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George Krompacky
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Today’s geopolitical climate has created new and dangerous challenges for America’s defense and the support of democracy and freedom worldwide. These challenges demand a reexamination of the U.S. defense budget to ensure that America’s forces retain the capabilities to defend the nation and deter aggression abroad. The expert authors of the new volume Defense Budgeting for a Safer World (Hoover Institution Press) review the significant areas of debate in the U.S. defense budget and provide recommendations for aligning it with new global realities. Chief among these new realities are China’s modernized military and the nation’s objectives in the South China Sea and for reunification with Taiwan, testing U.S. dominance in the world order and raising questions about allies’ security and the U.S. ability to counter threats from the People’s Liberation Army.

In her contribution to the new volume, in a chapter titled “The Military Challenge of the People’s Republic of China,” Center Fellow Oriana Skylar Mastro reviews the last quarter-century of developments in China’s strategy for reunification with Taiwan. Mastro explains that the original shape of that strategy, strengthening ties with Taiwan to persuade the population, “has failed” and now takes the form of belligerent air and sea incursions, increasingly sophisticated military exercises, and official Chinese rhetoric about the inevitability of reunification and the impossibility of Taiwan’s independence has intensified.

China’s military modernization has focused on the ability to prevent a decisive U.S. response, referred to as its anti-access/area denial (A2/AD) strategy.
Oriana Skylar Mastro
Center Fellow

Mastro notes that “China’s military modernization has focused on the ability to prevent a decisive U.S. response, referred to as its anti-access/area denial (A2/AD) strategy." The United States, as a non-resident power in the Asia-Pacific, depends on its aircraft carriers to project power in the South China Sea, but these carriers are vulnerable to Chinese ballistic systems. Because it will likely have to operate outside the first island chain — that is, the “barrier” extending from Japan, past Taiwan and the Philippines, to maritime and peninsular Southeast Asia — the U.S. military depends on “enablers” to accomplish its missions, like aerial refueling and satellites for cyber capabilities. These assets are likewise vulnerable to Chinese disruption/attack, as are U.S. forward bases in Asia, such as Okinawa.

Mastro’s recommendations to mitigate current U.S. weaknesses to a Chinese invasion of Taiwan include "more access, basing, and overflight," "more mass on targets," and "leveraging partners." While Chinese military power has not surpassed that of the United States, Mastro warns that if U.S. deterrence is not maintained and improved, Chinese leadership may become confident enough to move against Taiwan, resulting in a war with the United States. On the other hand, she assesses that the needed deterrence is possible if the proper steps are taken now.

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U.S. Seaman Xi Chan stands lookout on the flight deck as the Arleigh Burke-class guided-missile destroyer USS Barry (DDG 52) transits the Taiwan Strait during routine underway operations.
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The Cost of the "Taiwan Contingency" and Japan's Preparedness

The ultimate choice that must be made.
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Michael McFaul, Oriana Skylar Mastro, Ken Jimbo, Kiyoteru Tsutsui, Larry Diamond, and Francis Fukuyama speaking at the Yomiuri Conference, Tokyo.
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Stanford Experts Explore the Roles of Taiwan and Ukraine in Countering Autocratic Challenges to Democracy

At the Yomiuri International Conference, Freeman Spogli Institute scholars Larry Diamond, Francis Fukuyama, Oriana Skylar Mastro, Michael McFaul, and Kiyoteru Tsutsui examined lessons from the war in Ukraine, the risks of a crisis over Taiwan, and the impacts of both geopolitical flashpoints for defending democracy and for a coordinated approach to deterrence in the Indo-Pacific.
Stanford Experts Explore the Roles of Taiwan and Ukraine in Countering Autocratic Challenges to Democracy
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With contributions from military, government, and academic experts, a new volume explores what changes will be necessary in the U.S. military budget to keep the nation secure in a new geopolitical environment. A chapter by Center Fellow Oriana Skylar Mastro focuses on how to update military spending to enhance U.S. capability to deter Chinese ambitions in Taiwan and beyond.

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Cover of the book "Defense Budgeting for a Safer World," showing a helicopter highlighted against the setting sun.

The authors of Defense Budgeting for a Safer World review the significant areas of debate in the U.S. defense budget and provide their expert suggestions for aligning it with new global realities.

One of those new realities is a modernized Chinese military with dramatically increased funding. It raises questions with U.S. allies about their own security and the U.S. ability to counter threats from the People’s Liberation Army, including the possibility of forced reunification with Taiwan.

In chapter 2 of the book, “The Military Challenge of the People’s Republic of China,” Oriana Skylar Mastro focuses on this threat. She first reviews the last quarter-century of developments in China’s strategy for reunification with Taiwan. This plan has evolved from strengthening ties to belligerent air and sea incursions and increasingly sophisticated military exercises. At the same time, Xi Jinping has stepped up rhetoric about the inevitability of reunification and the unacceptability of an independent Taiwan.  

The United States has significant weaknesses in the face of a Chinese anti-access/area denial strategy, primarily due to the United States not being a resident power in the Asia-Pacific but also the vulnerability of U.S. aircraft carriers to Chinese ballistic systems. Because it will likely have to operate outside the first island chain, the U.S. military depends on “enablers” to accomplish its missions, like aerial refueling and satellites for cyber capabilities. These assets are vulnerable to Chinese disruption/attack.

Mastro’s recommendations to mitigate current U.S. weaknesses to a Chinese invasion of Taiwan include expanding the number of agreements to base in countries around the Asia-Pacific, increasing stockpiles of munitions effective against naval vessels, and strengthening partnerships and allies in the region.

While Chinese military power has not surpassed that of the United States, Mastro warns that if U.S. deterrence is not maintained and improved, Chinese leadership may become confident enough to move against Taiwan, resulting in a war with the United States.

 

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A chapter in Defense Budgeting for a Safer World: The Experts Speak, edited by Michael J. Boskin, John Rader, and Kiran Sridhar.

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Oriana Skylar Mastro
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Shorenstein APARC's annual report for the academic year 2022-23 is now available.

Learn about the research, publications, and events produced by the Center and its programs over the last academic year. Read the feature sections, which look at Shorenstein APARC's 40th-anniversary celebration and its conference series examining the shape of Asia in 2030; learn about the research our postdoctoral fellows engaged in; and catch up on the Center's policy work, education initiatives, publications, and policy outreach. Download your copy or read below:

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On October 18, as part of its autumn 2023 seminar series on APEC in advance of the organization's meeting in San Francisco in November, Shorenstein APARC and its Asia Health Policy Program (AHPP) presented the series' second event, Asia-Pacific Digital Health Innovation: Technology, Trust, and the Role of APEC. The featured panelists were Kiran Gopal Vaska, Director of the National Health Authority of India, and CK Cheruvettolil, the Senior Strategy Officer, Digital Health and Artificial Intelligence, at the Bill & Melinda Gates Foundation. Siyan Yi, the Director of the Integrated Research Program at the National University of Singapore and a former AHPP fellow, moderated the conversation.

While India is not an APEC member, Indian initiatives are examples of leveraging technology to better the health of the most vulnerable citizens in low- and middle-income countries (LMICs). Kiran Gopal Vaska gave an overview of the Ayushman Bharat Digital Mission (ABDM), India's latest health initiative that focuses on the interoperability of health records, services, and health claims. He stressed that ABDM was built on previous digital infrastructure, like Aadhaar, the national digital identity system, and Digilocker, a digital storage scheme for citizens' health and other records.

In ABDM, we do just three things: interoperability of health records, interoperability of services, and interoperability of health claims.
Kiran Gopal Vaska
Director of the National Health Authority of India

The approach India has taken is for the government to build the rails—the infrastructure of the system—and create a space where the private sector can develop applications integrated with that space through application programming interfaces (APIs), avoiding the siloing that can hamper the interoperability of data.

Regarding health data, privacy is a crucial concern at the patient level. ABDM addresses this concern through the use of a consent artifact. Individuals decide whether hospitals or other medical service providers have access to their data, and this access has levels of granularity: you can share specific portions of 7 different data types, like immunizations or prescriptions. You can limit that sharing to a particular period, like one day.

Also participating on the panel was CK Cheruvettolil, who discussed strategies by the Bill & Melinda Gates Foundation in leveraging the power of mobile phones to augment the work of Accredited Social Health Activists (ASHAs), the more than one million female frontline health workers in India. ASHAs can use mobile phone cameras, sensors, and streaming data to better care for low-birth-weight babies and other patients. 

If [software] is developed in isolation without understanding that social context, you would lose a huge portion of the population, you'd lose that effectiveness.
CK Cheruvettolil
Senior Strategy Officer, Digital Health and Artificial Intelligence, Bill & Melinda Gates Foundation

He explained the critical role of taking local context into account when developing software by using the example of pregnant Indian women in their third trimesters. The custom for Indian mothers, especially in rural areas, is for the child to be born in the maternal grandparents' home. If software were to store only the mother's address, healthcare workers in the grandparents' jurisdiction would not know that a pregnant woman in the critical third trimester would soon be giving birth at a local address.

Kiran Gopal Vaska noted that India had solved the technological issues, and now the task was to push for adoption. He emphasized that the technologies underlying India's digital health stack were created as public goods for the world, and for LMICs to support each other in advancing digital health technologies, the key was interoperability, "using standards that are accessible and acceptable worldwide."

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Panelists gather to discuss APEC
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Ahead of the 2023 Asia-Pacific Economic Cooperation (APEC) convening in San Francisco, APARC kicked off its fall seminar series, Exploring APEC’s Role in Facilitating Regional Cooperation, with a panel discussion that examined APEC’s role and continued relevance in a rapidly-evolving Asia-Pacific region.
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The Future of Health Policy: Reflections and Contributions from the Field
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Health Policy Scholars and Practitioners Examine the Future of the Field

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Kiran Gopal Vaska, CK Cheruvettolil, and Siyan Yi at the panel discussion on digitial health initiatives
(L to R) Kiran Gopal Vaska, CK Cheruvettolil, and Siyan Yi
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Shorenstein APARC continued its APEC seminar series with the second installment, Asia-Pacific Digital Health Innovation: Technology, Trust, and the Role of APEC, a panel discussion that focused on how India’s digital health strategy has evolved and its lessons for other countries creating their own.

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China Progam Oct 11 event

This panel brings together experts, policymakers, and academics to critically examine the impact and realities of China's ambitious infrastructure project in the Southeast Asian region. Panelists will delve into the actual projects implemented under the BRI, analyzing their successes and challenges, while also addressing the misconceptions and myths surrounding the initiative. Key topics of discussion will include the economic benefits and potential risks for Southeast Asian countries, the extent of China's influence and involvement in regional affairs, and the overall implications for regional connectivity and cooperation. By providing evidence-based insights and unbiased analysis, the panel will bring a clearer understanding of China's BRI in Southeast Asia.

David Gordon provides direction and leadership to the IISS multi-year project on China’s Belt and Road Initiative. He also supports the Institute’s program on Geo-economics and Strategy. He writes extensively on global political and economic risks, great-power rivalry and US foreign and national security policy. Prior to joining IISS, David had a long career in both government and the private sector. He served as director of policy planning in the US State Department and as vice-chair of the US National Intelligence Council. After leaving government service, he was chairman and head of research for the global political risk advisory firm Eurasia Group. David received his bachelor's degree from Bowdoin College, and his master's and PhD from the University of Michigan. He has taught at Michigan, Michigan State, the University of Nairobi and Georgetown.

Jean C. Oi is the William Haas Professor of Chinese Politics in the Department of Political Science and a Senior Fellow of the Freeman Spogli Institute for International Studies (FSI) at Stanford University. A Ph.D. in Political Science from the University of Michigan, she directs the China Program at the Shorenstein Asia-Pacific Research Center and is the Lee Shau Kee Director of the Stanford Center at Peking University. She also is the current President of the Association for Asian Studies.

Gita Wirjawan is an educator and host of the podcast “Endgame.” He is a visiting scholar at the Walter Shorenstein Asia Pacific Research Center, Freeman Spogli Institute, Stanford University. He is also the founder and chairman of Ancora Group, a partner of Ikhlas Capital, a Southeast Asia focus private equity fund, and advisor to a number of Southeast Asia based venture capital firms. Previously, he served as Minister of Trade and Chairman of Investment Coordinating Board in the Indonesian government from 2009-2014.

Min Ye is a Professor of International Relations at the Pardee School of Global Studies at Boston University.  Her research situates in the nexus between domestic and global politics and the intersection of economics and security, with a focus on China, India, and regional relations. Professor Ye’s areas of expertise include Chinese political economy, China and India comparison, East Asian international relations, and globalization with focuses on transnational immigration and foreign investment.

Jean Oi, William Haas Professor of Chinese Politics at Stanford University

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Min Ye, Professor of International Relations at Boston University
Gita Wirjawan, former Minister of Trade of the Republic of Indonesia
David Gordon, Senior Adviser for Geo-economics and Strategy at the International Institute for Strategic Studies
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Shorenstein Postdoctoral Fellow on Contemporary Asia, 2023-2024
normanjoshua.jpeg Ph.D.

Norman Joshua was a Shorenstein Postdoctoral Fellow on Contemporary Asia for the 2023-24 academic year. He obtained his Ph.D. in History fom Northwestern University. His research interests revolve around the histories of authoritarianism, civil-military relations, and economic history in Southeast Asia and East Asia. He is particularly interested in the relationship between historical experiences and the emergence or consolidation of authoritarian governance.

Norman’s dissertation and book project, “Fashioning Authoritarianism: Militarization in Indonesia, 1930-1965,” asks why and how the Indonesian military intervened in non-military affairs before the rise of the New Order regime (1965-1998). Using newly obtained legal and military sources based in Indonesia and the Netherlands, the project argues that the military gradually intervened in the state and society through the deployment of particular policies that were shaped by emergency powers and counterinsurgency theory, which in turn ultimately justified their continuous participation in non-military affairs.

His research highlights the role of social insecurity, legal discourses, and military ideology in studying authoritarianism, while also emphasizing the significance of understanding how durable military regimes legitimize their rule through non-coercive means.

Norman’s other works study revolutionary politics, counterinsurgency, military professionalism, intelligence history, and the political economy of petroleum in Indonesia. His first monograph, Pesindo, Pemuda Sosialis Indonesia 1945-1950 (2015, in Indonesian) examines the politics of youth groups in early revolutionary Indonesia (1945-1949).

At APARC, Norman developed his dissertation into a book manuscript that transcends the boundaries of his initial study. By broadening the scope of his research, he aims to trace the historical and social contexts upon which military authoritarian regimes legitimize their rule through non-coercive mechanisms, thereby enriching our understanding of the long-term effects of colonialism, war, and revolution on societal norms, values, power structures, and institutions

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Visiting Scholar at APARC, 2023-2024
qinghongxu.jpeg Ph.D.

Qinghong Xu joined the Walter H. Shorenstein Asia-Pacific Research Center (APARC) as a visiting scholar for the 2023-2024 academic year. Xu currently serves as Associate Professor at Yunnan University's College of Ethnology and Sociology. While at APARC, Xu conducted research on the national image of China in Southeast Asia.

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On August 2, 2023, APARC Southeast Asia Program Director Donald Emmerson participated in a virtual discussion as part of a series on "Reinvigorating Commitment for Democratic Resilience and Good Governance," hosted by the Women in Foreign Policy, a program collaboration between the Foreign Policy Community of Indonesia (FPCI) and the U.S. Embassy in Jakarta.

The text of Emmerson's introductory remarks is included below. You can also watch Emmerson's additional comments throughout the discussion via the video recording embedded below following the text.



Remarks by Donald Emmerson 

In discussions of global affairs, including this one, it is always useful to distinguish between structure and agency: between embedded distributions of power that may be hard to change and the roles of individual and collective actors who can and may cause, alter, postpone, or prevent such change.  

Last year, in 2022, for the first time, our planet’s population reached 8 billion and our global economy exceeded 100 trillion US dollars in value.  But observers disagree about the current structure of world affairs.  

Two dichotomies are competing for attention. Some leaders prefer a vertical and mainly economic contrast between the developed “global North” and the less developed “global South.” Last month India’s prime minister Modi told the US Congress that “the global South is the way forward” and some say he hopes to lead the “global South” in reforming the world’s current geopolitical structure.  

U.S. President Biden has in the past offered a horizontal and partly ideological contrast between “Western democracy” and “Middle Eastern autocracy.” But his aversion to despotic rule in Russia and China suggests a broader rejection of “Eastern autocracy” even though he doesn’t use that term.

As for structure and agency, these two bits of economic and political geometry — North-South and West-East — are problematic. The world is not divided into four neatly circumscribed, internally homogenous, and traditionally identified blocs.  

Consider the association of the North and the West with economic growth and wealth, as opposed to the more impoverished South and East. The Gini index of inequality runs on a scale from zero, or complete equality, where everyone has the exact same income, to one hundred, where one person gets all of the income in the world. In recent decades, inequality among individuals within countries has increased slightly, but inequality between countries continues to fall and is now down to its lowest level in well over a century.  

One analyst concludes accordingly, in an article optimistically entitled “The Great Convergence” in the current issue of Foreign Affairs, that in global terms income is more equally distributed than it has been in more than a century. (See Branko Milanovic, “The Great Convergence,” Foreign Affairs, July-August 2023.)  

If this trend continues, it will become even harder to lump countries into blocs according to where they are on a map. Meanwhile, however, for multiple reasons including history, geography, demography, culture, and political economy, the five richest countries by GDP — the United States, China, Japan, Germany, and India, in that order — together account for more than half of Global GDP. Interestingly, China with 18 percent of the world economy is still behind the United States, which has 25 percent. But the structural lesson is that a stable future global order cannot be unipolar or bipolar, or reflect the primacy of any single region. It must instead be multiply, plurally — I’m tempted to say democratically — led.  

That morally and empirically constructive outcome is certainly endangered by structural differences. But by far the most imminent threat to the world stems from the expansionist agency of certain key leaders — Vladimir Putin in Ukraine, Xi Jinping potentially against Taiwan, and Donald Trump against democracy in America.

Let me end by focusing very briefly on Trump. A recent New York Times poll of registered voters shows 43 % supporting Biden and the exact same number — 43 percent — supporting Trump. Trump was impeached twice by one house of Congress, surviving only due to Republican objection in the other house, and has been indicted three separate times on criminal charges involving campaign bribery, security violation, and electoral subversion.  

The election won’t be held until November of next year, so it is far too early to predict an outcome.

But it is not too early to argue that success in multilaterally fashioning a suitably stable, democratic, and prosperous global order will require structural cooperation between regions led by honest leaders capable of constructive agency on behalf of justice, prosperity, and peace. 


 

 Additional comments by Emmerson

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Money Matters: Democratization and Economic Growth in Southeast Asia Report

This report focuses on 10 Southeast Asian economies and how the distribution of monetary capital to each country is influenced by the degree to which it has adopted liberal democratic institutions and systems. It argues they need a new political economy that prioritizes financial inclusion, investment attraction, marginal productivity, trade expansion, political stability, and talented leaders who are able to facilitate the achievement of these goals.
Money Matters: Democratization and Economic Growth in Southeast Asia Report
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Remarks by Donald K. Emmerson

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Scot Marciel
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This commentary originally appeared in Nikkei Asia.



The Association of Southeast Asian Nations is due to hold its first joint naval exercise as a bloc next month.

This will be an important milestone at a time the group is facing daunting challenges to its interests and its diplomatic centrality in the Asia-Pacific region, including intensifying U.S.-China rivalry; an ongoing crisis in Myanmar that has divided ASEAN and left it looking feeble; the proliferation of alternative forums including AUKUS and the Quad; talk of a NATO office in Japan; and, of course, China's continued assertiveness in the South China Sea.

The upcoming drill, though, could have been a bolder, more assertive statement.

Indonesia, as ASEAN chair, initially proposed holding the exercise within the South China Sea. Unfortunately, due to Cambodian opposition, the exercise has been shifted to an area outside of China's expansive South China Sea claim. The Cambodians are said to have argued that the initial location of the drill, in the North Natuna Sea, would have unnecessarily upset China.

The decision to shift the exercise is a minor blow to ASEAN ambitions to bolster security cooperation but should not deter Indonesia and other member nations from making another run at a collective Southeast Asian naval drill in waters that fall within China's infamous "nine-dash line."

Such a drill would not only make sense from a policy and international law perspective but arguably reinforce one of the original intentions behind the founding of ASEAN in 1967, and address its current need to reaffirm the bloc's centrality.

ASEAN was established as a bulwark against communist expansionism and also to manage conflict and mistrust among neighboring Southeast Asian nations. The intention was to discourage great-power intervention and interference in the region.

China's aggressiveness has prompted the U.S. and others to increase naval activity in the region to assert the right of navigation through what they maintain is an international waterway.
Scot Marciel
Oksenberg-Rohlen Fellow

The past 10 to 15 years, however, have seen significant intervention in the South China Sea, most notably by China, which continues to assert its expansive claim vigorously despite a ruling by a U.N.-backed tribunal that its nine-dash line claim has no basis in international law.

China's aggressiveness has prompted the U.S. and others to increase naval activity in the region to assert the right of navigation through what they maintain is an international waterway. Many ASEAN nations have complained about or felt uncomfortable with these activities, particularly those of China, but the bloc has struggled to back up its position with tangible action.

That is the beauty of an ASEAN naval exercise in the South China Sea. Properly designed and implemented, it would assert ASEAN centrality on a critical issue and put China on the back foot, without bringing in great power competition.

China would probably protest, but it is hard to imagine Beijing retaliating against a substantial group of Southeast Asian nations -- countries it is actively wooing -- acting together. The U.S. probably would welcome ASEAN's action, which would advance the cause of treating the area as international waters without its own involvement.

To be successful, the exercise would need to include only ASEAN members, as any outside participation would undermine the whole point. As Indonesia originally proposed, it should also be run as a humanitarian relief exercise rather than anything more overtly "military."

Such an exercise would not resolve South China Sea territorial claims nor prevent China from continuing to assert its claims. Nor would it end the bloc's divisions over Myanmar or other matters. It would, however, boost ASEAN's diminished credibility, while pushing back on unjustified Chinese claims in a manner that Beijing would not easily be able to counter or blame on the U.S.

If the initial exercise were carried off successfully, it could lead to regular drills, potentially reducing the perceived need in Washington and other capitals to assert freedom of navigation rights in the South China Sea themselves. In that sense, it could reduce great-power tension and "interference" in the region.

The big question, of course, is how Indonesia and other proponents can overcome the objections of Cambodia, and possibly other member states.

Perhaps further discussions within the bloc could produce a plan that all members could accept. In the more likely case that divisions persist, then Indonesia, as ASEAN chair, could organize a naval exercise open to any bloc member willing to participate.

This presumably would include Singapore, Malaysia, the Philippines, Vietnam and ideally Thailand, at least.

Such a "minilateral" approach would be unusual but feasible, particularly if no external powers are involved. After all, Thailand recently broke with established ASEAN consensus to host a minilateral meeting on Myanmar that upset some of its fellow member states.

If need be, countries participating in a South China Sea drill could call it an "informal" ASEAN exercise to get around the lack of consensus. If the six mentioned countries all participated, it would still send a strong signal that ASEAN can, formally or informally, still act on critical issues.

ASEAN has a chance to take a significant step that would be in line with its original purpose and that would do much to bolster its standing, and possibly even reduce great power tension in the South China Sea. Indonesia and other like-minded ASEAN members should seize the chance and make it happen, especially since Indonesia is due to pass on the role of bloc chair to Laos, whose government is particularly susceptible to Chinese influence, later this year.

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Stanford Next Asia Policy Lab team members at Encina Hall, Stanford
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Indonesian Naval Aviation prepares to depart from Juanda Naval Air Station in Surabaya to do a patrol operation. | Wikimedia Commons
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Indonesia can revive proposal with other interested members.

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Scot Marciel
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This commentary was first published by The Diplomat.


 

Indonesia’s $20 billion Just Energy Transition Partnership (JETP), announced last November by U.S. President Biden, Indonesian President Joko Widodo, and Japanese Prime Minister Kishida Fumio, is reaching an early critical juncture. The stakes involved are high, encompassing climate change, economics, U.S.-Indonesian relations, and geopolitics.

Under the Partnership, an International Partners Group (IPG), made up of the G-7, Norway, and Denmark and led by the United States and Japan, promised to mobilize $10 billion in financing, while a private sector alliance committed an equal amount. Indonesia agreed to accelerate the retirement of coal-fired power plants and promote renewable energy, setting targets of capping emissions from its power sector, making that sector carbon neutral by 2050, and tripling the share of renewable energy in the power mix by 2030.

If the partnership succeeds, Indonesia – one of the world’s largest greenhouse gas emitters – will be on a path toward significantly reduced emissions. Moreover, success will demonstrate that the JETP model is viable, encouraging similar partnerships elsewhere. Failure would undermine the JETP concept and discourage efforts by other developing countries.

For Indonesia, JETP provides an opportunity not only to shift away from dirty coal power but also to enhance its attractiveness as an investment destination. Although Coordinating Minister Luhut Panjaitan, who has been overseeing its implementation, has sought to put all the pressure on the IPG, saying “we don’t lose anything if the deal doesn’t materialize,” a failed deal would mean Indonesia leaving billions of dollars on the table, and would reinforce perceptions that it is a difficult place to do business.

The stakes for the United States are equally high. Washington led the negotiations and will get much of the credit or blame for JETP’s success or failure. Also, the recent U.S. track record on economic issues in the Asia-Pacific region has been poor, the result of its withdrawal from the Trans-Pacific Partnership, avoidance of other trade agreements, and failure to deliver on its “quality infrastructure” initiatives. The United States is widely viewed as losing economic influence in the region to China. The Indonesia JETP deal is a chance for Washington to demonstrate that it can deliver and thereby boost its geostrategic position. Failure would do just the opposite.

Finally, JETP offers a means to improve U.S.-Indonesian relations. Indonesia is important – the world’s third-largest democracy, the biggest Muslim-majority nation, a rising economic power, and a leader of the Association of Southeast Asian Nations (ASEAN). While security ties have improved, economic relations have stagnated, the Indonesian public remains cool toward the United States, and Washington worries about Jakarta’s growing ties with China, which provides it with needed infrastructure financing.

JETP already is facing significant challenges. It was always going to be difficult for Indonesia to shift away from coal, an industry that has produced powerful conglomerates and employs around 250,000 people. The country has a surplus of power capacity in key regions and a relatively new fleet of coal plants, making early retirement costly. Moreover, the current regulatory environment, including Jakarta’s local content requirement, makes investing in renewable energy unattractive. There are other challenges, but discussions with experts suggest most can be overcome with sufficient will and financing.

Jakarta and Washington need to redouble efforts to move the partnership forward. For Indonesia, that means completing an investment plan with bankable projects, offering regulatory reform to make renewable energy investments more attractive...
Scot Marciel
Oksenberg-Rohlen Fellow

Therein lies the bigger, more immediate problem. Following an April visit to Washington, Indonesian officials complained that the IPG was asking Jakarta to take difficult steps without doing its part. Minister Luhut told the press that Washington had not “shown” them any money or clarified how Indonesia can access JETP funds. He also emphasized that the money needed to come on concessional terms. An Indonesian official involved in JETP said privately that they are informed that grants would make up only a small fraction of the $20 billion in financing and that only one-third of the money would consist of truly concessional loans. “The [financing] package,” the official added, “is not aligned with the spirit of the partnership and ambitious transition required in JETP, which without real financial support will add significant financial burden to Jakarta.”

Other conversations suggest increasing doubt in Jakarta about whether the money will materialize, along with what one Indonesian expert called a growing worry that JETP will fail before it gets started. U.S. officials say it will be “bankable” projects identified in the JETP investment plan, expected next month, that should trigger the flow of money. They insist the financing will be there.

Given the stakes, Jakarta and Washington need to redouble efforts to move the partnership forward. For Indonesia, that means completing an investment plan with bankable projects, offering regulatory reform to make renewable energy investments more attractive, and addressing the contracts behind the current energy surplus. It also will mean accepting less concessional financing than it wants. For Washington, it involves quickly demonstrating that it and its IPG partners will meet their financing commitment with reasonably concessional terms and clarify the mechanism for accessing the JETP funds.

Time is of the essence. To bolster lagging confidence, the parties need to announce several pilot projects soon and move vigorously to implement them. The opportunity presented by the JETP initiative is too good to miss, and the cost of failure is high.

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