It is fitting that in December 2008, through its initiative, Indonesia hosted the Bali Democracy Forum, attended by 32 Asian countries (including Australia), with the aim of fostering democracy in the region. This was a major initiative that provided an opportunity for regional countries with different political systems to talk about a subject that is considered sensitive. At the end of the Forum, participants agreed to strengthen democratic systems in Asia and to hold annual meetings at the ministerial level in Bali. This will likely boost Indonesia’s international standing, at least in the politico-diplomatic realm. As Time magazine observes (22 September 2008), Indonesia ‘has emerged as Southeast Asia’s unlikely star.’

There is the view that Indonesia must play a more pro-active role in its own immediate neighborhood, through ASEAN. It must, therefore, provide a leadership role in faithful implementation of the ASEAN Charter in accordance with the spirit that emanated from the ASEAN Bali Concord II of 2003 that aimed at creating an ASEAN Community. This was the condition under which the Indonesian parliament ratified the watered-down ASEAN Charter. It remains to be seen how committed Indonesia will remain in reality –rather than in rhetoric—to ASEAN as it may have already outgrown ASEAN. By becoming a member of G-20, it will have to take up additional responsibilities to help shape global solutions to global problems.

Be that as it may, a great deal of Indonesia’s attention still has to be devoted to its internal development. Poverty and growing inequalities continue to be the main problem. Fortunately, domestic socio-political conditions have seen steady improvements that will enable the country to better organize itself in dealing with those challenges. Major social conflicts have been resolved in many parts of the country. Pluralism, reflecting the society’s underlying social diversity, remains largely intact, although this cannot be taken for granted.

The country is entering an election year (2009) and a lot of political maneuvering is already taking place. This tends to complicate and frustrate policy making that already suffers from the devolution of power to local governments under the policy of decentralization and regional autonomy implemented since 2001. Corruption has become even more widespread as social control in the regions is still weak. President Yudhoyono (SBY) has launched his anti-graft policy since taking office, but the task remains enormous. He has maintained credibility in his anti-corruption campaign by allowing an in-law to be jailed on corruption charges.

Economic reform could suffer in an election year. In May 2008 the government has laid down a comprehensive economic reform package (Presidential Instruction No.5/2008) that incorporated the measures to implement Indonesia’s commitments under the ASEAN Economic Community Blueprint of deeper regional economic integration. The global financial crisis and its impact on Indonesia could threaten the implementation of these reforms. But the President pledged at the G-20 Summit, as well as at the APEC leaders meeting in Peru last month, that the country will not raise trade barriers. He will have to make sure that the bureaucracy takes these commitments seriously: the record on this score has not been all that good.

To sum up, Indonesia in 2008 has laid sufficient groundwork to move ahead in the years ahead. The key challenge is to build on the achievements by further implementing the reform plans and measures to which commitment has been made. Mechanisms are often not there, capacity is frequently absent and leadership may not be forthcoming. Being an open economy, and given its active engagement in various regional and global forums, Indonesia will have to make its own efforts to overcome those shortcomings; hopefully with a little encouragement from abroad.

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Hadi Soesastro is the Executive Director as well as a senior economist at CSIS. He was a member of the National Economic Council, an advisory council of President Abdurrahman Wahid, from December 1999 to September 2000. Dr Soesastro is also a member of the international advisory boards of various international institutions, including The Asia Society, New York.

This is part of the special feature: Reflections on developments in Asia in 2008 and the year ahead

See also Indonesia’s coming out party and other posts on Indonesia