Indonesia and Southeast Asia: “The New Normal”

As Mari Pangestu prepared to give the lecture associated with the visiting professorship she currently holds, Dean Merit E. Janow of SIPA introduced her by noting that the George W. Ball Adjunct Professorship of International and Public Affairs “recognizes people who are making outstanding contributions to public policy, doing so from a fresh lens, taking on hard issues, speaking out on issues you wouldn’t expect.”

In response, Pangestu—who served as Indonesia’s minister of trade from 2004 to 2011 and moved on to become the country’s minister of tourism and creative economy until 2014—noted dryly that her “main qualification [was] surviving ten years of government."

Pangestu began her remarks by explaining the title she chose for, “Navigating the New Normal.”

“We had to scratch our heads to come up with a sexy title, so that we would get a good audience,” she joked.

But defining the new normal for Indonesia and southeast Asia, Pangestu said, is more difficult than naming it. (She referred often to the ASEAN region, a reference to the Association of Southeast Asian Nations.)

In the aftermath of the global financial crisis, Pangestu said, projections for growth are lower because productivity has slowed everywhere.

“World trade and growth have been delinked,” she said.

Changes in the Chinese economy are also part of this new normal. As China moves from a labor-intensive production model to one based more on services and innovation, the ASEAN region’s role in the global value chain will also shift, Pangestu said.

Whereas China used to be a worldwide hub for production of goods, as supply chains have matured there is more local procurement and thus a contraction in imports.

As a result, Pangestu said, some have questioned whether to remain focused on exports if they are no longer a source of growth. But she said Indonesia and countries the ASEAN region and elsewhere should resist this line of thinking.

“The difference in the global value chain is that it’s not about goods being produced in different countries and then assembled in another country,” she said. “It’s more about the capabilities that countries have and the capabilities that go into producing something.”

In order to capitalize on such capabilities, which Pangestu also referred to as the “specialized tasks” of certain nations, the speaker recommended that Indonesia continue to support the creative economy.

Within Indonesia, the development of a creative sector was, in Pangestu’s words, “one of those accidents of ideas.”

Indonesia’s president had asked Pangestu, in her role as trade minister, to look into cultivating culture industries such as handicrafts and batik. She found an American book called Creative Economy, and decided to pursue that strategy.

Pangestu said the creative economy differs from the production economy in very fundamental ways.

Increasing output by adding capital and labor is straightforward, but increasing output from the same capital and labor requires something else, she said.

“That is creativity,” Pangestu said, the potential to “create even more value.”

Pangestu cited five reasons to support the development of the creative economy: Economic contributions, the creation of value added, branding/national identity, preserving natural/cultural resources, and social impact all play a role.

Creativity is also “recession-proof,” she said.

An example of Indonesia’s global role in the burgeoning creative economy is its animation hub. Much of the production and post-production in this industry occurs within the country. “Next time you see Garfield, [remember] 50 percent of that is being produced on Bantam Island in Indonesia,” Pangestu said.

But no matter how countries within the ASEAN region choose to respond to the new normal economy, Pangestu stressed the importance of practicing “evidence-based policymaking.”

Even if you make decisions that have political implications, she said, “you need to consider the numbers.”

— Lindsay Fuller MPA ’16

Mari Pangestu analyzes the economic projections for Indonesia and Southeast Asia