August 7, 2015

President Jokowi traveled to the Banggai Regency in central Sulawesi this week to inaugurate the $5.8 billion “Pertamina Mega Integrated Project”, which is planned to match the upstream production of natural gas with downstream users. The visit follows other forays of the President around the country to jump start other infrastructure projects including: parts of the Trans-Java – a 1,000 kilometer proposed toll road across Java from Merak in Banten, West Java, to Banyuwangi in East Java; the Trans-Sumatran Highway, a 2,508 km north-south road in Sumatra, from Banda Aceh to Bandar Lampung; new power plants that are part the 35,000 gigawatts expected within the next five years; and a 433-km Holtekamp Bridge in Papua. 

 
At Banggai, the President cautioned: “It must be integrated not only on paper but also in its real implementation in the field. This must be truly integrated, incorporating upstream and downstream industrial sectors and connecting gas producers and users. This must be implemented in the petrochemical and LNG business sectors and power plants,” said Jokowi.
 
The huge project symbolizes the dreams of Indonesia’s policymakers: for every raw material, there must be integrated downstream uses in the country. One hears the term “integrated” often in discussions and I suppose its natural. We like to think that everything is connected to everything else. When I lived in Indonesia in the 1970’s I was always surprised by the natural way many of my Indonesian friends integrated the micro and macro aspects of life. An accident on a road could be instantly connected to a cosmic pattern that had been detected. Integration is harmony, steady-state, stable, values that resonate strongly in Indonesia rather than the dynamic, inherent conflicts of markets.
 
The meaning of Banggai is not just harmonius upstream and downstream integration, its also about self sufficiency and independence. The gas can be turned into LNG for power as well as ammonia for fertilizer and other uses, lowering the need to import. But in an increasingly interdependent world is this type of integration planning sufficient ? Could it not turn into an ideological imperative, locking Indonesia into policies that isolate rather than integrate it with the region and beyond ?
 

I think we are at a critical juncture in Jokowi’s Presidency. If infrastructure of the kind that lowers logistics costs and helps supply chain integration cannot be accelerated we will only see more nationalist and protectionist policies, further isolating Indonesia’s economy, especially given the weaknesses in the rupiah. We rarely hear the voices of Indonesian economists who know their way around international economics, even though some remain in the government. This week two Indonesian economists based in Australia–Arianto A. Patunru and Sjamsu Rahardja– released an important report via the Lowey Institute, “Trade Protectionism in Indonesia”. They observed that in past times bad economic circumstances led to good economic policies but today we are seeing “bad times leading to bad policies”. Whether their cautionary voices and those of us outside Indonesia who are her closest friends, alarmed by the protectionist trend, will be heard remains to be seen. Indonesia’s needs more “Banggais” and more industrial integration but not at the expense of regional and global intergration. Indonesia’s future is not just supply chain connections within its borders but outside them as well.  The former will not happen without the latter.

About the Author:

Wayne Forrest is President of the American Indonesian Chamber of Commerce, a private not for profit membership organization based in NY.

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