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2012 indonesia

  2. 2. CONTENTS INDONESIA 2012 64 A rising star: Sharia-compliant financing is an ISBN 978-1-907065-50-7 increasingly popular alternative Editor-in-Chief: Andrew Jeffreys 65 Interview: Darmin Nasution, Governor, Bank Editorial Director: Peter Grimsditch Indonesia Regional Editor: Paulius Kuncinas 66 Interview: Gatot M Suwondo, President Director, Editorial Managers: Josh Franken, Jacobo Bermudez de Castro Carbajo Bank Negara Indonesia 67 A closer look: Profiles of the leading banks Chief Sub-editor: Alistair Taylor Deputy Chief Sub-editor: Jennie 70 Roundtable: Jahja Setiaatmadja, President Director, Patterson BCA; Michael Young, President Director, HSBC; Web Editor: Barbara Isenberg Sub-editors: Sam Inglis, Elyse Franko- Zulkifli Zaini, President Director, Bank Mandiri; and Filipasic, Esther Parker, William Zeman, David Fletcher, President Director, Permata Bank Thomas Bacon Contributing Sub-editor: Miia 74 Managing downside: The rate of loan defaults Bogdanoff COUNTRY PROFILE declines as bankers grow more cautious Analysts: Stephanie Durbin, Alex10 Island life: A rich and colourful archipelago Gordy, Jon Gorvett, Matt Mossman, Joe CAPITAL MARKETS Wilcox POLITICS 76 New heights: The IDX rallies while the regulator is Senior Editorial Researcher: Susan14 Rising to the challenge: Growth and reform have increasing options for investors and boosting Manoğlu Editorial Researchers: Matthew continued despite difficult conditions transparency Ghazarian, Souhir Mzali, Owen Barron,18 Interview: President Susilo Bambang Yudhoyono 78 Added liquidity: The subject remains an issue Adeline Oka20 At the helm: Chairing ASEAN presents an 82 Clear targets: A stronger regulatory framework Art Director: Yonca Ergin opportunity to increase regional influence will promote a stable financial system Deputy Art Director: Cemre Strugo Art Editor: Meltem Muzmuz21 Interview: Abdullah Gül, President of Turkey 83 Interview: Nurhaida, Chairman, Bapepam Illustrations: Shi-Ji Liang22 Interview: Marty Natalegawa, Minister of 85 In the mix: Investor appetite for Indonesian bonds Photographer: Mark Hammami Foreign Affairs continues Production Manager: Selin Bolu23 Party lines: Political groups share similar Operations Manager: Yasemin Dirice Logistics & Distribution Coordinator: ideologies but differ in leadership styles Stocks & bonds: Share analysis & data provided Esen Barin24 A focus on unity: Bringing diversity together by Bank Negara Indonesia Operations Assistant: Nefise Gürel25 Interview: Surin Pitsuwan, Secretary-General, 87 Aneka Tambang: Mining & metals OBG would like to thank its local ASEAN 88 XL Axiata: Telecommunications partners for their assistance and support in the research of this project.26 Viewpoint: Hillary Clinton, US Secretary of State 89 Kalbe Farma: Pharmaceuticals29 Viewpoint: William Hague, UK Secretary of State 90 Agung Podomoro Land: Real estate for Foreign and Commonwealth Affairs 91 AKR Corporindo: Distribution 92 Jasa Marga: Toll roads ECONOMY33 At the centre of attention: Growth continues, INSURANCE Indonesia Investment driven by private consumption and investment 94 The contest for coverage: Major players prepare Coordinating Board37 Interview: Hatta Rajasa, Coordinating Minister of to profit from long-term potential Economy 98 Going micro: Targeting low-income markets38 Interview: Agus Martowardojo, Minister of 99 Interview: Hotbonar Sinaga, CEO, Jamsostek Finance 100 Life lines: Rapid growth in unit-linked coverage39 On again, off again: The central bank responds 102 A large margin: Health care coverage is modest43 Investors welcome: Efforts to enhance incentives but profitable45 Interview: Prijono Sugiarto, President Director, Astra International INFRASTRUCTURE46 Interview: Gita Wirjawan, Minister of Trade and 104 Realising potential: Jumping the economic Chairman, Investment Coordinating Board hurdles of connectivity and transport47 Portfolio prospects: Strong fundamentals 108 Footing the bill: Development funding is being support a positive outlook for markets met by a mix of sources49 Defending a stable rate: The central bank steps in 109 Interview: Kuntoro Mangkusubroto, Head,50 Prime target: Foreign investors return Presidential Delivery Unit53 A driving force: Private consumption boosts economic growth ENERGY54 Interview: Bobby Umar, President Director, Bakrie 113 Mixing it up: New acquisitions and expansions in & Brothers hydrocarbons and electricity56 Viewpoint: Maxime Verhagen, Deputy Prime 119 Interview: Evita Legowo, Director-General, Oil and Minister and Minister of Economic Affairs Gas Directorate, Ministry of Energy and of the Netherlands Mineral Resources 120 Interview: Karen Agustiawan, President Director, BANKING Pertamina59 Size and scope: New opportunities emerge as 121 Gassing up: A renewed focus on producing for infrastructure plans are realised domestic consumption
  3. 3. 6 CONTENTS INDONESIA 2012Chairman: Michael Benson-Colpi 123 Roundtable: Jim Taylor, President Director, 185 On the market: Several developers are listed onDirector of Field Operations: Elizabeth ConocoPhillips; Sammy Hamzah, CEO, Ephindo; the Indonesia Stock ExchangeBoissevain Terry McPhail, President & General Manager,Regional Director: Laura Herrero ExxonMobil; and Hilmi Panigoro, President TRANSPORT & LOGISTICSCountry Director: Maria Meroño Commissioner, Medco 188 Stepping up to the task: The government speedsProject Director: Meike Neitz 127 Into the deep: Firms see greater potential in coal up development of connectionsField Operations Executive: Meltem bed methane extraction 195 Rise in the skies: Increasing airport capacityOkurField Operations Coordinator: Zeynep 129 Natural potential: Laying plans for renewables 198 Liberalised but protected: Shipping law welcomesAkdamar development private sector participationProject Coordinator: Dian Wulandari 199 Interview: Emirsyah Satar, President & CEO, MINING Garuda IndonesiaFor all editorial and advertisingenquiries please contact us at: 132 Forward momentum: Increasing domestic 200 Interview: Shanti L Poesposoetjipto, Chairman,enquiries@oxfordbusinessgroup.com. production is capitalising on high prices Samudera Indonesia GroupTo order a copy of this publicationor to enquire about your subscription 137 Gold standard: Two companies lead production of 201 Greater connectivity: Building partnerships forplease contact us at: gold and copper increased infrastructure developmentbooksales@oxfordbusinessgroup.com. 138 Interview: Martiono Hadianto, President 205 Easing congestion: Getting traffic movingAll rights reserved. No part of this Director, Newmont, and Chairman, Indonesia 207 On the move: Addressing bottleneckspublication may be reproduced, storedin a retrieval system or transmitted in Mining Association 209 Charting a safe course: Domestic fleets work toany form by any means, without the 139 Elemental production: Varying tin prices impact meet rising demandprior written permission of OxfordBusiness Group. local manufacturing output 211 Back on track: A dramatic rail overhaul plannedWhilst every effort has been made toensure the accuracy of the informa- INDUSTRY & RETAIL TELECOMS & ITtion contained in this book, the 143 A stronger foundation: The focus remains on 215 A time of change: Thin markets see hope in aauthors and publisher accept noresponsibility for any errors it may becoming an industry-based economy future of sophisticated data servicescontain, or for any loss, financial or 147 Interview: Sudhamek AWS, President Director, 219 Sharing resources: A maturing wireless sectorotherwise, sustained by any personusing this publication. GarudaFood prompts competitors to share towers 148 Interview: John Gledhill, President Director, HM 220 Interview: Rinaldi Firmansyah, President Director,Updates for theinformation provided in this Sampoerna Telkomvolume can be found in Oxford 149 An evolving tradition: Traditional tobacco 221 The big three: A battle for subscribersBusiness Groups Economic Updatesservice available via email or at products continue to lead the segment 223 Roundtable: Erik Aas, President Director & CEO, Axis;www.oxfordbusinessgroup.com 150 A matter of choice: Growing disposable income is Hary Sasongko, President Director, Indosat; Sarwato creating demand for new products Atmosutarno, President Director, Telkomsel; and 152 Roadrunners: Buying an automobile is an option Hasnul Suhaimi, President Director, XL for increasing numbers of citizens 226 Getting connected: The challenges are many, but 156 Plug in, switch on: The market for electronics is so are the potential rewards growing quickly 228 Enter the net: More access in the archipelago 157 Viewpoint: Fransiscus Welirang, Director, Indofood 158 Interview: Suryo Sulisto, Chairman, Indonesian PLANTATIONS & AGRICULTURE Chamber of Commerce and Industry 230 Preparing for the harvest: The government is 159 New demands: Expansion continues, while impact creating growth zones and enhancing rules from free trade agreements begins to be felt 234 The day’s catch: Aiming to become the world’s largest fisheries producer CONSTRUCTION & REAL ESTATE 235 Interview: Franky Widjaja, Vice-Chairman for 165 Ready to be realised: If regulatory barriers can be Agribusiness, Food and Livestock, Indonesian overcome, massive potential awaits Chamber of Commerce and Industry 169 Putting it all together: Cement companies are 236 The sweet spot: Sector players are looking to preparing for significant growth capitalise on expected production boosts 170 Making it work: The government is setting up agencies to encourage investment TOURISM 174 Keeping it green: New environmental initiatives 239 Focused approach: Visitor numbers rise 175 Room for change: Huge expansion and demand 242 Business destination: Expanding the quantity and 179 Interview: Muktar Widjaja, Chairman, Sinarmas range of MICE facilities Land 243 Interview: I Made Mangku Pastika, Governor of 180 Interview: Trihatma K Haliman, President Director Bali and CEO, Agung Podomoro Land 244 Beyond Bali: Encouraging visits further afield 181 Without further delay: A new land acquisition bill will speed up much-needed development EDUCATION & HEALTH 182 Outside looking in: Reforms to laws could see 246 A system test: Funding and regulation are set to foreign investment bolster the economy be overhauled with a range of reforms 184 Sharing the wealth: Expansion and growth is 249 Interview: Ir Ciputra, Founder and Chairman, taking hold throughout the archipelago Ciputra Group www.oxfordbusinessgroup.com/country/Indonesia
  4. 4. CONTENTS INDONESIA 2012 7250 Forging connections: New international student exchange programmes and partnerships251 Striking a healthy balance: Growing demand and Ready to be realised changing profiles are driving a new approach255 Pharmaceuticals in play: The country is an Page 165 increasingly attractive market for drugs firms With infrastructure development thought257 Interview: Dr Endang Rahayu Sedyaningsih, the most promising path for economic Minister of Health growth, the government has embarked on a massive building campaign. Cement sales RELIGIOUS AFFAIRS are up, new agencies have been created260 Politics of faith: Finding a place for religion in a to help encourage efforts and environ- democratic, harmonious and responsible society mental initiatives have been acting as a263 Interview: Suryadharma Ali, Minister of Religious necessary safeguard. Demand for housing Affairs is prompting growth in that sector as well.264 Growing market: Sharia-compliant finance shows strong potential MEDIA266 Breaking news: Growing opportunities for Preparing for the harvest domestic and international media investors Page 230270 The bigger picture: Cinema and television are both expected to see increased demand Despite a thriving domestic agricultural272 Online, but switched on?: The country has rich sector, the country still must rely on potential for highly profitable online marketing imports to help feed its population of 240m. The government has introduced REGIONS a number of development programmes274 Local governance: Decentralisation has presented to address this. Palm oil continues to be both challenges and opportunities a key export and a major contributor to277 Viewpoint: Satish Mishra, Managing Director, the local economy. There are also plans Strategic Asia to further develop the fisheries segment.279 A star performer: South Sumatra receives recognition for its strong potential280 And the winner is…: Regional Champions stand apart with their economic development A system test TAX Page 246 PricewaterhouseCoopers Increased spending has helped make pri-283 Reshaping the environment: An overview of the mary education more accessible to the tax system and regulations for investors population, in line with the country’s Mil-288 Collaborating for success: Regulatory reforms lennium Development Goals. Future suc- accelerate private sector participation in cess in the sector will be dependent on infrastructure development continued government aid, to address290 Viewpoint: Irhoan Tanudiredja, Senior Partner, both low secondary school attendance PricewaterhouseCoopers rates and the mismatch between needs in the job market and tertiary offerings. LEGAL FRAMEWORK Lubis Santosa & Maramis293 The costs they cause: The government enacts new rules on cost recovery294 Laws and regulations: An overview of the current Local governance legal environment in Indonesia Page 274300 Viewpoint: Todung Mulya Lubis, Senior Partner, Lubis Santosa & Maramis The government has been pushing a policy of decentralisation, with region- THE GUIDE al governors throughout the country’s302 Waking up to tourism: Aceh’s many wonders 33 provinces taking on greater author-303 Hotels: A home on the islands ity in local affairs, such as education.307 Listings: Important numbers The “Regional Champions” programme,308 Facts for visitors: Useful information meanwhile, has been boosting devel- opment via a competitive framework. THE REPORT Indonesia 2012
  5. 5. 9Country ProfileA rich blend of cultures spread over 17,500 islandsRising regional power and key player within ASEANBlessed with an abundance of natural resourcesGrowing opportunities for foreign investment
  6. 6. 10 COUNTRY PROFILE Almost a third of Indonesia’s population is under 15 years of age Island life A rich and colourful archipelago, looking to raise its global standing Spread between Asia and Australia, Indonesia is com- CREATIVE ECONOMY: With almost 50% of the prised of around 17,500 islands, of which over 6000 Indonesian population aged under 29 years, the gov- are inhabited. The archipelago is on a crossroad ernment is encouraging the growth of the creative between the Pacific and the Indian oceans, and economy to increase its contribution to the coun- bridges the Asian and Australian continents. This try’s GDP. The government aims to build the image strategic position has influenced the cultural, social, and identity of the nation while turning innovation political and economic life of the country. After years and creativity into one of Indonesia’s new compet- of political upheaval and a major domestic financial itive advantages. Creative industries such as fash- crisis, Indonesia is now positioned to be one of the ion, handicrafts, advertising and design currently more politically stable countries in the region. In account for around 7.5% of non-oil and gas exports addition, it is widely anticipated to see significant and employ nearly 8m people. economic growth in coming years. POPULATION: Indonesia currently is the world’s EARLY HISTORY: In the sixth and seventh centuries, 17th-largest economy, third-most-populous democ- Srivijaya in eastern Sumatra and Mataram in central racy, largest archipelagic state and home to the Java became the dominant kingdoms on the archi- largest population of Muslims. pelago. Majapahit, the Hindu-Buddhist empire that With a total of 245m people, the country now also lasted from the late 11th to the 16th century, was has the world’s fourth-largest population. Jakarta is one of the region’s most influential and powerful. the most populous city in Indonesia, with 9.1m inhab- Muslim emissaries travelling to and from China itants, followed by Surabaya with 2.1m. The island were the first to introduce Islam to Indonesia, but of Java, which is roughly the size of the state of New its influence in society began only in the 11th cen- York, is the most populous island on earth – home tury. By the end of the 16th century Islam had to 129m people. Java is also one of the most dense- replaced Hinduism in Java and Sumatra. ly populated areas in the world, with some 945 per- COLONISATION & INDEPENDENCE: The Dutch sons per sq km. Despite the family planning pro- began colonising Indonesia in the early 17th centu- gramme in place since the 1960s, Java’s population ry, seeking to monopolise its valuable natural sources. is expected to grow to some 254m by 2020. In 1602, the Dutch East India Company was estab- There are some 300 distinct ethnic identities lished to manage the monopoly on trade and colo- spread throughout the country, with over 700 dif- nial activity, and by the mid-18th century the Dutch ferent languages and dialects. According to the 2000 were firmly established in Java. They consolidated con- census, the ethnic composition of the population is trol of the country over the next two centuries. 40% Javanese, 15% Sundanese, 3.3% Madurese, 2.7% The Japanese occupation during the Second World Minangkabau, 2.4% Betawi, 2.4% Bugis, 2% Banten, War ended Dutch rule. After Japan’s surrender, 1.7% Banjar, with 29.9% unspecified. Soekarno – the leader of Indonesia’s resistance to LANGUAGE: The country is home to numerous relat- Japan – proclaimed independence in 1945 and five ed but distinct cultural and linguistic groups, the years later established a single unitary republic. In languages of many of which are derived from a com- 1967 Soekarno was replaced by Suharto, who mon mother tongue – Malay. Since independence, remained in power until 1998. In 2009, Susilo Bam- Bahasa Indonesia (the national language, a form of bang Yudhoyono, the sixth president of Indone- Malay) has spread throughout the archipelago and sia, was re-elected to office (see Politics chapter). become the most common language for written www.oxfordbusinessgroup.com/country/Indonesia
  7. 7. COUNTRY PROFILE 11communication, education, government, businessand media. However, local languages and dialects arestill important in a number of areas in the country.PHILOSOPHICAL BASIS: The philosophical basis ofthe Indonesian state is known as pancasila. Pancasi-la consists of two Sanskrit words, panca meaning“five” and sila meaning “principle”. It comprises fiveinterrelated principles. They are nationalism, human-itarianism, representative democracy, social welfareand monotheism. These principles continue to havea major underlying role in Indonesia’s political cul-ture today, even though the interpretation of the prin-ciples has varied over the decades.RELIGION: The first principle of the pancasila phi-losophy is the belief in one God. A number of differ-ent religions are currently being practised in Indone-sia, however, and their collective influence has hada significant impact on the cultural, economic andpolitical life of the region during its long history. TheIndonesian constitution guarantees religious free- The islands are home to a variety of religious traditionsdom, but only six religions are recognised by thestate, namely Islam (86.1%), Protestantism (5.7%), people, and the Yogyakarta earthquake, which result-Catholicism (3%), Hinduism (1.8%), Buddhism (about ed in the deaths of nearly 5800.1%) and Confucianism (less than 1%). NATURAL RESOURCES: The country is blessed with Before the arrival of the Abrahamic faiths of Chris- an abundance of natural resources including petro-tianity and Islam, the popular belief systems on the leum, gas, tin, nickel, timber, copper, coal, gold, sil-archipelago were influenced by Hinduism and Bud- ver and fertile soil. Oil production in 2010 reacheddhism. On the resort island of Bali, over 90% of the 965,000 barrels per day (bpd). Oil reserves stand atpopulation still practise Hinduism. 3.8bn barrels and imports about 420,000 bpd. Addi-FLAG: The flag of Indonesia is two equal horizontal tionally, Indonesia is ranked as the world’s top pro-bands of red and white. The colours derive from the ducer of gold, fourth-largest producer of nickel,banner of the Majapahit empire. Red is a symbol of third-largest of copper and the second-largest of tin.courage while white represents purity. Indonesia is the world’s number one coal exporter.CLIMATE: Indonesia’s climate, which is almost entire- The country also has more than 61bn tonnes of coally tropical, incorporates average temperatures of reserves, which are mainly in Kalimantan and Sumat-between 28°C and 34°C in coastal areas, and 23°C era. Coal production has significantly increased inin the highlands. The country is almost fully sur- recent years, rising from 152.7m tonnes in 2005 torounded by warm waters and temperatures vary lit- 305.9m tonnes in 2010. In 2009, exports of coaltle from season to season. The length of daylight amounted to 176.4m tonnes.hours also remains fairly constant, with a difference Indonesia produced more than 18m tonnes ofof only 48 minutes between the longest and short- palm oil in 2009. In 2010 the total area of land allo-est day, allowing for crops to be grown year-round. cated for palm oil cultivation was estimated at 7.8m The most important variable in the archipelago’s cli- ha by the Agricultural Department. This land is divid-mate is rainfall, and extreme variations are due to ed among private and government smallholdersmonsoons. The dry season lasts from June to Sep- mostly in Kalimantan and Sumatra. With regards totember and the rainy season from December to March. illegal logging of the rainforest, by joining the Round-Rainfall and humidity, ranging from 70% to 90%, vary table for Sustainable Palm Oil, a large number ofdepending on the season and region. Indonesian companies have demonstrated they areGEOLOGY: Indonesia’s seismic and volcanic activity taking the issue seriously.is among the world’s highest. Lying near the edges POWER: In 2004, in an effort to increase electrici-of the Pacific, Eurasian and Australian tectonic plates, ty capacity, the government initiated plans to buildIndonesia is prone to frequent earthquakes and vol- coal-fired thermal power plants by 2010. However,canic eruptions. The archipelago has more than 150 the completion date was pushed back to 2014 as aactive volcanoes, including Tambora and Krakatoa, number of projects are still in development.both of which erupted in the 19th century, with dev- The power transmission and distribution sector inastating consequences. However, the volcanic ash Indonesia is largely dominated by the Perusahaanthat has resulted from such eruptions has contributed Listrik Negara, a state-owned energy company thatsignificantly to the high agricultural fertility that has controls around 85% of generated power. However,allowed islands like Java and Bali to support high pop- a new law on energy was enacted in 2009, replac-ulation densities. Recent seismic-related disasters ing the 1985 legislation and creating a wealth ofinclude the 2004 tsunami, which killed around 167,736 opportunities for foreign investors to meet demand. THE REPORT Indonesia 2012
  8. 8. 13PoliticsDecentralisation central to Reformasi policyA major cabinet reshuffle in October 2011Uniting a diverse population presents challengesA variety of parties are represented in the legislatureASEAN plays a central role in regional politics
  9. 9. 14 POLITICS OVERVIEW Susilo Bambang Yudhoyono has been president since 2004 Rising to the challenge Growth and reform have continued despite difficult global conditions Since declaring independence from the Netherlands ing their influence throughout South-east Asia. Islam in 1945, Indonesia has become one of the world’s first came to Sumatra in the 13th century, gradual- fastest developing and most economically promis- ly displacing Hinduism and Buddhism to become the ing nations. Transforming itself repeatedly over the dominant religion of Java and most other islands of years, it has also now established itself as an emerg- the archipelago by the 16th century. ing regional giant. Indeed, while many countries felt That time also marked the first arrival of Euro- the strong negative effects of the global financial peans, with trade soon followed by colonisation. The crisis, Indonesia continued to build on its strengths, Dutch emerged as the dominant colonial power over with its economy growing in spite of the global down- the archipelago by around 1800, when the islands turn and its political life continuing to be vibrantly became known as the Dutch East Indies. Dutch rule independent and democratic. continued until 1941, when the Japanese invaded and In 2011 Indonesia also assumed the chairman- began an occupation of the country that lasted ship of the Association of South-East Asian Nations throughout the Second World War. (ASEAN), boosting its engagement with regional and With Japan’s defeat and surrender in August 1945, global powers – a sign that it could play a much Indonesian nationalist leaders took their chance and more internationally influential role in the future. declared independence from Holland before Dutch CHALLENGES AHEAD: However, the country also colonial forces could return. Conflict then followed, continues to face some important political and social but the Dutch finally recognised the sovereignty of challenges. Hopes of further and faster reform with all the current Indonesian territory, except West the re-election of President Susilo Bambang Yudhoy- Papua, in 1949; Papua then joined Indonesia in 1963, ono in 2009 have been put on hold to some extent completing the modern country. as political battles continue, while efforts to root out FROM “GUIDED DEMOCRACY” TO REFORMASI: graft have also proved problematic. Post-independence, Indonesia went through a series Yet at the same time, Indonesia has displayed a of different political systems, with an early demo- political maturity and capacity that few expected cratic system giving way to the period of “Guided when the current period of multiparty politics began. Democracy” under the charismatic President Today, Indonesia is a stable, democratic country expe- Soekarno, who instated dictatorial rule from 1960 riencing high growth and escalating investor inter- until 1965, when a particularly violent series of est from around the world. That this has been events occurred, having been triggered by an achieved at a time of growing international uncer- attempted coup blamed on the communists. tainty is also no mean feat. In its 66 years of sover- From that point onward, Soekarno’s power rapid- eignty, Indonesia has experienced tremendous ly waned as that of Major General Suharto rose, withAfter gainingindependence in 1945, the growth, with a nominal GDP of $540bn and a pop- the latter becoming president in 1967. This markedcountry went through a ulation of 240m, and is counted among the world’s the beginning of the “New Order” period, with Suhar-number of different most dynamic emerging markets. to maintaining his position of power until 1997, whenpolitical periods, including HISTORICAL BACKGROUND: With its declaration of the Asian Financial Crisis hit Indonesia particular-the “Guided Democracy” of independence on August 17, 1945, Indonesia is a rel- ly badly. The resulting chaos led to Suharto step-President Soekarno and the“New Order” of President atively young country; yet its history is tied to rich ping down in 1998 to be succeeded by his vice-Suharto, which lasted until ancient civilisations. The Srivijayan and Majapahit president, Bacharuddin Jusuf Habibie. This was the1998. kingdoms were two of the most powerful, extend- start of the current period, known as the “Reformasi”. www.oxfordbusinessgroup.com/country/Indonesia
  10. 10. POLITICS OVERVIEW 15 The first parliamentary elections since the earlypost-independence years were then held in 1999.The parliament elected Abdurrahman Wahid, com-monly known as Gus Dur, to the presidency, a posi-tion he held until 2001. He was followed by MegawatiSoekarnoputri, Soekarno’s daughter. She ruled aspresident until 2004, when Susilo Bambang Yudhoy-ono, commonly known as SBY, won the country’sfirst direct presidential elections. SBY won again in2009, becoming the first president in the country’shistory to be elected for two consecutive terms.CONSTITUTIONAL CHALLENGES: With thisdecades-long history of authoritarianism and polit-ical change that has long promoted a centralisedJakarta- and Java-based system, the Reformasi peri-od has been characterised by a determination toensure plurality, decentralisation and democraticaccountability. At the same time, the country hasfaced up to the legacy left by the challenge of sep-aratism, chiefly in Aceh, northern Sumatra and Papua, The cabinet consists of ministers from different political parties, as well as non-party officialsbut also on a lower level in several other provinces.The government has also admitted wrongdoing in of different political parties, as well as non-partythe case of the Indonesian invasion of East Timor in experts and officials. A cabinet was sworn in in 2009,1975, which until that point had been a blemish on but the president reshuffled the cabinet and appoint-the country’s international standing. ed some new ministers in October 2011. Indeed, post-Suharto governments have worked A TWO-CHAMBER LEGISLATURE: The People’s Rep-to defuse these conflicts and establish a structure resentative Council (Dewan Perwakilan Rakyatm,that accommodates regional, ethnic and religious dif- DPR) is one of two chambers in the Indonesian leg-ferences. One of the first acts of the newly demo- islature, the other being the Regional Representa-cratic Indonesia was to relinquish control of East tives Council (Dewan Perwakilan Daerah, DPD). TheseTimor following a UN-sponsored referendum, while constitute the People’s Consultative Assemblyalso working toward a solution with the rebel forces (Majelis Permusyawaratan Rakyat, MPR).in Aceh, which is today a special region of the coun- The president has the right to propose bills to thetry, with its own elections and laws. In Papua too, the DPR and to debate with DPR members to securegovernment has attempted to reach an agreement passage or amendment. In emergencies, the presi-with demands for increased autonomy. dent also has the right to issue government regula- Decentralisation, a policy that transferred many tions instead of going through the normal processpowers from Jakarta to the regions, has also been of consultation and debate with the DPR.widely praised for its foresight in heading off other The president appoints chief justices, but cannotseparatist claims. Indonesia today is thus a much sign treaties, appoint or accept ambassadors, par-more peaceful and democratic place than it had don prisoners or appoint members of the judicialbeen under previous – often authoritarian – rulers, committee without DPR approval – a nod to concernseven if the Reformasi has created many challenges. about the previous sweeping powers that wereElections themselves have also been largely judged afforded to presidents.free and fair by outside authorities, while Indone- DPR: The DPR is the more powerful of the two bod-sia’s media culture is one of the most open in Asia. ies, with 560 deputies elected to it in 2009 and aEXECUTIVE POWERS: The head of state is the pres- total of nine different parties gaining representation.ident, currently Susilo Bambang Yudhoyono, whose Chaired by a speaker, the DPR can draw up and passterm is due to end in 2014. The president is direct- laws of its own, as well as debate and vote on billsly elected for a five-year term, with a maximum of from the president and from the DPD. It has the righttwo terms, meaning that SBY cannot run again. The to question the president, and to draw up the budg-president is elected on a ticket that includes the et in consultation with him or her.vice-president, who is also elected to a five-year DPR representatives are elected for five-year termsterm. Currently Boediono – like Soekarno, he is known from multi-candidate constituencies. Indonesian cit-by only one name – holds this post. izens can vote at the age of 17. A proportional rep- The president is the commander-in-chief of the resentation system is in practice, meaning that noarmed forces and has the chief executive role in the one party has to secure an outright majority in the The People’s Consultative Assembly consists of twogovernment. The president is also responsible for legislature and that coalition-building is an impor- chambers: the 560-appointing a cabinet, thereby playing a major role tant part of Indonesian politics. member DPR, which is thein both domestic and foreign policy. The cabinet has With the power to choose cabinet members, the more powerful of the two,so far been composed of ministers from a number president can influence the voting habits of the DPR, and the 128-member DPD. THE REPORT Indonesia 2012
  11. 11. POLITICS OVERVIEW 17building coalitions in the House that reflect the com-position of the cabinet. However, difficulties havearisen since the election in 2009, with many criticalof political infighting over posts, which they consid-er to be slowing the pace of reform.THE DPD: The DPD has 128 members, with eachprovince electing four members on a non-partisanbasis. The DPD may propose bills to the DPR, and anybill specifically concerning the regions must also bedebated by the DPD. It does not have the power torevise bills on any non-regional issues, however. Both presidential and legislative elections occurredin 2009, with the former being won by SBY and Boe-diono, who garnered 60.8% of the votes in the firstround – enough to see them declared winners with-out a second ballot. In the legislative elections, SBY’sgrouping, the Democratic Party (DP), also won themost seats, with 148 DP representatives having beenvoted to the DPR. The second-largest party wasGolkar, with 107 seats, followed by Megawati The country is playing a greater role in regional and global politicsSoekarnoputri’s Indonesian Democratic Party-Strug-gle (PDI-P) with 94 seats. Other parties included the rule in cases of impeachment of the president. It has In addition to the nationalProsperous Justice Party (PKS) with 57 seats, the nine members: three appointed by the president, government, there are more localisedNational Mandate Party (PAN) with 46, the United three by the DPR and three by the Supreme Court. governments at theDevelopment Party (PPP) with 38, the National Awak- LOCAL AUTHORITIES: Indonesia consists of some province, regency and cityening Party (PKB) with 28, the Great Indonesia Move- 33 provinces, each of which is divided into a num- levels – a decentralisedment Party (Gerindra) with 26, and the People’s Con- ber of regencies and cities, with all three adminis- approach popularised sincescience Party (Hanura) with 17. trative levels having their own local governments. the start of the Reformasi period. Coalition-building began at once after the elec- Since the start of the Reformasi period, Indonesiation, with six parties represented in the 2009 cabi- has been working to establish an effective form ofnet. A reshuffle in October 2011 saw changes in 12 decentralised politics, which has meant that theseministerial positions and the appointment of 13 local administrative units have all gained in terms ofdeputy ministers, but the president has been wide- power and influence since 1998. In 2005 direct elec-ly criticised for seemingly making appointments with tions for provincial governors, as well as heads ofthe aim of influencing the 2014 elections rather regencies and cities, were held for the first time.than for the betterment of the country. Up to now, decentralisation legislation has large-JUDGES AND COURTS: The judicial branch is head- ly strengthened the political and economic respon-ed by the Supreme Court, which has oversight of sibilities of the regencies and cities, rather than thearound 20 high courts. These in turn preside over provinces. This has had implications for investors, as250 district courts spread around the country. The local authorities have considerable power over landSupreme Court is thus the final court of appeal and and resources in their areas, with the past seeing ahas the power to re-examine cases should sufficient lack of clarity in some instances between nationalnew evidence be presented. The Supreme Court does and local jurisdictions. There are also continuingnot have oversight of constitutional cases, howev- concerns of the capacity of some regencies to han-er, which must go to the Constitutional Court. dle their enlarged responsibilities. Candidates for the Supreme Court are shortlist- Decentralisation remains a controversial issue,ed by the Judicial Commission, the members of which with further reforms of the system likely in the peri-are appointed after agreement between the presi- od ahead. Indeed, a new draft law on regional elec-dent and the DPR. Supreme Court candidates must tions was passing through the national legislaturealso be approved by the DPR before taking office. as this book was going to print. The Indonesian legal system is a blend of native OUTLOOK: While the first years of the government’scustomary law, known as adat, Roman-Dutch law second term have shown that there are many chal-and modern Indonesian law. There are also Islamic lenges facing reform, they have also demonstratedcourts, which have powers only in civil cases of mar- the country’s commitment to democratic methodsriage, divorce, reconciliation and alimony involving and policies. Progress may be slow, but it is beingMuslims. The highest court of appeal for the Islam- achieved in a stable and legal manner, with theic courts is also the Supreme Court. involvement of many stakeholders. The Constitutional Court, meanwhile, has the final This is quite an achievement for a country of suchsay in any disputes over the constitution, the pow- diversity that has had only just over a decade ofers of state institutions, election results and the dis- democracy. Surely, the decade ahead should thus besolution of political parties. It also has the power to another promising one for Indonesia and its people. THE REPORT Indonesia 2012
  12. 12. 18 POLITICS INTERVIEW President Susilo Bambang Yudhoyono At the forefront OBG talks to President Susilo Bambang Yudhoyono What are the primary pillars of the Master Plan for be essential in reducing the economy’s entire cost Acceleration and Expansion of Indonesia’s Econom- structure, which would create synergies between growth ic Development (MP3EI) through 2025? centres and realise equitable access to services. This YUDHOYONO: The MP3EI was launched to enable will be significant for business and development. Our Indonesia to facilitate economic growth over the next motto is “locally integrated, globally connected”. 15 years. The plan expects economic expansion at an Indonesia’s large and youthful population will augur average rate of 7% a year to become a $4.5trn econo- well for economic activity and future productivity, which my by 2025. With the spirit of discarding the “business- is the primary reason why we seek to synchronise human as-usual” paradigm, the MP3EI is a long-term develop- development programmes, improve education and ment plan that will spur employment creation by driving invest in the required time and resources it takes to har- investments, synchronise and consolidate the govern- ness our most precious resource – human capital. ment’s action plan with the real estate sector and clus- The acceleration of our scientific capability and inno- ter economic growth centres that are consistent with vation is key to enhancing Indonesia’s competitiveness. each region’s unique strengths. Indonesia is the world’s We seek to achieve this by raising the quality of edu- largest archipelago with over 17,000 islands, and cation through incentives and an increased education although we are blessed with a wealth of resources, budget. We base a big part of MP3EI on public-private there is an abundance of untapped potential. partnerships. The government stands ready to work MP3EI serves the purpose of improving the econom- closely with state-owned companies and private busi- ic and social development in designated regions through nesses on numerous projects. I welcome and encour- a well-planned development programme. It is intend- age participation of investors to realise the MP3EI. ed to accelerate the development of designated regions Indonesia has accomplished much in the last 13 to catch up with the level of that seen in Java and Suma- years, from achieving democratic transition to with- tra. This will be achieved through the six economic cor- standing financial crises and natural disasters. It is evi- ridors that have been deemed to be the country’s dent that Indonesia has shown remarkable resilience “growth centres”. The programme is based on the prem- and adaptability in the face of ever-changing global chal- ise that each of these corridors can propel its own lenges. The policy directions outlined in the MP3EI will regional economies through clustering, as well as oper- guide us towards achieving our development goals. ating in areas with a distinct comparative advantage. Priority sectors for investment are industry, mining, What measures are being taken to move toward a agriculture, marine, tourism, telecommunications, ener- legal system that meets international business stan- gy, infrastructure and regional development. dards as a means to increase competitiveness? In addition to the development of the six economic YUDHOYONO: Of utmost importance is the need to corridors, the MP3EI also aims at improving Indonesia’s adhere to the universal principle of equality before the connectivity. This is of paramount importance in our law, without which, no credible legal system can be mission to unleash the real value of Indonesia. I have built. A strong legal system and a solid rule of law will to admit that poor infrastructure is one of the most sig- allow not just businesses, but societies to flourish. nificant deterrents to job-creating investment and Meeting international business standards is what remains a significant challenge to competitiveness. Indonesia strives for. My government devotes tremen- Connectivity refers to both hard and soft infrastruc- dous efforts to ensure legal certainty, combat corrup- ture development. An effective roll-out of projects will tion and minimise inefficiencies caused by bottlenecks www.oxfordbusinessgroup.com/country/Indonesia
  13. 13. POLITICS INTERVIEW 19in the bureaucracy. Our success in overcoming these Indonesia is the Chair of the ASEAN. With such a posi-challenges will increase our global competitiveness. tion, Indonesia is striving to consolidate the ASEAN We constantly work to detect and tackle loopholes community by 2015. We have invested intellectual asthat impede business opportunities. Indonesia also well as political leadership to achieve these goals. Wecontinues to combat graft. My administration has zero have convened two ASEAN Summits in 2011.tolerance for corruption. We are in the process of Indonesia also hosted the East Asia Summit. We inau-reforming our judicial system, with considerable gurated the participation of the US and Russia for theadvances in recent years. The Corruption Eradication first time. Under this regional forum, Indonesia hopesCommission has been prolific in their investigations of to build a robust and inclusive regional architecture.graft, with notable successes since its inception. Apart from ASEAN and the East Asia Summit, Indone- sia has hosted many important international events, suchHow will bureaucratic capacity at both the central as the World Economic Forum on East Asia, the Over-and regional level be improved to increase efficien- seas Private Investment Corporation Conference, thecy and cooperation among ministries? Business for Environment Summit and the Forest Con-YUDHOYONO: Bureaucratic reform and good gover- ference. I believe the decision to hold such importantnance are key components of economic development. events in Indonesia reflects our significance in theWe are working to improve professionalism, and to world’s economy. Moreover, by hosting such events,instate and uphold a system of meritocracy. To effect Indonesia offers the participants a range of econom-change, we apply a system of reward and punishment. ic opportunities, including the forging of partnerships.Nevertheless, this cannot be achieved overnight. At the G20 Summit in Cannes, Indonesia brought into After a long period of autocratic rule, Indonesia discussion the issues of development and pressed forunderwent a massive nationwide decentralisation effort a reformed global financial architecture. These issuesstarting in 1999, whereby 33 provinces and 450 regen- are highly important to developing countries.cies were given greater authority over how their respec- There remains significant downside risks to the futuretive regions were managed. Given the massive scale of health of the global economy. However, Indonesia inthis undertaking, a heightened level of policy coordi- particular has demonstrated remarkable resiliencenation between central and local governments became throughout the global debt crises. Investments haveessential. I have attached particular significance to so far grown 20.9% from the previous year, and Indone-inter-ministerial coordination, as well as coordination sia’s economy is on track to grow 6.5% this year.between central and local governments. I stress the I have been following closely the recent develop-importance of inter-agency modalities in tackling mat- ments in the Middle East and Northern Africa, and doters that are multi-faceted and multi-layered. My coor- hope that the reform process will result in a peacefuldinating ministers and Indonesia’s vice-president are political solution. Democratic transitions that meet thealso engaged intensively in these efforts. expectations of the people will guarantee stability. Indonesia experienced a democratic transformationWhat events have characterised Indonesia’s for- 13 years ago, so it is always willing to share with othereign policy in 2011? How can the country bring its nations its own experiences. Nevertheless, I stronglydevelopment experience to bear on global events? believe that every country should cultivate its ownYUDHOYONO: The year 2011 has been very eventful homegrown democracy, as there is no such thing asfor Indonesia in terms of foreign policy activities. First, a one-size-fits-all path to nationhood and statehood. THE REPORT Indonesia 2012
  14. 14. 20 POLITICS ANALYSIS ASEAN has been central to regional economic and political relations At the helm Chairing ASEAN presents an opportunity to increase regional influence As one of the founding members of ASEAN, 2011 has line for the creation of a free trade area among the been a special year for Indonesia, as it has assumed six members at the time (Brunei joined in 1984). the chair of the 10-member regional group. At a time With the end of the Cold War, ASEAN’s integrationist when Asia is becoming increasingly important in glob- economic policy continued to grow in prominence, al affairs, this is an opportunity for the country to while the political initiatives of that era diminished. demonstrate its growing influence. ASEAN’s membership also grew further, with Vietnam The year has been one of growing uncertainties too, joining in 1995, Laos and Myanmar in 1997 and Cam- within the global economy. At the same time, within bodia in 1999. The newer members – often referred the ASEAN region, moves toward economic integra- to as the CMLV countries – must enact virtually zero- tion continued to gather pace, while several disputes tariff rates on imports from ASEAN countries by 2015, –both within and outside of the organisation – at a target other members set for 2010. times threatened to damage the peace and stability FREE TRADE SUCCESS: There has been immense of the region. Through these developments, Indone- progress in achieving this giant free trade zone of over sia sought to play a more active role in contributing 500m people with a combined GDP of around $1.8trn. to further integration and conflict resolution. Yet in terms of achieving a more unified foreign poli- HISTORICAL TIES: ASEAN was founded on August 8, cy, until now there has been relatively little achieved. 1967, when the foreign ministers of five countries – It is in this second area that Indonesia wanted to make Indonesia, Malaysia, Thailand, the Philippines and Sin- progress during its term of office as chair of ASEAN. gapore – met in the Thai capital to sign the Bangkok This meant, first and foremost, resolving some of the Declaration. The Suharto government, anxious to end internal disputes between ASEAN members. its conflict with Malaysia and align with the anti-com- Thus Jakarta has taken a much more active role in munist powers of the region, sent Foreign Minister seeking a resolution to the long-standing border dis- Adam Malik as a representative. The organisation’s pute between Thailand and Cambodia, which flared up General Secretariat has since been based in Jakarta. again in early 2011. Indonesia, under the ASEAN ban- Since then, ASEAN has been a key part of Indone- ner, sought to resolve the conflict and provide a facil- sia’s foreign policy. This centrality is in line with the coun- itator for the two sides to meet. By August, with a try’s founding foreign policy principles, as outlined by change of government in Bangkok, most analysts were Mohammad Hatta, who authored Indonesia’s decla- optimistic that the dispute was no longer a hot one. ration of independence, along with Soekarno, in 1948. Indonesia has also been leading efforts to resolve Hatta declared the country to be in support of a for- a series of overlapping claims between several mem- eign policy independent of great and superpower ber states to parts of the South China Sea. These also interests that would take an active role in the world, conflict with China’s claim to almost the entire body rather than a passive or reactive one. of water. A third area of controversy is Myanmar, which ZONING MATTERS: ASEAN provides an excellent forum is due to chair ASEAN in 2014 yet continues to have for the realisation of these goals. In the 1970s Jakar- cold relations with many Western countries, furtherThe country’s founding ta was taking part in efforts to make South-east Asia underscoring the difficult nature of any attempt toforeign policy principles a nuclear-free zone and in the 1980s stood behind the pull ASEAN’s 10 states into a unified force. Nonethe-declared the importance oftaking an active role in idea of a zone of peace in the region. In the 1990s Jakar- less, the steps taken by Indonesia in 2011 have shownregional and global political ta signed up to the ASEAN Free Trade Agreement, that ASEAN is not simply about free trade and hasaffairs. which was launched in 1992 and set a 15-year dead- other responsibilities and opportunities for influence. www.oxfordbusinessgroup.com/country/Indonesia
  15. 15. POLITICS INTERVIEW 21 Abdullah Gül, President of TurkeyWorking togetherOBG talks to Abdullah Gül, President of TurkeyHow can Turkey and Indonesia, the world’s leading ance. I therefore believe that both countries could bemoderate Muslim-majority nations, play a role in the sources of inspiration for the Muslim world. Both havedevelopment of relations between East and West? the ability to play essential roles in bringing the EastGÜL: The age we live in requires new approaches to and West closer in a number of different ways.international and inter-communal relations. We needprogrammes that aim to collaborate, harmonise and syn- In which sectors is Turkey looking to develop strongerthesise varying cultures, and to build upon the com- ties with Indonesia to reach the targeted $5bn inmon wisdom and achievements of humanity. We must trade volume between the two countries by 2014?show that diversity is not a weakness but a source of GÜL: Increasing the trade volume between our twostrength. As cohabitants of the same planet, we should countries must be the core goal of future economicunite in a common understanding of “world citizenship”. and commercial cooperation. With regards to trade This is increasingly important in today’s globalised volume, the composition of that volume is one of theworld. The international community is more intercon- most important factors to examine.nected than ever and has become a “small village” in The import-export balance between Turkey andmany ways. The world is now in such a delicate balance Indonesia is highly asymmetric. The statistics for thethat no country or region can be immune from the prob- last 10 years reveal that the foreign trade deficit of ourlems of others and no single actor can enact signifi- trade with Indonesia was increasing regularly until 2007,cant change alone. International solidarity and coop- when the deficit reached around $1.2bn, and haseration have become essential in tackling common remained about the same since then, excluding2009,challenges. We need to better understand each other when the deficit dropped to $767m.in order to make the best use of our collective efforts. Turkey’s objectives for commercial relations with Turkey is a democratic, secular country based on Indonesia are not only limited to increasing the tradeuniversal values and has historical, social, ethnic, reli- volume, but also include correcting the considerablegious and cultural links with almost every nation with- asymmetry by multiplying exports to Turkey.in a three-hour flight from Istanbul. As such, Turkey forms Turkish exports to Indonesia can be classified underan essential link between these diverse cultures. In this two categories: agricultural goods and industrial goods.regard, we are keen to promote peaceful co-existence, Under agricultural goods, Turkish products exported todialogue, mutual respect, friendship, harmony and Indonesia include wheat flour, tobacco, ferment, choco-cooperation between different cultures and faiths. late products, citrus fruits, olive oil, pasta and hazel- In line with this, Turkey pioneered the “Alliance of Civil- nuts. Industrial products include petroleum oils andisations” initiative, which has now become a success- products, motor vehicles and their accessories, trac-ful UN programme aimed at mitigating differences and tors, semi-finished and flat-rolled products of iron andfostering harmony and tolerance between nations. non-alloy steel, worked monumental or building stone, We believe such efforts will help enhance understand- marble and travertine, feldspar and cotton.ing and cooperation throughout the world, and there It is obvious that the larger the trade volume betweenis much we can do alongside Indonesia in this regard. two countries, the closer our relations will be in theBoth Turkey and Indonesia possess unique character- future. I think a higher trade volume and a well-balancedistics, but they also share a common commitment to trade structure would pave the way for a higher leveldemocratic and pluralistic secular systems that respect of social integration and political cooperation as wellthe rule of law and symbolise moderation and toler- as more stable and continuous economic collaboration. THE REPORT Indonesia 2012
  16. 16. 22 POLITICS INTERVIEW Marty Natalegawa, Minister of Foreign Affairs An example to follow OBG talks to Marty Natalegawa, Minister of Foreign Affairs What are the main obstacles to achieving the ASEAN transformation, so that other nations may benefit from integrated economic community by 2015? our experiences, struggles and achievements. NATALEGAWA: The concept of integrating and syn- ergising an economic community of 10 sovereign How is Indonesia using its influential position as the nations, all of which have their own economic concerns 2011 Chair of ASEAN to augment the economic and priorities, is fundamentally challenging. However, and political status of the region? ASEAN long ago recognised the importance of achiev- NATALEGAWA: We are keen not simply to chair ASEAN, ing this objective. The alternative, i.e. not integrating, but to exercise constructive leadership. We want to would have been detrimental to our economic pros- effect change and to direct ASEAN along a certain path. perity. With the rise of China and India and the contin- Our first priority is to make significant progress toward ued strength of Japan, the competitive landscape has achieving an integrated ASEAN community by 2015. expanded dramatically. For ASEAN to maintain a com- Specifically, we want to improve coordination among petitive advantage it is crucial that we develop policies ASEAN countries in economics, socio-cultural affairs and that not only play on our individual abilities, but also security. ASEAN has already put the foundations in help us to complement one another’s strengths. place in terms of various documents, declarations and This in itself will be a difficult task, but when you take statements. The map has been laid out and the time into account the need for equitable development — for implementation and real action is now. That is why, where each country feels they are benefitting from when the conflict between Thailand and Cambodia being a part of the system — economic integration arose this past year, we took concrete measures to help becomes even more challenging. Regardless of the facilitate a resolution rather than remaining silent. We obstacles, globalisation is not simply something we can put into practice the commitments and promises that choose to opt out of. Our individual economic and all ASEAN community members have made. social development will greatly depend on our collec- This leads us to our second priority, which is to ensure tive ability to compete on a global level. that we continue to maintain a peaceful and benign regional atmosphere. This has been a key ingredient in What role can Indonesia play on the world stage, ASEAN’s drive to achieve economic prosperity. given its status as a secular, populous Muslim nation Our final priority is to create a strategy beyond 2015. enjoying good relations with both East and West? This is where the theme of our chairmanship, “ASEAN NATALEGAWA: Indonesia has the largest Muslim pop- Community in a Global Community of Nations”, becomes ulation in the world, as well as the third-largest democ- apparent. We laid down a 10-year map that will begin racy. We are a nation that embraces religious tolerance a process whereby ASEAN will speak with greater cohe- and ranks modernisation and development as two of sion and collectiveness on issues both regional and our greatest priorities. Our success story is relevant not global. It is insufficient for ASEAN to be a community only among ASEAN nations, but also for countries in unto itself and is no longer acceptable to help main- North Africa and the Middle East. tain peace and stability solely within the immediate Recently we have seen how issues of governance, region. ASEAN must project its collective voice at the economics and human rights can become security international level, as currently ASEAN countries con- issues that could potentially bring about destabilisa- tribute only at a national or bilateral level. With greater tion. It is therefore our responsibility to try to share the cohesion and coordination we can bring positive change lessons we have learned during our own democratic and contribute beyond our own individual strengths. www.oxfordbusinessgroup.com/country/Indonesia
  17. 17. POLITICS ANALYSIS 23 Trying to satisfy the many groups in the legislature is a challengeParty linesPolitical groups share similar ideologies but differ in leadership stylesWith nine parties represented in the Indonesian legis- become increasingly based on their respective leader- The largest party in thelature – and six of those present in the cabinet – the ship styles rather than on ideologies. It is difficult to DPR is the Democratic Party, which has 148 seats,political landscape of the country is clearly very multi- make a distinction between secular and Islamic plat- followed by Golkar, withfaceted. Though three parties tend to dominate the forms as all three parties, usually seen as secular, have 107 seats, and thescene, no one group has been able to gain a majority incorporated many Islam-based policies in recent years. Indonesian Democraticin parliament and shifting coalitions and alliances ensure POLITICAL ISLAM: One of the major debates in Indone- Party-Struggle.a wide variety of influences and viewpoints. sian politics has long been over the role of Islam, withTHE MAJOR PLAYERS: Currently, the largest party in a rough divide between secular and Islamic-leaningthe legislature – the People’s Representative Council parties sometimes evident. Coalition governments,(DPR) – is the Democratic Party (DP), with 148 seats in however, have always included groups from both sides.the 560-seat assembly after the 2009 general election. The political Islamic movement in Indonesia has longThe DP is also one of the newest groups, formed large- been dominated by two groups – the more tradition-ly as an election vehicle for the current president, Susi- alist Nahdlatul Ulama (NU) and the more reformistlo Bambang Yudhoyono (SBY), in September 2001. Its Muhammadiyah. These have sometimes given theirfortunes have thus been tied to SBY, with the surge in backing to political parties, although in 2009, Muham-support for him illustrated well by the fact that the madiyah declared neutrality, while NU traditionally backsDPR, the DP won only 57 seats in the 2004 elections. the National Awakening Party (Partai KebangkitanThe DP’s beliefs are those of pancasila, the five official Bangsa, PKB), which won 28 seats and is in the govern-founding principles of the Indonesian state: belief in ing coalition, with representation in the cabinet.one god; a just and civilised humanity; the unity of the These traditional Islamist groups have been joinedcountry; democracy; and social justice. in recent times, however, by more contemporary out- The oldest and second-largest party, Golkar, won 107 fits. The Prosperous Justice Party (Partai Keadilanseats in 2009 and also adheres to pancasila. Indeed, it Sejahtera, PKS), modelled on Turkey’s pragmatic Islamistwas the ruling party during the whole period of the Justice and Development Party, won 57 seats in 2009,Suharto regime, from 1966-98, and under the presi- mobilising a more urban, middle-class religious voterdency of Bacharuddin Jusuf Habibie in 1998-99. It thus base than the PKB. The PKS is also represented in thehas one of the oldest established local party networks, cabinet. Two other Islamist groups are the United Devel-with many powerful and influential supporters. Its opment Party (Partai Persatuan Pembangunan, PPP),leader is Aburizal Bakrie, who also leads the governing which won 37 seats in the DPR, and the National Man-coalition in the DPR and is a member of the cabinet. date Party (Partai Amanat Nasional, PAN), with 43 seats. The third-largest party is the Indonesian Democrat- Both also took places in the cabinet.ic Party-Struggle (PDI-P), led by Megawati Soekarnop- With a parliament dominated by coalitions, the post-utri, the daughter of former President Soekarno. The 2009 government is often faced with the challenge ofofficial ideology of the party is also pancasila, although maintaining a common purpose among so many groups.the PDI-P is the largest opposition party in the DPR. It This has in many cases given way to power strugglesis the result of a split in the Indonesian Democratic Par- within the cabinet and the DPR, thereby hampering thety, which was also led by Megawati and – with Golkar legislative timetable. While this has created some lev-– was one of two parties allowed by Suharto. el of dissatisfaction among the public, the fact that soLEADERSHIP: As all the major parties have platforms many viewpoints are represented in the politics of thebased on pancasila, differentiation between them has country today is undoubtedly a positive development. THE REPORT Indonesia 2012
  18. 18. 24 POLITICS ANALYSIS The past few years have seen a major reduction in political risk A focus on unity Bringing a diverse population togetherMany areas of the country As an archipelago comprising some 17,500 islands, signing of the Malino II Accord in 2001. However, vio-have experienced intense Indonesia has an ethnically and religiously diverse pop- lence has occurred sporadically and tensions remain,conflicts over the past ulation – a characteristic long the source of both oppor- with government agencies and NGOs working to over-decades, including Aceh,Central Sulawesi, the tunities and challenges. Indeed, different perceptions come hostility between the communities.Malukus and Papua. of this diversity have engendered conflict in recent A similar story pertains in the Malukus, and particu- decades. However, the past few years have seen a major larly in the capital, Ambon. Violence between Christians reduction in political risks and a corresponding increase and Muslims has been intense for more than a decade, in foreign investment and interest. Political risk in with the most recent outbreak in September 2011. Indonesia today thus bears little comparison with what While peace is generally kept, the two communities con- it was when the current period of Reformasi began in tinue to mistrust each other. More positively, the most 1998, with the fall of Suharto. recent outburst was tackled by grassroots “peace provo- SEPARATISM & REGIONALISM: Under Suharto, there cateurs” who seem to have achieved success. A spe- were four main areas of the country suffering from sep- cial unit for dealing with these issues in Papua, called aratist or religious conflicts: Aceh, in northern Suma- UP4B and based in the vice-president’s office, was tra; Central Sulawesi; the Malukus; and Papua. The ter- established by presidential decree in September 2011. ritory of East Timor, occupied by Indonesian forces in Papua, meanwhile, has seen one of the most long- 1975, was also a site of conflict, although with differ- running separatist conflicts in Indonesia. Over the years, ent causes than the others. During the decade that fol- the armed wing of the Free Papua Organisation, the lowed, successive governments in Jakarta moved to National Liberation Army, has conducted violent attacks, tackle these disputes, with generally good results. not only against Indonesian army and police, but also RESOLUTIONS: One of the first moves was in 1999, against foreign investments and foreigners, mainly when a vote was held in East Timor regarding independ- operating in the mining sector. ence. The East Timorese voted overwhelmingly in favour, ADDRESSING EXTREMISM: Radical Islamic groups with this unfortunately followed by an outbreak of vio- have also posed a risk to the country over the past lence between secessionists and integrationists. How- decade, such as hotel bombings in Jakarta in 2009. ever, in 2002 the territory finally gained independence However, recent times have seen the main groups of and relations between the two states have improved Indonesian jihadis – Jemaah Islamiyah and Jamaah considerably. East Timor is now moving toward becom- Ansharut Tauhid – take significant hits. The February ing a member of the Association of South-East Asian 2010 break-up of a jihadi training camp in Aceh led to Nations with Indonesian support. a successful shutdown of many networks. The Indone- The conflict in Aceh has also been largely resolved. sian authorities have a well-trained and -equipped anti- The tsunami of 2004, which hit Aceh particularly bad- terrorism force, the National Anti-Terrorism Agency. ly, had the effect of bringing the warring parties to the Many arrests and successful prosecutions have been peace table. Aceh received special autonomy within made, with mainstream Islamic groups also being Indonesia, the Indonesian army withdrew from the mobilised against the extremists. province and the guerrillas, known as GAM, disarmed. Risk has declined in recent years, although in cer- Direct elections for governor were held in 2006, with tain specific areas, tensions remain. Attempts to address GAM leader Irwandi Yusuf winning office. these challenges continue, with additional units and In Central Sulawesi, violence between Christian and forces being mobilised, including a new rise in the num- Muslim communities in 1999 and 2000 eased with the ber of corporate security firms offering their services. www.oxfordbusinessgroup.com/country/Indonesia
  19. 19. POLITICS INTERVIEW 25 Surin Pitsuwan, Secretary-General, ASEANFurther integrationOBG talks to Surin Pitsuwan, Secretary-General, ASEANHow can ASEAN assist Indonesia in addressing its services. Towards this end, ASEAN has identified strate-significant infrastructure challenges? gic initiatives in these areas, as set out in the ASEANPITSUWAN: Assistance to ASEAN member states for Economic Community (AEC) Blueprint, and has takenaddressing infrastructure challenges is carried out in steps to realise these by 2015. One bold initiative toindirect ways, mostly through sharing experience and establish this free and open regime has been the ASEANbest practices in areas such as urban transport plan- Comprehensive Investment Agreement (ACIA). As thening, development and management. Other avenues name suggests, the ACIA is comprehensive, but it is alsoof support include harmonising regulations and pro- based on international best practices and on par withcedures and developing ASEAN-wide hard infrastruc- other international investment agreements in terms ofture networks like the Singapore-Kunming rail link and scope, rights and obligations. An important pillar of thethe ASEAN highway network. Furthermore, we have ACIA is its liberalisation component. ASEAN adopted aalso established effective mechanisms of financial negative list approach in the formulation of the reser-mobilisation for regional infrastructure projects, such vation list under this agreement, meaning anythingas the ASEAN Infrastructure Fund. outside the list is open. We hope member states can now complete the domestic approval process and theWhat contribution do you expect Indonesia will agreement will be in force by the end of 2011.make to advance ASEAN’s policy agenda? ASEAN also agreed to progressively reduce or elim-PITSUWAN: Indonesia’s theme for its ASEAN Chair- inate reservations contained in the list following themanship was “ASEAN Community in a Global Commu- strategic phases of the AEC Blueprint, and membernity of Nations.” I hope Indonesia will continue to be as states are now working to improve the region’s invest-ambitious in the economic and socio-cultural commu- ment regime by reducing or removing impediments.nity as it is in political security. Indonesia has the polit-ical weight to offer assistance to its regional neighbours What benefits and opportunities will come of ASEANand resolve disputes through peaceful means. nations working together to make the region a leading destination for international tourism?How are logistical integration issues within the PITSUWAN: Member states all have tremendous poten-ASEAN market being addressed? tial for tourism. Combining individual efforts into a col-PITSUWAN: ASEAN plans to achieve full integration of lective campaign would multiply rewards to individuallogistics services by 2013. To guide this agenda it has countries as well as the region as a whole. ASEAN hascreated a map, endorsed by the ASEAN economic min- been implementing a number of initiatives to promoteisters in 2007, that provides detailed measures and the region as a single tourism destination, such asaction plans to integrate logistics services across the developing multiple-country tour packages, joint pro-region. This involves various related ASEAN services, cus- motion campaigns and ASEAN-wide tourism websites.toms, transport, telecommunications and investment Currently, ASEAN is running joint marketing and pro-bodies, as well as private sector organisations. motional efforts within the main source markets of Australia, China, Japan and the Republic of Korea. TheHow will a free and open investment regime be collaboration will also include the establishment of anachieved to increase ASEAN’s competitiveness? ASEAN common area within international travel fairsPITSUWAN: ASEAN’s vision for an integrated regional and the establishment of the ASEAN Promotional Chap-economy includes the free flow of both investment and ter for Tourism in Australia, among other initiatives. THE REPORT Indonesia 2012