Through the Suharto years, the economists were optimistic about Indonesia and the political scientists were pessimistic. Now the roles have reversed.

With the explosion of Indonesian democracy, the political types can hardly contain their joy at the rich vistas—oh, what glory to study the cornucopia that is today’s Indonesia. The economists have reverted to type as exponents of the dismal science. The role switch was on display at the 32nd annual Indonesia Update ^[1] at the Australian National University the other day.

Professor Hal Hill, one of the two most cheerful economists I know—with a grin to match his smarts—opined that Indonesia is at an economic crossroads, facing its most difficult period since the 1997–98 financial crisis toppled Suharto. Prof Hal sees a complete disconnect between the political narrative of this election year and the economic reality facing Indonesia.

The optimism of the political analysts was best expressed by Dewi Fortuna Anwar, from the office of Indonesia’s Vice President, describing a modern Asian success story: ‘Indonesia is stronger, more democratic and more united than it was ten years ago.’

In the classic Indonesian manner, they are both right. The tensions between the economic and political visions are captured in Dr Peter McCawley’s new ASPI paper ^[2]. Peter’s my other cheerful economist; perhaps having devoted his life to development economics, optimism rates as a professional need as well as personal trait.

In the ASPI interview with McCawley ^[3], we started with the series of summits Jokowi will attend as soon as he is sworn in—APEC in Beijing, East Asia Summit in Naypyitaw and the G20 in Brisbane. McCawley suggests Jokowi might quickly adopt the mantle of a Javanese leader and just ‘nod and listen’.

Even in considering the trio of summits and Jokowi’s new leadership of ASEAN, the discussion quickly reverts to Indonesian domestic dynamics—from money politics to the institutional limits confronting the new president.

Will Jokowi, like SBY, preside not rule, govern not change? As McCawley observes, power is dispersed:

We are now learning something about the position of the presidency of Indonesia. What does it mean to be the President of Indonesia? And how much real power does the presidency hold? Joko Widowo and SBY are far closer in the powers they have to the President of the United States than they are to, say, the Prime Minister of Australia. The President of the US always has to bargain with the Congress and finds it quite difficult and is sometimes subject to surprising rulings from the judiciary as well; that traditional three prongs of power, the administration, the legislature and the judiciary…It’s a mistake to assume—and this is becoming clearer and clearer—it’s a mistake to assume that the President of Indonesia can necessarily easily get his way with the legislature. For 40 years we lived with President Suharto who made parliament look quite unimportant. The game has changed dramatically now. This will be tested in the next three months, six months, under President Joko Widodo.

In his ASPI paper, McCawley writes that the two economic scenarios on offer are an outward-looking reform path that would be politically tough to implement versus  a populist and nationalist resilience path that would turn Indonesia inwards:

If there are strong pressures on Joko Widodo, including from the parliament, to adopt populist policies, the incoming government may find it difficult to promote strong economic growth. In an inward-looking resilience scenario in which the government faces resistance to reform measures, the overall rate of economic growth could remain relatively low, perhaps below 6% per year. That wouldn’t be sufficient to provide jobs for the expanding labour force, and unemployment could be expected to rise. Criticism of Widodo’s leadership would be likely to grow. The first requirement for a higher rate of growth is a sustained level of investment of over 30% of GDP. But increasing nationalism would be likely to discourage foreign investment, particularly in the oil and mining sectors. In turn, that would also tend to constrain domestic investment. In that case, the other sectors of the economy could also become sluggish before too long.

The interview finishes on Australia and Indonesia (their elites understand Oz a lot better than our elites understand the giant next door, McCawley observes) and the neighbourly echoes ^[4] to be found in political jokes.

Graeme Dobell ^[5] is the ASPI journalist fellow.