Bill Guerin, Jakarta – An incident of bullying, threats and violence on a basketball court at Jakarta's top school for expatriate children has brought Southeast Asia's biggest economy firmly back into the international spotlight, for all the wrong reasons. Widespread media exposure of the violent rampage was a major embarrassment to the government, since the alleged perpetrator in the April 17 incident at the Jakarta International School was not some wayward, unruly foreign teenager but Theo Toemion, chairman of the powerful Investment Coordinating Board.
Toemion reportedly attacked a 14-year-old student referee, and parents of other children, over a dispute involving his seven-year-old son. The assault left an American oil company executive – a parent of one of the children in the game – with a broken nose. The executive, fearing violence, has since left Indonesia with his family. Another oil company employee was hit in the back of the head, requiring several stitches. Toemion has claimed his outbreak was an act of nationalism because he believes his son was treated unfairly due to racism and discrimination.
Executives from major US multinationals – ConocoPhillips, ExxonMobil, Unocal and Nike – were among those trying to stem the violence, which probably partly explains the response from the US Embassy's deputy chief of mission, W Lewis Amselem: "We are thinking of forbidding him from visiting America." Toemion, who has held the post since June 2001, has since told the local media that he was resigning, but added that he was "very irritated" by media reports on the incident. A recent report in the International Herald Tribune cited Indonesian officials as confirming that Indonesian President Susilo Bambang Yudhoyono had already planned to replace Toemion, an appointee of previous president Megawati Sukarnoputri, with his own appointee before the incident occurred.
Approved foreign direct investment (FDI) from January to April in Indonesia totaled US$4.28 billion, up 173% compared with the same period a year earlier, but the high-profile incident came during a week that saw other mixed signals for the prospects of the economy and further investment. Though Southeast Asia's biggest economy is forecast to expand 5.5% this year – the fastest growth in nine years – partly on expectations of increased foreign investment, there are still fears that spiraling inflation could stunt growth and hamper economic recovery. Concerns about this, and the weakening of the rupiah against the dollar, came amid a sharp reminder of continued problems with the labor force in the country.
Some good news from Toyota, which forecast that car sales would rise this year by 12% and announced a planned new investment of $50 million in its local subsidiary, Daihatsu Motors, was overshadowed by official confirmation from Japanese trading house Marubeni that it will pull out of its loss-making holdings in the giant Chandra Asri petrochemicals complex. The plant is Indonesia's largest ethylene producer, with a production capacity of 520,000 metric tons/year, as well as 240,000 tons/year of propylene and 300,000 tons/year of polyethylene. Marubeni led a consortium that lent the Indonesian-Japanese joint venture $700 million in the early 1990s. It plans to sell its 24.6% stake in the project by the end of this fiscal year to set up a joint venture with Commerzbank International Trust (Singapore) Ltd, a unit of Germany's Commerzbank AG, incurring a net loss of up to 22 billion yen ($210.2 million) from its joint venture.
Currency and inflation concerns
The rupiah depreciated 1.4% against the US dollar in the final quarter of 2004, against 0.24% in the corresponding period the previous year, and by the beginning of last week had slumped to its lowest level since April 2002, following earlier comments by central bank (Bank Indonesia, or BI) Governor Burhanuddin Abdullah that full-year inflation could soar to 8.8% this year, well over the 2005 budget projection of 7%.
BI then announced that it would raise its key interest rates by up to 20 basis points as part of a package of measures in a currency support plan and aimed at fighting rising inflation. The government has been reluctant to see an increase in rates because it needs low interest rates to sustain economic growth and curb borrowing costs. The announcement came on the heels of a personal appeal from President Yudhoyono for government cooperation to stem the rupiah's slide by, for example, coordinating the purchase of dollars with the corporate sector.
Criticism of the slow official response, which had led to the president's intervention, came from Minister of National Development Planning Sri Mulyani, who blamed pressures in the foreign exchange market for contributing to the slide of the rupiah against the dollar. Mulyani said in an interview that policymakers had not "responded adequately" to the "additional pressure of a changing global economic environment", which was pushing the rupiah lower.
Describing the rupiah's slide as a "wake-up call" for the government, Mulyani had warned against complacency over what had been accomplished so far, citing the need for strengthening and fine-tuning policies in a much more timely manner. "If the market fails to see progress, there must be something wrong in terms of the way we communicate this" to the market, the minister pointed out. One casualty of the steadily weakening rupiah has been PT Telekomunikasi Indonesia Tbk, the country's biggest telecommunications company, which has reported a 34% fall in fourth-quarter net profit, partly due to foreign exchange losses.
Thorny labor issues
Thousands of people across the country took to the streets to mark Labor Day on May 1 with demands for better working conditions and protection of workers' rights. The demonstrators demanded, among other things, that the government stop the dismissal of workers, eliminate the contract system and revoke the Manpower Law that came into effect in 2003.
Alboin Sidabutar, deputy chairman of the All-Indonesia Workers Union Confederation, said labor indicators have been worsening because of the absence of significant changes in the social, political and economic fields over the last seven years. "This is evident in the frequent dismissals of workers, rampant violations of freedom of association by employers and the high unemployment rate," he said.
Sidabutar said the government's failure to take short-term measures to enforce the law, to rid the bureaucracy of corruption and eliminate the high-cost economy has resulted in little change in the investment climate and a lack of job opportunities. "President Susilo and Vice President Jusuf Kalla have been in power almost six months, but the political and economic situation is not recovering. There are many foreign investors who wish to come but no actions have been taken to eliminate the high-cost economy," said Sidabutar.
Corruption
Despite a very public show of addressing corruption and trying to repair the nation's reputation, Indonesia is ranked the sixth-most corrupt country in the world. The Corruption Eradication Commission has exposed strong indications of widespread corruption at the General Elections Commission after an audit report by the State Audit Agency (BPK) indicated widespread corruption in the procurement of materials for last year's legislative election.
The county's largest bank, Bank Mandiri, majority owned by the government, plans to acquire several banks with assets of more than Rp10 trillion ($1.05 billion) this year to increase its customer base to 2 million and fulfill its ambition to be the dominant player in the banking sector. It has a solid asset base of Rp248 trillion and a healthy CAR (capital adequacy ratio) of more than 17.8%. However, the bank is being investigated by the attorney general following irregularities uncovered by a BPK probe of the bank's financial reports.
The probe has so far resulted in at least three arrests of executives of local private companies on charges of loan fraud. Several senior executives, including the bank's president, Edwin Neloe, are being questioned over "28 irregularities" in loans amounting to Rp1 trillion. Minister of State Enterprises Sugiharto put the best spin he could on the news, saying that the investigation isn't about the bank, but only certain individuals. Nonetheless, there are concerns that the ongoing investigation could spark a "rush" on the bank if depositors believe their money is at risk.
A local daily, citing an unnamed source, reported that Jusuf Kalla's nephew owns one of the firms linked to the loan irregularities at Bank Mandiri. The report cites the vice president as saying his nephew's firm, PT Semen Bosowa, is a Bank Mandiri debtor, but the company "wouldn't have any problem" in repaying the loan.
And now, the good news
In the wake of the Toemion incident came a fairly encouraging set of figures released on Monday by the Central Statistics Bureau. It announced that inflation in April had eased slightly as increases in food prices slowed. The Consumer Price Index (CPI) rose only 8.1%, from a year earlier, compared with the 8.8% gain in March, which had been the fastest rate since at least January 2003.
The trade surplus rose to $2.27 billion in March from $1.62 billion in the same month last year on the back of higher oil and commodity prices, though a substantial increase in imports accounted for the surplus being below February's $2.40 billion. Imports rose 22% month-on-month to $4.98 billion while exports soared by 13.63% to $7.25 billion. Non-oil and gas exports were up 8.75% to $5.48 billion in April, though non-oil and gas imports were also up 12.10% to $3.35 billion.
The government also looks eager to try put the Toemion embarrassment behind it as quickly as possible. Presidential spokesman Andi Malarangeng, announcing that the president had issued a decree on the appointment of Mohammad Luthfi as the new chairman of the Investment Coordinating Board, said the change was based on professional concerns and also to give a "new spirit to the investment environment".
[Bill Guerin, a Jakarta correspondent for Asia Times Online since 2000, has worked in Indonesia for 19 years as a journalist. He has been published by the BBC on East Timor and specializes in business/economic and political analysis in Indonesia.]