a jokowi presidency politics, government and business under indonesia’s future president

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A Jokowi Presidency Politics, Government and Business Under Indonesia’s Future President July 24, 2014

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Joko “Jokowi” Widodo has emerged victorious in Indonesia’s closely fought presidential election. On July 22, the General Elections Commission (KPU) officially declared the Jokowi-Jusuf Kalla ticket the winner of the July 9 election, following a nearly two week process of tallying more than 130 million votes from across the archipelago. Jokowi will be sworn in as Indonesia’s seventh president – and the second president elected by full and direct democracy – no later than October 20.

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Page 1: A Jokowi Presidency Politics, Government and Business Under Indonesia’s Future President

A Jokowi Presidency Politics, Government and Business Under

Indonesia’s Future President

July 24, 2014

Page 2: A Jokowi Presidency Politics, Government and Business Under Indonesia’s Future President

A Jokowi Presidency

Indonesia…

…is the fourth largest

country in the world by

population.

…is the world’s largest

Muslim-majority

democracy.

…is the 10th largest

economy in the world

based on PPP.

…has a rapidly growing

middle and consumer

class, currently

numbering some 45

million.

Executive Summary

Joko “Jokowi” Widodo has emerged victorious in

Indonesia’s closely fought presidential election. On

July 22, the General Elections Commission (KPU)

officially declared the Jokowi-Jusuf Kalla ticket the

winner of the July 9 election, following a nearly two-

week process of tallying more than 130 million votes

from across the archipelago. Jokowi will be sworn in

as Indonesia’s seventh president – and the second

president elected by full and direct democracy – no

later than October 20.

Jokowi will take the helm of the world’s fourth largest

country at a time of unprecedented challenges. He

will lead a nation in which ethnic and religious

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 Indonesia’s lackluster economy, while

preparing the country for rising competition associated

with the imminent launch of the ASEAN Economic

Community. Profound reforms are needed in

education, infrastructure remains underdeveloped,

and he will need to make deeply unpopular cuts in fuel

subsidies. On the global stage, he will contend with a

rising China to the north, a continuing influx of asylum

seekers, and rising pressure to protect Indonesia’s

overseas workers.

Jokowi will need to lead the country through these

challenges in a country divided over his very

leadership. By Indonesian standards, his eight

million-vote win over rival candidate Prabowo

Subianto is a feeble victory. It has given him a fragile

mandate to lead, which may be further enfeebled by

Prabowo’s promised legal challenges and internal

politics within PDI-P. Thus, the question becomes

whether or not Jokowi has the political capital

necessary to make the tough decisions the country

needs.

In Indonesia, like in any democracy, successful

governance is determined by successful politics. The

end of the official campaign marks the beginning of an

intense period of political jockeying and behind-the-

scenes campaigning. Coalitions will be dissolved and

remade, parties will elect new leaders, political

appointments will be made, and the legislature will

make some important decisions of its own. Navigating

this period will require a strong balancing act from

Jokowi. His actions and choices will need to reaffirm

his image as a reformer, while simultaneously

garnering political support from the old guards that still

dominate Indonesia’s politics. The success or failure

of the Jokowi administration over the next five

years will be largely determined by the political

decisions made in the next three months.

Multinationals in Indonesia will need to watch this

political process carefully. Foreign investors have

reacted positively to the Jokowi win on the back of his

pledges to welcome foreign investment, cut red tape

and ease bureaucracy. Yet Jokowi’s ability to

implement these promised reforms will come down to

whether he can build strong political support that can

help him overcome his post-election weaknesses.

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Page 3: A Jokowi Presidency Politics, Government and Business Under Indonesia’s Future President

A Jokowi Presidency

Election Fast Facts

There were over 190 million

eligible voters

Total turnout was over 134

million, representing almost

70% of eligible voters

There were an estimated 67

million new voters,

representing 35% of the

population

Jokowi won with

79,997,833 votes

(compared with Prabowo’s

62,576,444 votes)

Jokowi won in 23 of 33

provinces, including

Jakarta, central and east

Java, Bali, Papua and most

of 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 barring

his own family members from bidding

on municipal projects

o Healthcare insurance program in Solo

and Jakarta

o City revitalization and infrastructure

projects

Personal style and approach:

o Populist, can-do, down-to-earth

o Media savvy

o Relies heavily on trusted advisors, often

outside official administration

o Patient politician – deals come after

several face-to-face meetings

A Fragile Mandate

Joko “Jokowi” Widodo officially won the July 9

Indonesian election with 53.15% of the popular vote.

This result – reflecting a differential of just over 8

million votes – represents the smallest margin of

victory in Indonesia’s history of direct presidential

elections.

It was a closely-fought campaign that in many ways

represented a nationwide referendum on Indonesia’s

future direction. Jokowi ran as the candidate of

change. His very candidacy represented a break from

the political dynasties that had dominated the

presidency since the founding of Indonesia. He

pledged to bring a new style of politics to the office of

the president; a style that is bottom-up, down-to-earth

and reflects a can-do spirit. He positioned himself as a

man of the people and the natural leader of

Indonesia’s younger generation.

His rival, Prabowo Subianto of the Gerindra Party,

presented the public with the option of returning to

old-style politics. He pledged to bring back a level of

decisiveness that many feel was lacking during the

10-year administration of outgoing President Susilo

Bambang Yudhoyono. Deeply populist and

nationalistic, Prabowo painted a compelling picture of

an 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 suggests

that this election did not produce a definitive answer

about Indonesia’s future. Jokowi will come to power in

October in a country where nearly half the voters are

skeptical of his leadership and his vision for Indonesia.

He simply does not have the popular support to enact

the sweeping changes that will substantiate his image

as a reformer. Without this mandate from the people,

Jokowi will need to turn to politics to build the support

he will need to be an effective leader.

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A Jokowi Presidency

Can Prabowo Still Win?

Prabowo has pledged to appeal the

KPU decision to the Constitutional

Court by Friday, July 29. The Court

has said it will listen to the case

beginning on August 4, before making

a decision by August 20.

The Court can make the following

rulings:

Reject to hear the appeal due

to lack of evidence, thereby

upholding the KPU results

Issue a recount in some areas

or nationwide

Call for a revote

Prabowo is unlikely to be successful

in his appeal, despite having a degree

of influence in the Court Although

Jokowi’s victory margin was the

smallest in Indonesia’s short history of

directly electing presidents, It is still

large enough to rule out a level of

fraud 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 political

support 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 his

presidency can be judged by whether he is able to:

Move the conversation beyond the election. Jokowi’s rival candidate Prabowo

Subianto theatrically withdrew from the election results just hours before the official

announcement, citing systematic unfairness by the KPU and other injustices. He has

pledged to appeal the results to the Constitutional Court, which will have one month

to issue a decision on the appeal. To ensure that his image is not tarnished by

protracted legal battles, Jokowi will need to deftly position himself as Indonesia’s

undisputed next leader without antagonizing diehard Prabowo supporters. He can do

this by continuing neutral remarks that support unity as well as acquiring supports

from the opposition’s side.

Negotiating within PDI-P. The Indonesia Democratic Party of Struggle (PDI-P) is

chaired by Megawati Sukarnoputri, former president of Indonesia (2001-2004) and

daughter of Indonesia’s founding father, Sukarno. A powerful politician, Megawati

has made it clear that she views the party as the paramount ruling institution, of

which 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 opening

himself to criticisms that he is a frail or “puppet” leader. Finding this balance will

require 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 are already signs that Prabowo’s election-run merah-putih (red-white)

coalition is beginning to unravel. Golkar, a party that has never served in the opposition, has already called

for 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 be

open to negotiations with the Jokowi coalition.

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Page 5: A Jokowi Presidency Politics, Government and Business Under Indonesia’s Future President

A Jokowi Presidency

Indonesia’s Social

Challenges

o Indonesia ranks 121 of 187 on

the Human Development

Index, which measures quality

of life, access to knowledge

and standard of living

o 11.4% of the population

continues to live below the

poverty line according to the

World Bank

o Indonesia’s Gini Coefficient (a

measure of inequality) rose

from 0.37 in 2012 to 0.41 in

2013

o Indonesia ranked 114 out of

175 (where 1 is least corrupt)

on the 2013 Corruption

Perception Index

How coalitions break apart and are reformed will be

important especially in so far as they affect the

dynamics in the House of Representatives (DPR).

As it stands, the PDI-P-led coalition trails the

Gerindra-led coalition by 146 seats. Securing a

legislative majority in the DPR will increase Jokowi’s

changes of seeing his reformist agenda enacted,

though opposition parties will always seek to impose

roadblocks. Securing a majority will also allow his

coalition to select the speaker of the house under a

recent change to House rules (Law on MD3). A

switch by Golkar alone could secure this majority.

Jokowi will need to cement the backing of these “swing” parties without being seen as buying political

support, which would damage his reputation as a reformer. To achieve this, he will need to emphasize a

common platform. A key litmus test will be if he is able to keep his pledge to appoint only capable

technocrats 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 a

strong 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, while

simultaneously garnering political support from the old guard that still dominates Indonesia’s politics. The success or

failure of the Jokowi’s administration over the next five years will be largely determined by the political decisions

made 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 the

first 100 days of the administration whether Jokowi has amassed sufficient political capital and whether he has the

necessary tenacity to take on Indonesia’s toughest challenges.

The challenges that Jokowi will confront are both numerous and acute. He is set to lead a nation in which ethnic and

religious 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 Indonesia’s lackluster economy, while preparing the

country for rising competition associated with the imminent launch of the ASEAN Economic Community. Profound

reforms are needed in education, infrastructure remains underdeveloped, and he will need to make deeply unpopular

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A Jokowi Presidency

The Five-Year Plan Another key task for the new

administration will be to finalize

Indonesia’s next National

Medium-Term Development

(RPJMN) for 2015-2019. While

the drafting has been going on

for several months, the new

administration will have the

opportunity to provide

significant input so that the final

plan reflects the policy priorities

of the new government. The

plan will be released early next

year and will form the basis of

ministerial five-year plans

(renstra) that will govern the

work of all the key government

agencies through Jokowi’s first

term.

cuts in fuel subsidies. On the global stage, he will contend with a rising China to the north, a continuing influx of

asylum seekers, and rising pressure to protect Indonesia’s overseas workers.

During this three-month window, Jokowi will need to skillfully divide his resources and political capital between

addressing basic issues and investing in broader, aspirational initiatives that could cement his popularity among the

electorate. 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 forecast

from 6 percent to 5.5 percent. With the World Bank predicting that Indonesia will need to grow by over 9

percent to avoid the “middle income trap,” Jokowi will make bolstering growth through both fiscal and

monetary tools his top priority.

o Improving infrastructure. A second issue, very much related to the first, is that infrastructure, a growth

driver, has been lagging behind the country’s overall economic growth. Bottlenecks, high transportation

expenses, and the cost of logistics have created economic inefficiencies and contributed to massive social

frustration. Adherence to the Master Plan for Acceleration and Expansion of Indonesia's Economic

Development (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-JK

administration 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 fuel

subsidy, which makes up a large proportion of the program, was actually increased by the outgoing

government. Jokowi-JK has promised to resolve the issue by replacing oil power with more gas, coal and

geothermal power. They stated they will remove up to 90 percent of diesel-fired power plants within three

years, 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 will

bolster his popularity. During the campaign, Jokowi promised two welfare programs for the people: a 'Kartu

Indonesia Pintar' (Indonesian Smart Card) for poor children to be able to attend school and a 'Kartu

Indonesia Sehat' (Indonesian Health Card) for poor people to get access to free health services. One or both

of 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 of

secondary issues. He will focus on ensuring Indonesia’s readiness for the launch of the ASEAN Economic

Community in December 2015. He will ramp up his diplomatic activities both within ASEAN and globally. He will have

a hand in renegotiating a series of major mining contracts. He will broaden social programs, and then, in the blink of

an eye, it will be time for Jokowi to prepare to run for his second term.

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A Jokowi Presidency

Protectionist Policies

New Trade Law. Enacted earlier this year, the new law gives greater power to the state over strategically important industries and a stronger role in protecting local industries. This came on the back of a ban on the export of unprocessed mineral ores at the beginning of the year.

Amendment to the Negative Investment List. The amendment, passed by a presidential decree, limited FDI in a variety of important industries, though some sectors were further opened to investment.

A Case for Measured Optimism from MNCs Foreign investors and multinationals (MNCs) operating

in Indonesia overwhelmingly supported Jokowi in the

2014 election. Jokowi is indeed a major proponent of

continuing to expand foreign direct investment (FDI) into

Indonesia, believing that it can make a positive

contribution to delivering a sustainable and strong

economy.

However, foreign companies operating in Indonesia

should not assume that a Jokowi administration will

enact policies that will dramatically open Indonesia’s

economy to foreign business. Several factors make this

unlikely:

Regulatory realities. 2014 saw the DPR enact

several pieces of legislation (left) that impose

greater restrictions on foreign activities. As this legislation has already become the law of the land, the new

administration 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 Indonesia’s

economic sovereignty is in danger of being unduly influenced by external actors. Jokowi himself has gone on

record saying that foreign companies wanting to come to the ASEAN region should have to work harder to

demonstrate a clear contribution to the region’s economic and social development. Therefore, in addition to

existing regulatory realities, statements by both the future president and future ruling party suggest that

dramatic shifts in the scope of allowed FDI should not be expected. Jokowi’s statement in particular suggests

that Indonesia may in fact enact policies that require greater value-add from foreign investors going forward.

A Cause for Optimism

While the openness of the Indonesian market to foreign investment is unlikely to increase, a Jokowi administration is

likely 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 expect

there to be measurable progress in the ease of doing business under a Jokowi presidency.

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A Jokowi Presidency

Recommendations for Multinationals

1. Watch the politics closely. Given the make-or-break importance of the transition period in determining the political strength of the Jokowi administration, multinationals with a business interest in the country will need to closely track developments over the next three months. In particular, Jokowi’s ability to form a coalition that gives him a majority in the DPR will signal whether his pro-business reforms will succeed in passing. The outcomes of this interim period will 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 him

apart from the hierarchical, staid style of most politicians. He is seen as approachable by the business community. He often chooses to forgo bureaucratic formalities in order to solve problems, and decisions are often made following iterative trust-building sessions. While Jokowi’s style will need to change somewhat to accommodate the demands of a national mandate, MNC executives will nevertheless need to anticipate a new style of government relations that is more personal and puts greater emphasis on trust.

3. Consider how your business contributes to Indonesia’s development. The days of open

FDI are coming to an end. Jokowi has already said that new FDI into Indonesia will need to demonstrate its contribution to the development of society, which is reinforced by various legislation passed in 2014. MNCs hoping to enter or expand their business in Indonesia need to develop 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 government

relations strategy should start now. The first step is to develop a stakeholder map that identifies the individuals – both public-facing and behind-the-scenes – that will influence your business in the next term. The map should be a living document that is updated as more information is announced. Appendix 1 identifies just a few of the top influencers that APCO’s Jakarta team believes should be on every business’s radar at this stage.

5. Look for authentic door openers. The next six months offer numerous opportunities for

multinationals to approach the government to begin build relationships with the next administration. 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 Millennium Development Goals in 2015;

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

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A Jokowi Presidency

Appendix 1: Some of Jokowi’s Top Influencers

Just some of the individuals that should be included in early versions of stakeholder maps are listed below. Going forward, there will be a range of influencers around Jokowi – both in public and behind-the-scenes roles – that MNCs will n eed to track carefully in order to maximize the effectiveness of their government relations efforts.

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A Jokowi Presidency

About APCO Worldwide in Indonesia

APCO Worldwide opened its office in Jakarta in 2000, at a time of political transition and intense uncertainty, when Indonesia’s people were enthusiastically embracing democracy after many years of authoritarian rule. APCO assists clients in understanding and responding to new paradigms for business in a complex, fast changing and sometimes turbulent environment. APCO is today an established part of Jakarta’s business infrastructure. We offer a range of services within the framework of strategic communication, 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

APCO’s strategic approach is based on tailored research and insightful analysis. Our knowledgeable and experienced 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 to governments and nongovernmental organizations (NGOs). We also work with our colleagues in APCO’s offices globally to meet the needs of our international clients.

For questions or comments on this analysis, or to learn more about APCO’s services in Indonesia, please contact us:

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

Madeleine Hardjono

senior director, Jakarta

+62 811850911

[email protected]

Jennifer Hart

deputy managing director, Jakarta

+62 8119885455

[email protected]

Quint Simon

consultant, Jakarta

(m) +62 821 90790460

[email protected]

Muhamad Heikal (Heikal)

consultant, Jakarta

(m) +62.8111991011

[email protected]

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