Why Indonesia needs a strong leader

APINDO’s Sofjan Wanandi on Indonesia’s weaknesses

SAYS Sofjan Wanandi: “Indonesians are easy to take care of, but we need strong leaders. We follow strong leaders.” SBY he says, is a good person, but not a strong leader. He laments that the past five years have not been “so good” for Indonesia. Democracy, he thinks, has gone too far – “now, everyone talks about their rights, nobody takes any responsibility” - and corruption has flourished, he says. There have been missed opportunities. Wanandi chairs APINDO, the Employers Association of Indonesia, with more than 50,000 corporate members. “If I criticise the Government, it is for the good of the country,” he told ATI . . .

JAKARTA — Sofjan Wanandi does not mince words when it comes to assessing the performance of his Government. The Indonesian business leader is disappointed ­— and frustrated.

As Chairman of APINDO, the Employers Association of Indonesia, which has more than 50,000 corporate members, he speaks of missed opportunities due to Government inaction.

A patriot in his youth, he was involved with the anti-Communist movement and other political activities which landed him briefly in jail. He says he has given 50 years of his life to public service and business.

Therefore, he told ATI: “If I criticise the Government, it is for the good of this country.”

APINDO members are weathering a tide of labour activism, with an increasingly militant workforce pushing for minimum wages and wage rises of more than 100 per cent. The higher wages will now be compounded by higher fuel costs, following dismantling of Indonesia’s expensive fuel subsidy system.

Competition is hotting up, with China and Malaysia dumping cheap products to undercut Indonesian producers. The big elephant in the room is the pending arrival of the ASEAN Economic Community (AEC), which will eventually strip away all trade barriers within its 10 member States after it comes into force in 2015.

Wanandi says company revenues are falling because of the drop in global commodity prices. This is affecting indigenous Indonesian companies, many of which are involved in the natural resources and agriculture sectors.

And daily, businesses in Indonesia battle with inadequate infrastructure, a dysfunctional bureaucracy and uncertainty in the country’s legal system.
So if you detect a sense of wariness in Wanandi, it is because, like all other Indonesian businessmen, he feels under siege.

The Government of Susilo Bambang Yudhoyono has just undertaken its biggest reform yet by winding back fuel subsidies, starting from June. But Wanandi says the move has come a year too late. “It should have been decided and introduced last year. Not now. This is an election year, and the international economy is not recovering.

“Not much will happen this year in terms of policies. Some of the Ministers are distracted as they focus on next year’s election.”
Indonesia’s currency, the rupiah, is backsliding against international currencies — and, for the first time in many years, the country has chalked up a trade deficit.

Wanandi says the timing could have been better. The higher fuel prices came when Indonesians were observing Ramadan (the Muslim fasting month) and the Islamic New Year. Normally, this is a period when inflation increases. “We are now looking at another 5-10 per cent in the CPI increase this year.”

That said, Wanandi says it was business that pushed the Government to do away with subsidies on fuel, electricity and food, costing some US$30 billion a year, of which fuel takes up the lion’s share (the Government subsidises electricity and food for the poor).

“We don’t have national development projects because the money is eaten up by subsidies,” he says. “It has been a burden, but the business community still considers the fuel price increase too small. The Government will save only 60-80 trillion rupiah, from a total outlay of some 300 trillion rupiah.”

Business wants the funds diverted from subsidies to infrastructure development.

The Government has reduced its growth forecast from 6.8 to 6.3 per cent this year. Says Wanandi: “I don’t believe we can achieve that. If we can achieve 6.0 per cent, that will be good enough, but we expect growth will be around 5.8 per cent this year.

“During the Suharto years, it was the Government that drove growth. But today it is the private sector and some State-owned enterprises which provide the locomotive of growth.”

Wanandi says that, with democratisation, workers have been asking for higher wages, and this is creating a burden on business. The issue of wage increases has been politicised, and the labour movement is taking unilateral decisions. It used to accept wage increase recommendations from a tripartite group — the private sector, unions and Government.

In the past, he says, workers sought increases “a few percentage points above inflation”, but now they want increases of 100 per cent and more. In fairness, however, wages are still low in Indonesia by international standards. Depending on the region, the mandated monthly minimum wage ranges from 1.2 million rupiahs (US$120) in some provinces to 2.2 million rupiahs (US$213) in Jakarta.

Wanandi says Indonesian manufacturers face competition from Chinese and Malaysian producers. “Malaysia dumps food products and Chinese products are getting into the country illegally,” he says. “They avoid sales tax, whereas Indonesian products are taxed before they leave the factory gate.” Together with smuggling, tax-evaded products make up 30 per cent of all products on the Indonesian market.

Concerned with unfair competition for manufactured products, Indonesian business groups are pressing the Government to delay the full opening of the Indonesian economy to the ASEAN Economic Community.

“Our bottom line is our cost. If we cannot compete on the bottom line, how do we compete with Malaysia or other ASEAN members?” Wanandi asks.

Recently, the President, Susilo Bambang Yudhoyono, appointed APINDO to the Government’s negotiating team for free trade and regional trade agreements, upgrading the organisation from its previous role as an adviser to the Government. APINDO is keen to have some restrictions on foreign investors in sensitive sectors, like retail and logistics.

“We are not talking about retailing in big population centres like Jakarta. But we are saying that, at the village level, retail should be placed on the negative list. We cannot allow foreigners to go deep into the village level. Foreigners are welcome if they form joint ventures with local companies — as in Japan and China.

“We want joint ventures, because Indonesians must feel they are part of the development of our country. We should have some control. If we leave it all to foreigners, then when they don’t like it and leave, we are left with nothing.  This is what we are fighting for — to protect our national interest.”

Wanandi admits frankly that “we are becoming more nationalistic”. “We gave away too much to foreigners in 1997-98 during the Asian Financial Crisis (AFC),” he says. “We have to be players in our own country. We are not here just to provide the labour.”

Asked whether private capital which fled Indonesia during 1997-8 has returned, he says it has — and it has contributed to Indonesia’s steady economic growth of six per cent-plus in recent years. Post-AFC, Indonesian businesses have concentrated on commodities and services, especially the tourism, property, hotels, telecommunications and banking sectors. He adds that APINDO members are now the main taxpayers in Indonesia.

Wanandi is urging the Government to create a more conducive environment for business. “We need a better legal system and infrastructure development. This Government has not made any progress on infrastructure. Maybe the next Government will do better.”

Early this year, the Government identified infrastructure projects which would cost US$200 billion. It is seeking funding from the private sector for 70 per cent of that cost.

But Wanandi says the private sector wants the Government to take the lead. “We say (to the Government): you do it first, we will come in later. You take the risks because this is your responsibility. If you don’t make money from long-term projects, why would we want to invest? As business, we invest to make money, not for the social interest.”

He says Indonesia’s legal system needs to be overhauled to eliminate uncertainty. Currently, with different sets of laws, public servants have the discretion. “If they like you, they will use one law, if they don’t like you, they use another law — and that creates problems every time. “We have moved too far with democracy. Now, everybody talks about their rights — and nobody takes any responsibility. This is causing us difficult problems.”

Although the Government has passed a new land acquisition law, he says: “It will take two years to release land because of the bureaucratic procedure, the involvement of non-governmental groups and legal actions.

“Where do we go from here?  I am afraid we may slip into anarchy. That is what I am afraid of. We are seeing a trend emerging where there is mistrust of Government. Next, there will be civil disobedience. These are political issues, and if we don’t get it right in the next few years, I don’t know where we will end up.

“Indonesians are easy to take care of, but we need strong leaders. We follow strong leaders.” Wanandi says the current President is a good person, but not a strong leader.

He reminisces that, during the Suharto era, Indonesia grew at an annual rate of 7-8 per cent. “We don’t need Suharto or SBY — but we need someone in the middle. We need people who can make decisions, people who have a good team and are able to form a Coalition of nationalist parties.”

Wanandi laments that the past five years have not been “so good” for Indonesia. Growth has slowed to six per cent-plus, and corruption has flourished. “In the Suharto years, the power centre was a small area with the Suhartos. Now we have Parliament, local government and central government. With 245 million people, people say this country is too big to fail. So, if we fail it is due to our own stupidity because of (lack of) leadership.”