Widodo Indonesia Presidency Path Complicated After Vote

By Neil Chatterjee and Berni Moestafa Apr 10, 2014 12:50 AM GMT+0700

Indonesian presidential frontrunner Joko Widodo may need to form a coalition to get elected after his party appeared to capture an unexpectedly slim lead in parliamentary voting.

Widodo’s Indonesian Democratic Party of Struggle, or PDI-P, took 19.7 percent of the votes in the nation’s parliamentary elections yesterday, based on an unofficial tally by Lingkaran Survei Indonesia. That was about half the level projected in a March poll. Formal results won’t be declared until May 9.

Because of Indonesian election laws, Widodo, 52, now may have to form an alliance in order to stand in July’s presidential election. That would limit his ability to carry out reforms in Southeast Asia’s largest economy, expectations of which have helped push up the Jakarta stock market 17 percent in the last three months.

“Instead of a small, effective coalition centered on a strong PDI-P, he now faces the prospect of a fragmented, multi-party coalition,” Marcus Mietzner, an associate professor at the Australian National University in Canberra, said by e-mail.

The biggest Indonesia exchange-traded fund fell 3.5 percent yesterday and rupiah forwards dropped 0.5 percent as the estimates by polling companies showed the PDI-P got less of the vote than investors had anticipated. Jakarta stocks have jumped this year on expectations Widodo will win in July and boost investment in the economy.

Golkar, Gerindra

“The dynamics of the presidential race itself remain unchanged,” Mietzner said. Exit polls taken during yesterday’s parliamentary voting “demonstrated that Jokowi would have won the elections with a large margin,” Mietzner said, referring to Widodo by his nickname.

A Roy Morgan poll in March had Widodo as the preferred presidential choice of 45 percent of voters, 30 percentage points ahead of his closest contender, former general Prabowo Subianto.

Among other parties in the parliamentary elections, Golkar, the party of tycoon Aburizal Bakrie, 67, had 14.6 percent of the vote and Gerindra, whose candidate for president is Subianto, 62, had 11.9 percent, according to LSI. The Democratic Party of outgoing President Susilo Bambang Yudhoyono stood at 9.7 percent, it said. LSI had monitors at polling stations during the vote count.

PDI-P collected 19 percent of the vote, ahead of Golkar with 14.8 percent, according to polling company Saiful Mujani Research & Consulting, based on results from voting booths in its survey. Other post-election surveys echoed that outcome.

‘Cooperation’

Widodo indicated late yesterday that he may have to align with other parties in order to be able to stand for president in the world’s third-largest democracy.
“We don’t want to talk about coalitions, we want to talk about cooperation to resolve the big problems of this big nation,” Widodo said on Metro TV. He was then joined in a panel by former vice-president Jusuf Kalla of Golkar, State-Owned Enterprises Minister Dahlan Iskan, of the Democratic Party, and Jakarta Deputy Governor Basuki Purnama, of Gerindra.

The result shows an absence of the “Jokowi effect” that may have come because PDI-P didn’t do a good enough job of associating him with the party, said Paul Rowland, a political analyst based in Jakarta who was formerly Indonesia country director for the National Democratic Institute, a non-government advocacy group.

Under Indonesian election rules there are two ways for a party to run a presidential candidate by itself. It needs to capture 25 percent of the popular vote in the parliamentary elections, or it needs to win 20 percent of the 560 parliamentary seats.
Two-Round Election?

“I think it would be a serious disappointment for them if they fall short of 20 percent of the seats in the house,” Rowland said. “It may mean that you have a two-round election instead of a single-round presidential election.”

President Yudhoyono, who is unable to stand again after two terms, governs with a coalition of five other parties.

Stocks (JCI) and the rupiah rallied after Widodo’s candidacy was announced last month, on optimism he would get things done on issues from infrastructure to tax collection, to bolster an economy that grew at the slowest pace in four years in 2013.

More than 185 million people were eligible to vote yesterday for the 12 parties contesting across the archipelago. It was the fourth election since the downfall of dictator Suharto in 1998.

The parliamentary make-up after the election will “still look rather ‘Balkanized’, increasing the chance that any coalition which comes into power may consist of an unwieldy group of parties, rather than just two or three with reasonably similar political platforms,” Wellian Wiranto, a Singapore-based economist at Oversea-Chinese Banking Corp., said in an e-mailed comment.

“One reason why the outgoing administration has had a rather lackluster term in office is due to the multi-party ‘Rainbow Coalition’ that it has had to maintain in the parliament, which proved to be a drag on the pace of economic reforms,” Wiranto said.

To contact the reporters on this story: Neil Chatterjee in Jakarta at nchatterjee1@bloomberg.net; Berni Moestafa in Jakarta at bmoestafa@bloomberg.net

To contact the editors responsible for this story: Rosalind Mathieson at rmathieson3@bloomberg.net Dick Schumacher

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Capital flows in Indonesia - Fragile no more

Capital flows in Indonesia -
Fragile no more
| How the world’s fourth-most-populous country is weathering the emerging-market turmoil.

(The Economist) - LAST year Indonesia was struck by the financial storm that pummelled emerging markets, earning itself a place among the so-called “fragile five” of the developing world. When in May the Federal Reserve began discussing plans to scale back its asset purchases, the prospect of higher yields in rich countries made investors reluctant to pour more money into emerging economies. Indonesia’s currency sank in value, along with those of other countries that had been prime destinations for rich-world cash.

This year other emerging markets suffered a similar slump, caused by the Fed’s decision to go ahead with the mooted “taper”. Central banks in Turkey, India and South Africa have all hiked interest rates to defend their battered currencies. Yet Indonesia’s rupiah has rallied by 3.3% against the dollar—the most among major emerging-market currencies. Jakarta’s main stockmarket is trading close to four-month highs. And foreign funds have bought $1 billion more local bonds and shares this year than they have sold.

Indonesia appears to owe its turnaround to timing. It earned its spot among the fragile five thanks to its large current-account deficit, which widened to a record $10 billion, or 4.4% of GDP, last summer. But in August its central bank abandoned efforts to prop up its currency and allowed it to float, leading to a depreciation of about 14% in real, trade-weighted terms from May to now. The weaker rupiah made Indonesia’s exports cheaper in foreign markets and imports more costly. The deficit has since dropped by more than half, to $4 billion, or 2% of GDP, at the end of 2013. In December Indonesia recorded its biggest monthly trade surplus for two years; merchandise exports rose by 10.3% year-on-year.

Other central banks waited too long to respond to market turmoil and then overreacted. Turkey raised rates by 5.5 percentage points in a single day, hoping to cow traders into laying down arms. Bank Indonesia had raised rates earlier, by contrast, and more gradually: enough to cool domestic demand but not enough to touch off a recession. The combination of higher rates and a cheaper currency nurtured a rebalancing. Despite slower consumption growth, annual GDP growth accelerated to 5.7% in the fourth quarter, boosted by exports. Indonesia NO LONGER looks so fragile.

Government policy may have helped the process along. The decision to raise the price of subsidised petrol and diesel squeezed demand for oil, which accounted for about 23% of imports at a cost of $42 billion last year. Other measures look less effective, like higher taxes on imports of some consumer and luxury goods. But the government, heady with recent success, now risks scaring away investors with heavier-handed intervention.

On February 11th Indonesia’s parliament passed a new trade law giving authorities far-reaching powers to restrict exports and imports. Its dubious aim is to protect local producers from foreign competition while developing higher-value industries. Bayu Krisnamurthi, the deputy trade minister, bragged that it showed that Indonesia was “not adopting a free market”. The law is only the latest in a series of ill-considered trade policies, which includes a recent ban on exports of mineral ores that puts at risk some $5 billion a year in foreign-exchange receipts.

The turn toward protectionism is linked to this year’s parliamentary and presidential elections—laissez-faire economics is unpopular in Indonesia. Yet with global capital in a fickle mood, governments cannot assume that markets will shrug off electioneering. Indonesia owes the striking turn of fortunes in its economic performance to rather orthodox economic policies. The central bank let market forces operate freely, allowing the rupiah to depreciate to the point where exports have become competitive again. If the authorities continue on their protectionist course they may convince investors that Indonesia remains fragile after all. And pushing the economy back into financial turmoil is unlikely to be a vote-winner.