Indonesia Formally Pledges to Join China-Sponsored Regional Bank


New York Times by Bree Feng

November 27, 2014

BEIJING — Indonesia has signed an official memorandum of understanding to join a China-backed regional development bank intended to rival organizations like the World Bank and to further Beijing’s aspirations for a leadership role in Asia.

Indonesia’s finance minister, Bambang Brodjonegoro, signed the agreement to join the Asian Infrastructure Investment Bank on Tuesday at the offices of the Ministry of Finance in the capital, Jakarta, the ministry said.

Mr. Brodjonegoro had indicated this month that his country was willing to join the bank at an early date. According to a notice on the website of the Chinese Embassy in Indonesia, Mr. Brodjonegoro said at the signing that Indonesia “attaches great importance” to the establishment of the bank and could not sign earlier because of the country’s change in government, referring to the inauguration of President Joko Widodo last month.

China’s ambassador to Indonesia, Xie Feng, was present at the signing.

Chinese officials have said that the bank is meant to complement, not compete with, existing international institutions like the Asian Development Bank and the World Bank. However, critics have raised questions about the bank’s governance structure and levels of transparency. The United States has quietly lobbied regional allies, including South Korea and Japan, against joining.

Indonesia’s participation brings the total number of founding members to 22, with China holding a majority stake. Among the others are India, Malaysia and the Philippines. The bank’s headquarters is to be in Beijing, and its initial subscribed capital is to be about $50 billion. It is expected to be formally established by the end of next year.


Indonesia’s Widodo Raises Fuel Prices


Wall Street Journal by Ben Otto

November 17, 2014

JAKARTA, Indonesia—President Joko Widodo raised subsidized fuel prices by roughly one-third, a crucial step toward his goal of trimming energy subsidies to free up billions of dollars for infrastructure and other programs.

A fuel-price increase in the world’s fourth-largest nation had been discussed for months, even while Mr. Widodo was on the campaign trail, and has been one of the top expectations since his inauguration last month. Economists have called a phasing out of subsidies the biggest priority for the nearly $900 billion economy.

Mr. Widodo, just back from his first international summits overseas, announced the increase late Monday on national television. Prices for subsidized gasoline will climb to 8,500 rupiah ($0.70) a liter from 6,500 rupiah, while prices for diesel will rise to 7,500 rupiah from 5,500 rupiah, effective midnight.

“From time to time, we as a nation are faced with difficult choices,” Mr. Widodo said in a short statement. “The country needs funds to build infrastructure [and] for education and for health care, but such funds have not been available because they were wasted to subsidize fuel prices.”

Subsidies make fuel in Indonesia—with a population of 250 million—some of the cheapest in the region, but the benefit has gone primarily to the relatively wealthy who can afford cars. The bill has soared in recent years amid fast growth and rising consumption, which has put more cars and motorcycles on the roads. Little has been left over in the state’s discretionary budget for the new ports and roads that the Southeast Asian nation needs to reduce bottlenecks and raise growth rates from a five-year low.

Economists called the 2,000-rupiah increase significant, though less than the 3,000-rupiah increase many were hoping for several months ago. Economists said the move would save Indonesia almost $8 billion through the end of 2015, less than the $12 billion Mr. Widodo’s advisers had once suggested they were targeting.

“The market has somewhat expected the lower increase as global oil prices have fallen,” said Eric Sugandi, economist for Standard Chartered , but will welcome the move nonetheless “because it shows [Mr. Widodo] is doing what he promised to do.”

Franky Welirang, director at PT Indofood Sukses Makmur , one of Indonesia’s largest food producers, said the increases would benefit Indonesia in the long term and that major corporations wouldn’t be hard hit because they don’t consume subsidized fuels.

“If there’s any company complaining their production costs will increase because of higher fuel prices, they’re liars,” Mr. Welirang said.

The move means a significant increase not only for fuel but also for goods that depend on transportation to reach markets. That will help stoke inflation for about three months, likely pushing a year-on-year reading to near 7.5% next month, from less than 5% currently, economists said.

That could push Bank Indonesia to raise rates slightly from 7.50%, a high implemented last year to rein in domestic consumption and a current account deficit. Aldian Taloputra, chief economist of Jakarta-based Mandiri Sekuritas, said the central bank would likely respond with a 0.25-percentage-point increase in its benchmark policy rate “just to anchor in inflation expectations.”

Mr. Widodo promised to disburse cash aid to the country’s poorest families to mitigate the impact, something former President Susilo Bambang Yudhoyono did as well in previous fuel-subsidy cuts.

The fuel subsidies are a legacy of the more than 30-year rule of former President Suharto, who was ousted in 1998, and have long presented a quandary for Indonesia’s leaders.

Initiated as a measure to stabilize prices and help the poor, the subsidies have increasingly been seen as a gift to the growing consumer class. They now eat up around $20 billion annually. Touching them can be politically sensitive, and efforts in the past have triggered riots.

Mr. Yudhoyono faced turbulence when he tried to cut the popular subsidies during his 10 years in office. Two years ago, faced with violent street protests, he failed to get parliamentary support to raise fuel prices by an average of 33%. That handcuffed government spending and—because Indonesia has been a net fuel importer since the early 2000s—helped blow out the current-account deficit.

Mr. Yudhoyono’s government last year raised fuel prices by that amount anyway after parliament declined to interfere.

The political implications of Monday’s move remain to be seen. Mr. Widodo’s rivals control the legislature and have threatened a strong opposition to him, but he is widely popular and has spent months preparing Indonesians for the eventual increase.

Finance Minister Bambang Brodjonegoro said Monday night that the government would begin working with parliament on where to reallocate the subsidies.

Nigeria, Indonesia trade volume hits $3.2b in four years


The Guardian by Jim Okeke

November 10, 2014

The volume of bilateral trade between Nigeria, Indonesia has risen from $1.2 billion to $3.2 billion in 2010 to date, the outgoing Indonesia Ambassador to Nigeria, Sudirman Haseng has disclosed.

The Ambassador, who revealed this at the weekend, when he visited the Minister of Foreign Affairs, Amb. Aminu Wali in his Abuja office, said that the country has about 28 companies operating in Nigeria.

Haseng expressed optimism that the trade volume is expected to increase by next year.

He said “I helped during my tenure as I have informed the Minister that we increased and promote our bilateral relationship especially in the economic investment of the country. During my four years here we managed to increase the trade volume from $1.2 billion to $3.6 billion and from next year it will be about $ 5 billion. In terms of investment I also informed the Minister the Indonesia companies operating here has increased significantly. We have about 28 companies here now. The manufacturers from Indonesia are still being ask to come to Nigeria as a way to revamp the market in Nigeria.”

“So in the next coming years I do believe that the Indonesia companies will come into Nigeria more and more,” he said.

On the cases of Nigerians in Indonesia prisons as a result of the drug trafficking and the possible transfer of the prisoners back to Nigeria, he said, “First of all, we already have the legal framework with regard to this. We already have MOU on the illegal drug trafficking. Indonesia is still considering the proposals.

He added “I don’t have any figures on how many Nigerians that are in prison in our country but am happy to say that during the last five years especially when the two government organised a symposium to find out the solution of these problems. There is no more an increase of Nigerians in prison in Indonesia. So the trend is downward.”

Responding, Wali assured him of the Federal Government cooperation to strengthen the bilateral relationship between the two countries.

“Thank you so much for your cooperation with us an we will continue to partner with you to broaden and strengthen the existing relations between Nigeria and Indonesia”, he said.

Joko Widodo appoints Indonesia’s first female foreign minister, Retno Marsudi


The Guardian 

October 26, 2014

The new Indonesian president, Joko Widodo, has unveiled a cabinet including the country’s first female foreign minister, as well as political allies and experts in key economic posts.

Reaction was broadly positive to the appointment of Retno Marsudi, Indonesia’s ambassador to the Netherlands, as foreign minister. Widodo, popularly known as Jokowi, said Retno “works hard and is firm and visionary”.

She was one of eight women in the cabinet in the world’s most populous Muslim-majority nation.

But analysts expressed disappointment that so many politicians had been chosen instead of professionals, saying it could weaken Widodo’s attempts to push through much-needed reforms in the world’s third-biggest democracy.

Widodo, the country’s first leader from outside the political and military elite, had pledged to pick experts in various fields.

But he came under strong pressure from parties that backed him at the July elections, and in the end agreed to give almost half of the 34 cabinet posts to political allies.

There was particular concern that figures close to Megawati Sukarnoputri, the head of Widodo’s party, featured prominently, adding to concerns the former president Sukarno may seek to interfere in policy-making.

“It’s cronyism,” Arbi Sanit, a political analyst at the University of Indonesia, told AFP. “I am disappointed and have no confidence in this new cabinet – the ministers are all weak.”

But the appointment of Bambang Brodjonegoro as the finance minister and Sofyan Djalil as the chief economics minister were welcomed, because they are seen as seasoned experts capable of invigorating the economy after a recent slowdown.

Sunday’s announcement was delayed by several days after Widodo asked the Corruption Eradication Commission (KPK) to vet the candidates and the commission raised concerns about several of them.

“We carried out the process of choosing ministers carefully and meticulously,” Widodo said, as he unveiled his cabinet during a ceremony at the state palace.

The government of Widodo’s predecessor, Susilo Bambang Yudhoyono, was hit by a string of corruption scandals that dented its popularity.

Since the downfall of the dictator Suharto in 1998 after three decades in power, it has been common practice in Indonesian politics for prospective leaders to promise cabinet posts to allies in exchange for support.

Widodo, 53, pledged to end backroom deal-making after beating the controversial ex-general Prabowo Subianto in the election.

But Megawati’s daughter, Puan Maharani, was named head of one of four powerful “co-ordinating ministries”, which oversee several other ministries.

A close Megawati confidant, Rini Soemarno, was named state-owned enterprises minister, while another figure close to her, former army chief of staff Ryamizard Ryacudu, was selected as the defence minister.

The co-ordinating ministry for maritime affairs, headed by Indroyono Soesilo, is new, reflecting Widodo’s ambition to make Indonesia a great maritime power through measures such as improving ports.

Indonesian Leader in Global Spotlight


New York Times by Joe Cochrane

October 21, 2014

JAKARTA — In his previous life as a small-time furniture exporter and exhibitor, Joko Widodo was used to erecting stages. But in early November, just days after being sworn in as the president of Indonesia, he will now be sharing a stage with the world’s most powerful leaders.

Between Nov. 10 and Nov. 16, Mr. Joko will, in succession, attend the Asia-Pacific Economic Cooperation (APEC) summit meeting in Beijing; the Association of Southeast Asian Nations (Asean) leaders’ meeting and the East Asia Summit, both being held in Naypyidaw, Myanmar; and a meeting of G-20 leaders in Brisbane, Australia.

Mr. Joko, who was sworn in as president on Monday, comes into office with no foreign policy experience, and his introduction into international affairs will be, according to analysts, a trial by fire. “The most important thing is meeting these leaders face to face,” Mr. Joko said in an interview shortly before his inauguration, “and develop those relationships.”

That may be easier said than done, given that he doesn’t have much in common with his counterparts. Born in a slum in the province of Central Java, Mr. Joko, 53, a former carpenter, is the first Indonesian president not to come from the country’s political elite or be an army general.

He is expected to have bilateral meetings during the conferences with, among others, President Vladimir V. Putin of Russia, who is a former K.G.B. officer, and Gen. Prayuth Chan-ocha, the prime minister of Thailand, who carried out a military coup there last May. The biggest thing Mr. Joko has in common with President Barack Obama, whom his aides said he is scheduled to meet one-on-one in Beijing, is that they both have lived in Indonesia.

Tall, thin and unassuming, Mr. Joko himself has joked that his face looks more like that of a village street-food vendor than of a head of state. But behind it lies a sharp intellect and kinetic energy to get things done.

As governor of Jakarta, he was mobbed by well-wishers during his daily walking tours through traditional markets and slum areas, where he would talk about bread-and-butter issues such as health care, education and traffic.

Mr. Joko’s unusual style and equally unusual nickname (“Jokowi”), coupled with his unlikely ascension to the Indonesian presidency, garnered heavy international media attention and piqued the interest of foreign leaders.

“It will be interesting to see Jokowi’s personal chemistry with Obama and other leaders, and how he performs,” said Matthew P. Goodman, senior adviser for Asian economics at the Center for Strategic and International Studies in Washington, who served as the Obama administration’s White House coordinator for APEC and the East Asia Summit in 2011. “Other leaders will be looking at how he performs, with a neutral eye,” he said.

Mr. Joko came into office with pressing domestic concerns, in particular a hostile group of opposition parties in Indonesia’s House of Representatives that are controlled by Prabowo Subianto, a former army general who lost to him in the country’s July 9 presidential election.

“He would have come to these meetings as a star, but he’s domestically distracted,” said Kishore Mahbubani, a former Singaporean diplomat and the current dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore.

“What it does is affect the attention you pay to events, and whether you have a free hand to launch initiatives,” Mr. Mahbubani said, adding that Mr. Joko should remain low-key at the summits and treat them as a learning experience.

Others are looking for Mr. Joko to immediately play a visible role on the international stage, given that Indonesia is the world’s fourth-most populous country, its largest Muslim-majority state and a G-20 member. It also lies astride the world’s busiest shipping lane in the Strait of Malacca.

Indonesia also has domestic problems with a global impact, includingclimate change due to deforestation, terrorism and human trafficking.

“He has an opportunity to shine,” said Alexander Feldman, president and chief executive of the U.S.-Asean Business Council. “The world is curious about Jokowi and what he is going to focus on. And I think that world leaders want to court him.”

Since its independence from Dutch colonial rule in the 1940s, Indonesia has maintained a feel-good foreign policy that Mr. Joko’s predecessor, Susilo Bambang Yudhoyono, described as “a million friends and zero enemies.”

The country’s transition to democracy, which began in 1999, and its growing economic importance have placed it in the same conversation as Asia’s two largest emerging economies: China and India. Mr. Yudhoyono worked to further project both Indonesia’s and his own influence on the global stage, with issues such as climate change and Islamic extremism, with mostly indifferent results.

“Indonesia at one point tried to mediate on the Korean Peninsula, and that didn’t work out very well,” said Ian Storey, a senior fellow at the Institute of Southeast Asian Studies in Singapore.

Analysts and Mr. Joko’s advisers said he would be less ambitious and instead try to project Indonesia’s influence through Asean, its traditional foreign policy base. “Indonesia is best described as a regional power with global concerns — it’s not China or India,” said Amitav Acharya, a professor at American University in Washington and author of “Indonesia Matters: Asia’s Emerging Democratic Power.”

“But by playing the role of a regional mediator and helping to keep Asean together, Indonesia helps to contribute to stability in the Asia-Pacific region and the world,” he said, “since it is in the Asia-Pacific that we have all the major powers — the U.S., China, Japan and India — whose relationships will be key to global stability.”

Rizal Sukma, an adviser to Mr. Joko, said the president’s foreign policy would be directed more by business and economic concerns than geopolitical ones. Mr. Rizal said Indonesia’s geographical location gives it the ability, as an archipelago state, to practice “maritime diplomacy.”

“You can’t eat an international image,” he said. “The key focus is to use diplomacy for economic benefit. We have a strategic partnership with India, but the relationship has not reached half its potential.”

China is a top concern for us: Indonesia Fin Min


CNBC by Ansuya Harjani

October 14, 2014

China’s ‘new normal’ of moderate growth is a top concern for Indonesia as it implies downward pressure on commodity prices, the country’s finance minister said.

Southeast Asia’s largest economy has been hit amid falling commodity prices and slowing consumer spending. Commodities – including nickel ore, tin and thermal coal – account for around 60 percent of Indonesia’s exports.

“We can’t continue to rely only on natural resources or cheap labor. It’s time to focus on quality of human capital, improve infrastructure, governance – with this we’ll promote growth,” Chatib Basri told CNBC on the sidelines of 2014 IMF/World Bank annual meetings in Washington DC.

The economy grew 5.8 percent in 2013, its slowest pace in four years andthe first sub-6-percent expansion since 2009. It’s forecast to grow around 5.2 percent this year.

Can Indonesia grow at 6.5% again?

Asked when Indonesia will return to 6.5 percent growth, Basri says not before 2017.

“I think 2014-2015 we need to choose strategy stabilization over growth – if you’re talking about 2017 – I’m quite optimistic the economy will grow higher than 6 percent,” he said. The economy last grew at 6.5 percent in 2011, before moderating to 6.2 percent in 2012.

Infrastructure spending could propel growth, he said.

“If the government can relocate money from fuel subsidies to infrastructure, within three years we’ll have infrastructure projects that will promote growth,” he said.

Fuel subsidies have long dogged Indonesia, contributing to its current account deficit and crowding out other government spending.

In 2014, total energy subsidies are expected to rise to a record of more than 350 trillion rupiah ($29.75 billion), coming in at around 21 percent of the government’s budget and around 3.4 percent of gross domestic product, according to data from CIMB.

Rupiah: shaky or stable?

Tighter U.S. monetary policy is another risk for Indonesia.

Last year, the Indonesian rupiah lost 26 percent of its value against the U.S. dollar amid concerns about the Federal Reserve scaling back monetary stimulus. The rupiah has undergone large swings this year, but is flat year-to-date; dollar-rupiah was recently at the 12,215 level.

However, Basri believes the rupiah “will be safe” when the Fed begins its tightening cycle, as current levels reflect economic fundamentals.

Steps that the government and central bank took to get Indonesia’s economic house in order should also soothe investor concerns, he said.

“What we did last year was a combination of three things – fiscal tightening, tightening on monetary side, and we let the exchange rate depreciate,” he said. “I’m not too worried.”

In Indonesia, Stage Is Set for Battle Over Future of Democracy


New York Times by Joe Cochrane

October 1, 2014

JAKARTA, Indonesia — The Indonesian Parliament, under the control of emboldened political forces opposed to President-elect Joko Widodo, convened for a new five-year term on Wednesday, setting the stage for a long-term battle over the future of democracy in Southeast Asia’s most populous country.

The opposition bloc is led by Prabowo Subianto — a former army general who lost a bitterly contested presidential election to Mr. Joko in July — and controls 68 percent of the seats in the House of Representatives, the main legislative body.

Mr. Prabowo, 62, was once a son-in-law of Suharto, Indonesia’s late authoritarian president, whose military-backed regime ruled the country for 32 years until he was forced to resign amid pro-democracy demonstrations in 1998.

Despite Mr. Prabowo’s election loss three months ago, his “Red and White Coalition” — a reference to the colors of the Indonesian flag — continues to exert its influence, including orchestrating the passage last Friday of 11th-hour legislation in the previous Parliament that eliminated direct elections for mayors, district chiefs and provincial governors.

This week, incoming opposition lawmakers raised the notion of amending the Indonesian Constitution to eliminate direct presidential elections and giving the power to appoint the country’s president back to a legislative body that Suharto had firmly controlled and used to perpetuate his hold on power.

Indonesians began directly electing their presidents in 2004 and provincial-level leaders in 2005 as part of a political and economic decentralization that followed Suharto’s ouster, devolving power away from Jakarta, the Indonesian capital.

Led by Mr. Prabowo’s Gerindra party, the opposition bloc includes Golkar, which was Suharto’s political vehicle during his rule, and four other parties that backed Mr. Prabowo’s presidential run.

Mr. Joko, who will be sworn in on Oct. 20, was a popular mayor who rose to national political stardom after being elected governor of Jakarta in 2012. A former furniture exporter born in a slum in Central Java Province, Mr. Joko, 53, is viewed as a success story of decentralization because he will be the first president in Indonesian history not to be linked to the Suharto-era political elite or to have been an army general.

Philips J. Vermonte, head of the politics and international relations department at the Center for Strategic and International Studies in Jakarta, said Mr. Prabowo and his supporters, still stung by their election defeat, were determined to “recentralize” power back into the hands of the political elite in the capital.

“All these achievements we’ve had, including with fighting corruption, were all part of the reform movement after Suharto,” he said. “These changes that Prabowo is trying to do, people feel they are trying to bring us back to square one.”

Despite the country’s successful democratic transition, analysts said, a pattern of political patronage, corruption and money politics that emerged after Suharto’s resignation still holds sway.

On the eve of the July presidential election, parties aligned with Mr. Prabowo passed regulations making it harder for the country’s independent Corruption Eradication Commission to investigate lawmakers for graft.

“There is a stagnation of the democracy process going on in Indonesia,” said Dewi Aryani, a departing lawmaker from Mr. Joko’s Indonesian Democratic Party of Struggle. “We must think this through together.”

The departing president, Susilo Bambang Yudhoyono, who came under fire after his governing Democratic Party staged a walkout before last week’s vote on direct elections, thus handing victory to Mr. Prabowo’s bloc, has said that he will issue a presidential decree to block the law.

This would, in effect, be a temporary veto, forcing the new Parliament to vote on the issue again within three months.

Yet Mr. Joko will face more immediate problems given the strength of the opposition, whose members have made no secret of their plans to try to thwart his administration at every turn.

Wednesday’s opening session was limited to procedural matters, but the opposition is already set to control the legislative agenda. Parties backing Mr. Prabowo’s candidacy orchestrated parliamentary changes that eliminated the automatic awarding of the post of speaker to the winning party from the April 9 national general elections.

Mr. Joko’s party, known as the P.D.I.P., placed first, but given that his opponents control the new Parliament, the next speaker may come from Mr. Prabowo’s camp.

Alvin Lie, a political consultant and former lawmaker, said Mr. Joko might be compelled to offer incentives to political parties aligned with Mr. Prabowo to defect, including positions in his cabinet, in order to prevent his agenda from being blocked.

Mr. Joko has in recent weeks resisted linking political support to cabinet positions.

“At the end of the day, the P.D.I.P. will have no friends in the Parliament, and in politics, unless you get 51 percent of the votes in elections, you need friends,” Mr. Lie said.

“It doesn’t mean just cabinet seats,” he said. “A coalition can mean more, like how you share power in the Parliament, how you work in regional governments, how you formulate policies and the execution of policy.”