From local
politician to leader of one of the world's most populous nations, Indonesian
President Joko Widodo has enjoyed a wave of popular support, buoyed by his
clean image and promises of economic growth. But delayed
infrastructure development and intractable deficits could derail his hopes of
re-election in 2019.
In an opinion poll conducted in October by Indonesian think tank Centre
for Strategic and International Studies, 66.5% of respondents said they were
happy with Widodo's government, a significant increase from 50.6% a year
before. The reason for the uptick was an economic recovery, albeit a slow one.
The Indonesian economy expanded 5.2% on the year in the April-June quarter in
real terms, greater than 4.9% in January-March. Far from representing a
self-sustaining recovery, however, this accelerated growth is thought to be due
mainly to the government moving forward some of its planned spending.
Indonesia has been struggling with both a current-account deficit and a
budget deficit. To remedy this, Widodo appointed Sri Mulyani Indrawati, an
economist and then-managing director and chief operating officer at the World
Bank, as finance minister in July in his second cabinet reshuffle. She last
held this position six years ago.
Indrawati introduced a leaner budget for the year ending December 2017.
Estimated expenditures total about 2,070 trillion rupiah (roughly $160 billion)
and revenues 1,740 trillion rupiah. Though this budget still entails a deficit,
it is scaled down from fiscal 2016. Indonesian law requires the current-account
deficit to be kept within 3% of gross domestic product, and the new finance
minister is eager to maintain fiscal discipline.
Indrawati is also stepping up tax-collection efforts. A tax amnesty
program introduced in July allows residents who have undeclared taxable assets
to qualify for lower tax rates if they declare those assets to tax authorities.
The authorities had estimated a 165 trillion rupiah increase in tax revenue by
March 2017, but about 60% of that figure had been collected by September 2016,
a sign that having Indrawati's name attached to the program has helped gained
taxpayers' trust.
Meanwhile, there has been no improvement in current-account figures.
Indonesia's current-account deficit equaled 1.92% of GDP in July-September
2015, and it has been over 2% for the third straight quarter since
October-December of that year.
To reduce its current-account deficit, Indonesia will need investments
from other countries that help expand exports. Improving infrastructure will be
critical for attracting foreign businesses, as Widodo well knows. Shortly after
becoming the president, he pledged to carry out some $500 billion in
infrastructure development projects by 2019 -- but there have been many delays.
Under pressure
On Sept. 13, at the opening ceremony of a new container terminal at
Tanjung Priok port in northern Jakarta, Widodo said the race to attract more
investment is heating up and that he is pressed for time. Cabinet members and
other officials spoke proudly about how the new facility will shorten dwell
time in port from about seven days to about three days, but Widodo asked them
to shorten it further, to about two days.
In late September, he visited the construction site of a MRT (Mass Rapid
Transit) in Jakarta and asked those responsible for the project to make sure it
will be completed in 2019 as planned.
Projects are underway to build power plants with a total capacity of
35,000 megawatts, but construction has started on only a handful of them. These
include a large coal-fired thermal power plant in Batang, Central Java, being
built by Adaro Power, a local company, and Electoric Power Development
(J-Power) and Itochu, Japanese companies. Meanwhile, a Chinese-led high-speed
railway project to connect Jakarta and Bandung, West Java, broke ground in
January, but there has been little progress since.
In early October, Widodo sent Luhut Pandjaitan, coordinating minister for
maritime affairs and a confidant of the president, to Japan to meet with Prime
Minister Shinzo Abe and other officials. They discussed various projects Japan
and Indonesia have been cooperating on, including the construction of a port in
Patimban, 120km east of Jakarta, and the refurbishment of a railway connecting
Jakarta and Surabaya. They also decided to introduce a system that allows
official development assistance from Japan and other countries to be used in
the development of Java, for which the Indonesian government had initially
planned to use private investment.
The rupiah's exchange rate and stock prices on the Jakarta market remain
stable, but some market observers believe that investment money is returning to
Indonesia and other emerging economies only because low interest rates are
discouraging investment in developed countries. If the U.S. Federal Reserve
goes ahead with an interest rate hike in December, the flow of money may change
dramatically.
Shinobu Kikuchi, a senior economist at Mizuho Research Institute, said:
"Even though the exchange rate and stock prices are stable, Indonesian
authorities are not optimistic about the economic outlook. They are concerned
about the ongoing budget deficit and current-account deficit, which overseas
investors watch closely."
Savvy moves
Widodo's re-election strategy hinges largely on attracting more
investment and creating more jobs while his popularity is high. When he became
president two years ago, there were rumors of conflict between Widodo, a member
of the ruling Indonesian Democratic Party of Struggle, and Megawati
Sukarnoputri, former president and head of the party. But in his twice cabinet
shake-ups, he made sure to remove anyone who might become a political foe in
the future and cemented the foundation of his own leadership. In May, the main
opposition Golkar Party joined the ruling coalition, giving them combined
control of 70% of the seats in parliament. Widodo concluded that an alliance
would be necessary to ensure the stability of his government.
Widodo shows the same kind of pragmatic approach in his diplomacy. Under
its "nine-dash line" premise, China claims jurisdiction over almost
all of the South China Sea. Widodo, in line with public sentiment in Indonesia,
has started expressing more concern about Beijing's moves, but he has refrained
from openly critical remarks. He knows that Indonesia is geopolitically
important to China's "One Belt, One Road" infrastructure initiative
and stands to receive huge investment from the country.
Chinese fishing boats are operating in Indonesia's exclusive economic
zone around the Natuna Islands, in the southern end of the South China Sea.
Beijing claims this area is part of its "traditional fishing ground,"
even though it acknowledges that the islands themselves lie outside the
nine-dash line.
In June, Widodo and certain cabinet members held a meeting on a warship
anchored off the Natuna Islands and discussed how to deal with the situation.
Widodo attempted to raise the morale of the ship's crew by writing a message
calling on them to defend Indonesia. This seems to have won support from a
public increasingly nervous about China's actions.
Will Widodo's re-election strategy prove effective? Anies Baswedan, who
was removed as education and culture minister in the July cabinet reshuffle, is
drawing attention as a rival candidate. One ruling party official said Widodo
pushed Baswedan out of the cabinet because he saw him as a potential political
foe. That move may prove to have been unwise: At the end of September, Baswedan
declared his candidacy for the Jakarta gubernatorial election set for February
2017. If his bid is successful, he could then use his position as governor of
Jakarta as a stepping stone to the presidency -- just as Widodo himself did.
Nikkei Asia Review
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