Indonesia’s 2014 Presidential Candidates; a Profile of Aburizal Bakrie | Indonesia Investments

Indonesia’s 2014 Presidential Candidates; a Profile of Aburizal Bakrie | Indonesia Investments

Although Indonesia’s next presidential election will be held in mid-2014, Aburizal Bakrie already announced in 2012 that he would run for the presidency on behalf of the Golkar party, one of the leading political parties of Indonesia and once the strong political vehicle of Suharto during the New Order regime (1965-1998). However, Bakrie, chairman of Golkar and often referred to by his nickname 'Ical', is one of the most controversial figures in modern Indonesian politics and business.

Seeing his business empire (which he inherited from his father) going close to bankruptcy in the turbulent late 1990s when the Asian Financial Crisis hit Indonesia hardest of all involved countries, Bakrie bounced back after a successful refinancing process in the 2000s. In 2008, Forbes placed him on the first spot in its list of richest Indonesians, with his wealth mainly originating from the Bakrie Group. In the latest ‘rich list’ of Indonesian magazine Globe Asia, Bakrie was named as the sixth richest Indonesian (June 2013 edition) with an estimated wealth of USD $2.45 billion.

However, the Bakrie Group has considerable debt. Based on data provided by Lembaga Analis Independen (Independent Analysis Institute) in September 2012, the ten companies affiliated with Bakrie Brothers (the holding company of the Bakrie Group) had a combined debt of IDR 21.4 trillion (about USD $2 billion) up to Q1 2012. About IDR 7.1 trillion of this debt fell due in 2012.

Moreover, US dollar denominated debt reached USD $5.7 billion, USD $275 million of which fell due in 2012. These debt figures are what forms the epicenter of Bakrie’s (business) burden. But apart from debt, another issue is strongly attached to Bakrie. A huge mud flow in Sidoarjo (East Java), brought on due to gas drilling by Lapindo Brantas, ruined more than 600 hectares of land and displaced more than 39,700 people in 2006. The company, however, has always claimed that an earthquake in Yogyakarta, prior to the mud eruption, was the cause of the disaster. It was later revealed that numerous violations were made in connection to Lapindo Brantas' drilling process. The company was partly owned by the Bakrie Group at the time of the disaster. The mud flow is still erupting today. For sure, the Lapindo case is burdensome for Bakrie and is one that will be used by his political enemies in the race for the Indonesian presidency.

Bakrie, born on 15 November 1946, is not new to Indonesian politics as he has had various political positions in his life: president of the ASEAN business forum (1991-1995), president of the Indonesian Chamber of Commerce and Industry (1994-2004), Coordinating Minister for Economy (2004-2005), Coordinating Minister for People's Welfare (2005-2009), and chairman of Golkar (since 2009).

In his speech titled "Climbing Mount Semeru", in which he declared his bid for the presidency, Bakrie - with an optimistic tone - said that, like climbing a mountain, there will be thousands of challenges. But despite highs and lows "God willing, I will successfully confront them."

In the speech, Bakrie proposed a number of ideas in case he becomes elected as president. One is to expand the concept of the Trilogy Development (a New Order regime concept that foresees national stability, high economic growth, and social equality) with additional new ideas about Indonesian nationalism becoming the key to national development (Catur Sukses Pembangunan Nasional) in a globalized environment.

But another problem needs to be faced by Bakrie as well. Various surveys indicate that the public in fact prefers another presidential candidate from the Golkar party, namely Jusuf Kalla, a businessman and former vice president (2004 to 2009). The unpopularity of Bakrie and popularity of Kalla can become reason for Golkar to revise its stance on the party's 2014 presidential candidate. Some time ago, chairman of Golkar's Advisory Council, Akbar Tanjung, stated that there is room to change the party's candidate in case support for Bakrie remains low. Thus, with just one more year to go to the elections, it remains uncertain who Golkar's candidate will be.

Top Ten Richest Indonesians:

Individual	Business Group	Wealth¹
1. Robert Hartono & Michael Hartono	Djarum	15.5
2. Eka Tjipta Widjaja	Sinar Mas	13.1
3. Anthoni Salim	First Pacific	10.1
4. Susilo Wonowidjojo	Gudang Garam	6.00
5. Martua Sitorus	Wilmar International	3.70
6. Aburizal Bakrie	Bakrie Group	2.45
7.Putera Sampoerna	Sampoerna Strategic	2.40
8. Peter Sondakh	Rajawali Group	2.35
9. Mochtar Riady	Lippo Group	2.15
10. Sukanto Tanoto	Royal Golden Eagle	2.10

^{¹ in billion US dollar
Source: Globe Asia (June 2013)}
 

Agung Budiono is an analyst at Jakarta-based Pol-Tracking Institute

Towards Indonesia's Presidential Elections: a Profile of Prabowo Subianto | Indonesia Investments

Towards Indonesia's Presidential Elections: a Profile of Prabowo Subianto | Indonesia Investments

If presidential elections were to be held today, it is probable that Prabowo Subianto would be chosen by the Indonesian electorate to become Indonesia's next president. Various surveys indicate that Prabowo, a former high military officer as well as a successful businessman, is the most popular person to replace incumbent president Susilo Bambang Yudhoyono in mid 2014 when new presidential elections will be held (which are not joined by Yudhoyono as he is finishing his second and final term as president).

Prabowo, born in Jakarta on 17 October 1951, is son of renowned economist Sumitro Djojohadikusumo (1917-2001). After high school, Prabowo decided to pursue a military career and enrolled in Indonesia's Military Academy in Magelang (Central Java) between 1970 and 1974. He quickly passed through the ranks of the army and became Commandant of the Special Command Force General (Kopassus) and was later appointed as head of the Army Strategic Reserve Command (Kostrad). However, in the late 1990s the regime of president Suharto, Prabowo's father in law, starting to crumble until its collapse in 1998. Based on witness accounts of Bacharuddin Jusuf Habibie (Indonesia's third president) and retired army officer Sintong Panjaitan, Prabowo attempted a (failed) coup when he positioned his army units close to the house of then president Habibie, shortly after the fall of Suharto.

Prabowo is a highly controversial figure in Indonesia. He is regarded as a human rights violator when he was stationed in East Timur to crush the East Timorese independence movement in the early 1990s. Reputedly, Prabowo was also behind the kidnappings and disappearance of various pro-democracy activists in 1998, when many people took the streets of Jakarta and other cities in Indonesia to demand for democracy. His weak reputation in terms of human rights can be used by his political opponents on the road towards the Indonesian presidential elections.

After the fall of the Suharto regime, Prabowo was discharged from the military and went into a voluntary exile in Jordan. But a few years later, he came back to Indonesia and entered politics. In 2004, Prabowo wanted to participate in the presidential elections by becoming Golkar's nominee (Golkar is one of the largest political parties of Indonesia and was the political vehicle of former president Suharto during his authoritarian regime). However, that position went to another former military officer, Wiranto. Prabowo then decided to establish his own political vehicle, the Great Indonesia Movement Party (Gerindra), which participated in the elections of 2009. The party did not get enough votes in order to nominate a presidential candidate and therefore Prabowo decided to run as vice presidential candidate to Megawati Soekarnoputri, daughter of Indonesia's first president Sukarno. However, the two lost to the Yudhoyono-Boediono pair.

Being closely connected to the former authoritarian New Order regime and often mentioned as a human rights violator, it may surprise some that Prabowo enjoys popularity and even leads various surveys that measure people's support for specific presidential candidates. The answer is that many Indonesians want a strong leader as they are disappointed in Susilo Bambang Yudhoyono's performance. The latter is regarded having acted weak in some issues regarding religious violence or discrimination and failed to tackle corruption within political circles (in fact within his own party a number of sensitive corruption cases emerged). Prabowo is also known as a highly nationalistic person, while many Indonesians feel that Yudhoyono's political and economic agenda is too much influenced by foreign institutions (such as the IMF or World Bank).

There are no recent official documents regarding the wealth of Prabowo but, based on a document that was released in 2009, the wealth of Prabowo is estimated to be around IDR 1.7 trillion (USD $172 million, using today's exchange rate). The younger brother of Prabowo, Hashim Djojohadikusumo, is the 39th richest person in Indonesia according to Forbes magazine in 2012, with an estimated wealth amounting to USD $750 million. The brothers were beneficiaries of Suharto's patronage system. In this system, a small inner circle around Suharto was able to establish large business empires. Up to the present, wealth is an important factor in Indonesian politics as people can buy political support through money-politics. 

However, there is one outsider who forms a potential threat to Prabowo Subianto's leading position in the surveys. Incumbent governor of Jakarta, Joko Widodo (perhaps more known as Jokowi), enjoys much popular support for his style of governance (his closeness to the people and reformist nature). Research conducted by the Indonesian Institute of Sciences (Lembaga Ilmu Pengetahuan Indonesia, abbreviated LIPI), released on 30 June 2013, indicates that, if Jokowi would participate in the 2014 elections, it would upset the current polling results. However, despite his popularity, it remains unknown whether Jokowi will participate. Up to this day, he has denied any intention of joining the race, instead focusing on his position as governor of Jakarta.

Agung Budiono is an analyst at Jakarta-based Pol-Tracking Institute

Indonesian Democracy & its Rising Consumer Class: Three Bottlenecks (Part II)

In my previous column, I outlined the emergence of a new and promising class of Indonesian consumers that is most likely to bring a positive effect on the country's economic growth in the years ahead. I also pointed out that the level of prosperity of a population is an influential factor towards the state (and future) of democracy in a country: the wealthier a population becomes in terms of per capita GDP, the longer the life expectancy of its democracy will be.

In the last six years, Indonesia has posted annual economic growth of between 6.0 and 6.5 percent (with the exception of 2009 when amid global turmoil the country grew 'only' 4.6 percent) and its per capita GDP rose accordingly. In fact, the National Commission on Economics (Komite Ekonomi Nasional, or abbreviated KEN) predicts that the level of Indonesia's per capita income might reach USD $6,000 within the time-span of three to four years.

However, despite this optimism there are a number of matters that complicate (as well as frustrate) Indonesia's current economic growth. Moreover, as I argued last week that economic growth and democracy have a (complex) relationship, these matters thus also form a risk for the state of democracy in Indonesia. These matters include income distribution inequality, corruption, and weak state institutions.

Firstly, income distribution inequality needs to be mitigated. Indonesia's Gini coefficient, which measures income distribution inequality, has been at 0.4 for the last two years. For Indonesia, this is the highest figure in the last fifty years (a coefficient of 0 indicates perfect equality, while a coefficient of 1 indicates perfect inequality). It implies that economic development has favoured Indonesia's middle class, upper middle class and elite but not the poorer segments of the country. This situation cannot be ignored because the more unequal society becomes, the more social problems will emerge and frustrate the economy or bring major uncertainties along.

Secondly, corruption should be dealt with. A study, conducted by Drury, Krieckhaus and Lusztig (2006), concluded that in non-democratic countries corruption will slow down economic development. Although in democratic countries the influence of corruption is smaller, it will still impact negatively on economic development. According to Transparency International 2012, Indonesia is currently number 118 (out a total of 176 countries) on the corruption perceptions index. After 15 years of Reformation, it does not represent a good performance. The battle against corruption in Indonesia is difficult. Apart from technical constraints, the politicization of corruption cases often make law enforcement agencies,  such as the Corruption Eradication Commission (Komisi Pemberantasan Korupsi, abbreviated KPK), not free to carry out their investigations optimally.

Lastly, Indonesia needs improvement of its state institutions. An orderly democracy as well as economic development are not possible without good-functioning state institutions. Institutional reform should lead to reduced transactional costs, the minimization of moral hazard, and the establishment of full transparency and accountability. All of these matters are important prerequisites for creating an atmosphere of good governance within the state institutions.

Indonesia's new consumer force is rising. It will be important not to let the three aforementioned subjects become bottlenecks that impact negatively on Indonesia's expanding consumer class as well as on its burgeoning democracy.

Agung Budiono is an analyst at Jakarta-based Pol-Tracking Institute

Indonesian Democracy: Towards Indonesia's Rising Consumer Class (Part I)

A fresh breeze is blowing on the face of the Indonesian economy. One that is characterized by the projected growth of a new class of Indonesian consumers that seems promising in the years ahead. This new consumer force certainly brings a positive effect on Indonesia's economic growth as domestic consumption has always been a pillar of economic support for the country. Agung Budiono, analyst at Jakarta-based Pol-Tracking Institute, takes a closer look at the topic.

At least two global institutions conduct research about this new consumer class in Indonesia. First, McKinsey, that, according to its research released in September 2012, predicts that Indonesia's consumer class with a minimum annual per capita income of US $3,600, or a daily consumption rate of about US $10 to US $100, will reach 135 million people by 2030.

Secondly, the Boston Consulting Group (BCG), which released a report in early March stating a similar bottom line as well as mentioning an increasing portion of the Indonesian population that can be categorized as middle-class and affluent consumer (MAC). MACs are individuals with a minimum monthly income of IDR 2 million (about US $217). BCG expects that by 2020 about 141 million Indonesians will fall in the MAC category; a number that is almost twice as much as the current 74 million Indonesian MACs).

The blossoming of this new consumer class in Indonesia is an important asset for the economy. John Maynard Keynes explains in his book "The General Theory of Employment, Interest and Money" that stable, middle-class consumption is required to spur investments that will drive economic growth.

When examined further, an important question arises related to the emergence of this new consumer class: is it able to maintain and strengthen the consolidation of democracy in the future? Or vice versa? This question is of high importance because the reciprocal relationship between economic growth and democracy is a complex one.

In their research, Przeworski and Fernando (1997) concluded that the level of prosperity of a population is very influential towards the state of democracy in a country. Their study indicates that, when a country's per capita income reaches US $1,000 to US $2,000 (based on purchasing power parity), the life expectancy of a democracy is 18 years. Furthermore, when a country's per capita income is in the range of US $2,001 to US $3,000 then the life expectancy of its democracy increases to 26 years. Lastly, when it touches the level of US $6,000, then democracy is believed to be "eternal". Their research, which is often cited by others, was based on a sample of 135 countries during the period 1950-1990.

According to the World Bank, Indonesia's current per capita income level stands at US $4,636 (based on purchasing power parity in 2011). When we apply this figure to Przeworski and Fernando's categorization above, it means that democracy in Indonesia should last for at least the next two decades.

In addition, a classical study regarding the relationship between democracy and economic development (Lipset, 1959), emphasizes the symbiosis between prosperity that is the result of development and democracy. That relationship implies that a population of which the majority is rich is more likely to participate in the country's political domain. The reason being that a rich population desires to maintain its political system.

However, the relationship between economic growth and a growing democracy is not always linear. There are also views that argue the relationship between the two does not occur directly, but instead through an intermediary, such as access to education and evenly distributed revenue due to the democratization drive.

Although Indonesia's growing consumer class has a positive impact on Indonesia's expanding economy, there are of course a number of bottlenecks that need to be dealt with. In my next column I will discuss a number of these bottlenecks, which include corruption, income distribution inequality, and weak state institutions.