Indonesia beyond the headlines

Indonesia beyond the headlines

By Wimar Witoelar

The following article is based on a paper presented at the
annual meeting of Sinclair Knight Merz, a leading Australian
engineering company, in Brisbane on Nov. 23, 1996.

BRISBANE (JP): Things are happening in Indonesia, but not in
the way you read about them in the headlines. It is still true,
as the saying goes, that "business access in Indonesia is
difficult, but the rewards are plentiful". Now the rewards will
be even more plentiful if you align yourself with the Indonesia
of the future, not the Indonesia of the headlines. Looking at the
past is dangerous when you are developing business. That would be
"... like driving at 60 miles per hour looking only at the
rearview mirror," says one of our politicians.

Comparisons are useful, and we may make them with the four
tigers of Asia: Singapore, Hong Kong, Korea and Taiwan. It is
good to have challenging comparisons, not only with other Asian
countries with whom we might compare more favorably. It is true
that the four tigers are so far ahead of the pack that Indonesia
is being put in the second division of emerging countries like
Thailand, Malaysia and now the Philippines, or in the third
division featuring Vietnam and China (which are really in leagues
of their own).

But the point is that although countries like Korea and Taiwan
are way ahead of Indonesia, the sharpest difference is in per
capita GDP, not in total GDP, and certainly not in GDP growth.

Now per capita figures are of great concern for the country
concerned, but total and growth figures are more relevant to
business interests. If you want to be completely pragmatic, that
already makes the point for Indonesia as an investment
destination.

But if you are on the side of the good guys, we also should
understand why Indonesia is not a tiger like Korea and Taiwan,
and how it can become like them.

Kenichi Ohmae pointed out that Indonesia was in the same
league with Korea and Taiwan in the late 1960s, all in the US$100
to $200 per capita GDP group, but now the two tigers are in the
$10,000 plus class, while Indonesia just passed the $1,000 mark.

So what does Indonesia promise in the short-term, long-term
and medium-term future? Predictions made for next year by
scholars like Mari Pangestu and economic think tanks like Econit
say that we will remain constant, with a sustained growth of over
7 percent, disproving the notion of political instability this
year and its impact on the economy. The long-term picture is
always easy to predict, since we will not be around anyway to be
disproved. Besides, as Adam Smith said, "In the long run, we are
all dead." So the real question is the medium term, and for that
we have to make some planning assumptions, such as the following:

First, we assume that business opportunities will increase, no
matter what the political situation is, because in New Order
Indonesia, it has always been business before politics. In fact,
politics exists to protect business. That is why we have
neglected our political homework while we have managed sustained
economic growth for 25 years.

Second, financial growth will continue, because of the
sustained business growth. Indonesia has several families who are
wealthier than the wealthiest in the United States and owners of
companies which are among the biggest in Asia. Without looking at
the origins of this wealth, we can understand that part of the
financial growth comes from domestic savings. Another part is
foreign investments, both direct as well as portfolio
investments, in the Jakarta stock market. There are now
international funds managers running around pouring fresh money
into Indonesian country funds.

Third, there will be growing pressures to democratize
business, first of all because large-scale foreign investments
are aided by open transparent systems, and second because to
compete globally, we have to secure the kinds of expertise that
lie outside privileged and protected business groups, in the
hands of intelligent professionals who tend to be critical. As we
sit here now, state enterprises are being restructured and
deregulatory moves are finding their way around the still-
powerful special interest pitfalls.

So why is it that Indonesia is not a tiger like Korea and
Taiwan, when they all started out at the same level? The
difference lies in one word: democracy.

You must remember when these three countries started to
develop economically, it had to be done with highly concentrated
political power and a regimented economy. That is one valid way
to lift a nation out of poverty. Even people like Kenichi Ohmae
say so. But 10 or 15 years into this phase of growth, Korea and
Taiwan began to democratize. Sometimes by violent means, and
mostly with the support of an increasingly dynamic middle class.
Eventually, they successfully passed the transition, and when
they became reasonably open democratic societies, their economies
zoomed into the $10,000 plus class.

Indonesia has not made that transition, but we are starting to
do it now, preferably without resort to extreme and violent
processes. Many argue that the middle class has compromised
itself to be part of the oppressive power structure. The more
accurate view is that they are being held hostage.

Most would prefer to work in a competitive and professional
business culture, such as those offered by some multinational
companies, and which some Indonesian companies are developing.
While talking to a yuppie who had made a fortune from government
contracts, I heard that he would gladly give up 30 percent of his
income for a better society, open and democratic, because that
would be an investment for the future of his family.

These sentiments are increasingly evident as we quietly mature
under the impact of increased information and communication. The
decency of the majority of Indonesians is as strong as ever,
behind the headlines. Nobody really likes to live in a banana
republic.

So as we mull over these perspectives, we may venture a
medium-term prediction.

First, there will be a period of volatility before we move
from our current condition of managed stability into real
democratic stability. It makes no sense to wish for uninterrupted
stability, because that would make us forever poor as a country.
We will have a political transition in the next few years and it
will lead to a more open system. The foreign investor must have
the foresight to anticipate this.

Second, reform will come because there are rising expectations
due to discontent over special privileges and business playing
fields which are not level. The higher the level of business, the
more need there is for transparency. We know foreign investors
accept abnormal business practices only because they feel there
is no choice. But now, the choices are opening up.

Third, there is every reason to believe that the transition
will not be violent and that it will not damage business growth,
because one good thing about the last 25 years is that everybody
is committed to an open market economy. Deviations are made as a
matter of vested interest, not principle.

We believe change will be substantial in content but gradual
in form, because of a common interest in increased economic
development and empowerment of the middle class.

Fourth, worries about the quality of leadership in Indonesia
are unfounded because as societies enter transition, individual
leadership becomes tenuous. This is true in many countries where
significant change has happened or is happening.

The enormous diversity of Indonesia should be more important
to those who are planning for the future. It is this diversity
which will generate new demands from the nation's leadership, no
matter who they may be. Speculation on personalities to emerge
from our politics is useful only for political gossip, not for
planning and positioning for the future.

Wimar Witoelar is a business consultant based in Jakarta.