Indonesia’s Jokowi: Poverty Alleviation The Key

By John Richardson

Jokowi-Naik-Bus-070314-ds-2INDONESIA’S new president seems like a breath of fresh air because he is outside the establishment and has portrayed himself as a man of the people.

But one of Joko Widodo’s problems is that the establishment isn’t going to go down with a fight, as the appeal against his victory by rival presidential candidate Prabowo Subianto indicates. It looks likely, though, given the scale of the win, that the Constitutional Court will reject the appeal.

Joko Widodo, also known as  Jokowi, will, however, also have to overcome strong opposition in parliament with a slimmer majority than his predecessor, Susilo Bambang Yudhoyono. Yudhoyono had a 70% majority in parliament and yet still struggled to force through his agenda, whereas Jokowi will only control around a third of the lower house.

There are also doubts over whether Jokowi’s very practical, hands-on problem solving style of governance, which worked so well at city level, can be made to work  across the whole country.

“Jokowi will have trouble relating his style of governance on the ground to the national level. No one has tried what he is doing before,” Dr Marcus Mietzner, Associate Professor with the Australian National University, told the BBC.

And then there are the economic difficulties, including:

  • Wasteful energy subsidies that cost around $30 billion a year and have led to a big current account deficit.
  • Economic growth that fell to 5.2% in Q1, which was the lowest rate for more than four years. This was the result of declining demand for commodities exports, resulting from the restructuring of China’s economy.
  • As China prioritises exports to protect its growth, Indonesian manufacturers will struggle to compete against a potential flood of imports of manufactured goods from China. China has enviable economies of scale across so many industries  and duty free access to Indonesian markets, thanks to the ASEAN-China Free Trade Area.
  • Indonesia’s infrastructure is awful, with corruption and the complexity of its government bureaucracy other major impediments to growth.
  • Essential structural reforms  have been delayed by one of the longest periods of easy money in economic history. This era  is now coming to an end, primarily because of China’s decision to cut back on its spending. The Fed is, of course, also in a tightening phase.

But the biggest challenge that Jokowi faces is doing something about poverty alleviation, as more than 100 million Indonesians live on less than $2 a day.

As the World Bank argues, in its latest report on Indonesia: “The new government will face the longer term challenge of addressing increasing inequality.

“The high rates of poverty reduction in the past decade are beginning to slow and the gap between the rich and poor has grown.

“In 2002, the top 10% of households consumed 6.6 times more than the poorest 10%. By 2013, the affluent was spending 10 times more than the poor. Even after many years, many workers are unable to earn higher incomes which threatens to bring families back into poverty.”

As with India, there is little point in Indonesia producing gleaming new roads and super-efficient power plants and ports if the majority of its people are too mired in poverty, and disease, to take advantage of such investments.

This kind of analysis matters hugely for the chemicals industry, and is of far more value when assessing growth rates than the crude, largely discredited, focus on headline GDP growth rates.

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