Abstract Employing the theories of new liberalism as the analytic structure, this research paper takes the trend and changes of foreign aid during the post-cold-war period as a reference for the foreign aid policy of Taiwan. Since the government initiated Southward Policy in 1994, and signed many related investment and trade protection agreements with Indonesia, there are positive effects to the economic and trading exchange and investments between Taiwan and Indonesia. Although Indonesia has been taking the standpoint of ¡§Politically Inclining to China, Economically Inclining to Taipei,¡¨ ever since Taiwan provided aid to Indonesia, the respects to the institutions of Taiwan functioning in Indonesia have been obviously promoted. In order to meet the investments needs of Taiwanese businessmen and attract more Taiwanese businessmen to invest in the nation, Indonesia opens the import of the Chinese books and allows the building of schools exclusively for the children of Taiwanese businessmen. In future the practical diplomacy policy of Taiwan towards Indonesia should implement mutual-beneficial and mutual-trust aiding measures. The industries being beneficial to both parties should be selected. There should be policies to give guidelines to the abundant economic resources in the private sectors of Taiwan. The government should assist Indonesia to establish excellent production environment for small business so as to build up multiple cooperation channels between Taiwan and Indonesia. Besides, Taiwan government should also combine with the power of private sectors and organizations, giving aid and cooperation in a way of ¡§downward development from the top,¡¨ and strengthening the expansion of relationship with the Indonesian people and community. Once the foundation is established, spots must be gradually expanded to planes, and the political diplomatic relationship between Taiwan and Indonesia must be enhanced.