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Progress is Impressive in Indonesia

By Ian Bremmer

Amid all the fears in the United States and Europe that direct elections in the Muslim world breed only political radicalism and an anti-Western agenda, recent developments in Indonesia have gone virtually unnoticed.

Over the last decade, Indonesia has endured the unexpected implosion of former President Suharto's 31-year authoritarian rule, the Asian financial crisis, ethnic and religious violence, the loss of East Timor, separatist movements, terrorist attacks, a tsunami that killed 168,000 of its people, and a volcano last September that left thousands homeless as it buried villages in rivers of mud. But a visit to the country today reveals plenty for both Indonesians and foreigners to celebrate as the country's first directly elected president makes steady progress toward political and economic reform.

Since his inauguration in October 2004, President Susilo Bambang Yudhoyono has brought real stability to Indonesia. That's no mean accomplishment in a nation comprised of thousands of islands scattered across the Pacific, home to more than 300 local languages and a diverse range of ethnic groups. This stability is transforming the archipelago into a promising long-term investment bet.

Progress is slow, to be sure. It would be wrong, for example, to believe that the military's role in politics is entirely a thing of the past. During a recent visit to Jakarta, I saw well-organized and peaceful anti-government demonstrations led by local trade unions march headlong into a quite sizeable military presence in Jakarta's streets. The event became a non-event, as protesters peacefully dispersed and state media made little mention of the march.

The entire scene evoked the stable but sleepy - even provincial - emerging market that the world's largest Muslim nation has become. There is little conviction here yet that global economic developments matter much for Indonesia. There is virtually no interest in, say, China's growth or in trends in Islamic finance so hotly discussed in the Gulf States. State officials, Indonesian entrepreneurs and opinion makers have (very) strong opinions about local issues. But there is nothing like the enthusiasm found in neighboring Malaysia for raising the country's profile as an international investment destination.

The only global trend that inspires more than a ripple of interest is that of "climate change." Evolving weather patterns and large-scale natural disasters play too large a role in Indonesia's recent history for research on global warming to go unnoticed - at least among the political and business elite.

Yudhoyono remains committed to economic modernization; counterterrorist cooperation with the West; and promotion of Indonesia as a moderate, secular state. But many among the country's business elite, many of whom still hold an obvious affection for Suharto, don't much care for Yudhoyono or the changes he hopes to bring about. Still, a large majority of Indonesians do. He was elected president with 61 percent of the vote in 2004. A recent opinion poll from the Jakarta-based Indonesian Survey Institute suggests his public approval has reached 67 percent.

On the international stage, Yudhoyono won praise from many quarters for persuading Indonesia's parliament and military to support a peace deal with separatist rebels of the Free Aceh movement, who handed over their weapons in December 2005, bringing an end to 29 years of bloodshed. The territory of Aceh held its first direct elections last December. Yudhoyono also penned an article published in the International Herald Tribune last February calling for "a global culture of respect and tolerance," following the protests and violence that erupted in many Muslim countries in response to the publication in Denmark of cartoons depicting the Prophet Muhammad.

At home, Yudhoyono's reforms face tough political opposition from the Golkar Party, politicos who remain extremely influential in parliament and at various levels within Indonesia's state bureaucracy. Many of the party's members have directly and indirectly undermined economic reforms that they believe threaten their patronage networks. Still, the president has no serious political challengers on the horizon. He is widely expected to seek (and win) re-election in 2009.

That Indonesia's first popularly elected president has built considerable popularity, bolstering the country's political and market stability, should not be taken for granted. Like Brazil's President Luiz Inacio Lula da Silva, Yudhoyono is a determined pro-market, pro-democracy reformer leading a nation burdened with a long history of authoritarianism and state planning of the economy. Given Indonesia's geography, Yudhoyono's moves to decentralize regulatory authority make a lot of sense.

Economic reform, in particular, still has a long way to go. The red tape involved in investment in the country's manufacturing sector remains considerable. Labor regulations are among the most restrictive in the developing world. But Yudhoyono can already point to a few notable successes. The Finance Ministry has built a reputation for competence and transparency. A policy of steering investment into large-scale infrastructure projects - the country's electrical grid, for example - has paid obvious dividends.

Optimism over Indonesia's future is growing. Spreads on government bonds are now about half what they were just two years ago. We're likely to see an expansion of investment in the country from China and Singapore. Other investors will follow. Over time, Indonesia is likely to become one of the more solid long-term emerging market bets.

Ian Bremmer is president of Eurasia Group, a political-risk consultancy and the author of "The J Curve: A New Way to Understand Why Nations Rise and Fall,". He can be reached via e-mail at research@eurasiagroup.net.

©2007 Tribune Media Services


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