Economics, Politics and Public Policy in East Asia and the Pacific
Author: Martin van Bruinessen, Utrecht University
The idea of Indonesia leading the third world was not only thinkable half a century ago, it even appeared as reality — briefly.
Since that time there has been some attempt at raising Indonesia’s international profile as a leading Muslim nation, and its visibility and global import have increased. But it is not yet a country that other Muslims look to for leadership. Read more…
Author: Thee Kian Wie, Indonesian Institute of Sciences
The Indonesian economy continues to surprise with its very healthy growth rate through the period of global financial crisis. The growth rate, driven by consumer spending, investment, and exports, has surpassed most predictions at 6.2 per cent during the second quarter of 2010. Domestic consumption is robust, investment figures are encouraging and exports are expanding at least as fast as global growth. While monetary policy and financial regulatory concerns remain, Indonesia is well-positioned for broad-based economic growth.
Perception indicators increasingly support the view that Indonesia’s economy is on an upswing. The Japan Credit Rating Agency has upgraded Indonesia’s investment grade from BB+ to BBB; the first in 13 years. Read more…
Author: Chris Manning, ANU
Recent years have seen Indonesia achieve significant political reforms with consequent international recognition. A lesser known achievement of the Susilo Bambang Yudhoyono (SBY) administration has been its concerted efforts to reduce poverty and disadvantage.
This quiet revolution has immense significance for future generations, providing a counterweight to Indonesia’s frequent natural disasters and their debilitating effects for the poor. Read more…
Author: Peter McCawley
It is now almost five years since December 2004, when the great tsunami swept across more than a dozen countries in Asia. More than 230, 000 people died across the region. The cost to human life was mainly borne by Indonesia, in Aceh, where perhaps 170, 000 people were swept away. Five years later, the pain is still evident across Aceh. Many thousands of families will forever carry the memory of family members who were lost. The human cost was immense.
There are many lessons to be drawn about disaster relief policies in Asia from the experience of the 2004 tsunami. Below I list eight key lessons that need attention above all others. Read more…
Author: Hal Hill and Chris Manning, ANU
President Susilo Bambang Yudhoyono (universally known as SBY) announced the cabinet for his second five-year term shortly after his inauguration on October 20. Its composition and quality provide one of the best indications of the president’s policy priorities, as well as his political strategy.
SBY’s Democrat Party emerged as the major, though minority, party at the April parliamentary polls, while he had a resounding victory in the July presidential election. He is therefore in a much stronger position than in 2004. In May, he made a surprising choice of Dr Boediono as his vice presidential running mate, a ‘non-politician’, a respected economic policy maker (and also an Australian graduate). Read more…
Author: Peter McCawley
Last Thursday president Obama made his much-awaited speech on United States–Muslim relations at Cairo University in Egypt.
In the words of The Economist, ‘he sought to project an openness to Islam, a sense of shared values, support for Muslim aspirations and a determination to use American power to help fix the problems that most trouble them.’ The speech went well. The Economist’s view was the President ‘used his oratory to superb effect.’
But oratory aside, what messages did President Obama have for Muslim countries beyond the Arab world? Indonesia is the world’s largest Muslim country; what was the significance of president Obama’s speech for Indonesia?
Author: Chris Manning, Indonesia Project, ANU
It’s all but official, yet still a surprise. Economic analyst, manager and academic, Dr Boediono, the current Central Bank Governor, has been named as President Yudhoyono’s choice of running mate for the first round of Presidential elections in July.
Some nine political parties have been jostling for influence in Indonesia’s emerging political make-up for 2009-2014. Many, especially in the main Muslim parties, would dearly have liked their leader to be selected by the popular President as the ‘CA-WA-PRES’, SBYs Vice Presidential running mate. In return, they would surely pledge their political support.
So why select a technocrat? Is SBY hankering for the bad old Soeharto days, when technocrats proposed and the President decided on policy, seemingly oblivious to social forces around him?
Author: Ross McLeod, ANU
Some of the world’s most reputable banks have been found to have insufficient capital relative to the risks they were carrying, and are now being taken over and recapitalised by their governments. This raises the question: should Indonesia’s regulations on capital adequacy be strengthened?
The reported average capital adequacy ratio in December 2008 was twice the regulatory minimum of 8%, so a doubling (say) of this minimum would not be a problem for the average bank.
Banks with relatively less capital would be obliged to inject new equity or to cut back their lending. Read more…
Author: Peter McCawley
Hillary Clinton’s visit to Jakarta last week was presented as extremely successful. She said all the right things, and her Indonesian hosts made all the right moves in return. But what do we make of it? Answer: Hard to say, really, because the visit was basically a honeymoon visit. One U.S. blogger even called the visit a ‘lovefest.’
It is interesting that the Obama Administration decided to have Secretary of State Clinton make Asia the destination of her first international visit.
Three points are worth noting.
First, the symbolism of the order in which the countries are being visited – Japan, then Indonesia, and only then Korea and China – is of some interest. The decision to visit Japan first (something of a contrast with the priorities of the Rudd Government here in Australia a year ago) underlines the key importance of the U.S.-Japan bilateral relationship in bolstering stability in Northeast Asia.
Author: Peter McCawley
Imagine my surprise, doing a quick early morning check of the New York Times front page on Tuesday 16 December, to see the word “Indonesia” listed on the NYT’s Op-Ed site. The world’s largest Moslem country, and the world’s third largest developing nation, is generally invisible in the U.S. media so I immediately followed the link to find out what was going on. But the article was by an Australian rather than an American commentator. It was the Lowy Institute’s own Michael Fullilove making a strong pitch for President-elect Obama to choose Indonesia as the site of his promised first Presidential speech at a “major Islamic forum”.
It’s a great idea. Let’s hope it happens. But in most countries, a good deal of foreign policy is drawn up to play to domestic audiences. Sadly the suggestion isn’t likely to take on, is it? Consider the arguments that Obama’s staffers will likely wheel out against the idea.
Author: Gerry van Klinken, KITLV
The promise to do something about corruption was one of the two reasons Indonesians gave an overwhelming mandate to Susilo Bambang Yudhoyono in 2004. The other was security. He ended the war in Aceh, and spectacular arrests by the Corruption Eradication Commission (KPK) have made headlines for years now. He will campaign hard on these successes ahead of the first round of direct voting for president on 6 July 2009. His strongest opponent is expected be Megawati Sukarnoputri, whose party PDIP is in opposition.
Author: Ross McLeod, ANU Indonesia Project
Along with the monetary authorities in many other countries, Bank Indonesia and the government are now acting to increase liquidity in the Indonesian economy, in the hope that this will protect against the possibility of a recession.
It would be possible to increase liquidity simply by reducing the quantity of SBIs (central bank certificates) outstanding. Although BI signalled this as a possibility last week (i.e. increasing liquidity through open market operations), more recently it has announced an alternative policy of reducing the minimum reserve requirement, which determines the amount of funds the commercial banks need to place at the central bank. Until now, calculation of minimum reserves has been absurdly complex, depending on both the size of the bank (four different categories) and its loan to deposit ratio (LDR) (six different categories). Theoretically, the ratio of reserves to deposits could be anywhere in the range 5 to 13%. The average level is currently about 9.1%, and BI has announced that the new reserve ratio will be a flat 7.5%, with no adjustment for bank size or LDRs.
Author: Peter McCawley, ANU Indonesia Project
Stephen Grenville pushed a piece in the Australian Financial Review last week on one of the most difficult issues of current public policy in Indonesia – corruption. Stephen considered the possibility of tackling corruption with a “big bang” approach but decided that this was impractical.
Stephen notes that the judicial system (and, indeed, much of the rest of the public sector) is “market-based”. And this, indeed, is surely part of the core problem – that the line between “non-market goods” on one hand, and “market goods” on the other, is blurred in Indonesia and in many other poor countries. This is an enormously complex problem to which there is no easy answer. Read more…
Author: Ross McLeod, ANU Indonesia Project
Indonesia’s inflation rate is now well over twice as high as the central bank’s target of about five per cent. There are two convenient scapegoats: big increases in both oil and rice prices. But the real explanation, as always, is unduly loose monetary policy.
Such an assertion will seem implausible, perhaps, to most observers. After all, Bank Indonesia has increased interest rates in recent months, which seems to suggest a tightening of monetary policy. That can hardly be denied, but the fact remains that monetary policy still remains quite loose. The best indicator of this is the growth of currency in circulation, which has accelerated significantly over the last several months, and is now running at rates of almost 30% annually. Read more…
Author: Ross McLeod, ANU Indonesia Project
The fourth amendment to Indonesia’s Constitution requires both central and regional governments to allocate at least 20% of their budgetary spending to education. Though it attracted little attention at the time, the absurdity of this amendment is now becoming more apparent. The entirely arbitrary 20% level far exceeds typical levels of expenditure on education in the past, and so this minimum requirement has simply been ignored by central and regional legislatures in the years since the amendment.
Perhaps not surprisingly, a group of teachers has brought a case before the Constitutional Court, asking it to rule on the validity of the central government’s current annual budget, in view of the fact that education spending remains well below the mandated minimum. The court had no choice other than to agree that the current budget violates the amended Constitution, but it was not prepared to go so far as to annul the law in which that budget is contained. Read more…