The silver lining of Indonesia’s big economic miss

Jokowi wants the chief executives who follow him to reach for high-income status and sees no reason why Indonesia shouldn't someday become a member of the elite Organization for Economic Cooperation and Development. Its helpful for emerging markets to have big targets that are easily understood and hard to manipulate. But there's a fine line between aiming high and pie-in-the-sky.

By Daniel Moss

By his own standards, Joko Widodo has fallen well short of a major economic goal during his decade leading Indonesia. Growth has been laudable in a neighborhood where the pace of expansion is undergoing a long-term slowdown, but nowhere close to the outgoing president's lofty ambitions. That's a pity, because part of Jokowi's attraction as a candidate in 2014 was his image as a self-made businessman, an outsider who could nudge the country toward achieving its much-promoted potential.

This is a failure that comes with some important caveats. Business notched some important wins under the stewardship of Jokowi, whose successor will be elected Wednesday. Landmark legislation reduced red tape in some key areas and lowered barriers to hiring and firing. A tax amnesty unearthed more than $300 billion in hidden assets. Infrastructure, long a demerit for Indonesia, is slowly improving — or getting less bad. (Everyone still nurses their favorite horror stories of Jakarta traffic.) The rupiah has held up relatively well against the strong dollar.

The president's economic goals were more aspiration than plausibility. He pledged to boost gains in gross domestic product to 7 per cent annually, a promise he reiterated before re-election in 2019. Instead, growth has been stuck at around 5 per cent for most of his presidency. Like just about everyone, Indonesia suffered a nasty recession during the peak of the pandemic. The recovery has been solid, and the archipelago regained its status as an upper middle-income country last year.

Jokowi wants the chief executives who follow him to reach for high-income status and sees no reason why Indonesia shouldn't someday become a member of the elite Organization for Economic Cooperation and Development. Who doesn't want prosperity for their citizens? Its helpful for emerging markets to have big targets that are easily understood and hard to manipulate. But there's a fine line between aiming high and pie-in-the-sky.

Jokowi has been aided greatly by Finance Minister Sri Mulyani Indrawati. A former World Bank managing director, she tells a compelling story of why Indonesia is the right place to invest at the right time. She speaks the language of international capital. I recall my first meeting with her in Washington, when I was responsible for Bloomberg's economic news. This was no colorless technocrat reciting a dry list of templated numbers. She could frame a case for Indonesia that mixed return-on-investment history with penetrating insights from social and political science. I was reminded of Paul Keating, the former Australian prime minister, and Anwar Ibrahim, when the Malaysian premier was finance minister in the 1990s.

At tricky moments during the Jokowi administration, Sri Mulyani's credibility was vital: She assured investors that there would be guardrails around Bank Indonesia's financing of budgets, usually a no-no in orthodox central banking, and succeeded in watering down legislative efforts that would have undercut the independence of the monetary authority. Whenever speculation does the rounds that Sri Mulyani will leave early, the rupiah gets the jitters. Jokowi's term ends in October; she is considered unlikely to stay beyond that point. (A rare misstep was sanctioning JPMorgan Chase & Co. after a sell recommendation on Indonesian stocks. The move struck me as petulant.)

The country is feted as the next big thing in global commerce, a reputation that has clung to it in good times and bad. Now that investors have soured on China, the projection looks more credible than in the past. Deutsche Bank AG described Indonesia as a rising economic powerhouse. Measured against the wreckage of the Suharto era that ended in financial collapse and sectarian warfare in the late 1990s, Indonesia has made enormous strides. With vast resources and a young population, sometimes all the nation seems to need is the ability to get out of its own way. Layers of bureaucracy often appear to battle each other. Decision making can be opaque. Corruption, which reached epic levels under Suharto, is far from eradicated.

Happily, economic nationalism has been less strident in Jokowi’s later years than during his first term. Its understandable that Indonesia wants to earn as much from mineral wealth as possible, but the country must still compete for international capital. Officials often fret about the value of the rupiah; it's at the core of the central bank’s mandate. An erosion of confidence would be lethal. The new president will learn that for all Indonesia's endowments, its still very dependent on the outside world.

Jokowi is bequeathing his successor a solid, if unspectacular, platform. He has done well, though not so well as he had hoped. The next leader should set aside some of the hype that has prevailed in recent years. There's no substitute for buckling down and doing the work. If that doesn't yield results, all those bullish assessments that Indonesia's time has finally come will still be good in five, 10 or even 15 years.