Indonesia: Komodo country at a crossroads

30th May 2019 in
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As Indonesia’s Joko Widodo has his Presidency confirmed for a second term, it is worth examining whether continuity in this case means change. Given that the announcement was brought forward a day due to security fears, with security personnel widely visible amid fears that Al-Qaeda would look to disrupt rallies and insinuations from the opposition that widespread cheating would make the result a formality, on the surface it seems that Indonesia remains locked in internal divisions and insecurity. Is this a fair assessment?

Indonesia is a country of contradiction – it is the most populous Muslim nation on earth despite having no official state religion, it looks to gain the highest levels of international prestige (such as its rejected bid for the 2022 World Cup) while being beset by internal strife and corruption, and simultaneously decries Chinese soft power while cosying up for its investment. Therefore, as a ‘destination country’ for investment, there are understandable questions over Indonesia’s suitability in the long-term when faced with such powerful competitors, and about whether it is possible to break the cycle of corruption that exists on a day-to-day basis.

While Indonesia is a growing economy and is predicted to be the fourth largest by 2050, it is still beset by problems, not least the twin factors of widespread poverty through much of the country that stymie across-the-board growth, and the corruption prevalent across much of government and bureaucracy that is concerned only with the immediate, focused benefits rather than the long-term advantages for Indonesia as a whole. At present, it is regrettable but arguable that Indonesia’s efforts to tackle corruption have been inadequate. It is estimated that $75m was lost in 2018 to corruption, with bribery and facilitation payments on the part of foreign investors now becoming ‘the norm’ – not just for active efforts to establish and succeed in their individual enterprises, but in the ongoing protection of what they already have. Without sufficiently enforced legislation and a drastic increase in the power and authority of the Anti-Corruption Commission, any ill-prepared dive into an investment landscape will carry a risk.

On a practical level too, the infrastructure of Indonesia is a serious concern. Better transportation and commerce links are vital to help the country’s continuing evolution and $400 billion is intended to be spent on airports, power plants and trans-nation infrastructure. It is notable that China has been very active in this regard, putting up 75% of the cost for a high-speed rail link between Jakarta and Bandung as just one of several major infrastructure projects the two countries have partnered on. This has brought its own criticism of just how reliant Indonesia could become on the Chinese hegemon. It is unarguable that taken in isolation this would be extremely beneficial to Indonesia but is impossible to extricate from the wider perceived problems such partnerships would bring. Would other foreign investors get a fair deal? Will China step back from trying to take too big a share? All parties say yes – but it may be that firms within Indonesia are used as political pawns for a higher goal.

So once again Indonesia is at a crossroads. In order to flourish it requires investment, but what there is either comes from controversial sources (China) or falls into the trap of internal corruption. Equally, some will be unwilling to offer investment without seeing improvements. It is something of a catch-22 situation. Set amidst the eruptions in violence since the announcement of the electoral vote, Indonesia remains a country with great opportunity and investment potential, but which has little chance of realising this in its current situation. Only investors willing to accept a significant degree of risk should apply.

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