Statement at The Gala Launch Ceremony of Oxford Business Group Report: Emerging Indonesia 2007

STATEMENTS
BY
THE PRESIDENT OF THE REPUBLIC OF INDONESIA
H.E. DR. SUSILO BAMBANG YUDHOYONO


AT THE GALA LAUNCH CEREMONY OF
THE OXFORD BUSINESS GROUP REPORT:
EMERGING INDONESIA 2007


JAKARTA, 6 JUNE 2007



Bismillaahirrahmaanirrahiim.
Assalaamu’alaikum warahmatullaahi wabarakaatuh

Mr. Michael Benson-Colpi, Chairman of the Oxford Business Group,
Mr. Muhammad Lutfi, Chairman of the Indonesian Investment Coordinating Board,
Mr. Andrew Jeffreys, Editor-in-Chief of the Oxford Business Group,
Excellencies,
Distinguished Guests,

I am pleased to welcome all of you to this launching of the book “Emerging Indonesia,” which was researched, written, produced and published by the Oxford Business Group. For this labour of love, which took more than a year to carry out, I commend and congratulate the Group.

This book, to my mind, is a splendid documentation of the Indonesian striving for development and our outlook for the years ahead. It will be a handy, useful and very authoritative reference to investors, traders, bankers, media reporters, academics and all who have an interest or stake in Indonesia.

I have read the book and I am thankful that I don’t recall encountering the one word I have always been careful to avoid. And that is the word “miracle.”

For most of the 1990s, the mass media celebrated what they called “the economic miracle of East Asia.” But it was precisely at the height of that so-called economic miracle that the Asian financial crisis broke out and sent the Indonesian economy into chaos. It took more than half a decade of democratization and structural economic reform before we could recover from that crisis.

Then on the eve of my assumption of office as President of Indonesia, the mass media noted that Indonesia and several other Asian countries had been holding democratic elections. They began calling the phenomenon the Asian “democratic miracle.” The ne-xt thing you know, an earthquake and a tsunami struck this part of the world and a string of natural disasters descended on Indonesia.

So much for miracles. I can assure you that I never thought of myself as being in the miracle business. When I campaigned for the presidency, I promised no miracles. And when I assumed office, I resolved to attempt no miracles—but just to go after concrete targets established on the basis of concrete reality.

The reality that prevailed at the beginning of my term in October 2004 was a great public clamor for change.

The people wanted the economy to finally take off after several years of stagnant and lackluster growth. There was a general feeling of malaise and a sense of drift. The drive for reform was losing steam and corruption was making a resurgence in our society.

Moreover, we faced threats to our territorial integrity. Separatist rebels in our province of Aceh continued to wage guerilla warfare despite the desire of the people for an end to the conflict. Separatist sentiments were boiling in another province, Papua.

I was just beginning the third month of my presidency when an earthquake and a tsunami struck our provinces of Aceh and North Sumatera, wiping out whole communities, demolishing public infrastructures wholesale and killing more than 150,000 of our citizens, with scores of thousands still missing today.

As if this unprecedented catastrophe was not already more than enough, we had to suffer a series of earthquakes in the months that followed.

When people say that that must have been the most difficult year of my presidency, I beg to disagree. In truth, it was one of the most difficult years in the history of the Indonesian people.

Yet we remained focused on our agenda for change. We pursued an economic programme that was pro-business, pro growth, pro-job creation and pro-poor. We intensified political reform and structural reform of our economy. We built the institutions that would take the lead in reform and in the fight against corruption.

And we strove for peace—not by military action but by negotiating and addressing the grievances and the aspirations of those who were alienated from the nation’s mainstream.

Our hard work, our perseverance and our faith in the Indonesian people have produced positive and concrete results.

Peace—durable peace—has been achieved in Aceh. Rescue operations were still going on in Aceh in the aftermath of the tsunami when I took strong initiatives to persuade the leaders of the separatist Free Aceh Movement (GAM) to return to the negotiating table. Moved by the need for peace in the rebuilding of their devastated communities, they agreed to negotiate and in seven months—a record time—we concluded a peace deal with them: the Helsinki MoU.

Both sides faithfully complied with the terms of the peace deal. And today, as we vigorously pursue its rehabilitation and reconstruction, Aceh is well on the road to development under the guidance of an elected governor who was once a rebel leader. Through patience and sincere dialogue, we have thus achieved in Aceh what skeptics once called impossible.

Meanwhile, we are about to complete the rehabilitation of another disaster area—Yogyakarta and Central Java which were hit first by an earthquake that killed 5,700 people and destroyed 280,000 homes in May 2006 and in the area of Central Java and West Java that were also hit by a tsunami that killed 650 and demolished 1900 homes. Some 90 percent of the victims are now living in homes built by the Government.

In Papua, we have met the people’s aspirations for meaningful autonomy by establishing the institutions for this purpose. We have engaged them in a “new deal” that has allayed popular dissatisfaction. The Papuans have also chosen their local leaders in free and democratic elections. Ample funds for development are flowing into Papua and we are in constant and intensive dialogue with the community leaders.

As to the growth of democracy in Indonesia, we probably hold the record in the number of democratic elections held within a span of three years. We had three national elections in 2004, and 280 local elections since then. By 2009 all local officials will be directly accountable to their constituent electorates.

Our anti-corruption drive has yielded dramatic results. Our law enforcement and justice system has investigated, and tried more than 90 government officials—including governors, parliamentarians, mayors and former ministers—as well as banking e-xecutives. Foreign direct investors must have taken note that nobody is above the law in Indonesia today. And that may have something to do with the sharp rise in foreign direct investments in the first quarter of this year.

Another reason for investor confidence is the unexpected strength that our economy has shown even in the face of natural disasters, oil price shocks and the threat of international terrorism.

We carried out sharp reductions in our oil subsidies—not once but twice—as a matter of structural reform. It was bitter medicine but it benefited the poorest of our citizens. We shifted resources, which otherwise would have subsidized the burning of fossil fuels, so that huge sums of money could be channeled to the poor.

Thus we helped the poor get an education, free health services, rations of rice and other household necessities, village facilities and even cash in small but helpful amounts.

We will sustain this programme. This year we are allocating 5.6 billion US dollars for the poor.


At the same time, we are shifting the emphasis of our energy programme to bio-energy. While we continue to seek ways of increasing our oil and gas production, we are also carrying out a national bio-energy action plan, which entails the development of the bio-fuels industry, including bio-diesel and bio-ethanol.


To bolster our e-xports, we have, in cooperation with Singapore, launched special economic zones on the islands of Batam, Bintan and Karimun in the middle of last year. A wide range of special incentives have been made available for investors in these zones—including institutional frameworks, and investment procedures in the areas of finance, banking, taxation, customs and e-xcise. More special economic zones will be built throughout Indonesia.

On the whole, there is no question about the general vigor of our economy. Last year, our economy grew by around 5,6 percent, about the same rate of growth as in 2005—the highest rate of growth that Indonesia has reached since the economic crisis of 1997. We reduced inflation by a remarkable 11.5 percent from 17.1 percent in 2005 to 6.6 percent in December last year. Since I assumed office, the rupiah has remained stable.

Between 2005 and 2006, our e-xports rose at a rate of close to 20 percent, and our reserves stood at an unprecedented 43 billion US dollars. Since then they have risen to near 50 billion US dollars.

Our debt to GDP ratio during the same period was down to 40 percent compared to 61 percent in 2003. Our stock market was the third fastest growing in the world, after Russia and China.

We are enjoying the highest ratings given to us by Moody’s, Standard and Poor’s, and Fitch since the Asian crisis. In 2006, the World Economic Forum raised Indonesia’s ranking in the global competitiveness inde-x from 68 to 50, ahead of China, Brazil, Nigeria, and Argentina.

This is not to say that we have no problems. We are up against an array of challenges. We are confronting threats like international terrorism and avian flu. Because of the energy crunch, poverty remains a basic problem.

Although the rupiah is stable, it is getting a bit too strong in the face of a weakening US dollar. We are trying hard to persuade the banking sector to intermediate the revival of the real sector. We must be very careful in managing short-term capital inflows.

We still have a backlog in the building of infrastructures. And, of course, we have not yet completely eradicated corruption.

And yet, as I step into the second half of my tenure, I am optimistic. In spite of these challenges and constraints, our economy has done very well in the first half. We have a robust body of achievements to build on. Moreover, there are new factors that are driving us forward.

First of these is the maturation of our decentralization process. It used to be that the business community regarded the devolution of power to the local governments as a nightmare, as it created duplication of functions with the national government and new layers of bureaucracy. Today it is clear that local governments, as they enlarge their capacity for governance, are responding positively to their direct accountability to the electorate. This is good news for investors.

Second is our macroeconomic stability in tandem with the strengthening of our banking sector during the past several years. This will get even better if the impressive performance of our economy during the first quarter this year is any indication: our GDP grew at six percent, while domestic and foreign investment approvals surged by 500 percent and 600 percent respectively. Imports of capital and intermediate goods are also growing. These signs point to the revival of our real sector any day now.

Third, and the best news that I can convey to investors, is the recent passage, at last, of our new investment law—which provides legal certainty, transparency, accountability and other vital requirements of investors.

Under the new law, investors are offered such incentives as liberal land permits and immigration terms. Foreign investors are allowed to repatriate profits and a longer duration of land use. The law also provides them such fiscal incentives as e-xemptions or reductions of income tax, import duties, value-added taxes, land taxes and building taxes. Licensing procedures will be streamlined through a one-stop investor service centre.

My Government will very soon be announcing the implementing regulations for this law. You will not wait long.

Finally, and this may be new to you: Indonesia is a young nation that is getting younger and more dynamic every year: our youth population is growing at a fast rate. They are the best and the most durable of our natural resources. That is why we have given great emphasis on their education.

Given a good education, our youth will be a powerhouse for growth.

And growth is what we intend to have plenty of. Growth through sheer hard work and partnership with investors who are discerning enough to see the vast possibilities in this country. Growth through the wise husbanding of our resources. And growth through unrelenting social, economic and political reform.

Ladies and Gentlemen,
There will be no miracles. But by the grace of God, insya Allah we will achieve what I pledged to deliver to the Indonesian people at the beginning of my term: a safer, more prosperous, more just and more democratic Indonesia.

Thank you.