Why Australia shouldn't mess with Indonesia

Damaging fallout from the spying controversy continues as Indonesia warns of protests in Jakarta.

 

 

 

Indonesia's President Susilo Bambang Yudhoyono talks with Tony Abbott earlier in 2013. Picture: AFP.

Australia's relationship with our closest and largest neighbour is in crisis, with Indonesia furious over reports Australia tapped the phones of the President, his wife and other government ministers in 2009.

Here's what's happened so far

The spying - which was detailed in reports leaked by NSA whistleblower Edward Snowden - has caused a major standoff.

Indonesian President Susilo Bambang Yudhoyono tweeted his disgust to more than 4 million followers, saying the revelations had damaged the 'strategic partnership' between the two nations'.

In the days since, Indonesia has 'downgraded' its relationship with Australia, putting military ties on ice and refusing to co-operate on intelligence, military and naval exercises until they get an apology from the Abbott government.

Prime Minister Tony Abbott has refused to apologise, saying he regrets the embarrassment the reports have caused the Indonesian President, who is "perhaps one of the very best friends that Australia has anywhere in the world".

"My intention, notwithstanding the difficulties of these days, is to do everything I reasonably can to help to build and strengthen the relationship with Indonesia, which is so important to both our countries."

But with things getting more sour by the day and demonstrations expected outside the Australian embassy in Jakarta, here's why Australia needs to patch things up with their northern neighbour.

Indonesian Foreign Minister Marty Natalegawa said Indonesia is turning off the tap towards Australia. Picture: AFP.

Billions of dollars

Australia's trade with Indonesia is worth more than $14 billion, made up of more than $11.1 billion in goods and $3.3 billion in services, according to Tim Harcourt - the economics fellow at the Australian School of Business.

Mr Harcourt said Indonesia is often thought of in terms of "boats, beef and Bali" but it's one of Australia's top 12 trading partners across a wide range of sectors.

"There is a strong performance in agribusiness, infrastructure, construction, education professional services - ANZ, Commonwealth Bank, Leighton, Orica and the TAFE sector to name just a few."

Agribusiness is a major export for Australia to Indonesia.

More than 2,500 Australian companies export to Indonesia, with another 150 based there.

The current standoff could damage the lucrative export sector which can pay up to 60 per cent more than other areas of the economy, Mr Harcourt said.

"Export jobs pay better wages. If we lose a major trading partner, that's less opportunity for better pay ... it could crimp your expectations."

"If it gets really serious it would affect the prosperity of major companies or banks."

Indonesian President Susilo Bambang Yudhoyono with Kevin Rudd in 2010. Picture: AFP.

Massive potential

The population of 244 million makes Indonesia the largest economy in South East Asia and fourth most populous country in the world, according to the Department of Foreign Affairs and Trade (DFAT).

It's also expected to become the world's 10th biggest economy by 2025 with GDP of $1 trillion.

The middle class has grown by 30 million in the last decade to more than 45 million people and is expected to reach 130 million by 2030.

On top of all this, Indonesia has a massive social media following with more Facebook and Twitter users than the whole of Australia. Jakarta is home to the world's most active population on Twitter, DFAT reports.

Jakarta has one of the world’s most active Twitter populations. Picture: AFP.

Mr Harcourt said while people often think of India and China as major growth areas for business, companies investing in Indonesia get a 40 per cent higher return.

The economy is also expected to grow by six per cent for the next two years providing huge demand for Australian exports and consumer goods.

Indonesia is set to have GDP of more than $1 trillion soon. Picture: AP.

Political clout

Indonesia is a key alliance in South East Asia that Australia can't afford to ignore.

"They need us for food and energy security and we need them to the extent we need all our trading partners in ASEAN to make it all work. If we lost Indonesia we would lose ASEAN, we have to be part of that family," Mr Harcourt said.

While the relationship between the two countries has been volatile in the past, the current stoush has the potential to put economic agreements being negotiated on hold.

"There's always the opportunity to rebuild but at the moment, business will keep its head down and the long term relationship will be OK. But we're already below our long term potential and we don't want it blowing off course already," Mr Harcourt said.

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