Indonesia: A messy democracy that somehow works

By IAfrica
In South Africa
Aug 31st, 2014
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Kalibanteng Dutch War Cemetery in Semarang, Indonesia, contains more than 3,100 graves, mostly civilians who perished during the Japanese occupation between 1942 and 1945, many of them women and children. Fields of white crosses stand out on the beautifully tended site with its manicured grass, swept walkways and pruned shrubbery.

That more than 24,000 Dutchmen and women are honoured in seven World War II memorials across the country is indicative, among other things, of Indonesia’s violent and turbulent political history, and its lengthy and messy colonial one.

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Photo: Kalibanteng Dutch War Cemetery in Semarang (Greg Mills)

Nearly 450 years of Portuguese and, from 1595, Dutch imperial involvement took various forms. The trading empire of the United East India Company was converted, upon its bankruptcy in 1800, to a colonial one under the Dutch crown in 1816, not unlike what happened to the Congo in the transfer of authority from King Leopold to the state. A brief and bloody British interregnum occurred when, in 1811, following the annexation of Holland by Napoleon, Sir Thomas Stanford Raffles, considered the founder of Singapore city (and of the London Zoo), led a military expedition which captured Java in just 45 days. His subjugation of local powerbrokers infamously included the 21 June 1812 assault on the southern Javanese city of Yogyakarta, when the Sultan’s court (the ‘kraton’) was plundered by British troops.

While the Dutch brought infrastructure including railways, irrigation and potable water systems, ports and 79,000kms of roads, which became the basis of the modern Indonesian state, these benefits went hand in hand with humiliation, founded on rigid caste and social politics and racial elitism.

At the rear of the Kalibanteng cemetery lie the remains of Dutch colonial troops, distinguishable by their ornate Muslim tablets. Most of these date from 1949 when the Dutch cracked down on the nationalists led by a young civil engineer, Sukarno. Possibly as many as 200,000 Chinese, Dutch, Eurasian and Indonesians died in the revolution between the bold declaration of independence on 17 August 1945 and the transfer of sovereignty from the Netherlands to the Indonesian republic in December 1949.

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Photo: Indonesia’s declaration of independence, National Military Museum, Jakarta. (Greg Mills)

This was not the end, sadly, of the killing.

A further 500,000 or so died in the purges – famously depicted in The Year of Living Dangerously, the title of Sukarno’s 1964 National Day speech – which accompanied the enforced transition of rule from Sukarno to General Suharto in 1966, portrayed as an attempt to restore order after a failed communist-led coup (which Suharto, the head of the reserves, it is alleged, may have had a hand in). Whatever; it offered the pretext for settling all manner of scores.

Despite misty-eyed socialist mythology, Sukarno’s rule was not democratic and nor did it deliver development. Instead, as corruption and inefficiency throttled growth, he relied on a combination of personal charisma, anti-Western gesturing including the expulsion of 50,000 Dutch settlers in the late-1950s and the oxymoronic purchase of East bloc weaponry while birthing the Non-Aligned Movement at Bandung in 1955, and grand-scale heroic architecture to get by.

By the time he left government, inflation was at 1,000 percent and the country’s infrastructure was wobbling.

Heroic architecture ≠ development

Jakarta is a monument to Sukarno’s follies. At one end of the Jalan Thamrin thoroughfare, along Jalan Veteran, is Merdeka (‘Independence’) Square featuring the Momumen Nasional, or Monas, a 132-metre tall statue with a carved flame on top (dubbed ‘Sukarno’s final erection’) and nearby the 120,000-capacity national mosque, the largest in Southeast Asia, Mesjid Istiqlal (on which Sukarno was the technical chief supervisor); at the other the Senayan sports-complex, host to the 1962 Asian Games.

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Photo: Sukarno’s Monas and other urges (Greg Mills)

Along the way are myriad other unsuppressed nationalistic urges, including the swish glass and aluminium Hotel Indonesia (now the Kempinski), Sarinah department store (promoted as ‘The Indonesian Emporium’), the Semanggi clover-leave bridge interchange, and various statues including, further south, the infamous ‘Pizza Delivery Man’ – a figure holding a large, flat object aloft.

Such eccentricities were alone not the source of the economic problem. It was that Sukarno lacked a plan for the development of Indonesia. His attempt at a ‘development’ bank was illustrative of this failing. It did not promote export or, for that matter, any industries. Rather it lent to traders. At the same time the government pursued an affirmative action programme known as Benteng – or ‘fortress’ – to encourage indigenous merchants. (Sound familiar?)

Trading was – and is – not investment in making things to sell, however; the way countries get rich. As Joe Studwell has put it, by the early 1960s, with ramping political pressures caused by the worsening economic situation, Indonesia “became a zero-discipline fiscal environment” with the central bank “feeding the beast of credit demand unquestioningly”. Enter Suharto – Bapak Bembangunan (‘Father of Development’) to the serial polygamous Sukarno’s Bung Karno (‘buddy’).

It’s not that nation-building was unimportant; it’s whether it was best achieved through growth or architecture.

Today Semarang is a busy port on the coast of northern Java, the most prosperous and populated of Indonesia’s 13,500 islands, where 60 percent of Indonesians live on 7 percent of the land mass. Still the country’s average density of nearly 130 people per square kilometre – nearly three times the global average and five times that of Africa’s – highlights Indonesia’s status as the world’s fourth most populous nation with 240 million people.

Despite, or perhaps because of, the numbers and its dispersed archipelago, Indonesia’s infrastructure is poor. Jakarta’s inadequacies are compounded by its ten million inhabitants, treacle traffic and suffocating smog. The government is constantly caught between investing in transport between the islands and on them, the result being unsatisfactory in both respects, worsened by the antics of ancient, smoking trucks and buses and some 80 million bebek (literally, ‘ducks’) – the ever-present motorcycle.

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Photo: Gaggles of ducks. (Greg Mills)

The impact of poor physical infrastructure is amplified by a stifling bureaucracy and policy vacillation. Indonesia ranks 120th of 189 countries on the World Bank’s Ease of Doing Business indicators, including a lowly 175th on the ease of starting a business.

Changes in mining regulations, especially the stipulation around majority local ownership within a decade and equally clumsy stipulations demanding beneficiation, have created uncertainty among foreign investors. Sound economic decision-making has proven also hostage to the vagaries of populist politics, such as with the subsidy of fuel and food, which consumes nearly one-third, says the UN, of the budget, money that could be put to better purposes. Overall, with 34 government ministries, recurrent expenditure (debt, subsidies and salaries) sucks 90 percent of the budget.

Again, this sounds all-too-familiar in an African context.

Bureaucratic obstructionism is compounded by skills and a national fatalism. The term Begitulah (‘that’s just the way it is’) a local variant of mañana meets insh’allah seems, more positively, to have its roots in a collectivist approach, to the overwhelming need for accommodation at every level.

The ‘etc.’ issue

There has been, after all, a formidable ‘national issue’. Not for nothing is Indonesia’s motto Bhimneka Tunggal (‘unity in diversity’), shades of South Africa’s !ke e: ǀxarra ǁke, once in more popular and pronounceable terms, Ex Unite Vires.

The Dutch, perhaps inadvertently, helped to forge a sense of national identity on the anvil of colonialism, though like similar experiences in Africa (think Congo) the outcome is a geographic nonsense and ethnic potpourri made up of 360 groups and 719 languages. And although 90 percent of the population is Muslim (making it the world’s most populous Islamic nation), they are themselves divided over the relationship between their religion and government, between a secular or sharia state. The activities of the al-Qaeda backed Jemaan Islamiah group, including the 2002 Bali bombings, heightened this divide, the government realising the need to crackdown on the one hand, not least to preserve the nine million visitor, $9 billion revenue annual tourism industry, at the same time taking care not to appear to be attacking Islam itself. A constant between Sukarno, Suharto and subsequent regimes has been the pluralist ideology of pancasila, enshrined in the 1945 constitution.

The national military museum is replete with dioramas depicting the gallant independence struggle, while outside bits of East bloc hardware supplied to Suharto moulder in Jakarta’s steam. In the foyer is a copy of Sukarno’s independence statement of 1945. ‘We, the people of Indonesia,’ it reads, ‘hereby declare the independence of Indonesia. Matters relating to the transfer of power etc. will be executed carefully and as soon as possible’ As Elizabeth Pisani notes, however, Indonesians ‘have been working on that “etc.” ever since’ in attempting to ‘mash’ together all of the extraneous geographic and diverse ethnic bits cobbled together, as she notes, ‘from the wreckage’ of ‘colonisation, kleptocracy and a war of independence’.

Compounding the ethnic issue is the role of the Chinese. From the 17th century they have operated as Indonesia’s economic middle-men, akin to the Lebanese in West Africa or Asians on the eastern African seaboard, in the process taking over many of the biggest and most profitable businesses. Liem Sioe Liong, an immigrant trader from the Chinese Fujian province, epitomised this role, using connections with the government to prosper, and building his Bank Central Asia (BCA) into the provider of capital to domestic monopolies in cement, flour, toll-roads and other sectors of Suharto family interest. Om Liem was forced to flee during the 1998 Jakarta riots which targeted the Chinese community, and which saw an estimated $20 billion of mostly Chinese capital flee to Singapore, Hong Kong, and the US.

During the 1990s it was estimated that ethnic Chinese, now little over one percent of the population, controlled more than 70 percent of the shares of publicly-listed companies. Such minority interests echo across Africa, not least in SA.

These schisms reflect high and, according to the UN, widening inequality, not least between urban and rural areas, and between the smaller and larger islands. The 53 percent of Indonesians in the cities produce three-quarters of the national GDP. Yet in West Papua, for example, poverty is three times the national average.

Still, it’s a country full of contradictions. McKinsey’s, the consultancy, predicts that, with the right policy interventions, Indonesia could rise from being the world’s 16th to seventh largest economy by 2030. There are more than 290 million mobile phones, many Indonesians having more than one in their pockets, and Jakarta tweets more than any other capital. But whereas 64 million Indonesians use Facebook, 80 million have no electricity and 110 million live on less than two dollars a day.

No surprise, then, that business has been tightly entwined with politics and elite interests.

Cronyism and corruption

Ninety minutes’ driving north-east of Semarang is the town of Kudus, famous for the production of kretek clove-flavoured cigarettes. Invented by a Kudus local, Jamhari, who claimed the cloves helped his asthma (go figure), the industry grew to more than 200 factories around the town, though it has consolidated today to a few big players. Suharto’s favoured son, Tommy, gained a monopoly on the cloves used in kreteks. That was not all. He also attempted to squeeze government coffers for $1.3 billion to finance his Timor car project, essentially at the outset little more than the rebadging of Korean Kias. Fortunately the wheels fell of the economy, and thus the car, as the central bank skilfully and successfully stalled before that loan was fully made.

It did not end with Tommy. Suharto’s wife, Ibu Tien, controlled the monopoly on the importation and milling of wheat, while daughter Tutut won the contract to build Jakarta’s toll road.

Mobutu Sese Seko would have been jealous.

While the family made hay, the army ran thousands of businesses too. According to Transparency International’s 2004 rankings, Suharto’s was the most corrupt regime ever, embezzling perhaps as much as $35 billion, or more than a billion a year from his 32 years in power.

Before and after Suharto, however, government has struggled to get some of the basics right.

Maximising agriculture output has usually been the first stage in the development of Southeast Asian countries, pushing up yields and output, increasing demand for services and goods and enabling the division of labour. In Indonesia, the agriculture sector has a disappointing development history, again not unlike Africa.

Despite Dutch attempts to raise the living standards of Indonesians through improved agriculture methods and fairer land ownership in its so-called ‘Ethical Policy’ in the early 20th century, it remained an export-driven sector around coffee, indigo, tobacco and sugar, Europeans invariably benefiting more than the locals.

Suharto did improve matters, with Indonesia producing its first rice surplus in 1983 as a result of improved yields and per capita output. But ultimately his regime was undone by a combination of family and (military) institutional greed, along with its accompanying helter-skelter financial deregulation, permitting borrowing for the politically connected.

To top everything, Indonesia has had to deal with an oil curse. One of the reasons the Japanese coveted the Dutch colony after the loss of more than 90 percent of its oil supply after the July 1941 US embargo, was its status as the world’s fourth largest oil producer after the US, Iran and Romania at that time. With the discovery of oil in the 1920s, Indonesia became the springboard for the creation of the Royal Dutch Shell Company.

Little wonder that a plethora of academic studies have compared Nigeria with Indonesia, then. In fact, if Indonesia were in Africa, its characteristics – discontiguous geography, violent history, ethnically diverse, widespread corruption, and mostly bad or sometimes radical politics – could be explanations of state failure.

But it works: Why?

Yet, for all of the above, Indonesia’s development progress over the last fifty years has been, at least by African standards, nothing short of stellar. In 1967 Indonesia’s per capita income was less than Nigeria’s, at just $56. By 1990 it was up to $640 (Nigeria was at $321), and today it is touching $4,000, while Nigeria is just over $1,500.

Between the years 1965 and 1997 the Indonesian economy grew at an average annual rate of almost seven percent, graduating it from ‘low income’ to ‘lower middle income’ status. Despite the Asian Financial Crisis which saw GDP shrink nearly 14 percent in 1998, the economy picked up to average 4.6 percent growth between 2000-04 and, since then, to at least six percent.

This has had a dramatic impact on human development, Indonesia’s UN ranking in this regard improving by 45 percent between 1980-2013.

That long-term growth matters is the first of five reasons separating Indonesia’s development trajectory from Africa, and explaining why Southeast Asia has enjoyed a jobs-growth experience rather than just a growth one.

For all of Indonesia’s excesses and failings, as one foreign businessman based in Semarang put it, “While developed countries would be happy for five percent (growth) anything less than that here and they are slipping back. It would be considered a disaster.”

The growth imperative has demanded having a plan for improved prosperity which entrepreneurs can take advantage of, and execution against this plan by the Suharto government, reducing inflation at the start and steadily improving and extending governance. This was not a Soviet style five-year industrialisation plan; however, since these seldom produce the goods – despite what SA’s ministries of planning and industry might have us believe – not least where the state is weak. Rather the Indonesian plan for prosperity has been focused on providing the general framework for prosperity to occur, in this case through what is termed MSMEs – Micros, Small and Medium Enterprises – responsible for more than half of GDP.

Under Suharto, the plan focused on improving agro-yields, as above, and gradually liberalising and internationalising the economy to secure international investment in setting-up export-oriented manufacturing industries. As a result, by the late 1980s, Indonesia had not only become an agricultural exporter, but also of textiles, footwear, apparel and consumer goods.

Indeed, Indonesia’s success shows, as Singapore’s finance (and deputy prime) minister Tharman Shanmugaratnam argues, the importance of setting the context: “Businesses have a way of going out and finding opportunities, and we have to provide [only] the environment that is conducive to this.” Since investment is not trading requiring “long gestation periods” it demands “leaps in governance”, he says, along with “predictability and certainty in regimes and laws, including labour laws”.

The burgeoning domestic market, second, is a further factor in explaining Indonesia’s success, not least given the size of its middle-class, estimated at 75 million today and perhaps 140 million by 2020, the biggest boom world-wide outside of China and India.

So too is the regional context: Choose your neighbours, like your parents, carefully. Indonesia has – along the lines of the ‘flying geese’ development model – been able to pick up the pieces as regional economies have moved out of labour-intensive manufacturing. It is well positioned to become the next China as the neighbourhood behemoth moves up the value chain.

Third, whatever the problems with Indonesia’s education system and shortage of the skills necessary for future growth, the costs of labour still matter. While these are not a complete substitute for productivity, they are a good guide for foreign investors. In the furniture businesses clustered around Japara, for example, minimum monthly labour costs are at $140, while comparable costs in Vietnam are up past $200 and China is heading towards $500.

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Photo: Labour’s cheap, which matters. (Greg Mills)

While, fourth, Indonesia’s infrastructure is ropey, and along with all the other abovementioned constraints, may discount growth by as much as two to three percentage points annually, it has not derailed the economy.

Indonesia teaches that just as infrastructure is no silver bullet for success, it is seldom the sole reason for failure. Take Yogyakarta airport, scruffy, antiquated and analogue, where passengers are tripped up by touts and vendors. Yet by making full use of what it’s got – and it doesn’t have much – its dinky terminal handles more flights and international visitors than Durban’s King Shaka extravaganza, efficiently and without fuss or officiousness.

And finally, Suharto’s downfall illustrates the most important reason of all for Indonesia’s success – a commitment to popular welfare. Contrary to the notion that an authoritarian state is required for development, Indonesians were willing to accept that regime only when it delivered growth.

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Photo: Politics is very much alive (Greg Mills)

When Suharto’s excesses outweighed his successes and the nepotism proved too great a burden to bear, the old system of ‘guided democracy’ gave way to parliamentary democracy, given what Amartya Sen has stressed as the importance of the “protective role of political democracy” in economic crises. While democracy may, for some, be a messy system through which to navigate, its absence and the effect of weak institutions will, if Indonesia is anything to go by, ultimately be very costly. DM

Dr Mills, a visiting fellow at Singapore’s Rajaratnam School of International Studies, is the author, most recently, of ‘Why States Recover – Turning Walking Nations into Winning Societies’ (Picador).

Photo: Indonesian incumbent President Susilo Bambang Yudhoyono (R) talks with Indonesian incoming president-elect Joko Widodo (L) during their meeting in Nusadua, Bali, Indonesia 27 August 2014. The meeting between Susilo Bambang Yudhoyono and Joko Widodo is aimed to discuss their political transition. It is their first meeting since Indonesia’s Constitutional Court upheld Widodo’s election victory on 21 August 2014. EPA/MADE NAGI


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