Demokrasi Page 15
But the impact of these on poverty was often dissipated. The Raskin rice handouts required the registration of households by village heads, who often found it hard to resist the clamor from less-deserving households to be included. In practice, the poor ended up with an average 3.8 kilograms of cheap rice. School fees continued to rise fast, encouraging a high dropout rate at the transition points between middle school and senior high school.
Provincial and district governments also started their own social welfare systems. In the Central Java city of Solo, the administration of Mayor Joko Widodo introduced free health treatment and other assistance for the very poor, though it had the effect of drawing in populations from surrounding areas, so the poverty measurement actually went up. Nevertheless, when he was elected to the governorship of Jakarta in 2012, Widodo brought the same measures to the capital.
At the start of 2014, these various health insurance measures were being enveloped in Yudhoyono’s most ambitious social welfare scheme, which was to cap his presidency. A new social security agency was to start managing universal health insurance coverage, taking in the existing programs and some of the activities of the four state-owned insurance companies. It would initially cover 122 million people, about 96 million of whom were already included (at least in theory) in the previous health scheme for the poor and near poor; the remainder comprised civil servants and private-sector employees who were already in other state-sector insurance nets. A further 50 million would be covered by regional schemes, leaving about 74 million without cover. The World Bank has estimated it will take another five years, to 2019, to harmonize all the health schemes and extend coverage so that it becomes truly universal.
The government has undertaken to pay the premiums, set at about $1.50 a month, for 85 million poor and near-poor citizens, entitling them to treatment in a “third-class” room in public hospitals. The remainder will pay a basic 5 percent of their income as a premium (in many cases this is split with their employers); those who opt for a high level of coverage will get first- or second-class wards. The scheme is projected to raise and disburse about $20 billion a year, with the central government putting up about $5 billion of the premium income. A second state agency is due to start national schemes of accident and death insurance and age pensions in 2015.
These are highly ambitious goals for a country that is still in the lower-middle-income category, with a majority of its workforce not in formal-sector employment. Before they were launched, Indonesia’s existing array of social welfare and free health-care programs were equivalent in total to 0.5 percent of the nation’s gross domestic product, far below the average 2.6 percent in the region. Spending on health generally by government was also a modest 2.2 percent of GDP, against the 5 percent level that its own 2009 Law on National Health requires.
If doubts are raised about the government’s ability to stick to its commitments, with the economic growth rate dropping below 6 percent in 2013 largely because of weaker commodity prices, the finger is usually pointed at the enormous burden of fuel subsidies, which crowd out other types of expenditure. From being an oil exporter up to the turn of the century, Indonesia has become a net oil importer. Oil production declined from 1.5 million barrels a day in 1999 to around 900,000 barrels a day in 2013, while oil consumption has climbed steadily to nearly 1.4 million barrels a day. The crossover from net exporter to net importer occurred around 2003, and the transition was marked in 2008 by Indonesia’s withdrawal from the Organization of the Petroleum Exporting Countries (OPEC).
The shortfall has been filled by imports of refined products, since the state monopoly of refining under Pertamina is stuck at a capacity of about 1 million barrels a day. In 2013 these petroleum imports were costing $39 billion a year, running down Indonesia’s foreign reserves and causing weakness in the rupiah, which fed domestic inflation. Subsidies of petrol, kerosene, and diesel were chewing up a larger and larger portion of government revenues. This was effectively a government system of reverse “welfare” that chiefly benefited those able to afford cars and motorbikes, who bought fuel more cheaply than motorists in any other net oil-importing nation (even the United States).
In 2005 and 2008, Yudhoyono faced political crises when his economic ministers forced him to go into battle with a parliament that was not ready to share the blame for petrol price increases but all too willing to make capital out of consumer protests. Then in 2009 Yudhoyono cut the administered oil product prices ahead of his reelection, while retaining the ad hoc welfare handout that compensated for the 2008 price rise. In 2012 he balked in the face of parliamentary opposition to another recommended price rise, even though his party was the biggest in the DPR and in theory led a majority coalition. This dragged out the problem, which returned in early 2013, when the subsidy threatened to blow out to $23 billion a year. With the electricity subsidy adding a further $9 billion, this comprised 20 percent of total revenues.
After months of hesitation, the government did increase fuel prices sharply. Even so, the remaining subsidy of about $18 billion still represented 13.3 percent of government revenue, and Indonesia’s motorists continued to enjoy remarkably low prices (about 59 cents a liter for petrol, and 50 cents for diesel). The new finance minister, Chatib Basri, was the latest in a long line of economic technocrats who have fought—successfully, for the most part—to keep Indonesia’s external balances, its budgets and monetary figures, in respectable shape. He argued for an automatic indexing of fuel prices that would eventually accustom Indonesian consumers to fluctuations and allow a gradual elimination of the subsidy altogether. Ahead of the 2014 election, he was finding no takers. As the economist Hadi Soesastro noted as early as 1979, Indonesia’s fuel subsidies were a prison from which the inmates did not wish to escape.
Another way Jakarta could escape from its budgetary corner would be to raise its domestic oil production. Few in the oil business think Indonesia has fully explored its geology and located all its exploitable reserves. But much of the existing and prospective petroleum discoveries lie offshore, in places that require big capital investments and advanced technology. The multinational companies have held back their investments because of the tough bargains that Indonesia’s oil and gas authorities won in previous times, and which they kept when more and more alternative locations for oil extraction had opened up around the world. One bright spot was an onshore field at Cepu in East Java, which ExxonMobil was due to bring into production in 2014 with a planned output of 165,000 barrels a day.
Many of the existing fields are running down, partly because of an investment freeze by their operators. About twenty-nine operating contracts will expire between now and 2021, but the government has delayed decisions on whether the existing operators will get extensions. The biggest is the giant Mahakam gas and oil field, developed and run off the coast of East Kalimantan by the French firm Total. With its contract due to expire in 2017, Total is holding back $6.6 billion in planned investments, which it has said are needed to keep up and expand production. The governor of East Kalimantan and the bupati of the nearby Kutai Kertanegara regency, along with nationalist politicians in Jakarta, have urged the state to resume ownership of the site, without suggesting where capital and expertise might be sourced.
While this shakedown was discouraging investment in oil exploration and investment, petroleum-sector ministers and officials were addressing one of the symptoms of the trade gap in oil and the subsidy burden by proposing an $8 billion investment in Pertamina’s refining capacity. This would avoid the extra cost of importing refined products instead of crude oil. But given the worldwide overcapacity in refining that resulted from expansions in India and the Middle East, a removal of subsidies and liberalization of oil-sector policies seemed a better way to dampen domestic demand and encourage supplies. Government investment funds could then go to infrastructure that would underpin a broad range of enterprises.
But as well as spending on health, e
ducation, and welfare, the subsidy burden limited Indonesia’s scope for capital spending. The nation’s most conspicuous strides in infrastructure since reformasi have been in mobile telephony and civil aviation, resulting from the initial breaking of public-sector monopolies by the Suharto children and subsequent liberalizations, in which private-sector capital was the driving force.
Like their counterparts in China and India, Indonesians took to mobile telephones with great enthusiasm, buying cheap handsets and using prepaid subscriptions at some of the lowest call rates in the world. Throughout the first decade of the twenty-first century, subscriptions grew at more than 37 percent a year, with three big operators emerging: Telkomsel, Indosat, and XL Axiata. By contrast, the number of fixed-line connections has risen only slowly, to about 12 million, mostly for businesses and big hotels, which needed high-speed broadband.
Customers for fixed wireless connections in the more remote areas have diminished from 18.7 million to about 14 million as the coverage of mobile networks has increased. By 2013 Indonesians had 280 million connected mobile devices, far exceeding the population numbers. The number of individual customers was actually estimated at about 165 million, since many have two or more mobile phones, either to pick up the best reception or to juggle cheaper call prices. It became common to see Indonesian businesspeople laying out a couple of smartphones at a meeting or business lunch table. Indonesia became the third-biggest market for Blackberry by 2012; then the arrival of Android-based phones, which cost as little as $50, meant smartphones were soon used by about 15 percent of customers. This percentage was expected to rise to 40 percent—or 75 million smartphones—by 2015.
Indonesians were using these phones to connect to the Internet. They formed the largest national community on Facebook and accounted for 12 percent of all tweets on Twitter. About 63 million Indonesians were using the Internet one way or another by 2012, according to some estimates. The Internet and mobile messaging became channels for travel bookings and many other transactions, for advertising, and for organization, though the full potential for mobile banking, insurance, and other services was held back by the slowness of regulatory change. Indonesia also became the largest source of spamming and malicious software—at least by volume, if not produced with the same sophistication as that of Chinese or Russian hackers.
When it made use of Internet booking systems, the low-cost carrier model flourished in Indonesia’s civil aviation. At first, new private carriers struggled with chartered and secondhand, older-model Boeing 737s. Brothers Rusdi and Kusnan Kirana, who ran a small Jakarta travel agency, started with a single jet in 2000 and gradually built up credibility with financiers and aircraft makers. In 2011 their Lion Air astonished the aviation world with an order for 230 Boeing aircraft, worth $22.4 billion, and then followed this in 2013 with an order for 234 Airbus passenger jets for $24 billion. Export credits from the United States, France, and the European Union financed this explosive growth.
The state airline suffered from the restrictions of state management and its work cultures. It too joined the rush into the low-cost carrier sector with a subsidiary called Citilink. By 2012 airports were overloaded: Jakarta’s Soekarno-Hatta Airport, opened in the early 1980s, was at double its planned capacity of 24 million passengers. Big new terminals opened in cities like Medan, Makassar, and Padang, many with direct connections to other parts of Southeast Asia. But ordinary middle- and lower-middle-class Indonesians now had the option of flights that were often cheaper than the long intercity bus and interisland ferry trips that had been their main method of travel a decade earlier.
On the ground, it was not so easy to get around. The big cities became clogged with cars, while any gaps in the traffic were filled by motorcycles, which were imported or assembled at the rate of 7 million a year. The tollways around Jakarta from the Suharto era were extended, spreading congestion throughout West Java. At the end of the Muslim fasting month every year, the traffic jams reached from the capital into Central Java. It took until 2013 to double-track the railway between Jakarta and Surabaya, in order to take some of the heavy traffic off the roads. It was the economist J. K. Galbraith’s “private affluence, public squalor.” Jakarta’s government had long dithered on starting a mass rapid-transit rail network: the first plan was drawn up in 1980, but the first contract was not signed until the end of 2013.
Another sign of modernity has been the visible spread of bank branches and their automatic teller machines. Behind this convenient front-office presence, however, Indonesia’s banks still have quite a low penetration into the daily lives of its people. They have over 50 million accounts, but the deposit-to-GDP ratio has stayed down toward 20 percent, the lowest in Asia, while credit to GDP is also low, between 30 and 40 percent. Only in 2012 did investment loans exceed working capital loans. Those who could—notably, exporters of commodities—put their savings and accumulated funds into places like Singapore. The rupiah remained a currency crippled by memories of 1997–98, which were kept fresh by its periodic falls in value. It remained a medium of exchange but not one of saving.
The Indonesian government’s welfare burden could also have been relieved if formal-sector employment (or regular jobs) had been spread more widely by the fast growth of the century’s first decade. Its foreign investment hawkers were advertising the “demographic dividend” of the nation’s very young population structure. But it risked squandering this dividend.
Manufacturing as a contributor to GDP fell from 29.1 percent in 2001 to 24.7 percent in 2012. The big expansion rate of garment, shoe, and bag manufacturing in the later years of the New Order tapered off. The era of democracy loosened the repression of labor unions, allowing Indonesia to meet International Labour Organization requirements in 2005. Provincial and district governments took over the setting of minimum wages annually, based on surveys of cost of living.
Factory workers in the garment industry, mostly young women, were particularly squeezed, earning around $200 a month and paying up to $50 for kost (boarding) in shared rooms in shabby buildings. A legal requirement to give severance pay of two months for every year of service deterred many employers. The mostly South Korean owners of the garment factories avoided this impost by keeping their staff as casual employees, by squeezing more hours out of their workers, and by trying to keep union officials away—with the help of preman, who hung around factories helping with security and waste disposal.
Much of the cloth and other raw materials for garments came in “by submarine,” as smuggling was called. The big sportswear brands tended to walk away from Indonesia. In the ruthless garment trade, the country’s labor costs were closely measured against those in Bangladesh, Nepal, Cambodia, Vietnam, and Myanmar. By 2013, as the Jakarta administration gave another sizeable rise in the city’s minimum wage, the exodus of garment and shoe manufacturing to cheaper locations in West Java continued, and Central Java cities with minimum wages half that of Jakarta, such as Semarang and Solo, became more popular. This was not a bad thing, as employment spread to areas, like Srihardjo, that had little to offer their young people, especially women. Back in Jakarta and nearby parts of West Java and Banten provinces, unions in sectors such as electronics, cars, and auto components, and other metal trades were able to extract much higher rates.
Overall, the problem was not that manufacturing was shrinking or had stopped growing but that Indonesia was not making the progress it needed in job creation. The rise in minimum wages was seen by economists Asep Suryahadi and Christopher Manning as effectively cutting off the traditional pathway into formal-sector employment, via migration to the cities and a spell in the informal sector. After declining steadily over decades, the proportion of workers in the informal sector—as peddlers, operators of street stalls, household servants, ojek (motorbike taxi) drivers, and the like—was rising again, reaching 71 percent of the workforce near the end of Yudhoyono’s term.
“Now Indonesia is regressing,�
� the eminent retired economics professor Satrio Budihardjo Joedono has said. “It is a commodity-exporting country again, as when we were a Dutch colony. The automobile makers are now exporting coal.” There is some truth and some overstatement in this; the last remark is a reference to Edwin Soeryadjaya of Adaro Energy, even though in fact Astra International still makes Toyotas; it’s just that Soeryadjaya’s family no longer owns it.
While the finance ministry, the central bank, and Badan Perencanaan Pembangunan Nasional (Bappenas, the National Development Planning Agency) had the commanding heights of the economy, wielding the macroeconomic instruments, a band of cloud often obscured the ministries down the slope that were in charge of “enabling” regulations and discretionary powers. These ministries are the preserve of interventionists and economic nationalists. The government, guided by the Ministry of Finance, enacted an investment law in 2007 mandating “national treatment” for foreign investors, and published a narrow “negative list” that in theory opened all other sectors to investment. But “the seeming ease with which ministerial decrees ignore the list” was remarkable, according to the economist Vikram Nehru.
In 2012 the government was persuaded to issue a regulation requiring all mineral producers to stop shipping ores and to set up refineries for their production by 2014. At the end of 2013, the Ministry of Natural Resources and Mines was circulating drafts of a plan to nationalize all foreign-owned mineral producers over fifteen years, requiring them to offer shares first to the local regional governments and then to public-sector enterprises.
With the initial Freeport work contract coming to the end of its fifty years from 1971, when production started, it was unclear whether Jakarta officials had this big game in their sights, as well as the Newmont gold mine in Sumbawa. Freeport appeared confident of agreements on options of extension worked out with the Suharto government minister, Ginandjar Kartasasmita, in the 1990s and was planning a massive $14 billion investment in underground workings.