FUTURE CHALLNGES in the Second Decade of Reform

1. FUTURE CHALLNGESin the Second Decade of Reform By Emil Salim Professor Emeritus Economic Faculty University of Indonesia, Jakarta ICWA, May 10, 2010

2. THE TURBULENT FIRST DECADE The years of Reformasi 2000-2010 was a decade of turbulence with: • four elected Presidents & Vice Presidents; • democracy with free press, direct elections of President & Vice Presidents, members of Parliament & Senate, provincial & district representative councils, governors, districts and village heads; • Terrorist’s bombs; wide spread corruption, money politics, deforestation, pollution, ethnic and regional conflicts, high quantity but low quality political parties;

3. “AUTOPILOT” TECHNOCRATIC ECONOMY While politics changed drastically, the economy: • Grew 0.8% (1999) to 6.3% (2007) to 4.5% (2009) ; • GDP/capita (PPP) $ 2,621 (1999) to $ 3,674 (2009); • Number of poor dropped from 47.5 mill. people (1999) to 32.5 million (2009); • Export $ 49 bill. (1999) to $ 137 bill (peak 2008) to $ 116.5 billion (2009). Export RI = 1% of global export • Foreign Exchange Reserve: $ 27.1 bill. (1999) to $ 66.1 billion (2009); Bursting of global financial bubble 2008-2009 has reduced growth rate but less adversely affected in East Asia, including Indonesia, than in other regions.

4. THE RISE OF ASIAN ECONOMY 1.Asia’s share of the world economy increased from 18% (1980) – 27% (1995) – 34% (2009); 2.Roughly 60% of world’s population live in Asia but account for only 20% of global private consumption, takes 33% of world retail sales, 35% of all car sales, 43% of mobile phones (2009) and 35% of world’s energy. (Source: The Economist, 27/2-5/3/2010) 3.In 2009, 40% of global investment took place in Asia, Asian firms launched 8-10 biggest IPO, Initial Public Offerings. By 2020 Asia will produce 50% of Western multinationals’ sales & profits, up from 20-25% today; 4. Share of world trade 2005-2009: Asia up 27 to 31%, North America down 18 to 15%, EU down 27.39 to 27.38, Rest of the World down 12 to 11%

5. STRATEGIC ROLE OF ASIA • In first quarter 2010 Indonesian non-oil/gas exports to ASEAN (21.13%), Japan (12.8%), China (10.69%), South-Korea (5.73%), Taiwan (2.59) total Asia=52.94% of 12 major export destination countries; • Imports from Asia=61.41% of 12 major im-port countries. (BPS 2010); • % exports of total exports Jan-Feb 2010: Ja-pan (13%), China (11%), US (10%), Singa-pore (8%), Malaysia (6%) (WTO 2010);

6. CHALLENGES IN SECOND DECADE Five major challenges of the second decade: 1. Regionalization of development; 2. Mitigation-adaptation of climate change; 3. Food and energy security; 4. Reaching for the Millennium Development Goals; 5. Raising Indonesia’s unique competitive position;

7. INDONESIA IN ASEAN AND ASIA • Asia will become the major locomotive of glo-bal growth in which Indonesia is part of it; • Indonesia must play a major role in ASEAN Economic Community by creating an appro-priate spatial plan treating ASEAN as one economic entity with division of labor; • ASEAN must play a major role in developing a peaceful ASIA region surrouded by friendly neighbours Russia, US, Australia-New Zealand

8. CLIMATE CHANGE CHALLENGES 1.“Copenhagen’s Note of 2009” has delayed ta-king needed actions and will raise global tem-perature with 3.2 – 3.9 degrees warmer 2100; 2.Mitigation with adaptation action should be ta-ken to prevent deforestation & peat land ex-ploitation, coping with sea level rise, floodings, reduced agriculture products, coping with new weather related diseases (dengue, malaria); 3.CO2 reduction scenario 2005-2020 from 2,262 Gton (2005) to Business as Usual 2,949 Gton (2020) to become -26% = 2,182 Gton CO2e;

9. FOOD & ENERGY SECURITY • Indonesia strives for resilience in food and water that dictate food self sufficiency with diversification; • Energy mix is aimed to support low carbon growth, diversified energy suitable to the island’s geographical conditions; • Both food and energy development requires co-benefits results that also reduces carbon emissions; • On the long run a appropriate “get the price right” level needs to be achieved;

10. REACHING FOR MDG • To mainstream MDG in 2010-2015 plan with assuured funding to reach poverty eradication educationm, women empowerment, reduce infant mortality rate & maternal mortality rate family planning, reduce HIV Aids, Malaria, environment, 2. Special efforts needed on maternal mortality, control of HIV-AID, environment; 3. Disparity between provinces requires special attention;

11. INDONESIAN UNIQUE COMPETITIVE POSITION • Indonesia is the largest archipelego with 17.508 islands on the equator with terrestrial tropical rain forests and tropical marine resources with diverse micro-climate; • Our natural species are the sources for food, horticulture, pharmaceutical, cosmetic and industrial products; • It needs to be enriched by science and tech-nology raising its value added and strengthen Indonesia’s global competitive position.

12. INDONESIA IN THE SECOND DECADE 1.Growth with equity through green economic development to reach for $ 4,500 (2014); 2.Equity through launching programs of MDG; 3.Green economy is aimed at reducing CO2e through co-benefits on equitable growth; 4.Regional economic cooperation through the market with planning and policy guidance; 5.Political democratic maturity is reached through raising people’s income, capacity and quality.