Jakarta,
Almost 200 million Indonesian voters
head to the polls on Wednesday after a long presidential election campaign
dominated by economic policy issues.
The eventual winner - the incumbent
President Joko Widodo or former general Prabowo Subianto - will face
significant challenges in steering Southeast Asia's biggest economy. Mr Joko is
making a big infrastructure push and raising social welfare spending, while his
challenger is promising tax cuts and import curbs to spur domestic industries.
Regardless of the outcome, the new
administration will face a number of key challenges:
Economic growth has averaged about 5
per cent a year since Mr Joko took office in 2014, well short of the 7 per cent
he targeted in his first term. The current government is projecting growth of
5.3 per cent this year and as much as 5.5 per cent in 2020, which would be the
fastest expansion since 2013. That may be challenging against a global backdrop
of slowing world growth, unresolved US-China trade tensions and volatile oil
prices.
The campaign team for Mr Prabowo has
said his policies, including corporate and personal income tax cuts, would
result in growth of about 5 per cent over the first two years of a five-year
presidential term and 7 per cent growth by the third year.
The jobless rate is near a 20-year
low of 5.34 per cent, which looks good on paper, but hides a growing problem of
underemployment. The number of people working less than 35 hours a week has
been increasing, one of the reasons economists cite for lacklustre spending in
the economy.
Almost 36 million people, near close
to a third of the workforce, are classed as underemployed, according to
official statistics.
Mr Joko's campaign says Indonesia
needs to create 100 million jobs in the next five years in an economy where
more than half the population of 260 million are under the age of 40.
The current account deficit, which
last year widened to almost 3 per cent of gross domestic product, remains a key
vulnerability for the economy. It makes Indonesia reliant on foreign capital to
fund its import needs, inflows that can be volatile as investor sentiment
swings.
The deficit was one of the main
reasons why Indonesia was targeted in an emerging market sell-off last year,
triggered by rising US interest rates and a stronger dollar. The rupiah slumped
more than 5 per cent against the dollar in 2018, dropping to its lowest levels
since the Asian financial crisis two decades prior, as investors pulled out of
the nation's stocks and bonds.
The rupiah has bounced back in 2019,
helped in part by the central bank's swift action in raising interest rates by
175 basis points and the US Federal Reserve's shift away from policy tightening
this year. The current account remains a risk though, and the government has
imposed a number of measures to curb imports and spur exports to lower the
deficit.
Indonesia has been making slow
progress in opening up its economy to foreign investors. Many are still waiting
for authorities to overhaul the so-called negative investment list, which
dictates levels of foreign ownership allowed in a host of sectors.
Foreign direct investment dropped
8.8 per cent in 2018, the first decline under Mr Joko's rule. The government's
tussle with Freeport-McMoRan Inc over ownership of the world's biggest gold
mine also hurt sentiment.
Indonesia needs foreign investment
to help pay for its development, including a massive infrastructure gap the
World Bank Group has said would cost hundreds of billions of dollars to fix.
The next government would have to convince foreign investors that Indonesia is
open for business.
Inflation has come down steadily
over the years, staying under 5 per cent since 2016. With little price
pressures in the global economy, inflation in Indonesia has slowed to a 10-year
low of 2.5 per cent in March. It's forecast to remain inside the central bank's
2.5 per cent to 4.5 per cent target band this year.
Despite the slowdown, voters continue
to cite the cost of living as a key election issue, along with jobs. The
government has managed to cap fuel prices ahead of the election, but a jump in
oil prices this year will make that difficult to sustain.
Low inflation and the global shift
away from policy tightening have fuelled calls for Bank Indonesia to start
cutting interest rates after six hikes since May. Governor Perry Warjiyo
remains cautious though, warning of risks in the global economy.
Paraphrase:
After
a long presidential election campaign dominated by economic policy issues, almost
200 million Indonesian voters head to the polls on Wednesday.
The
eventual winner— president Joko Widodo or former general Prabowo Subianto —
will face major challenges in steering the largest economy in Southeast Asia.
Mr Joko is pushing a large infrastructure and raising spending on social
welfare, while his challenger is promising tax cuts and import restrictions to
spur domestic industries.
Regardless
of the outcome, the new administration will face a number of key challenges:
Since
Mr Joko took office in 2014, economic growth has averaged about 5% a year, well
short of the 7% that he targeted in his first term. The current government is planning
to grow by 5.3% this year and by 2020 by as much as 5.5%, which would be the
fastest expansion since 2013. This may be challenging in the face of a global
backdrop of slowing global growth, unresolved trade tensions between the US and
China, and volatile oil prices.
Mr
Prabowo's campaign team said its policies, including corporate and personal
income tax cuts, would result in a 5 percent increase over the first two years
of a five-year presidential term and a 7 percent increase over the third year.
The
unemployment rate is close to a 5.34 percent 20-year low, which looks good on
paper but hides a growing underemployment problem. There has been an increase
in the number of people working less than 35 hours a week, one of the reasons
economists are citing lackluster economic spending.
According
to official statistics, nearly 36 million people, nearly a third of the
workforce, are classified as underemployed.
Mr
Joko's campaign says Indonesia needs to create 100 million jobs in an economy
where over half of the 260 million people are under the age of 40, over the
next five years.
The
current account deficit, which widened to nearly 3% of gross domestic product
last year, continues to be a key economic vulnerability. It makes Indonesia
dependent on foreign capital to fund its import needs, which can be volatile as
investor sentiment fluctuates.
The
deficit was one of the main reasons why last year Indonesia was targeted by
rising US interest rates and a stronger dollar in an emerging market sell-off.
The rupiah slumped more than 5 percent against the dollar in 2018, dropping to
its lowest level since two decades prior to the Asian financial crisis, as
investors pulled out of the nation's stocks and bonds.
The
rupiah bounced back in 2019, partly helped by the swift action of the central
bank to raise interest rates by 175 basis points and shift away from policy
tightening this year from the US Federal Reserve. However, the current account
remains a risk, and a number of measures have been imposed by the government to
curb imports and stimulate exports to reduce the deficit.
In
opening up its economy to foreign investors, Indonesia has made slow progress.
Many are still waiting for authorities to overhaul the so-called negative
investment list that dictates foreign ownership levels permitted in a host of
industries.
In
2018, foreign direct investment fell by 8.8 %, the first decline under the rule
of Mr Joko. Also hurt feeling was the government's tussle with Freeport-McMoRan
Inc over ownership of the world's largest gold mine.
Indonesia
needs foreign investment to help pay for its development, including a massive
infrastructure gap said to be costing hundreds of billions of dollars to fix.
Foreign investors should be convinced by the next government that Indonesia is
open to business.
Over
the years, inflation has steadily declined, remaining below 5% since 2016. With
low price pressures in the global economy, Indonesia's inflation slowed in
March to a 10-year low of 2.5 %. It is forecast to stay within this year's
target band of 2.5 percent to 4.5 percent of the central bank.
Despite
the slowdown, in addition to jobs, voters continue to cite living costs as a
key issue for elections. The government has been able to cap fuel prices ahead
of the election, but this year's jump in oil prices will make it hard to
sustain that.
Low
inflation and the global shift away from the tightening of policies have
fuelled calls for Bank Indonesia to begin cutting interest rates after six
hikes since May. Governor Perry Warjiyo, however, remains cautious, alerting
the global economy to risks.
Group 2
·
Dhiyo Athobarani Djuharia (21216950)
·
Ferdi Adha Apriansyah (22216785)
·
Nabilah Farhaty (25216229)
·
Nurul Hijriyati (25216621)
·
Reynaldo Desta (26216245)
·
Yulfit Afrilda (27216045)
