Widodo Indonesia Presidency Path Complicated After Vote

Photographer: Ulet Ifansasti/Getty Images

Election officers in traditional Wayang Orang costume prepare paper ballots at a polling station during the legislative elections in Yogyakarta, Indonesia on April 9, 2014. Close

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Photographer: Ulet Ifansasti/Getty Images

Election officers in traditional Wayang Orang costume prepare paper ballots at a polling station during the legislative elections in Yogyakarta, Indonesia on April 9, 2014.

Indonesian presidential frontrunner Joko Widodo may need to form a coalition to get elected, with the country’s main opposition party taking an unexpectedly slim lead in unofficial estimates after a parliamentary vote.

Stocks and the rupiah dropped after Widodo’s Indonesian Democratic Party of Struggle, or PDI-P, took 19.6 percent of the votes in elections yesterday, based on a tally by Lingkaran Survei Indonesia. That is about half the level projected in a March poll. Formal results won’t be declared until May 9.

Because of Indonesian election laws, Widodo, 52, may need an alliance in order to stand in July’s presidential election. That would limit his ability to carry out policy changes in Southeast Asia’s largest economy, expectations of which have helped push up the Jakarta stock market 17 percent in the last three months, the biggest rise in the world for that period.

“The immediate implication is to increase the likelihood of a rainbow cabinet,” said Hal Hill, a professor of Southeast Asian economies at Australian National University in Canberra. For Widodo and the PDI-P, “I don’t think it changes much,” he said, “since their reform agenda is already very unclear.”

Indonesian stocks headed for the steepest drop since August and the rupiah slid the most in three weeks as estimates by polling companies showed the PDI-P got less of the vote than investors had anticipated. Markets had rallied on expectations Widodo will win in July and boost investment in an economy that grew at the slowest pace in four years in 2013.

‘Clearly Negative’

The rupiah fell 0.4 percent against the U.S. dollar as of 3:18 p.m. in Jakarta, its biggest fall since March 20, according to prices from local banks. The benchmark Jakarta Composite stock index was down 3.3 percent, the most in seven months. PT Astra International, the biggest company in the Jakarta gauge by market value, declined 6.2 percent, bound for the biggest drop since Sept. 24.

The election estimates are “clearly negative,” said Allan Conway, head of emerging-market equities at Schroder Investment Management. “In the short term there’s got to be room for disappointment,” Conway said in an interview in London. Schroder is underweight on Indonesia, he said.

Even so, the parliamentary outcome may not adversely affect Widodo’s popularity in the presidential vote, according to Marcus Mietzner, an associate professor at the Australian National University in Canberra.

Golkar, Gerindra

“The dynamics of the presidential race itself remain unchanged,” Mietzner said by e-mail. Exit polls taken during the parliamentary voting “demonstrated that Jokowi would have won the elections with a large margin,” he said, referring to the Jakarta mayor by his nickname.

A Roy Morgan poll in March had Widodo as the preferred presidential choice of 45 percent of voters, 30 percentage points ahead of his closest contender, former general Prabowo Subianto.

“Jokowi is a fighter,” said Karim Raslan, a friend of Widodo’s. “This is good for him. It forces him to draw on his strengths rather than depend on their party and their obvious weaknesses.”

Among other parties in the parliamentary elections, Golkar, the party of tycoon Aburizal Bakrie, 67, had 14.6 percent of the vote and Gerindra, whose candidate for president is Prabowo, 62, had 11.9 percent, according to LSI. The Democratic Party of outgoing President Susilo Bambang Yudhoyono stood at 9.7 percent, it said. Yudhoyono, who is unable to stand again after two terms, governs with a coalition of five other parties.

LSI had monitors at polling stations and said 99 percent of the vote had been counted. Other post-election surveys echoed that outcome.

Aligning Parties

Widodo indicated late yesterday that he may have to align with other parties in order to be able to stand for president in the world’s third-largest democracy.

“We don’t want to talk about coalitions, we want to talk about cooperation to resolve the big problems of this big nation,” Widodo said on Metro TV. He was then joined in a panel by former vice-president Jusuf Kalla of Golkar, State-Owned Enterprises Minister Dahlan Iskan, of the Democratic Party, and Jakarta Deputy Governor Basuki Purnama, of Gerindra.

Under Indonesian election rules there are two ways for a party to run a presidential candidate by itself. It needs to capture 25 percent of the popular vote in the parliamentary elections, or it needs to win 20 percent of the 560 parliamentary seats.

‘Jokowi Effect’

The result shows an absence of the “Jokowi effect” that may have come because PDI-P didn’t do a good enough job of associating him with the party, said Paul Rowland, a political analyst based in Jakarta who was formerly Indonesia country director for the National Democratic Institute, a non-government advocacy group. “It would be a serious disappointment for them if they fall short of 20 percent of the seats in the house.” Rowland said.

The Nasdem Party and the National Awakening Party, known as the PKB, are natural allies for PDI-P, according to Mietzner from the Australian National University.

More than 185 million people were eligible to vote yesterday for the 12 parties contesting across the archipelago. It was the fourth election since the downfall of dictator Suharto in 1998.

The parliamentary make-up after the election will “still look rather ‘Balkanized’, increasing the chance that any coalition which comes into power may consist of an unwieldy group of parties, rather than just two or three with reasonably similar political platforms,” Wellian Wiranto, a Singapore-based economist at Oversea-Chinese Banking Corp., said in an e-mailed comment.

“One reason why the outgoing administration has had a rather lackluster term in office is due to the multi-party ‘Rainbow Coalition’ that it has had to maintain in the parliament, which proved to be a drag on the pace of economic reforms,” Wiranto said.

To contact the reporters on this story: Neil Chatterjee in Jakarta at nchatterjee1@bloomberg.net; Berni Moestafa in Jakarta at bmoestafa@bloomberg.net

To contact the editors responsible for this story: Rosalind Mathieson at rmathieson3@bloomberg.net Tony Jordan

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