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SBY to be sworn-in for the second time as president. By Taufik Darusman
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s he prepares to be sworn-in for the second (and last) time as president. SBY, as he is fondly referred to, couldn’t have asked for more. Aburizal “Ical” Bakrie has clinched the chairmanship of Golkar Party for the next five years, and is now expected to steer the party into the president’s fold. The addition of Golkar to the Democrat Party’s (PD) coalition translates into more than 70 percent of the total seats in the House of Representatives aligned with the government. In the meantime, the House is
chaired by a PD senior official, Marzuki Alie, who will make sure SBY faces little problems as he had in the past despite having Jusuf Kalla from Golkar as his VP. It is also helpful to have Taufiq Kiemas (from the Indonesian Democratic-Party-Struggle/PDIP) as the chairman of the People’s Consultative Assembly (MPR), who owes his position to PD’s support. Though Kiemas’ position as MPR chief cuts no ice, as a senior PDIP official he is in a position to exert pressure on his people at the House in ways that would be beneficial to SBY. Although the overwhelming, 70 percent plus position of SBY
CARRY ON President Susilo Bambang Yudhoyono’s re-election campaign tagline, “Lanjutkan (“Carry On”), proved to be self-fulfilling prophecy. at the House means a weakening of a critical opposition, analsysts see this as a positive development as sound government programs stand a higher chance of becoming a reality and bills readily ratified.
“Even the best democrats in the world wouldn’t mind having a hold on power the way SBY does now,” Taufik Darusman, the deputy chairman of the New Indonesian Struggle Party (PPIB), told The President Post
“SOEs Should be State’s Engine of Growth” The President Post recently interviewed State Minister of Stateowned Enterprises Sofyan Djalil at his office.
next administration.
What is the status of efforts to consolidate SOEs? The ministry has a mandate to reduce the number of SOEs from
A holding company for state fertilizer producers would be the easiest to form. The holding company, called PT Agro Kimia Nusantara, will include State Minister of State Owned Enterprises, Sofyan Djalil several big state fertiliz138 to 89 by the end of this year er companies such as PT Pupuk by, among others, forming hold- Sriwidjaja, PT Pupuk Kaliming companies. antan Timur, PT Pupuk IskanThe establishment of holding dar Muda and PT Petrokimia companies will enable state en- Gresik. terprises to synchronize strategies Due to lack of coordination in their respective sectors and to between ministries and departspecialize in specific areas to in- ments and taxation problems, the crease overall profitability. program will be continued by the
VIEWPOINT
THE WORLD
CULTURE
EDUCATION
Towards Harmony Among Civilazations
Dreaming with Indonesia
Cultural Heritage, Tourism, and National Identity
Pro-Education President
Excerpts: How large is SOEs’ contribution to the State Budget? Total dividends from State Owned Enterprises (SOEs) increased almost three-fold, from Rp 9.8 trillion in 2004 to Rp 29 trillion in 2008.
SBY giving speech at Harvard University as President of the country with the world’s largest moslem population. PAGE 2
After becoming one of the East Asian Economic Miracles, Indonesia went through a long and dark tunnel as a result of the Asian crisis.
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IDR 10,000
Former Coordinating Minister of Economics Prof Dr Dorodjatun Kuntjoro Jakti says the State has to have a larger role in the economy through SOEs such as in Vietnam and Brazil. Comments? I agree, SOEs should be the engine of growth for economic development. How do you enhance SOE corporate leaders to bcome world-class captains of industry? We send the best executives for management leadership program overseas as well as in the country, such as by attending the ECGLRotterdam School of Management Advanced Leadership Program in Jakarta and Bali.
The outrage that erupted in Indonesia recently over the inclusion of the Balinese “pendet dance” in the “Visit Malaysia” feature on Discovery Channel
With 20 percent of the state budget going to the sector of education as of 2009, the President is optimistic about reaching the goals of his success story plan called 3M
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here last week. PPIB is one of the first parties that supported SBY’s re-election bid. Analysts also say Bakrie is set to focus his time and energy in rebuilding beleaguered Golkar.
Courtesy of wikipedia.org
“Ical has set his sights on 2014, when SBY can no longer be reelected. By putting his weight behind SBY now, Bakrie hopes to see the president back him as presidential candidate five years from now,” says a Golkar senior official who perefers not to be identified. As such, it is unlikely that Bakrie would be in the new cabinet though he will make sure that at least four of his proteges are in it. Former Commission I chairman Theo Sambuaga is expected to be in the cabinet, and so is former House Speaker Agung Laksono. One day after SBY and Boediono are sworn in, the former is expected to announce the new
cabinet along with their first 100 days program. “None of the candidates for the new Cabinet have been summoned. Two to three days prior to my swearing-in on the 20th I will hold a fit and proper test on them,” the president said Monday. “They will also be required to undergo medical and psychological tests.” Even after they have gone through the multiple stages, that does not mean the candidate will for certain become a Cabinet minister. “If they happen to have legal problems or other problems, things can always change,” he said.
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Friday, October 16, 2009
The President Post
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Viewpoint Towards Harmony Among Civilizations By DR. Susilo Bambang Yudhoyono
“Several months ago, President Barack Obama made a historic speech in Cairo, seeking to redefine relations between America and the Muslim world. As President of the country with the world’s largest Moslem population, I would like today to respond to that speech”
P
resident Obama delivered his speech at Al Azhar University, one of the oldest and best Universities in the Islamic world. I speak today at Harvard, the oldest and most prestigious University in America. But our objective is the same: to take a hard look at relations between the West and the Islamic worlds, and to chart a new course forward. It is fitting that I come here after the G-20 Summit in Pittsburgh. For to me, the G-20 is one manifestation of the change taking place in global politics. The G-20 grouping, comprising some 85 per cent of the world’s GNP and 80 per cent of world trade, is not just an economic powerhouse -- it is also a civilizational powerhouse. The G-20 for the first time accommodates all the major civilizations -- not just Western countries, but also China, South Korea, India, South Africa, and others, including significantly, three countries with large Muslim populations: Saudi Arabia, Turkey and Indonesia. The G-7, the G-8, or even the United Nations Security Council, does not boast this distinction. The G-20 is representative of a multi-civilizational global community. Perhaps this is why the G-20 has been successful in arresting a global meltdown. The swift and coordinated actions of G-20 economies have started the stabilization of our financial systems and restored confidence, prompting today’s early signs of modest economic recovery. We are very pleased that at the close of Pittsburgh, the G-20 has been institutionalized, and looks set to be the premier forum for international economic cooperation. This comes not a moment too soon, for the world’s civilizations should be properly represented in one defining forum. Civilizations: they at once define us, and divide us. Is harmony between our civilizations truly elusive, so out of reach? can we just not get along? Sixteen years ago, the late Samuel Huntington, a son of this university, published an essay proposing that after the Cold War, civilizations, religions and cultures would become the defining feature of international relations and would constitute the primary cause of conflicts between and within nations. To me, the term “clash of civilizations” itself is counter-productive. If they hear it often enough, some people may think that the world is such and accept it as reality. I don’t believe that civilizations are inherently incompatible and prone to conflict when they interact. This is what I saw firsthand at the G20, where nations of diverse cultural backgrounds joined hands to address a common challenge. We spoke different languages through our headphones, but we understood one another. Huntington sought to understand post-Cold-War fault lines and warned us of potential turbulence. This is not a trivial reminder. Civilizational issues are rife in modern politics. As policymakers, our job is to prevent such prognosis from becoming reality. Indeed, Huntington’s warning has been relevant to Indonesia’s experience. In the roller coaster years following independence, Indonesia has suffered separatist threats, ethnic and religious conflicts, and Islamic insurgencies. But we overcame these challenges. We adapted. And instead of failing, we have thrived. Today we are not a hotbed of communal violence; we are by and large an
archipelago of peace. Today we are not at the brink of ‘Balkanization’; we have instead fortified our national identity through three successful, peaceful national elections. Today we are not a victim of past authoritarian, centralized governments, but a model of democracy and decentralization. Today we are not paralyzed by financial crisis but forging ahead with sweeping reforms of our financial and industrial structure. And Indonesia today is a dynamic emerging economy, enjoying one of the highest growth rates in Asia after China and India. Thus, no matter how deep and seemingly divisive the civilizational forces facing Indonesia -- the ethnic differences and religious conflicts -we overcame them. This is despite the enormous challenges of democracy and development that still confront us. I am aware of the painful realities of our world. I am aware of the 4000 years of painful relations between Judaism, Islam and Christianity. I am aware of a traumatic collective memory that is not easy to erase.When dealing with matters of faith, we face basic human emotions that predated modern states. These emotions are complicated, stubborn, and will likely become more problematic as religiosity intensifies worldwide. According to some estimates, Islam will be the world’s largest religion by 2025, accounting for some 30% of the world population, and indeed Islam is currently the fastest growing religion in the United States. As religiosity increases, so will the politics of identity. And aided by globalization and technology, extremism and radicalism can only grow. As we transition from G8 to G20 and perhaps beyond, mutual exposure between civilizations will become the most intense humanity has ever seen. Perhaps we will even see the emergence of a “global civilization”. Democracy has gained immense ground, spreading in the Islamic world, including in Indonesia. There were only a handful of democracies at the turn of the 20th century. At the turn of the 21st century, there are some 89 full democracies. Even the Organization of Islamic Conference (OIC) has adopted the historic Mecca Charter committing its members to the principles of democracy, human rights and governance. Indeed, more people now live under open pluralist societies, and under religious freedom, than at any other time in history. This trend can have only a positive impact on the global community. It may be naive to expect that the world can be rid of conflict and hatred. But I believe that we can fundamentally change and evolve the way civilizations, religions and cultures interact. This is not utopia. It is a pragmatic vision. I have seen it work in Indonesia. I have seen it work in many countries. The question is: can we make it work globally? As Robert F. Kennedy once said, quoting George Bernard Shaw, ‘I dream of things that never were and ask, why not?” To highlight how I think this can possibly be achieved, let me outline nine imperatives to achieve harmony among civilizations. The first imperative is to make the 21st century the century of soft power. Remember: The 20th century was the century of hard power. We saw two World Wars, several major wars and proxy wars, and a long Cold War which risked nuclear holocaust. One estimate suggests that some 180 million people died in the wars and conflicts of the last century. It is no wonder that the 20th century has been called the “age of conflict”. It has been the bloodiest Century in memory. In contrast, the 21st century should and must be the century of soft power. But there exists a large of “soft power deficit” that the world’s civilizations must fill. I believe that this ‘clash of civilizations’ is actually a clash of ignorance. We are weakest when we are alone. We are strongest when we join forces with one another. There are many examples of this power of exchange and connectivity. In the 13th century, the Islam-
ic civilization was the most sophisticated in the world because it had an enormous and indiscriminate thirst for knowledge and science, learning from all corners of the world. And this body of scientific knowledge from the Muslim world was later utilized by the Western Renaissance. Civilizations have built on each other’s knowledge and become enriched by them. We have done the same in Indonesia, where we have built on our exposure to Eastern, Islamic, and Western influences, culminating in the open, pluralistic and tolerant society that we are today. In short, the cross-fertilization of cultures can produce something wonderful, something good. The more we exchange cultures and share ideas, the more we learn from one another, the more we cooperate and spread goodwill, the more we project soft power and place it right at the heart of international relations, the closer we are to world peace. Experience has taught me that soft power is an effective weapon against conflict. Just ask the people of Aceh, Indonesia. For 30 years, Aceh was rife with violence. Successive Indonesian governments opted for a rigid military solution, because a settlement seemed so elusive. When I assumed the Presidency, I pursued a new approach, one defined by goodwill and trustbuilding. I offered the separatists a win-win formula, promising them peace with dignity. Remarkably, we reached a permanent peace settlement in just five short rounds of negotiations. The peace agreement was fully in line with my objective to defend our sovereignty and territorial integrity but in a civilized and democratic way. That was when my faith in soft power multiplied, and why I believe it holds the key to resolving many global problems. The second imperative is to intensify the process of dialogue and outreach that now seems to be proliferating. We have seen many good initiatives. In 2001, the United Nations began the Dialogue among Civilizations. Spain and Turkey later launched the Alliance of Civilizations. The Asia Europe Meeting (ASEM) also took-up Inter-faith Dialogue. Recently, Saudi Arabia convened the Interfaith Conference at the UN. Indonesia and Norway also launched, since 2006, the Global Inter-Media Dialogue in the aftermath of the cartoon crisis. All this represents a fresh approach to link civilizations and religions. We must deepen the quality of these dialogues, so that they produce specific actions that, as UN Secretary-General Ban Ki-moon points out, “change what people see, what they say and ultimately how they act”. These initiatives should not always be a meeting of like-minded moderates, although surely this is also important. They should also include disbelievers, for a dialogue should not be a reaffirmation, but an honest attempt to understand the concerns of the other side. The point is to listen, and not just talk. A true dialogue must address age-old grievances and confront false stereotypes, without presumptions and preconditions. Indeed, the best dialogues are often respectful and honest, open-ended and constructive, intense, and solution-oriented. These were the quality of dialogues held in Indonesia between Muslims and Christians in conflict-zones in Poso and Maluku, which culminated in a commitment to peaceful reconciliation. The third imperative is the need to find a solution to burning political conflicts that have driven a wide wedge, specifically between the western and Muslim worlds. Today, some two out of three Muslim countries are in conflict or face a significant threat of conflict. In contrast, only one out of four non-Muslim countries face similar challenges. But despite these very complex conflict situations, Muslims must be able to differentiate between a conflict involving Muslims, and a “war against Islam”. I do not believe that any of the civilizations – Western, Hindu, Buddhist, Japanese - are systematically and simplistically engaged in a “war
against Islam”. Of all the world’s conflicts, none has captured the passion of Muslims more than the plight of the Palestinians. But this is not a religious issue – there are Christians and Jews in Palestine, and Muslims and Christians in Israel. Nonetheless, the establishment of the much-awaited Palestinian state, in the framework of a two-state solution where Palestine and Israel live side by side in peace, would be widely hailed by Muslims worldwide. It would remove a major mental barrier in their perception of the West, especially of the United States. Currently, many Muslims fail to notice the constructive role of the West in producing peace in Bosnia, and in Kosovo, but they would sure notice, and rejoice in, the resolution of the Palestine dilemma. But the Palestinians too have a moral and political responsibility. It is difficult to attain and sustain statehood unless there is unity among the Palestinian factions. In my meeting with Palestinian leaders, I always told them very clearly that Indonesian freedom fighters would have never won the war for independence if they had not united in spirit. The bottom line is : we desperately need to end the vicious cycle of conflict and violence. The timely withdrawal of Western forces from Iraq and Afghanistan would also alleviate Muslim fears of a Western hegemony. And all these political solutions would help reduce terrorism, as a crime that deviates from the true teaching of Islam as a religion of peace. It would also turn the feelings of fear and humiliation among some Muslims into hope and self-esteem. The fourth imperative is to strengthen the voice of moderation in our communities. By nature, moderates are openminded, flexible and prone to an inclusive approach through outreach and partnership. In contrast, extremists are driven by xenophobic fear, and bent on confrontation and exclusion. Because both moderation and extremism will grow in the 21st century, we must make sure the moderates are empowered, and take center stage in society. The moderates should no longer be a silent majority. They must speak up and defend their mainstream values in the face of opposition from the louder and more media-genic extremists. In this vein, I find it very encouraging that Western media have unanimously refused to show the very offensive film Fitna by provocative Dutch politician Geert Wilders. This shows the media’s improved sensitivity towards Islam. The moderates also have to be more proactive and less reactive. And they must show, with reason and results, that being a moderate brings real success, peace and progress. Extremists will always capitalize on hopelessness and desperation. We must present a better alternative. The fifth imperative is multiculturalism and tolerance. The most welcome trend in the 21st century is multiculturalism and tolerance. You can not say this of America and many Western nations several decades ago. But today, racism is in serious decline, apartheid is gone, inter-racial marriages are common, and the market place picks talents without regard for color, religion or ethnicity. Even the family portrait of President Barack Obama reflects this healthy multiculturalism, with his Kenyan and Indonesian roots. We must all work together to ensure that multiculturalism and tolerance become a truly global norm. And when we speak tolerance, it should be more than just to “tolerate” others. Tolerance implies a deeper meaning. Tolerance means a full respect for others, sincerely accepting their differences, and thriving on our mutual diversity. Only this type of tolerance can heal deeply seated hatred and resentment. The sixth imperative is to make globalization work for all. I do not accept the precept that, as a rule, globalization produces winners and losers. Like peace, like development, globalization can be harnessed to make winners for all. Let us be clear on
President SBY delivers his speech at Harvard University
this. There can be no genuine harmony among civilizations as long as the majority of the world’s 1,3 billion Muslims feel left out, marginalized and insecure about their place in the world. They are part of the 2.7 billion people worldwide who live under two dollars a day. These are the sad, hard facts. Out of 57 Muslim populated countries, 25 are classified as lowincome countries, 18 lower middle-income, and 14 as upper middle income or high income. And even though 1 out of every 4 people in the world are Muslims, their economies constitute one tenth of the world economy. One in four people in Muslim countries live in extreme poverty. Almost 300 million Muslims aged 15 and above are illiterate. These statistics are, of course, unacceptable. Muslims must take ownership in their destiny. Many Muslims reminisce too much about the glory days of centuries past, when Islam was on top of the world: politically, militarily, scientifically, economically. Muslims today must be convinced that Islam’s best years are ahead of us, not behind us. The 21st Century CAN be the era of the second Islamic renaissance. A confident, empowered and resurgent Muslim world can partner with the West and other civilizations in building sustainable peace and prosperity. But to do this, Muslims must change their mind-set. Like the remarkable 13th century Muslims before them, they must be open-minded, innovative, and take risks. There are inspirational Muslims everywhere: Nobel laureate Muhammad Yunus, Orhan Pamuk, Muhammad Ali, Zidane, Hakeem Olajuwon, Fareed Zakaria and rapper Akon. Countries like United Arab Emirates and Qatar have shown that with good governance, self-esteem and a progressive world view, they can change their nation’s fortune in one generation. And Indonesia has shown that Islam, modernity and democracy – plus economic growth and national unity - can be a powerful partnership. In short, the world’s citizens, and children of all civilizations, must be equal partners and benefactors of globalization. A recent survey in The Economist found that, for the first time, more than half of the world population can be loosely considered middle-class. If this is true, then we have a reasonable chance to reach “zero poverty” worldwide by the end of this century. With the emerging economic order that is now unfolding, getting from here to there would require intense inter-cultural and interreligious harmony. This should be the shared goal of all our nations. The seventh imperative is to reform global governance. Earlier, I talked about how the G20 Summit is more representative of today’s global dynamics. Unfortunately, this is the exception rather than the rule. For example, the UN Security Council today still reflects the power balance of 1945 rather than 2009, with exclusive veto powers reserved for four Western nations and China. It is unfortunate that recent efforts to reform the UN Security Council have not been successful. This situation is unsustainable. The UN Security Council will need to be restruc-
tured to keep up with 21st century geopolitical realities. The eighth imperative is education. Politicians often overlook educational opportunities in both our homes and our classrooms. But the answers to the world’s problems are there, for it is also there that hatred and prejudice breeds. These are the real battlegrounds for the hearts and minds of future generations.It is at these places that we must turn ignorance into compassion, and intolerance into respect. The foot soldiers here are parents, teachers and community leaders. We must inculcate in our school curriculum the culture of moderation, tolerance, and peace. We must help our children and our students develop a sense of common humanity which allows them to see a world of amity, not a world of enmity. In Indonesia, elementary students are taught about respecting religious traditions. Exam questions ask Muslim students what they should do if their Christian neighbors invite them to celebrate Christmas. We are probably the only country in the world where each religious holidays – Islamic, Catholic, Protestant, Hindu, Buddhist - are designated as national holidays, even though Hindus and Buddhists account only 2.4% of our population. Through education, we have sought to ensure that tolerance and respect for religious freedom becomes part of our trans-generational DNA. Finally, the ninth imperative: global conscience.
It is not easy to describe this, but this is what I saw in Aceh during the tsunami tragedy. On 26 December 2004, giant tsunami waves crashed Aceh and Nias, and 200,000 people perished in half an hour. The whole nation was in grief. But in this tragedy, we also found humanity. The whole world wept, and offered helping hands. Americans, Australians, Singaporeans, Chinese, Mexicans, Indians, Turks and other international volunteers worked hand in hand to help the Acehnese. I realized then there exists a “powerful global conscience”. One would think, that the enormous pain of World War II would usher in a new dawn of world peace. That is why the United Nations was formed. But the human race ended up with many more wars. One would think the threat of the nuclear holocaust was enough to trigger nuclear disarmament, but the world saw more countries developing nuclear weapons. The question now is whether climate change would be able to foster a new global conscience. We are still not sure that it will. But a “global conscience” could well help transcend whatever civilization, religious and cultural divides that has faced humanity. So these are my nine imperatives for harmony among civilizations that I offer to you today. They will require a great deal of hard work. It will take the work of generations and decades. And it will require patience, perseverance, partnership and lots of thinking outside the box. Eighteen years after the end of the Cold War, ten years into the 21st Century, we find ourselves at a crucial crossroads. In front of us may be the most progressive cen-
Courtesy of presidensby.info
tury mankind has ever known, a century where, as Fareed Zakaria says, more things will change in the next 10 years than in the past 100 years. It can be the century of possibility and opportunity. President Barack Obama spoke in Cairo of a “new beginning” between America and the Muslim world. Today, I say that we can “REINVENT A NEW WORLD”. It will be a world not of conquest, but of connectivity. It will be a world defined not by a clash of civilizations, but by the confluence of civilizations. It will be a world marked by plenty, not by poverty. And it will be a vast empire of global minds breaking down centuries of civilizational collisions and hostilities. America, with all the economic, social and technological resources at her disposal, has much to contribute to this new world. America’s role in helping to reform the international system, spread prosperity, empower the world’s poor, resolve conflicts, and share knowledge is a critical asset to a transforming world. Now is a golden opportunity for America to inundate the world with her soft power, not hard power. America should not worry about retaining its superpower status. America can help make the world anew -- what could be more powerful and definitive than that? Indonesia too has a significant role to play. We can bridge between the Islamic and the western worlds. We can project the virtue of moderate Islam throughout the Muslim world. We can be the bastion of freedom, tolerance and harmony. We can be a powerful example that Islam, democracy and modernity can go hand in hand. And we will continue to advance Indonesia’s transformation through democracy, development and harmony. This is why Indonesia and America are now evolving a strategic partnership. The world’s second and the third largest democracies. The most powerful Western country and the country with the largest Muslim population. Calibrated for the challenges of the 21st century, this partnership can strengthen regional stability, inter-civilizational unity and world peace. In the final analysis, vast oceans separate our countries but our common search unites. We are both trying to redefine our place in the world. President Obama insists the 21st century can still be the American Century. I am convinced that this could well be Asia’s Century. Then I thought, why can’t it be everybody’s century? It can be the American Century. It can be the Asian Century. It can be the European Century. It can be the African Century. And it can be the Islamic Century. This can be an amazing century where hope prevails over fear, where brotherhood of man reigns supreme, where human progress conquers ignorance. It can be a Century that not only brings us into a new millennium, but also elevates the bonds of humanity to greater heights. In this Century, no one loses. And everybody wins. Insya Allah! This is an edited speech by President Susilo Bambang Yudhoyono at the John F. Kennedy School of Government, Harvard University, Boston, US, on September 29, 2009
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Friday, October 16, 2009
3
Opinion Bung Hatta and his Thoughts on Defense and Security Matters Little or nothing is known about Bung Hatta’s thoughts and principles concerning national defense and security matters. The following notes, by a retired three-star Army general who was present at the creation of the Republic, shed light on one of Indonesia’s prime statesmen’s insights and on that issue.
T By Purbo S. Suwondo
here are different opinions and interpretations among scholars concerning the leadership and caliber of the ‘’national movement for the independence of Indonesia’’ during the Japanese occupation in 1942 up to 1945. A noteworthy conclusion is reached by a Japanese historian, Aiko Shiraiishi, based on the concept of the independence movement, as one continuous activity starting from “National Resurgence” (1908), “Youth Oath” (1928) to the period of “rule by force/use of force” (in Dutch: “machtsaanwending”) (1945-1950) up to recognition of sovereignty of the Federal Republic of Indonesia on December 27th 1949. Shiraaishi’s conclusion is as follows: “…therefore, the most important impact to Indonesia’s (national) history, as a consequence of Japan’s idea of mobilizing Indonesia’s youth, was clearly seen in Indonesia’s success in accelerating the process to achieve independence (which ironically is completely unforeseen by the Japanese!). Though there is opinion that considers Japanese occupation as the phase that ushered Indonesia towards independence, it is important to understand that the notion of independence did not emerge from Japan’s wish to liberate Asia, but it occurred because of the astuteness of Indonesia’s leaders who seized upon this golden opportunity to achieve their goal.”
In serving both as prime minister and minister of defense, Bung Hatta was thus tested on his statesmanship as vice president and the highest government official during a most difficult revolutionary period
Faced with the idea of mobilizing Indonesia’s youth, Indonesian leaders expressed their willingness to build a military defense force in the form of a nationalist volunteer army composed of Indonesian youth to be trained by Japanese military instructors with combat experiences in Asia and Southeast Asia. This army was known as the Voluntary Army PETA – ‘Pembela Tanah Air’ (Defender of the Fatherland). By mid 1945, PETA has grown to a military force of 66 infantry battalions, three groups of special guerilla units (Yugekitai) stationed in Java and Madura, three infantry battalions in Bali and 55 infantry companies Giyu-gun in Sumatra comprising of able and trained privates, non-commissioned officers, and commissioned officers – all Indonesians. In response to the Indonesian’s government appeal on August 23rd 1945, these young men simultaneously and spontaneously formed the core that spearheaded the formation of BKR – ‘Badan Keamanan Rakyat’ (People’s Security Body) in their respective homelands. Forty-eight years later, BKR was officially recognized by the Indonesian government as the nucleus of TNI – ‘Tentara Nasional Indonesia’ (Indonesia’s National Army). On October 5th, 1945, BKR transformed into TKR – ‘Tentara Keamanan Rakyat’ (People’s Security Army) which then changed to TRI and finally into TNI. While the first Cabinet of the Republic of Indonesia (RI) did not announce any program, the second Cabinet (November 14th 1945–March 12th 1946), formulated four programs, one of which was directly linked to national security. The program was “to coordinate all citizens in the effort to develop the Republic of Indonesia as well as to build its society based on justice and humanitarianism.” In the meantime, the Allied forces (British) being the winning side and who had been given the responsibility of defense and security in Southeast Asia (except in the Philippines) arrived on September 29th 1945. Some fighting erupted in Sumatra and Java as the Allied forces were confronted by BKR/TKR, which had already been deployed, organized and ready to fight.
In the third Cabinet (March 12th until October 2nd 1946), five programs were drawn up, which were: “Negotiations based on the recognition of a 100% independent and sovereign Republic of Indonesia and to prepare all citizens of the Republic in politics, military, economics and social fields to defend the sovereignty of the Republic of Indonesia.” On July 10th 1946, the British army withdrew from areas it controlled and handed them over to the Dutch army, paving the way for the Dutch to rule Indonesia again (formerly of the Dutch East Indies) and to restore ‘’security and order (rust en orde)” with force. The fourth Cabinet (October 2nd 1946–June 27th 1947) did not formulate any new program but continued with programs from the previous cabinet. On January 23rd 1948, the fifth Cabinet headed by Amir Syariffudin as prime minister collapsed because of the withdrawal of its main supporter Masyumi – ‘Majlis Syuro Muslimin Indonesia’ (Majlis of Indonesian Muslims). The sixth cabinet (November 11 1947-January 29 1948) with Amir Syariffudin as prime minister did not formulate any new program. The seventh Cabinet was led by Moh. Hatta as prime minister, who served concurrently as Minister of Defense. Its first day of cabinet session was on January 29th 1948 (and went on until August 4th 1949) and it carried out the following programs: To negotiate based on agreements of the ‘Renville’ treaty. • To accelerate the formation of the Federal Republic of Indonesia. • To implement rationalization (reduction in the number of military forces). • To start on nation building. In serving both as prime minister and minister of defense, Bung Hatta was thus tested on his statesmanship as vice president and the highest government official during a most difficult revolutionary period. Bung Hatta continued to respect the standpoint of TNI as a vital component in the struggle against the Dutch even though the cabinet he led included programs such as “based on agreements of Renville treaty,” “Federal Republic of Indonesia” and “rationalization of military forces.” Throughout ‘Linggarjati’ and ‘Renville’ negotiations, the Dutch government, especially KNIL commander, General S.H. Spoor, never failed to include the plan to dissolve TNI by forming a ‘’Federal Army” (for the Federal Republic of Indonesia) or ‘Gendarmerie’ which had to be established, planned and at least in the beginning, composed and led by the Dutch. General Spoor believed that it was the Dutch, not Indonesia that was capable to provide a modern and efficient army. DR. J.A. de Moor (of Leiden University) wrote in his book that KNIL was tasked to be the cornerstone of the “Federal Army”: “In the Federal Republic of Indonesia, plans were drawn up to create a national armed force which at the beginning would be composed of Dutch troops, whereas Indonesian troops would be recruited from each of the states. Through rigorous selection and training, Indonesian troops would gradually be given a bigger role in the ‘’Federal Army.’’ Both the Dutch and the Indonesian troops would be placed under the operational command of a Dutch officer. A State staff would coordinate all activities, accompanied by a Commissariat of Military Affairs (attached
to the High Commissioner of the Netherlands to Indonesia) as well as a Defense Council for Indonesia to discuss all defense and military matters….” Though the ‘Linggarjati’ treaty was signed on April 25th 1947, all efforts in reaching a compromise failed and on July 1947. The Dutch invaded Republic-controlled areas with the goal of forcing the Republic to accept the Dutch’s version of the said treaty. From a political standpoint, the Dutch considered the first Aggression to be a failure. On January 17th 1948, with the involvement of the U.N. Security Council, the Dutch and the Republic of Indonesia finally agreed and signed the ‘Renville’ treaty. The main points were similar to the political issues of ‘Linggarjati’ agreements, such as a federation type of government, Union with the Dutch, Republic of Indone-
radio broadcast, he called on everyone to continue with the struggle for independence. In the meantime, he made serious efforts and has successfully ended internal disorganization within TNI (which has triggered an official announcement of TNI being the national army on June 3rd 1947). In 1948, he succeeded in ending his long-running opposition towards the political leadership of the Republic where he came out as being justified in his point of view.” “On March 1948, he sent a letter to Hatta which explicitly elaborated the views and desires of the military. In the event that Hatta, during his negotiations with the Dutch, plans to give certain concessions in the matter of the status of the Republic and in regards to TNI’s stance, Sudirman felt the need to convey the following points:
Mohamad Hatta giving a speech in Madiun (Circa 1946)
sia as part of the Netherlands and January 17th 1949 as the date of recognition of sovereignty. On April 26th 1948, in negotiations held by the Political Committee (sub committee 3, cooperation in defense and international relations), the Dutch considered defense matters as ‘’obscure/in the dark.’’ During the sub committee sessions of April 29th up to May 17th 1948, the Dutch’s stance became clear, which was that “all of TNI must be dissolved and to put an end to its existence.” Accordingly, the Republic’s foreign relations must also be suspended because of the discord with the Dutch’s sovereignty. DR. J.A. De Moor writes: “General Spoor’s unwavering stance on his efforts to dissolve TNI from the face of the earth was matched by General Sudirman’s relentless determination for TNI to be victorious…” “…For General Sudirman, when it comes to the matter of national independence, giving in is not an option. He considers military cooperation with the Dutch as absurd. His single overarching goal, above anything else, is to achieve political independence. Should there be an agreement reached in the future concerning military assistance or cooperation to improve the quality of Indonesian troops, the matter would be dealt subsequently.” “It can be said that in the struggle for Indonesia’s independence, Sudirman was as unwavering and steadfast as Spoor was in his struggle to maintain the Dutch’s military supremacy as well as his attempts in dissolving TNI.” “From 1946 to 1947, Sudirman was not in favor of ‘diplomacy.’ On June 1946, he (was falsely accused) of protecting those who had kidnapped Syahrir. On December 1946, he strongly rejected the Republic’s acceptance of ‘Linggarjati’ treaty. In a famous
• “TNI refuses categorically the formation of a federal army under the Dutch’s command, as well as the Dutch’s involvement in the matter of defense of Indonesia.” • “TNI is an Indonesian army that is self-determined and independent.” • “If a federal army were to be established, TNI must be its ‘backbone.’ The highest commanding officer must be held by an Indonesian.” • “A military alliance can be accepted if both sides have equal roles and responsibilities.” • “The organization must be based on the Soldier’s Oath as stated in the August 17th 1945 Independence Proclamation.” • “In all circumstances, the Army will continue with the struggle for self-determination until 100% independence is achieved and the Army will never be willing to compromise with the Dutch.” “The content of this letter is now known as “Sudirman’s Six Principles.” In closing, he wrote that he would like to ascertain the views of the Government.” In “Keesings Historisch Archief 1946-1948 7685C, “Sudirman’s Six Principles” were announced one month afterwards, and they were written as follows: • TNI has no objection in being part of RIS (Federal Republic of Indonesia) under the Federal government, with the stipulation that the leadership is an Indonesian. • TNI is ready to be the armed forces of RIS, with the stipulation that there would be no Dutch or foreign troops within APRIS (the Armed Forces of RIS). • TNI must be formed as the nucleus of APRIS. • TNI, being the army of a sovereign and independent RI (Republic of Indonesia), re-
jects being positioned under the Dutch or any other foreign power. • TNI desires that any military association/alliance between the Republic and other nations to be based on both parties having equal position. • Oath taken by the armed forces must be based on the Independence Proclamation of August 17th 1945. At the end of the letter, Commander in Chief General Sudirman wrote that he wished to learn the point of view of the Indonesian government. DR. J.A. de Moor writes in his book: “The reply arrived quickly. On March 17th, the Cabinet of RI decided that TNI would be the nucleus of the federal army of the Federal Republic of Indonesia. To quickly set up a deliberative body whereby the Republic’s
Courtesy of life.com/John Florea
top military and political leadership, would together participate as members. This body is named the ‘Defense Council’ of the Republic of Indonesia, established on April 28th 1948. This was a triumphant moment for Sudirman. Hereafter, the views of the army would be heard at the highest political level. Without the cooperation of the military, no political decision concerning the future of Indonesia would be taken.” “This viewpoint is further elaborated in consequent meetings. During transitional period from the Dutch to Indonesian government, TNI must not be dissolved.” “The demands of the Dutch (of dissolving TNI) ‘’categorically is not accepted.’’ Indonesia is of the opinion that TNI is the ‘’principal component’’ (in Dutch “hoofd component’”) within the federal army.’’ “So, important decisions were made on March and April 1948.” “The idea of dissolving TNI as demanded by the Dutch was never considered by the Republic’s leadership.” On September 18th 1948, Hatta’s Cabinet was again tested by the insurrection of Indonesia’s Communist Party (PKI) in Madiun. After TNI successfully quelled the revolt without any assistance from foreign nations, the West (especially the U.S.) concluded that TNI was the foundation on which Indonesia be built. DR. J.A. de Moor notes that: “In 1948, the issue of a federal army and TNI’s role within the army was impossible to solve. This issue has become a ‘’stumbling block’’ in negotiations carried out throughout the last semester of 1948. As the Republic’s politicians did not want to or were not able to dissuade Sudirman, the Dutch’s diplomats were not successful either in
changing Spoor’s stance. However, in that year, Spoor dropped all demands in dissolving TNI and instead he formulated a ‘’adjustment/integration plan’’ (in Dutch: “inpassingsplan”). Former TNI members may be ‘adapted/ integrated’ into the federal army after having been purified, retrained, reschooled and trained carefully. The number of members from the Republic’s side may not exceed 10.000 @ 20.000 men and they are prohibited from being stationed in a state outside of their homeland. The Indonesian side dismissed any discussion of this plan, and so the ‘’adjustment/ integration plan’’ was canceled.” “During negotiations in Kaliurang, the issue of military matters was the center of discussion. Dutch negotiators eventually understood that dissolving TNI would never happen, even though Stikker was earnestly appealing to Hatta to send TNI home. Don’t they need to start work again on their paddy fields, Stikker argued.” “At the end of November, Hatta wrote to Stikker: “…How is it possible for us to blithely dissolve such a patriotic army like TNI which was born from the struggle for independence and self-determination of the nation, a goal which we yet have to achieve?” “On early December 1948, Dutch negotiators realized that there was no longer the possibility of solving the military issue as TNI kept a grip on negotiation process. The direction then was turning heavily towards the option of Spoor’s planned invasion to occupy Yogyakarta. The Second Military Aggression was now ready to be launched.” On December 19th 1948, the Dutch invaded all areas that were still controlled by RI and Yogyakarta was seized and occupied. RI’s top leadership was captured, but TNI persevered with its guerilla war. Such was the case of the development of RI’s diplomatic struggle against the Dutch. Under the leadership of Moh. Hatta as prime minister, the Indonesian government demonstrated its absolute support of TNI’s standpoint and policy vis-à-vis KNIL. The combination of TNI’s guerrilla struggle alongside heroic common people from villages and cities in Java and Sumatera and aggressive diplomatic efforts at the UN have propelled the ‘Round Table Conference’ towards the recognition of the sovereignty of the Federal Republic of Indonesia on December 27th 1949. All of General Spoor’s maneuvers to “create” APRIS that centered on KNIL and to dissolve TNI” have failed. General Spoor passed away on early 1949, and slowly but surely, the Royal Netherlands Army was shipped back to the Netherlands. Some of the members of KNIL joined the Royal Netherlands Army, some members of the Corps of Special Forces (KST) retired and ‘’transmigrated’’ to the Netherlands and hundreds others KNIL members who had been recruited from the local population, were transferred and accepted in the army, the navy and the air force of TNI. The implementation and the completion of the formation of APRIS have been carried out according to the “Six Principles” of Commander in Chief, General Sudirman. On July 1950, KNIL was officially dissolved by the Dutch government and thereby ended its role as the main pillar of defense of the Dutch colonial rule on Indonesian soil. Its history in Indonesia, which went back to 1830, is displayed in the KNIL museum in Bronbeek in the Netherlands. On August 17th 1950, RIS changed to Republic of Indonesia, while Irian remained as a “pending matter” up through1962
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The President Post
Friday, October 16, 2009
www.thepresidentpost.com
Opinion
TNI: Getting out of Business “I instruct the TNI to resume and to conclude its internal reform agenda, including putting an end to its business operations as stipulated by the law. In due time, all TNI business operations will hence be regulated by the government by way of Presidential Regulations.” President Susilo Bambang Yudhoyono, during the ceremony marking the 64th anniversary of the Indonesian Defence Forces (TNI) at Cilangkap, East Jakarta, October 5, 2009
By Taufik Darusman
A
s the President made clear his strong resolve to see the military rid itself from doing business, a practice which enabled it to complement its meager budget, he also said that “to enhance the TNI’s credible posture, the government has increased the budget for defense in 2010 quite significantly, by 30%.” “In the future the defense budget will continue to rise to fulfill our needs, to modernize our weaponry, to upgrade the education, training and readiness as well as the welfare of soldiers,” said the retired four-star Army general. Flashback: In the aftermath of the downfall in May 1998 of Suharto, a retired Army general and the nation’s leader for more than three decades, the military establishment’s pendulum was forced to swing the other way. In no time at all, civilians began to regain supremacy, as the police force was taken out of the military fold and placed directly under the president. Although the military was down, it was far from out, even as the writing kept appearing on the wall. For starters, military personnel were no longer appointed to the House of Representatives by presidential decree — at the time, 100 of 450 seats in the House were for the military — while the number of generals in cabinet positions was also restricted. If those decisions were not enough to make clear what civilians thought of the military’s presence in their midst, in 2004 the House passed Law No. 34/2004. The law, which came somewhat late given the strong spirit of reform that permeated the nation post-Suharto, called for the military to divest all its business interests to the civilianrun Indonesian Military Business Management Body. Defense Minister Juwono Sudarsono stated the obvious when he said a budget-deficit military involved in business would have trouble effectively carrying out its duties. It is estimated that only about half of the military’s expenditures are covered by the state budget. The balance is provided by independent operations like militaryowned enterprises and “informal alliances” with private companies to whom the military often provides services. Daniel Lev, the late Indonesia expert at the University of Washington, Seattle, was more direct on the subject, telling the IPS news agency: “If your budget provides about one-third or onehalf of what you need, you’re going to steal the rest of it. “One of the ways you resolve it is to reduce the size of the Army. But if you try to do that, they’ll
The Indonesian armed forces
put up a terrific fight because they’ll immediately lose money.” It is estimated that the military, formally known as Tentara Nasional Indonesia (TNI), runs thousands of business entities involved in everything from aviation, finance and logging to plantations, shopping malls and travel. Thanks to these commercial entities the military has been able to maintain a semblance of continuity. The Sudirman Central Business District (SCBD) in Central Jakarta covers about 40 hectares of land and houses about 25 high-rise buildings used for among others the bourse, shopping malls, office buildings, a hotel and apartments. It is owned by PT Danayasa Arthatama, whose shares are partly held by the Army-run Kartika Eka Paksi Fondation(YKEP), which in turn owns Bank Artha Graha jointly with prominent businessman Tommy Winata. To its credit, however, YKEP built over 13.000 houses for Army pesonnel, as well as the Ahmad Yani University and an academy for medical personnel in Cimahi, West Java, and a computer and management academy in Yogyakarta, Central Java. Meanwhile, the Air Force
Courtesy of matanews.com
manages the Adi Upaya Foundation (Yasau), which has stakes in about 25 business units, one of which manages a golf course in Halim. It is not clear as yet if the increased budget will be able to offset the revenue the TNI normally earns from its business operations, which will soon come to an end. To ascertain that would require transparency in the movement of funds, which for obvious reasons has been missing all this time and, as such, has come under strong criticism from Western governments and NGOs. It is by all standards unacceptable for a country’s military to engage in business operations and at the same time to have a government that allows this to happen. But all this is a logical progression in a nation like Indonesia, whose history of independence from a colonial power is entwined with the role of a people’s army. The “dual function” doctrine that evolved within the military establishment from 1965 affirmed that the TNI functioned both as a military force and as a “sociopolitical force.” At the time, Sukarno was president and keen to have the mil-
itary close by his side to balance the communists’ ever-growing influence in the nation’s scheme of things. By extension, the doctrine allowed military officers to have prominent positions in the cabinet, the legislature, the bureaucracy and regional administrations. The worst part of the whole situation was not the mere fact that the military’s business operations were firmly entrenched in the system, but that they were allowed to perpetuate unobstructed — at least until reform came about almost as an accident of history in May 1998. The inescapable conclusion as to why the scheme had such a long lease on life is that it also worked to improve the welfare of the top brass beyond reasonable limits. As Defense Minister Juwono once wrote: “From the outset, the Indonesian Defence Force has never had a decent budget. … Since the mid-1950s, no Indonesian government has been able to provide the police and the defense force with an adequate budget.” As chief of the military’s territorial affairs, SBY, then still a three-star Army general, said in an interview that “the military is
only in business to supplement its budget deficit. ‘’Our defence budget is about 1,8% of our GNP (gross national product), which by all measures is very low,” he said. In other countries, he noted, the norm is 3-5%, even up to 10% if they happen to face external threats. Indonesia ranks 50th in the world in terms of military expenditure, according to the CIA’s World Factbook. In the immediate, post-Vietnam War era, Indonesia faces no threat from its neighbors. But this will not prevent the government from purchasing new equipment to replace its antiquated weapon system and allocating a substantial budget for maintenance. Chief of Staff of TNI Gen. Djoko Santoso said recently that the military had already drafted a plan to buy new equipment and is set to ground such aircraft as the Air Force’s 1960s-era OV-10 Bronco. The plan also called for the purchase of Sukhoi jet fighters, MI-17 and MI-35 military helicopters from Russia and a corvette naval warship from the Netherlands. Meanwhile, Navy Chief Adm. Tedjo Edhy Purdijatno said the
military plans to use Chinesemade C802 and C795 missiles for the patrol ships. Indonesia, the world’s largest archipelagic country, has more than 100 warships, but most are antiquated and are hardly warready. Most of the warships were imported from Europe, including Germany and the Netherlands. Indonesia bought 39 warships from Germany in 1993, and just recently purchased four missile launchers from the Netherlands. Echoing his military colleagues, a senior Air Force official said it soon plans to purchase Oerlikom Kontraves 35-millimeter ground-to-air missile launchers from Switzerland. Harry Budiono, commander of the Air Force’s special unit, said the launchers would be used to secure strategic air bases. The Air Force currently uses the PSU triple gun, manufactured in the 1950s, to do the job. “We need new weapons to replace the old ones,” Harry told state-run Antara news agency, adding that the Air Force also plans to purchase an OW-3 antimissile radar system from China, which would be used to detect attacks on air bases in Jakarta and Madiun, East Java.
The President Post
www.thepresidentpost.com
Friday, October 16, 2009
5
Interview “SBY Should Focus on Building Prosperity” Robby Djohan is a former career banker (Citibank, Bank Niaga and Bank Mandiri) and at one time managed the country’s flag carrier, Garuda Indonesia. In the past few years he has released three books, namely Lead to Togetherness, The Art of Turnaround and Leading in Crisis, all of which have enjoyed moderate suceess.
Excerpts: Can you articulate your notion of social capital? I like to refer to my book “Lead To Togetherness, which basically explains the importance of social capital. Social Capital is basically people participation, the feeling of togetherness and the feeling of happiness. You will only obtain those feelings if you live in prosperity, improved knowledge and live healthy, physically and mentally.
Nowadays Robby divides his time between Jakarta and Bali (he is the co-owner of The Legian and the BIFA flight school in Buleleng). He also chairs the Board of Trustees of Jakarta-based Al Azhar University.
In the book you also discussed leadership. Social Capital can only be built if initiated by leaders. We have in our nation’s history of leadership what is known as feudalism, hierarchies and bureaucracy. We need leaders with integrity and capacity to reform Indonesia.
He also devotes much of his time speaking in seminars and in limited discussions on social capital, which he articulates at length inhis books.
What do you think President Susilo Bambang Yudhoyono (SBY) should pay close attention to in the context of the global economy? Global economy means that in terms of trade, relationships, there are no borders. Now who will benefit from the absence of borders? The stronger economies, of course, and they will benefit at the expense of developing countries. In the case of the US, they will benefit from services, banking, investments in natural resources etc. In terms of productions and products, China and India are in very good position to become leaders in those areas. If that should be the case, how then can Indonesia benefit from the global economy? By making priorities on how to bring in investments in areas where we can be competitive against other countries. For example infrastructure projects, give them the means for them to invest in In-
The President Post recently caught up with him in Jakarta and discussed several pertinent issues.
donesia in terms of pricing, lower cost and easier operations. What other aspects are worthy of the President’s attention? Another aspect in global economy is how we can benefit from exports, as in some areas it is still profitable. We have to remember that the global economy will always benefit the more advanced nations and as such we have to be careful. As such, I believe that it is more important that we build local economy, which is basically making sure that the economy is stable and that we maintain high discipline in managing monetary and fiscal policies. Stability is very important even for multinationals, joint ventures, big and small industries. We have to have stable inflation, sound balance of payments and state budgets. Key is how to manage economic growth. Capitalize from investments that are already in place, but I believe that economic growth can also come from the development of social capital, prosperity, knowledge and health. So why is social capital very important? We very much rely on the productivity of the small and medium income group. We have many of them but not all can rely on labor. The bulk of the people that are down below are in the agriculture, fishery and SME sectors. So what do you do to make them potential, to empower them so that they can also be part of the economy? By improving their potential to spend; if they have income and have the money to spend, then they are potential to build markets.
What are your other major interests in the context of social capital? We have to develop free education at least from primary school up to senior high school because the students are the future of our country. We have to build a generation through education. Believe me, it is much easier to manage a society that is well educated than that which is not because uneducated people always feel that they have their backs against the wall. Educated people often have alternative ways of thinking. It is very important that people find alternatives in life. A new generation is a generation that is educated and understands how to live in the right kind of democracy. What is your general impression of President SBY? He is man of vision and has integrity. It is important that he builds up capacity based on the integrity he believes in. Most books written about that capacity says that it can only be obtained if you work with the right kind of people. What do you think should be President SBY’s priorities? I believe SBY should focus on prosperity, education and health. It should become a reality. It is not merely the integrity of the vision but also the capacity to make this vision work. How should he go about implementing them? He has to have the best people as ministers of trade, agriculture, fishery and labor. He also has to have an able person managing our tourism. All those departments have much to do with the development of social capital. How do you think President
SBY should build prosperity? If the President wants to build prosperity he should spend a great part of the state budget in agriculture by increasing productivity, new areas in agriculture through water systems, technology and others. Currently, many farmers work from hand to mouth. This is not fair because they work very hard. It is the government’s role to help in the area of developing prosperity. In building the economy, the market can take care of that and we don’t have to be involved. But in building prosperity in agriculture, fishery, SMEs and others, this is where the government should come in. The government should get involved by providing sufficient capital through the state budget to help the people and make sure that the funds from the state budget are well distributed. Can you further elaborate on this? When we talk about developing an economy, we talk about developing regions and crerating a good relationship between the central and regional governments. So, we have to come up with very strong programs and that everybody should be committed to these programs. It is also important that the banking system, through the state budget, supportts microbusinesses. How do you see the role of banks? The banking system is fully responsible for what they’re doing, but the government should help. Officials shouldn’t just rely on banks and say they want them to spend 20-30% of their portfolio to develop small-holders. The government should also help in
funding. The government should channel funds through the banking system. It is more efficient and you have a grip on the banks. This has been my experience as a banker. If people don’t spend, there is no market because a market is about buying and selling. Not only foreigners but also locals will invest if they know that whatever they invest they can sell. That is why social capital is very important. You are well-known as a professional who has turned around major companies such as Bank Mandiri and Garuda. How would you turn around the nation? Turning around of the country can be done by taking advantage of the global economy and making yourself competitive among nations. But you can also do it by developing its social economy, and this is where the government plays an important role. Past presidents have focused on getting out of the crisis that was caused by the Old Order. What I expect SBY to do is to build a new generation with new paradigms where people’s participation is very important. But if you want people to participate, they must have the capacity, which is basically education, health and prosperity. It is important that SBY prioritizes on building prosperity and education so that the function of social capital works. Indonesia is basically an agriculture-based country. How can we improve the lot of our farmers? To improve farmers is very simple: through irrigation, fertilizers and pricing of products. You also have to increase yield, market that are useful to the farmers
and the small holders . Do you think Indonesia is still attractive to foreign investors? People will always come to Indonesia to invest because we are a potential market. Investors will not come to Indonesia because of tax policy, infrastructure; they’ll come here because they know that whatever they produce here can be sold. So, we have two things: a developing market and a society that is prosperous. We don’t have to worry, because a prosperous society has very strong social capital capabilities. We were successful during Soeharto’s time, and we should improve this by being more independent, having less conflicts and focus more on social capital. What would you do if you were the president of Indonesia? I am too old to be president, but I believe that 50% of the state budget should be allocated to build the people’s economy, and that we must work with the best people committed to make Indonesia a country we can be proud of.
“I believe SBY should focus on prosperity, education and health. It should become a reality. It is not merely the integrity of the vision but also the capacity to make this vision work”
6
The President Post
Friday, October 16, 2009
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The World
Dreaming with Indonesia: The Path to 2025 President Susilo Bambang Yudhoyono, popularly known as SBY, has unveiled the vision for the Indonesian economy in 2025 By Cyrillus Harinowo Hadiwerdoyo Economic Observer
O
ctober 2003 was not a quiet month for Goldman Sachs, one of the largest investment banks in the United States. On that month, the bank launched a study that later became a best seller: ”Dreaming with the BRIC: The Path to 2050”. BRIC is an acronym of Brazil, Russia, India and China, the four populous emerging economies predicted to overtake G-6 members in 2050. In recent times, overseas interest in those countries has risen, with money pouring in to be invested in various opportunities within those emerging economies. Thus the self-fulfilling prophecy worked effectively. The prediction shortly became almost a reality. If during that time the four countries were predicted to join the league of the top ten economies in the world, just five years later, in 2008, three of them were already in the top ten countries list. China is on third, while Brazil already eighth and Russia ninth among the top ten largest economies. Meanwhile, India is inching closer to that league as the twelfth largest economy. Thus, this article is written under the same spirit. President Susilo Bambang Yudhoyono, popularly known as SBY, has unveiled his vision for the Indonesian economy in 2025. The concept is still very broad, which envisions Indonesia becoming an advanced country in 2025. However, this vision has promised to be the driving force of the Indonesian economy in the next two decades. The Macroeconomic Foundation
I believe there are no small numbers of people who are skeptical about this long term vision. However, I could share what I believe to be the basis of such optimism. Indonesia in the past decade has been able to transform itself from a near bankrupt country to become one of the strongest economies during the global recession time. After becoming one of the East Asian Economic Miracles, Indonesia went through a long
and dark tunnel as a result of the Asian crisis. Even though the Indonesian economic fundamentals before the crisis were considered strong, Indonesia yet suffered the most during the crisis. Therefore, whatever praise one wishes to shower on Indonesia, it is always with some caution. However, it is not an exaggeration to say that the transformation in Indonesia took place almost just as miraculously. First, the private sector has transformed itself to be more prudent in their mindset. If in the past the private sector was very sloppy in their investment activities, in which many projects were significantly marked up to obtain bigger bank loans, nowadays they have been very efficient in managing capital so that many new projects are financed by internal cash flows. Interestingly, many state-owned enterprises have also adapted well to the new environment. The adoption of good corporate governance practices by those companies has enabled them to produce better outcome comparable to that of private companies. In the airline industry, for example, Garuda Indonesia has succeeded in setting a higher benchmark for other Indonesian private airline companies to follow. Second, the adoption of a better risk management in the banking industry has enabled banks to perform more prudently, in the end reducing the risk for wholesale losses. In fact, Indonesia has become a very interesting place for foreign investment since the level of profitability is one of the best in the region. A large number of acquisitions has taken place at very attractive prices, sometimes more than four times of the book value. In brief, the Indonesian banking system has become very solid as proven by the recent global financial turmoil. Third, Government finance has also become one of the strong pillars in the economic equation. The Government budget has been kept at a low deficit. In fact, during the global turbulence in 2008 a token fiscal stimulus allowed the Government Budget to remain largely balanced. At the same time Government debts have been managed in ways that allow it -- every year in the past decade – to experience a significant decline in its ratio to the GDP. From nearly 100 percent in 2000, the Indonesian Debt to GDP ratio has gone significantly down to around 30 percent in 2008. In fact, if we net out the Government Debt from Government Bonds kept by Bank Indonesia, we may see a ratio of Debt to GDP of around 25 percent. As a comparison, Japan has a ratio of over 200 percent, while other
OECD countries may even slip to a ratio of over 100 percent in the coming years. In addition, the management of the Government Debt has been done in a increasingly professional way in the past decade. The Short and Medium Term prospects
At the time when most large economies suffered recession in the past few quarters, Indonesia stood out as one of the three big countries that continue to post a positive growth. This performance has enhanced the income of the entire population. The Indonesian GDP in 2008 is registered at $ 514 billion, higher than $462 billion in the preceding year. That GDP has resulted in the betterment of income per capita, from $1,946 in 2007 to $2,271, an increase of $325 in just one year’s time. In real terms, the Indonesian economic growth in 2008 was 6.1 percent, slightly lower than in the previous year but relatively better than other countries’ in the region. In the first quarter of 2009, the Indonesian economy grew by 4.5 percent, a performance that was repeated in the second quarter at 4.1 percent. Many believe that the country’s economy will perform better in the second half of 2009. Such optimism is universally shared by many economists. It is predicted that a rate of growth between 4.5 and 5 per cent will be likely for the entire year of 2009. At the same time the Nominal GDP growth may reach around 13 to 15 per cent, which may result in a Nominal GDP of Rp. 5,700 trillion or roughly around $ 570 billion. GDP per capita in 2009 may range between $ 2,500 and $ 2,600. What will be the prospects for 2010? If US$570 billion of GDP can be achieved in 2009, that will pave the way for a higher level of growth in 2010. The Government has revised its prediction for the growth in 2010 to 5.5 percent. I truly believe that this level of growth can be easily achieved. In nominal terms, the GDP may reach Rp. 6.500 trillion in 2010, which can be translated to around US$680 billion at the exchange rate of slightly above Rp. 9.500 for each US dollar. The GDP per capita will range between $2,800 and $3000, a very interesting level as that will bring around 23 million people to have an average income of around $8,400 to $9,000. At the same time, another 23 million people will earn around $4,200 to $4,500. To give a better comparison, by 2010 around 27 million people, roughly the same as Malaysia’s, will have an average income of around $7,800, higher than the average income of all Malay-
sians. In the mean time, 69 million Indonesian people, slightly larger than the entire Thailand population, will earn an average of $5,400, definitely higher than the average income of the entire population of Thailand. In the medium term, the rise of the Indonesian middle class will pave the way for the improvement in the consumption expenditure, in which higher value products will increase in its importance. This can be easily seen by the significant increase of car sales, property, ice cream and yogurt, skin care products such as Ponds, Citra and other products. In the medium term, the size of the Indonesian middle class will double to around 60 million people, and increase by a significant size. This new demand will finally result in further increase of the domestic demand leading to the betterment of the people’s income. In 2015, the combination of renewed export activities as well as improved domestic demand will allow the Indonesian economy to continue producing an average income per capita of around $5,000. That means during the course of five years, the nominal GDP may increase to the tune of 15 percent annually. Such an increase will move the entire economy forward, so much so that the people’s income may reach a level closer to the average income of the Thais. In that period, Indonesia will become a significant player in the regional trade. As such, the ASEAN Economic Community should not be seen as an insurmountable challenge, but as wide opportunities as well. Nowadays, automotive products and consumer products, including from the pharmaceutical industry, have made significant headway in the ASEAN market.
way system, including a high speed train system, will need to be developed along the way to connect with the Trans Asia Pacific Railway System. In the development of the highway system, many can also be done to support that. If a toll highway system can be developed with the private sector, including foreign investors, the Government owned highway system can also come under a si9milar scheme. For example, the current Pantura Highway can be easily converted into a non-toll express way system by building many flyovers, underpasses or tunnels so that the traffic can flow quickly between major cities in Java. This development is within the capacity of current Government finances--there is no reason not to do it. In addition, an expansion of a system such as the South Java Highway can similarly be developed. The two or more major arteries will support the function of the Toll Highway System, and this will help speed up the traffic flows of passengers and goods. In the short and medium plan, the availability of mass rapid transport must be ensured. The subway system in Metropolitan Jakarta has to be ambitiously developed. Without waiting for the completion of the North-South Corridor, the Jakarta Metropolitan Government, fully supported by the Central government, should also start the development of the complete master plan together with the development of the subsequent lines such as East– West Corridor (connecting Pluit and Bekasi) as well as the Corridor which connect Tangerang and Jakarta Kota. At the same time, the Jakarta Metropolitan railway system has to be strengthened to connect with the Busway system as well as the MRT. The
monorail system can also be completed with the full support of the Central Government. Most of these activities can be financed even as we speak now. Another area of infrastructural development will include the rapid development of power generation and transmission to catch up with the ever growing demand for electricity. The first batch of expansion (10,000 megawatt) is now almost completed. This will be followed up quickly by the second batch of crash program. The Government should continue further with such programs and also diversify the energy sources which should include geothermal, solar as well as hydrogen generated energy resources. In the agricultural area, infrastructural development should be a priority. The development of integrated infrastructure such as dams, hydro power generation plants, irrigation system as well as development of water reservoirs will strengthen the current system that has been used for many years. The Southeastern Anatolia Project in Turkey that developed the Euphrates and Tigris River into 21 dams, 19 hydropower plants with total capacity of over 7,000 mw can be used as a reference point. Similar projects that can be used as reference include the Tennessee Valley Authority in the US. In the meantime, fertilizer producers have already the capability to develop themselves into major producers of urea, NPK, ZA, superphos and even organic fertilizers. Indonesia has also seen the rapid progress of seed development, both by the Government as well as private research companies. PT. Bisi International, a subsidiary company of Charoen Pockphand Group, has been able to develop corn seed that can pro-
duce 14 tons per hectare, compared to Madurese local seeds that only yield 2 tons per hectare. These activities have to be recognized and fully supported so that the players are effectively engaged in food production development. All these activities will strengthen Indonesia’s position as a food producing country in the medium term. In the area of manufacturing, Indonesia continues to be selected as the regional production base for various manufacturing activities. Cars, motorcycles, electronics as well as consumer products have been developed in Indonesia due to its scale (big market) as well as its manufacturing capability of the population. These activities can be expanded to include textiles and garments, chemicals, and pharmaceutical industries etc. The Government can support the development by way of facilitating as well as enabling the environment for such activities (including hard and soft infrastructures). The engineering capabilities of Indonesians have been acknowledged by foreign parties. The development of aircraft, big ships, trains, geothermal power plants (at costs much lower than that offered by foreign contractors), LNG factories, fertilizers and cement factories is an area which we have many years of experience. The big agenda toward 2025 is certainly in the area of advanced manufacturing, IT industry as well as the state of the art of new technology and other new innovations. The Government should prepare themselves in developing this area. The increasing size of the state budget will enable us to develop these capabilities faster than we can ever think. Dreaming with Indonesia for the year 2025? I am sure we can realize them faster.
Major Agenda Toward 2025
With such a broad vision that needs to be realized, what will be the major agenda that can spearhead major developments in the next 15 years? While there are many that have been in store, the major focus will certainly be in the areas of infrastructure, agriculture, manufacturing and innovation. In the area of infrastructure, many initiatives can be made. In the development of transportation infrastructure, major initiatives will certainly include the development of bridges or tunnels that will connect Java and Bali with Sumatra as well as Sumatra and Singapore with Malaysia. The highway system should be developed along the plan that connects Bali with Singapore or Malaysia and eventually connect to the Trans Asia Pacific Highway System. In addition, a rail-
Construction workers on the mega project Suramadu Bridge
Courtesy of skyscrapercity.com
The President Post
www.thepresidentpost.com
Friday, October 16, 2009
7
THE WORLD THE GLOBAL ECONOMY
T
he world economic outlook has stabilized and the global economy is beginning to pull out of recession. The IMF projected that world economic growth during 2009-2010 to be slightly higher than expected. The world community, however, has been warned that for caution. Stabilization is uneven while recovery is expected to be sluggish. Meanwhile, unemployment problems continue to be a big threat. Many advanced countries are not out of the woods yet, particularly with regard to the problem of jobs losses and consumers’ confidence. The current expectation is that advanced countries led by the United States will not be able to lead the world to global recovery and economic growth. As stated by TIME (in an article by Michael Schuman on September 03, 2009), the downturn is having a fundamental impact on the globe’s economic future. The world after the Great Recession won’t be the world that existed before. As further stated, perhaps most importantly, the recession has altered the role of the U.S. in the world economy. For decades, the U.S. has been the primary driver of global growth—the situation will now be different. A wider forum is needed to assume world economic leadership. The right forum would be the G-20 which is composed of the US, United Kingdom, Germany, France, Italy, Canada, Japan, Australia, EU and Russia, plus South Africa, China, Brazil, Argentina, India, Indonesia, Mexico, Saudi Arabia, South Korea and Turkey. In this wider forum emerging countries are well represented. The G20 has shown that it was able to assume global leadership, to save the world from possible catastrophe when global finance and banking came to a free-fall. Admittedly, the right policy recommendations were made at the Washington Summit, attended for the first time by the president of Indonesia, followed by the London and the recent Pittsburgh meeting. One of the key recommenda-
The Global Economy and Indonesia Asia has now become the major power to pull the global economy out of recession. In fact, Asia is expected to become the engine of change. By Atmono Suryo
tions was to take counter-cyclical policies, to adopt fiscal stimulus packages and to reduce interest rates to stimulate domestic economies. This recommendation is to be implemented immediately and requires trillions of dollars not only from members of G20 but also other countries. Immense coordinated efforts are not needed in the area of the stimulus programs and their implementation, but also in the complex areas of finance and banking, and safeguard measures to prevent a possible return of a financial crisis. At the Pittsburgh Summit a 100-point communiqué was issued, one of which is to strengthen the role of the G20 by making it a forum to conduct dialogues on global policy, and a coordinating body. The G20 is to replace the G8, which is composed only of advanced western countries plus Japan. The Pittsburgh meeting was also able to stipulate concrete and specific details on programs of action to achieve sustainable and balanced global economic growth. Strong pledges have been made to enforce tighter financial and banking regulations, internationally as well as domestically. THE UPCOMING ASIA
In the changing global structure, Asia’s role would increasingly become pre-eminent. In fact, the center of gravity is moving towards Asia. This move, which started in the 80’s, was suspended for a couple of years on account of the Asian Financial crisis of 1997/98. The general view is that the emergent recovery will have to be spearheaded by the economic players from Asia, primarily China, with its enormous reserves, and India. These are countries
The G20 Summit 2009 in Pittsburgh, United States
with large domestic economies. In this era of recovery and economic growth large domestic economies serve as engines of growth. Throughout the recession the three largest countries of Asia -China, India and Indonesia – have remained buoyant largely on account of their domestic demand. The spending power of Asia has stimulated the beginnings of a recovery throughout Asia, which has now become the major power to pull the global economy out of recession. In fact, Asia is expected to become the engine of change. The Economist (September 12) issued a 14-page special report on Indonesia titled A Golden Chance. Meanwhile, the World Bank came up with its economic quarterly, Clearing Skies, while CLSA presented a special report called Chindonesia.
The special report of CLSA refers to the role of three Asian countries, China, India and Indonesia. What may be interesting to note is that right at the beginning of the report CLSA stated that “China and India are frequently labeled as engines of future global growth and it’s time to add Indonesia to their rank”. According to World Bank in its report “Clearing Skies”, Indonesia’s recovery gained steam in the wake of the early 2009 turbulence. The external environment has improved and domestic consumption has contributed to growth. Robust domestic consumption has supported the services sector. An important point to note is that exports are recovering and are set to become a driving force of growth, in addition to consumption and investment. All export categories have gained posi-
Courtesy of notibaires.com.com
tive growth, in particular mining and mineral exports, and oil and gas exports. The following points show Indonesia’s comparative advantages: • Indonesia is a low-cost supplier of a large number of resources (natural and human resources) • It is expected that resourcesbased economies will boom; Indonesia has a particular strategic advantage in palm oil, thermal coal and key commodities used in food and energy • Indonesia is a globally significant producer of soft commodities (cocoa, coffee, tea, rice, spices, rubber etc) • In time of a global food shortage Indonesia could become a significant supplier of tropical food products • Indonesia has a total landmass
of 182 million ha (combined land area of Cambodia, Thailand, Malaysia, Vietnam, the Philippines and Laos) • It has a youthful and fastgrowing population • With its rich resources, Indonesia has the potential to develop a strong resource-based economy Economically, Indonesia’s growth through the crisis has been among the most robust in the region. The structure of the economy and the economic fundamentals are considered solid in weathering the storm. It has a large domestic market, while consumer confidence is reaching record highs. The Economist has noted that Indonesia has shown remarkable powers of recovery. It could become a model of democratic change, Muslim tolerance, poverty reduction and rapid economic development, according to the London-based magazine. At the same time it is wellknown that Indonesia has a large number of weaker points such as corruption, ineffective bureaucracy poor law and order. THE CHALLENGES AHEAD
Indonesia is highly regarded by the international world. According to the World Bank Indonesia (16th) belongs to the 20 largest economies in the world. Indonesia has been chosen as a member of the G-20. Furthermore, the OECD has elevated Indonesia into the BRIC group (Brazil, Russia, India and China). Leaders around the world are anxious to have closer relations with Indonesia. With Indonesia’s good standing in the global economy, Indonesia will be called upon to give its share in the management of world affairs, among others as a member of the G20 and WTO,
and also in regional organizations such as ASEAN, ASEAN plus Three, APEC, the East Asia Summit and others. Indonesia’s increased activities in world affairs will present the country with new challenges and opportunities. Indonesia’s strengthened relationship with the world, especially Asia, will help to bolster its domestic economy not only in the area of trade but also in such areas as greater inflow of capital, technology and services. Domestically, the government will be hard-pressed to give its special attention to cope with impending problems, which have socio-political ramifications, in particular with regard to unemployment and poverty. Although improvements have been made during the last few years, the increasing problem of non-equitable growth, the widening gap between the rich and poor magnify shortcomings in the economy. Of paramount importance today is the development of the business sector, which is urgently needed. The services industry seems to be on the right track (with 8.9% growth in 2008), as exports begin to recover. Industry represents the largest sector in the economy, in terms of GDP. Although it is beginning to move, it lags far behind. There is even the fear that a de-industrialization process is already taking place. The time has now come to boost and strengthen the industrial sector to the optimum by not only creating jobs but also coping with severe international competition. In this era of globalization the question of competitiveness is of prime importance. It would be a highly unacceptable and intolerable situation to let the industrial sector taper off and become a marginal sector in the national economy. A big shake-up and a very big push will be needed to reduce the existing impediments and to improve the business climate, particularly the industrial area, which has been in a limbo for too long. To beef up the private sector in its totality will be one of the big challenges the country will face in the coming years.
8
The President Post
Friday, October 16, 2009
www.thepresidentpost.com
Human Capital Globalization Puts New Demands On Indonesian HR Organizations This article is extracted from the book: Managing Human Capital in Indonesia: Best Practices in Aligning People with Strategic Goals (Azkia, Indonesia, 2009)
to western organizations seeking benefits from locating operations on the sub-continent. But note that neither India nor China have sat back and allowed themselves to be overrun by avaricious overseas corporations: they have not become simple providers of low cost workers.
FIGURE 1: THE IMPORTANCE OF HR’S ROLES
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Rather each has used ����������������������������� ������ incoming expertise and ����������������� money to build powerful indigenous businesses �������������������� ����� that have then gone out to compete in western mar��������������������� ����� kets. Indeed 29 of 100 best performing Global Servic������������������������ es IT and Business Pro����� cess Outsourcing Companies in the 2008 rankings ��������������������������� ����� ��������������� came from India. No other country performed so ����� ����� well. Tata Consultancy Services was rated number one among the top 10 best performing IT serFigure 2: Business Leaders Satisfaction with their HR function. vice providers. As an indicator of India’s success, �������������� ����� in 2007 the USA (which ����� �� boasts the world’s third ����� ����� ����������������� largest population) pur����� chased some $1.55 trillion We are satisfied in IT/BPO goods and services, of which two-thirds with HRD of our came from India. organization And if the performance �������� of India is impressive, con������� ������ ����� sider China’s equally stunning upward curve. In the 2008 Financial Times Figure 3: Roles of Indonesian HR Organizations Global Index, three of the 20 biggest companies in ������ ������ the world according to ������ market capitalization were from China. PetroChina is ������ ranked second with a value of about $424 billion, Indl ����� and Coml Bank of China ����� ����� was sixth at $277 billion and China Construction Group was number 20 at $176 billion. Whereas there were plenty of representatives from the world’s three biggest countries by population, Indonesia (the next in line) could muster just one en- mographic trends, cannot be retry - Telekomunikasi Indonesia, placed by younger employees. which came in at number 439 And note that talent-starved with a market capitalization of countries are beginning to poach about $21 billion. workers from overseas –offering superior financial and other inThe poor performance of In- ducements to entice them away donesia is proof positive that a from their homelands. This too pressing challenge for the nation’s will gradually drain talent from corporate leaders is to figure how developing nations such as Indothey too can build the fast grow- nesia as developed countries reing companies that have emerged plenish their dwindling stock of out of Indian and China as a di- talent. rect consequence of globalization. They must work out how to To help to develop truly globtake the inflow of capabilities and al organizations, our research money and turn this to their ad- finds that there is a clear requirevantage: they must create organi- ment for a significant upskilling zations that can go out and com- of many HR professionals and pete on a global stage and with for the refocusing and restructhe world’s best. turing of their functions. Those But this will likely be an uphill that work in the HR organizatask, as our research finds that tion must become at least commost HR organizations are fail- petent but more preferably masing to provide the services and ters of the HR interventions that expertise that their enterprise re- are being deployed by leading orquires to compete on a local or re- ganizations worldwide in their gional, never mind global, stage. campaigns to conquer global For instance, just 15% of busi- markets. ness leaders are satisfied with the Most notably, Indonesian HR performance of their human re- organization must fully undersource function (figure 2). Fur- stand the strategies of the organithermore, less than half of respon- zation so to shape the appropridents believe that going forward ate people strategies that support HR houses the competence to these goals. develop the organization’s people HR must then ensure that the and create the right environment workforce (from the executive for performance. suite to the front-line or shopfloor) are equipped with the caIf business leaders are unhap- pabilities required by their globpy with their own HR functions, ally focused people strategies: Those that work in they also dissatisfied with the delivered through talent manageperformance of HR across the ment; competency, training and the HR organization nation. For instance, less than coaching; advanced performance must become at 4% of business leader believe that appraisal systems and other soluHR in Indonesia is concerned tions. And HR must possess the least competent but with managing talent (figure 3). expertise to identify and develop more preferably This is particularly worrying as a a cadre of global leaders that are masters of the HR battle for the best employees rag- able to drive Indonesian organies across the globe. Although the zations forward on a truly glob- interventions that ferocity of the battle might less- al stage. are being deployed by en for a while as a result of the global economic downturn makWith globalization pressures leading organizations ing more talent available, the war certain to intensify over the com- worldwide in their will intensify in the coming years ing years, getting the HR func- campaigns to conquer as an aging population leaves tion and its practices in shape is the workforce and, due to de- fast becoming nothing short of a global markets. matter of national importance. ���������������
This lack of preparedness for global competition puts Indonesian companies specifically, and the nation generally, in a severely vulnerable position. Being the world’s fourth largest population, Indonesia represents a potentially massive consumer base and is therefore being eyed with increasing interest by growth-starved western businesses. Indigenous
companies will increasingly be forced to fight a defensive campaign to protect local markets against increasingly nimble and powerful competitors from overseas. Defense minded organizational leaders might take comfort in the fact that Indonesia is a notoriously difficult country for overseas companies to enter and do business. As a powerful illustration, the 2008 Doing Business Report by the World Bank found that Indonesia ranks number 123 out of 178 countries in the overall ease of doing business – the best in the world is Singapore. Those Indonesian business leaders who believe that this study means that the nation is largely immune from serious overseas competition – and therefore does not need to worry about globalization- should consider this finding. Ranked 120th, and so just three places above Indonesia in the global ease of doing business ranking, is India. Yet, alongside China (the most populous nation in the world) India (the second largest population) has become the world’s most popular destination for western organization looking to secure the benefits of globalization: both from labor arbitrage and new market development perspectives. Simply put, the challenges of doing business in India have not proven a barrier
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sibility of their HR departments to make this happen. Unfortunately, the evidence from a major research program by the Jakarta-based management consultancy OTI suggests that the HR functions of Indonesian companies are generally not helping their organizations globalize. Just 7.18% of Indonesian business leaders believe that helping the enterprise to compete globally is an important role of their HR function (Figure 1). Worryingly, this small percentage of organizations was drawn mainly from the country-based operations of multinational corporations rather than from indigenous Indonesian firms. This is not in itself an indictment of Indonesia’s HR organizations. Rather, globalization is not an agenda item for the management team’s of Indonesian firms. How to compete locally – and at best regionally – is still their core concern.
James Creelman
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G
lobalization has become a hot management topic in recent years, as a consequence of deregulation, market liberalization and, most notably, the breathtaking advancements in communications technology. Today, an employee in an office in Jakarta can send a missioncritical message simultaneously to colleagues in all five continents – at the speed of light and with a click of a button. To secure the mouthwatering benefits available from globalization, top-performing organizations throughout the world have been busily reshaping their structures and strategies to migrate from being largely local or regional players to being truly global. Moreover, the present economic downturn is reenergizing their already aggressive globalization strategies, as recession and market contraction force organizations to seek new markets to penetrate. Within the most successful organizations, the HR function shapes the people strategies required to successfully deliver the overall globalization strategy. The management teams of these firms realize that success on a global stage will not be achieved without an enthused, committed and well-prepared employee base – and that it is largely the respon-
Krishnan Rajendran
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Naresh Makhijani
The President Post
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Friday, October 16, 2009
9
Women Women: The New Emerging Power
Mexico, Iran and Korea). But the middle class story will continue to play out elsewhere. By 2040, the middle class share should peak at 80%-90% of the population in India, Indonesia, Vietnam and Egypt and at 70% in Philippines. During this challenging time, many women have developed independent business, both small and big scale, in formal and nonformal sectors to support their families. Many of them also were proven successful in their business. Today, many women are holding strategic positions in companies, positions that once belong only to the male species. Seeing a woman at the top brass is no longer unusual.
Women are in fact a productive working group, who in many cases in Indonesia, serve as the economic backbone for their families and to a larger extent the driving force of the country’s economy. By Vidya Dahlan
W
omen have often been perceived as weak human beings who have limited ability to play an important role in society, politics and economy. This is because they are merely seen as the second sex. This perception is gradually shifting as more and more women take on bigger role and responsibility. Women are in fact a productive working group, who in many cases in Indonesia, serve as the economic backbone for their families and to a larger extent the driving force of the country’s economy. This is evident given the large number of Indonesian women migrant workers in Malaysia, Hong Kong and Saudi Arabia. Their number account for about 80% of the total Indonesian migrant workers with most of them working in the non formal sectors, thus making them prone to violence, exploitation and discrimination. Female’s capability to earn income and at the same time handle domestic works make them a good money manager as they tend to spend their incomes on improving the welfare of their family, according to a Goldman Sachs research. Economists and studies around the globe are projecting that female worker group will become the new emerging market with a very powerful force to fuel the economic growth. This shift is attributed to the narrowing gap in access to education, health care, employment and most importantly the narrowing income gap between
female and male workers. Indonesia’s gross domestic product per capita in 2008 reached 1,972, while women’s earnings as a share of men’s earnings was at (¢/$) 45. In Indonesia, women have enjoyed better education access and quality. The ratio of female to male enrollment in primary and secondary education was 93.3 in 1991 and rose to 97.9 in 20062007. Data from the National Socio-economic Survey showed that female participation rate in education for those aged between 7 and 12 years old reached 97.7% in 2006. However, illiteracy rate in women aged above 15 years old reached 11.61% compared to only 5.44% in male. Human capital is a crucial factor in development and economic growth. High quality human capital is believed to make the economic performance better. The quality should be reflected from the education and health level and other indicators. That is why human development is a key factor to propel the economic growth. Improved gender equality in Indonesia has contributed to wider female access and participation in the country’s development as reflected in the Gender-related Development Index (GDI) and Gender Empowerment Measurement (GEM). Human Development Report (HDR) 2007-2008 put Indonesia’s GDI at 0.721, up slightly from 0.704 in 2006. The figure indicates better female access in development, especially
in education, health and economy. Despite the improvement, the achievement is still pale compared other countries in Southeast Asia. Indonesia’s position is only slightly higher than Myanmar and Cambodia. Data from the Ministry of Women Empowerment and BPS showed that Indonesia’s GEM in 2006 was 0.618, a figure that still showed a gap between men and women on access to education, political activities, labor and income. Women’s role in the economic sector has much improved although still lower than men. Female labor participation rate slightly increased from 48.6% in February 2006 to 49.5% in February 2007 and to 51.3% in February 2008, while the male labor participation rate reached 84.7% in 2006, 83.7% in 2007 and 83.6% in 2008. According to statistics, 60% of the 85.4 million workforces in the small and medium business sectors are women. With bigger earnings, women also have stronger purchasing power. According to a Goldman Sachs research, women’s spending priorities differ from men’s as they are more likely to buy goods and services to improve their family welfare. Sectors that are likely to benefit from women’s buying power include food, healthcare, education, childcare, apparel, consumer durables and financial services, the research unveiled. It also added that over the next five years, to 2015, the middle
Finance Minister, Sri Mulyani
class story is set to play out most vividly in a handful of countries. Growth rates of the middle-class share will be highest in India and Vietnam, averaging nearly 20% per year, and in Indonesia, averaging about 10%. In these three countries, rapid growth would be from an extremely low starting point: less than 10% of the pop-
Courtesy of presidenri.go.id
ulation in both India and Vietnam, and less than 20% in Indonesia, is considered “middle class” today After 2025, the growth of the higher-income category ($30,000 and above) will be the principal story for three of the four BRICs (except India) and several of the N-11 countries (namely Turkey,
In the meantime, the number of female participation rate in politics had also increased. In 2001, Indonesia witnessed the rise of Megawati Sukarnoputri as the country’s first female president. Female opportunity in politics and in the government is also wide opened. In his 2004-2009 United Indonesia Cabinet, President Susilo Bambang Yudhoyono picked four of Indonesia’s finest females as his ministers, Finance Minister Sri Mulyani Indrawati, Trade Minister Mari Elka Pangestu, Health Minister Siti Fadilah Supari, and Women Empowerment Minister Meutia Hatta Swasono. Female share, seats in parliament in 1990 was 12% but fell to 11.6% in 2008. Last year, Indonesia had one female governor, one deputy governor, seven regents/mayors, four deputy regents/mayors. Trace of female power has long been seen as history showed that Queen Victoria of England is the world’s most influential woman in history. She is described as a woman with an iron fist with great influence, not only in her kingdom but also worldwide. She was the driving force behind Britain’s colonialism across the world, making Great Britain the country with the most colonies in the 19th century. Growing female influence is
not only seen in the Western countries but also in Indonesia. Sri Mulyani Indrawati, for example, not only made her mark in the national economic scene but also in the international community. She was named the best Asian Finance Minister by Emerging Markets in 2006. She was also the first Indonesian female to hold the executive director position at the International Monetary Fund in 2001. In the meantime, Health Minister Siti Fadilah Supari was appointed as deputy chairperson of the World Health Ministers Council. She made headlines when she strongly rejected the World Health Organization’s request for bird flu virus samples. She said that the health body was siding with industrialized nations to make the antidotes for developing countries. The law has provided all citizens with an equal political right, enabling women to run as candidates in the legislative body and even for presidency. The 1945 Constitution, article 28D, 3 stipulated that every citizen is entitled to an equal opportunity in the government. This paves the way for balanced human resources allocation for men and women to enjoy gender equality. Nevertheless, the number of female civil servants in echelon I-V remains low at only 20.2% (State Employee Board, 2007) and only 11.6% women are in the legislative council and 19.8% in DPD. Female participation rate in the judicial sector is also still low with only 20% judges, 18% supreme judges, and 27% attorneys. The low female participation rate in political development is partly due to the cultural value that has long considered the domestic field as the female areas and also due to low education level and training on politics for women. However, this will soon change as more and more women have enjoyed higher education level up to university while at the same time awareness for equal opportunity in every field is also growing.
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Culture sufficient for complete protection. In the late 1960s, the government requested from the international community a major renovation to protect the monument, but it was not until 1973 that a master plan to restore Borobudur was created.
The Borobudur Temple is a world heritage
F
A bird’s eye view of the Borobudur Temple
Courtesy of PT. Taman Wisata Candi
Courtesy of PT. Taman Wisata Candi
The Borobudur Temple: EVERLASTING AND ENDURING ollowing the AngloDutch Java War, Java was under British administration from 1811 to 1816. The appointed governor was Lieutenant Governor-General Thomas Stamford Raffles, who took great interest in the history of Java. He collected Javanese antiques and made notes through contacts with local inhabitants during his tour throughout the island. On an inspection tour to Semarang in 1814, he was informed about a big monument deep in a jungle near the village of Bumisegoro.He was not able to make the discovery himself and sent H.C. Cornelius, a Dutch engineer, to investigate. In two months, Cornelius and his 200 men cut down trees, burned down vegetation and dug away the earth to reveal the monument. He reported his findings to Raffles including various drawings. Although the discovery is only mentioned by a few sentences, Raffles has been credited with the monument’s recovery, as one who had brought it to the world’s attention. Hartmann, a Dutch administrator of the Kedu region, continued Cornelius’ work and in 1835 the whole complex was finally
The restoration then was carried out between 1907 and 1911, using the principles of anastylosis and led by Theodor van Erp. The first seven months of his restoration was occupied with excavating the grounds around the monument to find missing Buddha heads and panel stones. Van Erp dismantled and rebuilt the upper three circular platforms and stupas. Along the way, Van Erp discovered more things he could do to improve the monument; he submitted another proposal that was approved with the additional cost of 34,600 guilders. Due to the limited budget, the restoration had been primarily focused on cleaning the sculptures. Within fifteen years, the gallery walls were sagging and the reliefs showed signs of new cracks and deterioration. Small restorations have been performed since then, but not
The government and UNESCO then undertook the complete overhaul of the monument in a big restoration project between 1975–1982. The foundation was stabilized and all 1,460 panels were cleaned. The restoration involved the dismantling of the five square platforms and improved the drainage by embedding water channels into the monument. Both impermeable and filter layers were added. This colossal project involved around 600 people to restore the monument and cost a total of US$6,901,243. After the renovation was finished, UNESCO listed Borobudur as a World Heritage Site in 1991. On 28 August 2006 the Trail of Civilizations symposium was held in Borobudur under the auspices of the governor of Central Java and the Ministry of Culture and Tourism. Also present were the representatives from UNESCO and predominantly Buddhist nations of Southeast Asia, such as Thailand, Myanmar, Laos, Vietnam and Cambodia. The climax of the event was the “Mahakarya Borobudur” ballet performance at Borobudur, choreographed to feature traditional Javanese dancing, music and costumes, and tell the history about the construction of the Borobudur. On 27 May 2006, an earthquake of 6.2 magnitude on the Richter scale struck the south coast of Central Java. The event had caused severe damage around the region and casualties to the nearby city of Yogyakarta, but Borobudur remained intact, confirming the belief that the temple is an everlasting and enduring testimony to mankind. Source: Wikipaedia
unearthed. The Dutch East Indies government then commissioned F.C. Wilsen, a Dutch engineering official, who studied the monument and drew hundreds of relief sketches. J.F.G. Brumund was also appointed to make a detailed study of the monument, which was completed in 1859. Appreciation of the site developed slowly, and it served for some time largely as a source of souvenirs and income for “souvenir hunters” and thieves. In 1882, the chief inspector of cultural artifacts recommended that Borobudur be entirely disassembled with the relocation of reliefs into museums due to the unstable condition of the monument. To refresh one’s memory: Borobudur is a ninth-century Mahayana Buddhist Monument in Magelang, Central Java, Indonesia. The monument comprises six square platforms topped by three circular platforms, and is decorated with 2,672 relief panels and 504 Buddha statues.A main dome, located at the center of the top platform, is surrounded by 72 Buddha statues seated inside perforated stupa. The monument is both a shrine to the Lord Buddha and
a place for Buddhist pilgrimage. The journey for pilgrims begins at the base of the monument and follows a path circumambulating the monument while ascending to the top through the three levels of Buddhist cosmology, namely Kamadhatu (the world of desire), Rupadhatu (the world of forms) and Arupadhatu (the world of formlessness). During the journey the monument guides the pilgrims through a system of stairways and corridors with 1,460 narrative relief panels on the wall and the balustrades. Evidence suggests Borobudur was abandoned following the fourteenth century decline of Buddhist and Hindu kingdoms in Java, and the Javanese conversion to Islam. The name ‘Bore-Budur’, and thus ‘BoroBudur’, is thought to have been written by Raffles in English grammar to mean the nearby village of Bore; most candi are named after a nearby village. If it followed Javanese language, the monument should have been named ‘BudurBoro’. Raffles also suggested that ‘Budur’ might correspond to the modern Javanese word Buda (‘ancient’) – i.e., ‘ancient Boro’.However, another archaeologist suggests the second component of the name (‘Bu-
dur’) comes from Javanese term bhudhara (or mountain). During the restoration in the early 1900s, it was discovered that three Buddhist temples in the region, Borobudur, Pawon and Mendut, are lined in one straight line position. The three temples (Borobudur–Pawon–Mendut) have similar architecture and ornamentation derived from the same time period, which suggests that ritual relationship between the three temples, in order to have formed a sacred unity, must have existed, although exact ritual process is yet unknown. Borobudur is built as a single large stupa, and when viewed from above takes the form of a giant tantric Buddhist mandala, simultaneously representing the Buddhist cosmology and the nature of mind. The foundation is a square, approximately 118 meters (387 ft) on each side. It has nine platforms, of which the lower six are square and the upper three are circular. The upper platform features seventy-two small stupas surrounding one large central stupa. Each stupa is bell-shaped and pierced by numerous decorative openings. Statues of the Buddha
sit inside the pierced enclosures. Approximately 55,000 cubic metres (72,000 cu yd) of stones were taken from neighbouring rivers to build the monument.The stone was cut to size, transported to the site and laid without mortar. Knobs, indentations and dovetails were used to form joints between stones. Reliefs were created in-situ after the building had been completed. The monument is equipped with a good drainage system to cater for the area’s high stormwater run-off. Borobudur attracted attention in 1885, when Yzerman, the Chairman of the Archaeological Society in Yogyakarta, made a discovery about the hidden foot. The discovery led the Dutch East Indies government to take steps to safeguard the monument. In 1900, the government set up a commission consisting of three officials to assess the monument. In 1902, the commission submitted a threefold plan of proposal to the government. First, the immediate dangers should be avoided by resetting the corners, removing stones that endangered the adjacent parts, strengthening the first balustrades and restoring several niches, archways, stupas and the main dome. Second, fencing off the courtyards, providing proper maintenance and improving drainage by restoring floors and spouts. Third, all loose stones should be removed, the monument cleared up to the first balustrades, disfigured stones removed and the main dome restored. The total cost was estimated at that time around 48,800 Dutch guilders.
Cultural Heritage, Tourism and National Identity The outrage that erupted in Indonesia recently over the inclusion of the Balinese “pendet dance” - an Indonesian cultural and tourist icon - in the “Visit Malaysia” feature on Discovery Channel, highlights the close interconnection between cultural heritage, tourism and national identity in today’s global world. By Wuryastuti Sunario Former Executive Director of the Indonesia Tourism Promotion Board
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or why else could something seemingly so trivial evoke such emotions within a people’s sense of national identity? Tourism today is no longer just about traveling for recreation or leisure. It has become the world’s top foreign currency earner for corporations, airlines and countries. The UN World Tourism Organization (UNWTO) estimates that last year 924 million people traveled across national borders, time zones and cultures. No less than 10% of those employed are in the tourism industry. Countries like Thailand have made tourism the number one foreign currency earner and the showcase of the country and culture. In its study “Tourism 2020 Vi-
sion”, UNWTO predicts that at a 4.3% annual increase, by 2020 there will be a phenomenal 1.6 billion tourists globally, not counting domestic tourists. Last year some 6.4 million visitors or 10.26% of ASEAN arrivals came to Indonesia, generating US$7.4 billion in revenue. Tourism is the third top earner after oil and gas, and palm oil, contributing 4.3% to the country’s GDP, with 6.7 million people directly employed in tourism, according to the Department of Culture and Tourism. Domestically, some 225 million traveled across the islands, spending Rp.123 trillion, strengthening local economies. The Bali Climate Change Conference in December 2008 and the World Ocean Conference in Manado were each attended by over 10,000 delegates and have made Indonesia a focal point in in finding solutions to global issues through high profile international conventions. By 2014 Indonesia plans to double international arrivals to 12 million, earning US$8.2 billion, and Rp.120 trillion from domestic tourism. Tourism is expected to provide at least 9 million jobs, contributing 6% to GDP.
Meanwhile, the CNN TASK Group discovered that even in today’s global economic crisis, people’s desire to travel has not diminished; only their motivation has shifted. For tourists now need to escape daily stresses, seeking physical and emotional reinvigoration through visits to beautiful and new destinations, meet new people and new cultures, seeking solutions to problems in this fast changing world. On the receiving end, host communities at destinations visited are impacted by development of tourism infrastructure, facilities and services. Besides enjoying economic benefits, communities are revitalized by the genuine appreciation that foreigners show in their culture, dances, handi-
As a result, the meaning of tourism goes beyond economic benefits, and “culture” goes beyond monuments, artifacts and artistic expressions
crafts, traditions and way of life. This revives local interest in their own culture, restoring a people’s dignity and pride in their precious heritage. Socially, communities now rally around traditions that, through tourism promotion, have become internationally recognizable icons, making each a dream destination, unique and distinct from other parts of the world. As a result, the meaning of tourism goes beyond economic benefits, and “culture” goes beyond monuments, artifacts and artistic expressions. The Encyclopedia of the Future defines culture and society as “the way people behave as communities, sharing a set of ideas, values, and beliefs about the world and practicing customs and social behaviors that help bind them as distinct groups within societies.” Stretching across the equator comprising 17,504 islands, Indonesia, - once called the Dutch East Indies - is the largest archipelagic nation in the world. This is “home” to 225 million people comprising 200 ethnic groups, each possessing their own distinct culture and language – yet united in the one nation called Indonesia under the slogan “Bhinneka
Tunggal Ika” - we are many but we are one - speaking one language: Bahasa Indonesia. Her history stretches from prehistoric Java man, to the magnificent 9th century temples of Borobudur and Prambanan, to the country’s modern heroic struggle for independence and democracy. Indonesia is also home of the Dayaks in the rainforests of the Indonesian part of Borneo, as are the tribes of Papua, or the Nias, living bearers of a megalithic culture, the Bugis plying the seas in majestic schooners and the vibrant culture of Balinese. But Indonesia is also busy metropolitan Jakarta, a plethora of high rise buildings, center of national power, finance and commerce, as are the throngs of people eking a living. Today, through 64 years of independence, Indonesians have forged themselves into one cohesive nation, aware of the rich diversity in cultural background yet conscious of national unity and proud of collective national heritage. Therefore, the pendet dance or the batik cloth are for Indonesians no longer mere branding of a tourist destination or even tangible cultural expressions steeped in local knowledge and wisdom. These are icons of precious national common heritage that has been handed down by our ancestors, enhancing the identity of this distinct nation called Indonesia.
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Friday, October 16, 2009 11
Media WHAT EVER HAPPEN TO THE ? A I D E M L A N O I T N CONVE Afew thousand years ago,in a coastal land bordering the Aegean Sea, a little idea with big implications was born. It was called democracy, and with it came a distribution of authority. By Ardi Sutedja K.
O
ver the next few thousand years,democracy faced folks who vied for ultimate authority—kings,dictators,the mainstream media—for they wanted the right to make and implement decisions about wha tpeople should do or think. Fast-forward to the middle of the 20th century, when another little idea with big implications was born. It was called cybernetics, and it proposed that adding noise or feedback into a system enabled change. In many w ay s , i t
acted as the philosophical foundation ofthe Internet. Now take these ideas, add a government experiment called ARPANET, and mix in a bit of high-speed access. Voila, you get Web 2.0, and with it, an evengreater distribution of that much cherished authority. What was set off years ago with the birth of the Internet— and what has become increasingly evident over the past year— is exactly this shift in authority. Those sources once deemed authoritative are now sharing authority with the average person. The authority of our
friends and family is not new; it’s just that our inner circle of trusted advisors has been digitized. The dialogue that is exchanged at play-dates and cocktail parties is now occurring online as well—and it is this shift in how we interact with each other that has enabled the shift in authority. The Internet—specifically social media such as blogs, reviews, and social networking sites—has enhanced the voice of the average person and allowed us to connect with one another more often, more conveniently, and in a digital environment where we can take immediate action based on our advisor’s feedback. We can see this in a number of areas. Take newspapers, where bloggers have effectively changed the landscape of who is deemed authoritative enough to report the news. The citizen journalist is now often deemed credible, and therefore given authority. Need proof? Look at MSNBC’s Citizen Journalist Report, which shifts the authority of news reporting to its users, or Digg, which surfaces news by popularity. Or, ohmynews.com, which TIME magazine called “the people news source.” In the world of education, online educators are gaining ground against traditional models as well. As online universities see their enrollments rising, organizations such as Wikibooks (fromWikipedia) are developing a library of free, searchable, editable textbooks. Revenue creation has experienced an authority shift as well. Consider sites such Epinions,
where reviewers earn money for their contributions, or Revver, which shares revenue with its content creators. In these cases and more, the authority of who gets paid is decided by the site’s users. While the “authority shift” from mainstream media to citizen and social media may seem daunting to advertisers accustomed to the traditional media dynamics, it actually presents an opportunity These radical shifts in the media landscape took on a different cast back in 2006 as major
Perhaps the most striking shifting behavior occurring among all media channels is the shifting of authority from typical control points to some rather unexpected ones. media advertisers struggled with how to allocate budgets in the face of shifting consumer behavior, declining confidence in traditional media, and a seemingly endless proliferation of new-media channels available for delivering messages and reaching consumers. The rise of YouTube to a mass-media level, and its subsequent acquisition by Google, became yet another sign of a significant reprioritization by both consumers and content producers as to how, when, and where they are consuming media, and
Image courtesy of newmediachatter.com
what infact they are engaged in consuming. Across all media channels, marketers face the difficult challenge of “breaking through the clutter” as the scale of media immersion in daily life exceeds all prior benchmarks. The sheer volume, variety, and availability of media channels have resulted in cultural change. So, too, have consumer behaviors. “Time-shifting,” a behavior brought on by technologies like Video on Demand (VOD), Digital Video Recorders (DVRs) including TiVo, and the introduction of video capabilities for portable media devices such as iPods and the BlackBerrys, has separated the consumer experience of video media from a specific time of day, and even from the television itself. The increasing availability of high-quality, desirable media being made available specifically on devices and locations OTHER than the living-room TV has come to be known as “placeshifting.” Consumers have embraced place-shifting, by watching videos and TV programs on their PCs, iPods, and Sony PSPs.
The introduction of products like Slingbox promises to accelerate this trend. Perhaps the most striking shifting behavior occurring among all media channels is the shifting of authority from typical control points to some rather unexpected ones. As a result, the combination of time- and place-shifting behavior decides what is and is not worthy of audiences’ attention, shifting away from mass-media platforms and squarely into the hands of individual consumers. Often discussed as the phenomenon of “consumer control,” authorityshifting is perhaps the most startling upshot brought about by the extreme democratization of media creation, distribution, and consumption. Several factors have led to this democratization. Enabling creation technologies such as Apple iLife and other consumer-oriented content creation suites has made Web publishing of audio, video, and text relatively easy, risk free, and inexpensive compared with recent years. The recent availability of low- or no-cost distribution platforms ranging from
the more amateur-focused YouTube (which serves an estimated 100 million video views a day in the U.S.) to the more professionally minded Brightcove (which enables the professional content creator to monetize their content through advertising via narrow broadcast channels online) has completed the picture for consumers who want to control the media they consume, and gives others the ability to interact with the media they themselves are creating. Knowing that all media are shifting in nature, that new channels and technologies seem to spring up daily, and that emerging channels are radically disrupting the traditional media mix, how should we approach differentiating, qualifying, and ultimately determining overall viability for emerging media channels? It may require us to alter the way we think about and define conventional measures to account for new behaviors. So don’t be wary of distributed authority. Welcome the shift. Embrace it with open arms. And know that in the end, It just makes good business sense.
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12 Friday, October 16, 2009
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Technology AID TO
The Economic Impact Of IT, Software, RECOVERY And The Microsoft Ecosystem On The Economy
E
KEY FINDINGS
conomists have long recognized the important role information technology (IT) can play in a country’s development. As the IT sector helps lead us out of the worst global recession in more than 50 years, that role will be even more important. To quantify the direct benefits of IT on local economies as we head toward recovery, IDC has studied the relationship between IT, software, the Microsoft ecosystem and the economies of 52 countries, including Indonesia. Key findings for Indonesia: IT spending in 2009 will be 72,225 billion IDR ($7.5 billion). From the end of 2008 to the end of 2013, IT spending will grow 7.9% a year, compared to GDP growth of 3.9% a year. IT-related activities will generate 7,052 billion IDR ($728 million) in taxes in 2009. Over the next four years that means more than 8,756 billion IDR ($904 million)
gregate net new taxes. That spending growth means that employment in the IT industry and of IT professionals in IT-using organizations will rise by 119,000 jobs in the four years from the end of 2009 to the end of 2013, up from a 2009 base of 241,000. That represents growth of 9.6% a year from now through 2013, which is more than six times faster than the growth of total employment. Software drives activity in the services and distribution sectors, as well as in IT-using organizations, which means that while spending on packaged software will be only 4% of total IT spending in 2009, 13% of IT employment will be software-related. The IT market will drive the creation of more than 1,000 new businesses between now and the end of 2013. Most of these companies will be small and locally owned organizations. For more information on the global IDC study, see Aid to Recovery: The Economic Impact of IT, Software, and the Microsoft Ecosystem on the Global Economy, October 2009. For details about methodology and definitions, see Economic Impact Study Methodology and Definitions, October 2009. THE MICROSOFT ECOSYSTEM
in a g-
The Microsoft ecosystem in Indonesia includes those companies that sell PCs, servers, storage, and smart handheld devices running Microsoft software; software vendors that write applications that run on Microsoft platforms; resellers that sell and distribute these products; and service firms
IT Profile and forecast: indonesia 2008
2009
2010
2011
2012
2013
08-13 CAGR
6.90%
Spending (Million LOCAL) IT Hardware
61,969,021
65,210,082
69,860,403
75,297,925
80,304,004
86,344,265
Software
2,800,414
2,761,588
2,845,583
2,999,478
3,200,685
3,495,878
4.50%
IT Services
3,672,237
4,253,391
5,380,432
6,795,810
8,497,794
10,323,237
23.00%
68,441,672
72,225,061
78,086,418
85,093,213
92,002,482
100,163,380
7.90%
Total IT IT Contribution IT/GDP (%) IT Tax Revenues (Million LOCAL) Total Number of IT Companies
1.40%
1.40%
1.50%
1.60%
1.60%
1.70%
6,541,768
7,052,827
7,831,251
8,726,866
9,681,541
10,728,018
10.40%
6,660
6,793
7,040
7,314
7,591
7,875
3.40%
227,513
240,652
265,762
294,944
326,347
359,498
9.60%
32,294
32,144
34,282
37,328
41,419
46,399
7.50%
9,991,330
24,298,236
43,933,586
70,387,863
IT Employment Total Number of Employees Total Software-Related Employees Cloud plus Clients Net New Business Revenues (Million LOCAL)
Source: IDC Economic Impact Study, 2009
that install and manage Microsoft-based solutions, train consumers and businesses on Microsoft products, and service customers for their own applications. It also includes companies that do combinations of these functions. Note these additional findings: As a group, companies in the Microsoft ecosystem in Indonesia will generate more than 22,574 billion IDR ($2.3 billion) in revenues for themselves in 2009. For every IDR Microsoft will make in Indonesia in 2009, companies in the local ecosystem will make 23.54 IDR. To generate those revenues, companies in the local ecosystem will drive nearly 6,899 billion IDR ($712 million) of investment, most of it in the country. Companies in the Microsoft ecosystem employ 11,000 people; IT-using organizations em-
ploy another 65,000 IT professionals who work with Microsoft software or the products and services based on it. Together, these employees will account for 31% of IT-related employment in 2009 and 34% of IT-related taxes in the country. GROWTH THROUGH INNOVATION
Seven years after the third major high tech crash in the last 50 years, the industry is flush with new technology, from new servers and client devices and new storage and networking technologies, to new software architectures and delivery models. Together, these new technologies are ushering in what may be a new paradigm of computing, known variously as cloud computing, cloud services, or dynamic IT. Microsoft calls it Software plus Services.
The promise of this new way of computing, which involves the use of Internet-based services and intelligent clients and devices, is that businesses, governments, and educational institutions will be able to lower the capital costs of IT and increase the amount of their IT budgets that can be devoted to innovation, rather than to the maintenance of legacy applications and infrastructure. This new type of computing is in its infancy – while IDC estimates that this year it will account for a little less than 1% of IT spending in Indonesia, that percentage may triple over the next four years. Despite that small footprint, the economic benefits can be significant. If that amount of IT spending is applied to innovation more effectively than it is today, IDC estimates that cloud services could add more
than 148,611 billion IDR ($15.4 billion) in net new business revenues to Indonesia’s economy between the end of 2009 and the end of 2013. SUMMARY AND OUTLOOK
The IDC research reinforces the conclusions drawn in academic research – namely, that IT is good for local economies. The economic benefits quantified in this study will help Indonesia grow, create new jobs, improve the efficiency of its labor force, and support the formation of new companies. The economic benefits not quantified in this study but referenced in the academic research help drive productivity improvements throughout a country, increase competitiveness, and foster local innovation. The table below summarizes some of the key IT industry metrics covered in the study.
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Friday, October 16, 2009 13
Education Pro-Education President:
Another Chapter of Success Stories President Susilo Bambang Yudhoyono (SBY) will form his second democratic Cabinet later this month to further develop education at all levels. By Maya A. Siregar
W
ith 20 percent of the state budget going to the sector of education as of 2009, the President is optimistic about reaching the goals of his success story plan called 3M (mutu, murah, merata) which stands for quality, affordability, and equal opportunities for all citizens to enjoy better education. The government has launched pilot projects in several regencies where elementary students are exempted from school fees. Former rector of the Unversity of Indonesia, Prof. Dr. Usman Chatib Warsa, when asked of his comments, is in support of the President’s concept. SBY believes that Indonesia actually has the ability to provide quality education at an affordable level so that even children from poor segments of society may enjoy it. Therefore, the government has, as of this year, increased to 20 percent the budget allocation for education, hoping that this will provide more opportunities for the younger generation from all walks of life to have good education as prerequisite for leading a better life. The President believes that there are six main issues gripping the sector of education. First is the issue of education financing. He says every citizen must have access to education, regardless of his or her economic background. Therefore affordable education is very important. The second issue is about quality and welfare of the teachers and
lecturers. “How can we expect to have high quality graduates when teachers and lecturers are of low quality,” the President asks. This has been one of his preoccupations since he took office in October 2004. His high level of attention to the sector of education has led many education observers to regard him as Indonesia’s “pro-education president.” And on many occasions, SBY has always reiterated the need of having high quality teachers to strengthen schools and universities. The third issue on SBY’s education agenda is the standard of competence which he says must be at par with educational quality standards of advanced nations. In this regard his government is working hard to increase the employability level of university graduates so that they may be able to stand tough labor market competition in this globalized era. The fourth issue on the President’s agenda is the relevance between the output of education and the need of the labor market. For decades before SBY took office, Indonesia’s education had been going on without a clear vision and direction on graduates’ employability issue. Many university graduates have difficulty finding a job, simply because what they have learned is not compatible with the actual needs in the market. In another front, universities are not responding properly to the needs of their immediate environments, because there is a
tragic gap between the policy of developing natural resources and that of empowering human resources. For example, universities located in natural resource-rich provinces do not have schools specializing in the study of such natural resources. “Therefore it is very important for governors and regents to know that the output of education must have correlation to the need of all sectors of industry and the market at large,” SBY once said in an address to Indonesia’s provincial leaders. “There must be a synergy involving the government, educational institutions, and the market at large, because it is the market that will eventually absorb the graduates. Because of that, there must be efforts to develop both general and vocational education.” The fifth issue on the Presi-
Prof. Dr. Usman Chatib Warsa
dent’s table is the need to nurture university graduates who are mature in behavior, who are lawabiding people, and who can contribute positively to further development of the nation. “It is true that freedom is highly important, but one should not use his freedom to destroy public infrastructure and systems,” SBY said. He added that educa-
Beyond the Issue of 20% Budget:
Ministerial Position Is Crucial
Over the past few years, Indonesia’s education commentators have focused primarily on the issue of the 20 percent state budget allocation for education, as if the quality of education would suddenly soar when the stipulation is fully realized. By Maya A. Siregar
S
uch perception represents an insult to the true meaning of education, because in reality education covers the whole range of human process of learning and cannot be reduced to a matter of financing alone. Holistic educators believe that while financing is important, more so is the need to have a clear vision and direction in order to upgrade the output quality of educational endeavors. This is the biggest homework for President Susilo Bambang Yudhoyono’s next Cabinet that will be revealed on October 20. The first thing to see is whether he picks the right person to sit in the chair of minister of education. This position has for decades become a highly political issue. So it’s time to ask whether it is still relevant for a minister of education to appear more like a politician than a chief educator, analysts say. In other words, will the President appoint the next minister of education because of the minister’s ability to act as the chief educator, or will he appoint one because of political bargaining with opposition parties and pressure groups? Here is a quick and safe answer. If President SBY has picked Prof. Dr. Boediono, a professional economist—in stead of a political party leader—to be the Vice President, it is almost certain that he will also assign professionals to run the show in as many sectors of public service as possible. With that theory in mind, education observers are hoping that the next minister of education will come from university cir-
cles—perhaps one of the rectors who are often highlighted by the mass media. According to a noted foreign educator based in Jakarta, the next minister of education “must be an educational expert, not simply a managing politician, a person prepared to research educational principles and practices from around the world and marry them to the country’s unique culture and educational needs.”
Prof. Dr. Komarudin Hidayat
He adds that the minister “must be passionate about educational development and enthusiastic about what young people can achieve when provided with a high quality education.” The trouble with Indonesia’s development strategy is that while education is a life-long process of learning and teaching, which therefore requires a clear vision and consistent long-term strategy, education policymakers come and go every five years. Ever since the reform era began in Indonesia in 1998, only President Susilo Bambang Yudhoyono has remained consistent with educational policies for five years, and he is likely to do so for five more years. His predecessors were not as predictable due to the fact that every one of them served for less
than five years. So, in a way, SBY has actually laid the right foundation and altogether precedent of policymaking tradition that will hopefully be maintained and enriched by anyone who will succeed him in October 2014. Holistic educators are saying that the biggest task of this nation is to find ways to cement the good tradition of leadership and policy decision making that has been put in place by SBY, so that whenever he is no longer in office, those good features will remain. This is a process of public education in itself and therefore it must be enhanced in order to usher in a more mature society. But first, what is it that is being defined as education in Indonesia? From what we have seen so far, education is generally defined as schooling, and nothing more than that. Even as early as 1945 when Indonesia became a republic, Ki Hadjar Dewantara—the first minister in charge of education—was not called ‘minister of education’ but was called ‘minister of teaching’. The consequence of this approach is visible in society even to date. Education is being narrowed down to the issue of imparting knowledge or developing only the cognitive skills. Rote memorization then becomes the favorite choice whereas in today’s context, learners actually don’t need to memorize facts and figures, but solve real problems they encounter every day. A further consequence of such an approach to education is that parents are generally unaware that they are the primary educators of the children. This is why many parents are preaching about the things they themselves
tion must lead to graduates becoming tolerant citizens who are sensitive to the need of maintaining a peaceful society. The sixth issue on SBY’s agenda is the responsibility over execution of educational plans that involve the central and regional governments. The President emphasizes the need of budget sharing responsibility in that part of the burden of financing educational programs is shared by regional governments, and the rest by the central government. As of 2001 when Indonesia intensified the implementation of its decentralization plan, the regional governments have taken up part of the financing responsibility in the sense they act as extension of the central government’s hand in channeling out assistance to schools all over the country while beefing up their own coffers. Therefore, the responsibility for financing of educational activities from elementary to high school levels is now on the shoulders of the governors and regency heads. Apart from those six major issues, there are a myriad other problems affecting educational endeavors in Indonesia. They include the issue of affordability of books, school fees, lack of school infrastructure, lack of interest in reading and declining reading habit among the so-called “click generation,” poor level of wages for teaches, and a lack of good quality curriculum with international orientation. In order to overcome the situation, the President has called on relevant ministers and other high ranking officials to promote vocational as well as entrepreneurial education, “so that one day there won’t be any more story of jobseekers having difficulty getting a job. And Make sure that schools will produce graduare not doing. One can easily see in Jakarta, for instance, a heavy-smoker father becoming frustrated at his son who is a smoker, because the boy can’t see a role model at home. In teaching his son to quit smoking, the father is not educating him with a credible lifestyle. To cite but another common practice in Jakarta, one would easily say that in sending children to school, parents generally leave to teachers the responsibility to educate their children. But whenever something goes wrong, the parents would put the blame on the teachers, arguing that their kids should get the equivalent of the worth of money paid to the school. In general, parents do not have the awareness that they actually have the primary responsibility to educate children even before the latter come into contact with the teachers at school. What is needed today is not just education for children, but for the parents as well, because even though children attend high quality schools, they will surely fail living in an unhelpful environment at home. Holistic educators say that the basic and most crucial stages of education actually take place at home. So if families break apart, children will have difficulty finding the right role models at home. In a broader context, according to Prof. Komaruddin Hidayat, rector of State Islamic University (UIN), the government needs to put greater emphasis on developing education henceforth if Indonesia is to occupy a respectable place in the community of nations. He theorizes that South Korea, the People’s Republic of China, Singapore, and Malaysia have all made significant economic progress because of their consistency in developing education The clearest sign of a country’s seriousness in education is usually reflected in the choice of its education minister. He or she must be a highly capable educator and manager with a high level of integrity. He must also be a highly trained professional who knows what to do and who can pull write realistic plans to pull the nation out of backwardness, analysts say. In society today here are opposing views on what is being perceived as pro-liberalism policy tendencies which include the privatizing of the sector of edu-
President Susilo Bambang Yudhoyono with elementary students
ates that are needed by the market in the places those schools are situated,” SBY said. The President has also promised to improve the welfare levels of teachers, university lecturers, and professors, arguing that they play a pivotal role in developing human resource capacity in Indonesia. In 2004 before SBY took office, for instance, the lowest-paid teachers in Indonesia received Rp842,600 a month. Today they receive Rp1,854,000 a month. An academic qualification program is also underway to upgrade the quality of teachers and lecturers at all levels. The purpose is to increase their teaching capacity and in rhythm with it their compensation. The total budget for education has also increased markedly, rising from Rp78.5 trillion in 2005 to Rp154.2 trillion in 2008. And as of 2009 the government had committed to allocating 20 percent of national budget for education. The next minister of education is expected to provide the right answers to such tendencies. Nobel laureate Amartya Kumar Sen said in 1998 that improvement of education leads to improvement in standards of living, especially in developing countries. This theory was proven true in 2005 by economist Jeffry Sachs who concluded that the higher the level of a society’s education, the greater the number of innovative and creative works will be to enhance people’s welfare. By the same token, says Prof. Komaruddin, it is important for the next government of SBY to focus on empowerment of education practitioners, enabling them to produce a higher quality of high school and university graduates who in turn will bolster the economy. So, beyond the issue of state budget allocation there remains
cation even amidst pressures generated by global economic crises. Consequently, the government had to accept the painful reality that budget deficit soared by Rp20 trillion or 1.9 percent of the gross domestic product (GDP). The sharp budget increase is meant to finance rehabilitation of schools as well as provide tens of thousands of classroom facilities in a huge number of new schools. The budget will also go for the financing of educational programs for physically disabled and mentally disturbed children in all the provinces across the archipelago, according to stipulations of Law Number 20/2003 on national education system. The same provisions will be accorded to citizens in remote areas, no matter how poor they may be. For the year 2010, the government intends to increase educational budget by Rp46.1 trillion. So, if that additional amount is added to 20 percent of the to-
“Education must be a strategic road map for development education way into the future, regardless of whoever sits in the chair of Indonesia’s President” Prof. Dr. Ermaya Suradinata
a plethora of problems the next government needs to handle comprehensively.
Courtesy of presidenri.go.id
tal state spending next year of Rp1,122.2 trillion, or as much as Rp178,9 trillion, then next year’s allocation for education should stand at Rp224 trillion. This has been confirmed by Finance Minister Dr. Sri Mulyani Indrawati. Nevertheless, developing a nation’s education is not merely a matter of having sufficient funds. Equally important is the issue of policy consistency and overall human resource development strategy of a nation that is rushing against time to empower its people amidst tough global competition right here at home. Therefore, President Yudhoyono’s policies and leadership in enhancing the quality of education at all levels must be supported by all forces in society. This is because Indonesia can no longer afford to stay way behind other nations in education, science, and technology—which are the driving forces for elevating the nation’s economy, analysts say. Above all, education according to Prof. Dr. Ermaya Suradinata, former Governor of the Defence Institute (Lemhanas) and Rector of the President University, must be a strategic road map for development of education way into the future, regardless of whoever sits in the chair of Indonesia’s president. Such a road map for education cannot be drawn solely by the minister of education. He needs the involvement the economic, social affairs, and other relevant agencies. Given the fact that parliament will now become friendlier to President SBY than the situation he faced over the past five years, there is optimism along Jakarta’s political corridors that the president will pick many more professionals to sit on the Cabinet than he did last time. One of them should be the minister of education!
The President Post
14 Friday, October 16, 2009
www.thepresidentpost.com
Investment The New Realities of Cross-Border Investment These six trends will dramatically change the face of cross-border investment over both the short and the long term By Thomas W. Shreve
S
eptember 2008 saw the collision of two countervailing currents in the world economy: Consumption was growing and emerging economies were developing productive capacity to meet that rising consumption, resulting in an unprecedented boom in commodities. The stronger current, however, turned out to be the overheating of the finance sector and imbalances in the risk allocation for capital under the management of Wall Street institutions. As corporate strategists we realize the importance of perceiving as early as possible the new directions which will emerge from this collision. Our analysis led us to identify six trends which will assert themselves in the post-credit crisis environment: A Crushing Blow to Wall Street Values
Since the start of my career in the early 1980’s, Wall Street has been a symbol of elite power. The foolhardiness of the subprime mortgage investment strategy was perceived intuitively by many, but they were shouted down by the proponents of Modern Portfolio Theory and the Efficient Market Hypothesis. It is now widely expressed that Wall Street breached the trust of its investors. There will be a backlash against both the glamor of Wall Street and its theoretical underpinnings. The influence of major Wall Street and London-based financial institutions will decline. Some financial investors will come to view non-capital markets assets as an essential part of
a diversified portfolio. Capital markets-based exit strategies will become less important compared to maximizing value by developing hard assets. Complex financial engineering will be less popular, and compartmentalization of risk using techniques such as limited recourse project financing will become less stylish. These changes will help emerging markets, as the race for higher yields will lead investors to places where risk actually exists and does not need to be manufactured by financial engineers. The best exposure to hard asset plays will be found in infrastructure and natural resources projects in developing economies. The Beginning of the End of Bretton Woods
The cost imposed by the credit crunch could not have come at a worse time for the US dollar. After 35 years of relative stability, the size of the US national debt ballooned from US$1 trillion in 1981 to US$9 trillion in 2007. Ironically, the crash strengthened the position of the dollar, but it also added to the burden the dollar must carry. The increase in the US national debt was about US$2 trillion in 2008. Meanwhile, the Fed has doubled the size of the base money supply, using a tactic known euphemistically as “quantitative easing.” When credit resumes its flow, and the multiplier effect of changes in the base money supply returns to a substantial proportion of its pre-crisis value, this is a genie that will not go back into the bottle. The dollar will fall as inflation becomes unavoidable. High US dollar interest rates either will precede the decline of the dollar, as the US Government
is forced to bid up the coupon on US dollar-denominated debt, or will follow the decline, as lenders require compensation for inflation. Local currencies will become more popular in investment transactions, because they will be seen as relatively more stable than before, and will also offer lower long-term interest rates. But don’t expect the emergence of a new world currency. At the time of the Bretton Woods treaty which recognized the hegemony of the US dollar, 70% of all the gold reserves in the world were held by the US Government in Fort Knox. Today, China as the largest holder of foreign exchange reserves controls only 20% of the worldwide total. Geopolitically Driven Investor Base
The strength of investors from any given country, as a group, can be inferred from the current account surplus (or deficit) of that country. Simplistically put, a current account surplus means that a country’s economy, as a whole, is making a profit and generating new capital for investment overseas. A current account deficit can only be sustained by attracting net new investment. Attracting new investment to cover current losses is a strategy recently popularized by Bernie Madoff. Before the credit crisis, the commodities boom was bringing large profits to emerging market economies, especially in East Asia and the Middle East. The trend began in 1998 and 1999, when 20 countries around the world turned their long-term current account trends from deficit to surplus. From the beginning of 1998 until the end of 2008, the
The Wealth-Generating Regions of the World
countries of East Asia and the Middle East generated almost US$6 trillion of surpluses, which by definition must be invested overseas. Investors from these countries, with China, Japan and Saudi Arabia topping the list, will define the nature of cross-border investment for many years to come. They will be more geopolitically driven than investors of the recent past: They will set out to control the resources their countries lack, and to build influence in worldwide markets in which their countries lack influence. The market crash of 2008 did not wipe out these investors. China Investment Corp., for example, lost 2% of its US$300 billion
Source: IMF, World Economic Outlook Database, April 2009
portfolio value in 2008. What the crash did, was make them less interested – on the margin, at least – in capital markets, complex structured financial products, Wall Street fund managers, and US Government debt. Even a small adjustment in this US$6 trillion portfolio could flood emerging markets with capital. Social and Environmental Focus
Projects which neglect sustainability issues will have difficulty attracting capital, and if they do their proponents and fund managers may be liable for the consequences. Whether the profit motive and the dilemma of the commons will overwhelm higher inclinations remains to be seen,
but initial signs are promising. Syariah-Compliant Financing Techniques
Most investors from Moslem countries are extremely pragmatic, and will not insist upon a strict interpretation of the prohibitions on interest and certain derivative instruments. Nonetheless, their increasing role will drive an increasing supply of Islamic financial instruments. Shortages of Expertise and Skilled Workers
Increasing investment in infrastructure and natural resources worldwide will quickly exhaust the available supply of expertise and skilled workers. Education infrastructure will take years to
respond to increasing demand, and we will be facing serious issues for at least the next 20 years. These six trends will dramatically change the face of crossborder investment over both the short and the long term. Investment strategies, portfolio management techniques and the evaluation of investment opportunities will all be changed dramatically and in ways we are only beginning to understand. Thomas W. Shreve is President Director of PT Glendale Partners, a Jakarta-based consulting and project development firm. The firm’s website, www.glendalepartners.com, contains additional information about the subject of this article.
The President Post
www.thepresidentpost.com
Friday, October 16, 2009 15
Mining The Next Golden Years of Mining:
Hanging in the Balance By any standard, Indonesia’s mining industry is a world leader By Indonesian Mining Association
I
ndonesia is the world’s largest exporter of thermal coal, and ranks second in the world in tin production, fourth in copper, fifth in nickel, and seventh in gold. The country hosts world class mines that are backed by a well trained labour force and a long established academic community that produces highly qualified geologists, engineers, and management. Indonesia’s mining industry makes a significant contribution to the country’s economic and social fabric. Although the industry accounts for only about 5% of GDP, nevertheless the industry contributed $4.8 billion in taxes to government coffers in 2007, directly employed 38,500 people – mostly in high paying jobs – and generated 20% of the country’s export revenues. Even before applying a conservative “economic multiplier” of 3:1 to its role in the economy, the importance of mining is clearly evident. Mining players maintain that the industry can do even better than this. The benefits that Indonesians enjoy today from the mining sector arise mostly from mines that were brought into production during Indonesia’s “golden years” of mining – 1967 to 1997. The mining industry prospered in this period thanks mainly to the Contract of Work regulatory system, and to government policies that created a level playing field for foreign investment. Unfortunately, from 1997 to 2008, there has been minimal investment in the mining sector from new investors, principally because the regional autonomy laws rendered the former mining law obsolete, and the new mining law was not finalized until February 2009. Even today, uncertainties about the new mining law and its implementing regulations are holding back significant new investment. In its February 2009 survey of the global mining industry, the independent Fraser Institute ranked Indonesia 5th out of all countries in terms of mineral development potential. Now, the challenge for Indonesia is to unlock this potential for the continuing benefit of all Indonesians. 2010 to 2040 could be the next “golden years” of Indonesia’s mining industry – but only if government policy makers succeed in creating an internationally competitive regulatory framework. Unlocking Mineral Potentials
The Indonesian-owned mining companies have already shown an interest in investing in overseas projects, and overseas investors have almost 200 countries from which to choose. Indonesia needs to attract these investors if the next “golden years” are to become a reality. capital investment required to realize the industry’s potential will be enormous. Mining is a capital intensive industry. PT Weda Bay’s nickel project on the island of Halmahera, for example, is estimated to require an investment exceeding $4 billion. If another “Grasberg” was found,
Coal pile and chute
comparable to Freeport’s famous mine, the capital cost could easily be in the realm of $8 billion. Neither Indonesian nor foreign investors will fork over this kind of capital in the absence of a competitive regulatory environment. “Capital” is not known for its courage – capital will gravitate to projects that offer a reward that is commensurate with risk. Challenges to Unlocking Potentials
Realizing Indonesia’s mineral potentials faces a number of significant challenges, including: • Opposition to mining; • Rising nationalism; • Global economic downturn; • New tax regulations; and • New mining law. Opposition to mining This comes from several sources. For example, some economists subscribe to the economic theory commonly called “Dutch disease”, or “resource curse”. In simple terms, this concept theorizes that booming mineral production in a developing country harms other industries, because mineral exports strengthen the country’s currency to the point that the strong currency disadvantages other exports such as manufactured goods. The label “Dutch disease” was coined when Holland experienced a decline in its manufacturing sector during a period of rapidly rising oil and gas production. Most experts agree that this is an unproven concept. In any event, it would be unlikely to apply to a country like Indonesia where the economy is highly diversified and mining is only about 5% of GDP. Some environmentalists also represent a source of opposition to mining. It is true that mining is disruptive of the environment, but this disruption is both manageable and temporary. The mining industry’s know-how and sense of environmental responsibility is constantly improving. Under state-of-the-art environmental management, there is rarely a valid “environmental” reason why a project should not proceed. The solution is not to shut down mining, but rather to adopt, enforce, and socialize reasonable environmental laws. Rising nationalism A positive attitude towards foreign investment was one of the fundamental underpinnings of Indonesia’s first “golden years” of mining (1967 – 1997). The majority of Indonesia’s world class mines were financed by foreign investors. If Indonesians are to enjoy the benefits of another era of “golden years”, foreign investment will be needed to supplement Indonesian investment simply due to the enormous amounts of capital required. Some misguided nationalists decry foreign investment in mining, claiming that the foreign investor reaps most of the benefits from a mining project. Careful analysis shows, though, that this is simply not the case. Figure 1 depicts how the total amount of cash generated by a typical min-
Courtesy of edupic.net
ing project is shared over the life of the project by the project stakeholders. Most of the project cash flow is paid to suppliers such as domestic cement, steel, and fuel companies, and machinery and equipment suppliers. Next are government, employees, and finally the investors. PricewaterhouseCoopers’ independent 2008 survey of Indonesia’s mining industry confirms that the government’s share of pre-tax cash flow exceeds the investor’s profit. The investor’s share is simply what he needs to earn as a reward on his investment in a high risk project. There is no valid reason to object to foreign investment in the mining industry – the regulatory regime should create a level playing field for all investors – both domestic and foreign.
Albert Einstein is quoted as saying “Nationalism is the measles of all mankind.” There are numerous case studies that prove nationalistic policies can be harmful to an industry and to the host country. Canada is a case in point, where slowly rising nationalism during the 1970’s culminated in a series of laws that discriminated against foreign investment in the country’s natural resource sectors including mining. As a consequence of these laws, in the early 1980’s investment in Canada’s mining sector plummeted, exploration dried up, and new projects were cancelled. The industry suffered and Canadians suffered. The government soon realized its mistakes, and repealed the offending laws. It is hoped that Indonesia will not catch Einstein’s measles. Global economic downturn Mining is not only a capital intensive industry, but it is also a high risk industry. One consequence of the global economic downturn is that capital has become very nervous and is looking at only the safest investments – at least for the time being. For the rest of this year, and probably into 2010, it will be more challenging than ever before to raise risk capital for new mining projects. In this financial environment, it is essential that a country’s regula-
tory regime be supportive of investment – having an internationally competitive regime will serve to reduce investment risk and make it easier to raise badly needed capital. New tax regulations Income tax legislation in most countries recognizes the unique features of the mining industry with tax provisions that apply specifically to this industry. Indonesia’s new income tax law, Income Tax Law No. 36/2008, does not specifically or adequately address the mining industry’s needs with respect to the depreciation and amortization of capital costs, carry-forward of tax losses, reclamation and restoration funding, mineral property transfers, joint ventures, private royalties, and other mining-specific tax matters. Previously, the Contract of Work dealt satisfactorily with most of these tax issues. It is understood that the Directorate General of Taxation is currently drafting a new tax regulation for the mining industry. Unfortunately, the mining industry itself has not yet been yet been invited to provide input to the draft. Perhaps more surprisingly, the Directorate General of Mineral, Coal and Geothermal has not yet been invited to participate in the drafting process. Hopefully, this will change.
figure 1: shares of revenues generated by mining project 18%
Government
15%
Investors
17%
Employees
50%
Suppliers
The data in this figure is based on a hypothetical gold mine that is characteristic of a typical real-life mine.
New mining law Mineral and Coal Mining Law No. 4/2009 is the new cornerstone of the regulatory regime for Indonesia’s mining industry. It is imperative that this law be internationally competitive if Indonesia is to experience another era of “golden years” in mining. Unfortunately, the law is a compromise product of a fractious and diverse coalition government. Notwithstanding the best efforts of the Ministry of Energy and Mineral Resources, the Law contains some significant shortcomings in terms of international best practices. For example, contrary to international best practices, the Law: • Provides for permitting based on a tender process instead of on a “first-come-first-served” basis;
• Is not as strong as it could be in the area of security of title; • Requires foreign investors to commence a divestment process starting in the sixth year of production; • Proposes to mandate enhanced domestic processing; • Fails to provide fiscal stability; • Fails to set out royalty rates; and • Imposes production, export, and price controls. While the Law itself, at least on the face of it, falls short of international best practices, nevertheless it can be repaired. The key here is the implementing regulations – these regulations must play a key role in moving the Law closer to international best practices. Otherwise, the next thirty “golden years” will remain only a dream.
Mining
16
The President Post
www.thepresidentpost.com
Display until October 29, 2009 // No. 01
MINERAL PRODUCTION BY COMMODITY 2004-2009 No.
Unit
2004
2005
2006
2007
2008
2009
1
Copper conct.
Commodity
dmt
2,810,333
3,553,808
2,938,009
2,814,952
2,397,899
1,776,647
2
Copper
ton
840,318
1,063,849
817,796
796,899
655,046
520,930
3
Gold
kg
92,936
143,205
85,411
117,854
64,390
58,043
4
Silver
kg
262,935
32 8,749
261,398
268,967
226,051
159,021
5
Tin conct.
ton
73,079
78,404
80,933
66,137
53,228
15,629
6
Tin metal
ton
60,697
67,600
65,357
64,127
53,471
22,283 265,971
7
Bauxite
mt
1,330,827
1,081,739
1,501,937
1,251,147
1,152,322
8
Conv matte
ton
92,056
97,781
92,123
98,914
92,776
41,328
9
Ni+Co in matte
ton
73,283
77,471
72,782
77,928
73,356
32,897
10
Nickel ore
wmt
4,095,478
2,545,580
4,353,832
7,112,870
6,571,764
1,058,350
11
Ferro nickel
mt
39,538
20,036
-
-
-
-
12
Ni In Fe Ni
ton
7,945
3,985
14,474
18,532
17,566
3,296
13
Iron sand
wmt
89,664
32,203
5,489
-
-
-
14
Granite
ton
3,637,441
4,302,849
5,217,807
1,793,440
-
-
15
Diamond
crt
-
21,606
46,856
22,980
27,688
-
Source: Ministry of Energy and Mineral resources
Freeport’s copper mine in Papua
Courtesy of photography.nationalgeographic.com
Indonesia’s Resource Potentials: Mining In the global economy, Indonesia is rated among the top emerging countries with great potentials. By Atmono Suryo
I
n the global economy, Indonesia is rated among the top emerging countries with great potentials. It is known to be rich in natural resources: to include agriculture, forestry, fishery, oil, gas, mining, maritime and other resources. One of the promising resources is the mineral potentials which can give economic and social benefits to the country as follows: • It provides government revenues (royalties, corporate tax, dividend) to the amount of around $ 4.8 billion • Earning large foreign exchange income through exports; representing about 20% of exports • Importance of community development to accelerate the development in the regions • R&D technology transfer • Serving as economic multiplier • To assist in the creation of jobs Except in certain areas such as coal mining, for investors mining in general is a high risk, capital intensive business venture. With very long gestation periods before reaching results. INDONESIA : MINERAL ENDOWMENT
According to the Fraser Institute’s 2008/2009 Survey, Indonesia is the 5th highest rated country in terms of mineral potential. • Indonesia lies on the three convergence of collided lithosphere plates that created a new complex geological structure and various types of mineral deposits. • Highly mineralized volcanic archipelago stretching over 7,000 km. • World class porphyry coppergold deposits. • Large number of epithermal and porphyry related gold deposits. • Large nickel-cobalt laterite deposits. • Extensive coal deposits in Eastern Kalimantan and Southeast Sumatra. • A number of major discoveries have made Indonesia a highly prospective region.
The President Post OFFICE Menara Batavia 25th Fl. Jl. K.H. Mas Mansyur Kav. 126 Jakarta 10220, Indonesia Phone : (021) 572 7337 Fax : (021) 572 7338 Email : ceo@thepresidentpost.com Web : www.thepresidentpost.com
• The country is still largely under-explored and will undoubtedly produce significant mineral deposits over the upcoming years. • Provided some impeding law and regulations can be amended. Indonesia is the world’s biggest exporter of thermal coal, the 2nd largest tin producer, ranks 4th in copper, 5th in nickel and 7th in gold production. In terms of GDP, however, mining is presently only about 4 to 7% of GDP. For various reasons including regulatory weaknesses, the many uncertainties and with the many impediments for the last 10 years mining has remained to be a highly underdeveloped resources area. A few years ago during a period of about two years the world went through a cycle of commodity and mining boom and busts. The mining boom lasted for about 4 years (2004-2007). Commodities, especially minerals such as Iron, copper, nickel and coal as energy had been on the increase pulled by demand from China, India and Russia. Because of some constrains Indonesia was not able to take advantage of the short-lived mining boom. Mining went down and came to a bust in an instant since early 2007. With the plunging demand, mineral prices went down dramatically. The short-lived mining boom was followed by the hard-hitting mining bust which has brought its adverse impacts. This has also affected Indonesia mining. The financial crisis came shortly thereafter in 2008 hitting harder and with greater speed than anticipated before by most mining companies. Many had to slow down or postpone the implementation of their projects. It brought up the liquidity crisis (the severe credit crunch), consequently external financing dried up overnight for most companies. The mining industry was caught by the double squeeze: higher production costs and lower prices; this double squeeze had its “killing effects” especially for the smaller or new companies. Infrastructure uncertainty became a bigger issue, especially with mines located in remote areas. At a meeting organized by the Financial Club and ICWA, a mining expert Bob Parson rightly made the following timeframe of Indonesia’s mineral potential: • 1967-1997 : Indonesia’s golden years of mining • 1997-2009 : Minimal new investment, because of the poor investment climate • 2010-2040 : Next golden years Such time-frame may come true for a number of mineral products.
certainties remain. While, on the other hand, the mining industry, particularly in Indonesia is facing anti-mining sentiments. It is also being “overloaded with new demands” to comply with increasing requirements in the areas of sustainable development, environmental issues, carbon emissions, safety
THE CHALLENGES
Mining is still being considered as a risky and long-term business. Furthermore, in the world stock markets, mining stocks have undergone a rough beating and un-
PUBLISHED BY Yayasan President University CEO & EDITOR IN CHIEF Ali Basyah Suryo CONTRIBUTORS Atmono Suryo Cyrillus Harinowo Hadiwerdoyo Maya A. Siregar
Naresh Makhijani Taufik Darusman Thomas W. Shreve Wuryastuti Sunario
EDITORIAL & ADVERTISING/ CIRCULATION DEPARTMENTS Cory Margaretha LAYOUT & DESIGN Mohamad Akmal
regulations and the increase of the industries’ community development projects. The current biggest problem concerns the New Mining Law and the implementing regulations. According to some mining experts, the Mining Law fails to embrace some important international best practices. The identified shortcomings concerns among others: • The licensing system based on a bidding system • A yet- to-be-determined divestment process • Mandatory downstream processing • The possibility of production and export controls • Uncertain royalty obligations • Dispute resolution mechanisms It seems to be unrealistic to expect the Law to be amended soon. There will be the need to issue soonest the required im-
plementing regulations to make the Law acceptable to the many stakeholders. And to make true the possible golden years starting from the year 2010. To achieve that goal, of immediate importance is that the new Mining Law and the implementing regulations would be able to accommodate the legitimate interests of the central and local governments but also the business interests of the mining industry. The new Mining Law and the implementing regulations will offer more legal certainty. But it is still unclear whether it will be able to attract the credible investors to unlock the country’s potentials. During the recent mining boom there was a large inflow of irresponsible companies ruining large parts of the country. In any case of prime importance is the fact that Indonesia’s economic growth would re-
quire the increased contribution of the country’s natural resources, including mining. Mining should also become the engine of growth for many parts of Indonesia which are rich in mineral resources. Stretching from Sumatra, Kalimantan, Sulawesi to Papua.
Indonesia is the world’s biggest exporter of thermal coal, the 2nd largest tin producer, ranks 4th in copper, 5th in nickel and 7th in gold production. In terms of GDP, however, mining is presently only about 4 to 7% of GDP.