Manjit Bhatia – In Indonesia's July 5 direct presidential poll – the country's first since the corrupt Suharto dictatorship's downfall in 1998 – contender Susilo Bambang Yudhoyono thumped incumbent Megawati Sukarnoputri into second place. Yudhoyono won 33.58% of the popular vote, Megawati 26.29% and ex-general Wiranto 22.21%.
Wiranto, however, protested to the Constitutional Court that vote-counting irregularities had robbed him of second spot and a shot at facing off against Yudhoyono in the presidential runoff that took place on Monday. In the end, Wiranto's case was tossed out, and the besieged Megawati was thrown a lifeline. But this won't save Megawati from ignominious defeat. Or will it? If she – or Yudhoyono – were to win, would Indonesia be better off?
On assuming presidency in 2001, Megawati promised to end the shenanigans of the outrageously incompetent Jusuf Habibie and Abdurrahman Wahid administrations. She promised Indonesians a brighter future. But in fact Indonesia has slid backward and sideways under her watch. It is torn by deep politico-ideological conflicts, including state-backed internecine wars in Aceh and West Papua, and state-condoned, bloody ethno-religious violence throughout the far-flung archipelago.
And Indonesia is still smarting from losing East Timor in 1999, after invading and colonizing it in 1975, and recovering from fanatical Islamist terrorist bombings in Bali and Jakarta. Years of Suharto-inspired insidious corruption and cronyism stay deep rooted and go unchecked by the regime, while the promise of reforming Indonesia's crooked justice system last year alone mired itself in its own farce; first over Golkar chief Akbar Tanjung's acquittal from corruption charges and then by the quashing of the death penalty for those accused of planning the 2002 Bali bombings.
Surely it's not all that dire in Indonesia. Take the economy, which has been stagnant since the 1997-98 Asian financial crisis. Now, though, there are signs it may be turning around. During 2000-2003, gross domestic product (GDP) growth averaged 3.8%. That's in stark contrast to the crisis years, when the economy was scorched and mayhem reigned in Indonesia as the republic nearly crumbled, stumbling from crisis to crisis amid the weak and clueless Habibie and Wahid governments.
So, strange that Megawati hasn't, during the post-July election campaign, staked a claim for bringing order to the economy, especially vis-a-vis her spectacular failure to do likewise on the political front. At no time has Megawati looked even remotely presidential. Still, it seems macroeconomic stability has returned. Economic growth has continued so far this year. After the late-1990s bailout by the International Monetary Fund and other state-nation donors, it's business as usual – again.
Some macro aggregates do look impressive. Inflation was down from 58% in 1998 to a shade more than 5%, year-on-year, in late 2003. The rupiah has stabilized, despite threats from SARS (severe acute respiratory syndrome), bird flu and Islamic terrorists. Public debt, once hovering around more than 100% of GDP, is now 60% of GDP. The situation has improved so much so that Jakarta's Berkeley Mafia – US-trained technocrats who lord over economic policy – now say debt no longer chokes the economy. And the government will rein in the budget deficit to just 1.2% of GDP by the end of 2004.
Subscribers of Economics 101 are forgiven for thinking their faith in the free-market Holy Grail is just what Indonesia needs. Their naivete is fantastical if they believe the Berkeley Mafia's revitalized mantra. Thing is, Indonesia isn't out of trouble yet. Not by a long shot. Several things still are worrisome. The "recovery" is about as spectacular as the presidential contenders: both Megawati and Yudhoyono have daintily danced around economic issues throughout their campaigns. Indonesia's recovery also is not dynamic, its improvement unglamorous compared to the pre-crisis years. Even then, the high growth rates of "tiger" economies had merely masked numerous woes, all of which exploded in early to mid-1997 with a roller-ball dynamic.
For starters, the economy hasn't fired up the way it has in the other afflicted East Asian economies. The recent bounces in Indonesia's stock market aren't indubitable indicators of growing investor confidence in an economy still horribly bereft of real reforms. Instead, it mostly has been responding to institutional investors from Singapore and Malaysia bottom-fishing cash-strapped Indonesian corporations such as banks and telcos. The euphoria will stay since Jakarta will continue selling off distressed state-owned assets.
But most key economic sectors, from agriculture and manufacturing to oil and gas, are suffering. Banks still aren't lending. If the economy is buoyant, it's because consumer spending is underscoring the "boom", inspired by pump-primes that have benefited Indonesia's moneyed classes. All this, in turn, without substantive and balanced policies, will potentially amount to fiscal suicide down the road.
That could be disastrous for strife-torn Indonesia and the immediate region. Take unemployment, which was 10.5% in 2003, down from 10.6% in 2002, but up from 8% in 2001. Jakarta says per capita GDP rose to US$3,200 in 2003, and that only 27% of Indonesians now live under the poverty line. But in terms of human development, the 2003 Human Development Index ranked Indonesia 112 of 175 countries studied.
Government studies say about 10.24 million Indonesians are unemployed, but other independent research reveals that 38.2 million are jobless. If the economy keeps growing at under 4%, jobless numbers will swell by another 1.1 million a year, at least, with 2.5 million Indonesians entering the tight labor market each year and vying for 1.4 million low-paying jobs. That explains why, like the Philippines, millions of Indonesians turn into cheap, exploited and abused migrant workers in countries such as Malaysia. Indonesia, like the Philippines, has increasingly become a nation that produces coolie labor for its richer neighbors.
All this makes a mockery of Megawati and Yudhoyono serenading voters at campaign rallies while their speeches are spiked with rhetoric and banal and wholly devoid of substantive policies and vision. Megawati had hailed 2003 as the "Year of Investment". It fizzled, despite a new investment bill aimed at luring foreign investors by liberalizing all economic sectors – even some of the most crony-owned and protected. During 1997-99, foreign investment fell thunderously, then stagnated. In 2003, it again fell. Today, roughly 60% of all approved foreign direct investment is the result of dubious changes in project status.
Even the meagre 3.8% GDP growth could easily come unstuck as global interest rates come under sustained pressures to lift, thanks in no small part to rising world oil prices. And oil and gas, once the harbingers of the New Order economy, today are bearers of new uncertainties. Up to the third quarter last year, exports were up slightly to 7-8%, compared to the same period in 2002, but non-oil and gas exports, especially agriculture and manufacturing, have steadily slowed. The Berkeley Mafia will feverishly be hoping the United States, Japan and Singapore economies can sustain Indonesia's GDP expansion: all three buy 40% of Indonesia's total non-oil and gas exports.
Once a boon to the economy, oil particularly, despite recent price hikes, is becoming a major economic headache at a time when foreign investors are shying away from plonking their money in an economy that hasn't basically reformed, in real terms, and poses rising economic costs and politico-security risks to their operations. Pertamina, the state-owned oil company, was once a handsome cash cow for boosting the economy's bottom line – and for lining the pockets of Suharto and his cronies as well as politicians, bureaucrats and private capitalists.
Problem is, as investors sit on the sidelines, export income falters, and as Indonesia's proven oil reserves continue to dwindle (down by 13% since 1994), the budgetary outlook will simmer with dire problems, and many essential public expenditure programs will be shelved. That means increasing the potential for political instability as more people try harder to eke out an even more meager living. Many more Indonesians will be piled on to the growing scrap heap of joblessness and poverty. And they'll be open to exploitation by Islamic radicals and extremist groups such as the murderous Jemaah Islamiyah.
Problems will worsen more if, in the face of falling state revenue, Jakarta seeks to raise money through higher direct and indirect taxes, selling off more state-owned domestic and foreign assets, raise foreign loans, and increase its debt exposure. That will render Indonesia's already precarious budget even worse off. And if the economy should contract – and there's no reason it won't, given the deep-rooted problems it faces and that it's on a completely different trajectory than other regional economies – neither Megawati nor Yudhoyono will be in positions of strength to save Indonesia from a crisis far worse than the one the Asian crisis meted out.
That's because both Megawati and Yudhoyono are fundamentally incompetent political leaders. And incompetent leaders make incompetent managers of a complex economy and a complex society, such as Indonesia's, in an increasingly complex world. Though the results from Monday's run-off election remain unknown, neither has a clue on how to fix Indonesia's dire problems; that has been clear in the way they've skirted questions of economic policy and reforms during their campaigns. They can croon and sway all they like, but it won't help Indonesia out of the dark times ahead.
Editor's note
At press time, Yudhoyono had taken 57% of 987,369 votes counted in the two-way race with Megawati, the election commission reported. About 151 million people are registered to vote in Indonesia, and the final result will only be declared officially on October 5.
Manjit Bhatia is an academic and writer in Australia. He specializes in international economics and politics, with a focus on the Asia-Pacific region.
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