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As G20 Meets in Bali, Host Indonesia’s Problems on Display
Jokowi showcases his troubled country to the world
By: Dandy Rafitrandi and Noory Okthariza
As world leaders meet at the G20 Summit in Indonesia, the host country is focused on luring international investment for its major infrastructure projects, such as its transition to clean energy sources and its plan to relocate its capital from Jakarta to East Kalimantan.
The event takes place as Indonesia is reeling from global inflation hikes and the energy crisis following the Russian invasion of Ukraine. Southeast Asia’s largest economy had some windfalls from rising commodity prices such as coal, gas, and palm oil but the government has also felt compelled to lift some of its fuel prices by around 30 percent to curtail its increased spending on energy subsidies.
A number of demonstrations demanded that Indonesian President Joko Widodo reverse the unpopular fuel subsidy cut, but it remains intact. The popular discontent was translated into a drop in Widodo’s approval rating by around 10 percent to 62,6 percent in September.
Adding to domestic pressure, Indonesia has experienced a cooking oil shortage - despite being the world's largest exporter of crude and refined palm oil - and has decided to restrict its exports. Prices of staple foods, such as rice, meat, chili, and eggs, have also skyrocketed.
Energy transition: ambition vs action
In the context of rising fuel prices, the energy transition comes into focus, not least because Indonesia aims to strike its net zero target by 2060. The November summit includes the G20 Bali Compact, a set of voluntary principles, reiterating members' commitment to effective energy transitions to achieve carbon neutrality. However, in practice, developing countries face the challenge of financing the transition, not least the high costs of winding down the coal sector. The G20 finance track seeks to scale up private and public sustainable finance to help developing countries meet their climate ambitions.
One estimate stated that Indonesia needs to accrue US$600 billion in investments to phase out coal plants, develop renewable energy, and expand its power network in the next two decades. Two-thirds of this funding needs to come from the private sector but, so far, it is failing to attract investors. This partly reflects a sluggish global economy, but also Indonesia's lack of policy consistency regarding the environment.
A report from the Bertelsmann Transformation Index (BTI) has highlighted the impact of the “controversial” Omnibus Bill on the environment, which was passed in 2020 and reduces environmental evaluations needed by businesses for commercial activities: “Under the new regulations, local populations have been excluded from the process, leading to widespread criticism when the law was promulgated,” BTI experts wrote. Moreover, the government also delisted coal waste from its list of hazardous waste in February last year.
In a bid to underscore its commitment to renewable energies, the new Presidential Regulation No. 112 of 2022 on Accelerated Development of Renewable Energy for Electricity Supply was recently issued. The new rules address the energy transition and the early retirement of coal-fired power plants and pricing mechanism among other topics. However, market confidence remains weak amid a regulatory gap in the renewables sector, low incentive for investors, and lack of local government involvement and capacity.
Moving the Capital City
Another important domestic issue involves the Indonesian President, Joko Widodo, popularly known as Jokowi, and his most ambitious policy: moving the capital from Jakarta to East Kalimantan. Jokowi has stated that the new capital would geographically balance the country’s economy, which for a long time has been disproportionately focused in Java. The plan also reflects the fact that 40 percent of Jakarta lies below sea level and is now sinking at an alarming rate.
In a high profile meeting with potential investors last month, Jokowi boasted that the new capital would become a “green city” with 70 percent of its area being green, and electric and autonomous vehicles making up most public transportation. However, there is concern about the ecological impacts of the project as the new capital is planned on the forest-rich island of Borneo, fanning fears of deforestation. Critics have voiced skepticism about plans to use green energy since renewable energy currently supplies 11.5 percent of the national total. Given the status quo, it looks more likely that the new city would rely on the numerous coal-rich power plants in Borneo for its power supply.
Amid some public doubts about the new capital, which may take several administrations to achieve, 80 percent of the budget is aimed to be sourced from private entities - but has garnered little positive response. There is also a lack of support from local actors reflecting the communication and knowledge gap. As the BTI Report 2022 discusses, this is underpinned by a more general lack of policy coordination between central and local governments and other actors: “government ministries are run by a wide range of different parties and actors, and the autonomy of the latter in policy formulation is significant.”
Against this backdrop, Indonesia will try to balance its interests and aspirations at the G20 Summit, adopting the global platform to showcase its mega projects and attempt to lure investment. Given the uncertain outlook for its plans, Indonesia’s political gaze remains more inwardly than outwardly focused. Combined with a challenging global economy, geopolitical tensions and domestic issues, this means Indonesia is unlikely to wrap up its G20 presidency with a strong stance at the high profile event.
Dandy Rafitrandi and Noory Okthariza are with the Center of Strategic and International Studies in Jakarta.