iii. managing transformation 2017

The Case of Indonesia

G-Cube and Young Leaders ProgramsNational Graduate Institute for Policy Studies, Tokyo, Japan2017

Course Title : Governance and Leadership: Leading a Nation inthe Changing World

Professor : Ginandjar [email protected], www.ginandjar.com

Assistant Professor : Gatot [email protected]

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The largest archipelagic country inthe world.

A country of 252.20 million people(as of June, 2015).

An archipelago strung 5110kilometers along the equator.

Three time zones

More than 17,000 islands, 5,000 areinhabited.

More than 200 ethnic groups and350 languages and dialects.

85 to 90% are Muslims.

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I.REGIME CHANGE

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I WILL USE AS REFERENCE THECOUNTRY’S PRESIDENTS SUCCESSIVELYAS POLITICAL PERIODS REFLECTING THEVARIOUS STAGES OF TRANSFORMATION.


STATEBUILDING1966-1998

First stage ofdevelopment

SUHARTO

TRANSITION:1998 – 2004

Political ReformII

Constitutional Amendments

HABIBIE

ABDURAHMANWAHID

MEGAWATI

CONSOLIDATION:2004 – 2014

SUSILOBAMBANG

YUDHOYONO

DEMOCRACY

Second stage ofdevelopment

2014 – 2019

JOKOWIDODO

REGIME CHANGES IN INDONESIA

New Era

NATIONBUILDING1945-1966

Father ofIndependence

SUKARNO


VARIOUS STAGES OFTRANSFORMATION

IN 68 YEARS AS AN INDEPENDENT STATE INDONESIAHAS HAD ONLY 7 PRESIDENTS.

FOR A LARGE PART OF IT, 53 YEARS, THERE WERE ONLYTWO PRESIDENTS, SUKARNO AND SUHARTO, BOTHAUTHORITARIAN RULERS. THE SUCCEEDING THREEPRESIDENTS GOVERNED FOR ONLY 6 YEARS.

TWO OF THE PRESIDENTS WERE IMPEACHED,SUKARNO AND ABDURAHMAN WAHID. ONE STEPPEDDOWN UNDER POPULAR PRESSURE (SUHARTO).

THE LAST PRESIDENT COMPLETED HIS SECOND 5-YEARS TERM.


SUKARNO 1945-1966

SUKARNO LED THE COUNTRY TO INDEPENDENCE(IN 1945) AND PRESIDED OVER THE COUNTRY’SNATION BUILDING AFTER INDEPENDENCE. HE WASA TYPICAL POST-COLONIAL CHARISMATIC BUTAUTHORITARIAN RULER, LIKE MANY OTHERSDURING THAT PERIOD.


TRANSITION FROM SUKARNO TO SUHARTO WASTHE FIRST ATTEMPT AT POLITICAL REFORM IN THECOUNTRY’S HISTORY.

SUHARTO TOOK OVER FROM SUKARNO ACOUNTRY DEEP IN POLITICAL TURMOIL RESULTINGFROM FIERCE IDEOLOGICAL CONFLICTS ANDECONOMIC MISMANAGEMENT.

THOSE WERE THE REASONS FOR SUKARNO’SIMPEACHMENT.


WHEN SUHARTO TOOK OVER THEGOVERNMENT IN 1966, IT WAS WITH APROMISE TO RESTORE POLITICAL STABILITYAND INITIATE ECONOMIC DEVELOPMENT. HENAMED HIS GOVERNMENT THE NEW ORDER.

SUHARTO: 1966-1998


SUHARTO HAD ACTUALLY DELIVERED THEPROMISE.

UNDER HIS LEADERSHIP, INDONESIA WAS BEINGTRANSFORMED FROM AMONG THE POOREST,MOST BACKWARDED COUNTRIES IN THE WORLDTO A MODERN MIDDLE INCOME COUNTRY.


THE ECONOMY GREW ON AVERAGE OF 7% ALLTHROUGH 30 YEARS OF HIS RULE. INDONESIA WASMENTIONED AS ONE OF THE ECONOMIC TIGERSAMONG THE EAST ASIAN MIRACLE IN THE 1993WORLD BANK REPORT.


I WAS VERY MUCH INVOLVED IN THE PROCESSHAVING 3 MINISTERIAL PORTFOLIOS DURINGTHOSE TIMES:→ JUNIOR MINISTER OF DOMESTIC PRODUCTION

CONCURRENTLY HEAD OF INVESTMENT BOARD(1983-1988),

→ MINISTER MINES AND ENERGY (1988-1993),AND

→ MINISTER OF PLANNING (1993-1998).→ COORDINATING MINISTER FOR THE ECONOMY,

FINANCE AND INDUSTRY (1998)


BUT THE ECONOMIC SUCCESSES WERE AT THECOST OF POLITICAL FREEDOM, AND RESPECTFOR HUMAN RIGHTS.

THUS BEFORE THE 1997/1998 ECONOMICCRISIS THERE WERE ALREADY FORCES, IN FAVOROF POLITICAL CHANGE, ARRAYED AGAINST THESUHARTO’S NEW ORDER REGIME.


SUHARTO WAS LEADING A DE FACTO MILITARYDOMINATED GOVERNMENT ALSO NOT UN-TYPICAL OF HIS ERA, ALTHOUGH HE KEPT AFACADE OF DEMOCRACY, ALLOWING 3POLITICAL PARTIES TO EXIST, AND GENERALELECTIONS EVERY FIVE YEARS, ALBEIT ASCRITICS SAID, ONLY TO ASSURE HISREELECTION AND THE EXISTENCE OF A RUBBERSTAMP PARLIAMENT.


HOWEVER, IN THE ABSENCE OF THE NECESSARYCATALYST THOSE ELEMENTS WERE INERT, ANDEVEN IF CHANGE SHOULD HAPPEN IT COULDTAKE A LONG WHILE, SUCH AS WHEN SUHARTOPASSED AWAY OR HE BECAME PHYSICALLYINCAPABLE TO LEAD.

THE 1997/1998 ASIAN FINANCIAL CRISISPROVIDED THE CATALYST THAT SET OFF THEPROCESS OF CHANGE.


THE HALVING OF PER CAPITA INCOME,CAUSED BY THE ECONOMIC CRISISTRANSLATED INTO SOCIAL MISERY:UNEMPLOYMENT, HUNGER, RIOTS, AND EVENDEATH, THAT FINALLY FORCED SUHARTO TOSTEP DOWN IN MAY 1998.


ASIAN ECONOMIC CRISIS 1997-1998REVISITED

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PRE-CRISIS INDONESIA’SECONOMY


THE ECONOMIC PERFORMANCE OF PRE-CRISIS INDONESIA COULD BE SEEN AS PARTOF A GENERAL PATTERN OF SUCCESSFULECONOMIC DEVELOPMENT IN ASIA, INPARTICULAR (SOUTH EAST AND) EAST ASIA.

EAST ASIAN MIRACLE, 1993


EAST ASIAN MIRACLE: HPAE

HPAES ARE:

JAPAN (THE LEADER)

HONG KONG, THE REP. OF KOREA, SINGAPOREAND TAIWAN (THE FOUR TIGERS ).

INDONESIA, MALAYSIA AND THAILAND(NEWLY INDUSTRIALIZING ECONOMIES OFSOUTHEAST ASIA / NIE).


SINCE 1960 THE HPAES HAVE GROWN MORETHAN: TWICE AS FAST AS THE REST OF EAST

ASIA. THREE TIMES AS FAST AS LATIN AMERICA

AND SOUTH ASIA. FIVE TIMES FASTER THAN SUB-SAHARAN

AFRICA.


EAST ASIAN MIRACLE:INDONESIA

CHARACTERISTICS:1. HIGH AVERAGE RATE OF ECONOMIC

GROWTH2. DECLINING INCOME INEQUALITY.3. RAPID PRODUCTIVITY GROWTH.4. PROMOTION OF HIGH RATES OF

GROWTH OF MANUFACTUREDEXPORTS.


CHARACTERISTICS (CONTINUED):5. DECLINES IN FERTILITY.6. HIGH GROWTH RATES OF PHYSICAL

CAPITAL, SUPPORTED BY HIGH RATES OFDOMESTIC SAVINGS AND INVESTMENT.

7. HIGH INITIAL LEVELS AND GROWTHRATES OF HUMAN CAPITAL.


1960's-1970's 1980's 1990's

St ab ili t y Grow t h Equ it y

Grow t h St ab i li t y Grow t h

Equ it y Equ it y St ab i li t y

Development Creed:Trilogy of Development


IN THE EARLY STAGE (1960-1970) OFDEVELOPMENT, INDONESIA DEPENDEDON OIL INCOME AND FOREIGNASSISTANCE.

1980: INDONESIA EMBARKED ONVARIOUS ECONOMIC REFORMS TOEMBRACE GLOBALIZATION.


ELEMENTS OF ECONOMICLIBERALIZATION PRE-1980.1. ADOPTION OF AN OPEN CAPITAL ACCOUNT.2. THE BALANCED BUDGET POLICY.3. COMPETITIVE REAL EXCHANGE RATE WITH

PERIODIC ADJUSTMENTS.


ELEMENTS OF ECONOMIC LIBERALIZATIONPOST-1980.1. DEREGULATION OF FOREIGN TRADE.2. REDUCTION AND REMOVAL OF RESTRICTIONS ON

FOREIGN DIRECT INVESTMENT.3. LIBERALIZATION OF FINANCIAL SECTOR.4. ADOPTION OF A MODERN, SIMPLIFIED TAX SYSTEM.


MACROECONOMIC STABILITY DECREASING RATE OF INFLATION, SINGLE

DIGIT RANGE.

RISING PER CAPITA INCOME 1965-95: REAL GDP PER CAPITA GREW AT AN

ANNUAL AVERAGE RATE OF 6.6%. IN 1967 PER CAPITA INCOME WAS LESS THAN

$100 AND BY 1995 HAD EXCEEDED $1,200,MAKING INDONESIA A MIDDLE INCOMECOUNTRY.

THE OUTCOMES


INCREASING FOOD SUPPLIES AND THEATTAINMENT OF RICE SELF-SUFFICIENCY.

THE SHARE OF THE MANUFACTURINGSECTOR IN GDP: ROSE FROM 7.6% IN1973 TO NEARLY 25% IN 1995.


0 %

10%

40%

30%

20%

60%

50%

1970 19961976 1990

Source: Badan Pusat Statistik, Indonesia

The proportion of the populationliving below the national poverty

line


THE CRISIS UNFOLDS

ON 2 JULY 1997, THE CENTRAL BANK OFTHAILAND WAS FORCED TO ABANDON ITSFIXED EXCHANGE RATE REGIME AND THEBAHT IMMEDIATELY DEPRECIATED BY ALMOST20%, STARTING A STAMPEDE KNOWN AS THEASIAN FINANCIAL CRISIS.


THE DEPRECIATION OF THE BAHT FANNEDFEARS THAT EVEN THE RAPIDLY GROWINGEAST ASIAN ECONOMIES WERE NOT IMMUNETO THE TYPE OF ECONOMIC COLLAPSE THATTOOK PLACE IN LATIN AMERICA AND SOMEANALYSTS NOW BEGAN TO WONDER IF THEMUCH HERALDED “ASIAN MIRACLE” HAD BEENOVERSOLD.


THE CRISIS SOON SPREAD FROM THAILAND,TO MALAYSIA, THE PHILIPPINES, AND THEN TOINDONESIA, WHERE IT WOULD HIT THEHARDEST, AND THEN TO KOREA AND OTHERCOUNTRIES.


QUITE SUDDENLY THE UNBOUNDEDOPTIMISM ABOUT THE EAST ASIANECONOMIES WAS REPLACED BY A DEEPSKEPTICISM ABOUT THEIR HEALTH, THEEXTENT OF CORRUPTION, AND THE LACK OFWELL DEVELOPED AND WELL MANAGEDFINANCIAL, LEGAL AND POLITICALINSTITUTIONS.


FEARS THAT OTHER ASIAN ECONOMIES MIGHTNOW ALSO COLLAPSE LED TO MASSIVECAPITAL OUTFLOWS FROM THE REGION.FOREIGN BANKS THAT WERE ONCE EAGER TOLEND TO NEARLY ANY ASIAN INVESTORSUDDENLY REFUSED TO RENEW SHORT-TERMCREDIT LINES


DURING THE THREE MONTHS BETWEEN JULYAND SEPTEMBER 1997, THE ASIAN FINANCIALCRISIS GATHERED FULL FORCE AND BEGAN TOAFFECT INDONESIA DESPITE CONTINUEDEXPRESSIONS OF CONFIDENCE THAT THESOUNDNESS OF ITS ECONOMICFUNDAMENTALS AND MANAGEMENT WOULDSEE IT THROUGH WITH LITTLE DAMAGE.


INITIALLY, THE FINANCIAL CRISIS IN INDONESIASEEMED TO BE CONTAINABLE.

NEITHER THE INDONESIAN PUBLIC, THEBUSINESS COMMUNITY, NOR THEGOVERNMENT MONETARY AUTHORITY TOOKTHE FINANCIAL CRISIS IN THAILAND SERIOUSLYAS MOST OF THE VITAL ECONOMIC FIGURESINDICATED SOUND FUNDAMENTALS ININDONESIA.


FROM 1989 TO 1996. ANNUAL REAL GDPGROWTH AVERAGED 8%, SPURRED BY STRONGINVESTMENT BEHAVIOR.

THE OVERALL FISCAL BALANCE WAS IN SURPLUSAFTER 1992, AND PUBLIC DEBT FELL AS A SHAREOF GDP AS THE GOVERNMENT USEDPRIVATIZATION PROCEEDS TO REPAY LARGEAMOUNTS OF FOREIGN DEBT.


INFLATION, WHICH HOVERED AROUND 10%,WAS A LITTLE HIGHER THAN THAT OF OTHEREAST ASIAN ECONOMIES, BUT WAS STILLLOW BY DEVELOPING COUNTRY STANDARDS.


INDEED, FURMAN AND STIGLITZ (1988)FOUND THAT INDONESIA’S CRISIS WAS THELEAST PREDICTABLE FROM AMONG ASAMPLE OF 45 TROUBLED COUNTRIES.


ALTHOUGH THE GENERAL CHARACTERISTICSOF THE CRISIS WERE SIMILAR IN THOSECOUNTRIES HIT BY THE CRISIS, THE DEPTHAND DURATION OF THE ECONOMIC CRISIS ININDONESIA WAS ARGUABLY UNIQUE.


THE EXCEPTIONAL SEVERITY OF THEINDONESIAN CRISIS WAS DUE TO THECONFLUENCE OF ECONOMIC AND POLITICALCRISES.

IT SERVES TO ILLUSTRATE HOW ECONOMIC ANDPOLITICAL FORCES CAN REINFORCE EACH OTHERIN TIMES OF CRISIS.

THAT IS THE IMPORTANT LESSON ONE CANDRAW FROM THE CATASTROPHE.


THE ECONOMIC IMPLOSION

THE EXCHANGE RATE DROPS FROM2.400 RP/$ (JULY 1997) TO 16.000 RP/$(JUNE 1998)

1998:GDP GROWTH : -13.6% INFLATION : 77.6%.


COLLAPSE OF THE BANKING SYSTEM:COST OF RESTRUCTURING THE BANKINGSYSTEM: RP. 650 TRILLION (US$65BILLION)

TOTAL EXTERNAL DEBT (1999):$148 BILLION, OR 104% GDPHALF OF IT PRIVATE SECTOR’S+ $ 30 BILLION SHORT TERM


NON-OIL EXPORTS GROWTH:– 1998 : + 9.9%– 1999 : - 7.2%

MILLIONS OF INDIVIDUALS LOST THEIR JOBS CHILDREN LEFT SCHOOLLOST GENERATION POVERTY INCREASED: 11.9% (1966) TO 18.2%

(1999)


IN MAY 1998, 4 STUDENTS WERE KILLED INDEMONSTRATION AGAINST INCREASE INFUEL PRICES KNOWN AS “TRISAKTIINCIDENT”.

THEN RIOTS ERUPTED MOSTLY DIRECTEDAGAINST THE CHINESE COMMUNITY. THISLED TO MASSIVE CAPITAL FLIGHT AND THEBREAKDOWN OF THE DISTRIBUTIONSYSTEM.


DESPITE EFFORTS TO STEM THE CRISIS,WITH THE SUPPORT OF THEINTERNATIONAL COMMUNITY, THECURRENCY CONTINUED TO DETERIORATEPUSHING THE ECONOMY DOWN IN ATAILSPIN.


INTERNATIONAL DIMENSION

OBVIOUSLY THERE WAS AN INTERNATIONALDIMENSION TO THE POLITICAL ANDECONOMIC CRISES OCCURRING ININDONESIA IN 1998.

THE US AND IMF HAD OFTEN BEEN BLAMEFOR THE PROLONGED CRISIS THATEVENTUALLY LED TO THE FALL OF PRESIDENTSUHARTO.


ALL THE MAJOR CREDITOR COUNTRIESINDICATED EARLY ON THAT THEY WERE READYTO LEND SUPPORT TO INDONESIA’S EFFORTSAT RECOVERY.

THEY HAD ENTRUSTED THE IMF WITH THELEADING ROLE IN THE INTERNATIONALCOMMUNITY’S EFFORTS TO HELP INDONESIAIN OVERCOMING THE CRISIS.


THE US DEPUTY SECRETARY OF TREASURYLAWRENCE SUMMERS WAS THE FIRST TOOFFER THE NEW GOVERNMENT THEASSISTANCE OF THE US GOVERNMENT.

AS FOLLOW UP SENIOR OFFICIALS FROM THEUS, JAPAN AND GERMANY ARRIVED SOON.


THEY WERE JOINED BY AN IMF TEAM HEADED BYSTANLEY FISCHER HIMSELF.THE US WAS REPRESENTED BY UNDERSECRETARY FOR

INTERNATIONAL AFFAIRS AT THE DEPARTMENT OFTREASURY DAVID LIPTON,JAPAN BY VICE MINISTER OF FINANCE EISUKE

SAKAKIBARAAND GERMANY BY DIRECTOR GENERAL IN THE

MINISTRY OF FINANCE KLAUS REGLING.

THEY WERE KNOWN AS THE THREEMUSKETEERS.


INTERNATIONAL COOPERATIONSUPPORTING INDONESIA’S EFFORTS ATRECOVERY WAS CHANNELED THROUGHMULTILATERAL VENUES: IMF, CGI, ANDTHE PARIS CLUB.


THE IMF PROVIDED FINANCIAL SUPPORTUNDER A STAND-BY ARRANGEMENT (SBA)THAT WAS LATER REPLACED BY A MORECONCESSIONARY EXTENDED FUN FACILITY(EEF).


CGI WAS A FORUM FOR WORLD BANK ANDBILATERAL AND REGIONAL DONORS PLEDGINGFINANCIAL AND DEVELOPMENT SUPPORT.

ABOUT ONE THIRD OF THE PLEDGES CAMEFROM WORLD BANK ANOTHER THIRD FROMJAPAN AND THE REST FROM OTHER DONORS.


ANOTHER MEETING ALSO HELD IN PARISWAS TO RESCHEDULE INDONESIA’SSOVEREIGN DEBT UNDER THE AEGIS OF THE“PARIS CLUB.”


THE FIRST FAILED ATTEMPT

THE IMF PROGRAM FOCUSED ON ALLOWINGFOR A HEAVY EMPHASIS ON TIGHTENINGMONEY SUPPLIES IN ORDER: TO RAISE INTEREST RATES AND PREVENT CAPITAL

FROM FLEEING AND

ATTRACTING THE ALREADY FLEEING CAPITALBACK INTO THE COUNTRY,

ACCOMPANIED BY A SEVERE STRUCTURALCONDITIONALITY.


IN NOVEMBER 1997, AS PART OF THE IMFPROGRAM, THE GOVERNMENT CLOSED 16BANKS THAT WERE FACING SERIOUS LIQUIDITYPROBLEMS.

THE BANKS WERE CLOSED IN THE MIDST OFVERY VOLATILE CAPITAL WITHDRAWALSWITHOUT A FINANCIAL AND BANKINGRESTRUCTURING SCHEME AND DEPOSITINSURANCE IN PLACE, SPREADING PANIC ANDDEEPENING THE FINANCIAL CRISIS (SACHS ANDWOO, 2000).


THIS POLICY HAS BEEN SEEN BY OBSERVERSAS MISJUDGMENT BY BOTH THEGOVERNMENT AND THE IMF OF THE DEPTHAND NATURE OF THE CRISIS.

DESPITE IMF SUPPORTS THE ECONOMYCONTINUED TO NOSE DIVE.


JOSEPH STIGLITZ CRITIZED THE IMF FORAPPLYING THE LATIN AMERICAN CASE TO THEASIAN CRISIS RESULTING IN WRONG DIAGNOSISWHICH LED TO THE WRONG ---AND ININDONESIA’S CASE FATAL--- PRESCRIPTION INTHE HANDLING OF THE CRISIS.

HE MAINTAINED THAT IN THE HIGHLYINFLATIONARY ENVIRONMENT OF LATINAMERICA, WHAT WAS NEEDED WAS ADECREASE IN DEMAND; WHILE IN THE CASE OFEAST ASIA, THE PROBLEM WAS NOT EXCESSDEMAND BUT INSUFFICIENT DEMAND.


THE CONFUSION OF PROJECTIONS ONGROWTH: THE NOVEMBER IMF PROGRAM PROJECTED

GROWTH OF 5% FOR 1997/98 AND 3% FOR1998/99, WHICH WAS RECEIVED ASUNREALISTIC BY THE MARKET.

IN THE JANUARY PROGRAM THE 1998/99-GROWTH PROJECTION WAS REVISED ANDREDUCED TO ZERO, WHILE IN REALITY THE1998/1999 GDP ACTUALLY DECLINED BY -13%


PAUL VOLKER CRITIZED THE IMF IMPOSEDSTRUCTURAL CONDITIONALITY ASIRRELEVANT TO FINANCIAL STABILIZATION,CYNICALLY CALLING THE CONDITIONS ONMARKET REGULATIONS IN CLOVES, ORANGESAND OTHER FOODSTUFFS AS A “KITCHENRECIPE”.


“GUERRILLA WAR”

WHEN THE GOVERNMENT SERIOUSLYCONSIDERED ADOPTING A CURRENCYBOARD SYSTEM (CBS), THE PRESIDENT ANDTHE IMF RELATIONSHIP HAD COME TO ANEW LOW.

THE PRESIDENT DREW AN ANALOGY OF HISDEALING WITH IMF WITH A “GUERRILLAWAR”


MARCH 6TH 1998, FRUSTRATED BY THE LACKOF PROGRESS ON THE JANUARY LOIPROGRAM, THE IMF ANNOUNCED THAT ITWAS DELAYING A $3BILLION INFUSIONSCHEDULED TO BE DISBURSED ON MARCH15TH.

IT WAS A SEVERE BLOW TO THEGOVERNMENT AND SEEN BY THE MARKET ASLOSS OF CONFIDENCE OF THEINTERNATIONAL COMMUNNITY ININDONESIA


THE MOST DIFFICULT ISSUES IN THENEGOTIATION BETWEEN THE ECONOMICTEAM AND THE IMF WAS ABOUT SUBSIDIES,IN PARTICULAR FUEL SUBSIDIES.

IN PRINCIPLE IT WAS AGREED THAT FUELSUBSIDIES, AS ANY OTHER SUBSIDY, SHOULDGRADUALLY BE REDUCED AND EVENTUALLYELIMINATED.


THE QUESTION WAS HOW GRADUAL ANDWHAT THE RIGHT TIMING WAS. THE IMFDEMANDED AN IMMEDIATE INCREASE, ATTHE END OF APRIL OR EARLY MAY 1998.

WHEN THE GOVERNMENT, BOWING TO IMFPRESSURE, INCREASED OIL PRICES IN EARLYAPRIL IT SET OUT A CHAIN OF EVENTS THATFINALLY BROUGHT DOWN SUHARTO’SREGIME TO ITS KNEES.


ASIDE FROM THE IMF SOME ANALYSTS, DO NOTDISCOUNT THE ROLE THE US PLAYED INSUHARTO’S DOWNFALL.

AS A STAUNCH ANTICOMMUNIST ALLY, INDONESIAFOR MANY YEARS HAD ALWAYS BEEN ABLE TOCOUNT ON THE WEST’S SUPPORT, BUT BY THEMID-1990S RELATIONS WITH THE WEST HADSOMEWHAT SOURED.


WITH THE END OF THE COLD WAR AND THECOMMUNIST THREAT, WESTERN DONORCOUNTRIES WERE INCREASINGLY LESS CONCERNEDABOUT BAILING OUT INEFFICIENT FOREIGNECONOMIES ESPECIALLY THAT ARE FACING SOCIALAND POLITICAL PROBLEMS.


MOUNTING CRITICISM OF THE WAYINDONESIA HANDLED THE EAST TIMORQUESTION AND THE ALLEGATIONS OFHUMAN RIGHTS ABUSES HAD PRECIPITATEDSTRINGENT CALLS IN THE US CONGRESS TOLINK AID AND ASSISTANCE TO HUMANRIGHTS RECORDS, LEADING TO A US ARMSEMBARGO AND THE CURTAILMENT OFTRAINING FOR THE MILITARY.


TO SOME ANALYSTS THE USADMINISTRATION’S SUPPORT TO THEECONOMIC RECOVERY EFFORTS WASFOUNDED MORE ON CONCERN ABOUT THECONFLAGRATION OF THE FINANCIAL CRISISAND WORRY ABOUT FURTHER CONTAGIONAND ITS EFFECT ON THE REGIONAL ANDGLOBAL ECONOMY, RATHER THAN ABOUTSUPPORTING SUHARTO’S GOVERNMENT.


FINALLY, ON 20 MAY 1998 IN A SPEECH (GIVENAT THE US COAST GUARD ACADEMYGRADUATION CEREMONY), THE DAY BEFORESUHARTO’S RESIGNATION, SECRETARY OF STATEMADELEINE ALBRIGHT SAID OF PRESIDENTSUHARTO: “NOW HE HAS THE OPPORTUNITYFOR AN HISTORIC ACT OF STATESMANSHIP—ONE THAT WILL OBSERVE HIS LEGACY AS A MANWHO NOT ONLY LED HIS COUNTRY, BUT WHOHAD PROVIDED FOR ITS DEMOCRATICTRANSITION.”


ALTHOUGH THE STATEMENT WAS COUCHEDIN A SUBTLE AND DIPLOMATIC TONE, IT WASWIDELY SEEN AS A CALL FOR SUHARTO TOSTEP DOWN.


THE LESSON TO BE LEARNED IS THAT BASICMACROECONOMIC INDICATORS OFTEN FAILTO REFLECT THE GROWING WEAKNESSES OFTHE NATIONAL POLITICAL AND SOCIALINFRASTRUCTURE THAT PROVIDE THEESSENTIAL FRAMEWORK FOR SUSTAINEDECONOMIC GROWTH.


THE COLLAPSE OF THE INDONESIAN ECONOMYILLUSTRATES THE NEED FOR COMBININGMEASURES OF GLOBALIZATION ANDINTERNATIONAL INTEGRATION WITH ACONCERTED EFFORT TO STRENGTHENINSTITUTIONAL FRAMEWORKS, SUCH AS ANINDEPENDENT AND REASONABLY COMPETENTJUDICIARY, STRENGTHENED CORPORATEGOVERNANCE AND BANKING SECTOROVERSIGHT, AS WELL AS A POLITICAL SYSTEMOPEN TO CHANGE.


INDONESIA’S EARLY PROGRESS INREFORMING ITS ECONOMIC STRUCTUREBLINDED MANY GOVERNMENT OFFICIALSAND OBSERVERS TO ITS FAILURE INIMPROVING THE POLITICAL, ECONOMIC ANDINSTITUTIONAL BASE THAT IS A PREREQUISITEFOR SUSTAINED ECONOMIC GROWTH.


THE EXTERNAL FACTORS CERTAINLY WEAKENEDTHE NEW ORDER, YET WHEN THE CRISISDEEPENED, THE PROBABILITY OF SUHARTO’SDOWNFALL WAS HIGH, EVEN IF RELATIONSWITH THE WEST WERE BETTER.

BUT THE RAPIDLY DETERIORATING RELATIONSBETWEEN SUHARTO AND THE WEST MAYCONTRIBUTE TO ACCELERATION OF SUHARTO’SDOWNFALL.


THE FALL OF SUHARTO THE ECONOMIC CRISIS WAS THE CATALYST THAT

CAUSED THE VARIOUS FORCES THAT WANTEDPOLITICAL REFORM TO COME TOGETHER.

INDEED, THERE IS SOMETHING NOBLE COMINGOUT OF THE FINANCIAL CRISIS: THE FALL OF ANAUTHORITARIAN REGIME THAT HAD BEEN INPOWER FOR 30 YEARS AND THE RISE OF A NEWDEMOCRATIC GOVERNANCE.

SUHARTO RESIGNED ON MAY 21, 1998, ANDVICE PRESIDENT B.J. HABIBIE SUCCEEDED HIM.


B.J. HABIBIE: 1998-1999

HABIBIE, A GERMAN EDUCATED ENGINEER,BECAME PRESIDENT BY ACCIDENT.

AFTER THE RESIGNATION OF SUHARTO,UNDER PRESIDENT HABIBIE, WHO WASSUHARTO’S VICE PRESIDENT, POLITICALREFORM WAS INITIATED, ALONGSIDE EFFORTSAT ECONOMIC RECOVERY.


UNDAUNTED BY THE SURROUNDING POLITICALCONTROVERSY, THE NEW GOVERNMENT’SECONOMIC TEAM IMMEDIATELY EMBARKED ONA SERIES OF MEASURES TO HALT THEDETERIORATION AND RESTART THE RECOVERYOF THE ECONOMY.


I WAS RESPONSIBLE IN OVERSEEING THISPROCESS AS CHIEF ECONOMIC MINISTER(COORDINATING MINISTER FOR THE ECONOMY,FINANCE AND INDUSTRY) DURING THAT TIME.


THE ECONOMIC RECOVERY AGENDACONSISTED OF FIVE MAIN PROGRAMS:1) RESTORING MACROECONOMIC STABILITY;2) RESTRUCTURING OF THE BANKING SYSTEM;3) RESOLUTION OF CORPORATE DEBT;4) INCREASING THE PACE OF STRUCTURAL

REFORMS;5) STIMULATING DEMAND AND REDUCING THE

IMPACT OF THE CRISIS ON THE POOR THROUGHTHE SOCIAL SAFETY NET


ON THE CUSP OF RECOVERY

BY THE END OF HABIBIE’S PRESIDENCY,INDONESIA WAS EMERGING FROM THE CRISISAND ON ITS WAY TO RESUME GROWTH.

THE EXCHANGE RATE, INFLATION AND INTERESTRATE HAD RESPONDED WELL TO THEGOVERNMENT’S ECONOMIC RECOVERYPOLICIES.


THE GRADUAL RETURN OF MARKET AND INVESTORCONFIDENCE, REVITALIZING THE STOCK MARKETAND RESTARTED EXPORTS.

THE NUMBERS IN POVERTY HAD ALSO STOPPEDRISING.

THE PROGRESS TOWARD RECOVERY HAD REACHEDTHE STAGE WHERE IN FISCAL POLICY THEGOVERNMENT HAD SHIFTED ITS FOCUS FROMFISCAL STIMULUS TO FISCAL SUSTAINABILITY.


LAYING OUT THE FOUNDATION FORDEMOCRACY

IT WAS DURING HABIBIE’S ADMINISTRATIONTHAT MOST OF THE INITIATIVES THATSIGNIFICANTLY ACCELERATED INDONESIA’SDEMOCRATIZATION WERE INITIATED.

THE FUNDAMENTAL POLITICAL CHANGESWERE LATER CONSTITUTED THROUGH ASERIES OF AMENDMENTS TO THE COUNTRY'SCONSTITUTION.


THE PROCESS OF DEMOCRATIZATION HADBEEN IN CONJUNCTION WITH THE PROCESSOF ECONOMIC RECOVERY, ONEREINFORCING THE OTHER ON THE WAY UP,IN CONTRAST WITH THE SITUATION WHENTHE CONFLUENCE OF ECONOMIC ANDPOLITICAL CRISES HAD BROUGHT THECOUNTRY DOWN DEEPER INTO THE ABYSS.


THE MOST IMPORTANT POLITICAL REFORM WASTHE MULTIPARTY PARLIAMENTARY ELECTION HELDIN 1999, THE FIRST SINCE 1955 (45 YEARS).

THE PROCESS OF TRANSITION TO DEMOCRACYTOOK PLACE DURING THE PRESIDENCIES OFHABIBIE, ABDURAHMAN WAHID, AND MEGAWATISUKARNOPUTRI, THE DAUGHTER OF SUKARNO.


ONE NOTEWORTHY LEGACY OF HABIBIE WASTHE REFERENDUM THAT HE GRANTED EASTTIMORESE, RESULTING IN ITS INDEPENDENCEIN 1999.


EAST TIMOR

ABDURAHMAN WAHID:1999-2001

ABDURAHMAN WAHID, AN ALMOST BLINDISLAMIC CLERIC, GOT INTO THE PRESIDENCY ASA RESULT OF POLITICAL BARGAINING.WHEN HIS RELATIONS WITH THE PARLIAMENT

HAD GONE SOUR BECAUSE OF ALLEGEDCORRUPTION BY THE PRESIDENT, HE DECREEDTHE DISSOLUTION OF THE PARLIAMENT ANDTHE CONSTITUTIONAL ASSEMBLY WHICHELECTED HIM.


FOR THESE CONSTITUTIONAL VIOLATIONS HEWAS IMPEACHED, AND THEN MEGAWATI,WAHID’S VICE PRESIDENT, WAS ELECTED ASPRESIDENT.


MEGAWATI SUKARNOPUTRI:2001-2004

AT THE HEART OF POLITICAL REFORMWAS A PROCESS OF CONSTITUTIONALAMENDMENTS THAT TOOK PLACEBETWEEN 1999-2002.


AMONG THE MOST SIGNIFICANT OF THECONSTITUTIONAL REFORMS WERE: REAFFIRMATION OF CHECKS AND BALANCES:

—STRENGTHENING THE ROLE AND POWER OFPARLIAMENT,

SECOND LEGISLATIVE CHAMBER EQUIVALENTTO THE US SENATE,

DIRECT PRESIDENTIAL ELECTION, LIMITING THE PRESIDENCY TO TWO TERMS, JUDICIAL REFORMS (IE. ESTABLISHING THE

CONSTITUTIONAL COURT),


HUMAN RIGHTS (ADOPTING THE UNDECLARATION OF HUMAN RIGHTS ALMOSTWHOLLY),

MULTI-PARTY PARLIAMENT, FREEDOM OF EXPRESSION AND ASSOCIATION,

AND TERMINATING THE ROLE OF THE ARMED

FORCES IN POLITICS, SEPARATING THEMILITARY FROM THE POLICE, AND PUTTINGTHE MILITARY UNDER CIVILIAN CONTROL.


I WAS INVOLVED IN THIS PROCESS OF LAYINGDOWN THE FOUNDATION OF DEMOCRATICGOVERNANCE AS VICE CHAIRMAN OF THEPEOPLE’S CONSULTATIVE ASSEMBLY (MPR), THEHIGHEST CONSTITUTIONAL BODY HAVING THEAUTHORITY TO ELECT (AND IMPEACH) THEPRESIDENT, AMMEND THE CONSTITUTION ANDSET THE STATE GUIDELINES. I WAS IN CHARGETO OVERSEE THE CONSTITUTIONALAMENDMENTS.


ONE IMPORTANT ASPECT OF POLITICAL REFORM ISDECENTRALIZATION (POLITICAL, ECONOMIC,ADMINISTRATIVE DEVOLUTION), WHICH HASSTRENGTHENED THE UNITY OF THE NATION ANDPROVIDED POLITICAL STABILITY, SPREADINGDEVELOPMENT MORE EVENLY THROUGHOUT THECOUNTRY

Special autonomy status to Aceh andPapua


ON THE BASIS OF THE NEWLY AMANDEDCONSTITUTION, IN 2004 A MULTI-PARTYPARLIAMENTARY ELECTION WAS HELD (A SECONDIN THE NATION HISTORY), FOLLOWED BY THEFIRST DIRECT PRESIDENTIAL ELECTION.

SUSILO BAMBANG YUDHOYONO, A RETIREDGENERAL BECAME THE FIRST POPULARLY ELECTEDPRESIDENT IN THE NATION HISTORY.

SUSILO BAMBANGYUDHOYONO: 2004-2014


IT CAN BE SAID THAT FROM 2004 ONDEMOCRATIC CONSOLIDATION IS UNDERWAY. IN 2009, SUSILO BAMBANG YUDHOYONO

WAS REELECTED WITH A HUGE MAJORITY.UNDER HIS PRESIDENCY INDONESIA

EMBARKED ON A SECOND STAGE OFDEVELOPMENT.


INDONESIA NOW HAS A PRESIDENT WHOCAME FROM A HUMBLE BACKGROUND AND ISNOT BURDENED BY THE PAST. HE IS LITERALLYPRESIDENT OF THE COMMON PEOPLE.

HE INTRODUCED A NEW STYLE OF LEADERSHIP,A UNIQUE WAY OF CAMPAIGNING AND SMARTWAY OF GETTING THE SUPPORT OF THEPEOPLE.

JOKO WIDODO:2014-2019

JOKO WIDODO:2014-2019


JOKOWI WAS ELECTED NOT MERELY BECAUSEOF THE SUPPORT OF POLITICAL PARTIES ORPOLITICAL ELITES, BUT HE OWES HIS ELECTIONTO THE SUPPORT OF ORDINARY, MOSTLYYOUNG PEOPLE WHO CAMPAIGNED FOR HIMVOLUNTARILY, BOTH IN THE GRASS ROOTS ASWELL AS, AND PARTICULARLY EFFECTIVE,THROUGH THE SOCIAL MEDIA.


JOKOWI’S CAMPAIGN COULD BE A POLITICALWATERSHED SETTING UP THE TREND FORFUTURE POLITICAL CONTESTATIONS ININDONESIA.


MANY PEOPLE IN INDONESIA ARE INTRIGUED BYTHE UNORTHODOX APPROACH OF THE NEWLEADERSHIP AND EXPECT IT TO OPEN UP NEWHORIZONS, OPPORTUNITIES AND PROSPECTS INTHE YEARS AHEAD.

IN A BOLD ATTEMPT TO MAKE HIS CABINETCLEAN, HE SENT THE LIST OF CANDIDATES FORMINISTERS TO THE ANTI CORRUPTIONCOMMISSION. ONLY AFTER RECEIVINGFEEDBACK HE FORMED HIS CABINET. THIS MAYBECOME A TRADITION FOR FUTUREGOVERNMENTS IN FORMING THEIR CABINET.


DURING HIS CAMPAIGN, JOKOWIINTRODUCED FRESH IDEAS, SUCH AS MAKINGINDONESIA AN EFFECTIVE MARITIMECONTINENT. THE IDEA BEHIND IT IS THAT THEFACT THAT INDONESIA IS A COUNTRY OFISLANDS SHOULD NOT IMPEDE ITSDEVELOPMENT, BUT ON THE CONTRARYSHOULD STRENGTHEN IT.


MARITIME CONTINENT

• NUMBER OF ISLANDS : 14,000• COASTLINE : 5,000 KM (2nd AFTER CANADA)• ECONOMIC ZONE : 200 NAUTICAL MILES• INLAND WATERS : 93,000 SQUARE KILOMETERS


EXPORT FISHERY PRODUCTS(ANNUAL)

INDONESIA US$ 4,2 BILLIONVIETNAM US$ 5,7 BILLIONTHAILAND US$ 7,2 BILLION

INDONESIA LOST FROM ILLEGAL FISHING:US$ 20 BILLION ANNUALLY


THE NEW GOVERNMENT HAS INHERITED NOTONLY A FUNCTIONING DEMOCRACY, BUTALSO A COUNTRY THAT HAS REAFFIRMED ITSINTEGRITY, A DIVERSE BUT UNITED NATION.


IN SUMMARY: IN THE LAST DECADE INDONESIAN PEOPLE

HAVE BEEN ENJOYING PEACE AND STABILITY. THE PAST DECADE OF SOLID GROWTH HAS

ALSO CONTRIBUTED TO CONSIDERABLEDEVELOPMENT OUTCOMES.

INDONESIA’S ECONOMY HAS SURVIVED,RELATIVELY INTACT, THE GLOBAL RECESSIONTHAT HAS SET BACK THE ECONOMY OF MANYCOUNTRIES.


WITH STABLE BUT VIBRANT DEMOCRACYAND ROBUST ECONOMY SUPPORTED BYGROWING MIDDLE CLASS, INDONESIA ISWELL POSITIONED TO REACH HIGHER LEVELOF GROWTH, WELFARE AND PROSPERITY.


iii. managing transformation 2017

Leadership & Management