Indonesian Politics and Economy: Indonesia Policymaking Discourse
By Sahala Sianpar
Director, GolinHarris in Singapore

President Susilo Bambang Yudhoyono and Vice President M. Jusuf Kalla were sworn as Indonesia’s first directly elected president and vice president on 20 October 2004. The peaceful direct legislative and presidential election marked the success of a transition of Indonesia – the world’s largest Moslem population – into a democratic state. Despite its strong mandate, the new administration will face many challenges in managing policy discourse given the fragmented power centers of the national parliament.

President Susilo, popularly known as "SBY" and Vice President Kalla, will need to balance the need for market, and in particular, investment-friendly policies and the interests of average Indonesians. For example, the government will have to decide whether to raise fuel prices soon. Higher fuel costs will ease what is currently an enormous burden on the government’s budget. However, higher fuel costs will at the same time have a significant impact on working Indonesians. They will jolt inflation upward, which, in turn, is likely to affect interest rate policy. We anticipate the government to defer the fuel subsidy issue until the end of Hari Raya (Idul Fitri).

The new administration’s economic team brings a mix of practitioners and academics. The selection of Mr. Aburizal Bakrie, a well-known businessperson (and former chairman of Bakrie Group and the Indonesian chamber of commerce), to be coordinating minister for the economy, reflects the new administration’s determination to instill CEO-style management in the policymaking process. Mr. Bakrie is expected to spend most of his time marketing Indonesia to the investment community. The economic team is expected to roll out populist programs such as cheap credits for small business and micro-enterprise, job training for the unemployed, poverty alleviation initiatives, and subsidies to key industries.

The new minister of finance is a former Indonesian representative to the Asian Development Bank (ADB). The ADB has channeled several loans aimed at financing small business development and alleviating poverty in Indonesia following the 1997/98 financial crises. Mr. Jusuf Anwar, the new minister of finance and Indonesia representative to the Asian Development Bank, former secretary general of ministry of finance), is expected to follow a relatively less strict fiscal policy, compared to his predecessor, Mr. Budiono. However given his experience at the ADB, Mr. Anwar should be a strong advocate with international lenders. Equally important, Mr. Anwar is expected to be able to work well with the current governor of Bank Indonesia. The new trade minister, Ms. Mari Pangestu, (former executive director of Center for Strategic and International Studies or CSIS) is likely to advocate better access for Indonesian products and services to foreign markets in international trade negotiations. For the past 4 years, she has lived in China, where she has gained first hand knowledge of the techniques and successes of that country’s trade and investment policies and their implications for the Chinese economy.

The government is also likely to focus on few high profile corruption cases in order to send strong message to the public as to its commitment to legal reform. These cases could include the current investigation of illegal sugar imports and the recent US$170 million fraud at BNI (Indonesia’s second largest lender). When he was a chief justice, the new attorney general, Abdul Rahman Saleh publicly disagreed with his fellow justices on a well-publicized corruption case involving former speaker of the national parliament (1999-2004), Akbar Tanjung (current chairman of Golkar party). Mr. Saleh published a dissenting opinion on the case. His understanding of the legal system is expected to enhance the performance of the attorney general’s office going forward.

The Outlook for Strategic Investors in Indonesia
The government intends to expand the growth base of the domestic economy through promotion of small businesses, investment in infrastructure development and expansion of domestic trade. This should be good news for strategic investors wishing to expand their base in the country. However, given the fragmented nature of policymaking in Indonesia today, it is imperative for strategic investors to engage in comprehensive and consistent outreach among key policy influencers. In the case of the banking sector, the government may be expected to encourage banks to channel loans to small business and micro-enterprise.