A mixed picture

Indonesia is the only Southeast Asian member of the G20. Indonesia’s President Susilo Bambang Yudoyono recently expressed the hope to help reform the world’s economic architecture and to play an active role in the G20 process. His statement reflected the G20’s “raison d’être”. Born as a response to the economic crises in the late 90s, and reinforced in the recent global crisis, the G20 is fundamentally about global cooperation.

With the biggest population in South East Asia, now numbered at a quarter billion people, Indonesia has always been seen as a regional power. Impressive growth rates in recent years have strengthened this perception. Moreover, as US-President Barack Obama pointed out when visiting Jakarta shortly before the G20 summit in Seoul, Indonesia has a reputation for tolerant multiculturalism. Hence it is imperative for Indonesia to not only sustain national development, but to contribute to global development.

Fast growth, enduring challenges

There seems to be no doubt of Indonesia’s rapid growth. Thee Kian Wie (2010) of LIPI, the Indonesian Institute of Sciences, praises the country’s dynamism and the shape of its banking sector. He maintains that, the “growth rate, driven by consumer spending, investment, and exports, has surpassed most predictions at 6.2 % during the second quarter of 2010”. Domestic consumption was said to be robust, investment figures were considered encouraging, with exports expanding.

Thee Kian Wie also mentioned the upgrade in Indonesia’s credit rating by several rating agencies. He lists an upgrade in investment grade from BB+ to BBB by the Japan Credit Rating Agency, the first in 13 years. Adding that foreign direct investment amounted to 3.7 billion dollars in the second quarter of 2010, flowing into sectors as diverse as transport, storage, communication, mining, electric power, gas and water supply. To maintain such growth, however, Indonesia must still attract more investments, the ­author points out.

Early on in the G20, Indonesia proposed the ­creation of the General Expenditure Support Fund (GESF), an emergency fund for allowing middle-­income economies to secure cost-effective financing for infrastructure and programmes to support MDG goals in times of crises. Liquidity drying up on the international money market became a major budgetary problem for many developing economies in the global financial crisis. A stop of investment flows into a country is felt long term and down at the grass-roots. To ­alleviate the hardships felt by people caused by ­diminishing production orders, governments need to fund broader safety nets for the people. To guarantee the effectiveness of the GESF, eligibility would be based on a country’s track record in financial reporting and financial management.

Indonesia also co-chaired the G20 working group on the reform of the multilateral development banks. Indonesia, moreover, co-chairs the working group on anti-corruption which is drafting a global action plan. Fighting bribery and kick-backs are high on the domestic agenda too (see interview with Peter Pedersen in D+C/E+Z 2010/12, p. 480 f). Indonesia has made a showcase of many anti-corruption breakthroughs during the current president’s first term. His second term, however, has been marred by several dead-end cases, highlighting octopus-like arms of deep-rooted corrupt practices.

Shifting power

Emerging-market nations like Brazil, India and China are natural allies for Indonesia in the G20. Before ­leaving for the Seoul Summit, President Yudhoyono told reporters: “Western countries’ economic domination will not last forever. There will be new poles, new powers that are called emerging nations or emerging economies.” To some extent, the summit proved him right. Hailed as a historic agreement by IMF Managing Director Dominique Strauss-Kahn, European governments agreed to give up two of their seats in the ­24-member IMF executive board to China and India. India and China will thus gain more voting power. Accordingly, they will have to assume more responsibility for the state of the global economy.

Having China and India in a position of responsibility is a relief for Indonesia, which to date is basically a supplier of natural resources. Indonesia’s currency, the Rupiah, is pegged to the dollar. Indonesian companies struggle with the competition from cheap imports from China. A stronger Yuan might help Indonesia to develop its non-natural resource sector for export markets.

In his article, Thee Kian Wie stated that Indonesia needs to develop manufacturing industries and create jobs for the ever growing working age population. The International Labour Office’s 2010 statistical update noted that Indonesia’s unemployment rate decreased from 8.5 % in February 2008 to 8.1 % in February 2009. These figures are somewhat misleading, however, since the ILO also pointed out that informal employment rose to 64.8 million workers. Furthermore, the number of casual employees in agriculture is said to have increased massively and the number of unpaid workers was updated by four percent to 18.6 million. Such ILO data undeniably prove that there is no real job wonder in Indonesia. Rather, many workers are experiencing tough times. There is a lot of frustration.

A 119-page study by Harvard University’s Kennedy School Indonesia Programme (2010) assessed Indonesian governmental statistics and pointed out that, to define poverty, Indonesia uses the lowest UN stand­ards. This is a minimum standard no other ASEAN country still relies on. Though Indonesia, the region’s giant, is moving ahead at the geopolitical level, it is thus still lagging behind in some ways at the regional one. It is equally true that Indonesia’s natural envir­onment deserves more attention.

This is not to say that Indonesia has not achieved anything. This country is certainly not stuck in stagnation. The point is that there is still a lot to be done. Whitewashing has never pushed a country towards prosperity.

A promising note in the ILO brief was that the ­Indonesian government is beginning to re-invest in vocational training, paying more attention to the needs in management and in labour-intensive ­sectors. For a populous island nation, investing in ­human resources obviously makes sense. It appears the Indonesian government understands it also has to rise to new challenges, and not merely on the international front.