Selamat President Jokowi

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22 July 2014

Today it was announced that Indonesia’s seventh president will be Joko Widodo. It is a result that will be welcomed by many, but what are the implications for business?

Indonesia’s democracy has passed its latest test.

The General Elections Commission (KPU) has officially announced that Indonesia’s next President will be the current Governor of Jakarta, Joko Widodo, known as Jokowi.

The announcement follows a tight contest between Jokowi and his rival Prabowo Subianto.

There can hardly have been two more disparate characters to contest the Presidential race.

Jokowi, a former furniture salesman from Solo, has built his following based on a gentle charisma and “man of the people” approach, displayed through his service as Mayor of Solo and Governor of Jakarta. By contrast, Prabowo, a former general in the Suharto era, offered the electorate a return to strong rule and centralised decision-making.

Jokowi’s election will be interpreted by some as a victory for Indonesia’s continued evolution away from the authoritarian tendencies of its past.

While that is good news for business, Jokowi’s macro-economic credentials are essentially untested, and his election is likely to be met with restrained optimism within the international business community, at least until his administration is better understood.

Overall, Jokowi is perceived to be good for foreign investment. A Deutsche Bank survey found that 74% of global investors would buy Indonesian assets if Jokowi won, but only 13% under Prabowo. It is difficult however, to identify any defining aspect of Jokowi’s policy platform, that explains his relative popularity in this regard.

Certainly, Jokowi’s background inspires confidence on the critical issues of tackling corruption, reducing patronage and preserving democratic institutions. He has earned a reputation as a clean politician and spoke out during his campaign on the need to tackle greed and corruption.

It is less clear how Jokowi actually sees foreign investment in Indonesia.

Jokowi’s public statements have, at times, echoed the economic nationalism that characterised the election campaign. Both candidates argued for economic independence, ensuring energy security and protecting natural resources. Both announced they would maintain the ban on raw mineral exports and prioritise domestic processing – policies that have led to tensions and disputes with the major mining houses.

Jokowi has also sent mixed signals on how he intends to manage Indonesia’s engagement with the global economy.

When asked about the impending commencement of the ASEAN Economic Community during a Presidential debate, Jokowi spoke of imposing regulatory barriers to protect the national economy, including making foreign investor licensing more difficult.

Whether such statements were aimed at the domestic electoral audience, or reflect a deeper policy bias, remains to be seen.

Under President Yudhoyono, Indonesia has been a friend to Australia. Such friendship should never be assumed, especially with a new President with limited international experience.

Jokowi has expressly acknowledged the need to address a lack of trust between Australia and Indonesia, and has emphasised the importance of government-to-government, business-to-business and people-to-people relationships. Both sides will, however, need to navigate through the new dynamic, against a backdrop of potentially divisive domestic politics.

While many questions remain to be answered, business can take heart from the fact that Indonesia has again managed the transition of power through a democratic process. That is not an insignificant achievement in the world’s third largest democracy.

Prabowo has until 25 July to challenge the result. His campaign team chief, Mahfud MD, a former Chief Justice of the Constitutional Court, has already flagged such a challenge. So long as any challenge resolves itself in accordance with law, there is reason to be optimistic that Indonesia will continue to be a promising investment destination for Australian business.


Justin Fox is co-chair of the Corrs’ Southeast Asia Business Group.

Jared Heath is a Special Counsel currently seconded to one of Indonesia’s leading law firms, Soemadipradja & Taher (S&T) as Foreign Counsel. More information on S&T is available from its website.

Corrs is not licenced to practice law in Indonesia and this should not be construed as providing Indonesian legal advice. If you would like further advice, please contact S&T.




The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.


Contacts

Jared Heath

Partner. Melbourne
+61 3 9672 3545

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Justin Fox

Partner. Melbourne
+61 3 9672 3464

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