October 19, 2005

The Power of Two

Now that John Howard has a strong rapport with the Indonesian president, it's time he got chummy with SBY's more influential deputy. Eric Ellis reports

For brand placement, Canberra's salesmen couldn't wish for a better location to promote their prize product in Indonesia if they had planned it themselves.

There he is, a life-sized image of John Howard summiteering with his new best friend in Asia, President Susilo Bambang Yudhoyono, the two gathered photogenically around Jakarta's busiest thoroughfare, the Hotel Indonesia roundabout in the heart of the capital. Howard's appearance on the massive downtown billboard, which celebrates the highlights of SBY's first year in office, probably says more about how foreign-educated SBY regards his overseas friends than it does about how Indonesians see Australians.

Australian leaders don't usually get this sort of public exposure in Asia, and particularly not in Indonesia where the locals are, if they think of Australia at all, somewhat confused about how their unusual great southern neighbour sees them. Are they rich friends (remembering the generous Aceh tsunami aid)? Or are they anti-Muslims who think us simian barbarians, as per the withdrawal of donations after Schapelle Corby was convicted on drug charges? And yes, Indonesians agree, the Bali bombings were outrageous, but more Indonesians than bule (foreigners) have died from terror so why are they making such a fuss? It didn't happen in Australia.

Still, the billboard is a reminder of just how much personal prestige Howard has invested in the world's biggest Islamic nation's first democratically elected president. But after a difficult first year in office for SBY, it may well be prudent for Howard to diversify his political investment in Indonesia, and start paying a bit more attention to the steadily rising stocks of SBY's canny vice-president, the 63-year-old south Sulawesi businessman, Jusuf Kalla.

Kalla is Indonesia's Dick Cheney figure, only more powerful than the US vice-president, probably the most influential VP in Indonesia's history since Sukarno's loyal second, the independence hero Mohammad Hatta. A multi-millionaire industrialist with an Errol Flynn moustache, the slight Kalla is a proud Bugis, the seafaring ethnic group from Makassar noted for their directness. Where English-fluent cleanskin SBY hails from a now reduced military and relies on personal charisma for his popular support, Kalla's powerbase is as a champion of Indonesia's indigenous business community.

Such is SBY's still uncertain grip on power that Indonesians like to say their presidency belongs to SBY, but the cabinet is Kalla's. They first said that a year ago when the SBY-Kalla team was inaugurated in front of Howard, and little has happened since to disabuse them. Kalla has placemen sprinkled across crucial portfolios, most notably the Economics Minister Aburizal Bakrie, and Justice Minister Hamid Awaluddin. Australian officials in Jakarta admit they have not put as much work into cultivating Kalla as they should.

After an unremarkable year, the word in Jakarta is SBY would like to fire at least two ministers; his journeyman Finance Minister Jusuf Anwar, who is widely blamed for the 20% collapse in the rupiah in August, and the subsequent loss of 20% of Indonesia's dangerously low store of foreign reserves in defending it; and Bakrie, a controversial figure (he is a businessman who got rich in the Suharto era) at whom fingers are pointed for bringing in annual GDP growth of just 5%, when 6%-7% growth is needed to bring down unemployment and underemployment - which many argue is the source of extremism and terror - approaching 40%.

With no meaningful political backing, Anwar, a technocrat who came to the job via the Asian Development Bank, could be easily spent. But Bakrie would be harder to unseat. Himself one of Indonesia's richest men, Bakrie is said to have pledged financial support to SBY's campaign last year. As a Golkar grandee, he was also influential in getting Kalla elected as leader of disgraced President Suharto's old party last December. Golkar dominates parliament and SBY needs it and Kalla to push promised and much-need reforms past the crusty party faithful, still grumpy at Suharto's ouster in 1998.

But to many Indonesians, the unpopular Bakrie represents a throwback to the Suharto New Order era, when cronyism abounded. SBY might want to fire him but to do so could cause lasting divisions between the president and his deputy. But Kalla also knows he's not as popular as SBY (his picture appears only sporadically on the roundabout billboard) and Indonesians seem to be taking their new-found vote very seriously. So for the moment, the two get along but Jakarta buzzes with expectation that one will eventually move on the other. But, no economist he, SBY is known to consult outside the cabinet with people such as Abdurrahman Wahid's former Economics Minister Rizal Ramli, to offset the Kalla-Bakrie influence from within the cabinet.

A moot point has been the recent controversial dropping of fuel subsidies, which have seen the average domestic fuel bill triple. Cash handouts to the poor have lightened the burden somewhat and, despite initial ire that saw Indonesians pour onto the streets in protest, sustained public outrage has so far been muted, probably as much due to the religious distraction of Ramadan than anything. Kalla told The Bulletin the fuel rise had been the biggest success of his administration. "Indonesians know that this is the type of medicine that we must take," he says. Its also been widely applauded by economists and international agencies, though palace insiders say SBY wanted a gradual easing of subsidies, not the short, sharp shock wanted by Kalla.

But in the end Kalla, who insists it the fuel hike was a 'cabinet decision,' prevailed. He says the dropping of subsidies will free as much as 25% of the budget, the surplus to be devoted to rebuilding the economy. But some analysts worry that business interests associated with the Bakrie and Kalla families may be some of the biggest beneficiaries of any new government contracts that may arise from the rebuild.

At best, it's been a patchy year for SBY, the 56-year-old former army general, Indonesia's fifth president in six years. He swept to power promising Indonesians security, prosperity and to defeat corruption. He has had some successes with the corruption crackdown - notably the arrests of two provincial governors, the head of Indonesia's election commission and the CEO of the country's biggest bank, state-owned Bank Mandiri - but protected bigger fishes are still to be caught, and security and prosperity have been more elusive to deliver.

Though his personal popularity among Indonesians is holding up, he's been hamstrung by a creaking bureaucracy, a fractious coalition which includes Islamist parties (perhaps explaining the reluctance to outlaw groups such as Jemaah Islamiyah) and not enough pull to get bills through an often hostile parliament. Successes such as the August civil war peace deal in restive Aceh have been few while setbacks, such as bird flu, terror, rampant unemployment and a wobbly rupiah, have mounted since he took office.

To be fair, few leaders could have managed the calamitous beginnings of SBY's presidency. Barely two months into his five-year term, Indonesia was the hardest hit of the many nations devastated by the Boxing Day tsunami, which killed 130,000 Acehnese and made another 500,000 homeless. "You've got to cut him some slack," says Michael Chambers, chief economist for French-owned brokerage CLSA Indonesia. "Right when he's just settling into office, getting a feel for the enormity of the task and the sort of people he has to help him, he gets a tsunami." Chambers says he's optimistic. "I think he's done reasonably well."

Corruption though remains a huge problem. "It is probably the biggest obstacle for business in this country," says Standard Chartered chief economist Fauzi Ichsan. Sofyan Wanandi, chairman of Indonesia's Employers' Association, says kickbacks to officials account for an average 6%-10% of business overheads, higher than wages. And the Berlin-based corruption watchdog Transparency International still ranks Indonesia as one of the world's 14 most corrupt countries. "They haven't done anywhere near enough on corruption," grouses Wanandi, whose Gemala Group is one of Indonesia's biggest private conglomerates.

Wanandi is another powerbroker in SBY's ear. A leading ethnic Chinese industrialist who also chairs the National Economic Recovery Commission, Wanandi is a powerbroker at KADIN, the Indonesian acronym of the influential national chamber of commerce which threw its weight and resources around SBY's team in last year's election. "This is still a business-friendly administration," Wanandi notes, "but there are serious question marks over the technocratic competence of some of his ministers."

And possibly over the loyalty of Jusuf Kalla.