Problems loom as Indonesia president marks first year

  • World
  • Thursday, 13 Oct 2005

By Dean Yates

JAKARTA (Reuters) - When Indonesian President Susilo Bambang Yudhoyono doubled gasoline prices two weeks ago to stave off a fiscal and currency crisis, supporters and critics alike were stunned by his boldness. 

While street protests leading up to the hike had been muted by Indonesian standards, few had expected such a hefty increase. So much for a man described as sincere and smart but too hesitant and dithering to rule messy Indonesia. 

Indonesian President Susilo Bambang Yudhoyono (C) arrives to lead the 60th anniversary celebration of Indonesia's military at Halim military airport in Jakarta in this October 5, 2005 file photo.

The absence of protests since has given Yudhoyono something to smile about as he marks his first year in power on Oct. 20. Other successes have been a peace deal with rebels in Aceh province and initial inroads in fighting endemic corruption. 

But Yudhoyono needs to take decisive action on many other fronts, analysts say, especially in raising investment, taming an obdurate bureaucracy and fighting terrorism after suicide bombings on Bali island on Oct. 1 that killed 20 people. 

Some say the fuel price move highlighted what the former general could do with the big mandate he won last year in Indonesia's first direct presidential election and with a job approval rating that remains above 60 percent. 

"It showed it was possible to take unpopular decisions and make them work without a serious political backlash and without a major dissension in the ranks of the government," said Sidney Jones, director of the International Crisis Group in Indonesia. 

"If he can do it on this issue, that should embolden him to do it on others." 

Within the next few weeks, Yudhoyono is expected to reshuffle his cabinet, particularly key economic portfolios. Financial markets want a more energised team to ram through changes needed to improve the business climate. 

Some health experts also worry Indonesia is not showing enough urgency in tackling an outbreak of deadly bird flu. 

Yudhoyono has toured foreign capitals in the past year trying to drum up investment. There have been some high-profile votes of confidence, such as a $5.2 billion takeover this year of Indonesia's third biggest cigarette maker by Philip Morris International, the tobacco arm of Altria Group. 

The stock market is up 30 percent since Yudhoyono took office, although the rupiah currency is off around 10 percent. 


But many foreign businessmen say Indonesia is still one of the hardest places in Asia to make money because of an opaque and resistant bureaucracy, confusing regulations, tough labour laws and an unpredictable legal system. 

"Politically, he has done a good job," said Umar Juoro, head of the Centre for Information and Development Studies. 

"Economically, I don't think he has done well. Old problems like contracts, law enforcement, complicated and expensive tax systems have not been solved." 

A presidential spokesman, Andi Mallarangeng, said Yudhoyono was working hard on issues across the board, including reform of the bureaucracy, and fighting graft and terrorism. 

People should drop the cautious tag to describe him, Mallarangeng added. 

"How can you say he's indecisive. He increased the oil price twice in a year and look at the scale," Mallarangeng said. In March the government had raised fuel prices 29 percent. 

High world oil prices forced Yudhoyono to boost subsidised domestic prices for oil products to ease pressure on the budget. 

The move, seen as vital over the long-term, could push up consumer price inflation to 12 percent in 2005, the central bank has said, compared to 6.4 percent in 2004. 

Indonesia has since said the economy would grow 5.9 percent, at best, this year, lower than a previous forecast of 6 percent, with 2006 GDP growth of 6.2 percent. 

One senior Western diplomat said bringing the bureaucracy to heel was Yudhoyono's most urgent task. 

Some investors say bureaucrats who oppose the private sector are partly to blame for a stalled multi-billion dollar programme to upgrade Indonesia's dilapidated infrastructure. 

"The real issue is whether he controls the civilian bureaucracy. That's the enemy of development in this country," the diplomat said. 

(With additional reporting by Ade Rina and Jerry Norton) 

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