Australia and Indonesia: Bilateral Relationship and Its Significance

This report discusses the current economic, strategic, and diplomatic relationship between Australia and Indonesia, highlighting its historical perspective and importance to Australia.

Running head: AUSTRALIA AND THE WORLD
AUSTRALIA AND THE WORLD
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Executive summary
This paper is a report about Australia and Indonesia and focuses on the bilateral relationship
between the two countries. The paper discusses the current economic, strategic and diplomatic
relationship between the two countries with an historical perspective that provides an insight
about the relationship between the two countries, Australia and Indonesia.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................4
Current economic relationship between Australia and Indonesia...............................................4
Current strategic relationship between Australia and Indonesia.................................................5
Current diplomatic relationship between Australia and Indonesia..............................................6
Conclusion.......................................................................................................................................6

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Introduction
Indonesia is one of the closest neighbors of Australia. The foreign relations between
Indonesia and Australia has been identified by the mutual trade that is growing which resulted in
the trade of $14.9 billion in the year 2011-2012 which was an increase from the year before
(Dfat.gov.au, 2019). Australia and Indonesia are members of the ASEAN (Association of
Southeast Asian Nations including countries like Brunei, Cambodia, Indonesia, Laos, Malaysia,
Philippines, Thailand, Singapore Vietnam) Regional Forum, Australia-New Zealand-ASEAN
Free Trade Agreement and G20. Indonesia, in 2012-2013 received $541.6 million in the
Australian development aid (Department of Foreign Affairs and Trade, 2019). On the other hand
Indonesia has several factors that are beneficial for Australia and the trade relations between the
countries have had significant growth of the years which makes the bilateral relationship
between Australia and Indonesia important to Australia.
Initially, Indonesia was considered to be an uncertain country because of the growing
poverty in the country. However Indonesia because of the high literacy level and improved
middle class population has paved way for Indonesia to be one of the most successful companies
(Department of Foreign Affairs and Trade, 2019). According to experts Indonesia is soon going
to emerge as a trillion dollar economy country. Indonesia has a strategic geographical location
and almost 25% of the world trade is carried out through the Strait of Malacca, a stretch between
the islands of Sumatra, Indonesia and Malay Peninsula, Malaysia (Holle & Murphy, 2017). This
considered to be one of the important ad vital shipping channels in the world and is the primary
shipping channel between the Pacific Ocean and Indian Ocean. According to the defense experts
this place is crucial and any Australian threat may come from this channel in Indonesia.

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Indonesia has about 17000 islands that are of grave importance and spans almost the entire width
of the northern waters of Australia (Lumban-Gaol et al, 2017). Indonesia is becoming a popular
export market for various Australian goods especially in live animals like cattle, sugar, wheat
and many more thus making this bilateral relationship between Australia and Indonesia
detrimental and important for Australia.
Discussion
Current economic relationship between Australia and Indonesia
The economic relationship between Australia and Indonesia is tense however, has also
developed in a pragmatic relationship. The economic relationship between Australia and
Indonesia currently has developed because of the mutual trade relations. The investments
between Australia and Indonesia have been valued at $11.8 billion in the year 2017. Indonesia is
Australia’s 13th largest trade partner (Department of Foreign Affairs and Trade, 2019). Australia
imports wheat, cattle, natural, gas and petroleum and other manufactured goods from Indonesia
and exports their key merchandises like their agricultural products to Indonesia which has made
the relationship relatively better (Patunru & Rahardja, 2015). However this economic
relationship between the two countries is not new as Australia has provided aid and has
supported Indonesia in the past. In 1994, Paul Keating, the then Prime Minister of Australia had
stated the need and the importance of the positive relationship with Indonesia (Sarma, 2017). The
two presidents of Indonesia Sukarno and Suharto had a vital role in influencing a positive
relationship between the two countries. Suharto had brought in many positive changes in the
economy of the country and had established pragmatic economic policies that helped building
trade relations with Australia. After the independence of Indonesia from the Dutch, in 1949 the

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Australia had supported the pro-Indonesia campaigns which were led by the traders. Australia
had economically helped Indonesia in the late 1960’s to re-schedule their debts. in 2004 with the
Indian Ocean earthquake, Australia provided financial aid of about $1 billion to help Indonesia
to rebuild and develop the disaster affected areas and for the growth of the economy in the
country (Kaasch, Mulyardi & Wilmsen, 2015). In 2008, Australia provided a financial aid of
$650 million to Indonesia because of the global economic crisis. In 2015-2016, Australia
provided $375.7 million to Indonesia including about $323 million in the bilateral funding that
has been managed by the DFAT (Department of Foreign Affairs and Trade, 2019). Recently in
2019, both the countries signed a Comprehensive Economic Partnership Agreement (IA-CEPA)
which will develop the bilateral economic development by fostering cooperation economically
between communities, individuals and businesses.
Current strategic relationship between Australia and Indonesia
Australia and Indonesia have currently have made commitments and has signed several
treaties in order to strengthen their strategic relationship. The agreement made between the two
countries on the security matters are underpinned by the 2006 Lombok Treaty that provides a
framework in order to address the nontraditional and traditional challenges faced by the countries
in terms of security (Aph.gov.au, 2019). Australia and Indonesia reaffirmed this commitment of
theirs in strengthening their bilateral relations by signing the Joint Understanding in the year
2014 on the implementation of the Lombok treaty. In 2012, the two countries have signed the
Defence Cooperation Arrangement to enhance their shared challenges in terms of security.
However this is not new as Australia since time immemorial had feared the geographical location
of Indonesia as the island of Indonesia that stretch and extend to the width of the northern waters
of Australia that is a huge threat to the country as they fear internal threats to come from

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Indonesia thus have always wanted to maintain and make positive relationship with Indonesia
which led to Australia and Indonesia to sign an agreement, Security Agreement in December, 18,
1995 (Aph.gov.au, 2019).
Current diplomatic relationship between Australia and Indonesia
Australia and Indonesia maintains a good diplomatic relationship and have maintained it
since the recognition of Indonesia as sovereign by Netherland in the year 1949. The diplomatic
relationship between the two countries has had positive impacts on the country that has boosted
their trade relations. The two countries participate in multilateral organizations which are
ASEAN Regional Forum, World Bank Group, Colombo Plan, Asia-Pacific Economic
Cooperation and many more (Heisbourg, 2017). The diplomatic relationship between the country
has helped the countries develop and grow making both of them a part of the list of the
developed countries.
Conclusion
Australia and Indonesia despite of the differences in their social structure, historical
experience and geopolitical situations have been successful in maintaining a positive bilateral
relationship that has helped the both the countries grow and have paved way for the economic
developments in both the countries through their trade. It has helped Australia in maintaining
security and prevented external threats which have been proved to be successful for Australia.

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Reference
Aph.gov.au. (2019). Australia and Indonesia: from good neighbours to strategic partners? –
Parliament of Australia. Retrieved from
https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/
Parliamentary_Library/pubs/BriefingBook44p/AustIndo
Aph.gov.au. (2019). The Australian-Indonesian Security Agreement - Issues and Implications –
Parliament of Australia. Retrieved from
https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/
Parliamentary_Library/pubs/rp/RP9596/96rp25
Department of Foreign Affairs and Trade. (2019). IA-CEPA text and associated documents.
Retrieved from https://dfat.gov.au/trade/agreements/not-yet-in-force/iacepa/iacepa-text/
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Department of Foreign Affairs and Trade. (2019). Indonesia country brief. Retrieved from
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https://dfat.gov.au/geo/indonesia/development-assistance/Pages/development-assistance-
in-indonesia.aspx
Dfat.gov.au. (2019). Retrieved from https://dfat.gov.au/about-us/publications/Documents/cot-fy-
2013-14.pdf

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Heisbourg, F. (2017). Multilateralism and International Security: The Global Level. In Japan
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