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Dr Chris Manning
Two events focused international attention on Indonesia for very different reasons in September 2004: first, a major terrorist attack on a foreign embassy and, second, victory in the polls for a new President, the culmination of a remarkably trouble-free series of national political ballots through 2004.
What are the likely implications of these events? On 9 September, suicide bombers thought to be linked to the shadowy organisation, Jemaah Islamiyah, targeted the Australian embassy in Jakarta producing a massive explosion. The Australian diplomatic contingent, although shaken, miraculously survived without serious harm. The attack, which signalled that Indonesia was still quite vulnerable to terrorist attacks, resulted in 9 fatalities and around 180 people injured. Internet and SMS messages ostensibly from the perpetrators indicated a continued focus on foreign interests in Indonesia, seemingly singling out members of the 'coalition of the willing' in Iraq, while also demanding that the Indonesian government release prominent Muslim cleric, Abubakar Ba'asyir.
If the international community was shocked by the Australian embassy bombing, after a period of relative calm in Jakarta, the election outcome suggested the possibility of a significant change for the better. By the end of the month it had become clear that ex-army General Susilo Bambang Yudoyono (SBY) would be elected as the country's sixth President. He had triumphed in a head-to-head, second-round ballot against incumbent President Megawati Sukarnoputri, and had established an unassailable lead in the vote count by late September.
Strong popular support for SBY was no surprise to most who had followed the Gallup polls, after he had won, rather narrowly, the first round of the Presidential election in early July. Nevertheless, looking back to the beginning of the year, it was still hard to believe that SBY had won at all, much less having won so convincingly against Megawati, the leader of PDIP (by far the largest party in the parliament elected 1999-2004). Bambang's newly formed Democrat Party won only 7 per cent of the parliamentary vote in elections held in April. In the Presidential poll he had prevailed against a coalition of the four major political parties, all of which had supported the incumbent.
If the Australian Embassy bombing was likely to further discourage foreign investment, the election result offered some prospect of better leadership and policy action that might improve the investment climate for both foreigners and Indonesians. Much depends on SBY's selection of the new cabinet and whether he will use his substantial win at the polls (around 60 per cent to 40 per cent for Megawati), and his independence of the major parties, to put some of Indonesia's most respected and capable individuals in key cabinet portfolios.
Optimists are looking for a cabinet that can achieve a major breakthrough in business confidence through a crash 100-day reform program, while at the same time one that will announce a long term strategy of legal and institutional change. They desire changes especially aimed at overcoming corruption, which many see as Indonesia's number one problem. The quick capture of the two Malaysian-born individuals under suspicion for the Australian embassy bombing, (after several bungled attempts at arrest by police in the past 12 months), would certainly indicate that SBY means business.
Pessimists, on the other hand, believe that the new President will be captive to interest groups (not least, several within the military) and hence will appoint a weak cabinet, and fail to provide decisive leadership. If this prediction turns out to be true, it seems unlikely that there will be a turnaround in business sentiment. Nor could one hope for an effective clampdown on terrorists. The only consolation for many voters who backed SBY might be that he is 'no worse than Mega'.
WATCHPOINT: Given the weakness of the previous Megawati administration in many fields (possibly, realizing and sustaining economic stability was her major achievement), and the compromised political mandate underpinning her Presidency from the outset, it would be surprising if SBY did not at least exceed minimalist expectations. How much more is the crucial question being asked most Indonesians.
About our company:
AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.
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