Transcription
The crisis has caused heavy losses to investors. It has wiped out years of growth and development in Indonesia and the affected countries. Although Indonesia is the worst off, the Indonesian rupia today is worth only about 20% of its value.
In 2013, Lee Kuan Yew made a stark prediction about Indonesia, stating, "Over the next 20 to 30 years, I would be very surprised to see the country transform itself. Malaysia is likely to make greater strides." 12 years later with Indonesia's currency at its lowest point since the 1998 Asian financial crisis, its stock market plunging 20% and thousands of students protesting in the streets. Perhaps Lee's prediction is coming true.
But what is even more remarkable is Lee's damning views of the man currently in power, Prabowo Subianto, the son-in-law of Suhato, the military strong man who ruled Indonesia for 30 years. In his memoirs, Lee branded the current president as impetuous and rash, stating, "Prabawo had a reckless streak in him." Disturbingly, Lee also suggested that Prabowo was responsible for the 1998 anti-Chinese riots, which left more than 2,000 dead, stating, "It was general knowledge that the rioting was engineered by Prabowo's men."
Here are the four reasons Le Kuan Yew believed Indonesia will never achieve its potential.
First, we have the resource curse. You see, Lee was famously skeptical of countries blessed with natural abundance, arguing that natural wealth fosters a culture of complacency, stating, "Indonesia remains a resource-based economy with a mindset among the people premised on making a living through what the ground provides rather than what you can create with your own two hands. The resources they have tend to create a laid-back culture. This has cultivated a non-enterprising nature that will not be overcome easily."
You see, Indonesia is one of the most naturally endowed countries on Earth, backed by a massive and young workforce, being the world's largest producer of palm oil, and nickel. And it ranks among the top producers of coal, natural gas, gold, tin, and copper. Yet today, Indonesia still ranks a lowly 121st in the world by GDP per capita. And in just 5 years, the middle class has collapsed, shrinking from 21% to 17% as millions are forced into unstable informal gig work.
But more importantly, Indonesia's reliance on mining has triggered a dangerous case of economic tunnel vision. While neighbors like Singapore build global deep tech ecosystems, Indonesia's startup sector has been hollowed out by high-profile corporate scandals, shattering investor trust, and causing venture funding to evaporate.
Even Indonesia's new breed of entrepreneurs seem to validate Lee's scepticism of the country's potential. I remember being in meetings internally talking about like, "Oh, you know what? Indonesia is all that matters. If you win Indonesia, you win everything." I I remember specifically that that sentence was uttered. And I I cannot forget that moment because we were wrong. That is not true. Indonesia is not everything.
As you can see in Singapore's case, Singapore has 1% of Southeast Asia population, but it contributes 23% of Grab's revenue. Indonesia has 40% of population, but it contributes 29%. Now, yes, Indonesia is still the biggest market, but it's a lot more people to capture a lot less value. Right? So, again, Indonesia is an absolutely critical important largest market in Southeast Asia. Absolutely. But if you can go to Singapore, you should try and win Singapore.
Next, we have corruption, which Lee believed was Indonesia's most entrenched problem, stating, "The country has to get a handle on rampant corruption. Corruption results in leakages all along the way. A dollar is spent, but 10 cents is taken out here and 20 cents there. And by the time it reaches the ordinary worker or the foreign investor trying to turn a profit, there is little left."
Today, Indonesia languishes at a dismal 109th out of 182 countries on the global corruption perceptions index as relentless waves of sophisticated scandals continuously derails progress. Even this month, President Prabowo's flagship $15 billion free nutritious meals program promising to feed millions of school children has crumbled into a massive corruption probe.
You see, when state funds are constantly funneled into private pockets, it strips resources away from critical infrastructure, schools, and health care, leaving ordinary citizens to pay the price for a broken system. Lee insisted that Indonesia could never truly progress without breaking this cycle of corruption, stating, "It will take very determined and sustained action, and it has to start from the center. If corruption can be reduced significantly, then a new future can be forged and a new Indonesia is possible."
Which brings us to the danger of President Prabowo's attempt to centralize power. You see, Lee actually believed that this isn't inherently bad, pointing to former strongman Suhato for implementing policies that improved Indonesia, stating, "Suhato may have failed on corruption and on nepotism. But history will also judge him on outcomes. He educated the people, grew the economy, and built roads and infrastructure. If it had not been for Suhato's hard-headed policies promoting development, Indonesia would have turned out like Myanmar. As a general, Suhato watched all this and decided it was wrong that Indonesia had all these resources that can be developed and however run down the infrastructure. It can be repaired and it can be got going. And it is only now after 1949 45 till now just 45 years of Bahasa that the younger generation can understand one language and to achieve that the Javanese who have the most superior language gave up their own language and took up Bahasa as a national language."
While Lee acknowledged Indonesia's progress after Suhato, he noticed a flaw common in many developing nations. Democracy had slowed down decisive action, trapping the country in political gridlock when it needed growth the most. It is exactly this gridlock that President Prabowo has vowed to break. But many of his moves have triggered deep skepticism.
You see, to force the country forward, Prabowo bypassed independent oversight structures, creating Danantara, a colossal sovereign wealth fund with nearly $900 billion in state-owned assets directly under his presidential authority. In theory, this top-down approach cuts through local red tape, giving the president total control over strategic investments to rapidly build new industries and boost the economy. But the market is panicking. Investors used to transparency are terrified by the sudden collapse of checks and balances.
The flight of foreign capital is stark. International investors who held nearly 40% of Indonesia's government bonds a few years ago now hold barely 13%. And compounding the alarm, Moody's swiftly cut Indonesia's credit outlook from stable to negative. The domestic front is even more volatile. The population has reached a boiling point under the nationwide dark Indonesia movement. Driven by steep fuel hikes and sweeping cuts to health and education, thousands of students have flooded the streets. The resulting crackdowns have turned deadly, leaving multiple protesters dead and thousands more behind bars.
Whether Prabowo can consolidate enough power to deliver his ambitious 8% growth remains to be seen. But decades ago, Lee predicted that it will not happen, stating it is not possible to take back control. Indonesia will not return to a centralized system like that of the Suardo era. It is important after all these 25 years of building up the economy and building up the institutions in Indonesia, the institutions of state that the succession to the president in Indonesia is in accordance with the constitution and it is a constitutional succession. Otherwise, the great advances made in this 25 years may well be thrown away.
Next, we have Indonesia's infrastructure problem. Lee described the immense challenge, stating, "When you have 17,500 islands, the ability to connect these islands becomes vital to economic development since major population centers need to be brought together in order for growth in one region to feed off that in another. More fast fairies and domestic flights would help considerably. None of this is being done enough. And it is one of the toughest jobs, one of the toughest leadership jobs in the world. They have 13,000 different islands, big islands."
Lee also pointed to the lack of political will to get these infrastructure projects off the ground. Lee observed, "Unfortunately, words have not been translated into action. Indonesian analysts have observed that infrastructural improvements have slowed down when compared to the Suhato era. Decades later, that inaction has proved catastrophic. While a new metro line now runs beneath the city, Jakarta above remains choked by polluted gridlock. All while the entire metropolis literally sinks into the sea. And under Prabowo's government, the Rupia's collapse has forced billions in budget cuts, leading to stalled infrastructure projects and job losses. The country that needed to build more is now building less."
However, Lee never dismissed Indonesia entirely, stating, "Indonesia has not done too badly over the last decade, consistently achieving growth of between 4 and 6%. It is attracting major investments from China and Japan thanks to its wealth of natural resources. But if Indonesia is ever to achieve greatness, it must first conquer its corruption, political gridlock, infrastructure, and its geographical limitations."
As Lee concluded, over the next 20 to 30 years, I would be very surprised to see the country transform itself. Malaysia is likely to make greater strides. It is more compact geographically. Now, we must hope that President Suhato's successor will uphold Indonesia's well established and institutionalized policies based on Pancasila, which is not a slogan as I have told you. I thought at first it was a slogan. I was wrong. and Pancasila the attitudes that go with it has been good for cooperation in ASEAN.