Indonesia as the next superpower?
Friday, July 9, 2010
I know how crazy that statement may appear to most of you. Especially because Indonesia is only ranked as 18th by IMF in terms GDP, and accounts for less than 1% of the World’s GDP. It is also home to one of the world’s most corrupt officials, and a plethora of social, geological problems. But that is exactly why I think the potential is definitely there. You could think about an island of naked indigenous as just an uncivilized island, or you think about it as an opportunity to clothe and civilize them. Now I want to make myself clear and stop myself short of crazy, I don’t really think that Indonesia will actually get to the super power status, but wanted to highlight its potential.
Indonesia is one of the most strategic tropical nation, blessed with perfect weather all year round, an abundance of natural resources from the fertile lands, to mineral deposits as well as a unique maritime resource and empowered with the world’s 5th largest population. These resources had attracted foreigners since the Indian empires, Chinese Song dynasty, to the European colonization era. But it has never been used for the betterment of our nation.
I think one of the major factors that causes our economic backwardness today is our high administration cost economy. For Indonesia, the biggest problem in my opinion is the unclear legal framework, which increases the cost of doing business (through bribes and officials ‘collaboration’). For any businessman or investor that would develop a business here, they would have to fork out a substantial portion in appeasing everyone from neighborhood authorities to local officials, this is an unwritten cost that is seldom discussed about in economic papers- just because it is unofficial. Just ask any businessmen small to large on their business experience in Indonesia, and they would most probably tell you the same thing. Cost of appeasing is not just high in some cases- it is even unknown sometimes. Think about it this way, you could start a restaurant in US or Indonesia, assuming they have the same market potential. Your in the US costs would be to rent, hire and run the business for $100 a month, or you could start the restaurant in Indonesia where renting and labor would only cost you $80, but ‘additional’ costs related to appeasing the officials could run you a tab of $50-100. In this illustration, the choice is simple right?
Another fundamental problem we have as a whole is that we lack the necessary infrastructure, which again makes the cost of doing business in this country very high. A brief look at America’s economic ascension showed that time and again growth has been spurted by a major breakthrough that lowered the cost of doing business, via infrastructure, namely the introduction of railroads in 1880s, highways in 1950s and telecom in 1980s and internet in 1990s. The Indonesian economy has doubled since the 1998 crisis, our economic activity has clearly doubled as well, yet our road systems, electric utilities, water utilities and telecommunication infrastructure clearly did not catch up with our developments. Think of congestion, power outages, water stoppages and dropped calls as evidence of those demands not being met. Some may argue that it is the result of the corruption, I might just agree, but I still think this is a major fundamental problem that has a league of its own.
So looking at those two major problems, where is Indonesia in trying to fix their own problems? I think we are making progress on the corruption side. Sure, news of KPK and government officials embezzling country money continues to make the front pages here. But one clear progress we have is the media coverage (which used to be rife with bribery as well) is seeing some improvements in transparency. I think that by exposing these incidents more, we will bring about more awareness into our root problems and slowly change the mindset of our residents. The opinion section of Kompas has time and again showed these developments and pointing out how it is actually a positive development, I agree with those views.
In terms of fixing our infrastructure, the government has definitely set this as an area of focus as well, with a slightly longer viewpoint. We have set aside …Billions of rupiah over the next … years to invest in further transportation developments and so on. While it is true that Indonesia has not executed on these mandates very well, I think the problem again lies in the corruption at the local officials levels, causing the ‘freeing of the land’ (pembebasan tanah) to be a major hindrance in development of these infrastructure. It is definitely encouraging that they are not stressing too much on these before the core problem of corruption gets solved first.
So all in all, I would have to say that by the time Indonesia fixes these 2 major hindrances to our economy, we could have been so much more advanced than where we are today. To think of it in another light, Indonesia is already the biggest economy in SEA even with our deep-rooted problems, we have solved the first barrier of political uncertainty (unlike Thailand) during the 1998- 2010 period, and have somewhat established the world’s largest multi-party democratic system- which hopefully stays meaningfully stable over the next few decades. Once we solve the second and third barrier of corruption and bare basic infrastructure- I think that we will be so far ahead versus today, that we will be in a completely different league, and the BRICs may just become BRIICs.
