Indonesia's Road to Growth

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He may be sceptical about listing as a graft-resisting tactic, but he reckons high-level corruption actually is much reduced, even if it's rife at the low end.

For instance, Aburizal Bakrie, boss of the eponymous company and also coordinating minister for people's welfare in President Susilo Bambang Yudhoyono's cabinet, was not allowed to sell the subsidiary of his conglomerate responsible for the mud eruption in east Java last year. Efforts are being made to make people and companies accountable, and corruption is being tackled, if the daily Indonesian newspaper reports of on-going investigations are a true indication.

But solemn pronouncements against corruption are one thing, practice away from public examination is another. For instance, palm oil and other plantations are booming and they are lucrative cash businesses. A problem is that permits for plantations have been granted within protected forests—and then a recipient needs approval from the ministry of the environment before it can exploit it. But Indonesia is vast and many areas are hard to monitor, so illegal planting almost certainly takes place. Central and provincial governments also clash. For example, Golden Agriculture Resources Group, which is owned by the powerful Widjaya family, had a one-million-hectare concession in Papua but most of it was in protected area. Last year, the environment minister refused permission to plant in the area, but the local governor said yes, as long as felling jobs were given to locals.

Infrastructure needs priority

In 2005, the government drew up plans for $150 billion of investment in 91 infrastructure projects over the following five years. But none of them have been confirmed, although 10, including power plants and a trans-Java toll-road, have been prioritised. But, procrastination and delays mean slow progress, as does official policy. For example, the government won't give full guarantees for power projects, but investors, including Chinese, insist on explicit guarantees.

Power capacity of 14,000 to 15,000 megawatt capacity is far too low, yet coal is being exported, rather than used to fuel domestic energy needs. Roads are not being built because single-house owners refuse to sell their land—and there is no provision for compulsory purchase orders.

Reform in other areas of the economy has also been less than impressive. Tax reforms have stalled (corporate taxes are among the highest in the region), as have proposed labour market changes, and laid off workers continue to receive up to nine-months severance pay.

Private investment in education is increasing, as the authorities recognise the need to improve human capital. By law, the government is required to spend 20% of its budget on education, but it has consistently missed that target.

Politics at play

President Yudhoyono is seen as clean but not tough or decisive enough by the population. He has powerful rivals both outside the government in Megawati Soekarnoputri, leader of Indonesian Democratic Party-Struggle (PDI-P), and within, as his vice president, Jusuf Kalla, leads the majority Golkar Party. Mulyani Indrawati, minister of finance and Mari Pangestu, minister of trade, are both widely respected for their integrity, skills and energetic attempts to push through reform and drive the economy forward.

The democratisation process that has evolved since the removal of former president Suharto in May 1998 is unlikely to be reversed. "The process has moved forward irreversibly," says a Jakarta-based political commentator. But there are growing pains: regions and sub-regions insist on more local autonomy and money politics is an entrenched feature. And as the commentator adds, "the current generation of legislators are stuck in the past; but the younger generation will be better and have a greater understanding of accountability".

Rupert Walker is a senior reporter.