Dr Dorodjatun Kuntjoro-Jakti is the coordinating minister of economic affairs in Indonesia, the man some think may have mission impossible, as he seeks to balance the needs of central government with newly empowered regional parliaments. He spoke to FinanceAsia in Jakarta about the positive aspects of the Indonesian economy and the rumour on Wednesday of his resignation.
The international perceptions of Indonesia are coloured by all the bad news we read about. What are the positive parts of the Indonesia story?
Despite our difficulties, we do have more and more competition within Indonesia. For example, in retail we have companies such as Carrefour, Matahari competing stiffly against one another. We continue to get reports of new openings. And there is also Electronic City.
And if you look at the wet markets, they attest to the purchasing power of the society at large. There is also increasing container traffic, and again because of the surge in the economic activity of small and medium enterprises, we do have cases of overload in the road system, in particular in the southern part of Sumatra.
I now feel, in fact, that we have reached a time when we have to very seriously think about our infrastructure needs again.
Why do you think that Indonesia is always perceived externally to be just bad news and more bad news?
It's a combination of many dimensions. But critically we are an economy in transition -- from a more centralized authoritarian system to a more decentralized, market-based system. Politically this means an increasing role for many different types of stakeholders, at a national level and also regionally. This may give the wrong picture. It may seem we are a very confused country with no sense of direction. That is the nature of democracy. But the taste of the pudding is in the eating of it.
Nowadays there is more initiative taken by people in the society at large. But you have a cacophony of events and statesmen. Outsiders find this discomforting because they were used to a stable authoritarian Indonesia. But, to my mind, it is a sign that should be welcomed.
Has the greater autonomy given to the regions proved positive for economic growth?
Yes, although we are also seeing some things going the wrong way, such as certain regulations being imposed that we in Jakarta think should not have been imposed. In some cases it hinders intra-trade between Indonesia's regions, or creates problems for would-be investors. We try to view this in a positive context. This is the first time these regions have had power, and regional parliaments now control funds we are transferring to them.
It is difficult. This is a country of three and a half time zones. Some of the regions will be at the forefront of change because, being older and more established provinces, they have the institutional capacity to govern. We are transferring more than one million civil servants from the central government to the regions.
Is Indonesia moving from an era of more central planning (as characterized by the Suharto era) to more local decisionmaking?
Yes. The five year plans are becoming much more indicative. The days of allocating resources on the basis of a national strategy are basically being overrun by the regions which want more say. The laws on autonomy are giving them more and more funds even at the lowest level. This is a time when we are being very serious about trying to create growth centres outside Java.
On the subject of the real economy, isn't consumer spending up 25% this year?
It is fascinating what's happening with the retail market. But also no one realizes that we are the number one producer and exporter in the world of liquified natural gas. And right now we are increasing our exports of high grade of coal.
Indeed, we have an amazing range of exports when compared to other countries in the region and that's the reason why whenever something looks like it is facing problems there is also always something that compensates, and why our balance of trade continues to be on the surplus side in spite of the difficulties. Our exports to the United States continue to increase. In 1998 it was $9.2 billion, and annualized this year it is $10.4 billion.
Obviously, the Bank Mandiri roadshow in December will be a proxy for confidence among international investors in Indonesia. What are the messages you think investors should take away from it in order to decide this is a good risk to take?
Indonesia is, of course, in the eyes of the rating agencies still a high risk economy. I understand the reasons. When you combine all sorts of indices you will come to that decision. As I said, we are really combining all sort of processes of transition in the government, and society at large and even for a normal country one transformation is enough difficulty, and in Indonesia we are doing it on every front. We are also a coalition government. This is a new Indonesia. It is going to be exciting, full of challenges, but you do have a premium on that for investors.
The investors who invest later when we are more stabilized, will be faced with a better rating but the return is going to be lower. But for those who want to venture at this moment, Indonesia is a good bet. We have the exports of LNG, coal and oil, and by the way, we keep finding new sources. We just found one of the largest oil wells onshore, north of Java, which is good for more than 120,000 barrels per day for more than 20 years. In East Kalamantan, at a depth of one and a half kilometers, a combination of gas and oil has been discovered.
Plus our palm oil continues to expand.
Indonesia is changing, and I think this is the time investors have to come in and see it for themselves.
Investors will think about Indonesia when they decide whether to buy Mandiri, but they will also think about it as a bank. What safeguards can you give investors that the banking sector in Indonesia will not make some of the mistakes it made in the past?
Well, we are very seriously thinking of creating three or four banks that will have to compete with each other. It will then be up to the public and the investors to introduce a sense of corporate responsibility. For me, this is an open market now, and we are dealing with a process whereby close family-owned companies are being abandoned, and becoming public corporations open to scrutiny.
The stakeholders will have to make sure that Bank Mandiri follows the modern rules of corporate governance.
How confident are you that there will be a sale of BCA to a strategic investor?
We are moving forward. We have investors coming in, and although we cannot say which ones, there are more than 10. Now we are offering other banks such as Bank Niaga, BII and Danamon. I hope the successful sale of BCA by the end of the year, will lead to the sale of other banks.
Bankers here say they are less interested in BCA, and that a consortium of private equity firms is a more likely buyer. Do you agree?
That is a possibility, but I cannot say more. I joined the discussion with the IMF team to discuss these matters. It took us the better part of two weeks, and it was very good.
We are focusing more on the need to restructure the banks, and of course we need the money. We need cashflow to support the budget of 2001. We think this is going to be met. We have to think very seriously about 2002.
One of the most exciting sectors is telecoms. I understand there is talk of the government selling down its stake in Indosat to try and raise finance?
Actually, the telephone density of Indonesia is distressing. And you can't build a modern economy without really increasing the teledensity. Internet access is the most important thing these days. We have satellite, but like it or not we still have to lay down cables, and we will have to lay down kilometres and kilometres of optic fibre. That will force us, like it or not, to have to divest more and more of our telecoms enterprises.
I had heard that the government was keener to retain a majority stake in PT Telkom than Indosat.
I am dealing with so many issues from the past that are now cast in a new light, that I cannot say anything for sure beyond even one week. It is evolving all the time, and we have public debates. It is evolving all the time. It is very difficult for me as a decisionmaker to say this or that. I have to move in this environment of rapid discussions on so many issues, and it is very fruitful. It is an exciting time, but also a difficult one for me as an Indonesian minister.
You mention this issue of week-to-week changes. How difficult is it for you when yesterday the newspapers say you were going to resign?
Well there is this kind of politicking. However, unless you hear it from myself it is useless information. The strange thing to me is that no one asked me if it is true or not. I was in Aceh, but my cellular phone worked and I found it strange that no one from the media decided to call me to ask whether it was true or not. So, that is Indonesia today.
Clearly there are a number of challenges. Bankers say that one of their critical concerns on the reform front is contract law. Their concern is there isn't one, or rather that it isn't enforceable.
I completely agree with that. The judicial reform is something we need to work out. My colleagues in government are going to be persuaded of this more and more by their contacts with people on the business side. The supremacy of law and the independence of the judiciary is something we need to work out, but discussions of sociologists, historians and so forth tell you how you need a long term effort to create this.
Another concern is that if there aren't new orders for electricity generation plants within the next six months there will be brownouts in 2004.
The year 2002 is going to see a slowdown in the economy. This is unfortunate, but it may be fortunate for our electricity strategy. It gives us a breathing space. But we need to re-gear our electricity strategy. If it were not for the slowdown next year I think we would be in real trouble.
This slowdown will mean we have enough capacity to carry us to 2004 and by that time I hope at least one plant will be completed in Java and at least one more outside Java. I hope when I speak to parliament about a quick solution to the electricity problem we will get it. I hope they will see the seriousness of the problem in 2002.