Fri, 25 Apr 2003

Indonesia moving in the right direction, at `glacial' speed

Managing relations between Indonesia and the United States has never been easy, and these last few years it has been even more challenging. The terrorist attack against the United States on Sept. 11, 2001, changed a lot of things, and one of those is the relationship between Indonesia and the United States. Obviously, on many issues, Jakarta and Washington do not see eye to eye. The two countries drifted even apart after President George W. Bush sent his coalition forces to invade Iraq in March.

But as Ambassador Ralph L. Boyce has repeatedly said, "As friends, we can disagree on a lot of things."

Both countries indeed have a stake in maintaining and nurturing their friendly relations, even as they disagree on various global issues. Both countries know that they have a lot to gain by working together, and that it would just be unthinkable to think differently.

Boyce, who took up his Jakarta post only a few months after the September 11, 2001 terrorist attacks, has virtually had his work cut out for him. The war on terrorism, and the subsequent war in Iraq, is only one element in the overall relations between the two countries that he has been working on. There are other aspects of the relations that have kept him busy, from helping to promote the process of democratization in Indonesia, Indonesia's economic recovery program, to promoting business and economic ties.

The Ambassador recently talked at length with The Jakarta Post's Endy M. Bayuni about he sees the state of relations between the United States and Indonesia. Excerpts of the interview follow:

Question: How do you see Indonesia developing in the medium and long term?

Boyce: Indonesia is undergoing one of the most dramatic transformations anywhere, may be ever, from an authoritarian centralized state to a democratic and decentralized state, with relatively little violence and a generally shared commitment to that direction of change. There was very little debate about remaining democratic or wanting to remake a lot of Indonesia's institutions. There is generally a shared view about where Indonesia wants to get in the medium and long term. Obviously, bringing about that kind of change on a day-to-day basis in the short term, in a new political environment, is very difficult.

You have turmoil, a lack of agreement on the day-to-day tactical issues, but there is a general agreement on the direction, the course, which I think is a good thing.

What underpins your optimism?

Politically, the August session of the People's Consultative Assembly (MPR) is a historic milestone that has gone underreported and certainly under-recognized outside Indonesia, may be even inside Indonesia. That was a monumental date over not just one or two fundamental issues, but a whole handful of issues that defined the very nature of Indonesia and the state, the definition of the MPR role, strengthening of the presidential institution, the creation of a new elected body, the continued distancing of the military from politics, the reaffirmation of Indonesia as a secular state. All of these things, any of them individually would have been remarkable. Taken as a cluster of issues for a national debate and carried out on televisions in front of the entire nation, is very quite remarkable. That's on the political side.

Over the last three year-time frame, decentralization has probably today presented more problems than solutions. But in the very magnitude of the endeavor, it would be surprising if it did not. You have gone, with the stroke of a pen, from a centralized to a decentralized system, not at provincial but at the district level. Obviously there are going to be a lot of loose ends that have to be picked up, such as the relationship between the districts, revenue sharing and interstate commerce and regulations, and this sort of thing, but I hope this process will continue.

Hopefully, it would be better recognized that this is the most ambitious exercise of its kind in the history of the world. Again, this is one of the quiet success stories of Indonesia.

How does this development bode for the U.S.-Indonesia relations?

It's tremendously exciting for an American to be witnessing even part of these dramatic changes, because the two countries have so much in common in terms of their geographic spread, ethnic and religious disparity, the population composition, and we being the oldest democracy and Indonesia one of the newest democracies.

It's sometimes tempting to be prescriptive, but again, something will inevitably happen in our own country to remind us that we still don't have it right when it comes to perfecting democracy. So, rather than try to imply that we have all the answers, we may have some experience over 226 years of trying to do this, that we can make available to Indonesia.

The United States has always been a major trading partner and an important source of foreign direct investment and financial assistance to Indonesia. How do you see this developing in the coming years? What problems do you see?

I hope at the very minimum, we remain the top sources and destinations of all those three. I hope over time, foreign aid will become increasingly unnecessary. It is an irony that we were actually phasing out our assistance program at the end of the Soeharto period because of the excellent macroeconomic growth indicators, but in post-1998 period, we have completely redesigned our program and basically started a whole new type of program, from the ground up. We have focused largely on the whole society, supporting democracy and economic reforms and health related issues.

Indonesia will continue to rely on the United States as a source of investment and a trading partner. There are some who prophecize that the Asian market will become increasingly more Asian in nature as China becomes a larger and larger force in the region. The emergence and rise of China is a natural thing, and we are all going to have to accommodate, but I don't think it necessarily means that Indonesia's traditional partners like the U.S. and Western countries need to be necessarily out of the picture.

Just how important is Indonesia to the United States' foreign policy and foreign economic relations?

We can take a number of different indicators, and all of them show Indonesia being very important. From a political point of view, it's important for Indonesia to succeed as an emerging democracy. From the political stability point of view, it is important to us that Indonesia remains a unitary state, and that the problems from Aceh to Papua are resolved in the context of a unified Indonesia.

From the point of view of the war on terror, Indonesia is a good partner and we hope that it will continue to be so in the region.

From the point of view of Indonesia's political importance within ASEAN, it's vitally important that Indonesia reassert itself as the anchor and the leader of ASEAN. That's a natural role that it used to have, and I am confident that it will have again It is important, now that ASEAN has expanded, for Indonesia to come back and reassert its traditional position. From economic point of view, for the very trade, aid and investment relations you have mentioned, in all of those Indonesia is one of our top destinations and or sources.

What are you telling American investors about Indonesia?

I've talked to the existing American investors community that has been here and has had a long experience. We have been involved in Indonesia in over 100 years, and in many sectors. A good investment advice to anyone is to be present on the ground rather than try to do things by fascimile, e-mail or through an agent. But most importantly is that we tell them that the Indonesian government has a good policy of economic reforms and we should keep an eye on it, because the fact that it is implementing its policy, the more conducive the foreign economic trade and investment activities, the better.

In particular, of late, we have focused on the need for implementation of the announced program of legal and judicial reform.

Are you encouraging American investors to come to Indonesia?


We are encouraging investors to come to Indonesia once the climate reemerges in a more positive way. We are encouraged by the announced packages of economic reforms that we believe the government really intends to implement. The speed with which they pursue that package is going to govern the degree with which investors are going to be engaged. Right now, it is not clear that a significant input of new capital from any source is necessarily going to be predictable and or protected under the existing legal structure. It is that lack of predictability inherent in the capital movement that is going to make investors go elsewhere, if there is any doubt about how safe a capital investment is going to be.

Do you think the Indonesian government is addressing this problem?

The announced policy is right on. So there is clearly recognition of what needs to be done. But as is always the case, with difficult economic choices that are accompanied by very difficult political price tags to pay, it is easy for an outsider to say the process should move more quickly and be more Draconian. But when you're making some difficult choices that have real costs associated to them in a democracy, heading into an election year, with a new empowered parliament, a media that is playing a watchdog role, and a whole new growth of NGOs and civil society that was not there before, it's not quite as easy to make dramatic policy shifts as it used to be.

Are you confident that these changes will happen?

They have to happen. I think it's inevitable, otherwise there is not going to be any new investment in Indonesia from any sources.

How soon will they happen?

The government has seen the year 2002 as being the year when they get the budget and the fiscal indicators under control. 2003 has been announced as the Year of Investment, so the subtext to that is the year of the microeconomic reform that are going to encourage investment. We're a quarter of the way into the New Year, and I think it may be overly optimistic to expect that a whole lot is going to happen this year. There is an election next year. Realistically speaking, it's a very difficult call for the government. But in putting off difficult economic decisions because of the political costs associated with them, you are literally putting off the prospect of a return to robust investment growth in Indonesia. So there's the cost and the benefit.

What about three to five years down the road?

Every indication I see is that the direction and the course are unchanging, and the speed may be sometimes seeming almost glacial, but nevertheless always in forward gear. There has not been a lot of reverse movement. If you could go back in time and take a moment and just dwell on where Indonesia was three-to-five years ago, you will see how much we have taken for granted today. Yet, how much has happened and how much movement there actually has been, what appears glacial on the day-to-day basis, turns out to be significant. I wouldn't be surprised if three-to-five years from now, people are sitting and complaining about how slow everything is moving, and how difficult it is to expect change, and yet, we are probably going to be in a wholly different environment because there will have been many imperceptible change that goes on.