By the Blouin News Business staff

Indonesia’s economic ties with Brazil at risk in row

by in Americas, Asia-Pacific.

A Brazilian-made Super Tucano fighter jet at an airshow in Colombia, July 11, 2013. AFP/AFP/Getty Images

A Brazilian-made Super Tucano fighter jet at an airshow in Colombia, July 11, 2013. AFP/AFP/Getty Images

Indonesia’s vice president Jusuf Kalla said on Tuesday that his country was reconsidering the purchase of 16 fighter jets and missile systems from Brazil, amidst the continuing uproar over a drug trafficking case. That same day, Brazil’s defense minister downplayed any “crisis” between his country and Indonesia, saying that the current diplomatic row was a temporary strain that would not affect the pending defense deal.

Indonesia has some of the world’s strictest drug-trafficking laws, which carry a capital sentence and apply just as rigorously to foreigners as they do to locals. Several convicted foreign drug dealers have been on death row for years, and now Indonesia is proceeding with their executions despite impassioned appeals from their home governments, including Brazil and Australia. One Brazilian was executed in January, and another will be later this week, causing Brazil to withdraw its ambassador from Jakarta and refuse to receive Indonesia’s new ambassador to Brazil.

Now this escalating dispute threatens to harm economic ties between the two countries. The Jakarta Post noted that Brazilian President Dilma Rousseff said “its bilateral trade with Indonesia was insignificant as it was only US$4 billion, or less than 1% of its total external trade amounting to $454 billion last year.” But the Brazilian defense industry would be losing a lucrative market, as Kalla specifically mentioned that some countries, such as the U.S., South Korea, and Japan could serve as alternative suppliers. In 2010, Indonesia’s Defense Ministry signed a $284 million contract with Brazilian defense firm Embraer to import 16 Super Tucano fighter jets. Delivery, only partially completed, was set in stages, but Embraer’s huge delays have already angered Jakarta, and the firm has paid $7 million in late fees, the maximum allowed under the contract. Indonesia has paid for the first half, leaving $142 million currently hanging in the balance, as well as the unpublished cost of the multiple-launch rocket system that may be cancelled.

Australia has also protested the drug executions strongly but its bilateral trade with Indonesia is much higher (reaching $10.68 billion from January to November in 2014), so they are less likely to cut economic ties. Indonesia has had numerous diplomatic rows with Australia, but they are major trading partners and their economic ties ultimately prevail. “If we don’t import cattle, it will affect Australia. On the other hand, it will also be difficult for us if we cannot get meat. Therefore, our trade must go on as usual,” Kalla added.

However, Indonesia’s House of Representatives reminded Brazil and Australia of the possibility of severing all ties if they “politically abused” Indonesia’s irrevocable decision to execute their citizens for drug trafficking, according to the Jakarta Post. The legislators mentioned Russia as a potential source of weapons for Indonesia, and also warned that Indonesia’s defense cooperation with Australia could be at stake too.

Indonesian officials acknowledge the anger of foreign governments as a natural reaction but they think the tensions will all blow over and normal relations will resume shortly. The upcoming executions will test that.