Newly elected President Joko ‘Jokowi’ Widodo has risen to the presidency in a whirlwind of an election, which was closely contested by him and his rival Prabowo Subianto. Despite this, Jokowi has enormous popular support in Indonesia, due to his humble origins and hands on style of governing and the fact that he is a ‘man of the people’, unconnected to Indonesia’s past or traditional political elites of wealthy families and former military generals.
After a number of delays, Jokowi has now announced his new Cabinet for his 2014-2019 administration. This new Ministerial team will now be responsible for supporting the president in addressing strong economic headwinds – from fiscal and current account deficits to a depreciating rupiah and the ballooning cost of the fuel subsidy, rising to around 15% of the state budget this year, or $33 billion, and contributing to a predicted 2.8% current account deficit. Cutting the fuel subsidy will be vital if President Widodo is to avoid a statutory requirement that caps the state budget deficit at 3% of GDP. If this is breached, he may risk impeachment.
Despite these pressures though, Jokowi is maintaining his calm and confident demeanor. As he sets out on his first term, he has an ambitious reform agenda aimed at boosting business and investment by streamlining regulations and speeding up permits and the bureaucratic process. President Widodo has stated his ambition for Indonesia to have sustained growth of 7% per year, a return to a growth rate Indonesia last experienced more than a decade ago. More recently, Indonesia’s GDP growth has slowed to 5.1% in the latest quarterly figures for 2014 and is predicted to grow at around 5.8% in 2015. Indonesia will need more investment if is to realize this 7% growth target and achieve its true potential. Such growth will not come from domestic consumption and Indonesia’s own productivity and exports alone. President Widodo’s new cabinet however is designed to help Indonesia reinvigorate its development.
In a first-ever move, President Widodo sought the help of the Corruption Eradication Commission (KPK) and the Financial Transaction Reports and Analysis Center (PPATK), an anti-money-laundering agency to assist him in properly vetting his list of Cabinet hopefuls and show a nation beset by graft that he means business and will follow through on his promise to fight corruption.
Despite a cabinet made up of a majority of technocrats, appointments from within the political establishment are of course inevitable in Indonesia’s patronage-led democracy, albeit disappointing to some hoping for a truly transparent administration. Many analysts are naturally less than impressed with the inclusion of former President Megawati’s loyalists (Megawati is the Chair of the PDI-P, Jokowi’s political party) which include her daughter Puan Maharani, her former Trade Minister Rini Soemarno, and her former army chief, retired general Ryamizard Ryacudu, the latter of whom is known for his hardline views on separatist conflicts; he is currently barred from entering the U.S. for past human rights violations. Meanwhile, key to relations with Australia is incoming foreign minister Retno Marsudi. Such is to be expected, of course, since without the political elite or patronage from Megawati, the former furniture salesmen and mayor of Surakarta (Solo) and governor of Jakarta would have never stood a chance against the financial resources of Prabowo’s Merah-Putih (Red and White) coalition. He needs and will continue to need her support to govern effectively.
Aside from allegations of nepotism, although much less in terms of scale than previous presidential administrations, President Widodo has been lauded by political observers for his other appointments, namely experienced technocrats like Coordinating Minister for Economic Affairs Sofyan Djalil and Finance Minister Bambang Brodjonegoro. He has also put fighting corruption center stage, with the appointment of experienced technocrat and anti-corruption activist, Sudirman Said, to helm the graft-ridden Energy and Mineral Resources Ministry; the former Minister Jero Wacik is currently being investigated by the KPK for corruption. Lastly, Jokowi is also being praised for retaining incumbent Religious Affairs Minister, Lukman Hakim Saifuddin, in what many consider a move signaling his commitment to pursue a more religiously tolerant Indonesia.
For investors, there are a number of reasons to be optimistic. Not only has President Widodo picked a competent cabinet, he is also known for getting things done and has a track record of success. That being said, businesses must be prepared to work with the new administration and the new political paradigm. President Widodo referred to the concept of Gotong-royong, or mutual burden sharing multiple times during his presidential run and his inauguration speech, and while some detractors may point to it as a form of economic nationalism, this concept lies at the heart of his political/economic philosophy. It is likely to be a key concept and core part of his presidency, thus it is imperative for businesses to understand and embrace Gotong-royong if they are to be successful in Jokowi’s Indonesia.