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Why Indonesia is a good-news story

Mr Joko Widodo’s rise from nowhere to Jakarta Governor and then the President showed the wonders of Indonesia’s democracy. Now, he wants to democratise the economy too, focusing as much on the quality of growth as on the quantity.

Mr Joko Widodo’s rise from nowhere to Jakarta Governor and then the President showed the wonders of Indonesia’s democracy. Now, he wants to democratise the economy too, focusing as much on the quality of growth as on the quantity.

Sixteen years ago, Indonesia was cascading toward failed statehood. In 1998, as riots forced dictator Suharto from office, many wrote off the world’s fourth-most populous nation.

Today, Indonesia is a stable economy growing modestly at 5 per cent, with quite realistic hopes of more.

There is plenty for Mr Widodo, known by his nickname “Jokowi”, to worry about, of course. Indonesia still ranks behind Egypt in corruption and near Ethiopia in surveys on the ease of doing business. More than 40 per cent of the nation’s 250 million people live on less than US$2 (S$2.60) a day. A dearth of decent roads makes it more cost effective to ship goods to China than across the archipelago.

Retrograde attitudes abound: To this day, female police recruits are subjected to humiliating virginity examinations.

However, this week, Mr Widodo reminded us why Indonesia is a good-news story — one from which Asian peers could learn. His move to cut fuel subsidies, saving a cash-strapped nation more than US$11 billion (S$14.3 billion) in its 2015 budget, showed gumption.

Even more encouraging is a bold agenda focusing not only on faster growth, but also on better growth that is felt among more than Jakarta elites.

This may seem like an obvious focus in a region that is home to a critical mass of the world’s extreme poor (those living on US$1 or US$2 a day). But grand rhetoric about “inclusive growth” has not even come close to meeting the reality on the ground.

In India, for example, Prime Minister Narendra Modi has boasted that he would return gross domestic product to the glory days of double-digit growth, as if the metric mattered more than what his government plans to do with the windfall.

GDP GROWTH MASKS ECONOMIC CRACKS

The Cult of GDP — a dated idea that booming growth lifts all boats — has long been decried by development economists such as William Easterly. The closer growth gets to 10 per cent, the more likely governments are to declare victory and grow complacent.

In many cases, rapid GDP growth masks serious economic cracks. In her recent book, GDP: A Brief But Affectionate History, Ms Diane Coyle called the figure a “familiar piece of jargon that doesn’t actually mean much to most people”.

Mr Widodo appears to see through the hollow superlatives global consumer companies toss around when it comes to Indonesia — a middle class that will double to 141 million by 2020, a population where half of Indonesians are below 30. Per capita income — US$4,000 at best — significantly lags peers such as Malaysia and Thailand.

For all the hype about Indonesia’s supposed middle-class boom, many households still grow rice and crops for a few hundred dollars per harvest.

That is why Mr Widodo’s early policies are populist in thrust: Welfare programmes, handouts to local governments and improved access to health and education.

However, he is also taking five vital steps that should do more than add a few dollars to daily salaries: Attackingofficial corruption, cutting red tape that turns off foreign investors, launching an ambitious infrastructure-improvement programme, increasing tax-collection efforts among the politically connected elite and strengthening industry, particularly manufacturing, to boost incomes broadly.

While each is crucial, the last one may be Mr Widodo’s most important legacy. The idea is to emulate Japan, South Korea and Taiwan in making value-added products through better training and infrastructure. That would diversify an economy that still relies too much on exporting natural resources to China.

Roadblocks abound, not least an opposition eager to maintain its privileges and cosy business dealings. Nor will it be easy to balance pro-investor strategies with protectionist currents in Jakarta.

However, for neighbours such as Myanmar and Thailand, which also suffer from inequality, Mr Widodo’s agenda provides a decent roadmap on how to spread the benefits of growth. Good news, indeed. BLOOMBERG

ABOUT THE AUTHOR:

Wiliam Pesek is a Bloomberg View columnist based in Tokyo who writes on economics, markets and politics throughout the Asia-Pacific region.

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