Escape from Jakarta (part 3)

This chapter discuses the causes of Indonesia's dwindling or stagnant economy. Is it due to the weaknesses in its leadership or the social-political instability that plagues Indonesia and the Jakarta administration in general?

Thirteen years after the fall of dictator Suharto, one wonders why Indonesia has not risen after the political unrest in 1997 to be one of Asia's economic powerhouse, in the same breadth as China and India (or at least Malaysia and Thailand).

But had not Indonesia been a country with an abundance of natural resources and the fourth largest country in the world (or 4th largest democracy? as one blogger questioned) it would have been a long gone conclusion for the demise of its economy.

Read how a Time.com writer Michael Schuman described Indonesia: For a country of 225 million population, with an abundance of natural resources and a large consumer market, the country has slipped in status from the once roaring economic tiger to chronic underachiever. Source: A Failed State?

In 2009, in an effort to support Indonesia face the worsening economic turmoil, the World Bank announced a $2 billion standby loan. The facility, which is the largest loan ever granted to Indonesia by the World Bank, is unique for its precautionary and leveraging features, said Joachim von Amsberg, the Bank’s country director for Indonesia, who was in Washington, D.C. last week for the announcement. Source: Unique Loan to Help Indonesia Avoid Financial Crisis

Even the current president, Susilo Bambang Yudhoyono has admitted that due to “illnesses" and other internal factors have caused the Development in Indonesia to ‘Fail’, singling out Indonesia’s inefficient bureaucracy, which is resistant to implementing decisions.

According to the government, the percentage of Indonesia's population living below the poverty line in 1996 was 17.1%. By July 2008 (after 12 years) there was only very little improvement -- 15.4% of the population lived in poverty.

During the thirty two years of president Suharto's "New Order" government, Indonesia's economy grew from a per capita GDP of $70 to more than $1,000 by 1996. Through prudent monetary and fiscal policies, inflation was held between 5%–10%, the rupiah was stable and predictable, and the government avoided domestic financing of budget deficits. Much of the development budget was financed by concessional foreign aid.

High levels of economic growth from 1987–1997 masked a number of structural weaknesses in Indonesia's economy. Growth came at a high cost in terms of weak and corrupt institutions, severe public indebtedness through mismanagement of the financial sector, the rapid depletion of Indonesia’s natural resources, and a culture of favors and corruption in the business elite.

Corruption particularly gained momentum in the 1990s, reaching to the highest levels of the political hierarchy as Suharto became the most corrupt leader according to Transparency International's corrupt leaders list.

As a result, the legal system was very weak, and there was no effective way to enforce contracts, collect debts, or sue for bankruptcy. Banking practices were very unsophisticated, with collateral-based lending the norm and widespread violation of prudential regulations, including limits on connected lending. Non-tariff barriers, rent-seeking by state-owned enterprises, domestic subsidies, barriers to domestic trade and export restrictions all created economic distortions. Source: Wikipedia

On the contrary, the Time.com writer puts the blame of Indonesia's economic regression not on Suharto, but his successors.

Schuman wrote: Indonesia's relatively sluggish performance can be traced to the fall of Suharto — an autocrat who repressed political dissent but who, like other Asian strongmen of his era, was able to guide the country toward prosperity. After he was forced to step down in 1998 amid an economic meltdown, a new government set about erasing his dictatorial imprint; in 1999 an effort began to decentralize the once all-encompassing power of Jakarta, giving provinces and cities more influence over local affairs.

Source: What's Holding Indonesia Back?

 

How Suharto got into power and then lost it
In August 1966, following endemic violence and social unrest, Sukarno, the charismatic independence leader was forced to grant Suharto executive powers that would eventually lead to the general succeeding him. Suharto was formally elected in March 1968, and would rule until 1998. On May 20 1998 Suharto was forced to resign due to violent protest over accusation of plundering the nation's wealth, corruption and cronyism.

Suharto (left) and President Sukarno. Source

But it is unfair to put the blame on Indonesia's dwindling economy wholly to the leaders who succeeded Suharto as it is intertwined with so many factors, including the global economic rise and fall.

Lets look how the presidents after Suharto had fared after Suharto's downfall.

When Suharto was forced to resign in May 1998 there were 3 presidents who succeeded him -- B.J.Habibie, Abdurrahman Wahid aka Gus Dur and Megawati Sukarno Puteri. Susilo Bambang Yudhoyono is still in power, so it is better not to be judicious on him as he may later come out a better winner.

An aerospace engineer by training, President B.J.Habibie was previously the Minister of Technology and Research in Suharto's cabinet from 1978 to 1998.

But B.J.Habibie's tenure as president, can be considered a transitional period from a dictatorial rule to a more democratic and politically stabilize Indonesia. During his 17 months as head of state, he pursued steady course toward democracy, dismantling dictatorship that Suharto had put in place during 32 years in power. Habibie freed press, labor unions and political parties, and began the slow process of pulling military out of politics.

But, as far as the economy is concerned, B.J.Habibie has done almost nothing to bring Indonesia out of the doldrums after the 1997-98 Asian Economic Crisis except to come to terms with IMF's bailout suggestions.

However, in the history of modern Indonesia, B.J.Habibie was considered the father of Technology and Democracy: Bapak Teknologi dan Demokrasi Indonesia.

Then, in what he calls one of his proudest achievements, B.J.Habibie became the first Indonesian president ever to be voted out of office -- replaced in October 1999 by an equally eccentric leader (as compared to Suharto), the voluble, half-blind Muslim cleric Abdurrahman Wahid.

During his less than 3 year presidency, Abdurrahman Wahid (or fondly known as Gus Dur) was regarded an incompetent leader. But even before he became president it was apparent that there was nothing outstanding about his former administration (Suharto and B.J.Habibie) but a ruined wreck  — an enormous foreign debt, an economy in disorder, social injustices, conflagrations and accusations springing up everywhere.

Wahid was alleged to be involved in 2 scandals - the misappropriation of 35 billion rupiah ($US3.9 million) from the State Logistics Agency (Bulog) and misusing a $US2 million donation from the Sultan of Brunei (source: Indonesian president's future increasingly in doubt).

He was finally impeached from presidency for the alleged corruption in February 2001.But his downfall was not only for the alleged financial improprieties but on the inadequacies of his performance as president. He is accused of being erratic, of traveling too much and being disrespectful to parliament.

Megawati Sukarnoputri, the vice-president who succeeded Abdurrahman Wahid, after the latter was removed from office in 2001, was Indonesia's first woman president.

Megawati is the daughter of Indonesia's first president, Sukarno, and also the first Indonesian leader to be born after independence (Sukarno, had declared Indonesia's independence from the Netherlands in 1945).

Megawati is said to be the least talkative of all Indonesia's rulers, a firm holder to the rule that "Silence is Golden". Her lack of outspokenness on issues and her quiet nature were sometimes read as serenity, but others saw these qualities as signs of being uneducated, unprepared, and uninteresting.

But she will generally be roused to speech by matters such as gardening, cooking and food, and shopping, but not affairs of state. On serious issues, she tended to lose her concentration very fast. Source: Megawati Sukarnoputri.

In the 2004 presidential election Megawati ran for re-election but was defeated by Susilo Bambang Yudhoyono. In the 2009 presidential election, she sought a rematch, but lost again to Yudhoyono.

Indonesia's current leader, Susilo Bambang Yudhoyono, also known by his initials SBY, who succeeded Megawati as the 6th president is known as a man of integrity, a strong communicator and firm leader in times of crisis. But critics say the former military commander is surprisingly indecisive, tending to consider all perspectives and opinions before making up his mind.

The man dubbed "the thinking general", wasborn in 1949 in East Java. His father is a retired army lieutenant.

In 1973 Yudhoyono graduated from Indonesia's military academy, joined the army and rose through the ranks. But he never quite achieved the highest levels in the military to which he aspired. His four star General status was an honorary award given to him when he left the army to join the government of Abdurrahman Wahid in 2000. He started as minister for mines but was soon promoted to chief minister for security and political affairs.

Under two successive presidents (Abdurrahman Wahid and Megawati Sukarnoputri) he was forced from office for not coming to terms with their decisions. However, those spats seems to have enhanced Mr Yudhoyono's reputation as a man of principle, willing to sacrifice his own ambitions for the values he believes in.

But one fact about the 'mentality' of Indonesia's population fascinates me: That - and the fact that he (Yudhoyono) looks good on TV - could also have proved an important factor in his election win, according to Denny Ja. "You have to remember that 60% of the population only graduated from elementary school, so they don't investigate candidates too closely," Mr Ja said.

Denny Ja is executive director of the Indonesian Survey Institute. Source: New era as Susilo Bambang Yudhoyono takes office

So, I guess that determines where the basis of Indonesia's underlying problems are from: Education as the development thrust and its main priority or the imbalances in the distribution of the economic cake.

However, the crux of the matter I believe lies within its economic-development policies, which are vague and represents an imbalance of interest in its power sharing. Some political analyst said Indonesia's policy of decentralizing of political power from the central government to the provinces has created an unpredictable business environment rife with corruption, competing interests and confusing regulations.

How true! This not only thwarts FDIs and would-be investors but also tends to hold back ordinary Indonesians, who can do little but look with envy upon their more prosperous neigbouring countries like Malaysia and Singapore.

No doubt its foreign direct investment (FDI) has increased in recent years as the economy has improved gradually. But more reform is required, economists say, if Indonesia is to become more competitive regionally and globally.