Widodo Targets Indonesian Growth Unseen Since Asia Crisis

President-elect Joko Widodo said he’s aiming for a growth pace Indonesia hasn’t seen since before the 1990s Asian financial crisis, a shift that would bolster the clout of the world’s fourth most-populous nation.

“We must address shortcomings in infrastructure, manufacturing, and then we need to invest more in strong human capital,” Widodo, known as Jokowi, 53, said in an interview at his rented house in central Jakarta. “When our economy grows more than 7 percent, I am very confident” it will strengthen Indonesia’s role in international forums, he said.

Southeast Asia’s largest economy can achieve such a pace of expansion in two years, according to the Jakarta Governor, who still faces a potential legal challenge from opponent Prabowo Subianto to secure his election victory. While Indonesia has lured record overseas investment in recent years, supply bottlenecks and limited public transportation have held back its potential.

“We must be realistic,” Jokowi said in the interview July 21 of his country’s economic challenges. The onetime head of a furniture business has pledged to curb fuel subsidies that have sapped funds needed for infrastructure, and to rein in corruption, in part by moving to an online tax system.

Asia’s fifth-biggest economy saw growth slow to 5.21 percent in the first quarter, the weakest pace since 2009, and hasn’t seen a pace of 7 percent or more on an annual basis since the years before the 1997-98 Asian financial crisis -- the turmoil of which helped bring down dictator Suharto.

No Security

Clad in an untucked white shirt with the sleeves rolled up in the living room of his house, a barefoot Jokowi embodied the down-to-earth image that resonated among millions of voters in the July 9 election. The interview was conducted over cups of tea, with the television on in the background and no uniformed security in sight.

Jokowi secured 53.15 percent of votes, according to the General Elections Commission, beating Prabowo, a 62-year-old former army commando who was once married to Suharto’s daughter and won 46.85 percent. The contest divided Indonesia between those looking for a more liberal democracy and those nostalgic for a leader who projects strength and decisiveness.

Prabowo yesterday pulled his witness team from the elections commission, calling the ballot undemocratic, after making repeated calls for a delay in the results announcement. He now has three days to contest the results in the constitutional court.

Looking ahead to his agenda after taking office in October, Jokowi cast a robust economy as key to projecting a revitalized Indonesia in the region.

Fragmented Parliament

“When our economy grows more than 7 percent I am very confident for Indonesia to play a role in the world, not only in the Asean Economic Community but also in international forums,” he said, referring to the Association of Southeast Asian Nations’ efforts toward economic integration.

Jokowi’s coalition has 37 percent of seats in parliament after elections in April. Some officials in parties in alliance with Prabowo, such as Golkar, have indicated they may switch to Jokowi, which would make it easier for him to pass laws even as a more diverse group could make it harder to get consensus on policy changes.

“He’s faced with a fragmented parliament and potentially a parliament that he might not have control of,” Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc., said of Jokowi. “Where he could make an impact is medium-term potential growth for Indonesia which would obviously take time to show up. But the reforms that are needed to get there have to be done now.”

Weakening Fundamentals

The rupiah rose to a two-month high and stocks advanced on Jokowi’s win. The currency rose 1 percent in the biggest advance since July 7 to 11,488 per dollar as of 9:49 a.m. in Jakarta, prices from local banks show. That’s the strongest level since May 20. The Jakarta Composite index of shares gained 1 percent.

“With the presidential elections behind us, investors are likely to focus on fundamentals, which are arguably weakening,” Morgan Stanley analysts Hozefa Topiwalla and Aarti Shah said in a note to clients dated yesterday. Jokowi’s victory “remains inconclusive regarding the direction and pace of actual implementation of reforms.”

Investment will grow at least 15 percent this year, a slower pace than last year’s 27 percent, according to estimates given in April by Mahendra Siregar, chairman of the Indonesia Investment Coordinating Board.

Electricity, Infrastructure

“When I ask the investors, they said they need improving the infrastructure,” said Jokowi, who earned his college degree in Indonesia and conducted the interview in English. “When they want to build the industry and there’s no electricity, there’s no power plant, there’s no good infrastructure of course they worry about that.”

Jokowi said as he transitions to power he will start discussions on a cabinet line up, and is open to current ministers joining. He will also seek further details on the budget position from the finance and trade ministries and the national planning ministry, “because I really want to know the real condition” of the economy.

“I’m willing to take the professional, the technocrat and only the best,” he said in the hour-long interview.

Jokowi would avoid raising fuel prices this year, Arif Budimanta, a member of his economic team, said in an interview in Jakarta on July 16. Speaking on July 21, Jokowi said dealing with the burden of state fuel subsidies will be a challenge.

‘Done Gradually’

“I’m confident but it must be done gradually,” he said. The government must “build the safety net to the people so the subsidies from the fuel we focus to the poor, to the infrastructure but for the poor, for the farmers, for the fishermen, for the workers.”

Subsidies that keep local fuel prices low have spurred energy imports, straining the trade balance and tying up funds that could be used to build roads, bridges and railways. The current administration has had to cut 2014 budget spending by ministries to fund rising subsidy costs.

“We would like to see a clear and concrete plan regarding the reduction of fuel subsidies,” said Ezra Nazula, head of fixed income at PT Manulife Aset Manajemen Indonesia in Jakarta, who oversees about 24 trillion rupiah ($2 billion) of assets. “The subsidy is a burden on our budget so any reduction would be good structurally for the economy, despite any short-term pain.”

Political Risk

Raising prices could create political risk -- demonstrations erupted across Indonesia in June last year as the current administration raised the price of subsidized fuel for the first time since 2008.

“We must have the political calculation and the economic calculation” on tackling fuel prices, Jokowi said. “The economic calculation we know, we must do that,” he said.

Jokowi has also pledged to tackle corruption to boost growth, by moving tax collection and government services online, including procurement. Graft remains widespread, with Indonesia ranking 114th among 177 countries and territories in a 2013 Transparency International corruption perceptions report.

The country’s anti-graft agency has gone after central bankers, ministers and chief executives, and says it is just scratching the surface of corruption.

“If we can build the new system it can save our money, our budget, after that I think we can cut the corruption 70 percent if we can build the new system,” Jokowi said. “Thirty percent is law enforcement.” That means adding staff to the graft-busting agency, he said.

For Jokowi, that means replicating the processes he put in place first as mayor of the Central Java city of Solo and then as Jakarta Governor beginning in 2012.

“My experience in Solo city is very important, my experience in Jakarta province is also very important to manage this country,” he said. “More or less similar -- this is small scale, this is on a medium scale, this is on a large scale. But with good management with a good team with good ministers, I’m sure.”

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