Carrot, stick approach will continue after U.S. election

Carrot, stick approach will continue after U.S. election

Expect the U.S. to continue being forthright on Indonesia's
reforms, whoever becomes the next U.S. president, says Shanghai-
based economist Mari Pangestu in an e-mail interview:

Question: Ties between Indonesia and the United States are
currently strained. Will this worsen and affect trade ties?

Answer: This is difficult to predict. I hope not; Indonesia
has more to lose if the bilateral relations worsen ... the U.S.
is a very important market for our goods; the U.S. directly and
indirectly weighs in on much needed aid and assistance to
Indonesia, decline in U.S. tourists and worsening of an already
uncertain investment climate for U.S. investors ...

Any serious damage to these facets of bilateral economic
relations will slow down and seriously affect the already fragile
economic recovery process.

The situation need not get worse if efforts are made by both
sides, beginning with the Indonesian side for dialog to be opened
up ... It could get worse if the xenophobic and nationalist
sentiments are stirred up to the point that there is an uncalled
for tragedy -- such as causing physical harm to U.S. citizens.
Tensions would (then) rise and the U.S. administration would be
under a lot of pressure domestically to play hard ball with
Indonesia, including (applying) economic sanctions.

How will the election results affect the strained relations?

It would be in the interest of either a Gore or Bush
administration to "mend fences", however, this will depend on
what transpires in the meantime and whether the situation worsens
to make it politically difficult for the administration to do so.

I have not heard Gore specifically mention Indonesia, but Bush
advisors have been quoted as saying that they will invigorate
U.S. ties with countries in Southeast Asia, including Indonesia,
and are committed to the unity of Indonesia.

Will the U.S. use its position as opinion leader among
international financial institutions to influence their stance on
Indonesia?

The U.S. will do so if it thinks it is necessary. The
outstanding issue of disarming and disbanding pro-Indonesian East
Timorese militia gangs and accountability for atrocities in East
Timor including the killing of UN workers in Atambua are priority
issues not just for the U.S. but also other donor governments.

Both the U.S. and multilateral agencies have changed their
approach toward Indonesia to one from a behind the scenes
diplomacy to a more direct and public approach of criticizing and
pressuring for economic and political reforms ... However, as in
the last two years, unless there is a deterioration of the
situation, the carrot and stick approach will continue.

Aid is conditional upon progress in reforms; there can be room
for maneuver if the multilaterals and major donor countries
believe that the government has tried to do its best.

The U.S. remains one of the most important markets of our
exports; how will the election results affect this?

There will be no immediate effect ... But in the longer run,
analysts feel that whether it is Bush or Gore victory, (given)
their promise of a fiscal stimulus package, interest rates in the
US could rise and growth slow down a little.

Since it will be difficult for Indonesia to match the increase
in the interest rates, the rupiah will remain weak vis a vis the
dollar. Whilst this will be good for exports, it is also adding
to the cost of imported components and contributes to domestic
inflation. Furthermore, slower growth in the U.S. will affect
demand for our goods.

(There is) another issue in the long run ... Both candidates
have emphasized trade expansion ... Bush has prioritized free
trade agreement with the Americas and U.S. business is also
expecting Bush to bring in some of the more dynamic Asian Pacific
economies into the North American Free Trade Agreement (NAFTA).

Whilst the timetable for the realization of these agreements
is probably some years away, a shift of focus to the "south" will
hurt Asia in general. If Indonesia is not one of the dynamic
economies that will be incorporated into NAFTA, it will lose
out ... As for Gore and the democrats, their focus has been to
have labor and environment standards to be included in trade
agreements, and they are likely to continue to push this in the
World Trade Organization agenda ...

The recently signed bilateral agreement with Jordan includes
labor and environmental standards and Charlene Barshefsky of the
U.S. Trade Representative (Office) has indicated that this will
be the template for US trade treaties in future.

Are there any other points you'd like to make?

Whether it is Gore or Bush who wins, they will continue the
present U.S. approach toward Indonesia of being forthright and
public about lack of progress in reforms, and democracy. ...

Nationalist sentiments probably do come from ... attempts to
divert attention away from domestic problems or the efforts of
(government) opponents to utilize it against the government.

But there is also a genuinely felt wider sentiment, and
anxiety about globalization (which) is perceived to have caused
the crisis. The sentiment continues to be that now Indonesia's
fate and sovereignty are further being sealed by outside forces.

We do need to recognize these underlying anxieties, but ...
not through xenophobia ... We will pay a high price in terms of
growth and the ones who will suffer most will be the poor. A
pragmatic approach must be reached (through) greater public
education about the risks and costs of engaging internationally.
There is much outside engagement to ensure the safeguarding of
common concerns such as democracy, the environment and labor
rights. (swe)