Indonesia: Lessons for the World

Image Credit: REUTERS/Ahim Rani

The Diplomat – While the country faces multiple challenges, it is important to remember how far it has come.

The year 2014 will be a pivotal year for Indonesia; one in which the political baton will be handed over. Both the nation’s highest offices will have new occupants: the House of Representatives (DPR) and the presidency. Indonesia will begin a new chapter in its history.

The new custodians of Indonesia’s future will face many challenges. Recent months have brought a chorus of criticism as the economy slowed, the rupiah slid, and government policy appeared to lose direction. Commentators have poured scorn on the country’s economic outlook and questioned whether it deserves its status as one of the world’s hottest emerging markets.

Everyone knows the challenges; Indonesia needs to push ahead with reforms if it is to move up the economic ladder. Certainly, the country does need to do more to stay competitive, but the tremendous strides it has made should not be forgotten. Just consider where Indonesia was a little more than a decade ago.

In fact, looking at Indonesia’s recent domestic accomplishments, what the country has achieved is nothing short of outstanding. After the fall of Suharto’s New Order regime in 1998, many analysts predicted that the country was standing at the end of a precipice, posed to tear itself apart in much the same way as the terrible ethnic conflicts that ravaged the former Yugoslavia. Without a doubt, this was a distinct possibility. With a vast sprawling archipelago of more than 17,000 islands; hundreds of ethnic and linguistic groups, speaking over 300 unique local languages; multiple religious sects; and a huge population, estimated at just over 200 million in 1998, keeping sectarian and ethnic conflict at bay would be a challenge at the best of times. Yet during this tumultuous time, Indonesia was facing political and economic instability, sparking armed separatist rebellions in Aceh and Papua, and secession from Indonesia by the East Timorese in 1999. National disintegration and large-scale ethnic conflict were more likely than not. [Click here for full article…]

Indonesia: Rights Rollback for Religious Minorities, Women

Protestors from the International Women’s Alliance and Gabriela organization shout slogans at the gate of the World Trade Organization Minsterial Conference on the island of Bali on December 5, 2013.
© 2013 Reuters

Human Rights Watch – Indonesian women and religious minorities faced heightened discrimination in 2013 from the government’s failure to enforce human rights protections, Human Rights Watch said today in itsWorld Report 2014.

Indonesia’s government under President Susilo Bambang Yudhoyono should reverse course and enforce laws protecting religious freedom, Human Rights Watch said. Indonesia should amend or abolish hundreds of local bylaws that discriminate against women and religious minorities. The government should also release the dozens of political prisoners, mostly Papuan and Moluccan activists, imprisoned for peaceful dissent.

“President Yudhoyono is all talk and no action when faced with government officials and militant groups intent on curbing the rights of women and religious minorities,” said Phelim Kine, deputy Asia director at Human Rights Watch. “Unless Yudhoyono takes decisive action in the final months of his presidency in 2014, his legacy will be marred by his failure to defend the rights of all Indonesians.” [Click here for full article…]

Rupiah to become Asia’s best

Jakarta Post – With signs of recovery in the country’s balance of payments, Indonesia’s currency is heading for a sharp turnaround in 2014 to go from being Asia’s worst to best performer, analysts have predicted.

According to UK-based Lloyds Bank plc, which topped a Bloomberg poll for Asian foreign-exchange forecasts in 2013, the rupiah would strengthen by 6.8 percent to 11,400 per US dollar by the end of
this year.

Rupiah appreciation of such a magnitude was “not an overly bullish call” as the currency’s larger-than-expected decline last year offered the prospect of a larger rebound, thanks to the returning foreign inflows, according to Jeavon Lolay, Lloyds’ director of international economics.
“Indonesia is a high-yielding, large and fast-growing economy – its attraction will remain,” he told The Jakarta Post via email on Thursday.

“Government initiatives to allow more investment should support inflows,” added Lolay, who predicts the Indian rupee and Malaysian ringgit will be the next best-performing currencies after the rupiah in Asia, both rallying by 3 percent.

Meanwhile, France-based Société Générale presented an even more optimistic view, predicting that the rupiah would reach 10,250 against the greenback by the end of this year. That would be stronger than the government’s forecast of 10,500 as stipulated in the 2014 state budget.

“I believe that global investors have excessively punished Indonesia over the past year. In my view, the macro-fundamental risks are significantly overpriced,” Benoit Anne, Société Générale’s head of global emerging market strategy in London, wrote in an email. [Click here for the full article…]

Insight: Election, electability and eligibility

Jakarta Post – The upcoming presidential election has highlighted two terms, namely electability and eligibility.

Electability is a statistical notion that refers to the likelihood of someone being elected as measured through opinion polling. On the other hand, eligibility is a legal-political notion, according to which someone has the possibility of becoming a candidate if he or she is nominated by a political party or a coalition of political parties.

At present the governor of Jakarta, Joko “Jokowi” Widodo, tops the ranking of electability as of November 2013, with up to 34.7 percent, leaving other potential candidates far behind. Second to Jokowi is Lt. Gen. (ret.) Prabowo Subianto who gets 10.7 percent, while Aburizal Bakrie has 9 percent, Gen. (ret.) Wiranto 4.6 percent and Megawati Soekarnoputri 3.3 percent (Tempo, Jan. 6-12, 2014).

Convincing as that may be, the rivals of Jokowi are still optimistic by arguing that despite his outstanding electability, Jokowi is so far not eligible because no party has nominated him as a presidential candidate. The Indonesian Democratic Party of Struggle (PDI-P), to which Jokowi belongs, is still indecisive in nominating its candidate, while Megawati as chairperson sticks to her stance that the party’s presidential aspirant will be announced after the legislative election results are made public.

The question arises: Why after the legislative election? At this point one is faced with a political conundrum. Other political parties like the Golkar Party and the Great Indonesia Movement (Gerindra) Party introduced their presidential candidates fairly early, the People’s Conscience (Hanura) Party is even more advanced in naming both presidential and vice presidential candidates.

In this instance two different political objectives are aimed at. In the first case, there is ample time to introduce the presidential candidate and the would-be vice president to the largest possible segment of potential voters. People know who is whom and can make their judgment on the basis of this knowledge about who best suits their expectations for good and effective political leadership. [Click here for full article…]

Govt needs to pay more attention to informal sector

Jakarta Post – The government should be focusing more attention on the informal sector, which plays a significant role in the country’s economy; to do otherwise could constrain development, a senior economist has said.

“Policymakers should work on the issues, depending on what concerns are the more pressing […]
whether productivity or social protection,” World Bank senior economist Truman Packard said on the sidelines of a seminar held by Jakarta-based think tank, the Centre for Strategic and International Studies (CSIS).

If a piece of legislation had hindered the informal sector from accessing private credit or bank loans — making it difficult for the sector to boost its production — then policymakers needed to get rid of the law, Packard said.

“The law has to recognize the way most people work. Small and medium enterprises are the largest source of employment. Most people are not working full-time, 9-to-5 jobs or waged jobs in this country,” he said.

The informal sector plays an important role in the national economy, and was a savior for the nation during the 1998 financial crisis. In 2012, 54 percent of 118.05 million workers were informal workers, according to data from the Central Statistics Agency (BPS).

This figure highlights a significant shift. Before 1999, the number of people working in the formal sector was much higher, at around 60 percent of the national workforce, BPS data shows. [Click here for full article…]

Vehicle Companies Move Production Base to Indonesia

Temp.co – Minister of Industry Mohamad Suleman Hidayat, said that global vehicle producers have started to move their production base to Indonesia. One of the companies is Honda Motor Company through Honda Prospect Motor, which has just established its second factory in Karawang, West Java.

“They believe in Indonesia based on several years of experience and because [the country is a] potential middle-class market segment,” Hidayat said after inaugurating the factory at Mitra Karawang Industrial Region yesterday.

Honda Motor previously had a production base in Thailand that produced popular models in Southeast Asia such as the Honda Jazz, Honda CR-V, and Honda Civic. However, the company decided to move after the great flood hit the country several times ago and immobilized production and sales of Honda. This caused Honda to expand its business to other countries.

Hidayat is confident that the amount of investment in the automotive industry will increase significantly. He added that the number of investment in the automotive sector is placed second after the steel industry with 11 percent from the total GDP.

Based on data from the Investment Coordinating Board, from the first to third quarter of 2013, foreign investment in automotive sector had reached US$2.7 billion, a number significantly larger compared to the investment in January to December 2012, which was US$1.84 billion. [Click here for the full article…]

Govt set to introduce fixed subsidy for fuel sales this year

Fuel control: An official checks a radio frequency identification (RFID) device on the fuel tank of a car at a fuel station in Jakarta. The device records each car’s usage of subsidized fuel in a bid to control fuel consumption. (JP/R. Berto Wedhatama)

Jakarta Post – The government has declared its commitment to undertake further reforms, with a top economic minister saying he will push a plan to implement a fixed subsidy for the sale of subsidized fuels this year.

The government “is preparing to move into a fixed subsidy regime”, Finance Minister Chatib Basri said at an international seminar held in Jakarta on Wednesday.

Indonesia adopts a price-based fuel subsidy. At present, the price of subsidized Premium gasoline is set at Rp 6,500 per liter (55 US cents), while the recent trend of rising oil prices and a weakening rupiah have driven up the market price of gasoline to around Rp 9,000 per liter.

With the current system, the price difference is paid for by the government’s subsidy. The higher the market price, the higher the subsidy the government must provide.

Under Chatib’s proposed fixed energy subsidy system, the government would fix fuel subsidies at a certain amount, such as Rp 1,500 per liter. With this mechanism, the price of Premium gasoline can be adjusted automatically when its market price soars or declines significantly.

“By doing so, you’ll remove all the risks regarding the exchange rate and oil price — the subsidy is fixed and you can keep the volatility [of the subsidy allocated in the state budget] within range,” the minister said.

“Don’t rule out the possibility of subsidy reforms, even this year. And by saying subsidy reforms, I mean electricity and fuel,” he added.

He said the government had considered changing the subsidy provision to a fixed system this year. [Click here for the full article…]

Rupiah Strengthens as Softened Ore-Export Ban Spurs Stock Gains

Photographer: Dimas Ardian/Bloomberg

Bloomberg – Indonesia’s rupiah rose the most in six weeks and the stock indexhad its biggest rally since September after an ore export ban was diluted. Bonds surged on speculation the Federal Reservewill slow the pace of its stimulus reduction.

President Susilo Bambang Yudhoyono signed a rule to prohibit raw mineral shipments, which will still allow exports by more than 60 companies with plans to process domestically, Energy and Mineral Resources Minister Jero Wacik said Jan. 11. The ban, which wasn’t as strict as initially proposed, came into effect yesterday and pushed up nickel and copper prices today. The Jakarta Composite index of shares rose 3.2 percent, the biggest increase since Sept. 19.

“The rupiah is likely to be the main winner given the Sunday changes to the mineral ore export ban,” Dariusz Kowalczyk, a senior strategist at Credit Agricole CIB in Hong Kong, wrote in a research note today. “The regulations were significantly diluted.”

The rupiah gained 0.9 percent, the most since Dec. 2, to 12,050 per dollar as of 4:09 p.m. in Jakarta, prices from local banks show. One-month non-deliverable forwards rose 0.1 percent to 11,904 and touched 11,830 earlier, the strongest since Dec. 3. The contracts traded at a 1.2 percent premium to the onshore spot rate, according to data compiled by Bloomberg. [Click here for full article…]

Indonesia Elections: A Chance for America to Re-Engage in Asia

Huffington Post – Two years ago President Obama declared that America was “all in” on a U.S. foreign policy “pivot” to the Asia-Pacific Region. A U.S. shift in policy focus from the Middle East and the conflicts in Iraq and Afghanistan to a longer term commitment to strategic economic and security interests in Asia was welcomed news in many Southeast Asian countries. Since then, little progress has been made in the execution of this policy pivot. However, the upcoming Indonesian elections offer an opportunity for the U.S. to re-engage in Asia by supporting and advancing mutual democratic values and principles to ensure a free, fair and credible election and the first peaceful democratic transition of power.

President Obama’s statements promising a renewed interest in Asia were particularly well received in Indonesia. He spent four years of his childhood in Jakarta, returned for a visit in 2010, and enjoys broad popularity throughout the country despite several recent trip cancellations. Unfortunately, the president’s commitment of an increased presence in and attention to the region have gone largely and remains a back-seat priority due to ongoing crises in the Middle East, such as Syria, and all-consuming domestic issues, such as fiscal emergencies and the troubled rollout of the Affordable Care Act. However, Indonesia has fast approaching parliamentary and presidential elections in 2014 which offer the U.S. an opportunity to again press the “reset button”, this time on the pivot to Asia policy shift. As illustrated by Indonesia’s willingness to sign and support for continuing the U.S.-Indonesia Comprehensive Partnership Agreement (CPA any serious presidential candidate in Indonesia would see the vision of the American pivot as essential to the country’s trade and economic development future.

The Indonesia elections are critically important to U.S. interests in the region. American engagement and support for a free, fair, and credible poll will significantly advance several points of strategic interest for the U.S. First, Indonesia is the most populous Muslim nation in the world but simultaneously remains a multi-ethnic, multi-lingual, and multi-religious society based on tolerance and mutual respect. The Indonesian government has consistently pushed polices that support religious, ethnic and cultural diversity but religious intolerance is on the radical Islam has begun to increase, and a rapidly growing number of local governments have passed legislation based on more extreme versions of Sharia law. The U.S., Indonesia, and other countries in the region can simply not afford for the cancerous growth of Islamic extremism to spread throughout the country risking violence, upheaval, or worse – a failed state. The overwhelming majority of the Indonesia population does not want to see an expansion of extreme Islamic law and the most effective way to ensure the will of the people is reflected is through guaranteeing free, fair, peaceful and credible elections and a smooth democratic power transition in 2014. [Click here for full article…]

Parties rise, fall with leaders

Jakarta Post – Counting down to the April 9 legislative election, political parties are relying heavily on the popularity of certain members to boost their chances in the capital city.

Indonesian Democratic Party of Struggle (PDI-P) legislative candidate Charles Honoris said the rising popularity of PDI-P politician and Jakarta Governor Joko “Jokowi” Widodo had made the party upbeat it would secure the most seats in the city on election day.

“Looking at Pak Jokowi’s leadership and popularity in Jakarta, PDI-P is optimistic it will clinch nine legislative seats, three from each of Jakarta’s three electoral districts,” said Charles, who is running as a legislative candidate in the Jakarta-3 electoral district.

As governor since 2012, Jokowi has enjoyed positive media publicity mainly due to his hands-on style of leadership. Many surveys have also put the former mayor of Surakarta, Central Java, as the strongest contender in the upcoming presidential election.

While the PDI-P sees its popularity soaring ahead of the legislative election, the city’s two biggest political parties, the Democratic Party (PD) and the Prosperous Justice Party (PKS), have been struggling to keep their supporters amid various graft cases implicating prominent party figures.

In December, former PKS chairman Luthfi Hasan Ishaaq was sentenced to 16 years in prison for his involvement in a beef import graft case. Last week, PD ex-chairman Anas Urbaningrum was also arrested by the Corruption Eradication Commission (KPK) for his alleged role in the Hambalang sports complex graft case. [Click here for the full article…]

Scholars, intellectuals endorse Prabowo’s bid

The Jakarta Globe – A group of university professors and intellectuals announced on Wednesday its collective endorsement of Gerindra Party presidential candidate and chief patron Prabowo Subianto, giving the retired army general another moral boost ahead of the upcoming presidential election. Former Bandung-based Padjadjaran University rector Yuyun Wirasasmita, who read the group’s endorsement during a gathering […]