Jakarta, 15 June 2011 Navigating in the Multipolar World By: Wijayanto

Growth Poles at a Glance......

The Largest Growth Poles, Source: World Bank, Global Development Horizon 2011 Indonesia is a potential growth pole which has a long list of home-work to handle; Concern: sources of energy, mineral, and environmental issue. Aging population for China; Concern: public debt & 2008 economic crises; Aging population for Euro Zone

China’s Challenges: Energy & Mineral Source: BP Statistic, World Bank, Wijayanto’s Analysis GDP Size Nominal (2010) Consumption of Primary Energy (2010) Comparison: Energy Efficiency China should improve its energy efficiency, otherwise its effort to secure energy supply will disrupt the balance future global energy supply & demand;

The Road to Become a Growth Pole

Growth Poles: Success Factors Source: Global Development Horizon 2011, World Bank; Wijayanto’s Analysis Indonesia has various challenges to realize its role as growth poles; This challenge can be seen as opportunities; However, fail to address this challenge will make it difficult for Indonesia to maintain its role as global economic engine; FactorsScore Young Population*** Education Attainment* Physical/Capital Investment* Strong Institutional Framework* Social + Political Stability***

Young Population Source: United Nations, Wijayanto’s Analysis Median Age (Yrs)Fertility Rate per-Woman No Aging Population Issue Aging Population Issue ?? Replacement Rate

Education Attainment..... Source: UN, TIMSS Education IndexTIMSS Mathematic Score (2007)

Physical & Capital Investment Source: World Economic Forum, 2010 Global Competitiveness Index measures infrastructure’s efficiency, affectivity & extensiveness; In this regards, Indonesia slightly better than India and the Philippines, but significantly below China, Malaysia, South Korea, Japan and Singapore; More investment is needed to narrow the gap; Indonesia plan to spends Rp trillion on infrastructure (2011 – 2025) Infrastructure Competitiveness Average Score

Physical & Capital Investment Source: World Bank, Bank Indonesia, Wijayanto’s Analysis Over the last 20 years, Government Budget increase by 30 fold in nominal term and around 3.5 times in real term; If allocated properly, this budget increase will provide a spring board for the economy to take-off; Government Budget (Rp Trillion) Current Price Price

APBN: Heartbreaking Trend Source: Bank Indonesia, Wijayanto’s Analysis APBN tend to be very short-term focus; The trend shows that APBN shifting toward more consumption and less investment; During SBY era, development expenditure accounts for 10% of total budget a significant decrease compare to the percentage during President Soeharto, Habibie, Mega and Gus Dur era; Budget Composition (1990 – 2011)

APBN: The Money goes to Source: World Bank, The Asia Foundation, Bank Indonesia, Wijayanto’s Analysis; *) Estimated Number APBN 2011APBD 2011*APBN + APBD 2011* APBN + APBD 2011 Composition Around 61% of all government expenditure goes to personnel expenditure, while only 12% goes to development programs

Institutional Framework..... Corruption Perception Index (2010) Source: Transparency International (2010) Indonesia: Most Corrupt Institutions Global: Most Corrupt Institutions

Institutional Framework (cont’d) Ease of Doing Business (2010) Source: World Bank, Doing Business 2010 Ease of Doing Business (Indonesia)

Political Stability Source: Democracy, Governance, and Economic Performance, Yi Feng Prosperity Demographic Factor Economic Factor Political Factor Political Freedom Political Stability Policy Certainty New Order**** Post New Order*** * According to Yi Feng, Policy Certainty is the most robust factor determining economic prosperity......unfortunately, this factor is often absent in Indonesia.

Political Stability (cont’d) Source: Democracy, Governance, and Economic Performance, Yi Feng; Wijayanto’s Analysis; *) Exclude NegaraPolitical Freedom Political Stability Policy Certainty Average GDP Growth/year* China (1980 – 2010)**** 10.1% South Korea (1970 – 1980)**** 7.5% Singapore (1980 – 2010)**** 7.4% Indonesia (1971 – 1996)**** 7.3% South Korea (1980 – 2010)*** 7.1% Malaysia (1980 – 2010)***** 6.7% India (1990 – 2010)***** 6.4% Indonesia (2000 – 2010)*** *5.2% Pakistan (1970 – 2010)*****4.9% The Philippines (1980 – 2010)*****3.2% We need to make Policy Uncertainty a history, if we would like to enable Indonesia to explore its great potential

The Glass is Half Full..... Robert Kennedy: “GDP measure everything, except that which makes life worthwhile“ The ultimate goal of our existence is to be prosperous and happy; As a nation, we are in the middle of our journey to realize that goal; Now...the glass is half- full we need to work harder to make it full. Source: New Economic Foundation, IMF, Wijayanto’s analysis Wealth and Happiness