The SBY years : A legacy of lackluster economy Lydia Napitupulu  ;   A lecturer at Faculty of Economics, University of Indonesia, Jakarta

JAKARTA POST,  29 September 2014

                                                                                                                       

After a run of 10 years, the Susilo Bambang Yudhoyono government is coming to a close. On Sept. 19 to 20 the Australian National University Indonesia Project and the Department of Political and Social Change jointly convened a group of 37 expert speakers from Indonesia, Australia and the United States to review the Yudhoyono years from economic, social and political aspects.  Away from the hustle and bustle of Indonesia, the conference in Canberra was a refreshingly rigorous and data-based look at the legacy for the first directly elected Indonesian president. The biggest and most enthusiastic accolade to the Yudhoyono years was probably directed toward the poverty reduction program implemented during his tenure. Christopher Manning (from Australian National University) and Riyana Miranti (University of Canberra) pointed to the almost 10 million people (half of the Australian population) lifted out of poverty during the Yudhoyono years through a combination of effective policies and good program implementation. The poverty level fell by a slightly larger percentage point from 2004 to 2013 than in the Soeharto era from 1987 to 1996. In addition to economic growth, Manning and Miranti cited innovative policies as responsible for tackling poverty, including improved systems, administration and targeting for unconditional cash transfers, where much of the data that have been generated on poor people would be valuable as well for future government administrations. Other programs such as the sub-district community-driven rural development programs (PNPM), conditional cash transfers, rice for the poor (raskin), school scholarships and micro credits, while imperfect and still fraught with leakages, also contributed to the reduction of poverty levels and now leaves Indonesia’s poor with a social safety net, one that was lacking in the late 1990s when the financial crisis hit Indonesia. Not everyone is satisfied with the poverty reduction performance and, as Faisal Basri (from University of Indonesia) pointed out, social protection is still half-hearted, as Indonesia’s social protection expenditure as a percentage of gross domestic product (GDP) is still very low at 1.2 percent, compared to Timor-Leste (5.9 percent), Vietnam (4.7 percent), Malaysia (3.7 percent) and Thailand (3.6 percent). Recently, there were also tendencies to play down the Indonesian record in poverty reduction by pointing to the growing income inequality, where during the Soeharto era the Gini Coefficient hovered between 0.30 and 0.35 (where zero is perfect equality and 1 is perfect inequality). During Yudhoyono’s first term, however, the Gini Coefficient hovered between 0.35 and 0.40 and even increased to 0.41 after 2011 during his second term. Manning and Miranti attributed the rising inequality to several factors: i.e. 1) asset and wealth distribution where the top 10 percent of the population enjoy an increasing share of consumption and wages, 2) an increasing demand for skilled workers, but slow growth in the labor intensive manufacturing sector, 3) fiscal policy and especially government expenditures with less equalizing qualities like fuels subsidies and 4) other factors, such as the resource boom in coal and palm oil. Personally I tend to agree with the view that the poverty reduction efforts of the Yudhoyono years should be evaluated independently, as measures that were implemented were not really designed or targeted at improving income inequality. When Yudhoyono came to power in 2004, just five years after the deepest economic collapse in history, he inherited an economy that was still very fragile, with a government that was institutionally weakened and with very little fiscal space. Under his government, by and large the macroeconomic management has been successful, driven by generally competent appointments in the financial and economic sectors, supported by the right financial architecture in place (i.e. the 2003 Fiscal Law and the independence of Bank Indonesia). In particular, public debt declined from 90 percent of GDP to about 25 percent. But this accomplishment seems to be less lauded by the Yudhoyono government, which prefers instead to trumpet success about the growth of the economy.  Hal Hill (Australian National University), who has closely monitored closely the country’s economic policies for more than 40 years, stated that Indonesia is one of only 13 countries in the world to have achieved prolonged and rapid economic growth in the last 100 years. Hill and Haryo Aswicahyono of the Jakarta-based Centre for Strategic and International Studies (CSIS), pointed out several potential threats to Indonesia’s future economy, including crippling subsidies, persistently high inflation, low infrastructure spending, proliferating non-tariff barriers and rising economic nationalism as immediate threats to continuing growth and improvement of welfare. In fact, the future government should be extra cautious, especially as it ponders a reduction in fuel subsidies. Combined with an increase in inflation and tightened interest rates by the Bank Indonesia, the risk of capital flight and further dampening of Indonesia’s needed economic growth can become very real, especially if policymakers at the helm are not quick enough to act as they worry over the personal legal implications of financial rescue packages (as exhibited by the plight of policymakers over the Bank Century case). Finally, the rise in anti-foreign sentiments in Indonesia, which was particularly apparent in the last presidential elections’ messages about import reduction and protectionism, should be lamented.  Neighboring ASEAN countries were understandably vexed when both presidential candidates recently voiced their concerns that Indonesia, the largest Southeast Asian economy and supposed to be the leader of ASEAN, raised concern that Indonesia was not ready for the ASEAN Economic Community (AEC). Douglas Ramage of Bower Group Asia, also chairman of the Trade and Investment Committee of the American Chamber of Commerce Indonesia, warned that if policies under president-elect Joko Widodo continue to be hostile to private investors and to international investments, Indonesia may well risk being trapped in the middle-income category. ●