Is Indonesia ready to play in the big leagues?
June 19, 2009
This is a question we’ve been grappling with for most of the past two years. Noodling the matter around some, we continue to search for a simple metaphor by which to describe the current ‘state of the nation.’ Metaphors we like. Simple is good. The easiest decisions are made when background noise is eliminated or, at the very least, reduced.
We first toyed with, ‘Indonesia the adolescent.’ So much of what we see in bureaucratic stumbling seems at first glance to approximate the ‘hormone hell’ of puberty… not to mention the underdeveloped frontal lobe of one not yet having achieved full adulthood. A number of other metaphors were tested, and also rejected. As we continue our study, it becomes increasingly clear that Indonesia is much older and much more complex than any simple metaphor could reflect. Its history is much older than our own in the West. The contributing factors to its current challenges are numerous and wide in variety. Wander as we might, Indonesia defies our need for simplicity. Even the titular question to this piece is inappropriate. Indonesia is already playing in the ‘big leagues,’ as it were.
On a purchasing power parity basis, Indonesia is already the 16th largest economy in the world (15th if you ask the CIA), ranked just two behind Canada… and ahead of Australia (18th), Netherlands (its former colonizer, at 20th), Saudi Arabia (22nd), and South Africa (25th). What’s more, in a year of worldwide contraction, this economy seems poised to grow another 4.5%.
With a population estimated at 237 million people, this large economy offers less than $US4,000 per capita. So much remains to be accomplished before declaring successful entry as a serious player in the big game. Of course, success means different things to different people. While many would regard the American economy as the world’s most successful, such a description may soon only apply in the past tense. More than a few see the United States as on the verge of total collapse. We’re reminded that success is one of history’s best predictors of failure. When complacency sets in, the end cannot be far away.
Others look to the Middle East as a new centre of power, though most would acknowledge this as a short-term phenomenon. Seventy years ago, the Saudis discovered oil (actually, Standard Oil of California and Texas Oil did). After threatening to nationalize the oil fields in 1950, and sharing profits 50/50 for a time, the Saudis gradually assumed full ownership by 1980. In partnership with big oil, the Saudis found their feet in the world economy. This may offer a model of sorts to Indonesia. Two distinguishing points that bear on this study – first, the wealth of Saudi Aramco, the largest oil company in the world, resides largely in one extended family. Remember that this is a Kingdom. Second, Saudi Arabia sits on just one resource – oil. Unless and until the proceeds from oil are reinvested in a broad diversification of its industry, the downside risk to the Saudi economy is as great in the near future as the upside it has enjoyed in the recent past.
India’s middle class over the next decade has been projected to grow by a figure as great as the entire population of the United States. As the world’s second largest country by population, India can boast that 100% of its college graduates are fluent in English. Given the state of our own system of education, can we say the same? We believe that education is, and will continue to be, the great equalizer among nations of the world. India certainly catches our attention. How broadly India’s growth will be shared, however, is another matter. Not yet unshackled from its caste system, India retains much still to be addressed.
Of course, China has emerged from what may be best described as ‘a big sleep.’ With the world’s largest population, and its second largest economy, China is poised to overtake the U.S. as a key power broker… that is, if it has not already done so. GDP is but one very limited measure of an economy’s strength. While the U.S. still lays claim to the largest economy in the world (at $14.2 trillion, compared to just $7.9 trillion for China), who would, with a straight face, describe this economy as strong? It has often been said that, in times of crisis, only the bankers make money. China is America’s banker these days. Make no mistake of it. The controls are changing hands… and no one is ‘too big to fail.’
As Canadians, we are offered little comfort by either the recent assessment of our own banks as Number One in the world for stability, or by our sustained position as the healthiest economy among G8 nations. With 78% of our exports headed south to the U.S., we are painfully reminded that you are only as strong as your weakest link. As an economy so dependent on exports for its success, and in particular, on exports to one country, our future is inextricably tied to the plummeting U.S. dollar. Seven years ago, we could bring home an American dollar and trade it for $1.59 Canadian. In the past year, parity was achieved. Since then, the $US has been like a yoyo, back up above $1.30, then down to $1.08. Next week, your guess is as good as any. The point – when you’re a mouse who sleeps next to an elephant, you sleep with one eye open.
On the other hand, resource-rich Indonesia sleeps next to a burgeoning China, and just as close to India.
Success depends on time frame, space, perspective, distribution, and on a complex set of inter-relationships. As for Indonesia’s prospects for success, one must ask and answer, ‘compared to what.’ Compared to other countries; compared to itself in the past; compared to itself in the future (e.g.: Is near-term success achieved at the greater expense of future success?); compared across internal categories (e.g.: tourism versus the resource sector); compared across internal regions; and compared up and down class structure.
For our purposes only, we will define Indonesian success as the creation of a sustainable framework that enables, promotes, and supports an optimal (not necessarily maximal) exploitation of its natural resources to the broad benefit of its population.
There is, of course, no one right path through this challenge.
Some may dismiss this definition out of hand, opting instead for a simple open-door policy that encourages foreign investment. That’s what it’s all about, isn’t it? The greater the profit for foreign investors, and the greater the transparency en route to that profit, the greater the benefits that can accrue to Indonesia and its people.
Well, here’s the thing… we’re sure that a lot of thoughtful, well-educated people in Indonesia right now would say, “Wait a minute. Been there, done that.” This is a history that has repeated itself over and over, not just in Indonesia, but very much so in Indonesia.
Indonesia is a collective of some 17,000 islands. About 6,000 of these islands are inhabited. Its population is the fourth largest in the world (and is growing faster than most). It is home to the largest Muslim population in the world (200 million), larger than the entire Muslim population of the Middle East put together. Moreover, behind India, Nepal, Bangladesh, and ahead of Pakistan, Indonesia is home to the fourth largest Hindu population in the world. Not to be overlooked (with variable estimates), the Christian population of Indonesia is almost as large as the entire population of Canada.
Ninety per cent of the Indonesian population lives on just 11 islands. About 60% live on just one island, Java (the most densely populated island in the world). More than 90% of Javanese are Muslim. One island to the east of Java and one island west of Lombok is Bali (the sixth most populated island in Indonesia), where 93% are Hindu. Lombok, for its part, hosts the seventh largest population in Indonesia.
This nation of islands is bisected by a line (The Wallace Line) that, between Lombok and Bali, delineates a region (to the west) previously attached to the Asian mainland, and possessing of an entirely different set of plants and animals from those islands falling to the east. The people and their cultures also differ on either side of this line. Indonesia is a nation of many sub-cultures, estimated by some to number more than 350. Add that to 737 living languages and you’ve got diversity unlike any other. In short, Indonesia is in a league of its own.
Indonesia is an artificially defined nation, comprised of so many sub-groupings that it’s a wonder how it can be viewed as a single entity. Until 500 years ago, there was little to bind these many diverse islands and peoples together. More recently, chronic battles and wars between and amongst the Portuguese, the British, and the Dutch, not to mention wartime occupation by the Japanese (1942-45) might understandably leave the locals now wondering, “Are these multi-national mining corporations just one more round of colonizers, setting us up for more rape and pillage?”
Piracy, however, is not simply an external threat to Indonesia. It’s a way of life for many within the country, and has been for many centuries. Historically, the Bugis men from south Sulawesi were notorious seafaring pirates, wreaking havoc on commercial shippers since long before the arrival of the Europeans. While this is up for grabs, one school of thought has these Bugis pirates as the source of the current usage, “Don’t let the boogey man get you!”
Of course, with 130 million people living on Java, home of the capital, Jakarta, those who live on the lesser populated islands, without a common culture or language, fear the risk of being swallowed up by a dominant, and growing, Javanese empire.
During their 350-year control over Indonesia, the Dutch were successful, in large part, by playing on this vast regional diversity. Divide and conquer – divide and rule – were the strategies of the day. By constant tribal intervention, the Dutch ensured sustained rivalry between and among native Indonesians. The risk of a unified revolt was, as a result, very limited.
Historic success of this Dutch enterprise, compounded by the naturally diverse interests of local populations, remains today perhaps the greatest obstacle to Indonesian success as we have prescribed here.
Unless and until this country finds itself led by someone who can paint a picture with a compelling enough story… unless and until the broad and diverse collection of fiefdoms can be convinced that the benefits of the collective outweigh the scraps that each can secure on its own, Indonesia’s full potential as an international player will remain untapped.
Is Susilo Bambang Yudhoyono (SBY) such a leader? This remains to be seen.
SBY, as he is known domestically, served first in government as Minister of Mines and Energy. Actively involved in proposing and developing government reforms after Suharto, SBY came to be known as “The Thinking General”. With successful reforms, his popularity with the Indonesian people rose. Much traveled early in his military career, he received training abroad, including stints at Fort Benning, Fort Leavenworth, and a Master’s in Management in 1991 from Webster University. SBY was responsible in the mid-1970s for training troops in the English language. With a PhD in Agricultural Economics, and a co-authored book called The Challenges of Development, SBY was experimenting with democracy as far back as 1988.
As Indonesia’s first democratically, directly elected, president, SBY is credited with containing the risk of terror, and with continued efforts in reducing corruption (an ongoing, yet incomplete, process). His son’s father-in-law was just convicted and sentenced earlier this week to 5½ years without any of the usual familial intervention that is common in such high-profile cases. In an environment with a long history of graft, the skeptic will ask, “Are we witnessing what amounts only to the replacement of one set of corrupt officials with another?” It’s early to say with certainty, but the direction of change, if not the magnitude, looks positive. History will judge.
SBY has been saddled in his first term of office with a coalition government, and a vice president from an opposing party. If, as indicated by the polls, SBY gains a strong majority of support in the upcoming election (July 8, 2009), his mandate for reform may yield more meaningful progress in a second term. He has chosen Boediono, who served as the Governor of Bank Indonesia, as a politically safe running mate.
Here’s what’s puzzling about the current presidential election. The chief rival to SBY is former president Megawati Sukarnoputri. Daughter of founding president Sukarno, she has selected as her running mate Prabowo Subianto, a candidate from an opposing ideology. Their fathers were political enemies. Megawati’s term as President of Indonesia was a non-event, a throwback to her father’s day, with little change, and no visible effort to improve the lot of Indonesia. Prabowo, for his part, is married to former President Suharto’s daughter. He was responsible for terror squads in East Timor and elsewhere in the country, accused of human rights violations, and ‘credited’ with instigating riots in Jakarta in 1998, involving torture and organized rape.
As the third presidential candidate, Jusuf Kalla (VP under SBY) has chosen as his running mate another controversial man with a checkered military record. Although credited as a moderating influence during the final days of Suharto’s regime, Wiranto is also accused by the United Nations of human rights violations in East Timor and of organizing pro-Indonesia death squads.
So… one might think (as we often do in the West) that this campaign would be a walkover for SBY. Competing against tainted candidates (by our standards) should be no contest. The fact that the two rival candidates can credibly choose running mates as they have, however, suggests that a Western framework of thinking does not apply. That such a mix of candidates can stand on the stage competing for high office indicates that there’s a great deal more baggage here than we can see.
Indonesia is a nation of great and diverse resources (petroleum, natural gas, tin, nickel, timber, bauxite, copper, coal, silver, and gold, not to mention fertile soil). We see the potential for this country as much greater than that of single-source Middle East economies.
What troubles us is that the future of Indonesia, and its realization of this potential (as was the case for Saudi Arabia) will most certainly hinge on the forging of partnerships with international investors. The optics of these challenger candidates (and their running mates) to foreign investors cannot be good. Success on their part could only mean a serious setback in advancing such international partnerships.
That these candidates are seen as viable alternatives suggests that much of the power structure in Indonesia remains inwardly focused, and not inclined to see the big picture on which their nation’s economic viability so greatly depends.
Much of the politics in Indonesia (like anywhere else) takes place behind a curtain. Even if SBY is successful in his campaign for a second term, this curtain will be retained to mask what must be a fascinating theatrical display. This President will need to step through an intricate dance on a high wire, balancing the needs to attract foreign investment while not re-colonizing the nation, and at the same time, teasing backstage control out of the hands of those whose very presence threatens Indonesia’s successful entry into a worldwide theatre. With a two-term limit, SBY will need to dance quickly and forcefully into a renewed mandate if he is to enjoy any visible success in painting a transparent picture of appeal to both internal and external interests. Without such success, Indonesia may remain in a league of its own for some time yet to come.
Time, as always, judges all.
Kevin Graham