'Indonesia among the best economies'

DW: It's commonly said that there is a lot of scope for closer ties between Indonesia and European Union nations like Germany. What do you think should be done to achieve this?

Sri Mulyani Indrawati: There is definitely a lot of potential. Indonesia is the largest economy in the Association of Southeast Asian Nations (ASEAN) and ASEAN is among the most dynamic regions in the world. Europe is struggling after the 2007-08 financial crisis, even if growth is starting to pick up. European countries are suffering from demographic problems like an aging population and migration.

Indonesia definitely is a country that is opposite but complementary to Europe. Indonesia needs to learn quite a lot. For example, if you talk about technical productivity, Europe, especially Germany, has a high reputation for engineering capacity and technical competence.

Cooperation can be very complementary between Indonesia and Europe. Vocational training, engineering and technical schools, for instance, are areas that I think Germany and Europe could offer their expertise to Indonesia.

Indonesia offers a population that is young and vibrant alongside growth that is very strong. We can create a relationship based on trade, investment and capital flows that I think is very complementary.

Read: Indonesia says it's ready to open up its economy
 

Indonesian President Joko Widodo has issued a warning that going back to protectionism could result in trade wars. Why is an open economy so important for Indonesia?

Indonesia is benefiting from trade. Increasing growth and bringing people out of poverty has historically corresponded to our ability to open up our economy and take advantage of the global marketplace.

At the same time, we also discipline ourselves in terms of competitiveness by liberalizing the economy. If we embrace protectionist tendencies and erect trade barriers, then inefficient monopolies will be able to shield themselves from competition and enjoy undue privileges. 

So opening up the economy and trade is providing us with a double benefit. We can use the foreign marketplace to export our products while granting foreign players access to the Indonesian market. 

In history, reducing poverty has always depended on our ability to transform from farming, small-business and agricultural production to manufacturing and higher productivity. This leads to better investment in human capital that adds value and competence. 

President Widodo has expressed concern that the US and some European countries are suddenly becoming more inward-looking. If protectionist rhetoric becomes more dominant, it will create a more difficult challenge for the global economy.

Do you think what US President Donald Trump is trying to do right now is wrong?

Many global leaders, especially at the G20, are expected to lead the global economy in the right direction, in the sense that this is not a zero-sum game where one country is going to gain at the cost of others. Trade in our understanding is a win-win situation whether you are exporter or importer - it should not be seen that one gains and the other loses.

It creates a puzzling situation for other countries if the US feels it is threatened by the global system, because they are the ones who enjoy the most benefits of globalization by marketing their products all over the world. For many other countries it is strange to see the strongest country suddenly feels it is not strong enough.

The most important message is that globalization is not providing everyone with benefits and that there are winners and losers. Policymakers should help those who are adversely affected by globalization even in the most mature economies, not to mention developing countries. This is an important point for all policymakers gathering at the G20.

I think Germany can provide leadership, because Germany's performance is most commendable and many countries look up to its macroeconomic policy, competitiveness, production and technology.

Read: US VP Pence in Indonesia to boost trade, ease tensions

 

Twenty years ago, there was a financial crisis in Asia. What is different now for Indonesia, and what does President Widodo's economic strategy look like?

In the Indonesian case 20 years ago, just like in other Asian countries, the exchange rate was not flexible, the balance sheet of the financial and banking system was vulnerable to shock, because the exchange rate was fixed, and there was high exposure to foreign-currency-denominated debt. There was also the problem of reckless lending.

What is different today: learning from this crisis, we manage Indonesia's economy in a much more consistent way. Macroeconomic indicators show that we are more prudent, we have a fiscal stability rule, and we are not allowed to have a deficit of more than 3 percent. Our debt-to-GDP ratio must be lower than 30 percent. I think it's considered to be very low compared to many European countries today.

The exchange rate is flexible; the balance sheets of central banks, governments and corporations are strong as well as transparent. We have already passed a financial stability law and set up a body that scrutinizes, monitors and does regular stress tests on the resilience of the financial sector.

Most importantly, Indonesia is much more transparent in fighting against corruption. It allows us to check the possibility of abuse. I am not saying that it is totally free of graft, but the possibility of engaging in corrupt practices is much less now. 

We have a much more resilient, consistent policy, and at the same time we are now investing a lot in infrastructure and human capital that is supporting growth and allowing us to pursue economic development in a better and more inclusive way.

Looking at the global financial crisis, during which European countries and the United States suffered, I think that the same lessons can be learned as we did in Indonesia. In the end you need to have sound policy. You need to have good governance. You need better balance sheets, not only in the public sector but also at the central banks that supervise the financial system. I think they all need to be looked at continuously to make sure they are healthy and strong.

I think in terms of economic performance, Indonesia is among the best in the G20. If you measure the amount of growth, we are the third-highest after India and China. In terms of inflation and stability, I think we are very sound. If you look at our fiscal policy, the deficit and debt exposure, we are among the lowest within the G20. I think Indonesia has strong fundamentals, and that's why at the G20 meeting Indonesia can advocate good, sound policies with better quality and more inclusive growth.

This interview was conducted by Vidi Legowo-Zipperer