But the challenges are legion. Indonesia’s GDP growth in 2014 will probably be the slowest since the global financial crisis, graft has become a part of everyday life, costly subsidies now eat up over 20 per cent of government expenditure, and the basic balance deficit means the fickle sentiment of international portfolio investors can drive Indonesian Rupiah (IDR) volatility.
"The social aspects, compared to the purely economic, of Jokowi’s fiscal policy should become readily apparent early in his term."
Daniel Wilson, Economist, Global Markets at ANZ
This task is made even harder as earlier expectations that political allegiances would shift quickly after the constitutional court challenge by opponent Prabowo have proven overly optimistic, and Jokowi will have to abandon earlier promises not to engage in horse trading to forge a majority and progress reforms. This is a question of numbers.
Yet the promise is bountiful. Jokowi’s reform agenda will be anything but easy, yet the wheels are in motion, and ANZ research anticipates improvements in Indonesia’s efficiency and growth rate in the coming years.
Recent growth has lagged
GDP growth has moderated sharply over the past six quarters, led by a cyclical slowdown in investment. There are a number of reasons for this moderation in growth: election uncertainty, a tightening of monetary policy, and mining regulation capping the private sector’s contribution.
Infrastructure development has been lacking, with the misallocation of funds to temporary consumption subsidies straining fiscal accounts. However, ANZ Research sees this slowdown in investment coming to an end this year, rebounding, and becoming a key driver of growth next year.
That said, monetary policy is likely to remain on a tightening bias which will dampen the strength of the investment upswing.