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Jokowi’s Mega Indonesia Coalition Imperils Tough Reform Pledge

Jokowi’s Mega Indonesia Coalition Imperils Tough Reform Pledge

(Bloomberg) -- Indonesian President Joko Widodo has signaled he will form a unity government that could even include bitter election rivals, a move that may clear the path for tougher reforms he’s pledged to unveil.

While the appeal of such a Cabinet is political stability, having no effective opposition in parliament is still no guarantee for a smooth road ahead for the popular leader, according to analysts from Control Risks to Capital Economics. It could create inertia and fewer checks on vested interests of oligarchs leading Indonesia’s major political parties, according to the Center for Strategic & International Studies.

Jokowi, as Widodo is known as, was sworn in for a second and final five-year term on Sunday. He now faces the challenge of balancing the diverse interests of parties backing him, and the need to accelerate reforms to boost investment and growth to improve the lives of millions still surviving below the poverty line.

Jokowi’s Mega Indonesia Coalition Imperils Tough Reform Pledge

The former furniture businessman is the first president to come from a non-elite or military background, making it harder for him to amass political capital to push through reforms that would unleash the potential of Southeast Asia’s largest economy. A mega coalition of about 10 parties in the government may also mean “sharing the pie” among them, according to Achmad Sukarsono, a Singapore-based analyst at Control Risks.

Jokowi, who is set to announce his cabinet line-up on Monday, has declined to confirm if members of the main opposition party Gerindra would be part of his ministerial team. Jokowi has held talks with Prabowo Subianto, his rival in the past two elections, and former President Susilo Bambang Yudhoyono, about their parties joining the government.

Here’s a roundup of analyst comments on what to expect from Jokowi’s second term:

Control Risks

  • Despite promising more reformist ministers, Jokowi will continue to have many cabinet members who are beholden to their parties, including those who would mix politics with business, Sukarsono said in an Oct. 18 report.
  • While crucial economic posts will be in the hands of investment-friendly figures, some sectoral ministers may represent local interests who are wary of foreign presence and would exploit nationalist sentiments.
  • Intense pressure from the domestic business lobby is likely to lead the government to make policy decisions benefiting local businesses, such as limiting the extent of market liberalization.
  • The president wants to improve the investment environment but is likely to face implementation barriers when planned reforms are confronted by the interests of power brokers in his coalition.

Center for Strategic & International Studies:

  • “Jokowi initially appeared poised to move boldly into his second term with a focus on enacting key economic reforms to boost stagnant growth,” Amy Searight and Brian Harding, Southeast Asia specialists at CSIS, wrote in a report on Oct. 18.
  • “But Jokowi is already facing headwinds with massive street protests against a recently passed law that will diminish the highly-respected Corruption Eradication Commission and a proposed bill to reform the penal code, which would have deleterious impacts on personal freedoms.”
  • “An upsurge in tensions in perennially restive Papua is also drawing attention. As a result, days ahead of the inauguration, Jokowi is seeking to calm the waters with outreach to a myriad of constituencies, including political rivals.”
  • “As in his first term, economic growth and reducing inequality will be President Jokowi’s top priorities. Infrastructure was a particular focus during his first term and will continue to be a key policy priority over the next five years. Jokowi has also signaled that ‘human capital development’ will be a signature focus in his second term.”

Capital Economics:

  • “The two key economic challenges facing President Joko Widodo in his second term are boosting GDP growth and reducing Indonesia’s external vulnerabilities. We don’t think he will succeed in either,” Gareth Leather, an economist at Capital Economics in London, wrote in an Oct. 15 report.
  • “With headwinds mounting in the form of low commodity prices and slower global growth, economic activity in Indonesia is likely to remain weak in the near term.”
  • “Given our view that a second term for Jokowi is unlikely to provide much of a boost to growth, there is unlikely to be any corresponding improvement in the stock market. Instead, we expect Indonesian equities to perform broadly in line with trends in the rest of the region, and that a fall in global risk appetite will drive share prices lower in the near term, before rebounding a little by the end of next year.”
  • “On the currency front, Indonesia’s current account deficit is likely to remain a source of vulnerability. As a result, we think the rupiah will continue to sell off during periods of weak risk appetite. Our forecast is that the currency will fall to around 14,500 to the U.S. dollar by the end of this year, and then stabilize at around this level.”

To contact the reporter on this story: Thomas Kutty Abraham in Jakarta at tabraham4@bloomberg.net

To contact the editors responsible for this story: Ruth Pollard at rpollard2@bloomberg.net, Shamim Adam, Thomas Kutty Abraham

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