Interview: President Susilo Bambang Yudhoyono

How can Indonesia strengthen its role globally?

PRESIDENT SUSILO BAMBANG YUDHOYONO: To play regional and international roles, any country needs a certain capacity. In Indonesia’s case, this capacity is derived from our domestic consolidation. Our economy has shown resilience and consistent growth since 2001 – with the exception of 2009, which saw growth fall to 4.6% during the first wave of the global financial crisis. Some pundits believe Indonesia’s growth is more consistent than any OECD or BRICS country. In 2013 our growth is projected to increase from 6.3% to 6.5%, and Indonesia could become the second-fastest-growing G20 economy after China, surpassing India.

Amid global uncertainty, achieving such growth is very challenging, but I am optimistic that it is attainable as we have strong economic fundamentals. We have a large middle class, rich and diverse natural resources, a young and educated workforce, and we have adopted sound economic policies, including disciplined fiscal policies. We pursue a comprehensive development strategy founded on four pillars: pro-growth, pro-poor, pro-job and pro-environment. Meanwhile, our democracy is taking root. We have plenty of dynamics along the way – labour strikes, student rallies, clamorous media and more.

All these achievements have strengthened Indonesia’s capacity to project a new activism in foreign policy, to play greater and more diverse roles, and to help shape the regional and global order. During the UN General Assembly in September 2012, I referred to our global security condition as “warm peace”, where Cold War tensions have been overcome but still short of total peace. In such a condition, we must do our outmost to achieve an international order based on durable peace and global cooperation.

Which infrastructure projects are private investors seeking?

YUDHOYONO: Indonesia offers many exciting opportunities for the private sector. We have created forward-looking development models, including the Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI), which involves many stakeholders, including the private sector. We still have a lot of homework to be done on infrastructure development. The private sector’s main concerns could be summarised as, first, transportation, including modernised ports, airports, railway tracks and national as well as provincial roads. We anticipate substantially increased capacity, especially in eastern Indonesia. Several port developments are under way and others are being initiated throughout the country, such as New Priok and the initiation of Cilamaya Port, Surabaya at Kali Lamong, expansion at Belawan and the initiation of the New Kuala Tanjung port to support the development of the Sei Mangkei Special Economic Zone (SEZ).

In Kalimantan, there is a new container port in Kariangau, near Balikpapan’s new industrial area, and soon there will also be a new port at Maloy to support the forthcoming MaloyTransKalimantan SEZ. Also, there are studies for Tanjung Sauh at Batam (for trans-shipment), Bitung (as an international hub port) and Sorong Port, as well as a new set of smaller port development projects in many areas in eastern Indonesia.

Airport developments include the new facility of Kuala Namu in North Sumatra, the new Sukarno-Hatta terminal, initiation of Kertajati in West Java, plans to build a bigger airport in Yogya, upgrading of Denpasar and Makassar airports, and new, smaller airports in Kalimantan, Sulawesi, Nusa Tenggara Barat and Maluku-Papua. In the rail sector, there are double-track projects nearing completion in Java and Sumatra, as well as public-private partnerships and private sector projects in Kalimantan (east and central). There is also keen interest in initiating major railway network projects in Sulawesi. Notable road projects are the high-grade highway in Sumatra, and completion of trans-Java toll roads, as well as trans-Kalimantan and trans-Sulawesi national roads. To support SEZ developments, many regional and access roads have also been developed.

Energy projects also receive many inquiries from the private sector. The electrical power industry has seen high growth in demand, averaging 7-9% per annum in the past five years. We are already on the second 10,000-MW programme, dedicated mainly to the growing needs of the industrial sector, as well as to developing regional economic centres and potential mining/smelter locations. The biggest energy projects by source are geothermal, coal-based, and bio-energy from palm oil plantations and other sources of bio-waste.

The private sector is also keen to see ICT enhancement, not only in areas that are already relatively well developed, such as in many cities in Java, but also in remote areas throughout eastern Indonesia to complete national virtual connectivity. We initiated this project two years go, naming it the Palapa Ring Fibre-Optic Development. It is scheduled for completion by 2014. The proportion of infrastructure investment to GDP for 2010-13 increased from 4.1% to 4.7%. In 2013 the total amount of infrastructure spending is $43.8bn. Central and regional governments contributed around $30bn, while the rest came from state-owned enterprises and the private sector.

How can Indonesia attract foreign investment outside Java?

YUDHOYONO: The investment realisation report for January-September 2012 from the Investment Coordinating Board shows 46.5% of investment projects ($10.7bn) are located outside Java, up from 44.8% ($8.1bn) in the same period of 2011. This means efforts to spread investment are showing encouraging results. At least two things could be inferred from this. First, it might stem from an increasing role for domestic companies in convincing foreign partners to locate outside Java (especially if the set-up is a joint venture). Secondly – and more importantly – despite a lack of infrastructure, there are ample incentives to look at other economic corridors.

I would like to emphasise recent efforts by the MP3EI, one of the key objectives of which is to create economic centres outside Java. The effort has been made in a comprehensive way by not only accelerating infrastructure development but also by providing incentives to make investment outside Java more sensible and practicable.

The number of MP3EI projects that reach the groundbreaking phase clearly shows the reduction in Java’s dominance. In 2011 and 2012 there were 69 projects in the Java corridor, with investment of $26bn, out of 184 projects with $62.4bn of investment for all six corridors. That means 41.7% of the total was for Java. However, in 2013 only 21.2% of total investment (around $54.6bn) will be in Java.

What is the strategy for controlling fuel subsidies?

YUDHOYONO: We discussed five policies to reduce subsidy costs. The first is to electronically record ownership and data for each vehicle, so that every purchase of subsidised fuel will be recorded automatically and we will know how much each person buys. This will guarantee transparent and accountable control of subsidised fuel consumption and make it targeted.

The second is a ban on officials and employees of state enterprises using subsidised fuel for state-owned vehicles that they use. This policy has been implemented and is working very well. The third is a similar ban for plantation and mining company vehicles. Stickers will be attached to them, which signify that they cannot buy subsidised fuel. The oil and gas regulator BPH Migas will work with law enforcers and regional governments to supervise the sticker policy and also build more gas stations that sell non-subsidised fuel to meet the needs of mines and plantations. The fourth is to promote gas-based fuel, known as BBG, to replace kerosene and diesel. Number five is a campaign to minimise fuel consumption through reduced use of electricity in government and state enterprise offices, as well as on the streets.

Combating climate change is high on your agenda. What is happening at present on this issue?

YUDHOYONO: Recently, I discussed with President Barack Obama our commitment to combat climate change and our aim of setting up the first regional climate centre in Indonesia. Under the plan, Indonesia would be a hub for scientific data and a training centre on climate change issues for five countries in South-east Asia – Malaysia, Singapore, Brunei Darussalam, the Philippines and Indonesia – and 17 nations in the Pacific, including Australia, New Zealand, the Solomon Islands, Timor Leste and Fiji. We hope the US will provide technical assistance, financing and technology transfer facilities to support establishing the centre. Indonesia also participated in the 18th Conference of Parties UN Framework Convention on Climate Change held in Doha, Qatar late in 2012.

What are the issues and solutions in improving education?

YUDHOYONO: We face systemic problems regarding facilities, teacher quality, teachers’ welfare and quality standardisation. Over the past decade we have worked to improve standards through the National Education Standard Board. I asked the Ministry of Education and Culture to work on programmes that can produce qualified citizens, as well as accessible and inexpensive education. Through school aid programmes many schools have been revitalised and children from poor families have the chance of higher education through scholarships.