Monday, March 21, 2016

Indonesia's policy u-turn: Economic revolution, or empty promise?

Tom Lembong​ is the Harvard-educated Indonesian Trade Minister. He is the modern face of an Indonesian government presided over by Jokowi Widodo, who has struggled to gain traction in his first year in office.

If Lembong is to be believed, Indonesia is on the cusp of an infrastructure boom and on the way to realising its potential as the most dynamic economy in south-east Asia.

What is uncontestable for anyone who has been stuck in Jakarta traffic – much worse in my experience than the worst of Beijing gridlock – is that Indonesia is certainly in need of an infrastructure makeover.

What is much less clear is whether the Jokowi administration has the capacity to jolt a lethargic Asian giant out of a post-colonial protectionist mindset. This has caused the country to lag behind its neighbours economically.
In a lively conversation this week with editors of Australian publications, Lembong said Jokowi would come to be regarded as a "quiet achiever" who is in the process of bringing about "one of the biggest policy u-turns in [Indonesia's] history".

Lembong proclaimed that an era of "shallow nationalism" is at an end and that Indonesia will now embrace a more open, less constrained economic model that would enable the country to realise its undoubted potential relatively free of crippling over-regulation and pervasive corruption.

Predictions off

I would like to believe him, but remain sceptical.
Academic literature abounds with predictions of Indonesia's emergence.
On the flight north, I had read an Australian National University study – Indonesia Rising: The Repositioning of Asia's Third Giant – published in 2012. It had contributions from, among others, the ubiquitous Professor Ross Garnaut, and a preface from the even more ubiquitous former foreign minister Gareth Evans.

In the years since publication, we have witnessed less of a rise and more of a bump, now constrained by the end of the commodities cycle.

In an opening chapter sub-titled "Goodbye China, Hello Indonesia?", ANU professor Anthony Reid quotes New York University Stern School economics professor Nouriel Roubini's​ forecast back in 2010 that an Indonesian business model with low inflation, low debt and a young demographic would outperform China.
That prediction was made six years ago: while China's economy is continuing to slow, so too is Indonesia's, growing at below 5 per cent in 2015, although there was a slight uptick in the fourth quarter.

Indonesia needs to do better to accommodate the expectations of a restive population of 250 million people and hold at bay extremist movements poised to take advantage of an economic downturn.

Relationship revamp

Australian editors were told this week by government officials and Islamist scholars that Indonesia's brand of "moderate Islam" would withstand fundamentalist pressures, but our interlocutors could not be sure about the extent to which Middle East-inspired extremism had made inroads into the minds of young Indonesians.
Indonesia is potentially vulnerable to violent Islamic jihadist ideology, as we've seen in terrorist incidents over the years, including most recently in Jakarta in early 2016. In those circumstances, it would be foolish to assume that all will be well in our most populous neighbour – or, put another way, that stability can be guaranteed.

What is the case Рto the point where making such declarations has become a clich̩ of Australian foreign policy and thus devalued in the process Рis that relations with Jakarta need a bit of a makeover, starting with the economic relationship, which is paltry.

Surprisingly, Australia's two-way merchandise trade with Indonesia ranks 12th, way below neighbouring – and much smaller – Asian neighbours such as Singapore and Malaysia.
Australia is the world's 12th-largest economy, Indonesia is the 16th and en route to the top 10 within the next decade or so, according to some estimates.

Trade Minister Lembong would be the first to admit that difficulties of doing business in Indonesia – rated by Transparency International as one of the more corrupt countries in the world – constrains trade and investment.

He will be in Australia in the next week or so to work on a "scoping study" to facilitate a free-trade agreement in which Indonesia makes some overdue gestures to improving its investment environment.

The Indonesian official is not overstating things when he says: "We have a lot of homework to do on our side." We should wish him well.

Tony Walker is The Australian Financial Review's international editor. He travelled to Indonesia as part of an Australia-Indonesia Institute delegation organised by the Department of Foreign Affairs and Trade.



Read more: http://www.afr.com/opinion/columnists/indonesias-policy-uturn-economic-revolution-or-empty-promise-20160310-gng7cc?utm_source=Australia-Indonesia+Youth+Association&utm_campaign=b49db17e2e-aiya_links&utm_medium=email&utm_term=0_8e232b7513-b49db17e2e-130048557#ixzz43UJABisU
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