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When world leaders gather in Jakarta later this month for the inauguration of a new president, hopes will be high that the new occupant of Istana Merdeka will bring great changes to Indonesia and its underperforming US$870 billion economy.
With a background as a furniture seller from Central Java, president-elect Joko Widodo lacks the aristocratic heritage of the the six people who have held the office of president since Indonesia’s independence in 1945. Jokowi, as the incoming president is popularly known, is the first president to come to prominence in public life since the fall of Suharto in 1998.
To ordinary Indonesians, Jokowi represents a beacon of hope who can deliver the basic health, education and welfare services people crave from their government.
To entrepreneurs, Jokowi also represents the possibility of change — they hope he can cut through the corruption, red tape, mismanagement and poor infrastructure that is shackling the economy. Foreign investors, who have in recent years grown frustrated at the chaos of doing business in Indonesia, are particularly keen to see improvements.
There is plenty of evidence that Jokowi will find it tough to implement the reforms he is seeking. A dozen or so Indonesian business families, who each have a wide span of interconnected interests, typically across energy, natural resources, banking and real estate, hold a massive share of the Indonesian economy and are reluctant to cede any of it to new starters or outsiders. For most of these entrepreneurs, the confusion and uncertainty brought about by legal and bureaucratic dysfunction is a form of protectionism, creating a formidable barrier to entry.
Jokowi is also up against a hostile and fragmented House of Representatives (DPR), many of whose members resent his cleanskin persona. His party, the Indonesian Democratic Party of Struggle (PDI-P), will hold less than 20% of seats, while the coalition of parties that backed him in the July election will hold just 37%. It is doubtful that the governing coalition will stay strong, and already Jokowi has had to compromise on his pledge to put talent above political affiliation in appointing his ministers. If legislators seek to assert themselves, enacting difficult reforms and budgetary changes will be extremely difficult.
One area for ripe for change is allowing the private sector, domestic and foreign, to compete on equal terms with state-controlled companies. In recent years plans for private participation in the Jakarta port expansion contract were scuttled in favour of the state-owned Indonesia Port Corporation. The contract for the massive Mahakam oil and gas project off Kalimantan similarly looks likely to go to state-owned Pertamina, much to the chagrin of existing operators Total E&P Indonesie of France, and Inpex of Japan. The shift towards state control brings with it likely inefficiencies and increases the risk that the government fails to maximise value for money.
Any attempt by Jokowi to increase transparency in issuing lucrative government contracts will face resistance from powerful state companies. And even if any legislative change does materialise, these state-backed companies are adept at skirting the rules to protect their interests.
Another of Jokowi’s challenges will be the legal system, where the chances of getting a fair ruling in cases pitting a foreign company against a local one are slim. Judges appointed for their political rather than legal credentials, and who are paid slim salaries, are vulnerable — one of the most senior judges in the land, former Constitutional Court chief justice Akil Mochtar, was last year arrested after being accused of accepting hundreds of thousands of dollars in bribes relating to an electoral dispute.
Some business figures take full advantage of the corruptibility of judges, but most have little appetite for the practice. Efforts by Jokowi to clean up the judiciary, through the enforcement of merit-based appointments and enhanced powers for the Judicial Commission integrity body, will be met with stiff resistance from certain business and legal quarters. The unfortunate reality for Jokowi is that the pool of legal talent ready to ascend to the bench, particularly at the pay on offer, is shallow.
Then there’s the reality of Indonesia’s decentralisation. During the early post-Suharto years of Reformasi, much of the power that had been concentrated in the national government was dispersed across province-level and village-level governments. In principle, shifting the decisions closer to the place where the impact was felt would reduce the chances of people’s rights being trampled upon. It also had the effect of decentralising the spoils of corruption.
Some provincial and village administrations have embraced the opportunity to welcome investors and create economic opportunities for their people, but others, particularly in resource-rich areas, have used it to squeeze investors for all they can. The outcome is situations like that confronting ExxonMobil, whose Cepu oil and gas field was delayed by years due in part to opportunistic local governments in Central and East Java.
Jokowi will have little authority to bring lower level governments into line, either legally or politically. Indeed, as a former mayor of Solo and the outgoing governor of the capital, he has some sympathy for his local counterparts. The best of intentions from Jakarta can do little to combat the intransigence and bribe-seeking that have become a way of life for many officials making the most of their petty fiefdom.
During the election campaign Jokowi, on several occasions, revealed himself as a man not comfortable in a fight. In his presidential debates against Prabowo Subianto, he threw few punches against his opponent and struggled to defend himself when under attack. Given the fights that loom if he is to implement substantive change, Jokowi’s reluctance to assert himself is concerning. When confronting a stubborn legislature, moneyed corporate interests and state companies with a deep sense of entitlement, Jokowi will need to be bold. The early signs are that he will be reluctant to do so.
*Ari Sharp is a journalist based in Indonesia from 2011 to 2014. His book, Risky Business: How Indonesia’s economic nationalism is hurting foreign investment — and local people (Connor Court Publishing) is out this month.