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resident-elect Joko '€œJokowi'€ Widodo will immediately be confronted by severely limited fiscal and monetary space with similarly limited political capital at the House of Representatives when he takes over the government next Monday.

Since the commodity boom ended and while the manufacturing sector has virtually stalled over the last few years and rising oil imports continue to increase trade and the current-account deficit and while the upcoming tightening of the dollar supply by the United States threatens massive capital outflows, the Jokowi government will have to very quickly take painful reform measures.

At the top of the list of the most imperative reforms is the cut of fuel subsidies. None of the pro-people economic programs Jokowi promised during his election campaign can be realized if he does not immediately slash the fuel subsidies. Worse still, market confidence in the new government will collapse if Jokowi does not put energy-price reform at the forefront of his agenda.

Even though this reform is long overdue and most urgent, this fiscal measure needs careful and thorough preparation as it will inflict economic pain in the short term.

Yet more worrisome is that the last quarter of the year will be the period for the final negotiations on setting regional minimum wages. Certainly, trade union leaders will demand unusually high raises for next year in anticipation of the general price increases that will result from the rise in fuel prices. The problem, though, is that an overly punitive increase in labor costs would dampen investor interest in the manufacturing sector at a time when the country is being forced to rely more on manufactured exports because of the end of the commodity boom.

The policy choices for the new government are indeed quite tough, especially because Bank Indonesia cannot be expected to ease its monetary policy within the next few months with the US money-tightening policy looming over global financial markets.

Given the severe fiscal restraints, the government should go all out to attract direct investment, be it domestic or foreign, to the real sectors of the economy. Hence, the new government should launch concerted programs to reduce business risks and the costs of doing business by cutting red tape, streamlining port services and seriously implementing a one-stop licensing system for investment and commercial operations.

The beauty of this is that the new president will be able to accomplish many things by removing the hurdles to investments and trading operations without having to go through the turbulence of seeking political consensus at the House.

Next on the list of priority programs intended to build up market confidence in his government is infrastructure. Jokowi should lift the barriers, related mostly to land acquisition, that have for years delayed the implementation of many vital infrastructure projects, such as roads, seaports, airports and power plants in various provinces. Achievements in the infrastructure sector will substantially reduce logistics costs.