Indonesia: New President Confirmed, Great Expectations Ahead

Friday, 05 September 2014

Triono Soedirdjo_websiteFollowing the most divisive presidential election the country has ever experienced, Indonesia finally welcomes the new government after the country’s highest court unanimously upheld the election results, naming Joko “Jokowi” Widodo as the new president-elect.

The market reacted positively toward the court’s ruling, with the Indonesian rupiah hitting a near one-month high and the Jakarta Composite Index (JCI) rallying, as foreign investors entered the market, closing in at the highest level since May 2013.

Analysts have said that, investors’ confidence was based on the fact that the political situation was under control and clashes could be managed; and that Jokowi’s upcoming administration would help the economy to grow.

High Hopes

Business representatives now have high hopes that Jokowi will pass reforms and improve the infrastructure deficit in the country, but this is such a herculean task given the troubled inheritance received from the previous regime of the last ten years, including the current account deficit and fuel subsidy. This is compounded by complaints that the previous government had not given the optimal support to creating a favorable investment climate. Insufficient infrastructure is named as one of the greatest hindrances to investment and trade. Additionally, corruption, uncertainty in bylaws and regulations, as well as a lack of business incentives has also added to the complexity and frustration.

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Establishing a solid government

To overcome these problems, one of the crucial and most immediate tasks for Jokowi is to establish a solid government under a cabinet that is filled with professionals, to be more focused and without political self-interest.

As the selection of cabinet composition can affect the business climate, businesses hope that selected figures will exceed expectations, particularly in the economic field, being the strategic decision makers that directly relate to the business community. With this in mind, the president-elect reportedly wants to downsize the cabinet, in order to make the government work more efficiently, avoid duplication and save up the government’s budget.

Once they are sworn in to office in October, the cabinet ministers are expected to start dealing with urgent economic affairs, including the aforementioned fuel subsidy and the budget deficit.

Triono QuoteIn terms of budget, the new government is advised to immediately prepare the Amendment of State Budget (APBN-P), because the flagship programs of the new government that fit its vision and mission have not been accommodated in the 2015 proposed budget. The active government is now supposed to be able to provide more flexibility to the new government to include programs in the 2015 Budget.

The Road Ahead 

The current Minister of Finance M. Chatib Basri assessed that the many challenges that would face the next government would come not only from within the country, but also from the global situation. In the last four years, he said, there were a lot of positive sentiments toward the Indonesian economy. However, declining global commodity prices globally may affect Indonesia’s future revenue, given that the country relies heavily on commodity exports.

Jokowi will be sworn in on 20th October, and there will be rising expectations on the new government to drive transformation. Despite the mounting challenges for companies doing business in the country, Indonesia still remains the top destination in the ASEAN region, especially for future US corporate expansions. The ASEAN Business Survey Outlook 2015, carried out by the American Chamber of Commerce (AmCham) Singapore and the US Chamber of Commerce, reports that Indonesia, Vietnam and Myanmar are the priority markets for future US business investment.

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