Raised fuel prices will bolster the government's bottom line.

Photographer: Bay Ismoyo/AFP/Getty Images

Growth Isn't God in Indonesia

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Joko Widodo's rise from nowhere to Jakarta governor and then the presidential palace showed the wonders of Indonesia's democracy. Now, he wants to democratize the economy as well, focusing as much on the quality of growth as the quantity.

Sixteen years ago, Indonesia was cascading toward failed statehood. In 1998, as riots forced dictator Suharto from office, many wrote off the world's fourth-most populous nation. Today, Indonesia is a stable economy growing modestly at 5 percent, with quite realistic hopes of more.

There's plenty for Widodo, known by his nickname "Jokowi," to worry about, of course. Indonesia still ranks behind Egypt in corruption and near Ethiopia in ease-of-doing-business surveys. More than 40 percent of the nation's 250 million people lives on less than $2 a day. A dearth of decent roads makes it more cost-effective to ship goods to China than across the archipelago. Retrograde attitudes abound: to this day, female police recruits are subjected to humiliating virginity tests.

But this week, Jokowi reminded us why Indonesia is a good-news story -- one from which Asian peers could learn. His move to cut fuel subsidies, saving a cash-strapped nation more than $11 billion in its 2015 budget, showed gumption and cheered investors. Even more encouraging is a bold agenda focusing not just on faster growth, but better growth that's felt among more than Jakarta elites.

This might seem like an obvious focus in a region that's home to a critical mass of the world's extreme poor (those living on $1 or $2 a day). But grand rhetoric about "inclusive growth" hasn't even come close to meeting the reality on the ground. In India, for example, newish Prime Minister Narendra Modi boasts that he will return gross domestic product to the glory days of double-digit growth rates, as if the metric mattered more than what his government plans to do with the windfall.

The "Cult of GDP," the dated idea that booming growth lifts all boats, has long been decried by development economists like William Easterly. The closer growth gets to 10 percent, the more likely governments are to declare victory and grow complacent. In many cases rapid GDP growth masks serious economic cracks. In her recent book, "GDP: A Brief but Affectionate History," Diane Coyle called the figure a "familiar piece of jargon that doesn't actually mean much to most people." 

Jokowi appears to see through the hollow superlatives global consumer companies toss around when it comes to Indonesia -- a middle class that will double to 141 million by 2020; a population where half of Indonesians are under 30. Per capita income -- $4,000 at best -- significantly lags peers like Malaysia and Thailand. For all the hype about Indonesia's supposed middle-class boom, many households still grow rice and other crops for a few hundred dollars per harvest. That's why Jokowi's early policies are populist in thrust: welfare programs, handouts to local governments and improved access to health and education.

But Jokowi also is taking five vital steps that should do more than add a few dollars to daily salaries: attacking official corruption; cutting the red tape that turns off foreign investors; launching an ambitious infrastructure-improvement program; increasing tax-collection efforts among the politically-connected elite; and strengthening industry, particularly manufacturing, to boost incomes broadly.

While each is crucial, the last one could be Jokowi's most important legacy. The idea is to emulate Japan, South Korea and Taiwan in making added-value products through better training and infrastructure. That would diversify an economy that still relies too much on exporting natural resources to China.

Roadblocks abound, not least an opposition eager to maintain its privileges and cozy business dealings. Nor will it be easy to balance pro-investor strategies with protectionist currents in Jakarta. But for neighbors like Vietnam, Myanmar and even Thailand, which also suffers from dramatic levels of inequality, Jokowi's agenda provides a pretty decent roadmap to spreading the benefits of growth. Good news, indeed.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Willie Pesek at wpesek@bloomberg.net

To contact the editor on this story:
Nisid Hajari at nhajari@bloomberg.net