ANALYSIS-Jokowi 2.0 could open Indonesia’s door to foreign investors
(Repeats story first carried late on Wednesday)
By Tom Allard and John Chalmers
JAKARTA, April 17 (Reuters) - Foreign investors desperate
for more access to Indonesia's huge market can take comfort from
the re-election of Joko Widodo as president for a second and
final term on Wednesday: according to government insiders he is
poised for a splurge of reform.
On the list of areas he might tackle is sagging foreign
investment, the troubled education system and restrictive labour
"If the president's victory ranges from 52-55 percent that
would be the sweet spot," said a senior government official who
works closely with Widodo. "That would spur him to continue and
maybe even accelerate economic reforms."
Widodo - popularly known as Jokowi - looked set to hit that
'sweet spot' as early election results came in, showing he was
set to win the popular vote and come at least eight percentage
points ahead of challenger Prabowo Subianto, who investors
feared would be a champion of economic nationalism.
Unofficial counts also suggest Widodo's coalition will
increase its hold on the national legislature.
Still, some analysts doubt that Widodo will move much beyond
the cautious reform agenda of his first five-year term.
That's partly because of his own plodding style, but also
because conservative Muslims and nativists will remain a potent
political force that is hostile to foreign capital, especially
While the contest between Widodo and his challenger, former
special forces general Prabowo was characterised by nationalist
posturing on both sides, government officials and advisers say
Widodo recognises the need for more foreign investment to boost
growth and raise productivity in Southeast Asia's largest
Citing internal government discussions, Mohamad Ikhsan, an
economic adviser to outgoing Vice-President Jusuf Kalla, said
Widodo was told that economic growth would likely slip below 5
percent without a more liberal approach to foreign investment.
"The president understands this very well. He also
understands that it's not only capital that must be injected,
foreign capital ... we need to upgrade our human resources,"
"He promised that will be in the second term."
That assessment was backed by the senior government
official, who said a big part of Jokowi's second-term reform
drive would be opening education - and particularly universities
- to foreign players and making the sector a business. He
declined to be identified to speak openly about policy plans.
Some analysts suggested that Widodo's margin of victory in
the election, which looks likely to be less than his campaign
had hoped for, might be a brake on reformist plans. His
predecessor, Susilo Bambang Yudhoyono, took 61 percent of the
vote when he won a second term and is widely thought to have
squandered that chance to address systemic flaws in the economy.
"We expect Jokowi's victory, especially as it was not
emphatic, to only result in modest economic reform," said Peter
Mumford of the Eurasia Group, a risk consultancy. "(It) will be
insufficient to break him free of the constraints of coalition
partners and vested interests — elite political, military,
religious and state-owned enterprise leaders."
Australian National University analyst Greg Fealy said
Widodo was committed to leaving his mark.
"He's determined to make the biggest impact on national life
that he can. He wants more development. He wants more
infrastructure. He wants greater prosperity. He wants that
Fealy said Indonesia's recently negotiated free trade deal
with Australia, which includes zero-tariff access on many goods
and services and provisions for Australian universities to set
up campuses in Indonesia, reflected the free market instincts of
Widodo, a former furniture entrepreneur and big exporter.
The first president from outside Indonesia's political,
business and military elites, Widodo prioritised infrastructure
development in his first term, building roads, railways, ports
and airports across the archipelago of thousands of islands.
His building programme has gone some way to address a major
deficiency in the Indonesian economy, where logistics costs make
many of its exports uncompetitive.
Ikhsan said more foreign capital would be needed to continue
the programme, and budget-sapping subsidies of petrol and food
staples would have to be trimmed.
In his final campaign speech at Jakarta's main stadium,
Widodo said the next five years would bring a focus on
developing "quality human resources".
Indonesia's education system has long been identified as
substandard and a drag on development. Although 20 percent of
the government budget is allocated to education, international
surveys show maths, reading and science skills among secondary
students badly lag those of the country's neighbours.
Business leaders say poor schooling and a weak tertiary
education sector also deter investment, as do the country's
restrictive labour laws.
According to the senior government official, labour market
reform "is something the president is very passionate about".
"It's very difficult to terminate or lay off people,
therefore people are reluctant to hire. It's pushed employment
dramatically towards informal employment."
Even so, "it would be the mother of all dogfights in
parliament" to get labour reforms passed, he said.
Education reforms are no fait accompli either.
Many academics, nationalists and some Islamic bodies are
opposed to liberalising the university sector and bristle at
suggestions that a modern curriculum might be imposed on
pesantrens, the network of religious schools.
(Additional reporting by Kanupriya Kapoor
Editing by Robert Birsel)
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