Attacks on the Ahmadiyya, a minority Islamic movement, have been deeply troubling, and the country is still struggling to provide opportunities to West Papuans unhappy with Jakarta’s rule.
Source/Credit: World Politics Review
By Fergus Hanson | April 26, 2013
Guess who: I’m a G-20 country, ranked 25th out of 139 countries for macroeconomic stability. I’ve got the world’s 16th-largest economy, and analysts think I could crack the top seven by 2030. I’ve averaged 4-6 percent GDP growth over the past decade despite the global economic crisis, and I’ve got the demographics to keep this all on track.
If you guessed Indonesia, you’d be right. With stats like these and a population of 240 million to boot, it’s little wonder that corporate executives and governments the world over have begun to take a closer look at the opportunities on offer in this hugely promising archipelago.
But even the most fervent Indonesia boosters are often disappointed by the country they so desperately want to succeed. Because despite all the opportunities Indonesia promises, it’s going to have to overcome significant obstacles to realize its potential.
Part of the beauty of Indonesia’s success is the sheer scale of the challenges it has already overcome. However, that success has not put to rest lingering negative perceptions on both the governance and economics fronts.
On governance, Indonesia just seems too good to be true. It is just 15 years since the country’s authoritarian president, Suharto, stepped down and ushered in the current democratic era. And it was only in 2004 that the president was directly elected for the first time, along with all members of the House of Representatives and the House of Regional Representatives. On top of this, the once all-controlling military has surrendered much of its former power without a serious fight. And the previously muzzled media have exploded into what Freedom House describes as “a vibrant and diverse media environment.”
Ultimately, rock-solid democratic credentials can only come through the passage of time and proven adherence to the rule of law. But as far as emerging democracies go, it would be hard to ask for much more than what Indonesia has accomplished.
On the economic front, Indonesia also suffers from memories of its collapse during the Asian financial crisis of 1997-1998, when both its currency and GDP nose-dived, resulting in the need for an IMF bailout. Understandably, economic disaster on that scale leaves investors with lingering reservations. However, Indonesia’s economic performance since then suggests it has more than bounced back. It has had strong economic growth for more than a decade despite the global slowdown. And unlike other Asian giants, it has an economy underpinned by strong rates of domestic consumption, rather than export-led growth, with only 35 percent of its GDP generated by exports.
But of course Indonesia’s challenges go beyond mere negative perceptions. Real and difficult issues are preventing it from reaching its full potential.
Foremost among these is endemic corruption. Indonesia ranked 118th on Transparency International’s latest Corruption Perception Index. And it came in 128th on the World Bank-International Finance Corporation’s Ease of Doing Business rankings.
Clearly there is serious work needed if Indonesia wants to attract foreign investors. An independent judiciary to adjudicate disputes is critical, as is regulatory certainty. Many investors, for example, were caught off-guard when, in February 2012, the government issued a new regulation (.pdf) requiring a 51 percent divestment of capital by foreign mining license holders.
But even here the news is not all bad. Indonesia's Corruption Eradication Commission has made a soap opera out of Indonesian politics through a series of high-profile arrests. A recent scalp was the president of Indonesia’s main Islamist political party, the Prosperous Justice Party, on corruption charges related to a beef contract.
Security and human rights are other hurdles. The country is plagued by sporadic terrorist attacks that stifle its potential as a tourist and investment destination. Tolerance among Indonesia’s diverse population is another challenge. Attacks on the Ahmadiyya, a minority Islamic movement, have been deeply troubling, and the country is still struggling to provide opportunities to West Papuans unhappy with Jakarta’s rule.
On the foreign policy front, Indonesia is only beginning to wield the sort of clout a country of its size should command as it wrestles with its history of nonalignment. It is already the leading member of the Association of Southeast Asian Nations (ASEAN), and in 2006 Jakarta attempted a broader international role when it offered to take on a mediating function with Iran. Others are certainly cognizant of its growing international heft: U.S. President Barack Obama paid the country two visits in his first term.
One other big challenge Indonesia is working through is how it should respond to China’s rise. ASEAN countries have been in an unusually undiplomatic row with China over competing claims in the South China Sea. The U.S. pivot to Asia has seen Washington step up its engagement with Indonesia and some of the other big ASEAN states, also focusing attention on China’s rise. Still Indonesia remains optimistic: “In Indonesia on the whole we see China’s rise as an opportunity rather than a threat,” Foreign Minister Marty Natalegawa told the Financial Times in March. “It’s how we respond to it that could become a threat.”
Indonesia’s reformist president, Susilo Bambang Yudhoyono, came to power with great promise. On a platform of job creation and corruption eradication, he stormed to a second term. But SBY, as he is known, will step down in 2014 with the job not nearly completed. Important micro-economic reforms are still needed, and his own coalition has been dogged by corruption scandals.
Many wonder whether the next president's administration will be able to deliver the necessary reforms. There is a good chance it won’t. But now it will have to answer to Indonesian voters.
Fergus Hanson is a nonresident fellow at the Brookings Institution.
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