This is an audio transcript of the Behind the Money podcast episode: ‘Indonesia’s secret to economic success’

Michela Tindera
Let’s take a look at how economies big and small have performed recently. It hasn’t been pretty. For example, there’s been the start of Russia’s war in Ukraine that kicked off food and energy crises around the world. And the US’s rising interest rates have hurt emerging markets especially hard. However, there’s one country that seems to have not only escaped a lot of that, but prospered in spite of it.

Mercedes Ruehl
Indonesia’s export and import performance has been very strong.

Michela Tindera
That’s Mercedes Ruehl there. She covers south-east Asia and Singapore for the FT.

Mercedes Ruehl
And then also it’s had a strong economic rebound after the Covid-19 crisis.

Michela Tindera
Plus, compared to other emerging markets with skyrocketing inflation like Argentina or Sri Lanka, Indonesia’s five and a half per cent inflation rate looks downright minuscule.

Mercedes Ruehl
The rupiah has been extremely stable as well, one of the best performing Asian currencies.

Michela Tindera
You may not know this, but Indonesia is the largest country in south-east Asia. Whether you look at it by the size of its economy, population or sheer landmass.

Mercedes Ruehl
It’s a very far flung country made up of some 17,000 islands and it is home to the world’s largest Muslim population.

Michela Tindera
Its economy relies heavily on exporting commodities, things like palm oil, coal and nickel.

Mercedes Ruehl
The economy is big enough that it can be a counterweight to China. It’s a developing economy, but one that the whole world is very interested in at the moment.

Michela Tindera
But it hasn’t always been this way.

Mercedes Ruehl
In 2013, US investment bank Morgan Stanley dubbed Indonesia one of the “fragile five”. So it was a group of emerging economies — India was in there, Brazil — that it believed were particularly vulnerable to rising interest rates in the US. At the time, I mean, that looked true. I mean, Indonesia’s economy was growing at its slowest pace in something like five years. The budget was being eaten up by a soaring fuel subsidy bill. The legislature was deeply divided.

Michela Tindera
So how has Indonesia turned itself around in less than a decade? One word: Jokowi.

Mercedes Ruehl
Indonesia has had a very stable, more than eight years under a president known as Joko Widodo. Jokowi is his nickname in the country. He’s had a super majority in parliament. He’s been able to push through huge reforms. That stability has helped the economy and the economy has made the people quite happy by global standards.

[CHANTS OF “JOKOWI” PLAYING]

Michela Tindera
Indonesia’s President Joko Widodo, or Jokowi, is quite popular inside his country. So popular, in fact, that at one point his supporters wanted to change Indonesia’s constitution so he could stay in office for an extra term. Pretty soon, though, Jokowi’s time as president will be almost over. His final term ends next year, and experts are worried that Indonesia’s success and stability could be shortlived.

Mercedes Ruehl
The question is, what happens in 2024 in the election and who comes in? There’s a lot of nervousness about that.

[MUSIC PLAYING]

Michela Tindera
I’m Michela Tindera from the Financial Times. Recently, Indonesia’s economy has become the successful outlier, thanks in large part to one person, the country’s president. Today on Behind the Money, we’re gonna look at how Joko Widodo achieved this and whether it will continue after he’s gone.

[MUSIC PLAYING]

Mercedes, welcome to the show.

Mercedes Ruehl
Thank you.

Michela Tindera
You’ve met and interviewed Jokowi before and he seems like such a commanding force. Tell me some more about him.

Mercedes Ruehl
He’s a fascinating figure in Indonesian politics. He’s got very humble beginnings, I think, in a riverside shack, to be specific. And you get that sense from him. He’s very softly spoken. Even his dress sense is very casual. It’s a white shirt, black slacks, and often a pair of black sneakers.

Michela Tindera
And why exactly has he been so popular?

Mercedes Ruehl
He kind of stormed the stage and he just, he really seems to speak to people and to everyday Indonesians in a way that was unusual. And he campaigned on really the economy, on bolstering the Indonesian economy. People quickly came to like this kind of down to earth politician who is an outsider, who’s not part of the kind of the blue-blooded, powerful political families that have dominated Indonesian politics. You know, they come from fathers and grandfathers who’ve been in politics, and that’s not the case with Jokowi. He was a former furniture trader. You know, he listened to heavy metal. He rode motorbikes.

Michela Tindera
Oh, got it. Well, listening to heavy metal and being your country’s top politician don’t usually go hand in hand, but OK. So what else sets him apart from the past presidents of Indonesia besides the heavy metal thing?

Mercedes Ruehl
One of the things that Jokowi’s been really good at is kind of big tent politics, bringing in friends, former foes, everyone to kind of get that job done and to theoretically make it a bit easier to push through his reforms. One of those is a guy called Prabowo Subianto. He’s a former army general. He’s run against Widodo before. And a lot of people were surprised when Jokowi appointed him the minister for defence.

[MUSIC PLAYING]

Michela Tindera
So Indonesia’s economy was in this really vulnerable place when Jokowi took over in 2014. It was included in that list of the, quote unquote, “fragile five economies in the world”. So what did he do to turn things around?

Mercedes Ruehl
So if you had to divide his reforms, I would say that first term was really dominated by addressing inadequate infrastructure and secondly, attracting more foreign investment. This obviously continued throughout his second term, but he shifted his focus a little bit to really hammer out changes and reforms to the country’s state-owned enterprise industry and then also to create a domestic electric vehicle industry, which are both kind of key focuses right now.

Michela Tindera
OK, so let’s zoom in on a few of these. Tell me more about his infrastructure moves.

Mercedes Ruehl
Addressing inadequate infrastructure was one of the big hopes that voters, and not just voters actually, like and foreign investors as well had for Jokowi. And on this point, I mean, it is hard to argue he hasn’t delivered. His government’s constructed more than 2,000 toll roads. That compares to around 700 in the prior 40 years, just to give you a sense. There are 16 new airports, 18 ports, 38 new dams. It’s still, even to visitors, to tourists, there is quite a visible change.

Michela Tindera
Ah, OK. Well, you mentioned foreign investors were hoping Jokowi would revamp the country’s infrastructure. So how much did he focus on getting that outside investment?

Mercedes Ruehl
One of the other big themes of his presidency has been foreign investment. One of his signature pieces of legislation was the Omnibus Law or Job Creation Law that loosened employment regulations and in theory helped more foreign investment, particularly as this kind of critical moment in Asia where producers are trying to diversify manufacturing away from China. And Jakarta’s new fund, which is a, it’s called a sovereign fund but it’s actually a lot of money from other state investors. It’s called the Indonesia Investment Authority, and it’s based on that Job Creation Law that is seen as an international appetite for sovereign wealth funds in developing countries in south-east Asia. And it’s attracted interest from a variety of international financiers, including state investors, from locations as diverse as the US, China, UAE.

Michela Tindera
So that plus the infrastructure overhaul pretty much defined his first term. And then in his second term, like you said, he’s focused on developing certain industries, specifically state-owned enterprises and the nickel industry. Can you say more about that?

Mercedes Ruehl
So state-owned enterprises are kind of large organisations that are government-owned. They can be in oil and gas, they can be in telecoms, they can be in anything. And Indonesia has a lot of these. And one of the criticisms of his predecessor is that that sector, while crucial, had run out of a bit of steam, didn’t have great transparency, didn’t have good governance. This had led to kind of obvious problems like corruption, financial losses and misallocation of resources. So to increase their efficiency, he brought in a businessman called Erick Thohir as minister, with the goal being to develop more companies with global scale, get some foreign investment for them, list some, decrease their number. There are a lot of them as those have been consolidated from about 108 companies to 41.

Michela Tindera
Hmm. And what about the nickel industry? I know a few years ago he implemented a ban on nickel exports. So how did that help Indonesia’s economy?

Mercedes Ruehl
If you have an export ban on something like nickel, instead of just shipping cheap raw material, you export kind of higher value products, which is obviously much better for the economy. It also has the other effect of attracting investment in processing facilities, which is what Jokowi really wants. The idea is that it then creates more of a downstream sector and it kind of forces the mining sector to build out processing capacity in Indonesia rather than just kind of huge flows of ore going to China and being processed there. And then I think the other flagship industrial policy of Widodo’s current term has been the attempt to use Indonesia’s giant nickel reserves to create a domestic electric vehicle supply industry. Indonesia is expected to have a significant chunk of the new nickel needed to supply the global EV industry.

Michela Tindera
What have been the results of these reforms? How have they been received in Indonesia and on the global stage?

Mercedes Ruehl
I think first and foremost, the world is taking notice of Indonesia in a way it hasn’t before. I mean, there’s always been this sense that Indonesia has a lot of potential, but there were also fears at the same time about instability, radicalisation, cronyism, bit of corruption. I think this period of stability and then more recently Jokowi kind of stepping out more on to the global stage, being a host of the G20 this year, all that’s been quite noticed. I think people were pleasantly surprised by how smoothly the G20 went, not just in terms of logistics, but also all that politicking by Jokowi this year paid off. He got most of the G20 leaders to Indonesia at a time of war, of conflict, of geopolitical tensions. Indonesia was expected to grow more than 5 per cent in 2022, which is much more than many other countries. And I think there’s real global interest in Indonesia’s economy and whether this is now something more broad based than just a commodities story.

Michela Tindera
So it sounds almost like Jokowi can do no wrong, that he’s been a huge success for Indonesia. But as with any story, I would assume he has some critics.

Mercedes Ruehl
There are definitely critics.

[MUSIC PLAYING]

Some chiefly are on his record on democracy and the space for criticism being restricted in Indonesia since he took office. Indonesia has long been caught between democracy and authoritarianism, Islam and pluralism and openness and protectionism. And Jokowi is no different. He has also been caught between that.

Another thing is the shifting of the capital from Jakarta to a new city called Nusantara. It’s economically been very questionable. It’s very expensive. I think that there are a lot of people who do not think this is a great idea. You know, and there have been failed capital cities in the past that have just kind of become ghost towns and are not exactly thriving. And then I think one of the things on many people’s mind now is that for a period of stability, he has no kind of really clear political successor.

Michela Tindera
Yeah. And why is that? That there’s no successor?

Mercedes Ruehl
The main reason is he actually doesn’t have a political party himself. We spoke about the big tent politics, but he’s been unable to get a nomination from a political party for his, what we believe to be his preferred candidate, which is the Central Java governor, Ganjar Pranowo. And you just wonder if that big tent approach has come back to bite him a little.

Michela Tindera
Ah, OK. So what exactly are the concerns about there not being anyone to take over from him?

Mercedes Ruehl
There are concerns that someone more hardline might get voted in. And always bubbling away at the surface in Indonesia is Islamic extremism. And I think particularly the business community in Indonesia is worried about that, creating instability and scaring off some of the foreign investors that have in recent years flocked to the country.

Michela Tindera
Yeah, I think that’s a really good point you bring up, actually, that business leaders are looking for stability. They don’t really tend to want a really conservative government. They don’t want a really liberal government. They’re happy with something that’s right down the middle.

Mercedes Ruehl
Yes. When I was there in September, I caught up with a contact who leads a large conglomerate in the country. And that was certainly his main concern. It’s been a great period for business. And he was nervous about what 2024 might bring and whether it was someone who might be more unpredictable, who might bring in people who were not as good into his or her cabinet, and that it might fall apart quite quickly.

Michela Tindera
Yeah. What would you say is something that other countries can learn from what Jokowi has done with Indonesia?

Mercedes Ruehl
I mean, I just think going across the aisle, as they say in the US, like working with your rivals, working with every group that you can to the best of your ability. I mean, he has done it. There’s certainly a lot of criticism about the way he’s gone about some things, and that there have been democratic setbacks. But overall, compared to other places in other countries in south-east Asia, it still looks like things are functioning.

Michela Tindera
Well, Mercedes, thanks so much for being on the show.

Mercedes Ruehl
Thank you.

[MUSIC PLAYING]

Michela Tindera
Behind the Money is hosted by me, Michela Tindera. Saffeya Ahmed is our producer. Topher Forhecz is our executive producer. Sound Design and mixing by Sam Giovinco. Special thanks to Viki Merrick. Cheryl Brumley is the global head of audio. Thanks for listening. See you next week.

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