As the world awaits a definitive decision on the election of Indonesia’s president, the man who takes office in October is expected to have a very short honeymoon. The economy is slowing, inequality is rising at an alarming rate, and investment has stalled in Southeast Asia’s largest economy.
Joko “Jokowi” Widodo was proclaimed the winner of the months-long election process last Tuesday, but the euphoria in his camp was short-lived as opponent Prabowo Subianto made a surprise announcement that he would challenge the outcome in the courts. A ruling could take up to a month.
Whoever takes the top job will face challenges ahead, especially from the rise in inequality, as underlined in the recent Indonesia Economic Quarterly report by the World Bank.
The high rates of poverty reduction in the past decade, the report said, are beginning to slow and the gap between rich and poor has been growing.
In 2002, the top 10% of Indonesian households consumed 6.6 times more than the poorest 10%, but by 2013, the affluent were spending 10 times more than the poor. Despite rapid economic advances in the past decade, many workers still are no further ahead in terms of income and this poses a threat that could push their families back into poverty.
“[The rising inequality] may actually be higher than what the numbers are showing,” said Ndiame Diop, a World Bank lead economist, in a presentation on the report at Jakarta’s Paramadina Graduate School.
“Indonesia is seeing rapidly increasing inequality, which could slow down economic growth. Pro-poor policies such as improving rural infrastructure, expanding access to quality education and labour market mobility, would boost the earnings of the poor and vulnerable families and help combat inequality.”
Indonesia’s Gini coefficient has climbed from 31% in 2001 to 41% in 2012 and is growing at a faster pace than in most neighbouring Southeast Asian countries (though Thailand’s reading is even higher at 40.9). The Gini coefficient, with zero representing perfect equality, is the most common measure of inequality.
In an emerging economy that has been growing rapidly, albeit with questions about how sustainable the growth will be, 28 million out of Indonesia’s 240 million people continue to live below poverty line. An average poor family of four lives on 1.08 million rupiah ($94 or 2,970 baht) per month and spends about 5% of it on health and education. This leaves children uneducated and in poor health. Even so, efforts at poverty reduction have been slowing.
The report also says that Indonesia’s economic growth in 2014 is projected to be 5.2%, slightly lower than the 5.3% rate forecast earlier in the year.
Diop acknowledged that a slowdown in investment and economic growth is common when there are elections, as businesspeople tend to wait on the sidelines before committing to new ventures.
Those investors and businesspeople may be sitting on the sidelines a little longer, at least until the Constitutional Court rules on Mr Prabowo’s challenge. A decision is expected no later than Aug 21.
The official results released on July 22 showed the Widodo-Kalla ticket winning 70,633,576 votes or 53.15% of the total, while the Prabowo-Hatta team had 62,262,844 votes or 46.85%.
The gap appears to be insurmountable, and many observers say the court challenge is nothing more than face-saving, but Mr Prabowo is claiming there was massive fraud and widespread irregularities in the electoral process. He underscored his point by withdrawing his team from the vote-counting process as it was drawing to a close. Even so
“We will not relinquish our push for transparency until the government investigates this evidence. We will work within the legal system and the rule of law and expect the authorities to abide by the same principles,” Prabowo’s brother and business tycoon Hashim Djojohadikusumo said in a statement.
Margarito Kamis, a state administrative law expert from Khairun University in Ternate, North Maluku, said that Prabowo’s camp would have legal standing to challenge the result.
“I can’t predict whether they will win or lose, since I am not privy to the data and evidence that they have. But the court’s possible ruling could order a revote or postpone the Election Committee’s official result,” he told Asia Focus.
“If Prabowo’s camp could present valid, legal evidence and qualified witnesses, it could significantly change the result and have an increase in votes.”
But whoever becomes president will have to hit the ground running and make hard choices about urgently needed policy reforms, while also promoting new investment. More importantly, he must follow through with implementation to increase the level of sustainable growth, reverse the deceleration of the poverty reduction arte and ensure the broader sharing of prosperity among all Indonesians, the World Bank report says.
“Indonesia is starting a new chapter in its history and faces hard policy choices ahead. In the near term, it is critical to address rising fiscal pressures and keep the current account deficit sustainable,” said Rodrigo Chaves, the World Bank country director for Indonesia.
To achieve longer-term goals such as lifting growth above 6% and reducing inequality, deeper structural reforms such as unwinding costly fuel subsidies, along with and more infrastructure investments, will be crucial.
Indonesia has some of the lowest fuel prices in the world, with about 13% of its annual budget spent on subsidies. Outgoing president Susilo Bambang Yudhoyono belatedly raised petrol prices by 44% last year to a still ridiculously low 6,500 rupiah (18 baht) a litre. He had been reluctant to reform the subsidy for fear of alienating the middle-class voters who benefit the most from it.
Mr Widodo has said that he would only cut the $21-billion fuel subsidy bill gradually, and that the extra funds would be channeled to other programmes designed to help the poor.
However, it is not clear whether the president-elect’s party, the Indonesian Democratic Party of Struggle (PDIP), will support such a move to reduce fuel subsidy, said a panelist at the World Bank report launch, University of Indonesia economics professor Mohammad Ikhsan.
The PDIP had consistently Mr Yudhoyono’s moves to cut the subsidy.
“But whoever the president will be, it is imperative for the next government to tackle the fuel subsidy issue. The option of not tackling it is simply not there,” said Marcelo Giugale, a World Bank senior director for macroeconomic and fiscal management.