Monday, September 23, 2013

Is Indonesia at a crossroads?

DEVOTEES of both "The Simpsons" and The Economist will know that the former once parodied the high seriousness of the latter with a scene in which Homer, thumbing a copy, remarks: “Did you know that Indonesia is at a crossroads?” Homer's question, however, now seems worryingly apposite. In recent years the giant of South-East Asia, with a population of 240m, has been one of the best performers of the world economy, with growth rates consistently spiking above 6%. The only puzzle was why Goldman Sachs hadn’t added it to the BRICs. In the past couple of months, however, the mood has soured dramatically. The economy is stuttering and investors are getting out. On September 12th the central bank revised its growth forecast for this year down from a maximum of 6.2% to a range of 5.5 to 5.9%. So far this year the rupiah has fallen by about 16% against the US dollar and the benchmark stockmarket index is down by over a fifth since its record high in May. Is Indonesia now really at a crossroads?

Indonesia has been caught in a more general sell-off of Asian shares and currencies prompted by fears that America’s Federal Reserve will soon end (or at least “taper”) its policy of ultra-cheap money. But Indonesia, like India, has also been hit particularly hard for reasons that are specific to the country. Tumbling commodity prices, due to slackening demand from China and India, mean that Indonesia’s traditional sources of revenue, from coal, oil, gas and more, are under pressure. Yet the country has not taken advantage of its economic tailwind to tackle its manifold problems—awful infrastructure, rampant corruption and foot-dragging bureaucracy, to name but a few—that impede other sources of growth in the future. Thus Indonesia’s failure to modernise its economy is laid bare.

The blame for failing to implement reforms while the going was good can be laid at the door of the outgoing president, Susilo Bambang Yudhoyono. But at least he leaves office next year, leaving the country (and more specifically the electorate) at the proverbial crossroads. Can it elect a president next year who can summon the required political nous to push through reforms that Mr Yudhoyono failed to pass? Or is the country destined to remain one of Asia’s great under-achievers? Some of the presidential candidates have already declared themselves, but they don’t inspire much confidence, being firmly wedded to the old governing elites (and even their families). One man, however, looks very different: the governor of Jakarta, the capital, Joko Widodo, usually known by his nickname Jokowi. He has not yet declared his hand, having been elected to run Jakarta only last year. But the polls show that if he were to run—and he is likely to—he would win by a landslide.

Homer would probably like Jokowi. At 52 he is young enough to represent a clear break with the generation of politicians that came of age under the dictator Suharto, toppled in a popular uprising in 1998, and who have ruled the country since. He does not hail from any of the traditional power centres of Indonesian politics, such as the army. He is open and approachable, as well as appearing to be clean. Little wonder he is popular with younger voters. And his record as mayor of the central Javanese city of Solo shows that he is willing to try out new ideas and push them through. He is relatively untested, and he will face any number of vested interests trying to stop him doing much in government. But with Indonesia finally at a crossroads, he might be the man to give it a go. The Economist

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