Dream state


Photo courtesy of Penguin Random House Australia
Photo courtesy of Penguin Random House Australia

When Indonesian President Joko Widodo decided last year to pursue outlandish plans to build a new capital city in far-flung Kalimantan, advisers shook their heads in despair. But they were not surprised.

“Jokowi doesn’t like analysis; he likes action and decisions,” one official told me, using the president’s universal nickname. “There was no proper analysis of which infrastructure projects would boost growth and productivity the most. Instead, he just pushed projects depending on where he was visiting.”

The president said the US$32-billion project is necessary to ease the pressure on overcrowded Jakarta, spread development beyond the economic powerhouse of Java and realise Indonesia’s destiny to become an advanced nation.

But the economics of moving the capital did not add up, even before the Covid-19 pandemic hit, sending the economy tumbling toward its first recession since the Asian financial crisis of 1997-98. While many nations have built new capitals, few have attempted to do it so far away from the existing one, 1,300 kilometres across the sea.

The dream of constructing Indonesia’s very own Brasilia, Canberra or Nay Pyi Taw embodies the president’s best — and worst — traits. On the one hand, he is ambitious, focused on building much-needed infrastructure and good at charming foreign investors. On the other hand, Jokowi is impulsive, impatient with experts and prefers launching headline-grabbing initiatives rather than pushing tough reforms.

Inspired but exasperated by Jokowi, one of his ministers told me it was best to understand the president as a “bundle of contradictions”.

Six years into his presidency, Jokowi is struggling to live up to the high expectations he created. The stakes are high for Indonesia, which must generate enough decent jobs for its fast-expanding population or risk its much-vaunted demographic dividend becoming a demographic time bomb. From Tokyo to Washington, foreign governments are also counting on Jokowi to build Indonesia into a wealthier, more diplomatically active power that can help to counterbalance an ever more assertive China in Asia.

Just as Jokowi pulled himself up from humble beginnings in a riverside shack, he promised to transform Indonesia’s prospects, turbocharging economic growth, reducing poverty levels and building a political system that served the people, not the powerful.

The president doubled down on this vision in his second inauguration speech after his reelection in 2019. His ambition was for Indonesia to become a developed nation by 2045, and one of the world’s five biggest economies, up from 16th place today. With a reformed bureaucracy and an open, competitive economy, this Indonesia would have “social justice for all” and per capita incomes similar to Portugal or Taiwan today.

However, the longer Jokowi has spent in the presidential palace, the more his promise has faded. A man who pitched himself as an outsider has become deeply embedded in elite politics. A leader once admired for his clean reputation has weakened the nation’s highly popular anti-corruption agency, prompting an outbreak of student protests last year. And his persistent calls for economic reform have been hamstrung by his nationalistic instincts and his lack of focus on implementation.

Jokowi’s presidency is not just a story of personal paradoxes. He is struggling with the fundamental contradictions of a sprawling, diverse nation that was forged in a hurry 75 years ago from the arbitrary limits of Dutch colonial expansion. Like Indonesia, Jokowi is caught between democracy and authoritarianism, Islam and pluralism, openness and protectionism.

INFRASTRUCTURE PRESIDENT

The president’s aide looked at his watch with a grimace as my meeting continued to run over the allotted time. He suggested that Jokowi wrap up, but the president waved him away. “No, it’s better I show you,” he told me, as he went through slide after slide of infrastructure projects on his computer.

The Trans-Sumatra Toll Road? It had been extended by another 13km since his last visit, with the construction team moving to three shifts a day. The Pemalang-Batang Toll Road in Central Java? After eight years of setbacks because of problems with land acquisition, Jokowi had finally kicked it into action a few months earlier. That was nothing compared to the Jatigede Dam in West Java, delayed for similar reasons for 40 years — until the president had intervened, of course.

By this point, his aide had gone from irritation to resignation as the daily schedule went off course yet again — a regular occurrence in the Jokowi palace. But the king of infrastructure was not done. He had saved the best for last: the Jakarta Mass Rapid Transit, or MRT.

Jokowi began the construction of Indonesia’s first-ever metro line when he was governor of the capital, and it was on target to be completed in 2019, thanks to his successor and former running mate Basuki Tjahaja Purnama. “I always check this project,” he added with a smile of self-satisfaction.

Jokowi loves infrastructure. It is hard to imagine any other leader of a major country taking such delight in the minutiae of construction projects. Better infrastructure, he believes, is essential to driving growth and reducing inequality. But it is about much more than that. As he explained in a 2018 speech, his wider mission is “to unite this very big nation”.

His nuts-and-bolts approach to politics stems from his background as a furniture maker and city mayor. After graduating with a forestry degree, Jokowi shaved off his heavy-metal hairdo and entered the wood business, eventually building a thriving export factory in his home city of Surakarta, more commonly known as Solo.

He ran for mayor of Solo in 2005 on his track record as a business owner, promising to spruce up markets and slums and improve access to health care and education. He was reelected in 2010 and then won the Jakarta governorship in 2012 on a similar manifesto.

Running for the presidency in 2014, Jokowi repeated this pitch to focus on the economy and infrastructure. His rapid rise from political ingenue to president on such a basic platform was a testament to Indonesians’ deep frustration with the corruption and ineffective governance of the political elites who dominated the national scene before Jokowi’s arrival.

He still has a furniture maker’s perspective on politics. He needs electricity for his factory, roads and ports to move his goods, and ships to transport them to their overseas customers. He wants lower taxes and simpler regulations to make business easier, and better health care and education to ensure a happier and more productive workforce.

Jokowi also understands that Indonesia had an overwhelming need for better infrastructure to move its economy into the fast lane. His predecessor, Susilo Bambang Yudhoyono — commonly known as “SBY” — benefited from several years of commodity price-fuelled growth, as China’s demand for Indonesian coal, rubber and palm oil surged in the mid-2000s.

But he failed to use the good years to expand traffic-clogged roads or upgrade inefficient harbours and airports. That left economic growth stuck at around 5% per year. That looks solid. But Indonesia was not generating enough investment to create jobs for its fast-growing population, with more than 2 million young people entering the workforce every year.

Indonesia still suffers from high levels of deprivation, although the official poverty rate declined from 11% when Jokowi became president to just over 9% when he was reelected in 2019. When Covid-19 broke out in early 2020, the finance minister warned that it would set back the struggle against poverty by a decade.

Only 52 million Indonesians are classified as “economically secure” by the World Bank. The other 80% of the population live closer to the edge, scraping by as subsistence farmers, informal construction workers and food-cart operators.

After his reelection in 2019, Jokowi said he could pursue difficult economic reforms because Indonesia’s two-term limit left him free of the “burden” of seeking reelection. But it is far from clear what kind of reforms, and what kind of economy, he really envisions.

Without a lucid vision of how he wants to remake the economy, Jokowi has struggled with a fundamental contradiction that has held back Indonesia since independence: The country needs foreign investment and know-how to develop, but economic liberalism is seen as a tool of colonial oppression.

PALACE INTRIGUE

Jokowi is a tactical rather a strategic leader. He has struggled to scale up individual successes into the coherent programme that Indonesia needs if it is to realise its potential and ensure a decent future for the tens of millions still living on the edge.

Wary of giving those around him too much power, he eschews the sort of central policy delivery unit that many governments rely on to monitor and implement changes. His ministers compete as much as they cooperate. And Jokowi runs the palace more as an imperial court than a chief executive’s office.

The president prefers to rely on personalities rather than processes. He has leaned on a small and sometimes rotating cast of fixers to get things done. Chief among them is former general and business owner Luhut Pandjaitan, who Jokowi first met in 2007 when they set up a wood processing venture together.

Luhut started as chief of staff after the 2014 election but ended up as coordinating minister for maritime affairs, with wide-ranging formal and informal powers. By contrast, others who have momentarily had the president’s ear on economic issues — including first-term Vice President Jusuf Kalla and Finance Minister Sri Mulyani Indrawati — have seen their power wax and wane.

While those around him jostled for influence, Jokowi raced around the country opening airports, ports and bridges. Images of the president with a shovel in hand or riding a motorcycle down a new road were beamed around the country daily. However, his greatest strength would become a weakness, as Jokowi prioritised action over quality and planning.

OPENNESS VS PROTECTIONISM

Although his government lacked coherence, there were good decisions as well as bad. Much of the infrastructure Jokowi championed was sorely needed and delivered on schedule, including the first line of the Jakarta metro network. Overall, he increased the infrastructure budget from 270 trillion rupiah ($18.17 billion) in 2016 to 400 trillion rupiah by 2019.

Early on in his first term, Jokowi made the tough call to cut costly fuel subsidies, which were burdening the budget and providing most benefit to well-off car owners.

Jokowi also brought back Sri Mulyani, Indonesia’s best-known economist, from her executive role at the World Bank and made her finance minister again. She has worked hard to try to lift tax revenues, which are smaller than those of Cambodia, Liberia and Bolivia when measured as a proportion of GDP. Her steady hand on the tiller has kept Indonesia’s finances under control, avoiding the sort of debt accumulation that preceded the 1997 crisis. But she does not have the power to drive transformative change.

Jokowi appointed other technocrats, including private equity investor Tom Lembong, first as trade minister and then as investment minister, to improve efficiency and attract foreign investment. With his and Sri Mulyani’s input, Jokowi would launch more than a dozen economic stimulus packages in his first term.

These misleadingly titled measures were designed to streamline business-permit processes, a Jokowi bugbear since his factory days, and expand foreign investment in select sectors. By reforming these rules, Indonesia leaped up the World Bank’s closely watched “Doing Business” ranking from 120th to 73rd place during Jokowi’s first five years as president. Yet, I couldn’t find many businesspeople who believed that investing in Indonesia had actually become any easier during that period.

The problem was twofold. First, there was a lack of coordination across government, which wasn’t unique to Jokowi but was exacerbated by his ad hoc leadership style. The second problem was a failure to strike a durable balance between economic openness and protectionism.

Moving up the World Bank rankings will not attract many foreign investors if you are simultaneously prioritising the development of inefficient state-owned enterprises and nationalising some of the country’s biggest energy projects. But that is exactly what Jokowi did.

Today, Indonesia has more than 100 SOEs, which employ hundreds of thousands of people and dominate large swaths of the economy, from transport, banking and electricity to fertiliser production and pawnshops. They are more pervasive in Indonesia than in any other major economy apart from China.

From the outset, Jokowi saw them as a useful tool to accelerate his plans to develop infrastructure and boost economic growth without affecting the national budget. He hoped, too, that as state entities they could negotiate the usual regulatory minefields with more alacrity than foreign investors.

“If we invest 10 trillion rupiah in roads through the public works ministry, we only get 10 trillion rupiah,” he told me in 2015. “But if we give the SOEs 10 trillion rupiah in capital, they can use it to borrow money from the bank and invest 70 trillion rupiah.”

The problem was that many of these companies were badly managed and riddled with corruption. Advancing their interests meant squeezing out the more efficient private sector, both domestic and foreign. Jokowi leaned on the SOEs without a tight enough grip on their behaviour. The inevitable result was that by 2019, the president had to bring in a successful business owner, former Inter Milan owner Erick Thohir, to clean up the financial and legal mess they had made.

In the natural resources sector, Jokowi pushed ahead with the nationalisation of key foreign-developed projects, from the huge Grasberg gold and copper mine in Papua, formerly controlled by the US group Freeport-McMoRan, to the large Mahakam gas block, formerly owned by France’s Total. Jokowi took over these blocks legally — rather than confiscating them as Sukarno might have done — but only after Indonesian officials had worn down the foreign investors with interminable disputes over contracts and permits.

If Jokowi wants to intensify this process and deepen the role of the nation’s influential SOEs, he is well within his rights. The problem is his inability to establish a steady balance between the state and private sector.

Protectionism runs much deeper in Indonesia than many economists like to admit. They tend to argue that economic nationalism is driven by “Sadli’s Law”, which states that the bad times make for good policy and the good times make for bad policy. When prices for Indonesia’s commodities are high, as during the SBY years, the government is cash-rich and can afford to be picky about foreign investment.

By contrast, the argument goes, when commodity prices fall, as happened during Jokowi’s time in office, governments should open the economy to make up for the financial shortfall. But Indonesia’s history, and Jokowi’s track record, demonstrate that social and political attitudes often override the impact of market forces.

TIME FOR A RETHINK

Indonesia’s inconsistent economic policy has been compounded by Jokowi’s style of governing on the fly. Several people who worked closely with him explained that the president becomes impatient when listening to detailed arguments. “Jokowi is instinctive and stubborn,” said one senior official. “Once he’s decided on something, it’s very hard to change his mind.”

The disregard for expert advice — a global theme of our times — became painfully apparent in the early days of the Covid-19 pandemic. Jokowi played down the threat and refused to disclose information about the spread of the disease, claiming he didn’t want to “panic” the population.

As the death toll spiralled, Jokowi tried to block efforts by local leaders to implement much-needed social distancing measures. While he appeared to sideline the epidemiologists, Jokowi put current and former military figures in charge of the response, a move that underlined his view of the crisis as one of internal control as much as health.

The president’s defenders argued that he was driven, like many other leaders, by a desire to ensure that the economic pain of fighting the pandemic was not worse than the disease itself. However, the disarray prompted an outpouring of public criticism from scientists.

One silver lining of the pandemic is that it may prompt Jokowi to abandon the plans for a new capital, dubbed “Jokopolis” by critics. His government has said the project is on hold for now.

After six years as president, Jokowi’s simplistic approach to the economy seems to have exhausted itself. But, as a political ally told me, one of Jokowi’s greatest strengths is “that people keep underestimating him”. Rather than chasing the capital dream, Jokowi should use the aftermath of the pandemic to rethink his economic policy and take advice from experts much more seriously.

This is an adapted extract from Man of Contradictions: Joko Widodo and the Struggle to Remake Indonesia by Ben Bland, a Lowy Institute Paper published by Penguin Random House on Sept 1, 2020.



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