09/21/2012 03:02 pm ET Updated Nov 21, 2012

Indonesia's "Three R's"

JAKARTA--Anies Baswedan, the brilliant and thoughtful young president of Paramadina University here in this capital city, beams as he describes Indonesia Mengajar. Akin to the Teach For America program in the United States, Baswedan's initiative sends dedicated young Indonesians to remote regions of this sprawling archipelago, where they educate and empathize with their impoverished countrymen.

"It brings enormous value to them," Baswedan tells me. "We recruit them and then provide seven weeks of teacher training and then army survival training before they are deployed."

Survival training? Deployed?

Therein lies the dual challenge for Southeast Asia's largest and fastest-growing economy. Often working without the benefit of roads, running water, electricity or the Internet, these young volunteer teachers must contend not only with the country's lagging education system, but with another hurdle long considered Indonesia's Achilles' heel: a creaking infrastructure better suited to the Dutch colony it once was than the G20 member it now is.

For the government of President Susilo Bambang Yudhoyono, determined to join the ranks of the world's truly advanced democracies, the "three R's" of modernization may as well be reading, writing, and road-building.

Of the students reached by Mengajar, only a third complete nine full years of basic education. Funding mysteriously goes missing, and rundown school buildings collapse. "There are too many deadwood teachers," one official tells me, noting that a recent examination to determine teacher salary increases was corrupted.

Not a single one of Indonesia's 3,000 private and nearly 100 public universities is in the top 400 globally--yet cheating to gain entrance to them is still widespread. The affluent simply study overseas, with 32,000 currently taking their talents to countries like Australia, Malaysia, or the U.S. Summing up the country's educational underperformance, the Jakarta Globe recently observed that "Indonesia's creaking university system is failing to keep pace with its booming economy, struggling to produce graduates equipped for modern working life in the Southeast Asian nation."

The problems with Indonesia's human infrastructure are matched by its physical infrastructure. In a far-flung archipelago comprised of 13,500 islands and 750 dialects, Indonesia's motto, "Unity in Diversity," is hard to build without literally building bridges, as well as roads, ports, airports, dams and power plants. Indonesia grew at a remarkably robust 6.4 percent last quarter, faster than any other major emerging market economy except China--making an argument that the lauded and emerging BRIC economies of Brazil, Russia, India and China should become "iBRIC." Yet as Indonesia's GDP has grown to become the 15th largest in the world, spending on infrastructure as a percentage of GDP has actually dropped since 1997, from eight percent to just three percent. China, by contrast, spends three times that amount.

Consequently, companies spend an astonishing 30 percent of their production costs on transportation, meaning that Indonesia's businesses are stalling against its infrastructure constraints much like the souped-up engines of the late-model BMWs that sit conspicuously on Jakarta's notoriously gridlocked streets. A Member of Parliament tells me "we haven't built a dam in 30 years," and some of the rapidly proliferating airlines are so suspect that cell phones can interfere with air traffic control. The frustration is obvious when Bambang Harymurti, the editor of Tempo Magazine, tells me, "it costs three times more to send a container from Jakarta to Padang (in other words, from one Indonesian city to another) than it does to send it to Singapore."

It's this building bottleneck that concerns the 20 percent of U.S. companies who have expressed interest in shifting their business from China, but cite Indonesia's "inadequate infrastructure" as a deterrent. iBRIC Indonesia, in short, has investment grade ratings without investment grade roads.

Indonesia's twin challenges will not be overcome overnight, and the country's trajectory remains uncertain. Still, there are a number of promising initiatives that will help Indonesia take its place among the world's fully developed democracies.

First, the Indonesian government must follow through on its recently proposed education master plan, which would sharply reduce secondary school dropout rates, boost the number of scholarship recipients, and produce 4,000 new PhD's annually.

Second, the U.S. and Indonesia should continue their close collaboration in education, building on President George W. Bush's $157 million in aid to bolster learning quality and combat extremism. USAID's Decentralized Basic Education program has improved teaching and management for almost half a million students in nearly 1,500 schools across the country, while the Obama administration has committed $165 million to support educational exchanges through a Higher Education Partnership, in addition to strengthening science and technology ties. A Sesame Street adaptation, Jalan Sesama-- which translates to "street for all"--has improved literacy, numeracy and diversity for 7.5 million young Indonesians, adding Kermit the Frog to Indonesia's rich history of puppetry.

Third, Indonesia must actually commit to building "streets for all," beginning with implementing President Yudhoyono's plan to streamline regulations and increase infrastructure spending by 15 percent next year. In this, foreign investment will be key, with one American economic attaché informing me that "the opportunities for the U.S. in infrastructure are enormous, but we have no coordination." As the fourth-largest investor in Indonesia, the U.S. has already invested nearly $703 million in the first half of 2012, and a recent agreement for American firms to invest $5 billion in manufacturing, transportation and energy infrastructure over the next two years would go a long way. Coupled with recent World Bank loan guarantees and a new land acquisition law to facilitate such projects, there are encouraging signs that Indonesia is finally serious about wooing foreign investors.

Five years ago, a young Indonesian entrepreneur told me, "We need to invest in infrastructure and education--but where is the leadership?" As Indonesia faces a crossroads, perhaps it will be one of the passionate young Mengajar teachers, someone who has seen the diversity and difficulty of Indonesia, who will show Indonesia how to build the roads to its bright future.

Stanley A. Weiss is Founding Chairman of Business Executives for National Security, a nonpartisan organization based in Washington. The views expressed are his own.