The Global Economy in Turbulent Times

CHAPTER 125 Indonesia Losing Its Footing?¹

Since Susilo Bambang Yudhoyono (SBY) came to power, I have been a fan. Mind you, Indonesia remains today a nation full of problems: political, economic, and social. His reputation was built on sustaining a predictable regulatory environment. Despite its problems, Fitch rerated Indonesia in December 2011 with an investment-grade credit after 14 years in junk status, followed by a similar move in January 2012 from Moody’s Investors Service. Indonesia—like many in Asia—expects sluggish global demand to slow its rapid growth, to 6.43 percent in the first quarter of 2012—after posting gross domestic product (GDP) growth of 6.5 percent in 2011, the quickest pace since the 1997–1998 currency crisis. During my last visit in March 2012, I gathered investors are still flocking to Indonesia simply because there is a deep affiliation that “tomorrow will be better than today”; and today is pretty good—so far. Indonesia must realize that a good reputation is fragile. It is built over years, but can be destroyed overnight.

Resource Nationalism

Not long after Suharto’s 1998 fall from power, Indonesia was transformed from a tightly controlled autocracy to become one of the world’s most vibrant democracies. With the run-up to the 1999 elections, the military has since stayed on the sidelines. Sweeping political and fiscal decentralization devolved real power and resources to the nation’s hundreds of districts and municipalities. The government created ...