Indonesia is a diverse and magnificent country with varying degrees of development. However, it is currently classified as a developing country that has made significant progress in economic growth over the past few decades. As a result, the United Nations categorizes Indonesia as a “medium human development” country, with a Human Development Index (HDI) ranking of 107 out of 189 countries in 2021 (The Economist, 2022).
As an intern at CIPS (Center of Indonesian Policy Studies) with a keen interest in geo-political discourse, my time in Jakarta presents an excellent opportunity to delve into Indonesia’s position on the global stage. Through this blog, I aim to explore Indonesia’s potential as a global superpower and the complexities that accompany such a status.
As an intern at CIPS, I have had the opportunity to see the realities of what makes a nation grow and succeed in this modern age, and I look forward to sharing my insights. At the heart of CIPS lies a mission to champion policies that empower Indonesians to lead prosperous and peaceful lives. The organization strongly believes that social and economic development hinges on various factors, including increased economic opportunities, access to diverse educational choices, security to thrive in an open society, and resilient communities prioritizing sustainable income, secure property rights, and public health. However, there is a contention between this stance and the current protectionist behaviour in Indonesia’s politics.
Indonesia: The New Tiger of Asia
Asian tiger is the term for high-growth economies in the East. There are four: Hong Kong, Singapore, Korea and Taiwan. These are rapid industrialization, trade and development economies, where the finance sector drives sustained growth. Growing up in Hong Kong, I experienced first-hand the sustained growth of an Asian Tiger. Singapore and Hong Kong have become models of economic success in the East, with a business-friendly environment, a highly skilled workforce, and a thriving finance sector. There was indeed prosperity and profit. However, it is also worth mentioning sustained inequality growth between the upper and lower class [but that is for another blog entirely].
Every country is subject to its unique market advantages. For example, Singapore and Hong Kong are world-leading financial hubs with genius market designs, whereas Korea and Taiwan are known for their manufacturing industries. Indonesia was an archetypal Asian tiger in the 80s and 90s, with booming manufacturing and exports (The Economist, 2022). However, this has stopped due to political and economic turmoil with Suharto’s fall and the arrival of cheaper overseas manufacturing options, such as Vietnam (The Economist, 2022).
Indonesia’s economy is doing well, but only a few know about it. Nevertheless, according to a report, Indonesia has the potential to become the next big thing in Asia. It is the largest economy in the region and a part of a group of the world’s wealthiest nations, but people still think of it as a developing country and just a holiday spot.
Indonesia has all the makings and more for exponential growth:
1. It has a population of over 270 million; Indonesia has a large and young workforce.
2. Indonesia has rich natural resources such as coal, oil, and gas and minerals such as copper, gold, and nickel. The country is also one of the world’s most significant palm oil and rubber producers.
3. Indonesia is strategically located: it is a gateway to the region’s rapidly growing economies, including China and India.
4. The Indonesian government has made significant investments in infrastructure development, including building new airports, seaports, highways, and railways, which can improve transportation and logistics and attract foreign investment.
5. Indonesia has implemented economic reforms to attract foreign investment, including reducing barriers to investment, simplifying regulations, and improving the business environment.
6. Indonesia’s growing middle class is expected to drive consumption and demand for goods and services, which can boost economic growth.
Indonesia is also leading in the digital economy. It can become the world’s leading EV battery producer, with over a fifth of its nickel and the third largest cobalt reserves. By 2030, it could even become the leader in green commodities.
Indonesia faces significant challenges like corruption, inequality, and religious extremism that could slow its progress. Indonesia must address these challenges and make effective policies for sustainable growth and development to achieve its potential.
What Stands in the Way of Progress
Several factors, including corruption, limited participation in the global value chain, and a challenging business environment, have hampered Indonesia’s path to development.
One major obstacle to progress in Indonesia has been corruption, which has long plagued the country. During the Suharto regime, a corruption culture was implemented, which continues to be a challenge that Indonesia grapples with. The country scored 38 out of 100 in Transparency International’s 2020 Corruption Perception Index (CPI), indicating a high level of corruption (The Economist, 2022).
Another hindrance to development is Indonesia’s limited participation in the global value chain. Exporters have expressed frustration with Indonesia’s tendency to think in zero-sum terms, limiting the country’s involvement in the full range of activities that economic actors engage in to bring products to market. As a result, Indonesia’s participation in the global value chain is below the world average.
Moreover, Indonesia’s ease of doing business is a significant factor hindering development. For example, it takes 117 hours to complete checks and paperwork to consign each good leaving the country, far higher than other options in the East Asia zone (The Economist, 2022). This makes it difficult for businesses to operate efficiently and hampers Indonesia’s ability to attract foreign investment.
Corruption, limited participation in the global value chain, and a challenging business environment hinder Indonesia’s path to development. Addressing these challenges will require sustained government, businesses, and civil society efforts to promote transparency, improve participation in the global economy, and streamline bureaucratic processes. Only by tackling these obstacles can Indonesia fully realize its potential as an economic powerhouse in the region.
Development: Is it all the same?
While riding around Jakarta on a motorbike and observing the sights you would only encounter in a national geographic magazine, I noticed a unique comparison between Victoria and Jakarta. In my experience working with the houseless community in Victoria, I found that poverty was much more complex than just a lack of jobs or financial resources. Mental health issues, addiction, trauma, and other factors all played a role in creating what we see as poverty in Canada. However, Canada has a social safety net that provides programs, facilities, and communities for those in need, even though improvements are still needed.
In Indonesia, on the other hand, it is possible to be poor and considered impoverished by the rest of the world yet still be happy and fulfilled. Walking to work through alleys lined with homes made of brick and tin, I saw children playing and mothers holding their babies, creating a sense of community that was heartening to witness.
This difference reflects the individualistic vs collectivistic cultural orientations of the two countries. Psychologists have found that geography can profoundly influence our reasoning, behaviour, and sense of self. In Indonesia, individuals consider themselves interconnected with those around them and value the group over the individual. This collectivist orientation allows for a strong sense of community and a willingness to support each other, even under challenging circumstances.
The comparison between Victoria and Jakarta highlights the complex nature of poverty, the role that culture and geography play in shaping our perceptions of it, and how development is considered. While Canada has a social safety net to support those in need, Indonesia’s collectivist culture creates a sense of community that allows for happiness and fulfilment even in the face of poverty. Understanding these cultural differences is important because development can look different from a high GDP. It is an essential question because it can shape nations’ futures. Indonesia holds a particular conception of what development means, but it cannot forget the happiness and wealth that the community can bring and not lose it.
How Asia Works Joe Studwell
While working at CIPS, I came across the book “How Asia Works” by Joe Studwell. The book explains how Japan, South Korea, Taiwan, and China transformed themselves from poor agricultural societies into successful industrial economies through government intervention, investment in education, and export-oriented industrialization. Naturally, this intrigued me, especially as I had questions about Indonesia’s development and how think tanks like CIPS could contribute.
The book identifies five key roles in a country’s success and growth: land reform, export-oriented industrialization, state intervention, banking, and education. Nevertheless, a nation’s development ultimately relies on its government making sound policy decisions, which is where CIPS comes in.
As an intern at CIPS, I researched protectionist policies and learned that they require nuanced consideration for each sector. Temporary protectionist policies may be necessary to let an industry grow before exposing it to foreign competition. However, long-term protectionist policies can lead to high prices and low-quality goods. The goal should be free trade in the long run. For Indonesia to become a global powerhouse, its government must make the right policy decisions.
In conclusion, Indonesia has enormous potential to become a global superpower with its large population, strategic location, rich natural resources, and growing middle class. Indonesia’s government has invested in infrastructure development and implemented economic reforms to attract foreign investment. The country is also leading in the digital economy and could become the world’s leading battery producer. However, Indonesia faces significant challenges such as corruption, inequality, and religious extremism that could hinder its progress. Addressing these challenges and making effective policies for sustainable growth and development is crucial. The upcoming election in Indonesia will significantly determine whether the country can achieve its potential.
Asia’s overlooked giant (2022). The Economist. Retrieved from https://www.economist.com/asia/2022/11/19/asia’s-overlooked-giant