A hydro electric dam threatens orangutans in Sumatra © Getty Images
A hydro electric dam threatens orangutans in Sumatra © Getty Images

Indonesia: the most splintered country in the world

10 July 2019

Cute, comic and charismatic, orangutans are Indonesia’s most famous residents. Eight hundred of them, belonging to the recently discovered species Pongo tapanuliensis, may soon find their only natural habit, a Sumatran forest, transformed by a new hydro electric dam, built as part of China’s Belt and Road Initiative.

A legal battle over the legitimacy of the dam’s environmental assessment, which doesn’t mention local wildlife, rumbles on. Proof, if any were needed, that palm oil isn’t the only threat to the species in Indonesia.

Orangutans play a starring role in the media’s portrayal of the world’s fourth most populous country (home to 269m people, it is surpassed only by China, India and the US). The commodification of news presents this emerging economy as a land riven by disasters, be it natural (earthquakes, tsunamis and volcanoes) or man-made (the bombing in Bali in 2002; flagrant corruption; relentless deforestation).

There is plenty of truth in that narrative but, as Jared Diamond argues in his new book Upheaval: How Nations Cope With Crisis And Change, it overlooks the country’s greatest strength: “Initially [in 1945] it was at serious risk of its territory falling apart – but it didn’t. Indonesia built from scratch, surprisingly quickly, a sense of national identity.”

Indonesia wasn’t unified as a Dutch colony until 1910, becoming independent in 1945. Geographically, Diamond writes, it is the “most splintered country in the world, with thousands of islands scattered over an expense of 3,400 miles from west to east.” It is diverse linguistically – with more than 700 languages – and religiously (the world’s largest predominantly Muslim country, it is also home to many Christians, Hindus, Buddhists, Confucians and indigenous religions).

Indonesia’s national identity was forged by resistance to the Dutch, the adoption of Bahasa as a unifying language and two flawed, visionary, dictators: Sukarno (president from 1945 to 1967) and Suharto (from 1967 to 1998). The latter, recognising his ignorance of economics, empowered a group of Indonesian economists, known as the “Berkley mafia” because they studied at that famous Californian university, who balanced the budget, cut inflation and debt and created a market economy. Foreign investors were soon queuing up to help Indonesia develop its oil (although, ironically, it is now a net importer) and minerals (it leads the world in the export of tin and palm oil).

Suharto remains deeply controversial. Though he presided over the killing of 500,000 Indonesians after a failed Communist coup in 1965, and a disastrous invasion of East Timor in 1975, his government invigorated the economy, promoted family planning, modernised agricultural production and improved people’s diet. Yet a double whammy of recession and grotesque corruption in the family – his wife was nicknamed ‘Ibu Tien’, literally ‘Madame Ten Percent’ – forced his resignation in 1998.

Suharto’s legacy – good, bad and ugly – endures. Corruption is still rife in parliament and bureaucracy – the country is ranked 89 out of 180 on Transparency International’s Corruption Perceptions Index. The government’s Corruption Eradication Commission (KPK) is making headway – a fact confirmed, in startling fashion, by the discovery of explosive devices in the homes of its chairman and deputy chairman in January. Transparency International says a broader anti-corruption strategy – making local officials accountable by enforcing rules – would help the KPK.

Due in part to Suharto’s policies, Indonesia is now, judged on GDP purchasing power parity, the world’s seventh largest economy. The IMF expects GDP to grow 5.2% this year. The US-China trade war has helped a bit. Pegatron, one of Apple’s key suppliers, is investing $40m to make semiconductors and wireless chips in a new plant on the island of Batam. Yet Indonesia’s currency, the rupiah, has had a rollercoaster year on the markets and the government, struggling to finance the infrastructural improvements needed to accelerate growth, has asked state-owned enterprises to foot the bill.

Things could look up if Indonesia’s massive trading deficit is reduced, by spending less on imported crude oil. Biofuel must now account for 20% of the diesel used by railways and power plants, a measure that could save the economy $3.5bn a year. Italian energy giant Eni has also agreed to help state-owned energy group Pertamina to convert two ageing oil refineries into biofuel plants. Under pressure from recently re-elected president Jokowi, Pertamina, the only Indonesian company in the Fortune 500, has pledged to double its oil refinery capacity to 2m barrels a day by 2026. If that goal is met, the country could become a net exporter of oil again.

The digital economy could also be transformative for Indonesia. Nadiem Makarim, a Harvard MBA, former McKinsey consultant and entrepreneur, founded ride-hailing service Go-Jek, the country’s first unicorn (a start up valued at $1bn or more), nine years ago. (The name comes from ‘ojek’ – the term for the ubiquitous motorbike taxis). Go-Jek has expanded into healthcare, mobile apps, engineering, recruitment, games and food delivery in India. Within its home market, it has diversified into online booking, events management and fintech and offers an on-demand app for almost every need – from groceries to house cleaning and fuel delivery. One of the group’s newest investors is Japan’s Mitsubishi Corp.

Go-Jek sees itself as the standard bearer for a new Indonesia. Writing on Medium, manager Alverta Shani extolls the company’s financial impact – it generates $581m a year for the country’s economy – with the strangely familiar slogan: “Making Indonesia great again!” If it is to achieve that goal, it will probably need the help of Indonesia’s three other unicorns: online marketplace Bukalapak, online booking platform Traveloka and e-commerce platform Tokopedia. Two cities – Yogyakarta in central Java and Bandung in Western Java – are vying for the honour of being dubbed ‘Indonesia’s Silicon Valley’.

And yet, in a paradox found in many emerging economies, Indonesia is still struggling with some pretty basic challenges. Deforestation has, the World Economic Forum reports, all but halted yet the forests remain vulnerable – as the hydroelectric dam project shows – as the infrastructure is modernised. Air pollution in Jakarta is so bad Greenpeace estimates that it kills 7,390 residents every year. On 4 June 2019, according to the app AirVisual, the Indonesian capital had the lowest air quality in the world. The war on poverty is being won – only 36% of the population live on less than $3.10 a day (the World Bank’s new yardstick for extreme poverty), compared to 77% in 1999 – but many people in rural and remote areas are struggling.

Indonesia has one compelling competitive advantage: its people broadly believe in its future. Two out of three are satisfied with its democracy, the Pew Research Centre estimates, a sentiment even shared by 56% of those who oppose the governing Indonesian Democratic Party of Struggle. Two out three feel good about the economy. Few Western governments enjoy that level of approval at present.

In 1968, Hollywood made a movie about the epic volcanic eruption at Krakatoa in 1883 entitled Krakatoa: East Of Java. During shooting, the producers learned that Krakatoa was actually west of Java but, convinced that Krakatoa: West Of Java sounded less glamorous, stuck to their original title. More than 50 years since that film’s release, that decision seems an apt metaphor for the West’s continued ability to get the wrong end of the stick about Indonesia.

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