Clogged Reforms a Speed Bump for Indonesia’s Economy

November 23, 2011 by · Leave a Comment 

By Neil Chatterjee

2011-11-22T075418Z_373471803_GM1E7BM180L01_RTRMADP_3_-ECONOMY-INDONESIA-REFORM

Commuters standing in the doorways of a train and sitting on its roof, are seen as they travel to work in the capital Jakarta November 10, 2011. Indonesia’s economy has shown strong growth this year, but failure to improve a stifling bureaucracy, to end wasteful subsidies and to systematically curb graft, could derail a growth story that has made resource-rich Indonesia into Southeast Asian’s sweet spot. Doubts are growing that President Susilo Bambang Yudhoyono can deliver on promised reforms that improve creaky infrastructure and creating higher-value jobs for the young in the world’s fourth most populous country. Picture taken November 10, 2011.        

REUTERS/Supri

JAKARTA, Nov 22 (Reuters) – At a time when many countries are slipping off investors’ radar screens, Indonesia is a beacon with stable finances and the fastest growth rate in Asia outside China and India.

Yet its failure to improve a stifling bureaucracy, to end wasteful subsidies and to systematically curb graft could derail a growth story that has made resource-rich Indonesia into Southeast Asian’s sweet spot.

Doubts are growing that President Susilo Bambang Yudhoyono, who’s been in office seven years and has three left, can deliver on promised reforms that would improve creaky infrastructure and creating higher-value jobs for the young in the world’s fourth most populous country.

While Indonesia has had solid growth rates during Yudhoyono’s tenure, much of that is rooted in demand from overseas for the country’s coal and other commodities.

If there’s a major global slump that depresses demand, Indonesia could fail to get needed investment because it remains a difficult place to do business and one where personalities matter, not process.

There has been no real reform of the inefficient civil service – where bribery remains rife — and no sustained progress in building institutions that enhance the business climate such as credible courts.
“The political elite in the parliament and the government are busy with politicking, ignoring an urgent and important economic agenda that needs to be dealt with,” said Syamsudin Haris, senior political analyst at the government-funded Science Research Institute.

After getting improved grades in recent years as a place for business, Indonesia’s position has slipped. In the World Bank’s 2012 rankings for ease of doing business, Indonesia was 129 out of 183 countries, down from 126 a year earlier.

Re-elected by a landslide in 2009, Yudhoyono has so far squandered a mandate to drive reforms and, according to polls, has lost popularity. His long-awaited cabinet reshuffle last month reflected a desire to shore up political support more than to initiate real change before a presidential election in 2014 which he cannot contest.

“We haven’t seen any headline reforms done, which has led to some market disappointment and also to disappointment among voters,” said Prakriti Sofat, an economist at Barclays Capital in Singapore.

“If Yudhoyono and company don’t put things in order, and there’s not a good candidate coming through in 2014, then the risk will go up.”

Having solid GDP growth by itself does not mean trends are good. Just look at India: Although growth is still relatively strong, its image as an emerging market star is losing its shine as corruption scandals, high inflation and a flagging reform agenda have dented investor confidence. Business leaders openly fret that the government may be squandering India’s chance at the big time.

Azim Premji, billionaire chairman of outsourcing giant Wipro , summed up a sense of policy paralysis in India when he recently attacked a “complete absence of decision-making among leaders in government.”

The result has been investors fleeing from Mumbai stocks , making it one of the world’s worst performing major markets in 2011.

While Indonesia has been drawing investors, “long-term, if there are better opportunities elsewhere, money will go somewhere else,” said Sofat.

Yudhoyono’s government has been often commended for good macroeconomic policies. It has maintained fiscal discipline, steadily cutting the debt-to-GDP ratio and boosting foreign reserves, while lifting its budget for infrastructure by 28 percent this year.

But the government’s administrative mechanism is often clogged. Lifting budgets is not translating into spending in the real economy. Overall, government spending grew just 2.5 percent in the third quarter from a year earlier, a slower pace than in the second quarter.

“The government has never shown any reliable track record of efficient budget spending and I don’t think that will change in the foreseeable future,” said Lanang Trihardian, investment analyst at Jakarta-based Syailendra Capital, which manages around $460 million. “The impact of that is I don’t believe Indonesia can grow above the 8 percent level as seen in China and India.”

Officials often rush to spend some of a budget overhang in the fourth quarter. A much-needed project to improve woeful drainage in Jakarta recently started on the main thoroughfare — just as the torrential rainy season began, causing gridlock terrible even by the capital’s traffic standards.

“You know what the bureaucracy is like for government projects — long and complicated,” the head of Jakarta’s public works office, Ery Basworo, told a press conference called to address complaints. “For us to even get the project started in September was an achievement.”

At one time, many Indonesians felt Yudhoyono was making good gains to combat the old, damaging problem of graft, but it remains entrenched. To some citizens, corruption has worsened, in part because of decentralisation since the era of strongman Suharto.

In the remote provinces of the scattered archipelago, greater regional autonomy has sometimes resulted in corrupt local authorities to siphon off resource wealth meant for development.

Yudhoyono has declared eradicating corruption a top priority and said no official is above the law. But his recent cabinet shuffle did not signal a tougher or more effective approach. Two ministers whom the Indonesian media alleged to be tainted retained their seats.

Meanwhile, political squabbles led to a demotion of the trade minister and the narrow survival of the finance minister, both well-respected internationally.

The reshuffle “was an opportunity for Yudhoyono to have a stronger team and he missed it,” said Erman Rahman, director of economic programs in Indonesia at The Asia Foundation, a San-Francisco-headquartered nongovernmental organisation.

Another longtime impediment to business, the bloated and inefficient bureaucracy, remains a source of big frustration. “It will take more than very strong leadership to change this,” Rahman said.
So far, there are no signs of planned reforms for the police department or justice system, which are often the source of complaints.

TRACKING SPENDING FLOWS

Polls show that many Indonesians, used to Suharto’s 32-year rule, want another military man to run the country from 2014. Yudhoyono, the first directly elected president, is a retired army general but is seen by many as unable to make bold decisions to promote institutional change.

Analysts say Vice-President Boediono, a former central bank governor, is trying to improve efficiency and governance by steps such as putting into ministries computer systems that track spending flows.

In the important area of infrastructure, investors have been waiting for a long-mooted land reform bill that would speed up the acquisition of land for state-backed projects, such as $150 billion of public-private partnerships the government wants to see.

But as the end of another year approaches, it has still not been passed by a cantankerous parliament, and Yudhoyono has been silent on the issue.

Another issue that needs addressing is subsidies. With inflation significantly easing this year, the government has missed an opportunity to phase out fuel subsidies for private cars, backtracking on a planned April move and delaying it indefinitely.

The government fears hiking gasoline costing just half the price of the market rate could dampen the domestic economy or spur the kind of riots that contributed to Suharto’s fall in 1998.

Yet not ending subsidies only stores up inflationary problems for the longer-term. The “ruinous middle-class subsidies”, as one economist has dubbed them, could instead go to building roads and ports, argue economists and rating agencies who see weak infrastructure and high inflation as key risks.

“Progress on structural reforms appears to have slowed in the past year. In particular, there has been limited progress in reforming the composition of spending,” said Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch.

($1 = 9050 Rupiah)

(Additional reporting by Andjarsari Paramaditha in JAKARTA and Matthias Williams in NEW DELHI; Editing by Richard Borsuk)

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Saudi Bans Domestic Workers from Indonesia, Philippines

June 30, 2011 by · Leave a Comment 

RIYADH — Saudi Arabia announced Wednesday it would stop granting work permits to domestic workers from Indonesia and the Philippines, following hiring conditions imposed by the Asian countries.

The ministry of labour said it would “stop issuing work visas to bring domestic workers from Indonesia and the Philippines, effective from Saturday” due to “the terms of recruitment announced by the two countries,” according to a statement carried by state news agency SPA.

“The ministry’s decision coincides with its great efforts to open new channels to bring domestic workers from other sources,” said the statement in English quoting the ministry’s spokesman Hattab bin Saleh al-Anzi.

Last week Indonesian President Susilo Bambang Yudhoyono denounced the beheading in Saudi Arabia of an Indonesian maid and accused Riyadh of breaking the “norms and manners” of international relations.

His comments signaled Indonesia’s growing anger over the treatment of its manual laborers in the Gulf countries, after a spate of cases of abuse and killings.

Ruyati binti Sapubi, 54, was beheaded on June 18 after she was convicted of killing her Saudi employer, prompting Indonesia to recall its ambassador in Saudi Arabia for “consultations.”

Indonesia also announced a moratorium on sending migrant workers to Saudi Arabia, where hundreds of thousands of Indonesians toil as maids and laborers.

Saudi Arabia and the Philippines have also clashed over the working conditions of Filipina domestic workers in the oil-rich kingdom.

Earlier this year the Philippines asked Saudi Arabia to guarantee higher pay for Filipina housemaids but the request was turned down.

The Philippines demanded $400 in monthly wages for for housemaids but Saudi authorities offered a base monthly salary of $210, Filipino labor official Carlos Cao had told AFP in Manila in May.

Manila had also demanded proof that that Saudi households employing Filipina housemaids would pay and provide humane working conditions.

Rights groups say millions of mostly Asian domestic workers are regularly exposed to physical and financial abuse in Saudi Arabia and the Gulf states due to poor or absent labor laws.

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US Hopes Obama Trip Will Boost Trade with Indonesia

March 18, 2010 by · Leave a Comment 

By Doug Palmer

2010-03-16T103621Z_11355208_GM1E63G1FMP01_RTRMADP_3_INDONESIA

Barack Obama’s impersonator Ilham Anas of Indonesia poses in front of an image of U.S. President Barack Obama after being interviewed by Reuters TV in Obama’s former school, State Elementary School 01 Menteng, in Jakarta March 16, 2010. Obama is scheduled later this month to visit the world’s most populous Muslim nation, where he is a popular figure. Obama studied at State Elementary School 01 Menteng from 1970-1971.

REUTERS/Dadang Tri

WASHINGTON (Reuters) – The United States hopes President Barack Obama’s visit next week to Indonesia will help spur reforms that boost trade with Southeast Asia’s largest economy and the world’s fourth most populous nation.

“Economic nationalism, regulatory uncertainty and unresolved investment disputes give pause to American companies seeking to do business in Indonesia,” U.S. Secretary of Commerce Gary Locke said in a speech on Wednesday.

To increase trade, “it’s incumbent upon Indonesia to make market-oriented reforms that will make it a more attractive market, not just for U.S. companies but companies all around the world,” Locke said.

“Growing trade with Indonesia is a piece of the president’s broader plan to create jobs here at home by growing market access overseas.”

Obama is returning to the country where he spent part of his youth for talks in Jakarta with President Susilo Bambang Yudhoyono and a stop in Bali to meet civil society groups and urge further progress on democracy.

Indonesia — a majority Muslim nation of 230 million people — and the United States are expected to sign a “comprehensive partnership” agreement, which Locke said would be a “blueprint for cooperation on a whole host of issues.”

Two-way trade between the United States and Indonesia was just $18 billion last year, a tiny chunk of the $788 billion in trade the United States did with all Pacific Rim countries in 2009.

“In fact, Indonesia does less trade with the United States than some of its smaller, less populous ASEAN (Association of Southeast Asian Nations) neighbors like Singapore, Malaysia and Thailand,” said Locke, who will be leading a clean energy trade mission to Indonesia in May.

The United States exported $5.1 billion of goods last year to Indonesia, led by civilian aircraft and farm goods such as soybeans, animal feeds and cotton.

U.S. imports from Indonesia were just $12.9 billion last year, included clothing and textile goods, furniture, electronics, computer accessories and coffee.

Chinese Premier Wen Jiabao will visit Indonesia just weeks after Obama but Locke downplayed the idea that the back-to-back trips were a demonstration of Washington and Beijing vying for influence.

“I don’t think these visits in any way were set up to compete against each other,” Locke said.

But Ernie Bower, director for Southeast Asia at the Center for Strategic and International Studies, said he did see a healthy competition between the United States and China for “hearts, minds and markets” in Southeast Asia.

China “really picked up its game” in Indonesia with help it provided during the Asian financial crisis in the late 1990s and Obama’s trip helps set the stage for more U.S. involvement in a strategically important region, Bower said.

But Indonesia has a long way to go before it is ready to join a proposed regional free trade agreement with the United States, said Mark Orgill, manager for Indonesia at the U.S.-ASEAN Business Council.

A much less ambitious trade deal between ASEAN and China already has raised concerns among Indonesia’s manufacturers, Orgill said.

The United States began talks this week on the proposed Transpacific Partnership pact with Australia, Chile, Singapore, New Zealand, Peru, Vietnam and Brunei. Two other ASEAN countries, Malaysia and Thailand, have expressed interest in joining the talks.

“Indonesia fights battles at home” over moves to open its market, Orgill said.

Editing by John O’Callaghan

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Indonesia to Kick Off $1 Billion Green Investment Fund

January 28, 2010 by · 1 Comment 

By Sunanda Creagh

2010-01-21T131423Z_273409850_GM1E61L1MT401_RTRMADP_3_RICE-INDONESIA

Workers carry sacks of rice at a paddy field in Karawang, in Indonesia’s West Java province January 21, 2009. Indonesian state procurement agency Bulog will release 300,000 tons of rice out of the government stock this week to stabilize domestic prices, its chief said on Thursday.

REUTERS/Beawiharta

JAKARTA, Jan 26 (Reuters) – Indonesia plans a $1 billion green investment fund this year to drive infrastructure developments that aid growth and help cut greenhouse gas emissions, a finance ministry official said on Tuesday.

Indonesia has promised to slash its emissions by at least 26 percent from business as usual levels by 2020 but recently re-elected President Susilo Bambang Yudhoyono has also vowed to boost economic growth to 7 percent or more by 2014.

At global climate talks in Copenhagen last month, Yudhoyono announced a plan to develop the Indonesia Green Investment Fund, which will catalyse infrastructure development that could speed economic growth, boost food and clean water production and also help cut emissions blamed for global warming.

Indonesia’s sovereign wealth fund the Government Investment Unit will put $100 million into the fund and a further $900 million will come from foreign governments including Norway and Australia, plus institutional investors, said Edward Gustely, a senior adviser to the Ministry of Finance.

“We’re in the initial stages but the target is to have this fund operational within this year,” Gustely told Reuters, adding the fund would rival Brazil’s Amazon Fund in size and scope. “There’s no reason why this can’t, in the next five years, scale to $5 billion or more.”

Brazil launched its Amazon Fund last year to promote sustainable development and scientific research in the world’s largest rain forest, with donations from European countries and the first projects unveiled last month.

Indonesia last year became the first country to launch a legal framework for a U.N.-backed scheme called Reducing Emissions from Deforestation and Degradation, allowing polluters to earn tradeable carbon credits by paying developing nations not to chop down their trees.

Catalyst

Indonesia’s green investment fund will not offer loans or grants but rather top-up funding needed for projects where a bank lender is seeking an additional equity injection.

“Many technology providers and project sponsors don’t have the balance sheet to top up the required equity needed to secure financing,” said Gustely. “We would come in and play a catalyst role to ensure good projects with good asset quality, with good expertise and proper management, can be deployed and proceed.”

The Copenhagen talks failed to achieve a legally binding agreement to reduce greenhouse gas emissions but projects like the Indonesia Green Investment Fund were a way for countries to take initiative at home, said Gustely.

“This is driven by how to create more food, water and energy in a sustainable fashion while trying to achieve Indonesia’s growth objectives,” he said.

Fitrian Ardiansyah, climate change programme director for WWF Indonesia, welcomed the fund but said more needed to be done to reduce Indonesia’s greenhouse gas emissions.

“The Indonesian government heavily subsidies fossil fuels, but investment in renewable energy sources is too expensive. The government must help the private sector by making investment in renewable energy sources cheaper, which will address the problem. But at the moment coal plants continue to be built, which does not help,” he said.

(Additional reporting by Pip Freebairn; Editing by Neil Chatterjee)

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Gentle, Friendly Face of Indonesia and Islam

January 9, 2010 by · Leave a Comment 

By Greg Barton, Theage.com

ABDURRAHMAN ad-DAKHIL WAHID, FORMER INDONESIAN PRESIDENT

2009-12-31T131642Z_1627607473_GM1E5CV1N0R01_RTRMADP_3_INDONESIA-PRESIDENT WHEN the former Indonesian president Abdurrahman Wahid succumbed to a long battle with kidney disease and diabetes, President Susilo Bambang Yudhoyono called for seven days of national mourning. For many millions of Indonesia’s 240 million citizens, the mourning is very personal.

Wahid, better known as Gus Dur, although a controversial president, was deeply loved and admired. Even before becoming Indonesia’s first democratically elected president in October 1999, he had built a towering reputation as a progressive Islamic intellectual and as a leading dissident. In fact, many feared that his unexpected entry into political office would tar his reputation as a social reformer and religious leader.

They were right to be afraid. He was never meant to be a president. It wasn’t just that his style was too unconventional, it was that he refused to play by the rules of the game and to do the sort of deals that politicians need to do. Ironically, however, it was this commitment to idealistically championing reform despite a lack of political backing for which he is currently being remembered, as much as for his contributions as an Islamic intellectual and Muslim community leader. He was the wrong man for the job but it was the right man for the time.

Born into one of Indonesia’s most prominent families of ulama, or Islamic scholars, Wahid went on to lead Nahdlatul Ulama (NU) for 15 years from 1984 until 1999. He succeeded in transforming the culture and orientation of this traditionalist Islamic association; with a membership of about 40 million people, it is the world’s largest Islamic organisation. Along with like-minded colleagues he helped ensure that the NU pesantren, Islamic boarding schools known elsewhere as madrassa, completed a transition to becoming modern schools offering the secular state curriculum alongside religious instruction. This ensured that their mostly poor rural students were able to enter fully into modern Indonesia society.

Wahid’s two grandfathers, Hasyim Asyari and Bisri Syansuri, had been instrumental in establishing NU in 1926, and his father, Wahid Hasyim, was minister of religious affairs under Sukarno and one of NU’s most prominent leaders up until his death in 1952, when the car in which he was travelling with his son, the future president, skidded on a mountain road. As the eldest of six children, Wahid felt a heavy responsibility to follow in his father’s footsteps. His solid pedigree gave him a commanding position to call for reform within NU and to challenge the Indonesian military, including president Suharto, on human rights abuses, corruption, nepotism and abuse of power. Gifted with a brilliant mind and near photographic recall, he blitzed through his pesantren studies as a teenager while sneaking off to the cinema as much as he could.

He also developed a love of literature. His mental gifts, if not his personal discipline, meant that when he arrived at Cairo’s famous al-Azhar University to study Islamic studies in 1963 he quickly found the sort of traditional rote learning in place there to be a disappointment. Neglecting his formal studies he spent his time in informal learning, extending his earlier studies to include French cinema and Western literature (read in the library of the American University) as well as hours of coffee shop debates in the cafes of Cairo.

Wahid was working at the Indonesian embassy in Cairo at the time of the 1965 coup that saw Sukarno toppled and hundreds of thousands of alleged communist sympathisers brutally murdered. He translated diplomatic cables and letters reporting events from back home and was all too aware of the culpability of NU members in aiding and abetting the violence. This led to a lifelong commitment to speaking out on human rights abuses, including those linked to his own community. As president, he sought to rehabilitate former political prisoners.

Bored with al-Azhar, he moved to Baghdad University in 1966, where he completed a degree in Arabic literature. Back home to Indonesia in the early 1970s, he threw himself into NGO activism. Like his father, he enjoyed broad friendships across all communities and was an early proponent of interreligious dialogue. He was also a champion of the rights of minority communities, including Indonesia’s Christians and Chinese, and later as president sought to advance their interests.
His leadership of NU positioned him to fearlessly critique Suharto and his regime, especially when beginning in the early 1990s Suharto sought the support of the radical Islamist elements that he previously persecuted.

To oppose this Wahid joined Djohan Effendi and others in establishing Forum Demokrasi to openly criticise the president’s use of sectarian sentiment for political purposes. In 1994, Wahid and Djohan accepted an invitation from Shimon Peres to visit Israel; they participated in the inauguration of the Peres Centre for Peace. Later, as president, he sought to open formal relations between Indonesia and Israel. Despite this bold move his popularity among his support base in NU remained undiminished and he declared that he was now prepared to run for a third five-year term as executive chairman. Suharto did all that he could to block his re-election but Wahid’s triumph established him as one of the few people who could take on Suharto and get away with it.

Nevertheless, he was forced to seek a rapprochement with Suharto following the latter’s ousting of Megawati Sukarnoputri from the leadership of her own party in 1996 and the violent suppression of her supporters. But when the Asian economic crisis hit Indonesia in the 1997, he was again at the head of the movement for reform.

A near fatal stroke in January 1998 robbed him of what was left of his failing eyesight and meant that he spent the first half of 1998 in physical rehabilitation rather than in leading the push against Suharto. Still, following Suharto’s resignation in May, Wahid was able to establish a new party designed to garner the support of members of NU but founded on principles of secularism. The success of this party, PKB, in the 1999 elections set him up for role in government. No one, however, really expected him to become president.

That occurred because Habibie, who wanted to turn his transitional presidency into a full term through election, was thwarted when he supported the referendum in East Timor and Islamist elements and others within parliament moved to block the ascension of Megawati Sukarnoputri. She eventually became president in July 2001 when parliament effectively voted Wahid out of office.

Wahid is remembered today largely for his role as a reformist president, but history is likely to also remember him as one of the 20th century’s leading Islamic intellectuals and as someone who demonstrated how a traditional Islamic scholar can also be modern, democratic and humanitarian.

Professor Greg Barton is Herb Feith Research Professor for the Study of Indonesia at Monash University, and acting director, Centre for Islam and the Modern World. He is also the author of Gus Dur: the Authorised Biography of Abdurrahman Wahid.

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