Top Indonesian official says U.S. Inflation Reduction Act is about choices

Diplomacy

Published: 24 Mar. 2023, 16:49 Updated: 26 Mar. 2023, 19:22

Top Indonesian official says U.S. Inflation Reduction Act is about choices

Luhut Binsar Pandjaitan, coordinating minister of maritime and investment affairs of Indonesia speaks with a group of reporters at the Ambassador Seoul-A Pullman Hotel on Friday. [PARK SANG-MOON]

The U.S. Inflation Reduction Act (IRA) has essentially given its partners in the region room to make choices, said a top Indonesian official visiting Seoul on Friday.

“The IRA is likely [about] protecting their own country, we leave it to them,” said Luhut Binsar Pandjaitan, coordinating minister of maritime and investment affairs of Indonesia, while speaking with a group of reporters at the Ambassador Seoul-A Pullman Hotel. “We can still do businesses with others like Korea and China, because the market of Indonesia is not small, we have nearly every critical mineral.”

Indonesia in recent years has risen to the forefront of the U.S.-China rivalry in the region as its key resources and strategic location drew love calls from both Washington and Beijing.

Luhut, formerly chief of staff of Indonesian President Joko Widodo and generally known as his de-facto wingman, has been the country’s main man of contact with China, a role that received media spotlight especially when he was the first to welcome Chinese President Xi Jinping at the airport in Bali for the G20 Summit last November.

Chinese President Xi Jinping and his wife Peng Liyuan are warmly welcomed by Indonesian senior officials, including Luhut B. Pandjaitan, coordinator for cooperation with China and coordinating minister for maritime affairs and investment, and Bali Governor Wayan Koster upon their arrival at the airport in Bali, Indonesia, Nov. 14, 2022, to attend the G20 Summit. [XINHUA/YONHAP]

But this doesn’t mean Bali has kept its relations with Washington at bay.

“I discussed also with Ford and Tesla, they love very much to fix the issue,” Luhut said in Seoul on Friday, in response to a question from the press on the IRA. “I’ve been discussing it also with [U.S. Treasury] Secretary [Janet] Yellen, on how do we establish [...] the free trade agreement [on] specific items with America.”

Indonesia does not have a free trade agreement (FTA) with the United States, which became problematic especially for Korean EV companies when the IRA was issued.

The IRA stipulates that in order for the EVs to be eligible for tax credit, 40 percent of the EV battery’s materials and 50 percent of the components will need to come form the United States or its FTA partners.

Heavily reliant on nickel from Indonesia, which is the world’s largest producer of the critical mineral at nearly 40 percent production share, the Korean companies have been lobbying the United States to allow partners of the Indo-Pacific Economic Framework for Prosperity, which includes Indonesia, the same mechanism for tax credit.

Treasury Secretary Janet Yellen, right, meets with Indonesian Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan on Sept. 16, 2022, at the Treasury Department in Washington. [AP/YONHAP[

Luhut was visiting Korea last week to host the first Korea-Indonesia high-level investment dialogue with Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho.

“Indonesia is a country rich in resources such as nickel and tin, with a population of 270 million, which is achieving an average annual economic growth rate of about 5 percent,” Choo said in opening the investment meeting on Thursday. “With Korea, which has excellent technology and human resources, the two countries have increasingly diversified fields of cooperation.”

Korea has been investing in Indonesia from 1968 when it pitched into a forestry development project in Kalimantan. Its direct investments have grown from $1.54 billion in 2019 to $2.41 billion in 2021, according to the Finance Ministry.

The two countries elevated their ties as a special strategic partnership in 2017 during a presidential summit in Indonesia, and have also been deepening their defense cooperation.

Their jet fighter project, which has hit a snag after delayed payments from Indonesia, will be picked up in the near future, Luhut said on Friday.

“We have some hurdles here and there but I believe we can move forward,” he said.

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, right, and Luhut Binsar Pandjaitan, coordinating minister of maritime and investment affairs of Indonesia shake hands before hosting the first Korea-Indonesia High-Level Dialogue on Investment at the Plaza Hotel in central Seoul on Thursday. [YONHAP]

The Korean and the Indonesian governments agreed in 2015 on a joint project to develop a next generation fighter jet, the Korea Fighter Xperiment (KFX) or Indonesia Fighter Xperiment IFX.

Some 48 units were scheduled to be produced by 2026. However, Indonesia has delayed payments since 2017 citing financial difficulties while trying to renegotiate a reduction in its contribution.

BY ESTHER CHUNG [chung.juhee@joongang.co.kr]