Several weeks ago, the captains of Indonesian industry gathered for a private party in Central Jakarta to celebrate the birthday of one of their fellow masters of the universe.
Among those present were Industry Minister MS Hidayat and Trade Minister Gita Wirjawan. Like most of the guests at the party, both ministers came from strong business backgrounds and have millions of dollars in personal assets.
Amid the merriment, Gita stole a moment from the host to deliver a short speech on a very serious matter: the government's support for domestic industries. The trade minister said that there should be no doubt about the government's commitment to improving Indonesia's competitiveness. He assured the industry leaders that they would always find him as a reliable ally.
The minister then closed his speech on a charming note, playing the keyboard while giving a rendition of the song "You've Got a Friend", made popular by James Taylor.
And a friend Gita has indeed been to those executives who have been critical of Indonesia's trade and investment policies in the past. These critics argue that for the last 14 years Indonesia has offered an unprecedented level of openness that even the US would have a hard time rivaling — free trade with China being one aspect among many.
Less than eight months into office, Gita, a graduate of Harvard's Kennedy School of Government, has backed a list of policies some consider draconian: a ban on raw rattan exports, curbing import gateways for horticulture produce, limiting product categories for importers and implementing a 20 percent export tax on 65 mining commodities.
Indonesia, suddenly, finds itself tilting to the left.
Stakeholders have been stunned by the abrupt policy changes. They wonder what has been driving the nationalist or protectionist stance that has seemed to underpin Susilo Bambang Yudhoyono's second term. It is as if the President is not the same man who once said: "Asia must lead the way to keep markets and societies open."
It is easy to point a finger at Gita for his overzealous support of domestic industry, or for what some have said is his personal ambition for the presidency.
Some people prefer to blame Coordinating Economic Minister Hatta Rajasa and his political ambitions for driving the economy in the wrong direction. Although Hatta does not hold any regulatory power, they argue that as Yudhoyono's most trusted aide (and his son's in-law, to boot), his meddling in the Cabinet has been substantial.
Both arguments are plausible — but not quite on the mark.
Indonesia's economic policy over the years has, to some extent, been overshadowed by a set of alien prescriptions imposed at the onset of the 1997-1998 Asian Financial Crisis. History has shown that the effects of the policies ran from the extremely painful to downright devastating, costing Indonesians not only their assets, but also their dreams.
Now that the national economy is back on its feet again, Indonesia is seriously rethinking its economic development model — especially at a time when the global economy is being engulfed by a multitude of crises led by the so-called open economies of the northern hemisphere.
Indonesia now wants to move away from supplying the world's insatiable appetite for nonrenewable resources and opt for a more logical, ethical and democratic choice: climbing up the value chain.
"The creation of added value has nothing to do with nationalism or protectionism. It's a necessity," said former president B. J. Habibie, one of Indonesia's most brilliant minds, at a recent gathering of researchers and innovators in Jakarta.
Unfortunately, there is a serious drawback that hampers such a simple desire: Indonesia does not have a political environment that can support properly functioning public policy. The nation's political parties thrive on corruption and pragmatism. Instead of assisting the already weak government, politicians often make matters worse through sheer greed or ignorance.
Case in point is an amendment of the Mining and Coal Law that will impose a full ban on raw mineral exports by 2014. The revision was a reactionary response to avoid a political backlash from the sudden commodity and energy scarcities that have led to blackouts and to factories scrambling for resources. This is an example of how lawmakers have favored extreme legislation to compensate for their inability to resolve the government's dysfunctional approach to securing a domestic supply of energy.
Instead of yielding positive results, the amendment has spurred overexploitation, as miners ramped up production ahead of the export ban. The government sees this as an opportunity to raise revenues. After failing to win the House of Representatives' approval to raise fuel prices, the government has begun taxing mineral exports, arguing that it is necessary to prepare mining companies for 2014 and to stimulate domestic value-added processing.
Although in line with a desire to climb up the value chain, the policies were born out of a series of accidents — and not from a clear vision that has endured rigorous analysis and discussion with stakeholders. As a result, the sustainability of the policy is at stake, creating more uncertainty. This is what has truly characterized policy making in Indonesia today.
In another example of poor governance, the Trade Ministry made a statement last week that it would soon make several adjustments to the importer product limit policy — just days after it was introduced — after executives said that some of its provisions would be impossible to implement.
The Yudhoyono administration still has two years to make things better. The President needs to fine tune his rhetoric to ensure it is in harmony with his policies. Yudhoyono must come out and end confusion by specifying clearly what his policy directions are.
When — and if — that gets done, the President can release another of his music albums, perhaps this time featuring his own rendition of "My Way".
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