Adil W Surowidjojo
The elections for legislative candidates have come and gone, and each day offers us a glimpse of the new government that will take place. Time and again we are bombarded by the media and the government to take part in this election and to respect its results, as this event is a defining moment in our modern history: a second, more serious attempt, some would argue, at a democratic election.
Despite its relative success both in terms of electoral process and as a public event, we must not overlook the fact that a worrying percentage of Indonesians, mostly in the regions, are perhaps not ready to participate in it. At the risk of courting political incorrectness, it is nevertheless important to point out that a lot of parties exploited the uninformed and those who simply do not understand the workings of a nation. The blame for this blind spot falls on Indonesia as a whole, for being a country that has not shown sufficient commitment to developing the outer regions, which has resulted in a gaping divide in terms of technology, education, and living standards between Jakarta and, for example, villages on Mount Bromo or Baliem Valley. It is folly for us to ignore the reality that Indonesians who still live in villages, making a living the same way their ancestors have always made a living for generations, are informed enough to care about Indonesia’s development as a larger picture. At the same time, it is callous and irresponsible for city dwellers to expect that our less fortunate cousins will sacrifice their well-being just so that business could flourish in the capital cities.
While paying attention to the aforementioned flaws is important if we are to make improvements, we must not lose a sense of confidence in our democratic efforts; even a recent article in the Economist is lauding Indonesia. The Economist also stressed on the fact that while the Indonesian polling results leave much to be desired, the overall situation is understandable and is even a positive example of democracy. For one thing, there is a growing trend of voters punishing those who failed them, including Megawati (who failed to meet her promise of a cleaner government), and politicized religion (as more and more voters are wooed by the Prosperous Justice Party, a moderate Islamic party that focuses on clean policies rather than religious issues). Perhaps this is a symptom of what the Economist is referring to as the “Asian Political Boom”, a relatively recent trend of Asian nations to move away from totalitarian governments in favor of free market democracies, which is now accompanied by a re-emerging of the “Asian Economic Boom”. Sadly, Indonesia is a nation that is not enjoying much of the latter Boom.
In order to be able to strike a fair balance, we need to look at Indonesia’s economic facts. For one thing, the economy is currently being driven by consumer spending, while investor spending has been weak due to a degenerating investment climate. However, growth is still slow at around 4% p/a, since we need at least 6% just to take care of unemployment. Financial analysts at Morgan and Stanley have made the observation that Indonesia will not see any significant positive changes in its economies soon, and a smooth election will not have the effect that optimists are hoping for. So the people at M&S see investment driven growth as more sustainable, and since Indonesia is lacking that at the moment, our days of relative respite from economic misery are probably numbered. However, this does not mean that the results of the elections are entirely divorced from the economic well-being of the nation; the question we don’t ask ourselves enough is why is the Indonesian investment climate driving off potential investors? Perhaps this is an ‘elephant in the room’ question in that the problems are so big that we can’t or won’t see it, let alone address it properly. The truth of the matter is that investors are afraid of coming into Indonesia because they see more risks and costs than benefits.
There are two costs to investors that will immediately spring to mind: terrorism and corruption. The former is an insidious evil that masquerades as something else entirely before blowing up in your face, while the latter is pretty much business as usual. Terrorism is a tricky beast to track in Indonesia because the whole issue has become hyper-sensitive. The good news on this front is that the Indonesian government has been relatively swift in apprehending and sentencing the perpetrators of the Bali and Marriott bombings. Unfortunately, terrorism does not register as a significant issue in the minds of most Indonesians, unlike in some other countries. Understandably, the government is loath to use methods such as profiling and to target certain communities for investigation purposes, because sacrificing civil liberties just as Indonesians are becoming accustomed to more freedom will be very unpopular, especially during this elections season. The recent trouble in Makassar has highlighted that the Indonesian public will no longer tolerate the heavy-handedness that has become a deep characteristic of Indonesian law enforcers and military; the resulting backlash of the violence and the sacking of officials show that the public has gained significant leverage. This is just one of the benefits of a democracy. One caveat, however: we should not allow our law enforcement entities, and our government, to be so easily chastised when the time comes to show the world that the prevailing Indonesian regime is a “strong horse”; when officials are in the wrong, they must be dealt with, for sure, but the power base of the regime must not be compromised in these delicate times. For now, most people who are concerned about the future of fighting terrorism in Indonesia must see what develops: do we cede to international demand to new (sometimes stifling) anti-terror regulations or will Indonesia tough it out in favor of popular domestic opinion?
The crime that is called corruption is, in comparison to the previous problem, much easier to see; in fact Indonesians would probably feel an inexplicable absence when bureaucracy and service are performed professionally. To the great ire of the masses, despite the fact that we are now officially living in the reformation era corruption had decided to remain faithful to Indonesia and to flaunt its diversity in many different manifestations that people have given up hope on KKN-busting and gone back to voting for Golkar (and Tutut’s party, which have so far attracted almost 2 million voters). Political analysts such as Teten Masduki have attacked the country’s fledgling anti-corruption agency, the Commission for the Eradication of Corruption (KPK), for not contributing enough to the fight against corruption, and that the agency had been crippled since the policies that designed it were made, to favor those in power. However, Mr. Masduki has perhaps overlooked the fact that such an important agency (that will inevitably drain the State coffers periodically and with good reason) is too much a ‘hot potato’ for the current incumbent government that is currently too busy with closing up shop.
However, Mr. Masduki did mention that the sunset of a regime is usually concurrent with a corruption free-for-all, a time when corrupt officials squeeze their current victims for all they’re worth; therefore, he should have noticed that such a pandemonium would leave those entities no time (and courage) to deal with the KPK. Corruption in Indonesia is even deeper than bureaucratic misconduct: illegal mining and logging create gaping holes in the nation’s full economic potential, and money politics in private trade add yet another element of unpredictability foreign investors must contend with. The magnitude of illegal mining and logging is so great that an institution like the KPK will not be an effective tool to address it; only a government with enough clout will be able to completely abolish the practices. Make no mistake; rogue state agents are involved in these operations, and they have graduated into a higher class of corruption altogether.
When one looks at the success at the anti-corruption agencies of other countries, one must not forget that these are involved in the process: in nations where corruption occurs only in the upper echelons, the anti-corruption agency as a government initiative is more successful, whilst in countries where corruption occurs at all levels, the agency will need a strong government to support it financially and ideologically; this is an oversimplification, but it provides us with a framework that can be modified with information from real situations. The anti-corruption agencies of Hong Kong and Singapore are examples of where corruption occurs almost exclusively at higher levels of decision making both private and governmental, with the majority of the population supporting anti-corruption efforts at deeply moral level. In the case of Singapore at least, it helps that the government then was powerful (and just a teensy bit draconian) enough to enforce the policies of the agency. In South American and East European nations, the situation is very similar to Indonesia: corruption has become inseparable from daily life for the majority of the populations, and more often than not newly formed democracies are powerless to reform the corrupt culture. There are examples of success stories of South American nations that have made significant progress in curbing corruption, and a common factor is a strong government effort led by a popular and hands-on leader who, for example, starts fighting corruption at the most lucrative spots: ports, and other places where corrupt bureaucracy squeeze out as much as they can from business dealings. This is not to say that these sections are more important and saving them will stop corruption, but the idea is that the agency is seen to focus its activities in one area at a time, swiftly and thoroughly rinsing that sector of corruption, before moving on to the next challenge. This approach may be more effective than a case-by-case method whereby an agency responds to alerts made by the public, though the reality is that most agencies act out on both external alerts and the results of their own research in varying compositions; depending on their budget, popular support, and the development of the agency’s knowledge base.
Blueprints
Despite being an underdog in the new Asian economic renaissance, Indonesia is not without potential. One should not overlook the fact that although growth could be much better, Indonesia is still growing, which the IMF credit to steady implementation of the government’s White Paper. The IMF’s consultation article describes how the government should be able to make substantial ground in increasing growth through remedying institutional weaknesses such as regulatory uncertainty and inefficient (and/or corrupt) public sector institutions. As we have covered above, the aforementioned problems get in the way of foreign investment getting in Indonesia; the theory is, once these problems have been addressed, the robust consumption that currently characterizes Indonesian economic growth will be entice foreign investors to dip into lucrative markets. The central hope for solid growth rest in big earners such as mining, power, and water markets, which will rake in the foreign direct investment once regulatory uncertainty, regional autonomy inconsistencies, investor insecurity, and corruption-related inefficiencies are eliminated; but these are enormous jobs that will take a lot of effort on behalf of the government to accomplish, and investors are savvy to empty lip-service, so a substantial period of real change must occur first.
Many of the changes will require significant improvements to the Indonesian legal system, an ongoing effort that many scholars (Indonesian and foreign) are dedicated to, but new laws does not mean that anyone will actually adhere to them unless it is in their best interest to do so. To illustrate this point, let’s look at the 3-in-1 rule on Jakarta’s busy roads: people will generally persevere the long trek home because disobeying the rules will lead to massive fines (which the traffic police are eager to collect). Similarly, carrot and stick incentives must be inserted into law reform in a balanced way; the KPK is probably one of the first serious steps taken to address the issue. The KPK is also important in this regard because it is also a tool with which said rules can be enforced, since we have established that rules without their enforcement only amount to lip service; so the formation of special agencies addressing their niche sectors, e.g. healthy business practices in the business sector or the development of competent regional authorities, is probably a step we would want to take. There is a valid fear that this approach will lead to an even more crowded bureaucracy, which will not serve to help reforms at all, but if a well thought out core policy is designed for the purpose of all those sorts of reforms, we will only need a strong enough government that will carry out improvements and changes to the end.
The IMF article also talks about the Indonesian state banks, which it observes to be “the main source of fragility in the financial system”; indeed, the central bank has been criticized of late for not being able to design an appropriate level of checks and balances to strain out banks that are more prone to bad loans and other forms of moral hazards. The solution offered by the IMF is that by increasing the participation of the private sector in the realm of state banking, their efficiency will increase and their management will reflect the good governance so prevalent in the private sector; except that perhaps a substantial part of the Indonesian private sector is not particularly known for their efficiency (not the monopolies, at the very least), or good governance, not to say anything about the asymmetries in bargaining power that will be sure to crop up. Perhaps a more specific suggestion would be for the government to facilitate mutually beneficial activities between the weaker state banks and segments of the private sector that have proven themselves to be of good repute (perhaps this will serve to winnow the candidates to some large –maybe multinational – firms); similarly, healthy state banks may be paired with struggling elements of the private sector who have decent credit, either way the playing field must be leveled for such co-operations to become fruitful. This may be the intention of the IMF article in the first place, but it never hurts to make sure.
The more specific components of a healthy investment climate are also addressed by the IMF article. For instance, it exhorts Indonesia’s government to “establish a clear and competitive framework for labor relations”; the gist of which is the implementation of regulations that will govern labor disputes “in a way that protects worker’s rights while maintaining labor flexibility”, to be achieved by appropriate legislation including the raising of the minimum wage “to preserve competitiveness and reduce unemployment”. Some observers may argue that, for one thing, the minimum wage increase will not serve to reduce unemployment, because higher wages necessitate more work opportunities to absorb all those needing employment. For another, no one will argue that there exists a delicate balance between protecting the well-being of workers, who traditionally have lower bargaining power than corporations, and providing enough incentives for those corporations to come into Indonesia in the first place: regulation slanted against investor security and higher wages will not serve to make Indonesia appear more competitive, unfortunately. Analysts may forward the argument that the current economic and political environment produces a government that is perhaps ill-equipped to design regulations that need to be so delicately balanced; again all hinges upon the improvements of core policies that will support legislative adventures such as this. All in all, the IMF consultation article is largely a positive take on the progress that has been made so far in the Indonesian economic arena, but policy-makers still have an immense workload ahead of them that need to be addressed and processed swiftly before any of Indonesia’s steps should be taken seriously.
On the battlefield, there has been no shortage of activity. In a report by the Coordinating Ministry for Economic Affairs to the President, important progress of the White Paper Implementation include: the issuance of a Presidential Decision that hastens the process towards approving domestic and foreign investment application; the issuance of decisions to implement regulations governing Manpower Law No. 13 of 2002, of which rules governing overtime, compensation, and the structure and scale of wages are some of the more interesting. Also, IBRA has been officially terminated as of April the 30th. The Coordinating Ministry for Economic Affairs considers IBRA to have fulfilled its duties as stated in Government Decision No. 17 of 1999 and Presidential Decision No. 26 of 1998, and finally Presidential Decision No. 24 of 2004. These steps have been made with a great sense of confidence; it is left to Indonesia to make them work. (aws)
