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Keeping up the momentum
As predicted by many observers, Joko âJokowiâ Widodo has finally been declared the winner of the presidential election
As predicted by many observers, Joko 'Jokowi' Widodo has finally been declared the winner of the presidential election.
His win signifies the maturity of democracy in Indonesia. Jokowi epitomizes a new generation of politicians in Indonesia, who are young and do not have any connections to the military or any of the country's political dynasties. He is a commoner, not a member of the elite.
In other words, Jokowi represents a transition from an autocratic and paternalistic democracy to true democracy in Indonesia.
Nevertheless, he must act fast to consolidate the win in order to push through his proposed reforms. This need for speed is dictated by his narrow victory.
Jokowi failed to win by a double-digit margin, as he no doubt would have preferred. This signifies a fairly wide political divide that needs to be reconciled.
Jokowi's Indonesian Democratic Party of Struggle (PDI-P) and its allies will also only account for 207 or 37 percent of the seats in the House of Representatives. Hence, they need to entice other parties from their rival coalition to form a solid government.
A lesson learned from outgoing President Susilo Bambang Yudhoyono's government is the way in which it was often impeded by policy paralysis caused by the unstable coalition.
This in turn prevented it from acting decisively on several important matters.
Quick wins on the above political fronts would preserve the electoral momentum required by Jokowi to push through the reforms needed by the country.
It would also ensure a smooth government transition and an improvement to Indonesia's economic management.
The economy has slowed over the past three years to below 6 percent.
The World Bank predicts growth will only reach 5.2 percent in 2014, down from 6.5 percent in 2011, for more reasons than just a weak external environment.
Indeed, there have been negative effects from the evolving global market.
First, the slowdown of growth in China and many of Indonesia's other trading partners has led to a fall in demand for Indonesia's exports.
Second, ongoing declines in global commodity prices are further cutting incomes and government revenues among commodity exporters like Indonesia.
However, internal factors have also contributed to the decline of economic growth; and perhaps to an even greater extent.
Some of the usual suspects include the growing bottlenecks in infrastructure, high logistic costs and, of course, corruption.
In recent years, heightened uncertainty on policies due to political factors has also contributed to the slowdown in growth. Nothing provides a better example than the case of oil subsidies.
Indonesians have long enjoyed one of the cheapest oil prices in the world. Nevertheless, domestic production has been unable to keep up with growing demand, and beginning in 2004, Indonesia became a net importer of oil.
As the imbalance continues, increases in the price of oil became inevitable.
But reducing subsidies was always a political gamble for the current government.
Some of the parties within the government's coalition were more than willing to resist a reduction for short-term political gains.
Consequently, Indonesia has been experiencing unnecessary structural problems with both its current account and state budget since 2004.
The chronic deficit in both has also added inflationary pressure ' leading to higher prices ' and
has led to the depreciation of the rupiah. Rising energy subsidy spending would also further constrain development expenditure in critical areas, such as social protection and health care.
This would make all the more challenging the efforts to reduce poverty and mitigate the trend of rising inequality.
Jokowi must ensure that he tackles these twin issues once and for all. It can perhaps be accomplished by setting an upper limit in the budget for fuel subsidies to ensure that the price of oil is adjusted according the available budget funds, not vice versa.
This stringent policy must be planned and executed as soon as possible and requires capitalization of the political momentum gained as the newly elected president.
Resistance will grow over time both from opposing parties as well as from his own coalition partners.
Finally, there is the question of Jokowi's stance vis-Ã -vis foreign investors?
This is relevant as there was much rhetoric during the campaign that indicated that perhaps Jokowi was no more market friendly than his rival candidate.
However, Jokowi's record ' both as Surakarta mayor and Jakarta governor ' indicate otherwise. Jokowi will welcome greater foreign investment.
As a matter a fact, he has already announced a plans to allow foreign investment in apartments to boost tax revenue, a move that may well increase demand for property in the country's luxury market.
Also, foreign investment is regulated in such a way that renders any attempt to muddle almost impossible. Amendments to several regulations are required, involving several institutions including the House and the central bank.
In sum, there will be no honeymoon period for Jokowi. Ironically, it is the politics that he will have to deal with first ' and swiftly ' in order to gain political momentum and support.
Jokowi has always said that he is a man of action. Now is the time for him to prove that this is a case.
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The writer is a senior economist at the Financial Reform Institute, Jakarta.
