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By Creating a New Ministry of Investment, Is Jokowi Playing a Geo-economic Game?

President Joko Widodo (Jokowi) appointed Bahlil Lahadalia, who previously served as Head of the Investment Coordinating Board (BKPM), to become Minister of Investment. Is this part of a new geo-economic strategy?

By Alfin Zulfikar Rizky

Indonesian President Joko Widodo recently reorganized his Indonesia Maju Cabinet again. The most notable changes were the merger of the Ministry of Education and Culture (Kemdikbud) and the Ministry of Research and Technology (Kemristek), and the establishment of the Ministry of Investment.

The President retained Nadiem Makarim as head of the merged Ministry of Education and Technology, while he appointed another familiar figure to lead the newly created Ministry of Investment, namely Bahlil Lahadalia, who previously served as Head of the Investment Coordinating Board (BKPM). 

The establishment of this new ministry is seen as a change in the structure and governance of policymaking in the investment sector. Until this reorganization, the BKPM was the spearhead of governance in the investment field; now the Ministry of Investment has assumed this role.

Perhaps the most striking feature of this ministry is the power it will wield. According to Bahlil himself, the Ministry of Investment can issue its own regulations—in contrast to BKPM, which only acted as executor of various policies, laws (UU) and ministerial regulations (Permen).

A change like this is certainly significant. It is very likely that the Jokowi administration is adopting a new strategy in the investment sector.

Why did President Joko Widodo make this change? Could it be that policies in the economic sector – such as in investment – are linked to strategic policies at the international level?

Power Based on Economic Strength

It is probable that this change in the Jokowi administration’s investment policy-making process is related to geopolitical dynamics on the international stage. This is because, in an interconnected world, the security and military establishment is not the only major source of power for a country.

It could be that this change in the investment policy-making process is an attempt by the Jokowi administration to create a source of power in the economic sphere. Matters related to power sources in the economic sphere in international politics are often referred to as geo-economics.

Mikael Wigell from the Finnish Institute of International Affairs in his paper entitled Conceptualizing Regional Powers’ Geo-economic Strategies defines geo-economy as the use of economic power as part of geostrategy. Quoting Huntington, Wigell stated that economic power is becoming increasingly important in determining a country’s domination over other countries when armed conflict is increasingly unlikely to occur.

Such a geo-economic situation may occur due to the economic interdependence between countries. When the Cold War ended, the world order became more structured with the emergence of international regimes in various policy areas – although only a few countries such as the United States (US) were really dominant.

However, interestingly, with this rise in the importance of economic power, several countries have been able to rise without having to fully rely on military power. If we reflect on the international dynamics prior to World War II, security and military capability were often the main determinants of whether a country’s influence was strong or not.

There are several economic elements, which, according to Wigell, can serve as geo-economic force, such as trade relations, investment capital, and foreign assistance. With such economic strength, countries such as the People’s Republic of China (PRC), Russia, Brazil, Germany, India, and Japan can influence the behavior of other countries.

The importance of this geo-economy is also demonstrated by the rise of China to become one of the superpowers in Asia – maybe even in the world. Many international relations experts believe that China’s rise will proceed peacefully without armed conflict with traditional powers such as the US and other Western countries.

The basis for the strength of China’s geo-economy is also explained by Dan Ciuriak in his article entitled The Laws of Geo-economic Gravity Fulfilled.  The amount of foreign direct investment (FDI) that enters China has a great geo-economic significance. Many US companies – such as Apple – are bringing in FDI into China on a massive scale. China is said to have taken advantage of the massive injection of FDI to develop its technological innovations.

So, if geo-economics is important for countries – such as China – in an era of economic interconnection between countries, what about Indonesia? Could the Ministry of Investment, led by Bahlil, be Jokowi’s ticket to geo-economic power?

Bahlil Offsetting Luhut?

Very likely, Jokowi has taken a look at what China has done and decided to do likewise. By optimizing regulations that facilitate the entry of FDI, Indonesia can also maximize its material strength.

This is in line with the definition of material strength as described by John J. Mearsheimer – a professor of politics at the University of Chicago, USA. According to Mearsheimer, material strength determines the position of a country in achieving hegemonic status.

This is because the level of Chinese investment interest is also considered capable of providing soft power – defined as the ability of country A to make country B have the same desire and will. This is why China also has a geo-economy that is manifested through investment in other countries, particularly in infrastructure.

By changing its investment policy-making process, the Jokowi administration intends to increase material strength through geo-economics. This was achieved by giving BKPM (now the Ministry of Investment) more authority.

When referring to Presidential Regulation (Perpres) No. 90 of 2007, BKPM does not have a function to make policies related to investment. The formulation and stipulation of policies in this particular field are more devolved to the ministries – based on Presidential Decree no. 68/2019.

It is interesting that Bahlil has his own perspective on the geo-economic competition between the US and China. On several occasions, Bahlil has expressed negative views on investments originating from China.

Regarding investment dependence on China, for example, Bahlil has deemed that this could harm Indonesia. This is because China is considered to have a poor level of commitment in carrying out its investment. Bahlil is therefore more supportive of increasing investment from Japan and the US.

Now with grater authority Bahlil could bring about a shift in investment sourcing, which so far has been said to be more inclined towards China. Interestingly, the Coordinating Minister for Maritime Affairs and Investment Luhut B. Pandjaitan is often considered close to China.

With the broader function of the Ministry of Investment, Bahlil now has the authority to formulate policies related to investment. 

If it turns out that Bahlil will issue investment policies that favor the US, this may be a sign that the Jokowi administration is starting to try to balance its relations with the US and China. On the part of the US, President Joe Biden has stated that he will collaborate with partner countries in the Asia-Pacific to counterbalance Chinese power.

Moreover, in the face of the political crisis in Myanmar, the Jokowi administration is trying to take a more active role in providing solutions within the ASEAN framework. Several experts also said that Jokowi’s maneuver in the Myanmar crisis was aimed at attracting the attention of the Biden government by presenting Indonesia as a country that supports democratic principles.

Even so, the picture of the shift in investment policy from one favoring China to one favoring the US is not a foregone conclusion. President Jokowi himself has not issued a Presidential Decree that clearly defines the duties, roles, and functions of the new Ministry of Investment. Let’s just wait and see what happens next. 

Editor’s note: The views expressed in this article are the author’s and do not necessarily reflect the views of PinterPolitik.

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