Commentary by Wayne Forrest

May begins the annual cycle of school graduations, first colleges, and then in June, elementary and secondary schools. I have been thinking of this while reflecting on the May 1998 financial crisis that led to President Suharto’s resignation and Indonesia’s graduation from his rule. A glance at Indonesia’s education statistics shows that although per pupil expenditures are still very low and the percentage of junior high school graduates in the population is only 18%, this figure is much higher for 25-34 year olds and will only rise as the years pass. A large part of the education gains began in 2008 after a decade of stabilizing reforms and graduation from IMF oversight. It was then that the Indonesian government committed to spending 20% of its budget on education. Today’s growing middle class reflects this investment.

2018’s May is probably a month many Indonesians would rather forget. A horrible series of suicide attacks on churches and police stations beginning in Surabaya led to over 40 deaths, some were children. Their distinguishing feature was that for the first time the perpetrators included a husband, wife and their children. You see their shining faces in photographs, read their stories and wonder what they would have become at graduation.

America is still a destination for a tiny fraction of Indonesia’s college students, themselves less than 10% of the nation’s population. US colleges enrolled over 14,000 prior to the Asian Financial Crisis and a massive rupiah devaluation (2400 to 15,000). Today’s figures are closer to 8,000: market share has been lost to nearby Australia, Singapore, New Zealand, Korea, Japan, and the EU where degrees are less expensive. Regulations are changing but not yet attractive enough to persuade US campuses to open in the country.

America does send some foreign students to Indonesia. This week I met a group of returning high schoolers who were part of the Kennedy Lugar Youth Exchange and Study (YES) Abroad Program administered by AFS-USA, (formerly American Field Service). The government of Indonesia has its Dharmasiswa scholarship designed to help foreign students learn about Indonesian society and culture but not earn a degree. Far too few US universities place Indonesia in the curriculum. Only a handful–such as USC’s Marshall School of Business–require field experiences there.

May was tough for many financial “foreign students” who exited Indonesia in big numbers putting dramatic pressure on the rupiah. Perhaps they caught a case of “Bali belly” or divined some measure of risk. More likely they took a trading gain. In any case these bond holders (40% of the government bond market) returned home prior to graduation. Indonesia clearly needs more resident students (direct investments).

Indonesia was a wonderful place to be a student when I was in college. The difficulty understanding a very different culture was immensely compensated by the warmth and friendliness of the Indonesian people, the beauty of the landscapes, and the vibrancy of its diverse traditions. Also, the US dollar went far. And in many ways this is still the case. I predict the fickle bond holders will be back; they probably went home to see their families. Evidence is beginning to point in that direction after Bank Indonesia raised rates twice in the last two weeks and the Finance Ministry revised its budget. The rupiah is back below 14,000.

In March I met personally in Jakarta with BI Governor Perry Warjiyo and Finance Minister Sri Mulyani. I learned they are willing to sacrifice a little growth for stability. They know reserves are ample, the nation’s debt is mostly long-term, and an ambitious infrastructure program will be a significant growth engine into the future, mitigating currency flight. Many internal and external risks remain but these policymakers have studied 1998 and the US Fed very closely, graduating magna cum laude.

(The writer’s opinions do not necessarily reflect those of the American Indonesian Chamber of Commerce or its members)