Following last week’s ECB easing, European markets have shown strong demand, absorbing an impressive corporate and… https://t.co/UaJ1VoAQlr
Upcoming Indonesian presidential election
Recent electoral speeches made by opposition presidential candidate Prabowo Subianto suggest a focused campaign targeting incumbent president Joko Widodo for reportedly failing to achieve growth and foreign investment targets.
An expected slowdown in Indonesia's real GDP growth indicates that President Joko "Jokowi" Widodo's administration will not be achieving its target of 7% growth ahead of elections.
Jokowi's reported inability to successfully implement his economic programme has broadened the election narrative, signalling a tighter presidential race; however, Jokowi continues to remain popular.
In a post-election outlook, policy continuity remains likely irrespective of whether the government changes; a new administration will follow a balanced approach towards foreign investment.
IHS Markit assesses that Indonesia's real GDP growth is likely to slow down from 5.2% in 2018 to 4.9% in 2019, thereby indicating that incumbent president Joko "Jokowi" Widodo's target of 7.0% real GDP growth will not be achieved ahead of simultaneous presidential and parliamentary elections scheduled for 17 April 2019. In 2018, Bank Indonesia (the country's central bank) and Jokowi's administration undertook policy interventions to stabilise the Indonesian rupiah, including multiple interest rate rises and increased import tariffs on consumer goods, which we assess will highly likely limit near-term domestic demand. In the pre-election outlook, this is likely to favour opposition candidate Prabowo Subianto's platform - by broadening the election narrative beyond issues of religious conservatism.
Presidential race likely to be tighter given broadening of election narrative
In the run-up to Jokowi's final year in government, most criticism against him targeted his reported inability to further religious conservatism in the country, particularly demanding a stricter adherence to sharia (Islamic law) by civil society and businesses. For instance, in January 2018, hundreds of members of the hard-line Islamic Defenders Front (Front Pembela Islam: FPI) protested outside the Facebook headquarters in Jakarta, accusing the platform of discriminating against the group by blocking some of its content for allegedly spreading hate. IHS Markit assesses that in August, Jokowi nominated Ma'ruf Amin, the former chairperson of the Indonesian Ulema Council, as his vice-presidential candidate to appeal to such hard-line Islamist voter sentiment.
In his final year in government, however, Jokowi's perceived failure to fulfil his economic platform is likely to have broadened the election narrative: beyond missing the 7% real GDP growth target, foreign investment into Indonesia shrank by about 35-40% in 2018, reportedly given the policy uncertainty ahead of elections (compared with 2017, according to the Indonesia Investment Coordinating Board). An increased focus by Subianto on Jokowi's performance signals a tighter race, particularly in provinces where the focus is on promoting business; these include East and West Java, and Jakarta - where the June 2018 provincial elections indicated a closely contested race between candidates of both coalitions.
Jokowi's final pre-election platform likely to focus on issues concerning youth voters
For Jokowi, consolidating the youth voter base is likely to be a good indicator of him being able to improve the narrative around his economic policies. IHS Markit assesses Indonesian youth is probably an influential group in the upcoming elections, given that about 42% of the country's eligible voters are aged between 17 and 35. Jokowi then is likely to encourage policies including increased public expenditure for higher education and placing limits on the hiring of foreign workers. Furthermore, on 13 January 2019, Jokowi indicated his intent to allow easier interest rate for mortgages to facilitate home purchases by Indonesian youth.
Outlook and implications
Although the presidential race is now largely focused on Jokowi's perceived shortcomings in improving the Indonesian economy, he continues to remain popular: according to Lingkaran Survei Indonesia, a local pollster, Jokowi still maintains a lead over Subianto, with 53.2% to 31.2% as of December 2018.
Irrespective of the election outcome in the presidential race, there is likely to be policy continuity in Indonesia's post-election outlook. Although Subianto's campaign is focused on more economic nationalist policies such as suggesting reduced foreign investment (particularly in energy and mining) and promoting economic self-sufficiency, a government under either Subianto or Jokowi will most probably follow a balanced approach to support growth. A new government will probably continue to encourage foreign investment in sectors that enable more manufacturing, and in technology, but continue to limit imports in commodities. Furthermore, a new government is likely to reduce the corporate tax rate to make Indonesia more competitive in the region (currently at 25%), given the lower tax rates in neighbouring countries, including Malaysia (24%), Thailand (20%), and Vietnam (20%): both coalitions have issued statements indicating intent for the same.
- Capital Markets Weekly: ECB policy-easing drives strong financial and corporate sector supply
- Weekly Pricing Pulse: Improving sentiment boosts commodities
- Ethiopia's new economic program challenged by foreign-exchange scarcity
- Germany and the ‘R’ word – what type of recession should we expect
- Economic outlook following ECB rate cuts
- The Bank of Canada’s sticky situation
- Weekly Pricing Pulse: Good news no help to commodity prices
- Capital Markets Weekly: Berkshire Hathaway record Yen deal indicates growing but constrained funding opportunities