Backing Away From the Dollar

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. 

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.

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:

• Mineral export bans, required local smelting and downstream processing
• Beef import bans
• Crude palm oil export tax levied to build a biodiesel industry. The same policy may eventually be applied to coffee and rubber. 
• Regulation requiring 50% of reinsurance policies to be paid to a state owned reinsurance company rather than offshore providers. 
• Planned tax amnesty to attract offshore funds
• Investment policies promoting "value-added" manufacturing as a priority such as a regulation to ban sale of cell phones not made in Indonesia. 

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.  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. 

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. 

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. 

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. 

The Value Added State

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.   

What are its characteristics?

(Apologies for over simplification of a topic that is actually much more complex than what I set out below.) 

1.  A VAS welcomes FDI BUT

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.

2. A VAS crafts policies to keep as much currency within the country without going as far as establishing formal currency controls.  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. 

3. A VAS expands rather than contracts its state-owned sector.

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. 

4. A VAS is paternalist; it desires to be a player not just a referee. 

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. 

5. A VAS pursues import substitution policies through a combination of import and export bans.  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. 

6.  A VAS intensively credentials foreign workers.

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. 

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?  

Outlook for 2015: Cautious Optimism

Commentary by Wayne Forrest

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:

Economic/Financial:
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 (blusukan 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.

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.  

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. 

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)

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.

Bottom line: 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. 

Politics/Security/Governance
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. 

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. 

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.

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.

Bottom line: expect Jokowi to consolidate a working Parliamentary majority by mid 2015 if not sooner.

Overall outlook: 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.

Which Tune is Playing ?

Commentary By Wayne Forrest

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.


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.


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.


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. 


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."


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 future

Parliament Votes to End Direct Elections: Twists and Turns

Politics in Indonesia is about to become a whole lot more interesting. 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.

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.

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. 

Where Are The Technocrats ?

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

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

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

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

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

Bima vs Puntadewa

Bima                                            Puntadewa 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. 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.    One of Indonesia's most famous dalang(puppeteers), Ki Manteb, has already publicly compared the candidates to two of the most well known and beloved wayang (shadow puppet) characters: Bima and his older brother Puntadewa. 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 ? 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. 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 Bima the strongest of the satria (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. 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." 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". 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.  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. 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.