Understanding Indonesia today

BALI – I have been visiting Bali every year since 2016 for both work and recreation. My wife and I love it here – which is why we have chosen to spend our wedding anniversary in our favorite villa, up in the mountains of Ubud. Indonesia is fascinating not only for its colorful culture but more so for how it is similar to the Philippines. Indonesia, to me, represents resilience and winning despite the odds.

Last month, President Jokowi Widodo was sworn in for his second and final five-year term. In his proclamation speech, he pledged to champion democracy, multiply the average income of the Indonesian people by a factor of six (to $22,600 year) and lead his nation toward becoming a developed economy before its centennial in 2045.

Bold ambitions considering where they came from just 20 years ago.

It will be recalled that following the Asian Financial crisis of 1997, Indonesia faced a crippling debt crunch on top of political, ethnic and religious unrest. The country was in turmoil as its economy contracted by 13.1 percent, inflation topped 72 percent and the rupiah lost nearly 70 percent of its value. The situation was so severe that President B. J. Habibie had no choice but to institute radical austerity measures, including the cancelation of the national car program. Back then, the average Indonesian earned a mere $830 a year.

Fast forward to 2019 and Indonesia has managed to consolidate its democratic institutions and achieve relative social peace. Average incomes have increased to $4,391 a year on the back of 20 years of successive growth at a rate of 5.23 percent. It joined the ranks of trillion dollar economies in 2017 driven by both consumer spending and the production of coal, petroleum and natural gas. Credit rating agencies like Moody’s and Standard & Poor’s have classified Indonesian debt as investment grade which is testament to its financial stability and prudent financial management.

Like the Philippines, an earnest infrastructure modernization program was put underway when President Widodo was first elected in 2014. He upgraded numerous airports and seaports, built highways and inaugurated Jakarta’s first subway system. Recently, the Indonesian government announced plans of adding 3,200 kilometers of railways to criss-cross the islands of Java, Sumatra, Kalimantan and Sulawesi. It is part of a logistics system to link seven of Indonesia main seaports. In Bali, a circumferential railway line will be built to connect the island. By 2021, the country’s first high speed bullet train will be inaugurated linking Jakarta to Bandung while another medium speed train will link Jakarta and Surabaya.

Our neighbor to the south is the 16th largest global economy today and is poised to rise to 9th position by the year 2030. Indeed, Indonesia’s story of the last 20 years is one marked by redemption and resilience. Their rise has been phenomenal.

But there are challenges to face. Its economy is principally fueled by government spending and domestic consumption. It is similar to the Philippines in this way. But unlike the Philippines, it is blessed to have vast reserves of oil, natural gas and coal which have proven to be a blessing and a curse. It is a blessing because these commodities have generated much needed revenues for government. It is a curse because it has lulled them into complacency. Indonesia is largely dependent on the extraction of its natural resources.

Indonesia and the Philippines share the same structural weaknesses too. Both nations struggle with a weak manufacturing sector, income inequality and a population not very well adept in the sciences. In as far as our business environments are concerned, both suffer from bureaucratic red tape, corruption, populist economic policies and a government that has a reputation for changing rules, midstream. These have made both Indonesia and the Philippines less favored among ASEAN’s larger economies as an investment destination.

But the world’s most populous Muslim-majority nation has more serious problems than we do. Among them is cronyism and the sway of military generals in economic affairs; a lack of transparency in government; unpredictability of government policies; the penchant of state owned companies to meddle in the affairs of private businesses; and government’s tendency to assert control over companies involved in extracting natural resources (resource nationalism) even if they are legitimate investors.

It must also contend with its 2003 Manpower Law which levies upon business owners outrageous, if not onerous obligations toward labor. All these make Indonesia unattractive to investors.

President Widodo promised to make the tough decisions now that he is no longer saddled with re-election concerns. He said he would be “merciless and fire people” who did not contribute to the national agenda. This is a reversal of attitude considering the chief executive has been known to be populist and somewhat indecisive.

The new cabinet did not inspire much confidence. It suggested that President Widodo is still beholden to the military and the oligarchs.

That said, he must face daunting challenges if he is to make good of his promises to the Indonesian people. Within five years, he must reverse the culture of cronyism, privatize as many state-owned firms as possible, crackdown on corruption and adhere to the precepts of a transparent government.

Structurally, he must uplift the science and technological quotient of the workforce, pursue more cooperation between government and the private sector for technology development, continue infrastructure development, simplify the bureaucracy and empower small business.

However daunting the challenges, I would like to think that Indonesia will succeed in attaining its national goals. After all, resilience is in its DNA and winning despite the odds is in its nature.

Indonesia and the Philippines are close friends and fervent allies and I wish them all the success.