Closing Address by Thomas Trikasih Lembong, Minister of Trade of the Republic of Indonesia, at Singapore Forum 2016

1. Good afternoon, ladies and gentlemen. Certainly a huge honour for me to be invited to speak at such a prestigious and high-powered forum. I want to congratulate the organisers, Mr Wong Kan Seng and his team, for being very savvy in the way you organise this to have accommodation of sitting ministers and ex-ministers, because I think the ex-ministers can say out loud what the sitting ministers are thinking which we do not dare to vocalise.

2. I am the Trade Minister of Indonesia and as such I am following in the footsteps of my predecessor, Mr Lutfi. Speaking of ex-ministers, I just want to acknowledge the presence of my seniors, Pak Chairul Tanjung, Marty Natalegawa and Pak Lutfi. Obviously, as the Trade Minister, I am the Republic of Indonesia’s salesman in chief, so I have decided to give you all a special discount today. I am going to give two speeches for the price of one. No, just kidding. Actually, I am giving one speech but it is on two very separate and seemingly unrelated topics.

3. The first thing I figured I want to talk about is the Chinese currency, the renminbi. For the last six to eight months, maybe, we have to acknowledge that the Chinese yuan, the currency, has been more a source of anxiety than a source of positive energy. Obviously, the surprise devaluation – small one, four per cent – of the Chinese renminbi in August set off a whole bunch of global capital markets turmoil, and then even at the beginning of this year, there was another downward lurch – smaller one, two per cent – and again, a lot of volatility, and a lot of anxiety.

4. Now, I actually want to make the case that the currently ongoing internationalisation of the renminbi is probably as close to a silver bullet as we have for the world economy. I am going to try to put this fairly simply. Many of us would be aware that one of the major challenges that the world economy is facing today, frankly, is shrinking US dollar liquidity all around the world. As the US economy recovers, the dollar is strengthening. Capital is flowing back to the United States. President Joko Widodo endearingly called it ‘the dollars going home’ – ‘pulang kampong’ – to the United States. I will try to make the case that the most natural solution for this retreating dollar liquidity would be an incoming rush of renminbi liquidity.

5. Why do I think that that is actually the natural solution? First of all, according to China Trade Vice Minister, Wang Shouwen, there are 120 countries all around the world who count China as their number one trading partner. Countries as diverse as Indonesia, Russia, Saudi Arabia, and the US; we all count China as our number one trading partner. The renminbi is something that all of us will need. Give you an example: Indonesia imports about US$30 billion per year from China. We also import oil and gas from Saudi Arabia or from Qatar or from the United Emirates. If we actually use renminbi in our trade, we can use renminbi not only to pay for our imports from China, we can also use renminbi to pay for imports from Saudi Arabia. Why would Saudi Arabia accept those renminbi? Because they also need those renminbi at some point to pay for their imports from China.

6. If the renminbi were widely used in trade, I believe that it would actually make China a lot less mercantilistic than it currently is. Again, another challenge that the world economy faces today is the huge industrial over-capacity in China which causes a lot of products to leak out into the international markets: steel, chemicals, textiles, you name it. If you think about it, how did the system come about? The system came about because China needs to import so much stuff. China needs to import a substantial amount of its energy, especially oil and gas. China needs to import a lot of its foodstuffs: grains, meats, agricultural products; and also a lot of minerals. Now, in order to safeguard their national security, they have to export like crazy to stockpile dollars. Why? Because they will need those dollars to pay for their food imports. They will need those dollars to pay for their energy imports. Imagine if the renminbi were widely accepted all around the world, if China could pay for whatever imports they wanted just by printing renminbi, it would significantly lessen the pressure on China to export, because China would not have to export to stockpile those dollars with which to pay for their imports.

7. I also believe that internationalisation of the renminbi would aid and accelerate China’s shift to a consumer-driven economy. Imagine if Chinese tourists could come to London and shop at Burberry, could come to Paris and shop at Hermes, could come to Bali or Langkawi and pay for their souvenirs and shopping, using renminbi, it would significantly encourage the Chinese to spend, to consume, which today is more difficult because every time you want to do that as a Chinese tourist, as a Chinese consumer, you have to convert to dollars.

8. Broadly speaking, in monetary terms, I believe that as the world adapts to the internationalisation of the renminbi, the renminbi would become what I would call the ‘fifth global pillar of liquidity’. Of course, the top trading currencies, investment currencies are the dollar, euro, yen and pound sterling. Since the global financial crisis in 2008, those four central banks have been working very, very hard printing money, and by doing so, providing liquidity to the world, like the US Federal Reserve with its massive quantitative easing; the Bank of Japan (this decade is their second decade doing this; they are already doing it the last decade); and finally, the European Central Bank who joined in with massive quantitative easing. But conspicuously missing from all these monetary action is the central bank of the second largest economy in the world, China. There is a gaping hole in my view in the world’s liquidity system because China has not been acting as a provider of global liquidity.

9. Why is this not happening? Why is it so slow to get going? Well, of course, a lot of it is inertia, habits. The world is habituated to transact or trade in dollars, to invest our savings in dollars, quite a bit more open to investing or trading in euros. Even yen has a much smaller market share. But it is not undoable, right? Back in 1999, we also all had to change our habit from using Deutsche mark and French franc and Italian lira and transitioning to using the euro. Notwithstanding the challenges that the euro has had over the last few years, I would argue that the euro is a smashing success. The monetary union of these dozen or so countries has created a much deeper, more liquid capital market where it has forced a kind of convergence which, from time to time, unavoidably we will run into trouble, but definitely in my mind there is such a thing as economies of scale even in currencies.

10. The second thing is if you think about it, if the renminbi were to be more broadly accepted all around the world, actually what would have to happen, technically and maybe my moderator Manu Bhaskaran can explain this better than me, is that China would have to accumulate sizable reserves in each of our currencies. China would have to accumulate reserves in rupiah, in Indian rupee, in Saudi riyal, in Russian ruble. Why? Because it will be a natural consequence of each of us redenominating our trade into renminbi. The way it would work is the People’s Bank of China (PBOC) would print renminbi and, say for illustration, give them to Bank Indonesia. Bank Indonesia would print the equivalent amount of rupiah and give them to the PBOC. Both central banks’ reserves would rise for the same amount except that Bank Indonesia’s reserves would be added in renminbi and China’s PBOC reserves would be added in rupiah.

11. I think the next step that China will have to take is to basically gain the comfort of accumulating sizable reserves in other currencies. Currencies of its major trading partners, and obviously the biggest benefit or the biggest potential upside from doing this would come with those trading partners which are most affected by the shrinking dollar liquidity.

12. I had breakfast with a former US Treasury Secretary a few weeks ago and we discussed this concept and he said, ‘Yes, Tom, you are absolutely correct. This actually is what needs to be happening.’ Interestingly, he shared with me that he was actually around in the 1980s when the US and Japan were negotiating the Plaza Accord, and the same logic at the time existed for the internationalisation of the Japanese yen. Basically, we have done this before. The yen was in a very similar position to the renminbi today. Japan, in the 1970s and 1980s really roared ahead. They became the second largest economy in the world, and yet the internationalisation of the yen lagged far behind the growth and the role of the Japanese economy. He shared with me that he was surprised by how long it took to internationalise the yen. Nevertheless, he also acknowledged that China is not Japan. Times are different today and, thanks to technology, thanks to globalisation, I think, the infrastructure for redenominating a lot of trade from dollars to renminbi is much more advanced, much more digitised, much more electronic and therefore, arguably, can happen a lot more quickly.

13. Lastly, of course, it is not simple, unfortunately. Today, China is going through a difficult economic transition, and speculators all around the world are watching very carefully. Obviously, the last thing that China wants to do is give a whole bunch of renminbi to somebody and for that somebody to just convert those renminbi to dollars thereby putting huge downward pressure on the dollar/ renminbi exchange rate.So, the last piece of the puzzle, I would say, to making this happen is to confine the internationalisation of the renminbi for the time being to trade. As we get in place, the mutual reserves, let us say, of rupiah versus renminbi, of Thai baht versus renminbi, of Saudi riyal versus renminbi, have to be fairly circumscribed, it has to be fairly limited, for trade purposes only.

14. Going back again to the Indonesia example, we import about US$30 billion per year of stuff from China every year. That is a lot of dollars that we also have to keep generating from exports, for us to be more mercantilistic, especially, vis-à-vis the US. If we redenominated, say, a third of that trade from dollar to renminbi, it would save us about US$10 billion per year of dollar demand, thereby lessening the pressure on the rupiah/ dollar exchange rate. Again, as China gives us those renminbi and we in return give those rupiah to China, we have to make sure that those renminbi are used for trade, not for speculation. Again, if you know, Indonesia speculators are waiting to receive those renminbi to convert them into dollars, that is precisely the opposite of what we want right now. Certainly with the instability that we have seen in the renminbi lately.

15. The second thing I would talk about today is completely different and fairly unrelated, but I conclude this is what springs to mind or what resonates at the moment. Maybe, it is a bit eccentric and unusual to be coming from a Trade Minister. Actually, what I want to talk about is morality. It is really a hard thing to talk about without moralising or sermonising, but I tested this at Davos in January and I was emboldened to expand on it further at the Boao Forum and – with apologies to those who attended Davos and heard this from me already, and those of you who attended Boao who have heard this from me already – I am being encouraged by more and more people, attendees at conferences like this to keep talking about it, so here I am and I am doing it.

16. I think if we observe what is happening, for example, with the US elections, if we observe the rise of demagogues and populists in Europe, in response to the refugee crisis, terrorism and the like, it is hard to get away from the issue that we – all of us here – the elites, are at significant risk of losing the public’s trust. Why are publics around the world turning to demagogues or, even worst, to extremists, or radicals? I think it is because we, the establishment, are failing to generate the kind of trust that we need. And it is coming at a time when the world is going through so many fundamental and profound transitions. There are demographic transitions, there are economic transitions such as China going from production- and investment-led to consumption-led, there are technological transitions and revolutions, and we all have to impose upon our constituencies unprecedented change.

17. When I mentioned this at Davos and at Boao, one response was, ‘Yes, you are right, Tom. At heart, a lot of the problems we are facing are ethical and ethics.’ I thought about it a bit more, and really, there is something deeper, is there not? Ethics is about certain boundaries, not being corrupt, not doing the wrong things, not breaking the law, and so on. I think there is something missing that is deeper than that. Reflecting on the world, I am actually surprised that the word ‘morality’ does not come up more often in discussions like these, in discussions among policymakers. To me, morality is about spirituality. In a very simple term, it is about kindness and wisdom.

18. I just worry that without more kindness and wisdom, it is going to be difficult to fix the problems we have to fix: environmental, inequality… Even if we fix them, if we do not tackle the roots or moral underpinnings, we just create new ones. For example, the notion that we can pollute with impunity, to me, is a moral failing. It is not just an ethical failing, but there is a moral failing there somewhere. A few examples of the power of kindness I like to use: in Indonesia, throughout the last few decades if you do a poll, a survey, about the United States of America – America consistently gets very high ratings in Indonesia, something like 75%, 80%-plus approval ratings. Now, those approval ratings plummeted in the early 2000s after George W. Bush’s invasion of Iraq. However, then came the 2004 Boxing Day Tsunami, devastating the Indian Ocean area and killing 150,000 people in Aceh province in North Sumatra, Indonesia. The first people on the scene were the US Navy, with that famous photo of the white hospital ship with the Red Cross sailing into Aceh. Over subsequent few months, there was a spontaneous outpouring by millions of people in the United States donating US$5 and US$10 over the internet, and thereby raising something like US$600 million or US$700 million for Aceh’s reconstruction. America’s approval ratings in Indonesia went right back up.

19. It was something that came from the heart. It was something that came spontaneously from the American people, and it is an illustration to me of how, I have very little doubt, in 50 or 75 or 100 years, America will still be a superpower. Why? Not because of the military hardware, but because of the kindness and generosity of the American people.

20. To use a couple more contemporary examples: the rise of Pope Francis – his style, his focus has been very revolutionary and inspiring. More practically, maybe, Canadian Prime Minister Justin Trudeau – the way he has welcomed Syrian refugees into Canada, and his ardent support for women and children. I certainly encourage everyone to google and see the videos of Prime Minister Trudeau welcoming Syrian refugees and Pope Francis washing the feet of Muslim immigrants in Europe, and I challenge you not to be touched by them.

21. Lee Kuan Yew is Singapore’s legend. It was remarkable, when he passed away, that there was an outpouring of love. And ironically, I personally use Prime Minister Lee Kuan Yew as an example of humility. A lot of people do a double take and say, ‘Tom, humility? I am not sure that that is the first word that comes to mind when I think about Lee Kuan Yew. Maybe, one of the most self-confident people in the world.’ But what is actually true humility? True humility is not grovelling or false modesties or whatever. I mean, true humility would be something like this. True humility would be your ability to admit that you are wrong, your ability to change your mind after decades of believing something. To me, that is true humility. I believe that Lee Kuan Yew did those more than once throughout his career. I believe that he was always strongly against gambling but when time came for Singapore to build two casinos, he was willing to change his mind. He was willing to accept that times have changed, and perhaps his deeply long held belief was no longer relevant. To me, that is true humility.

22. Ultimately, I think, one Singapore lawmaker put it best. ‘Why were people so emotional about Lee Kuan Yew?’ And he said: ‘it is very simple. He cared.’ He just cared, but he really, really cared, and in everything he did, he cared so deeply about Singapore, about his people.

23. Personally, I see the same in President Joko Widodo of Indonesia. I see the same in Governor Basuki Tjahaja Purnama in Jakarta. It so happens to be that both of those two men are very religious. Like anyone else, they do not always have all the answers, but in my experience they have a strong moral compass that leads them forward. I think the direction generally tends to be right very quickly even if the specific details still need to fall into place.

24. If, for argument’s sake, we agree that kindness and wisdom are important things for us to talk about, morality is something fundamental that potentially is worth more surfacing in policy discussions, or at least discussions among policymakers: how do we make them happen? I think first of all, in this day and age, it has to be real. It has to be authentic. I believe that populations around the world are savvier than ever before, especially the young generation, and now with social media, there are no such thing as secrets. If you are phony or a fake, people can spot that from a mile away and they will bully you like crazy. It has to be beyond the superficial stuff. It cannot just be we do our corporate social responsibility projects and then consider our job done. It has to be deeper. It has to be more genuine. It has to come from the heart.

25. The second thing is, I believe that the answer lies within. I think the answer lies with each of us individually. I believe that it is as simple as making a conscious decision to be kind. It is potentially as simple as making a conscious decision to be wise. I think all of us in the elite are very well educated during our college education perhaps. We have read plenty of literature and history. We know what it is to be kind. We know what it is to be wise. In our global exposures, we witness incredible acts of kindness and wisdom.

26. I think that there is actually very good selfish reasons to be kind and wise as well. I think that it gives you an incredible rush and I think wisdom can be an incredible high. I know that this is, again, very eccentric, very unusual coming from an economic minister but, again, talking to friends and family and others around the forum circuit like this, I am being encouraged to keep going with this. I think the alternative is we continue to go round and round in circles debating policy solutions, potentially without us ever actually being genuinely, personally motivated to get them in place.

27. We continue to lose public trust. Frankly, by implication, we potentially continue to feed the beast, the demagogues, the populists, radicals, yes, terrorists. They feed off the despair, the cynicism towards us, the elite, because, arguably, we elites are not kind, not wise enough. I also worry that we are making our own jobs harder by talking about our policies in too impersonal, too clinical, too mathematical of a way. We have to imbue our policy discussions, we have to imbue our policy statements with more humanity, with more emotion.

28. I really believe that our jobs could become significantly easier if we manage to speak, if we manage to lead, with greater kindness and wisdom, because again, the more we really think about it, the more it is about public trust and how to get it back.

29. Ladies and gentlemen, again, I would like to thank the organisers for inviting me to this very high-powered meeting and giving me this opportunity to speak. Let me be wise by not outstaying my welcome at this podium and let me be kind by not inflicting any more of myself on you than I have to. So, with that, thank you very much.

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