Thursday, 17 July 2014

In Indonesia, the outcome doesn't matter so long as someone wins

Preliminary results for Indonesia’s presidential election are unclear with both Joko Widodo and Prabowo Subianto claiming victory based on exit polling and quick counts.

Final results are not due until July 20. And because the race is close it is difficult to trust quick counts.

Reuters checked eight vote-counting agencies and found that two have Mr Subianto winning by one to two percentage points, while the other six agencies have Mr Widodo winning by a stronger margin of five percentage points.

A win for Mr Widodo would lead to increased short–term capital inflows in the third quarter which could strengthen the rupiah. A win for Mr Subianto could have the opposite effect given his nationalistic stance on natural resources.

Officials will count now the votes, but two important points can be made about the election so far.

The first is that a stalemate on July 20 could have serious security implications. The world’s third–largest democracy has only experienced decisive victories and a divided political atmosphere could be a tinderbox.

Second, no matter who wins the election Indonesia’s geographical and social constraints will shape their presidencies to look very much alike despite diametrically opposed politics. In the next five to seven years, those pressures are expected to build and form the country’s political reality beyond campaign rhetoric.

Initially, the primary step for Indonesia will be to deal with the current elections and hope for a clear winner.

Even as July 20 lies only ten days away there’s a very real possibility of an undecided election. This is dangerous because the social climate is reportedly heavy and angry after a series of smears and dirty campaigning.

For instance, Mr Subianto harks from a military background with a questionable human rights history. He controversially stated during the campaign, “losing the election is not an option”.

While this could be brushed aside as common election vitriol, there’s a worrying layer of uncertainty about exactly what he meant. Mr Subianto has a solid loyalty from big business, sympathetic media, and former Special Forces colleagues.

Both candidates could choose the soft route by challenging any result via the court system. This would bind Southeast Asia’s most powerful country for the months. The High Court’s legitimacy is itself in question after a series of recent corruption scandals.

In short, what will happen after July 20 is unknown, but the underlying constraints of Indonesia’s national strategy and geographic realities are more concrete. The chasm between what the candidates want to do and what they can do is deep and wide.

Indonesia’s fractured political landscape, social diversity, the structural economic pressures around economic reform, investment opportunities as China changes tack, the globe’s need for its natural resources and the country’s need for foreign investment will all constrain what the new president can do.

The country is uniquely positioned to benefit from the low–cost manufacturing flight from China of recent years. China is becoming too expensive but Indonesia’s literate, young population will put goods on ships passing through key proximate sea-lanes far cheaper than China can.

So the more investment Indonesia can attract to its value–added industry the more countries around the region and beyond will look to it as a leader, both economically and politically.

Prabowo Subianto (left) Joko Widodo (right)
To get there, some crucial objectives will need to be met.

The new leader will need to prioritise a reassessment of the sensitive subsidy programme in place for consumer goods and fuel. Jakarta has been unable to upgrade its infrastructure for a long time or control its finances largely because of the unsustainable subsidies.

Its mineral export ban will also need to be addressed if the country is ever going to encourage more foreign investment, expand domestic use of natural resources, build the state's capacity to effectively carry out large infrastructure projects, and fight corruption.

Neither candidate will be able to move until these and other imperatives are addressed. And they will take time.

The answers to these problems are inescapable and will not easily bend with political ideology. Indonesia’s health – and the very rule of the president – relies on sorting them out.

In six to eight months, the effects of this week’s election will be even less distinct. For the rest of the year, economic stability will be the only priority from the new president.

Therefore the burning subsidies issue can neither be broadened nor decreased, and liberalising of the country’s natural resources is probably not going to happen soon either.

Mr Subianto’s nationalism and Mr Widodo’s desire to reduce corruption and increase transparency will each remain dreams as the realities of Indonesia’s geography and society require putting aside ideology for the short term.

When he steps into office in October, the new president will notice a left and a right wall of what they can and cannot do. And this spectrum is unfortunately not going to resemble what they’ve told their constituencies.

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