Unno SchoolGlobal Negotiator Training Program

Swingby Corporation

July 20th, 2016Indonesia

Clyde Unno

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Points of Argument

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Quick Facts About Indonesia Unity In Diversity Religion Colonization of The Country Jpanese Occupation and Skarno Suharto and Anti-Communist Purge Economic Strengths & Weaknesses Indonesia Culture Japanese Business in Indonesia Crime, Ethnic Violence & Muslim Terrorism Political Power & Corruption Crime & Punishment

Japanese ODA & FDI in Indonesia China & Japan's Battle for Southeast Asia Influence Asian Infrastructure Investment Bank (AIIB) Support China & Japan Bidding On The High-Speed Rail The Rail Deal Position in Asia Pacific Relationship With the United States Discussion Points Investing In Indonesia: Now Or Never? Ease of Doing Business South China Sea

18:30 20:30

INDONESIA

How Powerful Is Indonesia?

https://www.youtube.com/watch?v=oGGEbYNrxNMVideo

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Joko Widodo

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Quick Facts About Indonesia

Population: 250 million people GDP: around $900 billion USD GDP Per Person: $3,800 Gini Coefficient: medium Import: machinery, chemicals, fuels, and food Export: oil, gas, electronic appliances, wood, rubber, textiles Largest Muslim Population: 87% - Sunni Ethic Groups in Country: 300 groups Governmental 5 Year Plan: Social assistance and infrastructure

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Unity In Diversity

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The Indonesian national motto “Unity in Diversity” points to one of the greatest attractions of the country. There are over 300 ethnic groups, many Indonesians may see themselves first by their ethnic and cultural group and secondly as Indonesians. The glue that binds the people together is the usage of the Bahasa Indonesia, the national language, and Pancasila, the national philosophy, which stresses the doctrine of unity and universal justice for all Indonesians.

Pancasila

Pancasila (pronounced [pantʃaˈsila]) is the official philosophical foundation of the Indonesian state.

Consists of two old Javanese words (originally from Sanskrit): "pañca" meaning five, and "sīla" meaning principles. It comprises five principles held to be inseparable and interrelated:

1. Belief in the one and only God.2. Just and civilized humanity. 3. The unity of Indonesia.4. Democracy guided by the inner wisdom in the unanimity

arising out of deliberations amongst representatives. 5. Social justice for all of the people of Indonesia.

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Religion

The Indonesian Government is secular, and hosts a Muslim majority. Regardless, the government recognized the following 6 official religions in its belief of free religion: Islam, Protestantism, Catholicism, Hinduism, Buddhism and Confucianism. Soekarno bridged the contradiction about number of gods by saying "every religion (including 'soft polytheistic' Hinduism) essentially has one highest Supreme Being to which one subjects oneself".

Source: Wikipedia (2010)

Islam 87.2%

Christianity 9.9%

Religious Persecution And Hostility On The Rise In Indonesia

https://www.youtube.com/watch?v=FF-yu-cgn_UVideo

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Colonization Of The Country

Colonial era• The Dutch established the Dutch East India Company(VOC) and

throughout 17th and 18th centuries, the company became the dominant European power in the archipelago.

• The VOC was dissolved in 1800, after a short British rule, the Dutch state took over the VOC possessions in 1816. • Problem: corruption, bad management. Led to bankruptcy, and Dutch

state took controlLiberal Colonial Indonesia• 1830: a system of forced cultivations and indentured labor was introduced,

the Cultivation System, and this system brought wealth. • 1870, the system was eliminated and from1901 the Dutch adopted what

they called the Ethical Policy which increased investment indigenous education and modest political reform.

• Problem: A tolerant regime was replaced by repressive regime, which wanted full Indonesian independence from the Dutch. New regime was ultimately conquered by the rising youth leader, Sukarno.

Source: Indonesia Investments

cultivation system Source: nusabeans.xyz

Coin from VOC days

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Japanese Occupation & Sukarno’s Presidency

Japanese Occupation of Indonesia 1942-1945: During and after WWII, Japanese took over Indonesia

from Holland, in hopes of gaining oil. According to Japanese records, Indonesians welcomed Japanese as saviors from harsh Dutch rule.

August 17th, 1945: Sukarno and Hatta declared Indonesian independence (2 days after Nagasaki atom bomb).

Problem: First, Japanese were welcomed, but there was much hardship later: not enough food, water, clothing, medicine. There was forced labor for construction projects and administrative mismanagement of basic needs.

Sukarno’s presidencySukarno, leader of the Indonesian independence movement and Indonesia’s first president (1949-66), who suppressed the country’s original parliamentary system in favor of an authoritarian ‘Guided Democracy’ and who attempted to balance the Communists against the army leaders. He was deposed in 1966 by the army under Suharto.

Source: Indonesia Investments

Japanese army training Indonesian boysSource: Wikipedia

Sukarno was a close friend of Mao

Japanese Samurai :who contributed to Indonesian independence

https://www.youtube.com/watch?v=z9tYurVJKG4Video

Dutch woman speaks of forced sexual enslavement on her family by Japanese milita

https://www.youtube.com/watch?v=9-gUUG2ELvs&spfreload=10Video

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Suharto & Anti-Communist Purge

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Suharto (1921- 2008) was the second president of Indonesia, holding the office for 31 years from the ousting of Sukarno in 1967 until his resignation in 1998.• He led troops against an attempted coup on September 1965 then the blame

was placed on the Indonesian Communist PartyAnti-communist purge, also known as the September 30 movement in 1965 • A campaign of mass killing was underway, which resulted in the death of hundreds of thousands of alleged communists May 1998 riots of Indonesia, also known as the 1998 Tragedy• Mass violence of ethnic Chinese, and more than a thousand people died. • Triggered by economic problems like food shortages and mass unemployment.• Eventually led to the resignation of President Suharto

While the ironic thing is Suharto, who tops corruption rankings, died on January 28, 2008, one day before the UN anti-corruption convention was held in Indonesia.

World’s three most corrupt leaders

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Economic Strengths & Weaknesses

Weaknesses Corruption Governance Disasters Ethnic/regional violence Economic weakness

Strengths Strong Labor Force:120

million 　 66% of the population area between 15-64 (2015)

World Bank's estimate of Economic Growth between 2015-2016 will be 5.6%

Increasing urbanization average income

Rapid & stable economic growth in diversified economy

By 2030, will be 7th largest economy (2015: 15th)

Government is serious about eliminating corruption

$450 billion budget necessary for infrastructure development from 2015-2019.

Comparison: Vietnam (10 year) needs $500 billion

Kalimantan, Sulawesi and Sumatra are catching up as emerging markets of the worldSource: World Bank

Infrastructure Lacks educational diversification Wants to join TPP but needs to

overcome protectionism High wages are relative Low per person income

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Current Economic Situation: Slow Growth

17% of company's expense is on logistics 2.1% of GDP is invested in China & India December 2014, fossil fuel and electricity sector receive USD $33.2 billion subsidies (15.3% of country's total

spending) to boost the poorer segments of society, but was pushing the public too close to poverty. In early 2015, fuel subsidy was then diverted to state-owned enterprises and cities for infrastructure development If the new subsidy proposal (June 2016) on diesel fuel is accepted, subsidy allocation will drop from IDR 63.7

trillion (USD 4.75 billion) to IDR 40.6 trillion (USD 3.03 billion), which will cause current levels at IDR 1,000 (USD 0.07) to go down to IDR 350 (USD 0.03) per liter for all residents in Indonesia.

Increased natural disaster risks Power plants are shifting from oil to gas &

coal Difficulty attracting investments due to

many land-right and laws Behind plans: health, welfare, education in

Indonesia High cost in extreme weather due to

blackouts

Source: http://blog.euromonitor.com/2015/02/look-beyond-the-surface-when-selecting-new-emerging-markets.htmlhttps://www.iisd.org/gsi/sites/default/files/ffs_indonesia_newsbriefing_June2016_eng.pdf

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Current Economic Situation: Subsidy Reallocation

Fuel subsidy savings in 2015 allowed major investments in social welfare and infrastructure through increased budgets for ministries, state-owned enterprises and transfers for regions and villages.

Source: http://www.greengrowthknowledge.org/blog/what-can-you-afford-year-without-fuel-subsidies

$15.7Billion

US

Subsidy saving amount:

$2.59Bil.

$11.06Bil.

$4.71Bil.

https://www.youtube.com/watch?v=8BPitayGVGk&t - t=1m53sVideoFrom slums to the palace: Indonesia's President Widodo Subsidy

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Japan-Indonesia Economic Relations

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Indonesia is Japan's major supplier for natural rubber, liquefied natural gas, coal, minerals, paper pulp, seafood such as shrimp and tuna, and coffee.

Indonesia has been regarded as a major market of Japanese automotive and electronic goods.

Approximately 1,000 Japanese companies operate in Indonesia which employ approximately 300,000 people.

Japan, Indonesia to Boost Economic, Security Ties 2015/03/23

https://www.youtube.com/watch?v=H8dhAHNNSagVideo

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Indonesia Culture

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Indonesian Culture

https://www.youtube.com/watch?v=igIu-shinvIVideo

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Who are Indonesian?

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What Indonesian people are like

https://www.youtube.com/watch?v=CRcJSN1gmeoVideo

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According to a 2014 BBC World Service Poll, 70% of Indonesians view Japan's influence positively, with 14% expressing a negative view, making Indonesia one of the most pro-Japanese countries in the world.

Japanese direct investment in Indonesia is no longer limited to traditional sectors but now also include retail, media, and consumer products sectors.

Japanese restaurant chains such as Ootoya, Yoshinoya, and Ebisu Curry, fashion, retail and household appliances stores such as Sogo and MUJI, and bookstores such as Books Kinokuniya have recently entered the market in Indonesia. The investment of these new corporations is encouraged by the success of several Japanese companies.

Ajinomoto is planning the construction of a new USD $50 million factory in Indonesia.

Japanese Businesses in Indonesian Markets

[MV] Mae Shika Mukanee (Hanya Lihat Ke Depan) - JKT48

https://www.youtube.com/watch?v=1eEngMCVyUEVideo

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Crime, Ethnic Violence & Muslim Terrorism

Hatred is targeted at rich Chinese and Christians (Kalimantan, Moluccas, Sulawesi).

Muslim Terrorists Largest Muslim population (88%, mostly moderate) Al-Quaeda, Islamic State:

Reasons for radicalization ：1. Political exclusion, 2. Feelings of great injustice, 3. Feelings of western domination

Links with Middle-East for funding and ideological support Some radical Muslims in Indonesia (very few from 200 million Muslims) have ties to stricter

Middle Eastern Islam. Some of those have connections to terrorist organizations. Counterterrorism squad

https://www.youtube.com/watch?v=JcwWs7POKtcVideoSource: http://www.indonesia-investments.com/business/risks/radical-islam/item245

Jakarta Terror | 9 News Perth

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Political Power & Corruption

To increase transparency in Indonesian accounting, adopted accrual accounting in 2015

Corruption Index 118, improving since 1998 Under Suharto a small network of

military/friends (Chinese businessmen, family benefiting from company privatizations)

Corruption Eradication Commission Post 1998: Decentralization makes

corruption less predictable & widespread Lack of a institutions for promoting business

environment Increased Informal labor sector where majority

of unemployed workers migrated to. 55-65% of employment considered informal labor (agriculture, construction)

Informal labor: part of an economy that is neither taxed, nor monitored by any form of government

Source: http://anticorruptiondigest.com/anti-corruption-news/2016/06/15/indonesia-no-corruption-in-sumber-waras-land-acquisition/#axzz4Ed92X2wyhttp://businessperspectives.org/journals_free/ppm/2015/PPM_2015_02%20spec.issue_M_Suparman.pdf

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Crime & Punishment

Due to its conservative culture, crime is harsh and punishable by death. • In 2015, total of 14 foreigners were shot

under death penalty for drug trafficking crimes. Those included Dutch, Brazilian, Vietnamese, Malawian, Nigerian, Australia.

Due to the recent drug smuggling incident and previous negative history with Australian foreigners, Australians still need travel visas to enter Indonesia

Australia accounts for 12% of all foreign visitors to Indonesia (as of 2015)

Talk to Al Jazeera - Joko Widodo: 'A strong message to drug smugglers 5min.

https://www.youtube.com/watch?v=D_S3TjQ4T-s#t=1m40sVideo

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Japanese ODA & FDI in Indonesia

Year 2009 2010 2011 2012

Total 2,884 3,026 2,249 1,998

1Japan 1,416

Japan 1,594

Japan 1,031

Japan 822

2Australia

342Australia

356Australia

447Australia

606

3France

303France

348US 262

US 195

4US 274

US 263

Germany 214

Germany 126

5Netherlands

167Germany

185Netherlands

78Netherlands

46

2013 Foreign Direct Investment (FDI) in Indonesia (by country) f

Source: Reuters, JETRO

• Since 1987, Indonesia was the largest recipient of the Japanese Official Development Assistance (ODA), which is on a cumulative and annual basis

• Japan has long been the largest foreign investor into Indonesia• Does Japan (US ally) have more soft power/influence over Indonesia than China?

Amount of Development Assistance Committee (DAC)Countries' & International Organizations' ODA Disbursements to Indonesia($ million USD)

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China & Japan's Battle for Southeast Asia Influence

Economic development in Southeast Asia is a potential benefit for Japan's economy

FDI and overseas development assistance could limit the influence of Chinese economics in Southeast Asia

Japan could help contribute to more regional stability if they would balance power in the South China Sea China is not only aiming to receive

economic benefit, but also to expand its penetration into Southeast Asia, hoping to lead to more power and influence.

Built a 'maritime silk road' Established the Silk Road Fund Established the Asian

Infrastructure Investment Bank (AIIB)

Southeast Asia would rather not succumb to Beijing's dominance in the area

Japan is hoping to build partnerships with key states in the region. They have established partnerships with Vietnam, Philippines, Indonesia, and Malaysia.

Japan has ambitious plans for regional infrastructure investments. Tokyo is now taking action.

http://nationalinterest.org/feature/china-japans-battle-influence-southeast-asia-14006

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Asian Infrastructure Investment Bank (AIIB) Support

Widodo greatly supports the Chinese-led Asian Infrastructure Investment Bank in hopes that this will help provide more opportunities – already, aerospace and rail deals have resulted.

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High-Speed Rail

President Widodo added 30 more countries to the travel allowance without visas. This reform is expected to boost the tourism industry by $1 billion USD, bringing 1 million more travelers per year. Indonesia recently accepted the bullet train bid from China (Japan lost bid) in September 2015 to boost the economy. Australians still need travel visas to enter Indonesia (12% of foreign visitors are Australian; 2015) due to recent drug smugglers.

October 2014: Widodo sworn in as President March 2015: Abe provides loan for Municipal Rail but no progress with high speed rail; Widodo

meets Xi talks about project April 2015: Bid by China with much lobbying September 2015: Widodo cancels the project and signs with China with 100% private finance October 2015: China granted $5 billion deal for Phase IIndonesia's first high-speed railway breaks ground

https://www.youtube.com/watch?v=xkhk8s9bqGQVideo

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China & Japan Bidding On The High-Speed Rail

2010 Started negotiations 2015 Started negotiations

Expected completion in 2023 Expected completion in 2019

Substantial expertise in high-speed trainsReputation as a world-class train-producer

Late-bloomer in the industry China has the world's longest HSR network with

over 16,000 km (9,900 miles) of track in service as of December 2014

Energy-efficient, high safety, earthquake-sturdy for decades, the bullet trains have been in operation without a single, fatal accident

China made an alliance with Indonesian companies and also shared high-level construction experience with the Indonesian government

China will support rail construction and workers' training

Promised 40,000 new jobs in Indonesia every year for the train line's construction

Japan International Cooperation Agency offered loans of $4.4 billion USD with a 40 year repayment period. Actual interest is less than 1%

China estimated the railway would cost $5.5 billion USD and is offering Indonesia a 50 year year loan that would charge a 2% annual interest

Increased infrastructure investments from China to Indonesia in line with the planned "Belt and Road Routes"

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The Rail Deal

China wins

　　 China, Indonesia sign $5.5 billion high-speed rail deal

Japan is difficult to understand and "extremely regrettable" with no flexibility in deal terms

Japan's deal failed because it was too "government to government (G2G)" and not "business to business (B2B)", the stance China took and won

China took the side as one who wants to support building Indonesia as a nation Will be run by Indonesian state-affiliated corporation. No government financial guarantee

so if loss/debt repayment fails, government not liable

https://goo.gl/cFMmw4Video

Can China Connect the World by High-Speed Rail? | Gerald Chan | TEDxKFAS

https://www.youtube.com/watch?v=uRdQ_2sjF2s#t=5m20sVideo

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Position in Asia Pacific

Indonesia is emphasizing strengthening relationships and friendships with South Pacific leaders. Indonesian Minister of Political, Legal and Security Affairs is making rounds around the pacific to Fiji and Papua New Guinea (March 2016) to talk about bilateral relations.

Indonesia recently provided $8 million USD in relief efforts to victims from the Fiji cyclone in February 2016.

Fiji and Indonesia hope to increase cooperation in education, agriculture, economy, and food security.

Indonesian Security Minister Luhut Binsar Pandjaitan (right) shaking hands with his friend Fiji Prime Minister Voreqe Bainimarama during a visit to the Pacific.

Source: Fiji Newswire

Source: Asia Pacific Report, April 8, 2016

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Relationship With the United States Relations between US and Indonesia are close and strong. Since 1950, the US Agency for

International Development (USAID) has been supporting Indonesia on food, infrastructure, health care, public training. In 1970s, USAID helped it become self-sufficient by producing rice, and in 2000s, helped with post-disaster assistance programs (food, water, health, economy, tsunami, environment)

In Widodo's meeting with Obama in October 2015, both countries want to strengthen comprehensive partnerships in defense and economic cooperation, and help keep terrorism at a low in Southeast Asia.

By gaining Indonesia's support in preventing ISIS from taking a foothold in the country as well as neighboring countries (Malaysia, Singapore), it will be difficult for ISIS to grow in this region.

In addition, the US hope that while it is fine to deal with China, Indonesia should not support China to gain Asian power and dominance. Any power conflict in Northeast Asia will be reflected in Southeast Asia. As a result, America will not take sides to keep continued continuity in this region.

Source: The Diplomat, Straits Times

Indonesia's Example to the World

https://www.youtube.com/watch?v=niDPBTbJqS0VideoPresident Obama speaks on democracy, economic growth and America's relationship to the Muslim world in a speech at the University of Indonesia in Jakarta. November 10, 2010.

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Discussion Points

How else do you think President Widodo could speed up the economy of Indonesia? With which country should Indonesia strengthen ties, and why?

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Investing In Indonesia: Now Or Never?

Exports: $200 billion Imports: $185 billion

Ease of Doing Business Rank: 120Starting a businessDealing with construction permitsGetting electricityRegistering propertyGetting credit

Protecting investorsPaying taxesTrading across bordersEnforcing contracts Resolving insolvency

Doing Business in Indonesia - BW-IND

https://www.youtube.com/watch?v=1OQS0AGmGDM#t=5m10sVideo

Japan 34

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Ease of Doing Business (2009)

Indonesian Business Culture

https://www.youtube.com/watch?v=3z8Y3LknZFoVideo

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Strengths & Weaknesses of the Business Environment

Strengths

Solid basic skills and a large available workforce

Promising reform of rules and regulations affecting business

Top Asian Reformer in 2010 (World Bank Doing Business)

Solid financial system Greater formal opening of economy to

trade and investment New Investment Law passed in

2007 Wide array of potential clusters,

especially in natural resources-related fields

Weaknesses

Weak logistical and communication infrastructure Unreliable electricity supply Labor market rigidity Regulations and customs procedures remain

complex Limited depth in financial systems Weak educational quality Legal system uncertainty for investors, especially at

the provincial level Dominance of large business groups and state-

owned enterprises Weak cluster collaboration and development Lack of advanced skills Weak science and technology system

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Indonesia Seizes Chinese Fishing Boat

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On 31 May, 2016, the Indonesian military seized Chinese fishing boat and crew after it entered Indonesia’s exclusive economic zone in seas off the resource-rich Natuna Islands archipelago.

In a statement, the Indonesia navy commander said the seizure was intended as a notice to the world and the boat was stopped to show it will act firmly against violations of its jurisdiction. China and Indonesia have a different point of view about the waters where the incident happened. Beijing claims these parts of Indonesian-ruled Natuna Islands are within ‘nine-dash line’. China has said it does not dispute Indonesia’s sovereignty over the Natuna Islands, but claims nearby waters as part of its traditional fishing grounds. On the other hand, Indonesia says the waters are in tis exclusive economic zone.

Indonesia "Attacks" China in South China Sea! | China Uncensored

https://www.youtube.com/watch?v=WS5qixxt3B4Video

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Nine-Dashed Line & Exclusive Economic Zone

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The nine-dash line, previously the "11-dash line", is the demarcation line used initially by the government of the Republic of China (Taiwan) and subsequently also by the government of the People's Republic of China, for their claims of the major part of the South China Sea.But on the other hand, • Former Philippine President Benigno Aquino III,

"China's nine-dash line territorial claim over the entire South China Sea is against United Nations Convention of the Laws of the Sea

• Vietnam also rejected the nine-dash line claim

An exclusive economic zone (EEZ) is a sea zone prescribed by the United Nations Convention on the Law of the Sea over which a state has special rights regarding the exploration and use of marine resources, including energy production from water and wind. It stretches from the baseline out to 200 nautical miles from its coast.

South China Sea Ruling: 5 Things to Know

https://www.youtube.com/watch?v=qOeEMsdYzm4Video