Globalization

Country ReportIndonesia:
National and Global Paradox
Instructor : Professor Ying Chan Tang
Members : Gary, Ronny, Rossi, Alex, Lolo,
Anh, Justin, Rosa, Jose, Marta
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Contents
1
Introduction(Gary)
2
External Influences & Corruption(Gary, Ronny)
3
The Economic Hit Man(Rossi, Alex)
4
Environmental Global Impact(Lolo, Anh)
5
Radical Muslim and Terrorism(Rosa, Justin)
6
Conclusion and Recommendation(Jose, Marta)
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I Introduction
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What is Globalization?
A process by which regional economies,
societies, and cultures have become
integrated through a global network of political
ideas through communication, transportation,
and trade.
~Wikipedia
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Globalization Facilitators
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Communication
Transportation
Trade
Investment policy (FDI)
Cultural exchange
Migration
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Globalization of Indonesia
Indonesia has many conditions to become a truly globalized country:
 Plentiful natural resources
 Huge labor force
 Strong domestic consumption
~Team 1: JP
BUT
Are they really globalized?
Do they benefit from globalization?
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Entry Barriers to Indonesia
• Corruption
• Unstable Political
Status
• Poor Infrastructure
• Terrorism
• Diversified Religions &
Ethics Groups
• Regulations for
Foreign Investments
• Mistrust of foreign influence and culture
- the fear of imperialism and colonialism
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Risk of Globalization
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Global Political Influence
Economic grab from the West
Environmental Impact
Wealth Inequality
Terrorism
Religious Conflict
Cultural differences
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II. External Influences
& Corruption
Gary , Ronny
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Influences from the US
 Tension between the communists & the Western
world in the Cold War
Indonesia
Communism was spreading in Asia –
Korea, Vietnam, and Indonesia (PKI)
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Influences against the US
 US policy aimed at
protecting their own anticommunist interest –
Indonesia’s natural
resources & strategic
location
 Sukarno’s neutralism
placed him on the wrong
side of the US
government
Part of the Cold War Conflict
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Influences from the US
 In one of the largest mass killings of the 20th
century, an estimated 500,000 to 1,000,000
people were secretly and systematically killed in
1965-1966 in a bloody purge of suspected
communists throughout Indonesia
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Influences from the US
 The link between CIA, Pentagon and Suharto was built.
 During 1966, CIA transferred money to support Suharto.
 After President Suharto took office in 1967, USIndonesia relations improved tremendously
 Suharto's unyielding opposition to communism won him
the backing of the USA
 He gave USA the right to explore natural resources in
Indonesia
 Suharto ruled Indonesia for more than three decades,
before being forced to step down in 1998.
The Video
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Influences from the US
 During Suharto’s presidency, investment from the West
was encouraged and Indonesia enjoyed rapid economic
growth.
 However, the influx of foreign capital and investments
opened the door for widespread corruption in Indonesia
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Corruption
 A persistent huge problem
in Indonesia
 Corruption is a 2-way
street with a giving and a
receiving end
Givers – Foreign Corporations
Receivers – Indonesia Power Elite
A way for the foreign companies to conquer favorable
infrastructural, industrial and mining concessions from
Indonesia government
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Corruption
 There is a negative correlation between
corruption and growth
 There is a positive correlation between trust and
growth
 Is in part due to colonialist exploitation of
natural resources practices
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Trust and growth: partial correlation
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Settler mortality and protection of private property today
(Acemoglu et al. 2001)
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Regulation, public worker salary and
corruption
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Corruption – the Consequences
 Corruption is deep-rooted and became an accepted
culture in Indonesia
 Continued over the 30 years of the Suharto regime
 Wealth spread deeply into several layers
of the reigning government
Corruption can:
Lower investment
Block economic growth
Reduce government spending on education
Make the country poorer
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Invisible Hands from the US
 Constantly, Indonesian government sent their
officers to study in USA
 Supported by US scholarship, these people
studied in Harvard, Wharton, Carnegie Mellon,
UC Berkeley, etc.
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Is it free?
• World bank give scholarship to Indonesian government
officers, especially those working in Finances
Department (Central bank division, Tax division,
Customs division) and the departments of trade, mining
and resource. Some of them work with USA organization
during study.
Ex:
• Current vice president is a Wharton PhD
• The son of current President is studying
at Harvard
• 10 of the 32 Ministers in Indonesia were
educated in reputable USA Universities
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Story of Sri Mulyani Indrawati
 In 2008, Sri Mulyani
was the Finance
Minister of Indonesia.
 On Nov 21, she chaired
a meeting of the
Committee for Financial
System Stability (KSSK)
to discuss whether the
Central Bank should
rescue a private bank,
Century Bank, which
had financial difficulties.
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Story of Sri Mulyani Indrawati
• In the meeting, Sri Mulyani approved the bailout
to Century Bank,
BUT
• Century Bank’s clients never received the
money
• Evidence indicated the money flowed into the
current President’s party.
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What happened to Sri Mulyani?
 The public wanted to bring her to the court.
 The other parties asked for further investigation.
 SBY’s party formed a committee to investigate
the case with nothing disclosed.
 Suddenly, the World Bank hired her as the
Managing Director, and she went to the US to
assume the position.
 Now, it is said she will be running
for the next presidency
of Indonesia!!
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The relationship between Sri Mulyani &
IMF
 Sri Mulyani holds a PhD in Economics
from the University of Illinois
 In 2001, she was appointed to
become a consultant for USAID at
Atlanta, Georgia
 Later she became the Executive
Director of IMF as Southeast Asia
representative
 In Aug 2008, Mulyani was ranked by
Forbes Magazine as the 23rd most
powerful woman in the world and the
most powerful in Indonesia
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What does this story tell us?
It is an example of:
 Global political influence in Indonesia
 High level of Corruption
 It also relates to morality and Ethics
And more:
 Some western countries do not want to see a
growing Indonesia, featured as a Muslim country
with rich natural resources
 So, make them suffered by debt
 And make them poor and dependent
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Some action taken by
Government against corruption
•Establish Anti Corruption Commission
 Result:
 Hundreds of government
officers, former ministers,
former governors were
arrested and put in jail
 Even the current
President’s father in-law
was put in jail.
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III. The Economic
Hit Man
Alex
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World Bank and
the US Government
 The World Bank Group (WBG) is a family of
five international organizations that makes
leveraged loans, generally to poor countries.
1. International Bank for Reconstruction and
Development (IBRD)
2. International Development Association (IDA)
3. International Finance Corporation (IFC)
4. Multilateral Investment Guarantee Agency (MIGA)
5. International Centre for Settlement of Investment
Disputes (ICSID)
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World Bank and
the US Government
 Technically the World Bank is part of the United
Nations system, but its governance structure is different:
each institution in the World Bank Group is owned by its
member governments.
 The President of the World Bank is nominated by
the President of the United States and elected by the
Bank's Board of Governors.
 As changes to the Bank's Charter require an 85%
super-majority, the US can block any major change in
the Bank's governing structure.
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World Bank and
the US Government
 Presidency
Traditionally, the Bank President has always
been a U.S. citizen nominated by the President
of the United States, the largest shareholder in
the bank. The nominee is subject to
confirmation by the Board of Governors, to
serve for a five-year, renewable term.
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Economic Hit Man
 Confessions of an Economic Hit Man
by John Perkins.
 Perkins describes the role of an EHM
as follows:
Economic hit men (EHMs) are highlypaid professionals who are hired by
consulting firm, to provide economic
research and forecast to World Bank
and third world governments. He
worked in Chas. T. Main Inc., a
consulting firm served to World Bank.
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Economic Hit Man
 Perkins (EHM) made overestimated electricity
forecast to World Bank and Indonesia
government.
 World Bank provided huge funds to the
government, helped them to build an electricity
system and supported the local industry.
 The government had to hire engineering
contractors in developed countries for
infrastructure.
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Economic Hit Man
 In fact, the funds backed to developed countries, and
Indonesia government couldn’t repay the huge debt to
World Bank.
 The country had to export their natural resources, like
crude oil, gas, woods and mineral etc, to developed
countries.
 Most of the resources are controlled by politic and
business elite. Widespread corruption became a spring
board (and a barrier) of foreign investment.
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Grasberg Minerals District
 The Grasberg Mine is the largest gold mine, the third
largest copper mine and highest open pit mine in the
world.
 It is majority owned through a subsidiary by FreeportMcMoRan (NYSE: FCX), own 90.64% of PT Freeport
Indonesia, The Government of Indonesia owns the
remaining 9.36% of PT Freeport Indonesia.
 FCX operates under an agreement with the Government
of Indonesia, which allows Freeport to conduct
exploration, mining and production activities in a 24,700acre area.
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Grasberg mine
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Grasberg mine
 Environmental groups and local
citizens are concerned with the
the potential for copper
contamination and acid rock
drainage into surrounding river
systems.
 Deep purple in the river is mine
tailings.
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Crude Oil & Natural Gas
 Pertamina is an Indonesian governmentowned corporation which extracts and refines the
country's oil and gas reserves. It made productionsharing agreements with foreign companies like Caltex
(Chevron Corporation). By the end of 1973, it directly
produced 28.2% of Indonesia's oil, with agreements
of Caltex to produce 67.8%.
 The global oil crisis of the 1970s greatly increased oil
prices and profits. For President Suharto and other
members of the ruling elite, revenue from Pertamina "an
ongoing source of funding" without accountability.
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Crude Oil & Natural Gas
 In February 1975, Pertamina could no longer pay its
American and Canadian creditors. An investigation
followed, which revealed over US$10 billion in debts,
mismanagement, and corruption within the company.
 Pertamina's debt problems were eventually solved
through a large government bail-out, which nearly
doubled Indonesia's foreign debt.
 Now, Indonesia is the main supplier of Liquefied natural
gas in Asia.
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Sweat shops
 Sufficient labor force in Indonesia
 Low wage ($1.25 per day - year 2000)
 In shoes/apparel factories - long work hours, strict work
environment
 Most of the factory owners are Chinese, and the buyers are
Nike, Adidas, Gap, Polo, Levi's, etc.
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Sweat shops
Key Issues:
 wages: around 2 USD/Day
 union rights: fired and attacked
 working conditions: toxic chemical exposure, mutilations due
to tools and machinery
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Sweat shops
 According to Oxfam in 2002 tens of thousands are still living
in extreme poverty and dangerous working conditions. Many
live in fear of their employers.
 Evidence based on more than 30 interviews at Nike and
Adidas factories in Java
 Violations of workers' basic rights including threats of
violence against those taking part in industrial action
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Child Labor
''More and more Indonesian children are forced
to work as a result of the economic crisis,'': Asia Times; June 24, 2000.
 In 2000, there are 6.5 million child labourers
 Around 2.4 million work in the formal sector or in companies
 According to the ILO, 4 million children under 18 years of age
work in dangerous conditions in 2004.
 Continuing progress after economic crisis.
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Income Inequality
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Country Comparison
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Brain Drain
'...the empires of the future will
be empires of the mind.”:
Winston Churchill (1943),
Harvard University.
 There is currently a global battle between governments and
 Most scholarships are granted by foreign governments and
MNEs
 Only 4% of population has a Bachelor's Degree
 As many as 85,000 Indonesians study abroad every year,
many emigrate permanently.
 Most Indonesian students from abroad to not wish to return
because their knowledge skills are not appreciated
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Brain Drain
 Indonesian universities
are reacting by demanding
greater autonomy and getting
private funding
 Leading insititutions such as Bandung Institute of
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Technology (ITB), the University of Indonesia, and the
science and technology campus in Gadjah Mada Univeristy
are calling for:
education reform
improved funding
control over course curriculae
Since the end of 2004, ITB has switched to semi-private
funding
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V. Environmental
Global Impact
- Palm oil Case
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Lolo
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Environment in Indonesia
Indonesia is rich environment country:
Vast Marine + Terrestrial Biodiversity + Energy Resource
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Environment Issues
Deforestation and Biodiversity loss
- In mid-1980s, Indonesia's
deforestation rate was the highest in
Southeast Asia, at 700,000 hectares
per year and possibly as much as 1
million hectares per year.
- The government replaces the
original forest cover with plantation
trees, such as coffee, rubber, or
palm.
- World Bank and GEF are
supporting biodiversity conservation
projects in biologically-rich forest
areas
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Environment Issues (Cont.)
Urban Environment challenges:
- Air quality is poor and deteriorating due to increasing
motorization and industry development
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The sewage service is lowest in Asia with 46% in rural and
69% in urban areas.
- The government is completing some projects granted by
WB and some international organization to solve the water
pollution and water supply expansion for people.
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Environment issues(cont.)
Policies, Institutions and Governance
- Indonesia is facing with some problems
such as fragmented institutional structure,
limited coordination between ministries at
local and national levels, recent
decentralization
- The government is trying to improve
environmental regulations and policies and
their application
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Background
 Oil Palm was first introduced to Indonesia in
1848
 It was only in 1911, that the first commercial oil
palm plantation was established in Sumatra.
 The world’s largest exporter of palm oil by 1938
What is palm oil?
 Palm oil is an edible vegetable oil obtained from
the fruit of the oil palm tree. Products refined
from crude palm oil are used in many foods,
cooking oils, soaps and cosmetics.
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Palm Oil Products
The relevant companies have
verified that all of the products
displayed as at 3/4/07 contain
palm oil or a palm oil derivative
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World Palm Oil Production
 Seventeen countries
produce palm oil.
Malaysia and
Indonesia account for
87 per cent of global
production. The top
producing nations are
Malaysia, Indonesia,
and Colombia.
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Estimated Loss of Plant
Species 2000-2005.
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Average Annual Rate of change
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Future expansion of Palm oil
in Indonesia
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Projections towards 2020
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Why is palm oil a problem?
 Global palm oil industry expanding
Foods and cosmetics
biofuels like biodiesel
 Tropical forests destroyed
disaster for biodiversity
 Greenhouse gases
Climate change
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Why an increase in biofuels
sold?
 Quick fix to cut emissions
Transport
 Increase food prices and reduce global food
reserves
 Biofuel targets: 2012, 20% diesel in India will be
biodiesel
 2020, the EU and China, biofuels to rise by 1015% respectively
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Biofuels: Isn’t meant to
reduce emissions?
 Small contribution BUT!!!
role over-exaggerated
 produce more carbon emissions than burning
conventional fossil fuels
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What’s so important about
peatlands?
 Most concentrated stores of carbon around
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Clearing the forest on top
Draining the peat
And burning it
Releasing vast amounts of greenhouse gases into
the atmosphere
Peatlands represent just 0.1% of the Earths land mass
BUT,
Contribute a staggering 4% of global emissions
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Is it just a problem for
Indonesia?
 No, It’s a Global problem
 International trade in palm oil
Influence from companies
 Forest destruction responsible for fifth of all
greenhouse emissions.
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What effect it has on the
livelihoods of Indonesian
people?
 Local communities get raw deal
 Dependent on forest to survive
 Rights violated by government and companies
Cheated
 Most players in Palm oil industry are
International companies
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Global
Campaigns
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Leading – Greenpeace
Government establish moratorium
Cease trading with palm oil suppliers
Deforestation and degraded peatlands restored.
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ANTI- Palm oil?
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The Roundtable on
sustainable Palm oil
 Established in 2001- market led initiative to
reform the way palm oil is produced, processed
and used
 Membership: companies along the supply chain
 Cadbury’s, Nestle and Tesco
 Suppliers:
 Cargill, ADM and Indonesian based Duta Palma
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How effective is RSPO?
 Members been accused of lip-service to forest
and peatland protection
 Existing standards not effective
 RSPO members not taking steps to avoid worst
practises of the Palm oil industry
 Palm oil processor Duta Pulma involved in
deforestration
 Illusion of sustainable palm oil
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Barriers
 Institutional and regulatory barriers were found to be a result of
inconsistency between international requirements and relevant forestry
regulations in the country.
 The main socio-economic barriers :
 access to capital
 competition in land use.
 Technical barriers:
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land availability
access to technology
availability of experts
risks related to forest fire and illegal logging
 Risks
 rampant illegal logging plays a big role in rising wood smuggling to
overseas
 killing Indonesian forestry industry in the international market
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IV. Radical Islam
and Terrorism
Rosa
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Religion: Radical Muslims and
Terrorism
 Largest Muslim population in
the world
 Indonesian Constitution
guarantees freedom of
religion
 Most of Muslims are tolerant
moderates but there are few
extremist Muslims.
 Affects Indonesia tourism
industry and foreign
investments
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Radical and Terrorist Organizations
Jemaah Islamiah (JI)
• Founded by Abdulla Sangkar 1993-94
• Link to Al-Qaeda
• Alleged leader Abu Bakar Bashir
•
•
•
•
Bali Bombing 2002/2005
JW Marriott Hotel Bombing 2003
Australian Embassy Bombing 2004
JW Marriott and Ritz-Carlton
Hotal bombing 2009
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Indonesian Mujahidin Council (MMI)
• Founded by Abu Bakar Bashir
• Muhammad Iqbal alias Abu Jibril:
"Destroy America and its allies! Kill those who desecrate Islam!"
at a public rally in May 2005
The Islamic Defenders Front (FPI)
• Founded by Saudi-educated Muhammead Rizieq Syihab
• The establishment enjoyed backing from military and police
general
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Motivation
 Establish strict Sharia law
 Build Islamic state
 Anti Western & USA - Protect their resources
from being taken by foreigners
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Impact
 Influences on politics at local
and national levels
 Intolerant to other religious or
cultures
 Confidence in Indonesia’s
business and investment
surroundings fade away
 Direct impact on tourism
industry after terrorist attack
 Example : Bali bombing ,
Also GDP dropped by 1.5%
Year
Visitor
Arrival
2001
5.153.620
2002
5.033.400
2003
4.467.021
2004
5.321.165
2005
5.002.101
2006
4.871.351
2007
5.505.759
2008
6.429.027
2009
6.452.259
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Gov. Response: Counter Terrorism
 Difficult for the gov to aggressively arrest, detain the
radicals and ban their organizations for fear of being
labeled as anti-Islamic.
Police Force
• Indonesian police have arrested 418 suspects -250
have been tried and convicted
Detachment 88
• Indonesian counter-terrorism squad
• Founded after Bali bombings
• Equiped and trained by USA and Australia
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Ⅵ Conclusion &
Recommendation
Jose
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Indonesia Actual Factor
Indonesia people
International
companies
Powerful and
corrupted political
parties
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Summary
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Indonesia’s
problems
Indonesia’s debt with
World Bank.
International and local
companies doing
businesses on natural
resources.
Low salaries, around $5.
Al-Qaeda influence on
some part of the country.
From a population of
228,582,000 86.1%
are Muslim, divide in two
general fractions Sunni
and Shafi’l.
Globalization
risk
• Global political
influence.
• Economical grab from
the west.
• Environment impact.
• Wealth inequality.
• Terrorism.
• Religious conflicts.
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Conclusion
 Is Indonesia a globalized country ?
No and yes, even with the big industry in mining, oil company
and cheap factory labor, there is only good infrastructure to
support this markets but the internal economic of Indonesia is
moving slowly compare to the other markets previous
mentioned.
 Why Indonesia have this problems?
These are very deep cultural and educational problems that
permitted the corrupted government to control the economic of
the country and as a result, Indonesia is showing
globalizations problems.
 Whenever Indonesia should push a globalized economy, is
direct related to strengthen their inner economy and solve the
big influence of corruption.
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Should Indonesia go for
globalization?
Not for now, why?
Because Indonesia needs to limit the opening of
its door, and protect its natural resource from
strong foreign countries.
Try to erase corruption in Indonesia, then the
government will be able to contribute more in all
public sectors.
Encourage domestic industry to grow, protect it
from free-trade that kills domestic industry.
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Recommended Solution
 Improving macroeconomic
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foundations
Upgrading the business environment
Clusters development
Provincial economic development
Economic coordination with
neighboring countries
National economic strategy
Organizing for competitiveness
~Professor Michael E. Porter
Harvard Business School / Sep 28, 2009
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Q&A
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