Jokowi's final act

In 2023, Indonesia successfully assumed the ASEAN presidency and hosted the FIFA U-17 World Cup, the first FIFA tournament held in Southeast Asia. Indonesia also launched its first high-speed train, “Whoosh”, connecting Jakarta and Bandung, with a planned extension to Surabaya.

These milestones increased the popularity of former Indonesian president Joko “Jokowi” Widodo until the end of his term in 2024. Jokowi showed that he was not just a “petugas partai” (party official), a term used by the president of the Indonesian Democratic Party. Indonesian Struggle (PDI-P), Megawati Sukarnoputri, to emphasize that the president must remain loyal to the party.

Jokowi distanced himself from the PDI-P's position by supporting Prabowo Subianto, winner of the general elections, instead of Ganjar Pranowo in the campaign for the February 2024 elections. Subianto chose Gibran Rakabuming Raka – Jokowi's son – as a running mate. Critics have claimed that Jokowi has begun to build a political dynasty. But the most serious accusation is his maneuver to use state institutions for his benefit, such as when he appealed to the Constitutional Court to change the age limit of vice presidential candidates and thus accommodate Gibran's candidacy. Interestingly, a national poll from December 2023 showed that almost 40% of Indonesians supported Prabowo-Gibran, an increase of more than 8% from August 2023.

The continued public support for Jokowi is arguably due to his administration's success in managing the economy, especially in controlling inflation and providing welfare to disadvantaged groups. With Prabowo in power, some continuity in economic policies is expected – at least in the short term.

Like other nations, Indonesia is striving to revive its economy from the impacts of the COVID-19 pandemic. Jokowi's government attempted to stimulate economic growth through large infrastructure projects, investment incentives and other policy measures. The global economic situation in 2023 deteriorated due to lower growth in major economies, including China. As a result, Indonesia's exports and investments slowed down.

In 2023, foreign direct investment (FDI) remained relatively contained, despite the approval of the Omnibus Law to streamline the investment process. Several factors contributed to the low flow of FDI last year, including the global economic situation, geopolitical tensions and the pending outcome of the general elections.

“Jokowi wanted to ensure that basic infrastructure was ready in 2024, when he plans to celebrate the national anniversary in Nusantara, the new capital”

Most investment in Indonesia comes from domestic sources, including government spending on various infrastructure projects and in the new capital, Nusantara. Jokowi wanted to ensure that basic infrastructure was ready in 2024, when he plans to celebrate Indonesia's anniversary in Nusantara. However, private investors (both domestic and foreign) refrained from committing new funds until the next government was confirmed.

State-owned enterprises have arguably played a key role in the successful completion of Jokowi's infrastructure, thus contributing to the president's popularity. This dependence on public companies has accelerated the execution of projects. However, it has caused large financial debts for state-owned companies, which has required capital injections from the state budget.

In the future, reducing the heavy financial burden on state-owned enterprises and increasing private participation in construction projects can benefit the economy in the long term. Still, few private sector companies are interested in infrastructure projects due to the lack of clarity of regulations, difficulties in acquiring land and lack of financing. The Government should develop innovative instruments to reduce obstacles to private sector participation.

The good health of domestic consumption is reflected in the continued growth of the digital economy, especially in the e-commerce sector. The COVID-19 pandemic accelerated the adoption of digital technologies and online commerce. Finance Minister Sri Mulyani stated that in 2023 Indonesia's digital economy would soar to $82 billion, which would be an 8% increase from 2022. Mulyani noted that online commerce would remain the main catalyst for the expansion of the digital sector. However, this growth outlook may need to moderate following the wave of layoffs on streaming platforms. e-commerce.

The El Niño storm disrupted food production and caused an increase in inflation, especially in the price of rice. The government responded with price stabilization and social assistance policies to protect the purchasing power of the poor and vulnerable. The social assistance policies included an additional 2.7 trillion Indonesian rupiah (US$173.2 million) in food aid and 7.5 trillion rupiah (US$481.5 million) in direct cash assistance to households.

From a monetary point of view, Bank Indonesia increased its official interest rate to 6% to defend the national currency and maintain price stability. Interest rates, along with other fiscal policy tools, were used to support small businesses. The government spent 177.5 trillion rupees ($11.4 billion) on the People's Business Credit, a subsidy program to support small business owners such as street food vendors, amid rising interest rates.

Despite its losses at the World Trade Organization, Indonesia will continue its downstreaming through the prohibition of exports. After banning nickel ore exports in 2020, the government extended the ban to bauxite in mid-2023. The plan is to extend the policy to other strategic minerals, including copper and tin.

This strategy of resource nationalism is quite popular, and all three presidential candidates agreed to continue this policy. Candidate Anies Baswedan promised to “recalibrate” the plan if he was elected. But Indonesia needs a more innovative and flexible plan to boost its industrial competitiveness beyond simply banning exports. The government should consider moving from a strict ban on nickel exports to a more flexible plan, such as the domestic market obligation applied to coal and palm oil. The country must also anticipate technological changes that could affect its comparative advantage in minerals such as nickel and bauxite.

Finally, it is essential to continue reforming state institutions – such as those that make up the judicial system – to improve their capacity, their governance and their independence from political interference, especially after the victory of Prabowo, known for the changes in his political personality and of alliances. Tax reform is also necessary to improve Indonesia's budgetary capacity. Following the 2024 general elections, the Government must maintain security and political stability, essential to maintain a stable macroeconomic foundation and continue Jokowi's legacy in Indonesia.

Article originally published in English on the website of the East Asia Forum.