Indonesians are increasingly wary of Australia, but its new leader wants to change that

Long before Australia's new Prime Minister Anthony Albanese made his first bilateral visit to Jakarta, Indonesia's trust in Australia was already slipping. 

According to Lowy Institute's first poll on Indonesia in a decade, Indonesians' trust in Australia had slipped 20 points in 10 years — from 75% in 2011 to 55% last year.

Indonesians have also grown distrustful of most major powers, including the U.S. and China, according to the Australian think tank's survey of 3,000 Indonesians late last year.

"A majority of Indonesians trust the United States and Australia to act responsibly, but this number has fallen dramatically since 2011," the survey showed.

Indonesia's distrust of Australia grew deeper after Canberra signed the AUKUS trilateral nuclear-submarine and security deal with the U.S. and the UK last year, former Indonesia foreign affairs minister Marty Natalegawa told CNBC last week.

Australia's new leaders now have their diplomatic work cut out for them, he added.

"It would be important for Indonesia to decipher intent — what the new Australian government's objectives are in the [Asia-Pacific] region," the minister said during an exclusive interview on "Street Signs Asia."   

The AUKUS deal ruffled some feathers in Asia-Pacific — and both Indonesia and Malaysia expressed concern after it was announced. Indonesia said it did not want to see a "continuing arms race and power projection in the region" and urged Australia to meet its nuclear non-proliferation obligations. 

Questions remain over whether Australia and Indonesia can take their relationship to a deeper level under Albanese's leadership.

Indonesia views AUKUS as a threat, said Made Supriatma, visiting fellow at the ISEAS-Yusof Ishak Institute in Singapore.

Jakarta has long viewed Canberra as ambivalent and unreliable — and the AUKUS pact as well as the joining of the Quad made things worse since it could provoke China and destabilize the region, Supriatma said. 

History did not help.

"The Indonesian military elites have not forgotten about Australia's 'intervention' in East Timor in 1999," he said referring to Indonesia's attacks on East Timor after its election for independence.

"The Indonesian military could not dispel the perception that the Australian military had intervened into the Indonesian territory" and forced the Indonesia's armed forces to retreat, he added.

To Indonesians, it did not matter that Australia had acted at the behest of the U.S.

Following the announcement of AUKUS, political observers including former Australian Prime Minister Kevin Rudd expressed concerns that the Australia-Indonesia relationship had fallen by the wayside as the security pact focused more on managing Canberra's fraying relations with Beijing. 

Australia chose to make Indonesia the first ministerial one-on-one pitstop after the election, but many in Indonesia would not think Australia deserved the same attention, Tim Lindsey and Tim Mann of the Centre for Indonesian Law, Islam and Society at The University of Melbourne said in an opinion piece in the Conversation.

"They see [Australia] as a low-ranked trade and investment partner more focused on the United States and United Kingdom than Southeast Asia," they said.  

Australia's new government has made every effort to reset relations.

That includes reinforcing its promise to establish a $140 million ($200 million Australian dollars) climate and infrastructure partnership with Indonesia, pledging an additional $327 million in overseas development to Southeast Asia, and appointing a dedicated high-level roving regional envoy. 

"We want to strengthen the relationship with Indonesia, but also with Southeast Asia. We see that, as ASEAN is central to the region," Albanese said during his visit last week. 

To keep relations between the two countries warm, Lindsey and Mann advocated for increased aid to Indonesia, making it easier for Indonesians to enter Australia, as well as more funding for Indonesian studies in Australia.  

"Australians can get a visa on arrival in Indonesia but even Indonesians wanting to visit Australia on a tourist visa face an expensive, complicated and demeaning application process," they pointed out. 

This is where the Indonesia-Australia CEPA deal can come into play, said Krisna Gupta and Donny Pasaribu, analysts at the Crawford School of Public Policy at the Australian National University.

The Indonesia–Australia Comprehensive Economic Partnership Agreement (IA-CEPA) was signed three years ago.

It was aimed at liberalizing trade between the two countries "extending beyond a reduction in tariffs to non-tariff measures, trade in services, and investment," Gupta and Pasaribu said. But, there were many caveats and exceptions with non-tariff measures.

"The economic importance of IA-CEPA remains to be seen, at least from Indonesia's side. Not only are there are many caveats, but implementing IA-CEPA would also require many changes in Indonesian regulations at the ministerial and local levels, which has been very challenging in the past," the two analysts said.

But there are other benefits such as people-to-people exchanges that can open up the commercial relationship between Australia and Indonesia.

"While trade in goods may be a bit harder to work on, trade in services can be the way to go. Additionally, Australia can help improve people movement through working holiday visas," they said.

Increasing a bigger intake of Indonesian foreign students or having more student exchanges at all school and education levels could also boost the two nation's trade dealings, they say. 

But don't expect Indonesia's trade with Australia to come anywhere close to China's trade with Australia, they said. 

Two-way trade between China and Australia was worth A$250 billion ($176 billion) in 2020.

In comparison, trade between the Indonesia and Australia was only worth A$17 billion for the same period mostly in cattle and beef and coal sales.

But, China was easier to trade with as the world's so-called factory and supply chain hub, the ANU economists pointed out.

In fact, Indonesia and Australia are not complementary trading partners but rivals, they pointed out.

Both countries are commodity exporters while China is a major buyer of raw materials in the region. 

"Unfortunately Indonesia just can't seem to improve its manufacturing advantage, at least compared to Vietnam and Thailand, let alone with China," the ANU analysts said. 

Tim Harcourt, chief economist at the Institute for Public Policy and Governance with the University of Technology Sydney, agreed that "Indonesia is still underdone as an economic partner" to Australia. 

But he sees progress.

Aside from services and people trade, Harcourt said the Australian government is pivoting toward more non-traditional trade collaborations with Indonesia in science, gaming and software. 

Things are different this time, Harcourt added. 

"The fact that Albanese took a heavy weight delegation of ministers and business leaders shows it was more than lip service," the economist said. 

"I thought the fact he brought the science and industry minister as well as the trade minister shows the Labor government wants to build up research and development with Indonesia's institutions."