LECTURE BY BORISLAV V. KORKODELOVICH “INDONESIA, LARGE FAST-GROWING ECONOMY”

LECTURE BY BORISLAV V. KORKODELOVICH “INDONESIA, LARGE FAST-GROWING ECONOMY”

The Association of Serbian-Indonesian Friendship NUSANTARA, in cooperation with the Belgrade City Library, organized a lecture by Borislav V. Korkodelovic, a political scientist and journalist from Belgrade on the subject “Indonesia, large fast-growing economy.”

For the occasion, Mr Korkodelovic invited Milanka Stojakovic, advisor with Foreign Economic Relations Committee of the Serbian Chamber of Commerce and Mr Yoga Pamungkas, First Secretary and Head of the Economic Department of the Embassy of the Republic of Indonesia in Serbia.

The guests were greeted by Isidora Injac, marketing associate at the Belgrade City Library, Dr Aleksandar Rakovic, President of the Association of the Serbian-Indonesian Friendship “Nusantara” and H. E. Samuel Samson, Ambassador of the Republic of Indonesia to Serbia. The lecture was attended by many friends and members of the Association, as well as the representatives of foreign embassies in Belgrade.

The participants agreed that the two countries should focus on improving economic cooperation, as the overall relations between Serbia and Indonesia are good.

H. E. Samuel Samson, Ambassador of the Republic of Indonesia to Serbia said that the only acceptable barriers in relations between the two countries are the geographic distance, lack of information or lack of knowledge of local business culture. The ambassador pointed to the latest example of successful cooperation – the intention of “Indofood” company to build a factory for pasta production in Serbia and distribute its products across Central and Eastern Europe. He also stressed the potential of bilateral cooperation between Serbia and Indonesia in the field of agriculture and defence.

Dr Aleksandar Rakovic, President of the “Nusantara” gave an inspiring speech about the lecturer and his guests and noted that it was one in a series of subjects by which the Association wants to inform the Serbian public about this faraway but traditionally friendly country, as well as to strengthen relations with Indonesia.

By series of lectures in Belgrade, „Nusantara“ helps the establishment of cooperation in the field of social issues, art, education, culture, sport, but also contributes to strengthening and development of political and economic relations and cooperation between Serbia and Indonesia, as a specific „bridge“ for expansion of bilateral relations between the two countries, said Mr. Aleksandar Raković.

The purpose of the lecture was to raise the awareness of the Serbian public and the business circles in the country about the growing role of Asian countries in the world economy, Indonesia in particular, in the circumstances when the European Union and the United States of America are suffering a debt crisis and a period of unsteady development.

The most spacious and most populous continent is experiencing cultural and intellectual renaissance, and it is likely that in the years to come Indonesia will become the country with the largest number of millionaires in Asia, said Korkodelovic who spoke about the government’s plans of the largest archipelago in the world, the forecasts of many economists and institutions, by which the Indonesian economy, presently occupying the 16th position, within just a few decades, should find itself among the few major economies in the world.

Indonesia is the most powerful economy in Southeast Asia, the fifth on the Asian continent, a member of G-20 major economies of the world with the gross domestic product (GDP) growth rate of 5.3 per cent over the past decade.

According to some estimates, with nearly 250 million inhabitants, 60 per cent of them being under the age of 35, Indonesia will be among the 10 leading countries in the world in the next decade, and one of the 4 leading countries in 2040.

Ms Milanka Stojakovic pointed to bilateral economic cooperation characterized by small trading volume and a deficit on the Serbian side. She said that the biggest problem was the quantity of our goods compared to the large Indonesian market, adding that after the first business forum of Indonesia and Serbia in Serbian Chamber of Commerce, in September 2012, Serbia established contacts with leading Indonesian companies, exporters of cocoa, palm oil, coffee, rubber, spices, etc. “We are pleased that Indonesia, one of the leading economies of Asia, is our trusted friend and it is a chance we have to take,” concluded the adviser with the Serbian Chamber of Commerce.

Economic Counsellor with the Embassy of Indonesia, Mr Jogo Pamungkas, noted that the economies of Indonesia and Serbia were compatible in many areas, providing significant opportunities for the establishment of trade relations, particularly in the field of “strong” industries. There is a positive trend in trade cooperation, but much more has to be done to enhance mutual trade and investment flows, said the diplomat who believes that the two countries should become acquainted with the private sector and the many benefits it has to offer in the markets of Indonesia and Serbia and to encourage further business ventures.

Conversation continued with a cocktail party in the gallery of the Library.

Before the lecture, representatives of “Indofood-Serbia” distributed to the visitors packages of instant soups and noodles, a product with an increasing popularity on the markets of Serbia and the region.


Mrs. Milanka Stojaković, who has a degree in Chinese language from the Faculty of Philology of the University of Belgrade and a MA from the Faculty of Organizational Sciences, has been engaged on economic relations with Asian countries since 2001. She has participated in several seminars in Asia.

Mr. Jogo Pamungkas studied economy at the University of Padjadjaran in Jakarta, and earned MA from the Victoria Univesity of Technology, Australia. He has worked in the Ministry of Foreign Affairs of the Republic of Indonesia since 2000, and took the post in Serbia last year.



INDONESIA, LARGE FAST-GROWING ECONOMY

The Association of Serbian-Indonesian Friendship NUSANTARA, in cooperation with the Belgrade City Library organized a lecture “Indonesia, large fast-growing economy” by Borislav V. Korkodelovic, political scientist and journalist from Belgrade. The lecture was held in the premises of the Belgrade City Library in late February.

The lecture was to raise the awareness of the Serbian public and the business circles in the country about the growing role of Asian countries – Indonesia in particular – in the world economy in the circumstances when the European Union and the United States of America are suffering a debt crisis and a period of unsteady development.

45 years ago, the famous Swedish economist and sociologist Gunnar Myrdal (1898-1987) published the book “Asian Drama: An Inquiry into the Poverty of Nations”, which shocked the global intelligence. Myrdal wrote that the entire Asian region, with the exception of Japan, was burdened with overpopulation, corrupt regimes and poverty. He was pessimistic about the prospects for the development of most Asian countries.

Myrdal’s monumental work in three volumes and as many as 2284 pages, was published in 1968, six years before this humanist and social democrat shared the Nobel Prize in Economics with another scientist having completely different views on society, Friedrich Hayek (1899-1992), one of the main proponents of classical liberalism.

Myrdal believed that governments in Asia are “too soft”, unable to enforce the discipline that was needed to implement their development plans and fight corruption. He reluctantly concluded that democracy might not be the best system for achieving this and – overriding his concern for individual liberty – that authoritarian regimes might do it better.

If Myrdal was alive he would probably be shocked by Asia today. Mankind is rubbing eyes in disbelief regarding the economic miracle of South Korea, Hong Kong, Taiwan, Singapore, Malaysia and Thailand and even more before the populous People’s Republic of China, India and the country that we are speaking of tonight, Indonesia. Unfortunately, the great events taking place in Asia are barely noticed in most of Europe.

The changes that began 10 years after Myrdal’s “Asian drama” became dominant after the outbreak of the global financial crisis in 2008-2009. Europe was burdened with economic, social and political crisis overcoming each other and leaving the Continent in a gloomy mood.

However, Asia is re-emerging. The most spacious and populous continent is experiencing not only political and economic, but also cultural and intellectual renaissance. According to the World Bank, between 2020 and 2030 the People’s Republic of China should become the largest economy in the world and sometime between 2030 and 2035, India could become the world’s second largest economy.

Business people from Europe have long realized that “the economic centre of gravity” of the international economy is moving to the East. However, one-sided continental media is once again focusing on the sensations and troubles in Asia.

And what could be nicer than getting to know how the continent-sized countries managed to overcome two centuries of self-imposed and externally caused decadence, having about a billion people free from poverty, hundreds of millions of households moving towards the middle class, growing new industries, the most modern infrastructure and a glittering cities. In Asia, the general level of education has been raised, and dozens of universities have been ranked among the world’s best universities.

In terms of individual people, Asia is also experiencing a renaissance. In 2010 Asia passed Europe in terms of the number of millionaires. It reached the number of 3.3 million people who had a wealth of over a million dollars, not including real estate, which made only slightly less than 3.4 million millionaires in North America.

Then, last year, a US bank Citigroup announced that the number of rich people having over $ 100 million in Asia exceeded that in North America.

In Asia, most of the millionaires live in China. However, it is expected that in the years to come, Indonesia will record the fastest growth in the number of millionaires in Asia. According to the Swiss bank Julius Baer, the number of those having one million dollars in Indonesia will triple between 2010 and 2015 and will amount to about 100,000.

According to Capgemini consulting firm, Indonesia gets 16 new millionaires every day. Today, Indonesia has a sweet combination of political stability, high demand for the abundance of raw materials and the rising interest of investors in the country.

Indonesia is the most powerful economy in Southeast Asia, the 5th in Asia and 15th or 16th largest economy in the world (according to the gross domestic product, GDP for short, which is the sum of goods and services produced in a country during a year). Indonesia is the member of G-20 major economies of the world, and the large fast-growing economies with the gross domestic product (GDP) growth rate of 5.3 % over the past decade.

The International Monetary Fund estimated that in 2012 the nominal GDP of Indonesia (the one that is not diminished by inflation) was worth over 928 billion dollars. Measured in purchasing power parity (PPP, at market prices), Indonesia’s GDP last year raised over $ 1.2 billion (thousand billion) dollars. The nominal GDP growth rate in Indonesia reached 6.2 % at the time when the most powerful economy in the world, the United States, had a rate of 2.2 %. In the European Union (EU), GDP declined by 0.5 %.

Since acquiring the independence in 1945, Indonesia went through three stages of economic and social development – “Orde Lama” (“Old Order” under President Ahmed Sukarno – till 1965), “Orde Baru” (“New Order” under President Mohamed Suharto, from 1966 to 1998) and the period after the Asian financial crisis (1997-1998).

In the literature, especially the western, there is a tendency to generalize the economic situation in the “Old” and “New Order”. The fact is that the rate of economic growth during the “Old Order” was between 3 and 3.5 % per year which, with the population growth of two % a year, was enough for a little more than bare survival. The country needed to raise from the ruins after World War II, the Japanese occupation and anti-colonial struggle against the Dutch, and with all the decolonization process to implement the national economy, which in Indonesia was more expensive than in other countries in the region.

During and after the dramatic events that caused a military coup in 1965 led by President General Suharto (1921-2008), Indonesia’s economy was in shambles. The annual inflation rate was close to 700 %, revenues from exports decreased, foreign exchange reserves were reduced, infrastructure was disintegrating, factories operated with minimum capacity and investments were negligible.

When, after several months of bloody fights that killed between 300,000 and one million people, mostly supporters of the influential Communist Party of Indonesia (PKI), General Suharto consolidated his power in 1966, he turned to a group of economists from the Indonesian universities in Jakarta for advice and started to implement a series of economic policies in order to return macroeconomic stability and recover the national economy.

Then he launched an extensive program of economic reforms. The goal was to stabilize prices, reduce deficit in balance of payments, support agriculture, liberalize and open the economy and encourage private enterprise – without worrying about its size or origin. By 1969, Indonesia achieved the price stability and the fall of inflation to 10 %. Authorities have launched a series of five-year plans, so-called Repelita. They were large and intensive investments in agriculture, a dominant sector of the economy and rehabilitation of infrastructure in the country spreading over 17,500 islands. There were also investments in export oriented industries, capital goods and later in telecommunications, education and transport infrastructure.

Turnaround in the economy was spectacular. Between 1967 and 1973, Indonesia’s economy recorded an average growth of eight % a year.

Western donors were generous in their support. However, the main factor was the fiscal and monetary stabilization, combined with all measures taken to liberalize and open the economy.

Some people think that in recent times, hardly any other program of stabilization and recovery has been so successful in such a big and populous country (at the time Indonesia had more than 120 million people). Indonesia was the largest importer of rice in the world during the 1960s and became self-sufficient towards the mid-1980s. Since the late 1980s the exports increased – not only of primary products – oil and gas, timber and rubber, but also of industrial goods. The share of the manufacturing sector in GDP increased from negligible nine % in 1966 to over one-quarter in 1996.

Indonesia recorded three decades of rapid, sustainable GDP growth at an average annual rate of nearly seven %. Income per capita was more than tripled. In the early 1990s, GDP per capita amounted to almost $ 1,000. The 1993 World Bank report referred to Indonesia as the “East Asia Miracle” and declared it a newly industrializing economy (NIE).

However, the superior performance of Indonesia was disrupted by two important factors. First, in Suharto era, Indonesia greatly lagged behind in the field of human rights.

Another hindering factor was the corruption that was of great benefit to Suharto, his military colleagues, family and chosen group of business people. It was compensated through misuse of budgetary resources and higher costs.

Towards the end of 1997, the large financial and economic crisis that began in Thailand engulfed the entire Southeast Asia and South Korea. Indonesia found itself in a particularly vulnerable position. It was partly due to a large amount of short-term private debt, but mostly because it was unable to resolved deep-rooted problems of governance and the loss of confidence in the government.

Indonesian economy fell to the “bottom”. The result was the collapse of the national currency by 80 % and decline in the economy by the outrageous 13.1 % in 1998, a large increase in poverty and Suharto’s departure from power. To survive, Indonesia had to become dependent on the International Monetary Fund (IMF) and other donors.

Today, Suharto’s authoritarian regime is seen as very important for the process of economic development. Indonesia had a spectacular growth over three decades mainly due to good policies – mostly liberal economic approach, supported by quality macroeconomic management and large investments in infrastructure and human capital.

The liberal economic approach was advocated by the ‘technocrats’, a remarkable group of economists whom Suharto chose to use as his principal advisers for much of his Presidency. The key members of the group were known as the ‘Berkeley mafia’, because they had been trained at the American University of Berkeley in the 1950s. However, the influence of the “Berkeley mafia” faded in the 1990s when the Suharto family and his suspicious friends so-called “Technologists” became more powerful.

Since 1999 Indonesia has been recording a positive growth again. However, the recovery of the economy to pre-crisis levels took five years. The economic growth was stabilized at five or six %, but a return to higher rates was not likely without addressing the problem of judiciary, corruption and other governance issues. This is one of the priorities of the current President of Indonesia, Susilo Bambang Yudhoyono, whose second five-year term ends in 2014.

The latest peak of economic growth was reached in 2011 with the rate of approximately 6.5 %. Last year recorded a slightly lower growth of 6.2 %, due to instability in global economy and financial markets. However, strong domestic consumption of everything from cement to macaroni causes strong economic growth despite the fact that the exports is declining. Unlike its neighbours, who are mostly export-oriented, Indonesia has managed to avoid a recession owing to the strong domestic demand (which makes about two-thirds of the economy) and the government’s stimulus package.

Indonesia’s economy had long been carrying the undeserved epithet of “eternal repeater” or “one who repeatedly falls short.” Nowadays, however, there are many projections about the bright future of the Indonesian economy. According to the projections of the President Yudhoyono’s administration, this year, despite the debt crisis in Europe, Indonesia will manage to achieve a growth of 6.8 %. The Government of Indonesia expects that, in the period 2014-2016, the economic growth will increase to about 7 – 9%, while the annual inflation will remain stable at 3 – 5%.

The government expects that the planned exclusive economic zones and industrial clusters outside the largest island of Java will help Indonesia nominal GDP reach a billion dollars by 2014. Then the gross national income (GNI) per capita could amount to between 5,000 and 5,500 dollars.

In 2012, nominal GDP per capita in Indonesia was 3.797 dollars, PPP being 4943. The IMF considers that GDP in Indonesia could reach $ 1.8 billion in 2017 compared to $ 3.9 billion in Germany and $ 3.2 billion in the UK.

Lusintel Company has estimated that by 2018 Indonesian economy will reach two billion dollars. Lusintel believes that Indonesia’s greatest advantage is its young population. Namely, those under 35 years of age account for 60.8 % of the country’s population, which counts about 245 million inhabitants. Lusintelu also reports that the education level plays a key role in improving the quality of the human resources in the country. Indonesia has a 92 % literacy rate of and about 39 % of young people continue their education after secondary school.

In 2011, one of the most famous economists of today Nouriel Roubini predicted that by the end of decade, Indonesia will become the 10th economy in the world and the 6th in 2030. Roubini, known as “Dr Doom” because he predicted the global financial crisis in 2008, said that there was hardly any economy in the world that offered the benefits of development and profit as Indonesia.

President Yudhoyono targets to place the country among 10 leading world powers in 2025, when Indonesia’s GDP is expected to reach the value of 4.5 billion dollars.

Last autumn U.S. consulting firm McKinsey and co. estimated that in 2030 Indonesian economy could be the seventh largest in the world and pass both Germany and Great Britain. Then, only the PRC, the U.S., India, Japan, Brazil and Russia will have greater economies than Indonesia.

By McKinsey, in 2030 Indonesia will have consumer class of 135 million people. Until then, Indonesia will add 90 million people to domestic consumer class, more than any other country in the world, with the exception of the People’s Republic of China and India. Normally, members of the consumer class in Indonesia are those whose annual net income is greater than $ 3,600.

Finally, American City Bank has suggested that in 2040 Indonesia will be the fourth largest economic power in the world that will account for 4.8 % of the global production.

In conclusion I may say that, the more I study the development of the world’s largest archipelago, with its supreme beauty, abundance of natural resources and the limitless talent of the people there, the more it seems to me that the best is yet to come to Indonesia.