Can Indonesian Economy be Fixed by a New President?


On July 22nd, Jako Widodo, the reformist Jakarta governor was officially declared a new president of Indonesia. The new head of state will have a difficult task of tackling structural problems including reducing fuel subsidy, fixing infrastructure, encouraging foreign direct investment and increasing the country’s productivity and competitiveness.

Who is a new president?

The 53-year’s old Jako Widodo is a former furniture dealer from Central Java. His political career kicked off in 2005 when he became a mayor of his hometown Solo. In 2012, he became the governor of Jakarta. He developed clean reputation, humble attitudes and continues to become regular visitor to slum areas.

What is his economic agenda?

1. Cutting fuel subsidies to control the widening budget deficit which in 2013 accounted for 3.3 percent of GDP. In 2013, the energy subsidy cost around IDR 204 trillion (USD 17.5 billion) and according to revised budget for 2014, they are projected to reach IDR 247 trillion (USD 21 billion). 

2. Infrastructure development. Jokowi pledged the construction of 2 thousand kilometers of roads nationwide, 10 new airports, 10 ports and 10 industrial estates.

3. New agricultural policies aiming at decreasing reliance on food imports and reducing poverty among farmers. Those include: improving the irrigation network, which will cover up to 3 million hectares of rice fields, 1 million hectares of it would be on outside Java and to seting up 5 thousand traditional markets as a way to support micro, small and medium business. New president also plans to set up a development and infrastructure bank to offer financing for farmers and the agricultural industry; limit plantation expansion and stop conversion of agricultural land into industry.

4. Encouraging foreign direct investment. Although, the ore export ban implemented in January of 2014, won’t be removed; the new government proposes fiscal incentives for the oil and gas sector depending on the size of the project and the need of development. More importantly, Jakowi administration intends to provide one-stop service point aiming at reducing waiting time for big business licenses from 45 to 15 days.

5. Without going into the details, there are plans for building regional science and techno parks, academies and vocational schools; ban the sale of national banks to foreign investors and increase the tax to GDP ratio to 16 percent from current 12 percent.

Can Indonesian Economy be Fixed by a New President?


rida@tradingeconomics.com
7/22/2014 3:05:48 PM