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Investors hope for effective administration in Indonesia

Publication Date : 17-04-2014

 

The quick-count results of the April 9 legislative election in Indonesia, which hint at the possibility of a fragmented government, has not quelled the fears of investors hoping for an effective — and united — government.

Without a solid coalition, rival parties at the House of Representatives will likely be distracted by in-house fighting.

“If the composition of the House is as fragmented as the quick count results predict, this might cause problems,” said Citigroup country manager Tigor Siahaan at a seminar Wednesday.

Tigor said a strong government was needed to fix the nation’s problems. To avoid the so-called “middle income trap,” the new administration needed to cooperate with both businesspeople and political parties.

“The question now is: Can the next president perform with the full support of the House?” Tigor said.

The preliminary election results indicate that around 10 political parties will secure seats at the House.

Rival parties at the House could be “unsettling” to the next administration if the ruling coalition fails to accommodate their interests.

The more parties at the House, the higher the possibility of political bargaining. Thus, it will be harder for the administration to make quick and firm decisions.

This means that the government will take longer time to fix the nation’s problems, Tigor added.

Citigroup Asia Pacific managing director Johanna Chua, who also attended the seminar, shared the same concerns.

“The market is anxious because they expected an election result [to produce a solid government],” said Chua, who is also Citigroup Asia Pacific chief economist.

Investors, meanwhile, expressed optimism about the potential presidential figures. Several surveys have put Jakarta Governor Joko “ Jokowi” Widodo and Prabowo Subianto as the leading candidates.

They said the parties that nominated the two hopefuls had similar political platforms.

“The Indonesian Democratic Party of Struggle [PDI-P] and the Gerindra Party have the same political platform. Investors do not worry about them,” Eric Sugandi, an economist with Standard Chartered, said, referring to the PDI-P, which nominated Jokowi, and Gerindra that supported Prabowo.

“Even though Prabowo speaks loudly against foreign powers right now, I believe he won’t make ‘anti-foreign policies’ if he was elected president. What he said about nationalism is just political rhetoric,” said Standard Chartered managing director Fauzi Ichsan.

“That’s why foreign investors are not worried about him [Prabowo],” he added.

In addition, economists underlined the importance of the next president and his administration in reducing the current-account deficit. As it would be a crucial, move to attract foreign investors.

“The new president should be realistic in making economic policies. He shouldn’t be against foreign investment because he needs it to decrease the current-account deficit,” said Fauzi.

Throughout last year, the current-account deficit stood at US$28.4 billion, or 3.3 per cent of gross domestic product (GDP), according to data provided by Standard Chartered.

Although the government aims to push down the deficit in the broadest measurement of trade to at least 2.5 per cent of GDP this year, Standard Chartered predicts the it will be $24.9 billion this year.

Meanwhile, the Investment Coordinating Board (BKPM) targets 15 per cent or around 450 trillion rupiah (US$39.4 billion) growth in realised investments from both foreign and domestic investors in 2014.

BKPM chairman Mahendra Siregar separately said he was optimistic the target could be achieved because the government had issued several investment-friendly regulations specially designed for investors.

 

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