Will Indonesia Ever Realize Its Potential And Move to the Head of the Class?

Artha Prameswara

Gita Wirjawan, the man in charge of attracting foreign investment to Indonesia, has said that “the real issue” in doing so has been our country’s relative obscurity in the United States. “There are not enough books about Indonesia,” he says. “Not a lot of people in DC, New York and many other places in the US know a lot about Indonesia.” In other words, Wirjawan’s job would be much easier if Indonesia were better known.

He seems to have had his wish for national fame fulfilled when Sri Mulyani Indrawati became the most famous Indonesian on the world stage. Though being second in command at the World Bank in Washington, DC, does not turn anyone into a rock star in the traditional sense, the World Bank is a powerful platform to interact with the Davos crowd — the bevy of world leaders, financiers and industrialists who can get things done.

Because Sri Mulyani has left with her reputation intact and even enhanced by her political battle with the old guard of the Suharto era, what she says about Indonesia will likely become the accepted conventional wisdom among a new audience. This will only be magnified by the relative lack of other distinguished Indonesians on the world stage. Her opinion will not just be the last word; for all practical purposes, it will be the only word.

Unfortunately for anyone trying to attract investment here, Sri Mulyani has revealed some hard truths. In an interview with Joe Cochrane in the Financial Times, she said reform in the country had slowed to a trickle and was being “hijacked” by vested interests. “It is a battle for Indonesia now,” she said.

The battle for Indonesia has been in full swing for some time now. For her FT tattling, Golkar will probably again accuse Sri Mulyani of “excessive emotion” or “overreaction,” which is how one official in Suharto’s old party dismissed an important speech she gave recently.

But the truth is that a sense of emotion and drama has pervaded even those with the most insensitive of political antennae in Indonesia. The silent majority of educated Indonesians are mortified at the resilience of the old guard and the ousting of such an effective reformer. Perhaps the only person with the impression that business will proceed as usual is Aburizal Bakrie, the Golkar chairman who still seems to believe that he is a plausible candidate for the presidency in 2014. But in every political crisis going well back into the late 19th century, Indonesians have preferred their leaders to be calm, just and conciliatory, in emulation of the medieval folklore figure Ratu Adil, the “Just King” who was to deliver Java from suffering. The voluble and contentious Bakrie does not even pretend to fit this mold.

Agus Martowardojo, the banker who has been selected to fill Sri Mulyani’s shoes, may yet do a good job. He certainly has the credentials and the markets have not reacted poorly to his appointment. But the Sri Mulyani issue cuts deeper than just the person holding the finance minister’s portfolio to the question of what kind of country we want to be.

Will we wish to be, say 50 years from now, a country whose richest citizens are almost entirely natural-resource billionaires whose competitive advantage was derived from close ties to the government? Or perhaps a country where the brightest graduates can’t find proper, well-paying jobs except in the nonprofit sector or as second-tier employees for large multinationals? Or, to put it another way, a country that doesn’t produce anything the world wants to import except for low-level electronic goods, raw materials and domestic servants?

“Graduating” to the status of a developed country does not happen overnight. Kenneth Rogoff and Carmen Reinhart, in their influential study of sovereign debt crises over eight centuries, concluded that “graduating” from emerging market status is a “long, painful process that can take 75 years or more to complete.” They described graduation as the period beyond which a country does not experience recurring defaults on its sovereign debt. But the issue clearly relates to larger questions about a country’s political system, such as how effective a country is at encouraging economic activity, managing competing political priorities and ensuring that investments can be funded and loans repaid.

Indonesia’s record speaks for itself. It has defaulted four times since independence, and has spent more than 10 percent of its independent life in default, according to Rogoff and Reinhart.

Or maybe Indonesia’s record is more complicated than that. In the post-war period, only 13 countries have maintained a growth rate of 7 percent a year over 25 years, according to the high-powered Commission on Growth and Development at the World Bank. Indonesia is one of them; the others are Botswana, Brazil, China, Hong Kong, Japan, South Korea, Malaysia, Malta, Oman, Singapore, Taiwan and Thailand.

Inconveniently, most of that industrialization took place under Suharto, not under Sukarno nor in the late Dutch colonial period — both of which oversaw attempted industrializations that largely failed — as economic historian Thomas Lindblad has pointed out. Suharto’s economic achievements are now vaguely acknowledged as a minor positive in his catalog of horrors, but the data suggests they are actually a major achievement, though it will require a generation further removed from the Reformasi era to recognize them as such.

If post-war Asia can be compared to a nursery, Indonesia has been the slow child that sometimes showed truly spectacular bursts of promise. (China would be the deeply flawed and possibly psychopathic child that raises its hand at every question and seems to get it right.) If you explain things to Indonesia, it doesn’t understand, and if you give it homework, it does not turn it in. China started late, but now skips grades relentlessly. Indonesia moves in spurts: It did well, then failed and is only now again showing signs of progress. Sometimes Indonesia will be in detention, where it will doodle clever things in a notebook.

We seem to be in detention right now. Progress under Yudhoyono will likely continue, if slowly. Economic performance, however, will ultimately hinge on who wins the elections in 2014. Those elections makes it difficult to predict anything with certainty.

The true irony, of course, is that just as the domestic situation has become more uncertain, foreign investors have warmed to the country—they seem to always be a little late to the party — in part because of Wirjawan’s hard work. Bloomberg recently published a glowing, 2,500-word article titled, “Indonesia Shows Greece There’s Life After Austerity in BRIC Bid,” which contained positive banalities like, “Indonesia has the ultimate potential. It has done well post-crisis and is showing signs of sustainable demand growth,” from Goldman Sachs.

I suppose we do have the “ultimate potential.” However, Sri Mulyani’s departure should be a severe reality check for optimistic, educated Indonesians who thought their country was going to sail into the sunset after 1999. Perhaps what people used to say about Brazil also applies to us: We are the land of tomorrow and will always be.

Artha Prameswara is an Indonesian journalist based in Mumbai. He can be reached at artha.prameswara@gmail.com.