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The United Indonesia Cabinet II (2009-2014)

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Strong Leadership, Strong Government

resident Susilo Bambang Yudhoyono’s methodical mind and keen thought process went to work as he prepared to form his new cabinet. As a first step he urged political parties to sign a coalition agreement to support him during his second term, after which he began choosing cabinet members by way of a tight selection process. The SBY fit and proper test, as the system has since become known as, paid off well—he now has some of the country’s best and brightest people occupying in the cabinet. No sooner had he announced the lineup than critics, as a routine rite of passage, began to comment on his choices. SBY’s leadership prevailed, however, and by all measures he now has a credible cabinet at his disposal to finish off what he had started to do five years ago: improving the people’s prosperity and upholding justice. Early this month, SBY announced the lineup of the United Indonesia Cabinet II, consisting of 34 ministers and three minister-level officials. The new cabinet is one with the largest number of political party members in recent presidencies. With such a cabinet lineup, SBY is set to lead in a stable and secure political setting. As SBY won over 60 percent of the popular vote in the presidential election, and the coalition agreement signed, sealed and delivered, he can expect few problems from the House of Representatives (DPR). As SBY’s main focus is the economy, it may be constructive to have an overview of some key members of his new cabinet. Observers gave a measured response to Hatta Rajasa’s appointment as coordinating minister for the economy, with many doubt-

ing how effectively he, with little background in economics, could deal with complex development issues. Hatta presides over a powerful ministry, as it was set up to coordinate planning, policy formulation and coordination among economics ministries. It coordinates 14 ministries and agencies involved. Hatta, a Bandung Institute of Technology (ITB) graduate with a degree in petroleum engineering, was first appointed to ministerial office by SBY as transportation minister in the 2004-2007 cabinet. His cabinet experience and his close relationship with the president, however, would help him perform well. The appointment of MS Hidayat as industry minister was hailed by the Indonesian Businessmen Association (Apindo), which is confident that his antifree trade stances would sit well with the Trade Ministry. Hidayat has been outspoken in airing his concerns about the threat free-trade poses to domestic industry, but Apindo expects him to foster close ties with Trade Minister Mari Elka Pangestu, who has been reappointed to a second term. Business people sees Mari as eager to help reduce costs caused by so many overlapping trade regulatory bodies responsible for labeling and supervising product quality, according to analysts. As expected, SBY has reappointed Sri Mulyani as finance minister, a move that earned praise from the business world as a whole. The US-trained econo-

mist is expected to continue with reforming the financial sector. To manage the country’s energy and mineral resources, SBY has chosen Darwin Saleh, the 49year-old University of Indonesia economics lecturer, to replace Purnomo Yusgiantoro. Darwin holds a PhD in financial management and an economics degree from the University of Indonesia. He said his focus would be on the development of renewable energy and establish fuel stocks to last for a minimum of 23 days. Analysts however reminded him that the potential threat of rising oil prices and the electricity crisis are more important issues, as well as the need to review regulations in the energy and mineral resources sector to attract investment. To supervise state-owned enterprises (SOEs), SBY has chosen Mustafa Abubakar (60), who has a PhD from the Bogor Agriculture Institute (IPB). While he lacks experience in the corporate world and others fear the restructuring of SOEs would be delayed until he masters the trade, others insist that his tenure at the state logistics body (Bulog) could help him with the challenges he faces in his new post. Agriculture Minister Suswono (50), who has a master’s degree in agricultural management, has set the main goals of increasing the amount of land available to farmers. He is also ready to change the current price-subsidy mechanism for fertilizer and seeds as it is said

to benefit farmers very little due to fraudulent practices. SBY has identified 10 agricultural issues he wants Suswono to concentrate on. They include food security and rice self-sufficiency, boosting farm and plantation productivity, increasing farmers’ buying power by raising their incomes, and lifting cattle production to achieve red meat self-sufficiency by 2014. One of Golkar’s ministers in the cabinet is Maritime Affairs & Fisheries Minister Fadel Muhammad. His main tasks are applying new laws in the fisheries sector, which provide for the zoning of maritime and coastal areas for fishing and aquaculture. He also has the ministry’s fight against illegal fishing by both local and foreign vessels in mind, not to mention illegal and ecologically damaging forms of fishing such as dynamite or blast fishing. A prominent businessman, Fadel won kudos from many quarters for his role as governor in developing Gorontalo’s agriculture sector. Fadel has said that the President has called on him to improve the welfare of fishing and coastal communities, and to explore the full potential of the oceans and the fisheries sector.” One of the key players in the economic realm is Development Planning State Minister for National Development Planning Armida Alisjahbana. Armida will also be the ex officio head of the National Development Planning Board (Bappenas), which conducts research on

VIEWPOINT

THE ECONOMY

MINING

COMMUNICATIONS

The Status of Our Democracy

Economic and Policy Watch Targeting 8% GDP growth would excite investors, uncover impediments to achieving the growth target and unleash political pressure to remove them.

Repositioning the Indonesian Mining Industry

Tifatul Sembiring’s Big Task

The electoral victory of SBY-Boediono was absolute. It is important because it reaffirms the status of our democracy.

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The enactment of Law Number 4 of 2009 on Mineral and Coal Mining (“Mining Law”) has created legal uncertainties to the mining industry.

At the moment, Indonesia is one of the only countries in the world that does not have a sound internet site to introduce business to its potential in trade, investment, and tourism.

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the country’s economic and development potentials and prepares comprehensive national development plans. Many expect Armida (49) to do a better job than her predecessor as she was a researcher, conducting studies and making sure that vital projects receive funds. One of the five women in the new cabinet, Armida holds a PhD in economics from the University of Washington, US, and once served as a consultant at the World Bank and the Australian

development agency, AusAid. “Bappenas will engage in more focused planning for central and local development. This will, in turn, help reduce poverty and unemployment,” she said. By and large, domestic and international business community has reacted positively to the appointment of Gita Wirjawan, the former country chief of USbased JP Morgan Chase, as the new head of the Investment Coordinating Board (BKPM), who they say will breathe new life into

the body. The appointment of the former international banker-turnedinvestor has given the business community reason to hope that impediments to investment will be removed. It is still some time before their performance in the first 100 days can be assessed. For now, it is suffice to say that their professional experiences and credentials reassure us that the cabinet has the right kind of people to be at SBY’s side.

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October 30, 2009

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Viewpoint cabal centered on the people’s assembly was not accompanied by physical violence. Subsequently, the success of Indonesia’s general elections has answered most doubts whether Indonesia with its messy state of affairs could mature into a democratic state. The violence of East Timor, Malibo, Poso and Aceh now seem to be in the distant past. Malaysia, the Philippines and Thailand, which used to be models of Asian democracy, are now watching whether Indonesian democracy will enjoy a sustainable life as a political role model.

SBY is being sworn-in for the second time as president

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The Status of Our Democracy Democracy is like a water pump: a new shiny one is welcomed into a household, but when it is put into operation the results may be disappointing. by Wimar Witoelar

othing comes out but mud, slime and some water. But when you have invested most of what you have in the new machine, carrying the same specifications of similar models that have proven to be a success elsewhere in the world, you just keep pumping. As long as it keeps running, eventually you’ll get cleaner water—hope re-

turns that someday you will have clean water as long as we maintain the water pump regularly. This has been the story of Indonesian democracy, first installed at the turn of the century. In 1998 the Suharto regime fell because it had lost legitimacy. Even the material success that brought praise in the seventies and eighties could not conceal the fact that there was no pop-

ular support for the regime but webs of convenience and patronage held together by a development model built at the expense of human rights and awash with greed. Both required massive financing achieved by natural resource exploitation without regard to equitable distribution or sustainability. When the financial pillars fell because of ill-conceived

over-investment, the regime collapsed under its own weight; only the passion of students and a civil society were needed to deliver the fatal blow. That was a decade ago. Since then, we have had a succession of four presidents, with peaceful transitions of power between each leader. Even the controversial takeover of President Abdurrahman Wahid’s presidency by a

The latest test of Indonesian democracy has just been completed, a succession of legislative and presidential elections and final wrap-up in the form of a new cabinet. It was not the ideal election, demonstrating once again the validity of the water pump model – free and open elections, transparent process but the electoral mechanism with all its flaws was far better than the candidates offered. One presidential candidate was the daughter of Sukarno, a failed nationalist, while two vice-presidential candidates are still trying to clear their names from strong suspicion of human rights abuse. There was no basis for choice and President Susilo Bambang Yudhoyono won by a largely default vote for continuity Yet, the general acceptance of the election results provided sufficient legitimacy for the new five-year government of the world’s fourth most populous nation and the third largest democracy. More than 100 million voters scattered across 900 islands went to voting booths. Susilo Bambang Yudhoyono was reconfirmed for a second term by just over 60% of the voting populace, leaving behind rivals Megawati Sukarnoputri and Jusuf Kalla, who won around 27% and 13% of the votes. SBY was expected to win as the Indonesian people had experienced relative peace and economic stability. But the outcome is seen as a vote of confidence for SBY to have a sec-

ond chance at bringing significant progress to the nation, this time with a hand-picked team by making full use of presidential prerogative. Indonesians still face tremendous challenges. Poverty is still high at 15%. Corruption still chafes at efforts to increase foreign investment and demoralizes daily life of everyone from all walks of life. Transparency International rates Indonesia 126th out of 180 nations, worst in Southeast Asia. President Yudhoyono made corruption fighting a priority in his first term. He presided over the Corruption Eradication Commission which has yielded real results, even convicting a central bank director whose daughter is married to the

“The electoral victory of SBY-Boediono was absolute. It is important because it reaffirms the status of our democracy”. Wimar Witoelar

President’s son. The omnipresent Islamic politicians are becoming part of the strength of Indonesian democracy, decreasing the possibility of falling under the influence of the small but dedicated band of local

Islamic extremists. The radical notions of taking over the government, implementing Sharia Law, and breaking off ties with the West are becoming statements of values rather than a political strategy. More and more there is confirmation that the vast majority of Indonesians are not attracted to extremism and see religion as a deeply personal matter. The electoral victory of SBYBoediono was absolute. It is important because it reaffirms the status of our democracy. With a personally hand-picked vice president, he is not beholden to politicians and tycoons who will divide the cabinet into spheres of influence. He respects the political parties and the coalitions he managed to forge, but the number of party leaders in his cabinet do not reflect a division of power. If he succeeds in accommodating political pressure by absorbing the party leaders into his fold, Indonesia may transgress political bickering and the President will be ready to assume a new role in the world for the nation. SBY has the international vision to remake Indonesia into a big player in Asia and a voice in the world. Carrying the theme forward, non-political people concerned for the nation hope to see SBY use his second term to refresh Indonesia’s international role. Indonesian democracy may this time produce a government that is both firm and responsive. President Yudhoyono is a man who appreciates process. He will not try to run the country by power. He just needs to push forward a bit more firmly, consistently and convincingly. Indonesian citizens will be inspired to reenergize the reform movement, allowing the President to find a place in the sun for Indonesia as a global power and for himself as the statesman who presents a new Indonesia to the world. This could yield the first results of our democracy, the clean water we have worked for so long to flow from the water pump.

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October 30, 2009

Viewpoint

he new cabinet named by newly reelected President Susilo Bambang Yudhoyono (SBY) was announced a week ago and many experts and analysts have since spent a huge amount of time criticizing it. Their main criticisms revolve on the small female representation (five women, only one more compared to the previous cabinet, out of thirty four ministers) and the fact that priority was given to politicians over professionals: twenty of the new 34-member Cabinet actually come from political parties. SBY has given five seats to his Democratic Party, four to the Islamist Justice and Prosperous Party (PKS), three each to Golkar and the National Mandate Party (PAN) and two each to the National Awakening Party (PKB) and the United Development Party (PPP). The biggest mystery in many people and analysts’ minds is that, in spite of winning the presidential election by a landslide and his Democratic Party being the largest faction in parliament, he still feels the need to parcel out many seats to political parties that make up his grand coalition government. With so much political capital in his hands, much more than he had five years ago, people assume he would be bargaining from a much stronger position, and as such would not have to dole out that many seats to minority partners in the coalition. These thoughts became even more pronounced after Golkar’s last- minute entry, having earlier challenged SBY in the presidential election, not to mention that his choice of Boediono, a much respected economist with no political background, as his vice president had sent a signal that professionals might lead the new government. Thus the new ministers’ competency has been questioned and observers have raised doubts over the quality of new Cabinet ministers picked by SBY. Umar Juoro, chairman of CIDES (Center for Information and Development Studies) and a senior fellow at the Habibie Center, explains this feeling. He said: “Important economic posts, such as energy, min-

THE UNITED INDONESIA CABINET (2009-2014):

A Foreigner’s Perspective The new cabinet named by newly reelected President Susilo Bambang Yudhoyono (SBY) was announced a week ago and many experts and analysts have since spent a huge amount of time criticizing it. By Jean-Baptiste Chauvin

President SBY was leading the first cabinet meeting of his second term last week

ing and agriculture, have been filled with new faces that do not have significant track records or a clear orientation of their policies. Darwin Saleh, for the important position of energy minister, was proposed by the ruling Democratic Party, while Suswono, a former commission chairman, was put forward by the Prosperous Justice Party (PKS). With such huge challenges in the energy and mining sectors, there is not much hope for the new faces to handle the job well, similarly in agriculture. State Minister for State Enterprises Mustofa Abubakar, currently chairman of the State Logistic Agency (Bulog), is unlikely to contribute significantly to the reform of stateowned enterprises (SOEs), as he does not have an adequate background. He is likely to face a lot of pressure from politicians to allocate the financial gains of SOEs

to them. Similarly, we cannot expect much from the public works minister, incumbent Joko Kirmanto, or Transportation Minister Freddy Numberi, to do much better than what was achieved in SBY’s first term. There is hope for better results from the Maritime Affairs and Fisheries Minister Fadel Muhammad and Public Housing Minister Suharso Monoarfa, from Golkar and United Development Party (PPP) respectively, who have had a lot of exposure to the private sector and politics. However, their portfolios are too small to influence overall results.” These analyses are common among observers of Indonesian political life. A normal game anywhere in the world is to try to evaluate the capabilities of a newly- formed Cabinet. However, it is unlikely that all these

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criticisms about the new team would have received so many echoes five years ago with exactly the same choices. But Indonesians, who last July reelected SBY with 60% of the votes, want him to leave a legacy and to accelerate the development of the country. The improvement of the national economy is the main task expected by the people. On that point, it seems that the new economic team is better than the one SBY set up at the outset of his first term in October 2004, which was beset with conflicts of interest. The new economic team is virtually free of potential conflicts of interest. Most reassuring is that the important financial portfolio is still held by Sri Mulyani, a highly-respected and experienced economist, who should be credited with excellent fiscal management over the past four years.

Meanwhile, Mari Elka Pangestu, another internationally wellknown economist, remains in her position as the Minister of Trade, making market players relatively confident of SBY’s choice for the economic team. Confidence is also high on the likes of Industry Minister Mohammad Hidayat and Investment Coordinating Board (BKPM) head Gita Wirjawan. Hidayat, a successful businessman and Chamber of Commerce and Industry chairman, is seen as the appropriate man urgently needed to jump-start the manufacturing industries. It is the appointment of Hatta Radjasa that has raised questions. While Hatta is known to be SBY’s right-hand man, many have expressed doubts about his qualifications as the coordinator or head of the economic team; they are apprehensive that his background as a petroleum engi-

neer might not adequately equip him to comprehend how the various individual policies interact, and to steer the economy towards a particular direction. On the other hand, it is precisely because Hatta is one of SBY’s most trusted aides (since 2004) that he fits well as a coordinator with the ability to mould the economics ministers into a solid, working team. As an experienced politician and a leader of the National Mandate Party (PAN) he will also be able to serve as a government lobbyist or negotiator with the parliament. Standard Chartered Bank economist Fauzi Ichsan acknowledges this, saying: “We expect Hatta, as the coordinating minister for the economy, will be able to give political protection to ministers and lobby the House of Representatives on government economic policies”.

As an able power broker, this skill could be valuable in dealing with the parliament. This strong, skillful and experienced economic team will focus on five points, namely infrastructure, food security, energy, the manufacturing sector and small and medium enterprise revitalization, and the services sector. But in the past, never mind the identities of the ministers or the quality of their policies, the main obstacles have always been the lack of implementation of policies on the ground, coupled with the usual slow disbursement of the budget, which causes delays and undermines the efficiency of policies. SBY has acknowledged this, and as such has created a new management center that hopefully can quickly fix problems. The new task force, officially called the Presidential Unit for the Supervision and Control of Development (UKP3), is well suited for that job, and Kuntoro Mangkusubroto, a well-experienced technocrat, bureaucrat and field manager, is the right man to lead itt. Being a troubleshooter or a fixer, the unit will work only on specific issues related to the implementation of a particular policy or project. The President seems to be fully aware that one of his biggest problems lies in the day-to-day management of policy implementation. What has been missing is an effective system of fast decision-making to fix implementation problems. Hopefully, Kuntoro and his unit will play a crucial role in removing land-acquisition bottlenecks that have hindered the construction of several highway projects or power transmission lines, and overcome the inefficient logistics that hamper Indonesian exports. Despite all the criticisms on the United Indonesia Cabinet II, the team seems able to continue the work that started five years ago, and to make some much-needed evolutions happen faster. Anyway, as a starting lineup, the new government deserves the benefit of the doubt. The end of the first 100 days will provide all with a glimpse of what this Cabinet is capable to achieve.

The President Post

October 30, 2009

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Opinion RI-US Relations: Past Challenges, Future Opportunities Frequent changing opportunities and challenges have characterized US-RI ties in the past six decades.

F By Dr. Arifin M. Siregar Co - Chair of US - Indonesia Society (USINDO)

requent changing opportunities and challenges have characterized US-RI ties in the past six decades. We still recall vividly the time when the US, in coordination with several nations and the UN, put pressure on the Dutch in the late 40s to recognize and make peace with Indonesia through the Round Table Conference in Holland. Following this friendly and historic action of the US, there was a long period of good and close relations between the two countries. Bilateral trade ties started to develop significantly and cultural cooperation expanded substantially. Increasingly, Indonesians preferred to study in the US rather than in Europe. As a result of the escalating cold war between the US-led Western world and the Communist bloc, there emerged new groupings of countries such as the non-aligned movement (NAM), to which Indonesia belongs. Gradually, then President Soekarno leaned more towards closer ties with Communist-bloc countries, especially China. He was of the view that the US and the Western bloc were following a policy detrimental to the interests of Indonesia and the developing world. As a consequence, Indonesia withdrew from the UN and its specialized agencies, condemned the so-called Nekolim (neo-colonial countries) and their allies, confronted some neighboring countries, and President Soekarno often cited the radical statement “go to hell with your aid”. The September 1965 failed coup d’etat by the communists culminated in the fall of President Soekarno. These important events were strong reminders of the state of affairs between Indonesia and the Western bloc during the turbulent period of the 60s. The US-Indonesia relation-

ened and expanded. To this end, President Susilo Bambang Yudhoyono, in a speech at the USIndonesia Society (USINDO) in Washington D. C. last November, proposed an IndonesiaUS comprehensive partnership for the 21st century. Shortly after the inauguration of President Obama, US Secretary of State Hillary Clinton committed the US to work on such a partnership with a concrete agenda.

President SBY and President Obama at the G20 Summit 2009, Pittsburgh, United States

ship deteriorated to such an extent that it was close to a breaking point. In the aftermath of the failed coup d’etat attempt, the relationship between the US and Indonesia improved. In fact, an entirely new era of cooperation between the two countries emerged from that period. Those years could be considered as one of the most intensive and close cooperation periods not only between the two governments but also between the American and Indonesian peoples. Investment and trade relations between the two nations were booming and the exchange of students, scholars and even military officers intensified. However, the tragic Santa Cruz incident in former East Timor in 1991 brought about an abrupt

change for the worse in the relationship between our country and the US. Indonesia was perceived by various circles in America as a country that was grossly violating the human rights of the people of East Timor. In particular, the US Congress, NGOs and the media took a highly negative attitude towards the Indonesian government which obviously led to a number of adverse consequences for Indonesia’s image and interests in the US as well as globally. During that period the Indonesian government made special and coordinated efforts to counter the negative campaign directed at our country. The Indonesian Embassy in Washington, D.C. in cooperation with some organizations and friends of Indonesia, especially Ambassador

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Edward Masters, worked out and implemented a number of programs designed to make the opinion and policy makers in the US better understand Indonesia and appreciate the serious efforts made by our government to correct past errors and to remain a responsible and honorable member of the world community. It was also during that period that Ambassador Masters came up with the idea of establishing the US-Indonesia Society (USINDO) to improve, intensify, expand and preserve good relationship between the US and Indonesia so as to lead to mutually beneficial cooperation. Through its well-planned and well-coordinated programs in the past fifteen years USINDO was able to make a valuable con-

tribution in fostering the present comparatively satisfactory and growing bilateral relationships in various areas between our two countries. It should be pointed out that the “reformasi movement” of 1998 and the referendum in the former East Timor resulting in the establishment of the state of Timor Leste have also made a contribution to the improvement of the image of Indonesia. This, in turn, was an additional factor that brought about the present comparatively good relationship between our two nations. With the election of Mr. Barack Obama as the 44th President of the United States, there is generally an expectation that the already satisfactory relations between the US and Indonesia could be even substantially deep-

This is thus a great challenge for us, Indonesians, to propose a concrete and comprehensive content of the partnership which will shape the US-Indonesia bilateral relations in the years to come. A bilateral partnership with strong foundations is not a task of government alone; it should also involve the public and civil society in both countries. The non-government sector can provide input on content, and will be involved in several instances in the implementation of the partnership. To provide a forum for public opinion, USINDO held a conference on the partnership in Washington D. C. in April 2009. We are about to have a second conference designed to provide an opportunity for for Indonesians to come up with concrete and specific suggestions for the content of the partnership. We of USINDO are very pleased to be able to convene panels of experts on the topics of business, trade and investment, renewable energy and energy efficiency, democracy, forestry and peat. Experts will present recommendations on partnership between the US and Indonesia on these issues for the benefit of both peoples, and invite the public to provide feedback and additional comments. This is a speech delivered by Mr. Arifin at an USINDO meeting last month.

Hypochondria, Assertiveness and Legacy The Indonesian political system has been reduced to the president being forced to form a multi-party cabinet despite his huge direct mandate from the people.

T By Christianto Wibisono Prominent Jakarta-based Political Commentator

he Indonesian political system has been reduced to the president being forced to form a multi-party cabinet despite his huge direct mandate from the people. The unholy alliance between the presidency and parliament has also led to the need to accommodate professional politicians instead of professional non-politicians. So, whomever becomes president, he or she will be at the mercy of the �� hegemony of a multi-party parlaiment. We also happen to be suffering from hypochondria, an excessive preoccupation or worry about having a serious illness. We have for too long suffered from inferiority complex due to poverty, which has had adverse implications on national leadership. P�� restigious international bodies have projected Indonesia to become a force to be reckoned with. But this is lost in the cacophony of hypochondria as rivalry between parties and politicians is marked by their tendency to flaunt weaknesses and deficiencies on the part of the incumbent in their bid to wrest power. The media are also immersed in hypochondria as they espouse the adage that good news is no news. Achievements are dismissed as non-news, but scandals make headlines and enter prime time, as the masses thirst for political infotainment. A cabinet of 34 ministers is enshrined in a legislation, but that is actually the maximum figure. The plan to activate the presidential advisory council (Wantimpres) must be realized by underscoring professionalism and not

as an exercise to accommodate political interests. Otherwise, the goal to have this second-term presidency to leave a great legacy remains a discourse that would be difficult to realize. The plan to have deputy ministers is seen as an antidote to “the disappointment virus” but it remains to be seen whether the idea adheres to the principles of efficiency. Meanwhile, non-participation of the PDIP in the cabinet is hardly regrettable. President Susilo Bambang Yudhoyono is actually a powerful PR individual who is often forced to act as his own spokesman to deny or react to political issues as well to engage in direct polemics with his former vice president, Jusuf Kalla. Two spokesmen, one of whom has been appointed minister while the other is slated to become ambassador, have worked optimally. But during a trip in the presidential plane I learned that SBY, just as Soekarno and perhaps even Soeharto, often feels lonely at the top—alone, with no one coming to his defense, and is forced to defend himself. The new cabinet, KIB II, is entirely the product of SBY and is a source of disappointment within the Boediono camp. �� The challenges of KIB II is to make good on the promise to uphold Democracy, to build Prosperity and uphold Justice in its first 100 days program. Hatta Radjasa, as the senior minister on economic affairs, is the person to settle the dichotomy between the monetary and real sectors, a perennial problem that goes back to the Soeharto era. The disparity between

the two sectors has always been in place, all the more so after Bank Indonesia became independent from the government. A more sophisticated coordination and synchronization is called for to conduct the national development orchestra. The core issue revolving Indonesia’s geopolitics with regards to its existence and survival is how the country can take part in creating world peace, especially in connection with the Israel-Palestine conflict and the impact of its ramifications in the form of the threat of terrorism. National cohesion must allow us to survive against the threat of separatism. The next The Merdeka Palace: the buck stops here phase would be restoring Indonesia’s leadership in ASEAN—the anchor of ture that reflects the c�� onfigurastability and steward of the ASE- tion of 2010 instead of perpetuAN ship amidst the growing ri- ating a system that goes back to valry against China, India, Japan World War II. and Korea. All these efforts must be comHow can Indonesia and ASE- plemented by the national elite eliAN play a role vis a vis BRIC, te, who must realize that history’s G20, ASEM, APEC, WTO challenges have a ”once-in-a-lifeand the UN? It all depends how time” character. As Johan Friewell Indonesia plays its diploma- drich Schiller (1759-1805) once tic cards intelligently in the cur- stated, great moments in history rent geopolitics transformation, will disappear if statesmen fail to the dissipating hegemony of Pax respond to them. Americana and the emergence of History is an encounter betG20 that supersedes G8. ween great moments and greIndonesia has the opportunity at statesmen. This is what transto empower itself and developing pired when our founding fathers nations in G20, and creating an declared independence 1945 and international financial architec- outmaneuvered the Japanese.

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SBY’s second term is a one-time golden opportunity for him to govern in a more assertive manner that will allow him to create a legacy in terms of achievements that will be recorded in our history. In the wake of the ASEAN summit the government will hold the Presidential Forum by inviting 1000 members of the political, social and business elite who will listen the government socialize the mission and vision of KIB II, which is Vision Indonesia 2025 that undescores Democracy, Prosperity and Justice. The nation meeds to be assertive, self-confident and optimis-

tic in its efforts to attain its goals. If we continue to wallow in hypochondria, inferiority complex and pessimism, then, as the Koran (Al Ra’d 13 article 1) says and Soekarno often recited, God will never alter a people’s fate if the people themselves have no will to change their fate. President Yudhoyono, who holds a huge public mandate, could actually be more assertive and should not be held hostage by hypocondría because of the parliamentary trauma so that he would be able to leave a legacy of successful governance (20092014) and be remembered by history.

The President Post

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October 30, 2009

Opinion

The Rapid Rise of Indonesia’s Middle Class The rapid rise of the number of shopping malls and the sharp increase in car as well as motorcycle sales lead to one conclusion: Indonesians have strong buying power that justifies those increases. By Cyrillus Harinowo Hadiwerdoyo

he Grand Indonesia Shopping Town is the latest addition to the string of the Indonesian shopping malls. But this is no ordinary addition; Grand Indonesia is currently the largest and the most luxurious shopping mall in the country, if not in South East Asia. The complex, which includes “BCA Tower”, Kempinsky Hotel and the high-rise Kempinsky Residence occupies a total space of 650,000 square meters. The mall itself boasts lease-able space of 250,000 square meters. By comparison, the Mall of America in Minneapolis, the largest shopping mall in the US, occupies a gross space of 405,000 square meters and lease-able space of 225,000 square meters. Shortly before that another luxurious shopping mall also came on stream. Called Pacific Place, it sits strategically across the Jakarta Stock Exchange and has become another destination for the shoppers as well as those seeking a place to hang out. Not very long ago, two luxurious shopping malls, Senayan City and Pondok Indah Mall II, were also added to the string of high-end malls. Coming up is a new lux-

doesn’t Jakarta have already too many malls? Are there enough customers to make the malls economically feasible? In response to such questions, it is interesting to note that the second largest shopping mall in the world, in Mainland China near Hong Kong, was closed a few months after it was opened. Apparently the mall could not attract enough customers to justify its economic rationale. As such the shopping complex is now reduced to a ghost town. This phenomenon shows that economic justification is certainly an important consideration before a developer starts building a mall. And what is really the basis of such economic justification? The answer is sufficient demand. If there is no sufficient demand, to build such a monument is merely a dream. This phenomenon takes place at the same time as the sharp increase in domestic automotive sales. By the first semester of 2008, domestic car sales increased by almost 50 percent to about 300 thousands units. In fact, in the months of June and July of 2008 Indonesia ranked number one in ASEAN for monthly domestic car sales, over-

A motorcycle stand at an automotive show in Jakarta

urious shopping mall also in line for a grand opening. The Central Park, at the same level as Senayan City in terms of luxury, has had a soft opening on September 9, 2009. In the coming months many of its stores will open and attract throngs of shoppers. Many questions arise such as

taking Thailand and Malaysia. For the whole year of 2008, the Indonesian car industry was able to sell more than 600 thousand units, in addition to more than 300 thousands units that were exported. In total, almost 1 million of cars were produced in 2008. The Indonesian car indus-

try has been enjoying a very high local content, 65 percent from Indonesia while from ASEAN, including Indonesia, the figure is over 70 percent. The Indonesian motorcycle industry also enjoys a sharp rise in its sales and production. In 2008, over 6 million motorcycles were sold. In 2009, it was initially predicted that motorcycle sales would drop by around 20 percent. It turned out that, while the figure has actually dropped, it is significantly less than predicted. The Indonesian motorcycle industry also enjoys a very high local content, reaching, in fact, almost 100 percent. The rapid rise of the number of shopping malls, the sharp increase in car as well as motorcycle sales lead to one conclusion: Indonesians have strong buying power that justifies those increases. The strong macroeconomic growth in general as well as the rapid rise of the Indonesian middle class explains these phenomena. The Phenomenon of a Very Dynamic Growth

The Central Bureau of Statistics (BPS) recently issued the second quarter’s macro indicators which showed real econom-

Photo: www.otomotifnet.com

ic growth at 4.0 percent. This is a slight decrease from the previous quarter, in fact also from the previous year, which posted a growth rate of 6.1 percent for the whole year of 2008. While it may be disappointing from a narrow perspective, the positive growth has placed the country third, af-

ter China and India, in terms of economic growth. Other big countries have experienced a sharp contraction in their economies. The positive A shopping mall in Jakarta growth of the economy has once again increased the buy- the income was spread unevening power of the people. In fact, ly though the Indonesian middle looking at the nominal GDP, the class seems to have risen quite siggrowth looks significantly bet- nificantly in the past few years. ter. In 2008, the nominal GDP Nowadays, the middle class is a growth was 25.4 percent. The strong force in the Indonesian growth went down in the first economy. and the second quarter of 2009 How do we define the Indoto reach almost 14 percent. In the first semester of 2009, Indone- nesian middle class? AC Nielssia posted a nominal GDP of Rp. en, a prime force in the market 2,657 trillion. This performance survey industry, defines the midseems to ensure the achievement dle and high class as the class of over Rp. 5,500 trillion of GDP which belongs to groups A and for the whole of 2009. At the cur- B of their consumers segment. A rent US dollar rate to the rupi- class consumers spend more than ah , the current US Dollar GDP Rp. 3,45 million every month, translates to around $560 bil- which translates into around Rp. lion for the whole year, compared 41 million or around US$4,000, to around $514 billion in 2008. while the B class spends less than Therefore, this number will ex- Rp. 3 million every month. To be ceed the prediction of The Econ- conservative, I would only classiomist, which forecast Indonesian fy the A class as the appropriate GDP to reach around $505 bil- Indonesian middle and high income classes. Under this definilion for the whole of 2009. tion, how many people fall into I always describe the dynam- the category of high and middle ic growth as a result of two ac- classes? In 2008, with the average intive drivers of growth, which are the population-based economy come per capita of $2,271, the and the resources-based econo- top 10 percent of the population, my. The first driver pushed for- which is 23 million in all, earned ward the Javanese economy, aside around $6,800 per capita. These from other islands, while the sec- people certainly fall under the catond mostly took place outside egory of middle class. The second Java. Food crops, the retail sector, 10 percent earns around $3,400. manufacturing, transportation For this second group, the average and telecommunication, hotels income is less than $4,000 as reand restaurants as well as other quired by the definition of a high services sectors contributed large- and middle classes. However, ly to the population-based econo- the distribution of income withmy, while estate crop agriculture in this group will ensure that at and mining represent resources- least half of the population in the group will earn an income which based economy. falls under the middle class category. Thus, the whole population The Rise of the Indonesian of high and middle classes will Middle Class The rapid growth of the econo- amount to around 30 million my in the past few years drove up people, a number that is signifithe income of all the segments of cant as it is larger than the whole the Indonesian population. The population of Malaysia. average income per capita rose to What will be the future pros$1,946 in 2007 from less than $ 1,000 in less than five years. In pects? In 2010, just two years away 2008, the Indonesian income per capita rose to $2,271. It is safe to from now the Indonesian averassume that the income per cap- age income per capita is predicted ita may rise again to the $2,500- to reach around $3,000. If correct, there will be more than 40 $2,600 range. Due to its distribution pattern, million people who can be called

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members of the high and middle classes. In fact, in 2015 Indonesian high and middle class people will increase to around 60 million people. Can you imagine that every year between now and 2015 Indonesia’s high and middle class people will increase by almost 5 million, larger than the entire population of Singapore? Such a rapid rise of the Indonesian middle class will bring about huge business opportunities to Indonesian businesses, as producers of high-end products will benefit the most. Therefore the Government has also to be extremely watchful of its economic implications. A prime example is the sale of air conditioners. With the rapid rise of the Indonesian middle class, the sale of air conditioners as well as other electronic ap-

Such a rapid rise of the Indonesian middle class will bring about huge business opportunities to Indonesian businesses, as producers of highend products will benefit the most. pliances will experience a rapid rise. If these people demand one unit of air conditioner every year then the sales of air conditioners will increase very rapidly, and so will energy needs. This, in turn, will increase the elasticity of demand of the energy sector. If in the past energy demand is mostly determined by economic growth, in the coming years it will also be influenced by the rise of the middle class. Another sector that will experience rapid increase is the restaurant business. If we currently see the successful penetration of Starbucks, Coffee Bean, Pizza Huts and Mc Donald’s, we can already envision that businesses

which cater to high-earning consumers will be even more prevalent in the coming years. What was a quiet spot two or three years ago, the Starbucks counter in Puri Indah Mall is now always packed, especially during weekends. In contrast to the closure of over 60 out of 80 counters in Australia in 2008, the number of Starbucks outlets in Indonesia has risen dramatically in the past few years. There are 80 Starbucks outlets operating in Indonesia at present. In Indonesia, the total number of Kentucky Fried Chicken outlets has reached around 350. Similarly, McDonald’s outlets are very popular here because they are also meeting points for many people. Pizza Hut, Wendy’s and other western fast food outlets have made a significant impact on the Indonesian restaurant business in the past few years, a phenomenon that will continue over time with the continued increase of the number of members of the middle class. Indonesian food restaurants have also sprouted in the past few years. Solaria, a fast food restaurant established only a few years ago, now has a chain of over 100 outlets throughout the country. Similarly, Tamani Kafe, Satay House Senayan, Gado-gado Boplo, Bengawan Solo Café and others have successfully penetrated the market. High-end Café Pisa, which started in Menteng, Jakarta, now has a network of around 10 restaurants in several big cities. We also see the emergence of fitness clubs, cosmetic medical care (RH Clinics, for example), Jakarta Eye Center and many others. Optik Melawai, a popular optics chain store, has also an established network of stores of more than 200. The list is endless; the people with sharp business noses have struck a goldmine in the market. Indeed, the Indonesian middle class has risen and continues to rise—and it will rise even faster and higher in the future.

The President Post

October 30, 2009

www.thepresidentpost.com

The Economy ECONOMIC AND POLICY WATCH

How SBY Could Really Succeed Targeting 8% GDP growth would excite investors, uncover impediments to achieving the growth target and unleash political pressure to remove them. By Tim Condon Head of Research and Chief Economist, Asia ING Wholesale Banking

FIGURE 1: Rupiah-per us dollar

FIGURE 4: indonesia’s incremental capital-output ratio (icor) ��

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Source: Bloomberg, ING

Source: CEIC, ING

FIGURE 2: indonesia: gdp growth

FIGURE 5: indonesia’s cpi inflation (%)

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Source: CEIC, ING

FIGURE 3: indonesia’s investment rate

FIGURE 6: Government bond yield curves

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Source: CEIC, ING

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tio or ICOR – increased after the Asian crisis (Fig 4). It took 20% more investment to get the same amount of GDP growth in the post-crisis period than in the precrisis period. The smaller investment effort and the deterioration in investment efficiency explain the roughly 30% post-Asian crisis GDP growth slowdown. High, and especially volatile, inflation links the declines in the investment rate and in investment efficiency. Inflation averaged 8.6% in the pre-crisis period and 8.7% in the post-crisis period. However, inflation was much more volatile during the post-crisis period, as is evident from Figure 5. The standard deviation of inflation, which measures how much inflation moves unexpectedly, nearly tripled to 4.0 percentage points in the post-crisis period from 1.5 before the Asian crisis. Elevated volatility means greater uncertainty and investors hate uncertainty. It discourages investment demand by increasing the value of the “wait and see” option. Volatility also may lead to poor investment decisions by increasing the likelihood that businesses mistake inflation for an Photo: www.wn.com increase in the price before the Asian crisis and 5% af- of their product or by encouragter the crisis. The 30% drop in ing over-investment in inflation the growth rate has increased the hedges like real estate. There is some good news on time it takes to double real GDP by 40% to 14 years. the inflation front. Bank IndoA combination of a drop in nesia adopted inflation targeting the investment rate and a dete- as its monetary rule and in 2005 rioration in investment efficien- began using an interest rate as its cy explain the growth slowdown. policy instrument. The central The investment rate – fixed in- banks of Korea and the Philipvestment in relation to GDP – pines adopted inflation targeting dropped to 19.8% in the post- using an interest rate instrument crisis period from 22.3% in the after the Asian crisis. Both have pre-crisis period (Fig 3). A low- enjoyed good success in reducer investment rate means slower ing average inflation and its volGDP growth unless it’s offset by atility. Energy subsidies are responsiimproved investment efficiency. Unfortunately, investment ef- ble for some of the post-crisis inficiency moved in the other di- flation spikes evident in Figure 5 rection. The amount of invest- so Finance Minister Sri Mulyani’s ment needed to grow GDP – the recent announcement that they incremental capital-output ra- would be reformed also is good

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inflation could become a headwind to asset price appreciation. Beyond the very short term, there are things the government could do to increase investors’ long-term commitment to Indonesia. Number one is to boost GDP growth, which slowed significantly after the Asian financial crisis. Investors like rapid growth because it means more investment opportunities. Growth of 5% in Indonesia is anemic compared with China, whose potential GDP growth is 10%, and India and Vietnam, both of whose governments target China-like growth. Figure 2 depicts Indonesia’s GDP growth over the last 20 years with the 1989-96 and 2000-08 periods identified as the pre-Asian crisis and post-crisis periods. GDP growth averaged 7%

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resident Susilo Bambang Yudhoyono’s inauguration for a second and final five-year term occurs against a backdrop of near euphoria in financial markets. The Jakarta Composite Index is the world’s fourth-best performing stock market this year. The rupiah is one of the world’s topperforming currencies against the US dollar and is poised to return to the 9000-9400 trading range that prevailed for most of the two and a half years before the Lehman panic (Fig 1). Government bond yields and sovereign default risk also are approaching their alltime lows. Mr. Yudhoyono deserves some credit for the euphoria. His party’s strong showing in the April parliamentary election reduced political uncertainty. During his first term Mr. Yudhoyono kept politics off investor radar screens and we think financial markets cheered the prospect of five more years of the same. Mr. Yudhoyono faces “Buy on the rumor, sell on the fact” risk. The sense of this investor adage is that financial markets move ahead of events and the occurrence of the event is usually the signal to take profits. Some of this year’s strong rally in financial assets owes to Mr. Yudhoyono’s election victory. Is his inauguration the signal to take profits? We believe it is prudent to take some of the significant gains off the table, particularly in view of the near-term inflation outlook. The final leg of the boombust-boom in commodity prices of the last 18 months is working through consumer price indexes around the world, including Indonesia’s. The head of the Central Statistics Bureau recently warned that inflation, which bottomed at 2.7% in July, could hit 4% by December. Indonesian investors are more inflation-sensitive than their counterparts elsewhere in Asia and accelerating

�� Source: CEIC, ING

news. According to press reports price subsidies will be replaced by cash handouts to needy families. Better targeting hopefully will reduce subsidy outlays and lessen the impact of oil price swings on the government budget. Lower, less volatile inflation would bring government bond yields down and lower bond yields would raise equity valuations. Indonesia’s government

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Source: Bloomberg, ING

pays about 9% on its 5-year bonds, almost three percentage points more than the Philippine government (Fig 6). Both countries are rated ‘BB’ by Moody’s and S&P and their roughly equal credit default swap levels indicate that market players judge default risk to be the same for both. Indonesia’s poor inflation record is the reason its government has to pay so much more to borrow from the public than its Philip-

pine counterpart. It will take time for Bank Indonesia to succeed in achieving lower, less volatile inflation. It will take even more time to persuade Indonesian people that a new, low inflation regime exists. In the meantime President Yudhoyono could stimulate investor interest by announcing an 8% GDP growth target. Years of below-potential growth have convinced many Indone-

sian people that 6% is the economy’s speed limit. Nothing could be further from the truth. In the three years 1994-1996 growth was around 8% (see again Fig 2). Indonesia can return to that rapid growth pace but people need to hear this from the government. An 8% growth target would excite people. They would identify impediments to growth and exert political pressure to eliminate them.

The President Post

www.thepresidentpost.com

October 30, 2009

The Economy

Re-thinking Indonesia’s External Economic Relations

Despite many unfortunate developments, the country survives and continues to improve its economic fundamentals

ndonesia has been caught in a series of crisis and trapped in a “crisis cycle”. Natural disasters have hit many parts of the country, from the Aceh tsunami to the recent West Sumatra quake. Economic crises have ravaged the country, from the Asian financial crisis of 1997/98 to the global recession of today. In between are many noisy demonstrations and terrorist acts. This is what is happening to the third largest country in Asia after China and India, namely Indonesia, a country with a population of some 235 million people and of many ethnic groups. The largest archipelago in the world, Indonesia covers a total area of 5.2 million km2 or is almost the size of Europe or the United States. Despite many unfortunate developments, the country survives and continues to improve its economic fundamentals and to strengthen its macro-economy to achieve significant economic growth. This demonstrates Indonesia’s high degree of resilience, which is being recognized by many world leaders, including President Barrack Obama, who lived in Indonesia for four years in his early age. To be blessed with strong resilience is a big asset for a developing country. This is also manifested by a number of countries such as Vietnam and South Korea, both of which went through a long and devastating period of war. To be resilient is an additional factor to Indonesia’s potentials in facing the rigorous developments of this globalized world. CURRENT DEVELOPMENTS

Indonesia’s economic developments in the last decade are marked by improvements and declines in the aftermath of the

Asia is now expected to lead the world out of the global recession and on the road to recovery Indonesia, however, has many waek sides with political and social implications. They include unemployment (8,5%, according to the statistics body BPS), a high poverty rate; low competitiveness (number 54 out of 133); and a high level of corruption.

By Atmono Suryo

gdp growth rates

CHALLENGES AND OPPORTUNITIES

Unit: % per year Average 1990-1996

Average 2000-2006

1997

1998

2005

2006*

2007*

Indonesia

7.8

4.9

4.7

-13.1

5.7

5.5

6.0

Korea

8.3

5.3

4.7

-6.9

4.0

5.0

4.5

Malaysia

8.9

5.3

7.3

-7.4

5.2

5.9

5.4

Phillipines

3.1

4.8

5.2

-0.6

5.0

5.4

Thailand

9.6

5.0

-1.4

-10.5

4.5

5.0

4.0

China

10.5

9.4

8.8

7.8

10.4

10.7

10.0

Hong Kong

4.9

5.5

5.1

-5.0

7.5

6.8

5.4

India

5.6

6.9

4.8

6.5

9.0

9.2

8.0

Japan

2.2

1.9

1.4

-1.8

2.7

2.8

2.0

Singapore

8.9

5.4

8.5

0.9

6.6

7.9

6.0

Taiwan

6.9

3.8

6.6

4.6

4.1

4.7

4.3

Vietnam

7.9

7.5

8.2

5.8

8.4

8.2

8.3

Crisis-affected Countries

Other Asian Economies

Notes: *Preliminary Estimate; **ADB Forecast

Asian financial crisis in 1997. Indonesia is one of the countries, along with South Korea, Malaysia, Philippines, and Thailand, which was highly affected by the crisis. The Indonesian economy suffered massive capital outflow and huge depreciation of its currency. This crisis caused a devastating -13% growth of GDP from 1997 to 1998. In the aftermath of the crisis, Indonesia enjoys slow but consistent growth due to rigorous economic restructuring and financial reform. Per capita income increased and went beyond that of pre-crisis level. Nevertheless, economic growths could not be restored to the level enjoyed before the crisis. Indonesia’s GDP growth declined by 2.5%, from the average of 7.8% during 19901996 to 4.9% during 2000-2006. Comparative statistics are shown on the GDP Growth Rates Table covering those periods. Presently China, India and Indonesia are the fastest growing countries in Asia. With vast re-

Source: Asian Development Bank

sources, a strong economic structure and resilience, Indonesia is set to move ahead more forcefully in the global economy. TOP 20

What can be seen as an incredible development is the fact that Indonesia is rated as one of the top emerging countries. Notwithstanding the many shortcomings such as the high unemployment and poverty rates, Indonesia is: • Classified by the World Bank to be in the 20 largest economies in the world, together with the United States, China, Japan, India, Russian Federation, United Kingdom, France, Brazil, Italy, Mexico, Spain, South Korea, Canada and Turkey. To be among the 20 largest economies in the world had been predicted by the World Bank some 15 years ago. That prediction has now come true; • Chosen as a member of the prestigious and powerful G20, a group of 20 countries representing 90% of world GDP,

80% of the world population and about 80% of world trade. The G20 has now the responsibility to end the global recession and to take the world on the road to sustainable growth; • Recognized by the OECD to be in the BRIC group com-

the very large forum of APEC covering the North American continent, reaching a number of Latin American countries. In addition there is the upcoming East Asia grouping and other smaller regional groupings

The center of economic gravity is moving towards Asia. Together with China and India, Indonesia is among the fastest growing economies in Asia posed of top emerging countries (Brazil, Russia, India, China – to be extended to Indonesia and South Africa). In a way this group is to represent in an informal fashion more than 150 developing countries in Asia, Africa and Latin America; • A prominent member of the ten member-ASEAN covering the entire South East Asia, the larger region ASEAN plus 3 ( with China, India, Japan), and

• A major member of G 77 (the group of 77 developing countries), the Non-Alignment Movement (NAM), the Islamic group of countries (OIC) and many other groupings of developing countries. The center of economic gravity is moving towards Asia. Together with China and India, Indonesia is among the fastest growing economies in Asia, with a GDP of US$514,4 billion and an income per capita of US$2276.

To be in the world’s Top 20, Indonesia will have to overcome many economic challenges and take advantage of business opportunities. The world of today is a different from that of yesterday. Observing the current developments one can conclude that in the 21st century a new economic landscape will unfold. The developing countries, including Indonesia, will occupy a significant part in the new setting. Consequently, new opportunities will open up for the emerging countries. For large countries as Indonesia, with its multitude of national interests covering many political, economic, security, and technology aspects, high priority must be given to its external economic relations. Global affairs

In this globalized world the setting is different than the one in the past. The world is no longer dominated by a handful of industrialized countries. A new world order is shaping up with emerging countries taking part in the process, along with advanced countries as reflected in the G20. In short, Indonesia should be prepared to assume a bigger role in world affairs. President Susilo Bambang Yudhoyono feels at ease with international affairs. With Minister of Finance Sri Muljani Indrawati and Minister of Trade Mari Elka Pangestu in the cabinet, Indonesia is assured of achieving its high standing in the rostrum of international economic relations. The ministers will be very much involved in the management and restructuring of the global economy through, among others, the G20. In the years ahead Indonesia

will face a very complex world which requires multi-track policies and approaches in the area of global affairs, regional and bilateral matters and sectoral developments such as trade, investment and services. The multi-track approaches involve not only the government sector but also the private sector such as KADIN and non-government organizations such as ICWA (Indonesian Council on World Affairs) and others. Regional Affairs

Using the concept of “concentric circles” as a tool to identify Indonesia’s regional economic interests, one would come to the following: The inner circle should be the country’s domestic economy, followed by ASEAN which is in the process of becoming an integrated region. The next circles cover East Asia, which is set to become an important epicenter of the global economy, and APEC that covers a huge area around the Pacific Ocean. In addition to global matters Indonesia will be hard-pressed to devote more attention to regional matters. Unfortunately, the country is perceived as lukewarm towards regional matters. In this vast Asia-Pacific region (ASEAN, East Asia and APEC) Indonesia should assume a prominent or leading role. To underestimate the importance of the region would be a grave mistake. CONCLUSION

Indonesia’s external economic relations is of strategic importance in order to sustain and to strengthen the country’s domestic economy and vice versa. The conduct of these relations should not depend only on the government. It is not only a one-track or even a two-track affair. It should be a multi-track movement or a multi-track force covering large sectors of the economy, requiring greater participation of the Indonesian society particularly the business and private sectors. Every effort should be made for Indonesia to advance from the Top 20 countries to the Top 15 or even Top 10 in the global economy. To achieve this goal requires a strong political will and commitment of the entire nation.

The President Post

October 30, 2009

www.thepresidentpost.com

Education D

uring the reign of President Soekarno, education was, to some extent, a powerful tool of indoctrination. Teachers were taught to teach students to reject any cultural influences that came from abroad. Even though the purpose of education, as stipulated in the 1945 Constitution, was to upgrade citizens’ intellectual capacity, then geo-political constellation required the former president to take such a stand—albeit not necessarily the best option for a developing country it was. Some say that the Cold War is to blame for such a tragic orientation of national education policy. But the fact is that during that period, education was conducted with a patriotic and even militaristic flavor. Indonesia, however, is not the only nation in Asia to have pursued such a course of action. Almost all developing countries with memories of colonization had this experience. The difference is what happened after the Cold War was over. In Indonesia’s case, General Soeharto, who took over as the second president, implemented a totally different approach. He was a staunch supporter of the philosophy of uniformity in idea and action. As a result, his administration launched many programs to get everybody to agree to whatever the government thought and did. This was the reason he was regarded as an iron-handed ruler. In the sector of education, however, Soeharto achieved a great deal of success through the provision of scholarships, opening up of new schools, improvement of school infrastructure, launching of compulsory education programs, etc. It was during his time that Indonesia was able to have up to 6,000 PhDs in all disciplines—be they from foreign or local universities. And it was during his time also that Indonesia managed to reach a double-digit growth before the economy experienced a near-collapse ahead of his ouster. So, in terms of development of education, president Soeharto recorded a great deal of success. His greatest success was maintaining a peaceful country for so long to enable the production of so many scholars some of whom toppled him. His successor Prof. Dr. B.J. Habibie ruled for only 18

The Orientation of Education Policies from Time to Time Indonesia has experienced fundamental changes in the orientation of its education policies over the past six decades. But the sad fact is, the nation has been caught unprepared reacting to the impact of global market dynamism. Now is the time to improve the situation. By Robert Pede

months, so it was too short a period for him to show any progress in education. Nevertheless, president Habibie was himself a success story in preparing high-tech human resources. But because the foundation laid down by the so-called New Order regime of Soeharto was so strong, society took it for granted that a lack of freedom and democracy was a good sign of a nation’s life—which in fact is not. During Soeharto’s rule, educational endeavors were directed at reaching a homogenous society, idealistically. Freedom of expression was suppressed and the mass media did not function as a powerful tool for social control. Education then did not have accountability because people at large were not included in the management of educational policies. In rhythm with the growth in the economic sector, educational endeavors also experienced a setback because social tolerance declined, primordial attitudes thickened, and educational practitioners were not encouraged to pursue quality, but instead were spurred to enhance quantity achievements. This is the reason why there is even to date a huge gap between the output of education at university level and the actual need of employers in the many industrial sectors. During the reign of presidents Abdurrahman “Gus Dur” Wahid and Megawati Soekarnoputri, there was hardly any major progress visible in the sector of education. The two leaders focused mainly on developing the economy and reducing vainly the number of people living below

the poverty line. But while the then governments continued to fix their eyes elsewhere, the painful reality was that the number of school and university graduates entering the labor market continued to soar against limited job creation capacity of the government and the private sector. Since then, analysts say, the number of unemployed scholars has continued to rise in rhythm with a continuous influx of new entries on every level of education. As of 1999 when the Regional Autonomy Law (Law Number 22) was enacted, the government began to take a different look at education because the law provides for decentralization of the central government’s power which effectively affects execution of educational endeavors all over Indonesia. Now that the Regional autonomy Law is in place, more so during the reign of President Susilo Bambang Yudhoyono, the government has made a lot of adjustments to its approach to education. Today, the Directorate Gener-

al for Basic and Secondary Education is focusing on several key issues as follows: • Promote what is called SchoolBased Management concept under which schools are given the freedom to plan and implement their own quality upgrading programs. • Promote Community-Based Education, a concept which encouraged interactions between schools and society with the former acting as the learning center for the community. • Promote the paradigm of Capacity Building under which learners are trained to become capable individuals, complete with development of talents that are geared toward enabling them to find a better job later on. • Promote what is called BroadBased Education (BBE) system under which entrepreneurial skills are taught to enable learners to empower themselves and their family members. With all these activities going on, Indonesia has reason for optimism that despite tough challenges prompted by the high rate of unemployment, still there are

hopes for a better future in that more and more school and university graduates will find their way into the labor market once they are well equipped to do so. The SBY administration is expected to be able to champion the promotion of “life-skills education” under which learners are equipped with greater capacity through problem-based learning in a holistic manner. This should replace rote memorization kind of education that has for decades weighed heavily on Indonesia’s ability to compete globally. What does Indonesia’s education policymakers need to do anticipating tougher employment challenges in the future? According to Prof. Alex Tilaar, a senior educator and lecturer at Jakarta State University (UNJ), the government needs to redirect its policies to meet the following needs: Encourage development of quality education at all levels, train more teachers to become high-class professionals, and provide proper compensation for educational practitioners in order to encourage their innovative and creative abilities. Decentralize the sector of national education in stages, starting from elementary level; but

doing so while providing better infrastructure, upgrading the capacity of human resources, and providing sufficient operational funds. Evaluate the structure of the Ministry of National Education in order to ensure bureaucratic efficiency at all levels. Meanwhile, unnecessary procedures need to be abolished in order to facilitate more creativity and innovation among the state apparatuses. Encourage more participation from the public by enhancing the link and match program to involve a greater number of institutions in the private sector. Equally important is the need to depoliticize the sector of education to the extent that whoever leads this country, our long-term grand strategy in the sector of education shall remain consistent. Education analysts believe that President Susilo Bambang Yudhoyono has more chances today than ever before to elevate Indonesia’s image in the sector of education, especially because the parliament is going to be friendly with his office, given his party’s dominance therein. Under his democratic leadership, Indonesia has become a huge market for foreign universities that send in their sales agents to pull local students to their institutions every year. This is a long term investment for Indonesia given the fact that Indonesian students abroad

will not only come home with a higher level of knowledge and a broader horizon, but also with all the best academic and management practices they encounter on foreign campuses. Education analysts are saying that the next Cabinet of President SBY needs to tap these human potential in a more comprehensive manner so as to prevent smart students from refusing to come home after graduation. More than 50,000 Indonesian students are studying abroad, about one-third of them are pursuing master’s and doctoral degrees. So when they graduate, they will become valuable assets that must be given proper places of employment at home. The orientation of the next Minister of Education that President SBY will reveal on Oct. 21 should be directed toward tapping maximally Indonesia’s human potentials especially at the university level because, as the president himself has said all these years, the strength of a nation depends largely on the capacity of its human resources. Even Minister of Defense Prof. Juwono Sudarsono has said on many occasions that for Indonesia to be able to compete successfully in the global arena, one area that must be given very serious attention is the sector of education. Throwing her weight behind Prof. Juwono’s assessment, Finance Minister Sri Mulyani has said that the strength of Indonesia’s economy in the future will be determined by the quality of its higher education. So now is the time to do more to realize all these aspirations.

INTELLECTUAL UNEMPLOYMENT RISING:

Enhancing Our Education System With a population increase of 1.2 percent, Indonesia is finding it truly hard to provide sufficient employment opportunities to its new graduates. The next Cabinet will need to work extra-hard to overcome this situation, education analysts say. By Maya A. Siregar

xperts say that on average, around three million new babies are born to Indonesian families every year, but only a maximum of 300,000 of them eventually graduate from university. So, 90 percent of them go to school only to become jobless citizens, due to many reasons. But here is a more challenging situation—not all of those 300,000 new scholars can get a job, simply because they have a very low level of employability. So the first question is, what is going wrong here? A quick answer would be that what they have learned at school is not compatible with the need of the institutions they intend to work for. The second question, therefore, is, why is there such a mismatch? Education analysts believe that one reason may be that Indonesia has not properly defined a grand long-term strategy for education—one that contains anticipations of future needs of government and private sector employers amidst rapid advancement of science and technology as well as business and investment activities. This should be a home work for the new Cabinet, analysts say. Whoever sits in the chair of Minister of National Education needs to define a grand strategy for the future so that university graduates will no longer stand in long queues waiting for a scant chance to get job.

Such a strategy, the analysts say, should involve an anticipation of the dynamics of all the activities under the economic and social affairs ministries, because their policies will somehow affect the sector of education. A lack of such an overall approach to education is to blame for the current situation in which students attend universities only to end up being jobless intellectuals. As it is today, a university degree is not automatically a sure guarantee for getting a job. In fact, skilled workers often get better compensation than those university graduates who enter the labor market without having special skills that employers require of them. According to information from the Ministry of National Education (MONE), nearly one million graduates from around 2,800 of Indonesia’s higher learning institutions, who represent the output from various disciplines in 2009, still have not got a job to date. Director General of Higher Education Dr. Fasli Jalal says that intellectual unemployment has grown markedly and therefore the government is developing various policies, including Student Creativity Program (CRP), Cooperative Education Program (Co-op), and the Student Entrepreneurial Program (PMW), to remedy the situation “Especially for the PKM and the Co-op, we have produced

alumni who proved to be more competitive in the labor market,” he says. The official adds that the results of student work through the CRP innovation program “have the potential to be developed further into technology-based business embryos.” According to him, unemployment happens on the undergraduate level because most graduates are job seekers rather than job creators. This happens because the learning system applied in universities is more focused on how to prepare students to quickly graduate and find work. “Almost all the universities implement learning systems that are not effective. The students intend to graduate quickly in order to get a job, but in reality they are not ready to meet requirements of the employers, “the official says. He explains that based on the results of the National Socioeconomic Survey by the Central Statistics Agency (BPS) in March 2006, the number of poor people in Indonesia had increased by another four million people, indicating that unemployment rates are in the range of 10.8-11 percent of total employment in the open category of the unemployed. Entrepreneurship Low

Another reason why it is difficult for university graduates to get a job is because the business sector is not expanding fast

enough to generate sufficient opportunities. Meanwhile, entrepreneurial activity is still relatively low. “The higher the index of entrepreneurial activity, the higher the level of entrepreneurship in a country,” he says. In developed countries, an important factor that determines economic growth is empowerment of the capacity of human resources. For example, Japan and Singapore are two countries without natural resources but their economies have grown markedly because of their ability to empower human resources. Dr. Fasli Jalal believes that a good way to fix our problems is to comprehensively empower human resources through education. For instance by enhancing entrepreneurial education and establish a better link-and-match program involving universities and the private sector. BPS reported in March 2009 that there has been a decline in the number of unemployed scholars to 960,000 people. Some 598,000 of them were graduates of S-1, while the other 362,000 graduated from diploma programs. In reality, there are many factors causing intellectual joblessness, one being a lack of job competence. Also, in many cases, high school graduates are not absorbed by universities because many courses and study pro-

Minister of Education, Prof. Dr. Ir. Muhammad Nuh

grams are already saturated. Analysts predict that every year, an average of 20 percent of university graduates become unemployed. “The high rate of unemployment is caused by the low level of skills outside of their core competency as scholars,” the official was reported to have said in late September. He emphasized the need for schools and universities to increase the portion of entrepreneurial skills in their curricula; otherwise their graduates will continue to have difficulty getting a job. In Indonesia, he added, the number of real entrepreneurs is very small. In 2007, for example, entrepreneurs comprised a new record 0.18 percent or 400,000 of the total population in Indonesia. It simply means that Indonesia still needs to increase that number by 1,100 times to reach the equivalent of 4.4 million people

Photo: www.presidenri.go.id

which is considered ideal. As a comparison, in 2001 Singapore had a 2.1 percent self-employed population, increasing to 7.2 percent in 2005. A paradox remaining in society is that while scholars are having difficulty finding a proper job, in fact many sectors still need skilled university graduates. The sectors of agriculture, fisheries, and plantation, are awaiting a great number of educated workers. In a related development, official sources reveal that a total of 4.5 million of the 9.4 million unemployed people in 2008 graduated from high schools, vocational schools, diploma programs, and graduate programs from various universities. This number represents half of the total number of unemployed scholars in 2008. This poses a big challenge for the government because the population continues to increase in number as does the number of

university graduates who will enter the labor market without sufficient skills. Indonesia’s rate of ‘educated unemployment’ stood at 17 percent in 1996, rising to 26 percent in 2004, and in 2008 it stood at a staggering 50.3 percent. The Central Bureau of Statistics recorded in February 2007 that the total number of unemployed citizens was 10,547,900 of which registered unemployed graduates totaled 740,206 people or 7.02 percent. In February 2008, a similar survey revealed that the total number of unemployed citizens was 9,427,610, or down 1.2 percent from the previous year’s level. But during the same period the number of unemployed university graduates in fact soared to 1,461,000 (15.5 percent) representing an increase of 1.02 percent. In 2009, the number of unemployed scholars soared even further to 626,000, not to mention 486,400 diploma degree holders still jobless. Therefore, education and social affairs analysts agree that the new Cabinet should encourage cooperation between universities and the private sector through the link-and-match program. In this way, industries will know what universities can offer and the latter will know how to adjust their curricula to the market’s actual needs.

Business

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Display until November 13, 2009 // No. 02

BMW 7 Series: The Choice of Leaders

T BMW Indonesia has announced that the new BMW 7 Series is the official car of the 20th APEC Economic Leaders Meeting, to be held on 14-15 November, 2009, in Singapore. The luxury limousines will be used to transport heads of state of the 21 member countries attending the summit, including President Susilo Bambang Yudhoyono of Indonesia, and their delegations. In Indonesia, the new BMW 7 Series is the leader in its segment for premium limousines above Rp 2 billion with sales of 37 units up to the end of September 2009. This is more than double compared to the previous year’s 7 Series sales and will be further boosted by the addition of the new BMW 730Li which has been unveiled to the media. “Our flagship model, the new BMW 7 Series, has not only been awarded as the best car in its segment this year, but is also the choice of our special clientele, such as heads of state, high-ranking government officials and the diplo-

matic corps. Corporate leaders and business communities have also chosen this luxury performance car that befits their status and personality,” said Ramesh Divyanathan, President Director of BMW Indonesia. The supremacy of the BMW 7 Series is based on its elegant presence combined with its outstanding engineering, superior comfort, unbeatable performance and top safety features. Customers also know they are making an environmentally-friendly choice because of the BMW EfficientDynamics technologies in the limousine and the fact that BMW has been chosen as the world’s most sustainable car company 5 years in a row by the Dow Jones Sustainability Index. In Indonesia, the current model range of the BMW 7 Series will be further increased with the addition of the new BMW 730Li to complement the BMW 750Li and 740Li, launched in the market in February 2009. “We are giving our customers an even greater range to choose from and more flexibility. The BMW 730Li Comfort is avail-

able at all BMW authorized dealerships today at the price of Rp. 1,759,000,000.- off the road for Jakarta,” said Mr. Divyanathan. The new BMW 730Li is equipped with a 3-liter, six-cylinder engine, developing maximum output of 258 hp at 6,600 rpm, with maximum torque of 310 Newton-meters at 2,600 rpm. The limousine accelerates to 100 km/h in 7.8 seconds and is capable to reach a top speed of 245 km/h. The average fuel consumption is just 9,8 liters/100 km and CO2 emissions of 229 grams/km. The entry model to BMW 7 Series offers attractive features such as new iDrive controller, USB Audio Interface, TV function and HiFi system professional with 16 high-end loudspeakers, 600W amplifier power, DIRAC signal processing and surround mode. This new top-class luxury saloon provides supreme comfort at the rear, featuring electric adjustable comfort seats, electric sunblind roller for rear and rear side

windows and automatic air conditioning with 4 zone control. Passengers sitting at the rear have their own remote control-operated entertainment system featuring two tiltable 8” screens and DVD, operated by remote control. The new BMW 730Li features BMW EfficientDynamics technology that reduces fuel consumption and carbon emissions while simultaneously enhancing the superior performance and driving pleasure typical of BMW cars. The environmentally-friendly technology counters assumptions that big engines automatically consume more fuel and produce higher carbon emissions. BMW Efficient Dynamics technology applied in the new BMW 730Li includes Brake Energy Regeneration, Intelligent Lightweight Construction, and Low Rolling Resistance Tyres. The limousine also introduces Driving Dynamic Control that allows the driver to chose

the way the car responds – Comfort, Normal, Sport, Sport+. As a result, customer can tailor the BMW 7 Series to their personal driving style and to the comfort requirements of the passengers. The new BMW 730Li feature aluminum axles with steelsprung suspension, with self leveling air suspension at the rear as standard. It maintains a consistent ride height under all driving and load conditions. Every change in load is taken into account immediately and balanced off individually on each wheel. The Dynamic Damping Control is the first system of its kind and is featured in this entry model. The new shock absorbers are now infinitely and independently adjustable for both compression and rebound damping. The dampers adapt to the state of the road irrespective of which Dynamic Driving Control mode is selected, for exceptional ride comfort even when driving hard

on bumpy surfaces. The model is equipped with top safety features including Active Headrest in the front seats, Brake Force Display, side airbags and front airbags for front passengers and head/curtain airbags for all passengers and driver and Park Distance Control. It comes as standard on 18-inch light-alloy wheel and Runflat safety tires. All BMW 7 Series vehicles purchased at BMW authorized dealerships have passed the quality test, including for road and traffic conditions, humidity and fuel quality. All BMWs purchased at dealerships have a 2-year warranty and 5-year BMW Service Inclusive package for peace of mind. Price List BMW 750Li

Rp. 2,658,000,000 off the road

BMW 740Li

Rp. 2,127,000,000 off the road

BMW 730Li

Rp. 1,759,000,000 off the road

PT. BMW Indonesia is a wholly-owned subsidiary of Bayerische

Motoren Werke (BMW) AG, the world manufacturer of BMW vehicles based in Munich, Germany. The establishment of this subsidiary in April 2001 reflects the BMW Group’s confidence in the long-term future of Indonesia and its commitment to maintaining and extending BMW’s leading position in the premium market segment. PT. BMW Indonesia’s activities cover the wholesale of BMW cars, spare parts and accessories, as well as the overall planning of sales, marketing, after-sales, and related activities in Indonesia. Its dealership network covers 13 new car dealers and 1 usedcar dealer spread out in various cities in Indonesia. For more information: www.bmw.co.id. BMW Indonesia Helena Abidin, Corporate Communications Director Tel: +62 -21-3000 7710 Mobile: +62-816-968 450 Email: maria.h.abidin@bmw. co.id

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10 October 30, 2009

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Mining Repositioning the Indonesian Mining Industry

Restrictions on IUP holders using affiliates to provide mining support services

Dealing with regional/local government officials to obtain IUPs

10.

Restrict size of exploration and exploitation IUPs, which may hamper large-scale projects

11.

Reduce legal certainty compared to provisions of existing CoWs/CCoWs

12.

Absence of a form of agreement/contract for large projects above a certain investment threshold

13.

With regards to large investment required to the end of existing CoW/CCoW; the faith of that investment (beyond the CoW or CcoW)

14.

Assurance or guarantee of the contract/license continuation

15.

Post mining rehabilitation especially for small player – is it local GoI responsibility or who ?

In his report, PwC stated that the transitional provision is the main concern. Before Indonesia invites the new investor to develop their prospects, Government must solve and treat the existing CoW and CCoW holders to be able to develop their projects. It is a matter of fact that some of the CoW and CCoW now are in the feasibility stage and very soon are ready to move to the construction period. We all know that Government tries to solve the problem but a strong policy and proper regulationsare needed soon. MINING BUSINESS LICENSE

The law categorizes mining permits into three: the Izin Usaha Pertambangan Negara or IUPN (State Mining Permit), Izin Usaha Pertambangan or IUP (Mining Permit) and Izin Pertambangan Rakyat or IPR (People’s Mining Permit). In terms of basic characteristics, IUPN is to some extent similar to the existing Contract of Work (CoW), while the IUP is comparable to the existing Kontrak Pertambangan or KP (Mining Authoriza-

The law gives the IUP and IUPN holders a maximum of eight years to carry out explorations for metal minerals, between three and seven years for nonmetal minerals and seven years for coal. The mining companies have rights to carry out production for 20 years for metal minerals with a possibility of extending the production permit twice, each for 10 years; 10 years for nonmetal minerals with a possibility of extending the production permit twice, each for five years; 20 years for coal with a possibility of extending the production permit twice, each for 10 years. The concession awarded to the IUP and IUPN holders has a maximum size of 100,000 ha for metal minerals and 50,000 ha for coal but, after relinquishment and prior to production stage, the permit can only hold a maximum of 25,000 ha for metal minerals and 15,000 ha for coal. Domestic interest priority, production control and sales control

As long as the Production Op-

Coal Benchmark price • The minister will determine the benchmark price of coal at the beginning of each month which will be applicable for the current month sales based on average Coal Price index published by internationally-recognized institutions • The Coal Benchmark price is based on FOB (Free On Board) • If the sales is not being conducted on FOB basis, the selling price must still reflect the coal benchmark price but with adjustment as determined by the minister. Mineral Benchmark price • The minister will determine the benchmark price of metal and non-metal mineral based on market-mechanism and the applicable price in international market, as the minimum permitted selling price for Production Operation IUP/IUPK holder (note: rock minerals benchmark price is determined by minister or governor or regent/major based on its relevant authority). • The benchmark price of the minimum permitted selling price of minerals Prohibitions and obligations • Mineral IUP/IUPK holder is prohibited to sell the produced mineral/coal below the benchmark price, including sales to its affiliates • If IUP/IUPK holder fails to

Investors must carry out divestment until it finds a buyer but there won’t be any risk of default, and that the rule would be applied flexibly so as to remain attractive to investors. Foreign investors, who have a local partner owning more than 20 percent, would be exempted from the obligation. Analysts have warned that the new divestment rule may stifle foreign investment if it did not address key issues such as finding local buyers, which is an obstacle for foreign shareholders when trying to meet divestment regu-

On the basis of the Newmont case, IMA would like to avoid any problem in divestment process. Just recently, a local unit of Newmont Mining Corp were involved in an arbitration case over share divestment. In 2003, Rio Tinto and BP were embroiled in

The future of Indonesian mining industry will be much better if we can establish a National Mining Council which is able to produce Mining Policy, to control and manage the development of Indonesian mining industry, to improve the investment climate and give our country the best solution to revise the Mining Law and Implementing regulation.

5 year lme nickel warehouse stocks level ��

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In-country processing requirement for all IUP holders

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Divestment requirement for foreign interests in IUPs within 5 years of production commencing

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Delays in issuing implementing regulations to regulate provisions of the New Law

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Lack of clarity in process for conversion of existing Kuasa Pertambangan (KPs or Mining Rights) to Izin Usaha Pertambangan (IUPs) under the New Law

With the new Mining Law and Implementing Regulation, it is expected that Indonesian mining Industry will be developed following the new paradigm. National and local companies will have more energy to drive upward the exploitation of Indonesian mineral resources. Downstream industry will also grow and bring in the technology to build national capacity. But, the new licenses with new investors will not be coming soon, since mining zones (WP, WUP and WIUP) are not ready to be issued. The coordination and integration of at least 3 sectors are required, Geological CouncilEMR, Directorate General Forestry Planning- Department of Forestry and Directorate General of Spatial Planning must work together.

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THE FUTURE OF THE INDONESIAN MINING INDUSTRY

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Yes, the new mining law promises more certainty for investors, but also includes some contentious issues, with contracts of work replaced by shorter-term mining permits.

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Requirement for existing CoW/CCoW holders to submit a mining activity plan for the entire contract area, within one year of enactment of the New Law, or face relinquishment of parts of the contract area

lations. “The main concern for investors is that the divestiture process that KPC and Newmont experienced was bad, as the provision in the contract of works was not well drafted,” said Bob Parsons, an independent mining consultant. “The divestiture provision will discourage foreign investment because it’s against international business practices,” he added.

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Requirement for existing CoWs to comply with the requirement to conduct onshore processing of ore within 5 years of enactment of the New Law

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• After 5 years operation, IUP/ IUPK holder which is 100% owned by foreign shareholders must divest some of its share to Indonesian parties. The divested share value can be appraised by an independent appraisal and the number of shares that the Indonesian parties hold must not be less than 20% of the IUP/IUPK holder’s issued shares at the end of 9 years of operations. The divested shares cannot be transferred again to foreigners. IUP/IUPK holder with foreign shareholder must start to offer its shares to Indonesia parties not later than 1st Quarter of the 6th year of production and not less than 5% of its shares must be divested not later than the 4th Quarter of each year starting from the 6th year of production • In the event the divestiture can not be implemented due to disagreement in share price or no local parties are willing to acquire the shares, then the minister may waive the divestment obligation.

Divestment by IUP/IUPK holder with foreign shareholder

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If a Production Operation IUP/IUPK holder wishes to employ an expatriate, the person must be evaluated technically by the Government. Capital expenditures program has to be submitted to, and approved by, the Government. With due consideration to domestic needs, Minister of Energy and Mineral Resources will: • Stipulate in detail Production Operation IUP/IUPK holder’s obligation to provide minerals/coal for domestic consumption • Determine the selling price of the minerals/coal that is designated for domestic consumption • Control the production quantity of minerals/coal that is designated for domestic consumption

a long legal battle over the sale of a stake in PT Kaltim Prima Coal (KPC) and we all know about Freeport divestment process about 1990. Another divestment solution, as suggested by the analyst, is to allow foreign investors to list shares in the local venture on the stock exchange. That strategy was used successfully by PT International Nickel Indonesia Tbk -- in which Brazil’s Vale Inco Ltd has a 60.8 percent stake -- when it sold a 20 percent stake in an initial public offering in 1990. Mr Bambang Gatot Ariyono, the director of coal and mining at the energy ministry, said that in a draft regulation to the law, the government has proposed that foreign investors would have to gradually sell 20% after the fifth year of commercial production. Mr Ariyono said that “Each year foreign shareholders will sell 5% and if they fail to do so, it will be accumulated in the following year. We proposed the figure since it balances the interests of investors and the government, and that the regulation would not apply to mining projects where the life span was less than five years.” He added that the new rule would not impose a penalty to miners unable to find buyers, although the foreign firm would still be obliged to carry out a sale when a buyer was found.

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Yes, the new mining law promises more certainty for investors, but also includes some contentious issues, with contracts of work replaced by shorterterm mining permits.

Contradictory transitional provisions for existing Contracts of Work and Coal Contracts of Work - to what extent will the terms of existing CoWs and CCoWs be grandfathered

comply with the applicable benchmark price, IUP/IUPK holder must pay the shortfall in the selling price to the Government (whether in the form of tax, revenue or non-tax revenue) and a fine • In the event 3 warnings have been given to IUP/IUPK holder due to its failure to comply with the applicable benchmark prices, the Minister may halt the delivery of the subject materials of coal to the relevant customer(s)

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Article 169 give us two ways of interpretation: (a) Contracts of Work and Coal Mining Exploitation Working Agreements existing before the promulgation of this Law shall remain effective until their expiry (169a). (b) The provisions that are found in the Contracts of Work and Coal Mining Exploitation Working Agreements as referred to in paragraph (a) shall be adjusted at the latest 1 (one) year as of the promulgation of this Law, except for the provisions concerning state revenues (169 b) . This article indicates that the terms of these existing CoWs/CcoWs must be amended within one year to conform with the provisions of the new Law, other than terms related to State income (which is not defined but presumably includes royalties and taxes). The resolution of this will obviously be of major interest to those investors holding CoWs/ CCoWs, and is likely to be a con-

eration IUP/IUPK holder is able to meet the Domestic Market Obligation “DMO”, it IS allowed to export the produced minerals. The license holder must place priority on human resources, local employee, goods, equipment, materials and supporting materials or imported materials that are already sold in Indonesia. The IUP/ IUPK holder is obliged to submit, to the Government, a purchase plan for capital goods, equipment, machinery and other supporting materials in the form of a master list to be incorporated in the holder’s Working Plan and Expense Budget.

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ricewaterhouse Coopers stated in its report that the no. 1 issue in the new mining law is the transitional provision. Articles 169 - 171 set out transitional arrangements including specific language indicating that the rights and obligations under all existing CoWs/CCoWs will be honored until their expiration date. Therefore, IMA’s main focus should be on the Transitional Provision of the Mining Bill. However, IMA needs to provide assistance to the GOI in drafting the implementing regulations.

Photo: Indonesia Mining Association

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Transitional Provision

The Draft of Implementing Regulations has been discussed among the stakeholders of the mining industry and they provide the best available indication of what the Indonesian Government’s current thinking is on a number of important issues left unresolved by the New Mining Law itself. The use of the Implementing Regulations to expand on the provisions of the New Mining Law is, therefore, entirely consistent with long established Indonesian legislative practice and procedures. There are several issues related to the Law No.4-2009 reported by PricewaterhouseCoopers (PwC) as follows:

Like the KP, the IUP is awarded either by the minister, governor, mayor or regent. The IUP holders get concession in the socalled Mining Zone which is designated by either the central government along with the House, or the local governments. The IUP is awarded through a tender. Foreign investors may apply for IUP or IUPN but the law says the government should prioritize the central government and regional government-owned companies and cooperatives. The regent or the mayor, after getting approval from the local councils, can award IPR to local people, including an individual (a maximum of one hectare), a group of people (a maximum of five hectares) and a cooperative (a maximum of 10 hectares). The IPR is valid for five years and extendable.

Experts discuss mining issues

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These grey areas must immediately be dealt with a set of implementing regulations (e.g. government regulation, presidential decrees, ministerial guidelines) to make the New Law workable and sensible.

Currently there are 4 draft implementing regulations being prepared and socialized by Government. The drafts cover issues as follows: • Mining areas • Direction and Supervision of Management & Implementation of Mining Business • Reclamation and mine closures • Implementation of Minerals and Coal Mining Business

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A careful analysis of the New Law shows that there are grey areas on certain issues, such as prohibition of exporting ore, mechanism of auctions, divestment requirements, resizing of mining areas and prohibition of using of affiliated mining services company.

IMPLEMENTING REGULATIONS

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The most important article of the Law, which requires immediate legal action by the industry, is the transitory provision whereby Article 169 paragraph (a) respects the sanctity of contract while the paragraph (b) obliges the existing Contract of Work (“COW”) and Coal Contract of Work (“CCOW”) to be adjusted with the new mining law at the latest within 1 year after the promulgation of the Law. To support the Department Energy and Mineral, IMA organized several discussions and seminars and set up a together with the Indonesian Chamber of Commerce (KADIN) together to discuss the Draft of Implementing Regulation. But, there are still a lot of questions as to how the Implementing Regulations can move the Indonesian mining investment forward.

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The enactment of Law Number 4 of 2009 on Mineral and Coal Mining (“Mining Law”) has created legal uncertainties to the mining industry in Indonesia. The profound implication for the industry will affect not only existing mining companies but also future mining investors as well.

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Executive Director Indonesia Mining Association (IMA)

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By Priyo P. Soemarno

Unlike the treatment to the existing contract of work and coal contract of work, the new law has no feature dealing with the existence of the existing KPs. Meanwhile, the new law clearly states that after it comes into effect, the Old Law – the basis of the existing KPs – will be revoked and declared not valid. Unless otherwise regulated by the new law, it is arguably that the existing KPs are no longer valid. It is understood that the government and the parliament have no deliberate intention to fail and invalidate the existing KPs. This is confirmed by the statements of several senior officials of the Department of Energy and Mineral Resources that the existing KPs will remain valid, provided that those KPs must be adjusted to the new law. In this connection, the Government is urged to immediately fix this matter.

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ABOUT KPs

tion). The IPR is the type of permit given to small-scale mining, which at present mostly operate without licenses and are thus labeled as “illegal miners”. Like the CoW, an IUPN is issued by the central government (the minister). Under the CoW system, the minister awards a concession based on the requests from contractors and the contract should be approved by the House of Representatives. This makes a CoW have a high legal status. It is considered as a lex specialis, equal to a law. This type of contract gives certainty to investors. Under the IUPN system, the central government along with the House decides the so-called State Mining Reserves Zones and some of the reserve zones can be awarded to contractors through a tender. Minister/governor/regent/mayor will carry out mining inspection and research for the purpose of preparing WP. Minister or the governor may assign state or regional research institution to carry out mining inspection and research in a WP to support preparation of WUP and WPN. WP will be determined by Minister in coordination with the governor/ regent/mayor and in consultation with DPR. This draft specifies certain criteria for determining WUP and WPN. Government will announce the planning of WUP and WPN through relevant government office and/or through mass media.

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tinuing detriment to additional investment by existing contractors until the Government’s interpretation of these transitional clauses is clearly understood.

Source: www.kitco.com

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October 30, 2009 11

Agriculture Unlocking the Potentials of Agriculture

Commodities

Percentage of National Demand

Cow Meat

25% (± 600.000 beef cattle)

Sugar

30% (± 1.3 million tons)

Rice

2% (± 1.2 million tons)

Onion

90%

Soybean

70% (± 1.4 million tons)

Salt

50%

Corn

10%

Ground nuts

15%

Milk

70%

The Possibility of a Global Food Crisis

The collapse of the global economy is likely to result in a global food crisis. Reduced incomes and unemployment in Indonesia have weakened the purchasing power of many. On the production side, farmers face increasing dif-

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The required conditions for the growth of the agricultural sector are in place: • Indonesia has a land area covering 1.900.000 km2. It is said that Indonesia has some of the best land in the world for plantation crops such as palm oil and rubber and food crops • The country’s sea area covers 3.166.163km2 containing even many still unknown marine species. In addition to fishery and corrals the sea also contains large reserves of oil and gas and mining products. Much work has to be done to identify the still unknown potentials in the sea area • Indonesia’s coastline covers 80.791,4 km, but only some

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POTENTIAL ADVANCES

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Presently, there are a number of issues confronting adversely Indonesia’s agriculture. While Indonesian agriculture has performed well and contributed to the nation’s growth by having increased employment and reducing poverty, productivity gains of most crops have slowed down significantly. In addition, the majority of farmers today work on less than one-half hectares of land. Former minister Siswono Yudohusodo, in a seminar organized by ICWA, drew our attention to the changing situation of Indonesia’s agriculture by pointing out that the country has become an importer of many important commodities (Table below).

time path of agriculture’s contribution to gdp

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• Agriculture and the rural sector are of considerable importance to the livelihood of the people. Although agriculture has been declining steadily over the years, three out of five (about 60%) Indonesians still live in rural areas and rely very much on agriculture or agricultural-related activities for their livelihood. • During the Asian financial crisis of 1997/98 and the current global recession, the rural sector, which is largely based on agriculture, and the growing SME”s (small and medium enterprises) have shown its importance as a safety net to cushion the adverse effects of the economic crises. • As people would say, Indonesia’s fertile land allows everything to grow in the country. Rice, corn, sweet potatoes, bananas, vegetables and coconut trees, they are all grown here, giving the people a great deal of food security. People here will not perish, as we see happening in some parts of Africa, be-

CURRENT IMPEDIMENTS

parts of it are being used for tourism purposes • Indonesia has 17.504 islands, big and small, which could provide a large number of economic opportunities not only in the area of tourism but also in the area of agriculture and horticulture • The width of the country, from Sabang to Merauke, is 8000 km or almost 20% of world’s periphery Agriculture has always contributed to the country’s export earnings, particularly in the estate crops sector. According to the Ministry of Agriculture there are in total 126 commodities, which include, among others, coffee, cocoa, tea, rice, corn, white/black pepper, cloves, maize, essential oils, cashew nuts, tropical fruits, rubber, CPO/palm oil and forest products. The government has chosen so-called 12 priority commodities, with palm oil at the top of the list. The second largest commodity is rubber, followed by cocoa, coffee bean, tea and pepper. Indonesia is the largest palm oil area producer in the world. Its importance is not only for the food sector, but also for the energy and chemical sector. Rubber is exported to Japan, Europe and the United States. With regards to cocoa, Indonesia is the second largest exporter after Ivory Coast.

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The importance of agriculture

Several factors have contributed to the low growth of Indonesian agriculture. Firstly, low interest among the youth to work in farming and agriculture. They prefer to go to cities to improve their lot although they realize the rate of unemployment in urban areas is high and competition is very tough. Secondly, the working conditions in rural sectors are not attractive. The growth of technological advances in agriculture does not reach the rural sectors. Yet, motor cycles, mobile phones and televisions, surprisingly, reach almost every corner of the country’s rural areas, especially in Java. Thirdly, there is a lack of value-added developments in the agricultural sector, making the agricultural sector not attractive from the point of view of business. In addition, there is a lack of sustainable microfinance schemes in rural areas.

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ndonesia is widely recognized as a country with a well-developed agricultural economy and a good irrigation system, producing soft commodities. Its well-developed agriculture estates also produce a large number of internationallytraded commodities. Presently, however, in terms of GDP the share of agriculture in the economy has steadily decreased, as shown by the Time Path of Agriculture’s Contribution to GDP (Figure 1).

cause of lack of food. • Indonesian agriculture is internationally significant in terms of its production and its export of such products as palm oil, rubber, cocoa, spices (pepper, nutmeg, cinnamon, and clove) and a potential exporter of tropical food products including rice, corn, sago and others. • Internally, it contributes to the development of a “Mandiri (self-sufficient) Economy” and externally it supplies the world with various kinds of commodities.

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By Atmono Suryo

Through value-added developments, agriculture could become a more prospective business sector in the Indonesian economy

Source: World Bank

ficulties in obtaining credits to finance their businesses. Furthermore, with the drop of the value of developing currencies, farmers are more interested in exporting, making the imports of food very expensive. Meanwhile, the world demand for agriculture products continues to increase. A UN-ESCAP report of last August says that to overcome the food crisis and to sustain economic development in the region, significant investment is required to promote the development of pro-

poor agriculture. In the area of agriculture Indonesia has the potential to enlarge and improve this sector not only by reducing the imports of agriculture products, but also to become an exporter of tropical food and large estate products such as palm oil and cocoa. Much has to be done in this sector, such as opening up new areas outside Java; providing more support to research and improvements of technology; investing on rural infrastructure;

transportation and securing sustainable water resources. In particular, by transforming agriculture into becoming an attractive investment area. Through value-added developments such as processing, and transforming raw products into attractive consumer items, agriculture could become a more prospective business sector in the Indonesian economy. The time has come to convert agriculture into another viable engine of growth for Indonesia.

The President Post

12 October 30, 2009

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Human Capital Indonesian HR Organizations Must Become More Strategic Naresh Makhijani

lmost 90% of Indonesia-based business leaders believe that their HR organization are not carrying out activities that are linked to business strategy, according to a major research program by the Jakartabased management consultancy OTI (Figure 1). And it might be some time before this perception is substantively altered. Less than one in four believe that their HR organizations are transitioning to a position where it is links HR activities to strategic business objectives. Furthermore, just 14.44% believe that HR is moving away from an administrative function (Figure 2). Yet, leading organizations throughout the world have successfully migrated human resource management from being a narrow, administrative operation to a function that spends the bulk of its time on enabling the enterprise to shape and implement corporate strategy. They do this by ensuring that the people strategies are fully aligned behind corporate goals. These organizations are positioning HR as a strategic partner to the business. This elevates HR from the back office to the front-line of the business operations – from being just a provider of administrative functions to a contributor to enterprise revenue and net profit.

Krishnan Rajendran

Despite their poor perception of HR, we are now seeing a major shift in what senior managers within Indonesia expect from the function. As they increasingly realize that employees are not just factors of production but rather represent the intellectual capital required to succeed in an increasingly knowledge-based economy, they are looking to their HR organizations to get the best from their employee-base. They are asking HR to becoming a ‘business partner’. That said, a crucial first step to becoming a business partner is that the function masters the basics. As they transition to a strategic role, HR organizations must pay close attention to the utilization of proven best practices that can be applied to the administrative, or transactional, aspects of their work. No matter how loudly HR leaders might proclaim their readiness for a strategic partnering role, senior managers will not allow them to perform in this space if they are making errors in payroll processing or in the overseeing of compliance issues, as examples. Best practices in administrative areas are essentially arranged according to two interventional strategies: self service and consolidation. Automated self service – especially web-based - within HR is now commonplace in most Western organizations of any rea-

James Creelman

sonable size. Web-based technologies give employees direct access to their own HR and payroll information, allowing them to perform transactions electronically that used to be performed by administrative staff on paper forms. Many organizations that put their HR policies and programs online expect that the employee (or a manager seeking guidance on dealing with an employee-related issue) will first go to the intranet, read the policy and then if they do not understand how to interpret it to their own situation contact a call centre for assistance. Such call centres are usually a part of a HR shared services organization, through which the HR administrative work of many units is consolidated into a single location in order to achieve economies of scale and ensure greater quality of service. In many companies today, self services, shared services and business partnering are pulled together within a tiered and integrated HR offering. Tier 1 is self service covering simple transactions and policy and procedural questions Tier 2 involves a call centre in providing advice for more complex enquiries but that can still be answered through a standardized or common reply Tier 3 utilizes local business partnering advice when more tai-

lored solutions and problem resolution is required. FIGURE 1: THE IMPORTANCE OF HR within indonesian organizations Outside of multinationals, self service is still little deployed in Indonesian �� organizations. This is often because many HR or�� ganizations are reluctant �� to release control of the administrative functions �� that represent a large part of their work and power �� base. But those HR organizations that are serious �� about strategic partner�� ing must take the required steps to install self service �� capabilities, especially as offerings are mature, sta�� ble and proven. Similarly, although �� shared services is rare�� ly used (and to an extent not surprisingly as the cost �� saving gains through reducing headcount is not �� as compelling as is in the West) there is significant scope for higher usage so to increase efficienFigure 2: Changes taking place in Human Resources Management cies and release the time of HR professionals for more business partnering activ�� ities. �� Increasingly, many shared service organiza�� tions now house ‘centres �� of expertise’ that consol�� idate knowledge in areas �� such as leadership development. Such centres de�� velop the best practices and make sure that they �� are delivered consistent�� ly throughout the enterprise. These best practices �� become essential components of a strategic busi�� ness partner’s toolkit. �� In planning their transition to a business part�� nering role, for those HR employees that have built their careers as providers of administrative or compliance activities there is a need to revisit the basics of un- uitable and practices must focus derstanding what we mean by on creating a ‘win-win’ situation human resource (as opposed to in which employees are developthe more administratively skewed ing skills and competencies while personnel) management. simultaneously delivering heightened performance to the enterThe basics start with defining prise. human resources (the employee ‘Strategic human resources base, not the function). ‘Human management’ can be described resources are the talents and ener- as: ‘A pattern of planned human gies of people who are available to resource deployments, developan organization as potential con- ment and activities intended to tributors to the creation and real- enable an organization to achieve ization of the organization’s mis- its goals. It is a firm’s deliberate sion, vision, and goals’. use of human resources to help This definition explicitly links it gain competitive advantage in people with the strategic goals of the marketplace.’ the enterprise. By holding this Strategic Human Resources is definition firmly in mind, HR the realm of the business partleaders should be compelled to ner. So what skills are required of shape solutions that answer the a business partner? Of the many question ‘how will the day-to-day that we could list, none would be work of HR enable the enterprise more important that possessing a to reach its strategic goals?’ deep knowledge of the business But according to this defini- and an intimate understanding tion human resources are poten- of its markets and critical success tial contributors. It is the respon- factors. HR professionals must sibility of the HR function to speak the language of the busiensure that this potential is real- ness and articulate deliverables in ized. terms that the business relates to. Such a task is proving challenging for HR organizations In this space, HR professionthroughout the world. For in- als assume an ‘outward, resultsstance, a 2007 poll by the Gallup based’ view of their activities Organization found that 73% of rather than maintaining their US-based employees are disen- historic ‘inward’ perspective. As a gaged from the organizations for simple mechanism for doing this, which they work: they either just HR professionals should visualize turn up at work and go through three inter-connected circles. The the motions or, worse, do all they top circle represents the goals of can to do as little as they can. the enterprise (financial, customThis means that almost ¾ of an er, market-share, as examples). organization’s Human Resource The middle circle houses the obpotential is not being realized. jectives of each business unit. The The basics start But knowing that ‘human re- bottom circle is ‘resource mansources’ potentially create value is agement’ and is where HR’s day- with defining of little use unless we know how to-day work takes place. human resources it should be managed (human Conventionally, HR profes- (the employee base, resource management). In turn, sionals tend to focus only onto human resources management the bottom-circle. But it is by fo- not the function). must be deployed within a stra- cusing on the connections be- ‘Human resources tegic context (strategic human re- tween all three circles that HR sources management). professionals begin to gain a are the talents and Human resources manage- proper, and business-centric, un- energies of people ment refers to ‘the policies, prac- derstanding of how their work tices, and systems that influence drives success in the upper two who are available to employees’ behavior, attitude and circles. This is the beginning of an organization as performance’. Collectively these HR thinking like, and becoming potential contributors represent the interventions that a strategic business partner. to the creation and the HR function must deploy on a day-to-day basis to ensure that This article is extracted from the realization of the the human resource potential is book: Managing Human Capengaged and delivering value to ital in Indonesia: Best Practices organization’s mission, the enterprise. As examples, pol- in Aligning People with Strategic vision, and goals’.. icies must be seen as fair and eq- Goals (Azkia, Indonesia, 2009)

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October 30, 2009 13

Tourism Face-to-Face with Chinese Meeting Planners When the word Destination Marketing is mentioned, many tend to raise their eyebrows not knowing exactly what it relates to.

By Indra Sukirno Executive Director of the Jakarta Convention & Exhibition Bureau

hat is destination marketing? As Richard B. Gartrell, Travel & Tourism expert, speaker and educator wrote in “Destination Marketing for Convention & Visitors Bureau”, from the perspective of consumers, destinations are perceived as those geographic areas that have attributes, features, attractions, and services that appeal to prospective users. Destination Marketing is the marketing of a specific ‘destination’ designated for a special need to offer, whether it is for general tourism, MICE or other industries. When talking about destination marketing, it is the entire city’s stake holders who are responsible in joining forces to promote the destination. The more successful a destination marketing effort is, the better outcome it will contribute to the welfare of the people in that destination. The Jakarta City officials, under the coordination of the Tourism & Culture Office, recently brought together the private sector comprising hotels, convention & exhibition centers and the city’s convention & exhibition

Bureau to woo Chinese meeting planners in Guangzhou, Southern China, to increase their business events activities here in Jakarta. Alila Hotel, Mulia Hotel Senayan, Sultan Hotel Jakarta, Le Grandeur, Jakarta International Expo, Jakarta Convention & Exhibition Bureau were among members of the industry participating in this venture. The group was led by the Deputy of the Jakarta City Government Tourism & Culture Office Executive Director. More than 150 Guangzhou-

Destination Marketing is the marketing of a specific ‘destination’ designated for a special need to offer, whether it is for general tourism, MICE or other industries. based tours and travel agents who often conduct business events business outside China were present at the Table Top Appointments to meet with the Jakarta team that promotes the capital city’s strong points in meetings business. The invitations went out to the agents weeks in advance in order for them to prepare better on what to expect in Jakarta as a destination for meetings and conferences.

Most of the agents invited have never been to Jakarta; as such they were very anxious to know more about the city, the scenery and the food, in particular. The Chinese, especially in Guangzhou, love food very much. As one of our guides, quoting an old Cantonese saying, pointed out, ‘The Cantonese eat everything on the ground with four legs except tables and chairs and everything in the sky except aircraft”. The topic of food was raised several times in question and answer sessions. Many asked about Indonesian culinary delights available in Jakarta, to which we proudly explained the various types of restaurants with international names available here for them to choose from. Jakarta’s strength as well as its best kept secret is its ‘value for money’ food compared to what other parts of the world offer. We only need to promote and make known to the world as extensively as we can. However, when wooing the Chinese market, one needs to be more creative so as not to offer them what they already have, and costs less. The province of Guangzhou, also known to many westerners as Canton, has nine million plus inhabitants and lies in the southern part of China. It is also one of South China’s major cities and is widely open to outsiders. The population is spread in 10 districts, two satellite cities, eight urban districts. The city covers an area of 7,434 km2 area and boasts the largest exhibition center in Asia, covering 950,000 m2. Located in a spectacular area overlooking the river and highways, Guangzhou is proud to be the host of the 2010 Asian Games. More facilities are being pre-

pared to make the city a successful host. It is one of its goals to be an exhibition destination that can attract millions of visitors. As it prepares for the 2010 Asian Games, it is changing rules on the expiry time of the city’s taxis. The new regulation states that all cars that have run over 500,000 kilometers are required to leave the taxi market. This means that each car will only have a life of about three years. Formerly, a taxi can go up to 800,000 kilometers or has been in use for eight years before it is asked to leave the market. China’s culture is strongly appealing to foreign tourists I was impressed by the vast area covering Guangzhou and was win-win business agreements berelieved to know that no motor- tween the two cities? cycle ran around on the streets, To do business and make it making the place less polluted successful we need to speak in the from exhaust fume. same language. One significant The guide assigned to our fact that we encountered durgroup said the government for- ing our promotion trip was that bids the use of motorcycles as the Chinese generally speak only private vehicles. One of my col- their language. Therefore comleagues whispered, ‘they are all prehensive information in print exported to Jakarta!’ or electronic in Chinese language Some of the highlights of the should be prepared in order to get city are the Sun Yat-Sen (the your message across appropriatefounder of modern China) Me- ly. Nothing is more frustrating morial Hall on the southern slope than trying to explain someone of Yue Xiu Hill, and the 382 me- what you wish, only to discover ter-White Cloud Mountain. that the message had been interWhat can Jakarta expect from preted differently. Guangzhou? This question sometimes What can Guangzhou expect comes up as we make an evalu- from Jakarta? ation of our trip. Also, what can Questions were raised whethwe establish together to reach er Indonesians still treat the Chi-

Photo: Duta Images

nese badly here, whether there is still prejudice against the Chinese community. What about the political situation now? How about safety and security measures the government is taking? What about the natural disasters that have taken place in several different areas? Is the government communicating precaution steps in case of an earthquake? What about Visa on Arrival for the Chinese? What about terrorist attacks? Those are some of the questions raised during the meetings. Safety and security issues as well as how we treat ethnic Chinese are major concerns to them, not how hotels or convention centers look like nor their capacity and the rates offered. Indeed, we haven’t done enough

to communicate the progress Indonesia has made over the years. Of course, all this needs to be packaged in a more strategic format for the world know—change our image and start doing strategic planning. To maximize future promotion trips overseas, perhaps we should consider programs that include official visits to Visitor Information Centers, conduct inter-active dialogues with our counterparts from promotion boards, site inspections to exhibition centers and other places of interest worth knowing for comparison purposes. Jakarta still has a long way to go, but as long as we are on the right track and remain solid as a team based on a spirit of sharing, we will attain what we strive for.

The President Post

14 October 30, 2009

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Technology

The Economic Impact of Microsoft’s Windows 7, BRIC By John F. Gantz, Al Gillen, Amie White

This profile quantifies the forecasted economic impact that Microsoft’s Windows 7 operating system will have from launch in October 2009 to the end of 2010 in Brazil, Russia, India, and China, the socalled BRIC countries. The impact is seen in IT employment, revenues to firms in the Microsoft ecosystem, and investment in products and services working with or supporting the new operating system. The employment, revenue, and investment in local IT ecosystems from Windows 7 will help the IT industry to assist economies in these nations in climbing out of the current economic crisis and building toward longterm growth.

EXECUTIVE SUMMARY

indows 7, Microsoft’s follow-on to Windows Vista (launched in 2006), will become commercially available in October 2009. IDC’s forecast for Windows 7 shipments shows a brisk uptake: 177 million units to be shipped worldwide by the end of 2010. For Microsoft, the launch of Window 7 suggests strong growth in client operating systems again. But the impact of Windows 7 will reach far beyond Microsoft, driving revenues and growth for many of the BRIC IT companies that sell hardware, write software, provide IT services, or serve as IT distribution channels. This growth will do its bit to help these nations. economies climb out of the current economic crisis. The IDC research indicates that: • By the end of 2010, more than 177 million copies of Windows 7 should be in place worldwide, and more than 17 million in the BRIC countries. • By the end of 2010, nearly 1.7 million people in the BRIC IT industry and at IT using organizations will be working with Windows 7, 21% of the BRIC IT workforce. The 45,000-plus IT companies in the BRIC countries that produce, sell, or distribute products or services running on Windows 7 will employ more than 900,000 people; another 800,000 will be employed at IT-using firms. • For every dollar of Microsoft revenue in the BRIC countries from launch in October 2009 to the end of 2010 from Windows 7, the ecosystem beyond Microsoft will reap $22.62. During that period, this ecosystem will sell nearly $40 bil-

lion in products and services revolving around Windows 7. • To achieve those revenues, the companies in the Microsoft BRIC ecosystem are expected to invest more than $13 billion by the end of 2010 developing, marketing, and supporting products and services built around Windows 7. BACKGROUND TO THIS STUDY

Since 2002, IDC has conducted studies on the economic impact of IT, software, and the Microsoft ecosystem and partner community on local economies. This impact comes in the form of job creation, company formation, and increased IT spending. The economic impact and reach of the Microsoft ecosystem, which we call the Microsoft Footprint, have been studied in more than 80 countries since 2004. In the summer of 2009, IDC extended its Microsoft Footprint research to examine the economic impact of Windows 7. (See also Definitions and Methodology section.) ADOPTION OF WINDOWS 7

As of this writing, Windows 7 is expected to launch in October 2009. Figure 1 shows IDC’s published forecast of Windows 7 unit shipments worldwide by year compared to Windows XP, NT, and Vista. IDC expects Windows 7 shipments to grow from just over 40 million in 2009 to 272 million in 2013. In the scheme of total IT spending in the BRIC countries, the spending on the more than 17 million copies of Microsoft’s Windows 7 to be shipped between launch in October 2009 and the end of 2010 will be small - less than 1% of total IT spending and 9% of total spending on software. But Windows 7 means more than revenue to just Microsoft. It will also drive revenue for hardware companies, other software companies, service firms, and channel firms in every corner of the nation. To understand this overall impact first requires understanding the role of software in the economics of IT. THE IMPORTANCE OF SOFTWARE

Within BRIC, packaged software accounts for 10% of total IT spending. That’s spending on operating systems, applications, and development tools for everything from ultra portable computers to large mainframes.

FIGURE 1: Microsoft Client os forecast - New license shipments

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But this software generates related activity. • People in service firms install, integrate, support, and train others on software. • People in computer stores, system resellers, and distribution companies spend time selling and delivering software. • Hardware and software firms design and sell products that run on software. Because software is more complex to sell, service, and support than hardware, dollar for dollar, software generates more downstream economic activity than hardware.

Microsoft is more than the world’s largest software company. It is an economic force that, through its ecosystem, directly impacts the economies in which it operates IDC’s analysis of the IT services market shows that for every euro of packaged software sold, there is another $1.24 in revenue to IT service firms. That software revenue and additional services revenue also drive revenue in the distribution channel. These multiple revenue streams pool to help fund employment. IDC’s interviews with user organizations also confirm that in IT organizations, the allocation of staff disproportionately favors software when compared to software’s share of the external IT budget. This is why Windows 7 can have a much larger impact on an economy than Microsoft’s revenues alone. Figure 2 demonstrates this conclusion by comparing software spending as a percentage of total BRIC IT spending to software-related employment as a percentage of total BRIC IT employment in 2009. THE IT LANDSCAPE

If the economic forecasts hold, by 2010 the IT markets in the BRIC countries should begin re-

covering from the economic crisis. The overall BRIC IT market in 2010 should look like this: • IT spending, $156 billion, up 10% from 2009 • Packaged software spending, $15 billion, up 11% from 2009 • Hardware spending, $106 billion, up 9% from 2009 • Services spending, $34 billion, up 11% from 2009 • PC shipments, more than 75 million, up 13% from 2009 This is an inhospitable environment - although better than that in many other economies into which Windows 7 will be shipping. But the launch of a new and better operating system will necessitate new applications, new hardware, new planning, deployment and training, and new services. These will drive muchneeded investment that will, in turn, fuel stronger growth in subsequent years. THE IMPACT OF WINDOWS 7

Applying the same methodology used to determine softwarerelated employment, IDC has determined Windows 7-related employment by the end of 2010. As a subset of the software market, Windows 7 will drive a subset of employment. As an operating system, however, its share of employment will be disproportionately larger in comparison to employment related to applications or development tools. Figure 3 shows how Windows 7-related employment compares to total BRIC IT employment in 2010. By the end of 2010, Windows 7-related employment will account for nearly 1.7 million jobs - or 21% of all IT employment - in the BRIC IT industry. This is nearly 350,000 in hardware companies, more than 100,000 in software companies, more than 450,000 in services and channel companies, and nearly 790,000 in IT using organizations. Table 1 shows total IT employment and Windows 7 related IT employment by country. THE WINDOWS 7 EFFECT

It’s one thing to calculate Windows 7 related employment, another to determine what employment would be were Windows 7 not to enter the market. What’s the net gain, or economic “bounce,” from the launch of

FIGURE 2: software’s outsized influence ��

Windows 7? Figure 4 shows one way to look at it. Here we show the Windows 7 percentage of IT employment in 2010 (21%) compared to the Windows 7 share of the net gain in overall employment from 2009 to 2010. Coming up with the net gain means developing an estimate of 2009 employment, as if Windows 7 were not in the market. We did this using the same methodology we applied to determine Windows 7 2010 employment, but with the predecessor operating systems in 2009. IDC expects that employment related to client operating systems is expected to grow by about 160,000 new jobs or more than 60% of total growth in BRIC IT employment solely because of the launch of Windows 7. THE REACH OF THE MICROSOFT ECOSYSTEM

Microsoft is more than the world’s largest software company. It is an economic force that, through its ecosystem, directly impacts the economies in which it operates. Microsoft partners

companies will drive their own revenues by: • Reselling the new operating system • Reselling other Microsoft software that runs on the new operating system • Selling their own software • Selling services on the Microsoft software • Selling services on their own software and that of others that run on the new operating system • Reselling partner-developed software that runs on the new operating system • Selling or reselling hardware that runs the new operating system These permutations and combinations of revenue generating activity will lead the Microsoft ecosystem - as many as 85,000 companies in the BRIC countries, at least half working with Windows 7 - to bring in nearly $40 billion in product and services revenues related to Windows 7 from launch in October 2009 to year end 2010. Because the vast majority of the companies in the Microsoft

Country

Windows 7 Related Employees

Windows 7 %

1,371,000

285,000

21%

414,000

95,000

23%

India

1,257,000

235,000

19%

China

4,986,000

1,073,000

22%

TOTAL GROUP

8,029,000

1,688,000

21%

Russia

Source: IDC, The Economic Impact of Windows 7, 2009

and OEMs sell PCs running Windows; software vendors write applications that run on Windows using Microsoft application development tools; retail outlets and resellers employ people to sell and distribute these products; and service firms install and manage Microsoft-based solutions, train consumers and businesses on Microsoft products, and service customers for their own applications. If you total all of the spending on hardware and software that run on Microsoft operating systems as well as all of the spending on the services related to installing and maintaining Microsoft applications and solutions, you quickly come up with a number much bigger than Microsoft’s revenues. With Windows 7, ecosystem

ecosystem are locally owned and operated small and medium sized businesses, the preponderance of that $40 billion will remain in local communities and drive local economic growth. Figure 5 shows the relationship between estimated Microsoft revenues from Windows 7 and revenues to partners from Windows 7-enabled hardware, software, and services sales. For every dollar of Microsoft revenues from the new operating system, other companies in the BRIC countries will make $22.62. To obtain these revenues, BRIC ecosystem firms are expected to invest more than $13 billion during that period to develop, market, and support their products and services that work with or run on Windows 7. These investments, mostly out of com-

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�� Source: IDC, The Economic Impact of Windows 7, 2009

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Source: IDC, The Economic Impact of Windows 7, 2009

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Within the Microsoft ecosystem is a subset of vendors that are recruited and supported by Microsoft as OEMs and registered partners. They are a diverse group of companies, running the gamut from large international vendors, such as major PC manufacturers, to very small national resellers and software entrepreneurs. These partners often don’t go to market as pure hardware, software, or services companies. Many resell software while creating their own, sometimes they resell hardware as well, and often they service both their own software and the hardware and software they resell. Hence, IDC also classifies ecosystem companies by business model, categorizing them into five groups: • Product-oriented partners derive 60% or more of their revenue from the sale of internally created products. These may

Total IT Employees

Brazil

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THE MICROSOFT PARTNER COMMUNITY

TABLE 1: WINDOWS 7 IMPACT ON EMPLOYMENT BY COUNTRY IN 2010

FIGURE 2: software’s outsized influence

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pany revenues, will also primarily remain in their local economies.

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�� Source: IDC, The Economic Impact of Windows 7, 2009

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be independent software vendors (ISVs), communications solution vendors, hardware vendors (ranging from major system vendors to non branded local assemblers), or other types of technology solution vendors. • Services-oriented partners derive 60% or more of their revenue from the delivery of internally created services and less than 20% from the resale of third-party products. These include systems integrators and consultants. • Value-added resellers (VARs) derive 20% or more of their revenue from product resale and 20% or more from internally created services. They provide turnkey solutions that bundle hardware, software, and services. • Logistics-oriented resellers derive 60% or more of their revenue from the resale of thirdparty products and less than 20% from the delivery of internally created services. They focus on improving the process and reducing the cost of buying third-party products. • Retail logistics resellers derive 80% or more of their revenue from the resale of third-party products to consumers. This category is a unique subset of the logistics-oriented category. Figure 6 recasts the revenue ratios shown in Figure 5 by partner type. Since most ecosystem partners fall into one of these categories based on their business model . as opposed to the strict hardware, software, services IT spending categories . these fig-

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October 30, 2009 15

Technology TABLE 1: WINDOWS 7 RELATED REVENUES PER DOLLAR OF WINDOWS 7 REVENUE, 2010 Country

Total

Hardware

Software

Services

Product Oriented

Services Oriented

Value Added

Logistics Oriented

Retail Logistics

Brazil

$20.73

$15.44

$2.37

$2.93

$12.36

$2.85

$3.83

$7.24

$8.50

Russia

$18.74

$15.36

$2.03

$1.36

$12.15

$1.72

$3.10

$7.11

$8.51

India

$17.58

$12.47

$2.10

$3.01

$10.12

$2.82

$3.46

$6.04

$7.03

China

$27.54

$23.63

$2.09

$1.83

$18.26

$2.03

$4.27

$10.73

$12.96

$22.62

$18.25

$2.15

$2.22

$16.04

$2.63

$4.96

$12.96

$15.68

TOTAL GROUP

Source: IDC, The Economic Impact of Windows 7, 2009

FIGURE 4: THE WINDOWS 7 EFFECT, BRIC ��

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Source: IDC, The Economic Impact of Windows 7, 2009

FIGURE 5: WINDOWS 7 Ecosystem revenues, BRIC ��

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Source: IDC, The Economic Impact of Windows 7, 2009

FIGURE 6: WINDOWS 7 Ecosystem revenues By partner type, BRIC ��

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Source: IDC, The Economic Impact of Windows 7, 2009

ures are more applicable to their understanding the impact that Windows 7 can have on their own markets. Table 2 shows the Windows 7 ecosystem revenues compared to Microsoft revenues by country by category. All the BRIC countries, especially China, have a high PC share of total hardware revenues, which shows up in the ratio of hardware revenues to Microsoft Windows 7 revenues. This also translates into higher product oriented revenues compared to other partner categories. SUMMARY AND OUTLOOK

The advent of Windows 7 will precipitate related and cascading economic benefits, from new employment to increased revenues and investments made in national, state, and local economies throughout the BRIC countries. In this case, 1% of total BRIC IT spending will drive 21% of total BRIC IT employment and account for a significant portion of the new jobs created in BRIC country IT industries in late 2009 and 2010. In the midst of an economic crisis, with most governments seeking economic stimulus to grow their economies, the launch of a major new operating system should be considered good news - a stimulus package in its own right. DEFINITIONS AND METHODOLOGY

Economic Impact IT Spending - Spending by consumers, businesses, governments, or educational institutions on information technology, including hardware, software, services, and data networking, as measured in the IDC’s Worldwide IT Spending Trends reports (The Worldwide Black Book). This spending excludes all telecommunications revenues and some smaller emerging technology areas, such as videogames (although PC gaming software is included). IT Employment - The number of people employed (full-time

equivalent) in hardware, software, services, or channel firms and those managing IT resources in an IT-using organization (e.g., programmers, help desk, IT managers). Channel revenues - Within calculations of employment, IDC used a figure for channel revenues to drive estimates of employment. In this case, channel revenues were equated to 100% of IT spending. Most of that goes back to the hardware, software and IT services suppliers, but it is that revenue that funds employment. Within its tracking of IT spending, IDC looks only at channel mark-up, which is the difference between IT spending and vendor revenues. Figure 7 illustrates the methodological flow of the study. FIGURE 7. Economic Impact Methodology Source: IDC, The Economic Impact of Windows 7 Study, 2009 Software-Related Revenues and Employment This is the percentage of spending or employment that can be associated with creating, installing, servicing, or distributing software. It was developed by first analyzing 13 service categories and using IDC research to determine the percentage of that activity devoted to software (e.g., what percentage of IT outsourcing is managing software applications and infrastructure, and what percentage is managing hardware.) This led to a ratio of software spending to services spending. For the purposes of allocating employment, internal IT departments were assumed to resemble external service organizations and headcount is allocated accordingly. The allocation of channels activity to software is the midpoint between the percentage of software spending to the total of software and hardware spending and the percentage of IT services that is software related. Windows 7 Related Economic

Impact Windows 7 related employment was derived using countrylevel estimates of the percentage of IT spending in 2009 and 2010 by IT category for products running on the new operating system or for services supporting them. • For hardware we counted newly shipped PCs that we expect to run on Windows 7 based on IDC forecasts. • For software we counted all software that we expected to be shipped that would run on Windows 7, including Microsoft software. For this we used the IDC Software Market Forecaster on revenues by software category (e.g., development tools, CRM software, collaboration tools) by operating system. • For services we counted all services related to the design, deployment, management, support, and training for Windows 7 and solutions running on it. We excluded maintenance

and support on hardware running Windows 7 under the assumption that maintenance was more likely to be related to equipment failures. • For Windows 7 related IT professionals we used the general ratio of services to come up with estimates of headcount percentages in user organizations. To determine the amount of Windows 7 related IT spending per dollar of Windows 7, we took the Windows 7 related spending percentages developed above and compared them to estimates of Windows 7 revenue. In the final calculation, we subtracted Windows 7 revenues and Microsoft revenues from its own software that would run on Windows 7 from the total to come up with the total Windows 7 related spending that wasn’t revenue to Microsoft. Ecosystem Revenues and Investment Levels The exercise above yields a ratio of Microsoft revenues to those in the ecosystem, which leads to a revenue calculation for 2009 and 2010. IDC then used these revenues and applied estimates of investment in R&D, product development, sales and marketing, and customer support to determine Windows 7 investment levels. These were patterned after standard industry ratios.

FIgure 7: economic impact methodology

��

�� Source: IDC, The Economic Impact of Windows 7, 2009

In this case, 1% of total BRIC IT spending will drive 21% of total BRIC IT employment and account for a significant portion of the new jobs created in BRIC country IT industries in late 2009 and 2010

Communications

The President Post

www.thepresidentpost.com

Display until November 13, 2009 // No. 02

MASTERING COMMUNICATIONS:

Tifatul Sembiring’s Big Task Tifatul Sembiring expressed delight when he knew he was getting the communications and information (Kominfo) portfolio in the new cabinet. “That’s my background,” he was reported to have said. By Keith Loveard

nation healthy, making its businesses work well and in virtually every other aspect of human life. Departments such as health, education and the economic ministries that need to get messages across could turn to Kominfo for help in getting the best result for their budget. Tifatul and Kominfo would also be well advised to set as one of their goals in their first 100 days a review of Indonesia’s external communications tools. If they were honest, they would find very quickly that there is a lot to do.

go.id, which stood for the directorate general of domestic trade, but the link is broken. This is the site that I was told cost Rp15 billion to build in what must have been one of the most dramatic mark-ups in recent government history. The situation is that Indonesia has hundreds of web sites but they suffer from a variety of faults. They are poorly designed and the language they use is poor. They are not maintained – a recent search I made found that the Department of Environment had not updated its PROPER environment award listing since 2007.

At the moment, Indonesia is one of the only countries in the world that does not have a sound internet site to introduce business to its potential in trade, investment and tourism. Bangladesh has one, South Korea has one, virtually every country except Indonesia. Indonesia does have a host of web sites and some, like the Bank Indonesia site, are good. Others are less helpful. There is www. indonesia.go.id, now in English and Indonesian but lacking in appeal. There was www.djpdn.

Little thought has been given to linking the vast number of sites in a manner that would provide easy access. No-one has sat down and tried to work out the vital question “what would make it easy for people outside the country to find useful information and contacts in Indonesia?” This is just the start of what could be a major project for Kominfo. At one stage, the Department of Finance funded an agency known as the National Development Information Office (NDIO), a project run by

External value

Communication and Information Minister, Tifatul Sembiring

ot only was Tifatul a student at the Institute of Computer and Information Management (STI&K) but he also served as public relations officer for Nur Mahmudi Ismail when he headed the former Justice Party (PK), before its transformation into the Prosperous Justice Party, with Tifatul himself at its head. Tifatul thus appears to have a grounding not only in the hardware of communications technology, but also that he understands the use of the “software,” including the factor known as spin which is central to the practice of public relations. He has already promised to establish 100 computerized villages within his first 100 days in office and says he wants to see Indonesia excel in areas of information technology other than content. His priorities also have to include kick-starting the Palapa Ring program, which will create backbone infrastructure through eastern Indonesia, following its down-sizing after a number of participants in the consortium drop out because of the global recession. These are already impressive aims. Let me add some more: the important task of communicating messages both within and without the country to make a better Indonesia. Tifatul has the opportunity to make of Kominfo a far more active department than it has been up until now. Domestic needs

As things stand, failure to communicate is costing the country vital opportunities at a critical time when all possible progress is required to achieve long-term goals. Failure to maximize opportunities could see neighboring countries by-passing Indonesia and taking what could be its role as the dominant force in Southeast Asian society. Just one example of that failure is a recent statement by Edy Putra Irawadi, a deputy at the coordinating ministry of economic affairs, who admitted in Sep-

Photo: www.pk-sejahtera.org

tember that the Rp60 trillion tax breaks that formed the bulk of this year’s stimulus package had not been taken up. A mere 1.5% had reached its target by the end of the third quarter, he said. “Given the low take-up rate this year, we plan to directly approach eligible businesses and inform them about the tax breaks next year,” he told the media at the time. The comment strongly suggests that the major problem in rolling out the program this year was that businesses simply did not know it existed. The problem: poor communication. Take another problem, the persistent but often fatal health problems from diarrhea and other gastric ailments. The death of one person and severe sickness of hundreds more during Ramadhan at Bogor was blamed on changed eating habits during the fasting month and poor sanitation. The latter cause is blamed in a vast number of cases of sickness that bring fatalities and a dire human cost every year. Poor hygiene remains a serious problem in Indonesia for the simple reason that many people have never been taught the very basics of personal cleanliness. Again, this is a failure in communication. In another case, many millions of people were confused when the system of voting changed in the recent elections from ‘nyoblos’ (piercing) to ‘nyontreng’ (ticking). Again, a problem of communication. In all of these cases, Kominfo could have provided expertise in public communication programs to quickly get messages across. In the case of poor hygiene standards, the task remains to be tackled and hundreds if not thousands will get sick and possibly die every year until the basics of personal cleanliness are communicated. Tifatul Sembiring can easily expand the effectiveness of his department by creating a center of excellence that can offer assistance to other departments in public education programs that can assist greatly in keeping the

current configuration of palapa ring project

Source: Iburst Seminar - June 17, 2009 at Ritz Carlton

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

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

the international public relations firm Hill and Knowlton. The program deserved to be scrapped, since it was far too expensive, but it should have been replaced by a home-grown service that produced useful publications such as a year book and quarterly updates (these days the internet can do the job better and cheaper) and invited foreign journalists to come and visit and find out what makes Indonesia tick. This is still needed. While Indonesia is far better known today than it was in 1995, when NDIO was scrapped, there is little detail available. Filling in the holes in information and establishing positive relationships with journalists would be guaranteed to produce benefits for decades ahead. Sadly, no-one is doing this job. Just down the road from Kominfo, the National Information Institute (LIN – Lembaga Informasi Nasional) was an empty shell the last time I went in there. Tifatul should take charge and make it work. Barriers

For the past decade I have been teaching media management skills to the Department of Foreign Affairs, and in a recent ses-

sion I was asked by one of the participants how I rated Indonesian officials for their ability to communicate. My response was, I suspect, exactly what my questioner expected. The truth is that very few Indonesian bureaucrats know how to communicate. They are marooned in a world view that believes they should be stiff and formal and use as many big words as possible to look “official” and “important”. Sadly, this is self-destructive. The stiff, formal style of the bureaucracy is a deterrent to effective communication. Big words and fancy, formalistic phrasing are barriers to understanding. Interdepartmental jealousy also needs to be kicked into the rubbish bin of history. Departments are often reluctant to provide even a minimum of the authority that they believe belongs to them to third parties. This is a barrier to development, and officials need to be prepared to seek advantage wherever they can find it, including at Kominfo. Most importantly, officials have to be prepared to learn new skills. As an adviser to the then Department of Industry and

Trade between 2002 and 2004, it very quickly became clear that the echelon one and echelon two officials had no interest in learning new skills. Either they believed they could already communicate, or were embarrassed to admit that they were not perfect. I was given echelon three and four personnel to work with, only to have them tell me that while they appreciated what I was trying to teach them, they had no power to make decisions, and the people who really needed to learn to communicate were their bosses! Changing Indonesia’s communication footprint is a critical task ahead of the nation. Look at any family, the basic building block of society, and see if the members of that family can communicate well together. If they can, the chances are they are happy and prosperous. If they cannot, the chances are that family is heading for the rocks. The new minister should take heed and get seriously to work. Keith Loveard is a Jakarta-based media professional. He can be contacted at keith@concord-consulting.com.