May 2021


Commentary by Wayne Forrest

Two seemingly disconnected “surges” characterize Indonesia’s current priorities.

Surge #1 is the flow of Indonesians from urban population centers to their hometowns that began May 6 and will end May 13, the last day of Lebaran, the Muslim fasting month. Travel restrictions have been imposed for the second year in row, but can be ignored by anyone with a motorbike or a good connection with truck drivers moving food and other essential products. Signs are that hundreds of thousands are doing just that. Its a bit smelly in the back of a truck or van, but Mom is going to love it when she sees her son arriving in need of a bath. Even with bus, train, and air restrictions, Indonesian officialdom is resigned to some kind of surge. Heath officials are readying medical facilities with adequate supplies of oxygen, ventilators, and PPE. Indonesia, with a 4.6% vaccination rate, will have difficulty reaching herd immunity due to lack of supply of vaccines (although the situation is improving) and significant resistance. Recent reports shockingly indicate that the US could be in a similar position.

Surge #2 is the increased flow of foreign direct investment and the expected follow-on exports of manufactured products resulting from Indonesia’s 2020 Omnibus Job Creation Law and 2021 regulations that turned Indonesia’s Negative Investment List into a Priority List. Indonesia’s policy makers now believe the table is set for a surge of production relocating from China. The landmark law opens more sectors for foreign companies and markedly adjusts the formula for paying dismissed workers. These two basic changes were years in the making and are a testament to President Jokowi’s openness to practical ideas that don’t necessarily originate in Indonesia. Indonesia is not a country with a relatively homogeneous population and integrated land mass that easily achieves unity of purpose based on a homegrown approach. It has had difficulty achieving transformational development by hiving itself off. Indonesia is divided by its archipelagic geography, its diverse ethnicity, and heritage as a trading nation. The Omnibus is a practical recognition of Indonesia’s place in the world. Indonesia is not a strong candidate to repeat the import-substitution ways of a Japan or Korea but it continues to try. The law distinctly does not cover natural resources and finance. Here, Indonesia is using industrial policy similar to its north Asian neighbors, exerting its will to impose import and export barriers to force the conversion of its rich mineral reserves (i.e. nickel) into locally produced downstream products such as electric batteries and vehicles.

Surge #1 and #2 connect in the areas of rule of law, personal behavior and bureaucratic professionalism. The phrase “Its Indonesia” comes up frequently in conversations with both Indonesians and expats to describe how a law or regulation –once imposed– is dealt with via a workaround, gratuity, or flat-out ignored. Substitute “Chinatown” and its what private detective Jack Nicholson heard an experienced cop use to describe how things work in a difficult part of LA. I am told by my Indonesian friends that many commonly pick up temporary riders in order to travel in areas of Jakarta designated only for multi passenger vehicles, don’t pay taxes, pay teachers to get their children’s report cards, have difficulty waiting on lines, and cheat on exams or forge academic degrees. A few days ago the Jakarta police checked a vehicle with a rotating light stuck in traffic crammed with a bunch of “extra” riders avoiding roadblocks designed to prevent Surge #1. Companies rarely follow accepted accounting principles and under-report losses. Local lawyers report that corruption in the court system is worse than it was before 1998’s Reform movement. Indonesia’s internationally respected Anti-Corruption Commission may be in the process of having its wings clipped. Its employees are now all to be civil servants subject (see article on page 3) to the politicization and patronage norms that plague the state bureaucracy.

Indonesia needs to get past these Surge #1 perceptions to fully realize Surge #2.