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The Peninsula

Growing Ties with Indonesia: A First Look at South Korea’s Indo-Pacific Strategy

Published August 30, 2022
Category: South Korea

Following his inauguration in May 2022, President Yoon Suk Yeol announced that his administration would devise South Korea’s own Indo-Pacific strategy, which would consequently take the place of his predecessor’s New Southern Policy. The exact details of the strategy are yet to be announced, but South Korea’s past and ongoing foreign engagements provide an initial outlook into the policy. In particular, its growing ties with Indonesia signal important trends in Seoul’s approach towards ASEAN member states including increased public-private partnerships as well as the diversification of joint projects and their objectives.

Indonesia has helped to jumpstart South Korea’s Indo-Pacific strategy due to the timely nature of the recent bilateral summit. President Yoon’s meeting with his Indonesian counterpart, President Joko Widodo (also known as Jokowi), from July 27 to 28 was his first official summit with an ASEAN leader. This is an important year for Indonesia as it prepares to host the 17th G20 Heads of State and Government Summit scheduled for November. As such, Jakarta has provided the platform for various side engagements among global leaders including South Korea’s meeting with the Chinese foreign minister, as well as U.S.-ROK discussions on North Korea.

Yet, South Korea’s increased emphasis on bilateral cooperation with Indonesia extends further back to the former Moon Jae-in administration. In November 2017, the two nations formally elevated their relations to a “special strategic partnership” after more than a decade, under which Seoul and Jakarta reaffirmed joint cooperation in numerous areas including defense, trade and investment, and infrastructure. It was also during the same state visit to Indonesia that former President Moon had declared his renowned “New Southern Policy” for fostering stronger diplomatic and economic ties with Southeast Asia and India.

Indonesia, hence, holds a symbolic significance for South Korea. While the Yoon administration may have outwardly rebranded the New Southern Policy, there is an element of continuity embedded in how South Korea’s first official bilateral summit with an ASEAN leader was with Indonesia. Indonesia is also an important dialogue partner for South Korea as it is the second largest recipient of South Korean FDI in Southeast Asia after Vietnam. And despite financial setbacks due to the pandemic, Seoul and Jakarta have been able to largely continue building on bilateral trade, which increased by 39 percent to $19.28 billion in 2021. The Korea-Indonesia Comprehensive Economic Partnership Agreement (KI-CEPA) between the two nations was also endorsed by the South Korean National Assembly in December 2021, and is currently awaiting Indonesia’s ratification to remove tariffs on products that are traded bilaterally.

The Yoon administration’s approach towards Southeast Asia—vis-à-vis the growing ROK-Indonesian partnership—builds on these past developments with the provision of greater public-private partnership opportunities. One of such opportunities stems from South Korea’s involvement in Indonesia’s efforts to build smart cities. South Korea is considered a critical partner for Indonesia in smart city construction due to Seoul’s experiences with the Sejong administrative city and the smart city of Songdo.

South Korea initially agreed to assist Indonesia’s $32 billion dollar capital city relocation project in Nusantara in 2019 under the former Moon Jae-in administration, but President Yoon updated the 2019 agreement during his summit with President Jokowi in July 2022 to further promote domestic investment. So far, South Korean companies including Posco have pledged to invest a total of $6.7 billion to aid Indonesia’s “infrastructure, electronic government and smart city systems.”

Jakarta has also been easing taxes and more actively reaching out to foreign companies since its parliament formally passed the capital city relocation bill in January 2022. For example, President Jokowi directly solicited Hyundai Motor Group’s partnership in “providing important solutions such as clean mobility [in the new capital city]” during his state visit to South Korea in July.

Strong public-private partnerships are also foundational to the ROK-Indonesian electric vehicle (EV) battery cell production efforts in Karawang, Indonesia, which are currently spearheaded by the Hyundai Motor Group and LG Energy Solution Ltd. As a symbol of their ongoing partnership, the Indonesian government selected Hyundai Motor Group’s Genesis G80 EV and Ioniq 5 as the official vehicles for the November 2022 G20 Bali summit.

Overall, the capital city relocation project and other joint efforts between South Korea and Indonesia reflect the growing multidisciplinary, and multi-tiered nature of Seoul’s approach towards Southeast Asia. Instead of merely trading finished products or outsourcing manufacturing, South Korea is partnering with ASEAN member states to cooperate towards more advanced goals including technological development and environmental sustainability. And as the role of the former Presidential Committee on New Southern Policy as the overseer of joint projects has formally concluded under the Yoon administration, more and more South Korean firms are taking the lead to implement projects with Southeast Asian partners to co-construct high technology goods and engage in business-to-business level dialogues.

The listed ROK-Indonesian joint projects are also important because they align closely with the main pillars of the U.S.-led Indo-Pacific Economic Framework (IPEF) including trade, supply chains, clean energy and infrastructure, as well as tax and anti-corruption. As both South Korea and Indonesia are initial members of IPEF, it is hoped that existing bilateral projects between the two countries will contribute to future IPEF engagements and cooperation among like-minded regional countries.

But in addition to considering how South Korea and Indonesia can aid IPEF, the more critical question addresses how IPEF plans to accommodate existing cooperative projects among member states. One of the key criticisms that IPEF has received since its launch in May 2022 is that it fails to provide concrete incentives for member states, including U.S. market access or tariff liberalization.

As underlying objectives become further conceptualized at the upcoming inaugural IPEF ministerial meeting in September, it will be important to review existing projects of member states that share the framework’s ends prior to proposing newer and broader initiatives. This process will be especially critical for gaining further contribution from countries like South Korea and Indonesia that are involved in other regional agreements such as Regional Comprehensive Economic Partnership (RCEP) and continue to be economically dependent on China.

Sea Young (Sarah) Kim is a Contributing Author at the Korea Economic Institute and visiting scholar at the East-West Center in Washington for the East-West Center-Korea Foundation U.S.-ROK Cooperation in Southeast Asia program. The views expressed here are her own.

Photo from the official Twitter account of the President of the Republic of Korea.

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