JP/Seto Wardhana

Unlike his previous term, the beginning of which was marked with brimming public excitement, President Joko "Jokowi" Widodo’s second term has had a lackluster reception. This is reflected in the latest public satisfaction rate, which took a nosedive to its lowest point since August 2016, according to the Indonesian Survey Institute, an opinion polling agency.

It is imprudent to judge an entire presidential term based merely on the absence of parades or low early public satisfaction rates. Nonetheless, such a comparative angle can provide insight about how Jokowi’s offer — as a non-elite and reformist figure — to share power with the political establishment and oligarchic forces can not only lower public satisfaction but raise doubts about continued reform.

No doubt President Jokowi has a compelling story to tell about his successful first term. He has largely put the country on the right track despite the political constraints of enlarging his coalition to 69 percent of the House of Representatives.

Despite unfavorable global headwinds, Jokowi’s administration was still able to maintain economic growth slightly above 5 percent with a low budget deficit and record spending. Government spending jumped about 40 percent after Jokowi took office, including a twofold increase in the budget for health and infrastructure. Jokowi became the first Indonesian president to double the infrastructure budget.

Massive social welfare spending has underpinned the world’s biggest universal healthcare program, which covers more than 200 million people and has reduced logistical costs for businesses. Moreover, rates of joblessness and poverty were at milestone lows. Inflation, too, was near a 10-year low until 2018, translating into solid domestic consumption.

The President has found a new passion for deregulation, one of the few topics where he often goes off-script while delivering a speech. He introduced an online single submission platform that simplifies and synchronizes business permits, slashing the time to get some permits to within hours. As a result, Indonesia’s Ease of Doing Business ranking is up from 129th place to 73rd.

But even with this commendable record, economic growth has not moved beyond 5 percent and largely has not been competitive enough compared to the growth rates of Indonesia’s regional rivals. In a Cabinet meeting on trade and investment, the President himself was puzzled. He compared the country’s growth to that of the human body. “If Indonesia were human, he would be in a healthy condition now. His cholesterol is low, his heart is good, his lungs work fine and there is no indication of high blood pressure. But why can’t he run very fast?”

The lack of competitiveness has been a major issue putting the brakes on growth. Foreign investors are usually attracted to Indonesia because of the size of the market and not necessarily its competitiveness. The recent relocation of Chinese companies to more attractive environments like Vietnam due to trade war fallout is a perfect example.

Placed as the worst in attracting foreign direct investment (FDI) among its regional class, Indonesia’s share of FDI to gross domestic product was only 2.1 percent for the first half of 2019, below Malaysia, Vietnam and the Philippines. To some extent, economic nationalism also played a role in scaring off foreign investment.

Restrictions on foreign participation in a number of sectors and multiple forms of economic nationalism, such as strict local content requirements and overreliance on state-owned enterprises, have made the market “precariously open”. This is aggravated by the fact that Indonesia is one of the most expensive labor markets of its type and has among the most rigid labor laws in the region. Moreover, it is less attractive because it imposes one of the highest corporate tax rates in its class.

President Jokowi himself has diagnosed some issues that have been holding Indonesia back and has pledged to use his last term to increase the country’s competitiveness and tackle the growth risk from the global economic slowdown.

He promised to woo more foreign investment by introducing a Positive Investment List, which encourages more foreign participation in a number of sectors and slashes corporate taxes to 20 percent by 2021. To ensure investment realization, he will pass an omnibus law that will cut dozens of regulations to streamline business permits and avoid inconsistent policies. To address complaints about labor rigidity and overgenerous severance pay, Jokowi has tried to convince unions to meet business communities’ concern halfway through the revision of the law.

Most of these promises are unpopular and struggle to get support from political parties and the public. For example, although FDI has a positive impact on the economy, laying out the red carpet for FDI will chafe against strong economic nationalist sentiments. It happened when the government delayed the relaxation of the Negative Investment List in November 2018.

This may be the reason Jokowi felt his initial coalition was not enough to both deliver potentially unpopular reforms and contain the side effects. President Jokowi has recently built coalitions that are much bigger than would be necessary to pass legislation and block impeachment. His Cabinet lineup is dominated by elites and political party members with connections to local business associations both in the macroeconomic team and the wider sectoral team, leaving only a handful professionals and technocrats little room to flex.

His picks have generally made everyone happy, except perhaps those who had high expectations for more fast-paced structural change. Although the power-sharing game in the Cabinet has served the president’s obsession with balance well, it may come at a price.

Inability to manage the multiple vested interests that result from a wider political tent will likely crowd out technocrats and professionals. The Cabinet will not have their expertise to produce policy based on economic rationality. If this happens, prospects for reform may be lower than in Jokowi’s first term. This would not bode well for the country’s issue with competitiveness.

President Jokowi’s reforms are now caught between the need to increase competitiveness in a race with regional competitors and the constraints that result from greater power sharing.

Questions about competitiveness and growth over the next five years will be decided by what choice the President makes between these two needs. Generally, the former will spur investment inflow and growth while the latter will serve well for stability.

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Analyst at Bower GroupAsia. The views expressed are his own.

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