Jusuf Wanandi, Co-founder and Vice Chairman, Centre for Strategic and International Studies: Interview

Jusuf Wanandi, Co-founder and Vice Chairman, Centre for Strategic and International Studies

Interview: Jusuf Wanandi

Indonesia will face a number of economic challenges over the coming year. Which immediate policy actions should be taken and with what aim?

JUSUF WANANDI: The government should prioritise domestic stability in an election year. Observers have in recent years been euphoric about Indonesia’s impressive economic and rupiah strengthening before mass capital outflows took us back a step. This was somewhat foreseeable because of the negative current account for the last few years., but our response was uncoordinated. Numerous well publicised lacunae in our economic development – infrastructure, an actionable land acquisition law and labour inflexibility – have amplified shocks to the market. These challenges are related to the wider development of our economy and are reliant on the export of commodities. This has led to pressure concerning the value of other currencies against the rupiah, especially in light of the fact that we are also vulnerable because we import 70-80% of our capital goods. While people talk about Indonesia being able to achieve GDP growth of 6% with its eyes closed, this is not the case. If various factors align in an unfortunate way then a serious economic upheaval could occur.

How would you evaluate the most pressing priorities for the incoming administration?

WANANDI: The priority must be the total restructuring of the fuel subsidies that was almost completed by President Susilo Bambang Yudhuyono. We must also deal with the overly demanding labour unions, 80% of which are connected to political parties. These links make controlling them a most contentious issue for government. However, we must confront them regardless because they cannot keep asking for 45% wage increases every year. Many companies, particularly those in labour-intensive industries, have struggled due to the ensuing disruption and low levels of productivity. Korean companies have been forced to dismiss over 69,000 Indonesian workers over the last two years due to such problems. The process of dismissing non-performing workers is difficult, meaning companies often only hire workers on temporary contracts of one year or less. This detracts from the overall stability of the labour market. It also means that companies are unable to forecast labour costs, making it significantly more difficult to do business. While the ratio between wages and productivity can never be entirely precise, companies are well within their rights to expect at least some marginal performance increases from their workers.

How can the country weigh the benefits of the Trans-Pacific Partnership (TPP) and ASEAN Regional Economic Comprehensive Partnership (RCEP)?

WANANDI: The TPP is a very complex agreement and therefore cannot be placed in the same category as the RCEP. It represents too high a level of integration for Indonesia. There are also many problematic issues, such as the lack of competitiveness between stateowned and private enterprises, insufficient intellectual property rights and the need for labour unions to play a greater role. Indonesia should be focusing on the RCEP, which has a more achievable level of integration while being less complicated overall. It is based upon existing bilateral agreements that will allow us to focus more closely on integrating services, improving investment instruments and boosting trade.

However, while domestic companies are no doubt familiar with the RCEP, they remain understandably apprehensive. This is largely due to a failure on the part of our government to prepare them appropriately by following the precedent set by the 1993 Bogor Goals, which had established clear objectives.

In terms of how Indonesia can benefit from ASEAN, while feasibility is very important, social and political elements are just as critical for the successful future integration of the region. Indonesia should follow the example of the exchange programme between Germany and France in which 30m students have visited one another’s country over the last three decades. Indonesia would do well to replicate this approach in ASEAN.

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The Report: Indonesia 2014

Economy chapter from The Report: Indonesia 2014

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