Unleashing
Joko Widodo was sworn in this week as the new President of Indonesia, the world's fourth most-populous country, third-largest (and newest) democracy, and largest Muslim-majority democracy.
Jokowi (as he is universally known) engineered a remarkable rise to power. As a furniture dealer, then mayor of his hometown, then governor of Jakarta, he established, early-on in this national election process, a strategy of showing up at ordinary households in ordinary communities - a classic grassroots campaign - thus sparking hope and even excitement in this island-nation of some 250 million. The approach was in marked contrast to the normal process wherein a comfortable, old-guard Jakarta elite effectively fixed, sometimes ruthlessly, the outcome; election officials remarked on the passion with which people arrived at voting stations. So accustomed to government incompetency and corruption, Indonesians broadly rejected Mr. Widodo's rival, Prabowo Subianto, a former general under, and son-in-law of, the late dictator Suharto (and perennial candidate for President), to usher in a regime that, they believe, may just have some inclination - and chance - to help them.
The path to Mr. Widodo's victory was hardly smooth. An election race marked by controversy, and voting in July, were followed by weeks of at-times violent protest. Mr. Subianto refused to concede defeat. It wasn't until just this week that a nine-member court, acknowledging some voting irregularities, issued a ruling that a re-voting would not overturn the results.
So President Widodo has just now begun governing, with a new Cabinet to be announced tomorrow. In an economic environment where commodity prices have weakened and growth in the country's trading partners has either slowed substantially, as in China, or remains stagnant, as in Japan, Indonesia's economy is still expanding, but much more slowly, growing at 5.2% in the first half of this year, the slowest since 2009. Inflation, accelerating dangerously in 2013, has eased back to the 5-6% range in recent months as monetary policy has been tightened. Such tightening also appears to have halted the slide in the rupiah, which nonetheless remains near its lowest level against the US dollar in five years. A larger trade surplus emerged in the first half of this year, as imports dropped more steeply than exports, but after accounting for income and trade in services the current account balance is in deficit by a little over 3% of GDP.
Unlike many other emerging countries with large current account deficits, Indonesia has continued to comfortably finance its external deficit, attracting large inflows of foreign direct and portfolio investment (to an extent that its holdings of international reserves have risen over the past year, and are now close to an all-time high). Many of the world's leading multinational corporations are present in Jakarta, focused on development of the country's vast coal, oil, copper and other raw materials. For example, Unilever Indonesia, the local arm of Anglo-Dutch consumer goods giant Unilever, is investing some $170 million in a palm-oil processing plant in North Sumatra, and, significantly, is undertaking the investment as one part of its overall ambitious corporate strategy of sustainably sourcing 100 percent of its agricultural raw materials by 2020, including palm oil, soy, sugar, tea, fruit and vegetables, sunflower oil, rapeseed oil, dairy and cocoa.
President Widodo's challenges are nonetheless many. Political parties sympathetic to Mr. Subianto control the legislature. And regarding economic policy, he will need to further reduce domestic fuel subsidies (that consume a fifth of the budget) in 2015, re-directing revenues to education and health. Perhaps most importantly, he must begin the long but urgent process of fixing the country's awful infrastructure (particularly its ports). In this latter regard, he would be wise, with his fresh political mandate, to harness the financial resources and expertise of Jakarta's multinationals - if ever there were fertile ground for private/public partnerships to unleash a country's economic potential, it is now, in post-election Indonesia.