On July 7 the Carnegie Endowment for International Peace hosted a media call on the election in Indonesia with Vikram Nehru, senior associate in Carnegie's Asia program.

NICK PARROTT: Hello.  Welcome, everybody.  I’m Nick Parrott, Deputy Director of Communications at the Carnegie Endowment for International Peace.  I’m pleased to be joined today by Vikram Nehru, who’s a Senior Associate in the Asia Program here working on Southeast Asia, and he’s joined us today from Jakarta.  What we’ll do is I’ll ask one or two questions right at the start and then open up, obviously, to questions and discussion on whatever topics you want to raise.  The conversation’s all on the record, so yes, Vikram, just in terms of getting started, obviously the race is too close to call at this point.  What do you think of the implications of that from how the campaign’s unfolded?

VIKRAM NEHRU: Well, first of all, good morning to all those in Washington, and good evening to those of you who’ve come in from Southeast Asia.  Yes, right, it looks as if the race is now too close to call.  Some of the latest polls show a slight lead by Jokowi over Prabowo, but so small that it’s well within the margin of error.  And what I picked up over the last couple days is that, if indeed the race is very close on Wednesday, and it’s not immediately clear as to who’s the winner, then there are concerns that some voters on either side, or people on either side could potentially take this to the streets.  So there is some concern that violence might erupt, especially amongst – from the group that may be on the losing side of the race.  So that is something, certainly, to watch out for.

NICK PARROTT: Sure.  And you’ve written that Indonesians may not really be choosing between two very different leaders, but they’re choosing between two very different futures.  Could you give a sense of how you see the likely opening days, months of the presidencies of either candidate unfolding and differing?

VIKRAM NEHRU: Well, I think the two candidates really are very different, and not so much in terms of the policies that they’re proposing, though there are differences in them too, but really in the personalities and who they represent.  On the one hand, we have Prabowo, as everybody knows, an ex-general who was cashiered from the Army in 1998 and someone who presents himself as a strong leader, as a firm leader, as a decisive leader, very different from the current President, SBY, and he is supported by a range of parties – Golkar, which was, of course, at one time Suharto’s party, but it’s currently led by Aburizal Bakrie.  And then we have a bunch of Islamic parties as well that are supporting him, so he is supported by a very wide and disparate group of parties.

On the other hand, we have Jokowi.  Jokowi, the governor of Jakarta, seems to be very self-effacing individual, somebody who’s had a very impressive record as mayor of Solo and subsequently in Jakarta has enormous support amongst people who know him.  He has rock star status among certain groups, and he’s somebody who is, in fact, almost the very opposite in personality from Prabowo.  He is a person who’s known to avoid confrontation and seek consultation.  He has, in fact, selected as his Vice Presidential candidate Jusuf Kalla, who when he was Vice President with SBY in the first term, was known for his ability to develop coalitions of support with Parliament, which led to a much more successful first term by SBY than was his second term.

So the one hand, Prabowo, who I think is harking back to the political centralization of Suharto and the economic interventionism of Sukarno, and then on the other hand we have Jokowi, who really seems to believe in solving problems from the bottom up, from consulting with people and empowering people, so it’s two very, very different approaches toward the country’s future.

NICK PARROTT: Thanks, Vikram.  So with that, I’ll open it up to questions as people have them.  Could I just ask – I should have said at the top of the call, please can you mute your lines if you’re not asking a question with star-6 or mute on your phone, and when you ask questions, just introduce yourself as well.  That’d be great.  So the floor’s open.  Okay, we’ll come back in one minute, then in that question, but maybe, Vikram, you touched on it, but could you talk a little bit more about the economic platforms of the two candidates or what could be expected from either candidate in office or from the point of view of the future of the economy?

VIKRAM NEHRU: The two candidates have very similar approaches when it comes to a range of issues.  For example, they both intend to reduce the subsidy bill, though I think Jokowi has given a far more detailed program as to how he proposes to do that in stages.  Both intend to support the mineral export ban.  Both, I think, wish to improve the quality of education and both sides have come up with pretty detailed proposals on how they propose to do that.  And I think both are interested in reducing foreign participation in the financial sector.  So, there are similarities in their economic proposals, but there are also differences.  For example, in agriculture, Prabowo has a very ambitious agriculture program, and it’s so ambitious it’s to be almost seemingly infeasible.  He intends to transform 16 million hectares of forest land and convert them into biofuel and food farms and create 40 million new jobs in agriculture.  This seems to fly in the face of Indonesia’s own experience with transmigration, for example, in the 1970s.  And also, what is needed in agriculture is not so much expansion of the area under cultivation so much as an increase in yields and in labor productivity so that labor can released in order to go into manufacturing to facilitate the transformation of the economy.  And Jokowi, on the other hand, is not arguing for more area under cultivation.  He is, indeed, arguing for more irrigation, which would indeed raise both labor and land productivity, which is exactly what is needed.

Then, I think, you have a different approach towards the private sector.  I get the sense that Prabowo, especially because he has Hatta as his running mate, is keen to boost interventionism by the government and state enterprise development.  Hatta was supportive of state enterprises as the Coordinating Minister for the Economy.  Jokowi, on the other hand, is proposing to remove impediments to private sector participation, so many of his statements are focused on streamlining the regulatory environment for investment.  Prabowo has emphasized a great deal his desire to change, to rewrite and renegotiate contracts with foreign companies involved in natural resource extraction, whereas Jokowi has said that he intends to honor these contract and, of course, if he can legally revise them, he doesn’t want to abrogate those contracts, but if he can legally revise them, he proposes to take a look at them to see whether they need revision and in what direction, but he’s been – his statements have been far more open-minded on the issue of foreign contracts.  So they – so there are differences, which I think very much reflect their different styles as well as, I think, the advisors that they have on these issues

NICK PARROTT: Sure.  Do we have questions that you want to put to Vikram?

REPORTER:    Can I ask a question?

NICK PARROTT: Sure.

REPORTER: I was just taking a taxi here earlier today and it took about two hours just to move from one place to another in Jakarta.  And, yes, everybody knows that the infrastructure here is poor, and it seems not much progress has been made in recent years. Do you think we will see a rapid improvement of infrastructure after either candidate takes in power?

VIKRAM NEHRU Well, Takahiro san, you have my sympathies because I too was stuck in a taxi today.  It was unbelievably bad, so yes, I think – now, both candidates have said that they intend to push ahead with infrastructure.  Of course, it became a sort of oneupmanship, with each candidate coming up with even more miles of roads and even more ports that they were going to construct in their tenure.  One has to take that with a pinch of salt, but the reality is that Indonesia needs more infrastructure.  Now, the question is, how will they finance it.  And one clear means of financing is to take on more debt and raise more revenue, and indeed, Prabowo has been emphasizing the fact that Indonesia, at this point, is under-indebted, and so he has said that not only would he intend to raise the revenue-to-GDP ratio, but also borrow more in order to finance the infrastructure development.  Provided he does that carefully and will ensure that Indonesia doesn’t fall into another debt trap, that’s a perfectly reasonable strategy on the financing side.

But the other part of financing is also going to be a reduction in fuel subsidies, and here again, both candidates have said that they’d reduce it, and provided that they do so, they will have additional resources available for infrastructure.  So on the resource side, I think there is availability of finance.  The question is, in addition, is the implementation of many of these infrastructure projects.  So land acquisition has always been a So land acquisition has always been a problem and, true, the law on land acquisitions and its regulations have just been issued, the big question is how effectively they’ll be able to administer this and the new administration is gong to have to demonstrate its capacity to implement.  And here I must say Jokowi has a little bit of a track record.  I mean, he was able at least to start the MRT and the monorail system in Jakarta in the short time that he’s been here even though previous governors were not able to do so.  That does show that he has a capacity to move things along, though I do hear that even these two programs have hit their own roadblocks, but the reality is I think he has much more experience in getting these sorts of things done.

NICK PARROTT: Sure.  Other questions?

REPORTER:    Yeah, I’ve got a question.

NICK PARROTT: Sure.

REPORTER: Yeah, of course.  We’ve talked a bit about this, and the youth vote, especially from 17 to 29, and the concerns that they may not come out to vote in high numbers.  Do you think some of this can be attributed to the fact that most of them don’t remember the Suharto era and take democracy for granted to a certain extent?

VIKRAM NEHRU: Well, you’re absolutely right.  There’s about 54 million voters who will be in the 17 year to 29 year age bracket, and many of them would have been so young at the time that Suharto was in power that obviously they don’t remember those days, and all they’ve known is a vibrant democracy, and there is some concern that they may not come out in the numbers that people would like, and so there’s been a big effort by NGOs, by the Election Commission to bring out the vote.  In the few days that I’ve been here, it’s very obvious that there’s been a lot of reminders for people to vote.  These are very positive signs so that they want participation, and also there have been some surveys actually of the electronic media, and there, there’s been a huge amount of activity on Twitter, on Facebook and so on, and this is clearly an area where the young are far more prevalent, and I think one particular survey showed that the electronic – that the social media was, to a large extent, dominated by Jokowi supporters, which is interesting.  I don’t know how definitive that is, I have no basis to validate that particular result, but I thought it was an interesting survey that seems to suggest that, first of all, social media is extremely active and secondly, seems to be trending toward the Jokowi camp.

REPORTER:  Thank you.

NICK PARROTT: Other questions?  One thing – yeah, go on, please.

REPORTER:  I don’t know if I can ask one more question, like more general question.  During the past 15 years, economic growth rate was not as great as before, like especially that became more apparent since last year, and some people are supporting Prabowo precisely because they believe the new order era in that time, their life was easier, so my question is what challenges are ahead for the next President, and how can Indonesia avoid falling into the middle income chart and embrace the potential that this young country has?

VIKRAM NEHRU: Right.  So lots of questions wrapped into that one question, but let me just take them one by one.  At the superficial level, over the last 30 years from 1968 to 1998, the average growth rate of Indonesia was around 7.8 percent.  Of course, since the international crisis, the average growth rate was somewhere between 5 and 6 percent.  So, if you just take those averages, you would be led to believe that, under Suharto, the growth rate was much greater.  But, I mean, the reality is that over the last decade and a half since the international crisis, several things are very different.  First of all, the executive has to work with the legislature, and I think for the last 15 years there has been a little bit of an exploration in Indonesia’s new political institutions as to how much space they have and what power it can it can weild, and so the relationship between the executive and legislature has been a rocky one, a difficult one.  I’ve thought this is not something that Suharto faced in his time because he had absolutely no opposition at all in Parliament, but it's something that Presidents since 1999 have faced.  So that’s one thing.  Introducing policy reforms is not as easy now as they used to be.

The second is that the world economy has been very different over the last 15 years compared to the previous – to the 30 years under Suharto.  You've had the global financial crisis, of course, but you've also had much slower global growth.  China’s beginning to slow, so be aware there are challenges in the international environment.  For the last ten years, even though Indonesia has grown rapidly, it’s been largely on the basis of strong commodity prices.  It hasn’t been because of substantial growth in manufacturing.  In fact, we know that manufacturing has declined as a share of GDP.  This is a matter of some concern because it has an implication for the availability of high-quality jobs.

So looking forward, Indonesia has to deal with a big issue.  How do you get a combination of rapid growth in output and rapid growth in high-quality employment, and to my mind, you can’t get growth and employment if you follow a strategy which primarily focuses on the natural resources sector.  Natural resource development is very capital intensive.  Similarly, the agricultural development does not lead to rapid growth.  It may lead to a lot of employment, but it doesn’t lead to rapid growth simply because productivity growth in agriculture tends to be very low.  So the real strength of Indonesia will have to be in manufacturing, especially in labor-intensive manufacturing, and in high-end services.  Although high end services also doesn’t necessarily lead to a lot of employment.  So it’s very labor-intensive manufacturing.  And again, for labor-intensive manufacturing, a lot of things need to be done  You need to have infrastructure that we just talked about.  You need to have a good investment environment that we just talked about.  You need to have, according to me, an exchange rate policy that is supportive of tradables against nontradeables, and I think what that means a somewhat different mix of monetary policy and exchange rate policies in the country.

There are a lot of things that have to go right, and lastly, of course, what I haven’t mentioned is you need to have a better education system simply because you need more skills in the manufacturing sector than you did in the agricultural sector.  So there are many things that have to go right.  This is a massive challenge for the world’s fourth-largest country, and even though the country can chug along at 5 percent, the question is, it really has the potential to enjoy an 8 percent a year growth rate, even more provided it has the right policy mix and a stable political and economic system.

NICK PARROTT: Sure.  Thank you.  Further questions?

REPORTER:  Question is because ___ supported the price of commodity goods in rural areas and remote islands are actually higher than in cities, and economic gap between urban area and rural area is becoming larger and larger, and I wonder how much are you concerned about this enlaraging inequality in Indonesia?  Thank you.

VIKRAM NEHRU: Thank you.  Actually, I don’t think your premise is quite right.  You’re right that inequality is growing, so the Gini coefficient has gone from 0.33 to 0.41 over the last decade or so.  So there’s no question that inequality has climbed, but this is not the result of rising rural-urban inequality.  In fact, rural-urban inequality, even though it has increased a little bit, it is not the major driver.  The major driver of inequality in Indonesia is intra-rural and intra-urban inequality.  Inequality has been growing within urban areas and within rural areas much faster than, say between rural and urban areas, and that’s because there’s been migration to the cities, so for example migrants, especially those who are unskilled, who don’t have jobs in the agricultural sector find their way to urban areas, and that leads to increased intra-urban inequality.

Now this rise in inequality, in my view, is a symptom of the problem that I mentioned earlier.  It’s a symptom of the fact that even though the economy has been growing, it has not been creating sufficient number of high-quality jobs.  By high-quality jobs, I mean jobs with a higher productivity than what you would get in the informal sector, be it in agriculture or urban areas.  It is this transformation from low productivity to high productivity jobs that tends to be the major driver of growth in developing countries, and that shift is not taking place, at least hasn’t been taking place over the last ten to twelve years in this country, and that’s the big challenge.  Unless that is done, inequality will continue to rise and that is never a good recipe for future social stability.  In my view, one of the reasons why Jokowi has been so popular has been because he does appeal to many poor, low-income people as somebody who’s genuinely concerned about them, who has not forgotten their plight, who doesn’t belong to Indonesia’s elite and who is – seems to be absolutely focused on delivering basic social services for them in the form of better education and better health.  He’s introduced a health insurance scheme that has made basic health available to the poorest segments of the population and it’s, it’s very, very cheap and it’s been surprisingly successful and it has been, at this point at least, something that the fiscal system has been able to afford.  So he has – he seems to have struck upon an approach that does deliver to the poor, both in health as well as actually in education as well.

REPORTER: I see.  Thank you.

NICK PARROTT: So anyone else?  Vikram, the one thing you haven’t touched on yet is, what has been Indonesia’s role in the world, as a key ASEAN member.  You’re based out of Washington and have just come from China.  Wonder if you can reflect on what you – how you see Indonesia’s place in the world evolving under the next President, particularly relations with the U.S. and with China.

VIKRAM NEHRU: Right.  Let me start – that’s a good question, and frankly a tough question.  So let me start with what I think the two big challenges facing Indonesia are, as far as the world is concerned.  The first is that Indonesia is the leading member of ASEAN, and it is wedded to an ASEAN-centered approach towards it relations with the rest of the world.  The trouble is, of course, that ASEAN itself is not as effective as it possibly could be and, in part, it’s because the ASEAN secretariat is not as strong as it could be.  It’s simply underfunded, it’s understaffed and it’s overwhelmed by the number of initiatives that ASEAN has been – has asked them to undertake.  So I think one of the top priorities for Indonesia in coming years should be to be a leader in developing and strengthening the ASEAN framework by providing more resources to it, by making sure it has strategic capability and using it as an effective tool in advancing Indonesia’s interest in the world, and so I think that’s a major priority.

The second major priority is a priority that faces all Southeast Asian countries, indeed all Asian countries, and that is to deal with the rise of China.  Up to this point, Indonesia has been happy to sit by the sideline, so to speak, and not take an active part in some of the discussions and disagreements over China’s assertive approach, for example, in the South China Sea, and it wasn’t until the 9-dash line came out, and in fact now it’s a 10-dash, a recent map that was officially produced by China, which, on the face of it, seems to encroach upon areas which have been claimed by Indonesia for a long time.  And this has given a jolt, I think to Indonesia’s foreign policy establishment as well as its military and has given considerable cause for concern.  Amongst two candidates, it was actually Jokowi who has made statements with respect to the South China Sea, making it very clear that Indonesia would not cede any of its territorial or maritime claims to any other country and is prepared to defend it.  And it was another interesting, strong, clear statement of what he would see as Indonesia’s approach toward this particular issue.  Prabowo has been pushing for a strong Indonesia, for an Indonesia that is also assertive in its international affairs and so forth, but I don’t think he’s specifically mentioned the South China Sea as such, so there’s a little bit of a difference between the two candidates on that issue, though I dare say that he will be as willing to support Indonesia’s claims just north of the Natuna Islands and the area surrounding the Natuna Islands as Jokowi would be.

So I think on foreign policy grounds, I don’t see that much of a difference.  I think perhaps Prabowo would be much more active himself in foreign policy issues.  As you probably all know, he was educated abroad.  He’s had lots of interactions with the United States military, as his brother reminded us in Washington when he came to speak there, that he has a very close bond with the United States.  So I think he will be somebody who will take far more interest in foreign policy, but as Jokowi is likely to be a domestic policy-oriented President who will probably leave foreign policy to his Foreign Minister, and only take decision as and when he is called upon to do so.  I think it will be a less active foreign policy presidency under Jokowi.  That’s my sense.

NICK PARROTT: That’s great.  Thanks, Vikram.  Thanks, everyone for joining.  We’ll wrap up there.  We’ll have a transcript available tomorrow, and if anyone wants to follow up, then they can do that by getting in touch with my colleague, Clara Hogan.  So thanks very much, all, for joining and thanks, Vikram, for joining as well.

VIKRAM NEHRU: Thank you very much, everybody.  All right, take care.

NICK PARROTT: Bye-bye.