What next after the Indonesian elections?

  • Politics
  • 7 minute read
  • 13 May 2019

Presidential elections – immediate outcome and likely challenges

In line with the quick count results, there is no doubt that incumbent President Joko “Jokowi” Widodo (alongside his vice-presidential runner Ma’ruf Amin, a prominent cleric) is expected to easily secure his second term presidential victory against his sole rival, former general Prabowo Subianto (running with scion Sandiaga Uno), with 54-56% of the vote. At the time of writing on 10 May, the Jokowi-Ma'ruf pairing continues to lead comfortably at around 56.2% compared with Prabowo-Sandi at around 43.7%, with around 75% of the votes recapitulated by the KPU.

Regardless of Prabowo’s persistent refusal to concede defeat, we assess that Jokowi-Ma’ruf will ultimately secure the 2019 presidential elections and any attempt by Prabowo to challenge the outcome at the Constitutional Court will likely be futile – akin to his similar legal challenge to Jokowi's win in the 2014 presidential election. Since the quick count results released on 17 April, Prabowo’s team has adamantly rejected the results and announced victory four times within two days, claiming that the internal vote counting indicated a Prabowo victory with 62% of the vote; Prabowo’s team remains, however, unable to produce credible data to back this up. Instead, they have launched concerted efforts to undermine the KPU by claiming that it failed to address “structured, systematic and massive” fraud and have threatened to mobilise their supporters to hold “people power” protests – calls started by former National Mandate Party (PAN) and now key opposition leader Amien Aries. The main concern is that, if Prabowo’s campaign team were to be successful in its propaganda efforts to discredit the KPU and therefore undermine the latter’s election result, this would have an impact on domestic political stability and security.

Political and security implications

Nonetheless, we believe that political and security risks have been overplayed: such risks will be brief, contained (mainly to Jakarta, particularly KPU and election watchdog Bawaslu offices) and have limited impact on wider businesses. Previous widespread concerns over a repeat of big "212" rallies in 2016-17 by religious hardliners against Basuki Cahaya Purnama "Ahok" (former Jakarta governor accused of blaspheming Islam) and intense identity politics did not occur throughout the 2019 election period, though Jokowi's choice of Ma'ruf and the now-fragmented 212 movement reduced this risk. In particular, many political observers have not factored in the Islamic Ramadan season (5 May - 4 June) that has just started. The month-long fasting and the subsequent Idul Fitri festive period (a season to display forgiveness and compassion and closely adhered to by Indonesian Muslims) will reduce the risk of serious unrest.

In addition, the intensifying government efforts to clamp down on “treason-related” Prabowo protests – overseen by Co-ordinating Minister for Political, Legal and Security Affairs Wiranto and backed by influential security institutions such as the police and army (TNI) – will render any wider and destabilising protests highly unlikely, most evident in the dispersing of the first “people power” rally in Jakarta on 9 May held by pro-Prabowo PAN leader Eddi Sudjana and former army general Kivlan Zen. The transition in the coming months into Jokowi's second term is likely to be smooth.

Economic analysis and policy trajectory

Once the KPU confirms the result, Jokowi will waste no time in speeding up the reforms he pledged since 2014, which, thus far, have been slower than he had hoped for. As well as continuing his focus on infrastructure development, Jokowi will also embark on reforms of education, labour, healthcare and trade (focusing on boosting exports to resolve the prolonged current account deficit). Jokowi and his economic team are eager to improve GDP growth that has been stagnating at 5% (in contrast to Jokowi's 2014 pledge of 7% GDP growth), though this is also attributable to external factors amid the U.S.-China trade war and other global uncertainties.

To achieve greater economic growth, Jokowi will have to intensify efforts to attract foreign investment (and reduce over-reliance on state-owned enterprises, including in developing infrastructure) and create a strong economic team in his cabinet. Although there were some improvements in metrics tracking the ease of doing business under Jokowi’s first term, investors can now expect him to take a stronger stance in cutting red-tape hampering investments, streamlining bureaucracy and improving human resources and employment skills – all these reforms will be targeted at improving the pro-FDI climate.

Jokowi’s balancing act: parliamentary support vs cabinet appointment

To predict Jokowi’s decisions about the upcoming and much-anticipated cabinet, it is important to analyse the parliamentary composition from the latest legislative elections. About six to seven small political parties are unlikely to pass the 4% parliamentary threshold and will not be featured in the new House of Representatives (DPR). Nonetheless, the DPR composition is likely to largely remain the same and dominated by three main parties: pro-Jokowi PDI-P (19-21%), followed by a close fight between Prabowo’s Gerindra (11-14%) and New Order-era Golkar (11-13%), Surya Paloh’s Nasdem party (9-10%), the Democrat Party (PD) of former president Susilo Bambang Yudhoyono (8%), and the Nadhlatul Ulama-linked PKB party (6-7%).

Prabowo’s coalition is mainly made up by Gerindra and the Islamic PKS party. Meanwhile, Jokowi’s PDI-P-led coalition, backed by most of the nine parties that passed the threshold for parliamentary representation, will form a comfortably safe coalition in the 575-seat DPR. This essentially means that Jokowi’s reform policy is likely to have sufficient support in the parliament, including the controversial labor law revision to ease hiring and firing that would benefit businesses, but likely can only be done in exchange for political appointees from some of these parties. All the parties are waiting for the KPU's poll result confirmation on 22 May, after which horse-trading will officially start. It will be no surprise if Jokowi awards seats to Golkar, PD, Nasdem and PKB to secure support for his reforms.

With regards to timing, there is a good likelihood of two cabinet reshuffles in 2019: a minor reshuffle after Idul Fitri in June-July and more significant cabinet changes after Jokowi’s inauguration in October. The former will likely affect the religious, trade, industry and sports and youth ministerial posts, whose respective incumbents (Lukman Hakim Saifuddin, Enggartiasto Lukita, Airlangga Hartato and Imam Nahrawi) have been implicated in separate corruption scandals in recent weeks.

With several incumbents (such as cultural minister Puan Maharani and law minister Yasonna Laoly) likely to be elected into the DPR, the October reshuffle will be bigger and with greater business and economic implications. It will demonstrate Jokowi’s growing clout and test his willingness to choose technocrats over political appointees and to streamline his cabinet positions. We believe he will ultimately balance gathering parliamentary support and awarding parties in forming his cabinet; the most likely outcome will see him placing technocrats in his economic team to improve investor sentiment, while appeasing political patrons with more domestic-related ministerial posts (such as home affairs, legal, security, social, religious, human development and tourism). To this end, investors will be closely watching who he will appoint in his cabinet, particularly the economic portfolio which has featured credible faces such as Sri Mulyani, Darmin Nasution and Tom Lembong.

Summary

Jokowi will return with more power and can afford to be more independent in policy and cabinet decisions. Realistically, however, he will need to pick his battles and balance political interests in a way that will enable him to further his reform agenda in the next five years. Corruption will not be eliminated by 2024, but the country's economic and business outlook should benefit from his planned reforms in Jokowi’s second term. Indonesia is set to become the world's fourth-biggest economy by 2030, but the success of foreign businesses in Indonesia will continue to be affected by their ability to navigate and mitigate local political, regulatory, reputational, corruption and security risks.