JULY 4, 2005 Editions: N. America | Europe | Asia | Edition Preference
Yudhoyono's "Triple-Track Strategy" Indonesia's President talks about raising growth, creating jobs, and alleviating poverty. Plus: His take on corruption and terrorism Last October, Indonesian President Susilo Bambang Yudhoyono took control of the world's most populous Islamic nation -- and one that has had its share of challenges. The Dec. 26 tsunami took roughly 128,000 Indonesian lives in Aceh Provinces and other sections of Northern Sumatra Island. This sprawling archipelago of 224 million has also been a staging ground for al Qaeda-inspired terrorist attacks, including the bombing of a Bali nightclub in 2002. There's also the ongoing problem of separatist groups in Aceh and elsewhere. Yet for the first time in years Indonesia has reason for some optimism. Since winning the country's first direct-election presidential campaign in September, Yudhoyono has won international praise for his crisis-management following the tsunami and his efforts to fight terrorism and the corruption that's rampant in Indonesia's political and business circles. The retired general turned political reformer, who holds a PhD in economics, is also overseeing a long-sought-after economic recovery. The economy shot up 6.4% year-over-year in the first quarter, the best showing since 1996. And foreign investment is starting to stream back into this $255 billion economy, after slowing to a trickle since the mid-1990s. Yudhoyono is clearly the most accomplished President Indonesia has had since the end of the authoritative Suharto regime in 1998. On June 17, a fit-looking and relaxed Yudhoyono discussed his economic plans for Indonesia, the scourges of terrorism and corruption, and other matters with BusinessWeek Hong Kong-based Asian Regional Editor Brian Bremner and Singapore-based correspondent Assif Shameen at the Presidential Palace in Jakarta. Edited excerpts from the interview follow: Q: How is Indonesia coping with the aftermath of last December's tsunami? A: The tsunami was kind of a wake-up call and also a test -- a test for our solidarity, and a test for our ability to deal with disasters. I flew directly to Banda Aceh on Day 2. Everything was paralyzed. I realized we had to build from zero. The tsunami was certainly the greatest challenge of my entire public-service career. It wasn't difficult for me to mobilize the nation, because the whole nation mobilized itself. It was a powerful unifying event for Indonesia, and also for the world. Looking back on our emergency relief operations, I think the most important things were speed and coordination. We were able to synchronize operations among the military, NGOS [nongovernmental organizations], government agencies, and so on. I promised I would appoint a man of competence and integrity to oversee Aceh's reconstruction -- and I did that with the appointment of Dr. Kuntoro Mangkusubroto as director of the Rehabilitation & Reconstruction Executing Agency. We want to rebuild Aceh speedily, but also effectively and accountably. So far, $1.2 billion in funds has been disbursed. Q: Was the tsunami also an opportunity to end the separatist violence in Aceh? A: Well, one month after my inauguration last October, I went to Aceh. I called upon all brothers and sisters involved in the separatist movement to unite and join us to build Aceh based on special autonomous standards. After the tsunami hit, I once again called on them to terminate the conflict. I also instructed the military to change the mode of operations. In my view, the response has been positive. I'm optimistic that if this trend continues, we will be able to terminate the conflict. Q: How do you propose to bring Indonesia back onto the prosperity track? A: I have set up economic objectives to be achieved in the next five years. We have to have 6% to 7% growth over the next five years just to create jobs. My government's development strategy is based on what I call the Triple Track Strategy. The first track is to achieve sustainable higher growth through a combination of strong exports and increased investment, both domestic and foreign. The second track is to stimulate the performance of the economic sectors to create employment. And the third track is to promote the development of the rural economy and agriculture to alleviate poverty. By 2009, we aim to reduce the unemployment rate from 9.5% to 5.1%, and we seek to cut the poverty rate in half, to 8.1%. We also seek to increase growth on average of 6.6% per annum during the next five years. But we want to do more than pump up numbers. We intend to create quality growth that creates good jobs for around 2 million new job seekers each year. We also aim to improve the climate of doing business within Indonesia. Q: To achieve any of that Indonesia needs to address its widespread problems with corruption, considered the worst in Asia. How do you plan to achieve that? A: Fighting corruption is very, very important to our competitiveness. If we fail, we will lose the battle to attract foreign capital and stimulate our domestic economy. In many provinces, we have put corrupt local bureaucrats, political leaders and parliamentarians, majors, and even a governor in jail for their wrongdoings. Many government officials now have to think twice. The people really support my effort to combat corruption. I have also listened to foreign and domestic businesspeople about the need for a sound legal framework and economic policies and less regulation. It takes about six months just to establish business in Indonesia. I have instructed my government to get that down to no more than two months. Q: How can Indonesia attract foreign capital when so many business executives are fixated on growth in China and India? A: I will do my best to fix many things in Indonesia, and I want to improve the climate to invest. We have to put our house in order. But actually, if you look at the existing trade between Indonesia and China, it's actually in a surplus for Indonesia. We realize that China and India are emerging, but that creates new markets. I'm a true believer that economic exchanges benefit both parties. Q: The Australian government recently issued a warning about a possible new terrorist outrage in Indonesia. Is your government on top of this threat? A: Indonesia is a large country, and the threat of terrorism is real. But this is true of other developing countries. The fight against terrorism, like corruption, is never-ending. What I'm doing is launching a two-track strategy. We're conducting massive intelligence and police operations to find the terrorist cells and harass them. But there is a misunderstanding among some that terrorism is connected to Islam. I say to my people again and again there is no relationship between the two. So -- and this is very important for Indonesia -- I want to strengthen the role of moderate Islam. We need moderate religious leaders who won't let their people be taken hostage by the radicals, by the terrorists. In doing so, I have to improve our education and communication to tell people that terrorism destroys everything economically, [as well as] the image of Indonesia. Q: As the world's most populous Islamic society and a fledgling democracy, could Indonesia serve as a model for the developing world and the Arab states of the Middle East? A: I have a dream and the Indonesian people have a dream also that we can someday show the world that Islam and democracy can live together. We proved it in our past elections last fall, which went smoothly, democratically, and peacefully. I want people to look at Indonesia as moderate, Islamic, and peaceful. @ Copyright 2005, by The McGraw-Hill Companies Inc. All rights reserved http://www.businessweek.com/magazine/content/05_27/b3941065.htm A Whiff Of New Money President Yudhoyono has Indonesia growing again, and investors are back. Can he keep up the momentum? Indonesia is a society on edge. Security guards brandish automatic weapons in front of all the Jakarta business hotels, poised to ward off potential terrorist attacks. Or check out the headlines: Gas and power shortages have surfaced in East Java because cash-strapped state oil giant Pertamina can't afford to import enough fuel, and the nation's vast energy assets have been terribly managed. In rural Aceh Province, home to a violent separatist movement, life is a struggle in the wake of the tsunami last December that killed 128,000 Indonesians and left 500,000 homeless. Yet behind these grim realities, you sense something more in this sprawling archipelago: the scent of money. The Jakarta composite index has risen 65% over the past year, and the economy is growing at its fastest clip since 1996, up a surprising 6.4% year-on-year in the first quarter. Foreign direct investment commitments, which had collapsed after the fall of Suharto in 1998, have nearly doubled, to $5.5 billion, in the first four months of the year, vs. the same period in 2004. A consumer spending revival, coupled with robust global demand for palm oil, coal, tin, and apparel, is fueling growth. "Whoever puts their foot in here is going to make money over the next three to five years," says Henk Mahendra, Jakarta-based president director of Orient Technology Indonesia, which on May 30 signed a $250 million government contract to build and operate a new international port in Sumatra. The new optimism and robust economic numbers owe much to the election of President Susilo Bambang Yudhoyono. The retired-general-turned-political-reformer, who earned a PhD in economics last year at the age of 55, took power in October. He beat weakened incumbent Megawati Sukarnoputri in the first direct general election in the nation's history. Yudhoyono has won international praise for his response to the tsunami and his blunt talk about the country's problems, including terrorism and human rights abuses by the military. But what really has the markets smoking is a five-year, $145 billion spending plan he unveiled in January to upgrade Indonesia's creaky infrastructure -- everything from a $178 million airport extension in Jakarta to a $1.5 billion gas pipeline. Cash-strapped Indonesia can ill afford such a massive public spending program, but Yudhoyono says foreign investors will contribute at least $90 billion, then lease the facilities out to cover the costs and make a profit. Yudhoyono has also made ending Indonesia's endemic graft a personal crusade. The country has been ranked the most corrupt in Asia for four years running, according to Hong Kong-based Political & Economic Risk Consultancy Ltd. That touches a raw nerve with voters. In an interview with BusinessWeek, Yudhoyono said he received 5,000-plus complaints about corruption and red tape when in mid-June he invited Indonesians to call him on his personal mobile-phone number, which he made public. His phone soon crashed, but he got the message: If Indonesia doesn't clean up its act, "we will lose the battle to attract foreign capital and stimulate our domestic economy," he said. Admittedly, Indonesia enters that battle with some serious handicaps. The nation has been hit by two major al Qaeda-inspired bombings since 2002. And red tape has made Indonesia an expensive, frustrating place to do business despite its large labor force and wages of roughly $80 per month for factory jobs. Its port-handling fees are the highest in Southeast Asia. And foreign businesses must wait about five months to get a license to operate in Indonesia, vs. one month in Thailand and Malaysia, according to the World Bank. Yudhoyono is committed to changing all that during his five-year term. State money is already wending its way through the economy, as the government has signed off on the first of some $22 billion in infrastructure deals it is expected to approve in 2005. Yudhoyono is promising to deliver 6.6% annual growth -- about what Indonesia needs in order to create jobs for the 2.5 million young people who enter the labor force every year. Otherwise, he may not meet his goals of reducing the jobless rate from 9.5% to 5.1% and pulling half of the 38 million poorest Indonesians above the poverty line. Some Indonesia-watchers say Yudhoyono may have a tough time meeting those targets. Morgan Stanley (MWD ) economist Daniel Lian is forecasting growth of just 5.4% this year, with government investment accounting for four-fifths of that. It will take a steady flow of foreign investment into all sectors of the economy to give Indonesia the "structural lift" it needs, Lian figures. The good news is that Indonesia has jumped onto the foreign investment radar screen. Yudhoyono has met with investors to promote the country and has pressed the bureaucracy to speed up license approvals. That has paid off in deals. Malaysia's Maxis Communications ponied up $100 million for Lippo Telecom in February, while Hong Kong's Hutchison Telecom (HUWHY ) spent $120 million for mobile carrier Cyber Access Communications in March. That same month, Philip Morris International Inc. agreed to a $5.2 billion takeover of Indonesia's No. 3 cigarette maker, Hanjaya Mandala Sampoerna. Barely Making Ends Meet Yet keeping that kind of momentum going forward will be hard. Yudhoyono enjoys political popularity, but his legislative clout is limited. His coalition controls less than half of the Parliament, and few in the opposition like Yudhoyono's strategy of kick-starting the economy with big-ticket infrastructure projects when government money is tight and many ordinary Indonesians are barely making ends meet. "The quality of the growth is the big question," says Rama Pratama, a Parliament member from the opposition Islamic Justice & Prosperity Party. And if the economy doesn't grow fast enough to improve the lives of ordinary Indonesians, Yudhoyono's halo might start to tarnish. "I am afraid people's patience will end, and then we will have trouble," says former President Abdurrahman Wahid, a longtime rival of Yudhoyono. At the same time, another big terrorist attack could unwind the precious economic gains -- a possibility Yudhoyono is keenly aware of. "We are fighting by conducting massive intelligence and police operations to find the terrorist cells," he says, though he concedes that the threat of an attack is "very real." Given everything the country has been through in recent years and the challenges it faces ahead, plenty of Indonesians are desperately hoping Yudhoyono can bring them a run of prosperity and stability -- and perhaps even let the security guards relax their white-knuckled grip on those rifles. By Brian Bremner and Assif Shameen in Jakarta Copyright 2005, by The McGraw-Hill Companies Inc. 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