On July 9th, Indonesians turned out en mass for the country’s national election. The contest pitted the young governor of Jakarta, Joko Widodo (Jokowi), against a former general and businessman, Prabowo Subianto. When the dust finally settled and the official results were released on July 22nd, it was Jokowi who stood victorious. Though Subianto plans to challenge the election in the country’s constitutional court, his claims appear to have little merit, and it is very likely that Jokowi will assume the office of the president come October.
One of the three key issues we have been monitoring in emerging market countries is election outcomes. Though we viewed the campaign platforms of Jokowi and Subianto more similarly than other market participants, we believe that Jokowi’s victory is a positive for Indonesia at large, and more specifically, for the country’s equity market.
Indonesia is a country with significant economic potential waiting to be unlocked. The country boasts a population of roughly 250 million, with a majority of the people below age 30. This provides both a large base of potential consumers and a large workforce. Indonesia is also well-endowed with natural resources, including oil and gas, as well as a variety of metal ores. Despite these positives, there are several significant headwinds to economic growth. Consider that this year, the World Bank ranked Indonesia 120 out of 189 countries in terms of the ease of doing business within the country. Indonesia scored particularly poorly in areas such as starting a business, enforcing contracts, resolving insolvency, and getting electricity. These rankings are representative of a number of issues facing the economy, including excessive bureaucracy and red tape, corruption, and poorly developed infrastructure. Other challenges include the need to alleviate poverty, improve education and health care delivery, and reform the government’s fuel subsidy program.
All of this is to say that Jokowi will face a wide range of challenges when he assumes the presidency in October. Nevertheless, judging from the record of his time as governor of Jakarta, it appears as though he is a politician willing and able to tackle a number of problems facing the country. There is hope that many of the reforms he implemented while in office as governor of the largest city in Indonesia (and in the world) can be replicated on a national scale. For instance, Jokowi introduced a series of electronic systems that served to reduce bureaucratic inefficiencies and the opportunities for corruption, while increasing the efficiency and transparency of a number of processes. His commitment and track record of improving Jakarta’s infrastructure also bodes well for the country, as infrastructure development is typically most effective when coordinated at the national level. Importantly, Jokowi spoke about the need to reform fuel and energy subsidies during his election campaign, both of which threaten Indonesia’s relatively sound macroeconomic management.
There is no doubt that there are a variety of challenges facing the Indonesian economy today, yet it is equally true that a number of these are certainly addressable. Jokowi has thus far proven himself a reform-minded politician, and his track record in Jakarta proves he has the vision and tenacity required to pursue much-needed changes. Modernizing Indonesian institutions would go a long way toward improving investor confidence and driving capital flows back into the country. Reforming government policy, such as that relating to subsidies and export bans on raw commodities, would help to improve the country’s fiscal situation and its current account balance. We will continue to monitor developments in Indonesia moving forward, but we view the election of Joko Widodo as a positive development for the Indonesian economy and equity market.
