Muhammad Chatib Basri is not a big fan of bureaucracies. “One of the reasons so many Indonesians have become religious,” jokes Indonesia’s 48-year-old finance minister, Jakarta’s ninth in 16 years, “is because they have to deal with the government.” Citing a common gripe of his 250 million compatriots – and international investors too – “you submit a document and you never know when it will be completed. So you wait for everything. And you need to pray for the day they contact you and say everything is settled.” His gentle jest about Indonesia’s notorious bureaucracy betrays a truism about operating in this often-trying country, east Asia’s only G20 economy, one that many investors, local and foreign, invariably fall in and out of love with at regular intervals. It’s a widely aired riff that echoes in such places as Brazil, India and large tracts of developing Africa: that Indonesia is a nation of enormous economic potential – and always will be. A country with a history of mediocre administrations that succeeds in spite of its government, not because of it. Chatib Basri knows the criticism all too well. So his mission as a minister is to make government easier to navigate, in a country where such navigation is notoriously difficult. He cites his experience from his previous job running Indonesia’s Investment Coordinating Board, the body overhauled by the current administration of president Susilo Bambang Yudhoyono (SBY) under Chatib’s predecessor, the former JPMorgan country head in Jakarta, Gita Wirjawan, to be a one-stop shop facilitating inward investment. The BKPM, as it is known in Bahasa, is the reformed ministry behind those ubiquitous soft-focus “Invest in remarkable Indonesia” advertisements that blanket the world’s news and business TV channels. Its business-and-foreigner-friendly image has been instrumental in helping quadruple foreign investment in Indonesia since 2009. Although the exponential jump in foreign direct investment, from $4.8 billion in 2009 to $19.6 billion last year, obviously can’t entirely be attributed to Chatib’s reform efforts, the smoother bureaucracy so coveted by investors here doubtless helps. So he’s introducing something similar at his new job at the finance ministry, by trying to reform Indonesia’s taxation procedure and increase what has been an anaemic collection regime. A new procedure called kring pajak – literally ‘tax call’ in Bahasa – is designed to make it easier to pay tax, to simplify what has traditionally been a laborious and often corrupt procedure here. Although the largest economy in Asean, and the region’s only G20 member, Indonesia struggles to collect tax revenue, partly because of an inefficient bureaucracy, as well as a reluctance by many Indonesians to volunteer taxes, in protest against sub-standard services and official graft. Tax authorities here collect around 12% of the optimal estimated take, compared with around 15% in Malaysia, 18% in Thailand and 25% in Vietnam. The aim is to bump that number up by 2020. “Our tax revenue-to-GDP ratio is around 12%,” Chatib says. “This country should be getting around 19% to 20% of GDP in tax. I needed to be very pragmatic, do something smart. I needed to come up with a policy that does not require many people or a lot of knowledge.” Indonesia’s tax apparatus has been very inefficient; Chatib cites a random example that a commonplace Rp100,000 (about $9) refund can take three or four months to process. So he has sought to do away with cumbersome low-level investigations bureaucracy by imposing a 1% flat tax on small village-level enterprises. “Yes, it’s very small, the collection in the past three months is only Rp450 billion (around $40 million), but before it was zero. “And you pay once a year instead of once a month, so you save 12 times on manpower. It’s a start. And you need to start reform on something like that; once there is success, you capitalize on it.” He says he’s “not a big fan of using state-owned enterprises” as a source of budget revenue for the state. “We need to treat SOEs as a company. If you rely on them as a source of income, then you cannot expect them to play as a normal company. If they need more capital, then let’s do it. I always prefer privatization.” Susilo Bambang Yudhoyono’s presidency has provided plenty of excitement for Basri Susilo Bambang Yudhoyono’s presidency has provided plenty of excitement for Basri Indonesia is coming to the end of an important era – with a democratically elected leader leaving office after two full terms. So, in Chatib’s view, what’s going to happen to Indonesia beyond the 2014 elections? Is the relative stability of SBY’s safe hands as good at it gets for Indonesia? There are many Indonesians and foreign analysts who agree that SBY’s ability to serve out his full term is his greatest achievement and yet an indictment of his presidency. They argue that he had a mandate to press much harder with deeper reform, but baulked at crucial moments, dogged by chronic inertia. “Whoever becomes president, he or she will need to provide jobs in order to reduce poverty, otherwise they won’t gain political support,” Chatib says. “If you want to add jobs, you need to grow the economy by 6.5% to 7%, about 38% to 40% investment over GDP. There is no way you can achieve this if you are not open to foreign investment.” This view is contrary to electioneering by the front-running party, Megawati Sukarnoputri’s Democratic Party of Struggle, known as the PDI-P, which has endorsed the popular Jakarta mayor, Joko Widojo, as its candidate for the July poll. In early March, the PDI-P raised eyebrows among the business community in its economic manifesto for the election season in stating that Indonesia “needs to stand on its own two feet” and that “we are facing a situation where our economic sovereignty and policies are being dictated by foreign powers”. “National interests,” the PDI-P manifesto said, “have taken a back seat to foreign interests”, adding that Indonesia must limit foreign ownership in certain sectors, in particular banking. Local media splashed with the headline ‘Indonesia needs fewer foreign investors: PDI-P’, and Chatib picked up on the concerns buzzing around town, which most attributed to pre-election populism. “Whoever becomes president, even if previously they have shown an ultra-nationalistic view, once they are in power they will be constrained by the economic realities,” he says. “Otherwise they must be willing to accept 4% to 5% growth and it means they cannot provide jobs.” He says 6% in Indonesia equates to maintaining current employment levels, but “I believe this country should grow by even higher than 7%. If we focus on human capital, on infrastructure, we can achieve more than 8% growth.” Muhammad Chatib Basri, Indonesia’s finance minister Muhammad Chatib Basri, Indonesia’s finance minister Chatib was Jakarta-born, but earned a PhD from Australia’s National University in Canberra, one of three ANU graduates on the technocratic side of the Indonesian cabinet, alongside foreign minister Marty Natalegawa and former trade and now tourism minister Mari Pangestu. His home town, he jokes, is the “direct opposite” of the planned Australian capital where he studied. “Jakarta is a city without a plan, Canberra is a plan without a city,” he says. “Initially I wasn’t thinking to become an economist,” he says. “I like more literature rather than economics. I hated economics and politics. I studied economics simply because my parents asked me to do that.” Although he now says that he hated politics, in 1998 at the time of the turmoil surrounding the late dictator, Suharto, who had spent 32 years as a strongman leader, Chatib says he led the pro-democracy demonstrations of Indonesian students studying in Canberra. He was appointed finance minister last May by SBY to replace the former boss of state-owned Bank Mandiri, Agus Martowardojo, who moved to govern the central Bank of Indonesia (BI) and who, like his predecessor governor at the BI, is widely expected to tip his hat into this presidential race as a technocratic running mate to one of the emerging candidacies. Chatib is no stranger to Djuanda, the finance ministry’s modern headquarters named after an aristocratic former prime minister. He served on the prestigious presidential economic think-tank known as KEN (the National Economy Committee), after cutting his teeth as an adviser in the wake of the 1998 collapse of the Indonesian financial system. Later, he would work alongside post-Suharto Indonesia’s most celebrated – and longest-serving – finance minister, Sri Mulyani Indrawati, a former Euromoney finance minister of the year and now a Washington-based managing director of the World Bank. Chatib was Mulyani’s close aide through much of her five years to 2010, including managing the 2008/09 spillover crisis from the sub-prime storms of the US. “I knew the territory,” he says of the finance ministry. “Half of my career I spent dealing with economic crises.” Eugene Galbraith, the American co-chief executive of Indonesia’s biggest private-sector bank, Bank Central Asia, rates Chatib’s finance portfolio as the most efficient of the ministries BCA has to deal with: “I find him very impressive, and he understands the type of environment the market needs to function efficiently.” If the academic-cum-administrator Chatib has brought corporate-style smarts to a creaking bureaucracy that’s because he’s done his time on the other side. Rare for an Indonesian state technocrat, he’s been a director of the Malaysian government-controlled regional telco Axiata and a commissioner of some big Indonesian corporations, such as auto distributor Astra International and government-owned cement producer Semen Gresik. He has also consulted for the World Bank, Asian Development Bank, OECD and various international aid agencies. Chatib’s first year in office as finance minister has not been without its dramas too. Last summer Indonesia was swept by the financial squalls that buffeted the emerging market darlings of global investment, as it has been for much of the Yudhoyono presidency. Far from becoming the extra vowel in Brazil, Russia, China and India’s roaring Bric club, Indonesia was suddenly relegated by Morgan Stanley to sit among its “fragile five”, along with Turkey, Brazil, South Africa and India – G20 developing economies that, it said, were rushing economic growth. This coincided with some of the first signs of recovery in the trans-Atlantic western economies, which induced warm money to swing out of the once-fashionable emerging markets such as Indonesia, and which hiked interest rates to defend their currencies. Looking for justification, analysts seized upon Indonesia’s current-account deficit, which had swollen to a record $10 billion by mid-year, around 4.4% of GDP. In Indonesia’s case, Morgan Stanley’s description was at odds with a widely held view of a generally rosy decade – that rambunctious Indonesia has been too conservative in stoking growth, that it could have gone faster, more in keeping with China-style expansion. Indonesia’s then central bank governor, Martowardojo, initially defended the currency, a strategy in keeping with other big developing economies now being sold off. But by August/September last year, that support policy appeared to have been abandoned. As Bank Indonesia stepped back from the market, the rupiah went into a mini free fall, slumping 15%. Several months on, it seems to have had Chatib’s desired effect, to narrow Indonesia’s current-account deficit. Encouraged by the cheaper currency, the deficit had halved by the end of 2013 and the rupiah has turned around, holding at around 11,000 to the dollar. The stock market also rallied. Chatib says his policy direction is to focus on the short term first. “We choose stabilization of our growth… so we decided to slow down the economy; it was by design.” GDP growth at the latter end of 2013, which had briefly threatened to look alarmingly anaemic, came in at a respectable 5.7% in the fourth quarter. Still, the annualized 5.78% rate for 2013 was Indonesia’s slowest in four years. Chatib explains: “Bank Indonesia raised interest rates by 175 basis points, then we adjusted the fuel price by 44% so we had policy tightening by a cycle. As a result we were able to lower the current-account deficit… to make the overall current-account deficit in 2013 to become 3.2% of GDP.” But he does not think this is enough. For sustainable growth, he says Indonesia is “aiming to achieve the current account at 2.5% of GDP by the end of 2014. Don’t expect too strong a growth this year. Because we choose stabilization of our growth, the economy may grow 5.8% to 6%, not over 6%.” Chatib is pragmatic about recent events, saying the global economy has been going through a necessary period of normalization. “We are no longer living in a world driven by quantitative easing,” he says. “For the past four years we have been living in an abnormal world.” Warming to his argument, he cites Indonesian sovereign bonds, which were yielding around 9% to 10% through 2008/09, and now returning around 8%. The rupiah, he says, was around 12,600 to the dollar in 2008 and is now trading in the 11,000-12,000 range, having traded as high as 8,400 in mid-2011. Asked if he is happy with the currency’s level today, he dodges the question by saying he is more focused on “smoothing the volatility,” while deferring to the notionally independent central bank. These policies will take Chatib through to the elections, when SBY stands down and his finance minister is expected to follow suit. Except that he might not. With the upcoming election season upon this untidy nation – there are two, the parliamentary poll in April and the more closely watched presidential election in July – Jakarta swirls with political intrigue and gossip – some of it centring on whether or not the technocratic Chatib can hold on to his job in the new government. That would be an Indonesian first. Only one Indonesia finance minister has served two presidents – Frans Seda in the transition between the Sukarno and Suharto dictatorships in the mid-1960s – but it was meaningless as Suharto had effectively overthrown Sukarno in a military coup and appointed his own cabinet, with Sukarno briefly serving as a powerless figurehead. Indeed, in the modern Indonesian era known as reformasi (reformation), when Indonesia developed a democracy, the finance ministry has become something of a revolving door. Nine ministers have served four presidents over the 16 years since Suharto was ousted, four of them during the 10-year term of SBY. Chatib is aware of the speculation about his future, but dismisses it. “I’m not a politician,” he says, reminding Euromoney that he’s not a member of any political party. But he offers a politician’s answer to Euromoney’s pressing him if he would like to remain as finance minister in the post-SBY era. “After this I would like to go on vacation with my family,” he says, smiling. “I’m a technocrat, so my job is really to ensure that whoever becomes the president and the next minister of finance, she or he, doesn’t have any problems with the fiscals. “What I am doing now is to ensure as much as possible that we focus on stabilization this year. We have taken the stern action on macro policy, on fiscal tightening to let the next administration have some room for growth. If you don’t provide this, the next administration will be in trouble.” As for the SBY era that’s now drawing to a close, he says he prefers to offer a judgement as an Indonesian instead of as a government minister. “One thing that is very new is that this is the first time that a directly elected president can fulfil two full terms,” he says. “If you are a policymaker, you really need political stability. President SBY has set the tone for political stability of the last 10 years. I think there is a lot of improvement.” The next stage for Indonesia, he says, is to “expand the supply side, improve the infrastructure”, which he agrees needs much work; Indonesia’s creaking roads, airports and ports are falling far behind its fast-developing neighbours. “Not all is perfect, I can see a lot of shortcomings, to improve infrastructure, land procurement procedure, the issue of corruption,” he says. New infrastructure is sorely needed. This is a country where no new railway line has been constructed since the end of Dutch colonial rule in 1947. Last November, the government announced plans for $35 billion in new infrastructure to ease bottlenecks, but economists said those plans don’t go far enough. “Indonesia could absorb $50 billion in infrastructure and you still wouldn’t notice much change,” says a foreign banker and infrastructure specialist. “Ten times that amount and now you are talking…” It isn’t just ground infrastructure that needs work. First Media, one of the country’s few broadband cable providers, offers consumers a subscription at claimed, but rarely reached, speeds of 100MBps for a staggering $265 a month. But internet connections are so unreliable – web forums are full of disgruntled users – that businesses are forced to subscribe to back-up providers. Many foreign e-commerce outlets refuse to deliver to Indonesia because items simply disappear, often in the sclerotic and famously corrupt customs system. With commutes for Jakarta middle-class office workers as much as seven hours a day, Chatib says the problem is an “out-of-touch political class who live in Menteng” – Jakarta’s most prestigious suburb, adjacent to the capital’s administrative quarter – “and get chauffeured to the office and helicoptered to the airport.” On corruption, Chatib says the “genuinely independent” anti-corruption agency KPK has been one of the success stories of the SBY decade. “There is no such thing as a perfect institution, but it is very important to have this institution like KPK, to set the tone, to send a signal.” That’s a hotly debatable point in Indonesia. Founded in 2002 but given more muscle when SBY came to power, KPK does not yet appear to have had a deterrent effect among Indonesians, who complain it has pulled its punches. Chronic corruption continues to plague the nation. In 2004, Indonesia was ranked 133rd of 145 nations on Transparency International’s corruption index. Ten years on, it has marginally improved its standing to 113, or “highly corrupt”. The local media carry dozens of colourful stories daily about the latest transgression of, say, a district governor and his or her well-oiled political machinery, often revolving around a local dynasty. Ex-finance minister and independent presidential candidate Rizal Ramli says post-Suharto Indonesia is little different to Russia in that it has a bunch of oligarchs monopolizing the business/politics nexus. Ramli says: “While Indonesia enjoys plaudits from the international community for being one of the largest democracies in the world, I would argue that beyond the right to vote in elections there are few other reasons to wax eloquent about our particular brand of freedom. “So while we may be categorized as an electoral democracy, there is another sobering reality that needs to be addressed: although Indonesians have the right to vote, their votes have only brought them what is best described as a ‘criminal democracy’. What this means for the average citizen is that the system is only successful at increasing the wealth of crony businessmen, executive officials and legislators.” Rare in Indonesia as a popular and trusted institution, the KPK has been hit by its own corruption scandal. Through 2009/10, its chairman, Antasari Azhar, was tried and convicted of ordering the murder of a prominent businessman who, it was claimed, was blackmailing him over Azhar’s affair with a female caddy from his golf club. When he was a state prosecutor, Azhar was notorious in Jakarta for his lax treatment of Suharto’s disgraced son, Tommy, who had earlier been found guilty of paying hitmen to kill a judge who had convicted him of graft. Last month, the KPK struck at the heart of Indonesia’s economic decision-making by citing the entire Bank Indonesia board of governors as being involved in “malfeasance” in approving the controversial state-funded bailout of the ailing Bank Century in 2008. Among those slated by the KPK are current vice-president Boediono, the BI governor, and the current head of Indonesia’s new corporate regulator, the Financial Services Authority, Muliaman Hadad. Amid the impatient clamour of today’s Indonesia, Chatib urges investors to have patience and perspective. “We cannot compare Indonesia with Malaysia, Korea and Thailand,” he says. “Because none of them changed the political system from authoritarian to democracy in one night. None of them changed from centralization to decentralization in one night. So what Indonesia has achieved has been quite remarkable.”