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Ties between Indonesia and China have grown exponentially in recent years. China has become the largest single investor in Indonesia under President Joko Widodo, through massive infrastructure projects under the Belt and Road Initiative.

Both countries have agreed to expand their ties not only in the areas of investment and trade but also in the field of culture and education. The latest area of co-operation is in health. Beijing has pledged to boost cooperation with Indonesia in fighting the pandemic. This includes backing Indonesia as a hub for vaccine production.

Nonetheless, recent news that emerged this month has made people believe that Indonesia is losing in its relations with China.

Growing debts

Recently, Indonesia’s central bank has revealed that Indonesia’s external debt to China at the end of June was $21 billion. In addition, AidData, a research institute based in the United States, recently released data regarding countries in the world that have the potential to be trapped in debt from China due to incessant infrastructure development in the ambitious Belt and Road Initiative project. In the report, Indonesia is said to have hidden debt worth a total of $17 billion.

Many fear that this debt to China will put Indonesia at risk of default like Sri Lanka when it failed to pay its loans.

Sri Lanka built the $1.3 billion Hambantota Port with loans from China. The port opened in 2010, but the Sri Lankan government struggled to repay the debt with the project incurring heavy losses. Along with loans taken out for other infrastructure development projects, Sri Lanka now owes China a total of $8 billion.

This huge amount of debt forced the Sri Lankan government to hand over control of the port to China. Chinese firms now hold a 70% stake in the Hambantota Port.

Indonesia needs to take steps before it is trapped in Chinese debt.

The use of the state budget for Chinese projects

Another reason why Indonesia is on the losing end of its cooperation with China is that the government has moved to use its own budget to fund problematic Chinese projects.

Recently, Widodo has allowed the use of the state budget to support the Jakarta-Bandung high-speed rail project which was part of the cooperation with China in 2015. This decision came after the cost of the project rose to $8 billion. The construction of this high-speed train is part of the Belt and Road Initiative.

According to Agus Pambagio, a public policy expert, the Jakarta-Bandung high-speed rail project had been miscalculated from the start and he conveyed this to Widodo in 2016.

However, Jokowi ignored this advice by arguing that Indonesia needed a cutting-edge mode of transportation.

Ecky Awal Mucharam, an Indonesian politician, criticized the government’s move to allow the use of the state budget, calling it a policy that violates the principle of justice.

According to Ecky, who assessed that the high-speed rail project showed the immaturity of the plan from the start, the calculation of the feasibility study was inaccurate, which resulted in cost overruns.

The government’s decision to allow the use of the state budget for funding the Jakarta-Bandung high-speed rail project could further burden the state’s finances, which are already strained due to the pandemic.

In the end, Jakarta will have to move forward to finish the project, but many Indonesians will be second-guessing loans from China.

Muhammad Zulfikar Rakhmat is a journalist and academician from Indonesia. He is currently a lecturer at Universitas Islam Indonesia and a research associate at Jakarta-based Institute for Development of Economics and Finance (INDEF). Muhammad holds a B.A. in International Affairs from Qatar University, as well as an M.A. and Ph.D in Politics from the University of Manchester in the UK. As an academic, his research focuses on China/Indonesia-Middle East relations. Meanwhile, as a journalist, he works on Indonesian politics and disability issues.