When the Indonesian Democratic Party of Struggle ( PDI-P ) officially declared Jakarta Governor Joko 'Jokowi' Widodo its presidential candidate on March 13, the market warmly welcomed the announcement.
The Jakarta Composite Index ( JCI ) soured by more than 3 percent. The two biggest banks in the country, state-owned Bank Rakyat Indonesia ( BRI ) and Bank Mandiri saw their shares jump by more than 10 percent and 9 percent respectively.
The 'Jokowi effect' apparently did not last long, because the next day, stocks plunged to their previous level.
One day after the election quick count on April 9, which put the PDIP-P in the lead, the JCI plunged by 3.3 percent as the Jokowi effect continued to fizzle. Volumes heavy indicating the market experienced a sell off. BRI and Bank Mandiri shares stocks dropped by 5.3 percent and 5.4 percent respectively.
Astra International and Semen Indonesia shares plunged by 6 percent and even shares of Adi Karya, the state-owned construction company, one of the market favorites, fell by 11 percent. The severe plunge was unexpected given that the election throughout the country had been peaceful and without serious hiccups. More surprisingly, the steep fall in the JCI occurred in the midst of strong gains experienced by stock indexes in other Asian countries.
The sell-off in the Jakarta Stock Exchange indicated that the market was disappointed by the result of the election based on the quick count. One could feel not only the market concern, but a sort of extreme fear regarding the future of the Indonesian economy when the new government from the election takes over the power from the current government next year.
There are some possible reasons why the market was worried by the quick count results for the April 9 election. Without any clear dominant winner, the government will be based on a coalition of several parties.
First, given the distribution of votes among parties, it is clear that whatever coalition government is formed, it would be weak and not effective, as the debate on government policies and the decision-making process would drag on for a long time in the House of Representatives.
Second, during the campaign, the rhetoric of populist and nationalist policies were at high pitch, even harsh words against foreign-business interests were heard, shocking the business community, who are already wary of the back sliding of some government policies in trade and investment, as reflected in the recently approved investment and trade laws.
Third, the market did not expect there would be any significant decision for reforms, in the period while political parties jockey for positions in the next Cabinet. As there are many difficult problems to be fixed ' the fuel subsidy, infrastructure, bureaucratic reforms ' the market started to doubt the ability of whoever would be elected president to fix the problems.
The other problems are that investors and the market are still in the dark on where the current presidential candidates stand on some economic issues.
Jokowi, the frontrunner, has not even spelled out his thinking on economic issues. We only know that he was a manufacturer and exporter of furniture.
As a businessman he is a pragmatist and likely would continue his down-to-earth approach, shown during his brief tenure as Jakarta governor. He could take the stand that infrastructure throughout the country should be immediately fixed.
So the main focus of his administration would be to fix infrastructure. When he was elected Jakarta governor he showed serious efforts to revamp the bureaucratic mess and the delivery of public services in Jakarta.
If he is elected president, he would do the same, reforming bureaucracy more vigorously at the national level, not only to support the investment climate, but to combat corruption.
The only unknown qualities about him would be his stance on the issue of the fuel subsidy. Personally, he is possibly in favor of reducing the fuel subsidy, but this would be a contravention of the current PDI-P stand on the subsidy, which always opposed a subsidized fuel price increase. We will see whether he has the courage to override the official PDI-P policy.
On the other hand the other presidential contender, Prabowo Subianto, during his campaigns touched upon the importance of national companies to play a greater role; the Gerindra Party, he said would put vigorous focus on the development sector, which according to him is neglected.
His remarks raise speculation that if elected, Prabowo would pursue an affirmative policy, a policy that was discarded a long time ago by the government.
The capital outflow from market disappointment from the election result could pose serious risks, as this happened on the back of the declining economic growth and the still-weak balance of payments.
The current account deficit has improved but would still pose a threat to the balance of payments. Bank Indonesia ( BI ) would be put in a policy dilemma, where there would be little room to maneuver. In the meantime, the market and the exchange rate would experience volatility, giving more uncertainty.
The market will wait until a vice presidential candidate is chosen. Confidence will return if it knows that the vice presidential candidate is a figure who is credible, and especially if Jokowi is proven to be a figure who has strong lobbying skills with the House.
The writer is an economist.