Monday, February 27, 2017

Indonesia – Russia’s Ticket To The Successful Cooperation With ASEAN

Indonesia will be the next ASEAN economic powerhouse  

By Dmitry Bokarev

In recent years, Russia has been actively developing its ties with the states of the South East Asian (SEA) region, which remains one of the fastest growing parts of the world. 

Considerable progress has been achieved in improving ties with Indonesia, a powerful member of the Association of Southeast Asian Nations (ASEAN).

Indonesia, one of the leading countries of Southeast Asia, has the eighth largest economy in the world in terms of GDP, while being in the top five in terms of population. 

Its success lies in the fact that this island nation is located at the intersection of sea routes connecting the Asia-Pacific region with the Middle East, Europe and Africa. 

The Indonesian island of Sumatra, along with the Malay Peninsula form the famous Straits of Malacca, which sees impressive trade traffic between such nations as China and Japan and onward to Europe. 

Thus, Indonesia itself is an attractive economic partner and the positions it enjoys within ASEAN makes it particularly beneficial for those willing to cooperate with this state.

It’s imperative to understand that by developing relations with Indonesia, Russia strengthens its position in a region rich in transport routes and cash flows.

As a sure sign of mutual trust enjoyed both by Russia and Indonesia, is rapidly growing arms sales. In 2009, the Russian Federation gave Indonesia a loan of 1 billion dollars for it to be able to purchase Russian military equipment. In 2015, Indonesia has again received a loan from Russia for the same purpose, but this time around it was considerably larger – 3 billion dollars. Now Indonesia is interested in acquiring Russia’s most advanced fighter – Su-35, so talks are now under way. There’s a possibility that these aircraft will be jointly produced in Indonesia.

Moreover, just a few weeks ago came a report that the Indonesian Ministry of Defense is considering the purchase of fifty Russian BTR-80 armored personal carriers for its marines. To secure this deal, Jakarta is planning to spend up to a 100 million dollars. It is expected that the final decision about the acquisition will be made next spring.

Another important area in which Russia and Indonesia have come to full understanding is the oil industry. Both countries are major oil producers, and their cooperation in this strategically important sector provides Russian-Indonesian relations with a solid basis.

In January 2016, the two sides officially acknowledged the negotiations for plans to start joint oil production in Siberia.

Last year during the Russia-ASEAN Business Forum held in Sochi, the head of the largest Russian oil producer Rosneft, Igor Sechin, announced that Indonesia currently buys petrochemical products made from Russian crude oil through other states, namely the Republic of Korea and Singapore. This state of affairs is not beneficial to either Russia or Indonesia, so it was announced that it is time to establish direct trade relations in this area. Moreover, Sechin noted that oil production levels in Indonesia are falling. Some 10 years ago, Jakarta produced 71 million tons of crude oil a year, but now it’s barely making 38 million tons, and this number continues dropping. At the same time the country’s population is growing rapidly, while industries are increasing the standard of living, hence energy consumption levels are rising. Experts predict that in the coming years Indonesia will be one of the main importers of hydrocarbons in the Asia-Pacific region.

This position is shared by the Director General at Ministry of Energy and Mineral Resources of Indonesia, Wiratmaja Puja, who has recently announced that Indonesia is planning to import large volumes of oil in the coming years. At the same time, to reduce costs, Indonesia is planning to process crude oil it’s buying itself. To do this, the country needs to build a network of refineries in the near future, and Russia may lend it a helping hand in this area.

It should be noted that investments in refineries are an extremely profitable proposition in the Asia-Pacific region, as it’s one of the largest consumers of fossil fuels, so Jakarta’s own refineries will save its budget from unnecessary expenditures. There’s been a tough competition between such states as China and Saudi Arabia for the right to assist Indonesia in this area, however Jakarta prefers to work with Russia. According Wiratmaja Puja, one of the reasons for this decision is the top-notch technologies that Russians have in this area. The Tuban refinery is going to be located in the most densely populated area of Indonesia, where energy consumption levels are the highest.

Yet another sign of the deep trust that Russia and Indonesia share is their transition to inter-regional cooperation. For example, Russia’s Nizhny Novgorod region has already established trade ties with Indonesian companies, selling agricultural goods, oil, petrochemical products and so on. 

In 2016 bilateral trade between Indonesia and the Nizhny Novgorod region exceeded 55 million dollars. In the future, the Nizhny Novgorod region and Indonesia intend to develop cooperation in areas such as engineering, education and tourism. On Indonesia’s side, there is interest in the possible cooperation with the Gorky Automobile Plant. Additionally, according to Indonesia’s ambassador to Moscow, Jakarta wants to train its students in Nizhny Novgorod universities.

These facts indicate that Russia and Indonesia are actively developing cooperation in various fields. Apparently, the two countries are on their way to establishing a lasting strategic partnership, through which Russia could strengthen its influence in other ASEAN countries.

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