Indonesia’s quiet revolution bodes well for the relationship

Indonesia’s quiet revolution bodes well for the relationship

Our next door neighbour is booming politically and economically.

  

THIS year, most of the world’s economic growth will take place in China. Much of the rest will be in India. But the third biggest source of global growth will be right next door: Indonesia.

We don’t think of Indonesia as a rising economic power. Its output ranks only 15th in the world (a bit bigger than ours). Its market ranks 18th (a bit smaller than ours). But Indonesia is changing.

Yes, there was a terrorist attack in Jakarta last month, but that was the first in four years. It has just held free elections for president and legislature that gave an emphatic mandate to its modernising moderate leader, Susilo Bambang Yudhoyono, for a second five-year term. The army no longer rules. The economy is no longer broken. Indonesia, for so long under the heel of dictators, is now what one analyst calls ”the best functioning democracy in South-East Asia”.

A decade ago president B. J. Habibie unexpectedly ended the dictatorship to allow free speech, a free press, independent courts and free elections. While China, Singapore and Malaysia remain in the grip of ruling elites that won’t let power out of their grasp, Indonesia has become a country where people can say what they like without having to check who’s listening.

And as the global financial crisis has flattened most countries, Indonesia has flourished. In this decade, its economy has grown by almost two-thirds. More Indonesians now live in cities than on farms. Per capita incomes have risen almost 25 per cent in five years, almost 50 per cent in a decade. Even on the IMF’s forecasts – seen in Jakarta as unrealistically low – its economy would grow 15 per cent over the three years of this global recession. Only China and India will do better.

Indonesia has no lack of problems. But a month travelling the country has left me with a strong sense that it is moving ahead, that the roots of democracy have grown deep in its decade of freedom, and that its potential importance to us and the world will grow if Yudhoyono’s 10 years as President becomes the bridge between the chaos of old and its emergence as a new world power.

Indonesia never will be a giant on the scale of China and India. Indonesia has 230 million people; they each have well over a billion. But it is moving along very different lines from China. Last year, analysts Andrew MacIntyre and Douglas Ramage published an essay for the Australian Strategic Policy Institute titled provocatively Seeing Indonesia as a normal country. Their thesis was that Indonesia is developing into a middle-income, stable democracy that poses no threat to its neighbours, and solves issues by peaceful, democratic means. At the time I thought their title provocative; a year and two elections later, it looks prescient.

China is much bigger, much mightier. But China is not a normal country. As we have been reminded starkly, it is an authoritarian dictatorship that tries to solve problems by bullying and force: arresting Rio Tinto’s chief in China, trying to bully the Melbourne film festival, and now, according to The Canberra Times, engaging in ”cyber espionage”, with China suspected of having sent Australian diplomats fake emails, designed to give the sender access to DFAT’s computer network.

Indonesia is different. For all the mistaken fears of Australians past and present, it is not a threat to us. In a wise paper for the Lowy Institute, Australia and Indonesia: current problems, future prospects, Professor Jamie Mackie tells how in the turmoil of the 1960s, when the British embassy was burnt to ashes, president Sukarno summoned Australian ambassador Mick Shann to explain why his embassy remained intact. ”You [Australia] are part of our region, and we both have to learn how to live alongside each other.”

And we have. At government level, the relationship is in excellent shape. Indonesia and Australia are working closely on issues from climate change to people smuggling. Indonesia is now the largest destination for Australia’s development aid, receiving almost $500 million a year to build schools, roads and health centres. There are 17 Australian Government departments and agencies with staff working in the Indonesian Government, helping them make government work. (One big success has been the Australian Tax Office helping its Indonesian counterpart make Indonesia’s big companies and rich people pay their taxes.)

People-to-people relationships are improving, if underdeveloped. There are now 15,000 Indonesians studying in Australia. In the year to June, a record 436,000 Australian tourists went to Indonesia, despite the official warning urging them to reconsider.

The commercial relationship, however, could be much bigger. Indonesia still has a widespread hostility to foreign investment, which Yudhoyono’s reforms have not challenged. Yet Australian companies in Indonesia – such as the ANZ, Toll and Thiess – are doing well, and there is the potential for Australia to help modernise Indonesian business as it is helping to modernise government.

Indonesia’s democratic revolution has put down deep roots. Its economic revolution is starting to do the same. Much depends on Yudhoyono’s second term, and how it tackles corruption and reforms to the bureaucracy, the labour market, infrastructure and investment. What will be good for Indonesia will be good for us.

 

Tim Colebatch is economics editor.

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