The week of July 9 was a busy one for Indonesia. Two of the most powerful women in the world, Christine Lagarde – managing director of the International Monetary Fund – and Angela Merkel – the chancellor of Germany – visited Jakarta.
During the same week, the president of the Czech Republic, Vaclav Klaus, spent almost a week in Indonesia. And in the same week, six ministers from ASEAN and Latin America were in Jakarta, attending the ASEAN-Latin Business Conference, a conference to strengthen economic relations between ASEAN and Latin America, the two most dynamic regions in the global economy but also the two that are least connected.
Having the world’s most influential figures visiting Jakarta is nothing new, but having many of them at the same time is an interesting development. Over the past several years there have been a growing number of visits to Indonesia by national leaders.
Recently, we had President Barack Obama of the US, Prime Minister Wen Jiabao of China, Prime Minister David Cameron of the UK and several others. They are busy people and will only invest their time and energy on something that will provide real benefit for their countries.
They cannot neglect the opportunity Indonesia can offer. It is a country of 240 million people with a growing middle class. It is the 16th largest world economy with gross domestic product of $850 billion. Despite the crisis, it is still growing at more than 6% per annum. It is the largest Muslim country and the third largest democracy with relatively stable politics. It produces various important commodities. It is a member of the G-20 and the largest economy in ASEAN.
The challenge for Indonesia’s leaders and policymakers is how to transform the potential into reality and how to take advantage of this position for the benefit of the people of Indonesia and at the same time contribute to the global society.
Time is limited
Nowadays, the global community pays so much attention to Indonesia even though there has been no significant improvement in the business environment over the past decade. The rise in global attention is probably driven more by external factors than by internal factors. It is very likely that the lack of opportunity in other regions plays a more dominant role behind this phenomenon.
Europe is still in deep trouble with no clear sign of recovery. The US economy is still weak, with uncertain prospects of growth in the mid-term. The Middle East is in political turmoil. Africa is not ready. India is in a challenging situation due to economic overheating. China is not much different; its export-led economy has struck difficulties due to the slowing global demand for China’s products.
Indonesia, along with a few countries in ASEAN and Latin America, represents an attractive option for building economic partnerships. Unfortunately this situation is only temporary. We look strong and healthy because the others are sick. Our time is limited, possibly to a decade or less.
Once a global economic recovery takes place and find a new equilibrium, the situation will be different. Under the new equilibrium, after lengthy austerity measures, Europe will probably be re-born as a more efficient economy with lower wage levels. Its modern infrastructure, excellent human capital, certainty of law and solid government fiscal capacity will make the competitive edges of Indonesia and some other emerging nations obsolete. Improvement in the situation in the US, India and China could happen sooner than a recovery in Europe, and will also post additional challenges.
Urgent need for real action
We need to work extremely ‘smart’ to take advantage of the situation, including capturing the opportunity brought by these visiting leaders. The visits of Angela Merkel, David Cameron, Wen Jiabao, Barack Obama and other leaders need to be followed up with a definitive plan and action. The recommendation of the ASEAN-Latin conference to strengthen economic cooperation between the world’s two centers of economic growth also needs to be implemented.
Certainly, in addition to a quick follow-up, there is a long list of homework to do. However, due to the limited time and resources available, attention should be given to several key factors that have been weakening Indonesia’s competitiveness. In this context, the Ease of Doing Business Index of the World Bank and the Global Competitiveness Index of the World Economic Forum are valuable references. Based on these two indexes, attention should be focused on aspects such as infrastructure, policy certainty and law enforcement.
The government understands that infrastructure improvement is a top priority yet it is a complete paradox that infrastructure development only accounted for a small fraction of the state and regional government budgets. Action is not in line with the level of concern. We need immediate solutions to the long queues at our ports, insufficient and unreliable electricity supply, congested roads and overloaded airports.
Policy certainty is another issue. The government needs to ensure that its policies are applicable and reliable. To keep changing policy is a bad habit which increases business risk and makes investors and business players nervous.
The government’s recent flip-flop decisions on fuel and electricity subsidies, CPO and mining export taxes and the labor law concerning expatriates are among many examples of the lack of policy certainty.
Law enforcement is still far from being ideal, as stated by the two indexes. Mushrooming labor strikes demanding wage increases and an end to the outsourcing system are indications of the growing tension in industrial relationships. Land conflicts between corporates and local people in several regions are other examples. The government should ensure that the law is enforced according to the law but, unfortunately, it still has a long way to go.
We have a greater opportunity today compared to that of the oil boom of the 70s and 80s, or even the ‘Asian Miracle’ of the 90s. As we all are aware, we missed those opportunities. We should not make the same mistake this time.
Wijayanto is vice rector of Paramadina University and is the co-founder and managing director of Paramadina Public Policy Institute. He can be reached at email@example.com.