Elections Crib Sheet: Jokowi Ascendant

Indonesians are set to vote in the upcoming legislative and presidential elections in April and July, respectively. The impending elections are particularly crucial as the new administration will assume the task of reinvigorating a slowing economy and rebuilding confidence from both the electorate and foreign investors. Indonesia, which emerged from the Global Financial Crisis relatively unscathed, is now witnessing its slowest growth in almost four years. Its citizens have become increasingly disgruntled following current president Susilo Bambang Yudhoyono's administration's failure to keep to his campaign pledges, while investors, both local and foreign alike, have been holding back on investment amid hints of surfacing protectionism.

With an approximate population of 250mn people, Indonesia also carries considerable political and economic significance within the region. Not only is it the largest economy in Southeast Asia, with a base of 186mn voters, the archipelago is the world's third largest democracy. Against a backdrop of rising regional tensions stemming from China's recent provocations in the South China Sea, as well as the impending formation of the ASEAN Economic Community in 2015, Indonesia will be increasingly looked upon to play a larger role in shaping the region's security and economic architecture.

While Indonesia's political environment remains highly fragmented, the elections will be dominated by three parties: the Indonesian Democratic Party - Struggle (PDI-P), the Golkar Party and the Great Indonesia Movement Party (Gerindra). All presidential candidates will require nomination from a party that has either garnered 25% of the popular vote or 20% of the seats in parliament.

Elections Crib Sheet: Jokowi Ascendant

Indonesians are set to vote in the upcoming legislative and presidential elections in April and July, respectively. The impending elections are particularly crucial as the new administration will assume the task of reinvigorating a slowing economy and rebuilding confidence from both the electorate and foreign investors. Indonesia, which emerged from the Global Financial Crisis relatively unscathed, is now witnessing its slowest growth in almost four years. Its citizens have become increasingly disgruntled following current president Susilo Bambang Yudhoyono's administration's failure to keep to his campaign pledges, while investors, both local and foreign alike, have been holding back on investment amid hints of surfacing protectionism.

With an approximate population of 250mn people, Indonesia also carries considerable political and economic significance within the region. Not only is it the largest economy in Southeast Asia, with a base of 186mn voters, the archipelago is the world's third largest democracy. Against a backdrop of rising regional tensions stemming from China's recent provocations in the South China Sea, as well as the impending formation of the ASEAN Economic Community in 2015, Indonesia will be increasingly looked upon to play a larger role in shaping the region's security and economic architecture.

While Indonesia's political environment remains highly fragmented, the elections will be dominated by three parties: the Indonesian Democratic Party - Struggle (PDI-P), the Golkar Party and the Great Indonesia Movement Party (Gerindra). All presidential candidates will require nomination from a party that has either garnered 25% of the popular vote or 20% of the seats in parliament.

Latest Developments

Legislative Elections Campaigning Underway: Campaigning for the legislative elections kicked off on March 16 and will run until April 5. 12 parties will be competing for 560 seats in parliament.

With the electorate having become disenchanted with the ruling coalition led by the Democratic Party, following a series of corruption scandals and policy missteps, we expect its election fortunes to wane. Conversely, the PDI-P's nomination of Joko Widodo together with the loyal voter base that party chairwoman Megawati Sukarnoputri enjoys will surely boost the party's electability come April 9. While Gerindra's presidential nominee Prabowo Subianto may have a chequered past stemming from allegations of human rights abuses, a generational change in voter demographics (where almost 10% of the voter base will be first-time voters) suggests that he may still be able to rally strong support for his party. Gerindra has hinted that it may establish alliances with other parties (the United Development Party appears most likely at the time of writing) in order to boost its chances of attaining the requisite 20% of legislative seats needed to nominate a presidential candidate.

Core View

Stability Or Reform? In our view, the election results will ultimately depend on whether the electorate clamours for reform or stability. If the preference is for the former, current Governor of Jakarta Joko Widodo (Jokowi) from the PDI-P will likely emerge victorious. If the inclination is towards stability, ex-General Prabowo Subianto (Gerindra) or prominent businessman Aburizal Bakrie (Golkar) are likely to be the frontrunners. With little attachment to the establishment, many are looking to Jokowi to weed out rampant corruption in the country, streamline the highly inefficient bureaucracy and reinvigorate a sluggish economy. That being said, some quarters of the population, particularly those who were around through much of the politically repressive, yet economically stable period under ex-dictator Suharto, maintain some preference for the stability that is likely to be afforded by Prabowo and Bakrie.

The Jokowi Effect
Indonesia - Exchange Rate, IDR/US$

Jokowi En Route For Presidency: As it presently stands, Jokowi remains the runaway favourite for the presidency. His non-establishment, pro-reform drive, coupled with a proven (albeit short) track record of balancing pro-poor and pro-business policies have made him a darling to voters who have been demanding change, and investors whose confidence has been shaken by a slew of policy missteps by the current administration. As a sign of confidence in Jokowi, the benchmark Jakarta Stock Exchange Index surged almost 4.0% on the day the PDI-P announced him as the party's presidential nominee. In his short time as governor of the capital, Jokowi has managed to restart a number of stalled public infrastructure projects, not least of which being the city's Mass Rapid Transit system that will help to alleviate the city's worsening traffic woes.

Jokowi-led Coalition The Most Favourable Outcome: While Jokowi's pro-reform leanings may have made him a favourite among the three strongest candidates, we believe that the most favourable outcome, from both an economic and political standpoint, is an alliance with Jokowi at the helm and another seasoned politician from the current establishment as vice president.

As we have mentioned before, Jokowi has a good track record of pushing through much-needed reforms during his time running Solo and Jakarta. That said, his tenure in politics spans just nine years, paling in comparison to the decades that Prabowo, and to an extent, Bakrie, have seen. His popularity notwithstanding, Jokowi is unlikely to be able to single-handedly enact the wide-ranging changes needed to re-energise the Indonesian economy. While he may be able to steer the country in the right direction, he is likely to need a firm hand on the tiller to galvanise the country's highly fractious political scene where party discipline is lax and policymaking is widely regarded to be self-serving. Also, it is widely believed that the PDI-P is one of the most nationalistic parties in the country and there remains a risk that Jokowi may not be able to strike the social welfare-business balance he hopes to achieve.

Pro-Business Policies Likely To Remain In Place Regardless Of Outcome: Regardless of the election result, we expect the new administration to largely remain pro-business. Nationalistic undertones may have surfaced recently but this is likely to be political maneuvering in light of the impending elections. In our view, the main impediment to Indonesia's economic growth remains the country's infrastructure deficit, and foreign investment is the only way to plug this gap. Notwithstanding their differing ideologies, the dominant candidates recognise that the only way for the country to reverse its infrastructure shortfall is through private sector funding and all three have, in one way or another, signalled that attracting foreign investment will be one of their key priorities should they win the presidency.

Risk To Outlook

Nationalistic Stance Fails To Recede: To us, the main political risk Indonesia faces remains the possibility that the recent growing protectionist proclivities will extend beyond the election period. In such a case, foreign investors, who are presently holding back their investment plans, will inadvertently be deterred from investing in the country, which would in turn drag on the country's structural economic growth prospects.

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