Prelude to Action
In this last month of the year 2003, Indonesia anticipates the resolutions of many issues that remain unsatisfied, like the plot twists of a cliffhanger novel. 2004 will see the third democratic election held in Indonesia, which many people feel (perhaps unfairly) to be the crucible of whether or not the concept of democracy will work in the country, with the first one in 1955, and the latest in 1999 popularly held to have yielded bitter fruits.
Another pertinent issue would of course be the effectiveness of the government’s post-IMF economic plans, amidst the whirlwind of political skirmishing that many expect to taint the election process in April. The fact that the recent BNI scandal has been connected to certain presidential candidates certainly will not help simplify matters.
And yet, 2003 had not been a bad year, economically speaking, especially considering the considerable disturbances caused by the Iraq war, the SARS epidemic, and two terrorist attacks on Indonesian soil. Economists have argued that Indonesia have somehow weathered these trials and emerged relatively unscathed.
It would be interesting if we could somehow draw some solid conclusions on why 2003 had been considered a good year for Indonesia, obviously good enough for agencies like Moody’s and others to have raised their ratings for Indonesia, and whether or not events in 2003 have equipped us with enough to survive 2004 with equal, if not better, results.
The Delicate Predicament
Politics in Indonesia has historically been a messy, sometimes bloody, affair. People seem to have forgotten that before the 1999 elections (excepting the 1955 elections), there were no real elections, and perhaps placed unreal expectations on the first experiments in democracy. The relative freedom of the media today has helped somewhat in keeping the public abreast with what a politician promises and what he actually does, though we should keep in mind that misrepresentation of political fact by the media could potentially have devastating effects on the election process.
The one thing the public will notice about the 2004 general elections will be that there will be fewer parties to vote for, arguably due to the work that the KPU (The General Elections Commission) has put in filtering the contestants. One possible disadvantage to this situation is that only the old, established parties and very few new ones will be eligible for the election process, adding a disincentive to people who are losing their trust in the Indonesian democratic system. The BNI scandal, in which almost Rp 2 trillion (about US$ 240 million) have been lost, is another reason why the public is steadily losing faith in the current system. It has been speculated that the scandal is connected to the lack of laws regarding the funding of political campaigns, since rumors are abound (courtesy of the media) that the scandal had been made possible due to the machinations of powerful and well-connected individuals. Political analyst has taken this event as a sign that the political struggle to win the 2004 elections has begun in earnest, as the slander of those connected to the scandal by competing parties commences. Analysts worry that the media battle that is sure to come, and those that are sure to follow in the coming election process, will detract public attention from the corruption problem that made such a scandal possible in the first place. As people become used to the media spectacle, they will become desensitized to it, and the unfortunate result would be to further their loss of faith in the election process.
One unhealthy trend noted by the media is the campaign of ‘anyone but Mega’ for the 2004 elections; unhealthy because the campaign encourages the public to lose their objectivity and settle for any regime in place of Megawati’s. On the other hand, it is a commonly held opinion that the Megawati regime is in dire need of fulfilling the promises it made during its campaign in 1999, and the fact that the regime still enjoys fanatical backing by parts of the public reveals a disturbing but understandable yearning of the people for some stability in their lives. Not to be forgotten are powerful interests behind the campaign to keep Megawati in power, due to her lack of commitment to the rooting out of corruption in Indonesia. Indeed, a recent case where the government allegedly awarded a Rp 1.3 trillion real estate project to the President’s son (without a tender process offered to the public) has practically reminded the public of how flagrantly the regime has neglected its promises of cleaning up the country.
The situation has become delicate because so much hinges on the 2004 general elections, not the least is the government’s post-IMF economic program. Analysts are therefore worried that the mounting scandals and political brawling will discredit the legitimacy of the elections process and create problems for the next democratically elected regime.
A Complicated Playing Field
The 2004 general election is inexorably linked to the Indonesia’s economic success in the global arena; arguably, the uncertainty generated by the event may have added to existing disincentives of foreigners to bring their business into Indonesia (mainly corruption). Jakarta has been observed of trying to improve its ties with existing and prospective economic allies, of which one of the increasingly more prominent is China.
Observers have noted that in response to the unattractive requests of the US, with regards to its need for assistance in the War on Terror, China is a world power that seems to be more and more accessible to Indonesia. The connection is one that is interesting to be explored: The US desires the help of Indonesia as the world’s most populous and also most moderate Muslim nation, but Indonesia’s government is not confident enough of its strength, fearing religious uprisings should it openly support America. In the meantime, China has launched a region-wide campaign to ‘get rich together’, which although is a generous scheme with the economic development of developing countries such as Indonesia, may be criticized of not paying enough weight on human rights, environmental, and anti-corruption issues (issues that are at face value high on the American agenda). China is also an attractive ally to Indonesia because both countries face separatist problems, China with its Taiwan and Indonesia with its Aceh (and others), and both countries today support each other in their unification efforts, though one may argue that Indonesia’s situation is different from that of China in this case.
There is also concern that Indonesia’s relations with Japan is not as amicable as it may seem, and the reason for that may not entirely altruistic, though understandable. There has been a noticeable decrease in Japanese business interest since the Suharto regime was toppled, and scholars have argued that this is because the following regimes have not been able to assert themselves as strong leaders. In short, the Japanese have felt that Indonesia has become an unstable venture due to the lack of control the central government has on Indonesia as a whole. The trend today maybe distressing to Japan, as China has begun to dominate the South East Asian economy by the high demand for imports fueled by China’s economic success. Furthermore, as terrorism continues to threaten ASEAN countries such as Singapore, Indonesia, and the Philippines, the effect will be to pull these nations together into more integrated economic and security efforts: Japan may find that it will have to deal with ASEAN as a cohesive bloc than as competitive rivals.
Strange Glue
It is worth repeating the question of why 2003 was considered to have been a decent year for Indonesia, as if some strange, unidentifiable glue was holding Indonesia’s parts together despite the shocks that should be enough to whittle away its foundations. Some may say that this is due to a national denial of the problems that face us, and the Indonesian public (those who can) are at present gorging on consumerist pleasures on a wave of temporary economic respite, like lotus eaters who indulge in the world of images to forget the very real problems that plague Indonesian society.
Some of these problems are quite subtle, for instance the Indonesian military has announced that it will stop selling security services to foreign firms to devote more of its time and effort to assert stability in Indonesia’s hotspots. The decision seems to have stemmed from a push by the Megawati regime to repair military connections with the United States. If such an attempt succeeds in any significant degree, then it may signal a new deepening in the military relationships between Jakarta and the White House. Such a relationship would of course mean that Indonesia would be drawn into active commitment against the War on Terror, something that the Indonesian government is still wary of, and something the White House sees as both necessary and beneficial for the credibility of Islam: a moderate Muslim nation backing the war on terror could stem the tide of the radicalization of Islam observed (perhaps exaggerated) by the extreme right on the Western front.
One side effect of the choice, however, is that TNI will no longer enjoy the revenues generated by its protection services. This means that soldiers who supplemented their meager income with the proceeds of security work will no longer be able to do so, and the worry is that if unappeased by a new pay scheme, they and those posted in remote regional areas (where they will enjoy less the amenities provided by a collaboration with the US military) will make trouble for the government.
Observers may also sense a tense and strange sort of calm in Indonesia’s cities, with regards to terrorism. It is an undisputed fact that there are citizens who are still traumatized by the Bali bombings and (perhaps more severely) by the Marriott bombing. Today big cities such as Jakarta are still on high alert, and the pursuit of now well known terrorists stubbornly refuses to leave the minds of Jakartans. And yet, Indonesian media is strangely not investigative enough about the issue, and in fact foreign media such as the Straits Times of Singapore and CNN make a bigger deal out of it. It is within this sort of environment that the government must tip-toe warily between the growing demands of its citizens and the western world to prevent further attacks, and the Muslim communities who have stressed that there are no terrorist groups in Indonesia. It is highly important that the Indonesian media discard its selective fetish for political correctness and focus on relevant issues, however taboo they might be, and not on the newest supernatural reality TV show.
Economic Prospects
As mentioned above, the government is on the verge of some very adventurous policy-making on its own without the IMF. It may be comforting to some that reliable sources have declared the 2004 budget to be realistic enough, even with a projected economic growth rate of 5% (at year end, growth rate is recorded at 3.5 – 4%). A paper by Anton Gunawan of Citibank, “Indonesian Economics: Self-Reliant 2004 Budget – Key Word is Fiscal Consolidation”, explores the larger impacts of the IMF’s exit, specifically the need for more competency with respect to managing the capital market as it is practically the main source of budget financing.
The main worry is that, as mentioned above, the general elections of 2004 along with the political circus that many expect to accompany it will serve to destabilize an economy that needs to prove its fortitude. The World Bank in a recent press release has pointed out that the Indonesian government needs to pay more attention to the country’s infrastructure. The document proceeds to discuss the outdated infrastructure that Indonesia has had to be content with, infrastructure as under-maintained and undeveloped as to frighten away potential investors to other Asian countries with better facilities. A problem hinted at by the article is that attempts to spark the flames of progress are many times met by derision by the public, who (for example) see raised electricity fees as yet another way the government is exploiting them. This cynical view is not unwarranted, as Indonesia still ranks quite high on the world’s most corrupt nations list. An article in the December 11 issue of the Far Eastern Economic Review exposes IBRA’s difficulties in rebuilding Indonesia’s banking system, specifically the way uncertainty generated by share-settlement agreements have provided avenues for certain conglomerates to escape their debts. The fact that these conglomerates have intimated themselves with those high up in the current regime is a serious sign of a lack of political will in the regime to combat corruption.
The fact remains that the most significant thing the government can do is to fulfill its promise to eradicate corruption, which can only be done when the government becomes a transparent and accountable entity. An additional source of headache for the government is the fact that the decentralization of authority in the form of regional autonomy has given rise to governments that are no more than copies of the central government’s most corrupt tendencies, a very significant obstacle to real infrastructure development in the regions.
Meanwhile, the raising of Indonesia’s ratings by agencies such as Moody’s and Fitch has shown that the government’s recent efforts have not been for naught. Fitch has revealed that the ratings improvement have been due to sustained improvements in the public finances, the government having consistently outperforming its budget targets since the year 2000. Fitch also commended the government’s mostly successful bank asset recovery and privatization efforts; despite the recent scandals concerning both, public debt has fallen from a peak of 99% of GDP to an expected 73% in 2003 and a projected 54% by 2006. Furthermore, debt consolidation efforts and persistent current account surpluses have combined to improve Indonesia’s external solvency and liquidity ratios. Due to a decent figure for gross external financing requirements at 24% of international reserves and the trends mentioned above, Fitch foresees that net public external debt will likely drop from 90% of current external receipts in 1999 to below 60% in 2003, and a projected 40% in 2005.
The investment scene is in dire need of such good news, with only a 3.7% increase in foreign investment approvals in the first 9 months of 2003 (totaling US$ 6.1 billion) over the same period in 2002. Meanwhile the state of domestic investment approvals is even more disheartening, falling 14.7% to Rp 16 trillion from Rp 19 trillion. Note that the number of realized investment projects will invariably be significantly lower than the number of approved investment projects. Observers will be quick to point out that the facts reveal that Indonesia’s economic engine has recently been mainly running on consumer spending, a state exemplified by the billions of dollars generated by the Lebaran holiday alone.
It is also interesting to observe that the foreign investments to come into Indonesia have been directed at the pharmaceutical and chemical industries (where investment is valued at US$ 3 billion), with the oil and gas sector only showing lackluster growth, and even that is mainly supported by LNG shipments.
Despite an evidently strong belief that the 2004 elections will be peaceful, perhaps the majority of foreign and domestic movers and shakers are simply being realistic by waiting for the results of the political showdown of 2004? [aws]
