FACTBOX-Five political risks to watch for Indonesia
JAKARTA Nov 3 (Reuters) - Indonesia's new cabinet is finalising its 100-day programme aimed at formulating policies to boost economic growth to 7 percent or more over the next 5 years.
Following is a summary of key Indonesia risks to watch:
* GOVERNMENT EFFECTIVENESS IN DRIVING REFORM
President Susilo Bambang Yudhoyono, returned to a second term after a decisive election win in July, is widely regarded as a progressive, market-friendly reformer. He was unable to push through some key promises in his first term in order to maintain the support of vested interests and crony capitalists. The mandate he has received now raises the possibility of him making much more progress on reform in his second term. [ID:nJAK459498]
Key issues to watch:
-- The cabinet, announced on Oct 21, has top technocrats Sri Mulyani Indrawati and Mari Pangestu in the key economic posts, with a new presidential delivery unit headed by Kuntoro Mangkusubroto and another technocrat, Boediono, as vice president - positive for the push for reform. However, several politicians from various coalition members are also in, with the most worrying the energy and mining minister, a little-known economist from the Democrat Party called Darwin Saleh.
-- The president is due to announce his 100-day and five-year policy plans, which are likely to address measures to lift economic growth substantially by tackling infrastructure and other constraints on growth.
* CORRUPTION AND GOVERNANCE
In his first term, Yudhoyono made significant progress in tackling corruption, an issue that has long been a problem for foreign investors. Under Yudhoyono, the Corruption Eradication Commission (KPK) has proved surprisingly effective and put several senior officials in jail, but this sparked a power struggle with some of Indonesia's powerful old guard who want it rendered toothless. In September, parliament passed a bill that reduced the effectiveness of corruption courts. [ID:nJAK92408]
Key issues to watch:
-- Whether the corruption court's success is significantly undermined by the new legislation.
-- The battle between the KPK, the police, and the attorney-general's office following the detention of three senior officials from the KPK. One, the former head of the KPK, is a suspect in a murder investigation, while police have said that the other two are suspected of corruption and abuse of power. All three deny the allegations and it is widely thought that the cases may have been brought to undermine the KPK.
* SECURITY
Suicide bombings at two luxury hotels in Jakarta in July were the first major terror attacks in Indonesia since 2005 and raised concerns that the threat from militants was again on the rise. The killing of Noordin Mohammad Top and other key figures -- including the man who recruited the two suicide bombers for the attacks in July -- may significantly reduce that threat. Analysts warn, however, that other dangerous militants remain at large and further attacks cannot be ruled out.
Key issues to watch:
-- How will the mainstream Jemaah Islamiyah (JI) movement react? A split developed in the movement in recent years, with most abandoning the policy of targeting foreigners with terror attacks, leaving Top's splinter group as the main threat. Markets will watch whether Top's death and the July bombings will discourage or encourage violent attacks by other JI sympathisers. -- How big was Top's group and how many are still at large? Opinions vary on whether he was leading a beleaguered and shrinking team or whether he had managed to attract considerable new manpower, funding and weaponry over recent years.
-- To what extent did al Qaeda gain a foothold in Indonesia? Top named his group the al Qaeda Jihad Organisation for the Malay Archipelago, but his obvious sympathies for Osama bin Laden's militant network do not mean he was able to establish formal ties. However, police say there are clear signs some of Top's funding was coming from overseas. If the group managed to establish firm enough links with al Qaeda to secure sustained funding, expertise and recruits, the threat may be far from over.
* ENVIRONMENT
Indonesia is both a key victim of, and contributor to, global warming. It is estimated to be the third-largest net contributor to greenhouse gas emissions worldwide after the United States and China. The country has become increasingly vulnerable to extreme weather. Harvests are becoming more irregular. Jakarta is regarded as the Southeast Asian city most vulnerable to the impact of climate change. Annual forest fires in Indonesia have also become a regional menace. Success in tackling these issues is an important factor for long-term growth.
* OVER-RELIANCE ON YUDHOYONO
Many analysts worry that Indonesia's recent progress towards greater political and economic stability has been very reliant on the personal popularity and power of Yudhoyono. If anything were to happen to him, much of Indonesia's recent gains could unravel. He has no obvious successor with the support base and drive to continue the reform process. (Compiled by Andrew Marshall and Sara Webb)
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