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COUNTRY BRIEFS


OVERVIEW

The relationship between Australia and Indonesia has never been stronger. Australia and Indonesia are close neighbours, with a highly productive relationship that ranges across political, security, commercial, environmental, cultural 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 issues, including counter-terrorism, illegal fishing, people smuggling, avian influenza, climate change and interfaith dialogue. Australia is committed to a long-term development partnership with Indonesia. In 2011-2012, Australian aid to Indonesia will be worth an estimated A$558 million, making Indonesia the largest recipient of Australian aid.

Close cooperation between Australia and Indonesia on security matters is underpinned by the Lombok Treaty (2006) (http://www.dfat.gov.au/geo/indonesia/ind-aus-sec06.html) ,which provides a treaty level framework for addressing traditional and non-traditional security challenges. Indonesia and Australia have a healthy trade and economic relationship with two-way trade (merchandise and services) worth A$12.9 billion in 2010, and two-way investment worth around A$4.5 billion in 2008.

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POLITICAL OVERVIEW

Government and politics

Indonesia is a unitary state, headed by an executive 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.

Recent political developments

Indonesia is South-East Asia's largest and most vibrant democracy and the third largest in the world - after India and the United States. A robust media and civil society and direct and fair elections are at the heart of its strengthening political institutions. Since 2005, Indonesia has held over 350 local elections. Sub-district and district leaders and provincial governors win office through direct elections. Voters are also able to select provincial and district-level parliamentarians. Indonesia has undergone a process of decentralisation since 1999. This has seen control of large amounts of public expenditure and service delivery transferred from the central government to over 450 provincial and local governments.

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 in 28 of 33 provinces, Yudhoyono was the first Indonesian president to be re-elected to office in free and fair elections. In October 2009, the Prime Minister and Minister for Foreign Affairs attended President Yudhoyono's inauguration in Jakarta. Now well into his second term, President Yudhoyono is focused on reducing unemployment and alleviating poverty. Sound economic growth underpins his political standing.

Indonesia held parliamentary elections in April 2009 for a new national House of Representatives (DPR), Regional Representative Council (DPD), provincial legislatures (DPRD-I) and district councils (DPRD-II). President Yudhoyono's Democrat Party finished first, with approximately 21 per cent of the national vote and around 27 per cent of DPR seats. The Golkar Party and the Democratic Party of Struggle (PDI-P) each won around 15 per cent of the popular vote. Islamic-oriented parties, though their overall share of the national vote continued to decline, took the next four places, with the Prosperous Justice Party (PKS) winning around 8 per cent. New parties Gerindra and Hanura, led respectively by former generals Prabowo Subianto and Wiranto, won around 5 per cent and 4 per cent respectively.

The 2009 elections took place on a vast scale. There were 171,068,667 registered voters from 33 provinces, 489 districts and 77 electoral districts. The elections were widely judged to be free and fair and were largely free of violence. The elections marked another important milestone in Indonesia's successful transition to a vibrant, open democracy. The next round of national and presidential elections will be held in 2014.

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ECONOMIC OVERVIEW

The Indonesian economy withstood the global financial crisis better than many analysts expected, and has continued to grow strongly since. The International Monetary Fund (IMF) has forecast growth in Indonesia of 6.4 per cent in 2011. This growth is expected to be underpinned by consumption spending, the main driver of growth in Indonesia.

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BILATERAL RELATIONSHIP

Australia-Indonesia Relations

Australian-Indonesia relations are at an historical high point. Australia and Indonesia are close neighbours enjoying a wide-ranging relationship encompassing political, security, commercial, cultural and people-to-people links. Around 15,500 enrolments were received from Indonesian students for all levels of education in Australia in 2010 and a record 548,500 Australians visited Indonesia in 2009.

An estimated 400 Australian firms operate in Indonesia in a range of sectors, including the mining, construction, finance and banking, food and beverages, and transport sectors. There have been some 90 two-way Ministerial visits between Australia and Indonesia since September 2007.

Mr Rudd has met his Indonesian counterpart, Dr Marty Natalegawa, on numerous occasions, including at the East Asian Summit Foreign Ministers Meeting in Bali in July 2011.

President Yudhoyono visited Australia from 9-11 March 2010, accompanied by a large delegation, including 12 ministers. During his visit, the President was appointed an Honorary Companion of the Order of Australia, addressed a joint sitting of Parliament and met the Prime Minister as well as other political figures and business leaders. In his address to Parliament, the President said Australia and Indonesia were 'strategic partners' and highlighted four challenges for the 'solid and strong' bilateral relationship: improving public perceptions of each other; managing increasingly complex relations; moving towards a more opportunity-driven relationship; and addressing new issues such as terrorism, people smuggling, natural disasters, infectious disease, financial crises and climate change.

During the President's visit, agreements for annual Heads of Government and two-plus-two (Defence and Foreign Affairs Ministers) meetings were announced; a new Implementation Framework for Cooperation to Combat People Smuggling and Trafficking in Persons was signed; as was a new bilateral Arrangement on Consular Notification and Assistance. It was also agreed that the Governments would support the establishment of an Australia-Indonesia Leadership Dialogue to bring together business, academics and other public figures from the two countries.

Development Assistance

Australia is the largest bilateral grant-based donor to Indonesia, providing a wide range of technical and economic support to Indonesia. Australia provides predictable, effective and high quality assistance to the Government of Indonesia in its efforts to strengthen and grow. Policy support from Australia provides an important complement to that provided by the multilateral banks to Indonesia. For more information please see the related AusAID page for Indonesia (http://ausaid.gov.au/country/indonesia.cfm) .

Cooperation on Climate Change

Our partnership with Indonesia on climate change is substantial and growing, both in international negotiations and through initiatives to reduce emissions from deforestation and degradation. On 9 December 2010, Mr Rudd and Climate Change Minister Greg Combet announced an allocation of $45 million to Indonesia to extend climate demonstration work in Kalimantan, accelerate joint work on Indonesia's National Carbon Accounting System and support Indonesia's efforts to adapt to climate change.

During Mr Rudd's June 2008 visit to Indonesia, he and President Yudhoyono released a Joint Statement on Climate Change (http://parlinfo.aph.gov.au/parlInfo/download/media/pressrel/EUTQ6/upload_binary/eutq60.pdf) , reaffirming Australia's and Indonesia's resolve to respond to the serious challenge climate change presents and calling on all leaders to agree to a long-term goal for emissions reductions as stipulated in the Bali Action Plan.

During the visit the two governments also signed the Indonesia-Australia Forest Carbon Partnership (http://www.climatechange.gov.au/government/initiatives/international-forest-carbon-initiative/action.aspx) which established a framework for long-term cooperation on reducing emissions from deforestation and forest degradation in developing countries (REDD+). The Partnership is operating in three key areas: policy development and capacity building to support participation in international negotiations and future carbon markets; technical support for forest carbon monitoring and measurement; and the development and implementation of REDD+ demonstration activities.

Cooperation on Counter-Terrorism

Australia and Indonesia have a strong commitment to mutually beneficial engagement and cooperation to combat terrorism. Indonesia also benefits from Australia's counter-terrorism (CT) assistance programs provided on a regional basis.

Australian and Indonesian authorities have cooperated closely to investigate several terrorist incidents, including the 12 October 2002 Bali bombings, the 9 September 2004 bombing of the Australian Embassy in Jakarta, and the 1 October 2005 Bali bombings. Indonesian authorities have convicted over 470 terrorists and their accomplices since 2000.

Building on the links established through these joint investigations, cooperation now involves wide-ranging capacity-building assistance to Indonesian agencies, including in the areas of law enforcement, CT financing, border control, transport security and intelligence. The Jakarta Centre for Law Enforcement Cooperation (JCLEC) (http://www.jclec.com/) , a bilateral Australia-Indonesia initiative, has become an important regional centre for law enforcement training. Regional participation in JCLEC courses since 2004 has also helped to strengthen networks and collaboration among law enforcement officials across South-East Asia in addressing transnational crimes, such as terrorism and people smuggling.

Australia and Indonesia have also taken the lead in promoting regional CT cooperation, including by jointly hosting the Sub-Regional Ministerial Conference on Counter-Terrorism in Jakarta in March 2007. That meeting provided impetus for closer regional counter-terrorism cooperation and led to agreement on priorities for future CT action in South-East Asia.

In February 2002, Australia signed a bilateral Counter-Terrorism Memorandum of Understanding (CT MoU) with Indonesia. Underlining the long-term nature of our bilateral counter-terrorism cooperation with Indonesia, in February 2008, the then Australian Minister for Foreign Affairs, Mr Smith, and his Indonesian counterpart, Dr Wirajuda, extended the CT MoU for a further three years. This extension reflects the strengthening and deepening of security cooperation between Indonesia and Australia envisaged under the Lombok Treaty. Australia and Indonesia also held inaugural bilateral counter-terrorism consultations at an officials level in Jakarta in May 2008.

Lombok Treaty

The Agreement between Australia and the Republic of Indonesia on the Framework for Security Cooperation (Lombok Treaty) (http://www.dfat.gov.au/geo/indonesia/ind-aus-sec06.html) was signed by Foreign Ministers in Lombok on 13 November 2006. On 7 February 2008, former Foreign Ministers, Mr Smith and Dr Wirajuda,exchanged notes, bringing the treaty into force. At the 9th Australia-Indonesia Ministerial Forum in November 2008, Australian and Indonesian Ministers agreed on a Plan of Action to implement the Lombok Treaty. The Plan of Action noted a number of priority areas of bilateral security cooperation agreed between the two governments.

The Agreement is forward-looking and aims to deepen and expand bilateral cooperation and exchanges on matters affecting our common security. It provides a strong legal framework for encouraging intensive dialogue, exchanges and implementation of cooperative activities to combat terrorism and transnational crime, and to strengthen cooperation in defence, law enforcement, counter-terrorism, intelligence, maritime and aviation security, and in relation to the proliferation of weapons of mass destruction, and emergency management and response.

The Agreement also provides a firm basis for the conclusion of separate arrangements in specific areas. Existing and future MoUs on issues such as counter-terrorism, defence cooperation and police cooperation will operate within the overarching framework of the treaty-level Agreement and be guided by the principles in the Lombok Treaty. It contains a clear undertaking of support for each other's territorial integrity.

The Agreement will contribute to the stability and prosperity of both countries and the broader Asia-Pacific region.

Cooperation on People Smuggling

Australia and Indonesia work closely together to combat people smuggling in the region and Mr Rudd and Dr Natalegawa jointly co-chair the Bali Process on People Smuggling, Trafficking in Persons and Related Transnational Crimes. At the Bali Process Ministerial Conference held on 30 March 2011, Ministers adopted a regional cooperation framework for tackling people smuggling, including options for practical action such as

-- bilateral arrangements to undermine people smuggling and create disincentives for irregular movement

-- coordinated border security arrangements

-- and strengthened information and intelligence sharing.

The ongoing work of the Bali Process is a collaborative effort in which over 50 countries and numerous international agencies participate. Since its inception, the Bali Process has delivered direct practical benefits to operational agencies through a regular program of practical, operationally focused workshops, including on protection and repatriation issues, information sharing, document and visa integrity and immigration aspects of airport security.

During President Yudhoyono's March 2010 visit to Australia, officials signed a new Implementation Framework for Cooperation to Combat People Smuggling and Trafficking in Persons. This followed the signing of a Joint Statement on People Smuggling and Trafficking in Persons (http://www.foreignminister.gov.au/releases/2008/9_aimf_statement_ps.html) by Ministers in 2008. Cooperation on People Smuggling is also included in the Lombok Treaty as a priority for enhanced cooperation in the area of law enforcement.

Cooperation on Illegal Fishing

Australia and Indonesia are working closely to tackle the problem of illegal fishing in Australia's northern waters and more broadly in the region. Illegal fishing is highly damaging to Australia's marine environment and poses significant quarantine, immigration and security risks to Australia. A joint study of illegal fishing in the Timor and Arafura Seas is currently being carried out to better understand the nature and extent of the problem. In 2009, 26 Indonesian fishing vessels were apprehended, a significant reduction from the peak of 365 apprehended in 2006.

The Australia-Indonesia Joint Illegal Fishing Public Information Campaign to discourage fishers and their communities from participating in illegal fishing activity in Australian waters formally commenced in September 2006. To date, the information campaign has covered Rote, West Timor, Papua, Sulawesi and the East Java port of Probolinggo. In 2009, the campaign conducted outreach visits to East Java, South Sulawesi, South-East Sulawesi and Maluku. On 1 April 2009, the Australian Embassy in Jakarta and the Indonesian Ministry of Marine Affairs and Fisheries (MMAF) held a forum in Bali to discuss the future activities of the campaign.

Australian and Indonesian officials are working through a joint fisheries surveillance forum and a working group to improve information sharing, build surveillance capacity and coordinate maritime patrols. Joint fisheries surveillance patrols were conducted on 30 October and 1 November 2007. Australia and Indonesia also held a workshop in Bali on 4-6 March 2008 on fisheries monitoring, control and surveillance. Australia is supporting the development of alternative livelihoods for illegal fishers in eastern Indonesia.

Education

Indonesia and Australia enjoy a strong bilateral education relationship. There are about 13,990 Indonesian enrolments in Australian institutions, delivering close to A$500 million annually to the Australian economy.

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. For more information please see the related AusAID page for Indonesia (http://ausaid.gov.au/country/indonesia.cfm) .

The Building Relationships through Intercultural Dialogue and Growing Engagement (BRIDGE) project was announced by former Foreign Affairs Minister Smith in August 2008. BRIDGE is an initiative of the Australia-Indonesia Institute (http://www.dfat.gov.au/aii/index.html) (AII) within the Department of Foreign Affairs and Trade and is funded with The Myer Foundation and the Commonwealth Government through AusAID. It is managed by the Asia Education Foundation. BRIDGE is an innovative three-year project of teacher exchange and school e-twinning, involving 180 teachers and 80 schools. Each year, groups of Indonesian teachers will spend several weeks jointly developing curricula with their Australian counterparts from a mix of metropolitan, regional and rural schools across all states and territories. The teachers will also visit and work with their twinned school and have a homestay in the local school community. The BRIDGE project aims to help create strong and lasting linkages between teachers, schools and communities in both countries, which will continue well beyond the three year life of the project, and better equip the students to live and work with one of their closest neighbours.

The Australia Awards offer educational and professional development awards to citizens of the Asia-Pacific region, including over 300 scholarships per annum to Indonesians. The Awards support growth in our region and builds enduring links at the individual, institutional and country levels through three programs, the Australian Development Scholarships, Australian Leadership Awards and Endeavour Awards. Further information about the Australia Awards can be found at the Study in Australia website (http://www.studyinaustralia.gov.au/Sia/en/StudyCosts/Scholarships) .

The Australian Centre for International Agricultural Research (ACIAR) Fellowships Scheme provides opportunities for scientists in partner countries, including Indonesia, involved in ACIAR-supported collaborative research projects to obtain postgraduate qualifications at Australian tertiary institutions. ACIAR supported specialised postgraduate study in Australia by 35 Indonesian scientists and economists over the last three years, 27 of which were PhD awards.

The Government's National Asian Languages and Studies in Australian Schools Strategy (NALSAS) (http://www1.curriculum.edu.au/nalsas/) aims to promote the study of Asian languages, including Indonesian, in Australian high schools.

Regional Interfaith Dialogue

In December 2004, Australia co-hosted with Indonesia the initial Regional Interfaith Dialogue, which aimed to help empower mainstream religious leaders and underpin the key role of faith and community leaders in bridging differences and building harmony in the South-East Asia region.

After the Dialogue's first meeting, the Philippines and New Zealand joined Australia and Indonesia as co-sponsors. The second Regional Interfaith Dialogue was held at Cebu in the Philippines in March 2006, the third Dialogue was hosted by New Zealand in May 2007 in Waitangi, and the fourth Dialogue was held in Cambodia on in April 2008.

In October 2009 Australia hosted the fifth Regional Interfaith Dialogue in Perth. The theme for the Dialogue was 'Future Faith Leaders: Regional Challenges and Cooperation'. Indonesia, Australia, the Philippines and New Zealand were again cosponsors. In addition to the co-sponsoring countries, the eight remaining ASEAN countries also participated in the Dialogue, as well as East Timor and Papua New Guinea.

The Australia-Indonesia Institute

The Australia-Indonesia Institute (AII) was established by the Australian Government in 1989. The 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.

For more information visit: Australia-Indonesia Institute (http://www.dfat.gov.au/aii/index.html)

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BILATERAL ECONOMIC AND TRADE RELATIONSHIP

Bilateral Trade Relationship

In 2010, Australia's two-way trade with Indonesia reached $12.9 billion. Australia recorded a $1.4 billion trade deficit in 2010, which largely reflects a substantial increase in oil and tourism imports (Australians visiting Bali). Indonesia is our fourth largest trading partner in ASEAN and our 12th largest trading partner overall. In 2010, Australian investment in Indonesia increased 11 per cent to $5.3 billion. Indonesian investment in Australia remains modest falling by 40 per cent to $339 million in 2009 (the latest available data). The bilateral economic relationship, while significant, still lags behind other aspects of the relationship. Our challenge is to take advantage of our natural complementarities to realise the untapped commercial potential of the bilateral relationship.

Trade and Economic Cooperation

In addition to the Australia-Indonesia Ministerial Forum, the annual Australia-Indonesia Trade Ministers' Meeting (TMM) promotes trade and investment between the two countries and addresses impediments through dialogue at many levels. At the 8th TMM (http://www.trademinister.gov.au/releases/2009/sc_013.html) Trade Ministers welcomed a Joint Feasibility Study (http://www.dfat.gov.au/fta/iacepa/index.html) on the merits of a bilateral FTA at the TMM. The study included independent economic modelling and examined the potential implications for economic growth, trade, investment, commercial linkages and competitiveness. The joint feasibility study found that a comprehensive FTA covering trade and investment would provide worthwhile economic benefits for both countries. It showed that the greatest gains would be achieved under an FTA that would eliminate all tariff and non-tariff barriers to bilateral trade and investment. It also found that an FTA would be an opportunity to accelerate and deepen the integration of the Australian and Indonesian economies - the two largest in the region. The study further concluded that a bilateral FTA would complement and build upon Australia's other links with Indonesia.

Australia welcomed the signing of the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) (http://www.dfat.gov.au/fta/aanzfta/index.html) on 27 February 2009 Australia and Indonesia, along with the nine other ASEAN countries and New Zealand, signed the region-wide agreement AANZFTA is the largest FTA Australia has ever signed.

Bilateral commercial links are also advanced through the Australian-based Australia-Indonesia Business Council (http://www.aibc.com.au/) and its counterpart in Indonesia, the Indonesia-Australia Business Council.

Australian Trade and Investment Strategies

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, meat products and manufactured goods.

Australia continues to work closely with Indonesia within 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. As a significant exporter of agricultural goods, Indonesia is an important ally in the Cairns Group. The Trade Minister chaired the June 2009 Cairns Group Meeting, which was hosted for the first time by Indonesia.

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EXPORT OPPORTUNITIES

Trade and Investment Opportunities

Indonesia continues to offer export potential for a range of Australian companies. Indonesian demand in for consumer imports is strong, and Austrade has identified major export opportunities in:

-- agribusiness

-- food and beverages

-- consumer products (fashion items and cosmetics)

-- ICT (mobile telephony)

-- and mining supplies.

There is also good scope to expand services exports in construction and infrastructure development, finance, education and franchising sectors.

Related Austrade country page for Indonesia (http://www.austrade.gov.au/Indonesia-profile/default.aspx)

TradeWatch Contacts

If you would like more information on the trade and economic conditions in Indonesia, email trade.watch@dfat.gov.au

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Last Updated: May 2011

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