PRESIDENT Reagan is visiting Bali, Indonesia, from today until Friday, en route to the seven-nation economic summit in Tokyo. Mr. Reagan's trip is his first to Southeast Asia during his presidency and the first to Indonesia by an American President since Gerald Ford's state visit to Jakarta in 1975. The American Embassy in Jakarta reports that 300 reporters have registered to cover the event. Why all the attention? Few Americans appreciate Indonesia's size and its significance to the United States. With 165 million people, Indonesia is the world's fifth most populous nation. Its location astride the strait connecting the Indian and Pacific Oceans assures it of strategic importance in US eyes. Also, during the nearly 20 years of President Suharto's government, Indonesia, although formally nonaligned, has been pro-Western and a leader in regional economic cooperation in the Association of Southeast Asian Nations (ASEAN).
Washington sought the Bali stopover in part to mollify Indonesian feelings bruised in the aftermath of the Aquino assassination in Manila in 1983, when Reagan abruptly canceled several stops in a Pacific tour, including Jakarta. The White House reports that Reagan also requested the Bali visit to sound out President Suharto on anti-protectionist trade measures that the ASEAN nations want aired in Tokyo. President Reagan will also discuss trade issues with the six ASEAN foreign ministers, who will be gathered in Bali at the time of his visit.
Foremost on the Bali agenda will be economics. Indonesia faces monumental challenges in the near term, with plummeting oil prices of greatest concern. Indonesia, a moderate OPEC member, is Asia's biggest oil producer as well as the world's leading exporter of liquefied natural gas. Together, oil and gas exports provide 55 percent of government revenues and 70 percent of the country's foreign exchange. If oil prices remain at $15 a barrel, Indonesia's foreign-exchange earnings will fall by a third this year: Each $1 drop in the price of crude means $300 million less revenue.
Free-falling commodity prices compound these financial woes. Rubber, timber, coffee, and tin are Indonesia's leading non-oil exports, together providing 15 percent of export receipts. World prices have slumped substantially in the past two years for all except coffee.
Shrinking revenues have forced Indonesia to announce a 7 percent budget cut for the current fiscal year. This is a harsh measure in a country where per capita GNP is less than $600 a year. The timing of the cuts is of special concern, given the proximity of national parliamentary elections in April 1987. The legitimacy of the Suharto government is linked inextricably to strong economic growth, and projections of 1 percent or lower annual growth in 1986 and 1987 are disappointing indeed after the 6 to 7 percent annual growth of the 1970s and early '80s. One percent economic growth does not even keep up with Indonesia's 2.1 percent population growth, and threatens to disrupt social stability.
Indonesia has borrowed relatively prudently, and though foreign debt is nearly $34 billion, making it the third world's fifth-largest debtor, its debt service ratio, about 25 percent, is probably manageable. Falling interest rates promise to ease the debt somewhat, and the government can ride out at least one lean year by drawing on $10 billion in foreign-exchange reserves and more than $2 billion in undrawn commercial banking credits.
Suharto will stress Indonesia and ASEAN's need for the anti-protectionist banner to be flown high in Tokyo. President Reagan will receive plaudits for his December veto of the Jenkins bill, which would have dealt a body blow to Indonesia's growing fabric and clothing exports to the US. The two leaders may also commiserate about difficulties in penetrating the Japanese market. Although Japan is the biggest importer of Indonesian goods, almost all Japanese purchases are of raw materials. Memories of rioting that accompanied a 1974 visit of Japanese Prime Minister Kakuei Tanaka to Jakarta have faded, but the neo-mercantile Japanese relationship that sparked such rioting persists.
Turning from economics, the Presidents will exchange views on the regional threat from Vietnam and the Soviet Union. This is an issue where US and Indonesian views may diverge. Indonesia maintains a united front with the other ASEAN states in demanding Vietnamese withdrawal from Cambodia.
But Indonesia has also pursued dialogue on Vietnam independently of Thailand, ASEAN's front-line state, and the US. Indonesians feel a certain affinity with Vietnam as a result of their similar revolutionary histories. Indonesia sees China, not the Soviet Union or its ally, Vietnam, as the greatest long-term threat in Southeast Asia. Thus, Jakarta is uneasy with Thai-Sino cooperation in supporting Prince Sihanouk's Coalition Government of Democratic Kampuchea, believing such cooperation could enhance Chinese influence in Southeast Asia.
Suharto and Reagan may also discuss recent events in neighboring Manila, which the Indonesian press has followed with keen interest. Although in several respects Indonesia resembles the Philippines under ex-President Marcos -- authoritarian leadership, dependence on commodity exports, deep government penetration of the economy, and widespread corruption -- the differences are more striking than the parallels.
Unlike the Philippines, Indonesia has made impressive economic progress in the last 10 years, military backing of President Suharto appears unshakable, and he continues to enjoy considerable popular support.
General Suharto took power in 1966 after an aborted coup and was subsequently elected president. Still healthy as he nears his 64th birthday, he appears inclined to seek a fifth term in 1988.
The most serious threat to his government is resurgent Islamic militancy, reflected over the past 18 months in a Jakarta riot and a series of mysterious fires and bombings around the country. One fear in Jakarta is that sustained poor economic performance could galvanize fundamentalist sentiment against the government among some of the 90 percent of Indonesians who profess Muslim beliefs.
The Reagan stopover in Bali signals American recognition of the growing significance of Southeast Asia and, in particular, Indonesia. President Reagan's trip is valuable for the needed exposure it will give this economically and politically important country in the US.
Mark A. Nelson, a consultant to the Asia Society on its Philippines Project and a third-year student at Columbia University Law School, has worked in Indonesia with UNICEF and as an English teacher at an Indonesian university.