Structural Reform Anxiety

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."  

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. 

  

APEC and America's Image

I 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.”