by Jennie S. Bev
The recent Indonesia Investment Summit in Jakarta was a party filled
with euphoria. Vice President Boediono, Indonesia Investment Coordinating Board
(BKPM) Chairman Chatib Basri, Minister of Trade Gita Wirjawan, Minister of
Tourism and Creative Industry Mari Elka Pangestu, economists and investors in Indonesia
all showed a positive attitude towards Indonesia’s potential. While both Fitch
Ratings and Moody’s raised Indonesia’s credit rating to investment grade,
Standard and Poor’s (S&P) hasn’t done this yet.
Economists are optimistic that next year’s growth would remain at
6.5% or even more, despite the global recession. With such a large domestic
market, of which 53% live in urban areas, we can expect to see more ripple
effects of the global economy in this growth market. The large population of 240
million people, of which 60% are under 39 years old, provide a ready workforce
and the costs of doing business in Indonesia are competitive with other
countries.
Indonesia has many alluring factors, of course, but at the same
time one has to strike a note of caution—can it be that good? For the challenges
are also prevalent: lack of reliable infrastructure in between cities and
islands, lack of reliable local suppliers, and lack of skills in this large
labor pool.
The recent announcement by Minister of Education M. Nuh that he plans
to eliminate English in the curricula for public elementary schools was a shock
as it’s a complete opposite to, for instance, what Australia is doing. Very
much aware of the Asia’s rise, Australia now encourages students to learn
Indonesian. Apparently, there is disconnect among Indonesian ministers, which
could have been eliminated with good coordination and a synergistic effort to
achieve economic goals.
One
of the prospective global investors at the summit asked about this, as it would
naturally create an inconvenience if young people entering the workplace might
not be able to communicate well in English. Thus the Minister of Education’s
plan appears to take an antiquated approach to the educational system in
Indonesia.
Poor
project management and project execution are other nagging issues requiring
attention. It is common knowledge that Indonesians are used to “rubber time,”
meaning that a meeting may start one or even two hours later than planned due
to various excuses, among which is heavy traffic preventing the start of the
meeting on time.
Jakarta
is already notorious for its heavy traffic that causes delivery delays. Frequent
labor strikes also add to low productivity and unreliability. While healthy
labor unions can be part of a developed civil society, strikes should not reduce
productivity.
The
reality check for Indonesia is that, according to World Bank’s Doing Business
rankings, Indonesia is ranked low in terms of starting a business (166th),
resolving insolvencies (148th), getting electricity (147th), and enforcing
contracts due to weak rules of law (144th). Also, Indonesia’s loan interest
rates are among the highest in the world. Overall, Indonesia is ranked 128th
out of 185 countries in terms of doing business, according to the World Bank.
In
addition, Indonesia is ranked 100th out of 183 countries in terms of corruption
according to Transparency International. Indonesian economic policy is also
notorious for its protectionism. Having an investment grade is an achievement
indeed, especially after a long uphill battle to regain pre-1997 financial crisis
growth level. However, it appears that Indonesia has much homework to do before
qualifying for an S&P upgrade.
Forbes Indonesia, December 2012
