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- [00:00]
A
Foreign.
- [00:22]
B
Hello, and welcome back to the second Cold War Observatory podcast. This is Jessica and I'm here with my co host, Seth. Seth, how's it go? How's it going? It's April, somehow.
- [00:32]
C
Yeah, yeah, no, it's great. Great as it can be. There's a war on, so it's all a bit depressing, distressing, exhausting, but universal feelings indeed. Yeah, yeah. But watching that closely.
- [00:48]
B
Of course, yes. And you know, as, as we do in the observatory, we're constantly challenged to rethink a lot of the frameworks we've come up with. And, and you know, we called this the Cold War Observatory. And obviously there's a lot more that is hot happening at the moment. Indeed.
- [01:02]
C
Yeah.
- [01:04]
B
But for today, we're not going to talk about war, thank goodness. We're going to think in Southeast Asia, which I'm really excited about. I think a lot of us China, competition, and whether it's in infrastructure or production networks is playing out in this region, as I've discussed a lot in my work on here in Laos. And we have someone on to talk about Indonesia today. And Seth, I understand you've been reading some books and doing a lot to prepare for the podcast.
- [01:28]
C
Well, you know, I wouldn't say it's podcast preparation, but I've always enjoyed reading about Indonesia. So the Cold War history is fascinating. And we read ages ago the book Economists with Guns, maybe one of the best titles of a book by Bradley Simpson about military modernization. Of course, there's Vincent Bevins book Jakarta Method. And you may remember we also read Jeremy Friedman's book Ripe for Revolution. He's got an excellent chapter about the Soviet Sino competition that played out in Indonesia. But I think most recently, the most expansive, remarkable book I've read about Indonesia is from David van Rybruck Revoluci, An Oral History of the Revolution. And I strongly recommend it to anyone. I mean, you can know nothing about Indonesia and just dive right in. It's a remarkable book and he's a great author, writer and storyteller. But he begins with some facts about Indonesia and he makes the claim that for its size and importance, people know relatively little about it. And I'm not sure if that's true or I'm not sure if our listeners fall into that category. But just in case, it's worth reminding everyone that it's a remarkably complex society and geography with 17,000 islands, 283 million people as of, I think, 2023, according to the World bank, life expectancy is 71 GDP in total is $1.4 trillion. It's the largest economy in ASEAN. The per capita GDP is about 5,000. As of a couple of years ago, 59% of the population is urban. So with those facts in mind, we're going to think about how Indonesia relates to the second Cold War. And we're really lucky to be joined by Dr. Tricia Wajaya. She's a McKenzie fellow at the Asia Institute at the University of Melbourne. So Tricia, it's morning for you. Thank you for getting up early. It's really great to have you on the program.
- [03:35]
A
It's my pleasure. Set and Jess, thank you so much for having me here.
- [03:40]
C
There is so much we can talk about. You know, your work is so wide, ranging from a recently published book to articles in International Affairs, Third World Quarterly, Environmental Politics, New Political Economy. So you've been very busy and we could, we could cover so many topics, nickel, infrastructure, EVs. But before we dive into any of the details, can you just give us a kind of basic outline? How is Indonesia related to the second Cold War?
- [04:11]
A
Of course, Indonesia plays significant role here. It's the largest market in Southeast Asia. It's the largest nickel producer in the world nowadays. Central to the energy transitions. And it's also defining, thanks to its nickel reserve, it's defining the trajectory of the battery value chain even though it's not the only actor, but it us through its alignment with China. So if we are talking about the shifting geography of capitalist development in energy transition, we cannot in this second Cold War, we cannot overlook the importance of Indonesian state capital and Norman state capital, which are central to this energy transition.
- [04:59]
C
So it begs the question, and I don't know if you avoided it on purpose, but which side is Indonesia on?
- [05:08]
A
I think hedging has been the long dominant stance taken by Southeast Asian countries. But in practice there is limit to hedging. As I elaborate on my third work, quarterly co author with Lee Jones, there is a limit on hedging because it's much more contingent on the power struggles between domestic social forces whose interests and agendas are reshaping the nature of institutions and the scope of the project itself. Even though initially they seek to maintain heijing against the US and China. But at the end of the day, due to the material interest of dominant capital in Indonesia doesn't necessarily work and rather it skew Indonesia closely aligned with Chinese production network. And this is what I mean, it's not about like packing side, but throughout the process how they are interacting with the US capital or the US company or the Western. Let me reframe it. Not US, but the west bank capital, for example, in nickel industry, especially in expanding its EV ecosystem, Indonesia has been trying to courting investment from Tesla and also from the European automakers here, like for Volkswagen, BMW. But still it's only China whose structure of production fit neatly within Indonesian production network and structure as well and align well with Indonesia's dominant conglomerate interests as well as fit into the bigger state strategy in Indonesia, which at the time looking for for short term stability, especially after Covid time and also the pressures to maintain balance of payment.
- [07:14]
C
You said because of the particular socioeconomic structure of Indonesian capital and class relations, that there's an alignment then with China. What is it that makes these two so compatible?
- [07:27]
A
So I think I will go very technical here. So in terms of hedging, the mainstream argument of hedging rather position Indonesia as looking for insurance admins, the deepening geopolitical competitions. But who are the real actors behind the hedging? It's still capital, right? And talking about green transition is about the internationalization of Chinese companies. And in terms of from the side of Indonesia is also about how domestic capital seeking to catching up or upgrading their industry, even though whether it's successful or not, it will be different issue, different topic of discussion. But at least that's the main point here. And the structure of capital here is that the internationalization of Chinese capital, of course they are backed by the state, the strong state of China. But after all what they are looking for is the competitive low cost production. And it's Indonesia. And in Indonesia we don't really have such a big industrial capital that are ready yet to inject capital at least up to 40% of equity in the joint vector that they are trying to develop with China. So but at least they have a particular business portfolio in the mining already. So it's kind of like if they control the upstream part of the value chain and then fit into Chinese smelter, at least there are certain guarantee for them on short term basis that the Chinese will be acting as buyers. In Chinese perspective, what they need is the low cost production like nickel to fit into their industry, which is much more like the value added industry back to China, which is battery, precursor, intermediaries, battery or EV itself.
- [09:28]
C
Right.
- [09:29]
A
So this is really a matter of economics of grand transition. Which one is the more, which one more competitive, which one can offer more low cost productions. And in this regard China and Indonesia interest align fairly well.
- [09:45]
B
So I think your work is really helpful in making clear that geopolitical competition is also about more than the US and China. So I think you have all of these really amazing arguments around the compatibility of Chinese finance in green energy in some way, infrastructure and mining as well as infrastructure itself. So I was wondering if you could talk about Japan as well, because you have some wonderful work that compares Japanese and Chinese finance and how they function in Indonesia.
- [10:16]
A
Yes, actually this is the very good entry point for me to introduce my first book in my academic journey. Yeah. In the past two years, conversations about China, Japan and other major powers have shifted to critical minerals, green development, digital or AI. But if we think back to around 2015, the dominant debates were very different. And at the time Japan can be considered as one one of important factor, if not development financial for Southeast Asia. And also the topic around 2015, especially after BII was introduced, they were all about long term investment in infrastructure and state backed lending. So as much as China has been increasingly investing in this infrastructure in Southeast Asia, actually it's also challenged Japan as the long standing infrastructure financer and development partner in the region. But in my work I try to see things differently. Much of the literature asks how Chinese financing differs from Japanese financing either through the governance or as we know Japan part of OECD alliance. Or how host countries exercise their agencies to shape the trajectory of Chinese or Japanese funded project, how China and Japan compete for the project. But in my work I try to emphasize there's one dimension that people tend to overlook, which is the financing forms themselves and the politics and the deed in each forms of financing. So there could have been rich stories to be unfolded, right? Especially how the relations between different business forces, political elites, non state actors over time shape the form of financing. So when we look over time, we see striking shift here in some periods, especially before, even before second Cold war, whatever we call it. Like during cold war period, Japanese financing occurring years more frequently as conventional loans. And later on in 2000 or 2010, Chinese projects also follow the same footprint. Like they also rely on EPC contracts or state backed concessional loans. But in other periods such as after post global financial crisis in 2008 for example, both Japanese and Chinese investors aggressively pursued PPP in power infrastructure. And those PPP public private partnership projects actually take shape in some countries, not only in Indonesia. So this this become a code of conduct both for Japanese and Chinese investor when it comes to power infrastructure like coal, power plant at the time or hydropower. So. So these variations are not random and deserve further investigation. And my book investigate this. I'm asking why do Chinese and Japanese infrastructure financing takes different form. And how are power relations among broader social forces, be it from Japan and China and Indonesia, manifested in different forms of infrastructure financing?
- [13:48]
C
And can you walk us through one of the cases? Because I think for, for many listeners that who aren't familiar with finance, that might sound a little bit abstract. Your book gives you start with the case of the Bandung Railway high speed rail from Jakarta to Bandung. And the way you describe is that Japan was pretty sure that it would, its. Its firms would win the bid, right? And was pretty surprised when it turned out that it was awarded to a Chinese firm. I don't know if that was the first time something so dramatic in the field of infrastructure finance had happened in Indonesia. But can you tell us a little bit about that project? How did it play out? Why was it awarded to China and what has been the result? Has it been a successful project?
- [14:36]
A
First, of course it's not successful. But the interesting part is that actually I tried to link each case study together. It's not like a standalone, even though Jakarta Bandung High Speed Railway was discussed in my last chapter, but it's not like it's a standalone chapter about China. Jakarta Ban Luhai State Railway, like all the segment of capital, how it governed, how the financing was reshaped is actually linked to the previous chapter where the first establishment of PPP mechanisms endorsed by Japan was introduced. So the government's the interesting part of this Chinese Jakarta Banu High Speed Railway. The Indonesian government say it's business to business game, but actually in practice it sounds more like PPP public private partnership with the definition between public and private itself is blurred. It's another topic to discuss of course. But the mechanisms act at a glance. The PPP mechanism underpinning the Jakarta Banu High Speed Railway borrow too many borrow so many terms of PPP that was introduced by Japanese throughout early 2000 and 2010 in Indonesia. And this scheme has been implemented in the coal power project that have been much bringing profit for Japanese investor as well. So in my book, one thing that I want to emphasize for first is that it's not straightforward to compare China and Japan directly. That's not how I do it. But because the thing is that both China and Japan enter Indonesia infrastructure market at different historical moments. So Even though during mid 2010s they do compete for infrastructure projects in Southeast Asia, it doesn't mean that it's just happening straight away, but there are many historically situated elements that we need to take into account here. So for Japan, my analysis focus on two periods. The Suharto era, which is authoritarian era from 1968 to 1998 and the years following democratization and the Asian financial crisis, which is post 1998, at least until 2020. And for China, I examined the period from 1998 to 2013 which is going out policy in China. Right. But also overlaps with Indonesia democratic transitions. And then from 2013 to 2022 period when the bad and road initiative the interaction in the country. That's also when the Jakarta Bandung high speed railway shocked the world. Indonesia become the first Southeast Asian country has high speed highway. But this doesn't mean that the Chinese and Japanese case study are tracked in isolation. So is the Jakarta bano has the railway. Throughout the analysis, I trace how each regulatory complex. I call it regulatory complex. The way the project is shared and what is the elements of the project finance.
- [18:08]
B
So your book presents these different historical moments of Japanese and Chinese finance in Indonesia. And I'm wondering if we could think about some of the shifts in the present. So there have been several turns that have been made. So we've seen moves from heavy investment in infrastructure towards investment in things like electric vehicles and nickel, as you've written about. We've also seen heightened US China tensions, changing forms of Chinese investment. So I'm wondering kind of in the present moment, based on some of the papers that you've written, how do you think investment, whether it's from Japan, China, the US has changed in Indonesia recently?
- [18:48]
A
Yeah, I think in terms of investment from China, it's very obvious that it's changing in terms of the nature and the scope of the project. But how to say it's changing, but not really changing. So before 2020, Chinese investment in Indonesia are heavily concentrated in mining already metal and mining, which is nickel, but the nickel that was processed for stainless steel materials, not necessarily for Battery. But after 2020, Chinese investment landscape, Chinese investment target. I mean in Indonesia change from nickel for stainless steel, but to nickel for battery inputs, which is we call it HPAL technology. That was that currently booming in Indonesia because it allows Indonesia to process its low grade nickel into higher grade me globe or so that it can be processed as process into higher grade. Then this higher grade can be used as an input for battery intermediaries. So this is one of significant changes. But after all, if we trace back to early 2010s, the whatever Chinese invest in Indonesia, it does involve extractive industries. Because of course for input to smelters, we need nickel ores. And it means that the Chinese Expanded investment in the smelter industry also lead to the increasing number of mining in Indonesia. It's also same with what happened in early 2010 when Chinese companies invest in many PPP projects in coal fire power plant in Indonesia. It also led to the expanded coal mining in Indonesia, but not only because Chinese investment in Indonesia, but also because the need for coal in China where the coal in Indonesia also exported to China. So that one for China, but for Japan there is indeed some shot of major changes here. So before the push for decarbonization, for example, Japanese investment in Indonesia were mostly concentrated also in coal fired power plant. They call it USC power plant is kind of greenwashing though because USC is known as technology that is much more environmental friendly but still using coal. So this USD power plant dominate Japanese investment in Indonesia. This is also discussed in my book this USC power plant because this is one of the infrastructure projects of finance through PPP that is able to secure long term profit for Japanese investor. That's why USC power plant in mid-2010 become favorite destination for Japanese investor to invest money in Indonesia. But it's changing because first, Japan bank for International Corporation already commit to stop financing overseas for coal power plant. So no more coal power from power plant from Japanese investor. And second, when we talk about smelter or green industry, of course there is limit here because Japan already hold prominence in Indonesian traditional internal combustion engine car, Toyota, Mitsubishi and there is no sign from them to transition to EV industry faster. Even though the Indonesian government already seek to court their investment in ev. Try asking them to asking them whether it's feasible to change the production structure or not. But there is no sign from Japanese investor to do so. So right now in my perspective, Japanese investment in Indonesia is quite stagnant and just still rather maintaining the status quo. Yeah. Regarding the U.S. i think it's still concentrated in mining industry as well in resources such as the recent agreement between Trump and President Prabowa. But the reciprocal threat agreement that there are much more likely forging cooperation between Indonesia and the US on the military sector of course, but also extractive industry, oil and gas.
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C
Let's come back to the military dimension momentarily. I just wanted to follow up on the comparison between Japan and China because it seems that you're saying that Japanese investment tends to be more ppp public private partnerships. Right. And the Chinese partnerships tend to be business to business. Am I correct? Is that a correct takeaway that I got from your book?
- [24:05]
A
Yes, but there is something, there's bit nuances here. So for example, when we talk about PPP public private partnership. And this is linked to what political economy scholars like Daniela Gaber. The magic word. Another magic word here, the de risking statement. How the infrastructure has to be investible and the risk is transferred from private to public so that the. So that we can especially in the developing country, we can unlock the potential of billion dollars money from private by transfer the risk from public to private. And that's how PPP gained traction in Indonesia. And that's how especially overseas private investors understand PPP and which the government of Indonesia can help transfer or reducing the regulatory risk or political risk, financial risk. And this is also why in my book I mentioned that Japan tend to create some sort of institutionalized regulatory complex and even for poor in their pursuit of PPP project Japan has been allocating 10 years going back and forth negotiation with the Indonesian government to set up institutions of the first P of the ppp which is the first public. So how to make sure that there are subsidiaries of Ministry of Finance in Indonesia can help to act as financing guarantee for the project that are Japanese thing lucrative for them in the long term and also low risk. And that's why the PPP project in Indonesia led by Japan especially after post global financial crisis majority of them were coal fired power plant. There are two of them geothermal, but not really significant because it's involved ADB. But for those who are purely PPP with Indonesian government guarantee 25 years available payment for Japanese investor to invest in the generation of the electricity in Indonesia they do have a service institutions where they borrow their wisdom from neoliberal institution as well as the mandate of de risky itself. Interestingly, when it comes to China, when China first come to Indonesia, their understanding of PPP is quite different. And somehow in practice PPP fused with B2B. I think it's fair enough because in China either public or private. So I mean either like state owned enterprises can be seen either as public or private, right? So when they come to Indonesia and they see the counterpart in Indonesia are also set on enterprises for them it's just business between them enterprises. Even though on paper it should have involved the government guarantee.
- [27:23]
C
But does this imply then that the tie ups tend to be more driven by market forces and there's less of a requirement or an attempt to de risk the Chinese investments. Because to me that would. I mean people tend to think of China associated of course for obvious reasons with state driven economy. And therefore you would assume that you would have a significant amount of de risking. But it sounds like from what you're saying you have firms, some of which are state owned enterprises but they're entering into commercial agreements whereas it's the Japanese deals that are de risked.
- [27:57]
A
I think this is the matter of perspective. So. So even though China, okay, it depends on market forces in some part it's also because of overcapacity in China then they have to find new markets over fees driven by market profits, pressure, etc. Etc. But the thing is that when state owned enterprises in China and interact with state owned enterprises Indonesia, they come with tested agreements that the government is already behind them even though it's driven by market, but it's more of a state guaranteed accumulation, capital accumulations there. This is why when we see Jakarta Bandung high speed railway it can be a case, a very good case in point of the messy trajectory of that Android initiative. Right. It's completely different from what we see today. The OEMs or battery manufacturer like BYD CATL BYD technically private even though yeah, it's state affiliation is doubtful. But technically speaking it's private and very profit oriented and the partner that they are looking for in the domestic host country is also most likely private domestic column rights which have different kind of point of conduct even though it doesn't mean that they are not linked to the executive structure in the state. So I think talking about the heavy like large scale infrastructure like Jakarta bando or 100 megawatts of coal fired power plants involving Chinese and Japanese capital, the nature of their migratory complex, the institution, ideology of alliance of capitals that bind them together are quite different from the current grain transition.
- [29:55]
B
Okay, I have a question that's going to take us in maybe an entirely different direction, but I have been working with some of my grad students on new urban developments in Southeast Asia and I have wanted to ask you about Nusantara. So for the listeners who don't know, this is Indonesia's potentially new under construction capital city. It's located in East Kalimantan in Borneo and it's supposed to be green, sustainable, replace the really congested Jakarta. It was launched I believe in 2022 and it's being built in phases and I'm wondering, you know, how you think or do you think Nusantara reflects kind of broader trends in infrastructure led development? You know, it is funded, it's a PPP as well, but it's Indonesian funded primarily from my understanding. So how does this fit into the infrastructure led development strategy in Indonesia?
- [30:50]
A
I think first of all, when we talk about Nusantara today, I think there is not so much development happening because the current administration has been living it in limbo. And as you have been noticing from the media, the current government just set up a new sovereign web fund called Danantara. But if we see the list of projects financed by Danantara, nothing about Usantara, the new capital city, all about extractive industry or some agricultural projects by and large that are linked to president and his domestic political alliance. And talking about Nusantara itself when it was first promoted by President Joko Widodo, which Indonesia call us what infrastructure precedent, something like that. Because it was during President Jokowi Dodo era that infrastructure become one of Indonesian national development priorities. And also this is why BRI gained much traction in Indonesia. And when Nusantra was promoted, it was during Jokowi's second term. To some scholars, they believe that it's because Jokowi want to leave his own legacy and Nusantra is the symbol of his legacy. And as you said, it's also even though there were many symbolic ceremonies where Indonesian president invited Japanese investor, Chinese investor, Korean investor or even from UAE to invest and they invite them to Nusantaram to see how green it is. But at the end of the day it was state owned enterprises Indonesia using state budget to construct all the infrastructure, the basic infrastructure there. So for me, Nusantara is more like. I actually wrote an article, a very short commentary in 2022 about Nusantara titled Failing to plan or planning to fail. So it says to me first it's failed to plan of course, because it was in a rush, even though the idea was dated back during Sukarno, the first president, but still it's failed to plan because there is no capital for new capital. I think if you can recall in 2023 the head of. I forgot the exact title, but the head of investment authority that was in charge for developing Nusantara even resigned because he's no longer is beyond his capacity to attract a pool of capital to develop the Antara. And Nusantara is also set to fail because as we see that's only the big project that was planned by single president, but not really based on a a troop of strong domestic forces like the powerful segment of capitals or power elites who can be a solid class to mobilize this project. And we don't see it in the current Primo war era.
- [34:26]
C
I guess we can start to wrap up, but we haven't yet talked too much about the US defense partnerships with Indonesia, which are long standing. Of course I'd like to know what your assessment is, how durable are they? I guess on the one hand, from reading your work and other things, it seems that China or Chinese firms are in some ways a preferable partner. And you explain in your article with Lee Jones in Third World Quarterly that Indonesia is of course aligned with both the US and connected to both the US and China, but is being drawn closer to China because of the deepening economic partnerships in sectors like nickel extraction, EVs and so on. You mentioned even AI earlier today. I guess I just wonder how sustainable is this situation as a kind of poly alignment to have one partner be your kind of economic partner, but it's also a potential security threat and then another partner be much less of an economic partner and really a defense partner.
- [35:32]
A
Okay, very interesting questions. I think. Yeah, I know for some people we are already entering the debt of neoliberalism or post neoliberalism, whatever is being called. But I think if we are looking at the current situations, geopolitical situations, where the, the developing countries, especially Southeast Asian countries, we still trying to strike balance between the U.S. and China, especially with U.S. like Indonesia, they are trying to improve or escalate the ties in the domain of military or naval exercise, something like that. I think it can't be separated from the fact that the countries in Southeast Asia remain defenders of neoliberal globalization. What does I, what does neoliberal globalization? I mean here it's more like. So the era of neoliberal Globalization, especially entering 2000, is very identical with post Washington consensus. Right. But at the time this Washington consensus also offered the region with the key pillar of the economic security. And if we try to incorporate the interests or the national interests of these Southeast Asian countries and recontextualize them within the lens of economic security, for them the consensus strong emphasis on trade and market fundamentalisms have indirectly incorporated public good proficiency to their security to their security domains, which is for them. This public good is that the, the U.S. provide providing the security as the public good. And especially at the time it's much more balanced. So the US as the security provider in the regions and economic provider can be Japan, which is the US long standing alliance for China. And at the time we still remember it's so much celebrated like this kind of division of labor. China was doing welcome for their joining WTO and also and China strike free trade agreement with ASEAN country becoming China Free China ASEAN Free Trade Area. And this also triggered Japan and the US to sign a joint strategic partnership with Indonesia at the time. So it's more like balance economic security. And from the way I see it, the current geopolitical development. There is some sort of tendency among Southeast Asian countries to reinstate this kind of neoliberal landscape in the region, with the US still acting as the public good provider in terms of security that will try to support more investment from China that are much more aligned with their national development priorities and plans.
- [38:43]
B
This has been fantastic. And between your book and all of the articles you've written, we could ask so many more questions. But to wrap things up, because we are a part of the New Books Network, I want to ask one final question. If you wanted listeners to remember one single big takeaway from your book, what do you hope it is?
- [39:03]
A
Wow, difficult questions.
- [39:06]
B
I can give you another one too. I can ask for a book recommendation as well.
- [39:10]
C
No, no, give her the hard one. This isn't an easy podcast. Come on.
- [39:13]
A
Yeah.
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B
Yes.
- [39:15]
A
So we should see infrastructure financing beyond a mere technocratic managerialisms. More than that, it's more about internationalization of capitals, which embeds conflict and contestations among different social class forces, different segment of capital, political elites, technocrats even, who are part of the power relations as well as international financial institutions. And it involves power contestations. And it's much more about power struggles of a relationship between different groups structured by inequalities of wealth and power.
- [40:00]
B
Fantastic. Thank you so much for sharing this with us. I can say that Tricia has done so much amazing fieldwork, you know, many years, many months, and this book is based on that. So those power relations and social relations really come through in the book. So thank you very much for talking with both of us today about all your great work.
- [40:21]
A
Thank you for having me here, Chad.
- [40:24]
C
Take care. Thank you so much.
- [40:26]
B
Bye bye.
- [40:27]
A
Bye. Sam.