Sadly, Indonesia is once again dominating news headlines following simultaneous bombings on two neighboring American hotels in Jakarta on Friday morning. This news emphasizes the complexities and challenges in the country and tragically overshadows the bright side of Indonesia as the world's fourth most populous country, the world's largest Muslim country and the world's third most populous democracy.
Terrorism, religion and ethnic unrest has been and will continue to be a major issue in Indonesia, but should not prevent the country from continuing its unprecedented rise.
In his celebrated book The Black Swan, Nassim Taleb explains how "black swans" are both unexpected/high impact events that occur - 9/11, the assassination of the Archduke Franz Ferdinand, etc - as well as expected events that fail to occur. When the Asian financial crisis hit Indonesia, reducing its GDP by 1/3 and the Soeharto regime fell, and as serious trouble arose in some of the provinces, widespread expectation was that Indonesia would implode.
In fact the rising Garuda turned out to be a Black Swan. Not only did Indonesia not degenerate into a failed state, it seems on its way to becoming quite a successful state.
There are many dimensions to this significance. Typically when a state implodes, the rule of thumb is that 10 to 20 percent of the population become refugees. Had Indonesia imploded, there would have been somewhere between 23 and 46 million refugees. This would clearly have been a highly destabilizing regional and global force.
In the course of the 17th century and until the mid-20th century, Indonesia was brought under Dutch colonial rule, interrupted by Japanese invasion and occupation during World War II. In 1949 Indonesia formally gained independence and proclaimed itself a Republic. Between 1949 and 1998 Indonesia was ruled by two successive dictatorships.
Sukarno, a wild-eyed fiery ideological nationalist, sealed Indonesia off from the rest of the world and imposed a policy of import substitution industrialization.
Soeharto was "authoritarian" rather than "totalitarian". Unlike his predecessor, Soeharto adopted highly pragmatic economic policies. He opened the country to foreign investment and surrounded himself with a core of well educated technocrats, nicknamed the "Berkeley Mafia" , who in turn, delivered policies resulting in a stable macroeconomic environment. Soeharto also developed very close ties with Indonesian Chinese business magnates and with multinational companies. This led to economic growth and rising national prosperity.
However, the Soeharto regime was marred by a high level of corruption. When the economy stopped growing during the Asian financial crisis, the legitimacy of the Soeharto regime ceased to exist. Hence it collapsed. Having had only two authoritarian regimes, Indonesia did not have a mature political culture, let alone robust political institutions. The economic consequences of the financial crisis and of the extremely harsh conditions imposed by the IMF were truly awful. Ethnic unrest filtered into diverse provinces.
Nevertheless, from 1999-2001 a series of quite radical reforms were put in place, fostering a more efficient and equitable political system. From the fall of Soeharto to the 2004 election of the current incumbent, Susilo Bambang Yudhoyono (SBY) there were peaceful and legal transfers of power in the elections of three different presidents.
The economy has revived since the Asian crisis and seems to be weathering the current global crisis reasonably well, even though its 3.5 percent growth is well below that of China, India and Vietnam. Even with a balanced fertility rate, population will increase by over 40 million in the next 20 years. As with other labor surplus countries, Indonesia depends considerably on international labor markets and the remittances they generate.
Inward investment could do much to generate growth and jobs. However, while Indonesians are not globo-phobic, nor are they unconditional globo-philes. The excessively close links between foreign investors and the Soeharto regime - along with all the corruption - led many Indonesians to believe that they did not achieve democracy because of globalization, but in spite of it.
There is much at stake for the world in seeing Indonesia continue down this journey and succeed economically, politically and culturally. A politically robust, environmentally responsible, and economically dynamic Indonesia will constitute an important foundation stone for a politically robust, environmentally responsible and economically dynamic planet. Conversely, the opposite could pose serious negative ramifications.
Long may the risen Garuda live and high may it fly!
The writer is Professor of International Political Economy at IMD, the leading global business school based in Lausanne, Switzerland. He is also the Founding Director of The Evian Group.
