I am nothing compared to brilliant economists out there, but I would like to share my perspectives as a young person who studies business, and of course, the economy. This is the paper I wrote for one of my finals in February 2010 (things have changed, yeah). Happy reading, friends! (More after the jump)
Chairul Tanjung, Anthony Salim, James Riady, along with other executives and senior government officials of Indonesia, clustered themselves into an organisation that has been planning for a project called “Visi Indonesia 2030” or “Indonesia’s 2030 Vision” (Davies, 2008). It endeavours to reach a goal of making Indonesia one of the globe’s five leading economies in two decades, as well as having 30 business firms in the Global Fortune 500 (Davies, 2008). The plan seems attainable by linking it to some pleasant facts about Indonesia. For example, a number of US analysts stated that the BRIC economies, which consist of Brazil, Russia, India, and China, must now include Indonesia (Ichsan, 2009). At the same time, a securities house has labeled Indonesia as one of the three Asia’s economic barricades, alongside with China and India (Ichsan, 2009). Indonesia is also included in the Next Eleven (N-11), 11 countries grouped by the Goldman Sachs according to its high potential in becoming the world’s most significant economies in this century (O’Neill et al., 2005).
Nevertheless, we still cannot ignore the fact that Indonesia was the country that suffered the most when Asia had to go through the regional financial crisis over a decade ago. In that period, the value of Rupiah was lessened by 35 percent in 24 hours. The exchange rate of US Dollars elated from around IDR 3,000 to 16,800 in 1998. According the World Bank’s data, the economy shriveled by 13% due to the fall of Suharto’s regime. Both the regional crisis and the political instability became the reasons why investors deserted the country. Hence, there are still plenty of things that ought to be done to realise the plan, other than the ambiguous “hard work and collaboration by all of Indonesia’s people”, which became Tanjung’s answer when he was asked on how to realise the ambitious “Visi Indonesia 2030”.
It is not exaggerated at all to say that Indonesia already has all of the potentials to emerge into a regional economic powerhouse, but at the same time, it still has millions of people living below the $1.50 poverty line everyday. Where did all the money go? What has all of the profit of selling extracted natural resources turned into? One of the most unfortunate facts of Indonesia is that it is notorious for the corruption, which exists in almost any foundation. Corruption has soaked into both Indonesia’s culture and system, which makes it more or less related to the weak bureaucracy system. So, in order to realise its goal on becoming Asia’s economic powerhouse in 2030, Indonesia should optimise its potentials by eradicating corruption and conducting bureaucracy reform.
As we all have known, Indonesia is rich in both natural and human resources. It also has more than 230 million people as citizens of the country, making it as one of the five most-populated countries in the world. In 2009, Indonesia’s stock exchange (IDX) index once ascended by 95 percent (Ichsan, 2009). The figure has turned it into the bourse that has performed best in Asia, yet also becomes the second-best in the world. By having these marvelous facts, Indonesia must have attracted foreign investors to start investing in the archipelago again, promising more and more profit with a relatively lower minimum wage for local labours than the ones other countries have.
In addition, it has a lot of factors that is going to promise bigger things for investors. Indonesia has gradually gained political stability, which is also one of the most important things to be considered by foreign investors, after it became a fully democratic country through having the general elections in 1999. The result of the last presidential elections, resulting in the re-election of President Susilo Bambang Yudhoyono, who is now teaming up with Boediono, has also played an important role in bringing former investors back to Indonesia and keeping the ones who are already here to stay.
In his past five-year term, President Yudhoyono has ingeniously created positive changes to support investors, including his anti-corruption programs as well as tax reforms. It can be interfered that investors believe these changes would continue to the next level, as he was being re-elected. Moreover, the fact that a former governor of Bank Indonesia became the vice president of Indonesia, also implicitly promises something good to business executives, because he is going to be coordinating the next economic lineup.
If we see a little further to the past five-year term of presidency, Indonesia has reached an undeniably good position in the global economy. Based on the third-quarter’s “2008 Monetary Policy Report of Indonesia”, while other countries are suffering due to the global financial crisis, Indonesia’s economy recorded a positive growth because domestic consumption is one of Indonesia’s main economic pillars, dominating the whole income by 60 percent. In 2008, Indonesia had a safe and sound balance sheet consists of $52 billion of assets, as well as having its government debt as much as only one-third of its GDP, making it the lowest compared to other countries in Southeast Asia (Wirjawan, 2008). It continued to the first semester in 2009, where Indonesia’s GDP growth was the third highest amongst the G-20 countries at the rate of 4.2 percent (Ichsan, 2009).
Sadly, only by living a normal life in Indonesia, we can all agree that Indonesia’s growth is not evenly balanced. While there are hundred thousands of people like Chairul Tanjung, Anthony Salim, and James Riady living in big cities, there are millions of people who still live below the poverty line in villages and remote areas, or even in the capital itself. This reality can probably the biggest barrier to achieve the “Indonesia’s 2030 Vision” plan.
Particularly, the endemic corruption and ineffectual system are two of the biggest problems that are going to be faced in realising the plan, which includes rising per capita income to $18,000. According to the World Bank’s data, Indonesia’s per capita income in 2008 was $2,254, which is still inevitably very far from the target. Analysts think that real growth will have to be 8.5 percent in average to actualise the plan. On the other hand, Fauzi Ichsan, an economist who now serves at the Standard Chartered Bank as its Senior Vice President, believes that Indonesia can probably be in the G-7 in 2045, 15 years later than the deadline of the plan, by only growing with the average annual rate seen in the past 10 years. We can positively say that the goal should be able to be reached in two decades if we can eradicate corruption and conduct bureaucracy reform.
In Indonesia, corruption used to be seen as a habit and part of a tradition, instead of a crime. In 32 years, ruled by the military regime of Suharto, corruption has become something that is very common to be done. In this country, gaining promotions, getting good grades, to releasing yourself from being captured by the police can all be done only by giving money. President Yudhoyono realised that corruption is the root of every economic and social welfare problem in Indonesia. For this reason, he has put anti-corruption drive on his top priorities since the beginning of his presidency.
A decade ago, the Law 31 on Anti-Corruption Acts was legalised, covering not only those who bribe public officials, but also people who benefit themselves or others resulting in loss of the economy of the state, with death penalty as its top punishment (Juwana, 2008). In 2003, the government established the Anti-Corruption Commission (KPK) that has showed great achievements in capturing a large number of white-collar crime villains. Eradicating corruption does not only mean to prove this country’s integrity nor to put the laws back on its foundation, but it also means to catalyse positive change to investment, business, and the economy in general. Stamping corruption out will benefit businesses by pressing down the high-cost economy in Indonesia.
For decades, it has been a common knowledge that in the country, we have to concede an amount of money to maintain relationships with other professionals or government officials. It also has to be done when we would like to obtain documents like business permits, construction permits, or even driving licenses. These facts are contrary to the theory that to create a conducive investment environment, a strong and credible legal system is very much needed. As indicated by the 2008 Corruption Perceptions Index released by Transparency International, Indonesia ranked on number 126. It is on a par with Eritrea, Ethiopia, Guyana, Honduras, Libya, Mozambique, and Uganda, making it as the 54th most corrupt country in the world. If by being as corrupt as that can make Indonesia one of the 20 world’s biggest economies, imagine what can be achieved if its people can eradicate corruption until its core. For these reasons, the government should empower KPK more, as it is now being juggled upside down by other institutions, including the media.
Eradicating corruption is closely related with reforming the bureaucracy system. As it has been stated above, a credible legal system is needed to build the economy through investments by both local and foreign investors. Based on an interview conducted by Reuters in 2007, former Vice President Jusuf Kalla said that the government aimed to provide “good regulation for investors” (Davies, 2008). It leaves a big question mark: what has been done by the government in order to realise the statement?
A good example has been set by the city of Sragen, where its mayor, Untung Wiyono, established an innovation called One Stop Service Center to reform bureaucracy. In Sragen, getting an ID only takes two minutes of our time, whilst it takes at least three days other cities. It only takes 15 days to get a construction permit and 7 days to get a working permit. The success of One Stop Service Center has raised investment by Rp634 million Rupiahs from 2002 to 2004, resulting in the creation of new 3,781 jobs for the society (Herdjoko, 2008). Other cities, or even the central government itself, should replicate the passion of Sragen in creating a new system of bureaucracy.
The knotty bureaucracy in Indonesia seems to be slowing down the economy in becoming the regional economic powerhouse. It takes months to get a working permit, an investment permit, and even businesspeople still need to get thousands of other permits. Despite all the promises that have been given by Indonesia to the world, its bureaucracy is still a nightmare for investors. Establishing One Stop Service Centers can be a solution. Although it is going to take weeks or months to get those required permits, at least investors only have to come to one place to take care of everything they need. It can as well gradually eliminate corruption, since having a One Stop Service needs less workers. It can be started by giving disciplinary sanctions to workers who work inefficiently, or even diminish them from the list of employees if the amount of employees exceeds the workload.
Fortunately, it has been done in a few government institutions. Just like Wiyono, the Minister of Finance Sri Mulyani knows that bureaucracy reform is one of the most important things that have to be done in order to put Indonesia’s economy on a better position. Investigation within the Ministry of Finance conducted by the end of last year brought sanctions to more than 1,950 employees and dishonourably discharged more than 150 employees (Pasandaran, 2009).
As have been stated by both local and foreign economists, Indonesia is an emerging economic powerhouse that has whatever it takes to become bigger as time goes by. This country has already been included as one of the world’s 20 leading economies, and it is very likely to rank higher in the upcoming years with all of its potentials. However, the “Indonesia’s 2030 Vision” and its other ambitious goals would never be achieved if the powerless legal system is not being exterminated. In order to develop into Asia’s economic powerhouse in two decades, Indonesia needs to eliminate corruption and restructure the bureaucracy scheme. If Indonesia can be included in the G-20, BRIICS, and N-11 in only one decade after being labeled as “the sick man of Asia”, we can all be pretty optimistic about its future if it struggles for more and more development and growth.
- Country Brief of Indonesia. (2009). Retrieved February 3, 2010 from http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/INDONESIAEXTN.
- Di Sragen buat KTP selesai dua menit. (2006, May 10). Gatra. Retrieved January 31, 2010 from http://www.gatra.com/2006-05-10/artikel.php?id=94381.
- Directorate of Economic Research and Monetary Policy. (2008). Monetary Policy Report Quarter III-2008. Jakarta, Bank Indonesia: Author. Retrieved February 3, 2010 from http://www.bi.go.id/web/en/Publikasi/Kebijakan+Moneter/Laporan+Kebijakan+Moneter/.
- Herdjoko, S. U. (2008, January 7). Bupati Sragen Untung Wiyono: Bila cerai didenda tanam 25 pohon. Sinar Harapan. Retrieved January 31, 2010 from http://www.sinarharapan.co.id/berita/0801/07/hib07.html.
- Ichsan, F. (2009, September 11). Indonesia: Asia’s emerging powerhouse. The Jakarta Post. Retrieved January 11, 2010 from http://www.thejakartapost.com/news/2009/09/11/indonesia-asia039s-emerging-powerhouse.
- Juwana, H. (2008). Fighting corruption for the good of business. Globe Asia, 2(12). 124.
- O’Neill, J., Wilson, D., Purushothaman, R., & Stupnytska, A. (2005). How solid are the BRICs. Global Economics Paper, 1(134). 7.
- Pasandaran, C. (2009, November 21). Sri Mulyani aims for overhaul of Indonesia’s bureaucracy. Jakarta Globe. Retrieved January 31, 2010 from http://thejakartaglobe.com/home/sri-mulyani-aims-for-overhaul-of-indonesias-bureaucracy/342938.
- Wirjawan, G. (2008). Surviving the credit tsunami. Globe Asia, 2(12). 20-22.
Attached is the data and analysis I presented in the Global Changemakers at the London Summit 2009 in April 2009, where youth representatives from G-20 countries met and discussed possible recommendations for the G-2o communique. We produced our own communique and handed it to David Milliband, who back then was the Secretary of State for Foreign & Commonwealth Affairs, before the real communique was produced.