What to expect in Jokowi’s second term

July 25, 2019

JAKARTA - After winning the 2019 election, President Joko 'Jokowi' Widodo has a great opportunity to bring the Indonesian economy into a stronger footing, according to a new report from the Australian Strategic Policy Institute. It says Jokowi's economic policies achieved mixed outcomes in his first term (2014-2019). "He hasn't delivered a promised 7% economic growth, but steady 5% growth is perceived as a commendable achievement, given slowing global growth, rising uncertainties, and low commodity prices."

The report says macroeconomic stability has been well-maintained, and that Indonesia's creditworthiness has improved during this first term.

"Going into his second term, there is a high hope that Jokowi will be able to push for critical reforms to improve the business environment, which is important for attracting more investment into the country," the report says.

"Jokowi himself has said that he has no more burden as this will be his last term, and he will go all out to ensure the economy will grow faster. The President wants to boost the economic growth of the country, which, according to projections by PwC, has the potential to be the world's fourth-largest economy by 2050. 

"To meet that goal, Indonesia must certainly grow faster, and thus needs to boost investments and exports. That won't be easy, given today's unpredictable global economy, lower commodity prices and rising protectionism around the world."

The report says Jokowi has the required political capital for this, with support from big parties, such as his own Partai Demokrasi Indonesia Perjuangan (Indonesian Democratic Party of Struggle), the Golkar Party, the Partai Kebangkitan Bangsa (National Awakening Party), the Nasdem Party, and the Partai Persatuan Pembangunan (United Development Party).

"The President has also secured support from the Nahdlatul Ulama (NU), one of the largest Islamic organisations.

"That said, with such a large coalition, he'll need to make concessions and compromises on his reform agenda, so hopes for boldness may be misplaced. In addition, with NU and Ma'ruf Amin, his Vice President, on his side, there's a likelihood that Jokowi's political and economic policies will pay closer attention to maintaining his Islamic political base.

"Considering the complexity of the coalition, Indonesia's economic policies in Jokowi's second term may look like 'more of the same'. Sustaining growth and maintaining economic stability will be the primary focus. Looking at his manifesto, infrastructure development will continue as Jokowi's major priority area."

The ASPI report says that, to support his infrastructure ambitions, Jokowi will seek alternative financing, including by inviting financing from China's Belt and Road Initiative (BRI). 

"In addition to financing, Jokowi also sees the BRI as an opportunity to promote industrialisation and foster technology transfers. While so far no official BRI project agreement has been signed by Beijing and Jakarta, we can expect more Chinese-built projects in the infrastructure area, especially involving smelters, power plants and industrial parks.

"Nevertheless, China's BRI won't be the major source of finance compared to other traditional sources (the World Bank, the Asian Development Bank and Japan).

The report says that Indonesia in Jokowi's second term will prioritise bilateral trade and investment deals that are considered beneficial for its domestic economy. A case in point is the Indonesia-Australia Comprehensive Economic Partnership Agreement (IACEPA), which was signed by the Trade Ministers of both countries in March 2019.

However, there is a risk of delayed ratification, the report says.

"Under the IACEPA, the Indonesian Government must remove a number of non-tariff measures (in the form of import permits) for many types of farm produce and several other manufactures.

"This will certainly be hard to sell in the parliament, as those measures are perceived as important to protect domestic producers, and thus local jobs. Therefore, the domestic critics are likely to have considerable weight in the Parliament in opposing the ratification and implementation of  IACEPA."

www.aspi.org.au   (ATI.