Indonesia - Future trends

In 2001, Indonesia stood at a crossroads. Just 3 years after the removal of the autocratic Suharto, only the country's second leader since independence, the country had gone through 3 presidents, with the second, Abdurrahman Wahid, removed by impeachment. The biggest question on the political horizon is whether the newly-in-stalled President Megawati Sukarnoputri can secure the stability of the presidency and lead the way to peaceful elections in 2003. Her critics worry that she will lead the country back to the days of military control. Foreign investment and economic stability in the coming years may well depend on her success.

If all goes well politically, Indonesia should be able to build on its strengths to restore the confidence of foreign investors. It has a large domestic market and labor force, a well-functioning telecommunications and infrastructure, extensive natural resources, a strategic location, and experience with market economics. Many obstacles remain to economic recovery, however: Indonesia's huge public and private debt, private assets under government control that must be restructured or sold, its ineffectual legal system, and cronyism. Despite the need for social programs, the much higher debt that followed the crisis will pressure the government to keep expenditures down. While more investment is needed, a forecast by the National Development Planning Agency in May 2000 found that even with optimistic assumptions about successful reforms, foreign investment would not return until 2002.

Reform is progressing slowly. At the end of 2000, the IMF was threatening to delay new loans unless Indonesia fulfilled previous promises to take action to reduce risks in its decentralization plan, use higher oil revenues to pay down debt, and set a timetable for selling assets obtained through the bailout.

The economy will also be affected by whether the decentralization process is able to increase the fair development of the regions while still reassuring investors of stability. It is hoped that better sharing of revenues with the provinces will reduce some tensions, but unrest is likely to continue in some of the most conflict-torn areas, such as Maluku, Aceh, and Papua (Irian Jaya).

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