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The President PostT H E S P I R I T O F I N D O N E S I A

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From Recession to GrowthFor many countries, including Indonesia, the transition from recession to sustainable growth would not be an easy one. The world has changed and the economic landscape is now different.

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Singapore: Back on TrackSingapore was the first country, after the US, which officially announced it had been dragged down the abyss of recession as a result of the global economic crisis.

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THE REGION THE ECONOMY

Pura Luhur Uluwatu:Beautiful and SacredOne of Bali’s holiest temples is not only majestic but also offers a spectacular and sweeping view of the Indian Ocean and, of course, stunning sunsets.

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TOURISM

A Leader’s Role in Managing Organization CultureLeaders who are able to develop their organization culture effectively possess certain qualities and beliefs which are beneficial for overall organization performance.

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MANAGEMENT

IDR 10,000

B ank Indonesia, the cen-tral bank, is consid-ering limiting foreign ownership in short-

term Bank Indonesia promisso-ry notes (SBI) after projecting a budget deficit of up to Rp1.905 trillion at the end of the year.

“We are studying the possibil-ity to limit foreign ownership in one-month SBI papers. We still need to review its pros and cons before implementing the policy,” BI Deputy Governor Darmin Nasution said recently.

Analysts have voiced concerns over the excessive amount of hot money that poured into the coun-try through SBI.

Sustainable Development In-donesia economist Dradjad Wi-bowo urged the government and the central bank to tighten capital market and financial regulations to curb the hot money flow.

He said various measures need-ed to be considered and imple-

Central Bank Mulls Limiting Foreign Ownership in SBI

mented to prevent speculations that could threaten the national macroeconomic stability. He also suggested the government to reg-ulate all policies related to fund managers, even increasing tax on stocks and bonds by 2% as im-plemented by the Brazilian gov-ernment.

Wibowo said he has not seen any concrete action yet from both the government and BI to solve the problem.

Nasution acknowledged that regulators still have no plan to limit foreign ownership in SBI despite the soaring amount of interest the central bank has to pay.

Foreign ownership in SBI reached Rp48 trillion as per No-vember 2009 out of a total of Rp280 trillion. According to BI data, the central bank will have to pay up to Rp18.335 trillion in monetary costs at the end of the year, with a large part of the

chunk going to SBI interest pay-ment.

Meanwhile, BI estimated it will only gain a revenue of Rp16.429 trillion, which translates into a deficit for the central bank.

Calls for the central bank to curb foreign ownership in SBI has mounted, as such a measure is considered crucial to minimize the negative impacts brought about by the hot money flow. It is also aimed at getting foreign in-vestors to shift to longer maturi-ties like three-month to one-year SBI notes.

Danamon economists said that too much foreign capital inflow into portfolio investments, espe-cially in SBI, could create an un-stable capital and financial trans-action balance and thus increase the volatility risk of the rupiah,as they are not stable funding sourc-es and as such can be pulled out at any time.

Sharing the view is Bank Mandiri Economist Mirza Adityaswara, who sees no pos-itive impact from foreign capi-tal inflow in SBI on economic growth. He said hot money could even create a negative impact as its possible sudden outflow may cause the rupiah to plunge.

He added a bold move from the central bank is needed to stop foreign investors from investing in SBI by revising Bank Indone-sia regulations.

He said Indonesia is not getting any benefit from foreign invest-ment in SBI because they could not be allocated to other sectors. In fact, he added, it is only bur-dening the central bank as inter-ests have to be paid.

“It is much better to allocate the money in the stock market, bonds or state bonds,” he said.

He went on to say that the re-cent rupiah appreciation was mostly driven by the increasing level of capital inflow in SBI and that the rupiah will quickly de-preciate once the capital rushes out.

BNI Chief Economist Tony Prasentyantono acknowledged that curbing foreign ownership in SBI could slightly change foreign investors’ positive perception on Indonesia but said the measure is much better and more acceptable than imposing capital control.

“We do not want to see BI’s monetary costs swell next year because of excessive capital flow in SBI,” he said.

BI is predicted to suffer a bud-get deficit of up to Rp22 trillion

T he chairman of the Constitutional Court (MK), Moh Mahfud MD, last week said

that the president’s nationwide televised speech saying that he prefers to see the case dropped, as recommended by Team 8, showed firmness and fell within the “corridors of law.”

“The President was decisive because he said it should not be brought to the court,” said Mah-fud, a graduate of the Yogya-karta-based University of Gajah Mada.

Mahfud added that the pres-ident had also been careful in choosing his words as “No mat-ter what, the president cannot in-tervene in the case as that would be unconstitutional.”

“That falls under the jurisdic-tion of law enforcement bodies such as the Attorney General’s Office (AGO) and the police.”

President Yudhoyono, in re-marks on the case, had earlier said that “it would be better if, in the interest of the general public and their sense of justice, that the police and the AGO do not bring the case to the court.”

He also called on ‘corrective’ measure against the police, the AGO and the anti-graft body KPK.

JAKARTA (PP) – President Susilo Bambang Yudhoyono, contrary to what many politicians and analysts have said over the past week, was firm and decisive on the Chandra/Bibit case, according to prominent academics.

Echoing Mahfud’s statement is a legal expert from the Universi-ty of Jambi (Unja), Winarno SH, who said the president’s stance on the Team 8 recommendation on the Chandra/Biti case was “very wise and firm.”

“As a head of state SBY showed wisdom by putting the national interest above all,” Winarno told Antara last week.

He also criticized legal experts who made comments on the case in ways that only confused the public, adding that “they should not be giving incomplete analyses and remarks.”

“SBY’s stance was correct as it helped to maintain unity in a na-tion that had been divided over the issue,” he said.

President Yudhoyono had ear-lier said he had been listening to the views and opinions of all sides regarding the legal case of sus-pended anti-graft body (KPK) commissioners Bibit Samad Ri-anto and Chandra Hamzah.

The President, in a get-together with news editors here on Sunday on the week before last, pledged that that the government would make the right decision to put an end to the polemics regarding the two KPK deputy chairmen.

“I have been listening to the

thoughts, opinions and positions of the general public in Jakarta and in other regions. I also heard what was reported by the po-lice and the attorney general al-though I did not make any tech-nical interference. I also listened to the Team 8 and various sides, and had consultations with MK and MA,” the president said.

The head of state expressed his stance of staying away from the legal area and refrain from taking action beyond his mandate.

He said that the party which had the right to determine wheth-er or not a person was guilty was a court of law.

Meanwhile, his spokesman said the president believes the po-lice and the AGO will in the days ahead take action on the case.

Julian Aldrin Pasha said that the substance of the president̀ s speech last Monday was very clear for the police and the AGO to take action.

Julian said the president̀ s speech was clear and “I think the attorney general understands what the speech means and at who it is aimed at.”

The national police announced transfers of posts of several high-ranking as well as middle-rank-ing officers on Tuesday, including the transfer of the controversial chief of detectives, Commission-er General Susno Duadji.

The police have also handed over the case to the AGO, and that it is now up to them to de-cide on whether to prosecute Candra and Bibit or not.

In a related development, Pres-ident Yudhoyono is said to pre-paring a presidential decree (Kep-pres) to re-activate Bibit Samad Rianto and Chandra M Hamzah as the anti graft body KPK’s com-missioners.

“If the police or the AGO de-cides to halt the Chandra/Bib-it case, both are entitled to be ac-

tive again,” said a member of the presidential staff that handles le-gal, human rights issues, and cor-ruption, Denny Indrayana.

Denny, who teaches law at the University of Gajah Mada, said the president would soon issue the Keppres once the police or the AGO issues a decree nullify-ing the case.

In another controversial case the president has instructed Po-lice Chief General Bambang Hendarso Danuri and Attorney General Hendarman Supandji to speed up the legal process on the Bank Century case.

“I will also take internal gov-ernment measures and speed up the legal process against Bank Century executives. I have as-signed the police chief and the attorney general to do so,” Presi-dent Yudhoyono here last week.

He pointed out that the global economic conditions at the time also prompted a number of oth-

er countries to adopt certain eco-nomic policies.

“We should understand that the measures on Bank Centu-ry were taken at a time of crisis. Many countries took measures to rescue their banking industries. What BI (the central bank) did in this regards was in an abnor-mal condition,” he said.

Bank Century was taken over by the Deposit Insurance Agency (LPS) late last year after it faced a liquidity problem.

The government later provid-ed a bailout of Rp6.7 trillion in a move that was much criticized by the public.

The President acknowledged that many questions emerged in the public about the process of disbursing the bailout funds to the bank.

“What the House of Represen-tatives and the public are paying attention to now is the extent to which the process of making a

decision to bail out to Bank Cen-tury was accurate and proper,” he said.

The president’s resolve to put the nation’s judiciary in order took center stage when he said ju-dicial mafias in the country had reached an alarming level, forc-ing him to take concrete action to root it out completely.

Speaking at a plenary cabinet session here recently, the presi-dent said, “We are going to for-mulate concrete steps, includ-ing what I will do as president to fight judicial mafias.”

The president said if the legal mafia eradication effort ran well and effectively, it would greatly benefit the Indonesian people at large.

“It is my wish that in the first 100 days of this administration, eradication of judicial mafias as part of an overall reform of the le-gal system will run well and ef-fectively,” the president said.

“It is my wish that in the first 100 days of this administration, eradication of judicial mafias as part of an overall reform of the legal system will run well and effectively,” the president said.

“The President was decisive because he said it should not be brought to the court,” said Mahfud. Photo: www.presidenri.go.id

next year. Meanwhile, Capital Market

and Financial Institution Super-visory Agency (Bapepam) head Fuad Rahmany fears that hot money could become a bubble risk. Rahmany said he hasn’t seen it happening yet but added that actions are needed to prevent it from happening as it can impede economic growth.

He said the current inflow of capital into the country is still positive for the economy, attrib-uting it to Indonesia’s relative-ly stable macroeconomic funda-mentals.

Meanwhile, BI is predicted to allow foreign investors to contin-ue buying SBI. CitiGroup Econ-omist Johanna Chua said there are three reasons why BI will not curb foreign investment in the

short-term instrument. “Curbing hot money will bring

a negative impact on the rupiah exchange rate,” she says.

She added many can argue that foreign investment in SBI is speculative and non-produc-tive and therefore it is best that the government find other alter-natives to diversify foreign funds to other local instruments such as government rupiah-denomi-nated bonds, corporate bonds or shares.

On the other hand, Indone-sia’s shallow financial condition and non liquid bond and stock markets have caused foreign cap-ital diversification to concentrate on SBI.

“So, limiting foreign ownersa-hip of SBI will only trigger cap-ital outflow and weaken the ru-piah,” Chua was quoted as saying

by detikcom.Secondly, the central bank will

be seen as inconsistent. Calls to curb foreign ownership in SBI emerged after the central bank disclosed that it was suffering a budget deficit due to swelling monetary costs.

Thirdly, inflation rate is mov-ing upward. The widening pro-duction gap and rising commod-ity prices will trigger inflation to rise next year.

“Giving room to rupiah vol-atility by curbing hot money in BI will disrupt BI’s main goal of managing inflation. BI calculat-ed that for every 1% depreciation of the rupiah, it will add 0.07% to the inflation,” she explained.

Chua suggested BI to mini-mize intervention costs and ease inlationary pressure by allowing the rupiah to appreciate.

Analysts have voiced concerns over the excessive amount of hot money that poured into the country through SBI.

By Eka Putri

Bank Indonesia, the central bank, is considering limiting foreign ownership in SBI Photo courtesy of: www.swaberita.com

SBY MakesUltimateDecision

ViewpointThe President Post www.thepresidentpost.comNovember 27, 20092

B y now citizens should already have come to realize that, like most true leaders, President

Susilo Bambang Yudhoyono has his own style of leadership.

Furthermore, he has shown no signs of altering his own brand of nation manage-ment, much less under pres-sure from the public or media, and least of all from politicians.

A career Army officer with fours stars on his epaulet when he left military service and be-came a cabinet minister in 1999 under former President BJ Habibie, Yudhoyono has over the years developed a style of leadership all his own.

Granted that his style in man-aging the nation has exasperat-ed some, if not many, depending on who you listen to, it has nev-ertheless brought him to where he is today not once but twice.

“So who are all these people to tell me how I should manage the nation,” the president may often wonder in moments of reflection.

His detractors rightly contend, albeit from a narrow and superfi-cial viewpoint, that the president’s management style is fraught with unnecessary hesitance, acute in-decisiveness and excessive cau-tion. Such traits, they quick-ly point out, do not conform to what is required in a crisis-rid-den nation such as Indonesia.

His supporters have coun-tered by saying that final re-sults are what matter, so for-get about the benign specifics by which they are attained.

Presidential spokesman Dino Patti Djalal noted in his book on Yudhoyono’s leadership that “The president is never at a loss for ideas and is able to distance himself from conventional think-ing. This enables him to take de-cisions with very strategic impli-

The Leadership Style of SBY

cations.”

“I will not be pushed,” the pres-ident said a few days before he appeared on nationwide televi-sion to comment on the findings of the Team of Eight last week. However, no sooner had he fin-ished commenting on the team’s report did politicians and analysts berate him for being wishy-washy,

indecisive and out-of-touch with the public over the controversial high-profile case concerning an-tigraft officials Bibit Samad Ri-anto and Chandra M Hamzah.

As a matter of fact, the presi-dent did accept, in no uncer-tain terms, the team’s recom-mendation by suggesting that the case be dropped “in order to serve the larger interest and the sense of justice of the pub-lic, but by taking into account the laws vested in the Attorney General’s Office and the police.” While many continue to insist

that the president has been vague in where he actually stands on the case, a statement by Consti-tutional Court Chief Mahfud MD may be helpful in putting things in a better perspective.

“As I see it, the president was firm because he said the case should not be brought to the court,” Mahfud said. “It

also at the same time reflects his understanding of the law, which is that a president can-not intervene in legal process.” The president also, again as a matter of fact, endorsed anoth-er major recommendation from the team calling for law enforce-ment officers to be reassigned.

In fact, two days after his call the National Police not only dis-missed the controversial Susno Duadji as its chief of detectives, it also left him with no strategic post.

As one takes note of the foot-

dragging manner in which law enforcers prepare to dismiss the case, one may also expect Yud-hoyono to deal later with the peo-ple who refuse to read between the lines of his statement.

To the extent that the presi-dent’s leadership style is a conten-tious national issue, it may per-haps not solely be rooted in him but in our post-reform political setting.

Ten years since reform set in and allowed democratic life to run its course after three de-cades of authoritarian rule, we seem to have produced too few people able to manage change.

The situation becomes even more problematic as there are too many who believe they are just as capable as the next per-son to govern this nation. Little do they realize that if you can’t even run for sheriff, as the saying goes, how can you ever run for governor, let alone for president?

Yudhoyono must now be miss-ing Andi Mallarangeng, the combative former spokesman and now the minister of sports and youth affairs, who would go out of his way to defend the president on just about any issue. If the president is indecisive at all, it is actually with his failure to re-buke, if not to “reposition” some of his cabinet ministers and pres-idential staff for not coming out forcefully in his defense.

Like most true leaders, President Susilo Bambang Yudhoyono has his own style of leadership.

By Taufik Darusman

As a matter of fact, the president did accept, in no uncertain terms, the team’s recommendation by suggesting that the case be dropped “in order to serve the larger interest and the sense of justice of the public, but by taking into account the laws vested in the Attorney General’s Office and the

police.”

Photo: www.presidenri.go.id

The President Postwww.thepresidentpost.com November 27, 2009 3

Law

A ntonio Maria Cos-ta, head of the Unit-ed Nations Office on Drugs and Crime

(UNODC), credits the rule of law with being a means to achiev-ing all eight Millennium Devel-opment Goals: “There was a clear correlation between weak rule of law and weak socio-economic performance,” he says.

“As a result, the ‘bottom bil-

lion’ of the world’s poorest people were suffering the most from the effects of crime and corruption.”

Huge differences exist in gross domestic product per capita from country to country, and these cannot be explained simply by the abundance or lack of natu-ral resources. Japan, for exam-ple, has few natural resources, yet it is one of the richest countries in the world. The efficiency with which a country turns its capital and natural resources into goods and services, leading to high lev-els of per capita income, appears to be a key factor and one which is aided by good governance and

strong rule of law on which the market economy is based.

LAw AND ECONOMIC PROGRESSAmartya Sen, the distin-

guished economist-philosopher and winner of the 1998 Nobel Memorial Prize in Economic Sci-ences for his work on welfare eco-nomics, states, “It is hard to un-derstand the history of economic change, for example the rise of capitalism as an economic sys-tem, without acknowledging the role of non-economic influences, among which legal changes fig-ure prominently.”

He asserts that, “capitalism did not emerge until the evolution of law and order and the legal and practical acceptance of property rights had made an ownership-based economy feasible and op-erational. The efficiency of ex-change could not work until contracts could be freely made and effectively enforced, through legal as well as behavioural re-forms. Investment in productive businesses could not flourish un-til the higher rewards from cor-

ruption had been moderated, and in this too, legal and behavioural changes played their part.”

Similarly, another Third Worlder, the Peruvian economist, Hernando de Soto, known for his work on the informal econo-my, also credits the development of property rights as being key to economic development.

“The origin of the rule of law,” he says, “which will allow a mod-

ern nation to grow and so bring peace, stability, and prosperity to the world, is property rights. And the rule of law will actually gen-erate prosperity.”

To de Soto, a nation’s wealth is the result of the efforts of en-trepreneurs to bring resourc-

es together and divide labour effectively in order to raise pro-ductivity. Without the rule of law this is not possible. He points out that property is very important to the poor trying to make money from trading, and it is only when the right to such property is rec-ognised in law that it can be pre-served and exchanged national-ly or even internationally. The need in societies, where the rule of law is weak, to “satisfy trib-al chiefs, crooked cops, corrupt politicians, bad judges, difficult neighbours and even the terror-ists” seriously dilutes property rights hampering the creation of wealth through enterprise. Cor-ruption, by seriously undermin-ing the rule of law and, thereby, weakening property rights, cre-ates a much higher level of risk for investors, thus deterring invest-ment and dampening economic growth. It is for this reason that countries with less corruption tend to have higher levels of GDP per capita.

UNLOCkING THE ASSETS OF THE POOR

De Soto points out the vast ex-tent of the assets of the poor, and in so doing indicates the huge scale of their potential if they were to be converted into capital by virtue of the rule of law.

“In Egypt,” he says, “the poor

own outside the law 92 percent of all the buildings and 88 per-cent of all the enterprises, which are worth $248 billion. That’s equivalent to 55 times the value of all foreign direct investment in Egypt since Napoleon left, in-cluding the Suez Canal and the Aswan Dam and 70 times all the bilateral aid that they have re-ceived.”

Furthermore, properly func-tioning legal systems provide the legal instruments and enti-ties that are required for econom-ic development, such as legal ten-der, shares and debentures, and legally recognised corporate enti-ties with limited liability. In turn, it is the strong legal protection for investors that has brought about the development of sophisticat-ed financial markets enhancing an economy’s ability to bear risk. This ability to spread risk over a multitude of investors is criti-cal for entrepreneurship and eco-nomic growth.

CONSTITUTIvE PARTS OF A wHOLE

Amartya Sen, echoes de Soto’s view that the great value of the rule of law in creating wealth can be far-reaching.

“Legal and judicial reform,” he says, “is important not only for le-gal development, but also for de-velopment in other spheres, such as economic development, politi-cal development, and so on, and these in turn are also constitutive parts of development as a whole. This is like a thickly interwoven textile.”

In order, for instance, for la-

Peace, Prosperity and the Rule of Law

In order, for instance, for labour to be productive it needs to be educated and, here again, the rule

of law has an important part to play.

bour to be productive it needs to be educated and, here again, the rule of law has an important part to play. In many countries legal reforms gave people the right to free state-provided education and obliged parents to send their chil-dren to school, thereby equipping future workers with skills that could be used, or that could be built upon, for use in industry.

The development of education played a critical part in Asian eco-nomic expansion. This has been particularly evident in Japan where educational priorities and the right to school education had a leading role in initiating speedy economic expansion. In Japan as a whole, between 1906 and 1911, education accounted for up to 43 per cent of municipal and local authority spending, and books had assumed a far more promi-nent role in society than in either Britain or the US.

TRANSPLANTS AND DYSFUNCTION

The extent to which laws are effectively enforced depends very much on the effectiveness of the judiciary, the absence of corrup-tion, and the low risk of both contract repudiation and govern-ment expropriation. The way the law was initially transplanted to and received by a country is an important determinant of these factors. It is thought, for instance, that had Ecuador, which adopted French law in the nineteenth cen-tury, been in a position to devel-op its own legal system internally or to adapt the transplanted law better, in 1994 its GNP per capita would have been ten times high-

er than it was. Where a legal system is seri-

ously dysfunctional, perhaps, be-cause transplanted law does not sit well with features of the feu-dal-like society in which it has been required to take root, cor-ruption, violence and poor legal competency are likely to be per-vasive. So too will be the delete-rious consequences of this, such as injustice, human rights abuse, conflict and distorted scarce re-source allocation, manifested by poverty, unemployment, disaf-fection, environmental destruc-tion and, perhaps, extremism.

ALLIED INTERESTSIt is often felt that there is a se-

rious conflict of interest between entrepreneurial capitalistic activi-ty and human rights; but, for the most part, the law and econom-ic development are complemen-tary and synergistic. While be-ing aware, therefore, that abuse, exploitation and other excess-es can and do occur in enterpris-es, we should not lose sight of the fact that robust economies de-pend on clear laws that govern societies and commerce, as well as a strong, independent legal system that impartially enforces laws and contracts. These ingre-dients that help ensure investors are not subject to arbitrary forc-es and can risk investing capital, make for greater legal predict-ability and equality before the law, which is very much the ba-sis of, rather than being at odds with, rights that support human dignity.

Frank Richardson can be contacted at [email protected]

Editor’s notes:While currently embroiled in a high-profile rule-of-law battle, with the Corruption Eradication

Committee (KPK) under attack, Indonesia recently entered into a Partnership and Cooperation Agreement with the European Union which, inter alia, inaugurates a dialogue between the two on the rule of law.

Swedish Foreign Minister Carl Bildt, representing the Swedish Presidency of the European Union, asserts, “Experience has shown again and again that respect for human rights and the rule of law is a prerequisite for lasting peace, prosperity and progress.”

The benefits of the rule of law can be wide ranging and far reaching, and in this article Frank Richardson explains the power of the rule of law in facilitating enterprise and transforming societies.

The RegionThe President Post www.thepresidentpost.comNovember 27, 20094

T hings are back on track again as the is-land state’s economy, which had been grow-

ing negatively, posted a positive figure in the third quarter of the year.

Data released by the Singapor-ean government last week showed that its GDP in the third quarter of the year reached 14.2% on a quarter-to-quarter basis.

On a year-on-year basis, the figure was 0.6% in the third quarter, a major breakthrough as during the second quarter of the same period it contracted by 3.3%.

“In effect recession in Singa-pore has come to an end,” says Ravi Menon, a senior official at Singapore’s trade and industry trade is quoted as saying by AFP last week.

For 2009 as a whole the gov-ernment has retained its earli-er projection of a contraction of 2-2.5%, but for 2010 the figure is expected to be 3-5%.

Singapore was the first coun-try, after the US, which officially announced it had been dragged down the abyss of recession as a result of the global economic cri-sis.

In the first quarter of the year the economy contracted by -10.1% as exports plummeted.

Signs of recovery were already apparent in the property mar-ket, especially in the luxury seg-ment, as foreign buyers descend-ed upon the island-state to grab prime apartments.

In a recent report The New York Times wrote that the num-ber of apartments priced at S$4 million (about US$2.9 million) that were sold in the third quar-ter reached 210 units, up from 87 and 15 in, respectively, the first and second quarters.

“The sales rebound primari-ly has been driven by mass-mar-ket and mid-tier properties, but a few recent transactions indicate the high-end luxury sector has also started to pick up,” the re-port further said.

The 21 heads of governments who converged in Singapore early this month for the two-day Asia-Pacific Economic Cooperation (APEC) conference accounted for 50% of the world’s GDP.

By any measure it was a re-

Singapore:Back on TrackText and Photos by Taufik Darusman

markable high-level gathering in-deed, but no less impressive is the profile of the host county, whose population of 4.5 million people is hardworking, intelligent, and disciplined.

Last August Singapore cele-brated its 44th birthday as an in-dependent country, and is now one of the most prosperous coun-tries with one of the best educat-ed population in the world.

As President Susilo Bambang Yudhoyono recently vowed to overhaul Indonesia’s education system that he finds out of sync with the needs of a modern soci-ety, he might want to look to Sin-gapore as a role model.

US President Barack Obama, who was also in Singapore for the APEC meeting, once said, “The future belongs to the nation that best educates its people.”

Singapore definitely fits the bill, for here is a country that is ‘obsessed’ with education to the extent that it grants subsidies to their intelligent and talented cit-izens.

It has gone out of its way to make sure its citizens get the best kind of education; many edu-cators from the west are said to come to the country to find out what makes the country tick.

For obvious reasons, it is nei-ther financially feasible nor so-cially practical for Indonesia to emulate what Singapore has done and is still doing in the field of education.

But Singapore lies only 90 minutes of flight time away

from Jakarta; as a rich neighbor it is likely willing to share its expe-rience (and per-haps some of its wealth) with In-donesian educa-tors on how best to go about in re-vamping our out-moded education system.

Like Indone-sia, Singapore is a multi-ethnic soci-ety with a culture that has been en-riched by the di-versity.

Seldom, if at all, do you hear the members of the society en-gaged in con-flicts in ways that would make news in major international media.

First-time visitors from Indo-nesia are always impressed by the fact that the majority of its citi-zens live in clean and well-main-tained public housing, and the buses and subways are clean and punctual.

Sure, Singapore is no nirva-na and may be said to only come close to a Utopian society.

But that is sufficiently laud-able, which explains why more and more Indonesians – they are the largest among internation-al visitors to Singapore – come to the country less for their hedonis-

tic and consumptive urges.Nowadays, Indonesians go

there simply to experience the or-derliness and the vigor of a civ-il society, something that many here often pine for but are hapless and downright lazy to establish for the good of their societies.

As in most cases regarding close neighbors, ties between In-donesia and Singapore has its downsides.

In recent times this involves In-donesia’s desire to have an extra-dition treaty with the country, to where most of Indonesia’s alleged

criminals flee to escape the arms of the law.

In consistence for being a coun-try where the law reigns supreme, Singapore agreed to the idea but, in typical Singaporean fashion, linked it to a Defence Co-op-eration Agreement (DCA) that would allow her to conduct mil-itary training in Indonesian ter-ritories.

While many Indonesians would question the wisdom of such a linkage, the fact remains that Jakarta had agreed to the idea.

At the conclusion of the lengthy bilateral official talks, which apparently had not in-volved the House of Representa-

tives (DPR) that would ultimate-ly ratify it, the extradition treaty and the DCA were signed in Bali three years ago.

In no time at all came the po-litical storm, as the DPR, feel-ing slighted for being left out, de-clined to ratify the agreements.

It was arguably one of the most embarrassing if not bizarre epi-sodes in the annals of Indonesia-Singapore relations.

For here was Indonesia, the so-called ‘big brother’ among ASE-AN states, reneging on a pledge made to its ‘younger brother’.

There was much blame to go round on the Indonesian side but, in typical Indonesian fash-ion, officials decided to sweep it under the rug and let it die a nat-urally political death.

It is so convenient to dismiss Singapore for its size – it is no larger than Greater Jakarta – which was what BJ Habibie once

did.In what was a politically incor-

rect statement, the former presi-dent called it “a little red dot in the region.’

If so, and it is definitely not, it is a shiny and inspiring dot that never fails to impress Indone-sians.

There are no bad days in Singa-pore, only good days with slight variations.

And the best days to be there is now, when the city lights up and exudes a festive atmosphere in preparation to welcome Christ-mas and New Year.

And nowhere is the holiday fe-ver more apparent than in Or-

chard Road, one of the world’s most famous shopping strips.

70% of tour-ists visit Orchard Road, which has 30 malls, 800 food and bever-age outlets and 3500 retail shops, according to the Singapore Tour-ism Board (STB).

Now, perhaps even more visitors roam the tree-lined street, as it features glitzy decorations and hanging ropes of golden, blue, orange and red lights with pe-destrian walk-ways abound with mock Santa Clauses—all in

place until January 3.A new fixture at the crossroads

of the city’s premier shopping en-clave is the $700 million Ion Or-chard. It took three years to build, and now boasts eight floors with snaking escalators and 335 shops selling high-end products and food.

Ion Orchard is not about ca-tering to hard-core shoppers only, but also to art lovers. Last month the Ion Art Gallery fea-tured the works of Swiss-Chinese artist Franklin Chow, compris-ing paintings and mixed media installations that may be best de-scribed as simple elegance or ‘el-egant simplicity at its highest form.

Not to be missed is while you’re in the neighborhood is 313@Somerset, the city’s lead-ing retail destination. Apart from world brands it offers, it has the distinction of being located just right above a MRT station and, even better, houses Food Repub-lic, whose variety of Oriental consumables match its reason-able prices.

“Singapore is a place that keeps re-inventing itself. Shop-ping malls are either newly built or revamped such as the Orchard Central,” Sharon Liew, Market-ing Communications and PR Manager of the Intercontinental Singapore, told this writer.

“And you’ll notice that Indone-sians from all walks of life are ev-erywhere here.”

If you’re beginning to feel too familiarized with Orchard Road,

hop over to Marina Bay, which is set to become more than just an Orchard Road wannabe.

Dubbed Singapore’s crown jewel, the area is rapidly devel-oping as a prime plot which in the future will be the site for the annual Formula One race, New Year’s Eve countdown, National Day Parade and luxury residen-tial blocks.

As Singapore is ever re-invent-ing itself, new tourist attractions are in the offing, one of which is the 49-hectare US$4.3 billion Resorts World Sentosa on the is-land of its namesake.

Set to open in the first quarter of next year is the much-await-ed Universal Studios theme park, the only one in Southeast Asia.

Featuring 24-themed rides, in-cluding the world’s tallest pair of dueling roller-coasters in the world, it is expected to accommo-date five million visitors a year.

Ever the city that keeps the faith in superlatives, the resort will also feature the world’s larg-est oceanarium, Marine Life Park. Housed in eight hectares of land containing 20 million gal-lons of water, the park includes such heavyweights as tiger sharks and rays.

“Indonesian travelers have tra-ditionally been Singapore’s num-ber one visitor source, making up close to 18% of total visitor arriv-als last year. Indonesians are no strangers to Singapore, given our proximity and accessibility,” Sin Yee Lee, Communications Man-ager of Resort World Sentosa, the company that manages the must-see site, told this writer in Singa-pore last week.

“But we are confident we can still offer a brand-new experience for Indonesian travelers, and fur-ther boost interest in Singapore as a destination.”

About 1.7 million Indonesians visited Singapore last year, a fig-ure that is likely to grow by 4-5% this year, according to official sources.

“We hope to see the figure ris-ing even higher as we are aware that Indonesia’s economy is sound and growing at a remark-able pace,” says Ms Liew.

Ms Lee concurs, saying that “Indonesians are always at the forefront when it comes to check-ing new attractions in Singa-pore.”

Sentosa also targets ‘serious’ travelers such as art lovers, who will be visually and intellectual-ly feasted at next year’s “Live! Sin-gapore”, a nothing- short-of-spec-tacular arts and entertainment trade show that offers an indus-try conference and live perfor-mances.

Slated to be a four-day event (June 8-11), the annual event is expected to attract some 1500 artists, arts managers, produc-ers and agents from around the world.

A member of the committee that oversees the event says that “Live! Singapore” will have “an international focus”, and as such is different from other perform-ing arts markets in the world.

Indeed, leave it to Singapor-eans to come up with things dif-ferently.

Singapore was the first country, after the US, which officially announced it had been dragged down the abyss of recession as a result of the global economic crisis.

“Singapore is a place that keeps re-inventing itself. Shopping malls are either newly built or revamped such as the Orchard Central,” Sharon Liew, Marketing Communications and PR Manager of the Intercontinental Singapore, told this writer.

The Region


Economic architecture: regional and transregional forums Source: Asian Development Bank

REGIONAL COOPERATION

A sia is on the move, re-gionally as well as glob-ally, by showing its re-markable performance

in the wake of the global reces-sion. Asia is also experiencing a rapid development of its business (production and distribution) networks. An important point to note is the expanding growing re-gional interdependence and in-tegration, all driven mainly by market forces.

International observers right-ly remarked that Asia today is becoming an economic power-house. Part of this success story is the growing interactions of their economies. The trend toward in-tegration is gaining momentum, economic observers concluded. Therefore, an important trend to observe is the development of Asian regionalism, which is marked by the present of a num-ber of major economic groups, namely ASEAN, ASEAN+3, East Asia Summit, APEC and ASEM.

In a study undertaken by the Asian Development Bank on “emerging Asian regionalism”, In-donesian Minister of Finance Sri Mulyani Indrawati remarked in her foreword that “Asia learned the hard way in 1998 that the ab-sence of regional cooperation can cost an economic fortune….en-hancing regional integration and cooperation is important to build stronger and more resilient econ-omies”.

This is an important policy ob-jective which is often not well un-derstood by many skeptical ob-servers in Indonesia. With the

ASIA ON THE MOvE

The Big Challenge for ASEANBy Atmono Suryo

rapid development of region-al and international cooperation there is the continuous fear that Indonesia will be worst off. This shows the lack of national con-fidence that still prevails in the country. In terms of size, resourc-es and economic growth, Indone-sia’s position in Asia is in good or-der, especially in ASEAN, which

covers the whole South East Asia region and plays a central role in Asia.

In terms of GDP in 2007, In-donesia ranked fifth ($433 b) among 16 countries in Asia, be-low Japan ($4,380 b), China ($3,241 b), India ($1,166 b), Ko-rea ($970 b) but above Thailand

($246 b), Malaysia ($187 b) and Singapore ($161 b). For the year 2020 Indonesia is expected to re-tain its present economic posi-tion.

In this era of globalization and rapid growth in technology, ex-ternal cooperation has become an important vehicle to stimulate domestic economy. It will take

Asia is on the move, regionally as well as globally, by showing its remarkable performance in the wake of the global recession.

Economies

Population GDP at market prices GDP at PPP GDP per capita

(million) ($ billion) Average growth rate ($ billion) (at market prices)

2005 2020 2005 2020 2005 - 2020 2005 2020 2005 2020

Cambodia 13.8 18.6 6 15 6.3 20 48 454 806

China, People’s Rep. of 1,303.7 1,422.8 2,244 5,877 6.6 5,333 13,970 1,721 4,131

Hong Kong, China 6.8 7.1 178 353 4.7 243 483 26,094 49,718

India 1,101.3 1,295.7 779 1,748 5.6 2,341 5,255 707 1,349

Indonesia 218.9 259.5 287 611 5.2 708 1,506 1,311 2,355

Japan 127.8 123.3 4,549 5,806 1.7 3,870 4,939 35,604 47,088

Korea, Republic of 48.1 50.5 791 1,580 4.7 1,027 2,052 16,441 31,287

Lao People’s Dem. Rep. 5.7 7.2 3 5 3.7 10 18 508 694

Malaysia 26.1 31.1 137 313 5.7 300 682 5,250 10,064

Philippines 85.3 103.3 99 166 3.6 250 421 1,158 1,607

Singapore 4.3 4.9 117 240 4.6 180 371 26,879 48,980

Taipei, China 22.7 24.4 355 641 4.0 590 1,067 15,674 26,270

Thailand 64.8 69.5 176 347 4.6 445 877 2,721 4,993

Vietnam 83.1 97.5 53 117 5.5 178 394 637 1,200

Integrating Asia 3,112.7 3,515.9 9,783 17,839 4.1 15,514 32,120 3,143 5,074

European Union 450.6 472.1 13,568 19,176 2.3 12,743 18,011 30,111 40,619

United States 296.4 331.2 12,376 19,904 3.2 12,376 19,904 41,754 60,097

World 6,128.1 7,462.1 44,309 75,001 3.6 54,976 93,057 7,230 10,051

GDP = Gross Domestic Product, PPP = Purchasing Power ParityNote: “Integrating Asia” and “World” rows are not totals of columns above them.Sources: Asian Development Bank staff projections based on International Comparison Program data from ADB 2007c

POPULATION AND GDP PROjECTIONS FOR 2020

too much time to depend only on limited domestic sources. Coun-tries have to be willing and to be prepared to undertake closer re-gional and international cooper-ation.

ASIAN REGIONALISMThe center of gravity of glob-

al economy is shifting to Asia, which sees China and India in the lead. As observed by the ADB

(Asian Development Bank), Asia’s economy is already simi-lar to that of Europe and North America. Asia’s influence in the world continues to rise. It is therefore of strategic importance for Asia to work out and develop an emerging Asian regionalism to

underpin and support its sustain-able growth.

Important points in the study undertaken by ADB show that regionalism can benefit Asia as follows:

Cooperation on macroeco-•nomic policiesEnabling Asia to cope with •such issues as global imbalanc-es and financial shocks Linking the strength of the di-•verse economies in the region to enforce Asia’s economy in this competitive worldBoost productivity•Sustain the region’s growth •and undertake pro-growth strategiesConnect capital markets to en-•hance financial stability, reduc-ing costs and sharing of risksPool the region’s large foreign •exchange reservesStrengthen the region’s and •countries; financial stability Build required infrastruc-•ture to reduce inequalities and smoothen the flow of goods and servicesCreate regional mechanism to •cope with such matters as en-vironmental issues, safety and health questions

Further extensive work will be required to prepare the road to-wards greater regional coopera-tion.

wORLD AFFAIRSAsia’s position in world affairs

has grown: Asia is rated to be on par with North America and

Europe. It is strongly represent-ed in the G-20 and the BRIICS grouping; it is presently the fast-est growing region in the world as Asia is very strong in trade.

Asia has become an attractive region for the world communi-ty to conclude economic part-nerships. The recent APEC sum-mit held in Singapore has clearly demonstrated Asia’s increasing importance in world economic affairs.

This is demonstrated by the presence of many world leaders at the summit. President Barack Obama made a special effort to attend the leaders meeting and to participate in the special ASE-AN-US summit—the begin-ning of stronger US-ASEAN re-lations.

It is expected that through the APEC mechanism Asia’s reach will expand to countries around the Pacific Ocean. It involves large potential countries such as China, Russia, Japan, Australia, New Zealand and ASEAN, all the way to countries on the other side of the Pacific, namely Can-ada, the United States, Mexico, Peru and Chili.

From the outset Indonesia has a stake in the development of the Asia-Pacific region. It will be re-called that the Bogor Declara-tion, which is considered to be an important landmark in the de-velopment of APEC, took place right in the center of Indonesia. Presently, the United States’ in-terest is again focused on the de-velopment of APEC and ASE-AN, which benefits Asia.

Asia is on the rise and to that end Asian regionalism must grow and become an effective mech-anism to strengthen the econo-mies in the region and to build a dynamic economic community which would benefit the world.

ASEAN

ASEAN, with its vast experi-ence, is well-placed to start build-ing the emerging architecture of regional cooperation covering East Asia in particular. As stated clearly by the ADB’s study, “Giv-en its history, scope, and insti-tutional development, ASEAN remains the core of broader re-gional arrangements”. Further-more, ASEAN is highly respect-ed for its outward orientation toward the rest of Asia and the global economy.

ASEAN is right at the cen-ter of Asia. As expected by the world community the time has come for Asia to be in the lead to help to accelerate global econom-ic recovery towards sustainable growth and prosperity. To that end, with Asia on the move, that will also be the big challenge for ASEAN.

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APECAsia-Pacific Economic Cooperation

ASEAN+3ASEAN plus three countries, as shown

ASEANAssociation of Southeast Asian Nations

ASEMAsia-Europe Meeting

EASEast Asia Summit

CARECCentral Asia Regional Economic Cooperation

FSMFederated States of Micronesia

Lao PDRLao People’s Democratic Republic

PIFPacific Islands Forum

PRCPeople’s Republic of China

SAARCSouth Asian Association for Regional Cooperation

Notes: ASEM includes also the European Commission as a member. For CAREC, the PRC’s membership is focused on the Xinjiang Uygur Autonomous Region.

ASEAN is right at the center of Asia. As expected by the world community the time has come for Asia to be in the lead to help to accelerate global economic recovery towards sustainable growth and prosperity. To that end, with Asia on the move, that will also be the big challenge for ASEAN.

The EconomyThe President Post www.thepresidentpost.comNovember 27, 20096

The Pittsburgh G-20 Summit 2009 Photo: www.wikimedia.org

POSSIBLE SCENARIOS

T he world is presently in the midst of a crit-ical transition, from the worst recession

since W.W. II to global recov-ery. The traumatic years of 2008-2009 seem to be over. It’s now the years of contracting global output, plummeting trade, dis-appearing jobs, and financial dis-array. Consumers and business confidence have plunged to its lowest level.

For many countries, including Indonesia, the transition from recession to sustainable growth would not be an easy one. The world has changed and the eco-nomic landscape is now different. The global economy will not be as strong as before the recession. World demand and consump-tion will be less and competition will be fierce. Protectionism and short-sighted nationalistic mea-sures could be on the rise.

On the brighter side, the dark clouds over the global economy are clearing up, signaling that the world is about to enter a new but critical transition stage. The goal is to move up from recession to sustainable growth.

This is a boon for Indonesian exports and investment prospects for the coming year look more promising. World-wide recovery is on the rise; faster than many institutions and think have pre-dicted. All the forecasts, howev-er, remain cautionary. The glob-al playground is still slippery and the risk is still there. A number of developments or possible scenari-os need to be watched.

RECOvERY POSSIBILTIESA number of possible scenarios

apply to individual countries, one of which is the so-called V-Type recovery, the immediate or quick recovery mode.

At one time there was the fear that the world economy would not allow the quick-type scenario to be played out, meaning it will take years for the global economy or for individual countries to re-cover, and this is often called the U-Type recovery mode.

But the worst scenario is the “double dip” or W-Type recov-ery, which is often mentioned as risky, in particular for many developing countries, involv-ing internal financial or budget-ary collapse; the danger of food shortages; the risk of energy cri-sis and climate change and natu-ral disasters. Presently, the world is still being plagued not only by falling demand and global im-balances but also by internal dis-crepancies. In short, the world and individual countries are go-ing through a critical transition stage: from recession to sustain-able and balanced growth.

From Recession to Growth

By Atmono Suryo

V-TYPE RECOVERY It is becoming increasingly ev-

ident, however, that the global economy as a whole is undergo-ing the V-Type recovery. It is also unlikely the world would return to a deep crisis situation. Econ-omists in the OECD see Glob-

al Economic Recovery to start sooner than expected, but cau-tion remains. However, three countries of the G-7, namely the United Kingdom, Italy and Can-ada are presently still facing con-tractions.

Michael Mussa of Peterson In-stitute for International Econom-ics observed that most forecasters expect that the pace of the recov-ery will be sluggish. In the US and other industrial countries, unemployment continues to rise. The IMF is somewhat more pes-simistic; saying that while global recession is ending, a subdued re-covery lies ahead.

The recent APEC summit in Singapore noted that sustainable recovery is vital, and that the cri-sis has marked a change in mar-ket-based economic moods. Sin-gapore Prime Minister Lee Hsien Loong has said that there is a growing awareness on market flaws and the importance of gov-ernments to monitor and prevent the same crisis from happening in the future. In the Asia Pacific re-gion, this sustainability requires the adjustments in global econo-my to rectify imbalances by en-couraging US economy to reduce its deficit and China’s economy to increase its consumption.

FORCEFUL POLICY RESPONSETo confront the immense chal-

lenges that erupted in 2008, there is the need for the world fi-nancial community to come up with a forceful response. As it is

the G-20 is pleased to see that the steps they recommended, name-ly ensure recovery, repair the fi-nancial systems and maintain the global flow of capital, have worked. The largest and most coordinated fiscal and monetary stimulus ever undertaken has brought results: this is an impor-tant achievement.

The inescapable impression is that most people in Indone-sia are not fully aware what has been going on in the global econ-omy. The reason is that Indonesia is only marginally affected by the global recession. Internal domes-tic socio-political developments overshadowed world events. For-tunately, so far domestic con-sumption and spending rates are on stream and, in fact, have even increased.

Indonesia should be fully aware, however, that we need to follow the emerging global guide-lines, G-20 recommendations and now APEC aspirations.

It is no more possible to act alone and to disregard forceful global policy responses needed to move the world from recession to sustainable growth. Indonesia is now at the forefront in this world, as she is a prominent member of the G-20, APEC, ASEAN, the upcoming East Asia and the BRICS grouping. There is a need for an internal domestic political setup to be fully aware of Indone-sia’s position and commitments in the world community.

For many countries, including Indonesia, the transition from

recession to sustainable growth would not be

an easy one. The world has changed and the

economic landscape is now different.

Singapore Prime Minister Lee Hsien Loong has said that there is a growing awareness on market flaws and the importance of governments to monitor and prevent the same crisis from happening in the future.

A warning was raised by the G-20 at their Pittsburgh sum-mit. It rightly admitted that the process of recovery and repair re-mains incomplete. The great-est problem is in the area of un-employment, which is affecting practically all countries in the world. This is caused by the fall in world-wide demand. Consum-ers in advanced countries are cau-tious in their spending with the result that world trade has so far not expanded. Consequent-ly, there is still the need for fiscal and monetary stimulus measures to beef up domestic economies.

THE GLOBAL ARCHITECTUREThere is increasing pressure to

reshape the global economy. Even the G-20 at their Pittsburgh Sum-mit has made references to the need “to reform the global archi-tecture to meet the needs of the 21st century …. To lay the foun-dation for strong, sustainable and balanced growth ….’. This is an important statement which de-serves world attention and world agreement. It goes without saying that being in the G-20, Indonesia should provide meaningful and effective contributions.

We can safely assume that East Asia will have a significant role to play in the proposed reform of the global economy. Five East Asian countries are members of the G-20, namely China, Japan, India, South Korea and Indone-sia. ASEAN as a regional group-ing will as now be closely asso-

ciated with the workings of the G20.

In addition to policies, East Asia economies are presently also powerful world economic play-ers. The strong performance of East Asia has been an impor-tant push factor in the rebound of the global economy. The econ-omy of China and India will be important and reliable engines of growth, as both countries will for the next years continue to liberal-ize their economies.

As confirmed by the World Bank in its latest report on “Asia’s Recovery in the Global Context”, “Asia has rebounded fast from the depth of the global crisis. Ini-tially the region was hit extreme-ly hard, but starting in Febru-ary 2009, Asia’s economy began to revive. Exports and industri-al production began to increase

again, first slowly then rapidly: Asia is now leading as the world pulls out of recession”.

All this implies that in the world stage Indonesia is firm-ly committed to play a proac-tive role in the area of diplomacy and in rules-making forums. But she also needs to be proactive on the ground: as a world economic player, in the area of trade, invest-ment, services industry and tech-nology.

But the task ahead for Indone-sia is not only to help to reshape the world and to build the New World Architecture, but also, in-ternally, to make progress and re-form and to build a new and ris-ing prosperous Indonesia. To that end, the strategy of capacity building is of crucial importance for the country. This will, in par-ticular, involve the private sector.

PM Singapore, Lee Hsien Loong

Photo: www.worldbank.org

Source: IMF staff estimates

FIGURE 1: GLOBAL GDP GROwTh (Per cent; quarter-over-quarter, annualized)

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We can safely assume that East Asia will have a significant role to play in the proposed reform of the global economy. Five East Asian countries are members of the G-20, namely China, Japan, India, South Korea and Indonesia. ASEAN as a regional grouping will as now be closely associated with the workings of the G20.

The Economy


THE STARTING POINT

A sia Pacific Economic Cooperation (APEC) was formed twenty years ago based on a

commitment to support and to capitalize on the growing inter-dependence of its member econo-mies. With trading blocs among European and North Ameri-can countries as the backdrop, the creation of APEC serves as a bridge for greater integration between the industrialized and emerging economies on the two sides of the Pacific Ocean.

Slightly different than oth-er existing trading blocs, APEC is a consensus-building forum with the underlying principle of open regionalism. It is character-ized as a soft-institution impos-ing no legally binding rules and a governing body which would, to some extent, intrude on mem-ber economies’ sovereignty. It is also an open regionalism forum as APEC rejects the idea of an ex-clusive trading bloc posing any form of discrimination against non-member trading partners.

To date, APEC fora have been successful in facilitating trade and investment through liberaliza-tion, encouraging economic and technical cooperation, and most importantly, maintaining volun-tary commitment of leaders to regional objectives, policy coop-eration, and convergence. Now, comprising of 21 economies, the cooperation uses the word “econ-omies” instead of “nations” to ac-commodate the membership of Chinese Taipei and Hong Kong.

APEC represents 54% of the world GDP and 40% of the to-

APEC: 20 Years On

tal world population. Its mem-ber economies are Australia, Bru-nei, Canada, Chile, China, Hong Kong, Indonesia, Japan, Malay-sia, Mexico, New Zealand, Pap-ua New Guinea, Peru, the Phil-ippines, Russia, Singapore, South Korea, Chinese Taipei, Thailand, the United States of America, and Vietnam.

THE BOGOR GOALSOf greatest importance in

APEC’s history is the 1994 Sec-ond APEC Summit Meeting held in Bogor, Indonesia. This sum-mit set out an ambitious, long-term commitment of a free and

open trade and investment in the region by 2010 for industrialized economies and 2020 for develop-ing economies. If this could ever be formed, the Asia-Pacific re-gion would be the world’s biggest trading bloc characterized by the free flow of goods, services, and capitals. According to the Inter-national Monetary Fund (IMF) the combined GDP of all APEC economies is 2.5 times that of the European Union.

Preparing for the attainment of this grand scheme, throughout the years APEC member econo-mies have gradually, but contin-uously integrate with each other.

Actions have been done individ-ually or collectively to curb trade barriers, promote business and investment facilitation, imple-ment structural reform, and co-operate in capacity building programs. These efforts have re-sulted in the developments on in-tra-regional relations such as: the lowering of average tariff from 16.9% in 1989 to 5.5% in 2004 (most traditional barriers are low or gone); the implementation of APEC Business Travel Card, al-lowing the cut of cost and faster entry services for business trav-elers; and the formation of Eco-nomic and Technological Coop-

eration (ECOTECH) aiming at building capacity and skills at in-dividual and institutional levels.

BENEFITS OF APEC MEMBERSHIPWhat can we infer from

APEC’s attainment for the last two decades?

On October 2009, the Poli-cy Support Unit, an independent team formed to provide APEC with research, analyses and pol-icy suggestions, published a re-port entitled “Trade Creation in the APEC Region: Measurement of the Magnitude of and Chang-es in Intra-Regional Trade since APEC’s Inception.” This report was prepared to address ques-

tions on the benefits of an APEC membership.

The findings indicated that APEC has been successful in at-taining its goal to facilitate trade creation between 1989 and 2007. It was observed that:

APEC economies trade more •with other APEC economies than with non-APEC econo-mies. On average, an APEC economy exports 2.8 times more to other APEC economy than to non-APEC economies and imports 1.9 times more from APEC economies than from non-APEC economies. These numbers are similar to that of a Free Trade Agreement. Therefore, an APEC member-ship has comparable benefits than that of a FTA.The share of intra-regional •trade with the rest of the world is larger among APEC member economies than that of among EU members, NAFTA mem-bers, and ASEAN-7 members (Fig 1&2). It was further elab-orated that the following coun-tries contribute considerably to APEC intra-regional trade: China, as the biggest exporter of manufactured goods; Can-ada, as the biggest exporter of non-manufactured goods; and the US as the biggest intra-re-gional importer of both man-ufactured and non-manufac-tured goods.

POLITICAL ACHIEvEMENTSMeanwhile, on the political

side APEC has generated several developments in the region. Ac-cording to Peter Drysdale, one of the intellectual architects of APEC, this forum has served as

a primary political forum in the region. It is said to have done well in facilitating political dialogues and ameliorating tensions among major countries.

Over the past twenty years, Asia-Pacific has been the stage of political disputes: between Chi-na and the USA over Tiananmen and Taiwan; China and Japan over trade disputes in 1994; and Australia and Indonesia over East Timor. Dialogues among parties in APEC for a have helped to pro-mote solutions while maintaining positive relations among mem-bers. Now, with the rise of Chi-na and India, the role of APEC in shaping the new political trans-formation of the region is becom-ing even more indispensable.

In the near future, APEC will be obliged to do more to main-tain peace and harmony amidst the growing concern that wrong policies from major powers could easily lead to disintegration.

DE FACTO ECONOMIC INTEGRATION

What has contributed to these achievements?

In the case of APEC, the ab-sence of binding rules and su-pra-national authority to gov-ern cooperation among member economies, instead of being char-acterized as a weakness, serves as a vital strength in facilitating growth and consistent integra-tion. The 21 member economies share great differences in regula-tions, economic and political sys-tem, national aspirations, and social values; some even share his-torical enmities with each other. Yet, this unique method has been successful in maintaining leaders’ faith on the process and forming greater sense of common inter-ests and goals, some of the very essential requirements for devel-opment of APEC. In this forum, countries are, mostly, focusing on pragmatic economic issues.

In political areas of concern,

Source: Policy Support Unit, 2009

FIGURE 1: ShARE OF InTRA-REGIOnAL ExPORTS

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Source: Policy Support Unit, 2009

FIGURE 1: ShARE OF InTRA-REGIOnAL IMPORTS

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Asia Pacific Economic Cooperation (APEC) was formed twenty years ago based on a commitment to support and to capitalize on the growing interdependence of its member economies.

APEC can be considered success-ful as an advocacy group. This has also made APEC an impor-tant actor in dealing with glob-ally-affecting issues. One of its undoubtedly important achieve-ments is bringing China to the table in 1995 on the way to the WTO accession.

INDONESIA IN APECAfter twenty years of mem-

bership, Indonesia has been an active participant in the field of trade liberalization. The adop-tion of the Bogor Goals, on 1994, reflected the country’s economic focus on liberalization under for-mer President Soeharto. In the summit’s Declaration of Com-mon Resolve, it was also stated as its third objective, “the intensify-ing of Asia-Pacific development cooperation.” This was Indone-sia’s initiative. The government, at that time, was aiming at nar-rowing the gap in stages of de-velopment among economies through cooperation opportuni-ties. Therefore, the growth in the region could be equal, sustain-able, and promote stability.

Indonesia also has benefited from the reduction of trade bar-riers and facilitation of trade and investment through structur-al reform. This has eased a lot of difficulties faced by the busi-ness sector in Indonesia, as most of its trading partners come from APEC member economies. On human capacity building cooper-ation, Indonesia took advantage of trainings, especially, on entre-preneurship.

Lastly, APEC has been a very useful forum for Indonesia to be engaged in discussions on inter-national economic problems. It is the forum in which Indonesia can project and protect its nation-al interest by giving its thoughts on the issues. Policy dialogues also allow Indonesia to commu-nicate its policies to other mem-ber economies. And, most im-portantly, APEC is an important non-binding policy harmoniza-tion forum which has been suc-cessful in leading 21 of Asia-Pa-cific economies towards a more integrated regional collectivity, something which is too impor-tant for Indonesia to ignore.

By Carolyn Sinulingga

And, most importantly, APEC is an important non-binding policy harmonization forum which has been successful in leading 21 of Asia-Pacific economies towards a more integrated regional

collectivity, something which is too important for Indonesia to ignore.

8EducationThe President Post www.thepresidentpost.comNovember 27, 20098

T he Jakarta chapter of Indonesian Legal Aid Institute has called on the government

to obey a Supreme Court ruling that bans national exams, but the minister of education has indicat-ed that the exam will be held as planned.

Director of the Legal Aid Insti-tute, Nurkholis Hidayat, says that since the Supreme Court ruling is legally binding, and that the government must not administer the national exam until all con-ditions required by the court are fulfilled.

Even though the government intends to file for a review of the legal case, the verdict by the Su-preme Court must be imple-mented unless stated otherwise by the court, Hidayat says, add-ing that the government has mis-interpreted the verdict.

He explains that one of the minimum requirements for hold-ing national exam is improve-ment of teachers’ quality across the Indonesian archipelago. A similarly important requirement is upgrading of teaching-learn-ing facilities. Until these basic requirements are fulfilled, the government must not conduct national exam, he emphasizes.

But Minister of Education Prof. Dr. Muhammad Nuh has confirmed that the government will administer national exami-nations despite the Sept.14, 2009 Supreme Court ruling that or-dered its termination.

Supreme Court Ruling Forces Education Minister to Defend Stance

By Allyssya Chairani

The minister was quoted as say-ing on national television on Nov 29—after Hidayat had made the remark—that the government would seek a thorough legal re-

view of the case, and that students should not have any more doubt on the government’s plan to con-duct national exam—which will be held in March 2010.

“With this I wish to confirm that national exams will be held as planned. So there should be no more questions on whether or not it will be held,” the minister said in an attempt to clear the confu-sion that followed the Supreme Court ruling.

This ministerial stance is the reason why Prof. Dr. Mungin Eddy Wibowo from the Nation-al Agency for Standardization of Education—the institution re-sponsible for national exams—reiterated that the government “shall continue to hold the na-tional exam as planned because it is mandated by Government Or-dinance number 19/2005 regard-ing standardizing of education.”

He elaborated that it is also in conformity with ministerial de-crees number 74 and 75 of 2009 regarding final exams for elemen-tary and high schools.”

Before that, the Supreme Court had issued a verdict, strengthening earlier verdicts by the High Court and Central Ja-karta District Court, which ruled against implementation of na-tional exam.

A Supreme Court’s verdict is legally binding, according to In-donesia’s law. In the legal lexicon, the government’s move to have the case reviewed will not pre-vent the ruling from taking effect until the Supreme Court decides otherwise.

The courts maintained that at a time when there are great dis-crepancies among schools across the archipelago in terms of facil-ity, distribution of teachers, and quality, it is unfair to conduct na-tional exams.

Such centralized exams are too difficult for students in remote areas whose schools are poor-ly equipped to take advantage of modern sources of data and in-formation. But for those in big cities, the exams are fairly easy. This is unfair, the district, high, and supreme courts said.

In the verdict, the Supreme Court also asked the government to improve teachers’ quality, school facilities and students’ ac-cess to information before it could administer a national exam.

Nevertheless, the government seems to believe that if Indone-sia must wait until teachers’ qual-ity and school facilities are stan-dardized and brought to an equal level before it administers na-tional exam, it will need several more decades to make it happen; whereas the teaching-learning ac-tivities cannot wait for that. Stu-dents must graduate and schools must have some kind of uni-formed quality yardstick to rely on.

So, despite its shortcomings, na-tional exam can complement and endorse the performance or every graduating student and its results

D istribution of teach-ers is a big prob-lem in Indonesia. In some provinc-

es there is an oversupply but in others there is a dire shortage of teachers. This affects directly the quality of education in the coun-try.

For instance, on primary school level, Indonesia has a total of 1,445,132 teachers spread across 33 provinces. With 209,198 teachers, East Java has the big-gest number, while Central Java ranks second with 198,188 and West Java is in the third place with 186,781 teachers.

In contrast, West Papua has only 5,547, North Maluku has 7,665, and Riau Islands have 9,028 teachers. Strangely, while schools in West Papua and North Maluku are poorly facilitated, those in Riau Islands are not, be-cause it is one of the richest prov-inces in Indonesia.

One could argue that the number of teachers usually cor-responds to that of schools and the size of the local population, meaning that the bigger the size of a local population, the bigger the number of schools and teach-ers. But in Indonesia’s case, that is not always the case.

The nature of Indonesia’s school system is quantity-orient-ed rather than quality-oriented, meaning that the higher the level of study, the smaller the number of schools. Likewise, the lower the level of education, the bigger number of teachers there are.

On the junior secondary lev-el, Indonesia has 621,878 teach-ers with East Java having the big-gest number of 88,975, West Java with 82,299, and Central Java with 75,355 teachers. In con-trast, West Papua only has 2,884, while North Maluku has 4,231, and Bangka Belitung has 2,874 teachers at state-run and private schools.

On senior high school level, Indonesia has a total of 536,639 teachers comprising 305,852 teachers in general high schools and 230,787 in vocational schools.

In general high schools, East Java has the biggest number of teachers totaling 39,046 followed by West Java with 37,014 while Central Java has 30.186 teach-ers. In contrast, West Papua has only 1,334 while West Sulawesi has 1,382 and Gorontalo 1,380 teachers.

In vocational high schools,

Uneven Distributionof Teachers a Big Challengein Indonesia

By Allyssya Chairani

East Java retains its reputation with 34,482 teachers while Cen-tral Java has 33,204 and West Java has 30,551 teachers. In con-trast, Gorontalo only has 824 teachers, West Papua has 843 and West Sulawesi only has 1,111 teachers.

At the university level, the number of teachers/lecturers is much smaller. According to gov-ernment statistics, Indonesia then had a total of 250,357 university lecturers at 2,680 institutions.

During 2007-2008 academ-ic period, for instance, there were a total of 1.090.417 new students accepted, and the number of en-rollments stood at 3,805,287, apart from 292,485 graduates. And as of 2009, the total num-ber of students on Indonesian campuses has stood at 4.5 mil-lion people.

Jakarta has the biggest number of university lecturers totalling 38,702 while West Java ranks sec-ond with 37,633 lecturers, East Java has 35,901 and Central Java has 30,083 lecturers. In contrast, West Sulawesi only has 149 lec-turers while Bangka Belitung has 505, and Gorontalo has 754.

In terms of university enroll-ments, Jakarta still stops the last academic year’s list with 989,029 students, followed by East Java with 442,867 students, West Java with 435,412 students, and Cen-tral Java with 294,853 students.

But in terms of the number of higher learning institutions, West Java is on top of the list with 363 universities and academies, fol-lowed by Jakarta with 301, East Java with 296, and Central Java with 238 higher learning institu-tions.

The above figures show that Indonesian education system has

the shape of a pyramid: the higher the level of study, the smaller the number of students and teachers. The reverse is also true—the low-er the level, the bigger the num-ber of students and teachers.

This explains why unemploy-ment continues to soar in the country despite rigorous efforts to solve it. One reason being that employers in the government and private sectors prefer to absorb graduates of higher learning in-stitutions that are much smaller in number than those of senior and junior high schools.

In order to solve this problem, the government is working hard to increase the number of voca-tional schools while improving their quality in order to meet re-quirements of the job market.

Another effort that has been undertaken is improvement of teacher’s quality. At the junior and senior high school level, this is being done through what is popularly known as “teach-ers’ certification program” under which only certified teachers are allowed to conduct teaching as-signments.

Meanwhile, at the university level, undergraduates are no lon-ger allowed to teach because the government has made it compul-sory for faculty members to have at least a Master’s degree from a recognized university as a prereq-uisite for being a lecturer. Unreg-istered graduate and post-grad-uate titles are not recognized in Indonesia.

Minister of Education Mu-hammad Nuh is also working to equip schools with broad-band Internet connections to en-able teachers to gather as much data and information as possible from all the centers of excellence around the world.

He had, in fact, started to do this even when he was still minis-ter of communication and infor-mation in the previous cabinet of President Susilo Bambang Yud-hoyono.

Now that he is the minister of education, he may multiply the effort, because he is technology-minded minister—having been the rector of ITS, the technology institute in Surabaya.

As education is such a huge sector that involves so many as-pects of national life, Minis-ter Nuh cannot work alone. He needs support from all interest-ed parties in the drive to produce better results, educators and an-alysts say.

add ballast to every school’s pros-pect of accreditation.

This is part of the reason for Minister Nuh to have said that the government will request a re-view of the case—apparently be-cause it is much better still to have a handy yardstick whereby to standardize to some extent the quality of education than to have nothing at all in place.

His argument is quite logical, because if national exam is not re-instated as a mandatory process, Indonesia will not be able to ap-ply any accreditation system—for the simple reason that there is no quality standard to start from.

In such a case, the output from Indonesian schools and universi-ties will not be recognized abroad because no foreign university will accept students with unclear or questionable quality standards.

The government seems to maintain that if the nation-al exam system is still far from perfect, it is the duty of the en-tire nation to improve it, but not to abolish the system and have nothing to replace it.

In other words, if one wishes to kill the rats, the right thing to do is not to burn down the house, but find ways to abolish the nui-sance.

Rejecting national exam con-sequently means annulling the national accreditation system. But maintaining it would also be a problem given rising opposition in society these days.

In the event the national exam is maintained, the homework of the government is to streamline the process in order to ensure ob-jectivity, equal access opportuni-ty, fairness, and accountability. It is repeated failures in these ar-eas that have motivated many cir-cles to oppose the national exam scheme.

But the government also needs to revamp the system to make sure that schools taking part in the mandatory exam shall be di-vided in several evaluation cate-gories based on their capacity and adaptability to the national stan-dards.

Given the fact that schools in Indonesia differ a great deal in terms of teaching-learning facil-ities, the national exam must be categorized accordingly and not be generalized blindly.

Another reason why the minis-ter of education wants the nation-al exam to be upheld is because he wants that to replace univer-sity entrance test which is usually a source of corruption involving “seat brokers” around the coun-try.

Implementation of universi-ty entrance test has been the pri-mary reason why millions of stu-dents—who have passed national exam on high school level—are denied entry to any university ev-ery year.

The Supreme Court ruling is legally binding, and that the government must not administer the national exam until all conditions required by the court are

fulfilled.

Until these basic requirements are fulfilled, the government must not conduct national exam.

Photo: www.rakyataceh.com

Implementation of university entrance test has been the primary reason why millions of students—who have passed national exam on high school level—are denied entry to any university every year.

In some provinces there is an oversupply but in others there is a dire shortage of teachers.

As education is such a huge sector that involves so many

aspects of national life, Minister Nuh cannot work alone. He needs support from all interested

parties in the drive to produce better results, educators and analysts

say.

8 The President Postwww.thepresidentpost.com

Display until December 10, 2009 /// N0. 04 9BusinessRI is world`s Biggest CPO Producer

Indonesia is now the world`s biggest crude palm oil (CPO) producer, replacing Malaysia, Amin Tamin Subandrio, deputy to the research and technology minister said here last week.

He told Antara that Indonesia`s CPO production had reached 19.2 million tons per annum, exceeding Malaysia`s 17.8 million tons.

Subandrio said Indonesia was able to become the number one producer two years sooner than previously projected.

Indonesia`s plantation productivity reaches 3.7 million tons per hectare, the deputy minister said.

The oil palm industry now accounts for 4.5% of the national gross domestic product with its foreign exchange contribution to national income amounting to US$3.5 billion.

Although demand has begun to decline ahead of the winter season, price of crude palm oil (CPO) in Europe has almost reached US$750 per ton, an industry executive said.

Laksamana Adiyaksa, executive director of PT Asian Agri, told Antara last week that “the upward trend in CPO price would continue until the end of the year because many consumers would order large volumes to build up their stocks for 2010.”

Investment Must Reach Rp2,000 trillion: BkPM

Investment in the country must reach Rp2,000 trillion so that the average economic growth target of 7% in the coming five years is achievable, the investment chief said.

“It is not easy to attract an investment of Rp2,000 trillion, but neither is it impossible. We will work hard to attract foreign and domestic investors,” Head of the Capital Investment Coordinating Board (BKPM) Gita Wirjawan said.

He said that Indonesia has assets that attract private investment which has been targeted at 55 percent of the total investments.

The BKPM chief said that one of the assets is the well-preserved macroeconomic stability.

Meanwhile, domestic investment up to October 2009 climbed 104.5% to Rp32.47 trillion over the same period a year earlier, he said.

“The number of domestic investment projects rose to 212 from 194 previously,” Wirjawan told members of the House of Representatives Commission VI.

However, foreign investment in the January-October 2009 period fell 28.8% to US$89.28 billion from US$125.37 billion in the same period last year, he said, adding that foreign investment projects jumped to 1,008 from 950, he said.

He said Singapore topped the list of foreign investors in the January-October 2009 period with a value of US$4.1 billion in 160 projects, followed by the Netherlands US$1.2 billion in 26 projects, Japan US$580.9 million in 103 projects, South Korea US$553 million in 153 projects, and Britain US$521 million in 49 projects.

Pertamina Prepares for IPO

The state-run oil and gas company PT Pertamina said it may list some of its units on the Indonesian Stock Exchange next year ahead of plans to launch its own initial public offering (IPO), Antara reported last week.

Pertamina may sell shares in insurance unit PT Tugu Pratama Indonesia, drilling unit PT Pertamina Drilling Services, geothermal unit PT Pertamina Geothermal Energy and energy exploration unit PT Pertamina Hulu Energi, chief financial officer Frederick Siahaan said.

Siahaan said the company would try to list subsidiaries first to increase transparency, adding that Pertamina would retain majority stakes.

Sabang to Operate as International Port in 2012Aceh province`s Sabang international seaport, which is now under

construction, is scheduled to commence operations in 2012, the port`s administrator said.

“The project is to support the economic growth of the Sabang Free Port and Trade Area,” Sabang Port Administrator Teuku Saiful Ahmad told Antara recently.

He said the port would have a pier with a length of 423 meters, and that the total length of the port`s piers was 2,600 meters. The project costs Rp8 trillion.

“Of the total amount of funds needed for the 2,600 meter project, about Rp5.5 trillion will go to a foreign contractor, namely Dublin Port of Ireland,” he said.

For the construction of the 423-meter pier, the government would in stages allocate Rp1 trillion from the state budget.

T he global econ-omy is ready for expansion as contraction

has slowed down. Mean-while, Indonesia’s econo-my has almost recovered in every sector. Labor inten-sive, non-agricultural sec-tors such as manufacturing and trade once again post-ed positive growth. How-ever, their contribution to economic growth remained relatively small as the econ-omy is still supported by sec-tors that provide low job op-portunities.

The balance of payment in the third quarter of 2009 ex-perienced a surplus over the previous quarter. However, the surplus was mainly driv-en by surplus in capital and financial transactions which were dominated by portfo-lio investments that could potentially contribute to the rupiah’s fluctuation. The movement of the rupiah has been relatively unstable com-pared to other currencies in the region. Pressure on the rupiah is expected to contin-ue until the end of the year and the currency unit is pre-dicted to remain at the 9,600 level against the USD.

HAS GLOBAL ECONOMIC CONTRACTION ENDED?

Optimism on global eco-nomic recovery continues to grow. In general, the glo-bal economy has passed the contraction period and is thus ready to see positive growth. Several economic indicators are showing more positive developments, how-ever.

Advanced nations post-ed positive economic growth (except for Britain). The US recorded a remarkable growth of 3.5% in Q3-2009 after enduring contraction for four consecutive quarters since Q3-2008 (Graph 1).

Production activities in advanced nations are con-tinuously and gradually im-proving. Although the year-on-year production growth is still in the negative zone, sluggishness has gradually diminished in the past seven months until September 09.

The confidence in eco-nomic recovery continues to grow as reflected in the lead-ing economic indicator in-dex trend, which continued

THE INDONESIAN ECONOMY:

Looking up witha Cautionary Note

By Anton hendranata, Anton Gunawan and helmi Arman

to rise since March 09 .While they enjoy significant

growth improvement, govern-ments of advanced nations re-mained cautious in order to keep the global economic recovery on the right track. Economic stim-ulus that adopts loose monetary policy regime is still needed. Al-most all advanced nations main-tained low key interest rates ex-cept for Australia, which has increased its benchmark rate.

The high unemployment rate remains a lingering problem, es-pecially in the US, which rose to 10.2% in October from 9.8% over the previous month. The high unemployment rate contin-ues to keep the US public pur-chasing power weak, a condition that is reflected in the consumer credit growth that fell by 0.6% in September from a 0.4% drop in August 09. If the unemployment problem can be tackled, global economic recovery acceleration will be swifter than expected.

HAvE ALL INDONESIAN ECONOMIC SECTORS RECOvERED?

Almost every sector in Indone-sia’s economy showed recovery, which had started in Q2-2009 and continued in Q3-2009. The quarterly growth level in the mi-ning, construction and transpor-tation sectors have even surpassed the pre-crisis level (Q3-2008).

For its year-on-year econo-mic growth, Indonesia heavi-ly depended on the transporta-tion and communication sectors in Q3-2009, which contributed 34% to economic growth, follo-wed by the construction, services and mining sectors with contri-butions to the economy reaching 12.9%, 12.6%, dan 12.5% res-pectively.

However, it is unfortunate that these sectors were unable to provide more job opportu-nities, which in the transporta-tion and telecommunication sec-tors reached only 5.7%, while the construction, services, and min-ing sectors contributed 4.4%, 13.0%, and 1.1%, respectively. It would have been better if the eco-

nomic sectors with high growth levels could provide wider job op-portunities.

With the global economic con-dition expected to improve and create a more conducive environ-ment for the domestic economy, Indonesia could see a 5.2% eco-nomic growth in 2010, up from only 4.3% in 2009. In Q4-2009, the transportation, communi-cation, financial and construc-tion sectors are expected to pro-pel economic growth.

INFLATIONARY PRESSURE UNDER CONTROL UNTIL YEAR END

Month-on-month general in-flation rate in October was 0.19%, lower than the 0.40% projection by economists. Year-on-year gen-eral inflation in October dropped to 2.57% from 2.83% in Septem-ber. The core inflation, whose movement is influenced by eco-nomic fundamentals, showed a declining trend throughout 2009. In October, year-on-year core in-flation stood at 4.52% compared

to 4.86% in September 09. The low October inflation rate

was due to the drop in spending in the transportation and com-munication and financial servic-es. Meanwhile, other spending groups experienced inflation.

Not many spending compo-nents are expected to experience deflation next month. There-fore, the general and core infla-tion rates are predicted to rise until the end of the year due es-pecially to Christmas and New Year holidays. Despite the grow-ing inflation rate until year end, inflation at the end of 2009 is ex-pected to be relatively low and under control. Inflation is pre-dicted to reach 4.0% at the high-est level and that BI will main-tain its key rate at the 6.5% level in December.

BALAnCE OF PAYMEnT In Q3-2009

Surplus in Indonesia’s balance of payment grew US$3.5 billion in Q3-2009, up from US$1.1 billion in Q2-2009. The grow-ing balance of payment surplus is attributed to the surplus in cur-

rent transaction balance and cap-ital and financial transaction bal-ance. The current transaction balance enjoyed a US$1.7 billion surplus, down from US$2.9 bil-lion in Q2-2009.

Meanwhile, capital and finan-cial transaction balance posted a relatively high surplus after ex-periencing a deficit in the pre-vious quarter. Unfortunately, the balance of payment surplus was dominated by portfolio in-vestment (stocks, bonds, and BI promissory notes/SBI), which are not stable funding sources as they can be pulled out at any time, es-pecially the SBI. Too much for-eign capital inflow into portfolio investments could create unstable capital and financial transaction balance, increasing the volatility risk of the rupiah.

An idea that emerged lately is the need to cap foreign ownership in SBI, as it is a monetary policy instrument and the amount of foreign ownership in the instru-ment is closely correlated to the rupiah’s fluctuation. This idea tends to give a negative sentiment on the rupiah in the short term, especially amid efforts by several emerging markets such as Turkey and Brazil and probably Taiwan too to consider “capital control”.

RUPIAH STRONG BUT vOLATILEIn early November 09, the ru-

piah traded at 9,585 per US dol-lar but strengthened to 9,490 per 19 November, an appreciation of 0.99%.

Meanwhile, the US dollar weakened against other major world currencies (Britain, Euro-pean, Swiss, Japanese, Canadi-an and Swedish) by 1.42% (US

While they enjoy significant growth improvement, governments of advanced nations remained cautious in order to keep the global economic recovery on the right track.

dollar index) and 0.82% against Asian currencies (Chinese, Hong Kong, Indian, Indonesian, Kore-an, the Philippines, Singaporean, Taiwanese and Thai).

What’s interesting about the recent rupiah appreciation is that the rupiah movement was relatively stable over the previ-ous month. Coefficient of vari-ation statistics showed a decline to 0.78% compared to 0.97% in October, which was more vol-atile. Is this a sign that the pres-sure on the rupiah until the end of 2009 is over?

Let’s have a look at currencies movement in Asian countries such as Malaysia, Philippines, Singapore, and Thailand during November. It turned out that the currencies of those countries were relatively stable compared to the rupiah except in the Philippines. The coefficient of variation statis-tics of the Malaysian, Philippine, Singaporean and Thai currencies were as follows: 0.70%, 0.89%, 0.405%, and 0.30%, while Indo-nesia’s is 0.78%.

Under this situation, it is not impossible that pressure on the rupiah may occur due to its un-stable movement. The main ele-ment that needs to be watched is the growing portfolio investment trend, as they are only short-term financial sources. As such, we predict that the rupiah will con-tinue to stay at the 9,600 level per USD up to the end of the year (the same as our prediction last month). For 2010, the rupiah is likely to weaken to the 9,750 level due to pressure from imports and a possible hike in The Fed’s rate next year.

Under this situation, it is not impossible that pressure on the rupiah may occur due to its unstable movement. The main element that needs to be watched is the growing portfolio

investment trend, as they are only short-term financial sources.

Communication together with transportation, contributed 34% to ecoomic growth

Photo: www.mobil.sk

ManagementThe President Post www.thepresidentpost.comNovember 27, 200910

By A.B. Susanto

L eadership and organiza-tion culture is insepara-ble. Leaders define stan-dards and characters of

the organization culture, play-ing a key role in instilling beliefs, values, and assumptions through their attitudes, behavior, words, and decisions.

Leaders use every available means to influence organization culture. Reward system, Board of Directors composition, reporting relationship, physical design, or-ganization structure, system and procedures and budgeting pol-icy are elements that could help leaders in developing organiza-tion culture.

The process and criteria for recruiting, selecting, promot-ing, and terminating people will also contribute to the organiza-tion culture. Leaders prefer can-didates who have character sim-ilarities with current members regarding style, assumptions, val-ues, and beliefs. These candidates are considered the best people to be recruited.

In order to develop organiza-tion culture, leaders often create rituals. For leaders, rituals can be used as a means to instill be-liefs, values, and assumptions to strengthen organization culture. Rituals could help an organiza-tion in accomplishing its vision and mission, which are translat-ed into strategies and policies. According to Deal and Kenne-dy, there are several kinds of rit-ual, namely social, work, man-agement, and recognition. Social ritual deals with the relationship among organization members such as the relationship between a superior and his/her subordinates and vice versa, peers, and people from inside and outside the orga-nization. Work rituals include the way organization members do their tasks. Management rituals include how a leader or manag-er performs managerial function such as planning, organizing, di-recting, and controlling. Recog-nition rituals are performed to celebrate certain events.

A Leader’s Role in Managing Organization Culture

The leader’s role is also im-portant at the time the organiza-tion culture should be changed. Change should be made when the existing culture is no longer able to support the organization in achieving its goals and objec-tives. In the book THE JAKAR-TA CONSULTING GROUP on Corporate Culture and Organiza-tion Culture, the authors suggest two factors that trigger chang-es in the organization culture, namely internal factors and ex-ternal factors. Internal factors come from within the organiza-tion. These include changes in the organization life cycle; desire to create a better business process; application of a new technology and a new leadership pattern. Ex-ternal factors come from outside the organization, which could in-clude changes in business envi-ronment; economic, social, and political crisis; and pressure from the stakeholders. Strategic alli-ances, mergers and acquisitions will also require change in the or-ganization culture.

Schein describes some mech-anism in which leaders can con-sider when they need to change the organization culture. First, promoting people from certain subcultures which reflect the preferred change direction. A well-established company usual-ly consists of several subcultures alongside its core culture. Sub-cultures emerge because of the division in company’s operations, which are usually based on prod-uct, market, technology, geo-graphical location and function. Second, changing the culture through the application of tech-nology. This involves the intro-duction of specific technology in order to encourage new behavior. This in turn will require employ-ees to reexamine their existing as-sumptions and to consider the possibility to adopt new beliefs, values, and assumptions. Third, recruiting leaders or managers from outside the organization. New managers usually will bring their own trusted persons and re-

place those who are considered to be representing the old and inef-ficient way of doing things.

However, many leaders still disregard the importance of orga-nization culture, whereas this is-sue is one of crucial element for effective leadership. Leaders also

Leaders use every available means to influence organization culture. Reward system, Board of Directors composition, reporting relationship,

physical design, organization structure, system and procedures and budgeting policy are

elements that could help leaders in developing organization culture.

Leaders who are able to develop their organization culture effectively possess certain qualities and beliefs which are beneficial for

overall organization performance.

often find difficulties in manag-ing organization culture due to the pressure to accomplish short

term financial objectives, increas-ing organization complexity, de-mand for managing recuring cri-sis, and lack of understanding about leadership in the organi-

participation. Leaders should be able to build trust among or-ganization members. Members should also feel safe to express their opinion and expression. The differences emerge in the de-velopment of organization cul-ture should be well-managed. All efforts made by a leader regard-ing organization culture develop-ment should aim only for the or-ganization success.

The writer is Dean of the Faculty of Economics, President University, and Managing Partner of THE JAKARTA CONSULTING GROUP.

zation.

Leaders who are able to devel-op their organization culture ef-fectively possess certain qualities and beliefs which are beneficial for overall organization perfor-mance. Want (2006) suggests several attitudes and beliefs that a leader should possess which could benefit the development and/or change of organization culture.

Those attitudes and beliefs in-clude becoming a student of the culture, renewal, communica-tion, inclusiveness, trust, and ac-countability. Organization cul-ture originates from behavior,

commitment, values, business practices, policy, vision, mision, and history. All of these should be evaluated on a regular basis. Leaders should ensure open com-munication for all organization members. Reclusiveness and se-crecy will only disturb the devel-opment of organization culture. If employees feel that they are not involved, there could be dis-atisfaction and resistance. Open communication will enable or-ganization members to exchange ideas and resources. Leaders also have to ensure that the develop-ment of organization culture will involve all organization mem-bers, in order to encourage more

Image: www.demandstudios.com

By Pri notowidigdo

W hat is an “interim manager?”

M a r g a r e t Coles, a journal-

ist who specializes on manage-ment issues, described the in-terim manager as “a new breed of corporate person, who steps in on short notice, sorting out problems, setting up operations or filling whatever gap has sud-denly appeared in the manage-ment structure.”

The interim manager provides an effective solution to corporate crises and other managerial issues of finding resources. The orga-nization hires a qualified, highly experienced, free-lance executive and drops him into a business di-lemma and provides him with a specific mandate and a limited length of time to implement it.

THE INTERIM MANAGER:

An Effective Corporate andIndividual Solution to CrisisIndonesia’s rapidly-changing economy and environment are leading organizations to expand and contract their workforce according to demand. What has emerged is a widespread use of contracting out work and the rise of “interim managers.”

The interim manager can play diverse roles. He can bridge a gap or fill one while an organi-zation is looking for a permanent manager. He can also manage a crisis following an unexpect-ed departure or death of a senior employee. He can take charge of a specific project such as a facto-ry move. Or, he can be a “trou-ble-shooter” and manage a turn-around especially for a company in trouble.

You may now be asking: “Aren’t we talking about manage-ment consultants?” No, there’s a difference. Consultants, in gen-eral, offer recommendations and strategic planning. The role of in-terim managers is to implement, in the short term, but with a view to the long-term interests of the client.

Consultants often have little experience in implementation. Yet, this is increasingly what cli-ents demand. And, to be fair to consultants like myself, major consultancy firms are aware of this and have increasingly taken appropriate measures to imple-mentation as well.

Apart from the benefits to or-ganizations, interim manage-ment also meets the individual’s desire for autonomy and appeals to the successful, experienced professional with entrepreneur-ial spirit.

Take the case of Anthony Brown, a senior finance and ac-counting professional. The com-pany where he worked under-went corporate downsizing. As a result, he became one of the

employees who was retrenched. Suddenly finding himself with-out employment, what was he to do now? The world financial tsunami sparked massive corpo-rate downsizing so the prospects looked grim for him. Who was going to hire a 56-year-old hu-man resources professional? To make things worse, who was go-ing to hire an expatriate human resources professional in Indone-sia?

“When I reflected on my career, I realized that what I was really good at was managing change. However, once the change was in place, a different type of man-ager was needed. That meant that I was going to be looking for a new job every one and a half to two years,” he said.

Anthony’s response was to of-

fer his services as an interim man-ager and he positioned himself as The Portable Change Manager. The first few assignments came from networking. After a while, he became visible in the market, and was often approached by se-nior executive search consultants like myself for interim manage-ment responsibilities with their corporate clients.

A benefit for Anthony was that prospective employers re-garded his age as added-value. Anthony found that while there were often other candidates who were younger and had better ac-ademic qualifications, the client saw in him a lot of hands-on and practical experience.

For the individual like An-thony, or maybe like you, there were a number of valuable les-sons learned from being an inter-im manager. One lesson was that Anthony had learned the value of maintaining a balance between learning and doing, and very im-portantly, of planning ahead to create options.

Another lesson had been to use

the flexibility, which came from taking greater charge of his own career path, to ensure a healthy balance between work and the other critical life streams – so-cial/domestic, personal health, and general development of the mind.

A third lesson had been the power of networks. Almost every career move he has made and all the most interesting jobs he has done, have come through know-ing someone or, more impor-tantly, being known.

An interim manager career is not for everyone. If you value se-curity, an ordered and disciplined life, are not adventurous, it will certainly not be for you. Yet, for an increasing proportion of sea-soned managers, interim man-agement is going to be a signifi-cant part of their future. Perhaps it will be for you.

The writer is Senior Partner of Amrop – Context Driven Executive Search. He can be contacted at [email protected] and www.amrophever.com

An interim manager career is not for everyone. If you value security, an ordered and disciplined life, are not adventurous, it will certainly not be for you. Yet, for an increasing proportion of seasoned managers, interim management is going to be a significant part of their future. Perhaps it will be for you.

Image: www.chato-mgt.com


Industry

I ndonesia hopes to become the world’s top textile pro-ducer or at least belong in the same league as other

major textile producing countries such as China and India.

To achieve this goal, the gov-ernment plans to tackle all prob-lems related to the textile indus-try in the country, including on domestic market share, export orientation and self-sufficiency in raw materials that could help im-prove competitiveness.

“There are many issues that need to be addressed in order to become a top world textile pro-ducer,” Industry Minister MS Hidayat said during the national textile conference recently.

According to Hidayat, issues that need to be addressed includ-ed textile research and develop-ment institution, a better under-standing of the market system of export destination countries, keeping up with the latest fashion developments and the environ-ment, including the consump-tion patterns of the export mar-ket, self-sufficiency in providing own raw materials and increasing domestic market share.

Hidayat said the textile indus-try is a labor-intensive sector that could provide jobs for millions of people and therefore any prob-

Indonesia Set to BecomeTop Textile Producer

lems impeding its growth should be eliminated. The textile indus-try must first control the domes-tic market share and at the same time bolster exports, he said, add-ing that this includes improving the competitiveness of the prod-ucts.

“My wish is to see Indonesia become a giant by 2014, before I finish my term,” he said.

To boost export, the gov-ernment has required four ma-jor seaports to operate around the clock as part of its commit-ment to boost trade this year. The move has been highly praised by the Indonesian Textiles Associa-tion (API).

API Deputy Chairman Ade Sudradjat said the plan would speed up the flow of imports and exports through ports. He said the customs and excise offic-es should have started operating 24 hours a day long ago like oth-er seaports in Malaysia and Sin-gapore.

Previously the four ports — Tanjung Priok in North Jakarta; Belawan in Medan, North Su-matra; Tanjung Perak in Suraba-ya, East Java; and Soekarno-Hat-ta in Makassar, South Sulawesi — were only open for eight hours a day, six days a week.

The new hours, announced by

the government, are being tested at the ports and will be officially implemented in January.

The Tanjung Priok port is anticipating an increase in the amount of general cargo it han-dles from 9.4 million tons in 2008 to 10.2 million tons this year.

Textile industry absorbs around 1,841,520 workers or 15% of the total labor in the manufacturing sector. Textile exports last year exceeded US$10 billion.

Indonesia is currently devel-oping innovative textile fibers as part of its efforts to become selfp-sufficient in textile raw materials. It will also gradually increase the level of cotton production.

Data at the Agriculture Minis-try show that national cotton pro-duction has increased from 1.2 tons per hectare in 2005 to 4-6 tons per hectare last year, gradu-ally reducing the country’s 99.5%

dependenc on imported cotton.“The dream to become a world

giant textile producer could be realized if we can meet our cot-ton demand,” said Hidayat.

Commenting on the minister’s ambition to make Indonesia a gi-ant textile producer, API Chair-man Benny Soetrisno said that is

possible provided the government fixs problems related to the in-dustry such as financial support, unstable rupiah exchange rate against the US dollar and smug-gling activities that have shrunk local producers’ market share.

“To become a world giant, one must be in the world’s top three,” said Soetrisno, adding that In-donesia is currently number 12, way behind China and India, but number 8 for garments.

API recorded an upward trend in local consumer buying pow-er for textile and garment prod-ucts in Q3-2009 but predicted

that the downtrend in export de-mand will continue until the end of the year.

Soetrisno said purchasing pow-er had started to grow in Q3 af-ter a sluggish demand from Q4-2008 until Q2-2009.

He said of the US$6 billion domestic market potential, local textile products could only tap into around US$4 billion annu-ally, with the remaining market share absorbed by both legal and illegal imported products.

“We don’t fully control the domestic market due to classi-cal problems such as smuggling,” said Soetrisno.

However, API Executive Secre-tary Ernovian Ismy said that lo-cal producers may end up with less than half of the domestic market by the end of the year if the government fails to stamp out illegal textile imports.

He urged the Trade and Indus-try Ministries to stamp out illegal imports and to enlist the help of domestic producers in doing so.

“Clearer and more transpar-ent action need to be taken by the two [ministries] to stem this wave of illegal textile imports,” Ismy was quoted as saying by The Ja-karta Globe.

“They also need to involve us in the process of preventing ille-gal imports and in conducting field surveys of importers to see whether they comply with the government’s requirements [to be registered as authorized import-ers].”

Meanwhile, Ade Sudrajat said the domestic market share con-tinues to shrink and blamed the condition on the significant rise in imported textile products flooding the market.

He said the Trade Ministry has given too many import licens-es to those [who claim to be] im-porters/producers, without verifi-cations in the field.

He went on to say that API had complained about the influx of imported textiles in the domestic market, and found that many of

the importers were not producers but traders and brokers.

Aside from illegal imports, Sudrajat also attributed the con-dition to low import duties im-posed on Chinese, Japanese, and Korean products.

He said import duties on Chi-nese textiles averaged 5% as part of the implementation of the As-sociation of Southeast Asian Na-tions-China free trade agreement (AC-FTA). Indonesia has im-posed zero import duty on Jap-anese textiles, particularly for so-phisticated ones, because of the Indonesia-Japan Economic Part-nership Agreement (IJ-EPA).

The government said it has two sets of regulations control-ling textile imports: a 2008 Trade Ministry regulation on imports of particular products such as gar-ments, and a 2009 Trade Minis-try regulation on imports of up-stream textile products.

Trade Ministry official claimed that the ministry issued import

To achieve this goal, the government plans to tackle all problems related to the textile industry in the country, including on domestic market share, export orientation and self-sufficiency in raw materials that could help improve competitiveness.

licenses to importers/producers based on recommendations and verifications provided by the In-dustry Ministry.

Industry Ministry Director General for Metal, Machinery, Textile and Multifarious Indus-tries Ansari Bukhari said regula-tions covering importation of tex-tiles required both verification by the state superintending firm Su-cofindo upon issuance of import licenses.

TExTILE MAChInERY REjUvENATION PROGRAM

After launching the machinery rejuvenation program in 2007, the government plans to halt it in 2012. The program was im-plemented under two schemes that basically provide subsidy and price discounts for companies that plan to rejuvenate their ma-chinery.

Industry Ministry Director for Textile Industry Arryanto Sagala said while the ministry plans to discontinue the program in 2012, it will largely depend on the pre-vailing situation.

“A similar program in India was held only until 2012. Initial-ly, we wanted to hold it for only three or five years at the most,” he said.

When the program started in 2007, 103 textile companies had registered for the incentive, but only 92 companies were able to meet the requirements imposed by the government. In 2008, only 175 out of 191 companies met the requirements.

This year, only 186 out of 210 companies that registered for the program were ready to realize their investment to buy new tex-tile machinery, which is targeted to reach Rp1.85 trillion.

However, given the low budget absorption in the previous years, the Industry Ministry will slash the restructuring funds by Rp100 billion next year to Rp140 billion, from the earlier allocated budget of Rp240 billion this year.

By Eka Putri

“My wish is to see Indonesia become a giant by 2014, before I finish my term.”

M.S. hidayatIndustry Minister

Indonesia is currently developing innovative textile fibers as part of its efforts to become

selfp-sufficient in textile raw materials. It will also gradually increase the level of cotton production.

T he fast-moving and in-evitable globalization continuously forces us to make adjustments

in all areas. There are at least two key fac-

tors that need to be observed with regards to the electronic industry: Market trends (global and do-mestic) and the extent our indus-try structure can keep up with market developments.

These two factors are very cru-cial in our bid to meet the Na-tional Industry Policy stipulat-ed under Presidential Decree No. 28/2008, w h i c h states that Indone-sia should have a re-liable tele-matics in-d u s t r y by 2020. However, it is hard to imag-ine that Indonesia can meet the goal if it is not sup-ported by a reliable electronic in-dustry, especially in an era where computer, communications and contents industry (CCC) are fast becoming integrated, forcing oth-er sectors such as telecommuni-cations, semiconductor and con-sumer electronic, to be included in the telematics industry (TI).

DevelopingDigital-Based Technology, Environmentally-FriendlyElectronic Products

By Rachmat Gobel

MARkET SEGMENTATION AND NATIONAL ELECTRONIC INDUSTRY

The consumer electronic prod-ucts are usually divided into two major segments, namely house-hold use and personal use. These markets continue to grow in line with improved economic growth or the public’s rising purchasing power.

The basic or so called “be-ginning electrical life” for household electronic prod-ucts focuses on radio-cas-sette players, television sets, electric fans and water

jet pumps. As the pur-chasing pow-er improves, consumers will move to “enrich-ment electrical life” for products such as refrigera-tors and washing machines. The next stage is seeing a stronger consum-er purchasing pow-er that will enlarge

the market for digital technology-based personal use products (be-ginning digital life) such as LCD television sets, personal comput-ers/notebooks, digital cameras, I-Pods and mobile phones.

Given the current national, re-gional and global economic situ-ation, it is predicted that product

demand for enrichment electri-cal life group (refrigerator,s wash-ing machines and ACs) and dig-ital-based personal use products such as LCD television sets, per-sonal computers/notebooks, dig-ital cameras, I-pods and mobile

phones will cont in-

ue to

The challenges in the future are to build an electronic industry that keeps up with the market developments related to products based on more advanced technology.

What’s also important is to produce

environmentally-friendly and energy-efficient products to cater to consumer

demand.

beginning electrical life prod-ucts, which still hold a great market potential, and only a few has tapped into the en-richment electrical life segment. Even fewer have touched the digital-based products. The foundation of the national electronic industry structure in the beginning electrical life product market is still not strong enough. This is why, in part, im-ports of electronic products and components remain high in the past few years.Without improve-ments through restructuring and reorientation, the electronics in-dustry will collapse, and the na-tion’s industry development policies that put the telematics in-dustry as the country’s top com-modity will not be met.

FUTURE POLICY IMPERATIvES Restructuring and reori-

entation of the nation’s electronic in-

d u s -try develop-

ment policy is critical. We have to prevent a recurrence of the Fairchild and National Semicon-ductors cases in the 1980s. At the time two US multinational com-panies, Fairchild and National Semiconductors, had relocated their semiconductor assembling plants in Indonesia, which actu-ally provided the domestic elec-tronic industry with an oppor-tunity to make a great leap, to

Malaysia.

However, the unfavor-able investment cli-

mate in Indo-nesia in 1984 forced them to relocate their plants to Ma-laysia, which then provid-ed better poli-

cies. As we can see, Malaysia’s

electronics indus-try now enjoys rap-

id growth. As such the challenge to devel-

op a national electronic industry lies in the govern-

ment providing policies with clear and accurate directions to industry players.

The first step is to form a com-mon perception and sound har-mony among related government institutions (the industry, trade, finance, and education minsit-ries, and legal enforcement bod-ies) and with academics and re-search and business sectors.

SECURING THE DOMESTIC MARkET

With a population of more than 200 million people, Indone-sia has a huge untapped domestic

market po-tential to

boost competitive-ness and the real sector, especially the manufacturing industry.

In the consumer electron-ic products, the domestic mar-ket only absorbed around 34% of national production, or Rp9.8 trillion, from the total Rp24 tril-lion in domestic market potential (2008), with the remaining con-trolled by both legal and illegal imported products.

The business sector highly ap-preciates the government’s ef-forts to protect the domestic mar-ket (especially to anticipate the global crisis) by way of, for exam-ple, the issuance of Trade Min-ister Decree No. 44/M.DAG/PER/DAG/2008 of 1 Novem-ber 2008. Under the terms of the decree, the government tightens import activities of certain com-modities, including electronic products, by allowing their en-tries only via five ports, namely Tanjung Priok, Tanjung Emas, Tanjung Perak, and Belawan, as well as Soekarno-Hatta, Makas-sar and several other airports.

Other pressing issues that need to be addressed, especially related to policies, are:

Import duties harmonization •to provide room for both in-dustry and industry playersComponents to tap optimally •the market’s potential Acceleration in implement-•ing SNI that refers to global

With a population of more than 200 million people, Indonesia has a huge untapped domestic market potential to boost competitiveness and the real sector, especially the manufacturing industry.

market standards to minimize smuggling and to protect con-sumersGiving SMEs more opportu-•nities to produce “beginning electrical life” products by pro-viding them with bigger access to technologyProvide incentives to boost di-•gital-based electronicsImproving human resources •quality in the electronic sec-tor by improving the education and labor regulation systems

The writer is deputy chairman of the Indonesian Chamber of Commerce and Industry (Kadin Indonesia) in charge of industry, research and technology

grow.The challenges in

the future are to build an electronic industry that keeps up with the market developments related to products based on more advanced technology.

What’s also important is to produce environmentally-friend-ly and energy-efficient products to cater to consumer demand. However, this of course requires much advanced technology level and production process. On the other hand, most companies in the country are still focusing on

Human CapitalThe President Post www.thepresidentpost.comNovember 27, 200912

Naresh Makhijani Krishnan Rajendran james Creelman

M any Human Re-source (HR) pro-fessionals have long argued that

the function has responsibility for areas that are too ‘intangible’ or ‘soft’ in nature to be subjected to rigorous measurement and as-sessment, such as competency de-velopment and motivation.

Yet significant numbers of HR organizations through-out the world are disproving this argument. They are build-ing and deploying a function specific version of a popular en-terprise strategy management

Seven Steps for Managing and Measuringthe Performance of HR

card. This linkage sets the agenda for HR’s internal processes and own learning & growth perspec-tive. The learning & growth per-spective with a HR scorecard de-scribes what the function must do itself to build the capabilities and competencies to deliver to its customer-focused objectives (cus-tomers being the organization’s business units).

One of the many benefits of building a functional Balanced Scorecard is that it forces the HR leadership team to debate and reach agreement as to exact-ly what value they must deliver to the enterprise (outcomes such as talent management, compen-sation, leadership development, etc,). They must then determine how the HR organization will deliver these interventions and to ask hard questions around whether the function has the re-quired skills to do so - and if not to identify how these will be de-veloped.

The difference between the Balanced Scorecard approach and conventional HR management highlights another key benefit. Through the Balanced Score-card, all people management and measurement processes are orga-nized around HR’s deliverables, not around HR’s sub–func-tions such as benefits, recruiting

or compensation. Debating the scorecard allows senior HR man-agers from the various specialties to get a clear picture of how HR deliverables work together in en-suring positive people-related re-sults for the enterprise.

Indeed, our experience tells us that the process that HR leaders must go through to build an HR scorecard might be as useful as the resulting Balanced Scorecard itself. Not only can the process help create a common purpose within the leadership team, pow-erful outcomes can be achieved

when HR leaders spend time with business leaders in focus groups or one-to-one interviews discussing what is expected from HR (a key input to the Balanced Scorecard creation process). Through such forums it is often found that there is a big discrep-ancy between what HR thought they were delivering to the busi-ness and the perceptions of line managers. Put another way, HR might have thought it was deliv-ering value to the organization but their business partners might, based on their experiences, think otherwise. With this understand-ing, HR can ensure that its objec-tives properly represent the stra-tegic needs of the business units – HR’s customers.

And bear in mind that the Balanced Scorecard is a strategic management framework, so cre-ating a properly formulated and architected HR scorecard enables a strategic mindset to be inculcat-ed within the whole of the HR organization. A HR scorecard can force the function out of an administrative and into a high-er value–adding view of how its work impacts the whole organi-zation, as shown in an Enterprise-level Balanced Scorecard.

But note that it is not unusual that a HR scorecard is built with-out there being an enterprise-level Balanced Scorecard (or is built as a pilot – to test the waters if you will – before creating and rolling out a higher-level scorecard sys-tem).

So let’s consider a seven-step process for creating an HR score-card that may be used whether a higher-level scorecard is in exis-tence or not.

1 Step one is about tak-ing the time to under-stand and internalize the strategy of the enter-

prise. This is clearly the starting point for moving forward. With-out this understanding, there is little point in creating the Bal-anced Scorecard. The HR score-card assumes that the HR lead-ership team has a sense of what’s

important for the business.

2 Step two sees HR pull-ing from the enter-prise-level strategy the key people imperatives

(skills and competencies) that are required for delivering to that strategy. These people impera-tives will serve as the steer for the subsequent scorecard creation.

3 Step three is the artic-ulation of the strate-gic ‘people imperative’ questions that the score-

card should answer, such as ‘do we have the talent that we need to be successful in the future?’ and ‘is our HR delivery cost effec-tive?’ Here it is vitally important that HR leaders spend time with business leaders in order to prop-erly understand the people im-peratives and aligned questions.

4 Step four sees HR lead-ers debate and agree on the HR strategic ob-jectives, as will be de-

scribed in an HR Strategy Map. Typically, but not prescriptive-ly, these objectives will flow from a top-level financial objective through effectiveness (how HR is building human capital) and efficiency (how HR is delivering the highest quality services at the lowest possible cost) themes.

5 Step five is about the creation of strategic measures to support the objectives. Sample fi-

nancial metrics might include the following: Human capital value added: Revenue – (operat-ing expense + compensation costs + benefits) divided by total FTE , which answers the question ‘what are people worth’; Cost per hire: Advertising + agency fees + em-ployee referrals+ travel cost of ap-plicants and staff + relocation costs + recruiter pay and bene-fits divided by operating expens-es, which provides a clear mea-sure of the cost per hire and along with turnover costs show the bot-tom-line hit taken when employ-ees leave.

For HR organizations within Indonesia, the HR scorecard

will likely become a popular and effective tool for HR leaders that are increasingly pressurized to show the value, especially

bottom-line, that they provide to the

enterprise.

Many Human Resource (HR) professionals have long argued

that the function has responsibility for areas

that are too ‘intangible’ or ‘soft’ in nature

to be subjected to rigorous measurement

and assessment, such as competency

development and motivation.

6 Step six in building the HR scorecard is where the functional leaders set the performance tar-

gets that monitor how the func-tion is closing the gaps between present and desired performance. Wherever possible targets should be stretching and based on benchmarks. But note that al-though stretching, targets should be realistic as there is little to gain from setting targets that are sim-ply unachievable. This high-lights the importance of HR un-derstanding its present capability levels and what needs to be done to close any gap.

7 Step seven sees HR leaders set the strategic initiatives that will de-liver to the targets. By

identifying strategically critical HR objectives HR leaders should be able to prioritize initiatives, and thus allocate resources to those that will deliver to the strat-egy at the expense of those that will not.

Once the HR scorecard is cre-ated, the next step is rollout with-in the function. For HR there may be particular challenges around the use of performance measures, particularly where the function has no real history of working with anything more than rudimentary metrics. That said, devolving the scorecard to individual departments is a pow-erful way to ensure that all staff in HR are aligned to the objec-tives on the HR Scorecard and through that to the strategic goals of the enterprise.

For HR organizations within Indonesia, the HR scorecard will likely become a popular and ef-fective tool for HR leaders that are increasingly pressurized to show the value, especially bot-tom-line, that they provide to the enterprise.

This article is extracted from the book: Managing Human Capital in Indonesia: Best Practices in Aligning People with Strategic Goals (Azkia, Indonesia, 2009)

FIGURE 1: ExAMPLE OF A hR BALAnCED SCORECARD STRATEGY MAP

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FIGURE 2: HR BALANCED SCORECARDStrategic Objectives Measures (sample) Targets Initiatives

F1 HR Effectiveness

Increase Shareholder Value• Price Eaming Ration 10% CAGR

F2 HR Efficiency

Increase Human Organization Ef-•fectiveness

Revenue per Employee 4.5% growth

Increase HR Organization Efficiency• HR Cost / Employee <4%

C1 Build Customer Partnership Service Agreements in Place (%) 90%, 95%, 100% Service Agreement Program

C2 Customer Satisfaction Service Agreement Feedback 85% rating Account Review Program

C3 Employee Satisfaction Employee Satisfaction Survey 80% rating Employee Survey

I1 Manage Customer Relations HR Strategic Plans 90% Participation HR Strategic Planning Process

Time with Customer 10% hrs/week/ee

I2 Deliver World Class Services

Recruiting & Selection• Benchmark Ranking Top Ten in Market Gold PArtner Program

Training & Development• Key Initiatives Tracking (from Linkage Scorecard)

HR4U

Performance Management•

Compensation & Reward•

Knowledge Management•

Communication & Education•

Leadership Development•

I3 Manage Operating Efficiency

Same as I2• Cost per transaction 5% reduction

Cycle Time 21 days Cost Training

L1 Develop Strategic Measurement Skills # of employee trained on measures 50%, 80%, 100% Scorecard Implementation

L2 Amplify HR Best Practices Sharing Best Practices Identified/Transferred 90% survey rating Knowledge Management

L3 Ensure a Shared Mindset/Alignment Personal Goals Linked to BSC 80%, 90%, 95%

L4 Fill the HR Leadership Pipeline Key Position Depth Chart 80%, 90%, 95%

L5 Provide information for Decision Making IT Milestone 80% on schedule

framework called the Balanced Scorecard. The Balanced Score-card assesses and measures per-formance against one financial and three non financial (custom-er, internal process and learning & growth) perspectives. It does so through a Strategy Map that shows the cause effect relation-ship from learning & growth ob-jectives through to financial out-comes (an example HR Strategy Map is shown in Figure 1) and a supporting scorecard of mea-sures, targets and initiatives, as shown in figure 2.

In an ideal setting, the HR scorecard will be deployed along-side an enterprise scorecard. When this is the case (and as we shall explain later it often is not), the HR organization must hard-wire its own Balanced Scorecard with that of the enterprise. A use-ful way to achieve this is by using a Human Capital Linkage Mod-el (see figure 3).

Note that that the learning and growth perspective of the higher-level scorecard serves as the cus-tomer perspective of the HR Scorecard. This is because the learning & growth objectives etc within the enterprise Balanced Scorecard represent the outcomes of HR’s work. HR’s work is car-ried out within the internal pro-cess perspective of its own score-


Tourism

Text and Photos by Taufik Darusman

Pura Luhur Uluwatu: BEAUTIFUL AND SACREDOne of Bali’s holiest temples is not only majestic but also offers a spectacular and sweeping view of the Indian Ocean and, of course, stunning sunsets.

A rguably the most spectac-ular Hindu temple on the island of Bali, Pura Luhur Uluwatu is perched majes-

tically about 80 meters above sea level on the edge of a steep cliff at

the southern part of Bali. Pura Luhur Uluwatu, a clas-

sic expression of ancient Bali, is regarded as one of the six main temples in Bali.

It is one of the Sad Kahyan-gan Tem-ple in Bali (six big groups of Bali tem-ples) and is situated in Peca-tu Village, the sub-d i s t r i c t of South Kuta, Ba-dung Re-g e n c y , about 25 km south of Den-pasar.

P u r a m e a n s t e m p l e w h i l e

luhur is “something of divine or-igin”.

Uluwatu is actually two words combined into one; ulu is “land’s end” and watu means “rock” in the island’s old language.

The area is open to public, so it is not uncommon for its park-ing lot to be inundated by giant buses transporting tourists from all over the world. But they come not only for the temple but also for the stunning panorama and the to-die-for sunsets.

Dedicated to the spirits of the sea, the famous temple is an ar-chitectural marvel built with black coral rocks.

Built in the eleventh century during the era of Empu Kuturan, Pura Luhur Uluwatu is one of the oldest temples in Bali.

(Empu is a title denoting the person’s excellence in literature,

philosophy and craftsmanship.)Some five centuries later a

priest, Dang Hyang Niraratha, rebuilt it to what you see today.

The temple is so sacred that up to the turn of the 20th centu-ry it is said that only the princes of Denpasar were allowed to wor-ship there.

A word of caution: Monkeys, always on the lookout for a free bite, abound here, and warning signs remind visitors about their aggressiveness, which can mani-fest in their going after your sun-glass or camera.

There are two ways to reach the temple; the first is taking the steep path along the cliff, while the second is to enter from the candi bentar (gate), festooned with carvings that have become the landmark of the island.

After going through an open central courtyard, you reach the main gate which has two gane-shas (elephant-headed guardian statues) one on each side.

On the left and right of the main gate are shrines, astasari (for festival offerings), a shrine dedi-cated to Dang Hyang Nirartha, and several other shrines, called bale tajuk, for spiritual guardians of Nirartha—all of them impressive in their own right.

Another but smaller courtyard is in store before you reach the three-tiered pagoda Meru, which is ded-icated to Nirartha who, as legend has it, achieved self-enlightenment here.

Best time to visit the tem-ple is during weekdays and before sunset time. This is when the place is tranquil, allowing you more time to explore what is considered to be one of Bali’s most important temples, and to contemplate.

It is also the time when you can watch dolphins and turtles in the sea.

The downside, of course, is that you will miss the sunset, which is actually just as beautiful elsewhere in Bali.

While you’re there, make time to visit the beach, considered to be one of Bali’s best surfing spots. HOw TO GET THERE

About 45 minutes from Nusa Dua, or 75 minutes from Kuta or Tuban, by car or motorcycle.

There is a minimal entrance fee to enter.

Sarongs are available for rental at the entrance.

Reprinted by permission from Garuda inflight magazine.

The temple is so sacred that up to the turn of the 20th century it is said that only the princes of Denpasar were allowed to worship there.

TechnologyThe President Post www.thepresidentpost.comNovember 27, 200914

O ver the past 18 months the global economy has gone through a funda-

mental reset, forcing everyone to asses how they operate and look for new efficien-cies to drive pro-ductivity, inno-vation and cost savings. That be-ing said I am op-timistic, both the about the immi-nent opportu-nities and long term econom-ic prospects for business and pol-icy makers across the entire Asia Pacific region.

The globaliza-tion and inno-vation that made the last decade so dynamic for businesses glob-ally, has not changed. Technolo-gy continues to improve and will continue to be a key driver in any economy positioned for growth and ingenuity.

A recent study Microsoft com-

Technology and Innovationto Grow Asian Economies

missioned from global IT re-search firm, International Data Corporation (IDC) echoes this sentiment. The study shows IT spending for Asia-Pacific in 2009 will be USD$300 billion

(or about 21 per-cent of the glob-al expenditure) and will grow at 4.8 percent per annum, against GDP growth of 3.4 percent.

IDC also found employment in the Asia Pacific IT industry, and of IT profession-als in IT-using or-ganizations, will grow by 2.768 million by the end

of 2013. This is a 21 percent in-crease on 2009 figures. Interest-ingly 35 percent of all IT employ-ment will be software related.

The study further investigated the role Microsoft plays in stim-ulating economies by growing and supporting companies with-

By Emilio Umeoka

“For every USD$1 revenue Microsoft generates in Asia Pacific, companies within the Microsoft ecosystem generate USD$10.97”

Technology continues to improve and will continue to be a key driver in any economy positioned for growth and ingenuity.

7 Microsoft locations focused on Research and Development

13 Microsoft Innovation Centers are located in Asia Pacific

172 employees across Asia Pacific are focused on Research and Development

24,207 business partners across the region ensure technology is easily accessible

227,268 people have been certified on Microsoft technology

$4,013,038 in cash grants awarded to NGO partners (USD)

4,884,202 people have been trained through the Community Technology Skills Programs

16,500,335 teachers and students have been trained through Partners in Learning

$27,547,778 in software donations made to NGO partners (USD)

* Microsoft Asia Pacific consists of the following subsidiaries: Australia, Bangladesh, Brunei, Indonesia, Korea, Malaysia, New Zealand, Philippines, Singapore, Sri Lanka, Thailand and Vietnam.

MICROSOFT ECONOMIC IMPACT STUDIES - ACROSS ASIA

The IDC Economic Impact Studies for Microsoft (2009) measure the size of the local IT industry, including hardware, software, and services as well as Microsoft’s local economic impact in Asia

Local Investment by Ecosystem USD$125 billion

IT Spending USD$300 billion

Software Spending USD$42,205 million

Average Local IT industry revenue per $1 of Microsoft Revenue USD$10.97

Total IT Employees 12,566,590

Total Software-Related Employees 4,405,145

Total Number of New Businesses Created (2009-2013) 32,000

in the Microsoft ecosystem. The ecosystem consists of companies that make and sell devices run-ning Microsoft software, or write applications that run on Micro-soft platforms. This includes re-sellers, distributors, service firms, and training companies. What it found was for every USD$1 of revenue Microsoft generates in Asia-Pacific, companies within the Microsoft ecosystem generate USD$10.97.

The fact is in any economy, IT

is key to innovation, generating opportunities to create competi-tive advantage, increase produc-tivity and reduce costs. Com-panies and governments that

pursue innovation to drive new efficiencies position themselves to emerge stronger, quicker and more successfully from these eco-nomic times.

The writer is the President of Microsoft Asia Pacific

Emilio Umeoka

Understanding The Impact:An Overview of Microsoft in the Asia Pacific Region*

E-GovernmentInteroperabilityFrameworksPOwER OF TECHNOLOGY AND INNOvATION

Government agencies at all lev-els want to harness the transfor-mative power of technology to in-crease openness, efficiency, citizen satisfaction and ultimately become more service-oriented.

Historically, information tech-nology (IT) in the public sector of-ten operated within silos, resulting in many disconnected systems try-ing to serve a single citizen popu-lation. Unlocking and connecting these silos can enable greater co-ordination and integration across agencies – and in turn deliver more efficient, effective, and seam-less services to citizens. Spurred by this realization and the need for change, governments worldwide are undertaking a variety of eGov-ernment initiatives, with the goal of transforming how public servic-es are delivered using a whole-of-government approach.

One key element to realizing eGovernment’s transformative po-tential is the concept of interoper-ability—the connecting of diverse data, systems, people and process-es. A holistic approach to interop-erability at the technical, policy, and organizational levels enables governments to focus on the poli-cy and legal issues that must be re-solved so different government en-tities can work together. Effective interoperability also allows gov-ernments the choice to combine hardware, software, and servic-es for new systems that will meet their objectives, as well as the con-fidence that new technology pur-chased today will connect to their existing infrastructure.

FRAMEwORkS: ONE TOOL TO FACILITATE THE BUSINESS OF GOvERNMENT

Interoperability can be achieved in many ways. One tool that has emerged to help optimize the busi-ness of government and address governmental interoperability is the eGovernment Interoperability Framework (eGIF). eGIFs can be excellent tools to identify cross-or-ganizational issues to be solved and to plan the extension of services across departments, applications, and to citizens in a more seamless manner.

In order to achieve interopera-bility and deliver efficient eGov-ernment services, successful eGIFs should include both technology and policy components. Technol-ogy elements include the consider-ation of standards and architectures required to build and implement key IT solutions. Policies create the necessary legal structure to enable government to fund, execute, and participate in interoperability proj-ects.

When establishing interop-erability frameworks, successful eGIFs focus on enabling the busi-ness of government, rather than mandating specific technology ap-proaches. Technology and busi-ness-neutral procurement policies focusing on business objectives provide governments the freedom of choice to obtain the best “value for investment” over the life of the product or service, while achieving the best solution for meeting estab-lished goals. This approach pro-

motes innovation and competition among the broadest range of sup-pliers, and ensures that companies new to the market, or more focused than the market leaders, can par-ticipate equally.

While eGIFs can provide sig-nificant benefits, overly prescrip-tive frameworks can add friction and hinder collaboration between stakeholders, as well as potentially locking governments into outdated, ineffective, or inefficient solutions. Technology mandates can force in-teroperability through homogenei-ty; however mandates have the un-fortunate side effect of embedding specific technologies into policy. These technologies can remain fro-zen in place despite ongoing mar-ket-driven innovation, potential-ly limiting future interoperability. Similar problems can occur when a relatively new standard is man-dated without proper testing in the market. As a result, many state and national governments and interna-tional bodies have recognized that procurement practices and interop-erability policies built on objective criteria and maximum technology neutrality achieve the best results.

The most effective eGIFs should provide a framework for analyzing interoperability issues at three key levels – technical, semantic, and or-ganizational – while including the minimum essential guidance to achieve interoperability. The tech-nical issues involved in connect-ing disparate government systems and services have been largely ad-dressed through normal market in-novation, and limiting prescriptive guidance allows the most success-ful market-driven technologies to be utilized.

Consequently, some of the most successful eGIF programs focus in-stead on the challenges of semantic and organizational interoperability. These mature eGIFs recognize the importance of agreement among government entities on how to de-scribe the information they hold in their systems and the processes they perform, while allowing the market-tested technologies to en-able technical data interoperability.

COMMITMENT TO OPENNESS AND INTEROPERABILITY

Technology has fueled eco-nomic growth and enabled gov-ernments to reach their citizens in new and innovative ways–the chal-lenge now has become enabling all these technologies to work to-gether to create greater citizen val-ue. Innovation is increasingly open and collaborative. Microsoft is be-ginning to work in more open and transparent ways, sharing ideas, and providing access to intellectu-al assets, while participating in the broader technology community, including open source.

Microsoft is committed to pro-viding our public and private sector customers with interoperable prod-ucts and applications to help them reach their goals. The company is developing technologies that facili-tate integration and interoperabili-ty between current and legacy sys-tems, enabling governments the freedom to focus on the challeng-es and opportunities of better serv-ing their constituencies.


Mining

I had been working overseas and had just arrived back in Indonesia early September 1997 with my boss to take

up my job in Jakarta. He noted that the rupiah, which used to be stable at 2,200 to the US Dollar, had dropped to 2,500. Having spent the past six years in indus-trialized countries I had lost the sense of what the “correct” rela-tion between the two currencies should be. I was aware, however, that in those days the Rupiah had always been maintained at a sta-ble rate to the US Dollar.

It turned out that I came home just as what later is to be known as the “Asian Financial Crisis” was about to unleash its fury. Eventually it engulfed and brought down the political and economic edifice that President Soeharto had meticulously con-structed over many decades. The president stepped down in May 1998 and slowly the political and economic situation began to un-ravel.

While we were going through the entire chain of events, after briefly wondering what it was all about, we all set out to resume what we have been doing pre-viously. We were blissfully un-aware that the Indonesian soci-ety was about to change while we were thinking of picking up just where we left off in May 1998. The mining industry was no dif-ferent from other industries or so-ciety at large, for that matter. We resumed the struggle to gain ac-ceptance of our view of how the 8th Generation of Contract of Work ought to look like. In pro-posals for a Mining bill we in-cluded all the improvements that we thought were needed to get the industry moving again after the downhill slide precipitated by the Busang Affair and all its ram-ifications. There is no doubt that in the late nineties the mining in-dustry stood at ill repute not only in Indonesia, but practically all over the world.

Then came another change that we were totally unprepared for. The devolution of adminis-trative powers to the regions that is popularly known as regional autonomy was ushered in by laws No. 22 and 25 of the year 1999.

The irrevocable march to-ward greater autonomy of the regions continued relentlessly, unimpressed by all our admoni-tions about the dire consequenc-es that may result from handing over authority to regions that had no capacity to nourish the min-ing industry. After rebuking the central government – albeit gen-tly – for not having done enough to promote the mining industry, we suddenly discovered it was ac-tually our biggest ally—we tried desperately to convince everyone who cared to listen that it must have most of its powers restored.

So, a decade down the track, how are we in the mining indus-try now? Actually, we are doing fine. According to noted Indone-sian development economist and Fellow at the Australian Nation-al University, Budy Resosudar-mo and his fellow researchers, the mining industry contributes 4% of Indonesia’s GDP, up by 1% after hovering at 3% or less for years on end. Considering what the industry has gone through,

The Contribution of Miningto National ProsperityBy Noke kiroyan

we are actually not doing too badly after all. And, it is worth bearing in mind that the 4% is on the basis of an economy that has crossed the five-hundred bil-lion US Dollar mark in 2008. In-donesia is now a member of G-20 and is gingerly settling in into its newly won status as a middle in-come country.

What we have witnessed over the years may to a certain extent be explained by a diagram (Fig-ure 1) from Daniele Barberis in her book “Negotiating Mining Agreements”. I quote a passage of her book to put the diagram in context.

Our Constitution is the foun-tainhead of ideology. All dis-courses on natural resources – in-cluding mining – refer to what the constitution meant to say or is interpreted as expressing the views of our Founding Fathers about this matter. The consti-tution has gone through a few amendments, but Article 33 re-mains unchanged. It ordains that all natural resources must be con-trolled by the state and utilized to the greatest benefit of the people. The legal construct that is known as the Contract of Work was de-vised to accommodate this view and simultaneously to allow for-eigners to operate mining com-panies—not on their own right, however, but on behalf of the state as its appointed contractors. The good of the community as the ultimate goal of the national policy-making process was to be achieved by the economic contri-bution of the mines working for the Indonesian state as contrac-tors.

Law No. 4/2009 on Minerals and Coal Mining was issued earli-er this year. While to some extent providing the much yearned for legal certainty, this is still a work in progress, as several important matters like divestment require-ments are yet to be formulated in implementing regulations. Ulti-mately, everything boils down to dollars and cents. If, after taking into account all the risks associ-ated with mining in this country are quantified and measures have been taken to control them, and a mining company still sees the

opportunity of doing reasonable business, it will carry on. Quite a few have done so.

While the direct economic benefits are an outcome of the business purpose of conducting mining operations, there is an-other aspect that may contribute to prosperity: Corporate Social Responsibility (CSR), and one of its most common manifestations in the mining industry is Com-munity Development.

The mining industry has tak-

en CSR seriously long before oth-ers even started thinking about it. It is no coincidence that most of the initiatives in the mining in-dustry during the late nineties to practice CSR were driven by subsidiaries of international min-ing companies. The internation-al mining world in those years began to respond positively to pressures from NGOs and local communities. At the same time, theories about CSR began to co-alesce around the concept of sus-tainable development that gives equal weight to the three com-

ponents for development to be called sustainable. i.e. the eco-nomic, social and environmental aspects. The sustainable develop-ment movement has found fer-tile ground in the mining world that was adopting a new way of responding to societal issues after years of contentious relationships between mining companies and many of their stakeholders.

The concept of CSR has evolved further and efforts are currently underway to achieve a common platform on what social responsibility constitutes.

Mining companies operating in remote and economically less developed regions, as is the case with most operations in Indone-sia, are very familiar with the top-ic of community development since more than a decade ago. As the diagram shows (Figure 2), it is part of the core subjects of ISO 2006 that has yet to reach its final stage and be launched in 2010 af-ter prolonged delays. My point is, the mining industry played a very crucial and pioneering role in de-

veloping CSR. It should be very clear by now

that CSR is very much ingrained in the operations of mining com-panies—social responsibility is an integral part of running min-ing operations, Dissociating CSR from operations would create a disconnect between the two. Not only would there be divergent in-terests between the people con-ducting the respective functions, it will be wasteful as well.

What we used to deem as pure-ly technical issues have an impact on the environment and commu-nities. Competence in both areas needs to be developed if we are to run mining operations well these days, which is not too say that such competence would preclude social issues from occurring. However, they will be foreseeable and to a degree manageable, pro-vided we actively try to find out how we are perceived and why various groupings that have an interest – a stake - in our compa-ny view us in different ways that shape their attitude toward and expectation from us.

Without knowing who our stakeholders are we would not know how they perceive the com-pany and relate to it. So, before anything else we need to identify them. The next issue to resolve is the opportunities and challenges our stakeholders present. We will not be able to deal with these is-sues effectively by imagining there is a fence behind which we can retreat when there is an ex-ternal threat, as what we perceive as threats will always be there and we need to be able to deal with them confidently. A diagram is included here (Figure 3) to de-scribe the steps in a systematic

and much simplified manner:

A particular aspect of CSR that is closely associated to mining operations is community devel-opment, which is not about dol-ing out company largesse as some people, also within the industry, believe. There is a way to com-bine business aspects with CSR directly to generate greater pros-perity around mining companies in a systematic way.

I once initiated an economic impact analysis by a reputable sci-entific institution to ascertain the contribution of the mine to the local and regional economy from a macroeconomic standpoint. It is the only way to measure true economic impact objectively, and the resulting multiplier effect may be traced, critiqued and rep-licated by others using the appro-priate scientific tools.

My thinking was to gear com-

“In order to understand how host-country governments formulate mining policy it is helpful to consider the nature of policy-making in general. Policy-making at a national level is a complex process involving many factors and reflecting many influences. It requires a state within whose boundaries the process will take place and a government to formulate and implement policy. At the heart of the process lies the national political will.”

munity development efforts in the direction that generates eco-nomic growth in the communi-ties by supporting programs pro-posed by the various stakeholders in a meaningful way. After a few years a similar economic mea-surement should be conducted to ensure that the company is in-deed stimulating growth, and by analyzing the components of re-gional growth it would be pos-sible to quantify the impact of community development.

There may be better ways of contributing to the local commu-nities, enhancing their prosperi-ty and sustainability of the opera-tions concomitantly. By extension the national prosperity will be in-creased, and the contribution of the mining industry to GDP may grow beyond 4% over time.

The writer is Managing Partner in Kiroyan Partners.

The mining industry contributes 4% of Indonesia’s GDP, up by 1% after hovering at 3% or less for years on end.

Source: Daniele Barberis (“Negotiating Mining Agreements”)

FIGURE 1: nATIOnAL POLICY-MAKInG PROCESS

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FIGURE 2: SEvEN CORE SUBjECTS OF ISO 26000

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Source: Carroll, A.B., Business Horizons No. 34 1991 (“The Pyramid of Corporate Social Responsibility - Towards the Moral Management of Organizational Stakeholders”)

FIGURE 3: ELEMENTS OF STAkEHOLDER MANAGEMENT

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InfrastructureThe President Post www.thepresidentpost.comNovember 27, 200916

The President PostOFFICEMenara Batavia 25th Fl. Jl. K.H. Mas Mansyur Kav. 126Jakarta 10220, IndonesiaPhone : (021) 572 7337Fax : (021) 572 7338Email : [email protected] : www.thepresidentpost.com

PUBLISHED BYYayasan President University

CEO & EDITOR IN CHIEFAli Basyah Suryo

CONTRIBUTORSAtmono SuryoCyrillus Harinowo HadiwerdoyoNaresh MakhijaniTaufik DarusmanThomas W. ShreveWuryastuti SunarioVidya Dahlan

EDITORIAL & ADvERTISING/CIRCULATION DEPARTMENTSCory Margaretha

LAYOUT & DESIGNMohamad Akmal

BACkGROUND

I nfrastructure has been a main topic of discussion in Indonesia for the past couple of decades, but de-

livery of projects has been thor-oughly disappointing, especial-ly since the Asian economic crisis of 1997/8. Prior to this, following liberalization of the banking sec-tor in 1989, the early to mid-90s saw the construction of toll roads in the Jakarta area under select-ed developers, without which to-day’s traffic congestion would have made travel in the capitol city even more difficult.

The first private sector pow-er concessions were placed at this time and preparatory work on the Jakarta water concessions was concluded, with the concessions signed with two major interna-tional water companies in Feb-ruary 1998 as the political crisis was coming to a head. The col-lapse of the rupiah saw the halt to a large number of toll roads that had been placed among some new potential developers, albeit these were inadequately prepared to honour the terms of their con-cessions. It was also a difficult pe-riod under the political turmoil of the time for the water conces-sionaires, and saw the postpone-ment on any further power devel-opments.

The first steps to overhaul the antiquated port operations at Tan-jung Priok (Jakarta) and Tanjung Perak (Surabaya) were initiated with the introduction of inter-national container terminal op-erators in partnership with state-owned port companies, Pelindos II and III, respectively. The next few years saw almost no move-ment on infrastructure, as the country recovered from the eco-nomic crisis, while concurrently a major overhaul took place as the nation transformed itself from an autocratic to a fully democratic structure of government and de-volution of government proce-dures to the regions.

INFRASTRUCTURE CONFERENCES OF 2005 AND 2006

The outcome of the 2004 Gen-eral Election process saw the in-troduction of the first fully dem-ocratically elected president and legislature. On the question of infrastructure the leadership has agreed that investment in the country’s needs would have to be a priority, and infrastructure be-came one of the key platforms of the government ticket.

In early 2005, an impressive event was put on in the Jakarta Convention Centre and attracted a wide range of foreign interest of different hues, investors, funders, developers, etc. The government paraded a long list of priority projects in the various infrastruc-ture sub-sectors. However, as the months followed, with no prog-ress taking place, it was realised that none of the projects was ad-equately prepared, and the laws and regulations were not in place to attract foreign investment. The risks and returns were unfa-vourable.

Following attempts to address some of the issues, and put better laws on the statute book, a further conference, with less ambitious targets, was held towards the end of 2006. While more realism was apparent, government was clear-ly advised that more work was re-quired on laws and regulations, as well as project definition, be-fore the private sector would start putting its funds into infrastruc-ture development. Even major lo-cal banks, which were accumulat-ing healthy reserves, were taking a cool look at entering funds for debt support.

FUNDING REqUIREDEarly in the 1990s it was rea-

lised that investment in the or-der of US$15 bn/annum over a period of ten years would be re-quired to provide the necessary build-up of infrastructure to sup-port a growth rate of no less than 7%, the level deemed necessary to improve the unemployment and poverty conditions. It was also recognised that a very signif-icant portion of the requirement would have to be secured from

Will the Proposed Objectives for Infrastracture be Achieved?

By Dr. Scott Younger OBE

private sector sources. Nowadays, with the lack of in-

vestment, whether from the pub-lic purse or private sector, the government has assessed that the investment in infrastructure re-quired over the next 5 years to be Rp 1,429 trillion (~US$140 bn), with the government budget only able to provide about US$40 bn. While significant progress has been made since the mid-decade conferences, it will be extreme-ly unlikely for the private sec-tor to find a level of investment of US$20 bn/annum. There still remains wariness by any form of investor to risk funding Indone-sian projects. But it will still be a measurable achievement to have the process underway and signif-icant projects with private sector funding under construction, and this must be a primary goal.

THE INFRASTRUCTURE INvESTMENT CLIMATE

Since the failure to attract in-vestors and developers in 2006, the government has been intro-ducing laws and implementing regulations across the infrastruc-ture sector to try to attract private funding and involvement. Prog-ress has been made, but more remains to be done, which in-cludes education of public sector servants to understand and deal properly with private sector con-cerns over terms of engagement, including realistic tariff struc-tures and a fair say in operation-al control.

Several forms of support fund-ing arrangement have been or are being set up through the Minis-try of Finance to deal with land acquisition issues, which have been particularly difficult in the need to push on with the much delayed toll road programme, es-pecially for Java, and guarantee funds, as well as special initiatives set aside for assisting infrastruc-ture development in the regions. However, it is too early to note whether these are going to be ef-fective or adequate in stimulating infrastructure development gen-erally and the level of private sec-tor involvement that is needed.

PRIORITY ACTIONSUrgent attention is required in

power, roads and transport, espe-cially, dealing with the long ne-glect in ports and shipping, and in pursuing the myriad of projects in the area of water and waste.

The recent power cuts in Ja-karta have brought it home to the

capital city that the power gener-ation and distribution situation is precarious. People living further afield have had to live with this situation for many years. While the recent Jakarta problem can

On the question of infrastructure the leadership has agreed that investment in the country’s needs would have to be a priority, and infrastructure became

one of the key platforms of the government ticket.

be put down to operational error, the whole industry has been lan-guishing for more than a decade. Both past misguided actions from the legislature – cancellation of the new electricity law in 2004

without suitable replacement - and internal lack of realism have delayed the establishment of an industry that is modern and fit to meet the needs of the nation, and which would welcome the abso-lutely necessary investment from the private sector.

While considerably more large power generation is needed in Java, with real stimulus to out-put from renewable geothermal sources as part of the solution, proper support with realistic tar-iffs is required to develop the long neglected supply requirements of the many millions that live else-where in the archipelago. Many of these are without any power and others are daily facing un-reliable supply. Here there are many opportunities for investing in renewable power such as geo-thermal, perhaps low tempera-ture in some instances and with mini and micro and run-of-river hydro an obvious target, as well as the introduction of small bio and solar energy solutions. How-ever, quick action on agreeing to realistic tariffs is required, while PLN bleeds money everyday try-ing intermittently to keep old, badly maintained diesel genera-

tors functioning.

Water storage and supply schemes are a priority; Bappenas has produced a list of 10 major projects that they would like to see constructed using a PPP ap-proach, especially for the trans-mission of the stored water. Some of the schemes have been attract-ing interest. The daily supply re-quirements for the city of Jakarta will continue to be at the fore-front of actions needing atten-tion.

With water as the one truly re-gionalised sector, regional gov-ernments need help to upgrade the systems, usually inadequate and inefficient, for which they are responsible. And what about wastewater and sanitation, all highly featured in the Millenni-um Development Goals and due for realisation in 2015?

With the passage of the new ports and shipping law in March 2007, there is much ongoing dis-cussion of the role of the four state-owned port companies, Pelindos, in future port opera-tions, the need for port expan-sions and new ports, and where

they should be located. While Tanjung Priok is due for

further expansion, this can only be achieved to a limited extent and there is some urgency in de-fining a new port or ports loca-tions to serve the industries sit-uated in West Java and Banten, some 50% of the whole nation-al output. The shipping fleet is old and many ships are small; many new ships to meet grow-ing expansion and targets are re-quired. Altogether many billions of dollars need to be invested in the sector over the coming years. In the meantime, the Ministry of Transportation has to push ahead to put out new regulations which address the issues of the law and the needs of the industry, and en-courage private investors to play a major role in providing funds and expertise to this long-ne-glected and key area of Indone-sian transport infrastructure.

Most road infrastructure de-velopments concern expansion of the regional networks, which would be primarily the responsi-bility of local governments. How-ever, key toll road sections remain unbuilt, especially on Java, and it must be a priority as road funds are now available to assist the pro-cess of land acquisition, and to pursue vigorously a steady rate of completion of the trans-Java net-work. Further, sections that can help alleviate the highly unsatis-factory congestion that increas-es steadily in the Greater Jakar-ta area need to be pushed; DKI Jakarta has recently unveiled key routes.

In April 2010, Indonesia will be playing host in Jakarta to a major infrastructure conference and exhibition, Infrastructure Asia 2010. This will be an early opportunity for the government to showcase its serious commit-ment to investment in infrastruc-ture and attract private sector funding.

The infrastructure mega project, Suramadu Bridge Photo: www.skyscrapercity.com

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