What to Expect from Indonesia
Oleh: Steven Giovanni Sugiarto (Kepala Departemen Kajian dan Aksi Strategis BEM FEB UI 2017)
(Based on the book: The Rise and Fall of Nations by Ruchir Sharma)
Ruchir Sharma is the Head of Emerging Markets and Chief Global Strategist at Morgan Stanley Investment
Management. His book titled “Breakout Nations: In Pursuit of the Next Economic Miracles (2012)” was an
international bestseller. Sharma loves to write and until today he still contributes regularly to the Wall Street
Journal, Financial Times, Foreign Affairs, and other publications. Currently, he is one of the world’s largest
investors, he was named one of Foreign Policy Magazine’s Top Global Thinkers in 2012 and one of Bloomberg
Market’s 50 most influential thinkers 2015. His latest book, “The Rise and Fall of Nations: Ten Rules of Change in
the Post-Crisis World” was launched in June 2016. At July 2016, he introduced his book in a public lecture at the
London School of Economics, where I attended and found out that his book covers a lot of interesting points that
was made by his own research. He did not mention Indonesia a lot back at the lecture, however, he quite written
down some interesting facts in the book. So, let me introduce you a little bit, based on the book, about what can we
expect from Indonesia in the next few years.
Good Billionaires, Bad Billionaires: Is inequality threatening growth?
The growing gap between the superrich and the rest has always become an interesting issue for economists.
Governments and national leaders know that it is part of their job to be able to redistribute wealth; reducing
inequality and hope for a higher redistribution. Ruchir here is trying to monitor trends in inequality. To identify
tycoons that are taking an unusually large and growing share of the pie, Ruchir calculate the scale of billionaire
wealth relative to the size of the economy. We need to remember that these tycoons (billionaires) often can be
called as “bad billionaires”.
To identify those countries with entrenched elites, Ruchir estimate the share of inherited wealth in the billionaire
ranks. Ruchir also track the wealth of “bad billionaires” in industries long associated with corruption, such as
mining or real estate. These bad billionaires often rise through family empires, particularly in a country with weaker
institutions where it is easier to cultivate corrupt political ties. He found that in Indonesia in the year 2015, the total
billionaire wealth over GDP is 7%, inherited billionaire’ wealth per total billionaire wealth is 62%, and bad billionaire’s wealth over total billionaire wealth is 12%. Though we cannot conclude that these heavy concentrations of family wealth are a bad sign for economy, we need to be careful by knowing the sources of these family wealth. Yet, we can conclude, that bad billionaires do matter. Why? Because even though the good ones control a large amount of wealth, and leading families face little competition,
they can still make a positive contribution towards the nations’ economic growth. Vice versa, a class of bad
billionaires can reduce the like hood of wealth creation and growth.
These bad rent-seekers thus supports the robin-hood paradox (Where redistribution is low when it is needed, vice
versa). Although this is a common theory, in American culture today, leading billionaires like Bill Gates and
Warren Buffet, publicly urging their peers to bequeath their fortunes in philanthropy. However, our country
Indonesia is still a developing country, therefore containing several strong “not that good” billionaires. Ruchir
research shows that inequality kills growth. One argument is that when income rises, the rich tend to save more,
because they already have all the basic needs. On the other hand, the poor will spend cash more on basic needs. The
way economists conclude is that the rich have lower “marginal prosperity to consume” as income rises. As a result,
when the rich control a growing share of the national income, growth in total consumer spending tend to slow, thus
holding back total economics’ growth.
The Kiss of Debt
The story started at the height of Asian Financial Crisis in late 1997. Ruchir then requested a meeting with
someone named Robert Zielinski, a bank analyst who had seen the signs the crisis was coming. Zielinski describes
how virtually everyone gets blinded by increasingly good times and low borrowing costs in a Southeast Asian
country. This man gave a warning signal of economic trouble: a period when borrowers and lenders enjoy the kiss
of debt. Crisis had come to many countries, but one of the most dramatic cases, Ruchir has said, was happened in
In 1997, Indonesia’s ruling Suharto dictatorship didn’t realize how vulnerable the country was. This is the
story of the numerous banks that had collapsed during the crisis. The poor system back then let conglomerates to
establish their own banks. An investigation shows that at some banks more than 90 percent of the loans were
“connected,” or doled out to a bank’s parent company. This “distributing” system, let the banks did little vetting of
their borrowers. Thus, it leads to some non-performing loans, proven that 90 percent of the borrower had not made a
payment on at least nine months. As we know, the banking system collapsed, and Indonesia businessmen began
withdrawing their money and moved it to other countries. So much capital flowed out of Indonesia and our currency dropped by 80 percent. The next story leads to Suharto trying to keep it secret; where then it is leaked out, then there was the political reformation.
The point is, there is a need of a healthy credit growth. Across countries, the combination of healthy credit
growth and low inflation is creating the first period of real financial stability many of even emerging countries do
not realize. Indonesia can be transform. “Rising debt levels can be a sign of health growth, so long as debt is not
growing too much faster than the economy for too long”, Ruchir has said. Remember the mistakes that debt has
made in the past, move on, and be ready to grow again.
People Matter and A Conclusion
Now, is the talent pool growing these days? Nearly one of every two people on earth already lives in one of
eighty-three countries where on average women have fewer than two children, from China, Russia, Iran, Brazil to
Germany, Japan and the United States. Working age people are shrinking. The global population growth rate is
projected to keep falling over the next years, which then will change our planet’s economic prospect.
Ruchir says that 2 percent working-age population growth raise the like hood of an economic boom.
Unfortunately, an example of the major emerging economy countries, Indonesia, is still below 2 percent. The events
of baby bonuses, what is the perfect retirement age, percentage of women in workforce, number of immigrants,
brain drain, and the rapid development of robots have a huge impact toward each nation economic growth. Thus
bring a simple but important conclusion, people do matter.
Now, how are these things affecting our expectation toward Indonesia? The answer is we should expect a lot
from our country. Ruchir clearly consider Indonesia as a one of the major emerging countries. Dark history had
happened, many problems do occur, but no doubt that our country has a great potential. This paper is just a glimpse
of what Ruchir has analyze among Indonesia and all other countries. If you are interested in knowing which
nation would fall and rise, in each of nations’ condition, I strongly suggest you read.