Thursday, 31 July 2014

After election, Indonesia's real struggles begin

Indonesian president-elect Joko Widodo is finally the 53-year-old leader of the $1.69 trillion Southeast Asian economy. Although a tough election campaign is behind him, his real struggles will all be ahead.

Now the dust has settled, the Indonesian election can be assessed. The winner, known as Mr Jokowi, gathered more than 53.2% of the vote after the system took two weeks to count the 135 million ballots filed from 480,000 polling station from across the archipelago. The fight was close, but not as close as first expected. The opposing political party of ex-military Prabawo Subianto won 46.9% of the vote but lost 23 of the country’s 33 provinces. In the end, Mr Subianto was defeated by 8.4 million votes.
Elected Indonesian President Joko Widodo 
delivers a speech to his supporters

The president-elect was placed 37 on the 2014 list of the World’s 50 Greatest Leaders by Fortune magazine for his policies of transparency and honesty as mayor of the Indonesian capital Jakarta.

Mr Jokowi’s rival, Mr Subianto, has already mounted an expected challenge to the presidential results claiming voter fraud, but many Indonesian political parties appear to be abandoning his legal contest and siding instead with the new president.

The nation’s Constitutional Court will issue its verdict on Mr Subianto’s claim of voter fraud on August 21. His campaign points to irregularities involving 21 million ballots, which, if vindicated, would potentially upturn the official count. This will be the first democratic transition between two directly elected leaders. Indonesia has not been here before. Riot police were deployed a few days ago, but it appears Indonesia’s reputation for peaceful transition is to remain undamaged.

Mr Jokowi, if the court throws out the rival claim, can expect to be inaugurated on October 20. Once that is over, the tricky part of actually governing the highly diverse nation of Indonesia will emerge.

As pointed out in a pre-election analysis, the president of Indonesia will face significant obstacles in keeping the country moving in the right direction. An incredibly wasteful fuel subsidy will need assessing, while a notoriously corrupt bureaucracy hampers a useful allocation of government funds for desperately needed infrastructure projects.

Indonesia is the 16th largest economy in the world. According to the International Monetary Fund (IMF) it grew 5.8% in 2013 and is expected to slightly slow to 5.4% this year. In contrast to many developed countries that struggle to grow more than a few percent, this will be the slowest growth rate for Indonesia since 2009. However, this growth figure is well off the desired mark. The World Bank predicts the country will need at least 9% annual growth by 2030 to escape the middle-income trap and reach high-income status.

The World Bank has isolated both the fuel subsidies and “subdued revenue growth” as major factors in the potential for Indonesia to miss that target. They also suggest greater amounts of foreign direct investment, which Mr Jokowi will attempt to increase.

A symptom of slowing growth, even while it remains high at over 5% per annum, has nevertheless encouraged resource nationalism and protectionism among lawmakers and business. Indonesia’s raw mineral export industry has now all but stopped after a ban on exporting unprocessed minerals went into effect in January this year. If Mr Jokowi wants to increase the GDP of his country he will need to reassess the wisdom of this and other protectionist laws.
Voting distribution in Indonesia
Red/Jokowi - Yellow/Subianto

Ultimately, doing business in Indonesia should become easier with Mr Jokowi at the helm. He has already promised to begin major investments in infrastructure, remove corrupt officials, and significantly tone down the fuel subsidies which cost the country more than $US20 billion each year.

All of those tasks will be controversial and Mr Jokowi will face pushback from entrenched interests throughout the country. His reputation for honesty and transparency served him well in his previous role as mayor of Jakarta, but the realities of high office often constrain the best intentions.

Despite corruption rising to almost epidemic levels over the past two years, Mr Jokowi has asserted that all his ministers ““have to be clean … have to be competent, have to have good leadership, and a commitment to serve the people” or else he would find a replacement among “more than a thousand other good people in Indonesia.”

Although other political parties appear to be siding with Mr Jokowi, less than 40% of the legislature backs his coalition and he faces competition from inside his own party. He may even need to reach out to his rivals for important political appointments which could tarnish his reputation.

Finally, regardless of the Constitutional Court’s verdict in August, the political atmosphere will be uncertain for the foreseeable future. A level of mistrust is natural in any political system, but too much doubt about Mr Jokowi’s leadership may dissuade important foreign investment.

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