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THE REPORT
Indonesia 2012




POLITICS   INFRASTRUCTURE   INDUSTRY
ECONOMY    TOURISM          CAPITAL MARKETS
BANKING    REAL ESTATE      CONSTRUCTION
ENERGY     TELECOMS & IT    INTERVIEWS        9 781907 065507
2012 indonesia
2012 indonesia
2012 indonesia
2012 indonesia
2012 indonesia
CONTENTS INDONESIA 2012



                                                          64 A rising star: Sharia-compliant financing is an            ISBN 978-1-907065-50-7
                                                                increasingly popular alternative                        Editor-in-Chief: Andrew Jeffreys
                                                          65    Interview: Darmin Nasution, Governor, Bank              Editorial Director: Peter Grimsditch
                                                                Indonesia                                               Regional Editor: Paulius Kuncinas
                                                          66    Interview: Gatot M Suwondo, President Director,         Editorial Managers: Josh Franken,
                                                                                                                        Jacobo Bermudez de Castro Carbajo
                                                                Bank Negara Indonesia
                                                          67    A closer look: Profiles of the leading banks            Chief Sub-editor: Alistair Taylor
                                                                                                                        Deputy Chief Sub-editor: Jennie
                                                          70    Roundtable: Jahja Setiaatmadja, President Director,     Patterson
                                                                BCA; Michael Young, President Director, HSBC;           Web Editor: Barbara Isenberg
                                                                                                                        Sub-editors: Sam Inglis, Elyse Franko-
                                                                Zulkifli Zaini, President Director, Bank Mandiri; and   Filipasic, Esther Parker, William Zeman,
                                                                David Fletcher, President Director, Permata Bank        Thomas Bacon
                                                                                                                        Contributing Sub-editor: Miia
                                                          74    Managing downside: The rate of loan defaults            Bogdanoff
     COUNTRY PROFILE                                            declines as bankers grow more cautious
                                                                                                                        Analysts: Stephanie Durbin, Alex
10 Island life: A rich and colourful archipelago
                                                                                                                        Gordy, Jon Gorvett, Matt Mossman, Joe
                                                                CAPITAL MARKETS                                         Wilcox
     POLITICS                                             76 New heights: The IDX rallies while the regulator is
                                                                                                                        Senior Editorial Researcher: Susan
14 Rising to the challenge: Growth and reform have              increasing options for investors and boosting           Manoğlu
                                                                                                                        Editorial Researchers: Matthew
     continued despite difficult conditions                     transparency                                            Ghazarian, Souhir Mzali, Owen Barron,
18 Interview: President Susilo Bambang Yudhoyono          78    Added liquidity: The subject remains an issue           Adeline Oka
20 At the helm: Chairing ASEAN presents an                82    Clear targets: A stronger regulatory framework          Art Director: Yonca Ergin
     opportunity to increase regional influence                 will promote a stable financial system                  Deputy Art Director: Cemre Strugo
                                                                                                                        Art Editor: Meltem Muzmuz
21   Interview: Abdullah Gül, President of Turkey         83    Interview: Nurhaida, Chairman, Bapepam                  Illustrations: Shi-Ji Liang
22   Interview: Marty Natalegawa, Minister of             85    In the mix: Investor appetite for Indonesian bonds      Photographer: Mark Hammami
     Foreign Affairs                                            continues                                               Production Manager: Selin Bolu
23   Party lines: Political groups share similar                                                                        Operations Manager: Yasemin Dirice
                                                                                                                        Logistics & Distribution Coordinator:
     ideologies but differ in leadership styles                 Stocks & bonds: Share analysis & data provided          Esen Barin
24   A focus on unity: Bringing diversity together              by Bank Negara Indonesia                                Operations Assistant: Nefise Gürel
25   Interview: Surin Pitsuwan, Secretary-General,        87    Aneka Tambang: Mining & metals                          OBG would like to thank its local
     ASEAN                                                88    XL Axiata: Telecommunications                           partners for their assistance and
                                                                                                                        support in the research of this project.
26   Viewpoint: Hillary Clinton, US Secretary of State    89    Kalbe Farma: Pharmaceuticals
29   Viewpoint: William Hague, UK Secretary of State      90    Agung Podomoro Land: Real estate
     for Foreign and Commonwealth Affairs                 91    AKR Corporindo: Distribution
                                                          92    Jasa Marga: Toll roads
     ECONOMY
33 At the centre of attention: Growth continues,                INSURANCE
                                                                                                                                 Indonesia Investment
     driven by private consumption and investment         94 The contest for coverage: Major players prepare                      Coordinating Board

37   Interview: Hatta Rajasa, Coordinating Minister of          to profit from long-term potential
     Economy                                              98 Going micro: Targeting low-income markets
38   Interview: Agus Martowardojo, Minister of            99 Interview: Hotbonar Sinaga, CEO, Jamsostek
     Finance                                              100 Life lines: Rapid growth in unit-linked coverage
39   On again, off again: The central bank responds       102 A large margin: Health care coverage is modest
43   Investors welcome: Efforts to enhance incentives           but profitable
45   Interview: Prijono Sugiarto, President Director,
     Astra International                                        INFRASTRUCTURE
46   Interview: Gita Wirjawan, Minister of Trade and      104 Realising potential: Jumping the economic
     Chairman, Investment Coordinating Board                    hurdles of connectivity and transport
47   Portfolio prospects: Strong fundamentals             108 Footing the bill: Development funding is being
     support a positive outlook for markets                     met by a mix of sources
49   Defending a stable rate: The central bank steps in   109 Interview: Kuntoro Mangkusubroto, Head,
50   Prime target: Foreign investors return                     Presidential Delivery Unit
53   A driving force: Private consumption boosts
     economic growth                                            ENERGY
54   Interview: Bobby Umar, President Director, Bakrie    113 Mixing it up: New acquisitions and expansions in
     & Brothers                                                 hydrocarbons and electricity
56   Viewpoint: Maxime Verhagen, Deputy Prime             119 Interview: Evita Legowo, Director-General, Oil and
     Minister and Minister of Economic Affairs                Gas Directorate, Ministry of Energy and
     of the Netherlands                                       Mineral Resources
                                                          120 Interview: Karen Agustiawan, President Director,
     BANKING                                                  Pertamina
59 Size and scope: New opportunities emerge as            121 Gassing up: A renewed focus on producing for
     infrastructure plans are realised                        domestic consumption
6                                          CONTENTS INDONESIA 2012



Chairman: Michael Benson-Colpi            123 Roundtable: Jim Taylor, President Director,           185 On the market: Several developers are listed on
Director of Field Operations: Elizabeth
                                              ConocoPhillips; Sammy Hamzah, CEO, Ephindo;               the Indonesia Stock Exchange
Boissevain                                    Terry McPhail, President & General Manager,
Regional Director: Laura Herrero
                                              ExxonMobil; and Hilmi Panigoro, President                 TRANSPORT & LOGISTICS
Country Director: Maria Meroño                Commissioner, Medco                                   188 Stepping up to the task: The government speeds
Project Director: Meike Neitz
                                          127 Into the deep: Firms see greater potential in coal        up development of connections
Field Operations Executive: Meltem            bed methane extraction                                195 Rise in the skies: Increasing airport capacity
Okur
Field Operations Coordinator: Zeynep
                                          129 Natural potential: Laying plans for renewables        198 Liberalised but protected: Shipping law welcomes
Akdamar                                       development                                               private sector participation
Project Coordinator: Dian Wulandari
                                                                                                    199 Interview: Emirsyah Satar, President & CEO,
                                              MINING                                                    Garuda Indonesia
For all editorial and advertising
enquiries please contact us at:
                                          132 Forward momentum: Increasing domestic                 200 Interview: Shanti L Poesposoetjipto, Chairman,
enquiries@oxfordbusinessgroup.com.            production is capitalising on high prices                 Samudera Indonesia Group
To order a copy of this publication
or to enquire about your subscription
                                          137 Gold standard: Two companies lead production of       201 Greater connectivity: Building partnerships for
please contact us at:                         gold and copper                                           increased infrastructure development
booksales@oxfordbusinessgroup.com.
                                          138 Interview: Martiono Hadianto, President               205 Easing congestion: Getting traffic moving
All rights reserved. No part of this          Director, Newmont, and Chairman, Indonesia            207 On the move: Addressing bottlenecks
publication may be reproduced, stored
in a retrieval system or transmitted in
                                              Mining Association                                    209 Charting a safe course: Domestic fleets work to
any form by any means, without the        139 Elemental production: Varying tin prices impact           meet rising demand
prior written permission of Oxford
Business Group.
                                              local manufacturing output                            211 Back on track: A dramatic rail overhaul planned

Whilst every effort has been made to
ensure the accuracy of the informa-
                                              INDUSTRY & RETAIL                                         TELECOMS & IT
tion contained in this book, the          143 A stronger foundation: The focus remains on           215 A time of change: Thin markets see hope in a
authors and publisher accept no
responsibility for any errors it may
                                              becoming an industry-based economy                        future of sophisticated data services
contain, or for any loss, financial or    147 Interview: Sudhamek AWS, President Director,          219 Sharing resources: A maturing wireless sector
otherwise, sustained by any person
using this publication.
                                              GarudaFood                                                prompts competitors to share towers
                                          148 Interview: John Gledhill, President Director, HM      220 Interview: Rinaldi Firmansyah, President Director,
Updates for the
information provided in this
                                              Sampoerna                                                 Telkom
volume can be found in Oxford             149 An evolving tradition: Traditional tobacco            221 The big three: A battle for subscribers
Business Group's 'Economic Updates'
service available via email or at
                                              products continue to lead the segment                 223 Roundtable: Erik Aas, President Director & CEO, Axis;
www.oxfordbusinessgroup.com               150 A matter of choice: Growing disposable income is          Hary Sasongko, President Director, Indosat; Sarwato
                                              creating demand for new products                          Atmosutarno, President Director, Telkomsel; and
                                          152 Roadrunners: Buying an automobile is an option            Hasnul Suhaimi, President Director, XL
                                              for increasing numbers of citizens                    226 Getting connected: The challenges are many, but
                                          156 Plug in, switch on: The market for electronics is         so are the potential rewards
                                              growing quickly                                       228 Enter the net: More access in the archipelago
                                          157 Viewpoint: Fransiscus Welirang, Director, Indofood
                                          158 Interview: Suryo Sulisto, Chairman, Indonesian            PLANTATIONS & AGRICULTURE
                                              Chamber of Commerce and Industry                      230 Preparing for the harvest: The government is
                                          159 New demands: Expansion continues, while impact            creating growth zones and enhancing rules
                                              from free trade agreements begins to be felt          234 The day’s catch: Aiming to become the world’s
                                                                                                        largest fisheries producer
                                              CONSTRUCTION & REAL ESTATE                            235 Interview: Franky Widjaja, Vice-Chairman for
                                          165 Ready to be realised: If regulatory barriers can be       Agribusiness, Food and Livestock, Indonesian
                                              overcome, massive potential awaits                        Chamber of Commerce and Industry
                                          169 Putting it all together: Cement companies are         236 The sweet spot: Sector players are looking to
                                              preparing for significant growth                          capitalise on expected production boosts
                                          170 Making it work: The government is setting up
                                              agencies to encourage investment                          TOURISM
                                          174 Keeping it green: New environmental initiatives       239 Focused approach: Visitor numbers rise
                                          175 Room for change: Huge expansion and demand            242 Business destination: Expanding the quantity and
                                          179 Interview: Muktar Widjaja, Chairman, Sinarmas             range of MICE facilities
                                              Land                                                  243 Interview: I Made Mangku Pastika, Governor of
                                          180 Interview: Trihatma K Haliman, President Director         Bali
                                              and CEO, Agung Podomoro Land                          244 Beyond Bali: Encouraging visits further afield
                                          181 Without further delay: A new land acquisition bill
                                              will speed up much-needed development                     EDUCATION & HEALTH
                                          182 Outside looking in: Reforms to laws could see         246 A system test: Funding and regulation are set to
                                              foreign investment bolster the economy                    be overhauled with a range of reforms
                                          184 Sharing the wealth: Expansion and growth is           249 Interview: Ir Ciputra, Founder and Chairman,
                                              taking hold throughout the archipelago                    Ciputra Group

                                          www.oxfordbusinessgroup.com/country/Indonesia
CONTENTS INDONESIA 2012                                                          7




250 Forging connections: New international student
    exchange programmes and partnerships
251 Striking a healthy balance: Growing demand and          Ready to be realised
    changing profiles are driving a new approach
255 Pharmaceuticals in play: The country is an              Page 165
    increasingly attractive market for drugs firms          With infrastructure development thought
257 Interview: Dr Endang Rahayu Sedyaningsih,               the most promising path for economic
    Minister of Health                                      growth, the government has embarked on
                                                            a massive building campaign. Cement sales
    RELIGIOUS AFFAIRS                                       are up, new agencies have been created
260 Politics of faith: Finding a place for religion in a    to help encourage efforts and environ-
    democratic, harmonious and responsible society          mental initiatives have been acting as a
263 Interview: Suryadharma Ali, Minister of Religious       necessary safeguard. Demand for housing
    Affairs                                                 is prompting growth in that sector as well.
264 Growing market: Sharia-compliant finance shows
    strong potential

    MEDIA
266 Breaking news: Growing opportunities for                Preparing for the harvest
    domestic and international media investors              Page 230
270 The bigger picture: Cinema and television are
    both expected to see increased demand                                                     Despite a thriving domestic agricultural
272 Online, but switched on?: The country has rich                                            sector, the country still must rely on
    potential for highly profitable online marketing                                          imports to help feed its population of
                                                                                              240m. The government has introduced
    REGIONS                                                                                   a number of development programmes
274 Local governance: Decentralisation has presented                                          to address this. Palm oil continues to be
    both challenges and opportunities                                                         a key export and a major contributor to
277 Viewpoint: Satish Mishra, Managing Director,                                              the local economy. There are also plans
    Strategic Asia                                                                            to further develop the fisheries segment.
279 A star performer: South Sumatra receives
    recognition for its strong potential
280 And the winner is…: Regional Champions stand
    apart with their economic development                   A system test
    TAX                                                     Page 246
    PricewaterhouseCoopers                                  Increased spending has helped make pri-
283 Reshaping the environment: An overview of the           mary education more accessible to the
    tax system and regulations for investors                population, in line with the country’s Mil-
288 Collaborating for success: Regulatory reforms           lennium Development Goals. Future suc-
    accelerate private sector participation in              cess in the sector will be dependent on
    infrastructure development                              continued government aid, to address
290 Viewpoint: Irhoan Tanudiredja, Senior Partner,          both low secondary school attendance
    PricewaterhouseCoopers                                  rates and the mismatch between needs
                                                            in the job market and tertiary offerings.
    LEGAL FRAMEWORK
    Lubis Santosa & Maramis
293 The costs they cause: The government enacts
    new rules on cost recovery
294 Laws and regulations: An overview of the current
                                                            Local governance
    legal environment in Indonesia                          Page 274
300 Viewpoint: Todung Mulya Lubis, Senior Partner,
    Lubis Santosa & Maramis                                                                      The government has been pushing a
                                                                                                 policy of decentralisation, with region-
    THE GUIDE                                                                                    al governors throughout the country’s
302 Waking up to tourism: Aceh’s many wonders
                                                                                                 33 provinces taking on greater author-
303 Hotels: A home on the islands
                                                                                                 ity in local affairs, such as education.
307 Listings: Important numbers
                                                                                                 The “Regional Champions” programme,
308 Facts for visitors: Useful information
                                                                                                 meanwhile, has been boosting devel-
                                                                                                 opment via a competitive framework.



                                                                                          THE REPORT Indonesia 2012
2012 indonesia
9




Country Profile
A rich blend of cultures spread over 17,500 islands
Rising regional power and key player within ASEAN
Blessed with an abundance of natural resources
Growing opportunities for foreign investment
10      COUNTRY PROFILE




     Almost a third of Indonesia’s population is under 15 years of age




     Island life
     A rich and colourful archipelago, looking to raise its global standing
     Spread between Asia and Australia, Indonesia is com-                CREATIVE ECONOMY: With almost 50% of the
     prised of around 17,500 islands, of which over 6000                 Indonesian population aged under 29 years, the gov-
     are inhabited. The archipelago is on a crossroad                    ernment is encouraging the growth of the creative
     between the Pacific and the Indian oceans, and                      economy to increase its contribution to the coun-
     bridges the Asian and Australian continents. This                   try’s GDP. The government aims to build the image
     strategic position has influenced the cultural, social,             and identity of the nation while turning innovation
     political and economic life of the country. After years             and creativity into one of Indonesia’s new compet-
     of political upheaval and a major domestic financial                itive advantages. Creative industries such as fash-
     crisis, Indonesia is now positioned to be one of the                ion, handicrafts, advertising and design currently
     more politically stable countries in the region. In                 account for around 7.5% of non-oil and gas exports
     addition, it is widely anticipated to see significant               and employ nearly 8m people.
     economic growth in coming years.                                    POPULATION: Indonesia currently is the world’s
     EARLY HISTORY: In the sixth and seventh centuries,                  17th-largest economy, third-most-populous democ-
     Srivijaya in eastern Sumatra and Mataram in central                 racy, largest archipelagic state and home to the
     Java became the dominant kingdoms on the archi-                     largest population of Muslims.
     pelago. Majapahit, the Hindu-Buddhist empire that                      With a total of 245m people, the country now also
     lasted from the late 11th to the 16th century, was                  has the world’s fourth-largest population. Jakarta is
     one of the region’s most influential and powerful.                  the most populous city in Indonesia, with 9.1m inhab-
        Muslim emissaries travelling to and from China                   itants, followed by Surabaya with 2.1m. The island
     were the first to introduce Islam to Indonesia, but                 of Java, which is roughly the size of the state of New
     its influence in society began only in the 11th cen-                York, is the most populous island on earth – home
     tury. By the end of the 16th century Islam had                      to 129m people. Java is also one of the most dense-
     replaced Hinduism in Java and Sumatra.                              ly populated areas in the world, with some 945 per-
     COLONISATION & INDEPENDENCE: The Dutch                              sons per sq km. Despite the family planning pro-
     began colonising Indonesia in the early 17th centu-                 gramme in place since the 1960s, Java’s population
     ry, seeking to monopolise its valuable natural sources.             is expected to grow to some 254m by 2020.
     In 1602, the Dutch East India Company was estab-                       There are some 300 distinct ethnic identities
     lished to manage the monopoly on trade and colo-                    spread throughout the country, with over 700 dif-
     nial activity, and by the mid-18th century the Dutch                ferent languages and dialects. According to the 2000
     were firmly established in Java. They consolidated con-             census, the ethnic composition of the population is
     trol of the country over the next two centuries.                    40% Javanese, 15% Sundanese, 3.3% Madurese, 2.7%
        The Japanese occupation during the Second World                  Minangkabau, 2.4% Betawi, 2.4% Bugis, 2% Banten,
     War ended Dutch rule. After Japan’s surrender,                      1.7% Banjar, with 29.9% unspecified.
     Soekarno – the leader of Indonesia’s resistance to                  LANGUAGE: The country is home to numerous relat-
     Japan – proclaimed independence in 1945 and five                    ed but distinct cultural and linguistic groups, the
     years later established a single unitary republic. In               languages of many of which are derived from a com-
     1967 Soekarno was replaced by Suharto, who                          mon mother tongue – Malay. Since independence,
     remained in power until 1998. In 2009, Susilo Bam-                  Bahasa Indonesia (the national language, a form of
     bang Yudhoyono, the sixth president of Indone-                      Malay) has spread throughout the archipelago and
     sia, was re-elected to office (see Politics chapter).               become the most common language for written

     www.oxfordbusinessgroup.com/country/Indonesia
COUNTRY PROFILE                                                       11




communication, education, government, business
and media. However, local languages and dialects are
still important in a number of areas in the country.
PHILOSOPHICAL BASIS: The philosophical basis of
the Indonesian state is known as pancasila. Pancasi-
la consists of two Sanskrit words, panca meaning
“five” and sila meaning “principle”. It comprises five
interrelated principles. They are nationalism, human-
itarianism, representative democracy, social welfare
and monotheism. These principles continue to have
a major underlying role in Indonesia’s political cul-
ture today, even though the interpretation of the prin-
ciples has varied over the decades.
RELIGION: The first principle of the pancasila phi-
losophy is the belief in one God. A number of differ-
ent religions are currently being practised in Indone-
sia, however, and their collective influence has had
a significant impact on the cultural, economic and
political life of the region during its long history. The
Indonesian constitution guarantees religious free-
                                                            The islands are home to a variety of religious traditions
dom, but only six religions are recognised by the
state, namely Islam (86.1%), Protestantism (5.7%),          people, and the Yogyakarta earthquake, which result-
Catholicism (3%), Hinduism (1.8%), Buddhism (about          ed in the deaths of nearly 5800.
1%) and Confucianism (less than 1%).                        NATURAL RESOURCES: The country is blessed with
   Before the arrival of the Abrahamic faiths of Chris-     an abundance of natural resources including petro-
tianity and Islam, the popular belief systems on the        leum, gas, tin, nickel, timber, copper, coal, gold, sil-
archipelago were influenced by Hinduism and Bud-            ver and fertile soil. Oil production in 2010 reached
dhism. On the resort island of Bali, over 90% of the        965,000 barrels per day (bpd). Oil reserves stand at
population still practise Hinduism.                         3.8bn barrels and imports about 420,000 bpd. Addi-
FLAG: The flag of Indonesia is two equal horizontal         tionally, Indonesia is ranked as the world’s top pro-
bands of red and white. The colours derive from the         ducer of gold, fourth-largest producer of nickel,
banner of the Majapahit empire. Red is a symbol of          third-largest of copper and the second-largest of tin.
courage while white represents purity.                          Indonesia is the world’s number one coal exporter.
CLIMATE: Indonesia’s climate, which is almost entire-       The country also has more than 61bn tonnes of coal
ly tropical, incorporates average temperatures of           reserves, which are mainly in Kalimantan and Sumat-
between 28°C and 34°C in coastal areas, and 23°C            era. Coal production has significantly increased in
in the highlands. The country is almost fully sur-          recent years, rising from 152.7m tonnes in 2005 to
rounded by warm waters and temperatures vary lit-           305.9m tonnes in 2010. In 2009, exports of coal
tle from season to season. The length of daylight           amounted to 176.4m tonnes.
hours also remains fairly constant, with a difference           Indonesia produced more than 18m tonnes of
of only 48 minutes between the longest and short-           palm oil in 2009. In 2010 the total area of land allo-
est day, allowing for crops to be grown year-round.         cated for palm oil cultivation was estimated at 7.8m
   The most important variable in the archipelago’s cli-    ha by the Agricultural Department. This land is divid-
mate is rainfall, and extreme variations are due to         ed among private and government smallholders
monsoons. The dry season lasts from June to Sep-            mostly in Kalimantan and Sumatra. With regards to
tember and the rainy season from December to March.         illegal logging of the rainforest, by joining the Round-
Rainfall and humidity, ranging from 70% to 90%, vary        table for Sustainable Palm Oil, a large number of
depending on the season and region.                         Indonesian companies have demonstrated they are
GEOLOGY: Indonesia’s seismic and volcanic activity          taking the issue seriously.
is among the world’s highest. Lying near the edges          POWER: In 2004, in an effort to increase electrici-
of the Pacific, Eurasian and Australian tectonic plates,    ty capacity, the government initiated plans to build
Indonesia is prone to frequent earthquakes and vol-         coal-fired thermal power plants by 2010. However,
canic eruptions. The archipelago has more than 150          the completion date was pushed back to 2014 as a
active volcanoes, including Tambora and Krakatoa,           number of projects are still in development.
both of which erupted in the 19th century, with dev-            The power transmission and distribution sector in
astating consequences. However, the volcanic ash            Indonesia is largely dominated by the Perusahaan
that has resulted from such eruptions has contributed       Listrik Negara, a state-owned energy company that
significantly to the high agricultural fertility that has   controls around 85% of generated power. However,
allowed islands like Java and Bali to support high pop-     a new law on energy was enacted in 2009, replac-
ulation densities. Recent seismic-related disasters         ing the 1985 legislation and creating a wealth of
include the 2004 tsunami, which killed around 167,736       opportunities for foreign investors to meet demand.

                                                                                                         THE REPORT Indonesia 2012
2012 indonesia
13




Politics
Decentralisation central to Reformasi policy
A major cabinet reshuffle in October 2011
Uniting a diverse population presents challenges
A variety of parties are represented in the legislature
ASEAN plays a central role in regional politics
14                               POLITICS OVERVIEW




                               Susilo Bambang Yudhoyono has been president since 2004




                               Rising to the challenge
                               Growth and reform have continued despite difficult global conditions
                               Since declaring independence from the Netherlands          ing their influence throughout South-east Asia. Islam
                               in 1945, Indonesia has become one of the world’s           first came to Sumatra in the 13th century, gradual-
                               fastest developing and most economically promis-           ly displacing Hinduism and Buddhism to become the
                               ing nations. Transforming itself repeatedly over the       dominant religion of Java and most other islands of
                               years, it has also now established itself as an emerg-     the archipelago by the 16th century.
                               ing regional giant. Indeed, while many countries felt         That time also marked the first arrival of Euro-
                               the strong negative effects of the global financial        peans, with trade soon followed by colonisation. The
                               crisis, Indonesia continued to build on its strengths,     Dutch emerged as the dominant colonial power over
                               with its economy growing in spite of the global down-      the archipelago by around 1800, when the islands
                               turn and its political life continuing to be vibrantly     became known as the Dutch East Indies. Dutch rule
                               independent and democratic.                                continued until 1941, when the Japanese invaded and
                                  In 2011 Indonesia also assumed the chairman-            began an occupation of the country that lasted
                               ship of the Association of South-East Asian Nations        throughout the Second World War.
                               (ASEAN), boosting its engagement with regional and            With Japan’s defeat and surrender in August 1945,
                               global powers – a sign that it could play a much           Indonesian nationalist leaders took their chance and
                               more internationally influential role in the future.       declared independence from Holland before Dutch
                               CHALLENGES AHEAD: However, the country also                colonial forces could return. Conflict then followed,
                               continues to face some important political and social      but the Dutch finally recognised the sovereignty of
                               challenges. Hopes of further and faster reform with        all the current Indonesian territory, except West
                               the re-election of President Susilo Bambang Yudhoy-        Papua, in 1949; Papua then joined Indonesia in 1963,
                               ono in 2009 have been put on hold to some extent           completing the modern country.
                               as political battles continue, while efforts to root out   FROM “GUIDED DEMOCRACY” TO REFORMASI:
                               graft have also proved problematic.                        Post-independence, Indonesia went through a series
                                  Yet at the same time, Indonesia has displayed a         of different political systems, with an early demo-
                               political maturity and capacity that few expected          cratic system giving way to the period of “Guided
                               when the current period of multiparty politics began.      Democracy” under the charismatic President
                               Today, Indonesia is a stable, democratic country expe-     Soekarno, who instated dictatorial rule from 1960
                               riencing high growth and escalating investor inter-        until 1965, when a particularly violent series of
                               est from around the world. That this has been              events occurred, having been triggered by an
                               achieved at a time of growing international uncer-         attempted coup blamed on the communists.
                               tainty is also no mean feat. In its 66 years of sover-        From that point onward, Soekarno’s power rapid-
                               eignty, Indonesia has experienced tremendous               ly waned as that of Major General Suharto rose, with
After gaining
independence in 1945, the      growth, with a nominal GDP of $540bn and a pop-            the latter becoming president in 1967. This marked
country went through a         ulation of 240m, and is counted among the world’s          the beginning of the “New Order” period, with Suhar-
number of different            most dynamic emerging markets.                             to maintaining his position of power until 1997, when
political periods, including   HISTORICAL BACKGROUND: With its declaration of             the Asian Financial Crisis hit Indonesia particular-
the “Guided Democracy” of
                               independence on August 17, 1945, Indonesia is a rel-       ly badly. The resulting chaos led to Suharto step-
President Soekarno and the
“New Order” of President       atively young country; yet its history is tied to rich     ping down in 1998 to be succeeded by his vice-
Suharto, which lasted until    ancient civilisations. The Srivijayan and Majapahit        president, Bacharuddin Jusuf Habibie. This was the
1998.                          kingdoms were two of the most powerful, extend-            start of the current period, known as the “Reformasi”.

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POLITICS OVERVIEW                                                                                 15




   The first parliamentary elections since the early
post-independence years were then held in 1999.
The parliament elected Abdurrahman Wahid, com-
monly known as Gus Dur, to the presidency, a posi-
tion he held until 2001. He was followed by Megawati
Soekarnoputri, Soekarno’s daughter. She ruled as
president until 2004, when Susilo Bambang Yudhoy-
ono, commonly known as SBY, won the country’s
first direct presidential elections. SBY won again in
2009, becoming the first president in the country’s
history to be elected for two consecutive terms.
CONSTITUTIONAL CHALLENGES: With this
decades-long history of authoritarianism and polit-
ical change that has long promoted a centralised
Jakarta- and Java-based system, the Reformasi peri-
od has been characterised by a determination to
ensure plurality, decentralisation and democratic
accountability. At the same time, the country has
faced up to the legacy left by the challenge of sep-
aratism, chiefly in Aceh, northern Sumatra and Papua,
                                                          The cabinet consists of ministers from different political parties, as well as non-party officials
but also on a lower level in several other provinces.
The government has also admitted wrongdoing in            of different political parties, as well as non-party
the case of the Indonesian invasion of East Timor in      experts and officials. A cabinet was sworn in in 2009,
1975, which until that point had been a blemish on        but the president reshuffled the cabinet and appoint-
the country’s international standing.                     ed some new ministers in October 2011.
   Indeed, post-Suharto governments have worked           A TWO-CHAMBER LEGISLATURE: The People’s Rep-
to defuse these conflicts and establish a structure       resentative Council (Dewan Perwakilan Rakyatm,
that accommodates regional, ethnic and religious dif-     DPR) is one of two chambers in the Indonesian leg-
ferences. One of the first acts of the newly demo-        islature, the other being the Regional Representa-
cratic Indonesia was to relinquish control of East        tives Council (Dewan Perwakilan Daerah, DPD). These
Timor following a UN-sponsored referendum, while          constitute the People’s Consultative Assembly
also working toward a solution with the rebel forces      (Majelis Permusyawaratan Rakyat, MPR).
in Aceh, which is today a special region of the coun-        The president has the right to propose bills to the
try, with its own elections and laws. In Papua too, the   DPR and to debate with DPR members to secure
government has attempted to reach an agreement            passage or amendment. In emergencies, the presi-
with demands for increased autonomy.                      dent also has the right to issue government regula-
   Decentralisation, a policy that transferred many       tions instead of going through the normal process
powers from Jakarta to the regions, has also been         of consultation and debate with the DPR.
widely praised for its foresight in heading off other        The president appoints chief justices, but cannot
separatist claims. Indonesia today is thus a much         sign treaties, appoint or accept ambassadors, par-
more peaceful and democratic place than it had            don prisoners or appoint members of the judicial
been under previous – often authoritarian – rulers,       committee without DPR approval – a nod to concerns
even if the Reformasi has created many challenges.        about the previous sweeping powers that were
Elections themselves have also been largely judged        afforded to presidents.
free and fair by outside authorities, while Indone-       DPR: The DPR is the more powerful of the two bod-
sia’s media culture is one of the most open in Asia.      ies, with 560 deputies elected to it in 2009 and a
EXECUTIVE POWERS: The head of state is the pres-          total of nine different parties gaining representation.
ident, currently Susilo Bambang Yudhoyono, whose          Chaired by a speaker, the DPR can draw up and pass
term is due to end in 2014. The president is direct-      laws of its own, as well as debate and vote on bills
ly elected for a five-year term, with a maximum of        from the president and from the DPD. It has the right
two terms, meaning that SBY cannot run again. The         to question the president, and to draw up the budg-
president is elected on a ticket that includes the        et in consultation with him or her.
vice-president, who is also elected to a five-year           DPR representatives are elected for five-year terms
term. Currently Boediono – like Soekarno, he is known     from multi-candidate constituencies. Indonesian cit-
by only one name – holds this post.                       izens can vote at the age of 17. A proportional rep-
   The president is the commander-in-chief of the         resentation system is in practice, meaning that no
armed forces and has the chief executive role in the      one party has to secure an outright majority in the                          The People’s Consultative
                                                                                                                                       Assembly consists of two
government. The president is also responsible for         legislature and that coalition-building is an impor-
                                                                                                                                       chambers: the 560-
appointing a cabinet, thereby playing a major role        tant part of Indonesian politics.                                            member DPR, which is the
in both domestic and foreign policy. The cabinet has         With the power to choose cabinet members, the                             more powerful of the two,
so far been composed of ministers from a number           president can influence the voting habits of the DPR,                        and the 128-member DPD.


                                                                                                        THE REPORT Indonesia 2012
2012 indonesia
POLITICS OVERVIEW                                                                             17




building coalitions in the House that reflect the com-
position of the cabinet. However, difficulties have
arisen since the election in 2009, with many critical
of political infighting over posts, which they consid-
er to be slowing the pace of reform.
THE DPD: The DPD has 128 members, with each
province electing four members on a non-partisan
basis. The DPD may propose bills to the DPR, and any
bill specifically concerning the regions must also be
debated by the DPD. It does not have the power to
revise bills on any non-regional issues, however.
   Both presidential and legislative elections occurred
in 2009, with the former being won by SBY and Boe-
diono, who garnered 60.8% of the votes in the first
round – enough to see them declared winners with-
out a second ballot. In the legislative elections, SBY’s
grouping, the Democratic Party (DP), also won the
most seats, with 148 DP representatives having been
voted to the DPR. The second-largest party was
Golkar, with 107 seats, followed by Megawati
                                                           The country is playing a greater role in regional and global politics
Soekarnoputri’s Indonesian Democratic Party-Strug-
gle (PDI-P) with 94 seats. Other parties included the      rule in cases of impeachment of the president. It has                    In addition to the national
Prosperous Justice Party (PKS) with 57 seats, the          nine members: three appointed by the president,                          government, there are
                                                                                                                                    more localised
National Mandate Party (PAN) with 46, the United           three by the DPR and three by the Supreme Court.
                                                                                                                                    governments at the
Development Party (PPP) with 38, the National Awak-        LOCAL AUTHORITIES: Indonesia consists of some                            province, regency and city
ening Party (PKB) with 28, the Great Indonesia Move-       33 provinces, each of which is divided into a num-                       levels – a decentralised
ment Party (Gerindra) with 26, and the People’s Con-       ber of regencies and cities, with all three adminis-                     approach popularised since
science Party (Hanura) with 17.                            trative levels having their own local governments.                       the start of the Reformasi
                                                                                                                                    period.
   Coalition-building began at once after the elec-        Since the start of the Reformasi period, Indonesia
tion, with six parties represented in the 2009 cabi-       has been working to establish an effective form of
net. A reshuffle in October 2011 saw changes in 12         decentralised politics, which has meant that these
ministerial positions and the appointment of 13            local administrative units have all gained in terms of
deputy ministers, but the president has been wide-         power and influence since 1998. In 2005 direct elec-
ly criticised for seemingly making appointments with       tions for provincial governors, as well as heads of
the aim of influencing the 2014 elections rather           regencies and cities, were held for the first time.
than for the betterment of the country.                       Up to now, decentralisation legislation has large-
JUDGES AND COURTS: The judicial branch is head-            ly strengthened the political and economic respon-
ed by the Supreme Court, which has oversight of            sibilities of the regencies and cities, rather than the
around 20 high courts. These in turn preside over          provinces. This has had implications for investors, as
250 district courts spread around the country. The         local authorities have considerable power over land
Supreme Court is thus the final court of appeal and        and resources in their areas, with the past seeing a
has the power to re-examine cases should sufficient        lack of clarity in some instances between national
new evidence be presented. The Supreme Court does          and local jurisdictions. There are also continuing
not have oversight of constitutional cases, howev-         concerns of the capacity of some regencies to han-
er, which must go to the Constitutional Court.             dle their enlarged responsibilities.
   Candidates for the Supreme Court are shortlist-            Decentralisation remains a controversial issue,
ed by the Judicial Commission, the members of which        with further reforms of the system likely in the peri-
are appointed after agreement between the presi-           od ahead. Indeed, a new draft law on regional elec-
dent and the DPR. Supreme Court candidates must            tions was passing through the national legislature
also be approved by the DPR before taking office.          as this book was going to print.
   The Indonesian legal system is a blend of native        OUTLOOK: While the first years of the government’s
customary law, known as adat, Roman-Dutch law              second term have shown that there are many chal-
and modern Indonesian law. There are also Islamic          lenges facing reform, they have also demonstrated
courts, which have powers only in civil cases of mar-      the country’s commitment to democratic methods
riage, divorce, reconciliation and alimony involving       and policies. Progress may be slow, but it is being
Muslims. The highest court of appeal for the Islam-        achieved in a stable and legal manner, with the
ic courts is also the Supreme Court.                       involvement of many stakeholders.
   The Constitutional Court, meanwhile, has the final         This is quite an achievement for a country of such
say in any disputes over the constitution, the pow-        diversity that has had only just over a decade of
ers of state institutions, election results and the dis-   democracy. Surely, the decade ahead should thus be
solution of political parties. It also has the power to    another promising one for Indonesia and its people.

                                                                                                        THE REPORT Indonesia 2012
18     POLITICS INTERVIEW




     President Susilo Bambang Yudhoyono




     At the forefront
     OBG talks to President Susilo Bambang Yudhoyono
     What are the primary pillars of the Master Plan for         be essential in reducing the economy’s entire cost
     Acceleration and Expansion of Indonesia’s Econom-           structure, which would create synergies between growth
     ic Development (MP3EI) through 2025?                        centres and realise equitable access to services. This
     YUDHOYONO: The MP3EI was launched to enable                 will be significant for business and development. Our
     Indonesia to facilitate economic growth over the next       motto is “locally integrated, globally connected”.
     15 years. The plan expects economic expansion at an             Indonesia’s large and youthful population will augur
     average rate of 7% a year to become a $4.5trn econo-        well for economic activity and future productivity, which
     my by 2025. With the spirit of discarding the “business-    is the primary reason why we seek to synchronise human
     as-usual” paradigm, the MP3EI is a long-term develop-       development programmes, improve education and
     ment plan that will spur employment creation by driving     invest in the required time and resources it takes to har-
     investments, synchronise and consolidate the govern-        ness our most precious resource – human capital.
     ment’s action plan with the real estate sector and clus-        The acceleration of our scientific capability and inno-
     ter economic growth centres that are consistent with        vation is key to enhancing Indonesia’s competitiveness.
     each region’s unique strengths. Indonesia is the world’s    We seek to achieve this by raising the quality of edu-
     largest archipelago with over 17,000 islands, and           cation through incentives and an increased education
     although we are blessed with a wealth of resources,         budget. We base a big part of MP3EI on public-private
     there is an abundance of untapped potential.                partnerships. The government stands ready to work
        MP3EI serves the purpose of improving the econom-        closely with state-owned companies and private busi-
     ic and social development in designated regions through     nesses on numerous projects. I welcome and encour-
     a well-planned development programme. It is intend-         age participation of investors to realise the MP3EI.
     ed to accelerate the development of designated regions          Indonesia has accomplished much in the last 13
     to catch up with the level of that seen in Java and Suma-   years, from achieving democratic transition to with-
     tra. This will be achieved through the six economic cor-    standing financial crises and natural disasters. It is evi-
     ridors that have been deemed to be the country’s            dent that Indonesia has shown remarkable resilience
     “growth centres”. The programme is based on the prem-       and adaptability in the face of ever-changing global chal-
     ise that each of these corridors can propel its own         lenges. The policy directions outlined in the MP3EI will
     regional economies through clustering, as well as oper-     guide us towards achieving our development goals.
     ating in areas with a distinct comparative advantage.
     Priority sectors for investment are industry, mining,       What measures are being taken to move toward a
     agriculture, marine, tourism, telecommunications, ener-     legal system that meets international business stan-
     gy, infrastructure and regional development.                dards as a means to increase competitiveness?
        In addition to the development of the six economic       YUDHOYONO: Of utmost importance is the need to
     corridors, the MP3EI also aims at improving Indonesia’s     adhere to the universal principle of equality before the
     connectivity. This is of paramount importance in our        law, without which, no credible legal system can be
     mission to unleash the real value of Indonesia. I have      built. A strong legal system and a solid rule of law will
     to admit that poor infrastructure is one of the most sig-   allow not just businesses, but societies to flourish.
     nificant deterrents to job-creating investment and             Meeting international business standards is what
     remains a significant challenge to competitiveness.         Indonesia strives for. My government devotes tremen-
        Connectivity refers to both hard and soft infrastruc-    dous efforts to ensure legal certainty, combat corrup-
     ture development. An effective roll-out of projects will    tion and minimise inefficiencies caused by bottlenecks

     www.oxfordbusinessgroup.com/country/Indonesia
POLITICS INTERVIEW                                            19




in the bureaucracy. Our success in overcoming these           Indonesia is the Chair of the ASEAN. With such a posi-
challenges will increase our global competitiveness.          tion, Indonesia is striving to consolidate the ASEAN
   We constantly work to detect and tackle loopholes          community by 2015. We have invested intellectual as
that impede business opportunities. Indonesia also            well as political leadership to achieve these goals. We
continues to combat graft. My administration has zero         have convened two ASEAN Summits in 2011.
tolerance for corruption. We are in the process of               Indonesia also hosted the East Asia Summit. We inau-
reforming our judicial system, with considerable              gurated the participation of the US and Russia for the
advances in recent years. The Corruption Eradication          first time. Under this regional forum, Indonesia hopes
Commission has been prolific in their investigations of       to build a robust and inclusive regional architecture.
graft, with notable successes since its inception.               Apart from ASEAN and the East Asia Summit, Indone-
                                                              sia has hosted many important international events, such
How will bureaucratic capacity at both the central            as the World Economic Forum on East Asia, the Over-
and regional level be improved to increase efficien-          seas Private Investment Corporation Conference, the
cy and cooperation among ministries?                          Business for Environment Summit and the Forest Con-
YUDHOYONO: Bureaucratic reform and good gover-                ference. I believe the decision to hold such important
nance are key components of economic development.             events in Indonesia reflects our significance in the
We are working to improve professionalism, and to             world’s economy. Moreover, by hosting such events,
instate and uphold a system of meritocracy. To effect         Indonesia offers the participants a range of econom-
change, we apply a system of reward and punishment.           ic opportunities, including the forging of partnerships.
Nevertheless, this cannot be achieved overnight.                 At the G20 Summit in Cannes, Indonesia brought into
   After a long period of autocratic rule, Indonesia          discussion the issues of development and pressed for
underwent a massive nationwide decentralisation effort        a reformed global financial architecture. These issues
starting in 1999, whereby 33 provinces and 450 regen-         are highly important to developing countries.
cies were given greater authority over how their respec-         There remains significant downside risks to the future
tive regions were managed. Given the massive scale of         health of the global economy. However, Indonesia in
this undertaking, a heightened level of policy coordi-        particular has demonstrated remarkable resilience
nation between central and local governments became           throughout the global debt crises. Investments have
essential. I have attached particular significance to         so far grown 20.9% from the previous year, and Indone-
inter-ministerial coordination, as well as coordination       sia’s economy is on track to grow 6.5% this year.
between central and local governments. I stress the              I have been following closely the recent develop-
importance of inter-agency modalities in tackling mat-        ments in the Middle East and Northern Africa, and do
ters that are multi-faceted and multi-layered. My coor-       hope that the reform process will result in a peaceful
dinating ministers and Indonesia’s vice-president are         political solution. Democratic transitions that meet the
also engaged intensively in these efforts.                    expectations of the people will guarantee stability.
                                                                 Indonesia experienced a democratic transformation
What events have characterised Indonesia’s for-               13 years ago, so it is always willing to share with other
eign policy in 2011? How can the country bring its            nations its own experiences. Nevertheless, I strongly
development experience to bear on global events?              believe that every country should cultivate its own
YUDHOYONO: The year 2011 has been very eventful               homegrown democracy, as there is no such thing as
for Indonesia in terms of foreign policy activities. First,   a one-size-fits-all path to nationhood and statehood.

                                                                                                  THE REPORT Indonesia 2012
20                                POLITICS ANALYSIS




                                ASEAN has been central to regional economic and political relations




                                At the helm
                                Chairing ASEAN presents an opportunity to increase regional influence
                                As one of the founding members of ASEAN, 2011 has                     line for the creation of a free trade area among the
                                been a special year for Indonesia, as it has assumed                  six members at the time (Brunei joined in 1984).
                                the chair of the 10-member regional group. At a time                      With the end of the Cold War, ASEAN’s integrationist
                                when Asia is becoming increasingly important in glob-                 economic policy continued to grow in prominence,
                                al affairs, this is an opportunity for the country to                 while the political initiatives of that era diminished.
                                demonstrate its growing influence.                                    ASEAN’s membership also grew further, with Vietnam
                                   The year has been one of growing uncertainties too,                joining in 1995, Laos and Myanmar in 1997 and Cam-
                                within the global economy. At the same time, within                   bodia in 1999. The newer members – often referred
                                the ASEAN region, moves toward economic integra-                      to as the CMLV countries – must enact virtually zero-
                                tion continued to gather pace, while several disputes                 tariff rates on imports from ASEAN countries by 2015,
                                –both within and outside of the organisation – at                     a target other members set for 2010.
                                times threatened to damage the peace and stability                    FREE TRADE SUCCESS: There has been immense
                                of the region. Through these developments, Indone-                    progress in achieving this giant free trade zone of over
                                sia sought to play a more active role in contributing                 500m people with a combined GDP of around $1.8trn.
                                to further integration and conflict resolution.                       Yet in terms of achieving a more unified foreign poli-
                                HISTORICAL TIES: ASEAN was founded on August 8,                       cy, until now there has been relatively little achieved.
                                1967, when the foreign ministers of five countries –                  It is in this second area that Indonesia wanted to make
                                Indonesia, Malaysia, Thailand, the Philippines and Sin-               progress during its term of office as chair of ASEAN.
                                gapore – met in the Thai capital to sign the Bangkok                  This meant, first and foremost, resolving some of the
                                Declaration. The Suharto government, anxious to end                   internal disputes between ASEAN members.
                                its conflict with Malaysia and align with the anti-com-                   Thus Jakarta has taken a much more active role in
                                munist powers of the region, sent Foreign Minister                    seeking a resolution to the long-standing border dis-
                                Adam Malik as a representative. The organisation’s                    pute between Thailand and Cambodia, which flared up
                                General Secretariat has since been based in Jakarta.                  again in early 2011. Indonesia, under the ASEAN ban-
                                   Since then, ASEAN has been a key part of Indone-                   ner, sought to resolve the conflict and provide a facil-
                                sia’s foreign policy. This centrality is in line with the coun-       itator for the two sides to meet. By August, with a
                                try’s founding foreign policy principles, as outlined by              change of government in Bangkok, most analysts were
                                Mohammad Hatta, who authored Indonesia’s decla-                       optimistic that the dispute was no longer a hot one.
                                ration of independence, along with Soekarno, in 1948.                     Indonesia has also been leading efforts to resolve
                                Hatta declared the country to be in support of a for-                 a series of overlapping claims between several mem-
                                eign policy independent of great and superpower                       ber states to parts of the South China Sea. These also
                                interests that would take an active role in the world,                conflict with China’s claim to almost the entire body
                                rather than a passive or reactive one.                                of water. A third area of controversy is Myanmar, which
                                ZONING MATTERS: ASEAN provides an excellent forum                     is due to chair ASEAN in 2014 yet continues to have
                                for the realisation of these goals. In the 1970s Jakar-               cold relations with many Western countries, further
The country’s founding          ta was taking part in efforts to make South-east Asia                 underscoring the difficult nature of any attempt to
foreign policy principles
                                a nuclear-free zone and in the 1980s stood behind the                 pull ASEAN’s 10 states into a unified force. Nonethe-
declared the importance of
taking an active role in        idea of a zone of peace in the region. In the 1990s Jakar-            less, the steps taken by Indonesia in 2011 have shown
regional and global political   ta signed up to the ASEAN Free Trade Agreement,                       that ASEAN is not simply about free trade and has
affairs.                        which was launched in 1992 and set a 15-year dead-                    other responsibilities and opportunities for influence.

                                www.oxfordbusinessgroup.com/country/Indonesia
POLITICS INTERVIEW                                             21




                                                                 Abdullah Gül, President of Turkey




Working together
OBG talks to Abdullah Gül, President of Turkey
How can Turkey and Indonesia, the world’s leading                ance. I therefore believe that both countries could be
moderate Muslim-majority nations, play a role in the             sources of inspiration for the Muslim world. Both have
development of relations between East and West?                  the ability to play essential roles in bringing the East
GÜL: The age we live in requires new approaches to               and West closer in a number of different ways.
international and inter-communal relations. We need
programmes that aim to collaborate, harmonise and syn-           In which sectors is Turkey looking to develop stronger
thesise varying cultures, and to build upon the com-             ties with Indonesia to reach the targeted $5bn in
mon wisdom and achievements of humanity. We must                 trade volume between the two countries by 2014?
show that diversity is not a weakness but a source of            GÜL: Increasing the trade volume between our two
strength. As cohabitants of the same planet, we should           countries must be the core goal of future economic
unite in a common understanding of “world citizenship”.          and commercial cooperation. With regards to trade
   This is increasingly important in today’s globalised          volume, the composition of that volume is one of the
world. The international community is more intercon-             most important factors to examine.
nected than ever and has become a “small village” in                The import-export balance between Turkey and
many ways. The world is now in such a delicate balance           Indonesia is highly asymmetric. The statistics for the
that no country or region can be immune from the prob-           last 10 years reveal that the foreign trade deficit of our
lems of others and no single actor can enact signifi-            trade with Indonesia was increasing regularly until 2007,
cant change alone. International solidarity and coop-            when the deficit reached around $1.2bn, and has
eration have become essential in tackling common                 remained about the same since then, excluding2009,
challenges. We need to better understand each other              when the deficit dropped to $767m.
in order to make the best use of our collective efforts.            Turkey’s objectives for commercial relations with
   Turkey is a democratic, secular country based on              Indonesia are not only limited to increasing the trade
universal values and has historical, social, ethnic, reli-       volume, but also include correcting the considerable
gious and cultural links with almost every nation with-          asymmetry by multiplying exports to Turkey.
in a three-hour flight from Istanbul. As such, Turkey forms         Turkish exports to Indonesia can be classified under
an essential link between these diverse cultures. In this        two categories: agricultural goods and industrial goods.
regard, we are keen to promote peaceful co-existence,            Under agricultural goods, Turkish products exported to
dialogue, mutual respect, friendship, harmony and                Indonesia include wheat flour, tobacco, ferment, choco-
cooperation between different cultures and faiths.               late products, citrus fruits, olive oil, pasta and hazel-
   In line with this, Turkey pioneered the “Alliance of Civil-   nuts. Industrial products include petroleum oils and
isations” initiative, which has now become a success-            products, motor vehicles and their accessories, trac-
ful UN programme aimed at mitigating differences and             tors, semi-finished and flat-rolled products of iron and
fostering harmony and tolerance between nations.                 non-alloy steel, worked monumental or building stone,
   We believe such efforts will help enhance understand-         marble and travertine, feldspar and cotton.
ing and cooperation throughout the world, and there                 It is obvious that the larger the trade volume between
is much we can do alongside Indonesia in this regard.            two countries, the closer our relations will be in the
Both Turkey and Indonesia possess unique character-              future. I think a higher trade volume and a well-balanced
istics, but they also share a common commitment to               trade structure would pave the way for a higher level
democratic and pluralistic secular systems that respect          of social integration and political cooperation as well
the rule of law and symbolise moderation and toler-              as more stable and continuous economic collaboration.

                                                                                                      THE REPORT Indonesia 2012
22     POLITICS INTERVIEW




     Marty Natalegawa, Minister of Foreign Affairs




     An example to follow
     OBG talks to Marty Natalegawa, Minister of Foreign Affairs
     What are the main obstacles to achieving the ASEAN              transformation, so that other nations may benefit from
     integrated economic community by 2015?                          our experiences, struggles and achievements.
     NATALEGAWA: The concept of integrating and syn-
     ergising an economic community of 10 sovereign                  How is Indonesia using its influential position as the
     nations, all of which have their own economic concerns          2011 Chair of ASEAN to augment the economic
     and priorities, is fundamentally challenging. However,          and political status of the region?
     ASEAN long ago recognised the importance of achiev-             NATALEGAWA: We are keen not simply to chair ASEAN,
     ing this objective. The alternative, i.e. not integrating,      but to exercise constructive leadership. We want to
     would have been detrimental to our economic pros-               effect change and to direct ASEAN along a certain path.
     perity. With the rise of China and India and the contin-           Our first priority is to make significant progress toward
     ued strength of Japan, the competitive landscape has            achieving an integrated ASEAN community by 2015.
     expanded dramatically. For ASEAN to maintain a com-             Specifically, we want to improve coordination among
     petitive advantage it is crucial that we develop policies       ASEAN countries in economics, socio-cultural affairs and
     that not only play on our individual abilities, but also        security. ASEAN has already put the foundations in
     help us to complement one another’s strengths.                  place in terms of various documents, declarations and
        This in itself will be a difficult task, but when you take   statements. The map has been laid out and the time
     into account the need for equitable development —               for implementation and real action is now. That is why,
     where each country feels they are benefitting from              when the conflict between Thailand and Cambodia
     being a part of the system — economic integration               arose this past year, we took concrete measures to help
     becomes even more challenging. Regardless of the                facilitate a resolution rather than remaining silent. We
     obstacles, globalisation is not simply something we can         put into practice the commitments and promises that
     choose to opt out of. Our individual economic and               all ASEAN community members have made.
     social development will greatly depend on our collec-              This leads us to our second priority, which is to ensure
     tive ability to compete on a global level.                      that we continue to maintain a peaceful and benign
                                                                     regional atmosphere. This has been a key ingredient in
     What role can Indonesia play on the world stage,                ASEAN’s drive to achieve economic prosperity.
     given its status as a secular, populous Muslim nation              Our final priority is to create a strategy beyond 2015.
     enjoying good relations with both East and West?                This is where the theme of our chairmanship, “ASEAN
     NATALEGAWA: Indonesia has the largest Muslim pop-               Community in a Global Community of Nations”, becomes
     ulation in the world, as well as the third-largest democ-       apparent. We laid down a 10-year map that will begin
     racy. We are a nation that embraces religious tolerance         a process whereby ASEAN will speak with greater cohe-
     and ranks modernisation and development as two of               sion and collectiveness on issues both regional and
     our greatest priorities. Our success story is relevant not      global. It is insufficient for ASEAN to be a community
     only among ASEAN nations, but also for countries in             unto itself and is no longer acceptable to help main-
     North Africa and the Middle East.                               tain peace and stability solely within the immediate
        Recently we have seen how issues of governance,              region. ASEAN must project its collective voice at the
     economics and human rights can become security                  international level, as currently ASEAN countries con-
     issues that could potentially bring about destabilisa-          tribute only at a national or bilateral level. With greater
     tion. It is therefore our responsibility to try to share the    cohesion and coordination we can bring positive change
     lessons we have learned during our own democratic               and contribute beyond our own individual strengths.

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POLITICS ANALYSIS                                                                             23




                                                             Trying to satisfy the many groups in the legislature is a challenge




Party lines
Political groups share similar ideologies but differ in leadership styles
With nine parties represented in the Indonesian legis-       become increasingly based on their respective leader-                    The largest party in the
lature – and six of those present in the cabinet – the       ship styles rather than on ideologies. It is difficult to                DPR is the Democratic
                                                                                                                                      Party, which has 148 seats,
political landscape of the country is clearly very multi-    make a distinction between secular and Islamic plat-
                                                                                                                                      followed by Golkar, with
faceted. Though three parties tend to dominate the           forms as all three parties, usually seen as secular, have                107 seats, and the
scene, no one group has been able to gain a majority         incorporated many Islam-based policies in recent years.                  Indonesian Democratic
in parliament and shifting coalitions and alliances ensure   POLITICAL ISLAM: One of the major debates in Indone-                     Party-Struggle.
a wide variety of influences and viewpoints.                 sian politics has long been over the role of Islam, with
THE MAJOR PLAYERS: Currently, the largest party in           a rough divide between secular and Islamic-leaning
the legislature – the People’s Representative Council        parties sometimes evident. Coalition governments,
(DPR) – is the Democratic Party (DP), with 148 seats in      however, have always included groups from both sides.
the 560-seat assembly after the 2009 general election.          The political Islamic movement in Indonesia has long
The DP is also one of the newest groups, formed large-       been dominated by two groups – the more tradition-
ly as an election vehicle for the current president, Susi-   alist Nahdlatul Ulama (NU) and the more reformist
lo Bambang Yudhoyono (SBY), in September 2001. Its           Muhammadiyah. These have sometimes given their
fortunes have thus been tied to SBY, with the surge in       backing to political parties, although in 2009, Muham-
support for him illustrated well by the fact that the        madiyah declared neutrality, while NU traditionally backs
DPR, the DP won only 57 seats in the 2004 elections.         the National Awakening Party (Partai Kebangkitan
The DP’s beliefs are those of pancasila, the five official   Bangsa, PKB), which won 28 seats and is in the govern-
founding principles of the Indonesian state: belief in       ing coalition, with representation in the cabinet.
one god; a just and civilised humanity; the unity of the        These traditional Islamist groups have been joined
country; democracy; and social justice.                      in recent times, however, by more contemporary out-
    The oldest and second-largest party, Golkar, won 107     fits. The Prosperous Justice Party (Partai Keadilan
seats in 2009 and also adheres to pancasila. Indeed, it      Sejahtera, PKS), modelled on Turkey’s pragmatic Islamist
was the ruling party during the whole period of the          Justice and Development Party, won 57 seats in 2009,
Suharto regime, from 1966-98, and under the presi-           mobilising a more urban, middle-class religious voter
dency of Bacharuddin Jusuf Habibie in 1998-99. It thus       base than the PKB. The PKS is also represented in the
has one of the oldest established local party networks,      cabinet. Two other Islamist groups are the United Devel-
with many powerful and influential supporters. Its           opment Party (Partai Persatuan Pembangunan, PPP),
leader is Aburizal Bakrie, who also leads the governing      which won 37 seats in the DPR, and the National Man-
coalition in the DPR and is a member of the cabinet.         date Party (Partai Amanat Nasional, PAN), with 43 seats.
    The third-largest party is the Indonesian Democrat-      Both also took places in the cabinet.
ic Party-Struggle (PDI-P), led by Megawati Soekarnop-           With a parliament dominated by coalitions, the post-
utri, the daughter of former President Soekarno. The         2009 government is often faced with the challenge of
official ideology of the party is also pancasila, although   maintaining a common purpose among so many groups.
the PDI-P is the largest opposition party in the DPR. It     This has in many cases given way to power struggles
is the result of a split in the Indonesian Democratic Par-   within the cabinet and the DPR, thereby hampering the
ty, which was also led by Megawati and – with Golkar         legislative timetable. While this has created some lev-
– was one of two parties allowed by Suharto.                 el of dissatisfaction among the public, the fact that so
LEADERSHIP: As all the major parties have platforms          many viewpoints are represented in the politics of the
based on pancasila, differentiation between them has         country today is undoubtedly a positive development.

                                                                                                          THE REPORT Indonesia 2012
24                             POLITICS ANALYSIS




                            The past few years have seen a major reduction in political risk




                            A focus on unity
                            Bringing a diverse population together
Many areas of the country   As an archipelago comprising some 17,500 islands,                  signing of the Malino II Accord in 2001. However, vio-
have experienced intense    Indonesia has an ethnically and religiously diverse pop-           lence has occurred sporadically and tensions remain,
conflicts over the past
                            ulation – a characteristic long the source of both oppor-          with government agencies and NGOs working to over-
decades, including Aceh,
Central Sulawesi, the       tunities and challenges. Indeed, different perceptions             come hostility between the communities.
Malukus and Papua.          of this diversity have engendered conflict in recent                  A similar story pertains in the Malukus, and particu-
                            decades. However, the past few years have seen a major             larly in the capital, Ambon. Violence between Christians
                            reduction in political risks and a corresponding increase          and Muslims has been intense for more than a decade,
                            in foreign investment and interest. Political risk in              with the most recent outbreak in September 2011.
                            Indonesia today thus bears little comparison with what             While peace is generally kept, the two communities con-
                            it was when the current period of Reformasi began in               tinue to mistrust each other. More positively, the most
                            1998, with the fall of Suharto.                                    recent outburst was tackled by grassroots “peace provo-
                            SEPARATISM & REGIONALISM: Under Suharto, there                     cateurs” who seem to have achieved success. A spe-
                            were four main areas of the country suffering from sep-            cial unit for dealing with these issues in Papua, called
                            aratist or religious conflicts: Aceh, in northern Suma-            UP4B and based in the vice-president’s office, was
                            tra; Central Sulawesi; the Malukus; and Papua. The ter-            established by presidential decree in September 2011.
                            ritory of East Timor, occupied by Indonesian forces in                Papua, meanwhile, has seen one of the most long-
                            1975, was also a site of conflict, although with differ-           running separatist conflicts in Indonesia. Over the years,
                            ent causes than the others. During the decade that fol-            the armed wing of the Free Papua Organisation, the
                            lowed, successive governments in Jakarta moved to                  National Liberation Army, has conducted violent attacks,
                            tackle these disputes, with generally good results.                not only against Indonesian army and police, but also
                            RESOLUTIONS: One of the first moves was in 1999,                   against foreign investments and foreigners, mainly
                            when a vote was held in East Timor regarding independ-             operating in the mining sector.
                            ence. The East Timorese voted overwhelmingly in favour,            ADDRESSING EXTREMISM: Radical Islamic groups
                            with this unfortunately followed by an outbreak of vio-            have also posed a risk to the country over the past
                            lence between secessionists and integrationists. How-              decade, such as hotel bombings in Jakarta in 2009.
                            ever, in 2002 the territory finally gained independence            However, recent times have seen the main groups of
                            and relations between the two states have improved                 Indonesian jihadis – Jemaah Islamiyah and Jamaah
                            considerably. East Timor is now moving toward becom-               Ansharut Tauhid – take significant hits. The February
                            ing a member of the Association of South-East Asian                2010 break-up of a jihadi training camp in Aceh led to
                            Nations with Indonesian support.                                   a successful shutdown of many networks. The Indone-
                                The conflict in Aceh has also been largely resolved.           sian authorities have a well-trained and -equipped anti-
                            The tsunami of 2004, which hit Aceh particularly bad-              terrorism force, the National Anti-Terrorism Agency.
                            ly, had the effect of bringing the warring parties to the          Many arrests and successful prosecutions have been
                            peace table. Aceh received special autonomy within                 made, with mainstream Islamic groups also being
                            Indonesia, the Indonesian army withdrew from the                   mobilised against the extremists.
                            province and the guerrillas, known as GAM, disarmed.                  Risk has declined in recent years, although in cer-
                            Direct elections for governor were held in 2006, with              tain specific areas, tensions remain. Attempts to address
                            GAM leader Irwandi Yusuf winning office.                           these challenges continue, with additional units and
                                In Central Sulawesi, violence between Christian and            forces being mobilised, including a new rise in the num-
                            Muslim communities in 1999 and 2000 eased with the                 ber of corporate security firms offering their services.

                            www.oxfordbusinessgroup.com/country/Indonesia
POLITICS INTERVIEW                                                   25




                                                                Surin Pitsuwan, Secretary-General, ASEAN




Further integration
OBG talks to Surin Pitsuwan, Secretary-General, ASEAN
How can ASEAN assist Indonesia in addressing its                services. Towards this end, ASEAN has identified strate-
significant infrastructure challenges?                          gic initiatives in these areas, as set out in the ASEAN
PITSUWAN: Assistance to ASEAN member states for                 Economic Community (AEC) Blueprint, and has taken
addressing infrastructure challenges is carried out in          steps to realise these by 2015. One bold initiative to
indirect ways, mostly through sharing experience and            establish this free and open regime has been the ASEAN
best practices in areas such as urban transport plan-           Comprehensive Investment Agreement (ACIA). As the
ning, development and management. Other avenues                 name suggests, the ACIA is comprehensive, but it is also
of support include harmonising regulations and pro-             based on international best practices and on par with
cedures and developing ASEAN-wide hard infrastruc-              other international investment agreements in terms of
ture networks like the Singapore-Kunming rail link and          scope, rights and obligations. An important pillar of the
the ASEAN highway network. Furthermore, we have                 ACIA is its liberalisation component. ASEAN adopted a
also established effective mechanisms of financial              negative list approach in the formulation of the reser-
mobilisation for regional infrastructure projects, such         vation list under this agreement, meaning anything
as the ASEAN Infrastructure Fund.                               outside the list is open. We hope member states can
                                                                now complete the domestic approval process and the
What contribution do you expect Indonesia will                  agreement will be in force by the end of 2011.
make to advance ASEAN’s policy agenda?                             ASEAN also agreed to progressively reduce or elim-
PITSUWAN: Indonesia’s theme for its ASEAN Chair-                inate reservations contained in the list following the
manship was “ASEAN Community in a Global Commu-                 strategic phases of the AEC Blueprint, and member
nity of Nations.” I hope Indonesia will continue to be as       states are now working to improve the region’s invest-
ambitious in the economic and socio-cultural commu-             ment regime by reducing or removing impediments.
nity as it is in political security. Indonesia has the polit-
ical weight to offer assistance to its regional neighbours      What benefits and opportunities will come of ASEAN
and resolve disputes through peaceful means.                    nations working together to make the region a
                                                                leading destination for international tourism?
How are logistical integration issues within the                PITSUWAN: Member states all have tremendous poten-
ASEAN market being addressed?                                   tial for tourism. Combining individual efforts into a col-
PITSUWAN: ASEAN plans to achieve full integration of            lective campaign would multiply rewards to individual
logistics services by 2013. To guide this agenda it has         countries as well as the region as a whole. ASEAN has
created a map, endorsed by the ASEAN economic min-              been implementing a number of initiatives to promote
isters in 2007, that provides detailed measures and             the region as a single tourism destination, such as
action plans to integrate logistics services across the         developing multiple-country tour packages, joint pro-
region. This involves various related ASEAN services, cus-      motion campaigns and ASEAN-wide tourism websites.
toms, transport, telecommunications and investment              Currently, ASEAN is running joint marketing and pro-
bodies, as well as private sector organisations.                motional efforts within the main source markets of
                                                                Australia, China, Japan and the Republic of Korea. The
How will a free and open investment regime be                   collaboration will also include the establishment of an
achieved to increase ASEAN’s competitiveness?                   ASEAN common area within international travel fairs
PITSUWAN: ASEAN’s vision for an integrated regional             and the establishment of the ASEAN Promotional Chap-
economy includes the free flow of both investment and           ter for Tourism in Australia, among other initiatives.

                                                                                                           THE REPORT Indonesia 2012
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2012 indonesia

  • 1. THE REPORT Indonesia 2012 POLITICS INFRASTRUCTURE INDUSTRY ECONOMY TOURISM CAPITAL MARKETS BANKING REAL ESTATE CONSTRUCTION ENERGY TELECOMS & IT INTERVIEWS 9 781907 065507
  • 7. CONTENTS INDONESIA 2012 64 A rising star: Sharia-compliant financing is an ISBN 978-1-907065-50-7 increasingly popular alternative Editor-in-Chief: Andrew Jeffreys 65 Interview: Darmin Nasution, Governor, Bank Editorial Director: Peter Grimsditch Indonesia Regional Editor: Paulius Kuncinas 66 Interview: Gatot M Suwondo, President Director, Editorial Managers: Josh Franken, Jacobo Bermudez de Castro Carbajo Bank Negara Indonesia 67 A closer look: Profiles of the leading banks Chief Sub-editor: Alistair Taylor Deputy Chief Sub-editor: Jennie 70 Roundtable: Jahja Setiaatmadja, President Director, Patterson BCA; Michael Young, President Director, HSBC; Web Editor: Barbara Isenberg Sub-editors: Sam Inglis, Elyse Franko- Zulkifli Zaini, President Director, Bank Mandiri; and Filipasic, Esther Parker, William Zeman, David Fletcher, President Director, Permata Bank Thomas Bacon Contributing Sub-editor: Miia 74 Managing downside: The rate of loan defaults Bogdanoff COUNTRY PROFILE declines as bankers grow more cautious Analysts: Stephanie Durbin, Alex 10 Island life: A rich and colourful archipelago Gordy, Jon Gorvett, Matt Mossman, Joe CAPITAL MARKETS Wilcox POLITICS 76 New heights: The IDX rallies while the regulator is Senior Editorial Researcher: Susan 14 Rising to the challenge: Growth and reform have increasing options for investors and boosting Manoğlu Editorial Researchers: Matthew continued despite difficult conditions transparency Ghazarian, Souhir Mzali, Owen Barron, 18 Interview: President Susilo Bambang Yudhoyono 78 Added liquidity: The subject remains an issue Adeline Oka 20 At the helm: Chairing ASEAN presents an 82 Clear targets: A stronger regulatory framework Art Director: Yonca Ergin opportunity to increase regional influence will promote a stable financial system Deputy Art Director: Cemre Strugo Art Editor: Meltem Muzmuz 21 Interview: Abdullah Gül, President of Turkey 83 Interview: Nurhaida, Chairman, Bapepam Illustrations: Shi-Ji Liang 22 Interview: Marty Natalegawa, Minister of 85 In the mix: Investor appetite for Indonesian bonds Photographer: Mark Hammami Foreign Affairs continues Production Manager: Selin Bolu 23 Party lines: Political groups share similar Operations Manager: Yasemin Dirice Logistics & Distribution Coordinator: ideologies but differ in leadership styles Stocks & bonds: Share analysis & data provided Esen Barin 24 A focus on unity: Bringing diversity together by Bank Negara Indonesia Operations Assistant: Nefise Gürel 25 Interview: Surin Pitsuwan, Secretary-General, 87 Aneka Tambang: Mining & metals OBG would like to thank its local ASEAN 88 XL Axiata: Telecommunications partners for their assistance and support in the research of this project. 26 Viewpoint: Hillary Clinton, US Secretary of State 89 Kalbe Farma: Pharmaceuticals 29 Viewpoint: William Hague, UK Secretary of State 90 Agung Podomoro Land: Real estate for Foreign and Commonwealth Affairs 91 AKR Corporindo: Distribution 92 Jasa Marga: Toll roads ECONOMY 33 At the centre of attention: Growth continues, INSURANCE Indonesia Investment driven by private consumption and investment 94 The contest for coverage: Major players prepare Coordinating Board 37 Interview: Hatta Rajasa, Coordinating Minister of to profit from long-term potential Economy 98 Going micro: Targeting low-income markets 38 Interview: Agus Martowardojo, Minister of 99 Interview: Hotbonar Sinaga, CEO, Jamsostek Finance 100 Life lines: Rapid growth in unit-linked coverage 39 On again, off again: The central bank responds 102 A large margin: Health care coverage is modest 43 Investors welcome: Efforts to enhance incentives but profitable 45 Interview: Prijono Sugiarto, President Director, Astra International INFRASTRUCTURE 46 Interview: Gita Wirjawan, Minister of Trade and 104 Realising potential: Jumping the economic Chairman, Investment Coordinating Board hurdles of connectivity and transport 47 Portfolio prospects: Strong fundamentals 108 Footing the bill: Development funding is being support a positive outlook for markets met by a mix of sources 49 Defending a stable rate: The central bank steps in 109 Interview: Kuntoro Mangkusubroto, Head, 50 Prime target: Foreign investors return Presidential Delivery Unit 53 A driving force: Private consumption boosts economic growth ENERGY 54 Interview: Bobby Umar, President Director, Bakrie 113 Mixing it up: New acquisitions and expansions in & Brothers hydrocarbons and electricity 56 Viewpoint: Maxime Verhagen, Deputy Prime 119 Interview: Evita Legowo, Director-General, Oil and Minister and Minister of Economic Affairs Gas Directorate, Ministry of Energy and of the Netherlands Mineral Resources 120 Interview: Karen Agustiawan, President Director, BANKING Pertamina 59 Size and scope: New opportunities emerge as 121 Gassing up: A renewed focus on producing for infrastructure plans are realised domestic consumption
  • 8. 6 CONTENTS INDONESIA 2012 Chairman: Michael Benson-Colpi 123 Roundtable: Jim Taylor, President Director, 185 On the market: Several developers are listed on Director of Field Operations: Elizabeth ConocoPhillips; Sammy Hamzah, CEO, Ephindo; the Indonesia Stock Exchange Boissevain Terry McPhail, President & General Manager, Regional Director: Laura Herrero ExxonMobil; and Hilmi Panigoro, President TRANSPORT & LOGISTICS Country Director: Maria Meroño Commissioner, Medco 188 Stepping up to the task: The government speeds Project Director: Meike Neitz 127 Into the deep: Firms see greater potential in coal up development of connections Field Operations Executive: Meltem bed methane extraction 195 Rise in the skies: Increasing airport capacity Okur Field Operations Coordinator: Zeynep 129 Natural potential: Laying plans for renewables 198 Liberalised but protected: Shipping law welcomes Akdamar development private sector participation Project Coordinator: Dian Wulandari 199 Interview: Emirsyah Satar, President & CEO, MINING Garuda Indonesia For all editorial and advertising enquiries please contact us at: 132 Forward momentum: Increasing domestic 200 Interview: Shanti L Poesposoetjipto, Chairman, enquiries@oxfordbusinessgroup.com. production is capitalising on high prices Samudera Indonesia Group To order a copy of this publication or to enquire about your subscription 137 Gold standard: Two companies lead production of 201 Greater connectivity: Building partnerships for please contact us at: gold and copper increased infrastructure development booksales@oxfordbusinessgroup.com. 138 Interview: Martiono Hadianto, President 205 Easing congestion: Getting traffic moving All rights reserved. No part of this Director, Newmont, and Chairman, Indonesia 207 On the move: Addressing bottlenecks publication may be reproduced, stored in a retrieval system or transmitted in Mining Association 209 Charting a safe course: Domestic fleets work to any form by any means, without the 139 Elemental production: Varying tin prices impact meet rising demand prior written permission of Oxford Business Group. local manufacturing output 211 Back on track: A dramatic rail overhaul planned Whilst every effort has been made to ensure the accuracy of the informa- INDUSTRY & RETAIL TELECOMS & IT tion contained in this book, the 143 A stronger foundation: The focus remains on 215 A time of change: Thin markets see hope in a authors and publisher accept no responsibility for any errors it may becoming an industry-based economy future of sophisticated data services contain, or for any loss, financial or 147 Interview: Sudhamek AWS, President Director, 219 Sharing resources: A maturing wireless sector otherwise, sustained by any person using this publication. GarudaFood prompts competitors to share towers 148 Interview: John Gledhill, President Director, HM 220 Interview: Rinaldi Firmansyah, President Director, Updates for the information provided in this Sampoerna Telkom volume can be found in Oxford 149 An evolving tradition: Traditional tobacco 221 The big three: A battle for subscribers Business Group's 'Economic Updates' service available via email or at products continue to lead the segment 223 Roundtable: Erik Aas, President Director & CEO, Axis; www.oxfordbusinessgroup.com 150 A matter of choice: Growing disposable income is Hary Sasongko, President Director, Indosat; Sarwato creating demand for new products Atmosutarno, President Director, Telkomsel; and 152 Roadrunners: Buying an automobile is an option Hasnul Suhaimi, President Director, XL for increasing numbers of citizens 226 Getting connected: The challenges are many, but 156 Plug in, switch on: The market for electronics is so are the potential rewards growing quickly 228 Enter the net: More access in the archipelago 157 Viewpoint: Fransiscus Welirang, Director, Indofood 158 Interview: Suryo Sulisto, Chairman, Indonesian PLANTATIONS & AGRICULTURE Chamber of Commerce and Industry 230 Preparing for the harvest: The government is 159 New demands: Expansion continues, while impact creating growth zones and enhancing rules from free trade agreements begins to be felt 234 The day’s catch: Aiming to become the world’s largest fisheries producer CONSTRUCTION & REAL ESTATE 235 Interview: Franky Widjaja, Vice-Chairman for 165 Ready to be realised: If regulatory barriers can be Agribusiness, Food and Livestock, Indonesian overcome, massive potential awaits Chamber of Commerce and Industry 169 Putting it all together: Cement companies are 236 The sweet spot: Sector players are looking to preparing for significant growth capitalise on expected production boosts 170 Making it work: The government is setting up agencies to encourage investment TOURISM 174 Keeping it green: New environmental initiatives 239 Focused approach: Visitor numbers rise 175 Room for change: Huge expansion and demand 242 Business destination: Expanding the quantity and 179 Interview: Muktar Widjaja, Chairman, Sinarmas range of MICE facilities Land 243 Interview: I Made Mangku Pastika, Governor of 180 Interview: Trihatma K Haliman, President Director Bali and CEO, Agung Podomoro Land 244 Beyond Bali: Encouraging visits further afield 181 Without further delay: A new land acquisition bill will speed up much-needed development EDUCATION & HEALTH 182 Outside looking in: Reforms to laws could see 246 A system test: Funding and regulation are set to foreign investment bolster the economy be overhauled with a range of reforms 184 Sharing the wealth: Expansion and growth is 249 Interview: Ir Ciputra, Founder and Chairman, taking hold throughout the archipelago Ciputra Group www.oxfordbusinessgroup.com/country/Indonesia
  • 9. CONTENTS INDONESIA 2012 7 250 Forging connections: New international student exchange programmes and partnerships 251 Striking a healthy balance: Growing demand and Ready to be realised changing profiles are driving a new approach 255 Pharmaceuticals in play: The country is an Page 165 increasingly attractive market for drugs firms With infrastructure development thought 257 Interview: Dr Endang Rahayu Sedyaningsih, the most promising path for economic Minister of Health growth, the government has embarked on a massive building campaign. Cement sales RELIGIOUS AFFAIRS are up, new agencies have been created 260 Politics of faith: Finding a place for religion in a to help encourage efforts and environ- democratic, harmonious and responsible society mental initiatives have been acting as a 263 Interview: Suryadharma Ali, Minister of Religious necessary safeguard. Demand for housing Affairs is prompting growth in that sector as well. 264 Growing market: Sharia-compliant finance shows strong potential MEDIA 266 Breaking news: Growing opportunities for Preparing for the harvest domestic and international media investors Page 230 270 The bigger picture: Cinema and television are both expected to see increased demand Despite a thriving domestic agricultural 272 Online, but switched on?: The country has rich sector, the country still must rely on potential for highly profitable online marketing imports to help feed its population of 240m. The government has introduced REGIONS a number of development programmes 274 Local governance: Decentralisation has presented to address this. Palm oil continues to be both challenges and opportunities a key export and a major contributor to 277 Viewpoint: Satish Mishra, Managing Director, the local economy. There are also plans Strategic Asia to further develop the fisheries segment. 279 A star performer: South Sumatra receives recognition for its strong potential 280 And the winner is…: Regional Champions stand apart with their economic development A system test TAX Page 246 PricewaterhouseCoopers Increased spending has helped make pri- 283 Reshaping the environment: An overview of the mary education more accessible to the tax system and regulations for investors population, in line with the country’s Mil- 288 Collaborating for success: Regulatory reforms lennium Development Goals. Future suc- accelerate private sector participation in cess in the sector will be dependent on infrastructure development continued government aid, to address 290 Viewpoint: Irhoan Tanudiredja, Senior Partner, both low secondary school attendance PricewaterhouseCoopers rates and the mismatch between needs in the job market and tertiary offerings. LEGAL FRAMEWORK Lubis Santosa & Maramis 293 The costs they cause: The government enacts new rules on cost recovery 294 Laws and regulations: An overview of the current Local governance legal environment in Indonesia Page 274 300 Viewpoint: Todung Mulya Lubis, Senior Partner, Lubis Santosa & Maramis The government has been pushing a policy of decentralisation, with region- THE GUIDE al governors throughout the country’s 302 Waking up to tourism: Aceh’s many wonders 33 provinces taking on greater author- 303 Hotels: A home on the islands ity in local affairs, such as education. 307 Listings: Important numbers The “Regional Champions” programme, 308 Facts for visitors: Useful information meanwhile, has been boosting devel- opment via a competitive framework. THE REPORT Indonesia 2012
  • 11. 9 Country Profile A rich blend of cultures spread over 17,500 islands Rising regional power and key player within ASEAN Blessed with an abundance of natural resources Growing opportunities for foreign investment
  • 12. 10 COUNTRY PROFILE Almost a third of Indonesia’s population is under 15 years of age Island life A rich and colourful archipelago, looking to raise its global standing Spread between Asia and Australia, Indonesia is com- CREATIVE ECONOMY: With almost 50% of the prised of around 17,500 islands, of which over 6000 Indonesian population aged under 29 years, the gov- are inhabited. The archipelago is on a crossroad ernment is encouraging the growth of the creative between the Pacific and the Indian oceans, and economy to increase its contribution to the coun- bridges the Asian and Australian continents. This try’s GDP. The government aims to build the image strategic position has influenced the cultural, social, and identity of the nation while turning innovation political and economic life of the country. After years and creativity into one of Indonesia’s new compet- of political upheaval and a major domestic financial itive advantages. Creative industries such as fash- crisis, Indonesia is now positioned to be one of the ion, handicrafts, advertising and design currently more politically stable countries in the region. In account for around 7.5% of non-oil and gas exports addition, it is widely anticipated to see significant and employ nearly 8m people. economic growth in coming years. POPULATION: Indonesia currently is the world’s EARLY HISTORY: In the sixth and seventh centuries, 17th-largest economy, third-most-populous democ- Srivijaya in eastern Sumatra and Mataram in central racy, largest archipelagic state and home to the Java became the dominant kingdoms on the archi- largest population of Muslims. pelago. Majapahit, the Hindu-Buddhist empire that With a total of 245m people, the country now also lasted from the late 11th to the 16th century, was has the world’s fourth-largest population. Jakarta is one of the region’s most influential and powerful. the most populous city in Indonesia, with 9.1m inhab- Muslim emissaries travelling to and from China itants, followed by Surabaya with 2.1m. The island were the first to introduce Islam to Indonesia, but of Java, which is roughly the size of the state of New its influence in society began only in the 11th cen- York, is the most populous island on earth – home tury. By the end of the 16th century Islam had to 129m people. Java is also one of the most dense- replaced Hinduism in Java and Sumatra. ly populated areas in the world, with some 945 per- COLONISATION & INDEPENDENCE: The Dutch sons per sq km. Despite the family planning pro- began colonising Indonesia in the early 17th centu- gramme in place since the 1960s, Java’s population ry, seeking to monopolise its valuable natural sources. is expected to grow to some 254m by 2020. In 1602, the Dutch East India Company was estab- There are some 300 distinct ethnic identities lished to manage the monopoly on trade and colo- spread throughout the country, with over 700 dif- nial activity, and by the mid-18th century the Dutch ferent languages and dialects. According to the 2000 were firmly established in Java. They consolidated con- census, the ethnic composition of the population is trol of the country over the next two centuries. 40% Javanese, 15% Sundanese, 3.3% Madurese, 2.7% The Japanese occupation during the Second World Minangkabau, 2.4% Betawi, 2.4% Bugis, 2% Banten, War ended Dutch rule. After Japan’s surrender, 1.7% Banjar, with 29.9% unspecified. Soekarno – the leader of Indonesia’s resistance to LANGUAGE: The country is home to numerous relat- Japan – proclaimed independence in 1945 and five ed but distinct cultural and linguistic groups, the years later established a single unitary republic. In languages of many of which are derived from a com- 1967 Soekarno was replaced by Suharto, who mon mother tongue – Malay. Since independence, remained in power until 1998. In 2009, Susilo Bam- Bahasa Indonesia (the national language, a form of bang Yudhoyono, the sixth president of Indone- Malay) has spread throughout the archipelago and sia, was re-elected to office (see Politics chapter). become the most common language for written www.oxfordbusinessgroup.com/country/Indonesia
  • 13. COUNTRY PROFILE 11 communication, education, government, business and media. However, local languages and dialects are still important in a number of areas in the country. PHILOSOPHICAL BASIS: The philosophical basis of the Indonesian state is known as pancasila. Pancasi- la consists of two Sanskrit words, panca meaning “five” and sila meaning “principle”. It comprises five interrelated principles. They are nationalism, human- itarianism, representative democracy, social welfare and monotheism. These principles continue to have a major underlying role in Indonesia’s political cul- ture today, even though the interpretation of the prin- ciples has varied over the decades. RELIGION: The first principle of the pancasila phi- losophy is the belief in one God. A number of differ- ent religions are currently being practised in Indone- sia, however, and their collective influence has had a significant impact on the cultural, economic and political life of the region during its long history. The Indonesian constitution guarantees religious free- The islands are home to a variety of religious traditions dom, but only six religions are recognised by the state, namely Islam (86.1%), Protestantism (5.7%), people, and the Yogyakarta earthquake, which result- Catholicism (3%), Hinduism (1.8%), Buddhism (about ed in the deaths of nearly 5800. 1%) and Confucianism (less than 1%). NATURAL RESOURCES: The country is blessed with Before the arrival of the Abrahamic faiths of Chris- an abundance of natural resources including petro- tianity and Islam, the popular belief systems on the leum, gas, tin, nickel, timber, copper, coal, gold, sil- archipelago were influenced by Hinduism and Bud- ver and fertile soil. Oil production in 2010 reached dhism. On the resort island of Bali, over 90% of the 965,000 barrels per day (bpd). Oil reserves stand at population still practise Hinduism. 3.8bn barrels and imports about 420,000 bpd. Addi- FLAG: The flag of Indonesia is two equal horizontal tionally, Indonesia is ranked as the world’s top pro- bands of red and white. The colours derive from the ducer of gold, fourth-largest producer of nickel, banner of the Majapahit empire. Red is a symbol of third-largest of copper and the second-largest of tin. courage while white represents purity. Indonesia is the world’s number one coal exporter. CLIMATE: Indonesia’s climate, which is almost entire- The country also has more than 61bn tonnes of coal ly tropical, incorporates average temperatures of reserves, which are mainly in Kalimantan and Sumat- between 28°C and 34°C in coastal areas, and 23°C era. Coal production has significantly increased in in the highlands. The country is almost fully sur- recent years, rising from 152.7m tonnes in 2005 to rounded by warm waters and temperatures vary lit- 305.9m tonnes in 2010. In 2009, exports of coal tle from season to season. The length of daylight amounted to 176.4m tonnes. hours also remains fairly constant, with a difference Indonesia produced more than 18m tonnes of of only 48 minutes between the longest and short- palm oil in 2009. In 2010 the total area of land allo- est day, allowing for crops to be grown year-round. cated for palm oil cultivation was estimated at 7.8m The most important variable in the archipelago’s cli- ha by the Agricultural Department. This land is divid- mate is rainfall, and extreme variations are due to ed among private and government smallholders monsoons. The dry season lasts from June to Sep- mostly in Kalimantan and Sumatra. With regards to tember and the rainy season from December to March. illegal logging of the rainforest, by joining the Round- Rainfall and humidity, ranging from 70% to 90%, vary table for Sustainable Palm Oil, a large number of depending on the season and region. Indonesian companies have demonstrated they are GEOLOGY: Indonesia’s seismic and volcanic activity taking the issue seriously. is among the world’s highest. Lying near the edges POWER: In 2004, in an effort to increase electrici- of the Pacific, Eurasian and Australian tectonic plates, ty capacity, the government initiated plans to build Indonesia is prone to frequent earthquakes and vol- coal-fired thermal power plants by 2010. However, canic eruptions. The archipelago has more than 150 the completion date was pushed back to 2014 as a active volcanoes, including Tambora and Krakatoa, number of projects are still in development. both of which erupted in the 19th century, with dev- The power transmission and distribution sector in astating consequences. However, the volcanic ash Indonesia is largely dominated by the Perusahaan that has resulted from such eruptions has contributed Listrik Negara, a state-owned energy company that significantly to the high agricultural fertility that has controls around 85% of generated power. However, allowed islands like Java and Bali to support high pop- a new law on energy was enacted in 2009, replac- ulation densities. Recent seismic-related disasters ing the 1985 legislation and creating a wealth of include the 2004 tsunami, which killed around 167,736 opportunities for foreign investors to meet demand. THE REPORT Indonesia 2012
  • 15. 13 Politics Decentralisation central to Reformasi policy A major cabinet reshuffle in October 2011 Uniting a diverse population presents challenges A variety of parties are represented in the legislature ASEAN plays a central role in regional politics
  • 16. 14 POLITICS OVERVIEW Susilo Bambang Yudhoyono has been president since 2004 Rising to the challenge Growth and reform have continued despite difficult global conditions Since declaring independence from the Netherlands ing their influence throughout South-east Asia. Islam in 1945, Indonesia has become one of the world’s first came to Sumatra in the 13th century, gradual- fastest developing and most economically promis- ly displacing Hinduism and Buddhism to become the ing nations. Transforming itself repeatedly over the dominant religion of Java and most other islands of years, it has also now established itself as an emerg- the archipelago by the 16th century. ing regional giant. Indeed, while many countries felt That time also marked the first arrival of Euro- the strong negative effects of the global financial peans, with trade soon followed by colonisation. The crisis, Indonesia continued to build on its strengths, Dutch emerged as the dominant colonial power over with its economy growing in spite of the global down- the archipelago by around 1800, when the islands turn and its political life continuing to be vibrantly became known as the Dutch East Indies. Dutch rule independent and democratic. continued until 1941, when the Japanese invaded and In 2011 Indonesia also assumed the chairman- began an occupation of the country that lasted ship of the Association of South-East Asian Nations throughout the Second World War. (ASEAN), boosting its engagement with regional and With Japan’s defeat and surrender in August 1945, global powers – a sign that it could play a much Indonesian nationalist leaders took their chance and more internationally influential role in the future. declared independence from Holland before Dutch CHALLENGES AHEAD: However, the country also colonial forces could return. Conflict then followed, continues to face some important political and social but the Dutch finally recognised the sovereignty of challenges. Hopes of further and faster reform with all the current Indonesian territory, except West the re-election of President Susilo Bambang Yudhoy- Papua, in 1949; Papua then joined Indonesia in 1963, ono in 2009 have been put on hold to some extent completing the modern country. as political battles continue, while efforts to root out FROM “GUIDED DEMOCRACY” TO REFORMASI: graft have also proved problematic. Post-independence, Indonesia went through a series Yet at the same time, Indonesia has displayed a of different political systems, with an early demo- political maturity and capacity that few expected cratic system giving way to the period of “Guided when the current period of multiparty politics began. Democracy” under the charismatic President Today, Indonesia is a stable, democratic country expe- Soekarno, who instated dictatorial rule from 1960 riencing high growth and escalating investor inter- until 1965, when a particularly violent series of est from around the world. That this has been events occurred, having been triggered by an achieved at a time of growing international uncer- attempted coup blamed on the communists. tainty is also no mean feat. In its 66 years of sover- From that point onward, Soekarno’s power rapid- eignty, Indonesia has experienced tremendous ly waned as that of Major General Suharto rose, with After gaining independence in 1945, the growth, with a nominal GDP of $540bn and a pop- the latter becoming president in 1967. This marked country went through a ulation of 240m, and is counted among the world’s the beginning of the “New Order” period, with Suhar- number of different most dynamic emerging markets. to maintaining his position of power until 1997, when political periods, including HISTORICAL BACKGROUND: With its declaration of the Asian Financial Crisis hit Indonesia particular- the “Guided Democracy” of independence on August 17, 1945, Indonesia is a rel- ly badly. The resulting chaos led to Suharto step- President Soekarno and the “New Order” of President atively young country; yet its history is tied to rich ping down in 1998 to be succeeded by his vice- Suharto, which lasted until ancient civilisations. The Srivijayan and Majapahit president, Bacharuddin Jusuf Habibie. This was the 1998. kingdoms were two of the most powerful, extend- start of the current period, known as the “Reformasi”. www.oxfordbusinessgroup.com/country/Indonesia
  • 17. POLITICS OVERVIEW 15 The first parliamentary elections since the early post-independence years were then held in 1999. The parliament elected Abdurrahman Wahid, com- monly known as Gus Dur, to the presidency, a posi- tion he held until 2001. He was followed by Megawati Soekarnoputri, Soekarno’s daughter. She ruled as president until 2004, when Susilo Bambang Yudhoy- ono, commonly known as SBY, won the country’s first direct presidential elections. SBY won again in 2009, becoming the first president in the country’s history to be elected for two consecutive terms. CONSTITUTIONAL CHALLENGES: With this decades-long history of authoritarianism and polit- ical change that has long promoted a centralised Jakarta- and Java-based system, the Reformasi peri- od has been characterised by a determination to ensure plurality, decentralisation and democratic accountability. At the same time, the country has faced up to the legacy left by the challenge of sep- aratism, chiefly in Aceh, northern Sumatra and Papua, The cabinet consists of ministers from different political parties, as well as non-party officials but also on a lower level in several other provinces. The government has also admitted wrongdoing in of different political parties, as well as non-party the case of the Indonesian invasion of East Timor in experts and officials. A cabinet was sworn in in 2009, 1975, which until that point had been a blemish on but the president reshuffled the cabinet and appoint- the country’s international standing. ed some new ministers in October 2011. Indeed, post-Suharto governments have worked A TWO-CHAMBER LEGISLATURE: The People’s Rep- to defuse these conflicts and establish a structure resentative Council (Dewan Perwakilan Rakyatm, that accommodates regional, ethnic and religious dif- DPR) is one of two chambers in the Indonesian leg- ferences. One of the first acts of the newly demo- islature, the other being the Regional Representa- cratic Indonesia was to relinquish control of East tives Council (Dewan Perwakilan Daerah, DPD). These Timor following a UN-sponsored referendum, while constitute the People’s Consultative Assembly also working toward a solution with the rebel forces (Majelis Permusyawaratan Rakyat, MPR). in Aceh, which is today a special region of the coun- The president has the right to propose bills to the try, with its own elections and laws. In Papua too, the DPR and to debate with DPR members to secure government has attempted to reach an agreement passage or amendment. In emergencies, the presi- with demands for increased autonomy. dent also has the right to issue government regula- Decentralisation, a policy that transferred many tions instead of going through the normal process powers from Jakarta to the regions, has also been of consultation and debate with the DPR. widely praised for its foresight in heading off other The president appoints chief justices, but cannot separatist claims. Indonesia today is thus a much sign treaties, appoint or accept ambassadors, par- more peaceful and democratic place than it had don prisoners or appoint members of the judicial been under previous – often authoritarian – rulers, committee without DPR approval – a nod to concerns even if the Reformasi has created many challenges. about the previous sweeping powers that were Elections themselves have also been largely judged afforded to presidents. free and fair by outside authorities, while Indone- DPR: The DPR is the more powerful of the two bod- sia’s media culture is one of the most open in Asia. ies, with 560 deputies elected to it in 2009 and a EXECUTIVE POWERS: The head of state is the pres- total of nine different parties gaining representation. ident, currently Susilo Bambang Yudhoyono, whose Chaired by a speaker, the DPR can draw up and pass term is due to end in 2014. The president is direct- laws of its own, as well as debate and vote on bills ly elected for a five-year term, with a maximum of from the president and from the DPD. It has the right two terms, meaning that SBY cannot run again. The to question the president, and to draw up the budg- president is elected on a ticket that includes the et in consultation with him or her. vice-president, who is also elected to a five-year DPR representatives are elected for five-year terms term. Currently Boediono – like Soekarno, he is known from multi-candidate constituencies. Indonesian cit- by only one name – holds this post. izens can vote at the age of 17. A proportional rep- The president is the commander-in-chief of the resentation system is in practice, meaning that no armed forces and has the chief executive role in the one party has to secure an outright majority in the The People’s Consultative Assembly consists of two government. The president is also responsible for legislature and that coalition-building is an impor- chambers: the 560- appointing a cabinet, thereby playing a major role tant part of Indonesian politics. member DPR, which is the in both domestic and foreign policy. The cabinet has With the power to choose cabinet members, the more powerful of the two, so far been composed of ministers from a number president can influence the voting habits of the DPR, and the 128-member DPD. THE REPORT Indonesia 2012
  • 19. POLITICS OVERVIEW 17 building coalitions in the House that reflect the com- position of the cabinet. However, difficulties have arisen since the election in 2009, with many critical of political infighting over posts, which they consid- er to be slowing the pace of reform. THE DPD: The DPD has 128 members, with each province electing four members on a non-partisan basis. The DPD may propose bills to the DPR, and any bill specifically concerning the regions must also be debated by the DPD. It does not have the power to revise bills on any non-regional issues, however. Both presidential and legislative elections occurred in 2009, with the former being won by SBY and Boe- diono, who garnered 60.8% of the votes in the first round – enough to see them declared winners with- out a second ballot. In the legislative elections, SBY’s grouping, the Democratic Party (DP), also won the most seats, with 148 DP representatives having been voted to the DPR. The second-largest party was Golkar, with 107 seats, followed by Megawati The country is playing a greater role in regional and global politics Soekarnoputri’s Indonesian Democratic Party-Strug- gle (PDI-P) with 94 seats. Other parties included the rule in cases of impeachment of the president. It has In addition to the national Prosperous Justice Party (PKS) with 57 seats, the nine members: three appointed by the president, government, there are more localised National Mandate Party (PAN) with 46, the United three by the DPR and three by the Supreme Court. governments at the Development Party (PPP) with 38, the National Awak- LOCAL AUTHORITIES: Indonesia consists of some province, regency and city ening Party (PKB) with 28, the Great Indonesia Move- 33 provinces, each of which is divided into a num- levels – a decentralised ment Party (Gerindra) with 26, and the People’s Con- ber of regencies and cities, with all three adminis- approach popularised since science Party (Hanura) with 17. trative levels having their own local governments. the start of the Reformasi period. Coalition-building began at once after the elec- Since the start of the Reformasi period, Indonesia tion, with six parties represented in the 2009 cabi- has been working to establish an effective form of net. A reshuffle in October 2011 saw changes in 12 decentralised politics, which has meant that these ministerial positions and the appointment of 13 local administrative units have all gained in terms of deputy ministers, but the president has been wide- power and influence since 1998. In 2005 direct elec- ly criticised for seemingly making appointments with tions for provincial governors, as well as heads of the aim of influencing the 2014 elections rather regencies and cities, were held for the first time. than for the betterment of the country. Up to now, decentralisation legislation has large- JUDGES AND COURTS: The judicial branch is head- ly strengthened the political and economic respon- ed by the Supreme Court, which has oversight of sibilities of the regencies and cities, rather than the around 20 high courts. These in turn preside over provinces. This has had implications for investors, as 250 district courts spread around the country. The local authorities have considerable power over land Supreme Court is thus the final court of appeal and and resources in their areas, with the past seeing a has the power to re-examine cases should sufficient lack of clarity in some instances between national new evidence be presented. The Supreme Court does and local jurisdictions. There are also continuing not have oversight of constitutional cases, howev- concerns of the capacity of some regencies to han- er, which must go to the Constitutional Court. dle their enlarged responsibilities. Candidates for the Supreme Court are shortlist- Decentralisation remains a controversial issue, ed by the Judicial Commission, the members of which with further reforms of the system likely in the peri- are appointed after agreement between the presi- od ahead. Indeed, a new draft law on regional elec- dent and the DPR. Supreme Court candidates must tions was passing through the national legislature also be approved by the DPR before taking office. as this book was going to print. The Indonesian legal system is a blend of native OUTLOOK: While the first years of the government’s customary law, known as adat, Roman-Dutch law second term have shown that there are many chal- and modern Indonesian law. There are also Islamic lenges facing reform, they have also demonstrated courts, which have powers only in civil cases of mar- the country’s commitment to democratic methods riage, divorce, reconciliation and alimony involving and policies. Progress may be slow, but it is being Muslims. The highest court of appeal for the Islam- achieved in a stable and legal manner, with the ic courts is also the Supreme Court. involvement of many stakeholders. The Constitutional Court, meanwhile, has the final This is quite an achievement for a country of such say in any disputes over the constitution, the pow- diversity that has had only just over a decade of ers of state institutions, election results and the dis- democracy. Surely, the decade ahead should thus be solution of political parties. It also has the power to another promising one for Indonesia and its people. THE REPORT Indonesia 2012
  • 20. 18 POLITICS INTERVIEW President Susilo Bambang Yudhoyono At the forefront OBG talks to President Susilo Bambang Yudhoyono What are the primary pillars of the Master Plan for be essential in reducing the economy’s entire cost Acceleration and Expansion of Indonesia’s Econom- structure, which would create synergies between growth ic Development (MP3EI) through 2025? centres and realise equitable access to services. This YUDHOYONO: The MP3EI was launched to enable will be significant for business and development. Our Indonesia to facilitate economic growth over the next motto is “locally integrated, globally connected”. 15 years. The plan expects economic expansion at an Indonesia’s large and youthful population will augur average rate of 7% a year to become a $4.5trn econo- well for economic activity and future productivity, which my by 2025. With the spirit of discarding the “business- is the primary reason why we seek to synchronise human as-usual” paradigm, the MP3EI is a long-term develop- development programmes, improve education and ment plan that will spur employment creation by driving invest in the required time and resources it takes to har- investments, synchronise and consolidate the govern- ness our most precious resource – human capital. ment’s action plan with the real estate sector and clus- The acceleration of our scientific capability and inno- ter economic growth centres that are consistent with vation is key to enhancing Indonesia’s competitiveness. each region’s unique strengths. Indonesia is the world’s We seek to achieve this by raising the quality of edu- largest archipelago with over 17,000 islands, and cation through incentives and an increased education although we are blessed with a wealth of resources, budget. We base a big part of MP3EI on public-private there is an abundance of untapped potential. partnerships. The government stands ready to work MP3EI serves the purpose of improving the econom- closely with state-owned companies and private busi- ic and social development in designated regions through nesses on numerous projects. I welcome and encour- a well-planned development programme. It is intend- age participation of investors to realise the MP3EI. ed to accelerate the development of designated regions Indonesia has accomplished much in the last 13 to catch up with the level of that seen in Java and Suma- years, from achieving democratic transition to with- tra. This will be achieved through the six economic cor- standing financial crises and natural disasters. It is evi- ridors that have been deemed to be the country’s dent that Indonesia has shown remarkable resilience “growth centres”. The programme is based on the prem- and adaptability in the face of ever-changing global chal- ise that each of these corridors can propel its own lenges. The policy directions outlined in the MP3EI will regional economies through clustering, as well as oper- guide us towards achieving our development goals. ating in areas with a distinct comparative advantage. Priority sectors for investment are industry, mining, What measures are being taken to move toward a agriculture, marine, tourism, telecommunications, ener- legal system that meets international business stan- gy, infrastructure and regional development. dards as a means to increase competitiveness? In addition to the development of the six economic YUDHOYONO: Of utmost importance is the need to corridors, the MP3EI also aims at improving Indonesia’s adhere to the universal principle of equality before the connectivity. This is of paramount importance in our law, without which, no credible legal system can be mission to unleash the real value of Indonesia. I have built. A strong legal system and a solid rule of law will to admit that poor infrastructure is one of the most sig- allow not just businesses, but societies to flourish. nificant deterrents to job-creating investment and Meeting international business standards is what remains a significant challenge to competitiveness. Indonesia strives for. My government devotes tremen- Connectivity refers to both hard and soft infrastruc- dous efforts to ensure legal certainty, combat corrup- ture development. An effective roll-out of projects will tion and minimise inefficiencies caused by bottlenecks www.oxfordbusinessgroup.com/country/Indonesia
  • 21. POLITICS INTERVIEW 19 in the bureaucracy. Our success in overcoming these Indonesia is the Chair of the ASEAN. With such a posi- challenges will increase our global competitiveness. tion, Indonesia is striving to consolidate the ASEAN We constantly work to detect and tackle loopholes community by 2015. We have invested intellectual as that impede business opportunities. Indonesia also well as political leadership to achieve these goals. We continues to combat graft. My administration has zero have convened two ASEAN Summits in 2011. tolerance for corruption. We are in the process of Indonesia also hosted the East Asia Summit. We inau- reforming our judicial system, with considerable gurated the participation of the US and Russia for the advances in recent years. The Corruption Eradication first time. Under this regional forum, Indonesia hopes Commission has been prolific in their investigations of to build a robust and inclusive regional architecture. graft, with notable successes since its inception. Apart from ASEAN and the East Asia Summit, Indone- sia has hosted many important international events, such How will bureaucratic capacity at both the central as the World Economic Forum on East Asia, the Over- and regional level be improved to increase efficien- seas Private Investment Corporation Conference, the cy and cooperation among ministries? Business for Environment Summit and the Forest Con- YUDHOYONO: Bureaucratic reform and good gover- ference. I believe the decision to hold such important nance are key components of economic development. events in Indonesia reflects our significance in the We are working to improve professionalism, and to world’s economy. Moreover, by hosting such events, instate and uphold a system of meritocracy. To effect Indonesia offers the participants a range of econom- change, we apply a system of reward and punishment. ic opportunities, including the forging of partnerships. Nevertheless, this cannot be achieved overnight. At the G20 Summit in Cannes, Indonesia brought into After a long period of autocratic rule, Indonesia discussion the issues of development and pressed for underwent a massive nationwide decentralisation effort a reformed global financial architecture. These issues starting in 1999, whereby 33 provinces and 450 regen- are highly important to developing countries. cies were given greater authority over how their respec- There remains significant downside risks to the future tive regions were managed. Given the massive scale of health of the global economy. However, Indonesia in this undertaking, a heightened level of policy coordi- particular has demonstrated remarkable resilience nation between central and local governments became throughout the global debt crises. Investments have essential. I have attached particular significance to so far grown 20.9% from the previous year, and Indone- inter-ministerial coordination, as well as coordination sia’s economy is on track to grow 6.5% this year. between central and local governments. I stress the I have been following closely the recent develop- importance of inter-agency modalities in tackling mat- ments in the Middle East and Northern Africa, and do ters that are multi-faceted and multi-layered. My coor- hope that the reform process will result in a peaceful dinating ministers and Indonesia’s vice-president are political solution. Democratic transitions that meet the also engaged intensively in these efforts. expectations of the people will guarantee stability. Indonesia experienced a democratic transformation What events have characterised Indonesia’s for- 13 years ago, so it is always willing to share with other eign policy in 2011? How can the country bring its nations its own experiences. Nevertheless, I strongly development experience to bear on global events? believe that every country should cultivate its own YUDHOYONO: The year 2011 has been very eventful homegrown democracy, as there is no such thing as for Indonesia in terms of foreign policy activities. First, a one-size-fits-all path to nationhood and statehood. THE REPORT Indonesia 2012
  • 22. 20 POLITICS ANALYSIS ASEAN has been central to regional economic and political relations At the helm Chairing ASEAN presents an opportunity to increase regional influence As one of the founding members of ASEAN, 2011 has line for the creation of a free trade area among the been a special year for Indonesia, as it has assumed six members at the time (Brunei joined in 1984). the chair of the 10-member regional group. At a time With the end of the Cold War, ASEAN’s integrationist when Asia is becoming increasingly important in glob- economic policy continued to grow in prominence, al affairs, this is an opportunity for the country to while the political initiatives of that era diminished. demonstrate its growing influence. ASEAN’s membership also grew further, with Vietnam The year has been one of growing uncertainties too, joining in 1995, Laos and Myanmar in 1997 and Cam- within the global economy. At the same time, within bodia in 1999. The newer members – often referred the ASEAN region, moves toward economic integra- to as the CMLV countries – must enact virtually zero- tion continued to gather pace, while several disputes tariff rates on imports from ASEAN countries by 2015, –both within and outside of the organisation – at a target other members set for 2010. times threatened to damage the peace and stability FREE TRADE SUCCESS: There has been immense of the region. Through these developments, Indone- progress in achieving this giant free trade zone of over sia sought to play a more active role in contributing 500m people with a combined GDP of around $1.8trn. to further integration and conflict resolution. Yet in terms of achieving a more unified foreign poli- HISTORICAL TIES: ASEAN was founded on August 8, cy, until now there has been relatively little achieved. 1967, when the foreign ministers of five countries – It is in this second area that Indonesia wanted to make Indonesia, Malaysia, Thailand, the Philippines and Sin- progress during its term of office as chair of ASEAN. gapore – met in the Thai capital to sign the Bangkok This meant, first and foremost, resolving some of the Declaration. The Suharto government, anxious to end internal disputes between ASEAN members. its conflict with Malaysia and align with the anti-com- Thus Jakarta has taken a much more active role in munist powers of the region, sent Foreign Minister seeking a resolution to the long-standing border dis- Adam Malik as a representative. The organisation’s pute between Thailand and Cambodia, which flared up General Secretariat has since been based in Jakarta. again in early 2011. Indonesia, under the ASEAN ban- Since then, ASEAN has been a key part of Indone- ner, sought to resolve the conflict and provide a facil- sia’s foreign policy. This centrality is in line with the coun- itator for the two sides to meet. By August, with a try’s founding foreign policy principles, as outlined by change of government in Bangkok, most analysts were Mohammad Hatta, who authored Indonesia’s decla- optimistic that the dispute was no longer a hot one. ration of independence, along with Soekarno, in 1948. Indonesia has also been leading efforts to resolve Hatta declared the country to be in support of a for- a series of overlapping claims between several mem- eign policy independent of great and superpower ber states to parts of the South China Sea. These also interests that would take an active role in the world, conflict with China’s claim to almost the entire body rather than a passive or reactive one. of water. A third area of controversy is Myanmar, which ZONING MATTERS: ASEAN provides an excellent forum is due to chair ASEAN in 2014 yet continues to have for the realisation of these goals. In the 1970s Jakar- cold relations with many Western countries, further The country’s founding ta was taking part in efforts to make South-east Asia underscoring the difficult nature of any attempt to foreign policy principles a nuclear-free zone and in the 1980s stood behind the pull ASEAN’s 10 states into a unified force. Nonethe- declared the importance of taking an active role in idea of a zone of peace in the region. In the 1990s Jakar- less, the steps taken by Indonesia in 2011 have shown regional and global political ta signed up to the ASEAN Free Trade Agreement, that ASEAN is not simply about free trade and has affairs. which was launched in 1992 and set a 15-year dead- other responsibilities and opportunities for influence. www.oxfordbusinessgroup.com/country/Indonesia
  • 23. POLITICS INTERVIEW 21 Abdullah Gül, President of Turkey Working together OBG talks to Abdullah Gül, President of Turkey How can Turkey and Indonesia, the world’s leading ance. I therefore believe that both countries could be moderate Muslim-majority nations, play a role in the sources of inspiration for the Muslim world. Both have development of relations between East and West? the ability to play essential roles in bringing the East GÜL: The age we live in requires new approaches to and West closer in a number of different ways. international and inter-communal relations. We need programmes that aim to collaborate, harmonise and syn- In which sectors is Turkey looking to develop stronger thesise varying cultures, and to build upon the com- ties with Indonesia to reach the targeted $5bn in mon wisdom and achievements of humanity. We must trade volume between the two countries by 2014? show that diversity is not a weakness but a source of GÜL: Increasing the trade volume between our two strength. As cohabitants of the same planet, we should countries must be the core goal of future economic unite in a common understanding of “world citizenship”. and commercial cooperation. With regards to trade This is increasingly important in today’s globalised volume, the composition of that volume is one of the world. The international community is more intercon- most important factors to examine. nected than ever and has become a “small village” in The import-export balance between Turkey and many ways. The world is now in such a delicate balance Indonesia is highly asymmetric. The statistics for the that no country or region can be immune from the prob- last 10 years reveal that the foreign trade deficit of our lems of others and no single actor can enact signifi- trade with Indonesia was increasing regularly until 2007, cant change alone. International solidarity and coop- when the deficit reached around $1.2bn, and has eration have become essential in tackling common remained about the same since then, excluding2009, challenges. We need to better understand each other when the deficit dropped to $767m. in order to make the best use of our collective efforts. Turkey’s objectives for commercial relations with Turkey is a democratic, secular country based on Indonesia are not only limited to increasing the trade universal values and has historical, social, ethnic, reli- volume, but also include correcting the considerable gious and cultural links with almost every nation with- asymmetry by multiplying exports to Turkey. in a three-hour flight from Istanbul. As such, Turkey forms Turkish exports to Indonesia can be classified under an essential link between these diverse cultures. In this two categories: agricultural goods and industrial goods. regard, we are keen to promote peaceful co-existence, Under agricultural goods, Turkish products exported to dialogue, mutual respect, friendship, harmony and Indonesia include wheat flour, tobacco, ferment, choco- cooperation between different cultures and faiths. late products, citrus fruits, olive oil, pasta and hazel- In line with this, Turkey pioneered the “Alliance of Civil- nuts. Industrial products include petroleum oils and isations” initiative, which has now become a success- products, motor vehicles and their accessories, trac- ful UN programme aimed at mitigating differences and tors, semi-finished and flat-rolled products of iron and fostering harmony and tolerance between nations. non-alloy steel, worked monumental or building stone, We believe such efforts will help enhance understand- marble and travertine, feldspar and cotton. ing and cooperation throughout the world, and there It is obvious that the larger the trade volume between is much we can do alongside Indonesia in this regard. two countries, the closer our relations will be in the Both Turkey and Indonesia possess unique character- future. I think a higher trade volume and a well-balanced istics, but they also share a common commitment to trade structure would pave the way for a higher level democratic and pluralistic secular systems that respect of social integration and political cooperation as well the rule of law and symbolise moderation and toler- as more stable and continuous economic collaboration. THE REPORT Indonesia 2012
  • 24. 22 POLITICS INTERVIEW Marty Natalegawa, Minister of Foreign Affairs An example to follow OBG talks to Marty Natalegawa, Minister of Foreign Affairs What are the main obstacles to achieving the ASEAN transformation, so that other nations may benefit from integrated economic community by 2015? our experiences, struggles and achievements. NATALEGAWA: The concept of integrating and syn- ergising an economic community of 10 sovereign How is Indonesia using its influential position as the nations, all of which have their own economic concerns 2011 Chair of ASEAN to augment the economic and priorities, is fundamentally challenging. However, and political status of the region? ASEAN long ago recognised the importance of achiev- NATALEGAWA: We are keen not simply to chair ASEAN, ing this objective. The alternative, i.e. not integrating, but to exercise constructive leadership. We want to would have been detrimental to our economic pros- effect change and to direct ASEAN along a certain path. perity. With the rise of China and India and the contin- Our first priority is to make significant progress toward ued strength of Japan, the competitive landscape has achieving an integrated ASEAN community by 2015. expanded dramatically. For ASEAN to maintain a com- Specifically, we want to improve coordination among petitive advantage it is crucial that we develop policies ASEAN countries in economics, socio-cultural affairs and that not only play on our individual abilities, but also security. ASEAN has already put the foundations in help us to complement one another’s strengths. place in terms of various documents, declarations and This in itself will be a difficult task, but when you take statements. The map has been laid out and the time into account the need for equitable development — for implementation and real action is now. That is why, where each country feels they are benefitting from when the conflict between Thailand and Cambodia being a part of the system — economic integration arose this past year, we took concrete measures to help becomes even more challenging. Regardless of the facilitate a resolution rather than remaining silent. We obstacles, globalisation is not simply something we can put into practice the commitments and promises that choose to opt out of. Our individual economic and all ASEAN community members have made. social development will greatly depend on our collec- This leads us to our second priority, which is to ensure tive ability to compete on a global level. that we continue to maintain a peaceful and benign regional atmosphere. This has been a key ingredient in What role can Indonesia play on the world stage, ASEAN’s drive to achieve economic prosperity. given its status as a secular, populous Muslim nation Our final priority is to create a strategy beyond 2015. enjoying good relations with both East and West? This is where the theme of our chairmanship, “ASEAN NATALEGAWA: Indonesia has the largest Muslim pop- Community in a Global Community of Nations”, becomes ulation in the world, as well as the third-largest democ- apparent. We laid down a 10-year map that will begin racy. We are a nation that embraces religious tolerance a process whereby ASEAN will speak with greater cohe- and ranks modernisation and development as two of sion and collectiveness on issues both regional and our greatest priorities. Our success story is relevant not global. It is insufficient for ASEAN to be a community only among ASEAN nations, but also for countries in unto itself and is no longer acceptable to help main- North Africa and the Middle East. tain peace and stability solely within the immediate Recently we have seen how issues of governance, region. ASEAN must project its collective voice at the economics and human rights can become security international level, as currently ASEAN countries con- issues that could potentially bring about destabilisa- tribute only at a national or bilateral level. With greater tion. It is therefore our responsibility to try to share the cohesion and coordination we can bring positive change lessons we have learned during our own democratic and contribute beyond our own individual strengths. www.oxfordbusinessgroup.com/country/Indonesia
  • 25. POLITICS ANALYSIS 23 Trying to satisfy the many groups in the legislature is a challenge Party lines Political groups share similar ideologies but differ in leadership styles With nine parties represented in the Indonesian legis- become increasingly based on their respective leader- The largest party in the lature – and six of those present in the cabinet – the ship styles rather than on ideologies. It is difficult to DPR is the Democratic Party, which has 148 seats, political landscape of the country is clearly very multi- make a distinction between secular and Islamic plat- followed by Golkar, with faceted. Though three parties tend to dominate the forms as all three parties, usually seen as secular, have 107 seats, and the scene, no one group has been able to gain a majority incorporated many Islam-based policies in recent years. Indonesian Democratic in parliament and shifting coalitions and alliances ensure POLITICAL ISLAM: One of the major debates in Indone- Party-Struggle. a wide variety of influences and viewpoints. sian politics has long been over the role of Islam, with THE MAJOR PLAYERS: Currently, the largest party in a rough divide between secular and Islamic-leaning the legislature – the People’s Representative Council parties sometimes evident. Coalition governments, (DPR) – is the Democratic Party (DP), with 148 seats in however, have always included groups from both sides. the 560-seat assembly after the 2009 general election. The political Islamic movement in Indonesia has long The DP is also one of the newest groups, formed large- been dominated by two groups – the more tradition- ly as an election vehicle for the current president, Susi- alist Nahdlatul Ulama (NU) and the more reformist lo Bambang Yudhoyono (SBY), in September 2001. Its Muhammadiyah. These have sometimes given their fortunes have thus been tied to SBY, with the surge in backing to political parties, although in 2009, Muham- support for him illustrated well by the fact that the madiyah declared neutrality, while NU traditionally backs DPR, the DP won only 57 seats in the 2004 elections. the National Awakening Party (Partai Kebangkitan The DP’s beliefs are those of pancasila, the five official Bangsa, PKB), which won 28 seats and is in the govern- founding principles of the Indonesian state: belief in ing coalition, with representation in the cabinet. one god; a just and civilised humanity; the unity of the These traditional Islamist groups have been joined country; democracy; and social justice. in recent times, however, by more contemporary out- The oldest and second-largest party, Golkar, won 107 fits. The Prosperous Justice Party (Partai Keadilan seats in 2009 and also adheres to pancasila. Indeed, it Sejahtera, PKS), modelled on Turkey’s pragmatic Islamist was the ruling party during the whole period of the Justice and Development Party, won 57 seats in 2009, Suharto regime, from 1966-98, and under the presi- mobilising a more urban, middle-class religious voter dency of Bacharuddin Jusuf Habibie in 1998-99. It thus base than the PKB. The PKS is also represented in the has one of the oldest established local party networks, cabinet. Two other Islamist groups are the United Devel- with many powerful and influential supporters. Its opment Party (Partai Persatuan Pembangunan, PPP), leader is Aburizal Bakrie, who also leads the governing which won 37 seats in the DPR, and the National Man- coalition in the DPR and is a member of the cabinet. date Party (Partai Amanat Nasional, PAN), with 43 seats. The third-largest party is the Indonesian Democrat- Both also took places in the cabinet. ic Party-Struggle (PDI-P), led by Megawati Soekarnop- With a parliament dominated by coalitions, the post- utri, the daughter of former President Soekarno. The 2009 government is often faced with the challenge of official ideology of the party is also pancasila, although maintaining a common purpose among so many groups. the PDI-P is the largest opposition party in the DPR. It This has in many cases given way to power struggles is the result of a split in the Indonesian Democratic Par- within the cabinet and the DPR, thereby hampering the ty, which was also led by Megawati and – with Golkar legislative timetable. While this has created some lev- – was one of two parties allowed by Suharto. el of dissatisfaction among the public, the fact that so LEADERSHIP: As all the major parties have platforms many viewpoints are represented in the politics of the based on pancasila, differentiation between them has country today is undoubtedly a positive development. THE REPORT Indonesia 2012
  • 26. 24 POLITICS ANALYSIS The past few years have seen a major reduction in political risk A focus on unity Bringing a diverse population together Many areas of the country As an archipelago comprising some 17,500 islands, signing of the Malino II Accord in 2001. However, vio- have experienced intense Indonesia has an ethnically and religiously diverse pop- lence has occurred sporadically and tensions remain, conflicts over the past ulation – a characteristic long the source of both oppor- with government agencies and NGOs working to over- decades, including Aceh, Central Sulawesi, the tunities and challenges. Indeed, different perceptions come hostility between the communities. Malukus and Papua. of this diversity have engendered conflict in recent A similar story pertains in the Malukus, and particu- decades. However, the past few years have seen a major larly in the capital, Ambon. Violence between Christians reduction in political risks and a corresponding increase and Muslims has been intense for more than a decade, in foreign investment and interest. Political risk in with the most recent outbreak in September 2011. Indonesia today thus bears little comparison with what While peace is generally kept, the two communities con- it was when the current period of Reformasi began in tinue to mistrust each other. More positively, the most 1998, with the fall of Suharto. recent outburst was tackled by grassroots “peace provo- SEPARATISM & REGIONALISM: Under Suharto, there cateurs” who seem to have achieved success. A spe- were four main areas of the country suffering from sep- cial unit for dealing with these issues in Papua, called aratist or religious conflicts: Aceh, in northern Suma- UP4B and based in the vice-president’s office, was tra; Central Sulawesi; the Malukus; and Papua. The ter- established by presidential decree in September 2011. ritory of East Timor, occupied by Indonesian forces in Papua, meanwhile, has seen one of the most long- 1975, was also a site of conflict, although with differ- running separatist conflicts in Indonesia. Over the years, ent causes than the others. During the decade that fol- the armed wing of the Free Papua Organisation, the lowed, successive governments in Jakarta moved to National Liberation Army, has conducted violent attacks, tackle these disputes, with generally good results. not only against Indonesian army and police, but also RESOLUTIONS: One of the first moves was in 1999, against foreign investments and foreigners, mainly when a vote was held in East Timor regarding independ- operating in the mining sector. ence. The East Timorese voted overwhelmingly in favour, ADDRESSING EXTREMISM: Radical Islamic groups with this unfortunately followed by an outbreak of vio- have also posed a risk to the country over the past lence between secessionists and integrationists. How- decade, such as hotel bombings in Jakarta in 2009. ever, in 2002 the territory finally gained independence However, recent times have seen the main groups of and relations between the two states have improved Indonesian jihadis – Jemaah Islamiyah and Jamaah considerably. East Timor is now moving toward becom- Ansharut Tauhid – take significant hits. The February ing a member of the Association of South-East Asian 2010 break-up of a jihadi training camp in Aceh led to Nations with Indonesian support. a successful shutdown of many networks. The Indone- The conflict in Aceh has also been largely resolved. sian authorities have a well-trained and -equipped anti- The tsunami of 2004, which hit Aceh particularly bad- terrorism force, the National Anti-Terrorism Agency. ly, had the effect of bringing the warring parties to the Many arrests and successful prosecutions have been peace table. Aceh received special autonomy within made, with mainstream Islamic groups also being Indonesia, the Indonesian army withdrew from the mobilised against the extremists. province and the guerrillas, known as GAM, disarmed. Risk has declined in recent years, although in cer- Direct elections for governor were held in 2006, with tain specific areas, tensions remain. Attempts to address GAM leader Irwandi Yusuf winning office. these challenges continue, with additional units and In Central Sulawesi, violence between Christian and forces being mobilised, including a new rise in the num- Muslim communities in 1999 and 2000 eased with the ber of corporate security firms offering their services. www.oxfordbusinessgroup.com/country/Indonesia
  • 27. POLITICS INTERVIEW 25 Surin Pitsuwan, Secretary-General, ASEAN Further integration OBG talks to Surin Pitsuwan, Secretary-General, ASEAN How can ASEAN assist Indonesia in addressing its services. Towards this end, ASEAN has identified strate- significant infrastructure challenges? gic initiatives in these areas, as set out in the ASEAN PITSUWAN: Assistance to ASEAN member states for Economic Community (AEC) Blueprint, and has taken addressing infrastructure challenges is carried out in steps to realise these by 2015. One bold initiative to indirect ways, mostly through sharing experience and establish this free and open regime has been the ASEAN best practices in areas such as urban transport plan- Comprehensive Investment Agreement (ACIA). As the ning, development and management. Other avenues name suggests, the ACIA is comprehensive, but it is also of support include harmonising regulations and pro- based on international best practices and on par with cedures and developing ASEAN-wide hard infrastruc- other international investment agreements in terms of ture networks like the Singapore-Kunming rail link and scope, rights and obligations. An important pillar of the the ASEAN highway network. Furthermore, we have ACIA is its liberalisation component. ASEAN adopted a also established effective mechanisms of financial negative list approach in the formulation of the reser- mobilisation for regional infrastructure projects, such vation list under this agreement, meaning anything as the ASEAN Infrastructure Fund. outside the list is open. We hope member states can now complete the domestic approval process and the What contribution do you expect Indonesia will agreement will be in force by the end of 2011. make to advance ASEAN’s policy agenda? ASEAN also agreed to progressively reduce or elim- PITSUWAN: Indonesia’s theme for its ASEAN Chair- inate reservations contained in the list following the manship was “ASEAN Community in a Global Commu- strategic phases of the AEC Blueprint, and member nity of Nations.” I hope Indonesia will continue to be as states are now working to improve the region’s invest- ambitious in the economic and socio-cultural commu- ment regime by reducing or removing impediments. nity as it is in political security. Indonesia has the polit- ical weight to offer assistance to its regional neighbours What benefits and opportunities will come of ASEAN and resolve disputes through peaceful means. nations working together to make the region a leading destination for international tourism? How are logistical integration issues within the PITSUWAN: Member states all have tremendous poten- ASEAN market being addressed? tial for tourism. Combining individual efforts into a col- PITSUWAN: ASEAN plans to achieve full integration of lective campaign would multiply rewards to individual logistics services by 2013. To guide this agenda it has countries as well as the region as a whole. ASEAN has created a map, endorsed by the ASEAN economic min- been implementing a number of initiatives to promote isters in 2007, that provides detailed measures and the region as a single tourism destination, such as action plans to integrate logistics services across the developing multiple-country tour packages, joint pro- region. This involves various related ASEAN services, cus- motion campaigns and ASEAN-wide tourism websites. toms, transport, telecommunications and investment Currently, ASEAN is running joint marketing and pro- bodies, as well as private sector organisations. motional efforts within the main source markets of Australia, China, Japan and the Republic of Korea. The How will a free and open investment regime be collaboration will also include the establishment of an achieved to increase ASEAN’s competitiveness? ASEAN common area within international travel fairs PITSUWAN: ASEAN’s vision for an integrated regional and the establishment of the ASEAN Promotional Chap- economy includes the free flow of both investment and ter for Tourism in Australia, among other initiatives. THE REPORT Indonesia 2012