Online Extra: Yudhoyono's "Triple-Track Strategy"

Indonesia's President talks about raising growth, creating jobs, and alleviating poverty. Plus: His take on corruption and terrorism

Last October, Indonesian President Susilo Bambang Yudhoyono took control of the world's most populous Islamic nation -- and one that has had its share of challenges. The Dec. 26 tsunami took roughly 128,000 Indonesian lives in Aceh Provinces and other sections of Northern Sumatra Island. This sprawling archipelago of 224 million has also been a staging ground for al Qaeda-inspired terrorist attacks, including the bombing of a Bali nightclub in 2002. There's also the ongoing problem of separatist groups in Aceh and elsewhere.

Yet for the first time in years Indonesia has reason for some optimism. Since winning the country's first direct-election presidential campaign in September, Yudhoyono has won international praise for his crisis-management following the tsunami and his efforts to fight terrorism and the corruption that's rampant in Indonesia's political and business circles.

The retired general turned political reformer, who holds a PhD in economics, is also overseeing a long-sought-after economic recovery. The economy shot up 6.4% year-over-year in the first quarter, the best showing since 1996. And foreign investment is starting to stream back into this $255 billion economy, after slowing to a trickle since the mid-1990s.

Yudhoyono is clearly the most accomplished President Indonesia has had since the end of the authoritative Suharto regime in 1998. On June 17, a fit-looking and relaxed Yudhoyono discussed his economic plans for Indonesia, the scourges of terrorism and corruption, and other matters with BusinessWeek Hong Kong-based Asian Regional Editor Brian Bremner and Singapore-based correspondent Assif Shameen at the Presidential Palace in Jakarta. Edited excerpts from the interview follow:

Q: How is Indonesia coping with the aftermath of last December's tsunami?


The tsunami was kind of a wake-up call and also a test -- a test for our solidarity, and a test for our ability to deal with disasters. I flew directly to Banda Aceh on Day 2. Everything was paralyzed. I realized we had to build from zero.

The tsunami was certainly the greatest challenge of my entire public-service career. It wasn't difficult for me to mobilize the nation, because the whole nation mobilized itself. It was a powerful unifying event for Indonesia, and also for the world.

Looking back on our emergency relief operations, I think the most important things were speed and coordination. We were able to synchronize operations among the military, NGOS [nongovernmental organizations], government agencies, and so on. I promised I would appoint a man of competence and integrity to oversee Aceh's reconstruction -- and I did that with the appointment of Dr. Kuntoro Mangkusubroto as director of the Rehabilitation & Reconstruction Executing Agency. We want to rebuild Aceh speedily, but also effectively and accountably. So far, $1.2 billion in funds has been disbursed.

Q: Was the tsunami also an opportunity to end the separatist violence in Aceh?


Well, one month after my inauguration last October, I went to Aceh. I called upon all brothers and sisters involved in the separatist movement to unite and join us to build Aceh based on special autonomous standards.

After the tsunami hit, I once again called on them to terminate the conflict. I also instructed the military to change the mode of operations. In my view, the response has been positive. I'm optimistic that if this trend continues, we will be able to terminate the conflict.

Q: How do you propose to bring Indonesia back onto the prosperity track?


I have set up economic objectives to be achieved in the next five years. We have to have 6% to 7% growth over the next five years just to create jobs. My government's development strategy is based on what I call the Triple Track Strategy.

The first track is to achieve sustainable higher growth through a combination of strong exports and increased investment, both domestic and foreign. The second track is to stimulate the performance of the economic sectors to create employment. And the third track is to promote the development of the rural economy and agriculture to alleviate poverty.

By 2009, we aim to reduce the unemployment rate from 9.5% to 5.1%, and we seek to cut the poverty rate in half, to 8.1%. We also seek to increase growth on average of 6.6% per annum during the next five years. But we want to do more than pump up numbers. We intend to create quality growth that creates good jobs for around 2 million new job seekers each year. We also aim to improve the climate of doing business within Indonesia.

Q: To achieve any of that Indonesia needs to address its widespread problems with corruption, considered the worst in Asia. How do you plan to achieve that?


Fighting corruption is very, very important to our competitiveness. If we fail, we will lose the battle to attract foreign capital and stimulate our domestic economy. In many provinces, we have put corrupt local bureaucrats, political leaders and parliamentarians, majors, and even a governor in jail for their wrongdoings. Many government officials now have to think twice. The people really support my effort to combat corruption.

I have also listened to foreign and domestic businesspeople about the need for a sound legal framework and economic policies and less regulation. It takes about six months just to establish business in Indonesia. I have instructed my government to get that down to no more than two months.

Q: How can Indonesia attract foreign capital when so many business executives are fixated on growth in China and India?


I will do my best to fix many things in Indonesia, and I want to improve the climate to invest. We have to put our house in order. But actually, if you look at the existing trade between Indonesia and China, it's actually in a surplus for Indonesia. We realize that China and India are emerging, but that creates new markets. I'm a true believer that economic exchanges benefit both parties.

Q: The Australian government recently issued a warning about a possible new terrorist outrage in Indonesia. Is your government on top of this threat?


Indonesia is a large country, and the threat of terrorism is real. But this is true of other developing countries. The fight against terrorism, like corruption, is never-ending.

What I'm doing is launching a two-track strategy. We're conducting massive intelligence and police operations to find the terrorist cells and harass them. But there is a misunderstanding among some that terrorism is connected to Islam.

I say to my people again and again there is no relationship between the two. So -- and this is very important for Indonesia -- I want to strengthen the role of moderate Islam. We need moderate religious leaders who won't let their people be taken hostage by the radicals, by the terrorists. In doing so, I have to improve our education and communication to tell people that terrorism destroys everything economically, [as well as] the image of Indonesia.

Q: As the world's most populous Islamic society and a fledgling democracy, could Indonesia serve as a model for the developing world and the Arab states of the Middle East?


I have a dream and the Indonesian people have a dream also that we can someday show the world that Islam and democracy can live together. We proved it in our past elections last fall, which went smoothly, democratically, and peacefully. I want people to look at Indonesia as moderate, Islamic, and peaceful.

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