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    January 25, 2011

    Indonesia's Uncertain Future


    HONG KONG — Nothing could be more symbolic of the rise in Indonesia’s status in the world: Garuda, the national airline named after the sacred, mythical bird that is its national emblem, is being marketed to global investors. It has been reaching out to global investors as the government seeks to raise at least $1 billion by selling a large stake in what was long an accident-prone carrier shunned by passengers and airports alike.

    This caps a year in which Indonesia’s international stock rose faster than probably any other Asian country.

    Foreign perception of the nation’s progress had long lagged behind its actual, quietly-impressive political and economic development in the dozen years since the Asian financial crisis and the overthrow of the Suharto regime. But the now bullish perception may have run ahead of reality, perhaps setting both foreigners and newly confident locals up for disappointment.

    First, it’s worth reviewing the good news. The stock market was Asia’s top performer in 2010. The economy grew about 6 percent, and the same is expected in 2011. The budget position is strong; debt is low; trade in surplus and foreign reserves is high. Foreign commentators have suggested that it be classed with China, India and Brazil as one of the group of large, fast-expanding economies identified as the spearhead of global growth.

    Internationally Indonesia is now viewed as stable and strategically important. It is a member of the Group of 20 and, like Brazil, beginning to play a role beyond its immediate neighborhood. President Barack Obama has underlined its achievements, as a Muslim-majority country with a secular Constitution, democracy, pluralism and religious tolerance. It is now making an effort to reduce forest destruction and carbon emissions.

    Yet the sustainability of these positive developments is questionable. Economic success owes a great deal to the near record prices fetched by most of its export commodities — coal, palm oil, copper, rubber and others. These in turn have underpinned strong growth in consumption without pushing trade into a deficit. How long this cycle will last is anyone’s guess, but a sustained retreat of prices is going come with a sharp downgrading of Indonesia’s growth prospects.

    If economic worries are for the future, governance worries are here now. Investors may like stories like the success of Garuda, the national airline, but local media have been focused on a very different tale — an amazing saga that has stunned even Indonesians accustomed to graft — involving a corrupt tax-inspector and his deals with senior judges and firms linked to senior politicians.

    Some of the blame for a lack of government reform lies with President Susilo Bambang Yudhoyono. He has failed to use his 2008 electoral mandate to press on with administrative reforms or act decisively against the corruption. By putting his instinct for political compromise ahead of the law, Mr. Yudhoyono risks the governance reform vital for sustained development. Corruption among parliamentarians is rife so little legislation is passed as members jostle for favors.

    Mr. Yudhoyono set a poor example last year when Finance Minister Sri Mulyani Indrawati was forced out after clashing with vested interests, including one of the nation’s richest men and the head of a major party in Mr. Yudhoyono’s coalition.

    Media freedom and diversity thrives so the populace knows about a lot of the sleaze. But without leadership from the top little cleaning is possible. The government vigorously pursues Jemaah Islamiyah, the Southeast Asian terrorist network, but Indonesia’s traditions of religious tolerance have been damaged by failure, for political reasons, to confront localized harassment of Christians and Ahmadis (an Islamic sect regarded by some as heretical).

    These problems do not suggest that Indonesia should once more be ignored. But foreign awareness of its problems, as well as opportunities, is needed and could help Indonesia achieve sustained reform rather than copy the Philippines’ record of democracy marred by weak, corrupt governance.