INDONESIAN POLITICAL ECONOMY: WILL NEOLIBERALISM PERSIST OR COME TO AN END?by Hendri Saparini, Ph.D

INDONESIA 2004-2014: DEMOCRACY DEVELOPMENT

The rise of political democratization

Fair and secure the National Elections 2004, 2009, 2014

Fair and secure local elections in 542 districts

but, the downside:

Conflicts and insatisfaction

Slow progress in economic democratization

GDP GROWTHONE OF THE HIGHEST ECONOMIC GROWTH

Source: Central Board of Statistics

MIDTERM PERFORMANCE 2005-2009TARGETED UNEMPLOYMENT AND POVERTY RATE: FAILED

Target & Realisation of Unemployment Rate

RPJM Projection

(*) 2014 up to QI

Realisation

Realisation

RPJM Projection

RPJM Projection vs. Realization of Poverty Rate

(*) 2014 up to QI

INEQUALITYINCOME DISPARITY

Source: Central Board of Statistics

POVERTY REDUCTION IS SLOWING DOWNNUMBER OF NEAR POOR 68 MILLION PEOPLES WB,2014)

Source: Central Board of Statistics

Near Poor (1.6 below national

poverty line)

PUBLIC WELFARE :REAL LABOUR WAGES AND FARMERS’ EXCHANGE VALUE

Real and Nominal Labour Wages

Index of farmers exchange value

SECTORAL DISPARITY

Tradable & Non-tradable Sectors Average Growth (2006-2013)

Source: Central Board of Statistics

FDI DOMINANCE, STATE-OWNED ENTERPRISES ABANDONMENTFDI; 70% OF TOTAL INVESTMENT. ACCELERATION AND EXPANSION ON PRIVATIZATION. SOE NOT INCLUDED IN INDUSTRIALIZATION PLANNING

INVESTMENT STATE-OWNED ENTERPRISE

Source: Central Bank of IndonesiaSource: Coordinating Board of Investment

GOVERNMENT’S HANDS OFF: LABOUR-INTENSIVE SECTORS

Source: Central Bank of Indonesia

Sectoral Average Annual Growth

(2004 - Q2/2014)

VERY LOW IMPORT TARIFFAGRESSIVE IN TRADE AND ECONOMIC LIBERALISATION

India (2013)

Brazil(2011)

China(2011)

Russia(2013)

Indonesia(2011)

All products 13.9 12.2 12.0 10.1 4.8

Agricultural 43.3 11.2 22.6 23.4 13.6

Industrial 11.8 12.3 11.2 9.2 4.2

GOVERNMENT’S LIMITED ROLE IN PUBLIC SERVICES

Source: Central Bank of Indonesia

GOVERNMENT DEBT:DEBT ACCELERATION AND LIMITED PAYBACK CAPACITY (DSR)

Government Debt Value Foreign Government and Private Debts

Δ Rp1,240 (98%)

2015 AND BEYOND:

ANY CHANCE TO DETHRONE NEOLIBERALISM?

A NEW HOPE EMERGED

Victory of the opposition: PDI-P (Indonesia

Democratic Party – Struggle)

Strong anti-neoliberalism paradigm

of the new president

GREAT EXPECTATION FROM THE 2014 ELECTION

The presidential candidates gave strong signals to take

neoliberalism away

Track record of the presidential candidates

High participation level in the presidential election

THE HOPE HAS BEGUN TO FADE

Questionable figures in the new cabinet

No clear platform, succumbs to transactional politics:

fuel subsidy

foreign investment, etc

ENERGY SOVEREIGNITY SUBSIDY’S FUEL: 65% USE BY POOR AND NEAR POOR, 72 MILLIONS MOTORCYCLE

Source: Susenas Panel 2010, process

< 2$ (29%)

2-4$ (36%)

4-10$ (27%)

10-20$ (6%)>20$ (2%)

DOMESTIC OIL PRODUCTION SOE MINOR PLAYER

Sorce: Ministry of Energy and Mineral

DOMESTIC REFINARY CAPACITY NO INVESTMENT IN REFINARY

Sumber: British Petrolium

Source: Comtrade

FOOD SOVEREIGNITY

HUGE VALUE AND HIGH GROWTH

MP3EI: SIX ECONOMIC CORRIDORSDIFFERENT COMPETITIVENES, NEEDS DIFFERENT POLICY SUPPORTS

Mega economic centers

Economic centers

Sumatera Corridor:“Center for Production andProcessing of NaturalResources and AsNation’s Energy Reserves”

Kalimantan Corridor:“Center for Production and Processing of National Mining and Energy Reserves”

Sulawesi Corridor:“Center for Production and Processing of National Agricultural, Plantation, Fishery, Oil & Gas, and Mining”

Papua – Maluku Islands Corridor: “Center for Development of Food, Fishery, Energy and National Mining”

Java Corridor:“Driver for NationalIndustry and ServiceProvision”

Bali – Nusa Tenggara Corridor:“Gateway for Tourism andNational Food Support”

REGIONAL DISPARITYREGIONAL ECONOMIC PERFORMANCE INDICATORS 

Sumatera (%)

GDP Share 23.8

GDP Growth 8.2

Unemployment 5.7

Kalimantan (%)

GDP Share 9.2

GDP Growth 4.8

Unemployment 5.3

Sulawesi (%)

GDP Share 4.7

GDP Growth 8.7

Unemployment 5.2

Maluku (%)

GDP Share 0.3

GDP Growth 7.3

Unemployment 6.4

Jawa-Bali (%)

GDP Share 58.9

GDP Growth 6.6

Unemployment 6.6

Nusa Tenggara (%)

GDP Share 1.3

GDP Growth 1.5

Unemployment 4.1

Papua (%)

GDP Share 1.8

GDP Growth 6.4

Unemployment 4.0

HIGH GROWTHLOW INCOME

HIGH GROWTHHIGH INCOME

LOWH GROWTHLOW INCOME LOW GROWTH

HIGH INCOME

REGIONAL INCOME DISPARITY, 2012

Source: Central Board of Statistics

HIGH POVERTYLOW UNEMPLOYMENT

HIGH POVERTYHIGH UNEMPLOYMENT

LOW POVERTYLOW UNEMPLOYMENT

LOW POVERTYHIGH UNEMPLOYMENT

REGIONAL POVERTY & UNEMPLOYMENT, 2012

Source: Central Board of Statistics

SME PROBLEMS: INTEREST RATES, INSTITUTIONAL, MICRO INFORMAL BUSINESS (98%)PRIVATIZATION ON STATE OWN BANK

Source: Central Bank of Indonesia

THANK YOU!