Indonesia
The Reluctant Giant

EXECUTIVE SUMMARY

MAIN ARGUMENT

Indonesia has enjoyed four decades of robust economic growth. With little or no external security threat and minimal friction with its neighbors, the country’s focus has been exclusively on state- and nation-building in the face of domestic challenges. Indonesian leaders have consequently been unwilling—and perhaps unable—to leverage a rich natural resource base and strategic location to project power externally at a level befitting a country of Indonesia’s stature. Yet change is reverberating through Asia at unprecedented speed. Tectonic shifts in the global balance of power are altering Indonesia’s perceptions of external threats and opportunities. New challenges now call for a strategic adjustment that gives equal, if not greater, emphasis to external threats to the country’s economic security, national sovereignty, and territorial integrity.

POLICY IMPLICATIONS

• To accelerate flagging growth and strengthen economic resilience against external shocks, Indonesia needs to boost the competitiveness of manufacturing and modern services by addressing critical constraints in infrastructure and education and by reducing barriers to competition through trade and regulatory reforms.
• Indonesia will need to boost its military capabilities to meet external threats by more than doubling budgeted defense-related expenditures, reorienting the armed forces from an internal to an external security role, revamping defense procurement, and strengthening defense industries.
• The U.S. needs to respect Indonesia’s desire for strategic autonomy, demonstrate its reliability as an all-weather friend, deepen economic and defense relations, and expand cooperation in areas of common interest such as ensuring freedom of navigation in the South China Sea and the Indian Ocean.