Can Indonesia Avoid the Chinese Debt Trap?
In April, Indonesia signed 23 collaborative projects with China at its Belt and Road Initiative conference in Beijing.
These projects consist of the construction of industrial estates and supporting infrastructure, waste processing power projects, and a technology park. However, the question is whether these initiatives can ultimately benefit Indonesia. What risks must be considered by Jakarta?
The Chinese scheme is repeatedly seen as controversial. The BRI itself is a global development strategy initiated by Chinese President Xi Jinping in 2013 as a mechanism to solve various domestic economic issues and to further expand Chinese influence.
The scheme has attracted the involvement of dozens of countries around the world and has facilitated the construction of several factories, ports, and other commercial facilities in participating countries.
In Indonesia, many parties have criticised the country’s involvement in the BRI. Some argued that this scheme would give birth to a debt trap.
This argument is rooted in stories seen in Africa and Asia, where relatively poor countries receive large Chinese infrastructure investment funds and use these funds for their national infrastructure development projects. However, several of these funds benefit China more than the local economies.
For example, Tanzania’s President John Magufuli recently froze the construction of Bagamoyo Port, which was to become one of the largest ports in East Africa, due to a number of exploitative agreements.
Another example is a debt-for-equity swap agreement between China and Sri Lanka, where China was willing to remove Sri Lanka’s debt of $8 billion if the government agreed to lease the Hambantota Port to China for 99 years.
Indeed, it cannot be overlooked that a large part of the Belt and Road Initiative is in China’s political and economic self-interests. Many of these initiatives have been carried out to put China in a favorable position. Nevertheless, this does not imply that there are no benefits that countries can gain from the lending scheme, as long as they take steps to protect their national interests.
Many Chinese infrastructure projects in Africa, for example, are extremely beneficial for recipient countries. For instance, projects in Nigeria are generating 2,600 megawatts of electricity as well as $3 billion-dollar telecommunications projects in Ethiopia, Sudan, and Ghana.
In Indonesia, the BRI could deliver benefits in the form of much-needed infrastructures that the country has been seeking to build and develop for many years. These include high-speed railways, ports, and hydroelectric power plants.
The Indonesian government has attempted to seek optimal benefits, while at the same time minimizing risks by directing Chinese investments as business-to-business activities. In this case, the government plays more of a role as a facilitator of investment and development.
Nonetheless, there are more steps that need to be taken to enable Indonesia to absorb the benefits of BRI without being at a disadvantage.
First, Chinese investments must be directed at industries that have high added value from economic, technological, and other perspectives, given that it is not something that the country can do on its own domestically.
Second, there must be a transfer of technology from China to Indonesia, so that the latter can further develop its industry in the future and its people act not only as consumers.
Third, all of these industries must be environmentally sustainable in order for natural resources, the environment and surrounding communities to be protected.
Fourth, the BRI projects must use Indonesian workers, as this will provide opportunities and work experience for Indonesian workers. News has spread regarding the increased entry of Chinese workers alongside Chinese investments. This is something that the government needs to minimize so that these investments help to reduce the country’s high unemployment rate.
Lastly, both China and Indonesia must ensure that these projects are realized according to best practices.
It is important to note that the current trend globally is changing from one of confrontation to one that is geared towards collaboration. It is possible that the dismissal of the BRI is not actually a realistic step. Collaboration with China, as long as it is managed by considering the various reasons mentioned above, is a golden opportunity that Indonesia must continue to use for its own good.