Indonesia's prospects and challenges: Arifin Panigoro finds cause for hope on the resurrection of an Asian economic tiger.

• Author: Panigoro, Arifin
• Position: Essay

Indonesia has transformed itself into a more stable and promising economy. It is now a member of the G20, an acknowledgment of its contribution to the world's economy. Yet, Indonesia is facing the common challenges for most developing economies: maintaining economic growth in the midst of the growing demand for a better environment. Indonesia and its neighbouring countries need to re-address some strategic issues to build a stronger alliance in tackling the challenges ahead. Economy and ecology need to work hand in hand. Such efforts will bring forward more opportunities that create mutual benefit toward a better region in the future for Indonesia and its partners.

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"For the first time ever, we are witnessing genuinely global growth. This is creating an international system in which countries in all parts of the world are no longer objects or observers but players in their own right. It is the birth of a truly global order.'

(Fareed Zakaria, The Post-American World, And the Rise of the Rest)

The 2008 financial crisis struck at the heart of global capitalism: the US economy. To sum up its impact on the US market and the global economy, I refer to an observation made by Fareed Zakaria in his recent book:

The crash of 2008 was the world's worst financial collapse since 1929 and has ushered in the worst economic slowdown since the Great Depression. Every event in the last year has been unprecedented: the destruction of approximately $40 trillion in equity value in the global economy; the nationalization of America's largest mortgage lenders; the largest bankruptcy in history (Lehman Brothers); and the disappearance of the investment bank; as well as bailouts and stimulus packages adding up to trillions of dollars around the world. We are living through times that will be recounted and studied for generations. Compared with the US economy, fortunately, Indonesia is surviving the 2008 financial disaster on a much better scale. How does Indonesia survive? Put bluntly, it was on the brink of catastrophe a decade ago, but it clearly survived that crisis. In the early 1990s our debt reached 80 per cent of the GDP; today it is only 30 per cent. An economist at the World Bank office in Jakarta, Wolfgang Fengler, goes so far as to take an optimistic view of Indonesia's economic resilience: 'Indonesia has recovered strongly.' He believes that the country has been under-rated globally. In the past decade, it has not only survived, it has recovered.

What sort of recovery processes allowed Indonesia to stand out firmly against the backdrop of the global economic downturn in 2008? Retaining a solid footing on the path to recovery is not an easy process. After the 1997 financial crisis, Indonesia launched bold economic and financial measures. It provided a government guarantee over all bank liabilities and established a national agency to restructure bad assets, while at the same time introducing stronger measures toward prudent banking management and setting up an independent central bank, which has powerful regulatory and enforcement roles in relation to the entire banking system throughout the country.

All of these efforts served as a solid 'defensive' system against the 2008 crisis. Moreover the government recently has been promoting bureaucratic reforms through improving legislative processes, simplifying regulations and, more importantly, encouraging more government expenditures for infrastructure and education. Besides, resulting somewhat from these improvements in its systems, Indonesia's economic resilience also owes much to high levels of domestic (household) consumption.

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These achievements have led to the strong argument that Indonesia should be regarded as ranking among the countries with the three highest economic growths in Asia, after China and India. This assessment is not surprising. Indeed, the recent admission of Indonesia into the G20 is an acknowledgement of its economic resilience. As we all know, the G20 countries account for 80 per cent of the global GDP and 90 per cent of world trade.

Political stability

In the past ten years, the country has transformed itself from one of the most authoritarian and centralistic regimes in the world into a de-centralised democracy, one of the most massive political transitions ever...