In May 1998, Indonesia was in turmoil. During the previous 10 months, the currency had plunged 80 percent in
value and food prices had soared 200 percent. Rioters were marauding through Jakarta, torching businesses owned
by wealthier ethnic Chinese, who were fleeing for their lives.
Safely ensconced in Hong Kong, where he was on vacation, an Indonesian-Chinese retailer named Djoko Susanto could
have sat tight. Instead, he flew home to defend his four supermarkets from the mob. As he transited Singapore,
where planes were arriving from Indonesia full and returning empty, the airline’s crew stared at him in disbelief.
“There were five people on my flight,” Susanto recalls. “And I was the only Chinese.” While he couldn’t save his
stores – all four were looted to the last light bulb — Susanto was on hand to seize an opportunity that would make
him a billionaire, Bloomberg Markets reports in its June issue.
More than 1,100 people died in the 1998 riots, and the economy contracted 13 percent that year. Doomsayers predicted
that the world’s fourth-most-populous nation, a former Dutch colony spanning 17,500 disparate islands, would fragment.
Susanto — who as a child had slept under a mosquito net on the dirt floor beside his impoverished parents’ market
stall — bet that Indonesia would survive and that its vast mineral and agricultural resources would enrich many
of its 238 million citizens, creating a dynamic consumption-driven economy.
6,000 Stores
When that happened, Susanto reasoned, many Indonesians would prefer to shop locally in air-conditioned minimarts
rather than at traditional roadside shacks, or warungs.
In October 1999, barely a year after the riots, Susanto opened the first of what’s now a chain of 6,000 stores
called Alfamarts.
The investment proved prescient. From 1999 through the end of 2011, Indonesia’s annual growth surged from zero
to 6.5 percent, swelling the number of middle-class consumers by 50 million to more than 130 million, according
to the World Bank.
During the same period, the average wealth per adult jumped fivefold to more than $12,000, Credit Suisse Group
AG reported in October.
While some other fast-developing countries such as China struggle to switch from an export-led to a consumption-based
growth model, Indonesia is ahead of the game: Consumer spending accounted for 55 percent of gross domestic product
in 2011; the comparable figure for China in 2010 was 35 percent.
‘Consumption Engine’
“Indonesia is being driven by this huge consumption engine,” said Pong Ho Yin, a Hong Kong-based fund manager at
Allianz Global Investors, which oversees 279 billion euros ($370 billion) worldwide. “The opportunity that is coming
from this phenomenon is going to be enormous.”
Pong, who runs Munich-based Allianz’s Indonesia fund, said he believes the country with the world’s biggest Muslim
population could soon be ranked alongside the emerging BRIC giants: Brazil, Russia, India and China.
In the last quarter of 2011, Indonesia’s GDP growth, while lagging China’s 8.9 percent, exceeded India’s 6.1 percent,
Russia’s 4.8 percent and Brazil’s 1.4 percent, according to data compiled by Bloomberg.
In the future, Indonesia, with a median population age of 27, may reach a growth rate of 8 percent, Pong said.
China’s one-child policy has left behind an aging workforce.
“I can’t imagine Indonesia won’t catch up,” he said.
In this economic environment, Susanto has thrived. In 2009, he sold 10 percent of the shares in his company, Sumber
Alfaria Trijaya, on the Indonesia Stock Exchange (IDX), raising Rp 135 billion ($15 million).
Consumer Power
As of May 1, the stock had climbed more than 13-fold compared with a threefold increase in the Jakarta Composite
Index (JCI). On May 1, Susanto’s 56 percent stake was worth about Rp 11.4 trillion.
Not bad for an entrepreneur who left school at 16 because his parents couldn’t afford the fee demanded by the government
to change his Chinese name, Kwok Kwie Fo, to an Indonesian one, as required by law.
Susanto said his bet on Indonesia stemmed from his experiences in the 1998 riots as well as his conviction in the
potential economic power of the Indonesian consumer.
Though a victim of anti-Chinese policies under then-dictator Suharto, who had closed Chinese schools and banned
the language, Susanto discovered that not all Indonesians were antagonistic to the Chinese minority.
Rocketing Numbers
Some of his customers actually tried to protect his stores and were grateful when he reopened for business after
just two weeks to provide them with essential supplies, according to his daughter Feny Djoko Susanto, 35, who’s
chief executive officer of Sumber Alfaria.
Other companies have cashed in on Indonesian consumerism almost as spectacularly as Susanto’s.
From the beginning of 2009 to May 1, the JCI was the world’s fifth-best-performing benchmark index out of 96 tracked
by Bloomberg, returning 232 percent compared with a 70 percent rise in the MSCI BRIC Index. Topping the list, with
a 675 percent increase, is the Venezuela Stock Market Index, which lists only 14 companies and is illiquid.
The rocketing numbers make Indonesian stocks look expensive in the eyes of some investors, such as London-based
Robert Davy, who helps manage $20.3 billion of emerging-markets equities, including Indonesian shares, at Schroder
Investment Management.
Largest Gold Mine
On May 1, the JCI was trading at 14.3 times estimated earnings compared with an emerging-markets average of 10.6.
“In the longer term, Indonesia is clearly highly favorable,” Davy said. “But from the shorter-term perspective,
it is one of the more expensive emerging markets.”
Indonesia is the world’s No. 1 exporter of power-station coal, tin and the palm oil that greases one-third of the
world’s frying pans and woks. It’s also home to the largest gold mine and the single biggest recoverable copper
reserve and is the world’s second-biggest exporter of liquefied natural gas.
Foreign direct investment — the biggest source being neighboring Singapore — jumped 20 percent last year to a record
$19.3 billion.
In the space of five weeks in December and January, both Fitch Ratings and Moody’s Investors Service raised Indonesia’s
debt to investment grade.
Bankrupt Dictatorship
By contrast, Standard & Poor’s in January downgraded nine European nations, five months after stripping the
United States of its AAA status.
“In the midst of downgrades, we have been upgrading,” said Indonesian Vice President Boediono, who has a PhD in
economics from the University of Pennsylvania’s Wharton School.
The ratings firms’ confidence reflects Indonesia’s ascent from bankrupt dictatorship to fiscally stable democracy.
After declaring independence from the Dutch in 1945, the country had just two leaders during the next 53 years.
The second of them, Suharto, was president from 1967 until he was forced to step down during the 1998 turmoil sparked
by an Asia-wide financial crisis that Indonesia survived only by accepting a $43 billion bailout from the International
Monetary Fund.
Under Suharto, businesses in favor with the government exploited an economy reliant on crude oil exports. IMF crisis-management
measures began to change that, forcing the breakup of some monopolies.
Western-Educated Technocrats
From 1998 to 2004, three more presidents came and went before the election of Susilo Bambang Yudhoyono, who was
returned for a second, and final, five-year term in 2009.
When Yudhoyono, 62, a retired general who underwent some military training in the United States, came to power,
he sprinkled his administration with Western-educated technocrats such as Boediono, who ran the central bank before
becoming vice president.
Yudhoyono pledged to attract more investment by cutting interest rates, fighting endemic corruption, raising living
standards and fixing crumbling roads and power stations.
While much of that manifesto remains a work in progress, especially on the corruption front, he’s delivered political
stability and a fourfold increase in foreign direct investment.
Yudhoyono also declared war on Islamic militants; his forces arrested or killed scores of suspected terrorists,
including the masterminds of the 2002 bombings on the resort island of Bali in which 202 people died.
Car Jockeys
The government's stated priority now is tackling some of the world’s most dysfunctional infrastructure.
Yudhoyono campaigned for office on a promise to unclog roads, ports, railways and air terminals and to build badly
needed power stations.
In December, the parliament passed legislation making it easier for the government to acquire land for infrastructure
construction, and Yudhoyono’s government says it wants to spend $18 billion this year on such projects.
Jakarta has a population of 10 million and no subway. Traffic is frequently gridlocked despite a pooling program
that requires cars to carry a driver and at least two passengers at peak hours.
Just as pedestrians hire cabs in other cities, Jakarta drivers hire passengers to cheat the system, providing much-needed
employment to thousands of so-called car jockeys — men, women, children, often entire families — who line up curbside
and wave to signal their availability.
Promise With ‘Legs’
Caterpillar, the world’s largest construction- and mining-equipment maker, is betting that Yudhoyono will succeed.
It announced in November that it will triple excavator production in Indonesia and spend $150 million to build
its second manufacturing base in the country.
“Infrastructure has been promised in the past and not delivered,” said Kevin Thieneman, the Peoria, Ill.-based
company’s country manager for China, India and Southeast Asia. “But this time, we believe it has legs.”
Indonesia’s transportation problems — and its ambition to overcome them — are starkly apparent on the western tip
of the island of Java, near where the volcano Krakatoa smolders.
There, the 24-kilometer-wide (15-mile-wide) Sunda Strait divides Indonesia’s two most populous islands: Java, with
137 million people, and Sumatra, with 51 million.
Unstable Geology
At ramshackle ports on either side of the strait, snaking queues of trucks wait for up to three days to get berths
on rusting ferries to cross the narrow seaway. Despite the unstable geology — 170,000 died or went missing after
an earthquake and tsunami off Sumatra in 2004, and an 8.6 magnitude temblor panicked Indonesians as recently as
April — Yudhoyono’s government says it wants to spend $10 billion on the world’s longest suspension bridge, to
be built across the strait.
For Johan Sinaga, a 35-year-old truck driver, the bridge can’t come soon enough. Dragging on a clove cigarette
in the shimmering heat at the Java port of Merak, Sinaga says he regularly slips port officials 50,000 to 100,000
rupiah in tembak — literally, shoot — to jump the queue.
Whether or not Indonesia can fix its infrastructure, Djoko Susanto’s company stands to benefit. If the roads and
power stations are improved, Sumber Alfaria will be able to make speedier deliveries and its minimarts will have
stable electricity supplies. If nothing changes, the company also profits.
Ever the Entrepreneur
So says Susanto’s son and company board member, Budiyanto Djoko Susanto, 30, reasoning that as the traffic jams
worsen, Indonesians will find it more convenient to shop at a corner Alfamart than to battle through traffic to
the nearest supermarket.
Ever the entrepreneur, the elder Susanto has turned congestion on the streets into an advertising opportunity.
He has plastered his delivery vans with slogans urging gridlocked motorists to save time and hassle — by driving
to the nearest Alfamart to shop.
Posh bikes
Foreign bicycles were rarely seen in Jakarta's shops just over a decade ago.
But now the latest models from Europe and the US are becoming increasingly common.
Most of the bicycles on these roads are relatively inexpensive - but some Indonesians willingly pay up to $5,000
for one.
Jimmy Lie started a series of upmarket stores selling branded bicycles a few years ago, because he recognised a
growing trend amongst affluent and aspirational Indonesians.
They were taking to the streets on Sundays, to find some way of working out the stresses of daily life and biking
was becoming fashionable.
So Mr Lie capitalised on the new expensive tastes of his consumers and is now in the midst of opening another branch
in the city.
Mr Lie says Indonesians these days are far more exposed to what's going in the rest of the world, and want to have
access to the same standard of goods they see their counterparts enjoy overseas.
"People nowadays, they get a lot of their information from the internet, or from watching the Tour De France,"
he says in between serving customers in his busy store
Growing middle class
Just over a decade ago, it would have been unthinkable for an average Indonesian to spend
a few thousand dollars on a bike.
Today though Indonesia's middle classes are far more confident about the future.
Indonesia has one of the fastest growing middle classes in the region - up from 80 million five years ago to 130
million now.
That's more than half of this country's 240 million strong population.
Not all parts of Jakarta are experiencing a boom in living standards.
And that number is expected to grow - by 2020, many think that Indonesia's middle class will be wealthier than
many in Asia.
Indonesia's economy has been one that has managed to continue to grow, despite bumps in the global economic environment.
Largely insulated from the troubles overseas because of strong domestic demand, economists say Indonesia will see
growth rates stay stable or possibly even rise next year, at a time when many in the region are cutting their growth
forecasts.
All this has meant Indonesian consumers are feeling far more confident about their prospects than ever before.
They consistently rank as some of the most optimistic in Asia about their economic future.
And you can see signs of that all over the streets of Jakarta these days - but especially on Sundays.
The local government has made some Sundays in a month a car-free day - an opportunity for Indonesians to get some
fresh air after a busy week at their desks.
Indonesia's next generation has the ability and the desire to spend money on what it wants and not necessarily
what it needs.
Not so lucky
But while the future may look bright for some Indonesians, for others not much has changed at all.
In the district of Menteng Dalam, just outside one of the poshest areas in Jakarta, life still moves at a much
slower pace.
Tiny shacks are packed densely against one another, and people living in them spill out on to the streets.
The strong economic growth that is so visible just a few kilometres away has yet to touch this part of Jakarta.
Sewi, 62, has lived here for the last two decades.
He has owned his tattered, worn out and old fashioned bicycle for just as long.
Sewi says he prefers to look after things from the past
Even if he wanted to he wouldn't be able to buy a new one - he just doesn't have that kind of money.
"I've always liked old bicycles like this," he says as he tinkers with his rusty old machine.
"I'm not tempted by newer models. The young generation - they like to change their bicycles all the time and
throw the old ones away. But I like to look after things from the past. "
Sewi doesn't understand how some young Indonesians are so eager to spend their hard earned cash.
He's from a generation that still remembers the hard times here. Millions like him have yet to taste the benefits
of growth.
Indonesia's future generations need to ride the waves of prosperity for this country's economic rise to be considered
a true success.
The Republic of Indonesia is an archipelago of over 18,110 islands, of which 6,000 are inhabited. After China,
India and the US, it is the fourth most populated country in the world with around 230 million people. It is also
home to the largest Muslim population in the world. Jakarta is the capital city of Indonesia. Malaysia, East Timor
and Papua New Guinea are its closest neighbors.
Indonesia became independent after World War II, following Dutch colonialism for three and a half centuries. Periods
of swift economic change, corruption, natural disasters and a democratization process have made Indonesia a turbulent
nation. Its wealth of natural resources is a pillar of its economic strength. However, poverty is the biggest challenge
to the Indonesia’s economy. Around 53% of the inhabitants earn less than US$2 a day. Indonesia lacks infrastructure
development, except in Jakarta and Bali. Indonesia can be easily reached by air. Its major airports are Ngurah
Rai (DPS), Juanda (SUB) and Soekarno-Hatta (CGK). One can also reach Indonesia via ferry from Singapore and Malaysia.
Indonesian Economic Profile: Statistics
Indonesia is a member of the G-20 major economies. It features a developing market economy, with strong influence
from the government. Over 164 state-owned enterprises are run by the government. The prices of many basic products,
such as rice, electricity and fuel, are administered by the government.
Domestic consumption is one of the major driving forces behind the country’s economic growth. The economic growth
slowed considerably during 2007-08. However, like India and China, Indonesia recorded higher growth during the
global financial crisis, compared to the other G20 members.
GDP (purchasing power parity):
(All figures are in US dollar billion.)
GDP (official exchange rate): $514.9 billion (2009 est.)
GDP - real growth rate:
4.4% (2009 est.)
6.1% (2008 est.)
6.3% (2007 est.)
GDP - composition by sector:
Agriculture: 14.4%
Industry: 47.1%
Services: 38.5% (2009 est.)
Literacy rate: 92.0%
GDP - per capita (PPP):
$4,000 (2009 est.)
$3,900 (2008 est.)
$3,700 (2007 est.)
G20
Indonesia is part of the G-20,
Group of Twenty.
JAKARTA - With panic spreading through United States and European markets, Southeast Asia's largest economy appears
poised to ride out the shockwaves. As Asia's more export-dependent economies brace for the impact of a possible
double-dip global recession, Indonesia's domestic demand-driven growth is expected to sustain its momentum.
That is a stark contrast to the country's financial position 13 years ago, when the Asian financial crisis demolished
Indonesia's economy, drained the national coffers and spoiled its reputation among investors. It has now leveraged
into high global commodity prices and ever-rising local consumption that together account for around 70% of gross
domestic product (GDP).
"Indonesia is really a domestic markets story and a commodities story," said Fawzi Ichsan, an economist
at Standard Chartered Bank. He notes that robust domestic markets helped to cushion Indonesia against the global
economic crisis in 2008 that dramatically affected many of its regional neighbors, including Singapore and Thailand.
Many Asian markets have been hit by the global free fall caused after Standard & Poor's downgraded the US's
sovereign credit rating to AA+ from its top-tier AAA due to US politicians' inability to manage the country's huge
fiscal deficit.
Even Jakarta's Composite, one of Asia's best-performing stock markets this year, was down by close to 2% on Monday.
But analysts here say the US crisis should have little impact on an economy that has, to some surprise, bucked
the negative trends elsewhere.
"The impact is immediately being felt in financial markets, but it is not Indonesia-specific," said Ichsan.
"In the long run, the US is experiencing a ratings downgrade, while Indonesia is seeing upgrades."
Indeed, the big three ratings agencies - S&P, Moody's and Fitch Ratings - have all upgraded Indonesia's sovereign
credit rating to BB+ or its equivalent and analysts expect the country to achieve investment-grade status within
the year.
Indonesia's GDP rose by 6.5% in the second quarter of this year on the back of high commodity prices, strong consumer
demand and rising investment. As regional heavyweights China and India struggle with persistently high inflation,
Indonesia has seen previous inflationary pressures ease. Economists predict that the central bank will hold the
benchmark interest rate at 6.75% for a sixth consecutive month.
One reason for Indonesia's comparatively lower inflation stems from a government decision to increase budget
allocations for fuel subsides, a policy the World Bank and International Monetary Fund have criticized. Jakarta
has also allowed in more imports of vital food supplies, such as rice, to meet production shortfalls. That could
prove particularly prudent during the Islamic fasting month of Ramadan, when demand and prices rise as families
prepare elaborate fast-breaking meals.
High yields on government treasuries have also brought more money into the bond market. Ten-year Indonesian bonds
currently yield at 6.8%, carrying a higher risk but significantly higher potential returns than 10-year US government
bonds, which carry a rate of around 2.6%.
With government debt comprising less than 30% of Indonesia's GDP, investment levels are up near record highs. Foreign
direct investment in the second quarter rose 21% over the same period last year. Those funds, analysts say, will
serve as a cushion to short-term portfolio capital flows - or so-called hot money - that are usually the first
to flee during times of crisis.
In the domestic market, meanwhile, the property, telecommunications and automotive sectors all booked double-digit
profit growth in the second quarter compared to last year, while manufacturing rose to its highest level since
the 2008 economic downturn.
Economists say there is the potential for some instability caused by legal uncertainties over land use rights and
contract sanctity, as well as rampant corruption and infrastructure failings seen in a lack of toll roads, ports
and power plants.
For now, however, investors drawn by the high potential returns and stable inflation environment appear willing
to navigate those risks. But some financial analysts worry that a fall in global commodity prices or unforeseen
political instability could yet spark a reversal.
Indeed, the upbeat forecasts do not reflect ongoing problems caused by a weak government, including endemic corruption,
political infighting and peripheral sectarian conflicts.
Faint cracks
Recent violence in remote Papua, where a low-level separatist movement has been brewing for decades, strikes at
mining companies by workers demanding higher pay and a growing number of scandals that have rocked the Democrat
Party led by President Susilo Bambang Yudhoyono are all risk factors.
On Tuesday, Indonesian officials confirmed that Interpol had captured fugitive lawmaker Muhammad Nazaruddin, who
escaped the country on May 23 one day before he was scheduled to appear before court on corruption charges. The
former Democrat Party treasurer had eluded arrest and launched accusations from an undisclosed hideout that fellow
party members, including chairman Anas Urbaningrum, had accepted millions of dollars in influence money.
Nazaruddin also accused the respected Corruption Eradication Commission, which boasts a 100% conviction rate, of
unethical behavior by colluding with Democrats to shield high-ranking officials from graft investigations. A poll
released on Monday by the independent Indonesian Survey Circle revealed that trust in the anti-graft body had hit
an all-time low while the agency's deputy chairman Mochammad Jasin told journalists recently that corruption in
Indonesia was at its worst.
Whether these accusations and revelations will cause enough political turbulence to derail the economy and foreign
investor confidence, for now, seems doubtful. "It's like airing your dirty laundry," said Yohanes Sulaiman,
a political consultant and lecturer at Indonesia's National Defense University. "Maybe it's embarrassing to
some, but it won't cause problems on a wide scale."
However, some argue Nazaruddin's case has again revealed the lack of control Yudhoyono has over his administration
and political party. Sulaiman says Nazaruddin is merely a loose cannon who has caught the government off guard
and that investors who know the country are prepared to roll with such risks.
"As an investor you already know there are bribes to pay, commissions to pay, so it's really just business
as usual," he said. "You have to have connections, and you factor this into your analysis when you invest
in Indonesia."
While Indonesia's political wheeling and dealing may not register much investor attention, other domestic conflicts
are drawing international scrutiny. Global human-rights groups have called on Yudhoyono to stem the recent political
violence in Papua that has killed 22 people.
They have also condemned the light sentences given to those who killed three members of the Ahmadiyah minority
sect last February. In late July, a court sentenced 12 religious hardliners to no more than six months in jail
for leading a stick-wielding and stone-throwing mob attack against the sect, which they considered heretical to
Islamic beliefs. None of the suspects was found guilty of murder.
The Foreign Ministry defended the verdicts last week when it told reporters that people should not "oversimplify"
where Indonesia stands on religious tolerance based on just one case. But as such cases add up, questions will
rise about the quality of Indonesia's governance and how poor oversight could eventually impact on its fast and
impressive growth.
Sara Schonhardt is a freelance writer based in Jakarta, Indonesia. She has lived and worked in Southeast Asia for
six years and has a master's degree in international affairs from Columbia University.
(Copyright 2011 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication
and republishing.)
Small emerging markets may pay off better in the long term than the lofty BRICS.
That’s according to State Street Global Advisors, which reports that smaller emerging market economies outperformed
the BRICs by a whopping 39% in the period from 1996 to March, 2011.
Investors focusing only on Brazil, Russia, India and China may be missing out.
Compared with developed economies, the numbers are even more stunning.
For example, when you look at retail sales of licensed merchandise, emerging markets registered a 22.7% increase
from 2009 to 2010.
“The Licensing Letter,” an independent trade publication, also reports a 2.2% decline in retail sales of licensed
merchandise globally for the same period, and a 4% drop in the United States and Canada.
So while others shrink, the EM’s just keep growing.
Indonesia is just one of the small emerging markets cited in recent small emerging market reports; Its growing
consumer class and economic growth have been the focus of special coverage on World Business today all this week.
The government on Friday outlined its blueprint for the country’s development over the next 14 years, presenting
a series of startling numbers, including some Rp 4,000 trillion ($470 billion) in investment and a predicted 550
percent rise in GDP.
The Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI) would see 17 infrastructure
projects worth a total of Rp 190 trillion start this year, said Hatta Rajasa, coordinating minister for the economy.
The projects are part of the Rp 4,000 trillion investment plan.
Launching the master plan — a part of Indonesia’s bid to become one of the world’s 12 largest economies by 2025
— President Susilo Bambang Yudhoyono outlined five major obstacles: slow bureaucratic processes, selfish regional
governments, investors failing to meet commitments, unfavorable policies and political gridlock.
“We can’t predict what will happen 15 years from now,” Yudhoyono said. “There are two possibilities, Indonesia
can successfully implement this master plan and achieve its goal or it can fail. I am not about to see it fail.
“Our future is negotiable and it’s up to ourselves and God to change the future.”
The master plan foresees per-capita income soaring to up to $16,000 in 2025 from last year’s $3,000, and gross
domestic product possibly reaching up to $4.5 trillion in 2025 from $700 billion in 2010, when the economy was
the world’s 17th largest.
“It’s impossible to achieve our long-term economic goals without the master plan,” Yudhoyono said. “We also can’t
rely wholly on market mechanisms. The government’s role, as a visible hand, is important.”
The blueprint is based on six economic corridors, each with specific competitive advantages. Sumatra has been pegged
as a center for agriculture and energy, Kalimantan for mining and energy, Sulawesi and North Maluku for agriculture
and fisheries, Bali and Nusa Tenggara for tourism and food production, Papua and Maluku for natural and human resources
and Java for industry and services.
The MP3EI earmarks Rp 544 trillion for infrastructure projects through 2014, with state companies pledging to contribute
Rp 836 trillion and business groups, represented by the Indonesian Chamber of Commerce and Industry (Kadin), promising
to invest Rp 1,350 trillion over that period.
Kadin chairman Suryo Bambang Sulisto said the plan had been a long time coming. “We see this not only as a plan
to accelerate development, but a golden opportunity to invest,” he said. “Private sector participation sends a
strong signal to foreign investors that the government is going all out in implementing the master plan.”
Investors and local businesses have long complained about infrastructure inadequacies and bottlenecks in the economy.
Important legislation needed to boost infrastructure development, such as the land acquisition law, also remains
uncertain, and overlapping bureaucracies due to decentralization continues to hinder investment.
With additional reporting by Francezka Nangoy, Yanto Soegiarto
Bureaucracy is the main obstacle standing between the government and its target of becoming one of the world’s
12 largest economies by 2025, economists say.
Aviliani, an economist at the Institute for Development of Economics and Finance, said on Sunday that even though
the government’s goal was realistic, red tape was scaring away potential investment needed to achieve the target.
“Apparently, the old Indonesian saying on bureaucracy — ‘If you can make things harder, why make them easier?’
— is still there,” said Aviliani, who is also a member of the National Economic Committee.
The government unveiled on Friday more details about the Master Plan for the Acceleration and Expansion of Indonesia’s
Economic Development (MP3EI), which is aimed at making Indonesia one of the world’s 12 largest economies by 2025
.
The plan includes Rp 4,000 trillion ($470 billion) in investment, which will be supplied mostly by the private
sector, and a predicted 550 percent rise in gross domestic product as the country tries to become one of the world’s
leading economies. The government said it would spend Rp 544 trillion until 2014 for infrastructure projects under
the MP3EI, while state companies have pledged to spend Rp 836 trillion until 2014.
According to Aviliani, the first five years of the master plan will focus on developing infrastructure. If that
is successful the country’s economic growth could accelerate to at least 8 percent per year.
“Infrastructure development is hampered by lengthy bureaucracy and corruption. To make the plan successful, the
government is moving in the right direction by involving business players and academics, and committing to simplifying
bureaucracy,” she said.
Even though the government and business interests are often at odds, the Indonesian Chamber of Trade and Commerce
(Kadin) has pledged its support to the master plan, saying local businesses are committed to investing Rp 1,350
trillion in the plan.
“Indonesia is growing and will continue to grow. Our middle class is mushrooming. Investors have little choice
to invest elsewhere,” Aviliani added.
Muhammad Chatib Basri, an economist at the University of Indonesia, said it would take strong leadership to tackle
persistent bureaucracy problems. “The target is realistic. It can be done, but it will take an iron-fisted government
to safeguard the implementation,” he said.
He said the government should not hesitate in firing underperforming ministers and intervene in delayed projects
if it wants the master plan to work.
“The key is not in the planning, but the execution of it. Set the target, set the reward and punishment, and put
them into practice,” he said.
The government has laid out its plan for this year, announcing ground-breakings for 17 projects worth Rp 190 trillion.
“I would applaud the government if it completed one or two of the projects in two years,” Chatib said.
Destry Damayanti, chief economist at Mandiri Sekuritas, also cast doubts on the implementation, saying many public-private
partnership projects had been initiated but had made no significant progress.
“Problems that hamper economic development include land acquisition, a high-cost economy from a complicated bureaucracy
and funding,” she said.
“What we need is strong leadership, a leader who is brave enough to make the breakthrough and ensure that this
master plan is not being constrained by classic problems.”
A worker checks tires at Gajah Tunggal's factory in Tangerang, Indonesia. Domestic consumption is increasing in
the country, but its infrastructure has not caught up.
JAKARTA — For a lesson in the promise and pitfalls of Indonesia’s economic resurgence, hours stuck in traffic
on
Jalan H. R. Rasuna Said, one of the main thoroughfares here, is as good a start as any.
The glut of idling new cars tells one part of the story: strong growth. The Indonesian economy, the largest in
Southeast Asia, grew 6.1 percent last year, and domestic consumption is increasing.
Indonesians bought 286,000 cars in the first four months of this year, according to the Indonesian Automotive Association
— 16 percent more than in the period last year — and it can sometimes feel as if they have all congregated in one
place.
But the country’s infrastructure has not caught up. A dedicated bus lane relieves some of the pressure from commuters,
but heavy rain frequently floods the road. Along the middle of the street, abandoned concrete pylons stand as memorials
to a plan to build an urban monorail system, begun in 2004 but left to languish after money troubles and legal
disputes among partners.
Indonesians bought 286,000 cars in the first four months of this year,
according to the Indonesian Automotive Association — 16 percent more than in the period last year.
Bay Ismoyo/Agence France-Presse — Getty Images
For businessmen like Stefanus Sulimro Lim, who runs a midsize freight forwarding company, Global Abadi Perkasa,
it is a worsening headache. Clogged ports, potholed roads and persistent gridlock mean extra costs in the form
of blown truck tires, broken shafts and wasted time.
“About 10 years ago, one truck could go to two places,” Mr. Lim said of work in Jakarta. “Our truck could go to
one customer, do their stuff in two or three hours, then we could truck back to the port and do another job, all
in the one day.”
These days, he said, trucks must be sent to the port of Jakarta the night before just to get one job done.
Mr. Lim’s frustration contrasts with the enthusiasm of international investors for Indonesia.
Considered only a few years ago as a laggard in the region, Indonesia is fast becoming a darling of financial markets.
Foreign investment in the country rose 52 percent in 2010, to $16.2 billion, from the previous year. The credit
rating agency Standard & Poor’s raised its sovereign debt rating for Indonesia to BB+ last month, becoming
the last of the three big agencies to rate the country one peg below investment grade.
The improving grades from the ratings agencies are considered a reflection of sober fiscal management under President
Susilo Bambang Yudhoyono, who has overseen falling public debt ratios and growing foreign exchange reserves. The
country is widely expected to reach investment grade next year, drawing it closer to emerging market heavyweights
like China and India.
But as the attention on Indonesia grows, so does the focus on flaws that, according to analysts, may restrict future
growth.
The country, with a population of 240 million, suffers from corruption, its bureaucracy is inefficient, and — most
important, economists say — its infrastructure is strained to the limit.
The Indonesian central bank predicts the economy will expand as much as 6.5 percent this year, based on strong
domestic consumer demand and booming commodity exports.
But Muhammad Chatib Basri, an economist at the University of Indonesia, said that this was not enough. For Indonesia
really to develop, it needs to attract investment in labor-intensive industries, he said, rather than focusing
on exporting commodities, like palm oil and coal, which creates relatively few jobs.
“For the short term, it should be O.K.,” Mr. Basri said. “But you cannot rely, for the country, on what’s been
happening on the external side. Because one day the commodity price or energy price may collapse, and it’s going
to affect us. In my view, the most binding constraint is infrastructure. Because without improvements in infrastructure,
I don’t think economic growth of more than 5 percent will be sustainable.”
Across the country, the underpinnings of power and transport networks are fraying. Ports and airports are largely
antiquated and inefficient, while frequent electricity shortages cause disruption to homes and businesses.
Gridlock in Jakarta is estimated by the government to cost the economy $1.5 billion a year, through wasted fuel,
lost working hours and illness. Plans to improve infrastructure, like a project to complete a series of toll roads
across the island of Java by 2014, routinely run into barriers, largely because of the frustrating difficulty of
acquiring land.
The Indonesian government is moving to address the problems. One flagship change, a long-awaited bill on land
acquisition that would make it easier to take land for infrastructure projects in return for compensation, is expected
to be passed by the Indonesian House of Representatives this year, although it has faced some resistance.
A construction site in Jakarta.
Foreign investment in Indonesia rose 52 percent in 2010, to $16.2 billion, from the previous year. Beawiharta/Reuters
The head of the Indonesia Investment Coordinating Board, Gita Wirjawan, said that such change, as well as the
efforts against another Indonesian scourge, corruption, meant the path would soon be cleared for greater investment
in infrastructure and industry.
“We’re not like China,” he said. “We don’t make decisions like China does.” Indonesia is “a democracy, a newly
working democracy that’s trying to understand how to put the different pieces of the puzzle together.”
Mr. Wirjawan pointed to the latest investment data to back his assertion that foreign investment was flowing beyond
Indonesia’s primary industries like mining and agriculture: $13.2 billion of the $16.2 billion in foreign investment
last year went to industries like transportation, food and manufacturing.
“I think there’s going to be more and more money being put into manufacturing and infrastructure,” he said. “That’s
good. That’s what I call smart capital.”
Indonesia, he said, also finds itself in a demographic “sweet spot,” with about 60 percent of the population 39
years old or younger, an opportunity that will prevail for the next 15 years.
Despite some misgivings, analysts said, Indonesia was likely to be bumped up to investment grade soon.
“Our view,” said Andrew Colquhoun, the head of Asia-Pacific sovereign ratings at Fitch Ratings, “is that Indonesia
is likely to be upgraded to investment grade in the next 12 to 18 months, based on trends of a strengthening growth
performance driven by rising investment, falling public debt ratios and strengthening external finances supported
by rising reserves, although inflation remains a concern.”
A spike in year-on-year inflation to 7 percent in January prompted the central bank to raise its benchmark interest
rate a quarter of a percentage point, to 6.75 percent — the first increase in more than two years. Inflation —
a problem for many fast-growing economies across Asia — has eased somewhat since then, slowing to 6.18 percent
in April.
For Fauzi Ichsan, senior economist in Indonesia at the bank Standard Chartered, the country remains an attractive
destination, despite its flaws.
“Even though infrastructure development is slow, the other two pillars of the economy — i.e., domestic consumption
and commodity exports — are doing well,” he said.
For a limited few, the status quo is just fine.
Beside the abandoned pylons of Jakarta’s abortive monorail, Taufik, a driver of a motorcycle taxi, or ojek, said
his living depended on transporting frustrated commuters who wanted to skip ahead of the gridlock.
“The traffic’s great for ojek drivers because it leaves people looking for an alternative,” said Mr. Taufik, who
like many Indonesians uses only one name.
And as for a congestion-relieving monorail planned for some time in the future, he laughed. “It’s probably never
going to happen.”
Wahyudi Soeriaatmadja
The Straits Times
Publication DWahyudi Soeriaatmadja
The Straits Times
Publication Date : 22-02-2010
Lawmakers say such banks invest in securities rather than lending to grow the economy
Fearing that the financial sector is in danger of being dominated by foreign banks, Indonesian lawmakers are looking
to put the squeeze on their activities in Indonesia.
Members of Parliament are accusing foreign-controlled institutions of investing more heavily in securities than
in industries that could help spur Indonesian economic growth.
As a result, such banks now account for half of all bank assets in the country, up from just a 10th of the total
assets only 10 years ago.
Mr Achsanul Qosasi, deputy chairman of the finance and bank commission, said: "They are doing a great deal
of funding here, and putting a lot of those funds in low-risk government bonds, instead of focusing on lending
that can help grow the economy."
In fact, their share in the funding market has also been growing, as they have moved aggressively to cash in on
the growing wealth of Indonesians.ate : 22-02-2010
JAKARTA, KOMPAS.com - Dominasi pihak asing kini semakin meluas dan menyebar pada sektor-sektor strategis perekonomian.
Pemerintah disarankan menata ulang strategi pembangunan ekonomi agar hasilnya lebih merata dirasakan rakyat dan
berdaya saing tinggi menghadapi persaingan global.
Dominasi asing semakin kuat pada sektor-sektor strategis, seperti keuangan, energi dan sumber daya mineral, telekomunikasi,
serta perkebunan. Dengan dominasi asing seperti itu, perekonomian sering kali terkesan tersandera oleh kepentingan
mereka.
Per Maret 2011 pihak asing telah menguasai 50,6 persen aset perbankan nasional. Dengan demikian, sekitar Rp 1.551
triliun dari total aset perbankan Rp 3.065 triliun dikuasai asing. Secara perlahan porsi kepemilikan asing terus
bertambah. Per Juni 2008 kepemilikan asing baru mencapai 47,02 persen.
Hanya 15 bank yang menguasai pangsa 85 persen. Dari 15 bank itu, sebagian sudah dimiliki asing. Dari total 121
bank umum, kepemilikan asing ada pada 47 bank dengan porsi bervariasi.
Tak hanya perbankan, asuransi juga didominasi asing. Dari 45 perusahaan asuransi jiwa yang beroperasi di Indonesia,
tak sampai setengahnya yang murni milik Indonesia. Kalau dikelompokkan, dari asuransi jiwa yang ekuitasnya di atas
Rp 750 miliar hampir semuanya usaha patungan. Dari sisi perolehan premi, lima besarnya adalah perusahaan asing.
Hal itu tak terlepas dari aturan pemerintah yang sangat liberal, memungkinkan pihak asing memiliki sampai 99 persen
saham perbankan dan 80 persen saham perusahaan asuransi.
Pasar modal juga demikian. Total kepemilikan investor asing 60-70 persen dari semua saham perusahaan yang dicatatkan
dan diperdagangkan di bursa efek.
Pada badan usaha milik negara (BUMN) pun demikian. Dari semua BUMN yang telah diprivatisasi, kepemilikan asing
sudah mencapai 60 persen.
Lebih tragis lagi di sektor minyak dan gas. Porsi operator migas nasional hanya sekitar 25 persen, selebihnya
75 persen dikuasai pihak asing. Pemerintah melalui Direktorat Jenderal Migas Kementerian ESDM menetapkan target
porsi operator oleh perusahaan nasional mencapai 50 persen pada 2025. (OIN/ONI/IDR/EVY/DOT/DIS)
Bandung, Kompas - Dominasi bank asing di Indonesia menguat. Indikasinya ialah pangsa pasar aset, kredit, dan
dana pihak ketiga (DPK) bank asing terus meningkat. Ekspansi bisnis bank asing mulai meluas setidaknya sejak 10
tahun lalu.
Direktur Finance and Strategy Bank Mandiri Pahala N Mansury di sela-sela Media Training Bank Mandiri di Bandung,
Kamis (14/10), menjelaskan, pangsa pasar aset bank asing pada 1999 sebesar 11,6 persen dan pada 2009 menjadi 45,1
persen.
Dalam kurun waktu yang sama, pangsa pasar kredit bank asing naik pesat dari 20,3 persen menjadi 44,6 persen. Pangsa
pasar DPK juga meningkat dari 11,3 persen menjadi 45,5 persen. Lembaga keuangan itu bukan hanya bank asing, tetapi
juga berbentuk joint venture dan badan umum swasta yang dimiliki pihak asing. "Saya tak tahu jumlah bank asing
dan peningkatannya. Namun, pangsa pasar bank umum swasta nasional (BUSN) dan bank badan usaha milik negara (BUMN)
malah turun," kata Pahala lagi.
Pada 2009, pangsa pasar aset BUSN domestik dan bank BUMN, misalnya, masing-masing sebesar 8,5 persen dan 38,5 persen.
Jumlah itu menurun dibandingkan 10 tahun sebelumnya, yang sebesar 36,2 persen dan 49,5 persen.
Pangsa pasar kredit BUSN domestik dan bank BUMN juga turun dari 23,4 persen dan 53,2 persen menjadi hanya 9,5 persen
dan 37,6 persen. "Lalu, pangsa pasar DPK BUSN domestik dan bank BUMN turun dari 39,5 persen dan 46,8 persen
menjadi 8,9 persen dan 39,8 persen," katanya.
Pahala menuturkan, lima dari 10 bank terbesar di Indonesia adalah milik pihak asing. Sebanyak lima dari empat bank
terbesar yang bukan asing itu berbentuk BUMN dan hanya satu bank swasta nasional. Beda segmen
Kepala Kantor Wilayah VI Bandung Bank Mandiri Wayan Sukarta menjelaskan, ia tidak gentar bersaing dengan bank asing.
"Tidak takut. Segmentasi kami beda. Bank asing pun punya sasaran lain," katanya. Bank asing banyak membidik
usaha ekspor dan impor. Adapun bank swasta nasional lebih mengincar usaha mikro, kecil, dan menengah. (bay)
JAKARTA, KOMPAS.com — Saat ini, kondisi bank-bank nasional di Indonesia sudah bagus, baik dari sisi kemampuan
manajerial maupun permodalan. Oleh karena itu, aturan kepemilikan asing yang dapat mencapai 99 persen sebaiknya
dikaji lagi relevansinya, sesuai perkembangan terkini.
A Tony Prasetiantono, Kepala Pusat Studi Ekonomi dan Kebijakan Publik Universitas Gadjah Mada, Yogyakarta, menyampaikan
hal itu saat menjawab pertanyaan mengenai kepemilikan asing pada bank di Indonesia. "Saat itu kita buka kepemilikan
asing sampai 99 persen karena ekonomi sedang krisis sehingga butuh stimulus dan benchmark (patokan) bank asing
yang pengalamannya lebih baik," kata Tony Prasetiantono, Senin (9/5/2011).
Data Bank Indonesia, per Februari 2011 terdapat empat bank persero, 36 bank umum swasta nasional (BUSN) devisa,
31 BUSN nondevisa, 26 bank pembangunan daerah, 14 bank campuran, dan 10 bank asing.
Kredit yang dikucurkan bank asing mencapai Rp 117,057 triliun per Februari 2011. Dana pihak ketiga yang dihimpun
sebesar Rp 127,249 triliun. Total aset 10 bank asing sebesar Rp 228,171 triliun.
Ketua Umum Perhimpunan Bank-bank Umum Nasional (Perbanas) Sigit Pramono dalam kesempatan terpisah menyatakan, Indonesia
paling terbuka dalam kepemilikan asing di dunia perbankan. Namun, keterbukaan itu tak dialami bank dari Indonesia
saat akan masuk ke negara lain. Beberapa anggota Perhimpunan Negara-negara Asia Tenggara (ASEAN) hanya mematok
kepemilikan asing 30-40 persen saham.
Menghadapi Masyarakat Ekonomi ASEAN tahun 2015, Sigit mengingatkan, bukan hanya bank asing yang masuk ke Indonesia
melalui cabang atau anak perusahaan. Namun, bank asing semu juga harus diwaspadai. "Saya katakan semu karena
mereka ini bank di Indonesia, tetapi sahamnya dibeli 99 persen oleh asing," ujar Sigit.
Sejauh ini, bank-bank nasional Indonesia sibuk menahan derasnya arus asing yang masuk ke Indonesia. Belum banyak
yang tertarik masuk ke pasar negara lain. Alasannya, sekitar 60 juta warga Indonesia belum tersentuh bank. (IDR)
Indonesia can achieve economic growth of 8 percent that is driven by
domestic as well as international investment, if regulatory clarity and infrastructure in the country are improved,
U.S. Ambassador Scot Marciel said.
“Indonesia’s growing around 6 percent this year,” Marciel said in an interview in his office at the U.S. Embassy
in Jakarta. “I think that could reach 8 percent s
Photographer: Dimas Ardian/Bloomberg
“Indonesia’s growing around 6 percent this year,” Marciel said in an interview in his office at the U.S. Embassy
in Jakarta. “I think that could reach 8 percent sustainably, without tremendous difficulty, by addressing some
of the infrastructure issues and opening up a little bit more.”
President Susilo Bambang Yudhoyono seeks to expand Southeast Asia’s biggest economy by as much as 7.7 percent and
create 10.7 million jobs by the end of his second term in 2014, he said in his annual state-of-the-nation address
Aug. 16. Indonesia also aims to cut the poverty rate by about a third to between 8 percent and 10 percent over
the next four years.
“It’s not so much about making it attractive to foreign investors,” said Marciel, who was named ambassador in August.
“To the extent Indonesia can work on infrastructure, and improve transparency and the regulatory environment and
battle corruption, it creates a good environment for Indonesian businesses. Then foreign business will also find
it attractive.”
Indonesia’s ranking in Transparency International’s 2009 corruption perception index improved to 111 from 126 in
2008, according to the watchdog’s website. It gained one place to 110 this year, 24 slots above the Philippines.
The index measures the perceived level of public-sector corruption in 178 countries and territories around the
world, the website says.
Roads, Ports, Rails
Inadequate roads, ports and railways mean orange juice from the Indonesian side of Borneo costs more than that
from China, four times as far away, the Indonesia Logistics Association said in January. Logistics costs are the
equivalent of 25 percent of gross domestic product in Indonesia, versus 19 percent in Thailand and 10 percent in
the U.S., it said.
During U.S. President Barack Obama’s visit to Indonesia in November, he and Yudhoyono announced the Comprehensive
Partnership, under which the countries will cooperate on education, environmental and climate change issues, defense
and security, science and technology, investment and trade.
“We’ve made education a high priority; specifically trying to increase the number of students from Indonesia studying
in the United States, and from the United States studying in Indonesia,” Marciel said. “Also to try to build partnerships
between universities.”
Scholarship Drive
The U.S. will commit about $165 million over five years to promote cooperation on education, including scholarships
such as the Fulbright program, funding for Indonesian students to study at U.S. community colleges and English-language
training, Marciel said. Indonesia will provide 100 scholarships for American students to study in Indonesia, he
said.
“We need to do a better job of making U.S. education accessible to Indonesians,” he said. “Over the past 10 to
12 years, the number of Indonesian students studying in the U.S. has actually fallen.”
The decrease is partly due to concern over costs, and partly to a “misperception” that a student visa is difficult
to get, Marciel said. That misperception stems from revisions to visa procedures implemented after Sept. 11, 2001,
he said.
“A lot of the problems or obstacles that came out of that have been dealt with, but the perception remains that
it is extremely difficult to get a visa,” Marciel said. “We need to continue to explain to people that it’s very
possible.”
Military Cooperation
In July, Defense Secretary Robert Gates said the U.S. will begin a “measured and gradual” relationship with the
elite Indonesian military unit known as Kopassus after a 12-year gap. The decision to restore links was possible
due to Indonesia’s progress in professionalizing the military since the fall of the dictator Suharto, Gates said
at the time.
The move was criticized by New York-based Human Rights Watch, which said it “weakens U.S. standards for military
cooperation globally.” U.S. Senate Foreign Relations Committee member Russ Feingold, a Wisconsin Democrat, also
said he was “disappointed” by Gates’s announcement.
“Secretary Gates announced in July that we would begin taking limited steps toward re-engagement with Kopassus,”
Marciel said. “That had not been possible in the past because of lack of accountability for past human-rights violations.”
Move to Democracy
Marciel said Gates stressed that the decision was based on Indonesia’s move to democracy, improved human rights
record, and changes to the military, and that it would start with staff- level talks, which to date has been the
extent of the engagement.
Regarding videos that surfaced in October showing men in military clothing torturing Papuan civilians, Marciel
said: “The Indonesian leadership has made it clear the human-rights violations depicted in those videos is unacceptable.
There’s nothing that I’ve seen that suggests that was Kopassus.”
Indonesian police had assured the U.S. that they were committed to investigating the videos and bringing the perpetrators
to justice, he said.
“We are watching this very carefully,” Marciel said.
A challenge the U.S. faces in developing its relationship with Indonesia is convincing Indonesians it doesn’t have
a hidden agenda, Marciel said.
“Indonesia is a democracy, and the people and the government have to decide what’s most important to them,” he
said.
To contact the reporters on this story: Greg Ahlstrand in Jakarta at gahlstrand@bloomberg.net; Femi Adi in
Jakarta at fadi1@bloomberg.net
To contact the editor responsible for this story: Greg Ahlstrand at gahlstrand@bloomberg.net
November 22, 2010
In 2001, three years after Russia's ruble collapsed, Goldman Sachs (GS) named the country a member of the BRICs—Brazil,
Russia, India, and China—the emerging markets it said would be four of the most dominant economies by 2050. Over
the next several years, BRIC-fixated investors piled into Russia as its resource economy thrived in the era of
fast-rising oil prices. The BRIC concept still asserts its power. Investors in the $48 billion iShares MSCI Emerging
Markets Index Fund (EEM), for example, have nearly half their money weighted in BRIC stocks.
For plenty of money managers and economists, however, the Russo euphoria is all but gone. From Nouriel Roubini
to Morgan Stanley, they are calling either for Russia to be ousted from the BRICs altogether in favor of Indonesia
or, at the least, for Indonesia to join the other four. They are put off by the policymaking drift in the Kremlin,
Russia's demographic atrophy, and endemic corruption.
Indonesia's fiscal prudence, economic growth—6 percent this year, according to the International
Monetary Fund—and strengthening social and political institutions have far more appeal. Twice-elected President
Susilo Bambang Yudhoyono has directed funding toward schools and health care, and Indonesia's coffers are full
enough to put the onetime IMF bailout case on the brink of an investment-grade credit rating.
Russia, for its part, cannot seem to escape the investor-unfriendly headlines. Sweden's Ikea has leased diesel
generators to circumvent Russian bureaucrats who allegedly demanded bribes to provide electricity to the chain's
stores. Then the Swedish retailer revealed that the Ikea executives in charge of leasing the generators were taking
bribes, too. Petro oligarch Mikhail Khodorkovsky has been in jail on fraud charges since 2003: His supporters say
the charges were trumped up to give the Kremlin an excuse to seize his company. (The government denies this; Khodorkovsky
is on trial for fresh charges.) William Browder, chief executive officer of Hermitage Capital Management, once
Russia's top foreign investor, was banned from the country in 2006 for tax evasion: He says his company was grabbed
by criminals who pulled off the tax scam. "Russia is just not a good place to put your money," says Richard
Shaw, managing principal of QVM Group, a South Glastonbury (Conn.) investment advisory.
Shaw says he avoids putting clients in Russian stocks and funds, and steers clear of BRIC-linked investments because
of their Russia exposure. He would rather own Indonesian exchange-traded funds: "While Indonesia isn't a paragon
of virtue, it's better, especially to participate in the Asian boom." Although some investors want BIIC to
replace BRIC, Shaw votes for BICI (pronounced BEE-chee): "It's catchy—kind of sounds like an Italian purse."
Indonesia, the world's fourth-most-populous country and largest Muslim democracy, has corruption, too. In part,
that's a legacy of the Suharto dictatorship that ended in 1998. Yet Tom Lydon, president of Global Trends Investments,
says the Asian nation has more going for it than Russia. "Beyond natural resources, it is supported by improving
domestic consumption, and anticorruption efforts appear to be working." Indonesia has sentenced several politicians
and former ministers for corruption. In its latest Global Competitiveness Report, the World Economic Forum ranked
Indonesia 44th out of 139 countries—up from No. 54 the prior year. (Russia came in at No. 63.)
While Morgan Stanley (MS) has called for Indonesia to join the BRICs—Goldman has called the country a "Next-11"
nation, in a runner-up list of sorts—economist Nouriel Roubini of New York University has argued that Indonesia
should replace Russia in the bloc. "From an American perspective," he wrote last year in a column, "Indonesia
is an attractive alternative to Russia, which has vied with Venezuela for leadership of the 'America in decline'
cheering section."
The iShares ETF allocates just 2.6 percent of its money to Indonesia. That will change, say Indonesia backers;
12 years after its financial crisis the archipelago is China's third-largest trading partner, foreign investment
has more than tripled since 2004, and gross domestic product is growing faster than Russia's. While Russia's Micex
index has fallen 22 percent from its December 2007 peak, the Jakarta Composite Index is approaching an all-time
high. Russia's market fortunes have fallen so low that some investors are taking a second look, especially since
Russian corporate profits have been robust. "Russia really stands out as being cheap and attractive,"
says Maarten-Jan Bakkum, an emerging-market equity strategist at ING Investment Management in The Hague.
Indonesia's supporters say that over the long haul the Asia nation has the edge. More than half of the population
is under 30, while aging Russia faces a paucity of productive labor. The Kremlin may have to commit increasing
sums to care for the elderly, says Wijayanto, managing director of the Paramadina Public Policy Institute in Jakarta.
"Indonesia," he says, "has the potential to become a key global player."
The bottom line: Russia's inability to develop into a mature economy has prompted investors to call for the country's
removal from the BRIC group.
Bloomberg Businessweek Senior Writer Farzad covers Wall Street and international finance.
Over in Europe, the PIGS have expanded into the PIIGS, but not for the best of reasons. Perhaps we should add an
“I” to the BRICs, for reasons much more positive for the global economy.
The extra “I” would stand for Indonesia, a country that often gets forgotten amid all of the attention lavished
on China and India. I've been wondering for some time if Indonesia deserves to graduate into BRIC-dom. With nearly
230 million people, Indonesia is the world's fourth-most populous nation, and it shares the same great potential
as Brazil, Russia, India and China.
But what has held Indonesia back is that potential has stayed, well, mainly potential. There was a time, in the
1980s and 1990s, when Indonesia was a rising Asian giant and one of the most desirable of emerging markets. But
then things got a bit rocky, especially after Indonesia toppled into the 1997-98 Asian financial crisis. The end
of Suharto's authoritarian regime led to a period of political uncertainty. The country became better known among
investors for terror bombings than smart economic policies. Overbearing labor laws and confusing regulation scared
off foreign investment. For about a decade, Indonesia was economically adrift.
But that's changed. Indonesia showed tremendous resilience during the Great Recession, with enviable GDP growth
of 4.5% in 2009, driven to a great degree by domestic private consumption. The political system has stabilized
into a very solid democracy. Foreign investors are returning. A recent report from HSBC said that Indonesia is
in a “sweet spot.” The bank expects growth to accelerate to 5.8% in 2010, and the country's sovereign rating to
reach investment grade by 2011.
So why isn't Indonesia a BRIC already? The problem is that the economy is still probably not reaching its full
growth potential. That's because important reforms needed to boost investment continue to come along very slowly.
Infrastructure development remains abysmal, while more permissive labor laws will be necessary if the country is
to attract the kind of export industries that create lots of jobs. Expectations had run high last year after Susilo
Bambang Yudhoyono won his second term as president in a landslide that reforms would come fast and easy, but that
hasn't been the case. His administration has been distracted by political battles, the latest one over a controversial
2008 bank bailout. (Sound familiar?) The HSBC report was somewhat gloomy on the prospects for major reform, but
still positive overall:
Economic reform is not at all a lost cause. While the recent political development does not portend well for the
hope of any big structural shift in the country's growth rate through outsized improvement in its investment climate,
it appears to us that incremental changes remain within reach and, gradually, we would see a more significant pick-up
in investments into the country.
If I had to vote today, I'd anoint Indonesia BRIC status. The potential there is just too huge to be ignored. The
country survived the recession in better shape than Russia; all of the BRICs have some kind of political or economic
reform issues hanging over them. I first starting writing about Indonesia in 2001, and when I look at the progress
the country has made since then, politically and economically, it's quite remarkable. It's about time Indonesia
gets the attention it deserves.
Jakarta, Indonesia, 4 August 2009. With the landslide re-election of Indonesian President Susilo
Bambang Yudhoyono to a second term as Indonesian President, backed by a strong showing for his party in parliament,
hopes are high that the pace of economic reforms can be increased.
It is not an easy job. This huge nation of 17,508 islands, over 300 ethno-linguistic groups and a population of
237 million suffers from chronic corruption, social and cultural instability, and economic disparity. Much of the
wealth is held by only a few, leaving the poor wondering where their nation's rich natural resources have gone.
It is a massive challenge to manage, but President Yudhoyono, known locally as SBY, has won plaudits for his steady
hand and (admittedly) slow economic reforms. His anti-corruption commission has been so successful that the members
of parliament and the police, considered the two worst institutions, are plotting ways to stop it working. With
SBY's strong mandate, there are hopes that the commission will be both protected and expanded
Traditionally, the government has been military-backed, as seen in the infamous Suharto regime. The main challenger,
Megawati, was in many ways the hier of that era, and selected a military running-mate (Prabaowo Subianto).
Yudhoyono himself was a Suharto-era general, but he has distanced himself from the military and is now focused
on strengthening an economy that is increasingly independent of the once all-powerful army. This, along with his
promised reforms led to him winning a landslide election in July for a second term. Consequently, all eyes are
on him and his party to bring in foreign investment, develop its third-world infrastructure, and continue its rate
of growth.
As if to emphasise this, his choice for Vice President, Boediono, is a former Bank of Indonesia Governor and Finance
Minister. His stated aim is to achieve average GDP growth of seven per cent a year for the next five years. This
growth will see unemployment reduced from 8.1 per cent in 2009 to a range of five to six per cent. In addition
to attracting foreign investment and reducing corruption, Boediono is targeting an increase in social safety nets
to further boost consumer spending and tackle endemic poverty - about 32 million people live on less than 70 cents
per day, and they urgently need help.Foreign investment could indeed be key to ensuring long-term, sustainable
growth. Many firms are unable to cope in the Indonesian business climate and simply do not understand the creative
(corrupt) ways the most successful companies operate there.
After the 1997-1998 Asian Financial Crisis, the IMF stepped in and attempted to restructure the nation's financial
system. The IMF was so hated here and elsewhere in Asia that the loan was paid off early, and Indonesians promised
themselves never to have to submit to outsiders 'austerity' measures again. This led to Indonesia amassing around
$40 billion in foreign exchange reserves, acting as a buffer for future economic crises.
This experience with economic meltdown and then recovery has put Indonesia in a better position than many of its
neighbors to weather the current storm.
Its high commodity prices between 2004-2007 also aided it in recovery from the crippling crisis. And because the
nation only exports about 20% of its GDP, it is protected when its trading partners slash imports. Again, this
is unlike many others in Asia, like Singapore, Japan, and Korea, who rely heavily on exports.
Domestic consumption has proven to be a much more reliable economic base, spread out among its 237 million people.
And falling gas and oil prices have helped the population cope with otherwise higher costs of living. Overall,
Indonesia is forecast to grow by 3.5 percent this year, according to the IMF. SBY has come and said he expects
GDP to grow 5 per cent in 2010, which would be an excellent - and achievable - result.
This years budget includes increased provisions for infrastructure and civil service reform, areas that have long
held back the nation. Education spending has been increased, another vital area considering high illiteracy rates
on many smaller islands. The military budget has also grown, but that seems a fair compromise to most as long as
the armed forces stay in their barracks and continue to divest out of their economic enterprises.
Although the recent terrorist attacks show how vulnerable Indonesia is politically, the strong government response
has prompted Citibank to say that the Indonesian economy will not be harmed by the hotel bombings.
Despite the risks, the World Bank has said that Indonesia will be a 'winner' from the changing landscape of the
global down turn. Hundreds of millions of people and a fair few investors are all rooting for SBY to prove them
right.
Dion Bisara & Francezka Nangoy |
November 05, 2010
Jakarta. The country’s efforts to improve its business climate and attract more investment may seem to be in top
gear, but neighboring countries are sprinting past, a World Bank-endorsed study shows.
The Doing Business 2011 list, released by the International Finance Corporation, a private investment arm of the
Washington-based World Bank, showed that Indonesia ranked 121st out of 183 countries in terms of overall ease of
doing business, six places lower than last year.
Singapore tops the list, while Thailand is 19th, Malaysia 21st, Vietnam 78th and Brunei 112th. Behind Indonesia
were Cambodia, the Philippines and Laos.
The study, which measures and compares regulations relevant to the life cycle of a small- to medium-sized domestic
business in 183 economies, showed that countries in East Asia and the Pacific were among those that took the most
steps to make it easier for local companies to operate.
Indonesia, Southeast Asia’s largest economy, ranked 155th in the subcategory of starting a business, 60th for dealing
with construction permits, 98th for registering property, 116th for getting loans, 44th for protecting investors,
130th for paying taxes, 47th for trading across borders, 154th for enforcing contracts and 142nd for closing a
business.
Indonesia moved up the rankings only in starting a business and trading across borders. “Many economies are reforming
in the same areas as Indonesia and others have been reforming more vigorously,” the World Bank said in an official
statement.
Sofyan Wanandi, chairman of the Indonesian Employers Association (Apindo), said the drop
in overall ranking was inevitable because other countries kept making big improvements while Indonesia still had
a lot of “homework” to do.
“Indonesian bureaucrats complicate business in this country, not only in the capital but also in the regions,”
he said.
“In addition, legal certainty is still weak.” ?Takashi Nakayama, president director of the
Japan External Trade Organization in Indonesia, said tax issues were a key factor that hampered investment in Indonesia
and illustrated the legal uncertainties that many companies face here.
The World Bank nonetheless praised the country’s single-window system for cutting the red tape involved in selling
Indonesian products overseas?.
A move to cut corporate income tax, the bank added, “will help to persuade more businesses to comply with the more
favorable rules.”
It also said other factors like size of regional and domestic markets, presence of natural resources, availability
of skilled workers, quality infrastructure and social and economic stability played an important part in helping
investors plan their moves.
“Each of these factors presents its own set of challenges which Indonesia has been steadily addressing in its effort
to attract more quality investment,” it said.
The World Bank said Indonesia should also learn from its neighbors, particularly in adopting technology to untangle
its bureaucracy and stay competitive
Indonesia has experienced strong economic expansion since recovering from the 1997 Asian financial crisis. Economic
growth accelerated to a 10-year high of 6.3% in 2007 and a respectable 4.5% in 2009, making the country one of
the best performers
within the global recession. At the end of December 2009, international reserves rose to an all-time high of $66.1
billion, or 7.1 months of merchandise imports. Confidence in the country’s reserves was further bolstered by substantial
currency swap agreements in the total amount of more than $30 billion.
The overall fiscal deficit for 2009 was 1.6% of gross domestic product (GDP) and included a substantial fiscal
stimulus.
Indonesia’s debt-to-GDP ratio has continuously declined from 57% in 2004 to 28% by the end of 2009Robust economic
growth prior to the crisis and sound macroeconomic management during the crisis are reflected in Indonesia’s employment
numbers. Indonesia’s unemployment rate shrank from 11.2% in 2005—the highest rate in the last 5 years—to 7.9% in
August 2009.
However, poverty remains challenging, with 14.1% of Indonesians living below the national poverty line while
the informal sector accounts for about 70% of the workforce.
GDP growth is forecast to accelerate to 5.5% in 2010 driven by domestic consumption and a recovering global
economy. Under its 2010-2014 Medium-Term Development Plan, the government identified 11 national priorities: (i)
bureaucracy reform and good governance;
(ii) education; (iii) health; (iv) reducing poverty; (v) food security; (vi) infrastructure;
(vii) investment and business climate; (viii) energy; (ix) environment and overcoming disasters;
(x) less developed, border, and post-conflict regions; and (xi) culture, creativity, and technological
innovations..
Table 1. Indonesia: Development
Indicators
Non-MDG
Population in millions
231.37 (2009)
Annual population
growth rate (%)
1.3 (2007–2009)
Adult literacy rate (%)
92.0 (2006)
Percent of population
in urban areas
51.5 (2008)
MDG
Percent of population living
on less than $1.25 a day
29.4 (2007)
Percent of population living
below the national poverty
line
14.2 (2009)
Under-5 mortality rate per
1,000 live births
41 (2008)
Percent of population using
an improved drinking water
source
80 (2006)
… = data not available, MDG = Millennium Development Goal.
The Government of Indonesia under the
Suharto regime enjoyed a special relationship
with the World Bank.
I n 1997, two conflagrations swept through Indonesia. Forest fires burned out of control across the archipelago,
destroying millions of hectares of forest, causing billions of dollars worth of economic losses, and blanketing
the region in a choking
haze (Barber and Schweithelm, 2000).
Even as the literal fires burned, the Indonesian currency figuratively went up in flames—losing 80 percent of its
value over four months in late 1997—consuming the savings, purchasing power, and employment prospects of millions
of Indonesians. While each of these crises has been attributed to proximate causes—drought and land clearing in
the case of the forest fires, financial contagion in the case of the rupiah’s collapse—both had deep and intertwined
structural roots in Indonesia’s political economy as well.
This chapter will examine how the World Bank, in collaboration with the IMF, attempted to address some of the
structural issues in the forest sector through adjustment lending mobilized in the wake of the financial crisis.1
BACKGROUND The World Bank and Indonesian Development
The Government of Indonesia under the Suharto regime enjoyed a special relationship with the World Bank. To
address the challenges and opportunities of Indonesian development, in the late 1960s World Bank President Robert
McNamara established a resident staff in Indonesia that reported directly to his office.
For the next three decades, “World Bank involvement in the country’s development efforts was pervasive, and
the achievements were many” (World Bank, 1999a, p. ii). These achievements included almost 30 years of uninterrupted
growth, which by the early 1990s had vaulted Indonesia into the ranks of the emerging market economies.
Thanks in part to World Bank-supported investment in agriculture, infrastructure, health, and education, declining
poverty and improving social indicators accompanied the rapid growth. According to a recent history of the World
Bank, “Indonesia was the presidentially designatedjewel in the Bank’s operational crown”
(Kapur, Lewis, and Webb, 1997, p. 493).
Not everyone shared the World Bank’s enthusiasm
for the Indonesian development model
A group of U.S.-trained technocrats in government service, the so-called Berkeley Mafia, steered the Indonesian
economy through periodic macroeconomic adjustments in the 1970s and 1980s, and managed a gradual liberalization
of trade and investment rules in the 1990s.
The World Bank supported those adjustments through policybased lending, but these loans were usually made in
return for government actions already taken, rather than conditioned on future actions. Thus, Indonesia was never
subjected to
a harsh structural adjustment program, such as those imposed by the World Bank in other countries. However, not
everyone shared the World Bank’s enthusiasm for the Indonesian development model.
Human rights groups condemned Indonesia’s brutal invasion of East Timor in 1975, and its repression of civil
and
political liberties throughout the archipelago. Under the Suharto regime, being labeled an “obstacle to development”
(penghambat pembangunan) was tantamount to a subversion charge.
In the early 1980s, international attention was focused on the destruction visited on tropical forests and indigenous
peoples by Indonesia’s transmigration program, financed in part by the World Bank, which sponsored migrants from
the densely-populated islands of Java and Bali to the outer islands of Sumatra, Kalimantan, and Irian Jaya.
A subsequent international advocacy campaign targeted the World Bank-supported Kedung Ombo Dam in Central Java,
where the involuntary resettlement of villagers in the inundation area had led to systematic human rights violations.
The World Bank’s lack of responsiveness to early reports of abuse uncovered by Indonesian nongovernmental organizations
caused many to question World Bank support for the Suharto regime’s version of development.
Over time, the World Bank’s program in Indonesia increased its attention to environmental and social issues,
both in the implementation of so-called safeguard policies— such as those requiring special attention to resettlement—and
through greater social and environment sector lending. This increased attention was likely fueled by Indonesia-specific
factors, such as a desire not to repeat the Kedung Ombo debacle, as well as broader forces operating in the World
Bank overall.
In 1993, the World Bank’s office in Jakarta established a special unit to address environmental and social issues.
It was headed by a senior official with extensive experience in Indonesia, and staffed to provide environmental
expertise, social analysis, and outreach to the NGO community.
By the late 1990s, external critics of Indonesia’s World Bank-supported development strategy had begun to focus
on corruption. Following World Bank President James Wolfensohn’s speech at the 1996 Annual Meetings of the World
Bank and the IMF, which tied fighting corruption to the World Bank’s anti-poverty agenda, the corruption issue
could no longer be considered off-limits. 3 In mid-1997, the World Bank denied allegations of large-scale leakage
of World Bank project funds in Indonesia, although an internal investigation later confirmed the allegations (Simpson
and Phillips, 1998).
When the financial crisis hit, many critics pointed to the structural weaknesses in Indonesia’s economy, particularly
the pervasive corruption and cronyism, to explain the country’s initial vulnerability to financial contagion and
the depth of the ensuing crisis. In February 1999, the World Bank’s internal evaluation department reported that
the World Bank’s inattention to poor governance and other structural issues had undermined the effectiveness of
its assistance to Indonesia over the previous decade, which the report rated as only marginally satisfactory (World
Bank, 1999a).
Until the events of mid-1997, the World Bank considered Indonesia to be a model among borrower governments,
and Indonesian government officials had a collegial relationship with their World Bank counterparts.
Criticism by nongovernmental organizations (NGOs) of the environmental damage and human rights abuses associated
with World Bank-supported projects had led to increased attention to these issues, but not to a fundamental change
in the relationship.
The perception that the World Bank had been complicit in maintaining a regime characterized by pervasive corruption
and poor governance compromised the institution’s credibility in responding to the 1997 crisis
(Simpson and Phillips, 1998; Brauchli, 1998).
Indonesia’s fame as the Spice Islands goes back to the 16th Century. The Portuguese marketed the cloves and nutmeg
produced in the Moluccas. Profits were high, and the Dutch took over the island by fire and sword. They ruled it
from 1605. Since then, almost all the Indonesian islands, explored little by little, became the preserve of the
Netherlands. Trade exchanges took root and the Dutch brought in new plants such as the coffee tree, indigo, and
sugar cane...
During the Second World War, the Japanese invaded the Indonesian islands, after the attack on Pearl Harbor in
December 1941. This period saw the growth of a strong movement for Indonesian independence. Three days after the
Japanese surrender, Sukarno and Mohamed Hatta proclaimed Indonesian independence, on 17 August 1945. But, after
the war ended, the Allies occupied the archipelago and waited for the Dutch to return. The former colonial masters
found themselves in an uncomfortable position as the clamour for independence grew. The era of empires was drawing
to a close.
In 1947, Indonesia was the focus of a particularly controversial episode in World Bank history.
The Bank granted a 195-million-dollar loan to the Netherlands while the Dutch government was conducting an offensive
against Indonesian nationalists. This was the second loan the World granted in its history. Two weeks before approval
of this loan, the Netherlands launched their offensive. Over the two following years, there were as many as 145
000 Dutch occupying troops: it was a large-scale operation, and hard to keep under cover. Although the UN declared
a cease-fire in 1948, the Dutch launched several land and air attacks. There was a hue and cry at the UN and in
the United States, harshly criticising Dutch policy in Indonesia and Bank involvement.
The latter responded that the loan had been granted to the Dutch government for spending to be made in the Netherlands.
The critics shot back that since money was fungible, the Dutch government could use the Bank loan in support of
its military effort in Indonesia |1|.
The United States realised that the aid they were granting to the Netherlands (400 million dollars) through the
Marshall Plan was indirectly funnelled to the military and police intervention in Indonesia. When they did, they
got the UN to host talks at The Hague, in August 1949, and sovereignty transfer was signed on 27 December. Indonesia
became a Republic and Sukarno was elected President.
An overview of
Development of the Republic of Indonesia
in a Global context
Global Relations
In the global context Indonesia relations have been closely interwoven with AA
countries and the West (especially the US).
In the 1950s, the first period of independence. Indonesia became a domino in the Cold War struggle between the
US and its
western allies against the Soviet Union representing communism.
The Sukarno years were dominated by Cold War intrigues.
Because of its politically strategic location and its wealth of natural resources the US considered Indonesia a
vital link in its
Cold War struggle. Independence, non-alignment were the principles President Sukarno
stood for.
Sukarno's unwillingness to side with the West, upholding a neutral stand made him a vicious target of the West.
His neutralist stand made him a relentless vicious target of the West starting with covert
operations in the mid-fifties.
In 1965 they succeeded to bring him down and have him replaced by Suharto, a staunch
supporter of the West.
The US and
UK played a dominant role with support of Australia.
He became a victim of Western intrigues and covert operations, ultimately leading to the downfall of the independent
minded
First President of the Republic of Indonesia. From then on the Western powers, the US & United Kingdom and
Australia continued their efforts to control Indonesia, their political leaders and the economy.
After Sukarno's replacement by Suharto, a staunch ally of the West, led by the US and the United Kingdom, supported
by Australia stepped up their efforts to control the country and its economic destiny, using the US controlled
financial institutions like World Bank/IMF
Major development and investment projects were implemented . Tied aid for prjects, tying aid funds to spending
in the donor country, financed major infrastructural projects. Foreign investments projects were negotiated with
little regard for the environment. A pattern of creating and sustaining a politcal
elite.The US, UK, Holland, Germany and Japan competed for infrastructural and large industrial projects, creating,
sustaining and eenriching a political elite to serve their interests resulted in their economic dominance and exploitation,
providing selfserving tied "AID" awhich fostered deeprooted corruption. The country's wealth of natural resources attracted
wide global interests which exploded in the late 1960's and 1970's
Indonesia's wealth of natural resources has attracted wide global investment
interests, exploding in the late 1960's, early 1970's. Under the guise of aiding the country's economic development massive loans were generated for infrastructural
development, oil and mining explorations, in fact leading to a foreign
corporate takeover of the country
The foreign investment influx has benefited the country's economic and infrastructural
development, often however at the cost of national integrity as allocations were awarded with under the table handshakes.
This fostered a massive growth of corruption so deeprooted that it will take at least a generation to eradicate.
Project aid programs in
the form of loans to Indonesia, also benefited the economy of the socalled "donor countries".
The loans were tied to purchase of goods and services from the donor country.
Thus their manufacturing industries benefited as well from the loans provided by their government for the development
of Indonesia and there was intensive competition to obtain project allocations.
Awards most often comprised national integrity and fostered the growth of deeprooted
corruption benefiting
the ruling elite, spreading downward to all levels
.
UNDERSTANDING THE ASPECTS OF 'AID"
In Sukarno's words:
I am often asked about my alleged anti-Americanism.
Over the years I have desperately wanted to be
America's friend, but she wouldn't let me. She repeatedly mistakes foreign aid for friendship
(quoted from "Sukarno: An Autobiography "
by Cindy Adams page 295):
The following January
22, 1965 statementof President
Johnson
onmilitary aid is
a clear reflection of the purpose of US aid
(military or otherwise):
" all U.S. military assistance going to Indonesia is being provided
because it is inour national interest, not theirs
Military aid, as US President Johnson so bluntly stated : was intended to "serve the interest of the US
and not of Indonesia".
That, in summary, is what aid is all about, interests of the donor country prevailing over those of the receiving
country, aid with political and economic strings attached. This principle has been applied through socalled aid
programs, mostly provided with political ties attached, mostly favoring strong (financial) relations with a select
power elite to obtain the desired results.
The downfall of Sukarno, a President who did not accept the political restrictions and obligations
tied to Western aid.
who in 1964 told the US : "Go to hell with your aid", is a black page in the history of Indonesian-Western
relations.
President Sukarno was forced out of office and branded a communist (a valid Western reason for getting rid of
a an unwanted
political opponent).
President Suharto and a select group of US educated economists were used to make the Indonesian economy a slave
of foreign corporate greed, enriching the select Indonesian elite and thereby fostering deeprooted corruption ,
fattening the profits of international corporations, fattening the pockets of a select elite.
After President Suharto took office in 1967 US-Indonesia relations improved tremendously
and US investment grew as never before.
Almost overnight the Indonesian government went
from being a fierce voice for cold war neutrality and anti-imperialism
to a quiet, compliant partner of the U.S. world order.
sponsored an extraordinary conference in Geneva which,
in the course of a week, designed the corporate takeover of Indonesia.
In the Suharto period relations with US and other Western countries changed overnight, foreign
investment grew,
project and development aid flew in abundantly, stimulating development and corruption. Project aid funds where
highly focused on infrastructure development to facilitate foreign corporate investment operations, not specifically
the country's needs.
PROJECT AID WAS MOSTLY TIED AID. AID FUNDS HAD TO BE SPEND IN THE DONOR COUNTRY.
IGGI AID IS OFTEN CONSIDERED WELFARE MONEY FOR INDONESIA.
IT IS CONVENIENTLY FORGOTTEN THAT THE TIED AID PROVISION
HUGELY BENEFITED THE DONOR COUNTRY AS WELL.
Project aid provided through IGGI was mainly
TIED, the "Aid funds" had to be spent in the donor country. The rush to win costly infrastructure projects resulted in highlevel briberies in dealings with a select power
elite, stimulating corruption, which, stretching over an extended period of years.
took deep roots in society.
In short, foreign corporate greed took over the development of Indonesia,
fattening corporate profits and the pockets of an
elite power group supported by financial institutions like the IMF and World Bank.
In November 1967, following the capture of the "greatest prize", the booty was
handed out.
The Time-Life Corporation sponsored an extraordinary conference in Geneva which, in the course of a week, designed
the corporate takeover of Indonesia.
It was attended by the most important businessmen in the world, the likes of David Rockefeller,
and all the giants of western capitalism were represented.
They included the major oil companies and banks, General
Motors, Imperial Chemical Industries,
British Leyland, British-American Tobacco, American Express, Siemens, Goodyear,
the International Paper Corporation, US Steel.
The Time-Life Corporation sponsored
an extraordinary conference in Geneva which, in the course of three days, designed the corporate takeover of Indonesia.
The participants included the most powerful capitalists in the world, the likes of David Rockefeller.
All the corporate giants of the West were represented: the major oil companies
and banks, General Motors, Imperial Chemical Industries, British Leyland, British-American Tobacco, American Express,
Siemens, Goodyear, the International Paper Corporation, US Steel. Across the table were Suharto's men, whom Rockefeller
called 'Indonesia's top economic team'.
The Freeport Company got a mountain of copper in West Papua (Henry Kissinger
is currently on the board). An American and European consortium got West Papua's nickel. The giant Alcoa company
got the biggest slice of Indonesia's bauxite. A group of American, Japanese and French companies got the tropical
forests of Sumatra, West Papua and Kalimantan. A Foreign Investment Law, hurried on to the statutes by Suharto,
made this plunder tax-free for at least five years.
Real, and secret, control of the Indonesian economy passed to the Inter-Governmental Group on Indonesia (IGGI), whose principal members were the US, Canada, Europe and Australia and, most importantly, the
International Monetary Fund and the World Bank...
Under Sukarno, Indonesia had had few debts; he had thrown out the World Bank, limited
the power of the oil companies and publicly told the Americans to 'go to hell' with their loans. Now the big loans
rolled in, mostly from the World Bank, which had the job of tutoring the 'model pupil' on behalf of the IGGI godfathers.
'Indonesia,' said an official of the bank,
'is the best thing that's happened to Uncle Sam since World War Two.'
Under Sukarno, Indonesia had few debts.
Now the really big loans rolled in, often straight into pockets, as the treasurehouse of resources rolled out.Shortly
before the Asian financial crash in 1997, the IGGI godfathers congratulated their favourite mass murderer for having "created a miracle economy".
Suharto's attack on the Communist and usurpation of the presidency resulted in a
reversal of U.S. fortunes in the country. Almost overnight the Indonesian government
went from being a fierce voice for cold war neutrality and anti-imperialism to a quiet,
compliant partner of the U.S. world order.
Inter-Governmental Group on Indonesia (IGGI)
An international group of lenders established in 1967 by the Netherlands to coordinate multilateral aid to Indonesia.
The other members included the Asian Development Bank, International Monetary Fund
(q.v.), United Nations Development Programme, World Bank (q.v.), Australia, Belgium, Britain, Canada, France, Germany,
Italy, Japan, New Zealand, Switzerland, and the United States. In March 1992, Indonesia announced that it was rejecting
further IGGI aid as long as the Netherlands chaired the organization. IGGI was replaced by the Consultative Group
on Indonesia (q.v.).
NEW AID PLEDGE RELIEVES PRESSURES ON INDONESIAN ECONOMY
A new 4.75 billion dollar international aid pledge will take some of the pressure off the fragile Indonesian economy,
which faces balance of payments and inflationary problems, analysts said Thursday.
The amount, a record for aid given to Indonesia in any one year, was agreed to Wednesday in The Hague after a
two-day meeting of the Inter-Governmental Group on Indonesia (IGGI).
One billion dollars is to be granted in the form of fast-disbursing soft loans, to strengthen Indonesia's balance
of
payments, while the rest will come in the form of project-related credits and grants, officials said.
In addition, Japan's Export and Import Bank announced Wednesday that it would provide 500 million dollars in loans
to small and medium enterprises, outside the IGGI program.
The IGGI package "shows that there is still faith in the use of (foreign) funds for our development,"
President Suharto
said Thursday.
Indonesia's total outstanding debt was officially put at just over 50 billion dollars, including 42 billion incurred
by the
government, at the end of 1990.
A falling international price for oil, Indonesia's main export, since the end of the Gulf war has caused concerns
about the government's ability to maintain an economic growth rate of seven per cent, the average for the last
three years.
The rapid growth has put pressure on consumer prices and the government has had trouble keeping inflation --
which
ran close to 10 per cent last year -- in single digits.
Local newspapers quoted Coordinating Minister for the Economy Radius Prawiro, who led the Indonesian team to the
IGGI talks, as saying that Indonesia badly needed the fast-disbursing loans because of the balance of payments
problem.
The current account deficit could swell to 4.3 billion dollars in the fiscal year ending next March 31 from
3.8 billion dollars
in the 1990-91 fiscal year, he said.
But officials of IGGI, which groups 14 donor countries and four international institutions, warned that Indonesia
should not
expect donor countries to remain as generous in coming years.
Editor's note:
The "generosity" of the donor countries benefited Itheir own industry as well, because the so "generously"
provided aid funds were tied to purchase of goods and services from the donor country.
This aspect was never reflected in mainstream media reports.
