The Yudhoyono government in perspective

JAKARTA, Indonesia – Minister of Tourism Mari Pangestu talks to Rappler about the challenges faced by the government of Susilo Bambang Yudhoyono. She talks about the line between idealism and pragmatism.

In the words of analyst Greg Barton, the government of Yudhoyono, or SBY, is seen as “inert, and had lost opportunity after opportunity.” (WATCH: Stability vs change in Indonesia)

Mari Pangestu was an outspoken Suharto critic who joined the first administration of Susilo Bambang Yudhoyono in 2004 as MInister of Trade and Industry and is now the Minister of Tourism.

Watch Rappler’s interview below.

Maria Ressa : What is at stake in these elections?

Mari Pangestu: Well, just to consolidate the process of democracy. This will be the third direct presidential elections. Each one has been different actually. This is the first time we’re having only two candidates.

We just hope it’s going to be, once again, a peaceful process. Whoever wins and whoever loses, especially the loser, would be a good loser. We want to make it a peaceful elections, and if there are to be disputes, we have processes to deal with the disputes and those processes work, and hopefully we will have a good outcome.

MR: What are the choices for Indonesians, in terms of what they represent? What are Indonesians choosing, and what do they want?

MP: That one’s a difficult question to answer. But I would say that, in general, most Indonesians want continued economic development. They want a better life. They want to make sure there are jobs, and a number of issues that have defined the debate include food security, energy security, just having a better life I think but ensuring continued openness and democracy, and the strengths of Indonesia – tolerance, pluralism – I would say by and large most Indonesians still want that.

MR: The army chief talked about the possibility of violence. Is this even a possibility, given what Indonesia’s already gone through?

MP: We have to always anticipate, of course. But I think Indonesia has matured beyond resorting to violence or chaos to achieve outcomes. I think if we experience the last few months of the presidential campaign, I would say that as an Indonesian I am quite proud of the process.

Okay, as with all political campaigns, there are black campaigns or negative campaigns, but because we have openness now – the press or people can speak out their mind – most of it gets immediately responded to, and in some cases there is a legal recourse to the black campaign or the use of nonlegal means. I think we have gone some way but whether there is potential we have to be on guard. I would hope the Indonesian people are beyond that, and if there are some elements that are still trying to use this, hopefully there are enough people that want to counter that and want to prevent it from happening.

MR: It’s been 16 years since 1998. It seems we have the ghosts of the past – Suharto and Megawati – these figures from the past are still very strong in this? How would you describe the evolution? What role are these strong figures playing in these elections?

MP: I think we are in a way paying for many years of a lack of space for young leadership to emerge. What you can observe already is that new potential leadership is coming from regional government. A number of the good leaders we have seen are those who have experienced being governors or mayors. Maybe in another 5 years we will see another breed of young or new leadership come out of the system.

They are not quite there yet, but we are already seeing it, including in the figure of Jokowi, who doesn’t come from pre-’98 days. We just have to be patient with the process. I do think most Indonesians believe there has to be regeneration and new leadership, but it will take time and experience.

MR: You joined government. During the time of Suharto you were an outspoken critic, then you joined the government to help. What have you learned?

MP: That reforms are not easy. If you think about it, in 98 many of us who ended up in government, we came from the pro-reform movement, including the president. You know, a lot of people forget this, this is why people should reflect on where we have come from to know where we want to go.

Because most people think that no reforms have been done. People forgot what we went through pre-98. and that most of us came from a pro-reform movement, wanting change, and then 6 years after ‘98, a number of us were given the opportunity to implement the reforms we had all believed in. By and large, we didn’t achieve 100% of what we thought we should do.

Whether it’s 10% or 30% or 40%, I think we have achieved a number of reforms in a number of areas. – of course there’s a lot of homework to be done – and we have also, I think, matured in the process of democracy and that’s what we also fought very hard for, pre ‘98.

I think moving forward, it’s not about “Oh, we have to reform, we have to change!” It’s continuing the change and deepening the institutional reforms, so that you don’t ever go back to the dark days. We should never let that happen again. The reform agenda is still not completed and we should recognize the areas of reforms that still need to be addressed.

I think reforms take time. Changing the laws is the easiest part, but implementing it takes time. The hardest thing to change is the people’s mindset, and the people’s capacity and commitment to want to change. Our biggest challenge ahead is the implementation of reforms that have already been done, and then identifying and completing the reforms, and then changing the people’s mindset. Bureaucratic reform is probably at the base of all that.

MR: A lot of analysts are talking about how Jokowi is a break from the past, but is that ever really possible? Where do you draw the balance between idealism and real politics?

MP: I think you have to strike the right balance. You can’t have pure idealism – and that’s one of the things I also learned from 10 years in government. I came in at least with a very idealistic mindset and agenda, and then you quickly learn that you just can’t implement a lot of things, for many reasons – political, institutional, human resources constraints. Then you become more realistic, but you still try to take small steps without losing the end goal.

I think that’s the way, if you talk practically speaking, how you balance between politics and idealism. I don’t think we should lose our idealism and our vision, but we should be realistic about it. You can’t achieve everything you want to achieve in a 5-year term. You have to prioritize one or two things and hope that there will be enough people who want to continue the change. That’s the balance you have to strike.

Even if you don’t have to make a political coalition within the campaign or in the setting up of government, you’ll still have to deal with politics. How you deal with the politics, and how you deal with that without losing your goals or idealism? At the end of the day, compromises have to be made.

Economists have a nice term for it: If you can’t go for the first best solution, you go for the second best. Sometimes you have to go for the third best. As long as you don’t forget what was the first best, and the second best still outlines a path towards the first best, then you have to live with that, and make the necessary balances.

At the end of the day, what we try to do is institutionalize the reforms. Nothing is set in stone, obviously. Laws can be changed. If you built in enough institutionalization so that the institution itself doesn’t want to revert, or you built up enough public education so that the public is the one that will resist the change. Then you have a better chance of the reforms sticking.

I think this is going to be the challenge for all governments, not just Indonesia. What is the political economy of reforms in a democracy? It’s – a lot of governments are facing this challenge.

MR: If you were to pull back and see as an analyst, what were the stumbling blocks (regarding Yudyohono’s government)? What things worked, what didn’t work?

MP: In the way we do reforms, the easy part as I said was changing the laws and the regulations, and then implementing on the ground is much harder, because it takes time and you have to have bureaucratic reform and so on.

I think in the first cabinet, part of the easy components of reforms we were able to do. We changed laws and we even introduced the beginnings of bureaucratic reform, and so on. Then when we came into the second cabinet, we came into a situation where it’s the harder part of reforms – when you talk about the institutional issues, that’s the harder part of reforms and implementation.

Reforms are easier to do when you have a favorable external environment, when your economy is doing well you are more able to convince people to do the reforms. Although, (there are times when) crisis can generate accelerated reforms.

By and large when you are in a good external situation and when your economy is doing well, you are in a better place to be able to push reforms.

The other thing that happened during the second cabinet was the world economic crisis, in which everybody had cold feet with reforms and with opening up and there was a lot of pushback with globalization, with so-called free trade. We were less able to win the battle on that one.

It’s a combination of both th internal challenges as well as the external challenges.

MR: For whoever wins the elections, what are the main challenges?

MP: If you look at the growth in the last 8 or 10 years, it’s been commodity-based driven. Also low-cost labor.

Going forward, we have to diversify the structure of our economy and find new ways to compete. New ways of growth and competitiveness. That requires you to diversify out of primary resources, primary commodities, increase value-added.

That must mean productivity increases. It can’t just be based on increasing capital or increasing labor anymore. That’s the big challenge because that’s a medium term challenge.

Meanwhile commodity prices are not likely to strengthen anytime soon. They’re going to be soft for a while. Huge demand from China and India which also propelled commodity-boom based development in the last 10 years is likely to taper off. It’s not going to disappear, but the rate of growth is going to go down. You have to find new sources of growth.

The way the world is exchanging goods and services has also changed completely. It’s the global value chain. Where are you going to be in this global value chain?

You can’t produce everything in your country even if you have a large market. So you have to know which part of the value chain, including services. I think we don’t talk enough about the importance of efficient services as an input to being competitive. Whether it’s education services, health services, transportation, logistic services. Transportation logistics are the big challenge of Indonesia. All the studies show our lack of competitiveness is because of the infrastructure and the logistics. Traffic and just getting people, getting goods to move efficiently and effectively, and telecommunications even. These are the big challenges for the incoming government. Not to mention food and energy security.

MR: In terms of global security where is it now and where should it be?

MP: Now we are more on the low end manufacturing and more in the low end also in the production process so the more labor intensive process. Studies done by the World Bank about two years ago comparing the input of services for instance in production of the goods as well as for exports shows that Indonesia has about only 13% of input of services compared to China at 30% which is showing that we are not getting the kind of design part or the R&D part of the value chain. But that’s basically what it’s showing so this is where we need to increase efficiency in services and productivity of our labor.

And we’re only doing mainly the sampling type of production so we need to upgrade. The analogy would be we don’t want to just export garments for Calvin Klein and we’re just doing the sewing here. What we want to do is export fashion which has the design component or even the brand component because that’s where the higher value added comes in and that’s where the higher value added is based on higher productivity, higher value added. This is the big challenge for us and it’s really the investment in human resources and allowing a conducive environment for creative industries to grow. It’s part of the challenge,

MR: We’ve been talking, in 1998 we were talking fuel subsidies and you’re still talking fuel subsidies. And this is connected to everything, to transportation to infrastructure. It’s taking so much of Indonesia’s budget. Where, why has it hasn’t been changed? This is the nice part to ask that question. Can Indonesia continue to subsidize fuel? Why hasn’t it changed? What will happen now? Both candidates say that they plan to change it.

MP: Well I think, why wasn’t it changed, you know there are various reasons. Part of it just the processes were not there to really push for. If you look ahead basically it will have to be restructured. The structure of the budget will have to be restructured because the budget situation right now is constraining whoever is going to be in government to a very limited fiscal policy space to be able to do much including the very urgent infrastructure needs. So a more sensible and effective subsidy scheme whether it’s for fuel or agriculture and all the other subsidies that are still in the budget need to be addressed. I think both sides have said that they will do something about the fuel subsidies and maybe it’s not, maybe next year they will remove all the subsidy but it will be in the stage process and it is really about changing the use of the funding that is used for fuel to something which is more urgent or more effectively used, whether it’s infrastructure whether it’s for education, or whether it has 20% or whether it’s for health, whether it’s for improving people’s welfare.

MR: In terms of budget surplus and budget debt again that seems to be one of the things Indonesia is going to have to worry about. Is it?

MP: I would say so. I mean it’s not just about the fuel subsidy obviously.

MR: The debt seems to have, in this government and this year it seems like it’s also something that needs to be held back.

MP: Not foreign debt because we’ve reduced the foreign debt. It’s more the government debt you know the issuance of bonds and so on. But you know more importantly I would say is the revenue side which is from taxes, intensification and extensification of revenue from tax. It’s still something which needs to be addressed besides the more effective use of the funds on the expenditure side.

MR: One of the candidates, Prabowo – Stanley, Deutschbank said if he is elected there will be massive capital flight from Indonesia. Do you take this seriously? Indonesia is so huge. Is this a potential problem.

MP: I think investors will adopt a wait and see attitude. I think businesses and investors are basically realistic animals and they will review the situation as it develops and I would say I think whoever is in government will have difficulties as we just talked about including implementing reforms. But at the same time because of international commitments as well as the reforms that have already been undertaken and institutionalized whether it’s on the economic side, political side or governance side, it’s very hard.

So I think we’re scared there will be a total reversal of nationalization I don’t think it can happen not like at the turn of a hand because of the way you know, we are a democracy. We do have institutions and processes there. So while there will be imperfections I don’t think you can, I do not foresee that we can reverse everything or too much.

MR: In terms of ASEAN now, we’re looking at an ASEAN community in 2015. Is Indonesia ready for it? Will Indonesia open up for it? Indonesia is the leader of ASEAN and founder. Where Indonesia goes, the rest of ASEAN goes. How open is Indonesia now to integrating?

MP: I think this is part of the challenge whoever is in government will have. Because at the moment the appetite for the increase of building up and economic integration is kind of low and it’s not just Indonesia it’s kind of worldwide. So how do we regain this?

I think we have to focus more on practical and realistic ways of economic integration whether it’s improving your infrastructure or your connectivity, visa facilitation, real things that will then facilitate business to work to improve the movement of people and goods and information. Maybe if we just focus on that area rather than trying to negotiate for the short term until people are more confident about where they are.

A lot of it is about the confidence of a country to be able to compete. As I was saying earlier, people will interpret what they can about the policies. I think it will be, whoever is there, it’s going to be hard to reverse many things. That’s one thing.

But you know, people will look at the structure of the President or the government or the cabinet with the view that okay, are they going to be the ones that can implement reforms? I think that’s probably the more crucial question. Is #1 or #2 more equipped to do the reforms. That will also then increase the confidence to be able to do more opening up.

MR: My last question now is you’re facing the tail end of your term. Perhaps you’ll join government again who knows what will happen next? But when you look back at this, looking at this juncture point, Indonesia has a choice of where it’s going to go. How do you see Indonesia looking backwards now and what do you want to see happen in the future?

MP: I think we have come a long way. People forget. Maybe the young people, of course they were not, they were too young to know what happened pre-98 but we who were there in pre-98 we always remind ourselves where we came from.

You remember in 98 people thought Indonesia would break up, we’ll be Balkanized and so on and there will be chaos. But it didn’t happen. So Indonesia’s actually a very resilient nation. And we were able to consolidate our process of democracy. It’s not by no means perfect but I would say we are – every election, every time we have process, it has, there’s always a learning and there’s always some institutional developments.

We’re progressing towards a better governance, better democracy, better economic situation. I don’t think people should forget that and we don’t want to go back to something like pre-98. So how do we prevent that from happening? Recognizing that the reforms ahead are going to be more difficult than the last 10, 15 years.

You’re coming to the hard part of reform so I would say wether I’m gonna be an analyst, a researcher or whatever I’m gonna be. This is going to be the big question out there for us. How do we continue to have reforms and make them stick?

In a democracy and increasingly uncertain world, a lot of it is actually has to do with public education.

That was actually when my first day when I was recruited, I was in Australia giving a seminar when I got the call to come here for my interview and my professor who has now become a colleague I asked him, What do you think I should do? What’s my biggest challenge as a minister? He looked me in the eye he said, public education.

So I think that’s truly the challenge out there because whether or not you can do the reforms, whether or not you can say okay we need to do this. You need the people’s support and for the people to support it they need to see the benefit. To see the benefit, you need to have means and ways to communicate and explain this is really gonna help you, Maria. This is going to make your life better. This is how it’s gonna make your life better. It’s gotta be real to them.

That’s probably my learning you know. Don’t give them the GDP numbers. “According to the model, GDPs gonna grow by this much and it’s gonna benefit people’s welfare by X billion rupiah.” Where’s my part in it? So we need to better at communicating: how does it affect me? Not an aggregate.

ANd that’s where the challenge is gonna be ahead. I would hope that we get better at it. Otherwise, to your earlier question, we will not get that right balance between the idealism and reforms that we need to do and the political reality because the political noise, the political reality is gonna be so much noisier than this. You need to be able to know how to balance that and still achieve progress in the reforms. I still believe we can.

MR: And you, where do you find your balance between idealism and pragmatic, real politic? Where are you now?

MP: I do two things. One is that I always have to remind myself as well as have enough information to know where I want to go even though sometimes that’s too ambitious, that’s too idealistic. We may not get there in 20 years. We may never get there but we need to know the path. And if that path is controversial or people are very critical about it mainly because they don’t understand how it’s going to be benefit them – then we don’t say anything about it, we don’t say anything about it, we don’t use that language. Given my trade background, we dont say we want free trade. We don’t use that language. We say we want to be competitive so we can make people’s lives better A, B, C, C. It’s the way you communicate it. Or maybe just don’t say anything just do it. When the results are there, then you can tell people. By the way this is what happened, this is what we did and this is the result. I met somebody an old friend from the research community, cause we are doing, I’m thinking a lot of the service sector. Tourism is in the service sector. So I was thinking how did Malaysia implement its services reform? She said, you know the Prime Minister at the time, he commissioned a huge study on the services sector and it was across the board very comprehensive and we were asked to think future. And he kept the study in his drawer and he would pull it out when he thought it was poltically opportune to do it. But he had it in his drawer, this is like a simplification of what she told me. But that kind of inspired me to think, okay I’m doing a kind of similar approach where we kind of know where we want to go, this is the ideal way. But we have to be pragmatic. We do what we can when we can. Sometimes, we don’t have to advertise it to everyone, sometimes we do – depends on the situation. So I think there’s a lot of learning in implementation and communication. And getting the public support is all about how does it benefit me. I would say that’s the big challenge for whoever’s in government in the next 5, 10 years.

MR: Fantastic!