Red Tape and Company: What a Toll Road Blockade Says About the Economy

The idea for this article came when I was working on completely different short article for the Indonesian navy, on the topic of Indonesian seas as means of unifying the country. It was then when I found out these interesting tidbits, such as the fact that it is much cheaper to ship a container to Singapore than to Padang.

----
Red Tape and Company: What a Toll Road Blockade Says About the Economy
Yohanes Sulaiman | January 26, 2012

'Bad policy choices will have a long-term impact on Indonesia’s ability to attract foreign investors.'

Last Thursday, a dispute between a workers union in Bekasi and the Indonesian Employers Association led to the blockade of the Jakarta-Cikampek toll road. The incident is a symptom of deep trouble in the Indonesian economy, arising from bad policy choices by both the central and local governments, the union’s inability to understand the problems faced by Indonesian businesses and entrepreneurs feeling the squeeze of rising costs and overseas competition.

The negotiations between employers association Apindo and the Bekasi Workers in Action (B3) union stalled as both sides accused each other of acting in bad faith. The union argued that Apindo reneged on its promise to withdraw its court challenge to a Bekasi wage regulation, while Apindo declared that it challenged the regulation in the court because the regulation was misguided from the beginning.

Apindo’s complaint is that the Bekasi city government determined the minimum wage simply by averaging the Apindo and the union’s proposed wages, in efforts to woo workers ahead of elections.

While it would of course be great if workers could be paid more than just the minimum wage, the problem is that factories will see profits fall due to higher production costs and increasing international competition.

One of the major components of production costs in Indonesia is transportation. In fact, according to former Finance Minister Fuad Bawazier, it could amount to 30 percent of production costs.

As many who regularly drive between Jakarta and Cikarang can attest to, even without the protests, the traffic is horrible. Trucks with supplies have to line up for hours in order to go past the Cikarang toll gate. After they pass it, they have to navigate narrow, traffic-jammed streets to reach their factory of destination, wasting precious time and fuel in the process.

And even when trucks with goods reach the port of Tanjung Priok, the problems don’t end. The port is both inefficient and backlogged, with a six-day wait before it can process goods, adding to costs.

Not to mention the dreaded red tape. According to data compiled by the World Bank’s Doing Business project in 2011, in Indonesia it took 17 days to clear goods for export and 27 days for import. In contrast, in Singapore it only requires five days to complete export procedures and four days for import.

Not surprisingly, shipping between Indonesia’s many islands is a very expensive venture. The World Bank’s Indonesia Economic Quarterly noted in its June 2011 edition that it would be cheaper to send goods from Jakarta to Singapore than from Jakarta to other ports in Indonesia.

In fact, it costs $600 to send a 20-foot container from Jakarta to Padang, West Sumatra, while it only costs $185 to ship the same container to Singapore.

Due to this very costly transportation system — far exceeding the global average of just 10 percent of total production costs — and not to mention the prevalence of bribery, it should be understandable that factory owners are reluctant to raise wages. This would severely undermine their competitiveness. But predictably, this angers laborers who say that the minimum wage they receive is not enough to cover basic expenses.

Both the central government and the regional government should be blamed for this dysfunctional relationship.

In the case of the central government, its failure to rein in corruption, to improve national infrastructure and to craft a coherent economic policy is making it difficult for factory owners to lower their production costs. And these failures are partly due to corruption.

The 2008 report of the Corruption Eradication Commission (KPK) stated that 30-40 percent of the national budget was stolen each year — and that is added to the usual bureaucratic waste and inefficiency that eat up part of the remaining funds.

Considering the vast size of Indonesia and the already small portion of the national budget spent on infrastructure (10.7 percent in 2011), it is easy to see why transportation in this country remains fraught with difficulties.

While the government is asking the private sector to pick up the slack, misguided populist policies are preventing the private sector from investing in infrastructure.

For instance, the Kompas daily newspaper pointed out in October that in spite of the rising costs of fuel, the government has refused to raise the official transportation fee for cement from Makassar in South Sulawesi to Kendari in Central Sulawesi, even though that fee was set in the mid-1990s .

The private sector, seeing that there is no profit to be made, refuses to be involved and those willing to invest have found that it is becoming harder and harder for them to maintain their fleet faced with such price controls.

All these factors work in tandem to increase the transportation cost in Indonesia and in turn, squeeze businesses’ margins of profit and make it harder for them to accommodate their workers’ demands.

To further exacerbate the situation, regional governments are also often behaving irresponsibly by pushing populist measures of their own. Usually, these are the result of promises made ahead of elections, such as drastic increases in minimum wages.

When unions in the end decide to hit the bricks, regional governments often blame the factory owners, emboldening the union and making it increasingly unlikely for the two sides to reach a compromise solution.

Bad policy choices of this kind will have a long-term impact on Indonesia’s ability to attract foreign investors.

Already, potential investors are spooked by high rates of corruption, massive red tape and uncertainty caused by substandard and the overlapping local and national regulations.

With labor disputes and uncontrolled industrial action now thrown into the mix, it is highly questionable whether the Indonesian economy will remain as strong as Moody’s Investors Service thinks.
-------

Jason88

9:52am Jan 27, 2012

Excellent analysis. Poor infrastructure is a main threat to stability (economic, social) in this country. Would a new president be able to solve the matter? Is anyone capable and willing and bold enough to get this country on track for a better future? Why can't we have a Lee Kuan Yew type of leader and PAP type of party here - is it a cultural rooted matter we all arranged ourselves to live with incapable, greedy administrations?

Yohanes-Sulaiman

1:28pm Jan 27, 2012

@Jason: Thanks for your comments.



We used to have someone like Lee Kuan Yew: Suharto. The problem, however, is that he failed to create a professional bureaucracy and actually demolished it in order to ensure the longevity of his rule.



I think you can have a strong and effective president in a democratic society. The problem, however, is whether the leadership is competent enough to push for good policies and to actually craft a short term and long term planning, and really follow through the plan, not just throwing the topics depending on the whims.

DrDez

2:50pm Jan 27, 2012

infrastructure, failing education, 40% theft of budget (sic), mob and religious violence, uncertain legal framework, protectionism, ineffectual judicial process, mafia's, gangs, drug syndicates, uncertain wage structure (min wage) a high proportion of the administration facing corruption charges, police violence increasing, media freedoms eroded, mobs running unchallenges, growing radicalism etc...

On the positive we have lots of minerals and a growing middle class oh and a presidential jet

Yohanes-Sulaiman

4:48pm Jan 27, 2012

@DrDez: Don't forget the national treasure, such as the two billion rupiah-toilets, twenty billion rupiah meeting room, and four music albums, composed by our Great Leader.

RuleBritannia

6:32pm Jan 27, 2012

@DrDez - ever considered making an alternative advertisement for Indonesia to run on CNN in the mornings with the official one?? I think you've just about covered the salient points for anyone wishing to come and invest here!

DrDez

8:46pm Jan 27, 2012

Can you imagine how prosperous the whole nation could be if only we could tackle some of these issues? It could be spread and national properity wouold follow. Investment would be incredible and the standard of living of every Indonesian could improve dramatically. SBY had a mandate to change but in my opinion it is worse now than at anytime in the last 43 years

That is what sickens me most I feel.

DrDez

8:49pm Jan 27, 2012

RB - I dont need to. Any investor here should be aware of the risks and if they weigh the returns to be greater than the risk then it will continue.

Our GDP by population growth alone is about 2.5%, last year investment GDP was about 2% leaving about 1.5% actual growth...

Flawed National Security Bill Could Prove a Recipe for Chaos in the Country

I know it has been a while since I updated this blog. Not sure why, probably because I want to allow some time first before reposting old articles.

--
Flawed National Security Bill Could Prove a Recipe for Chaos in the Country
Yohanes Sulaiman | January 13, 2012

As the House of Representatives takes aim at 64 priority bills this year, t he national security bill is one of the most important pieces of legislation up for debate. There is no question that passage of the bill is overdue — the legislation aims to fill existing security holes in Indonesia. Notably, those occasions when police forces are incapable of maintaining security, or when the military is unable to provide assistance due to a lack of procedural clarity, as has been the case with recent troubles in Papua and Aceh.

At the same time, the bill in its current form poses many pitfalls and has been subject to no shortage of criticism. The government should move carefully, lest it end up creating more problems than this legislation is supposed to solve.

There are many positive aspects to the bill. In the words of J. Kristiadi, a senior analyst at the Center for Strategic and International Studies, it serves to put the police back in their proper place on issues of national security. In the years since the fall of Suharto, the police force has effectively been given free rein in maintaining domestic order and finds itself on equal footing with the Armed Forces (TNI). The original intent of this arrangement was to bolster the status of the police, which had been hierarchically inferior to the military.

The problem, however, is that because the police force is essentially responsible to no one but the president, many analysts argue that they are out of control, the product of a passive president unwilling to offend powerful law enforcement figures. Many recent incidents, notably the Mesuji and Bima killings, were attributed to police arrogance and the absence of any deterring fear that law enforcement would face meaningful sanctions if they took the use of force too far.

The law would remedy this by putting the police force under the supervision of the yet-to-be-formed National Security Council (DKN), which would be led by a ministerial-level administrator. The law could thus be useful in reining in police excesses, subjecting police conduct to closer scrutiny and placing the entire police force under an active administrator. In other words, this is a polite way to finally put the police under ministerial control, which has long been strongly opposed by an institution unwilling to see its power curbed.

The law could also improve cooperation between police forces and the military in maintaining security in restive areas. While the police force has the responsibility to maintain internal security, in reality it lacks the training and manpower to effectively span the archipelago.

The military has the ability to provide much assistance to the police in this regard, thanks to its strong organization and reach across Indonesia. Yet it is constrained by the 2004 Military Law and international scrutiny, preventing it from actively aiding the police unless requested under the condition of military emergency. Civilian law enforcement has often proved hesitant to ask the military for help, whether from simple pride, a lack of proper guidance on when to do so or due to a fear of being perceived as incompetent or ineffective.

The law will fill this void by establishing and articulating the framework under which all the elements of government can and should work together.

Despite these noble intentions, the bill still has some major flaws. Most important, it adds several layers of bureaucracy in the form of the DKN. The council is intended to address the problem of too much power being held by the police. At the same time, the DKN would have the power to coordinate interactions between military and intelligence units, a power supposedly belonging to the coordinating minister for political, legal and security affairs. The overlap in responsibilities is a recipe for a potentially muddled chain of command.

Moreover, the bill also specifies the creation of provincial, district and city-level National Security Coordinating Forums (Forum Koordinasi Keamanan Nasional Daerah) headed by governors, district heads and mayors, respectively. These new bodies would also add layers of bureaucracy and bloat the ranks of civil servants.

At the same time, a question remains: On whose desk does the buck stop when someone messes up? The law specifies the president as having the authority and responsibility to mobilize the elements of the national security apparatus. And right alongside this authority, the bill states that the regional forums should determine the duties, responsibilities and command and control of personnel, depending on the severity of any given situation.

Will the president claim that he or she has the authority and responsibility only to mobilize forces and that his or her duty stops there? Will this absolve the regional heads? Among the military, police force and intelligence apparatus, who will be held accountable, should the situation spiral out of control? With so many layers of bureaucracy piled up, the blame game may prove popular.

Another big problem lies in the allowance for “people” to get involved in “providing national security.” Even though there is a qualification that the involvement should be through “reserve and supporting components,” the law regulating both functions has not been passed yet, with the discussion getting snagged on the question of the “slippery slope” of the military re-establishing its role in society in ways reminiscent to the New Order.

In addition, the wording is vague enough to allow every single militant group to get involved in “providing security,” supplying the legislative rationale for many ambitious people to create their own “security” groups while providing more opportunities and justifications for the existing groups to create more havoc in society due to the “need” to establish security.

While the overall intent of the bill is good — to provide more checks on police power and improve coordination among the police, intelligence units and military — this current draft has many problems that must be addressed. If lawmakers fail to do so, we will simply see further additions to an already bloated government and not long after that, more dysfunction among the actors of the nation’s security apparatus.

-----

trueblue

2:08pm Jan 13, 2012

@Yohanes

There can be no reason for a reader of this piece to misunderstand the twists of sharing power, and the potential for conflict in the roles of police and the military.
I was interested in your brief comment with respect to the New Order.

With the defiance by the Mayor of Bogor with respect to a Supreme Court order, and the repression of other minority religious groups throughout Indonesia, I suspect there are some who would welcome a return of the disciplines of Suharto. If the police are unable to ensure that minorities are safeguarded, has the "slippery slope" time arrived? From an international perspective that would be an unmitigated disaster, but for the oppressed would it be a welcome relief?

DrDez

3:04pm Jan 13, 2012

Yohanes you have fallen in to the trap of academic correctness I fear!!
The bill whilst good intentioned (sic) is simply a recipe for disaster. Especially for minority groups, ethnic (Papuans/Acehenese for example, religions and more worrying social groups (punks, gays, transexuals etc)

It is nothing more than a hash up aimed at appeasing everybody who can generate a mob or has money, from the Police to the illegal Militia groups (FPI, FUI etc) it lacks clarity and as you point out just adds even more layers of control - thereby further increasing the opportunity for private agendas (political, religious, financial)

The only saving grace is it will take forever to pass and with any luck I will be dead
True - Sadly a call for the good ol days is on a lot of peoples lips right now. If it returned would all be roses? I think not. If anything I suggest it would be a hindrance and some groups would find themselves scapegoats - and it would not be the likes of the FPI

Yohanes-Sulaiman

11:43pm Jan 13, 2012

 Wow, interesting comments.

@Trueblue: To be honest, I am not sure whether returning to the "new order" era is the best idea here. The entire mess is caused because none of the politicians here know how to really connect with people, and thus to show that they have the support from the population, they rely on these thuggish groups such as the FPI and now the FUI courtesy of the Mayor of Bogor.

Another round of Suharto's era would provide a short-term solution but very damaging in a long run because people then will keep relying on a strongman without learning on how to really build a good government. The minority will also rely on the whim of the autocrat, and as we see in the 1990s, when his base in the military was failing, Suharto decided to rally radical Islam.

In essence, the protection of minority will depend on the whim of the autocrats, and I don't think that's a good recipe for a longevity of the nation. People really need to learn to use the ballot box properly.

Yohanes-Sulaiman

11:49pm Jan 13, 2012

@DrDez: I think I have addressed your concerns in the second half of this article, that the problems of this bill is so glaring and this bill will add more problems than it worth.

Still I disagree with your first part. I do see the biggest problems now with the stupid police's policies such as the rounding up of the punks is because the lack of accountability, especially with our "slow action hero" in Cikeas.

Putting them under a ministry while not a perfect solution will help curbing all the abuses. Moreover, the important thing here is providing the framework for the military to step in, should the police create more mess. Thus, making the police think twice before doing stupid things, lest the military believe that they have to step in to clean up the mess.

Fear is always a good incentive to shape up.

shytallnight

7:49pm Jan 14, 2012

Perhaps the title could be changed to read 'recipe for FURTHER chaos in the country'.

trueblue

1:04pm Jan 15, 2012

@Yohanes
Thank you for your reply, and we certainly have some issues to debate!

1. What is wrong with relying on a strongman/woman who is a "politician who connects with the people? Think Reagan, Thatcher, the Singapore dynasty etc., and a raft of others who were the right persons for the right time! Is not this exactly what seems to be needed next time around?

2. How on earth can "people really learn to use the ballot box properly"? It is impossible to form a majority government without forming a coalition, and with the multitude of parties you finish a with a compromising shambles.

3. My conclusion is that with Indonesian complexities nothing less than a strongman/woman is the way forward for equality. The post 1998 Presidential experience really relegated Indonesia the the international embarrassment category. Much was expected of SBY, and let others judge him. The choice of strong candidates is not just an Indonesian problem. Even the U.S. Republicans have a B grade selection!

Yohanes-Sulaiman

6:26am Jan 16, 2012

@shytallnight: blame my editor. I never write a title for my articles. :D (actually JG's editor is doing a heckuva great job in cleaning up/arranging some that I wrote, making them much better -- way more professional than other newspapers.)

@trueblue:

1. Reagan's track record is actually pretty moderate, far less of an ideologue than many nowadays portrayed him to be.

Still, what important here is the rule of law that still sets the limit to what they can do, not the strong people making rules of what people can or cannot do. Thatcher and Reagan, while considered as strong people, are still working within the given parameter. In Indonesia, however, the parameter is still unclear, with rule of law remains weak. This lack of control, while could be good (think of Suharto between 1967-1975 or some would argue, 1988) and his performance post 1988, where he courted the political Islam (including the radicals) and tore apart professionalism within the military. Cont...

Yohanes-Sulaiman

6:33am Jan 16, 2012

... In essence you can't guarantee that a benevolent dictator will keep doing good things and instead could easily end up ruining the country, especially by stunting the development of good civil society and proper institution (the damage still exist today, in term of lack of professionalization everywhere, in education, law enforcement, even the military.) Going "authoritarian" today does not guarantee a good country in 5, 10, or 32 years. In fact, "good" dictators such as Suharto or Pinochet were "outliers," other dictators did worse (e.g. Chavez, Mobutu, Ali Khameini).
2. You need to change how the election is being run to pure district system (that's why virtually all political parties are against district -- because then you will see how shallow their support is -- nobody gonna vote for Marzuki Alie for sure in the next election). You also need time to educate voters on how to do it. It is a hard job, but it has to be done.

3. Strongmen are tempting options, but read above.