For Asia 2025, an Asia House publication launched on March 8, H.E. Jusuf Kalla, Vice President of the Republic of Indonesia, contributed his thoughts on Indonesia and its contribution to Asia’s role on the global stage. Please read below for the full piece.
Indonesia is the world’s largest archipelagic state by area and population, comprising more than 17,000 islands, it is strategically located at the cross-roads between the Pacific and Indian oceans and it controls several important international sea lines of communication, including the Strait of Malacca. It is home to more than 250 million people of which 86 per cent are Muslims, making Indonesia the world’s largest Muslim nation. Indonesia is also the world’s third-largest democracy, is a middle power and rising middle income country, and has the fourth-largest population of Facebook users globally. It is a country that represents 40 per cent of ASEAN in terms of population, land area and economic size.
Indonesia is well-known for its diversity, with diverse ethnicities, religions and local languages, which come together based on Bhinneka Tunggal Ika, an underlying principle that means ‘Unity in Diversity’. With Bhinneka Tunggal Ika, Indonesia has always celebrated diversity with tolerance. This principle has shaped the country and helped to achieve its development goal. As a highly heterogeneous nation, Indonesia acutely realises that the potential for conflicts is ever present. But we are grateful that, for the most part, we have been able to resolve internal conflicts peacefully. Indonesia’s experiences in managing and resolving conflicts, particularly in the troubled province of Aceh, which saw several decades of a separatist movement, have become lessons for many other countries.
In politics, Indonesia has undergone a remarkably peaceful transition from authoritarianism to democracy within a relatively short time. In the immediate aftermath of the fall of the Suharto’s New Order regime many forecasted that Indonesia’s unity would fall apart. However, contrary to the negative predictions, Indonesia has not only survived the turmoil but has been lauded as a successful model for a country where Islam, democracy, political stability, and economic and social progress can go hand in hand.
The history of Indonesia has also been marked by its success in recovering from the 1998 and 2008 financial crises. According to the International Monetary Fund, Indonesia’s GDP in 2014 was US$916 billion, making Indonesia the world’s 16th largest economy in nominal GDP. According to the World Bank, Indonesia’s GDP by Public-Private Partnerships valuation in the same year reached US$2,554 billion, ranking ninth in the world. A number of analysts have predicted that Indonesia’s nominal per-capita GDP will quadruple by 2020. Indonesia’s debt-to-GDP ratio steadily declined from 83 per cent in 2001 to 26 per cent by the end of 2013. Indonesia is the largest economy in Southeast Asia, and is a member of G20 and MIKTA (Mexico, Indonesia, Korea, Turkey and Australia) – five significant economic powers in the world and active players in each respective region.
Nevertheless, we do not turn a blind eye to the gaps that still exist. Over 11 per cent of Indonesians still live on, or under, the poverty line. We also realise that our economic growth has, at times, come at a high cost to the environment. At the same time, Indonesia continues to face many challenges that hamper its economic competiveness, such as low-skilled human resources, limited infrastructure, confusing and overlapping regulations and bureaucratic bottlenecks.
Indonesia, however, currently has one major advantage. While in many other countries the workforces are ageing, Indonesia’s population is now composed of the largest youth reservoir that Indonesia has ever seen, approximately 66 per cent of the total population. Therefore, Indonesia will potentially enter a demographic dividend era, where the peak is estimated to occur between 2028 and 2031. This trend poses huge potential for social and economic development. To capitalise on it, Indonesia needs to invest in the young generation. Since reformation, the government has allocated 20 per cent of the state budget for education, but has also invited the private sector to participate in providing education and training at all levels. The government has paid equal attention to other social needs that will improve our human capital, such as in health and housing. Moreover, Indonesia needs to reduce the development gap between urban and rural areas as well as between Java and other parts of Indonesia.
In the long run, we aim to become a high-income country by 2030. To that end, reformation in every aspect – political stability and infrastructure development – is a precondition. Under the current government’s leadership, Indonesia’s development agenda will be based on the state ideology of Pancasila, which emphasises religiosity and pluralism, humanity, national unity, an inclusive participatory decision-making process and social justice, and the Trisakti concept, which underlines political sovereignty, economic independence and socio-cultural identity.
In the next five years, Indonesia’s development will be focused on strengthening all aspects of development – more specifically, in achieving competitiveness based on the improved added value of its natural and human resources, as well as technology. For the years of 2020-2025, Indonesia’s development will be directed to create a nation that is independent, developed, just, and prosperous, by accelerating development in all aspects and by focusing on building a strong economic structure that is supported by the competitiveness of every region and the human resources of the country.
Drawing on our maritime resources in addition to the spirit of the Sriwijaya and Majapahit empires in Indonesia’s history, Indonesia aspires to be a maritime power in the world – a Global Maritime Fulcrum – between the Pacific and Indian oceans. This vision comprises five pillars, namely: cultivating maritime culture, preserving and managing maritime resources, developing maritime infrastructure and connectivity, maritime cooperation through diplomacy, and building a strong maritime defence. This agenda offers many opportunities for cooperation with Indonesia’s partners.
Global and regional dynamics will inevitably impact upon Indonesia’s future development plan. Today, the global economy is still under stress. Developed countries are avoiding structural reforms due to the high political cost, turning instead to monetary policy. The sharp decline in oil prices has made major oil-producing countries face large fiscal deficits. The explosive growth of China is also experiencing a slowdown, negatively impacting on demands and commodity prices. As a result, major commodity exporting countries that are dependent on the Chinese market, such as Russia, Brazil, Australia, Malaysia and Indonesia, are also facing economic slowdown. In the mid-term, between three to five years ahead, the global economy is expected to improve gradually. Even so, developing countries will continue to face pressures on their economies.
In Asia, despite various internal and bilateral conflicts that are not yet resolved, Asian nations have, on the whole, enjoyed a peaceful and stable region for the last five decades. It has been well understood that since entering the 21st century, the centre of gravity of the global economy and geopolitics has shifted from the West to the East. According to some projections, in 2025, 61 per cent of the world’s population will be in Asia. The centre of gravity of world production will also move towards Asia. Thus, Asia will be the stage for both cooperation and competition. Today, the pace of Asia’s growth is slower due to the recent spike in global risk aversion and financial market volatility. Even so, Asia is still expected to lead global growth.
The various challenges that Asia faces cannot be solved individually. Collaboration is the route that all countries must take. Located at the intersection of the Pacific and Indian oceans, Indonesia can capitalise on its strategic position to play an important role and collaborate with other nations in contributing to the development of a prosperous, peaceful and stable region. Disputes between Asian countries should be managed and resolved peacefully to prevent them from becoming flash points of conflict that can hinder economic growth. One major issue to be solved by all parties concerned is the South China Sea dispute. Bearing in mind the importance of the Sea, peaceful resolution to the dispute is a must. Through cooperation we can ensure that the South China Sea area remains peaceful and stable, even if the territorial disputes are not easily resolved. On its own, and together within ASEAN, Indonesia has continued to play a leading role in promoting the peaceful management of the potential conflict in the South China Sea.
As for Southeast Asia nations, the ASEAN Economic Community (AEC) commenced at the end of 2015, marking a historic process of economic integration between ASEAN countries. The AEC opens up opportunities for Indonesia and will become an important learning process for Indonesia to improve its national competitiveness as it faces both the challenges and opportunities of bigger regional free trade arrangements.
Currently, the Indonesian economy is slowing down because of the impact of the global economic trend. Investors’ confidence has not been fully restored. Unemployment is increasing. In order to tackle all of these problems, the government has two modalities, namely budget and policy initiatives. All this time, the government’s budget has been in deficit due to the high cost of energy subsidy and bureaucracy. This has been a barrier to the acceleration of Indonesia’s development, particularly the building of costly infrastructure. Therefore, the current administration has taken a politically sensitive policy to slash subsidies for fuel and electricity, and instead use the budget to develop infrastructure to attract more investments. Moreover, the government is reforming the bureaucracy, public service and decision-making process involved in investment. The central government has also instructed the regional governments to immediately solve various local problems that have hindered investment. By implementing these strategies, Indonesia can hopefully capitalize on all its modalities – namely openness, rich natural resources, a large consumer base, and political stability – to attract investors, in order to expand the economy. On the other hand, we require investors to obey the laws and pay tax. The government will also implement a policy that maintains a balance between trade, industry, finance and production, as these sectors are equally important.
To improve Indonesia’s economic environment and boost growth the government has launched a series of economic policy packages in stages. At this stage, the focus of the economic policy package is to develop the real sector and improve the macro economy as well as to protect those from low-income groups with social security. Besides that, creating more job opportunities is also the priority of the government, particularly considering that the number of new job seekers will reach approximately 2 million per year.
As we live in a dynamic and unpredictable world, many might question whether the growth in Indonesia, and in Asia as a whole, can be sustainable in the long run. It is understandable to be worried about what the future has in store for Indonesia and the region. As the world transforms itself at a quick pace, Indonesia realises that a recipe for success in the past might have become obsolete today, and that what is considered a breakthrough nowadays would soon become irrelevant. But Indonesia has plenty of experience in handling and surviving turbulence. As such, Indonesia should be motivated to achieve its future goals while maintaining a forward-looking and innovative approach, because our success would also allow other countries to partake in the growth, as well as contribute to the region and beyond. (*)
Source: Asia House