As the new government of Indonesia prepares to take office in October 2014, Dr Maxensius Sambodo from the Indonesian Institute of Sciences explores the emerging priorities of incoming President Joko “Jokowi” Widodo. Self-sufficiency and import substitution are high on the agenda with significant implications for the economy of the world’s third largest democracy.
Given the emphasis on food and agriculture during the presidential campaigns, the government’s ability to ensure that food is accessible and affordable will come under particular scrutiny, both from political commentators and the general population.
It is expected that Jokowi will prioritise domestic issues more broadly in the short to medium term: revitalising Indonesia's economy, lifting millions out of poverty, improving education and health and implementing ambitious public transport infrastructure programmes - all promised in the lead-up to his election in July 2014.
Meeting the expectations of his followers in terms of food accessibility and food-related livelihoods, while at the same time allowing the industry to thrive and develop will perhaps be one of the new President’s greatest challenges.
Continuing the path of self-sufficiency
As indicated towards the end of his election campaign, Jokowi intends to adhere with the principles of the existing Action Plan to achieve food security for Indonesia through self-sufficiency measures. As a starting point, Jokowi has outlined plans to push through with self-sufficiency in key commodities including rice and other crops such as shallots by 2018.
The political importance of self-sufficiency in Indonesia was evident in both Jokowi and candidate Prabowo Subianto’s presidential campaigns. Both were unwavered in their drive to incorporate self-reliance in food and agriculture as a fundamental to their policy directions. As food security researcher Dr Jackson Ewing wrote in an article for FIA in June this year, food self-sufficiency is good politics in Indonesia in the shadow of years of price volatility.
Jokowi’s declaration that he will introduce an import-substitution policy is a move that differentiates him from the departing Yudhoyono government. This strategy aims to lessen the country’s need for imports by utilising domestically sourced commodities, services, technologies and industries. Jokowi has announced plans to revive import controls which could affect the movement of palm oil, rubber, coffee, cocoa, rice, corn and soybeans into Indonesia.
The outgoing government had implemented some import controls but tailed back its food import quota rules after their application to boost cattle and soybean production caused a steep rise in domestic prices. The government then instead favoured an approach of “overall reform” which focused on the importance of export competitiveness and a more balanced approach to imports.
The language of food security in Indonesia has often been synonymised with self-sufficiency in recent years, but the UN Food and Agriculture Organization (FAO) has long emphasised that these concepts should be considered separately.
Self-sufficiency as a food security strategy is seemingly at odds with the economic integration objectives of the ASEAN region, the realities and opportunities of globalisation, and mitigating the risks associated with narrow supply chains as weather patterns become increasingly volatile, which would all serve to achieve stronger food security outcomes.
Regional integration and national policies
Despite self-sufficiency and import substitution being consistent with the economic nationalism of Jokowi’s political party background, some may have anticipated a more liberal approach given the growing economic cohesion of the region through the development of the ASEAN Economic Community (AEC).
Jokowi has been favourable in his public statements on the AEC, stating that Indonesian companies must compete to gain a bigger regional and international market share. He has said the best way for Indonesia to compete in ASEAN and take advantage of the economic opportunities it presents for the government to support enterprises and protect local businesses. Jokowi proposes to do this through expediting licensing procedures and administrative processes so that Indonesian businesses would be better placed to compete. He has also emphasised the need to strengthen the logistics system and simplify the business permit process to facilitate further trade. Opening up markets on a larger scale is unlikely to be a particularly popular policy, although a middle ground maybe found.
A strong and rapidly growing Indonesia that pursues its interests rationally and pragmatically will be good for the region. Jokowi’s strong commitment to the AEC is the easiest way to effect the structural change needed to transform Indonesia’s economy and lift it on to a higher quality of growth trajectory.
Challenges in implementation
Jokowi faces several hurdles for implementing his vision for Indonesia in food self-sufficiency and import substitution. For example, one of the key measures for implementing this policy would be expansion in the scope and role of the government’s food buying agency, Bulog. It had been earlier implied that Bulog’s role would be shifted under the new Jokowi government to both introduce measures to curb food price inflation and control the imports of a new range of commodities corn, beef and sugar.
But this expanded vision for Bulog’s role is now under question, as the country’s powerful anti-graft agency has voiced that it may launch an investigation into Bulog. The organisation faces concerns that it has mismanaged Indonesia’s rice scheme, with speculation that up to one third of supply has gone missing over some years.
Another hurdle to the implementation of Jokowi’s policies may manifest through the incoming president’s recent announcement of a policy to reduce fuel subsidies, effectively increasing the cost of fuel. While a smart fiscal gesture, this move may hinder the unbridled growth in production that Indonesia needs to enjoy in order to meet its goal of self-reliance in food and agriculture. Any further rise in fuel subsidies, however, would risk putting pressure on the agricultural sector because it would reduce the availability of funds for developing agricultural infrastructure.
When Jokowi takes office, he will be inheriting an economy which has seen improvements in economic growth, inflation stability and unemployment reduction in the past four years, but one which is growing at its slowest pace since 2009 and falling short on agricultural production targets (see table below). While domestic political-economic issues are understandably a priority for the new government, it will be crucial for the country to not be too inward looking and focus on increasing its economic competitiveness, capitalising on its demographic bonus and avoiding the middle income trap to maximise its potential as a global economic powerhouse of the 21st century.
(Howes & Davies, 2014)
It may be too early to determine how the food industry will be shaped by the Jokowi government’s policies, but it is clear that continue dialogue and engagement with the new government will be key for global and domestic industry stakeholders in Indonesia to support the country as it strives to meet its food needs in coming decades.
Dr Maxensius Sambodo is Visiting Fellow at the Institute of SouthEast Asian Studies in Singapore and Researcher at Economic Research Centre-Indonesian Institute of Sciences (LIPI).
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