Jokowi: the second hundred days 04 March 2015 Summary The inauguration of Joko Widodo as President of Indonesia in October 2014 was a landmark event in Indonesian politics. The subsequent hundred days have fulfilled some of the huge expectations of Jokowi and frustrated others. The reasonable prediction that Jokowi would quickly find himself dealing with the messy compromises and obstacles of minority government have so far proven correct, although not in the way they were often made. Jokowi’s administration has set a number of big targets that as yet seem at odds with some fairly conservative instincts on trade and the economy. Jokowi’s first hundred days have defined some fairly fundamental challenges for his second. The inauguration of Joko Widodo as debilitating fuel subsidy programme President of Indonesia in October 2014 was balanced by a political storm of was a landmark event in Indonesian proportions not even critics of Jokowi politics. Predictions on the first hundred could have foreseen, which pitted the days spanned a broad spectrum, with President not only against his party but optimists on the one end anticipating the police, anti-corruption institutions decisive policy and personnel changes and the public at large. On the economy, that would set the ground for a cutting fuel subsidies have freed up some transformation of Indonesian politics much needed fiscal space, but there and governance, as well as the economy, are serious questions around both the and pessimists on the other hinting that approach of delivering infrastructure in the face of insuperable opposition in investment through the inefficient Parliament the President would likely and notoriously corrupt state-owned be impeached before the hundred days sector as well as the hugely ambitious were out. targets on increasing revenue from tax receipts. Finally, lofty statements on In the end, the verdict falls somewhere boosting exports and stimulating foreign in the middle. As anticipated, most investment are at odds with what appear of the President’s difficulties have to be some fairly conservative instincts stemmed from the messy compromises on trade and the economy. Jokowi’s first and obstacles of minority government, hundred days have defined some fairly though perhaps not in the way that fundamental challenges for his second. many at first expected. An early coup on successfully reforming Indonesia’s Page 1 Governing from the margins programme was predicted to be the most difficult item on the new President’s agenda. But the risks Jokowi’s status as a minority President is the most associated with the move were largely eliminated important structural feature of his Presidency. by the fall in the price of oil, which at one point However, it is notable that his first hundred days meant that the price of unsubsidised petrol fell have been defined more by a within his own below that of its subsidised alternative and Jokowi PDI-P party than with the opposition Red & White moved quickly. The almost $17 billion of savings coalition. Early patronage concessions to the PDI-P from eliminating the fuel subsidy for petrol and - including a number of key cabinet posts – strained reducing it to 1,000 rupiah or 5p per litre for diesel, his pre-election pledge to install a technocratic has been reallocated as part of the 2015 Budget to administration. But it was the appointment of Budi infrastructure, health and education spending as Gunawan, a close ally and former adjutant of PDI-P well as contributing to reducing Indonesia’s budget Chair Megawati Sukarnoputri, to the post of Chief of deficit from 2.2% in 2014 to 1.9% in 2015. Police that was by far the most politically damaging move the President has made to date. Days after The first hundred days the nomination, Gunawan was formally named as a suspect by the widely respected Corruption So what kind of picture emerges from this first Eradication Commission (KPK). Jokowi found hundred days? At a political level, despite or himself caught between public outrage at the idea perhaps more acutely because of his outsider of a corruption suspect leading Indonesia’s police status, Jokowi’s ability to transcend the messy and force, and the very Javanese sense of obligation to compromising realities of Indonesian party politics publicly demonstrate deference and gratitude to is clearly limited. His debts to Megawati and the Megawati, the party elder who made his election PDI-P remain hard to quantify, but will continue to possible. After weeks of indecision, Jokowi be called in. On policy, Jokowi has demonstrated withdrew the nomination, but the damage had been a clear pragmatic streak but the transformative done. In the intervening period, the President’s goals he has set out for Indonesian politics and the approval ratings had fallen some thirty percentage economy are at odds with some of the conservative points to 42% by the end of January. instincts he has demonstrated, as well as with wider structural constraints he faces. Meanwhile, after almost successfully bringing government to a halt late in 2014, the opposition One obvious example are the spending Red & White coalition found they had little to commitments in his first budget. As part of the 2015 do but to sit back and watch as the President Budget, approved by Parliament on 13 February, hemorrhaged approval points from the internal direct infrastructure spending is set to almost strife within his own party. A temporary truce has double to 2.2% of GDP, and some of the $17 billion been in place since earlier this year, following a of savings in fuel subsidy will be redirected towards meeting between Jokowi and opposition leader a $5 billion injection of capital into state firms and Prabowo Subianto. The opposition raised no a $1.7 billion transfer of funds to villages. Also for objections in the debate over the passing of the the first time, the budget includes a wider set of budget and speculation on impeachment has died economic targets, including on unemployment, down to a murmur. Meanwhile, the struggle for poverty and Gini coefficient. However, achieving power in the Golkar party continues, with rival all of these targets is predicated on growth rates factions having formed behind Aburizal Bakrie, of above 6% and expenditure and growth on oil an ally of Prabowo, and Agung Laksono, who and other imports on an exchange rate that is still has pledged to lead the party to join the ruling potentially under pressure from investor sentiment coalition. The government may have bought some as Indonesia’s current account deficit hovers around goodwill from Bakrie and his party by agreeing to 3%. offer a loan of $60 million to pay compensation to victims of the Sidoarjo mudflow disaster in East Perhaps more worryingly, they are based on a 30% Java, for which Bakrie’s mining operations continue increase in domestic tax receipts, to be secured to be blamed. through improved enforcement rather than policy or rate changes and a tax amnesty for offshore capital. This uneasy legislative truce – along with a sharp Indonesia’s tax base remains notably narrow and fall in the global oil price - also enabled the while Jokowi has showed some willingness to take biggest success of Jokowi’s first hundred days. on his base on subsidy reform (albeit with significant In the months before the election, the reform of help from the oil price), tax reform is a big political Indonesia’s expensive and inefficient fuel subsidy ask. Page 2 Whilst the Budget envisages a pivotal role for has consistently contributed over 50% of GDP FDI, the administration’s plans to remove barriers growth. Since taking office Jokowi has spoken to investment and to offer more assurances to frequently about the idea of ‘sovereignty’ and investors have not yet been fully set out. The self-sufficiency in energy and in limiting foreign Coordinating Ministry for Economic Affairs has been control of Indonesia’s strategic industries. There tasked with reviewing PPP frameworks, but with is a widely held belief that Indonesia’s banking no movement on reform of the state-owned sector, sector is too liberal, and wide expectations that this can only deliver very limited improvement. the new draft of the banking bill will impose a 40% Ultimately, much of the finance will likely cap on foreign ownership. The debate on limiting come from China, which has already redoubled the role of foreign interests is likely to spread to commercial diplomacy efforts following Jokowi’s other industries including insurance, telecoms win. Jokowi has also shown little instinct for pushing and technology – although obstacles to inward back the role of the state. Plans in the budget to investment in these areas may be informal rather push capital expenditure through SOEs should be than formal. The climate for inward investors is taken as a sign that the dominance of the corrupt likely to remain solicitous, but with an expectation and inefficient state owned sector in the Indonesian that Jakarta will continue to set political (and not economy is not set to change in the near future. always clearly defined) limits. Another incongruity are the now widely touted The next hundred days trade targets. The Jokowi administration has placed a rhetorical emphasis on the role of trade Looking ahead, the coming months will continue to in meeting its ambitious growth targets. Jokowi test Jokowi’s ability to appease and to compromise, has set out a series of pledges, including a headline as well as to respond quickly to changing global target to triple Indonesia’s overall exports by 2020. realities. The rumblings of discontent within the This is a difficult ambition to meet, given Jakarta’s PDI-P are set to continue, and the public will be continued defensive position on liberalisation.