Why Indonesia may (or not) revisit the Asian crisis Calvin Sidjaya   ;   The writer is studying International Development at Massey University, New Zealand

JAKARTA POST,  31 Desember 2013

                            

The year 2013 was not the brightest for many emerging economies, including Indonesia. While in 2012 Indonesia reached its “usual” 6 percent economic growth, thanks to its large consumer economy and growing middle class, prospects are bleak for 2014.  In the last few months of 2013, the rupiah, along with other soft currencies, suffered severe depreciation. The value of the rupiah has plunged dramatically since the beginning of the year, which has damaged market confidence.  The rising middle class helped Indonesia weather the 2008 crisis, but in 2013 it may have contributed to our blooming “crisis”. This pattern is similar to that of the economic crisis in 1998. During the 1990s, Indonesia’s economic boom crashed as investors pulled out their dollars from the domestic market, leading to a liquidity crisis. Massive bankruptcies  occurred because the increasing burden of dollar-denominated debt.  The International Monetary Fund (IMF) stepped in and forced the central bank to increase the interest rate, resulting in another wave of pivot sector collapses. While the IMF had contributed to escalating the economic crisis, the options were limited as Indonesia had to restore faith in its currency. The situation in 2013 resonates with the situation in 1998 where market confidence diminished due to currency depreciation. A weakening currency is ideally good for exports. In a perfect market, the market will correct itself as exports increase, a country will gain from surplus and new foreign reserves and the currency will strengthen again and find a new level of equilibrium. But at the moment Indonesia is enjoying a double-edged economic boom. Mass consumption stimulates economic growth, but the economic fundamentals are not completely ready for a mass consumer economy. Take a look at the food sector: Indonesia has the serious problem of not being able to produce its own food sufficiently.  As the largest rice consumer in Southeast Asia, Indonesia is very vulnerable to crop failures because people are reluctant to switch to other staple foods. When local rice production cannot fulfill the domestic market demand, rice has to be imported to pick up the slack.  It is also the largest producer of instant noodles, and Indonesia is one of the biggest noodle consumers in the world; however, the industry depends entirely on imported wheat. This year, Indonesia has also suffered from rising prices of beef and onions due to protectionist sentiment. While Indonesian decision makers have coordinated to issue appropriate policies to tackle this situation, options are limited because Indonesia has ratified various free trade pacts. Indonesia cannot unilaterally impose tariff barriers as they would violate its international treaties.  It has become prisoner of its own free-trade treaties and may end up as a loser in the free-trade game. So far, the government has introduced various policies to offset this problem, such as increasing taxes on luxury goods, reducing oil imports and stopping the export of raw minerals starting next month. The central bank has also eased its restrictions to ensure banks and exporters can increase liquidity.  However, these short-term policies do not address the fundamental problems in the Indonesian economy. The policies could help temporarily offset the painful trade deficit and weakening currency, but they are not enough. Medium-term or long-term strategic policies have to be formulated to address the real problems instead of the symptoms.  For example, the state should give incentives (such as easy credit) to vulnerable sectors and small and medium enterprises affected by the free trade pacts.  Unfortunately, financial institutions tend to give easier access to consumer activities instead of loans for small and medium enterprises. The major difference between 1998 and now is that the Indonesian rupiah is now managed under a floating exchange rate regime.  The central bank no longer needs to dip into its foreign reserves as aggressively as before to defend the rupiah’s rate.  In the worst case scenario, Indonesia may need to ask for another liquidity injection from other sources, though the IMF is no longer the only option. The central bank has signed bilateral swaps with other central banks.  There is also the Chiang Mai Initiative, which provides liquidity from pooled foreign reserve currencies from the ASEAN+3 members with less draconian conditionality. While the situation is not as severe as in 1998, the current “crisis” is an opportunity to examine what is wrong with Indonesia’s economy.  Namely, a consumption-based economy is not always viable in a country with a weak currency and a high import rate. It triggers overheating in the economy that could end with a crash.  The reality of 2013 has shed light on the weak foundation of Indonesia’s consumption-based economy. It is fragile because of its over-dependence on imported goods. Indonesians consume more than they produce. Mass consumption will not be sustainable in the long run if the export sector remains sluggish. The Indonesian middle class has helped to shelter the country from 2008 crisis, but it has also contributed to the trade deficit, because it is easier to import and consume rather than to produce and export. Financial institutions also more aggressively disbursing loans for consumption instead of loan for small and medium enterprises.  Perhaps the 2013 “crisis” is a signal for decision makers to pay more attention to the export sector, to introduce strategic long-term policies and a wake-up call to not be disillusioned by Indonesia’s autopilot economy and rising middle class. ●

Minority rights and the Indonesian diaspora

Minority rights and the Indonesian diaspora

Calvin Sidjaya ;  A Researcher at Royston Advisor

JAKARTA POST, 29 Agustus 2012

Early last month, the Indonesian government held its first ever congress of Indonesian diaspora in Los Angeles. With the rising importance of Indonesia in international relations, engaging its citizens overseas is one logical way to increase the country’s soft power and culture abroad.

The 2010 census revealed there were about 63,000 Indonesians registered in the United States, making them the 15th largest Asian minority after the Myanmarese.

Human rights, however, may foil Indonesia’s bid to achieve the goal of increasing power and culture aborad, as it has been experiencing a brain drain during its modern history due to persecutions which mostly remain unresolved.

In 1945, the Dutch Indonesians became the target of persecution during the Bersiap anti-Dutch movement, triggering flight from the capital of the new republic to the Netherlands, which only ceased in 1963. Due to various issues, such as an inability to adapt to the climate, as well as economic problem in the Netherlands, many then opted to migrate to the United States.

However until this day, Dutch Indonesians remain the most underrepresented minority in modern Indonesia. 

Their history was erased from school history books, and Bersiap is not recognized as a part of Indonesia’s collective memory, even though they could be considered Indonesians, at least technically.

Another brain drain occurred in 1998, when Chinese Indonesians fled overseas due to rise of violence targeting the ethnic minority, and accusations of their role in the country’s economic crisis. Many were traumatized and too afraid to return to their country of origin.

A similar experience occurred in 2012 when about 70 Chinese Indonesians living in New Jersey received a deportation warning from United States Immigration and Customs Enforcement. 

Many are afraid to returning due to fear of facing persecution in Indonesia. While it might sound like an overstatement from the government’s point of view, the fact illustrate otherwise. 

Indonesia’s pluralism is now facing a serious threat.

The intrusion of radical ideologies has polarized and segregated society. This is quite evident in the Jakarta gubernatorial elections, where several prominent public figures have openly attacked candidates on basis of their religion and ethnicity.

Indonesia has been long heralded as a role model of how Islam and democracy is compatible. Dubbed the third largest democracy in the world, the country has a long tradition that promotes diversity in terms of ethnicity, race and language. It is the Indonesian language that united Indonesians.

Minorities are an irreplaceable part of our country which contribute to public opinion of, and in, Indonesia. The Chinese Indonesians living overseas have legitimate reasons to be afraid of returning to Indonesia, as the government has been continuously failing to protect the rights of various minorities. 

The recent attack on the Shia community in Madura just after the Idul Fitri holiday celebrations, which claimed two lives and displaced hundreds, is just one of many examples of persecution against minorities.

With many politicians trying to build a positive image of themselves in front of their Muslim voters at the expense of minorities, these sentiments and actions of persecution will most likely last until the 2014 elections.

The government has also brought the atrocities against the Rohingya in Myanmar to the Organization of Islamic Cooperation (OIC), and signed a declaration in support of Palestine’s bid to become a United Nations member. But nothing has been done to address Indonesian Christian Church (GKI) Yasmin or the closure of churches.

The denial of Foreign Minister Marty Natalegawa’s entry to Ramallah by Israel mirrored the situation in Papua, where the government closes the door for humanitarian agencies and human right watchdogs.

It is quite ironic that the government boasts its defense of human rights in international forums, but is turning a blind eye to the mess in its own yard. 

The government should practice zero tolerance in relation to human rights violations if it wants to engage its citizen overseas, including minority groups.

There should be protection of, and an improvement to, human rights record at home, starting with such basics as issuing a formal apology to the victims of past persecutions, or ratifying the Rome Statute so as to eliminate acts of violence perpetrated by security forces. The government should also proactively protect its citizens, and ensure the laws are enforced against radical groups that threaten pluralism.

If the government can only sit idly and watch violence against minorities continue, it is time to cast doubt over the longevity of Indonesia’s pluralism. Or it may end up as a myth. ●

Global free trade: Zero-sum game

Global free trade: Zero-sum game?

Calvin Sidjaya, A RESEARCHER FROM HD ASIA ADVISORY

Sumber : JAKARTA POST, 23 Desember 2011

The clash in the South Korean parliament in November taught Indonesia an important lesson: even among developed economies, there is prejudice that free trade is a zero-sum game that only benefits large export-based corporations and weakens local small businesses.

Indonesia is also facing a similar issue with the Chinese-ASEAN Free Trade Area (CAFTA). Several countries, such as Singapore, Malaysia and Thailand, have benefited greatly from the free trade agreement due to their preparedness.

The free-trade pact is a double-edged sword for Indonesia. Free-trade pacts have contributed to the surge of trade between ASEAN members and China. The free trade pact created the China-ASEAN market, one of the largest markets that is isolated from Europe and the United States, which are threatened by sovereign debt defaults and long term recession.

The relationship between China and Indonesia is vertical and emulates the old relationship between developed and developing countries.

It was common practice for developed countries to import natural resources from resource-rich developing countries, process them and export finished products back to the developing countries that provided the primary natural resources.

The most visible example are electronic goods, as most electronic goods distributed in Indonesia come from China. The boom in the Chinese manufacturing sector has increased e-commerce portals which ease the importing process from China.

The integration of web-based technology and the export boom have helped China to become one of the world’s largest exporters and enable everyone to become an importer only by using a credit card and internet connection.

Due to its undervalued currency, China has quickly become a major world manufacturing center due to its low production costs.

The trade deficit between China and Indonesia has widened as Indonesia imported more Chinese goods.

In October, exports to Indonesia reached US$2.241 billion, slightly exceeding imports, which reached $2.213 billion.

Free trade was initially done in good faith on the hopes that it would give mutual benefits to both parties. However, the CAFTA shows us that Indonesia is nearly powerless to defend its market from Chinese products. The relationship quickly became one-sided and there was little room to negotiate once the law is ratified.

However, there is still room to defend the market. Non-tariff barriers, such as compulsory regulations, including national standards, longer quarantine and anti-dumping measures are several instruments that can be used by the Trade Ministry to protect the domestic market.

However, these short-term solutions are not enough to defend the market. With its strong consumer base, Indonesia will become the target of more free-trade pacts in the future.

The implementation of the ASEAN-Australia-New-Zealand free-trade pact will be done next year. Even though Indonesia still enjoys a $1.3 billion surplus with Australia, that could be reversed quickly.

Prior to the implementation of CAFTA, Indonesia enjoyed surplus with China. However, the surplus quickly turned into trade deficit, and eventually led to de-industrialization, because it is much cheaper to import from China instead of producing goods.

In the long term, non-trade barriers will be useless as long as the local economy cannot raise its competitiveness. Depreciating currency as a tool to cheapen prices comes with a great price, as Indonesians still consume subsidized fuel to reduce economic pressure and rising commodity prices. A weak rupiah will burden the state budget and increase deficits further.

Small enterprises are most likely to be the most vulnerable sector as they cannot compete in a free market. Bottlenecked infrastructure is again the main problem in boosting local economy as it causes high economic costs.

The collapse of Kutai Kartanegara bridge should be reminder of disorder that has been long rooted in the country and has become the main factor corroding Indonesian competitiveness.

It is imperative for Indonesia and the rest of ASEAN to establish a trade dispute settlement mechanism to ensure there is room to negotiate within free trade pacts. With the recession in Europe, US, and Japan, Indonesia is a hidden paradise and an economic haven. ASEAN should increase its power to ensure it can protect itself from unfair trade practices.

A strong consumer base is what makes Indonesia appealing to the rest of the world and it is what makes other countries seek to create free trade pact with Indonesia. Therefore, it is necessary for the government to ensure the future free trade pacts will not end as a non-zero-sum game. ●