Snapshot from Jakarta

I must warn, from the start, that I spent a total of one-and-a-half days in Jakarta on this visit, so that the sample of people I met was necessarily small. Nevertheless, here are my impressions after an eighteen-month absence.

Regular viewers of CNN and other media inclined to the sensational would feel a whiff of adventure just landing in Indonesia. Yet, the first impact is that world-famous Indonesian smile: whenever they look at you, you have the impression that you are lighting up their lives. I guess I’ll need some adaptation to return to Paris the day after tomorrow.

The only difference in the smallish and provincial, but friendly, airport is the need for an entry visa. It could be a bow to the current paranoia about terrorism, but agents in the special booths installed to deliver these documents did not seem to check anything: I suspect that the new formality is just an excuse to collect another $10 from foreign visitors.

On the road from the airport, traffic is as intense as it was in the days before the Asian crisis, in spite of the new, expensive express toll way which postpones the congestion until closer to the center of town. Generally, I had the impression of more and newer, shiny cars and, seemingly, better motorcycles: this confirms the booming statistics on car sales (still only for the rich) but also on motorcycle sales (purchased by the lower middle class). There are new buildings and many signs of more construction going on but, after China, I am rather blaséi> and not overwhelmed by the activity.

The city’s mood is relatively upbeat, and there are new buildings with trendy restaurants and bars. In some, the food is more “nouvelle” and the dér slicker than I remembered. Companies seem to be at or above pre-Asian crisis levels of activity, and executives appear happy with their profits and confident of their companies’ prospects.

We are less than one month away from the presidential elections (July 5^th for the first round, with a second round in September – it takes a long time to collect and count the voting bulletins from the archipelago’s many islands). There is some ado, and many banners, but the campaign is peaceful and the election promises to be “clean”.

As usual, the city is teaming with rumors and conspiracy theories. Asked why the students, so active in the riots and demonstrations of a few years ago, now seem so peaceful, I was answered: “Maybe somebody is not there today to agitate and finance them.”

Most observers expect the outcome of the elections to be generally favorable for business. The two front runners (Messrs. Sisilo and Wiranto, both army generals) are equally favored and promise security, pro-business, policies and better communications with the international community. Amin Rais, the most pro-Islamic and volatile candidate, though a self-proclaimed moderate, advocates including elements of Islamic Law into the constitution. He is running a distant fourth in the polls (behind Mrs. Megawati, the incumbent president) and has not been able to raise much money.

I did not notice any increase in the female population wearing the Islamic scarf (a minority), though I was told by a young lady that more are visible in selected areas of the city. Young women sexily dressed still dominate the street, and the ones wearing scarves over their hair are otherwise dressed smartly. Near a university, I saw one wearing an elegant suit and high heels – more a fashion statement than a religious one.

It is possible that the polls are somewhat misleading since surveys are more representative of the big cities than of the important countryside. For example, General Susilo, the apparent front runner, is said to be little known in the areas remote of Jakarta, whereas General Wiranto, a close second, is said to be more widely recognized and popular. Golkar, former President Suharto’s party, remains a rich and formidable election machine, and it supports Wiranto. Still, most of the candidates have some link to Golkar: this is Indonesia!

Whereas many Jakartans voice their opinions forcefully, it is good to remember that poor Indonesians (the vast majority of the 200-million population) pay much less attention to national politics than to factors directly affecting their daily lives, and that their votes can be bought – either literally or with small favors and promises. Presumably, this is good for Golkar’s friends. Moreover, while everyone is skeptical about politicians’ promises, security and jobs are foremost on people’s minds. (As a reminder of the Marriott bombing, security guards check the entrances to all the major buildings). This tends to favor the generals, who presumably would have the army’s support.

Paradoxically, despite the real progress achieved under Mrs. Megawati, she is widely viewed as a do-nothing president and a very poor communicator. I sense a longing for the stability and economic buoyancy of the Suharto years (at least the early ones). The former president’s faults are largely forgotten: human rights violations seem remote and he himself is largely absent from the front stage – although still quite influential behind the scenes, I am told. His less-liked children are also conspicuous by their absence.

Corruption has neither disappeared nor lessened. All candidates pay lip service to fighting it, but it does not seem to be a major campaign theme. In other words, Wiranto’s association with Golkar and Suharto do not seem to disserve him particularly. The East Timor saga illustrates the present situation fairly well:

Wiranto was Commander in Chief of the Indonesian army during East Timor’s war of independence, and has been deemed responsible for the atrocities committed by army-related militia in that former province. Now, this ultra-poor, newly-independent nation barely survives on aid from donors like Portugal and Australia: half the population of 800,000 is illiterate, 41% live in “extreme” poverty and 12% of the children die before age five. It needs all the friends it can get and, in particular, it is eager to restore economic links with Indonesia. Human rights and democracy, which the US and Australia promoted as goals of the war of independence, are important but less urgent than economic survival.

A year-and-a-half ago, General Wiranto was indicted by East Timor’s Serious Crimes Units, which is funded and partly staffed by the United Nations. In early May of this year, an American judge of the Special Panel for Serious Crimes issued a warrant for his arrest. On the very day of the issuance of the warrant for Wiranto’s arrest, East Timor’s prosecutor general denounced the international staff of the Serious Crimes Unit and stated the warrant was a “mistake”. Shortly thereafter, East Timorese president Gusmao, who led the fight against the Indonesian militia, affirmed that “he would do nothing to carry out the warrant”. Finally, ten days ago, the same president met with Wiranto in Bali and the two embraced and shook hands at length before the cameras. Needless to say, in Indonesia per se, Wiranto’s East Timor baggage is not much of a factor in the elections.

Indonesia is rich in natural resources and it has a cheap and hard-working labor force. What it needs above all is investment capital. The ability to attract Suharto’s rich friends (and their money) back to Indonesia is a much more important asset for a candidate than any rancor towards the former dictator is a liability. And the return of these former captains of industry, probably in less visible fashion, is a credible outcome of the elections, because they know how profitable business in Indonesia can be.

If this return begins to take shape, other foreign investors are eagerly waiting in the wings, too -- Koreans, Japanese and even Chinese foremost among them (no one really believes that American investors will be among the first to return). Already, many of these investors are busy visiting and selecting industrial sites.

For all these reasons, the traditional post-election economic and stock market lull is expected to be brief and probably shallow. Any further weakness of the Rupiah may also be short lived, since the currency market is narrow and any capital inflows will be added to a trade balance supported by the favorable outlook for natural resources and agricultural exports. The next few months may therefore constitute an important opportunity to reconsider our recent caution on Indonesia.

François Sicart
Jakarta

June 10, 2004

^© Tocqueville Asset Management L.P.

The information contained herein has been obtained from sources believed to be reliable and to the best of our knowledge is complete. The validity and completeness however cannot be guaranteed by Tocqueville Asset Management. Nothing herein constitutes investment or any other advice and should not be relied upon as such. This document has been prepared solely for information purposes and does not constitute an offer or an invitation to buy or sell securities. Any reference to past performance is not necessarily a guide to the future. Tocqueville Asset Management L.P., their affiliates and their officers, directors, employees, advisors or members of their families as well as the clients for whom they manage portfolios; 1) May have positions in securities or options of issuers mentioned herein and may make purchases or sales of the securities or options while this publication is in circulation; 2) May hold directorships in corporations discussed in this publication. The opinions expressed in this document are those of Tocqueville Asset Management as of the date of the writing and are subject to change.