Tuesday, November 1, 2016

What defines INDONESIA’S Jokowi-nomics

If there is one institution that might just be able to cut through this political undergrowth, it’s the Indonesian presidency. This is why the election of an outsider to the Jakarta establishment, Joko Widodo (Jokowi), as president in 2014 excited so many observers inside the country and out.

Jokowi himself was a successful entrepreneur who built a modest, but successful export business. He claimed he got into politics in the first place because of frustration over red tape and poor government services in his home base of Solo, in Central Java. Many hoped his outsider status would give him a chance as well as the motivation to subvert old rent seeker networks and their allies within the political class.

As this week’s lead article by Eve Warburton suggests, Jokowi’s first two years may have settled the question of how much the president can shape the priorities of economic policy. Tremendous amounts of public resources and political capital are now devoted to giving Jokowi an economic legacy to take to the 2019 elections. But this doesn’t mean that, at long last, there’ll be progress on structural reform.

Just after entering office, Jokowi made one big, bold move, abolishing Indonesia’s ruinously wasteful petrol subsidies and ploughing most of the proceeds into desperately needed infrastructure investment.

Yet as Warburton explains, there are growing signs that the preoccupation with quick wins on the infrastructure front may stand in the way of bringing fresh thinking to economic policymaking.

To the extent that the president espouses a coherent economic philosophy, it’s best captured by the phrase ‘new developmentalism’. This should not be confused with any transformative agenda, Warburton argues. Rather, Jokowi wants ‘a fast and no-frills implementation of an old statist development strategy that has loomed large throughout Indonesia’s history’.

The president’s personal worldview and management style play their part in shaping this economic program. Relatively naïve about the big questions of economic policy strategy compared to his predecessors, Jokowi governs by instinct rather than reliance on expertise. ‘He deals with each problem in isolation’ and ‘surrounds himself with very different kinds of economic thinkers’, says Warburton. This explains his end-justifies-the-means thinking. This has resulted in an eclectic economic team picked for their perceived usefulness in attaining the president’s short term goals, rather than the implementation of a coherent economic vision across the government.

One liberal-minded voice, Thomas Lembong, was demoted from the trade ministry to head the Investment Coordination Body after championing an against-the-odds effort to get Indonesia into the Trans-Pacific Partnership. There are no votes in that. Jokowi brought back the star technocrat Sri Mulyani Indrawati from the World Bank to the finance portfolio. But it’s unclear whether her job is seen as anything more than raising revenue to pay for Jokowi’s infrastructure agenda, alongside giving his government a reformist sheen abroad. Other ministers who made attempts at cleaning up corrupt ministries, most notably in the energy sector, were sacked after their reform efforts created political messes which the president had to clean up.

It is easy to see why Jokowi has so enthusiastically embraced the tools of statist policymaking he inherited in the current political circumstances. The president’s time horizons are short. With his mind already on his 2019 re-election campaign, Jokowi wants to be cutting ribbons. There is no doubt that in many cases this has meant cutting corners, in terms of both proper project planning and governance. The ministers who understand this reality best are those best positioned to influence the president.

Hopefully, Jokowi understands that Indonesia needs more than new roads and airports to reach its economic potential. Attracting the investment required to create jobs for its growing working age population will mean serious work on the ‘soft product’ Indonesia offers to investors.

The remedies for what ails Indonesia’s investment climate are well known. All of them require a willingness to annoy powerful constituencies within the bureaucracy and the political class. Warburton’s conclusion that Jokowi sees no net political benefit in cracking down on corruption is the main take-away — and worry.

An Indonesian president’s power to shape economic priorities can be used for more than building highways and airports. The Indonesian public by and large trust their president — far more so than any other institution — and Jowoki’s stocks remain especially high. The goodwill he has accumulated would be better deployed by taking his economic agenda one step further and making the case to the voters that lower barriers to trade and investment means lower prices and more jobs in the longer term.

All the messages that opinion polls give the president tell him that he is already on a winning strategy. And doubtless Indonesia will perform well enough under Jokowi, barring some big unexpected shock. But, as usual, the major threat to Indonesia’s being able to do as well as it really can is the political instinct that gives priority to keeping established interests happy.

The EAF Editorial Group is comprised of Peter Drysdale, Shiro Armstrong, Ben Ascione, Ryan Manuel, Amy King and Jillian Mowbray-Tsutsumi and is located in the Crawford School of Public Policy in the ANU College of Asia and the Pacific.


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