tag:blogger.com,1999:blog-29400996643067929002024-03-12T23:19:46.299-04:00AICC BlogCommentary on US-Indonesia developments.Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.comBlogger77125tag:blogger.com,1999:blog-2940099664306792900.post-76124920280983197932016-07-15T14:10:00.000-04:002016-07-15T14:22:13.171-04:00A Strong Appointment<div style="font-family: Verdana; line-height: normal; margin-left: 4.5px;">
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjbkinYWstaz3TnrbHAx8fHUl-VLSbctmb5-UTyU71NvfzFXHTNim_dJlAOhLZvFOGUWocySwoWS6pzgkO6VTgKgfIV-D3eQhWVUvaLxamnMxyVATJxU4_lhWKzkvLquDKx0av6gUcyB50c/s1600/tito.jpg" imageanchor="1" style="clear: right; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjbkinYWstaz3TnrbHAx8fHUl-VLSbctmb5-UTyU71NvfzFXHTNim_dJlAOhLZvFOGUWocySwoWS6pzgkO6VTgKgfIV-D3eQhWVUvaLxamnMxyVATJxU4_lhWKzkvLquDKx0av6gUcyB50c/s400/tito.jpg" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b>Tito Karnavian</b></td></tr>
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The prospect for deep reforms in Indonesia has always depended on how independent the outsider President Jokowi could be from the country’s sclerotic political party system. His supporters –who detect a masterly Javanese subtlety– have been waiting for a consolidation of his power after which they expect him to deliver on his campaign promises to eliminate graft and patronage. They may have been rewarded this week with the nomination of <b>General Tito Karnavian </b>as National Police Chief. Known for his accomplishments as head of Indonesia’s counter-terrorism agency, Karniawan has been an outspoken proponent of internal reforms and accountability.</div>
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“The President’s considerations in choosing Tito Karnavian is to increase the police force’s professionalism to safeguard the public, improve law enforcement, especially regarding extraordinary crimes such as terrorism, drugs and corruption as well as to increase synergy with other law enforcement agencies.” (Jokowi’s spokeperson)</div>
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Capturing the assignment was not easy as it has been well known that the former President Megawati, chairwoman of PDIP (the political party that first supported Jokowi back when he first ran for local office as a mayor) supported her former adjutant, Budi Gunawan, the current Vice Chief of Police. Furthermore, Kurniawan was not even on the list of candidates submitted by the National Police Commission headed by Coordinating Minister (Politics, Security, Law) Luhut Pandjaitan, a close confidant of the President. Given the many cases against US businesses where the police have either looked the other way, or been accused of shakedowns, the appointment bodes well for a strengthened rule of law.</div>
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Karniawan may remind one of US General David Petraeus, also a battlefield veteran with a PhD. After graduating at the top of his academy class in 1987, Karnavian earned masters degrees in UK and a PhD from Singapore’s Rajaratnam School. Only 51, he made a name for himself early in his career when he apprehended a fugitive Tommy Suharto (son of the former President) accused of murder in 2001. In 2004 he joined (and eventually commanded) the newly created “Densus 88”, a special counter terrorism force that arrested or eliminated hundreds of terrorists such as Noordin Top (thought to be the bomb maker for 2009 Ritz Carlton and JW Marriott attacks). More recently he exposed high-level corruption at the Trade Ministry involving the clearing of goods.</div>
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In October 2015, Karnavian gave a major address at an officers school and was paraphrased as saying that police are guilty of “hedonism, consumerism, the enjoyment of glamour and the showing-off of houses and vehicles.” He denounced the prevalence of “unauthorized levies and brokers” in police procedures, and he said there is a need to “impose accountability – because at present the police do not have it.” He said that the main targets for “cleansing and disciplinary operations” should be regional commanders, Criminal Research personnel, traffic police, human resource administrators and logistics managers.”</div>
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If, as analysts speculate, Karnavian can bring a new approach to his position, there should be a drop in practices such as one that often affects foreign companies where the police create spurious criminal charges (as was case in the Chevron bioremediation case) either directly or at the request of a third party and offer to drop them for money. Having passed over more senior officers, he may run into opposition. But, he wants to make major changes to recruitment and training, and because of his age, he may have the time needed to do it.</div>
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Perhaps because of his strong anti-terrorism credentials there has been little opposition in Parliament. Civil society groups such as the Legal Aid Institute have been more vocal in pointing out alleged abuses in Papua and Jakarta when he was a local commander. Regardless, he should get approved. </div>
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The significance of the appointment lies in the President’s defiance of his own party (PDI-P) and perhaps his close aide and backer Luhut Pandjaitan, who once told me “the President has his own mind sometimes”. Together with Golkar’s return to the ruling coalition (reported last month) it signals that Jokowi will be governing more from the instinct for reform that has characterized his leadership since his days as Solo’s mayor. With that as a starting point, prospects for greater legal certainty can only go up.</div>
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Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-85471375782706054692016-06-03T14:33:00.000-04:002016-06-03T14:33:29.633-04:00Golkar ReturnsFor those familiar with Indonesian politics Golkar is the party
synonymous with Indonesia’s economic development. More than a just a
political party, Golkar was an amalgamation of various “functional
groups” (military, government bureaucrats, farmer’s organizations, etc.)
that implemented the New Order government’s economic agenda. Golkar was
engineered to be a partner of the government and held a virtual 2/3’s
majority in Parliament for 35 years. In the reform era that followed
President Suharto’s momentous 1998 resignation Golkar has not held the
same sway within the government. Its share of seats in Parliament have
fallen below 20%, although it remains the second largest party. Most of
its members, but not necessarily its leadership, still want to be
partners with the government; its in the party’s DNA. So when chairman
Aburizal Bakrie unilaterally backed Prabowo Subianto’s losing coalition
in 2014 and declared the party to be in the opposition part of Golkar
rebelled. Since then infighting has rendered Golkar ineffective and
currently few Ministerial posts are held by Golkar members. But through a
process of internal reconciliation Golkar has been revived and now
wants back into the government. If Golkar’s (and Bakrie’s) intentions
are purely benign--meaning it will support President Jokowi’s reform
plan--this could be a boon for Indonesia. However, that may not be the
case.<br />
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On May 16 Golkar held an extraordinary Congress that brought
together the rival camps and elected Setya Novanto Chairman. Novanto
was recently forced to resign as Speaker of Parliament over secret
recordings that implicate him in an alleged shakedown of Freeport
Indonesia. (Prosecutors are still investigating the case) His successor
Ade Komarrudin ran a close second. Golkar also resurrected its
influential Guidance Board (abandoned after 1998) and elected Bakrie its
chairman. Agung Laksono, a proponent of new leadership and reform who
was Bakrie’s chief rival within Golkar, is not challenging this move.
Other key Golkar posts went to Bakrie supporters who were clearly the
big winners. The Indonesian press reported that Novanto was backed by
Luhut Pandjaitan, a Golkar member who was an early backer of Jokowi and
is currently Coordinating Minister for Politics and Security. On the
other hand Vice President Jusuf Kalla, also a Golkar member, backed
Komaruddin.<br />
A week after the Congress Novanto announced that
Golkar had rescinded its 2014 declaration of support for Prabowo’s
opposition coalition. Novanto said: “Golkar will work with the
government. We will support the programs of the government.” Bakrie
said, “Our expertise is in handling authority – not in mounting
resistance to authority.” On May 24th 6 Golkar leaders including Novanto
and Bakrie met President Jokowi. Although they professed not to be
seeking any ministerial posts the timing was not lost on most observers
who have been hearing rumors of a Cabinet reshuffle for several weeks.<br />
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It
may be too early to speculate on what all of this means but several
possible outcomes seem reasonable. Golkar, having observed that
President Jokowi has distanced himself from his patron Megawati, (head
of the PDI-P, still the most popular party) may be positioning itself to
take him in or at least nominate him for reelection in 2019. (One mid
level Golkar official actually said as much.) At a minimum Golkar would
expect to receive one or more ministerial posts. It may also have
bargained for some protection from one or more of the investigations
currently under way of several of its high profile members (including
Bakrie and Novanto).<br />
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On paper President Jokowi now has over 60% of
the seats of Parliament in his coalition which should help his
legislative agenda such as the long-awaited tax amnesty bill. He has
artfully watched his rivals bicker among themselves, saying little,
meanwhile pursuing his agenda. There seems to be a steely strength
behind his actions over the first 18 months of his administration.
Golkar may be patting itself on the back for what it may think is its
improved position but the President may see a wolf in sheep’s clothing.
It remains to be seen how much of Jokowi’s reform program Golkar will
embrace.Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-38383157523808033672016-05-17T13:31:00.002-04:002016-05-17T13:32:08.175-04:00Nurhadi and the Rule of the Law<div style="font-family: Verdana; line-height: normal; margin-left: 4.5px;">
Just as the Masela Block decision (main topic of last month’s commentary that described a sudden reversal of a decision to build an LNG facility on rather than offshore) spoke volumes to investors about stark divisions within the government over energy policy, the recent revelation by the Corruption Eradication Commission (KPK) of graft within the Supreme Court apparatus will reverberate just as loudly as knowledge spreads outside Indonesia. On April 21 the KPK raided the home of the Supreme Court’s secretary Nurhadi and confiscated $130,000 in several bags. The raid was linked to an ongoing investigation of the Supreme Court bailiff as well as the arrest of a lower court secretary, Edy Nasution, accused of taking a bribe in a case involving a major company. The cash trail led directly from Nasution to Nurhadi. Indonesia’s leading news magazine Tempo reported that according to a former Supreme Court judge Nurhadi ”has the power to intervene with the work of court officials up to the level of judges of the Supreme Court. Nurhadi can push through requests for appeals or case reviews that do not actually meet actual requirements.” In what has often been the pattern Nurhadi, a mid level official, was found to own multiple cars and houses way beyond his means. </div>
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Senior Indonesian officials have been quiet so far perhaps because they are waiting for formal charges to be filed. The existence of a court mafia is widely known and local attorneys defending foreign companies and individuals privately confess that they are at a distinct advantage if their adversary brings spurious appeals when they lose. We have seen teachers incarcerated in cases without evidence (JIS) , employees jailed as a result of charges that are civil (Chevron), local debtors avoid paying their foreign creditors by filing capricious counter suits among other tactics. In all of these cases appeals should never been placed on the court’s docket and now we have even more evidence of why: the legal system -- up to and including the highest courts-- can be bought. The Nurhadi case ends the suspicion.</div>
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On a recent visit to Indonesia an attorney who often represents foreign companies told me that he is seeing a marked increase in cases in which the police are threatening to bring companies to court if money is not paid. Furthermore complaints to the police are not rejected for lack of evidence. Its all about “funds”. How widespread this extortion is not really known, but it is a troubling development parallel to the corrupting influence of money in the court system. </div>
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A strong economy, stable government, and a basic attitude towards reform can sweep plenty of dirt under the rug. But slowing growth (see page 2) and a weakened currency make Indonesia’s dysfunctional legal system stand out more starkly as a barrier to the many open economic policies the current government advocates, especially surrounding foreign investment. Since September of 2015 12 economic restructuring packages have been released, but not one has involved legal reform. The Jokowi government --given the platform on which it was elected in 2014-- should take a serious stand on legal and judicial reform and would do well to undertand its intrinsic importance to the nation’s economic future. Without it the $billions in offshore funds being lured by the new tax amnesty policy will stay there, needed as collateral for loans that lenders demand can only take place in countries with an adequate rule of law. Policy arrows shot at the 7% growth target, dependent more on foreign investment than exports or consumption, will fall short. </div>
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It may be that the current administration is waiting for its second term to initiate judicial reforms, but the Nurhadi revelations change the equation. Something needs to be done now and the KPK should not be the only institution rooting out the graft. A major overhaul of the system of judicial and prosecutor appointments, as well as stronger oversight of the work of court employees would be a good start. </div>
Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-43463687621783785522016-02-10T13:43:00.000-05:002016-02-10T13:43:07.617-05:00DUANE GINGERICH'S PIVOT: IN MEMORIAM (1942-2016) <!--[if !mso]>
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<span style="color: black; font-family: "Calibri",sans-serif; font-size: 11.0pt; mso-fareast-font-family: "Times New Roman";">As President Obama prepares to receive most of Southeast Asia's
heads of state at the US-ASEAN Summit February 15-16 in Rancho Mirage I am
thinking of a recently fallen friend of AICC, Duane Gingerich, who passed away
last Friday. President Obama had it right several years ago when he coined the
"pivot to Asia" policy, but Duane had already made his own
"pivot "over 40 years ago. Born in a rural region of southeast Iowa
known for its one room schoolhouses and annual youth basketball tournament,
Gingerich made his way to a similarly rural region of Indonesia (also featuring
one room schools) in the late 1960's, through a Mennonite mission. The
hardscrabble lives of the people of East Nusa Tenggara left a deep impression
on him. He once remarked to me: "I had to figure out a useful
way to return".</span></div>
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<span style="color: black; font-family: "Calibri",sans-serif; font-size: 11.0pt; mso-fareast-font-family: "Times New Roman";">Upon completing his service mission Duane chose law school as his
return ticket to the people and nation who captured his heart, eventually
helping to build Baker & McKenzie's affiliate office, Hadiputranto &
Hadinoto, into one of Indonesia's top law firms. </span></div>
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<span style="color: black; font-family: "Calibri",sans-serif; font-size: 11.0pt; mso-fareast-font-family: "Times New Roman";">Duane and Reti outside their "Semar House"</span></div>
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<span style="color: black; font-family: "Calibri",sans-serif; font-size: 11.0pt; mso-fareast-font-family: "Times New Roman";">I got to know Duane and his wife Reti towards the
end of his 30-year career in Indonesia. In 2010 they flew from
Jakarta to Yogyakarta to meet me at the airport and welcome me into their
second home in Klaten district. Called "Rumah Semar" (Semar's House)
the house sat a few feet from the rice paddies Duane loved and was filled with
instruments and art. After explaining his love of wayang kulit (shadow theater)
and the wise but vulgar clown servant Semar, we toured several community
projects Duane and Reti had personally supported. The following day he and Reti
departed for Jakarta and I was the sole occupant of a house with a cook and a
driver. By day I would ride in his jeep to visit AICC members in the region and
return home to a satisfying meal. I visited friends in nearby Solo who took me
to meet its dynamic mayor, Joko Widodo, now President. One evening I woke to
the thunderous sound of Mount Merapi's eruption. With six-inch daily ash rains
there was no way to fly to Jakarta where I was scheduled to attend a state
dinner in honor of President Obama's first visit. I called Duane and he simply
said "tidak apa apa" (no worries). Soon I was traveling with his
driver on a 14-hour overland journey to Semarang on Java's north coast and west
to Jakarta. Because of Duane I made the dinner.</span>
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<span style="color: black; font-family: "Calibri",sans-serif; font-size: 11.0pt; mso-fareast-font-family: "Times New Roman";">Although Duane spent his working life overseeing the preparation
of countless contracts, incorporations, closing documents, and other legal
issues, he never lost his sense of adventure that had first brought him from an
American farm to Indonesia or his pride in his birthplace. During my 2014 visit
he was reviewing catalogs to decide which John Deere tractor he was going to
buy for his Goshen, Indiana home. He wasn't going to necessarily use it in a
field, it was going to be enough for him to ride on it. My right
arm, AICC's Program Coordinator Mini Meraxa, went to school in Jakarta with
Reti. She and Duane advised and celebrated Mini and her husband when their
reverse dream to live in the US came true. Reti, the big city girl and Duane,
the small town country boy were an ideal couple. On trips to the US, it was
Reti that headed to NY; Indiana (and the John Deere) was for Duane.</span></div>
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<span style="color: black; font-family: "Calibri",sans-serif; font-size: 11.0pt; mso-fareast-font-family: "Times New Roman";">Since announcing the "pivot to Asia" President Obama,
partially raised in Indonesia, has rarely had time to focus the nation's
attention on the importance of southeast Asia to its future. ISIS and terrorism
overwhelms the narrative, including his last State of the Union speech. As
Curtis Chin, a former ambassador to the ADB commented in a recent Jakarta
Globe op-ed: "Americans could well have benefited from Obama's taking a
moment to underscore how strengthened trade and security relations with the
dynamic economies of Southeast Asia will help the United States meet economic
and security challenges: a pivot to Southeast Asia." Let's hope that this
month President Obama, White House staff and press corps maximize the
importance of the region to America's future and if they do, somewhere Duane
Gingerich will know that his pivot helped pave the way. He was one of our best
native sons.</span></div>
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Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-16413633414713558532015-11-16T12:58:00.002-05:002015-11-16T12:58:32.646-05:00President Jokowi in DC<span style="background-color: white; font-family: Calibri, Helvetica, Arial, sans-serif; font-size: 16px; line-height: normal;">President Jokowi's visit to the US October 26 and 27, although shortened by the forest fire issue, included a longer than expected bilateral with President Obama, progress on security relations, a substantive unexpected announcement by President Jokowi on TPP ("Indonesia intends to join"), successful sessions with potential and current investors, and roll backs of unnecessary rules for foreign workers as well as possible changes to the negative investment list. Although the ongoing issues of criminalization and incarceration of employees for civil infractions as well as nettlesome energy and mining contract extensions may have been discussed, no follow on announcements were made. The comments of ministers who joined the visit were full of reform rhetoric and combined with the TPP statement one might conclude that Indonesia is moving towards a RBE (rules-based economy). The President did discuss foreign affairs and the economy at Brookings but turned to his ministers repeatedly to answer nettlesome questions. This young President has the strengt</span><br />
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h to delegate but he could send no stronger signal than resolving the case of the Chevron employees that remain incarcerated after courts have decided in their favor as well as making the necessary regulatory changes so international energy and mining companies can safely extend their contracts in a timely fashion facilitating $20-30 billion of potential investments. Such moves would resonate well beyond the extractive sector. But kudos must be given to the overall strong signals the visit generated. I had met Jokowi when he was mayor of Surakarta but he did remember me and our visit to his furniture factory.Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-68128078027709154792015-10-06T11:35:00.004-04:002015-10-06T11:36:34.094-04:00New Deregulation Package<div style="font-family: Times-New-Roman; font-size: 16px; line-height: 20px; margin-top: 0px;">
<span style="font-family: Calibri;">Indonesia has released the second of three deregulation/stimulus packages designed to boost a flagging economy and strengthen the exchange rate. The first (released September 10) was primarily an exercise in reducing red tape and regulatory confusion in the trade arena and did not garner a lot of attention and praise, perhaps because its hard to immediately see benefits when you are looking in the regulatory weeds. <span style="font-size: 12pt;">Darmin Nasution, the Coordinating Economic Affairs Minister admitted, "We issued too many deregulations in the first package and it made us seem to lose focus. Our explanation turned into numbers and people did not get the substance". </span></span></div>
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<span style="font-family: Calibri;">However, the package announced Wednesday is more focused and could perk up the ears of investors who --as a whole-- have been moving assets out of Indonesia's capital markets. "We are making (investing in Indonesia) as attractive as possible," said Chief Economics Minister Darmin Nasution, announcing the latest measures along with several other ministers. "We must fix, simplify, make it cheaper." </span></div>
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<span style="font-family: Calibri;">Here is what you should know about "Installment 2":</span></div>
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<li><span style="color: #202020; font-family: Calibri;"><b>Permit processing times slashed</b></span><span style="color: #202020; font-family: Calibri;">- New measures announced Tuesday included slashing the time taken to process investment permits from at least 8 days to just 3 hours, with processing for permits in mining and geothermal projects in forested areas to be cut from up to 4 years to about 15 days. The 3-hour time frame, however, is for investments over $6.8 million located in designated industrial parks employing over 1,000 people. Although when announced the facility was to be available immediately, officials have backtracked and say it will be launched in mid-October. </span><span style="color: #202020; font-family: Calibri;">The number of permits needed for mining exploration and for establishing a business in an industrial economic zone have been cut.</span><span style="color: #202020; font-family: Calibri;"> </span></li>
<li><span style="color: #202020; font-family: Calibri;"><b>Tax Reductions</b></span><span style="color: #202020; font-family: Calibri;">- Exporters who deposit foreign exchange revenue in Indonesia or convert it to rupiah will have withholding taxes from the current rate of 20% to 0% depending on maturity. The interest earnings of a one-month dollar-denominated deposit account would now incur a 10 percent income tax; six-month deposits would incur 2.5 percent and for deposit accounts over six months there would be no income tax. </span><span style="color: #202020; font-family: Calibri;">The government will remove value-added taxes for ships, planes and trains made in Indonesia</span><span style="color: #1a1a1a; font-family: Calibri; font-size: 16pt;">. </span><span style="color: #202020; font-family: Calibri;">The VAT is also removed for imported aircraft and spare parts. </span></li>
<li><span style="color: #202020; font-family: Calibri;"><b>Certificates of Deposit</b></span><span style="color: #202020; font-family: Calibri;">- Indonesia's central bank, Bank Indonesia, will reissue three month certificates of deposit and two week repo agreements. </span><span style="color: #3f3f3f; font-family: Calibri, Helvetica, Arial, sans-serif; font-size: 12pt;"> </span><span style="color: #202020; font-family: Calibri, Helvetica, Arial, sans-serif; font-size: 12pt;">"We want to drive [liquidity] from short-term instruments towards longer-term instruments because we're afraid excessive [liquidity] in short-term will create speculation. So we reopen these instruments," said Mirza Adityaswara, BI's senior deputy governor.</span></li>
<li><span style="color: #202020; font-family: Calibri;"><b>Intervention-</b></span><span style="color: #202020; font-family: Calibri;"> Bank Indonesia signaled it will intervene in forward markets for rupiah where it is currently valued above 16,000 to the dollar. The rate as of September 30 was 14,717.</span></li>
<li><span style="color: #202020; font-family: Calibri;"><b>Import bans</b></span><span style="color: #202020; font-family: Calibri;"> on cloves and tires were eliminated. The new trade minister, Thomas Lembong, said "The regulation on tire imports was wrongly targeted as it was aimed at protecting the local wheel industry, while our local tire industry is already world-class as Indonesia is a net exporter.</span></li>
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<span style="font-family: Calibri;">We will need to see the implementing regulations before a final judgement can be rendered on these policies. But they are a welcome sign of the Jokowi's government intention to make reforms and other changes. </span><span style="font-family: Calibri; font-size: 12pt;">It will be interesting to see what will be covered in the next package. There are rumors that Indonesia may bring down corporate tax rates from the current 25% to a level more in line with its ASEAN neighbors or lower. Also, the government may alter the Negative Investment List to allow for more foreign equity. However, other, more wide-reaching reforms to open the economy, change restrictive labor laws, or back away from the mandated value-added (local content requirements) nature of many laws and policies are not yet being talked about. In the end, these deregulation packages may end up being characterized as more minor than major, and Indonesia needs to be performing in the major key. But combined with an earnest approach to building infrastructure-- and getting the allocated budget into the system--the packages should push growth back towards 5% or above.</span></div>
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Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-79244598083949793812015-08-12T15:38:00.001-04:002015-08-12T15:38:54.620-04:00The Meaning of BanggaiAugust 7, 2015<br />
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<span lang="EN">President Jokowi traveled to the Banggai Regency in central Sulawesi this week to inaugurate the $5.8 billion "Pertamina Mega Integrated Project", which is planned to match the upstream production of natural gas with downstream users. The visit follows other forays of the President around the country to jump start other infrastructure projects including: parts of the Trans-Java - a 1,000 kilometer proposed toll road across Java from Merak in Banten, West Java, to Banyuwangi in East Java; the Trans-Sumatran Highway, a 2,508 km north-south road in Sumatra, from Banda Aceh to Bandar Lampung; new power plants that are part the 35,000 gigawatts expected within the next five years; and a 433-km Holtekamp Bridge in Papua. </span><span lang="EN"></span><br />
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At Banggai, the President cautioned: "It must be integrated not only on paper but also in its real implementation in the field. This must be truly integrated, incorporating upstream and downstream industrial sectors and connecting gas producers and users. This must be implemented in the petrochemical and LNG business sectors and power plants," said Jokowi.</div>
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The huge project symbolizes the dreams of Indonesia's policymakers: for every raw material, there must be integrated downstream uses in the country. One hears the term "integrated" often in discussions and I suppose its natural. We like to think that everything is connected to everything else. When I lived in Indonesia in the 1970's I was always surprised by the natural way many of my Indonesian friends integrated the micro and macro aspects of life. An accident on a road could be instantly connected to a cosmic pattern that had been detected. Integration is harmony, steady-state, stable, values that resonate strongly in Indonesia rather than the dynamic, inherent conflicts of markets.</div>
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The meaning of Banggai is not just harmonius upstream and downstream integration, its also about self sufficiency and independence. The gas can be turned into LNG for power as well as ammonia for fertilizer and other uses, lowering the need to import. But in an increasingly interdependent world is this type of integration planning sufficient ? Could it not turn into an ideological imperative, locking Indonesia into policies that isolate rather than integrate it with the region and beyond ?</div>
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I think we are at a critical juncture in Jokowi's Presidency. If infrastructure of the kind that lowers logistics costs and helps supply chain integration cannot be accelerated we will only see more nationalist and protectionist policies, further isolating Indonesia's economy, especially given the weaknesses in the rupiah. We rarely hear the voices of Indonesian economists who know their way around international economics, even though some remain in the government. This week two Indonesian economists based in Australia--Arianto A. Patunru and Sjamsu Rahardja-- released an important report via the Lowey Institute, "Trade Protectionism in Indonesia". They observed that in past times bad economic circumstances led to good economic policies but today we are seeing "bad times leading to bad policies". Whether their cautionary voices and those of us outside Indonesia who are her closest friends, alarmed by the protectionist trend, will be heard remains to be seen. Indonesia's needs more "Banggais" and more industrial integration but not at the expense of regional and global intergration. Indonesia's future is not just supply chain connections within its borders but outside them as well. The former will not happen without the latter.</div>
Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-43984873813267814312015-08-12T15:34:00.000-04:002015-08-12T15:35:36.686-04:00Idul Fitri Reshuffle<span style="font-family: Verdana, sans-serif; font-size: x-small;">June 30, 2105</span><br />
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<span style="font-family: Calibri, Helvetica, Arial, sans-serif; font-size: 12pt;">The serious Cabinet reshuffle rumors began in June: in Indonesia, they are part of the air one breaths. An underwhelming economic performance would prompt President Jokowi to reshuffle his Cabinet after Lebaran (end of the Muslim fasting month on July 18), especially his economic team. The economy is, given Indonesia's potential, standing still, even though GDP growth hovers at close to 5%. Very little of the dividend from the elimination of energy subsidies has found its way into infrastructure projects, even though the government now has more authority to settle nettlesome land issues. The question is whether the implementation problems are due to incompetent management at the top of ministries-hence the need for a Cabinet change-or something more structural. I am persuaded by the latter. Changing the Cabinet will not necessarily quicken the pace unless the President is persuaded to use more of the power that is vested in his office to bring a greater policy coherence throughout the government and the regions. The import and export ban and value added thesis along with a rupiah-only currency policy are overcompensations for a bureaucracy that has difficulty efficiently delivering the services it was created to deliver. One of the co-chairman of PECC (Pacific Economic Cooperation Council), Jusuf Wanandi, (who since the 1960's has been an influential thought leader) recently said some very important things at a regional economic conference worth repeating here:</span><span style="background-color: white;"></span><br />
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<em><span style="font-family: Calibri, Helvetica, Arial, sans-serif; font-size: 12pt;"><i>"There has been widespread disappointment with the Jokowi government, with economic growth falling to 4.7 percent in the first quarter, a lack of policy coherence keeping investors on the sidelines and bureaucratic inertia causing repeated delays to budget implementation. Investors have been waiting for the right signal to enter Indonesia, but the President should not convey mixed signals. He should do away with the inordinate nationalistic sentiment of the Indonesian Democratic Party of Struggle (PDIP)".</i></span></em></div>
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You will read further in this issue of Outlook/Indonesia that the President intends to move quickly in the second half of the year to start spending. You can see moves in this direction by observing the statements of the state-owned construction companies who have announced toll road projects they have won as well as the progress in negotiations over a high speed rail project between Jakarta and Bandung. The stimulus achieved by getting projects underway will certainly help move Indonesia's growth forward as most of it has been from consumption which has been slacking off. But the continuance of populist and protectionist policies <span style="font-size: 12pt;">(Indonesia just boosted tariffs on a range of food and consumer items),</span> some designed to expand the role of the state in the economy, will likely yield mixed results or worse.</div>
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President Jokowi, unlike his fellow political mavericks such as the Governor of Jakarta and the Mayor of Bandung, has chosen to stick by the political party that chose him, PDI-P, a party that remains wedded to a 1950's ideology of state interventionism and a patronage culture (return of favors ) that has been largely eschewed by Indonesia's people. Cabinet changes could make a difference but only if accompanied by more open and transparent economic policies unfettered by the impulse to reward political parties and their benefactors. At least there has been the beneficial influence of the watchdog KPK (anti-corruption commission), press, and NGOs. However, their necessary vigilance has a side effect of paralyzing project implementation by fearful bureaucrats. Let's hope that with or without a Cabinet shuffle the President and his team can reduce the transactional politics that underlies too much of the government's decision-making and get the bureaucracy moving more swiftly. Only then will Indonesia get close to the 6% or higher growth that it is highly capable of achieving.</div>
Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-22372776289103750472015-05-06T11:20:00.001-04:002015-05-06T11:20:48.083-04:00Soekarno's Echo<div style="font-family: Calibri, Helvetica, Arial, sans-serif; font-size: 12pt; margin-left: 4.5px;">
Indonesia's first President became so frustrated with the "West" that he famously declared " go to hell with your aid". A combination of the Cold War and misjudgments of Soekarno's complex ideology (mixing capitalism and socialism) led the US and other countries down several dead ends that almost capsized relations completely. The late 1950's and early 60's were tough for Indonesia's relations with the US: late to implement economic development aid the US lost critical influence. The US State Department was also obsessed with keeping Indonesia out of the orbit of the Soviet Union and China. Soekarno continuously fought against Western imperialism as well as aid with "strings attached". I heard an echo of Soekarno's rhetoric at two recent events (and their aftermath) that occurred in Indonesia almost simultaneously: The World Economic Forum- East Asia (WEF) and the 60th Anniversary of the Asian African Conference Commemoration (AACC) in Bandung. In his opening address before the AACC President Jokowi said: "Views stating the world's economy can only be resolved by the World Bank, IMF and ADB are outdated and need to be thrown away. . .When the rich nations, which comprise a mere 20 percent of world's population, consume 70 percent of world resources, then global injustice becomes real." These and other similar remarks led to headlines in Jakarta papers such as "West-led Order Obsolete- Jokowi". The immediate background to these statements is, of course, the China-backed Asian Infrastructure Investment Bank (AIIB), an institution that Indonesia's backs wholeheartedly, and America, less so. The US took a direct hit from Finance Minister Bambang Brodjonegoro who commented to reporters right after the WEF: "The US has been very critical, very harsh, about the AIIB and it is unfair . . . The US itself has consistently refused to boost its capital in both the World Bank and the ADB. This has made the situation difficult for us". Jokowi's less direct --but just as clear-- formulation was: "We've urged reform in the global financial architecture to eliminate the domination of a few. The world now needs collective leadership that is just and responsible". The last time I looked Indonesia's own Sri Mulyani, former Finance Minister, held one of the highest positions in the World Bank. </div>
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The elevated rhetoric is unfortunate but perhaps to be expected given that most Indonesian Presidents are driven by domestic politics to eschew "western influence and dominance". And perhaps President Jokowi felt it necessary --given the nature of the occasion-- to channel his predecessor's and his party's nationalist viewpoint in Bandung. Both Jokowi and Brodjonegoro are probably right that Asia needs another multilateral lender (especially one focused on infrastructure) but they are wrong to denigrate the institutions --developed at Bretton Woods out of the ashes of the Depression and WWII-- that have helped to lift so much of Indonesia out of poverty. Do these institutions make mistakes and do some of them have their own internal governance issues, yes. But they are not part of some conspiracy to keep countries "down" as Jokowi's comments imply. The US (along with the IMF, World Bank, and Asian Development Bank) should be actively engaged with the AIIB as it develops with the eventual goal of joining. Indeed, contrary to what Minister Brodjonegoro has said, President Obama has already made supportive statements regarding the AIIB. "We're all for it if incorporates strong financial, social and environmental safeguards", he said. However, reforming the world's "financial architecture" seems less important than reforming the bureaucracies in Indonesia and other developing countries that have had severe problems with leakages, "white elephant projects", and other implementation difficulties. These will remain and need to be dealt with as the China-led AIIB gets going. </div>
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Indonesia's growth has dropped to below 5%, the rate of foreign investment has dropped, and commodity exports prices have weakened. The President should prioritize economic reform and openness rather than focusing on an untested new institution (AIIB) whose benefits (building infrastructure) will take many years to achieve. Rather than sewing seeds of divisiveness, echoing the nationalism of his predecessor, one might have expected more from Indonesia at these forums. After all Indonesia is a member of the G20 now, it has a seat at the table. It should use its position wisely, not provocatively.</div>
Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-17679119104646841082015-04-17T15:53:00.001-04:002015-04-17T15:57:28.127-04:00Backing Away From the Dollar<div style="font-family: Calibri, Helvetica, Arial, sans-serif; font-size: 12pt; margin-left: 4.5px;">
We are starting to see the glimmer of a new strategy for how Indonesia wants to do business and it may have less to with the US dollar. </div>
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Foreign exchange ratios have been a hot topic among Indonesia's policy makers ever since June of 2014 when the first news of the end of Fed easing caused financiers to pull money from emerging markets such as Indonesia and the rupiah suffered. After years of trading in the 9,000 range, its been in the 12,500-13,000 for several months now. Even though Finance Minister Brodjonegoro said in January "12,500 is already a good rate to maintain our competitiveness," many companies would disagree. For exporters selling goods priced in dollars who don't need to source components a weaker currency is great news, but for those who need dollars to buy inputs, its been tough going. Increased prices for electricity and higher costs for inputs have forced some exporters out of business.</div>
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Concerned over an ongoing current account and trade deficit, policy makers have pursued fiscal programs that -short of currency controls-try to limit foreign exchange transactions. Among these are:<br />
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<li><span style="font-size: 12pt;">Mineral export bans, required local smelting and downstream processing</span></li>
<li><span style="font-size: 12pt;">B</span><span style="font-size: 12pt;">eef import bans</span></li>
<li><span style="font-size: 12pt;">Crude palm oil export tax levied to build a biodiesel industry. The same policy may eventually be applied to coffee and rubber. </span></li>
<li><span style="font-size: 12pt;">Regulation requiring 50% of reinsurance policies to be paid to a state owned reinsurance company rather than offshore providers. </span></li>
<li><span style="font-size: 12pt;">Planned tax amnesty to attract offshore funds</span></li>
<li><span style="font-size: 12pt;">Investment policies promoting "value-added" manufacturing as a priority such as a regulation to ban sale of cell phones not made in Indonesia. </span></li>
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Along with the fiscal import substitution policies we are also seeing other monetary moves to be less dependent on the US dollar for transactions. Although the idea has died, there were rumors that Indonesia would price its energy exports in other currencies not dollars. <span style="font-size: 12pt;">Bank Indonesia announced last week that as of July 1 all domestic transactions have to be in rupiah. (cash transactions in foreign currencies have been banned since 2011). Eko Yulianto, acting director of money management at Bank Indonesia, said there was demand for at least $6 billion each month for domestic transactions, which the bank hopes to cut once the new regulations are in force. "There are still a lot of transactions using foreign exchange and that has added to pressure on our exchange rate," Yulianto told a briefing on Thursday, adding that companies in textiles, pharmaceuticals, chemicals and the oil and gas sector often used the dollar for domestic payments. "We don't want a dollarized economy so we need to uphold the sovereignty of the rupiah," he said. </span></div>
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Countries that share Indonesia's problems with a strong dollar such as Russia are already aligning themselves accordingly. In a recent bilateral economic meeting Russian Minister of Industry Denis Manturov indicated that the Russian government hopes to localize more fertilizer production in Indonesia and start making payments in rupiah for products it buys from Indonesia. "We have experience in switching to contract payments in national currencies with India, China" said Manturov. </div>
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The China-led Asian Infrastructure Investment Bank (AIIB) is slated to bring tens of billions in investment and project finance to Indonesia. Although the bank has yet to launch, 50 countries have agreed to join, including all of Indonesia's major trading partners except the US and Japan. Given China's huge balance of dollars, estimated to be $8 trillion, its unlikely China will be as quick as Russia to meet Indonesia's terms. Thus, we can probably expect that PLN, Indonesia's electricity monopoly, will continue to write power purchase agreements (PPA) with foreign investors in dollars. But that could change, especially China is agreeable to rupiah PPA's. </div>
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I personally think Indonesia is overly concerned by a strong dollar and the end of Fed easing. Given the rosy reports from BKPM (the Investment Coordinating Board) Indonesia is attracting large amounts of foreign investments. So its negative current accountpositions may have more to do with the importation of capital goods than US Fed policy. (In fact there was a trade surplus in March due to the drop in oil imports. ) The best path to a stronger rupiah is to promote an open investment regime with fewer strings attached (meaning less nationalism), strengthen the rule of law, and fully implement an infrastructure investment program. If that can be achieved the momentum of the country's economy and youthful population will win out over fluctuations in exchange rates. But meanwhile, US companies should expect Indonesia to make more use of policies that maximize the use of rupiah for transactions. </div>
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Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-49880699266924305552015-03-17T17:19:00.000-04:002015-03-17T17:19:49.668-04:00The Value Added State<div style="font-family: Calibri, Helvetica, Arial, sans-serif; font-size: 10pt; margin-left: 4.5px;">
President Jokowi is likely to travel to the US for his first official visit to Washington in early June. President Obama no doubt wants to hear Indonesia's President describe his country, his plans for its economic future and how the US fits in. What might Jokowi tell President Obama about today's Indonesia? He will no doubt discuss plans for achieving 7-8% growth and creating jobs. He may not say so in so many words but Indonesia's paradigm has become the VAS, Value-Added State. </div>
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What are its characteristics?</div>
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<i>(Apologies for over simplification of a topic that is actually much more complex than what I set out below.) </i></div>
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1. <strong>A VAS welcomes FDI BUT</strong></div>
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A VAS welcomes foreign direct investment but wants it to meet priorities established by either its government or legislature. Indonesia does not want foreign investment to create raw materials if there is not the addition of processing or if it believes a local company should be doing it. Indonesia desires to be more than a big market but part of the global supply chain of manufactured goods, producing for other markets, especially within ASEAN.</div>
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2. <strong>A VAS crafts policies to keep as much currency within the country without going as far as establishing formal currency controls.</strong> Indonesia is drafting regulations that will keep insurance premiums within the country. It already has other regulations in place that limit offshore borrowing and prevent Indonesian private equity firms from investing more than 20% of its capital offshore. A VAS finances its debt in local currency when possible. </div>
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3. <strong>A VAS expands rather than contracts its state-owned sector.</strong></div>
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To build the VAS Indonesia's leaders do not fully trust market forces and rely on a large state sector. SOE's (state-owned enterprises) were very important in Indonesia's early years as the private sector was still small. By the late 1990's many SOE's become redundant and unprofitable and some lost their monopoly positions. A wave of privatizations occurred but today they are again being given an out-sized role. For example, four small state-owned reinsurance companies are being merged and given a quasi-monopoly position to receive mandated premiums from companies that previously went offshore. Although the regulation is still under review insurers are highly concerned there may be a loss of capacity and risk leverage which could negatively effect future big ticket investments. Similarly, the 2015 budget includes massive increases to many SOE's who will be tasked with building critical infrastructure. </div>
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<strong>4. A VAS is paternalist; it desires to be a player not just a referee. </strong></div>
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Reform exists and will continue but only as a sidebar to pervasive patronage networks that limit transparency and the rule of law. These networks are stubborn and extend from the private sector to the large bureaucratic state through political parties. Preferences may be given to state-owned firms rather than private companies to import and distribute products. Foreign companies and employees may be singled out for selective prosecution or blamed for holding back the development of local capacity. A non-VAS would see the "other side of the coin"; foreign companies are true partners and are catalysts for the development of local players. </div>
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<strong>5. A VAS pursues import substitution policies through a combination of import and export bans. </strong> A ban on various kinds of beef imports is now employed to boost local cattle production. Raw and semi processed mining products cannot be exported or if so, they have very high duties attached. It has been reported that only cell phones made in Indonesia will be allowed to be sold in the future. The goal is to legislate what the market has not created, more local manufacturing. </div>
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6. <strong>A VAS intensively credentials foreign workers.</strong></div>
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Even though businesses acknowledge a shortage of qualified middle managers, Indonesian officials and some professional associations believe local labor needs protection. Labor certification is reported to be getting more difficult and a new regulation will soon be implemented to require all expatriates employed in the country to pass a basic test of the Indonesian language. Even Indonesian doctors who have earned medical diplomas overseas cannot get these credentials recognized and thus cannot practice if they want to return. </div>
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President Obama should ask President Jokowi the following questions: How does the vision of a VAS fit in with regional economic agreements such as APEC, WTO, and the ASEAN Economic Community that lower barriers between the movement of goods, capital, and people? Are there not some internal contradictions? </div>
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Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-75920842367464035762015-01-09T15:44:00.001-05:002015-01-09T15:48:45.141-05:00Outlook for 2015: Cautious Optimism<i>Commentary by Wayne Forrest</i><br />
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Since taking office in October President Jokowi has not waited for Parliament, using his executive powers to reset Indonesia's course. He is turning out to be savvier then many gave him credit for. 2015 could mark the beginning of a positive new chapter in Indonesia's economic development. Although only a short amount of time has elapsed, Jokowi's legendary problem solving abilities have already been on display. Economically, he has cleared some fiscal space by lowering (and then eliminating) energy subsidies; politically, he has neutralized --at least for now-- the opposition forces (led by rival Prabowo) through clever maneuvering; and diplomatically, he has asserted Indonesia's maritime priorities and need for foreign investment in well received appearances at the APEC, G20 and ASEAN summits. A fractured Parliament has not sat much since October; come January Jokowi will likely bring his own budget forward for its approval. It may be the first true test of his political leadership. He should be able to pass it and redirect upwards of $20 billion to infrastructure, health, education and military hardware. But although things may be going well for Jokowi so far a cautious optimism characterizes the outlook for 2015. Here is my take on the year ahead:<br />
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<span style="color: #0b5394;"><b>Economic/Financial:</b></span><br />
The head of Indonesia's Chamber of Commerce, Suryo Sulisto, told me Jokowi may be Indonesia's most pro-business President yet. One of his first unannounced visits was to BKPM, Indonesia's Investment Coordinating Board. A favorite tactic of his, Jokowi has used them (<i>blusukan</i> in bahasa) to shake up bureaucracies and rid them of non performers. Knowing how long it can take for investors to get the required licenses and permits, Jokowi is intent on getting every ministry to place a representative in BKPM to truly make it a "one stop shop". If he can pull this off it will be a signature achievement. I give him better than a 50/50 chance. <br />
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But investors need more than a responsive bureaucracy. They need to see a healthy economy and an investment climate that's as competitive as India, China, and the rest of ASEAN. Here Jokowi's predilection for serving Indonesia's "interests" could hamper the country's move to join global supply chains for intermediate manufactured products. The cautious part of the optimism will revolve around this central issue. <br />
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We can expect final GDP growth to be 5.1% for 2014; 2015 will be better, closer to 5.4%. Jokowi's economic planners have set their 2019 goals and GDP will rise to 7% by then. (Click here to see them in a chart format). This is certainly a reasonable but not overly ambitious goal. In my December meeting with Finance Minister Bambang Brodjonegoro, he predicted 4.5-5% inflation, and a fall in debt to GDP to 30% from 35%. Given the plunge in the rupiah's value his greatest concern is the large amount of dollar denominated private debt. Its clear he is preparing a possible shift to more official, multilateral debt as a backstopping measure. Clearly Indonesia would do anything to avoid another "sovereignty impingement " (i.e. IMF loan). Along with an excellent former Finance Minister (Agus Martowardoyo) at the helm of Indonesia's central bank, Brodjonegoro will maintain the conservative macroeconomic policies that long ago established Indonesia as a primary emerging market. <br />
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Jokowi should be able to win Parliamentary approval to increase spending on infrastructure and now that implementing rules are in place for the 2012 Land Law, the government will be able to move much more quickly to clear land for a backlog of power and port projects as well as railroads and toll roads. Less clear is how Jokowi's government will handle other obstacles to creating more value-add manufacturing: rigid labor laws, high minimum wages, high tariffs for many components. More than likely we will see a mixed picture with elements of protectionism in place that run counter to the welcoming hand Jokowi has extended to foreign investors. In its zeal to preserve the rupiah's value Indonesia has become overly concerned with its negative balance of payments. So far, many departments are continuing "keep money at home" policies begun under the previous government that present difficulties to foreign as well as some local companies: inefficient reinsurance rules that redirect premiums to local state-owned companies, possible lowering of foreign equity in banks, maintenance of mineral export bans and demands for local smelters, uneconomic food security policies that raise prices and decrease supply. Jokowi's high publicized efforts to clean up the Energy Ministry and Pertamina --which should enable quicker decisions on new projects--would be of greater usefulness if it were also coupled with wholesale reform of the Attorney General's office and the dropping of criminal charges against Chevron and other companies for essentially civil matters. (See Chevron story on page 4) <br />
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At the end of 2015 the full integration of an ASEAN Economic Community (AEC) is supposed to occur but Jokowi has already been quoted -regarding the AEC- that he will look to preserve Indonesia's "interests". Many questions will need to be answered. For example: will Indonesia facilitate work visas for foreign educators, engineers and health professionals or keep barriers in place. For an economy lacking in highly trained educators, engineers, technicians, accountants, aviation mechanics, doctors, and nurses a lack of policy vision regarding AEC (cherry picking only the planks everyone likes) could prove costly in terms of missed opportunities for growth. <br />
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<b>Bottom line:</b> an improving macro picture and better fiscal management (elimination of energy subsidies, budget austerity) may win an investment grade rating from S & P and attract back capital market investors but lack of clarity in micro policy will continue to send mixed signals to foreign direct investors. <br />
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<b><span style="color: #0b5394;">Politics/Security/Governance</span></b><br />
The Presidential campaign of 2014 was the first in Indonesia's history to feature American-style election practices such as issues-oriented TV debates as well as negative campaigning. Never before had Indonesia's electorate seen outright character assassination, false rumors, and outright lies thrown by one candidate's team at the other. The losing candidate, Prabowo, and his supporters were the guiltiest of these practices and they went to great lengths to challenge the results that were closer then had been expected. His coalition (KMP) holds about 60% of seats in Parliament and Jokowi's (KIH) has 40%. But looks can be deceiving. The largest party withing KMP, Golkar, is seriously split, and two others, PD and PPP could easily side with KIH on key votes. The usual script in Indonesia would have the "opposition" groups (especially Golkar, which never wants to be "out of the government") falling basically in line with parties supporting the President in some loose coalition. This hasn't occurred yet causing some I met in December to speculate that something akin to what happened to President Wahid-- whose mandate was removed by a vote in the People's Assembly in 2001 after less than 2 years--may be afoot. If there is to be a serious attempt to unseat Jokowi it will likely be in the form of charging him with overseeing some type of corrupt deal with Chinese communists, a time-honored mantra in Indonesia that reared its ahead during the campaign. <br />
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But Indonesia's democracy has evolved since Wahid's time and an impeachment scenario seems unlikely. But like Wahid, Jokowi is basically an outsider whose reform efforts could prove destabilizing to certain members of the commercial, military, and bureaucratic elite. It was direct elections --enabled during Megawati's Presidency and rolled out by her successor SBY-- that brought Jokowi to power. The elite closed ranks at the end of SBY's term --to prevent more "Jokowis"--and passed a law to end them. Right before he left office SBY did one of his patented flip flops and reinstated them by decree after widespread public outrage. In the weeks ahead the issue will come before the legislature who will vote whether to let the decree stand or not. If Jokowi wins this vote (preserving) direct elections, as I believe he will, it will probably signal the end of Prabowo's strong influence over the KMP. <br />
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But beyond the election law issue, during 2015 Jokowi will be navigating relations with his own party, PDI-P, whose chairwoman, former President Megawati, must be offered a certain degree of respect. Jokowi is the first President in Indonesia's who does not head his own party (or have a high position within it). The benefit of this is that he is more accountable to the people who elected him at the possible cost of difficulty wielding the power needed to bring about reforms. But I am very encouraged that Jokowi has already overcome PDI-P's natural objection to ending energy subsidies. Another sign of a growing independence is his recent appointment of Luhut Pandjaitan as his Chief of Staff. When I met him in December Luhut told me Jokowi would not hesitate to replace under-performing or corrupt Ministers.<br />
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After PDI-P's 19% of seats in Parliament, the next largest faction is Golkar (14%), technically part of the opposition (KMP) coalition. Towards the end of 2014 an insurgent group of younger Golkar cadres failed in their attempt to unseat long time patron and Chairman Aburizal Bakrie, who successfully won a second five year term. Their unhappiness with unilateral moves by Bakrie now looks like a serious rift. Combined with the reports of those who have met Prabowo personally that he seems to lack energy for a concerted opposition effort, Golkar's internal problems should bode well for Jokowi. <br />
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<b>Bottom line:</b> expect Jokowi to consolidate a working Parliamentary majority by mid 2015 if not sooner. <br />
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<b>Overall outlook:</b> Indonesia's growth trajectory --falsely inflated by high commodity prices (2006-2010) and US Fed easy money policies-- can only move towards 8% (where many experts believe it should be given its large and mostly young population and growing middle class) if its leaders fully embrace a market economy with minimal government intervention and make strong efforts to embrace foreign investment and lower logistics costs. Some but not all of President Jokowi's policies (at least those that we know of at this early stage) will get the nation there. Clearly continuing on with the highly politicized protectionist policies of the past will not. Defining what is a national "interest" will be a key, and hopefully these will help the greatest number of Indonesians attain better, more productive jobs. Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-8304738828658490242014-11-12T17:01:00.002-05:002014-11-12T17:01:59.750-05:00Which Tune is Playing ?<br />Commentary By Wayne Forrest<br /><br />If I could have a musical score as the backdrop to this commentary, I would want it to be something upbeat, perhaps the 1933 song "We're in the Money". Indonesia has a new, dynamic young leader, President Joko Widodo, with a strong reform agenda as well as operational experience at lower levels of government. When it comes to solving business problems and eliminating red tape, Jokowi (a former furniture exporter) "gets it". However, at the moment a more realistic song would be Harold Arlen's "Stormy Weather" from the same year. A slowing economy, a challenging international economic environment, falling commodity prices, lack of unity within Parliament, and only a tiny fiscal space within which to maneuver, are the given realities. <br /><br /><br />President Joko Widodo has assembled a Cabinet that has many professionals, but it is not a bold departure from the past. The last 4 Cabinets were a similar mix of political party "appeasement appointments" as well as professionals. No one is speaking yet about a broad vision for Indonesia's economic future, indeed the President himself appears to be more of a troubleshooter, putting out small fires, rather than reshaping landscapes. But, given the past when the macro vision was strong but failed at the micro level, this is a strong sign. Its the micro aspects of governance that need the most attention. <br /><br /><br />Jokowi has only been in office a few weeks and already one of his signature policies, ending the energy subsidy, has been opposed by some members of his own party, PDI-P. Rather than craft a workable coalition, PDI-P's Parliamentary leaders are focused on a Quixotic fight to reinstate rules governing the election of the leadership (based on proportion of seats) having lost them legally in early October when the system was changed to one based on coalition voting. The President may eventually need to move to a new party or declare himself an independent if he wants to get anything done. The news of key members opposed to the subsidy reduction (which overwhelmingly benefits the middle and upper class as well as an oil distribution "mafia") came as a shock and highlights a noticeable split within his party that has been apparent almost from the beginning. It is quite clear that the senior leadership of the PDI-P has never been fully on board with a populist outsider who is new to their party. Signs are that Jokowi will fight for his policy-- it was, after all something he shared even with his opponent Prabowo. He can authorize a price increase without Parliament, but any budget alterations (redirected spending) will need their approval. Will the Merah Putih (Red and White) Coalition help him or take a page from US Congress and oppose even policies they support just to make the President look weak. <br /><br /><br />With prices of Indonesia major commodity exports slumping, and the prospect of the end to QE looming, Indonesia faces a situation not all that different from the 1980's when the benchmark price for crude oil dropped from $40 to $10 a barrel. That one fact did more to push President Suharto to deregulate the economy than many realize. Although the price drop now is less dramatic, it could help Jokowi implement structural reforms that will be necessary to advance Indonesia to the next level, one where manufacturing will take over as the main growth engine. <br /><br /><br />The splits in Parliament between parties as well as within them are less antagonistic than they might seem. There is plenty of room for common ground. A Jakarta Globe op-ed writer noted: "There is no reproduction of the same conflict at the grassroots level. Thus, the current conflict in the Indonesian legislature is quite different from the similar conflict in Thailand - which had a destabilizing effect and led to the return of the military to politics."<br /><br /><br />We will know that Jokowi is on the right track if he can eliminate or at least make a major dent in the energy subsidy by the end of the year if not sooner. As we learned from our recent conference call with his lead analyst of the subsidy, Dr. Darmawan Prasodjo, the subsidy will be reduced once a cash transfer program for the poor is in place. (See the event summary below) When that happens, the tune will turn happier; the government will be on the way to recovering close to $30 billion, which if allocated in part to infrastructure could help Indonesia go along way to attracting both domestic and foreign investment for manufacturing. It will send a strong message to companies such as Foxconn (Taiwan) who has flirted with creating a $1 billion plant to produce electronics. More importantly, it will signal that Indonesia has finally rolled up its sleeves to implement its vision to reinvigorate the slumping manufacturing sector, the key to the nation's prosperous future. In the era of President Suharto, manufacturing grew 8% a year, today growth is below 4% and accounts for a smaller share of GDP than it once did. Its time to go back to the futureWayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-62641025139165458632014-09-30T12:27:00.000-04:002014-09-30T12:27:49.391-04:00Parliament Votes to End Direct Elections: Twists and Turns<span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 2px; -webkit-border-vertical-spacing: 2px; font-family: Helvetica;"><big><big><span style="font-family: Calibri;">Politics in Indonesia is about to become a whole lot more interesting.</span></big></big><big><big><span style="font-family: Calibri;"><span style="color: #3333ff; font-weight: bold;"></span></span></big><big><span style="font-family: Calibri;"> Late last Friday while President SBY was in DC --after addressing the UN Global Climate Change Summit in NY--Indonesia's Parliament voted to end the direct election of district heads, mayors, and provincial governors. Touted in 2004 as a further improvement and maturation of Indonesia's democracy, the system produced President-elect Joko Widodo, who won two elections as mayor of Surakarta and one as governor of the special province of Jakarta. It also raised the costs of elections, led to increased vote-buying and patronage behavior. Some directly elected officials were arrested and convicted for corruption but others became stars and brought needed services to their constituents. The law, intended to curtail these excesses, originated in SBY's Home Affairs Ministry but did not have much support until after the July 9 Presidential election and the defeat of Prabowo Subianto. Prabowo's coalition of parties could only pass the bill in the current session with the support of SBY's party (Partai Demokrat). That support came in a midnight walkout of most of the party's members when their proposed 10 amendments to the bill (including the preservation of direct elections) were not included as a voting option. SBY had gone on the record recently in support of direct elections (with the proposed changes to the current law added to lessen their costs and reduce "money politics") but it is not clear what role he had in his party's abstention. Rumors, of course, are rife in Indonesia. It will take time for this to be fully analyzed.<br /><br />In any case, over the weekend SBY (according to the Jakarta Globe) began steps to repair the damage and this morning he announced he would issue a Presidential Regulation to annul the bill after signing it into law. (Indonesia's Presidents do not have veto power; bills passed by Parliament automatically become law after 30 days if there is no signature). Presidential regulations have the force of law and remain in force until invalidated by Parliament; the President is hoping the Parliament that takes its place on October 3 will walk back the law and include the 10 amendments that were never voted on.<br /><br />The outcry from certain segments of the public that democracy has been killed seem exaggerated. Indonesia has a process and the law was passed constitutionally. There remain many voters who believe in a more consensual and less fractious style of politics that characterized the country in the past. However, recent polls have indicated strong support for direct elections. If SBY's gambit fails, Indonesia's voters still retain the ability to bring back the direct election system. Speculation exists that the supporters of indirect elections also intend to change the direct election of the President although no legislation has yet been proposed. If true, that move likely has even less public support. Certainly this victory emboldens the coalition opposed to President-elect Jokowi and could effect his ability to gain legislative support for the reforms he believes will move the economy forward. But, the story is evolving, it may have further twists in the months ahead. </span></big></big></span>Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-43132965627381506712014-07-16T14:42:00.001-04:002014-07-16T16:33:39.734-04:00Where Are The Technocrats ?<span style="font-family: Verdana,sans-serif;">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 ? </span><br />
<br />
<span style="font-family: Verdana,sans-serif;">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. </span><br />
<br />
<span style="font-family: Verdana,sans-serif;">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. </span><br />
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<span style="font-family: Verdana,sans-serif;"> 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. </span><br />
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<span style="font-family: Verdana,sans-serif;"><i>The above views do not necessarily reflect those of the American Indonesian Chamber of Commerce or its members.
</i> </span>Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-24012634495198630102014-06-06T18:35:00.001-04:002014-06-19T12:01:33.238-04:00Bima vs Puntadewa<html>
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<td style="vertical-align: top;"><span style="font-family: Calibri;"><span style="color: red; font-weight: bold;"></span></span><span style="font-family: Calibri;"></span><span style="font-family: Calibri;"><span style="color: #3333ff; font-weight: bold;"><br />
<img alt="bima" src="https://origin.ih.constantcontact.com/fs145/1101093689200/img/412.jpg?ver=1402078508000" style="height: 259px; width: 194px;" /></span></span><span style="font-family: Calibri;"><span style="color: #3333ff; font-weight: bold;"></span></span><span style="font-family: Calibri;"><span style="color: #3333ff; font-weight: bold;"></span><span style="color: #3333ff;"><img alt="Yudhisitura" src="https://origin.ih.constantcontact.com/fs145/1101093689200/img/411.jpg?ver=1402078507000" style="color: black; height: 259px; width: 194px;" /><br style="color: black;" />
<span style="color: black;">Bima
Puntadewa</span></span></span><span style="font-family: Calibri;"><span style="color: #3333ff; font-weight: bold;"><br />
</span></span> <span style="font-family: Calibri;"></span><span style="font-family: Calibri;"> <span style="color: black;"></span></span><span style="font-family: Calibri;"><span style="color: black;"></span></span><span style="font-family: Calibri;"><br />
<big><span style="color: black;">Indonesia’s
Presidential campaign has now kicked off in earnest and although the
two candidates don't have too many differences over the substance of
their
economic policies,
they do differ markedly in character and personality. And its character
that counts for a lot in Presidential races as Indonesian voters
generally do not
carefully review a candidate's policy prescriptions or their stand on
issues. </span></big></span><big><span style="font-family: Calibri;"><span style="color: black;">To
help them understand and frame the differences between Prabowo and
Jokowi, many Indonesians (in particular the largest ethnic group, the
Javanese) will turn to the thousand year old wayang (shadow
puppet theater) tradition, as it is an
essential lens for understanding character (as well as
statecraft). The Javanese are also Indonesia's largest ethnic
group and are essential to victory. Certainly the devotees of
wayang among them will judge the candidates in part on how they compare
to their favorite characters. </span></span></big><span style="font-family: Calibri;"><span style="color: black;"><big>One of
Indonesia's
most famous <span style="font-style: italic;">dalang</span>(puppeteers),
Ki Manteb, has already publicly compared the candidates to two of the
most well known and beloved <span style="font-style: italic;">wayang</span>
(shadow puppet) characters: <span style="font-weight: bold;">Bima</span>
and his older brother <span style="font-weight: bold;">Puntadewa</span>.
The two are on the side
of the just in the epic struggle of good versus evil that pervades the
shadow puppet world. How do the candidates appear in comparison
to these ancient archetypes ?<br />
<br />
The current leader in a recent poll is Joko Widodo (Jokowi, 51). A
former mayor and businessman from the central Javanese city
of Surakarta, Jokowi projects the character of Puntadewa (also known as
Yudhistira): reserved, inner-directed, humble, thoughtful,
polite. Although slight of build, Puntadewa becomes king and is
known for his wisdom, piety, political sublety, self control and
righteousness, which were
more important to him than material pursuits. <br />
<br />
Prabowo Subianto (62), also Javanese, spent 24 years in military
service (rising to the rank of general) and has been active in business
since 1998. He is known for his
direct communication style, forceful manner, temper, concern for
security and
discipline, as well as loyalty. He could be compared to <span style="font-weight: bold;">Bima </span>the
strongest of the <span style="font-style: italic;">satria</span><span style="font-style: italic; font-weight: bold;"> </span>(knight) upon
whose strength rests the fate of the world during the final battle of
the
Hindu epic, the Mahabarata. Unlike Puntadewa, whose strength
often lies in his cleverness, its Bima who finally overcomes all their
adversaries with
brute strength bordering on ferocity, saving Puntadewa's kingdom. <br />
<br />
Voters nostalgic for the stability of the Suharto era and a sense
that Indonesia needs saving as well as decisive leadership might go
for Prabowo. They may also appreciate his worldliness (Prabowo attended
schools and military training in London and the US) and involvement
with Indonesia’s farmers (he chairs the Association for Indonesian
Farmers). Prabowo favors a strong central government that can
bring order to the "chaotic regions", spending on big infrastructure
projects. He aims to implement a "people's economy", and
speaks of "developing an Indonesia that is united, sovereign, fair and
prosperous, as well as dignified."<br />
<br />
<img align="right" alt="bowo horse" hspace="6" src="https://origin.ih.constantcontact.com/fs145/1101093689200/img/407.jpg?ver=1401998227000" style="height: 194px; width: 260px;" vspace="6" />Whereas
Prabowo has appeared at rallies on horseback in paramilitary garb, the
youthful Jokowi strolls neighborhoods in a modest but fashionable
checkered shirt. The former Mayor of Surakarta assumes a humble,
thoughtful, and
polite manner, and tries to connect to voters with an everyman
vision
of a future Indonesia based on reform, accountability, honesty and more
responsive government. In trying to explain how recent reforms
have "been in vain" and why graft and corruption remain despite the
efforts of the Anti-Corruption Commission (KPK), he said Indonesians
needed to change their mindset with a "mental revolution". <img align="left" alt="jok" hspace="7" src="https://origin.ih.constantcontact.com/fs145/1101093689200/img/410.jpg?ver=1402002901000" style="height: 186px; width: 271px;" vspace="7" />As mayor and now Governor of
Jakarta he has been praised for his unexpected visits to
government offices, jump starting infrastructure projects, and creating
universal health programs for the poor. He is the
embodiment of the reform era, the local
leader who came up in a grass roots fashion. <br />
<br />
Curiously, Prabowo and Jokowi (like Bima and Puntadewa) once were on
the same side. Prabowo ran as former President Megawati's vice
president candidate in 2009 and helped bring Jokowi (who is from Mega's
party, PDI-P) from Surakarta to run for Jakarta governor in 2012. <br />
<br />
No doubt there are already lively discussions within families or among
neighbors over who is most needed now, Bima or Puntadewa. We will
hear more from the candidates and their running mates in the
weeks ahead. </big>
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Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-16433996506657224742014-05-13T10:10:00.000-04:002014-06-03T16:22:09.858-04:00Edward Masters: (1924-2014) Built to Last<div class="separator" style="clear: both; text-align: center;">
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<span style="letter-spacing: 0px;">The passing of Ambassador Edward Masters in March sent a twinge of sadness through many of us. He taught us many things by his actions as much as his words. Together with his wife Allene, he created ideas, institutions and relationships that lasted. Beginning in the mid 1960’s he experienced Indonesia from multiple perspectives: junior diplomat, ambassador, business executive, and for the final chapter of his life, NGO leader. He worked at all of these occupations with the knowledge that to be successful all required judgment, sensitivity, and an unusual ability to work with others. Ed had these in spades. Although I never worked for him directly we did speak often and I consider him to be one my mentors. When I least expect it, something he told me years ago will pop into my head and I say to myself, “This is how Ed would handle it”. </span></div>
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<span style="letter-spacing: 0.0px;">While in his presence you could learn something important about the correct American approach to Indonesia and not experience that you were being taught. It was Ed’s wonderful gift that he could put people at ease while he was being instructive. I wonder if that is how it was with President Suharto when as Jimmy Carter’s Ambassador to Indonesia (1977-1981) he made it clear (probably in a subtle way) that the US was not tolerant of the many political prisoners (including the great novelist Pramodoeya Ananta Toer) still being held under terrible conditions since the mid-60’s on Buru Island. With little fanfare many were released (including Toer) and the US, and certainly not Ed, did not grandstand. In the mid 1990’s I became aware that Indonesia might be appointing a new ambassador to the US who was named as an unindicted co-conspirator in a scheme to sell false Indonesian government promissory notes. Ed knew exactly how to handle it. </span></div>
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<span style="letter-spacing: 0.0px;">His path-breaking quiet diplomacy and close reading of Indonesian customs heavily influenced AICC’s approach to resolving commercial disputes: behind the scenes, informal discussions were preferable to press conferences and public outcries. Its how we pushed back an attempt by an Indonesian exporter in the late 1980’s to be the sole exporter of cinnamon or other commercial hiccups better left out of the public eye. Success came because at the heart we were lifelong friends as much as we were trading partners. </span></div>
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<span style="letter-spacing: 0.0px;"> In a 1982 speech to an AICC conference in NY, Masters spent a good part of it quietly admonishing American businessmen to be less impatient and more observant of local customs in Indonesia: “The style adopted by a foreign businessman is frequently as important as his proposal. Choosing a business partner in Indonesia is somewhat like welcoming a son-in-law into the family. Its to be approached with perception, caution, and sensitivity.” And perhaps more important he said, “ All too often the American businessman gives the impression that he is in a great hurry, inadvertently signaling that he has more important things to do and that the relatively easy Indonesian pace is a waste of time. ” </span></div>
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<span style="letter-spacing: 0px;">Edward Masters’ way of working lives on in the institution he and his wife Allene built that recently turned 20, The US-Indonesia Society, and continues to inform how we at AICC approach contemporary issues. Like the John Deere tractor he bought for himself at age 80 to clear land on his East Chesapeake Bay property, this son of the American heartland was built to last. </span></div>
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Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-51547537101815387722014-02-05T17:06:00.001-05:002014-02-05T17:08:40.294-05:00The January SurpriseOn January 12, Indonesia’s mineral export ban came into effect with an unexpected kicker: an export tax on copper concentrates. As predicted, a last minute compromise allowed them to be exported but soon after it was revealed that the Finance Ministry contradicted the thrust of the exemptions by imposing a graduated export tax that goes from 25% to 60% within 2 years. Ignored by the senior leaders is that these processed products retain 95% of the metal’s production value compared to the 100% of a smelter. The US companies that produce them employ upwards of 40,000 people in the least developed regions of the country generating over 2% of GDP, paying billions in corporate taxes (at 35% not the new 25% rate) and royalties. Many other benefits could be listed. The point is many thought cooler heads had prevailed until the surprise tax was announced. No one had anticipated the move as it was not mandated by the law or the implementing regulations. Whatever compromise had reportedly been worked out with the President turned out not to have been one. Finance Minister Chatib Basri said: “This is a fiscal instrument to force companies to build smelters — it isn’t a policy to increase tax revenue, not at all”. Last week mining CEO’s scurried to Indonesia for consultations and so far have come up empty ended. The concentrate shipments are now pretty much dead in the water along with those of raw minerals and according to the Trade Ministry the government has processed no export requests. Existing copper concentrate shipments are going to Indonesia’s sole smelter in Gresik, East Java. <br />
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If Indonesia does not walk back some of these policies the mining industry will eventually grind to a halt and companies with early generation Contracts of Work such as Freeport and Newmont may be headed to international arbitration, something that should be in everyone’s interest to avoid at all costs. Its been pointed out by numerous experts as well as the head of Indosmelt (a local company trying to build a new smelter) that smelters are currently operating on a thin profit margin with existing supply and bringing more on stream would be deemed financially unfeasible without government incentives. The current government obviously believes the mining industry is bluffing and somehow sees huge benefits from insisting on holding on to the minerals ban for dear life. But the strangled victim may turn out to be the Indonesian economy. Bans tend to have unintended consequences. The sawn timber and rattan export ban of the 80’s never led to the amount of furniture and plywood factories the government had anticipated. Other possible side effects: social unrest in Papua, where a small independence movement has existed for decades; erosion of confidence in Indonesia’s business climate and in the sanctity of contracts; and $billions in loan defaults in the mining industry. One can take heart in KADIN’s recent efforts to engage the Parliament and the Finance Ministry and get the law overturned or the tax rolled back (see story below). This is an evolving story whose ending may not come until a new government is elected later this year. Business does not like surprises; but in Indonesia one learns to take them in stride. Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com1tag:blogger.com,1999:blog-2940099664306792900.post-47798925803544283322014-01-08T15:14:00.000-05:002014-01-08T15:14:37.631-05:00To Ban or Not To Ban<div style="margin-left: 7.2px;">
<span style="letter-spacing: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">2013 ends a year in which the Indonesian economy made a strong start and sputtered mid year when rumors of an end to the US Fed’s monetary easing, and uncertainty over nationalist trade policy spooked investors. Policymakers reacted with measures to preserve the rupiah’s value and reign in an advancing current account deficit. Come January 12, an export ban on raw minerals (mandated by a 2009 law) will only increase the deficit, depreciate the currency, and push the economy towards recession as upwards of $7 billion of foreign exchange earnings will be lost along with 800,000 jobs. One would think that Indonesia’s Parliamentarians and senior economic officials would be on the same page regarding the bad economics of an outright ban. But, at the moment, that is not the case. Senior officials seeking a solution recently met with the Parliamentary Commission on Mining, which was in no mood to grant any exceptions to the law. </span></span></div>
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<span style="letter-spacing: 0.0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Simply put: there is no market within Indonesia yet for the hundreds and thousands of tons of coal, bauxite, gold, silver, nickel, and copper that Indonesia produces. Neither the smelting capacity, nor enough downstream off takers exists. Even the Gresik copper smelter that Freeport(operator of the huge Grasberg Mine) and Sumitomo helped to create years ago can only absorb 40% of Grasberg’s production. </span></span></div>
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<span style="letter-spacing: 0.0px;"><span style="font-family: Arial, Helvetica, sans-serif;">AICC, along with mining industry associations and most of Indonesia’s main partners have been highlighting the bad economics for the past several years. The mining law of 2009 had some laudable goals (growth of downstream processing, more local control over permitting) but an uneconomic method of achieving them. Some leaders have gone so far as to say that the lost foreign exchange can be replaced by increasing the use of biodiesel, a pipe dream that also ignores the damage to the economy of mass unemployment of miners and small businesses that support them. The ban, others say, is helpful to control illegal mining and permits given under corrupt circumstances. Given Indonesia’s recent failure to create a local beef industry through an import ban (resulted in skyrocketing prices) one hopes cooler heads will prevail as the deadline nears.</span></span></div>
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<span style="letter-spacing: 0.0px;"><span style="font-family: Arial, Helvetica, sans-serif;">I use the following analogy in my discussions with Indonesian officials. For over 70 years Indonesia has shipped a product, primarily in a raw form, to the US and the world, never once instituting an export ban. Meanwhile, plenty of downstream business has been built in the country. That product is natural rubber. Exports continue unimpeded and Indonesia has factories that produce latex gloves, sport shoes, tires, fan belts, grommets, paint and many other products. When Indonesia’s infrastructure and other policies are in coordination with international supply and demand logistics, more smelters and related downstream industries will come. The government should not be legislating these things to happen. </span></span></div>
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<span style="letter-spacing: 0.0px;"><span style="font-family: Arial, Helvetica, sans-serif;">A recent flurry of news reports in the Indonesian press, a petition by the Indonesian Mining Association to the Supreme Court asking for an opinion that the 2009 law does not actually mandate a ban (only mandates local processing), comments of Japan and China, are all signs that a compromise can be arrived at either at the deadline or soon after. Indonesia has done this in the past on other big issues. The President is hosting a special Cabinet meeting next week that could yield one. If so, it will probably utilize some of the ambiguity in the law over purity levels, allowing the export of copper concentrates, for example, from the large mines run by Newmont, Freeport that are above 90% purity already. Stay tuned, this one will go down the wire and I predict a way will be found. Our friends in Indonesia know how to do this. </span></span></div>
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Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-16070381488284711252013-11-20T13:28:00.001-05:002013-11-20T13:29:52.061-05:00Structural Reform Anxiety<div style="background-color: white; font-family: Calibri, Helvetica, Arial, sans-serif; font-size: 14pt; margin-left: 7.2px;">
<span style="letter-spacing: 0px;">Its amazing and somewhat anxiety producing to watch both the US and Indonesia democracies struggle over structural reforms. An inflection point seems to have simultaneously been reached in each country, with each nation's future depending on their implementation. In America's case its primarily the troubled rollout of a new and improved healthcare system as well as our budget reform process and in Indonesia's its primarily the ongoing crisis of upgrading the country's basic infrastructure. The promise of ACA beyond the enrollment of the uninsured, was lower costs to employers, who are the primary providers of insurance. That promise appears, for the moment, to be challenged. Indonesia desperately looks for private investment in infrastructure, but after a decade of trying and an ambitious plan (Master Plan for Acceleration of Development), only 5% of the total target has been spent. A period of strong economic growth appears to be winding down, partly due to external factors, but also due to the inability to make the hard political decisions required for structural reforms. In each country, a divided government, is partly to blame. In the US the division is more stark and ideological; in Indonesia, its more about protecting turf and political insiders. There a wider coalition of parties and a host of quid pro quo loyalty mechanisms (many laced with patronage) creates a complex web of relationships that stymy an executive branch committed to reform. Vice President Boediono, recently interviewed by the Wall Street Journal, said, "The formal system is a presidential system, and it's supposed to be that the president can appoint whomever he wishes to appoint in the cabinet. But this is not truly a presidential system like in America because our Constitution says that for quite a number of things the president needs approval from the Parliament. That means that if you are not in the majority, you have to accommodate political parties and appointees within the cabinet. You cannot get away from some kind of coalition. I foresee that in the next 10 years or so this kind of thing will still happen. That's compromise." </span></div>
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<span style="letter-spacing: 0px;">Here's my anxiety, I am worried Indonesia cannot afford another 10 years of coalition governments with Ministries that cannot coordinate with each other to enact the structural reforms that will unlock Indonesia's potential and move its people out of poverty and fully integrated in the global supply chains of goods, services, and ideas. </span></div>
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Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-79512740886611501532013-11-13T11:50:00.002-05:002013-11-13T11:50:51.957-05:00APEC and America's ImageI normally go about my business keeping my American roots a little under wraps. AICC is after all a bi-national association. Right before this year’s APEC meetings in Bali (October), there was the third US-Indonesia Commercial Dialog. Seated opposite from each other around a large square table were roughly 10 CEO’s from each country. I found a seat right in the middle. Its a reasonable spot for someone in my position: our members import as well as export to Indonesia and our membership (although the majority are US firms) includes Indonesian companies that have invested in the US. But, my innate patriotism surfaced when AMCHAM and the US Chamber revealed the results of a survey of 35 US companies: $65 billion has been invested in Indonesia since 2002 and another $61 billion is projected to be invested in the next 3-5 years. 35 is the number of firms that replied, so these numbers are probably a little on the low side. The firms include companies who are in the oil/gas and financial sectors where investment is booked differently than what is normally tracked by the Investment Coordinating Board (BKPM). Instead of a 3rd, 4th or even 7th place, the position BKPM usually shows, the US is likely the largest foreign investor in Indonesia and probably has been for quite some time. Now, while I was in Indonesia a month ago the US was beat up in the press for our shutdown and debt payment issue. The Chinese press agency had the temerity to suggest that the world would better off without the dollar as a reserve currency. My Indonesian friends did not seem swayed by this argument but certainly China, Japan, and Russia’s leaders received a lot of ink for announcing their intentions to invest billions, whereas the study, did not. Perhaps its not our style, and yes, President Obama, was not there. US companies do have significant issues related to investment that need to be worked out with Indonesia. But, on the other hand, the study shows our intention to stay and expand and does so without even mentioning the area of capital market investment where the US is probably the biggest source. So, America’s leaders can stand a little taller in their interactions with their Indonesian counterparts: it is vital that Indonesia policy makers listen carefully to our suggestions on improving the investment climate. As one Indonesian CEO told me after the Commercial Dialog, “your side should have said more about the problems you experience here. Sometimes its harder for us to express them but we have the same ones.” <br />Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-84530552474122552932013-08-28T10:44:00.000-04:002013-08-28T10:44:05.161-04:00Issue to Watch: Rupiah Hits 11,000: Time to StimulateSteep declines in the rupiah (it briefly passed 11,000 on Friday) stock index and overall confidence-echoing earlier drops-finally sent enough shivers within the government for the President and his economic team to say "enough is enough". Bank Indonesia probably knew its interventions could not last for long against strong headwinds. After a hastily organized meeting of his key economic ministers on August 23, 4 stimulus "packages" were announced by President Yudhoyono. (see accompanying article) Although short on details, they indicate a welcome course correction. Far from comprehensive, they at least set the country back on the path towards a more open regime. <br /><br /> Key items announced are:<br />
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<li>Relaxation of export ban of raw minerals and simplified procedures for mining investment. The quotas will likely be lifted but the 20% export tax will remain.</li>
<li>Adjustment of the negative investment list</li>
<li>Restricting costly import of diesel fuel and promotion of locally sourced biodiesel (slated to cut $3 billion from current account deficit)</li>
<li>Use of tax holidays and allowances to promote investment in agriculture, crude palm oil, rattan and minerals, including bauxite, nickel and copper.</li>
<li>Tax deductions and other incentives for export-oriented, labor-intensive industries (companies that export 30% of production).</li>
<li>Higher import tax on fully built luxury vehicles</li>
<li>Removal of import quotas on beef, some horticultural products; reduction of soybean import tax</li>
<li>Easing of share buy back provisions-up to 20% without shareholder approval</li>
<li>Central bank measures to inject liquidity and broaden tenor of interbank foreign exchange products</li>
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<br />A fair number of Indonesians were surprised by the rupiah's decline and are bewildered by a spreading panic mentality, wondering what went wrong, given the relatively rosy picture of the last 5 years. It may be that not enough has gone right, or in other words, the government sat back for too long resting on the laurels of 6% growth and not paying close enough attention to gathering structural problems. Yes, China's slowing economy and the de-leveraging of emerging market investors in anticipation of tapering of the US Fed easing policies has affected Indonesia. But, Indonesia must also know that its costly energy subsidies, import quotas and unrealistically nationalist policy of legislating the processing of commodities within the country would eventually prove troublesome. Finance Minister Chatib Basri announced: "We certainly cannot control the external situation, but we can fix our domestic problems, thereby sending a signal to investors that the government is aware and serious in addressing the issues. Delivering this signal is what's important." <br /><br />So far Bank Indonesia has kept its prime rate at 6.5% (having only recently raising it 50 basis points). Having lost its appetite for intervening, (foreign exchange reserves still declined 20% over the past few months) BI may have no choice but to raise its rate again. <br /><br />One can only think that Indonesia has wasted several years tinkering with unrealistic policies that had a laudable goal, more value added manufacturing, but lacked enough prerequisites (skilled labor, infrastructure). Rather than be forced to unwind them in the face of strong economic headwinds, the country should have been expanding and improving its antiquated infrastructure, removed rather than created barriers to oil/gas and mining investment, and gone further with bureaucratic and judicial reforms and the removal of patronage behaviors. But, Indonesia will learn from its mistakes, and hopefully, be better off for it. <br /><br />There is no need to panic, Indonesia's economic fundamentals remains strong. The balance sheet of its banks and composition of its debt are stronger than in 2008 and it has competent people at the helm of its key financial institutions. The government also has access to low interest standby loans through the Chiang Mai initiative as well as other facilities that provide protections in the face of high bond payments. <br /><br />The stimulus measures announced may seem too little too late, but at least they are a start. Perhaps there will be more moves to be made down the road, especially in the energy and extractive sector where drilling rates and exploration have been down. <br /><br />The stimulus measures will take time and how they are implemented will be key to Indonesia's future growth and financial stability. Deputy Finance Minister Mahendra Siregar said it well: "Are we late? Yes, we are a bit late, but not too late," "The point is let's not debate about lateness, but focus on the delivery [of policy]. If the delivery is slow, then we will be too late." One hopes that this crisis enables the Finance Ministry to reestablish its traditional role of managing reforms that focus less on rewarding connected players and more on creating conditions that are optimal for all. <br /><br />Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-32293733179759706782013-07-16T14:47:00.000-04:002013-07-16T14:47:58.757-04:00Energy Subdies ReducedPresident Susilo Bambang Yudhoyono's government has finally moved to to reduce the ballooning energy subsidies that have absorbed far too much of the State budget for years. In the form of a budget revision, the reduction was approved by Parliament with the President's coalition (Golkar, PAN, PKB, PPP, PD) holding together except for the PKS party. A cash transfer program will enable Indonesia's poorest to cope with fuel price increases and subsequent inflation. Getting the program through Parliament involved several flip flops of parties angling for support heading into the 2014 elections. Gerindra's leader Prabowo supported raising fuel prices but his party ultimately voted against it. The same happened with PKS. The leader in Presidential straw polls, Jakarta Governor Jokowi, favors the policy (although his party, PDI-P voted against it) but opposed the cash transfer program, believing the money should be spent to support small scale business development. <br />
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The 33% rise in fuel prices only partially ends the subsidy as the current market price for gasoline will still be 50% higher than the new rate. With a cash transfer program estimated to cost $465 million over the next 6 months the estimated savings to the government will be $4.5 billion. <br />
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Although we can praise the government for raising fuel prices, its clear that they only did it because their backs were against the wall as declining production and surging demand blew out their budget projections. Up until only a few months ago, government officials still maintained that the subsidies where necessary and should remain. What will be needed now is a concerted effort to reduce the subsidy further (which will stimulate investment in both mainstream and alternative energy production) as well as target infrastructure for how the the savings will be used. <br />
Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-74576322515483071202013-05-24T13:16:00.001-04:002013-05-24T13:18:24.357-04:00Return of Paternalist Capitalism<br />
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<span style="letter-spacing: 0px;"><span style="font-size: x-small;">A commonly held view of Indonesia's recent, more protectionist policy decisions (i.e. mineral export bans, beef and horticulture import restrictions, mining divestment rules) is that they are motivated by populist politics leading to the 2014 election. Followers of this view say that once the election is over, Indonesian policymaking will somehow shift back to a more internationalist position. That may be true, but it could also be wishful thinking. A more accurate view may be that a more confident leadership –proud of the nation’s economic resilience in the face of global slowdown, has renewed their belief in paternalist capitalism, the notion that the private sector has a more limited role to play, and that economic development still needs to be controlled by a paternalist state. Its not a new view for Indonesians, and certainly understandable given their colonial experience. Some background: </span></span></div>
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<span style="letter-spacing: 0.0px;"><span style="font-size: x-small;">Since Indonesia's independence the state has accounted for huge swaths of the economy (i.e. agriculture, transportation, utilities, heavy industry, communications), allowing the private sector only to be involved in sectors it could not afford to develop on its own. (oil/gas, mining, distribution, light manufacturing) President Sukarno attempted to combine socialism with nationalism and his successor President Suharto kept many socialist tendencies (5 year plans, agricultural cooperatives) while establishing a myriad of state mandated monopolies, some privately owned. Over time --and as various economic crises demanded-- the State deregulated, gave up key monopolies (steel making, media, rice distribution), reduced sole importer agencies, and began to partially privatize (through equity offerings, and public-private partnerships) some state owned enterprises (power generation, airlines, telecommunications), especially once capital markets opened to foreign investors in 1988. A series of ever changing, and at times confusing, negative investment lists has been employed for decades, restricting foreign ownership in many sectors, as well as opening up others that were previously closed. One could argue that these policies (implemented by a vast bureaucracy) did more to reward well connected local business groups (and their bureaucratic enablers) than develop world class players and led to the inefficient allocations of resources as well as high logistical and bureaucratic costs. But, politically, these policies paid dividends to whoever advocated them. </span></span></div>
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<span style="letter-spacing: 0.0px;"><span style="font-size: x-small;"> Post 1998 democratic reforms and the political stability ushered in with the 2004 election (and 2009 reelection) of President Yudhoyono returned Indonesia to the strong 6%+ growth rates it had achieved in the Suharto era even amidst a world wide depression. Yudhoyono’s administration implemented further reforms. The private sector grew and with it, dramatic increases in local as well as foreign direct investment. </span></span></div>
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<span style="letter-spacing: 0.0px;"><span style="font-size: x-small;">During Yudhoyono’s s first term (2004-2009), government statements and initiatives were highly solicitous of foreign companies and investors; the private sector was in many ways unshackled. The state was moving to becoming much more of a regulator of markets rather than an intervener in them. But his second term (2009-2014) has brought many of the restrictions mentioned above, the majority of which are based on creating more value-added industries. Examples are: ban on raw rattan exports to encourage local furniture production, export ban on minerals and requirements to build local smelters. The State here is saying, we think its better for the economy to have more local downstream production of our natural resources and since local and foreign investors aren’t doing it, we will mandate it. </span></span></div>
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<span style="letter-spacing: 0.0px;"><span style="font-size: x-small;"> I believe the policy shift resulted more from the 2008 economic crisis when Indonesia maintained its growth rather than politics. Leaders saw that not having a fully open market economy buffered them and was a positive not a negative. The world slow down and continuing high rates of poverty and less than optimal job growth became a context in which the government’s natural paternalist impulses could come to the fore. </span></span></div>
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<span style="letter-spacing: 0.0px;"><span style="font-size: x-small;">Representative of the renewed sense of state “paternalist” capitalism are remarks President Yudhoyono made on April 30 at a National Development Planning Meeting:</span></span></div>
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<span style="letter-spacing: 0.0px;"><i><span style="font-size: x-small;">“For Indonesia, we all must do this: do not just let everything follow market mechanisms. [That is] very dangerous. The state must take part in having responsibility for the economic conditions of the country… Countries which are very capitalistic and which have surrendered all sorts of things to the market are now making corrections and improvements…When the world experienced an economic crisis, we tried as hard as possible for our economy to continue to grow and to possess sufficient resilience. In the middle of an economy that is still in crisis, if our economic resilience is low, our economy could easily falter. Many countries worry because their economic resilience is not strong –once buffered, it unravels, and the economy can collapse.”</span></i></span></div>
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<span style="letter-spacing: 0.0px;"><span style="font-size: x-small;">Set in the policy arena, this “not too much capitalism” attitude leads to a recent decision not to allow the private sector to build toll roads in Sumatra. According to Coordinating Minister for the Economy Hatta Radjasa: “Because this project is a [government] assignment, the view is that it [must be performed] by a state enterprise that is 100 percent controlled by the state,” he said. In fairness, the Minister also remarked that the private sector might be given subcontracts. </span></span></div>
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<span style="letter-spacing: 0.0px;"><span style="font-size: x-small;">Another example has been the government’s continuing commitment to energy subsidies that are approaching 20% of the national budget. Believing that they are crucial to the support the millions on the edge of poverty, even though they mostly support the middle to upper class vehicle owners, political leaders face huge political risks to eliminate them or scale them back, although recently the government has been publicly discussing the need to charge more for gasoline. Most leaders know that abolishing them would free the huge sums necessary to build a modern infrastructure that would lower logistics cost and accelerate development. But, apparently here politics trumps paternalism. </span></span></div>
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<span style="letter-spacing: 0.0px;"><span style="font-size: x-small;">Will the 2014 mark a change from this recent tilt away from a more liberal trade and investment regime? This is doubtful in my view. Most Indonesians—including the huge base of young voters, respond to nationalist, broad side politics, whether it comes directly from politicians or from the mosque. So, for example, students demonstrating in Riau have recently demanded the government not allow Chevron to extend its contract over the Siak block. Although Chevron’s share (10%) of the production is hardly “domination”, the prevailing view as articulated by the students and uncontested by the government or local politicians—is that “This foreign domination of our natural resources has increased in recent years thanks to our regulations, which support free competition. As a consequence, local companies must become ‘the step-children’ when it comes to exploiting the resources”. </span></span></div>
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<span style="letter-spacing: 0.0px;"><span style="font-size: x-small;">Although Indonesia will remain a strong destination for trade and investment, this return of paternalist economic decision-making will increase risks and may require work-around behavior on the part of foreign firms, similar to what was common in previous eras. </span></span></div>
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<span style="letter-spacing: 0px;"><i><span style="font-size: x-small;">(These opinions are solely those of the writer and do not necessarily express those of the members of the American Indonesian Chamber of Commerce)</span></i></span></div>
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<span style="letter-spacing: 0.0px;"><i><br /></i></span></div>
Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0tag:blogger.com,1999:blog-2940099664306792900.post-41626188090523027212013-02-07T16:42:00.001-05:002013-02-07T16:54:38.830-05:00Political Parties and the Next President of Indonesia<style>
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<span style="font-family: Verdana,sans-serif;"><b>Political Parties</b></span></div>
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<span style="font-family: Verdana,sans-serif;">For many years I have been a member of Columbia University’s
Southeast Asia seminar, a fantastic group of scholars, writers, and a few
private sector representatives.<span style="mso-spacerun: yes;"> </span>We
recently hosted a young scholar from the Australian National University, Marcus
Mietzner, who has lived in Indonesia and closely follows the development of
political parties.<span style="mso-spacerun: yes;"> </span>Mietzner is very
concerned that although political parties have begun to mature, they still have
a long way to go to operate as full representatives of the aspirations of their
members.<span style="mso-spacerun: yes;"> </span>Compared to other emerging
democracies, Indonesia’s is doing fairly well.<span style="mso-spacerun: yes;">
</span>Surveys indicate that people are still very confident of democracy as
the their form of government, and as might be expected, since 1998, less
identify with a political party.<span style="mso-spacerun: yes;"> </span>Voter
turnouts remain high, above 70%, but Islam has become a dividing line among
parties and within parties.<span style="mso-spacerun: yes;"> </span>Parties
differ in how strong a role Islam should play in public life.<span style="mso-spacerun: yes;"> </span></span></div>
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<span style="font-family: Verdana,sans-serif;"><br /></span></div>
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<span style="font-family: Verdana,sans-serif;">The most pressing issue for Indonesia, according Mietzner,
is party financing.<span style="mso-spacerun: yes;"> </span>Up until 2005, the
Indonesian government still appropriated funds to help parties with organizing
their infrastructure for the large increase in the number of local direct
elections.<span style="mso-spacerun: yes;">
</span>Since then, the government has severely cut its support, and parties are
now plagued by the outsized influence of wealthy patrons or the corruption of
party leaders steering projects or government funds to party campaign
funds.<span style="mso-spacerun: yes;"> </span>President Yudhoyono is thought
to have agreed to reinstate the party subsidy program but because his own party
would be a leading beneficiary he backed away from the plan.<span style="mso-spacerun: yes;"> </span></span></div>
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<span style="font-family: Verdana,sans-serif;"><br /></span></div>
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<span style="font-family: Verdana,sans-serif;"><b>The Next President of Indonesia ?</b></span></div>
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<span style="font-family: Verdana,sans-serif;"><br /></span></div>
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<span style="font-family: Verdana,sans-serif;">Mietzner asked a question that many Indonesians have been
asking me recently: Is the US ready for Prabowo (a former top general and son-in-law of Suharto) as Indonesia’s next President
?<span style="mso-spacerun: yes;"> </span>Prabowo tops most polls with 20% of
the vote and is considered decisive and disciplined, the type of President many
Indonesians say they would like.<span style="mso-spacerun: yes;"> </span>But
although his countrymen may overlook allegations of human rights abuses when he
was an Army commander, US leaders in Congress may not.<span style="mso-spacerun: yes;"> </span>Some have told me that he may be on a “do
not enter” list.<span style="mso-spacerun: yes;"> </span></span></div>
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<span style="font-family: Verdana,sans-serif;"><br /></span></div>
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<span style="font-family: Verdana,sans-serif;"><span style="font-size: 12.0pt;">Indonesia’s first civilian Minister of Defense,
Dr. Juwono Sudarsono, told Stanley Weiss, the head of Business Executives for
National Security that<span style="mso-spacerun: yes;"> </span>"Prabowo
leads the pack because he projects grit, firm leadership and
decisiveness--which are seen to be lacking in our current
leadership."<span style="mso-spacerun: yes;"> </span>In a September 2012
Huffington Post piece, Weiss recalls a conversation at the White House with
General Wayne Downing, a top counter-terrorism official in the Bush
Administration and a long time instructor of foreign soldiers at Fort Bragg who
said “Of all the foreign soldiers he ever trained, two stood out. One was
Abdullah II bin Al-Hussein, the reigning King of Jordan. The other was Prabowo
Subianto.<span style="mso-spacerun: yes;">" </span></span></span></div>
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<span style="font-family: Verdana,sans-serif;"><br /></span></div>
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<span style="font-family: Verdana,sans-serif;">There is a long way to go until the Presidential elections
next year.<span style="mso-spacerun: yes;"> </span>First the country must go
through Parliamentary elections.<span style="mso-spacerun: yes;"> </span>From
those numbers, it will be clear which parties can nominate candidates.<span style="mso-spacerun: yes;"> </span>The current system is that a political party
must have members and offices in all Indonesia’s provinces and achieve a certain threshold
of seats in Parliament to nominate a Presidential candidate. <span style="mso-spacerun: yes;"> </span>It is unlikely that Prabowo’s party,<i> Gerindra</i>, can
nominate him on his own and they are seeking alliances with other larger
parties.<span style="mso-spacerun: yes;"> </span>Also, the slump in party
identification among voters always leaves room for a “dark horse”
candidate.<span style="mso-spacerun: yes;"> </span>Even more popular than
Prabowo in some current polls is the Governor of Jakarta, Jokowi, who is not
currently a declared candidate.<span style="mso-spacerun: yes;"> </span>Others
will no doubt come forward in the months ahead.<span style="mso-spacerun: yes;">
</span>For Mietzner and the legions of political observers of Indonesia,
2013-2014 will be a busy year.<span style="mso-spacerun: yes;"> </span></span></div>
Wayne Forresthttp://www.blogger.com/profile/13655020520230942649noreply@blogger.com0