BSI - Business Strategies International


Here in Indonesia the effects of the Asian economic meltdown are especially severe. Political and economic problems fester beneath the fragile social fabric of this vast island nation, threatening - like the volcanic magma that lies below - to break the surface and wreak havoc. This is a country of haves and have-nots, where President Suharto’s friends and family have amassed great wealth, estimated by critics to be $30 billion for the family alone, but most people live in relative poverty. The normally passive Indonesians, culturally conditioned to respect and reward those in positions of authority, are increasingly restive. Students on university campuses throughout the country are demonstrating with brazen chants such as "Reform or death!" and "Bring down prices! Bring down Suharto!," but so far the students, and political activists like Megawati Sukarnoputri, the daughter of Sukarno, Suharto’s predecessor, are careful to follow rules that limit their activities.

Upside Magazine, June 1998

Today, the local currency stands at less than 60 percent of its pre-meltdown value of a year ago, and prices of the staples for everyday life, such as rice, sugar, kerosene and cooking oil, have increased by more than half. Many stores, restaurants and service establishments are closed for lack of business. Foreign investors whose projects had not yet launched when the meltdown hit are packing their bags and heading home.

An executive of an American investment company, who chose not to be identified for this article, says that there is tremendous uncertainty and pessimism among the business community, in contrast to the upbeat mood that prevailed a year ago. “My company is helping to restructure Indonesian companies and joint ventures in which our clients have investments. We’re trying to stop the bleeding, but no one seems to know what to do. The issue is stability. The currency needs to stabilize so that businesses can adjust to its new level, make plans, and start again.”

Noreen McQuade O’Neill, an American marketing consultant who spent the last three years in Jakarta but has now returned to the United States, believes that foreign investors in Indonesia will hang on, if they can, until things get better. “They have too much invested to just walk away. But things will get much worse for them before they get better.”

Indonesia’s technology industries will surely get worse for the next few years because they rely heavily on new foreign investment and new technology. Most of the action, or lack of action, for these industries will occur in industrial parks established in Indonesia’s Riau group of islands south of Singapore, a “growth triangle” supported by the governments of Indonesia, Singapore and the Malaysian state of Johor. Five semiconductor manufacturers, NEC, Sharp, Matshushita, Omedata and Astra, produce chips of various types on Batam Island . Several other companies, such as HongGuan Technologies, German Plastic Technology, EscoMicro and Yoshikawa, manufacture various electronic products on Bintan Island.

One tech-related casualty of the times, and of demands by the International Monetary Fund that large public projects be shelved, appears to be the ambitious program of Indonesia’s state-owned aircraft manufacturer, PT Industri Pesawat Terbang Nusantara (IPTN), to build a passenger jet, the N-2130. IPTN, which now manufactures a turboprop passenger plane, the N-250, and is “reviewing the funding” for the N-2130 program, is the brainchild of B. J. Habibie, the former Minister of Research and Technology whom Suharto recently named Vice President and his potential successor. Notwithstanding the support of Habibie and its claim to be a national symbol of technological progress, IPTN is apt to languish in the near term along with other Indonesian tech companies.

Yet Indonesia makes much of its technological progress to date. Its Palapa satellite program established the foundation of the country’s domestic and regional communications, linking ground systems of more than 6,000 inhabited Indonesian islands (an additional 7,000 islands in the archipelago are uninhabited) and the systems of other countries in the region like Singapore, Thailand and Malaysia. For such a geographically disconnected country, Indonesia’s communications systems are impressive in the sky, but they are less impressive on the ground where hard wired systems are often antiquated, electrical brownouts often affect service, and service costs are high. Installation charges for a new telephone line are about $250 and basic service is about $10 a month.

The word palapa, incidentally, means “fruits of labor,” but the Palapa satellites are not the fruits of Indonesian labor. They were developed and put in orbit largely with American technology and support.

For Internet and Web development in Indonesia, the near term outlook is bleak. Only ten of 42 registered ISPs are still in business, according to Agam Tasnim, a commercial assistant at the U.S. Embassy in Jakarta. “This is largely because backbone rent payments, which must be paid in U.S. dollars, have escalated to 80 or 90 percent of an ISP’s income, paid in Indonesian rupiah.” At the moment, however, Internet dialup access charges seem to be holding steady and can be a bargain for people with hard currency income. James Agee, a consultant in Jakarta, reports that one year ago he was paying the equivalent of $45 a month for access and now pays about $9.

Yet the Internet got off to an early and healthy start in Indonesia, according to Hanson Cheah, a former Indonesia Country Manager for Transpac Capital. Cheah, now a founder and executive director of AsiaTech Ventures, a technology venture capital firm with offices in Silicon Valley and Hong Kong, says that “IndoNet got in the game in 1994 and continues to be one of the major Indonesian ISPs and Web site developers. Others soon jumped on board, including, another major ISP.”

“In the beginning,” says Cheah, “new ISPs began without a permanent license, operating under 30-day licenses that gave the government an opportunity to check them out. Years later, most of those that are still in business are operating with the 30-day licenses they started with.”

Oddly, for a country that works hard to control the hearts and minds of its people and sends dissidents to prison under a tough anti-sedition law, the government has not yet taken steps to control content on the Internet. And ironically, Tempo, once Indonesia’s top newsmagazine but banned for the last four years for being too bold, is now thriving on the Internet. “Topics that for the most part are unmentioned in the local press are openly discussed on a variety of Internet forums,” says Hal Sullivan, head of Osana International, an American consulting firm in Bogor, Indonesia.

Perhaps the government’s tolerance of free speech on the Internet has as much to do with how few Indonesians are on-line as with the difficulties of implementing any effective content control. Hanson Cheah estimates that there are only around 40,000 Internet users in all of Indonesia, 80 percent of them located in Jakarta. Sachin Gopalan, marketing manager of The Castle Group, a business research and analysis firm in Jakarta, believes there are about 60,000 users, including about 380 corporate accounts.

The number of users is not apt to increase significantly while the current negative economic conditions prevail. “Only a very small percentage of Indonesians make enough money to buy computers, let alone pay telephone and access charges,” notes Noreen O’Neill. Moreover, there are educational and cultural impediments.

“Computer literacy in Indonesia is quite low, and there is a tendency to regard the computer as a typewriter, to be used by clerks and computer professionals only,” according to PT Penelitum Hukum Indonesia, a Jakarta firm that publishes Indonesian laws on CD-ROM and recently participated in an Asian Development Bank study on “Developing the Internet for Asian Law.”

During these volatile times, technological progress in Indonesia, including development of the Internet and Web, would seem to be pretty much on hold. “We are in for very high inflation in the next few months, and this could trigger some incidents,” says James Castle, founder and chairman of The Castle Group in Jakarta. “But reports in the international media indicating social and economic turmoil are greatly exaggerated. We will get through this.”

President Suharto, who continues to play a cat and mouse game with the International Monetary Fund over the stringent conditions to the Fund’s $43 billion bailout package, remains the very picture of calm and self-confidence, fully intending to “get through this.” He has brought his country a long way during his 30 years in office, building a diversified economy that has lifted the standard of living of most Indonesians. As a consequence, Suharto is often called Indonesia’s Bapak Pembangunan or “Father of Development.” Yet if Indonesia fails to stem its current economic slide, Suharto may well be remembered as the “Father of Disaster.”

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