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The real challenge for Indonesia's next president

Weak institutions have become a binding constraint on growth

| Indonesia

The runup to Indonesia's general election on April 17 has so far seen four revealing presidential debates. Occasionally strident, sometimes humorous, the events have been a welcome opportunity for the candidates, incumbent President Joko Widodo and former general Prabowo Subianto, to reach out to voters.

Mostly, the candidates agree on the development challenges facing the country and what the policy solutions should be. But they have been silent on the more difficult question that defines the key issue in this election -- how to design and implement policy priorities effectively in a fractious political climate and with weak state institutions bedeviled by corruption.

The candidates need to demonstrate how they will ensure that Indonesia creates institutions that can offer policymakers informed evidence-based policy options to achieve their development priorities -- together with the capacity and integrity to implement their decisions. The next president should be a builder of such institutions.

Both candidates have shown themselves in the debates to be clear-eyed about the challenges the country faces. Indonesia has made remarkable progress over the past half century, and is now the world's seventh largest economy measured by purchasing power parity, and the 17th largest at market exchange rates, according to the World Bank.

But social and economic indicators give cause for concern. Inequalities of income, consumption and wealth are high -- the Gini number for income inequality has climbed from 0.3 in 2000 to near 0.4 now, one of the highest in East Asia. Access to health care, education services and employment are unequal. For example, more than 40% of households from the poorest decile have their babies delivered by unskilled assistants compared with around 5% of all households.

Meanwhile, food and energy insecurity is increasing; infrastructure and human resource deficits are growing; technological and innovation capabilities are lagging further behind competitor countries; local enterprises have been bypassed by regional and global supply chains; and corruption remains rampant. Indonesia ranked 89th of 180 states in the global rankings of corruption perceptions compiled by Transparency International.

Both candidates largely agree on what ails the economy, and rightly express concern at the current state of affairs. Their economic platforms reflect a long-standing consensus among observers and analysts of why the Indonesian economy has failed to perform to potential.

Both place high priority on infrastructure development, health and education, inequality reduction and environmental protection. Both also espouse economic nationalism, and are skeptical of foreign trade and investment. And both believe that the state must play a central role in economic development.

But both have been silent on how to achieve the policy solutions they champion. Active developmental states need capable institutions. Yet Indonesia's institutions that are charged with identifying policy priorities and implementing decisions are deeply flawed. The government's policymaking and implementation capacity has not kept pace with the increasing sophistication of the economy and the complexity of the challenges it faces. For example, Indonesia's insistence on local content requirements in a range of industries from dairy to automotive raise production costs, undermine international competitiveness, and discourage foreign and domestic investors.

Arguably Indonesia's institutional shortcomings have become a binding constraint on growth. The problem manifests itself in a variety of ways: Ministries undermine or contradict each other and the government announces policies only to cancel the proposed actions, such as the flip-flop on fuel price increases in October 2018. Meanwhile, widespread corruption prevents or dilutes implementation of policies and programs, rendering them largely ineffective.

To be sure, Indonesia's public administration apparatus does have a few islands of excellence. Its economic institutions -- the central bank, the Ministry of Finance, the national planning agency and the national audit board -- deserve credit for maintaining macroeconomic stability in a volatile world. The Corruption Eradication Commission has a stellar record of convictions in a hostile political environment, including the conviction of the former parliamentary speaker, Setya Novanto, who was last year jailed for 15 years and fined for alleged fraud in connection with a public contract for electronic identity services. And the Constitutional Court and Election Commission have acquired respect internally and internationally despite occasional scandals.

But the rest of Indonesia's institutional framework and public administration apparatus is in desperate need of overhaul. Ministries tend to work in silos, sometimes at cross purposes, and implementation of strategic economic objectives lacks high level coordination across the whole of government, including local administrations.

The president and cabinet do not receive the best information on available policy options before making policy decisions. Implementing agencies do not always possess capable, empowered and honest civil servants who can carry out the decisions of political leaders. And the justice system largely fails to deliver legal certainty to investors, companies and individuals, often issuing decisions that are flawed by inconsistencies and poor reasoning.

Clearly such fundamental shortcomings cannot be fixed in a single five-year presidential term. The reality is that complex, interdependent and competent institutional systems take time to build and secure. The forces protecting the status quo are powerful and well entrenched. They will not be budged easily. Only cumulative progress through small, incremental improvements, over decades, will result in fundamental transformation.

Changing the culture of corruption will take strong leadership. There are no road maps to follow. Indonesia can look to other countries for inspiration -- after all, many have traversed the same path -- but ultimately the country's solutions will need to be uniquely Indonesian to ensure that they endure in its unique historical, political and cultural setting.

Change needs champions, and institutional change, given its centrality in the creation of a prosperous and just society, needs a strong and committed champion who displays patience, purpose, and perseverance. None other than the president comes remotely close to fitting the bill.

Strengthening existing institutions and building new ones is not a job a president should delegate. Indonesia's islands of institutional excellence show how it can be done. There is no time to lose. The next president must get on with the job.

Vikram Nehru is distinguished practitioner-in-residence at Johns Hopkins University School of Advanced International Studies in Washington D.C.

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