Skip to main content

Indonesia is managing the global recession better than most

Indonesia is managing the global recession better than most, thanks to its tough finance minister.

Solenn Honorine and George Wehrfritz

NEWSWEEK
From the magazine issue dated Jan 19, 2009

Last month a financial tidal wave washed over Indonesia, but not the one kicked up by the global credit crisis. Money flooded into government coffers from individuals and corporations eager to avail themselves of Jakarta's "sunset policy" on tax delinquency, which forgave past evasions in exchange for good behavior going forward. The exact size of the surge isn't yet known, but economists estimate that tax receipts were up more than 50 percent for the year. "We saw quite a big jump" in revenue in December from "taxpayers who never existed [on the tax rolls] or want to correct mistakes made in the past," says the plan's creator, Finance Minister Sri Mulyani Indrawati. Indonesians, she adds, are honoring their tax obligations "in a much more accurate way."

The influx marks a major triumph for Indonesia's current government and, in particular, for the woman who put Jakarta's financial house in order. Over the past four years, Mulyani has helped dismantle the financial architecture of the crony capitalism built by strongman Suharto before his 32-year reign ended in 1998. She has pressed hard to slash debt, both public and private; pushed through a rollback of budget-busting fuel subsidies; and overseen sweeping reforms of the customs and tax authorities—position ing Indonesia to post the world's best (or at least the least bad) emerging-market growth story in 2009. Unnoticed until recently, Jakarta's conservatism is now the envy of the developing world, and Mulyani is being hailed as a model regulator. "She could be the finance minister anywhere in the world," says James Castle, founder of the consultancy CastleAsia. "She's that good."

Largely to Mulyani's credit, the country's balance sheet is now among the most conservative in the world; government debt now sits at just 30 percent of GDP, down from more than 100 percent a decade ago, while Indonesia Inc. is far less leveraged than its peers elsewhere in Asia. Despite that relative austerity, growth is being driven both by commodities—Indonesia's traditional mainstay—and by strong domestic consumption from a population approaching 240 million. And neither the commodity bust (which has also driven down the price of the imported energy on which Indonesia depends) nor tighter global credit looks set to hobble a country that, from the household to the boardroom and cabinet chambers, is all but debt-free.

Indeed, Indonesia is one of just three major emerging economies forecast to grow faster than 4 percent in 2009. The other two—China and India—have decelerated more rapidly in recent months and face tougher policy challenges. Mulyani says Indonesia could expand by as much as 5.5 percent this year, which is barely slower than the 6 percent it clocked in 2008, and perhaps enough to pip one of its two Asian counterparts in this year's growth race. Not bad, considering that the country's economy collapsed in 1998, shrinking 18 percent in a single year. Wolfgang Fengler, a senior economist at the World Bank, says Jakarta's macroeconomic management is now "as good as it gets."

Indonesia owes its turnaround to an ensemble cast. President Susilo Bambang Yudhoyono has provided the political stability and pro-globalization vision that underpin today's successes. Boediono (who goes by one name) was a deft coordinating minister for economics until he handed the brief to Mulyani last May to head Indonesia's central bank, and Trade Minister Mari Pangestu deserves plaudits for kick-starting Indonesia's export economy. Yet Mulyani stands out for her toughness. She says her staff had to "swallow a lot of very bitter reality" during her first six months on the job. After landing there, for example, she confronted senior staff: "How can you send your daughter or your son to study abroad when you earn only this kind of salary? Where did you get the money?" To which she added: "You have to admit: we are all committing this crime." Her staffers still work evenings and weekends to meet her expectations, and she's been known to tangle with colleagues. Last year she lobbied intensively to ram through a deeply unpopular reduction in fuel subsidies that President Yudhoyono initially opposed. "She got her way because she is capable of playing politics," says Anton Gunawan, chief economist at Bank Danamon in Jakarta.

Yet by raising pay for bureaucrats, and not demonizing those who previously took payoffs to make ends meet, she has raised standards and steeled a reputation as an incorruptible reformer. Her message to her staff is simple and positive: "I only have one goal: I want the Indonesian people to trust us, this department, because this country will go nowhere if the people don't start to trust their own government." Though nobody would yet describe Indonesia as a model of transparency, the changes in its taxation and customs administrations have been profound, and in turn have enhanced Indonesia's growth potential to the point that "the world needs to update the way it thinks about the country," wrote Nicholas Cashmore, CLSA investment bank's Indonesia analyst, in mid-2008, declaring: "Southeast Asia's largest economy is in great shape." And thanks to Mulyani, Indonesia is garnering more respect by the day.

Comments

  1. It's a shame you don't have a donate button!
    I'd without a doubt donate to this superb blog!
    I suppose for now i'll settle for book-marking and adding your RSS feedd tto
    my Google account. I look forward to brand new updsates and will share this blog with my Facebook group.
    Chat soon!

    my web page get Rid of hemorrhoids

    ReplyDelete
  2. If you are going for most excellent contents like myself,
    simply go tto seee this site every day since it presents quality contents, thanks

    Also visit my blog :: stop snoring mouthpiece custom mouthpiece

    ReplyDelete
  3. Excellent site you have here but I was curious
    if you knew of any message boards that cover the same topics disscussed
    in this article? I'd really lovve to bbe
    a part of online community wheree I can get
    opinions from other expperienced individuals that share the
    same interest. If you have any suggestions, please
    let me know. Thanks a lot!

    Visit my blog :: venapro for piles; youtube.com,

    ReplyDelete
  4. Hi there to all, hoow iis all, I think every one is getting more
    from thijs website, and your views are nice in support of new users.



    my homepage ... snoring problems

    ReplyDelete
  5. I loved as much as you'll receive carried out right here.
    The sketch is tasteful, your authored material stylish.
    nonetheless, you command get boufht an nevousness over thaat you
    wish be delivering the following. unwell unquestionably come more formerly again as exacyly the
    same nearly a lot often inside cae you shield this increase.



    Heere is my web site - Venapro Reviews

    ReplyDelete
  6. I believe this is among the so much significant info for
    me. And i am satisfied studying your article. But wanna conmentary on few common things,
    The site taste is wonderful, the articles is in point of
    fact nice :D. Just right process, cheers

    Also visit my web blog ... wheeze pokemon

    ReplyDelete
  7. Normally I do not learn article on blogs, but I would like to say that this write-up very compepled me to check out and do
    so! Your writing taste has been amazed me. Thank you, very great post.


    My blog; get rid of hemorrhoids

    ReplyDelete
  8. If some one wants expert view on the topic of runnong a blog then i suggest him/her to pay a visit this webpage,
    Keep up the good job.

    Also visit my homepage - causes of snoring snorer

    ReplyDelete

Post a Comment

Popular posts from this blog

Goverment to Build New Port in Subang or Indramayu

From The Jakarta Post
April 2, 2015

The government has changed its plan to build a new port in Cilamaya and is seeking a better location in Subang or Indramayu, West Java.

Vice President Jusuf Kalla said the government needed to build a new port but it would not be in Cilamaya.

The Vice President, who visited Cilamaya with several ministers, including Coordinating Maritime Affairs Minister Indroyono Susilo and Transportation Minister Ignasius Jonan on Thursday, said the new port would be built east of Cilamaya, either in Subang or Indramayu.

Kalla said the main reason to move the new port’s location to another regency was because waters in the area were already crowded by offshore mining activities and oil tankers transporting crude oil to Jakarta and other cities.

The government has allocated Rp 34.5 trillion (US$2.6 billion) to construct a new port, as Tanjung Priok Port is deemed too crowded.

For detailed story, visit here
The government has changed its plan to build a new port in Ci…

POSCO to lift Indonesia investment to $11 billion over next 5 years: Jakarta

From Reuters
Oct 19, 2012


South Korean steelmaker POSCO will almost double its investment in Indonesia to $11 billion over the next five years, from $6 billion currently, Chief Economics Minister Hatta Rajasa said on Friday.
The world's fourth-biggest steelmaker, already has a multi-billion dollar joint venture with Indonesian state-owned PT Krakatau Steel, the country's biggest steel producer.
Earlier this year, the South Korean firm's affiliate POSCO Engineering & Construction, formed a consortium to build two 300-megawatt power plants on Indonesia's Sumatra island, worth around $1 billion.
A POSCO spokesman in Seoul said the South Korean firm has yet to make detailed investment commitments in Indonesia, and noted other partners would jointly invest in any projects.
Foreign direct investment in Indonesia stayed strong in the second quarter, showing the G20 member remained a magnet in a troubled global economy and that changes in mining ownership rules are not cutting i…

March Inflation Limits Bank Indonesia’s Room to Cut Interest Rates

From The Jakarta Globe
April 1, 2015

Inflation increased slightly in March, data from the Central Statistics Agency, or BPS, showed on Wednesday, as prices were pushed up by higher prices for fuel and rice and continued weakening of the rupiah.

Analysts said stronger inflation would limit Indonesia’s central bank’s ability to further reduce its key interest rate. The BPS announced March’s headline inflation rate was 6.38 percent, compared with 6.29 percent a month earlier.

“This is broadly in line with our forecast and the consensus median,” said Dian Ayu Yustina, a Jakarta-based economist with Bank Danamon Indonesia.

The administration of President Joko Widodo has reformed the fuel price policy to a regulated price that can fluctuate according to the global oil price and the exchange rate.
Looking forward to the rest of the year, analysts Wai Ho Leong and Angela Hsieh from Barclays said the path of inflation was still benign.

They projected inflation to average 6.5 percent …