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The week in review: Before pessimism sets in

President Joko “Jokowi” Widodo consulted 11 economists this week, seeking their opinions on the nation’s economic challenges and prospects as public pressure mounts for sweeping changes within his Cabinet’s economic team

The Jakarta Post
Sun, July 5, 2015

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The week in review: Before pessimism sets in

P

resident Joko '€œJokowi'€ Widodo consulted 11 economists this week, seeking their opinions on the nation'€™s economic challenges and prospects as public pressure mounts for sweeping changes within his Cabinet'€™s economic team.

The economic record of the Jokowi administration in his eight months in office has indeed been poor, with growth falling to an all-time low of 4.7 percent (year-on-year) in the first quarter and the rupiah collapsing to as low as 13,500 per US dollar, the lowest since the 1998 economic crisis.

 As the global economy remains sluggish, with Europe likely to suffer another bout of contraction and China '€” Indonesia'€™s largest trading partner and largest source of investment '€” slumping to growth rates of less than 7 percent from the decade average of 10 percent, widespread pessimism seems imminent. Most foreign analysts revised their projection of Indonesia'€™s economy last month down to less than 5 percent , as the global economic outlook worsened and inter-ministerial cooperation within the Jokowi Cabinet falls into disarray.

Jokowi took over the government in late October with very high expectations and immediately demonstrated his political courage by raising fuel prices, slashing subsidies and redirecting the bulk of the expected savings into infrastructure investment. However, his bold move turned out to be ill-timed; international oil prices declined, forcing him to lower domestic fuel prices later in February at the expense of the his government'€™s credibility.

Given his popularity and impeccable integrity, the public has tended to give the Cabinet the benefit of the doubt, although the competence and managerial capability of most of the ministers nominated by parties of his coalition government are questionable.

But the public has increasingly seen the weaknesses of his leadership, rather than its strengths. As was clear from the outset Jokowi does not have a penchant for political grandstanding and he lacks public-speaking ability. However, his desire to expedite public service delivery, especially to the poor, was greatly appreciated. We had hoped he would learn on the job.

But he has done virtually nothing to improve the communication of his political vision, and he still appears uncomfortable talking to the public, especially the media. This turned out to be one of the most glaring weaknesses of his administration, because effective political communication and reaching out directly to the people is vital to Jokowi, to cope with the legislative limits to his presidential power.

Worse, as most of his ministers seem to have been preoccupied with their own political agendas, they have not been able to offset the frailty of his leadership. The President'€™s promise of a big fiscal stimulus to accelerate infrastructure development has remained bogged down in bureaucratic inertia and incompetence. The disbursement of the investment budget during his first six months has remained at less than 10 percent of the total.

The President should show stronger leadership to speed up reform, improve the coherence of his policies and strengthen his economic team by assigning it a more capable leader.

Jokowi should draw more on his sources of legitimacy '€” his popularity, personal network of supporters, massive following on social media, support among many liberal opinion leaders .

 The coming six months will be crucial for Jokowi to show the people and international markets that he can manage Southeast Asia'€™s largest economy. Failure to improve market confidence in his government will see the economy deteriorate further, risking political instability.

Our challenges are even more pressing, especially with the upcoming tightening of the US Federal Reserve'€™s monetary policy. A rise in US interest rates could trigger capital flight out of emerging markets, including Indonesia. The protection against these risks of reverse capital flow is to make the country more attractive to investment, and to re-energize stalled high-profile infrastructure projects to regain market confidence in the government'€™s economic management credentials.

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July 1 was an important milestone for the business sector, the economy and public social security. That day marked the beginning of the full implementation of the mandatory use of rupiah for domestic cash and non-cash transactions in line with the 2011 Currency Law '€” and the commencement of the universal pension scheme under the 2004 National Social Security System (NSSS) Law covering healthcare, pensions, old-age savings, work accidents and death benefits. The health benefits of the program were launched in January 2014.

The Currency Law is unlikely to cause any shockwaves as it has been well designed with a four-year transition period, a grandfather clause stipulation and exclusions on a wide range of transactions including international financial and commercial transactions, specified incomes and expenditures under the state budget, foreign currency savings and deposits at banks and other transactions allowed by the Law on Bank Indonesia (BI) and the Investment Law.

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Another very old transport plane Hercules C-130 of the Air Force carrying military personnel and their families crashed into a residential neighborhood in the country'€™s third-largest city of Medan in North Sumatra on Tuesday shortly after take-off, killing all 113 people on board. Air Chief Marshall Agus Supriatna has confirmed that the pilot reported technical problems and asked air traffic control for permission to return to base prior to the crash.

'€” Vincent Lingga

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