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Jokowinomics and the Future Path for Indonesia’s Economy
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Jokowinomics and the Future Path for Indonesia’s Economy

 
 

Indonesia’s economic performance under President Joko “Jokowi” Widodo will come under increasingly heavy scrutiny as campaigning for the 2019 presidential election progresses. Unlike recent political debates, themes surrounding identity politics and religion appear to have subsided, thanks to the last-minute pick of conservative Muslim cleric Ma’ruf Amin as Jokowi’s running mate. With the two camps poised to undercut each other in terms of visions, and leadership and capability to navigate the economy, narratives in the coming months are bound to be highly politicized. A cautious look at the actual state of Indonesia’s economy within the context of what Jokowi envisioned and what his administration managed to deliver is imperative — not to discredit one candidate over another but to serve as a reminder of what the next president-elect needs to heed and improve.

To fully grasp the economic trajectory under Jokowi, it is important to first understand his footing in the statist development model. In what Eve Warburton of the Australian National University calls Jokowi-styled developmentalism, also sometimes referred to as “Jokowinomics,” the economy under Jokowi is angled primarily toward accelerating infrastructure development and building industrial capacity to increase Indonesia’s competitiveness. While this model does not break any new ground and vaguely echoes Suharto’s development style, it is also strongly characterized by Jokowi’s own disposition of result-oriented leadership to get things done quickly.

This, however, comes at a price as the president must overcome a set of challenges rooted in the sociopolitical backdrop at the start of his tenure. These include the highly divided parliament and volatile public opinions ridden with nationalist sentiments. As a result, Jokowi’s presidency is filled with dynamic policymaking, surprises, and thus unforeseen consequences where he tinkers with and reacts to issues as they arise.

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Ad hoc-ery ultimately defines Jokowi’s decision making in which time is of the essence. Policies can be issued and altered in brisk fashion, often without prior public consultation. In the past three years alone, a few major policies — such as on non-tax state revenues, app-based transportation services, and most recently the price of subsidized premium fuel — have been instantly issued and then abruptly scrapped following public reactions.

Therefore, despite the sense of timeliness, the downside of Jokowi’s developmentalism raises the impression of blunders and confusion as government policies are affected by the prevailing sociopolitical sentiments heeded by cabinet members, who have undergone four reshuffles. Within this dynamic, the skepticism over the direction of Indonesia’s economy under Jokowi can be understood.

The issue here, however, does not concern the wisdom of state-led development as the favored development model. The so-called American System introduced by John Quincy Adams circa the 1810s, which paved the way for the ultimate take-off of the U.S. economy, had its roots in the state-led development model.

The actual issue is that the model as implemented by Jokowi is a little too heavy on policy shifts driven by popular appeals, and yet somewhat oblivious of the long-term policy prioritization. Jokowi’s policies in the infrastructure and energy sectors as the focal points of his economic programs demonstrate just this.

His signature development concept, “Indonesiasentris” is commendable in terms of promoting equitable development across the country and particularly in eastern Indonesia. However, strategic planning under this concept is noticeably lacking. The government has been pursuing various large-scale projects — such as Trans-Jawa, Trans-Papua, and Trans-Sumatra infrastructure — all at once, without determining any realistic target or priority based on state financial capacity, without designing viable funding schemes especially involving the private sector, and without considering the financial internal rate of return of each project.

In the particular case of the Trans-Sumatra Toll Road, state construction firm Hutama Karya reported that available funding as of July 2018 was only at 42 trillion Indonesian rupiah (roughly $3 billion), out of approximately 250 trillion rupiah total investment needed. This already included equities, state capital injections, and other financial support from the government. The project is now being expedited for completion in 2019 despite an assessment from the Indonesia Toll Road Authority that 16 out of 24 road sections of Trans-Sumatra score less than 10 percent in their financial internal rate of return, further implying a lengthy duration for it to pay off its enormous imprint on the state budget.

In the energy sector, recent dynamics further signal the underlying shortcomings in project planning and management, especially for large-scale electricity projects. Only 2,600 megawatts or 7.4 percent out of 35,000 megawatts for the ambitious electricity megaproject was reported to be operational as of September 2018. The goal was originally supposed to be met by 2019, but citing uncertain financial conditions as a major hurdle, state-owned electricity firm PLN noted that the project realization could be delayed up to 2026. PLN further revised this reasoning shortly in October 2018 attributing the delay to consideration over the electricity oversupply that was said to have reached 30 percent and feared to further swell up to 80 percent should the project be realized in 2019. It is easy to dismiss this decision as a response to how consumers now use electricity more efficiently following subsidy cuts in the previous years. But the policy miscalculation that this megaproject was based on unrealistic assumptions and inadequate planning should also be easy to spot.

One area where Jokowi has exercised prudence, however, and a sensitive area likely to be heavily targeted by his opponent, is the use of debt to fuel the country’s development. The government debt has increased 48 percent in value during the four years of Jokowi’s administration, but the ratio is maintained at 29.2 percent of GDP or far below the 60 percent debt limit. As data from Bank Indonesia indicates, the government has also become more dependent on local lenders as  the share of foreign loans decreased to 30 percent from 78 percent between 2008 and 2017, while the share of rupiah-denominated debt soared to 70 percent from 21.7 percent. This shift is a well thought-out decision by the government as it helps minimize exchange-rate risks and vulnerability to global shocks. Moreover, as far as spending goes, Jokowi’s government has generally shown good judgment by targeting productive sectors such as infrastructure and human development.

Still, despite this apparent commitment, Jokowi’s developmentalism is one that is well-intentioned but hampered by poor planning and political leaning toward populist sentiments. The presidential campaign is a critical juncture where populism is largely viewed as a justified means to win over constituents. This has so far registered in the government’s 2019 draft state budget, which relegates infrastructure spending to make room for increased subsidies and civil servants’ salaries.

Sure enough, the root of these problems is bigger than Jokowi’s presidency. It is both structural and systemic. It has preceded his term and will likely surpass it. Indonesia should look at developmental states that made it and learn the prescription for their success — the fundamentals of which include policies with long-term perspective and a disinterested government that separates itself from influence and pressure from any outside forces. One can hope and watch that the next president will start taking notice and remedy this path.

Rindo Sai’o is a Senior Analyst at Kiroyan Partners, a Jakarta-based public affairs consulting firm. He specializes in landscape analysis of sociopolitical, economic and regulatory dynamics in Indonesia. The views expressed are his own.

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