INDONESIA: South East Asia Review - Why Suharto smiles.

INDONESIA: South East Asia Review - Why Suharto smiles. - Indonesia has it all - oil and gas, rubber and rice, corruption and nepotism, writes Sid Astbury.

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Last Updated: 31 Aug 2010

Indonesia has it all - oil and gas, rubber and rice, corruption and nepotism, writes Sid Astbury.

Who would have guessed, 25 years ago, that a dirt-poor country with the world's third largest Communist party would emerge in the 1990s as the darling of the World Bank, a close friend of the US and a happy hunting ground for foreign investors? Probably, quite a few. Indonesia always had rich natural endowments; now, it is Asia's only Opec member and the world's largest exporter of liquefied natural gas. It has also become a major timber exporter and the world's second largest producer of rubber.

But who spotted, say five years ago, a business boom that would propel to dizzy heights both rates and occupancy levels at Jakarta hotels, or a restructuring of the economy that would see manufactured exports overtake the value of oil shipments, or even a liberalisation programme that would see foreigners piling into the stock market to buy shares, act as brokers and set up unit trusts? Again, quite a few. Even in the late 1980s, Jakarta was pushing through a deregulation and liberalisation programme that many felt sure would jack up the per capita GNP of US$500 a year and unleash both the industrial prowess - and buying power - of a population that now numbers 180 million.

One thing, though, that hardly anyone predicted, even five years ago: a change in the investment licensing rules that would result in a splurge of partnerships with locals for joint ventures to make and do almost everything. Now, Indonesia offers the foreign investor one of the warmest welcomes in Southeast Asia.

I tell a lie: there is since 1985 one more change - or, rather, non-change - that has taken almost everyone by surprise: President Suharto's apparent determination to go for a sixth five-year term in 1993. If he stands, he will win; when you appoint 60% of the electoral college, and another 30% are from your own party, you are not in for a surprise when the election result is announced.

Say this for Suharto, over the past quarter of a century the 70-year-old retired general has let technocrats, not army officers, run the economy. According to the World Bank, they are putting on a good show and have set the stage for sustained and rapid growth up to the year 2000.

Not that the economy is without problems. The current-account deficit, expected to reach US$5 billion in 1991, might widen further, prompting the government to postpone some of the US$70 billion worth of big infrastructure projects planned for the 1990s. State parsimony might also come to be reflected in the private sector.

Delays in building more power plants and telephone exchanges will really irk some foreign investors. Advice from Craig Williams of Jones Lang Wootton's Jakarta office: look for a building with a reserve generator and an independent microwave link for phone lines.

Occasional black-outs and telephone tangles are testimony to the investment boom. Some US$6.5 billion in foreign investment was approved during the first half of 1991, compared with US$8.7 billion in the whole of 1990. Britain, the sixth largest foreign investor in 1990, has a growing presence in service sectors newly opened to overseas firms. According to one British business executive, resident in Jakarta for over a decade, all sorts of new opportunities are opening up and are going to those prepared to work the Indonesian way.

Sad to say, but the Indonesian way is often hedged around with graft and corruption. Contracts sometimes go to those who bribe the giver, and government licenses can be bought. It is also true that the obligatory local partner - and it is very difficult to change - can prove more of a liability than an asset. Still, hundreds and hundreds of joint ventures go swimmingly.

Even sadder to say, business is a level playing field until you knock up against the corporate empires of the Suharto children and other favourites. But, as the President's half brother once pleaded, "Is it our fault if government officials give us special treatment?" He just considered himself one of the luckier ones in a very lucky country.

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