[Premium] Chairman’s Note (03/2016) – Managing the Expectations of President Jokowi’s Indonesia

March 2016 |
A number of our corporate members have asked my views about Indonesia. I have been there recently and met privately with Pak Teten Masduki, Chief of Staff to President Jokowi, as well as a number of political analysts. These were private and informal meetings but there are some points that I thought to share with you.

Please note that I am sharing these views with more candour than I would publicly, as you are our SIIA corporate member. I would therefore appreciate you keeping this to yourself or limiting the circulation to only your senior colleagues.

1. After the Free Fall: The first year of the Jokowi government witnessed a near free fall in confidence about the capacity of his administration to deliver on its promise of change. Perhaps this was inevitable given very high expectations, divided politics and his status as an outsider to the Jakarta elites. In mid-2015, for example, there was talk of impeachment. That talk has gone and my sense is that the situation is stabilising, albeit at a lower level of expectation.

While Jokowi’s initial high ratings have eroded, the opposition has not gained in standing, nor has the chairman of the Indonesian Democratic Party of Struggle (PDI-P), Ibu Megawati Sukarnoputri. The President continues to enjoy a high trust rating in most polls – even among those who question the government’s capacity. Take for example the nationwide opinion poll conducted by the Centre for Strategic and International Studies (CSIS) late last year, which found out that 80 per cent of respondents still trusted President Jokowi despite being unhappy with the administration’s lack of performance in certain areas, such as the economy. As such, no alternative leader has emerged. Some consolidation is also happening around the President, with a recognition that his second year is critical to the administration and to Indonesia.

2. Cabinet Reshuffle and Presidential Prerogative: Talk about a second reshuffle has been going on since the first “mini reshuffle” in 2015. Many expected this to have happened by now and wonder why the President is waiting and there have been speculation over different individuals. The broader point seems to be that the President is gaining more autonomy on choices for cabinet, compared to the first cabinet. With the realignment of political parties, the President has gained more allies, including the support of the Golkar Party. Within the PDI-P, the President addressed the party at its working meeting in early 2016. He had not been given a speaking role at the party congress held in Bali in April last year.

There is and will continue to be speculation about who has the president’s trust and “ear”. This is especially given Pak Jokowi’s inexperience in a number of policy areas. Some believed that Vice President Jusuf Kalla would emerge as the key player in government, while Ibu Megawati tries to control matters from behind, using the Party. No doubt that both will remain important. But the President’s own authority is growing. His decision-making is also marked by a high degree of centralisation and confidentiality. There are many advisors and ministers (and more who claim to be so). But different ministers and advisors at most have sway on specific issues, and for limited periods. No one is the shadow President.

3. Setting Priorities, Fixing Problems: The President has also been much clearer on his priorities, and is visibly taking steps forward this year. One area is on the fires and haze, not only as an environmental issue but concerning industry and land concessions. Jokowi has formed the Peatlands Restoration Agency and impacted industry players with a moratorium on new concessions and the cancellation of others implicated in the fires. At a closed door meeting on the issue, Jokowi is said to have expressed not only determination, but by Javanese standards, anger. He has also instituted a system of reward-or-punish among the local police and army officers in provinces. Another example is about infrastructure and investment, and the Jakarta-Bandung railway. The Jokowi government decided in favour of Chinese companies rather than the Japanese for a number of reasons including the terms for financing. However, more than one official has emphasised the importance of time taken to complete the project as a key factor in the decision-making process: the Chinese promised an earlier start and delivery date, both of which was aligned with how the Jokowi administration wants visible progress this year.

While he welcomes foreign investment, President Jokowi has been caught unawares by some of the policies and details that ministers and officials are practising that seem protectionist and can turn off investors. One example is how the country’s manpower ministry made it harder for foreign professionals to get work permits. He has been trying to fix these problems as they surface and to also listen more systematically to foreign investor concerns.

4. Protectionist-Nationalism Sentiment: Signs are that the mood in Indonesian society is increasingly protectionist-nationalistic. Yet Jokowi realises that foreign investment is needed for the economy and launched a “big bang” opening to open up 49 sectors and sub-sectors. He has also shown interest in the Trans Pacific Partnership (TPP) agreement led by the USA. There are mixed signals but I see a strategy becoming clearer.

President Jokowi will not defend foreign investors at the level of general public debate. Rather he is looking more tactically and in detail to bring in foreign investors who can create jobs and open up new sectors, such as e-commerce, on their own or in partnership with Indonesian companies. Industrialisation and therefore infrastructure are also key to these, and foreign investors in such areas may see opportunities.

I hope the above may be of interest to you. If you might wish to respond to this note and share your views, I would be glad to hear from you by email or in a brief telephone call. If you should be keen for the SIIA to share our insights in more detail or on more specific questions, you may wish to note that we offer an advisory service to cater to such needs of our corporate members.

Best regards,

Simon Tay
Chairman