The steady rise of Indonesia’s share price index and the rupiah immediately after the April 9 legislative election suddenly reversed into a decline last Thursday after the breakup of the coalition between President Susilo Bambang Yudhoyono’s (SBY) Democratic Party and Vice President Jusuf Kalla’s Golkar Party.

The market was buoyed by the upbeat sentiment after quick counts of votes showed an impressive performance by Yudhoyono’s party. Foreign portfolio investment (capital) returned in big sums to the financial market as investors rested assured that the incumbent government would rule again with even stronger confidence thanks to broader support in parliament.

However, this sense of certitude and policy predictability seemed to evaporate after the Golkar Party decided to nominate Kalla for president, competing against Yudhoyono in the July 8 presidential election.  

Businesspeople are greatly concerned about the running of the government within the next few months, since both the incumbent President and Vice President  are now gearing up for their upcoming fight.

There are questions about policy coordination and decision making within the Cabinet. There are big concerns over the risks of the government turning into a lame-duck administration at a time when a strong government is especially needed to cope with the adverse impact of the global economic crisis.

Yet more worrisome is the fear that the SBY-Kalla rivalry would also adversely affect the important legislative agenda as the Golkar faction in parliament may suddenly turn itself into an opposition party. Even before the split between the two parties, inertia had virtually enveloped the House of Representatives as many of its members lost in the recent legislative elections.

Only statesmanship qualities on the part of SBY and Kalla would be able to minimize the risks of political instability and keep the wheels of public administration running smoothly until the new government is installed in late October.

The SBY-Kalla administration has brought about fairly impressive achievements in virtually all fields since it took over the government in October, 2004. They have laid down stronger foundations for the economy, introduced an impressive set of reform measures in various areas and staged a strong anti-corruption drive.

We don’t think SBY or Kalla is so ignorant as to not realize the big risks of political uncertainty and economic debacle we are facing within the next few months.  

It is therefore most imperative and urgent for both SBY and Kalla to see to it that their coalition will continue in both the executive and legislative branches within the next few months until the new government is installed.

The manner in which both SBY and Kalla manage their rivalry within the government in the run-up to the upcoming presidential election will also determine the quality of their leadership in the eyes of voters. Hence, their chances in the election.

We need an even stronger administration to put all the fiscal stimulus to work at pump priming, especially now as the economic situation is highly vulnerable to the fallout from the global financial crisis.

Both leaders should ensure that their coalition at the House will continue as there are several important economic bills that urgently need enactment, including those regarding the financial safety net, value added and luxury sales tax and the 2010 draft state budget.

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