Indonesia: Joko Widodo set to take office after tight presidential race, reform agenda on the horizon
July 17, 2014
The elections that were held in Indonesia on 9 July did not deliver a clear victor, but preliminary vote counts suggest that reformist Joko Widodo will be Indonesia’s next president. Widodo’s track record as mayor of Surakarta and governor of Jakarta suggests that he has the attitude and ability to drive changes at the national level. Official results are due on 22 July. Even if Widodo is officially declared the winner, opponent Prabowo Subianto may challenge the result in the Constitutional Court, potentially dragging out the process for weeks.
The new president will inherit an economy that expanded 5.2% annually in Q1, which marked the weakest expansion since Q3 2009. Southeast Asia’s largest economy is also facing large budget and current account deficits. However, Widodo has been characterized as a market-friendly candidate who is willing to implement much-needed reforms to reinvigorate the economy and boost growth. During the campaign, Widodo promised that bureaucratic overhaul and infrastructure improvements would be his top priorities.
Widodo aims to improve the business climate and attract foreign investment by tackling endemic corruption, fostering transparency and the rule of law, simplifying bureaucratic procedures by cutting red tape, and providing regulatory stability. In terms of infrastructure, Widodo vowed that his government would make up for years of governmental neglect by building 2,000 km of new roads, as well 10 new seaports and 10 new airports, among other initiatives. Currently, underdeveloped infrastructure is hurting competitiveness and holding back the potential for Indonesia to become a regional manufacturing hub. New and upgraded infrastructure will help unclog bottlenecks and drive industrial expansion.
Widodo also plans to cut the government’s expensive fuel subsidies that eat up about 20.0% of the budget. A gradual reduction of the subsidies over the next five years will relieve pressure on the budget deficit and potentially provide extra funds to finance infrastructure spending.
Investors and market analysts have high expectations for Widodo’s reform agenda. However, implementation will certainly pose challenges. Widodo’s Indonesian Democratic Party of Struggle (PDI-P) won only 19% of the vote in parliamentary elections in April, which means that coalitions will need to be formed to pass laws in parliament. Widodo has suggested in recent days that he would be open to joining forces with other parties. There is even the possibility that members of the Golkar party, which is the second largest in Indonesia and supported Praobowo’s candidacy, would switch sides and join Widodo. Nonetheless, the legacy of a country divided during the heated presidential campaign may complicate the process of building coalitions and will likely slow down the pace of reforms.
Author: Carl Kelly, Economist