There are many challenges facing Indonesia. Having covered the destination many years ago, and with very fond memories of wonderful hotels, fabulous cuisine, beautiful beaches, and great shopping, we can only hope that the current administration adopts a contemporary global approach to solving the enormous and complex challenges facing the country.
The invitation offered news on economic and banking developments in Indonesia at the wonderful Indonesian Consulate townhouse on East 68th Street. Anticipating fresh opportunities in Indonesia (Travel + Leisure recognized Bali for Best Island) I eagerly dressed and headed for the event.
Knowing that Indonesian programs rarely start on time, I showed up at the Consulate a bit before 11 am, registered and headed for a seat. An informed source told me that 100 people were attending, indicating that others were as eager as I to find a bright light shining on the Indonesian banking and finance community as this is an economic indicator for growing stability and expansion of infrastructure and industry – including hospitality, travel and tourism.
The First Clues
What led me to believe that Indonesia was the new “hot” destination? It was not the short speech by the Hon. Tire Edi Mulyani, the current consul general, it was the fact that she was breaching all stereotypes for consul generals. Attractive, petite, and wearing a very tight pants suit with a gorgeous stone lapel pin that quickly qualified her for a role in the movie “Sex in the City.” I thought that this was definitely new look for Indonesia and I was going to really have a story. (I should have been more alert – the consul general was not going to stay for the entire program, she was leaving to accept an award. If her priorities were to be elsewhere – what was I doing here?)
However, the opening remarks by Wayne Forest, the president of the America Indonesian Chamber of Commerce encouraged me to believe that Indonesia had turned a corner and was going to be the next hot destination for commercial and tourism development. Forest spoke enthusiastically about new projects under development on two Indonesian islands: Bantam (West Java) and Bintan (largest island in the Riau Archipelago).
With pens and notebook ready, I was eager to hear the presentations by the heads of two major Indonesian banks, Dr. Muliaman Hadad, the deputy governor for the Bank of Indonesia and Mr. Ahdi Luddin, the managing director of the Bank Negara. With impressive biographies (Hadad’s doctorate is from Monash University in Australia and Luddin earned a master’s degree at the University of Illinois) I was sure that this was going to be an enlightening seminar.
Unfortunately, there was little good news to share. In 2004, new programs were developed under the Indonesian Banking Architecture (IBA) offering international market-determined regulations, and a consumer rights focus. These guidelines have since been modified and now there is now a push to consolidate the banking system, and develop the Sharia banking scheme for financing small, medium and micro enterprises.
Although the desire to improve banking is sincere, the challenges for reform are monumental. Loans are restricted, risks are high, management banking skills are limited, there is excessive asset concentration (75 percent of total banking assets are controlled by 11 banks), as well as a significant percentage of the banking system is owned by the government – presenting ongoing opportunities for conflicts of interest.
The market driven idea of API has not materialized. Consumers complain of high interest rates and limited access to credit. The absence of professional supervision and technology hinders expansion and independent audits, while Indonesian banks carry higher operating expenses than banks in other countries in the region.
The Sharia banking industry is challenged by limited market coverage, the failure of the community to understand the available products and services, as well as the absence of institutional supports (i.e., arbitration tribunals and organizations for issuing fatwa religious edits).
There are reasons for optimism, according to Economist.com. Indonesia, a democracy with the largest Muslim population in the region and a consumer base of 220 million suggests enormous possibilities for economic expansion. In addition, the separatist war in Aceh province has been resolved, and there has been some success in curbing official corruption. However, there continues to be weakness in IT infrastructure as a result of years of government control of the telecommunications industry. Should the government deregulate, encourage economic privatization, and protect intellectual rights, foreign IT investments are likely to expand.
According to the Indonesian Bureau of Statistics, tourism continues to be a strong financial contributor to the economy earning US$5.3 billion in foreign exchange from 5.5 million foreign tourists, the highest figure reached in the past 10 years. Major tourism sources for Indonesia include Malaysia, Japan, Australia, South Korea, China, Europe, the United States, India, the Middle East and Thailand. However, the future of Indonesian tourism faces a challenge according to the findings of a study by Diyah Ernawati and Philip Pearce who determined that current Indonesian tourism education is not serving the needs of the industry for managerial level skills.
Polls indicate that the current president, Susilo Bambang Yudhoyono (a former military officer and Webster University graduate) is likely to be reelected. The only person with a viable chance of defeating him is a former Indonesian schoolboy, Barack Obama.
In a recent survey conducted by Visa International and the Pacific Asia Travel Association (PATA), Indonesia does not compete effectively with other destinations in Asia, and is ranked outside the top ten for the region, falling far behind Thailand, Japan and China (the top three destinations). Tourists are reluctant to visit for fear of natural disasters, terrorist attacks and travel warnings. Of the 5,050 respondents from 10 countries (Canada, China, Germany, India, Korea, Sweden, Britain, the US and Australia), only 3 percent named Indonesia as their preferred holiday destination in Asia.