Page 2 of 2 Indonesian reform, economy at
crossroads By Bill Guerin
banking system. That high ratio continues
to discourage banks from issuing new loans.
Rather, many leading banks prefer to park
their funds at the central bank, where they can
earn no-risk 12% returns. According to remarks
made by Vice President Kalla at a seminar last
month on bureaucratic reform, many bankers fear
signing off on new
loans because of post-crisis
laws that allow for imprisonment of credit
officers if the loans eventually go sour.
The expanding role of the banking system
in provision of financing is a key factor in
macroeconomic predictions, with credit expansion
in 2007 forecast at 15% to 18%. However, with NPLs
still a major problem, bank lending grew by a mere
7.3% from January to September last year.
At the same time, undercapitalized
Indonesian banks are opening new opportunities for
foreign investors. Three small and medium-sized
Indonesian banks were snapped up by foreign
investors in 2006, including Bank Indomex, which
was bought by the State Bank of India, Bank Haga,
and Bank Hagakita, which was purchased by the
Netherlands-based Rabo Bank.
Meanwhile,
the Industrial and Commercial Bank of China
(ICBC), the world's second-largest bank by market
value, is in talks to acquire a 90% stake in Bank
Halim - owned by Rachman Halim, whose family owns
Gudang Garam, Indonesia's biggest cigarette maker.
If the deal goes through, it would represent
ICBC's first acquisition of a financial
institution outside of China.
Waning
terror threat Coordinating Minister for
Security, Political and Legal Affairs Widodo Adi
Sucipto told reporters last week that terror
attacks in 2006 were reduced both in effectiveness
and number. In 2005, 19 terrorist-related bombings
killed 49 and injured 183. Although Indonesia was
still hit by at least 17 bombings in 2006, only
four people were injured and there were no
associated deaths, he said. Widodo also said there
were a number of terrorists still at large and
emphasized that strengthening national security
would create an environment conducive to economic
growth.
The terrorist threat, particularly
attacks that targeted foreign interests, including
the 2003 bombings of the Marriott Hotel in Jakarta
and a botched attempt in 2004 to hit the
Australian Embassy, had badly undermined foreign
investor confidence in the government's ability to
protect their interests. Under President Susilo
Bambang Yudhoyono, Indonesia has redoubled its
efforts to ferret out Muslim radicals.
His
government has imprisoned or killed hundreds of
terror suspects since taking office, winning
plaudits from the United States, which was
previously critical of Jakarta's perceived
half-hearted efforts to curb radical anti-Western
elements. Washington, meanwhile, has apparently
rewarded those efforts through a
yet-to-be-negotiated bilateral free-trade
agreement.
Yudhoyono has also arguably
maintained his clean-hands reputation as an honest
broker throughout his more than two years in
power. For instance, his decision to make Lapindo
Brantas pay Rp3.8 trillion to cover the costs
associated with a gas-drilling accident that
resulted in an unprecedented toxic mudflow that
inundated villages and transportation
infrastructure came at the expense of the
politically powerful Bakrie family. (Aburizal
Bakrie is currently, and perhaps ironically,
coordinating minister for welfare.)
That
said, the early release from prison of Tommy
Suharto, the son of former president Suharto who
was sentenced to 15 years in 2002 for
masterminding the murder of a judge, fleeing
justice, and illegal possession of firearms,
explosives and ammunition, was seen as a major
setback to those fighting for judicial reform. The
slain man, justice Syafiuddin Kartasasmita, had
earlier found Tommy guilty of corruption and
punished him with a 15-year sentence.
Still, the improving macroeconomic picture
has provided few openings for the political
opposition to criticize the president and his
government's economic policies. That's
significant, as Indonesia this year enters the
beginning of a new election cycle, with general
elections due in 2009. Yudhoyono's administration
had promised to cut the national poverty rate, now
hovering around 16%, by half by the time his term
is up. So far, no noticeable progress has been
made on that front, as the World Bank estimates
that some 42% of the country's 220 million people
earn only $1-$2 per day.
Those
still-dismal figures and the government's
inability to translate buoyant economic growth
into more jobs could become politically potent
issues at the next polls. So, too, could
opposition charges that his government has not
done enough to clean up endemic official
corruption. Vice President Kalla is on record as
saying last month that the government's current
anti-graft drive actually obstructs the
functioning of the economy, by making state
officials, fearing possible allegations of
corruption, hesitant to make important decisions.
How much political capital Yudhoyono might
be willing to expend to address the still-many
structural and legal problems holding back the
Indonesian economy is very much a wild card. What
is clear is that Yudhoyono still faces plenty of
important reform issues that, if faithfully
pursued, would go a long way toward knocking
Indonesia into a more stable and upward economic
trajectory.
Bill Guerin, a
Jakarta correspondent for Asia Times Online since
2000, has been in Indonesia for more than 20
years, mostly in journalism and editorial
positions. He specializes in Indonesian political,
business and economic analysis, and hosts a weekly
television political talk show, Face to Face,
broadcast on two Indonesia-based satellite
channels. He can be reached at
softsell@prima.net.id.
(Copyright 2007
Asia Times Online Ltd. All rights reserved. Please
contact us about sales, syndication and republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
