a jokowi presidency in indonesia

8/12/2019 A Jokowi Presidency in Indonesia

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A Jokowi Presidency P o l i ti c s , G o v er n m e n t a n d B u s i n e s s U n d e rIndonesias Future Pres iden t

July 24, 2014


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Indonesia is the fourth largestcountry in the world bypopulation.is the worlds largestMuslim-majoritydemocracy.

is the 10th

largesteconomy in the worldbased on PPP.has a rapidly growingmiddle and consumerclass, currentlynumbering some 45million.

Executive SummaryJoko Jokowi Widodo has emerged victorious inIndonesias closely fought presidential election. OnJuly 22, the General Elections Commission (KPU)officially declared the Jokowi-Jusuf Kalla ticket thewinner of the July 9 election, following a nearly two-week process of tallying more than 130 million votesfrom across the archipelago. Jokowi will be sworn inas Indonesias seventh president and the secondpresident elected by full and direct democracy nolater than October 20.

Jokowi will take the helm of the worlds fou rth largestcountry at a time of unprecedented challenges . Hewill lead a nation in which ethnic and religious

tensions are intensifying, the gap between rich andpoor is expanding, and trust in government sits at anall-time low due to corruption. He will need to breathenew life into Indonesias lackluster economy, whilepreparing the country for rising competition associatedwith the imminent launch of the ASEAN EconomicCommunity. Profound reforms are needed ineducation, infrastructure remains underdeveloped,and he will need to make deeply unpopular cuts in fuelsubsidies. On the global stage, he will contend with arising China to the north, a continuing influx of asylumseekers, and rising pressure to protect Indonesiasoverseas workers.

Jokowi will need to lead the country through thesechallenges in a country divided over his veryleadership. By Indonesian standards, his eightmillion-vote win over rival candidate PrabowoSubianto is a feeble victory. It has given him a fragilemandate to lead, which may be further enfeebled byPrabowos promised legal challenges and internal

politics within PDI-P. Thus, the question becomeswhether or not Jokowi has the political capitalnecessary to make the tough decisions the countryneeds.

In Indonesia, like in any democracy, successful

governance is determined by successful politics. Theend of the official campaign marks the beginning of anintense period of political jockeying and behind-the-scenes campaigning. Coalitions will be dissolved andremade, parties will elect new leaders, politicalappointments will be made, and the legislature willmake some important decisions of its own. Navigatingthis period will require a strong balancing act fromJokowi. His actions and choices will need to reaffirmhis image as a reformer, while simultaneouslygarnering political support from the old guards that stilldominate Indonesias politics. The success or failureof the Jokowi administration over the next fiveyears will be largely determined by the politicaldecisions made in the next three months.

Multinationals in Indonesia will need to watch thispolitical process carefully . Foreign investors havereacted positively to the Jokowi win on the back of hispledges to welcome foreign investment, cut red tapeand ease bureaucracy. Yet Jokowis ability to

implement these promised reforms will come down towhether he can build strong political support that canhelp him overcome his post-election weaknesses.

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Election Fast Facts

There were over 190 millioneligible voters

Total turnout was over 134million, representing almost70% of eligible voters

There were an estimated 67million new voters,representing 35% of thepopulation

Jokowi won with79,997,833 votes(compared with Prabowos62,576,444 votes)

Jokowi won in 23 of 33provinces, includingJakarta, central and eastJava, Bali, Papua and mostof Kalimantan and Sulawesi

.

Joko Widodo Born: June 21, 1961 in

Surakarta (Solo), central Java Age: 53 Religion: Islam Socioeconomic background: working class Education: engineering degree from Gadjah

Mada University (1985) Family: Married to Iriana, has three daughters Current political party: Indonesian Democratic

Party of Struggle (PDI-P) Pre-political career: furniture store owner Political career: mayor of Solo (2005-2012),

major of Jakarta (2012-2014) Notable achievements:

o Anti-corruption initiatives, like barringhis own family members from biddingon municipal projects

o Healthcare insurance program in Soloand Jakarta

o City revitalization and infrastructureprojects

Personal style and approach:o Populist, can-do, down-to-eartho Media savvyo Relies heavily on trusted advisors, often

outside official administrationo Patient politician deals come after

several face-to-face meetings

A Fragile MandateJoko Jokowi Widodo officially won the July 9Indonesian election with 53.15% of the popular vote.This result reflecting a differential of just over 8

million votes represents the smallest margin ofvictory in Indonesias history of direct presidentialelections.

It was a closely-fought campaign that in many waysrepresented a nationwide referendum on Indonesiasfuture direction. Jokowi ran as the candidate ofchange. His very candidacy represented a break fromthe political dynasties that had dominated thepresidency since the founding of Indonesia. Hepledged to bring a new style of politics to the office ofthe president; a style that is bottom-up, down-to-earthand reflects a can-do spirit. He positioned himself as aman of the people and the natural leader ofIndonesias younger generation.

His rival, Prabowo Subianto of the Gerindra Party,presented the public with the option of returning toold-style politics. He pledged to bring back a level ofdecisiveness that many feel was lacking during the10-year administration of outgoing President Susilo

Bambang Yudhoyono. Deeply populist andnationalistic, Prabowo painted a compelling picture ofan Indonesia for Indonesians. In words and in action,he was a bastion of old-style politics.

The fact that the final results were so close suggeststhat this election did not produce a definitive answerabout Indonesias future. Jokowi will come to power inOctober in a country where nearly half the voters areskeptical of his leadership and his vision for Indonesia.

He simply does not have the popular support to enactthe sweeping changes that will substantiate his imageas a reformer. Without this mandate from the people,Jokowi will need to turn to politics to build the supporthe will need to be an effective leader.

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Can Prabowo Still Win?

Prabowo has pledged to appeal theKPU decision to the ConstitutionalCourt by Friday, July 29. The Courthas said it will listen to the case

beginning on August 4, before makinga decision by August 20.

The Court can make the followingrulings:

Reject to hear the appeal dueto lack of evidence, therebyupholding the KPU results

Issue a recount in some areasor nationwide

Call for a revote

Prabowo is unlikely to be successfulin his appeal, despite having a degreeof influence in the Court AlthoughJoko wis victory margin was thesmallest in Indonesias short history ofdirectly electing presidents, It is stilllarge enough to rule out a level offraud that would alter the outcome of

the election.

A Difficult Balancing Act While the official campaign season has ended, the politics associated with this election are far from over.The fact that Jokowi was unable to secure decisive popular support means he will need to build strong politicalsupport to ensure he is able to govern effectively. Between now and his October inauguration, Jokowi will need to

take steps to solidify his political backing and lay the foundations for an effective administration. The success of hispresidency can be judged by whether he is able to:

Move the conversation beyond the election . Jokowis rival candidate PrabowoSubianto theatrically withdrew from the election results just hours before the officialannouncement, citing systematic unfairness by the KPU and other injustices. He haspledged to appeal the results to the Constitutional Court, which will have one monthto issue a decision on the appeal. To ensure that his image is not tarnished byprotracted legal battles, Jokowi will need to deftly position himself as Indonesiasundisputed next leader without antagonizing diehard Prabowo supporters. He can dothis by continuing neutral remarks that support unity as well as acquiring supportsfrom the oppositions side.

Negotiating within PDI-P. The Indonesia Democratic Party of Struggle (PDI-P) ischaired by Megawati Sukarnoputri, former president of Indonesia (2001-2004) anddaughter of Indonesias founding father, Sukarno. A powerful politician, Megawatihas made it clear that she views the party as the paramount ruling institution, ofwhich Jokowi is a key member. So long as Megawati remains at the head of PDI-P,Jokowi will need to ensure that he retains strong support from her without openinghimself to criticisms that he is a frail or puppet leader. Finding this balance willrequire him to make some concessions within the PDI-P while also standing his

ground on key appointments and with regards to his policy agenda.

Build a strong coalition. There ar e already signs that Prabowos election-run merah-putih (red-white) coalition is beginning to unravel. Golkar, a party that has never served in the opposition, has already calledfor an extraordinary [party] congress that may see it elect a new leader who favors joining the Jokowi coalition. Meanwhile, an official from the outgoing ruling party signaled that his Democratic Party may beopen to negotiations with the Jokowi coalition.

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Indonesias SocialChallenges

o Indonesia ranks 121 of 187 onthe Human DevelopmentIndex, which measures qualityof life, access to knowledgeand standard of living

o 11.4% of the populationcontinues to live below thepoverty line according to the

World Banko Indonesia s Gini Coefficient (a

measure of inequality) rosefrom 0.37 in 2012 to 0.41 in2013

o Indonesia ranked 114 out of175 (where 1 is least corrupt)on the 2013 CorruptionPerception Index

How coalitions break apart and are reformed will beimportant especially in so far as they affect thedynamics in the House of Representatives (DPR).

As it stands, the PDI-P-led coalition trails theGerindra-led coalition by 146 seats. Securing alegislative majority in the DPR will increase Jokowis

changes of seeing his reformist agenda enacted,though opposition parties will always seek to imposeroadblocks. Securing a majority will also allow hiscoalition to select the speaker of the house under arecent change to House rules (Law on MD3). Aswitch by Golkar alone could secure this majority.

Jokowi will need to cement the backing of th ese swing parties without being seen as buying politicalsupport, which would damage his reputation as a reformer. To achieve this, he will need to emphasize acommon platform. A key litmus test will be if he is able to keep his pledge to appoint only capabletechnocrats to his cabinet, at least for the key ministries.

Navigating the political minefield of the next three months until the inauguration of the new president will require astrong balancing act from Jokowi on multiple fronts: between himself and the Prabowo camp, within his own party,and among his coalition partners. His actions and choices will need to reaffirm his image as a reformer, whilesimultaneously garnering political support from the old guard that still dominates Indonesi as politics. The success orfailure of the Jokowis administration over the next five years will be largely determined by the political decisionsmade in the next three months.

A Jokowi Administration: The First 100 Days Jokowi and Jusuf Kalla will be inaugurated president and vice-president on October 20. It will be evident within thefirst 100 days of the administration whether Jokowi has amassed sufficient political capital and whether he has thenecessary tenacity to take on Indonesias toughest challenges.

The challenges that Jokowi will confront are both numerous and acute. He is set to lead a nation in which ethnic andreligious tensions are intensifying, the gap between rich and poor is expanding, and trust in government sits at an all-time low due to corruption. He will need to breathe new life into Indonesias lackluster economy, whi le preparing thecountry for rising competition associated with the imminent launch of the ASEAN Economic Community. Profoundreforms are needed in education, infrastructure remains underdeveloped, and he will need to make deeply unpopular

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The Five-Year Plan Another key task for the newadministration will be to finalizeIndonesias next NationalMedium-Term Development(RPJMN) for 2015-2019 . Whilethe drafting has been going onfor several months, the newadministration will have theopportunity to providesignificant input so that the finalplan reflects the policy prioritiesof the new government. The

plan will be released early nextyear and will form the basis ofministerial five-year plans(renstra) that will govern thework of all the key governmentagencies through Jokowis firstterm.

cuts in fuel subsidies. On the global stage, he will contend with a rising China to the north, a continuing influx ofasylum seekers, and rising pressure to protect Indonesias overseas workers .

During this three-month window, Jokowi will need to skillfully divide his resources and political capital betweenaddressing basic issues and investing in broader, aspirational initiatives that could cement his popularity among theelectorate. The priorities of the Jokowi-JK administration during the first 100 days will likely be:

o Bolstering economic growth. The previous government has already reduced the 2014 growth forecastfrom 6 percent to 5.5 percent. With the World Bank predicting that Indonesia will need to grow by over 9percent to avoid the middle income trap, Jokowi will make bolstering growth thr ough both fiscal andmonetary tools his top priority.

o Improving infrastructure. A second issue, very much related to the first, is that infrastructure, a growthdriver , has been lagging behind the countrys overall economic growth. Bottlenecks, high tran sportationexpenses, and the cost of logistics have created economic inefficiencies and contributed to massive socialfrustration. Adherence to the Master Plan for Acceleration and Expansion of Indonesia's EconomicDevelopment (MP3EI), which was compiled in 2011 as well as the Master Plan on ASEAN Connectivity,means focusing on acceleration of economic development through infrastructure investment. The Jokowi-JKadministration will make getting Indonesia back on track with its infrastructure goals a top priority.

o Cutting subsidies. A pressing issue that is weighing down the government is the existence of subsidies,which is nearly 400 trillion IDR, or one third of the 2014 national budget. The enormously popular fuelsubsidy, which makes up a large proportion of the program, was actually increased by the outgoinggovernment. Jokowi-JK has promised to resolve the issue by replacing oil power with more gas, coal andgeothermal power. They stated they will remove up to 90 percent of diesel-fired power plants within threeyears, which would save seven billion USD in energy costs annually.

o Addressing social issues with signature initiatives . In addition to addressing these immediate problems,Jokowi will likely see the first three months as an opportunity to push through signature initiatives that willbolster his popularity. During the campaign, Jokowi promised two welfare programs for the people: a 'KartuIndonesia Pintar' (Indonesian Smart Card) for poor children to be able to attend school and a 'KartuIndonesia Sehat' (Indonesian Health Card) for poor people to get access to free health services. One or bothof these programs will likely be rolled out within the first 100 days.

At the conclusion of this period, roughly at the start of the new year, Jokowi will turn his attention to a myriad ofsecondary issues. He will focus on ensuring Indonesias readiness for the launch of the ASEAN EconomicCommunity in December 2015. He will ramp up his diplomatic activities both within ASEAN and globally. He will havea hand in renegotiating a series of major mining contracts. He will broaden social programs, and then, in the blink ofan eye, it will be time for Jokowi to prepare to run for his second term.

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Protectionist Policies

New Trade Law. Enactedearlier this year, the new lawgives greater power to thestate over strategicallyimportant industries and astronger role in protecting localindustries. This came on theback of a ban on the export ofunprocessed mineral ores atthe beginning of the year.

Amendment to theNegative Investment List . The amendment, passed by apresidential decree, limited FDIin a variety of importantindustries, though somesectors were further opened toinvestment.

A Case for Measured Optimism from MNCsForeign investors and multinationals (MNCs) operatingin Indonesia overwhelmingly supported Jokowi in the2014 election. Jokowi is indeed a major proponent ofcontinuing to expand foreign direct investment (FDI) into

Indonesia, believing that it can make a positivecontribution to delivering a sustainable and strongeconomy.

However, foreign companies operating in Indonesiashould not assume that a Jokowi administration willenact policies that will dramatically open Indonesiaseconomy to foreign business. Several factors make thisunlikely:

Regulatory realities. 2014 saw the DPR enactseveral pieces of legislation (left) that imposegreater restrictions on foreign activities. As this legislation has already become the law of the land, the newadministration will need to propose policies that generally agree with these regulations.

Campaign rhetoric. The PDI-P was quite vocal at the beginning of 2014 in asserting that Indonesiaseconomic sovereignty is in danger of being unduly influenced by external actors. Jokowi himself has gone onrecord saying that foreign companies wanting to come to the ASEAN region should have to work harder todemonstrate a clear contrib ution to the regions economic and social development. Therefore, in addition toexisting regulatory realities, statements by both the future president and future ruling party suggest thatdramatic shifts in the scope of allowed FDI should not be expected. Jokowis statement in particular suggeststhat Indonesia may in fact enact policies that require greater value-add from foreign investors going forward.

A Cause for OptimismWhile the openness of the Indonesian market to foreign investment is unlikely to increase, a Jokowi administration islikely to benefit foreign MNCs in another important way. During his campaign, Jokowi pledged to :

Tackle corruption from the bottom-up; Ensure unfair and illegal trade practices do not hinder the business environment further; Streamline bureaucratic structures that have made doing business cumbersome and difficult; Cut bureaucratic red-tape.

If Jokowi is able to secure a majority in the DPR, as well as sufficient political support, foreign companies can expectthere to be measurable progress in the ease of doing business under a Jokowi presidency.

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Recommendations for Multinationals

1. Watch the politics closely. Given the make-or-break importance of the transition period indetermining the political strength of the Jokowi administration, multinationals with a businessinterest in the country will need to closely track developments over the next three months. In

particular, Jokowis ability to form a coalition that gives him a majority in the DPR will signalwhether his pro-business reforms will succeed in passing. The outcomes of this interim periodwill be especially key for MNCs considering major new investments into the country.

2. Prepare for a new style of governance. Jokowi is known for a way of governing that sets himapart from the hierarchical, staid style of most politicians. He is seen as approachable by thebusiness community. He often chooses to forgo bureaucratic formalities in order to solveproblems, and decisions are often made following iterative trust-building sessions. WhileJokowis style will need to change somewhat to accommodate the demands of a nationalmandate, MNC executives will nevertheless need to anticipate a new style of governmentrelations that is more personal and puts greater emphasis on trust.

3. Consider how your business contributes to Indonesia s development . The days of openFDI are coming to an end. Jokowi has already said that new FDI into Indonesia will need todemonstrate its contribution to the development of society, which is reinforced by variouslegislation passed in 2014. MNCs hoping to enter or expand their business in Indonesia need todevelop strong narratives that demonstrate a clear and authentic value proposition to Indonesia.

4. Start forming relationships with the key people. The task of preparing a new governmentrelations strategy should start now. The first step is to develop a stakeholder map that identifiesthe individuals both public-facing and behind-the-scenes that will influence your business inthe next term. The map should be a living document that is updated as more information isannounced. Appendix 1 identifies just a few of the top influencers that APCO s Jakarta team believes should be on every businesss radar at th is stage.

5. Look for authentic door openers. The next six months offer numerous opportunities formultinationals to approach the government to begin build relationships with the nextadministration. Opportunities include:

1. Suggesting language for the next national five-year plan based on global best practices;2. Providing practical ideas for how the government can meet the proposed targets under

the new Sustainable Development Goals, which will replace the MillenniumDevelopment Goals in 2015;

3. Offering concrete proposals for public-private partnerships that can address a need inIndonesia.

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Appendix 1: Some of Jokowis Top InfluencersJust some of the individuals that should be included in early versions of stakeholder maps are listed below. Goingforward, there will be a range of influencers around Jokowi both in public and behind-the-scenes roles thatMNCs will n eed to track carefully in order to maximize the effectiveness of their government relations efforts.

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About APCO Worldwide in Indonesia APCO Worldwide opened its office in Jakarta in 2000, at a time of political transition and intenseuncertainty, when Indonesias people were enthusiastically embracing democracy after many years ofauthoritarian rule. APCO assists clients in understanding and responding to new paradigms for businessin a complex, fast changing and sometimes turbulent environment. APCO is today an established part ofJakartas business infrastructure. We offer a range of services within the framework of strategiccommunication, public affairs and corporate advisory services. Our services include:

government relations crisis management regulatory and fiscal reform corporate responsibility coalition building market entry litigation communication

media relations and monitoring APCOs strategic approach is based on tailored research and insightful analysis. Our knowledgeable andexperienced professionals in Jakarta have strong sector experience particularly in energy, mining,pharmaceuticals, food and beverage, banking and financial services, as well as in providing services togovernments and nongovernmental organizations (NGOs). We also work with our colleagues in APCOsoffices globally to meet the needs of our international clients.

For questions or comments on this analysis, or to learn more about APCOs services in Indonesia, pleasecontact us:

APCO Worldwide, AXA Tower, 45th Floor Kuningan City, Jl. Prof. Dr. Satrio Kav. 18, Jakarta 12940 www.apcoworldwide.com

Madeleine Hardjonosenior director, Jakarta+62 [email protected]

Jennifer Hartdeputy managing director, Jakarta+62 8119885455

[email protected]

Quint Simonconsultant, Jakarta(m) +62 821 [email protected]

Muhamad Heikal (Heikal) consultant, Jakarta(m) +62.8111991011

[email protected]

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a jokowi presidency in indonesia

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