Indonesia: Does the new government mean business? | Analyst Picks | RiskMap 2020
Does the new government mean business?
After winning a second five-year term in the 2019 elections, reform-minded President Joko “Jokowi” Widodo was expected to govern Indonesia with greater authority and fewer challenges. There is no longer an opposition after the collapse of the alliance that backed his electoral rival Prabowo Subianto and Jokowi is under less pressure because he will not need to fight for re-election given term limits. However, vested interests of stalwarts in his Indonesian Democratic Party-Struggle (PDI-P) and their allies will continue to constrain his administration, business-friendly reforms and policymaking ability.
With a cabinet full of compromises as a result of power-sharing among the expanded coalition and political stability concerns, the Jokowi leadership will most likely fail to meet initial expectations in the next two years before it improves. Jokowi will still be able to launch pro-investment reforms, including some moderate changes to the negative investment list to relax foreign ownership restrictions.
We expect Jokowi to maintain his focus on supporting domestic downstream industries in the oil and gas, mining and agriculture sectors at the expense of upstream businesses. The mining ore export ban will be fully applied in 2020 to support this endeavour, following the wave of Chinese investment in downstream industries that can add value to Indonesia’s abundant raw commodities.
The economic nationalism that inconvenienced foreign investors in Jokowi’s first term will likely continue due to local players with political connections exploiting it to secure opportunities in commodity-based sectors that once were dominated by multinationals. Transactional politicians in the six-party coalition and Jokowi’s financiers will use populist rhetoric to protect their businesses from foreign rivals. Commodity importers will also face barriers to ensure politically connected local businesses develop at their own pace. In 2020, businesses will have to endure plenty of operational challenges, contract risks and regulatory hurdles in Indonesia.