The answer is out there

The answer is out there

By Rob Goodfellow

WOLLONGONG, Australia (JP): Steve Sondakh, who wrote, "When
can we resume business?" recently in this newspaper, is a member
of the National Economic Restoration Committee and director of PT
Hero Supermarkets. He understands business and his frustration
can be understood. With Indonesia now in the fourth year of
economic crisis, he, like many Indonesian businesspeople feel
that the situation will never improve.

He raised a number of issues. These include uncertainty in law
enforcement, failure to progress economic and legal restructuring
initiatives, a lack of clear policy on regional autonomy and
last, but not least, the continuing problem of Indonesian bank
liquidity and the debate about how the proceeds of asset sales
can be more efficiently used.

With considerable justification he reminds us, "we may feel
genuinely concerned about the condition of the world, though such
concern should drive us into action and not into depression".
Unfortunately it is the latter not the former that is winning the
day.

A mood of near despair has descended over the Indonesian
business community with the rupiah again threatening to fall
beyond Rp 10,000 to the $US. However, contrary to prevailing
sentiment, there actually is a great deal for Indonesian business
to be optimistic about.

First, it has to be remembered that there have been two
revolutions in Indonesia since the dark days of early 1998.
Indonesia has successfully weathered the painful transition from
authoritarianism to participatory government. This has occurred
in less than three years. For most of the nations of Europe, this
same process took almost a millennium.

Similarly, it cannot be forgotten that Indonesia came
perilously close to civil war in 1998, as students directly
challenged the authority of Soeharto's 33-year New Order Regime.
Now Indonesia has a democratic and robust legislature, which
frequently dares to challenge executive policy and power.

As a result, the government is becoming distinctly civilian in
character with a clear public rejection of the socio-political
and economic role of the Indonesian Military.

Second, Indonesia has enjoyed a partial but steady recovery
from the worst economic collapse in history. Examining the three
stages of the monetary crisis gives us a good indication of how
much progress has been made.

In 1998 Indonesia was washed over by a financial tidal wave.
The currency collapsed, interest rates rose to unprecedented
levels, prices -- especially for rice and cooking oil --
increased wildly.

Capital flight led to tens of billions of dollars leaving
Indonesia practically overnight. All it took was the push of an
"enter" key on a computer keyboard and hard currency hemorrhaged
away, mostly in the direction of Wall Street. This first stage
was quickly followed by a contraction of financial
infrastructure.

As capital dried up, many businesses disappeared. It was
estimated that in 1998-99, 95 percent of all private businesses
in Indonesia were technically bankrupt.

Since 1998 domestic prices have stabilized; there has been
movement in the price of the rupiah, but these fluctuations have
been trends rather than collapses; and Indonesian exports have
increased dramatically as a result of the rupiah's
competitiveness.

Furthermore, the Indonesian government has pursued a strategy
of reforming the banking sector, has redrafted foreign investment
policy and brought commercial law into line with international
practices.

While the process clearly has a long race to run, the forces
that are driving this change tell us something about the future
course of events for the Indonesian economy and why.

The Indonesian economic collapse confirmed once and for all
the instantaneously transferable nature of international capital.
As financial markets continue to converge, money simply goes to
where investors can find the greatest returns for the least
manageable risk.

The point is that if money can leave Indonesia so quickly, it
can likewise quickly return -- under the right circumstances.
There are a number of reasons why this is expected to happen, not
in the long term, but quicker than most people can imagine.

Indonesia is at the epicenter of the new manufacturing
locomotive of the entire world. The East Asian Hemisphere is home
to, with the exception of the United States, what will be the
most powerful manufacturing economies of this millennia --
China, Japan, India and, yes -- Indonesia.

Interestingly, in the 1800s the countries of Europe and the
Americas only produced about 20 percent of the world's
manufactured goods. During the 20th Century this rose to 80
percent.

However, by 2020 it is estimated that these processes will
again reverse as the aspirational countries of the underdeveloped
world take their place not as struggling recipients of IMF crisis
aid, but as manufacturing giants.

Concerned Indonesians like Steve Sondakh may find it difficult
to believe, especially at this time of awkward social and
economic transition, but Indonesia has the potential for genuine
greatness.

It has an energetic, youthful, basically well-educated,
aspirational work force. It has an emerging affluent middle class
with a global focus. It is located in the center of the East
Asian Region.

It is gloriously endowed with natural resources and it
straddles the busiest shipping lanes in the world. Finally, even
with the deeply entrenched, institutionalized corruption that
plagues Indonesia, there are few places that can complete with it
on cost and skill.

Some sources estimate that corruption adds around 30 percent
to the bottom line of most goods and services in Indonesia. In
the West companies have to turn themselves inside out to achieve
a meager 2 percent efficiency. The augment is that if Indonesians
are already competitive, a 30 percent increase in overall
operational efficiencies will make them unbeatable.

With the pace of change in Indonesia already 10 to 100 times
faster than for countries of the Organization for Economic
Cooperation and Development, Indonesia has become accustomed to a
change process. This gives Indonesia yet another advantage.

While the developed countries of the Old World, including
Indonesia's proto-Western southern neighbor -- Australia,
struggle with their new role as a basis for support research,
tertiary education and service provision, change is becoming an
integral feature of the Indonesian social and cultural landscape.
It is "normal".

Change clearly does not mean a return to the past. Indonesia
can and will occupy a new position in the world economic order,
not if but when a number of fundamental issues are
comprehensively addressed.

International capital is a borderless behemoth hungry for the
opportunities Indonesia presents. However, this will only start
to flow back when there is the rule of law, bureaucratic
transparency and policy predictability.

The world is awash with capital wanting a good home. This
process, however, will not be all one way. Investment,
particularly in high tech manufacturing, will initially lead to a
"soaking up" of the unorganized Indonesian cheap labor sector and
a greater demand for technically skilled workers.

Increased productively will put upward pressure on wages and
lead to an increase in overall national wealth. This in turn will
drive the emerging emphasis on lower tertiary and technical
education further raising the overall positive prospects for
Indonesia.

Right now this scenario may seem a little far-fetched. The
truth is however out there. It is in all Indonesians best
interests to advance the reform process as quickly as possible,
and ensure that collectively "such concern drives them into
action" -- in both economic and democratic reform.

The writer is a cross-cultural consultant to international
business specializing in Indonesia and is based at The University
of Wollongong, Australia (sujoko@ozemail.com.au).