Sat, 21 Aug 2010


By Lynn Lee, Indonesia Correspondent
INDONESIA'S growth spurt over the past year has turned it into a success story of sorts for the region and the flavour of the month for foreign and local investors.

Media reports across the world have praised the country's rise from the pits of authoritarian government, economic crisis and political turmoil in the late 1990s. Investors pumped some US$971 million (S$1.32 billion) into the stock market in the first half of this year, propelling the Jakarta Composite Index to record highs earlier this month.

Two weeks ago, Indonesia's investment coordinating board revealed that the country took in US$3.7 billion in foreign direct investment in the second quarter of this year, a 51 per cent jump from the same period last year.

Nowhere is this bullishness about Indonesia clearer than on the ground. In recent months, hordes of businessmen, bankers and lawyers have been flocking to the capital, Jakarta, to broker deals ranging from buying banks and mines to setting up businesses that stand to gain from the expanding consumer demand of Indonesia's 240 million people.

More businessmen are also headed for cities in the provinces - Balikpapan, Makassar, Surabaya and Medan, for instance - to invest in the country's bountiful natural resources sector and burgeoning service industry.

But two studies released this month on Indonesia's development in the past decade reveal the gritty reality beneath the gloss. Change for the better has indeed been achieved but that change has not happened fast enough nor reached far enough.

While the elite is benefiting from the boom and the middle class is growing - recent figures put around 35 million people in this category - life for the ordinary Indonesian has not improved much.

The first study, a 119-page report by the Harvard Kennedy School Indonesia Programme, points out that Indonesia is probably becoming 'more unequal'.

The regime of former president Suharto - which ended in 1998 - successfully created jobs, boosted rural incomes, and developed infrastructure and manufacturing.

In the years following the 1997 Asian financial crisis, poverty rates continued their downward trend while income inequality remained low, according to official statistics. Around 15 per cent of Indonesians live below the poverty line compared to 33 per cent of Filipinos and 16 per cent of Vietnamese.

But the Harvard report points out that Indonesia's measurement of poverty is misleading: It is among the lowest in the region, at around US$1 a day compared to US$1.60 for the Philippines. 'Increasing the poverty line by one-fourth would result in a jump in poverty from 18 to 53 per cent of households,' the study noted.

The report adds that the sampling mechanism of surveys in Indonesia remains problematic. Poverty studies may not capture the super-poor, who are migrant workers or slum dwellers.

High-income households have also been systematically under-represented in consumption surveys - the super-rich for instance may not choose to respond. Forbes magazine has put the combined wealth of the 40 richest Indonesians at US$42 billion - or around 8 per cent of gross domestic product last year.

The second study, by the Asian Development Bank (ADB), notes that economic growth in Indonesia has not been 'inclusive' or 'pro-employment'. It has hurt the environment and water resources, due to excessive natural resource extraction and urbanisation.

ADB chief economist Muhammad Ehsan Khan says that while the unemployment rate has fallen in the past three years, under-employment - where the worker's capacity is not fully utilised - has gone up.

'Job creation has barely kept up with the overall growth of the labour force,' he tells The Straits Times.

Interviews with the man in the street support these findings. Despite a widespread conviction and pride in Indonesia's democratic system, there are Indonesians who harbour - some silently - a nostalgia for the more obvious, rapid and equal progress seen in the Suharto era.

Across the archipelago today, many people are grappling with rising food prices. They have to put up with inadequate public services due to the inefficient management of funds and the prevalence of graft in local governments. Young graduates complain that it is tough to get well-paying and permanent jobs.

To them, the promises made by successive administrations after Suharto have yet to bear fruit. Democracy has not phased out widespread corruption and the dominance of the old elite and vested interests in business. Political parties and legislators seem more interested in profiting from their positions and furthering their own agendas than passing laws that better the lives of the people.

Mr Jonathan Pincus, a development economist and one of the authors of the Harvard report, says the points made in the report should not be seen as criticism of President Susilo Bambang Yudhoyono's government. In fact, the current administration has made progress in tackling graft in the judiciary and bringing stability and security to the country, he says.

Both reports have given a slew of suggestions on possible improvements. They urge that areas such as education and infrastructure development should be given more attention.

Underlying these proposals for Indonesia is the message that reforms and improvements need to happen at a faster clip and in a way that benefits more people.

Indonesia has done well, but for that label of being a success story to truly stick, its current bullish growth needs to translate into something that will improve the lives of all its citizens.