AICCnewlogoltr
OutlookBanner
cameragirlsmall oilgassmall papayagirl borobudursmall

COMMENTARY ON US-INDONESIA COMMERCIAL DEVELOPMENTS FROM THE AMERICAN INDONESIAN CHAMBER OF COMMERCE

Top AICC Homepage

Wednesday, July 16, 2014

Where Are The Technocrats ?

I have been watching the rupiah flirt with 12,000, remembering 1998 time when it dropped from 2400 to 15,000, and the long period in 2010 and 2011 when it was steady at 8,800-9200. Its tough to see the currency move lower and growth rates in the 5% range when its generally known that Indonesia's population growth generates 2-3% growth automatically. I am also wistful for the time during the New Order when Indonesia's economic brain-trust (personified by the Berkeley Mafia of Widjojo, Ali Wardhana, Emil Salim, and Mohammad Sadli) would step in and handle every crisis with aplomb and a new economic deregulation package. Initially swayed by an import substitution development model they got from Japan, the technocrats convinced President Suharto to turn in the other direction, away from state-led growth, when oil prices fell precipitously in 1980. The 1980's deregulation led to massive amounts of foreign investment and 7-8% growth. I don't think the Berkeley Mafia would have been satisfied with today's 5% growth. Today, Indonesia continues to exemplify strong macro economic prudence but as I listen to the political candidates and their spokesmen and have watched the current government turn again to import substitution -dare I say protectionist- policies, I wonder: what happened to the technocrats ? 

Where are the voices that can tell Indonesia's leaders that banning exports of valuable foreign exchange earning minerals and restricting foreign investment is not a great idea when the base currency is devaluing, the price of imported oil is rising, the nation is running a chronic current account deficit, coal and palm oil exports face demand drops, oil production is falling, and the nation is still hooked on expensive energy subsidies. With logistics costs higher than any country in the region, why let badly needed power plants and toll roads flounder in a sea of overlapping regulations, jurisdictions and bureaucratic inefficiency. Is it really true that there is enough money in Indonesia to build the sorely needed infrastructure contained in the Master Plan for Accelerated Development ? Of course not; foreign investment will be key. But although the candidates pay lip service to the need for FDI you still have Presidential candidate Prabowo saying at a May rally:"Every year the wealth of Indonesia has been flowing out ...the wealth of Indonesians has been stolen, stolen, stolen from the people. . . All of us, all of the Indonesian people, do forced labor. We're the lackeys of other countries." and candidate Jokowi has said: "The authority should set up barriers to avert massive expansion of overseas business here . . . I believe Bank Indonesia has regulations that can act as barriers for foreign interests from easily coming into our country." Its true that some of this may just be campaign rhetoric and on other occasions the candidates have appeared supportive of foreign investment, but, consistent messages and policies are best when it comes to attracting and retaining investment. 

Since Indonesia does not have full food security, prices-already quite high because of unrealistic import bans designed to build local production- will only get higher the more Indonesia's current account deficit widens. With further restrictions proposed on cross border data transfers or mandates to locate data servers in the country, the new businesses that will be routed primarily through digital devices won't develop to their full potential, denying many possibilities for Indonesian entrepreneurs. Congenital worries that foreign companies are "stealing assets"or depriving Indonesians of opportunities need to be opposed by those in Indonesia who know better. The fact remains, foreign companies and banks are a relatively small part of Indonesia's economy. Indonesia's pathway to be a top ten economy is not assured. We live in a world that must be cooperative as much as it is competitive. The kinds of restrictions on foreign trade and investment that have been proposed by both campaigns are not helpful to the health and well being of most Indonesians. They won't bring the economy to the 7-8% growth that will employ people in full time wage earning jobs; millions of high school graduates will continue to eek out a living in the informal sector as day laborers, delivery workers, low skill service workers and part time employees. 

 I applaud the recent statement of Indonesia's Finance Minister, Chatib Basri, who sent an appropriate warning: "There's no way that this country can achieve 7 percent growth without being open to foreign investment, or you end up with a persistent current-account deficit...Policy would be constrained by this economic rationality." Basri is young, talented, and may stick around in the next Cabinet. I hope he has similar ideas about the uneconomical export taxes he has implemented on copper and gold concentrates. And I hope the new government and Parliament will be open to the voices of the technocrats in the government and elsewhere whose voices have been too muted. Or have they been swayed by nationalist, go-it-alone rhetoric that may already have fundamentally changed the equation for foreign investment and capital. I sincerely hope not. 

The above views do not necessarily reflect those of the American Indonesian Chamber of Commerce or its members.

Blog Archive

About Me

My photo

President of the American Indonesian Chamber of Commerce, a private not for profit membership organization based in NY.

These views do not necessarily represent those of the American Indonesian Chamber of Commerce or its members.

Top AICC Homepage