It's now or never for Jokowi to fix Indonesia after election win, analysts say

A commuter train seen against the backdrop of high-rise buildings at the Tanah Abang district in Jakarta, Indonesia, on Jan 19, 2018.
A commuter train seen against the backdrop of high-rise buildings at the Tanah Abang district in Jakarta, Indonesia, on Jan 19, 2018. PHOTO: REUTERS

JAKARTA (BLOOMBERG) - Five years ago, Mr Joko Widodo swept to power as a political outsider promising to unlock the potential of the world's fourth-most populous nation. After winning another term on Wednesday (April 17), it's time to deliver, analysts say.

Unofficial results showed the man known as Jokowi defeating rival Prabowo Subianto by a comfortable margin in a repeat of their race five years ago. The nationalist former general again threatened to challenge the results - a tactic that failed the last time around.

The bigger question now is whether Mr Joko will learn from the missteps of his first term and take tough measures to get South-east Asia's biggest economy humming. Annual growth has averaged 5 per cent since 2014, well below his 7 per cent target, in part because he baulked at measures that would make Indonesia a more favourable destination for foreign investment.

"Jokowi is likely to continue to argue that he is cutting red tape, and to a certain extent, he has," said Mr Aaron Connelly, a Singapore-based research fellow from the International Institute for Strategic Studies. "But he has been unwilling to tackle the big gripes of project investors related to investor certainty and rule of law. That is a path of much greater resistance, and it is highly unlikely that Jokowi will take that on."

The former furniture businessman had a meteoric rise when he first defeated Mr Prabowo in 2014, swiftly moving from mayor of quiet city in Central Java to running a nation of 264 million. He proved a quick learner in the corridors of power, building a coalition in Parliament that commanded a solid majority.

Mr Joko also notched up a number of market-friendly reforms such as reining in fuel and electricity subsidies, helping him return Indonesia's sovereign rating to investment grade for the first time in two decades. And he lined up more than US$300 billion (S$406 billion) of infrastructure projects, which led to the opening of Indonesia's first subway line last month after 34 years of planning.

That track record helped boost markets on Thursday, with the rupiah rising to its strongest level in almost two months.

 
 

But during his first term, Mr Joko also reversed course on subsidy reform, and spooked investors by embracing resource nationalism. His government wrested control of assets from companies such as Freeport-McMoRan, Chevron Corp and Total SA, saying it aimed to turn Indonesia from an exporter of raw materials to a supplier of processed commodities.

Indonesia's currency got hammered last year during an emerging markets rout, falling to a two-decade low. Those vulnerabilities remain as a failure to stem an investment drought and fix the energy sector that has exacerbated a current account shortfall of close to 3 per cent of gross domestic product, according to Mr Kevin O'Rourke, a political analyst and publisher of the Reformasi Weekly newsletter.

"The next term is going to be a rocky road," he said. "The economic forces are going to compel him to pay attention to economic reforms, but it's not guaranteed that he will because he's really shown a preference for taking a cautious approach."

A big reason Indonesia hasn't hit Mr Joko's growth target is a failure to attract more investment in manufacturing and services. That largely comes down stringent labour rules that price out labor-intensive manufacturing and make it hard for companies to attract foreign talent to move up the value chain, former Indonesian trade minister Mari Pangestu told Bloomberg Television.

"This is part of the big challenge for Indonesia, whether it's reforming the labour laws, improving the investment climate, infrastructure," she said on Wednesday. "You can't be part of the global value chain if you're not going to be able to increase the skill level of your workers."

 
 
 

With Mr Prabowo likely out of the way, Mr Joko may be able to avoid some of the bruising political fights that wounded him in the past five years - particularly over Islam in a country that is roughly 90 per cent Muslim. His vice-presidential pick of Dr Ma'ruf Amin, Indonesia's senior-most Islamic cleric, may have fended off attacks from hardline groups even while raising concerns he may outlaw same-sex marriage.

Mr Joko will now need to fulfil a host of promises made on the campaign trail, including providing free education, millions of jobs for young people and continuing an infrastructure building boom. He's likely to again try to put together a broad coalition in Parliament, making it harder to take on the entrenched powers that have blocked reforms in the past.

"A 'consensus-based approach' to policy making characterised by backroom deals and political horse-trading between the executive and legislature will remain the norm," said Mr Hugo Brennan, principal political analyst with Verisk Maplecroft.