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Hitachi Research Institute

President Column

Column by the President of Hitachi Research Institute, Mizoguchi

#11:Can Indonesia escape the traffic jams?

It was my first visit to Jakarta in about 10 years. Indonesia has a population of over 270 million, the fourth largest in the world, and with an average age of under 30, the country is enjoying a “demographic bonus.” Indonesia’s nominal GDP currently ranks 16th in the world, but it is predicted that by 2050, it will be the fourth largest in the world, after China, India, and the United States. Enjoying popularity with the people, Indonesian President Joko Widodo has presided over annual economic growth of approximately 5%, and he will pass the presidency to his declared successor, Mr. Prabowo Subianto, in October—after President Joko has served two full five-year terms.

Indonesia encompasses over 13,000 islands with a diverse range of natural environments, and it is home to 300 ethnic groups with diverse cultures, religions, languages, and histories. The national emblem of Indonesia, called Garuda Pancasila, is a legendary bird from Indian mythology and the vehicle of Lord Vishnu. Written on the ribbon gripped by both legs of the Garuda are the words “unity in diversity,” which is from a Javanese poem written at the time of the 14th-century Majapahit Kingdom. Diversity is truly the very foundation of the Indonesian nation.

The traffic jams in Jakarta seemed to have changed little over the past 10 years. Although it was only a 10-minute walk from my hotel to the appointed place, a car had been arranged to collect me, so I got in, and to my surprise, the short journey on foot took all of 50 minutes by car. In the case of Jakarta, where the road surface area is tiny compared to the area of the city, it is difficult to find ways to reduce traffic congestion. It has even been hypothesized that the total floor area of car interiors may be larger than the total area of roads. The old town, built as Batavia by the Dutch East India Company in the first half of the 17th century, has been plagued by complicated land-rights issues, which have made it difficult to redevelop. In 2019, an underground railway based on Japanese technology was opened as part of a yen-loan project; however, it only provides a north-south route of about 16 kilometers, so it represents a drop in the ocean in terms of alleviating traffic congestion. It staggers me to think of the time lost and economic losses caused by traffic congestion over the past decade.

Indonesia is rich in natural resources such as nickel, tin, bauxite, and palm oil, and its government is pursuing an economic-growth strategy that utilizes those resources. This so-called “downstream” strategy aims to develop downstream manufacturing industries, such as domestic refining and processing, by limiting the export of natural resources. In the case of nickel, which is needed for electric vehicle (EV) batteries, Indonesia has successfully attracted foreign investment into the country by imposing an embargo on the export of raw nickel ore. This strategy could be called the “New Washington Consensus,” namely, a home country-first industrial policy that is also being implemented in Europe and the U.S. To improve the present situation in Jakarta, which suffers from severe traffic congestion and air pollution, the government is planning to move the capital from Jakarta to Nusantara on the island of Kalimantan.

In economic terms, Indonesia is highly dependent on China. The countries and regions that directly invested in Indonesia in 2023 are ranked as Singapore first, China second, Hong Kong (a special administrative region of China) third, and Japan fourth. However, it is presumed that most of the investment from Singapore was via Chinese capital, so the combined total investment of the top three—nearly 60% of total investment—was essentially from China. Although the U.S. and Indonesia upgraded their bilateral relationship to a “comprehensive strategic partnership” in 2023, their relationship has not deepened in a meaningful way. In Indonesia, where nearly 90% of the population is Muslim, people have deep sympathy for Palestine and strong antipathy toward Israel, which continues its invasion of the Gaza Strip, and its main backer, the U.S. As a result, the U.S. is receiving much criticism from Indonesians for maintaining a perceived “double standard” while vocally supporting democracy. Moreover, Indonesia has territorial disputes with China in the South China Sea, but they are less serious than those concerning the Philippines and other countries in the region. Under these circumstances, as its geopolitical competition with China intensifies, shouldn’t the U.S. consider the risk of “losing” Indonesia?

The vice president of the new Prabowo administration is Gibran Rakabuming Raka, son of President Joko. Constitutional regulations limit vice-presidential candidates to those over 40 years of age; despite that limit, the Constitutional Court ruled that an exception can be made for those who have served as regional heads of state. In fact, the Chief Justice of the Constitutional Court is President Joko’s brother-in-law, so it seems that a political agenda to get the 36-year-old mayor of Solo (Surakarta), Mr. Gibran, to run for office is at work. Indonesia has moved away from the repression of the Suharto regime, which maintained a dictatorship for more than 30 years, and is now advancing as a democratic country; despite that political shift, it faces the risk of “governance regression” due to nepotism. The new Prabowo administration is expected to continue its downstream strategy of fostering industry; however, overly protectionist economic policies, coupled with market practices that exclude competition, may hinder economic growth. Economic growth and social stability are not guaranteed. It is thus required to shift to a policy of continuous improvement in productivity, technological innovation, and stimulating domestic demand to foster a middle class.

The Dutch once called Indonesia “an emerald necklace on the equator.” In the future, Indonesia will face a variety of obstacles, including external geopolitical situations and domestic instability, and the road to becoming a truly independent, democratic, economic superpower will be a bumpy one. Will we see the emerald archipelago escape the traffic jams and accelerate down the road?