Auditorium, Ministry of Defence, Lima, Peru, 22-11-2008

Keynote Speech at the APEC CEO Summit 2008

 

KEYNOTE SPEECH BY
DR. H. SUSILO BAMBANG YUDHOYONO

“ECONOMIC GROWTH, INEQUALITY AND POVERTY: WHAT ARE THE CHALLENGES FOR APEC’S DEVELOPING ECONOMIES”
AT THE APEC CEO SUMMIT

LIMA - PERU, NOVEMBER 21st 2008


Distinguished Speakers and Council Members,
My Friends,
Thank you for inviting me to speak before you today at this timely occasion. It is an honor to address such a distinguished audience of business leaders and captains of industry.

The topic chosen for the APEC CEO Summit “Growth, Equity and Sustainable Development: Challenges for APEC” is indeed fitting with the overall theme of the APEC Peru Year of “A New Commitment to Asia-Pacific Development.” I congratulate the choice of this theme coming out of the business community --- because it shows that you care the fundamental importance of sustainability as we pursue development. That there is a realization that globalization and the way we grow our business, must be done by bringing along the community around us. It must be participatory, it must be inclusive and it must be able to reduce the number of poor people.

The challenge of achieving growth, globalization, equity and poverty alleviation has never been easy. With the global financial crisis and economic recession that we are in, it will be even more of a daunting challenge. We must be able to get out of recession or sustain some level of growth, but we must also safeguard the most vulnerable groups in our community.

Let me share with you what Indonesia has done in meeting these challenges and how we intend to continue doing so in the face of the crisis. I will also highlight some of the related APEC programs that can help all of us to achieve these objectives, and I will also call upon your participation as leaders of the business community to do your part. Indeed, how do you achieve growth, equity, and sustainable development, during a worldwide economic crisis?

Let us be honest with ourselves: our economies have seen better times. Until recently, our countries enjoyed better growth, improved equity, and more results in sustainable development.

Today, many of the world’s economies are in recession. Many banks and businesses are failing, shutting down completely or laying off thousands of workers.

When general economic growth becomes a luxury, equitable growth can become more elusive. More people will fall through the economic cracks, into poverty.

The downfall has not been sudden; it has been a steady decline. My administration revised economic forecasts for Indonesia when fuel prices skyrocketed. Oil prices have come down, but so has the stock market. And as investors for foreign countries suffer economic shocks of their own, leading to possible cutbacks in our backyard, we may revise our forecasts again.

Indeed, one of the key lessons to be learned from this crisis is what happens on the other side of the world, or in the skyscrapers of the big cities, will impact us all.

Look at the United States. As its business titans lose their fortunes, the US Department of Agriculture announces that one in eight Americans struggle to feed themselves adequately. Food security is as much a concern in developed countries as it is in the developing world.

But while the problems we face as a global economy are great, I do not want to dwell on negatives.

As overwhelming as the situation may seem right now, the crisis may actually present opportunities.

Indonesia has some useful experiences in this.

Consider Aceh, a province in Indonesia that has long suffered from a separatist rebellion.

On December 26th, 2004, it was devastated by a deadly tsunami, which claimed the lives of some 225,000 people. But the crisis provided the turning point to turn conflict into peace. And so, after a series of negotiations, a peace deal was achieved. Today Aceh is being expeditiously rebuilt and rehabilitated. And peace is consolidating in the province.

That is only one example of how Indonesia seized opportunities during a crisis. Throughout the years, many observers have left Indonesia for hopeless, declaring it ungovernable, the Balkan of Southeast Asia. Yet we have proven the doomsayers wrong, as we have become the world’s third largest democracy, and one of the most vibrant and stable democracies in the region.

In 1998, Indonesia was smashed hard by a financial crisis. Our economy took a free fall from a 7 % growth to minus 13 %, a contraction of 20 % ! But that crisis gave the impetus for a large-scale reform across all sectors, and changed Indonesia for good. We have taken hard lessons from that crisis. As a result, today, 10 years after that financial crisis, Indonesia, with our solid fundamentals, is relatively better off and more resilient in coping with the global emanating from the US.

But sometimes we took the opportunity BEFORE the crisis. One example is food security. A few years ago, we saw worrying signs of a food shortage. So we pro-actively revitalized our agriculture and rural development, beginning in June 2005. 3 years after that, we happily achieved self-sufficiency in rice, with 60 million tons of rice production. This proved immensely critical when the global food crisis actually did take place this year.

Thus, crisis, if handled correctly, can be the starting point of change and reform. We in Indonesia have pulled through many political crises, and seized opportunities. At every crisis juncture in our recent history, we have chosen hope over despair.

At this critical juncture of the global economy, that is what we must all do, collectively and individually: choose hope over despair, and seize opportunities.

This is a make or break time for many businesses, and many of them have not fared well. Who else will survive? And how WILL we survive?

I believe the key to survival lies in our commitment to community.

The financial crisis reveals many things, but among others it demonstrates that some of us have sacrificed community for profits, and that orientation has led to downfall.

I believe when we are short-sighted in making decisions, we pay for the consequences.

I believe that companies DO have moral responsibility and obligation to help world community in times of difficulties. At the height of the recent oil crisis, we witnessed what was said to be ”the greatest transfer of wealth from one set of nations to another in history”, involving some US$ 2,3 trillion ANNUALLY, enjoyed by petro-states and oil companies. With this great wealth should also come with a moral duty. I do not agree with nationalization, but I do believe in the preposition that the strong have to help the weak, and that great fortunes should also be utilized for the greater good in the spirit of compassion and human solidarity.

This is especially true as we address the issue of poverty, which is a pressing concern in both the developed and developing world. And it may seem that the current economic crisis and slowdown in growth will prevent the achievement of the Millennium Development Goals by the year 2015, the most pressing of which is the reduction of poverty. The World Bank estimates that a one percent decline in developing country growth rates traps an additional 20 million people in poverty. This is on top of the increase in 100 million of poor people as a result of increased food and fuel prices in the first half of this year. One ILO study this year also warned of increased inequality, and a prediction of increased inequality with the global economic crisis.

Indeed, we should all be very concerned. The fruits of hard earned development and reduction in poverty has eroded and will continue to be so, if we do not act together to address it. That would be a mistake because it is our moral responsibility to look after all its citizens, especially the most vulnerable.

But poverty is also a security issue. A poor community is an angry community. Three billion people worldwide living on two dollars a day are three billion resentful people. Seven hundred million people suffering from chronic malnutrition are seven hundred million disenchanted citizens.

To tackle poverty is to prevent political instability and safeguard our collective future.

In Indonesia, despite difficult economic times, we are making strides in our fight against poverty. The poverty rate for 2008 is 15.4 per cent, down from 16.5 per cent in 2007, and an incredible 42 per cent in 1998. Again, I should remind everyone that these improvements were achieved despite the odds against us. Indeed, poverty figures in Indonesia—using both Government and World Bank statistics as yardsticks--is the lowest in 10 years. It is lowest both in terms of actual numbers and in terms of percentage to the population.

We tackled poverty with a three-tier approach.

First, we offered assistance and increased budget allocation to provide a social safety net comprising of well targeted programs for the poor in health, education, cash transfers, and food subsidies. Some 60 trillion Rupiah—the largest ever in our history--was spent for pro-poor programs.

Second, we established a National Program on Community Empowerment, so that communities around the country can set their own development priorities. Currently some 40 million Indonesians participate in this program, encompassing some 36,000 villages. We hope to double those numbers in the next few years.

Third, and this is where the private sector is instrumental, we have strengthened micro and small enterprises economic activity by providing access to micro-credit.

Millions of Indonesians still have little access to financial services. But now, some 30 commercial banks are lending to more than 9000 micro-finance institutions. We have introduced a program called “Credit for the People” which is a government-subsidized guarantee scheme for micro and small enterprises that has benefited some 900,000 small enterprises. Slowly but surely, poor families are gaining access to micro-credit, providing income to millions of jobless. We are trying to build our economy from the bottom up. We could not have achieved these without the help of commercial banks.

Indeed, we will not progress in the future without a joint commitment to community social responsibility. Businesses and government must join hands in this effort. Governments need your help, and you do make a difference.

Essentially, I do believe people around the world will accept free market and globalization, but only if they can derive direct and real benefits from them in their daily lives. It is hard for the ordinary hard-working families to see running texts flashing on their tv screen reporting companies making 70 % profits whilst, from their home, their incomes fall, their mortgage suffers, their children’s education and health at risk, and their hope begins to fade. They will have no other way but see this as economic injustice.

I am saying this as a strong believer in the role of business. It is businesses who create jobs, pay taxes to Government, develop technology, and create growth . For a country to grow, business must grow. And for business to grow, Governments must create a conducive climate. This is what we have tried to do in Indonesia, developing the right policies and incentives, strengthening the rule of law and easing of procedures for doing business. And I hope as Governments do more for business, business in turn will also do more for the people.

APEC has promoted the need for corporate social responsibility in the Asia Pacific and it is thus timely for businesses to incorporate CSR into their business strategies and ensure that their business operations take into account the community around them, be environmentally responsible and contribute to development. CSR can be done in many ways.

You can advise us as we take a practical approach to management. You can share with us your advantages and breakthroughs in technology. And you can tell us when we are not doing things right! Governments may not seem welcoming to criticism, but we do try to listen. We do try to right our mistakes.

You must also provide leadership. Leadership is difficult to quantify, but during difficult times, it is the difference between success and failure. The current economic crisis shows that good governance and responsible leadership matters. The burst of the housing bubble in the US and Europe shows that it is not enough to chase higher returns. Business leaders must be more forward-looking. We must focus on innovation and be realistic about sustainability.

We must also take on reforms, in governments and in businesses. All of you can immediately institutionalize reforms within your companies, without the prompting of governments. All of you can initiate programs that spur productivity and efficiency.

During times of crisis governments should also of course continue to create a conducive business environment and this means continuing the program of facilitating trade and investment, as well as behind the border structural reforms. These are all key components of the APEC program that not only must be continued, but accelerated. Crisis provides the urgency and need for commitment on reforms so that the cost of doing business will be reduced, which will benefit micro and small enterprises the most.

Indeed, we need to look beyond our short-term future and make decisions that will bear fruit in the long term.

Let us look at my country as an example. Indonesia has vast natural resources. But those resources are not unlimited. It is the people who have unlimited potential. Economies thrive when driven by people empowered with skills, initiative, and innovation.

That is why, even during these tough times, my administration is investing more in education than ever before. Our people—especially our youth—are our real riches. I am particularly pleased that for the first time in our independent history, we have finally been able to reach the long-awaited 20 % allocation for education in our national budget.

I have taken hard policy choices so that we can set aside funds for education and healthcare programs. I reduced fuel subsidies since 2005 and more recently even though it was very politically unpopular to do so. But now, instead of spending billions of dollars on subsidizing the gas-guzzling habits of wealthy families, we are spending billions of dollars on rural education, rural infrastructures and better healthcare. These are necessary investments in our future, and it was the right decision to take.—however painful it was. We kept our eyes on helping the poor—through well targeted subsidy programs such as cash transfers and direct food subsidies.

Indeed in the response to the crisis, ensuring the social safety net for the most vulnerable was priority for Indonesia. We adopted the approach of a sustainable budget deficit with two main focus.

First, is the fiscal stimulus through ensuring spending on infrastructure and other stimulus package for growth.

Second, and most importantly, was to in fact increase spending to ensure the social safety net is strengthened during hard times. This was indeed a critical policy area in which I was personally involved in on a daily basis.

Businesses can also invest in local educational and social programs. Again, this may seem like a cost at first. But who will expose corrupt governments if not a better educated community? You will thank them, and yourselves, later.

Another reason for investing in education is that it will lead to more innovations in alternative energy.

We have all heard the call for alternative energy sources. It is now time we walk the walk and talk the talk.

Many of you in this room can be instrumental in this process. Your businesses can help us tackle environmental issues with technological breakthroughs.

Now, allow me to talk about Indonesia’s economy. Again, with many of our trading partners in trouble, we are likely to readjust our forecasts. But the past year has not been all bad news for us; we recorded 6,4 % growth—the highest since the crisis 10 years ago. And despite an anticipated slowdown to 6 % growth or lower this year, we remain one of the world’s fastest growing economies. Foreign investment increased some 73 per cent, although we expect this number to decline as Western economies slow down too. Export growth to September was still 30 percent, even though we do expect the growth to slow down with falling commodity prices and the global recession. Thus, the sources of growth will come more from our large domestic market.

We will continue our reforms, reduce the costs of doing business, address corruption issues and the opportunities are there for investment given our large domestic market. We also have a strong focus on infrastructure projects. Power plants are being built, as are airports, toll roads, bridges, railway networks, and industrial areas.

But we realize that our economic growth is dependent on the growth of developed as well as developing nations, and of course our neighbors as well. We do not live in a bubble, and economic growth—or lack of--is like a cold, it’s viral. When one of us catches it, it may infect others.

I said earlier that we are at a critical juncture of the global economy. Few of us know just how bad the next few months, or years, will be. We do not know how many more banks will fail, how many more companies will fold, how many more will join the millions of unemployed.

At this critical point, to take a household analogy, we can either shy away from responsibility and run to the hills, or we can look at our household. We can look at the things that we can fix, cut back on wasteful expenditures, and start planting for the harvests of tomorrow.

We can acknowledge our mistakes and learn from them.

Business has an essential role, in normal times as well as in crisis. Since day one of the present global financial crisis, I have made sure that Governments, Central Bank and business can sit together to promote national prosperity. We can talk to each other and seek advice. Some of these businesses may fail anyway, too rotten from years of mismanagement to survive. In those cases, we should not delay the inevitable. We should save what can be saved, and focus on the hopes of the future. Education. Small and medium enterprises. Alternative energy. Technological advancements. And of course safeguarding the welfare of the most vulnerable groups in our community. Those are my hopes for the future, which are not just for governments to realize --- but for governments in partnership with businesses to realize.

We face hard times ahead. But we still have a choice. Hope or despair. Opportunity or failure. I trust that you will make the right choice.

Thank you.