Two Cheers for the Thinking General

It was hard not to be cheered by the results of Indonesia's election last week. Only 10 years after the country emerged from a dictatorship, some 176 million voters went to the polls in free and fair elections and handed the incumbent President Susilo Bambang Yudhoyono a resounding victory of about 60 percent. SBY, as he is known, amply earned his second term. When he first took office five years ago, violent separatists threatened Indonesia's integrity, homegrown terrorists sowed chaos, piracy thrived in the Strait of Malacca, and the economy was still reeling from the devastating 1998 Asian crisis. Today, Indonesia is the most vibrant and stable democracy in the region and one of the few economies predicted to grow by more than 4 percent in 2009. As stock markets elsewhere were tumbling this year, Jakarta's soared by 50 percent, and Morgan Stanley called for Indonesia to be included in the BRIC group alongside developing-world heavyweights Brazil, Russia, India, and China.

Yet SBY's victory, though merited, wasn't quite as inspiring as it might seem. More a candidate of safety than soaring hope, Yudhoyono won in part due to the weakness of his two rivals, Megawati Sukarnoputri—his lackluster predecessor—and his former vice president, Jusuf Kalla, who is seen as shortsighted in policy terms. SBY also profited from the global slump in oil and food prices, which made life easier for Indonesian citizens, and by offering a few timely handouts to the poor. Thus Indonesian voters were all too happy to overlook one key flaw: SBY, like all the other main candidates, cut his teeth under the late dictator Suharto, and has shown too little willingness to break decisively with certain crippling features of the old regime.

To be fair, in his first term SBY did a great deal to consolidate the radical, decade-old transformation of Indonesia from autocracy to a thriving, decentralized democracy with a vibrant free press. But in some ways the country has failed to achieve the transformation promised by the anti-dictatorship Reformasi movement of the 1990s. In 1998, Indonesians rose up against Suharto to free themselves from the shackles of what was known in the national language as "KKN": corruption, collusion, and nepotism. Ten years later, Indonesia still ranks 126th out of 180 countries on Transparency International's corruption list, and its old oligarchy has shown a tremendous capacity to adapt to the new rules of the game: Suharto cronies remain the most powerful economic players, and the military, though largely excluded from politics, controls vast swaths of business. Perhaps most important, few new faces have reached the top rung of politics. "There is no sense of urgency in thrusting Indonesia forward because the elite has arrived," says Indonesia specialist Jeffrey Winters of Northwestern University. This suggests that Indonesia may not truly boom—become the next India, as many predicted—until the post-Suharto generation finally takes over, which probably won't happen till the next election in 2014.

For the time being, New Order–era actors still dominate. Besides SBY himself, who was an Army general under Suharto, there's Kalla, who was a successful businessman under Suharto's patronage and who picked as his running mate another ex-general, Wiranto, a man accused of widespread human-rights violations during East Timor's fight for independence. As for Megawati, she is the daughter of Indonesia's first president, Sukarno, and though she made her name in the 1990s as a leader of the anti-dictatorship movement, she did little to reform the state as leader and chose as her running mate this year Prabowo Subianto—Suharto's former son-in-law and another ex--general with a bleak human-rights record.

SBY is also a former military officer, yet oddly enough, he is no man of action. This is both good and bad: his cerebral nature earned him the nickname "The Thinking General" and means he spent his career in uniform drafting strategy, not leading men in battle—one reason he is largely untainted by links to past abuses. SBY's passive, -consensus-building style has also helped him negotiate some dangerous waters in this young democracy, allowing him, for example, to sharply reduce the Army's pernicious role in the economy—a huge accomplishment, which he managed by holding an inquiry into the military's many, previously unexposed business interests. When the inquiry found that a great deal of the military's holdings were on the verge of bankruptcy, it became much easier for SBY to ease officers' hands off the reins.

But if SBY is going to boost growth and do for Indonesia what Deng Xiaoping did for China or Manmohan Singh did for India, he'll need to make radical changes in his second term that can't be achieved without at least some conflict—especially with the Suharto-era establishment. And so far, SBY has seemed a bit too cautious for that. During the recent campaign, he reiterated his 2004 promise that Indonesia would reach an annual 7 percent growth rate. But during his first term, growth hovered between 5.5 percent and 6.3 percent annually—not bad, but well below India (7 to 9 percent) and China (nearly 10 percent). More problematic, this is also well short of the 6.7 percent target economists say is necessary to create enough jobs for the young, or to significantly reduce severe poverty, which has dropped by only 2 points under SBY and still hovers at 14 percent.

Indonesia has great potential, with a cheap, 112 million–member workforce and rich stores of resources such as natural gas, coal, palm oil, timber, and minerals such as gold, copper, and nickel. Yet the country still punches well below its weight. This is by no means all SBY's fault—for example, Indonesia was devastated by the 1998 Asian financial crisis, which caused a 25 percent contraction in GDP. Though the country has recovered in many ways, one legacy that SBY inherited is a woefully inadequate infrastructure thanks to a decade of underinvestment. The huge archipelago, which includes 6,000 inhabited islands spread over an area the width of the continental U.S., has only 608 kilometers of toll roads, and officials estimate that 1,500 kilometers are needed on the densely populated island of Java alone. Yet when SBY took office, barely 4 percent of the national budget was dedicated to this sector. He more than doubled this figure, but it remains too low, and building efforts have also been hamstrung by decentralization and problems with land acquisition. Meanwhile, energy shortages were so bad last year that rotating blackouts were implemented throughout Java and Bali, forcing SBY's government to launch a crash program to quickly increase the energy supply. The state-owned investment bank Danareksa calculates that to sustain 6 percent economic growth, the country must improve its power generation by 11 to 12 percent a year, but even the government's new plan aims at only 9 percent.

SBY inherited other, equally damaging legacies. In order to appease labor unions who had helped bring down Suharto, Megawati had adopted labor laws mandating very high severance pay for workers; as a result, the country remains a far less attractive destination for labor--intensive industries than its neighbors Vietnam or China. Last year Indonesia drew a paltry $2 billion in net foreign direct investment, which is far below Thailand, for example, at $7 billion—despite the fact that Thailand has a population four times smaller, has far fewer natural resources, and was suffering political turmoil. SBY tried to reform the labor law in 2006, but the nonconfrontational general quickly backed down in the face of strong union opposition.

The 1998 Asian crisis also triggered a powerful and lingering nationalist backlash that SBY has done too little to fight. During the crisis, the International Monetary Fund imposed strict conditions on loans to Indonesia that many locals felt were both humiliating and actually deepened the crisis. This led to anger toward all foreign interference, which Suharto cronies have manipulated to preserve their dominance. Last year, for example, SBY failed to stop the passage of a new mining law that discriminates against foreign investors in various ways. As a result, Indonesia's mineral riches remain underexploited: in 2008, amid the global commodities boom, Indonesia's resource sector grew by only half a point. "We missed a tremendous opportunity," says Jakarta-based consultant James Van Zorge.

Memories of the crisis, when the country's debt-to-GDP ratio shot above 100 percent, also help explain Yudhoyono's reluctance to spend. This past January, in response to the global financial meltdown, he introduced a $6.3 billion stimulus package. But this consisted mostly of tax cuts, not government spending, and SBY refused to take on more than a 2.5 percent budget deficit (versus 4 percent in China), despite Indonesia's very healthy debt-to-GDP ratio of 30 percent—less than half that of the United States. "I understand prudence, but that's over the top," complains Van Zorge.

SBY's caution probably also reflects his knowledge that Indonesia's inefficient and highly corrupt bureaucracy is unable to quickly disburse funds. Indeed, at the end of May, $18.7 billion in stimulus and -regular budgetary funds were still sitting in the Bank of Indonesia's coffers, waiting to be spent.

That points to another key area where SBY has failed to break from the past: reform of Indonesia's kleptomaniac civil service. Under Suharto, one of the most corrupt leaders in the world, graft was the only way to get things done. SBY has scored points by encouraging the work of the Corruption Eradication Commission. But the commission was actually created in 2002, before he came to office, and its work is totally independent of the state. And while it has successfully prosecuted some very high-ranking officials, including ambassadors, ministers, members of Parliament, a governor of the central bank and even one of SBY's in-laws, "you could put 1 million people in jail and still have another 2 million committed to corruption," says Todung Mulya Lubis, director of Transparency International in Indonesia. Thus the commission "can't be the only answer," says Todung, who advocates far more thorough bureaucratic reforms, including creating a system that guarantees transparency and accountability.

In the past five years, however, reform has been largely limited to the Finance Ministry, which is lucky enough to enjoy an unusually strong minister, Sri Mulyani. Winters of Northwestern compares her tenacity to "a mole cleaning up her hole," though he notes that other ministers have not followed her lead. SBY deserves credit for putting Mulyani in place—among other things, she's refused to bail out well-connected companies that have come begging to the government—as well as other reformers in a few key sectors: the trade ministry, the police, tax and customs, and the prison administration. But he hasn't shown much initiative himself, and has balked at taking on certain holdovers from the old regime. For example, his minister for social affairs, Aburizal Bakrie, is a key figure in the Golkar Party—once Suharto's political organization—who used his connections to become, until recently, the richest man in the country.

In his first term, much of SBY's caution may have been justified by his lack of a powerful apparatus. When he took office five years ago, his Demokrat Party held only 10 percent of the seats in the National Assembly, forcing him to forge an alliance with nine other political parties, including Golkar. This coalition tied his hands in some key respects. For example, in Suharto's day all civil servants were forced to join Golkar, and these ongoing ties have led the party to block most major shake-ups of the bureaucracy. But in this April's legislative elections, the Demokrats upped their share in Parliament to 26 percent, making it the strongest party. This means SBY will have far more room to maneuver when the new Parliament convenes in September.

The big question is whether he'll use it. "I'm worried that we might not become the country that we could. It's a pity, because now is our chance," says Jusuf Wanandi, head of the Jakarta-based think tank CSIS. An early test will come when the president names his new cabinet; observers are watching to see whether he picks bold reformers or gives away posts to older members of establishment parties. Yudhoyono's recent nomination of Mulyani as a candidate for governor of the Bank of Indonesia has worried the business community that he's not interested in preserving the best talent for ministerial jobs; the country has other economists capable of running the bank, but few reformers as bold and politically savvy to run a major ministry. Then again, SBY's choice, which he announced in May, to replace his vice president, Kalla, with Boediono—an apolitical economist—went against the advice of his entourage (who favored a more conventional pick) and may be a sign that the president is steeling himself for a decisive break from the past. In previous campaigns, secular presidential candidates from Java like SBY always picked non-Javanese running mates with strong Muslim credentials and ties to the machine. Boediono has none of these.

Some analysts argue that the kinds of dramatic change still necessary may have to wait until the next presidential election, by which time most of the Suharto-era figures will be too old and will have used up too much of their political capital to run again. The recent vote was "their last chance to satisfy their political libido," says 42-year-old Effendi Ghazali of the University of Indonesia. In the long term, things look promising. Thanks to impressive efforts to decentralize power supported by SBY, a good number of young, capable, and highly popular local leaders have begun to emerge. And voters seems hungry for real change: in April's parliamentary election, 60 percent of the candidate chosen were first-timers.

In sum, despite all its progress, Indonesia needs another big push if it is to capitalize on the changes begun since its transition to democracy. Unlike other regional success stories, Indonesia lacks a natural spur to goad it forward: it faces no outside threat, as did South Korea or Taiwan, and as a new nation it has no glorious past to live up to, as do China and India. What Indonesia does have is vast natural resources; a large, cheap workforce; a strategic location; and an open, stable political system. Such potential should be motivation enough. "We need to dream again," says Anies Baswedan, rector of Paramadina University. Whether the Thinking General can inspire those dreams remains to be seen.