Event

As from October, the world’s third-largest democracy will be run by a new president for the next five years. After his PDI-P party won the legislative election last April, party candidate Mr Joko Widodo was declared the winner by the election commission. With 53% of the votes in the presidential race, he ended ahead of Mr Subianto. The former general has rejected the result for electoral fraud accusation and appealed to the Constitutional Court. However, this is not expected to change the final verdict as Widodo’s margin is large enough.

Impact on country risk

Unlike Subianto, Joko Widodo, 53, embodies the generation and political change as he is of low birth and does not belong to the political system and elite. His anti-corruption reputation free of vested interests makes him very popular and charismatic. However, his inexperience at the highest level, in spite of having just been governor of capital Jakarta for less than two years, and complexity of a huge and decentralised country will make his presidency challenging. Although he was the favourite candidate for the population and investors, which was translated into a rising rupiah over the past weeks, Indonesia’s growth is close to 5%, i.e. a five-year low, and previously strong and supportive commodity prices have moderated.
Expectations of raising growth, but also cutting fuel subsidies – ‘Joko’ announced to do it gradually and use saved money to transfers to the poor – and investing in infrastructure, are thus high. Nevertheless, his economic policy will be seriously hindered by the absence of a majority in parliament – his coalition has only 37% of seats, far less than his predecessor Yudhoyono – and by a lack of support within his own party and resistance from vested interests. Therefore, his reformist stance will be constrained by the need to find difficult compromises to pass legislation, thereby hitting hopes of cracking down corruption and improving a more nationalist investment climate.

Analyst: Raphaël Cecchi, r.cecchi@credendogroup.com