Indonesia’s economic and ecological development in 2021

December 14, 2020

Indonesia was one of our destinations for Study Trips in 2020, however, due to the pandemic it had to be postponed and we could not visit the southeast Asian country. Thanks to our newly established format “We zoom there”, we were at least able to travel to Indonesia virtually. It was a pleasure for us to welcome the German Ambassador to Indonesia, Dr. Peter Schoof, and Monica Tanuhandaru, Executive Director at the Environmental Bamboo Foundation and expert on the field of Indonesian development politics, to our video conference on Indonesia. The event was moderated by our member of the advisory board, Dr. Peter Strüven.

Ambassador Schoof started the event with an insightful overview of the country and its politics. To begin with, he lined out three remarkable parameters regarding Indonesia, namely its population, the fourth largest population in the world, its composition, as it has proportionally the highest share of Muslims, and its political system, as Indonesia is the third biggest democracy in the world. Even though Indonesia has a “discrete international profile” as Ambassador Schoof put it, the country is part of the G20 states and will host the meeting in 2022. However, there are at least two reasons why Indonesia could become more important in international relations. Firstly, the shift of the center of gravity of international affairs away from the Euro-Atlantic relations towards Asia and the Indo-Pacific region, and secondly, the stable economic growth in the country.

Monica Tanuhandaru added that Indonesia must be seen as a country in transition, which has to “try out some things” in order to finally find its way. “Indonesia is a consensus of ideas and not a single pattern” as she said. One of her examples was the federal system. Indonesia had to notice that a decentralized structure with authority on the local level of government does not work as expected, as broader national goals cannot be pursued effectively. Due to that insight authority was shifted from district to provincial level and governors are now appointed instead of elected, which caused opposition in the civil society. Below the line, Mrs Tanuhandaru said that the Indonesian democracy is working, but Indonesia needs more time to develop. From her point of view a 3 to 5 year period for a development plan is way too short and the focus should be on the coming 10 to 20 years instead.


The Economy – Backbone of Indonesian development

The economy is the backbone of Indonesian development. As biggest member of the regional Organization ASEAN (Association of Southeast Asian Nations), Indonesia is able to keep its economic growth rate steadily around 5 per cent. Furthermore, ASEAN just recently concluded a free trade agreement (RCEP) that includes China and Japan and thus, covers one third of world trade. Additionally, the Indonesian economy proofed to be resilient in times of crises, said Ambassador Schoof. During the Corona pandemic the GDP decreased by only 1.8 per cent, which is marginal to the 5 to 8 per cent of GDP decrease observed in neighboring states. According to Dr. Schoof, this resilience is mainly based on two aspects: Firstly, the economy is focused on Indonesia itself and serves the purpose to develop the domestic market. This goes hand in hand with protectionist measures, high market access barriers and the control of imports and exports. Secondly, Indonesia passed a law in 1999 that does not allow to exceed 3 per cent of budget deficit, which already proofed successful during the financial crisis that started in 2008.

Even though the model is spoiled by success, it also shows some weaknesses. Most mentionable the fact that the country seems to be trapped in a lower to middle income trap. As a result the economy cannot attract companies with jobs for highly educated and qualified people in the country and therefore suffers a brain drain. Indonesia wants to tackle that problem by improving the investment climate, as well as by investing in human capital, for example via vocational trainings, said Ambassador Schoof.

In fact, Germany is acting like a role model for Indonesia regarding the vocational training. However, the Ambassador also senses some misunderstandings and a lack of “structure” to implement these trainings. One common misunderstanding is that the decisive point in a vocational training is less a vocational training school, but the nexus to the corporate sector. That point, though, is where Germany can actively support Indonesia. For example, the Indonesian ministry in charge is getting German support at setting up a national action plan. Furthermore, the GIZ (Deutsche Gesellschaft für Internationale Zusammenarbeit) is supporting local governments to establish school and connecting them with local businesses.

As a last point he added that the current situation is threatening the economy. The Corona stimulus package is very expensive and does not develop or transform a certain sector, but solely sustains the remarkable informal sector, which accounts for around 60 per cent of the workforce. At the same time, the testing rate is very low. There were only 3 million tests since March – the same number is conducted within two and a half weeks in Germany, said the Ambassador. A silver lining, however, is that Indonesia is engaged in developing an own vaccine. Due to its status as low income country, research can be subsidies by ODA (Official Development Aid). Thus, the current situation is worse than it is presented.


Move of the capital

Another topic discussed was the planned move of the capital Jakarta. However, Ambassador Schoof pointed out that it is actually the move of the seat of government – similar to the model known from the Netherlands or Bolivia. From his point of view, the Indonesian government pursues three objectives with the move. Firstly, they want to balance geography, as Java and Jakarta are perceived as favored areas. Secondly, to alleviate Jakarta’s problems, especially air pollution. Finally, the new city shall be a design project – a new prototype for a future life. Additionally, Monica Tanahandaru, mentioned that the whole process is not transparent and that there would be much better places for the new city than Borneo. Furthermore, both speakers agreed that the project currently is on hold as the country is struggling with the pandemic.


The ambivalent relations with China

Contrary, other things are not on hold at all, like for example the relations with China, especially regarding the situation in the South-China Sea. Dr. Stinner wanted to know which role China plays in Indonesia and if Indonesia has the feeling to be bullied in the relation. Mrs. Tanuhandaru answered that China is not perceived as bully in Indonesia and that Xi Jinping is even admired by Joko Widodo, the president of Indonesia, for “getting things done”. Moreover, China is an important economic partner that buys everything that cannot be sold on the world market, may it be due to illegal extraction or low demand. Another benefit that China offers to the Indonesian people is scholarships for students from rural areas to study in China. And she added that one reason for the success and the success to come of Indonesia was the bloc-free positioning in the Cold War. Indonesia did neither want to be part of the East nor the West, which makes the country independent, but enables them to take advantage from both sides. That, according to Mrs. Tanuhandaru, shapes international diplomacy in Indonesia until today.

Ambassador Schoof widely agreed on what was said before and added that the perception of China in Indonesia, though, is ambivalent. On the one hand, Indonesia is interested in Chinas’ money, on the other hand, there is a historic dispute between both countries and the situation in the South-China Sea is raising awareness for China as aggressive actor.

Monica Tanuhandaru concludes that “in economic ways Indonesia is very tight with China, culturally the government is keeping it at a distance”.


The politicization of Islam

As final remark Dr. Strüven introduced the audience to the belief that Indonesia was in the best position of all countries to demonstrate that it is possible to create a muslim democracy. He wanted to know from the speakers, if “that is completely gone”.

Mrs. Tanuhandaru clarified that the muslim majority and especially the politicization of religion indeed, is a problem in Indonesia. She illustrated that statement with an example of police officials, who would say that muslim violence against religious minorities is just fine, as it is conducted by a religious majority. Another example was that women that do not wear a hijab do not get promoted in the public sector.

Indonesia, though, perceives itself as a country with a muslim majority, not as a muslim country, stated Ambassador Schoof. He added that there was a dispute about the constitution and if Indonesia should be constituted as an Islamic Republic or as a Republic based on Islam – the way out of the dilemma was to state that the country is united in the belief in one god. However, he also agrees that Islam is deeply rooted in the Indonesian society, which has two reasons: On the one hand, Islam was imported to Indonesia and it has adopted to local traditions in the course of the centuries. On the other hand, Indonesia is one of the most digitalized countries and religious leaders can become very popular in an uncontrolled space.