonesia tomorrow, I thought it was appropriate that The Washington Post had a piece over the weekend on Indonesia, a country that has been prominent on the administration’s agenda, especially as the administration touts Indonesia’s potential to be an export market for U.S. energy and other firms. But in addition to that, Indonesia is strategically important for the United States and the Obama administration’s regional engagement; it is the world’s largest Muslim-majority country, rich in natural resources and a burgeoning economy in the region.

According to the Post’s Howard Schneider:

In plotting a path to boost U.S. exports, the Obama administration has turned a keen eye to the trillions of dollars Indonesia and other Asian nations plan to spend on power plants, transportation and other infrastructure in coming years, expecting it to boost American makers of heavy equipment and other top companies.

But as Schneider suggested, U.S. firms may have an uphill battle. “China, Japan and South Korea have made deep inroads into the Indonesian market over the past 15 years, even as the United States slipped as a source of its imports,” Schneider wrote, “and nearby countries such as Malaysia and Australia are aiming to benefit from increasingly tight regional ties.”

“U.S. firms are long-established here in the energy and mining industries,” Schneider noted. “But U.S. officials say that recent regulations adopted by Indonesia - rather than opening the market in areas of U.S. expertise - have heightened restrictions on industries important to U.S. exports, such as pharmaceuticals, energy and telecommunications.”

This could be problematic for some U.S. energy firms that are looking for opportunities to help Indonesia transform its energy sector, as the country moves forward with plans to cut one-fourth of its greenhouse gas emissions by 2020. In particular, there is an interesting point raised by Schneider on how Indonesia’s efforts to curb rampant corruption might actually create a chilling effect that could harm U.S. energy firms. Consider this:

The anti-corruption drive might in theory make competition fairer, but it has also created difficulties. Some contracting officials are now so price-sensitive - for fear of being accused of taking kickbacks - that U.S. and European firms whose higher-quality goods and services are relatively expensive are put at a disadvantage. New power plants built by Chinese firms, for example, came cheap but rely on outmoded coal technology, local officials say.

In the June 2010 CNAS report on Indonesia, Crafting a Strategic Vision: A New Era of U.S.-Indonesia Relations, Christine Parthemore wrote a chapter on Indonesia’s natural security to demonstrate why the Obama administration should craft a relationship with Indonesia that specifically engages the country around natural resources, energy and climate change. As Christine wrote:

As one of the top greenhouse gas emitters in the world and as the home of about 10 percent of the world’s remaining tropical rain forest, Indonesia will be critical to these efforts [mitigating climate change]. The United States has a long experience of balancing natural resource extraction with conservation, and also developing job-creating technological solutions to promote efficient use of resources. Cooperation centered on promoting sustainable natural resource use can also build confidence that will be important for generating Indonesian support for stronger ties to the United States and for addressing more difficult security-related aspects of the U.S.-Indonesia partnership. 

Indeed, natural resources, and in particular energy and climate change, will continue to shape the U.S.-Indonesia relationship. And there is certainly opportunity there for U.S. firms, especially energy and infrastructure ones, to help sculpt that relationship, but in a way that creates both American and Indonesian jobs. It doesn’t have to be a zero-sum relationship, and as Schneider argued, it can’t be.

The big takeaway from Schneider’s report is that the United States needs to carefully consider what its partnership looks like with Indonesia in order to successfully make inroads there. As other regional partners (i.e., China, Japan and South Korea) continue to engage Indonesia with more balance in their relationship, the United States can ill-afford to press for an unbalanced relationship that benefits U.S. firms (and the United States, generally) at the expense of Indonesia’s growing middle class.

Schneider’s last paragraph cuts right to the point: “‘The Americans who come here are doing well," said Sofjan Wanandi, chairman of the Employers Association of Indonesia, a business lobby. ‘But they only want to sell. We want investment and added value. . . . Put a refinery here. Put a petrochemical plant here. Negotiate.’”

This Week’s Events

This afternoon at 4:30 PM, head to SAIS for a discussion about The U.N. After Copenhagen: Challenges and Opportunities. Tomorrow at 10 AM, the Environmental and Energy Study Institute will host a forum on Black Carbon and Its Implications for Climate Change and Public Health. Then at noon, checkout Resources for the Future for Moving US Climate Policy Forward: Are Carbon Tax Shifts the Only Good Alternative? Of course, at 6 PM, join CNAS as the Willard Hotel for the Launch of Bob Kaplan’s latest book, Monsoon: The Indian Ocean and the Future of American Power . On Wednesday, SAIS will host a discussion on Low Carbon Growth Strategies: Case Studies From India, Indonesia, Vietnam and the Philippines at noon. On Thursday at 2 PM, add a trip to American University to listen to Arctic Security and Climate Change. And then finally at noon on Friday, join SAIS again for Clean Energy in Emerging Markets: Industry and Investment Perspectives From India.

Enjoy the week everyone!