Friday, August 26, 2011, 00:00

A country of light and shade


A country of light and shade

A country of light and shade

A country of light and shade Page 12 president.jpg

A country of light and shade

There is something intrinsically resilient about Indonesia, Southeast Asias largest economy, which has throughout its history, seen conflicts, struggles, upheavals and calamities and, yet, withstood them all to stride ahead.

On the economic front, this country, which is home to about 240 million people and the worlds largest Muslim population, is better placed than some of its regional peers despite inherent contradictions, failures and criticisms.

It rose from the Dec 26, 2004earthquakes and tsunamis that left about 250,000 people dead. It weathered the 1997 Asian financial crisis, and also faced the global financial tsunami in 2008 head on.

Even the current turbulence in the financial market over the announcement by Standard Poors (SP) that it has cut its triple A credit rating for the US to AA+ has relatively little impact on Indonesias strong economic fundamentals.

Instead, as a Schroders fund manager has said, its now a good opportunity for investors to buy equities in Indonesia.

In 2010, Indonesiareceived a record $16.1 billion from foreign investors. Thats double the sum of five years ago and nearly four times the amount of a decade ago. Its stock market has posted a rise of 133 percent since 2009 and has become Southeast Asias best performing equity market, gaining around 4 percent this year.

The Indonesian economy should be relatively less impacted but the stock market reflects the volatility of the global stock markets, Kiekie Boenawan, head of investment at Schroders Investment Management Indonesia, has been quoted as saying.

But certainly, not everything is honky dory in this archipelago of 13,466 islands. A raft of problems such as poor infrastructure, illiteracy, poverty, demands for independence from some provinces, ethnic and religious unrests and natural calamities keeps confronting the country and the government.

In fact, ever since Dutch colonizers transferred power in 1949 after 350 years of rule and three and a half years wartime occupation by Japan, its always been a roller coaster ride.

But still, the country is striding along. In 2010, its economy grew 6.1 percent. It is predicted that it will do even better this year 6.5 percent.

Indonesia managed to minimize the impact of the global crisis (in 2008), and our economy not only prevailed but actually grew, said President Susilo Bambang Yudhoyono at the Indonesia International Conference Focus on the Indonesian Economy in Jakarta in May. From an emerging economy, Indonesiacan become an advanced economy in 15 years, he added.

The goal is to bring the GDP to $4.5 trillion by 2025 and transform it into a developed country.

The Master Plan for Acceleration and Expansion of Indonesia Economic Development (MP3EI, in Indonesian abbreviation), which is being described as the countrys economic roadmap, bears essence of the ambition.

Yudhoyono believes Indonesiapossesses almost everything needed to become a great economic power abundant natural resources, a large young population and a strategic access to the global mobility network.

These assets and access, says Yudhoyono, give Indonesiathe strength to earn its rightful place among the leading economies of the world.

However, some analysts say that corruption in high places and reforms in land and forestry also merit immediate attention.

Failure to curb corruption has cost the country dearly. It has resulted in higher product costs and lower competitive advantage, says Muhammad Alfatih, a senior analyst at PT. Samuel Sekuritas in Jakarta.

If we consider that we have abundant natural resources, it is realistic to achieve the targets in the Masterplan, says Achsin U. Choliq, an environmentalist at PT. Petani Nusantara Mandiri.

But infrastructure, says Choliq, is in a mess. The country urgently needs more roads, ports, airports, and electricity, energy supplies. The bureaucracy also needs reform to overhaul the system, he adds.

However, international agencies like the Asian Development Bank (ADB) rates Indonesia highly, and in its latest report has put the country in the group of 11 economies that have demonstrated consistently high growth since 1990.

The other countries are China, India, Malaysia, Thailand, Vietnam, Cambodia, Armenia, Azerbaijan, Georgiaand Kazakhstan.

Of them, China, India, Indonesia, Japan, South Korea, Malaysia, and Thailandform a special group, which the report predicts, will play a pivotal role in Asias economic rise. In 2010, these economies had a combined population of 3.1 billion (78 percent of Asia) and a GDP of $14.2 trillion (87 percent of Asia).

By 2050 their share in population is expected to fall to 73 percent of Asia, while their combined GDP will make up 90 percent.

Moreover, the ADB also predicts that these economies alone will account for 45 percent of global GDP. Their average per capita income of $45,800 will be 25 percent higher than the global average of $36,600.

Analysts say high domestic consumption, which actually drives the countrys economic growth and attracts both foreign and domestic investors, will help Indonesiathrough times of financial crises.

Even without government action, our economic growth is more than 5 percent because of domestic consumption, says Alfatih of PT. Samuel Sekuritas.

But on a longer term, our structure needs to be corrected. Exports rely on the same old products coal, gas and palm oil. But with the strong Indonesian rupiah now, things get difficult for non-commodity exporters, he adds.

The other problems include inefficiencies and road fees that often account for 40 percent of total logistics costs, says an Asia Foundation report (The Cost of Moving Goods). As a result, the report notes, growth is slowed and competitiveness in sales of commodities like coffee, rubber, and cocoa suffers.

Alfatih says Indonesiais way behind in infrastructure building. International Monetary Fund (IMF) Senior Resident Representative in Indonesia Milan Zavadjil believes poor infrastructure remains one of the biggest impediments to the countrys growth potential.

Bad infrastructure (electricity, road, and port) is obstructing the flow of investments to this country, Zavadjil said in a recent statement and called for fast improvements.

If (the government) is able to develop the infrastructure and (attract) investments, especially in the manufacturing sector, the economic growth will be more than 7 percent, says Umar Juoro, a member of Bank Indonesias Supervisory Board.

What the Masterplan needs is commitment from all stakeholders, including business people and local governments, to build infrastructure, says Diah Lubis, a senior manager at Bank Indonesia, the countrys central bank.

Without good infrastructure (road, port, electricity, etc), it is impossible to achieve the targets. How would Molluccas and Papua corridors be formed if there is no infrastructure?

Other pressing problems facing Indonesiasuch as poverty, illiteracy, unemployment and widening wealth gap are also making headlines. Peoples anger is growing as prices of food and other essential items continue to soar.

It is said that the rising inflation (4.61 percent in July) has pushed millions of people below the poverty line.

Rises in food prices can pose a risk to progress on poverty reduction, even during periods of strong growth, the World Bank Report on Indonesia Economy noted earlier this year.

Though its unofficial, it is reported in the press frequently: there are about 100 million Indonesians scraping by on $2 a day or less more than triple the official count of the poor, The Economist wrote in its Aug 3 issue.

That figure is based on a simpler measure of purchasing power, unlike the official poverty line. And there are other figures that cant be overlooked: less than half of rural poor have access to clean water and only 55 percent of poor Indonesian children complete junior high school.

Zavadjil of the IMF calls for stronger social safety nets for the people. More effective measures are needed to improve education and healthcare to ensure improvements in human capital and generate more equitable growth, he says.

The current 6 percent economic growth, says Juoro of Bank Indonesia, has neither created many jobs nor done much to reduce poverty.

The government policy on poverty reduction is very weak. The healthcare services for poor people are getting worse. The local governments have very little role in such efforts, he says, also underscoring the need for better education and healthcare.

On the political front, Indonesiahas seen several elections (including two direct presidential polls and dozens of provincial and local elections). Although peoples participation in such exercises is wider compared with the Suharto era, a strong democracy and a civil society still elude the country.

The real threat to the unity of Indonesiacomes from secessionist groups operating in regions such as Aceh, Moluccas, East Timor(now an independent country, Timor Leste) and Papua.

The situation prevailing in Papua illustrates the neglect and suffering the people are going through. Papua is very rich in natural resources, but two of its provinces are among the poorest places in the country.

The Indonesian government loves Papuas natural resources but they dont love the people of Papua says Bustar Maitar, a campaigner of Greenpeace Southeast Asia.

President Yudhoyono has ruled out independence for Papua but at times appears open to some autonomy, writes Bruce Vaughn, a specialist in Asian Affairs of Congressional Research Service in his report titled Indonesia: Domestic Politics, Strategic Dynamics, and US Interests.

The other major threat comes from some Islamic radical groups, who seek to see Indonesiaas an Islamic state, and the establishment of an Islamic Caliphate in Southeast Asia.

Religious conflicts have become worse in recent years, not only between Muslims and Christians, but also among Muslims.

Not only do such conflicts undermine the countrys reputation as a resilient nation and a thriving and enduring democracy, but serve as an ominous portent as well.

Indonesiamust stay united as a country of diverse people and cultures if it wants to reach its goal to be a developed country by 2025.