A Look At Indonesia

Since I have just gone to Indonesia, I would like to share some thoughts on this country from an investment perspective. Note: This article is highly opinionated and I lack deep knowledge regarding to this country. If you think any information here is inaccurate, chances are you are probably correct.

First, let's look at some of the fundamentals of Indonesia that may attract investors:

1. Indonesia is in an excellent location of the Pacific Rim. To its north is China (Great demand for resources), to its south is Australia (Great repository of resources, which they must pass through Indonesia if they want to sell their stuff to China). It also holds the Malacca Strait (One of the most important strait) and can reach India going west. To the east of the country is the vast Pacific Ocean.
2. Indonesia is rich in natural resources. Some resources are oil, natural gas, coal, gold, and silver.
3. Indonesia, with its huge population of almost 240 million people, has huge potential to be a manufacturing powerhouse of Southeast Asia, as it has a huge cheap manpower corporations can take advantage of.
4. Indonesia has rich, fertile soil and is located on the equator, which means the country also has the factors necessary to be a agricultural powerhouse.
5. Indonesia has great tourist resources to be developed. The country has always been held by many different tribes and different groups of people. This created a great variety of cultures for visitors to explore. With its abundance of beautiful shorelines, Indonesia is a gem for vacation.

Despite all this good stuff, I am not enthusiastic in investing in Indonesia any time soon. The reason is that in my opinion, the Indonesian government is extremely incompetent. One of the problems to show the government's incompetency is a major issue in Jakarta: Traffic Jam.

Jakarta has possibly the worst traffic jam in the world. During most of the time of a day (like 8 am to 9 pm), traffic jam can be found anywhere in the city. A simple distance of 10 to 20 km could take a few hours to travel. Traffic jam has always been a problem in Jakarta. It was already bad when I was in Indonesia about 10 years ago. Today, the problem has not improved a bit and has actually got worse. We all know traffic jam problem can be improved by more (and better) roads, plus mass transportation. Unfortunately none of this happened. Roads are the same old roads, and there is still only one marginal mass transit system in place, which is a bus system that does not have bus appear often (that's why I use the term "marginal"). There has been "talk" about a subway for more than 30 years, but it has been merely "talk", and the project has been postponed and postponed and now they "say" the project will start in 2012. We will see about that.
Oh and don't forget, we are talking about Jakarta, the capital of Indonesia here!

The traffic jam problem is an example to show the government's incompetency. But not only is the government incompetent; the government is also very corrupted. It is very common that if you get pulled over by the police, the police would blatantly asks you for "coffee money" (I saw this happened to my uncle a few times). If you are a Chinese and you try to enter or exit Indonesia, the Indonesian custom would very likely not let you go through until you offer a bribe (oh, this actually happened to me the first time I went to Indonesia, so I know what I am talking about). The Indonesian government is the biggest reason I would NOT put my money and time in Indonesia.

Now, some of you who know me might now say, "what the heck Jammy, what do you want? I thought you are for all the free-market and capitalism stuff. Why are you now complaining that the Indonesian government is not doing much to the society?"

Now, let me make it clear:

1. As I said, the Indonesian is not a "do-nothing government". The opposite stands. The government is doing a lot, but what it does is not to develop the society but to enrich those running the government. i.e. government corruption.
2. A do-nothing government only works when the free-market and capitalism mindset has set a foothold in the society. If there were no capitalism in the society, it is necessary for the society to have an environment that attracts foreign capitalists and allow capitalism to nurture. In this case, the government would need to be involved in creating such an environment.

In Indonesia's case, both case 1 and case 2 stand true. The government is corrupt, and the idea of free-market capitalism has never really flourished in Indonesia. Let me explain in more details. 

First, let's get it straight the definition of free-market capitalism before we go further. Capitalism is a social system which private property is recognized. We may take this idea for granted today, but in reality the idea of private property did not really exist (or only existed in short bursts) in most of human history. For example, for the longest time eastern civilizations are ruled under monarchy. Under a monarchy properties of a society all belong to the monarch, and the monarch can take away your "private" properties any time the monarch wants (Yes you can still have capitalists and in fact China had a long history of capitalism and merchant class. But the idea of private property is not protected by the system/law). In the west it has long been strong feudalisms in different countries, and under a feudalism you only have the ruling class and the serfs in the society. Everything the serfs produce belong to the ruling class. No capitalism there. 

In short, capitalism is a system of "private earning and private loss". So as a side note, our current society is NOT a capitalistic society, because what we have is "private earning and socialized loss". For those of you who blames capitalism for the current unfairness of the society that some people get all the goodies from the government while other people get nothing, you are blaming the wrong thing. What we have today is called crony capitalism, a.k.a. fascism. This brings us to the next concept: Free market.

The concept of free market, simply put, is a system that individuals are left alone to do what they want, and there is no government picking and choosing favorites. This means that the government NEITHER prohibits NOR subsidizes people for doing anything. Again, this is another major point to be made regarding to today's western world. There is NO free market thanks to all the laws known as minimum wage, maximum work hours, unemployment insurance, forced pension plan, health care, etc. Some say a true free market should not have a government. I am more for a minarchy, which government should only be confined in its power to protect personal properties (e.g. punishes stealing), enforces contracts, and protects basic rights laid out in a country's constitution (which should be written by the common people), and nothing more. I digress, but you get the idea of what free market is.

Now let's go back to Indonesia and take another look. Is there free-market? In certain areas sure, like the currency of Indonesia is freely convertible. But in general in Indonesia, you have a corrupt government picking favorites, so it's far from what you expect from a free-market economy. What about capitalism? There are capitalists in Indonesia, but if you take a look, you will see something very interesting: A lot of rich capitalists in Indonesia are NOT of aboriginal Indonesian heritage (for example, try to google top 100 richest Indonesian). In fact, you will find a lot of capitalists to be of Chinese heritage. Based on my observation, capitalism has not set foot in majority of the population in Indonesia. 

I can share a personal story. When my family visited Indonesia about a decade ago, my family stayed at my uncle's place. My uncle is a business man in Jakarta and he hires some maids and a driver (this is very normal for upper middle-class in Indonesia, so please don't think that somehow my family has some business empires in Indonesia). The first time my family went to Indonesia, on the day we left my dad gave $100 USD tip to the driver on behalf of the whole family. This is about 960,000 IDR, which is about 3 - 5 day wage for the driver. Guess what happens next? That's right, the driver right away took 3 days off work (which obviously pissed my uncle off). Apparently, this is not a secular case; it is a general attitude of workers in Indonesia. This is of significant importance because a society's savings is the base for capitalism's success, and the mentality to save capital is not in the working class of Indonesians. Savings is what entrepreneurs need in order to build assets that will enrich themselves and the society. It is very sad to see Indonesia has so much resource and so much potential, but there is a serious lack of capitalistic minds to take advantage of all the potentials.

When a society lacks capitalism, the government would need to step in to create an environment that would attract outside capitals and knowledge in order to help nurture local capitalists. However, as mentioned before, the Indonesian government is too busy making itself rich and puts little effort into developing a better Indonesia. Can you succeed in doing business or investing in Indonesia? Sure, but as I said the environment is not great with your money, so you need to be more cautious and more skilled to find success as a foreigner. I am not excited to put any money there, unless I see a change in the government: A government that works on developing a better environment for capitalists and is less corrupt. When that happens, I can guarantee you will see some legit economic growth, and if Indonesia has some great economic mind like Lee Kuan Yew running the country (love him or hate him, he DID turn Singapore from a underdeveloped colonial outpost to a Southeast Asian economic powerhouse), then you shall see Indonesia explode into a Southeast Asia superpower.