James Castle: Indonesia’s Economy – The Next Ten Years | Greg Fealy: Missing Islam?

Jim Castle
CastleAsia Group

Greg Fealy
Australian National University

James Castle of CastleAsia consulting firm and Greg Fealy of Australian National University looked at Indonesia from two different perspectives in the wake of the 2004 election.  Both observers fundamentally were optimistic about the results of the election, cheap the longer term consequences of the direct election of officials and legislators, and the prospects for forward movement under the next administration in Jakarta.  At the same time, concerns were expressed about the pace of movement under either of the next presidents – Megawati or Susilo Bambang Yudhoyono (SBY) – and their ability to pursue a coherent legislative and policy agenda that would have wide support in Parliament (the DPR) and meet public expectations.  Concerns were also expressed about the role of the “elites,” special interests and political factions, including among Islamic organizations and political parties.

James Castle:  Indonesia’s Economy – The Next Ten Years

James Castle predicted that the Indonesian economy will continue to muddle through (in what he calls a “Sidewise Scenario”) for the next 3-5 years.  After this period there is a reasonable chance it will move to a high growth scenario of six percent or more if, as he expects, democratic reforms continue and “across the country voters will be asking how much longer they must tolerate a decline in living standards and demanding higher standards of government performance.”  A high growth scenario could produce a “China-like” rate of 7-8 percent per year, he said.

He said Indonesia must first overcome some highly entrenched problems before it can attract the foreign investment needed to create real economic growth.  “Much of what needs to be done is already well known,” he said.  “Policies have already been defined by various institutions inside and outside government.  Detailed proposals for improving the investment environment…exist within the administration and parliamentary machinery.  It is also well known that the massive financial resources needed for investment cannot be squeezed out of the budget or obtained from foreign aid.  What has been lacking is the political will to act on this knowledge….Policy-makers seem intent on extending their legacy of a complex command and control regulatory environment rather than creating an enabling or facilitating environment.”

The problems stem from tenacious vested interests in the old way of doing things.  He included among them an “overly-centralized national government still unwilling to accept decreased control over economic activity; fear of foreign investment; continued protection of domestic industry rather than increased competition in industrial policy; political and bureaucratic elites accustomed to protecting the powerful” and “an over-capitalized banking system with poor human resources unable to evaluate credit risk and appropriately allocate capital.”  There is an over-reliance on state-owned enterprises, banks, foundations and quasi-governmental institutions, together with a misperception that investment growth can be created by changing laws and regulations instead of making real changes in the way business is done and ensuring security of investment.

A strong leader might overcome this inertia more quickly, he said, but “both Megawati and SBY have weaknesses that reduce this possibility….Megawati has demonstrated little awareness of the importance of taking necessary steps to facilitate foreign investment.  SBY is more aware of its importance but may not be able to mobilize parliamentary support for “such aggressive policies” in the short run.

The good news in Castle’s analysis is that, with successful elections in 1999 and 2004 and the first direct presidential election this year, “democracy is clearly more firmly rooted in Indonesia than any but the most rosy optimist would have dared hope in June 1998 when political freedom was declared by ‘accidental President’ B.J. Habibie.”  Second, in Castle’s view, growing regional autonomy (decentralization), and particularly the expected direct elections of regional officials, will create local pressures for economic reform.  And third, the gloomy scenario of low growth and economic collapse is not likely, he believes, because he does not see the potential for widespread domestic violence or “strong populist sentiments” that would force or entice the central government to abandon its prudent fiscal policies and resort to wild overspending.

His assumptions, he said, are that Indonesia needs at least $100 billion in infrastructure investments in power supply, highways, seaports and telecommunications over the next ten years in order to set the stage for real economic growth and job creation.  (He estimates that 30 percent of the labor force is under-employed.)  In the past the government, through state-owned enterprises, provided much of infrastructure capital.  Today the government simply does not have the money.  Neither government nor international assistance is sufficient to supply this much capital.  Therefore private sources, whether domestic or international, must do the job.  In this way Indonesia will be forced, as befits a democratic society, to turn to the market for economic development.

Greg Fealy:  Missing Islam?

Greg Fealy said he put a question mark after his talk’s title because he is asking: was Islam missing in the recent Indonesian elections, or are we missing something because we can’t see the influence of the ‘Islamic’ vote?

He concluded that Islam was largely missing and a non-factor in electoral terms.  The reason, he concluded, is that “Islamism had little attraction to the general electorate.”  He said that all self-declared Muslim religious parties downplayed Islamic issues during the campaign even though they may previously have stood for much more conservative views.  He said internal party polls consistently showed that voters are turned off by Islamic issues and the risk of being perceived as extreme.  Political leaders say “our branch leaders tell us no one will come to rallies” if they focus on religious issues.

He thus differs with commentators who see a rising Islamist influence in Indonesia.  (He defines ‘Islamist’ political parties as those that are ideologically based on Islam, and whose leadership and constituents are overwhelmingly Muslims.  These would include the PPP, PKS, PBB, PBR and PPNUI.  He calls the PKB (Gus Dur’s party) and PAN (Amien Rais’ party) ‘pluralist Islamic parties,’ which are based on Pancasila as their guiding ideology and are inclusive in terms of membership.)

He acknowledged that election results seemingly showed an increase in the Islamic vote.   The vote for all Islamist and Islamic parties went up slightly from the 1999 to 2004 elections, he conceded (37.9 percent to 38.3 percent) but it was still well behind the nearly 44 percent of Islamic votes in 1955.

Of the 5 “Islamist” parties, the vote significantly increased as well, from 16 percent in 1999 to 21.34 percent in 2004.  This was due almost entirely to gains of the Prosperous Justice Party (PKS), described by Fealy as a “complex and evolving phenomenon.”

“The PKS was the only big winner” in the parliamentary elections, Fealy said.  (He had previously discussed some of the weaknesses of the other Islamic parties.)  Although it got only 7.34 percent of the total vote in 2004, this represented a five-fold increase over  its vote percentage in 1999; significantly, it scored increases over the whole archipelago, in addition to its heavy vote in Jakarta.  “It is a party not easy to describe,” he said.  “Its core group was inspired by the Egyptian Muslim Brotherhood,” he said, “but the party made a tactical decision in 1999 to broaden its support by adopting a broader array of policies.  Its membership increased ten-fold and the party is more heterogeneous today.  It even fielded 30 non-Muslim candidates, he noted.  While there are liberals in the party there is also a militant Islamist element, he said, and there are concerns about the motives and behavior of some of its leaders.

Still, the PKS is a highly disciplined and demanding organization.  It is the only true cadre-based party.  Members must know the party platform.  They cannot buy their way in or use a patronage network.  Merit and commitment are the most important values.  They are serious about reform and social activism, setting a moral example.

“We should welcome the PKS,” Fealy said.  They are good for Indonesian democracy.”  Indonesian Islam, he concluded, is dedicated to moderate and secular government, not to one or party like the PKS.

Q:  Some scholars are analyzing the votes by segments and areas to show, they claim, that 50 percent of the electorate was motivated by Islam.

A:  (Fealy) The figures are misleading.  Golkar can be said to be ‘Islamic’ because most of its members are Muslims, and its leader, Akbar Tandjung, once headed the foremost Muslim Youth Group (HMI).  He has an activist but not “Islamic” background.  On the other hand, Golkar did vote for the recent education bill that requires private schools to provide teachers of the same religion as the students to whom schools must provide compulsory religious classes – a controversial bill approved by both Golkar and PKB.  If Golkar votes similarly on other issues there might be some evidence that Islamist policy and principles have been mainstreamed politically.  But, Fealy observed, Golkar was actually more “Islamic” 5 years ago under Habibie than now.

Q:  How do you regard the leadership qualities of SBY as president?

A: (Fealy) There are some questionable leadership qualities.  He was not forceful in cabinet meetings, especially when faced with pressure from other ministers or he knew President Megawati was doubtful.  He was equivocal about resigning from the cabinet to run for president.

(Castle)  SBY will have the problems of meeting high expectations among the electorate.  If he should win the presidency by a healthy margin, perhaps 60 percent, a good honeymoon period may embolden him to stronger action.

Q:  Where is SBY’s financial support coming from?

A: (Castle) It’s coming from the business community, probably in violation of Indonesia’s very strict campaign funding laws.  But his campaign is relatively clean.  You cannot “buy” an election in Indonesia.  It’s impossible to cheat in any significant way.  The polling stations are too small and the counting is too transparent.

(Fealy)  Tommy Winata is a major SBY funder.  [Winata is a notorious business tycoon currently involved in a legal battle with Tempo magazine.]  The Salim Group, powerful under the Soeharto regime, has shifted its support from Wiranto to SBY.

Q:  The pre-election polls showed SBY with a stronger lead than he ended up with in the first presidential election.  Why did his numbers go down in the last days?

A:  (Castle) First, there was a 5-day lag from the field to the poll analysis [so some of the high numbers may have been out of date].  Second, there was criticism about vice presidential candidate Kalla’s remarks that were perceived to be anti-Chinese and anti-women.

(Fealy) A Kompas poll indicated that Megawati’s ratings went up over the last three months.  After long inactivity, she spurred some government actions, such as the investigation of the governor of Aceh.  She gave salary raises to public servants.  Her campaigning improved after the legislative elections.  And she got sympathy points just for showing up at the presidential TV debates.