Energy, Demographics and Development

 

The revolution started in 1945 and it was the first revolution of many after World War II. People across the so-called ‘third world’ began to rise up against the old colonial powers, not just in Indonesia, but also in many other countries across Asia and Africa. Indonesia started the movement, and later helped the African countries in their struggle for independence. I find it remarkable that most people do not realize the central role that Indonesia played in this process. 

 

My involvement started during the Japanese occupation of 1943, I was an active boy scout of a religious group called Muhammadiyah. I saw the suffering of the Indonesian people first hand, and from then on it was my intention to do something good for the Indonesian people.

When the Japanese gathered a group of Indonesians into a voluntary army called PETA, I immediately applied. Unfortunately, I was rejected because I was so thin. At that time the nutrition was very poor for Indonesians because the Japanese took all our rice and anything else we had. 

 

The rejection didn’t stop me, when independence was declared on the 17th of August 1945, President Sukarno recognized that we needed to have an army to protect our new independence. So, in October 1945, the first military academy was established in Yogyakarta and I was accepted to study there. I graduated in 1948, and at that time we were at war with the Dutch for independence. The war ended in 1950 when the Dutch recognized the declaration of independence.

 

After this, I wanted to do something that would benefit Indonesia. I knew I didn’t want to continue in the military, but I thought economics could be of value to our young nation. I told my commanding officer that I wanted to end my military career, so I could study at the faculty of economics in Jakarta with Professor Sumitro in cooperation with Berkeley University in America.

In 1952, the World University Service sent a professor from McGill University in Montreal to Indonesia looking for a student that could be offered a scholarship.

As I was chairman of the student association of Indonesia, I was the first person he met. We talked about the scholarship and he asked if I was interested, I was, and I applied immediately. I was accepted into McGill University and received my Master’s Degree in Economics.

 

I was supposed to return to Jakarta after I finished, but there was still some money from the foundation that financed the affiliation between Berkeley University and University of Indonesia. Professor Sumitro suggested I go to MIT to prepare for my doctorate, so I went and attended some courses in economics and prepared for my doctoral thesis specializing in terms of trade. The terms of trade were completely against developing countries, forcing them to export raw materials for a low price and import for a high price.

I was very interested in this aspect of economics and after one year I returned to Jakarta and received my doctorate from University of Indonesia. I returned to the faculty of economics where we focused on development economics. I continued to research and study Indonesia’s relationship with the wider world and the very negative terms of trade that came with it. 

 

President Suharto was very interested in economic development and he wanted to create a comprehensive economic policy for developing Indonesia. To do this Suharto enlisted the help of five fellows to make a blueprint for development. That was the start of the faculty’s participation in the development of the country.  We came up with a blueprint and presented it to Suharto and we were consequently made ministers of the cabinet. 

 

 

We continue to see great disparity between rich and poor. It seems that the rich get richer and the poor get more children. So even though we continue to grow, much of this was the result of increasing disparity. 

 

To reduce poverty we need to think beyond the five-year terms of the current political system. In 2014, we will have been independent for 69 years and yet we still see poverty. I hope that with one more generation, by 2045, after 100 years of independence, we will have eradicated poverty. Certainly during this time (2045) we will experience a demographic dividend, which means that there will be a very low number of people dependent on one another.

We know that Korea under similar circumstances was able to grow around 8.5%, so from 2010-2050 Indonesia has an opportunity to educate and train people, increasing their skills and knowledge because the dependence variable will be very low. 

 

We will never have an opportunity like this again; we need to take advantage of it through a focus on education. We need education that allows people to gain employment in society; we should have a strong orientation towards science, technology, engineering, and mathematics. This is the aim and the policy: increase the capacity of the workforce. We need to work now, and save for the future.

 

 

We know that Indonesia depend too much on fossil fuels, and these are non-renewable energy forms, so I would advise the minister to find renewable energy sources.

We only have 4 billion barrels of proven oil reserves, so if we do not find new reserves in 10-12 years we will run out of oil entirely. Further exploration is possible, and there is research to suggest that we have additional oil. However, increasing exploration activities is expensive and there are greater challenges in finding and utilizing oil fields, as they are often deep-sea or in forested terrain. 

 

Our gas reserves are much larger and will provide for 40-50 years of use. Additionally, shale gas and coal seam gas could become very important.

We also have significant amounts of brown coal, which is useful for power generation. Nuclear energy could be an opportunity. However, after Fukushima this seems very risky. Fukushima could only withstand an 8.1 magnitude quake and as Indonesia is on an intersection of three tectonic plates earthquakes are a reality. 

 

Another factor the energy minister will need to consider is the population and income growth and the effect that will have on energy consumption.

The economy will expand from $800 billion in 2014 to $4 trillion by 2025 or in terms of Per Capita from $3750 to $14000. This is a fourfold expansion of GDP. The population will grow from 237.5 million to 255 million by 2025. This affects the estimate for the amount of energy we will require in the future. At the moment 10% of our energy is from renewable sources; by 2025 it needs to more than double at 26%. To devise an energy security system today, the energy minister will need to think about the context of the future.

 

 

I served OPEC from 1988-1994 and my tenure, as Secretary General was very eventful. In 1980, we had the Iran-Iraq war followed by the invasion of Kuwait by Iraq. Als,o the Iranian revolution took place. So, when I became Indonesia’s Minister of Oil in 1978 I was asked to bring Iran and Iraq together at OPEC. We had a meeting in Bali and the first problem was the seating plan, as Iran and Iraq typically go together, we placed Indonesia between them.

The interesting thing is that the Iranian minister did not know that on the eve of the conference the Iraqis had already occupied territories of Iran. Their differences proved irreconcilable and unfortunately they could not come together in a collaborative way.

 

In 1988, we had the problem of Iraq’s invasion of Kuwait. Iraq justified it by saying that Kuwait was stealing oil from Iraqi wells.

All this led to a drop in oil production in Kuwait and we saw the price of oil increase from $12 to $23 a barrel. With this increase in price, areas that were not feasible for oil extraction became feasible. So what we saw was an increase in the supply of oil, with a stable demand. As a result, many oil producers tried to increase production, but the Saudis threatened to flood the market so other OPEC members agreed to limit the flow of oil onto the market.

The problem was that the price continued to fluctuate. We tried to control the price, but it was difficult with so many players who were not members of OPEC. There was a tight competition between member and non-members. We brought all players together to help everyone understand we were in the same boat. We invited ministers of non-member nations to Vienna to foster friendship amongst the producers. The fluctuation became somewhat more manageable.

Currently, OPEC’s annual meetings have continued to ensure price stability. However, the real question is what the oil price will be in the future. Nobody can accurately predict this but we can reduce the volatility of the price. We now see a situation with increasing demand, especially from developing countries. The price could go as high as $120-$200, but it’s anyone’s guess.