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Is Indonesia Built to Last?


A lot of politicians in Indonesia sing the same old songs. Singing is one of the informal prerequisites for an Indonesian public official, the way that, say, owning a dog is in the U.S. Old songs, though, do not suit Indonesia’s current President, Susilo Bambang Yudhoyono. “SBY” writes his own material, and last fall he released his fourth album of original tunes, called Harmoni, a musical plea for the environment. The burly 63-year-old President, who stands nearly six feet tall, hardly fits the boy-band archetype popular in Indonesia, but he plays guitar and has a voice that recalls John Denver. He makes music videos, as do his fans (and satirists) on YouTube (GOOG). SBY’s songs often entreat Indonesians to lift up their country and the world, and they reveal the President’s sentimental side. A devout Muslim, he often beseeches God for peace and guidance. During last year’s nationally televised Independence Day Celebration, a schoolboy and a 128-person choir belted out an SBY composition called From Jakarta to Oslo for Our World. It begins:

Far away from the edge of the world
I come to bring hope
Together, allied, the servants of God
We must unite to save
The purity of our world.

Thoughtfulness and empathy are part of SBY’s persona: He occasionally tears up when speaking about issues his government faces, such as the poverty of farmers. SBY came to office in Indonesia’s first direct Presidential election in 2004. In 2009 he was reelected for a second five-year term, garnering 74 million votes, or 60 percent of ballots cast. In a part of the world that has seen its share of strongmen, the former general has avoided the temptation to play autocrat. The country’s 13-year-old constitution, as interpreted by SBY, gives the President surprisingly little power. (He is term-limited from running again.) He must appeal to the country’s instincts for justice, national cohesion, pluralism, and prosperity. That’s a big job in the world’s largest archipelago (17,500 islands), with one of the biggest, most diverse populations on the planet.

To a large degree, he’s succeeding. Economically, Indonesia is doing better than at any point since democracy took hold. Last year the economy grew 6.5 percent, and it is expected to match that in 2012. The world’s fourth most populous country at 240 million, Indonesia has a middle class that is expanding rapidly and now tops 50 million. Global investors pour record sums into the country. Last month, Moody’s (MCO) returned Indonesia to investment grade for the first time since the 1998 Asian financial crisis, following a Fitch Ratings upgrade in December. At its current rate of progress, Indonesia has the potential to become Asia’s next great engine of economic growth.

For some time, U.S. officials have pointed to Indonesia as a Muslim-majority country that the emerging democracies of the Middle East can learn from. During SBY’s first term, his coalition government succeeded in maintaining social order. Where political parties driven by Islamic agendas once looked poised for power, SBY has wrapped just enough of their agendas into his platform to keep the peace and preserve Indonesia’s reputation for tolerance. And since SBY took office, the inter-religious cycles of violence that plagued several parts of the country have been—mostly—tamped down.

Yet for all of Indonesia’s success, SBY is a leader under siege. His approval ratings have fallen from 70 percent two years ago to 50 percent. His political coalition partners constantly try to outmaneuver him. Political rivals, the most powerful of whom own the country’s top media outlets, complain that SBY is too reflective, too democratic, and too conflict-averse to govern effectively. While democracy and commerce flourish in Indonesia, they point out, so does corruption that drains away a huge chunk of public resources and eats at gross domestic product. If Indonesia squanders this moment, say SBY’s friends and critics alike, the nation will likely never catch its more prosperous Asian neighbors. Reflecting on the country’s ability to compete with China and India, Minister of Trade Gita Wirjawan says: “We have lots of experience with disappointment: disasters, corruption, and bureaucracy. … Corruption [in particular] puts us at a disadvantage. The trajectory is good, but Indonesia can’t be complaisant.”

In August, SBY sought to bring his agenda to Indonesians during an annual whistle stop tour called the Ramadan Safari. The one-week trip, with Cabinet ministers in tow, took the President through Maryland-size West Java, home to 36 million of Java’s 150 million people. During the journey, he sat down for an exclusive series of long interviews. In these conversations, he provided a glimpse at the challenge of running a rapidly changing, resource-rich, strategically central country. He reflected on a national future that always seems to hang in the balance, but which he insists will prove optimists right.

“I grew up under authoritarian rule with a controlling, stable leadership that used force to avoid conflict,” SBY said during the first morning conversation, held outside the hot-springs bathhouse of the Cipanas Palace, a sprawling mountainside retreat on the Ramadan Safari route. “I have tried to understand how to govern in the new way. I have to persuade more, use an indirect approach, respect the constitution, and find the middle way.”

SBY is a unique public figure in Indonesia: not a man of action, a nationalist firebrand, or an heir to a great dynasty, but a deliberator. He is a friendly, calm presence who makes frequent eye contact as he leans in to listen. He was a bookish child, and during the reign of Suharto, the dictator who ran the country for 32 years ending in 1998, SBY became a military officer with an intellectual bent. He served under each of the country’s flawed leaders from Suharto on, either in the military or as a high-level executive. And he survived every scandal-prone administration free of taint. The former general studied at U.S. Army Command and General Staff College at Fort Leavenworth, Kan., earned an MBA at Webster University Kansas City, and finished work for a PhD in agricultural economics in 2004, the year he became President.

During SBY’s first term, his government earned high marks at home and abroad for negotiating an end to the decades-long civil war in Aceh. Within his multiparty coalition, SBY ceded important powers to his erstwhile political foes, such as his capable first-term vice-president, Jusuf Kalla, then head of the powerful Golkar Party. The vice-president was central in the first stages of the massive rehabilitation of Aceh, in northern Sumatra, following the 2004 tsunami that wiped out cities and killed 230,000 people. SBY acknowledges, however, that by delegating big jobs to rivals, he lost the opportunity to establish his leadership bona fides. “I involve myself behind the scenes,” he says, lamenting that his style leaves him vulnerable to being seen, and misunderstood, as ineffectual, and prone to compromise that makes him look weak.

Seven years into his rule, critics say, SBY is so accustomed to measuring issues from every direction that he becomes paralyzed. His explanation is that the nature of Indonesian democracy precludes quick action and requires long, patient negotiation. Sometimes it pays off. This past December, the nation’s combative legislature pushed through epochal land reform that will kick-start infrastructure projects and lay the groundwork for manufacturers to set up shop in Indonesia. For the first time in the democratic era, the new law sets up a system to adjudicate land disputes and thus removes perhaps the biggest impediment to national development. Still, these job-creation and public-works projects projected for the future have not restored his approval ratings in the present.

SBY’s advisers regarded the Ramadan Safari as a way to improve his public image. The first stop, a dilapidated village primary school, was a surprise, kept secret even from the Cabinet members along for the trip. The President wanted to ensure that no one scrubbed it up before his convoy arrived. SBY walked slowly under the school’s caving roof, past broken chairs and bookless shelves. He shook his head and glowered. “I am not going to blame anyone in particular,” he said, “but this school is a crying shame, and everyone can do better.” A recent report, the President said, cited 20 percent of Indonesia’s schoolhouses as similarly appalling.

Left unsaid were the causes of the school system’s ruin: embezzlement, bribes, and absentee staff. Money the government allocates for schools often gets stolen by administrators, teachers, and local officials. And SBY’s own Minister of Education and Culture, Mohammad Nuh, along for the trip, had been facing pressure from the press and Parliament for sloppy control over the education budget. The minister, head bowed, hurried to show the President proposals for new, improved schools. SBY took a cursory look and turned away. “The President is really pissed off,” another minister nearby whispered in English. To the crowd and the press gathered, SBY announced $2.76 billion in new money for education, 40 percent more than the previous year and the biggest budget ever. When asked on the bus if corruption was the root of the schools’ problems, the minister said no, lack of money was. Later he publicly acknowledged that corruption is indeed dire.

In keeping with his conciliatory style, SBY, instead of firing the minister, hoped the public shaming would spur him to act, and he didn’t dismiss him even when reshuffling his Cabinet in October. In the following months, stern reforms were delivered, but SBY and his administration remain hampered by a weak legal system and limited powers of enforcement. “New democracies,” he said after the school visit, “need time to clean up corruption.”

SBY says Indonesia needs at least 15 years before it can achieve a government as clean as Hong Kong’s or Singapore’s, but those years will cost the country. Indonesia’s culture of corruption retards its growth, creating what amounts to a de facto tax on economic activity—estimates on what it costs range from 3 percent to 20 percent of GDP. In Transparency International’s latest Corruption Perceptions Index, Indonesia ranks 100th out of 182 countries, one notch better than Egypt. (The U.S. is 24th.)

Corruption pervades all rungs of society. It ranges from the voters, who expect envelopes from party operatives during elections, to the crooked nexus linking cops, prosecutors, fixers, and judges—which the government has labeled “the judicial Mafia”—that puts price tags on everything in the legal system. Indonesia’s Parliament is a cesspit of corruption that extends to SBY’s coalition partners. In a case that reaches deep into SBY’s Partai Demokrat, former party treasurer Muhammad Nazaruddin is said to have designed a system in which bidders for government contracts kicked back millions of dollars to party coffers.

Nazaruddin, who fled Indonesia last May, offered sensational interviews to Indonesian newspapers from abroad. He was nabbed in Bogotá in August, then extradited back to Indonesia, where he offered court testimony that linked bribery schemes to a former Miss Indonesia and high party officials. Nazaruddin denies he acted illegally; the others claim innocence, too. If Nazaruddin’s worst accusations prove true, it could mean that the war chest of the President’s party was filled with tens of millions of dollars skimmed from public works. Some of the money, Nazaruddin charges, was used by the current party chairman—not SBY—to buy his post. SBY says if there were misdeeds, his party officers acted autonomously. So far no paper trail has led to him.

Although he has been criticized for not acting more forcefully to remove party officials suspected of wrongdoing, SBY insists he has taken steps to stem corruption. “In the past, government officials were not prosecuted,” he says. “During my Presidency, 165 high officials have been prosecuted, and so have thousands of smaller officeholders.” He does not mention that the most powerful agencies in Indonesia’s official anti-corruption apparatus, such as the squeaky-clean Corruption Eradication Commission, act largely independently of the Presidency or legislature.

There is a consensus, even among some in SBY’s inner circle, that his lack of firmness feeds greater corruption across Indonesia. SBY himself acknowledges the growing public nostalgia for a Suharto-like strongman who can bully the whole country. Constitutional reform also granted outsize power to 550 county leaders now known as “the little kings.”

In mid-December, a Jakarta university student set himself on fire in front of the Presidential Palace to express outrage over corruption and to urge SBY to resign. Days later, thousands of students took to the streets. For SBY, keeping the huge, diverse nation together has been a higher priority than keeping it honest.

Whatever the general discontent, SBY has kept Indonesia stable enough for the economy to flourish. In a country long plagued by capital flight and political uncertainty, consumer confidence is at an all-time high. Two-thirds of Indonesia’s GDP is generated by its own consumers, and Roy Morgan Research reports that nearly every category of consumer goods is selling briskly compared with years past. Jakarta’s nearly 600 malls are jam-packed. The city’s notorious traffic jams, which ease around 7 p.m., after the post-work rush hour, materialize again when the malls’ gargantuan parking lots empty out between 10 and 11.

Now that labor-intensive industries are hunting for alternatives to China, a competitive Indonesia could entice more manufacturers to invest there—but that depends on the outcome of SBY’s $440 billion infrastructure plan and his government’s ability to make a dent in corruption.

“We really need to upgrade the capacity of local governments to absorb capital investment,” SBY says. “Every time I meet with governors and local officials, I tell them to lay out the red carpet for investors.”

One of Indonesia’s strengths is its vast collection of small businesses. Recently, SBY moved his longtime Minister of Trade, Mari Pangestu, to the role of Minister of Tourism and Creative Economy to help develop more markets for the country’s boutique skilled-craft workshops. The idea is to mimic the Italian and German economies, where smaller factories make big contributions to GDP.

On the Ramadan Safari, the President visited small factories and industrial co-ops. At a small showroom for 88 local workshops that make stained glass lamps, he stood amid a crush of local sellers and urged them to support his project. “Improve your quality, pay attention to customer service, and the government will help you with loans and a new showroom,” he said to the craftsmen. When given the opportunity to address the President, one seller asserted his new rights to free speech with a rant. “We’ve been promised much by the government time and time again, Mr. President, but frankly I will believe your help when I see it,” he said. Again, SBY glowered. He told the man that he was exhibiting bad behavior to those who came to help. Out of earshot, a minister whispered that this is the new Indonesian democracy: If the seller had addressed Suharto like that, the man would have been quietly removed and … well, a finger across the neck finished his sentence.

SBY had another answer to the man’s complaint. He made an example of himself for small businesses. A day later, at the dinner stop at a West Java resort, the supper breaking the Ramadan fast featured steam tables with an innovative, savory dish that mixed rice and grated cassava. It was the product of a small business venture called Rassa Indonesia, based on the President’s recipes. “I developed the dish myself,” he explained, when asked about its beginnings. “I was in the army and had to make my own food. I mixed cassava and rice and thought it was delicious. I have made it ever since. You might not think they go together, but they do very nicely.” Harmoni. The President then produced two large tin cans of the mixture, and agreed with pleasure to sign the labels.

Fishman is a Bloomberg Businessweek contributor.

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