EDITORIAL

Dividends from economic diplomacy

During Indonesian President Joko Widodo's week-long visit to Japan and China to do more business with the economic powerhouses, it was obvious he aimed to reap whatever dividends of big power rivalry that presented themselves. Nations are rarely coy about seizing such opportunities, like Sri Lanka which wants lower interest on Chinese loans following the recent landmark visit of India's Prime Minister. Indonesia says it wants a balanced approach to bilateral ties and has offered to play the role of honest broker in China's maritime dispute with Japan (a stance that was jolted somewhat when Mr Joko reminded the Chinese that their sweeping nine-dash dotted line claim has no legal basis in international law).

Mr Joko is being pragmatic in wanting to work with all major economies, but knows full well the limits of economic diplomacy. With reference to China, he had said: "I don't want to only sign and sign documents and then there is no implementation." China's investment pledges over the last four years have shown only a 7 per cent rate of follow-through, compared with Japan's 51 per cent track record, according to Indonesia's investment agency.

China is one of the top investors in many nations, yet it ranks low in Southeast Asia's largest economy and the world's fourth most populous nation. Japan is the second-biggest investor (after Singapore) with about 1,500 Japanese companies operating in Indonesia, mostly generating parts, food and services for the domestic market. There's the rub: Officials worry about the worsening trade balance from the import of raw materials and local businesses complain their growth is being hampered.

Impediments like these explain why it has been a slog to draw more funding and investment, despite Mr Joko's sales pitch at the Apec CEO Summit in Beijing last year. The other familiar suspects are the bane of endemic corruption, legal uncertainty, land acquisition hurdles, bureaucratic runaround for permits, and discomfiting bouts of nationalism.

These factors warrant serious attention if Indonesia is to attract over US$400 billion (S$547 billion) for infrastructural improvements, amid a clamour in Asia for perhaps up to US$8 trillion in financing for similar needs. Indonesia's wish list is long: power plants (even big cities suffer from shortages and blackouts), seaports (to help realise Mr Joko's vision of a "global maritime axis"), airports, railways and highways.

Indonesia's future well-being hinges on its present ability to secure dividends from its economic diplomacy to meet capital needs. Its well-wishers would hope that it can resolutely tackle domestic encumbrances that threaten to undo Mr Joko's best efforts abroad.