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Business Updates | Indonesia's 2019 Presidential Election

Jokowi vs Prabowo: Who Has the Best Plan to Improve Indonesia's Economy?

Indonesia will hold the first-ever simultaneous legislative and presidential elections on April 17th, 2019. For the latter, we will see a rematch between the current President Joko Widodo (Jokowi) and his old-time rival, Prabowo Subianto.

Both ran for the Indonesian presidency in 2014 which was won by Jokowi by a tight margin. As an incumbent, Jokowi vows to continue his current programs and policies which have heavily focused on infrastructure development.

Meanwhile, Prabowo promises to introduce pro-people programs such as creating new jobs, cutting food and energy prices, and promoting local businesses and industries.

People for the Economy vs Economy for the People

President Joko Widodo enters the 2019 presidential race haunted by a variety of unfulfilled promises made during his 2014 presidential campaign. These include promises to boost the country's economic growth to 7% by 2019, achieve self-sufficiency in food and reduce the government's debt among others.

Even his most ambitious and successful program, infrastructure, was heavily criticised due to high costs, quality issues and low utilisation.

On the other hand, Prabowo offers a range of populist programs. He vows to bring down fuel prices and electricity tariffs to improve consumer buying power which will eventually drive the economy. Moreover, he stresses that the country should put people first and all the development activities should be used to the greatest benefits to the people, not the other way around.

Critics, however, say that Prabowo's economic programs are too general and sometimes contradict each other. For example, he proposes to lower food prices while at the same time he wants to improve farmers' welfare.

Below is the comparison of the economic programs and policies of the two candidates in a number of key economic sectors.

Building and Construction Sector

The sector is expected to continue to grow over the next five years if Jokowi is elected for a second term as he has vowed to push his infrastructure projects further (See High Stakes for Indonesia's New Infrastructure Push). Jokowi has promised to accelerate infrastructure development connecting new economic centres by involving the SOEs, ROEs, SMEs, and the private sector. Infrastructure integration would thus become the focus of Jokowi's next administration. Toll roads, for instance, would be integrated with other infrastructures such as ports, industrial zones, and tourism areas (See Indonesia’s Industrial Property Sector: Rising Supply and Demand).

In addition, he promised to develop and rejuvenate houses for 5 million people from low-income backgrounds, labourers, civil servants, the armed forces, and the police (See Indonesia’s Mass Housing Sector: The Rise of Vertical Housing). His other area of focus is the Trans- Sumatra toll road connecting Aceh to Bakauheni which is expected to be completed in 2024.

Similarly, Prabowo promises to push infrastructure development, especially at the village level and outside of Java, including in remote areas. He emphasises that infrastructure development must be able to create new jobs and facilitate businesses by reducing the complexity of the distribution chain. Thus, it must be integrated with productive economic and manufacturing activity centres such as industrial areas and special economic zones (See Indonesia’s Commercial Property Sector: Oversupply and Slow Demand Affects Growth).

Moreover, Prabowo also pledges to provide housing through land banks and to develop vertical housing for low-income people in partnership with the private sector and SOEs (See Indonesia’s Residential Property Sector: Remaining Sluggish Despite Incentives).

Energy Sector

In the energy sector, Jokowi vows to push the development of new and renewable energy sources (NRE). During the second presidential debate, the incumbent even proposed to implement B100 or 100% palm oil biodiesel, a significant increase from the current B20 requirements (See Indonesian Palm Oil Industry Overview – Biodiesel as a New Source of Revenue Growth). Jokowi’s plan mainly relies on palm oil and geothermal energy to meet the NRE's target of 23% of the energy mix by 2025. Moreover, the incumbent would also emphasise on achieving national energy independence and resiliency (See Indonesia’s Geothermal Energy Sector; Latest Advancements).

Jokowi plans to complete the 35 GW electricity project during his second term (See Investment in Indonesia’s Electricity Sector; Sparks of Life). Currently, the project has undergone a significant slowdown due to the government's policy to curb manufacturing imports in order to stabilise the rupiah exchange rate.

In the oil and gas sector, Jokowi aims to simplify the bureaucratic processes by improving coordination between ministries and agencies. Furthermore, he will review the structure for incentives in order to boost exploration activities (See Indonesia’s Oil and Gas Sector – Upstream Challenges).

Prabowo has also expressed the desire to push for NRE development by planting feather palm, sweet potato, cassava, and others across 88 million hectares of degraded forest areas under an agroforestry program to mass produce bioethanol (See Renewable Energy in Indonesia – A Sleeping Giant). This is expected to reduce oil imports which in turn will improve the country's trade balance. 

Furthermore, Prabowo would revert national oil, gas and mining sector governance back to constitutional mandate authority, particularly Article 33 of the 1945 Constitution. His other programs include establishing oil refineries, ethanol plants, gas receiving terminals and developing a gas transmission/distribution network through SOEs and the private sector.

Mining Sector

Coal in Indonesia should enjoy a steady growth if Jokowi is reelected as he would primarily rely on this fossil fuel to generate electricity under the 35 GW power project. Last year, the Indonesian government decided to reduce the share of gas power plants and replace it with coal as the latter is considered to be more cost efficient. Currently, coal accounts for 60% of the energy used by the power plants in Indonesia (See Indonesia’s Coal Industry: Full Steam Ahead).

Analysts, however, warn that this may pose a problem on the supply side when the entire 35 GW of the power plants are in operation as the state mining company only contributes 5% to the total coal production of 480 million MT. The rest is supplied by private producers under the DMO requirements (See Indonesia’s Coal Mining Sector: A Silver Lining Behind Dark Clouds).

Other minerals are expected to grow too as Jokowi is likely to maintain his policy of allowing mining companies to export raw minerals despite the Mining Law that has mandated that exporters must refine them in the country (See Indonesia’s Metal Mining Sector: Rewriting the Rules).

Meanwhile, Prabowo has pledged to focus on the downstream sector by building smelters, eliminating trade mis-invoicing, and requiring mining companies to deposit foreign exchange earned from export in domestic banks (See Indonesia's Smelting Plans – Moving Slowly, but Moving).

In addition, the retired army general promises to review the 35 GW power plant project by shifting a number of diesel and coal-fired power plants into more environmentally friendly NRE-based power plants.

Manufacturing Sector

The manufacturing sector’s contribution to Indonesia’s GDP continues to decline, Jokowi plans to revitalise the national industry and its supporting infrastructure through creating synergies, increasing research budgets and local content usage, and developing innovation centres. Jokowi would prioritise the food, energy and fisheries industries to create added value, generate employment, and enhance the overall economic structure of Indonesia (See Thirst Quenching: Indonesia’s Food & Beverage Industry).

Similarly, Prabowo-Sandiaga would develop the manufacturing industry based on national innovation to improve competitiveness using local content in order to give added value to domestic commodities and create new employment. Furthermore, Prabowo would revitalise national strategic industries producing capital goods to lessen reliance on imports (See Going Local: Understanding Indonesia’s Local Content Requirements).

Agriculture/Plantation/Forestry Sectors

In the agricultural sector, Jokowi promises to halt the conversion of productive agricultural land. Farmers will be encouraged to produce their own seeds and use self-made natural fertilisers and pesticides (See Indonesia’s Horticultural Sector: Fruitful Opportunities Waiting to be Realised). Moreover, Jokowi has pledged to build new dams and rejuvenate old ones. In the downstream sector, he promises to cut the distribution chain, provide access to capital, and develop the post-harvest industry and technology, particularly packaging (See Indonesia's Plastic & Packaging Industry: Still Dependent on Raw Material Imports).

In the plantation sector, Jokowi would boost biodiesel production in order to create a new market for local palm oil to compensate for export barriers imposed by the European Union. In the forestry sector, he would continue the One Map Policy, prevent forest fires, conserve peatlands, and rehabilitate degraded forest and land (See Overview of Palm Oil in Indonesia).

Prabowo, on the other hand, promises to establish new economic centres in villages through the industrialisation of agriculture. He wants to improve farmers' welfare through implementing digital farming, revitalise the role of the Village Cooperative Unit, establish a Farmer Bank, and promote entrepreneurship among the young rural population through the "OK OCE" movement (See Indonesia's Microfinance Sector Overview: Key Component for Sustainable Growth).

In the plantation and forestry sectors, Prabowo would carry out reforestation across 88 million hectares of degraded forest. He promises to halt palm oil expansion into primary forest areas and replace it with agroforestry by planting feather palm, cassava, and other crops to produce bioethanol and increase the proportion of plasma plantation.

Investment and Business Regulations

To improve the investment and business climate, Jokowi promises to continue reform in fiscal, tax, permits, and labour regulations. He promises to establish labour and wage systems that would serve to improve workers' welfare while at the same time increase the competitiveness of the national industry. In addition, Jokowi will also cut regulations which impede investment (See Indonesia Launches New Economic Policy Package).

Meanwhile, Prabowo vows to drastically eliminate regulations impeding business and investment and launch fiscal and bureaucratic reforms to improve business competitiveness. At the other end of the spectrum, he plans to increase the minimum wage and the pension fund as well as prioritise local workers over foreign ones (See Minimum Wages in Indonesia).

Conclusions

Overall, both candidates are offering programs that are focused on boosting the national economy with a similar approach. The real challenge is how to translate those programs into action in order to achieve their intended objectives.

Another important factor to consider is political stability which is crucial in creating a conducive business climate.  In recent years, there has been rising tension in domestic politics which stemmed from the 2017 Jakarta gubernatorial election which was followed by simultaneous local elections in 2018 and national elections in 2019 (See Indonesia's Upcoming 2019 Presidential Elections: What it Means for Investors).

The next president, whoever he is, must be able to return political stability to the country and focus on growing the economy to reduce political frictions. If this can be achieved, Indonesia’s economy may grow well again and be on track to escape the middle-income trap (See Indonesia's 2019 Economic Outlook: Challenging Times amid Political Turbulence). 

Global Business Guide Indonesia - 15th March 2019

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