Breakingviews - Indonesian election may change some investor votes

Indonesian President Joko Widodo and first lady Iriana Joko Widodo cast their ballots during elections in Jakarta, Indonesia April 17, 2019.

SINGAPORE (Reuters Breakingviews) - Indonesia’s presidential election may change how some investors vote on the country. Early indications are that incumbent Joko Widodo won another term, but with a lead narrow enough to embolden a conservative opposition. There were pockets of populist success, too. That will temper expectations for new policies that warm up growth and attract foreign cash.

The small-town mayor known as Jokowi has not immediately claimed victory. So-called quick counts from private pollsters indicate he won 54 percent of the popular vote, a lead of between roughly seven and almost 12 percentage points.

That’s healthy, but probably not enough to avoid some difficult fights. Opposition leader Prabowo Subianto, a fiery former military man with hardline Muslim backers and strongman tendencies, said his own “internal polls” show that he secured 52 percent to 54 percent of the vote.

Indonesian candidates regularly dispute results; Prabowo has before. Populist forces around him, however, could prove to be a significant brake on the more unpalatable policy changes Indonesia could use. He looks to have won comprehensively in key, conservative West Java and Banten, home of Widodo’s vice president.

Among Indonesia’s priorities is to defend against external shocks such as a surge in the dollar or oil prices, a vulnerability that was laid bare during a rupiah crunch last year. Growth also has been stuck at 5 percent, short of what the developing $1 trillion economy should be doing. At least Jokowi is likely to remain fiscally conservative, meaning fewer budget-consuming fuel subsidies. Having a majority in parliament, as seems likely, will help, too.

Louder populist tendencies, though, will do little to encourage the more unpalatable changes that would help Indonesia. They also will not help rein in instincts to flip-flop on investment rules or to favour state enterprises including energy company Pertamina over foreign rivals with better expertise. To build up manufacturing, the country would benefit from loosening rigid labour policies, for example, curbing the country’s generous severance arrangements, which may be harder to do now. Shrinking the swollen bureaucracy also could be tougher.

If nothing else, Indonesia’s young democracy has proven encouragingly resilient. It may, however, inhibit the economy.


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