The fallout between the two countries has started. Following the executions of Andrew Chan and Myuran Sukumaran, Indonesia has come under attack from the UN, and especially Australia. Australia has retaliated by recalling their ambassador Paul Grigson, and it seems certain that foreign aid to Indonesia will be slashed considerably. On the internet, thousands of Australian social justice advocates have sworn to never visit Indonesia again, culminating in the boycott Indonesia campaign.
Now that the media’s attention has waned, let’s talk about the economic implications and leave politics and ethics to one side. What is the real economic impact of the executions upon Australia–Indonesia trade?
The first item that will be affected tourism in Indonesia, particularly in Bali. Judging from the current situation, it seems that this year there will be a significant decrease of Australian tourists in Bali. However, we need to look at the bigger picture. I’m sure many of us remember that Australians also avoided Bali after the 2002 bombings. The fact is Australians return to Bali year after year.
Bali’s tourism office has noted that annual foreign tourist arrivals increased from under 2m in 2008 to almost 4m in 2014. In fact, between January and March 2015, around a quarter of million Australians visited Bali despite the impending executions. I personally believe that the effect of the Boycott Indonesia campaign is overestimated. Tourism in Bali will survive, and Australians will still spend money in Bali, even though they may not come in greater numbers this year. Even if fewer Australians come to Bali, other nations will fill the void. Chinese tourists are predicted to usurp Australians as the number one consumers of Balinese tourism, as they will come in greater numbers and carry more spending money.
Additionally, Australians’ boycotting of travel to Bali may be a poor choice. As we know, most of the foreign money spent in Bali usually stays in Bali. Indonesians living outside Bali will not suffer negative consequences should the boycott take place. In reality, most of Indonesia will not even notice the impact, as Bali is an isolated market in Indonesia’s tourism industry.
At home, the executions may also impact Australia’s higher education sector. In 2013, there were about 17,000 Indonesian students pursuing education in Australia—mostly at universities. Needless to say, international students pay big money: an average student pays $30,000 or more per year. If we take to account accommodation and living expenses, an Indonesian student could spend $40,000–50,000 annually. Australia’s retaliation to the killings may deter future Indonesian students from studying in Australia. Sure, Australians could say that it’s not a big deal, as they can be replaced by other students, say from China. Nevertheless, extra education revenue will be forgone should wealthy Indonesians boycott Australia. Now, some Australians have suggested that, to make a statement, we cease all trade with Indonesia. That’d be very foolish as lots of goods that Australia imports must pass through Indonesian airspace and waters.
It seems Australia has decided that it can inflict maximum hurt to Indonesia via foreign aid cuts. According to DFAT, Australia gave Indonesia around $600m in 2014, and roughly the same in 2015. This aid funds programs that are meant to improve Indonesia’s education, health and infrastructure. Prior to the executions, cuts to aid in the 2015 budget were already expected; with the passing of the executions, it is now almost certain that aid to Indonesia will be cut severely. Certainly, this will be very harsh for the poor Indonesians who really need aid. Foreign aid cuts will be sufficient to hurt the Indonesian people, but it will fail to punish Australians’ real target: the Indonesian government.
As I said in my previous article, there is no way that Australia will cut ties with Indonesia, or vice versa. Too much is at stake should one country turn its back on the other. Australia’s two way trade with Indonesia is valued roughly at $15b, as Australia is a major exporter of wheat and live cattle to Indonesia. Considering that Indonesia’s middle class will grow substantially in the next decade or so, it is arguable that Australia cannot afford to lose Indonesia’s business and money. As for bilateral discussions, it’s very clear that the removal of Paul Grigson will jeopardise the IA–CEPA negotiations, which is a very important free trade agreement to both countries, should it materialise. The executions have ensured that this FTA will not come to fruition in the coming years.
In summary, the media has exaggerated the economic implications of the executions. In the short term, Australians will demand fewer of Indonesia’s goods and services, and vice versa. It is also possible that trade agreements between both countries and bilateral negotiations may be impeded. However, time heals most things and the relationship will be repaired even if only out of necessity.