Indonesia: Democratic hopes, institutional woes

The recent presidential election sadly turned violent, but Indonesia has a myriad of other problems, showing that its democratic reforms hang in the balance. Can President Joko Widodo lead the country through the pitfalls in his second term?

Indonesia: Democratic hopes, institutional woes AFP Photo/Chaideer Mahyuddin

The 2019 presidential and legislative elections were the fifth free and fair polls since the fall of President Soeharto in 1998 – yet Indonesia’s democratization process still remains fragile. Incumbent President Joko Widodo secured 55.5 percent of the vote, but identity politics featured prominently in campaigning and, for the first time since the 1999 Semanggi II shootings, election-related protests resulted in eight fatalities. The process featured a level of turbulence not witnessed in nearly two decades.

To be sure, most of those killed in the violence of May 21–23 were participants in deliberately staged riots that apparently involved hired street thugs, and at no time has President Joko’s second term been in actual jeopardy. Nonetheless, the vote count from the April 17 polls registered somewhat stronger than anticipated support for the opposition challenger, Gerindra Party chairman Lt Gen (ret) Prabowo Subianto, who ran on arch-nationalist themes and embraced strident Islamic groups such as the Islamic Defenders Front (FPI). Together, the events of April and May marked an inauspicious precursor to President Joko’s second term, while underscoring the deficiencies of post Soeharto reformasi.

Developments in the 2019 election process also tend to render the 2024 presidential contest, which will feature no incumbent, due to term limits, all the more momentous. Economically, Indonesia is poised on the verge of a middle income trap, whereby a country’s demographic bonus recedes before it exploits the chance to reach high income status (ie, “growing old before growing rich”). Politically, supporters of democratic reform and the rule of law face twin threats: on the one hand, sectarian minded religious groups; on the other, mafia style elements of the establishment practicing age old habits of patronage politics. Progress on economic and institutional reforms is all the more urgent, lest voters in 2024 despair and opt for illiberal alternatives. For Indonesia, President Joko’s next term may be the most fateful presidency to date.

President Joko’s transformation

Indonesia’s outlook very much hinges on President Joko – an enigmatic figure. He entered the presidency in 2014 amid widespread enthusiasm for his potential as a proven democratic reformer. As Solo mayor and Jakarta governor, he had stood out as a dynamic and unconventional leader who focused on serving the needs of constituents rather than catering to the establishment. He showed concern for the poor while delivering results in maintaining a clean image, and this differentiated him from the vast majority of figures in national politics. In retrospect, his 2014 victory was arguably the first in a wave of democratic upsets that occurred around the world, including the United Kingdom’s “Brexit” vote, the election of US President Donald J Trump and startling outcomes in contests in the Philippines and Malaysia.

However, upon reaching the national stage, President Joko’s political approach gradually transformed. He set the tone before his inauguration in October 2014 by abandoning a pledge to appoint only professionals to the cabinet; instead, he conferred nearly half of the portfolios to representatives of

For Indonesia, President Joko’s next term may be the most fateful presidency to date.

parties that had backed his candidacy. His first year in office registered mixed results. Reforms included a move to market indexed fuel pricing and the dissolution of state-owned oil and gas company Pertamina’s opaque offshore purchasing subsidiary, Petral Ltd. He also unveiled new social services while preparing a tax amnesty program and resuming negotiations on bilateral trade agreements. He ensured implementation of a newly applicable regulation on land acquisition for public interest infrastructure, finally rendering such projects feasible.

However, at the same time, much of the fuel subsidy savings in 2015 went toward funding equity injections for state enterprises, including many that have long been inefficient and wayward. This signaled President Joko’s faith in economic development led by the state. He embarked on resource nationalization for key oil and mining operations (the Mahakam and Rokan oil fields and the giant
Freeport copper and gold mine). He showed a propensity for heavy-handed regulation of the real sector. A much-heralded economic reform program lacked ambition or follow-through. Cabinet reshuffles in 2015 and 2016 brought in certain reform-minded figures, most notably Sri Mulyani Indrawati as finance minister, but dispensed with others, such as energy minister Sudirman Said.

In late 2016, Indonesia’s most enterprising and ambitious reformer, Jakarta Governor Basuki Tjahaja Purnama, popularly known as Ahok, finally fell prey to efforts by an alliance of opponents to damage his image. Having repeatedly attempted and failed to portray the fiery governance reformer as corrupt and hypocritical, Purnama’s detractors resorted to sectarian attacks and branded him as a blasphemer. President Joko’s handpicked police chief, Gen Tito Karnavian, allowed investigators to name Purnama a suspect, thereby sealing the governor’s fate. Islamic groups, led by the strident FPI, in cooperation with financiers such as MNC Group owner Hary Tanoesoedibjo, repeatedly deluged Jakarta with million person rallies that incapacitated the capital. The developments prompted President Joko to grow even more wary about irking elements of the status quo, lest he himself become a target like Purnama.

Rather than defy or confront elements of the alliance that had formed against Purnama, the president actively engaged them in an attempt to either win them over or at least prevent attacks on himself. In particular, he began making a series of public appearances with Purnama’s chief accuser, Indonesian Ulema Council (MUI) chairman Ma’ruf Amin, and together the pair made a show of espousing the “Islam Nusantara” concept, which posits that Indonesian Islam is moderate and inclusive.

President Joko also altered his approach to policymaking. In effect, he emphasized the “politics of appeasement” on economic, social and political issues. Lest opponents accuse him of burdening consumers, he restored fuel subsidies; and lest opponents criticize foreign exploitation of resources, he proceeded with the purchase of a majority of Freeport. He maintained a rigidly uncompromising stance against LGBT rights, lest he face emotive attacks from hard-line clerics. Deliberations on the 2017 election bill presented an opportunity for electoral changes that might have finally consolidated Indonesia’s democratic transition; instead, he acceded to incumbent parties and retained high barriers for new parties (the law also retained a high presidential nominating threshold). For the strategic post of presidential chief of staff, he replaced the anticorruption expert Teten Masduki with a controversial former military chief, Gen (ret) Moeldoko, signaling the subjugation of reformist ambition to pragmatic accommodation.

A rare exception to these trends was a move by President Joko in early 2018 to mandate sorely needed liberalization for rules governing expatriate work permits, which had become a major constraint on investment activity. However, the coordinating economics minister and the labor minister lacked zeal and produced a new framework that differed only minutely from the old one.

On other economic issues, his reluctance to embrace reforms persisted, even when domestic and international conditions placed pressure on the rupiah. From the start of the year through October 2018, the currency had depreciated by 13 percent against the US dollar, yet still the president refrained from implementing reforms. He finally agreed to a measure that might boost sentiment – a revision of the so-called Negative Investment List to raise foreign ownership limits in a range of sectors – but ministers again produced a lackluster draft and the effort stalled. A plan to transition to online, one-stop processing of investment permits also faltered, while pledges to revoke a raft of obsolete regulations made scant progress. At the G20 Buenos Aires summit in December 2018, President Joko was the only leader who declined to attend, even though no pressing domestic matters detained him. And when Australia approved President Trump’s decision to move the US Embassy in Israel to Jerusalem, President Joko’s administration postponed the signing of the Indonesia Australia Comprehensive Economic Partnership Agreement. (A low profile ceremony occurred later.)

With an adverse domestic policy environment exacerbating the effects of an adverse global economy, sorely needed foreign direct investment (FDI) declined by 15 percent in US dollar terms in 2018. These flows are crucial to fund Indonesia’s current account deficit and stabilize the currency. The only significant response that finance minister Sri Mulyani Indrawati mustered was a fiscal incentive scheme for investors. An April 2018 decree offered 100 percent income tax holidays for 14 “pioneer” industries, applicable for up to 20 years, and a measure last November expanded this for two additional sectors (while offering 50 percent holidays for smaller investments). In effect, the tax breaks aim to compensate investors for Indonesia’s “high-cost economy.” Perhaps because they are somewhat arcane, such incentives tend to be uncontroversial and therefore politically feasible; however, they forgo potential future tax revenue from the beneficiaries. Arguably, this foregone income reflects the practical cost of institutional dysfunctions: collusion, rent seeking and graft. By compensating investors for such costs, rather than directly addressing the dysfunctions that cause them, tax facilities impose (in effect) the actual costs of corruption onto the state’s ledger. Because of the political constraints that President Joko perceived, ministers such as Indrawati were able to address economic frailties only through relatively desperate and costly measures.

Regional head lessons

Ironically, in mid-2018, 174 regional head elections took place nationwide, and virtually none of these contests showed indications of identity politics driving outcomes. The elections involved six of Indonesia’s seven largest provinces, and regions covering nearly 80 percent of the national electorate. Few party alliances in major regions attempted to run campaigns based on religious identity, and grassroots voters showed no upswelling of Islamic inspired political sentiment. Instead, in three bellwether provinces – West Java, East Java and South Sulawesi – voters rejected conventional candidates with establishment ties and opted instead for experienced figures with credible records. The outcomes suggested that the president’s apparent consternation about grassroots Islamicization lacked merit.

Nonetheless, President Joko adhered to a risk-averse strategy for the presidential election. At issue was the choice of a running mate, and he prioritized a search for consensus among the six parties in his nominating alliance. In turn, the chairs of these parties viewed the vice president choice through the prism of the 2024 election, for which they themselves harbor ambitions. They therefore sought a running mate with weak presidential prospects in the future, lest the person use the vice presidency as a step upward and pose unwanted competition. The group of party bosses settled on incumbent Vice President Jusuf Kalla as their preferred choice: he is relatively neutral and (more importantly) his advanced age (76) rendered a 2024 president bid unlikely. However, the Constitution limits presidential and VP terms to a maximum of two, and Kalla was also Susilo Bambang Yudhoyono’s VP from 2004–2009. In a coldly calculated maneuver, President Joko condoned a legal challenge of the Constitution to interpret term limits as applying only to consecutive terms, thereby allowing Kalla to stand. In effect, Joko abetted a move to tamper with a crucial safeguard of democratization, despite the hazards of doing so in a context with a long authoritarian past.

The Constitutional Court refused to entertain the change and therefore President Joko seemed inclined to choose a reputable former minister, Mahfud Mahmodin. Fifteen years ago, however, Mahfud and National Awakening Party chairman Muhaimin Iskandar were on opposite sides of a bitter factional split within the party. Iskandar objected to Mahfud and President Joko relented. In fact, given the president’s bargaining position and the surfeit of parties backing his nomination, he could presumably have overridden Iskandar’s objection. In any event, the party bosses advocated Ma’ruf Amin, a relatively lesser known but powerful cleric whose age (75) should limit his 2024 presidential prospects. Governing Indonesian Democratic Party of Struggle (PDI-P) chairwoman Megawati Soekarnoputri backed Amin, even though her party ostensibly opposes the staunchly conservative views that the cleric espouses as MUI chairman. In the blasphemy trial of Purnama, Amin served as the crucial expert witness who cemented the prosecution’s case.

For President Joko, Amin offered additional appeal: as Purnama’s chief accuser, and as head of the MUI that hard-line Islamic groups have extolled, he should have commanded sway with the anti-Purnama alliance irking the president. Poaching Amin might win over some of the opposition’s supporters. In effect, President Joko was embracing the age-old maxim of identity politics, associating himself with an erstwhile rival in hopes of co-opting elements of the opposition. This showed a lack of faith in his democratic and reformist credentials. The former maverick mayor of Solo was conforming to the top-down elitist maneuvers so characteristic of Indonesia’s patronage driven past.

Ironically, whether the pressures that affected Purnama actually posed a threat to President Joko is questionable. The two figures differ profoundly. Whereas Purnama is a double minority (an ethnic-Chinese Christian), the president comes from a quintessentially Javanese Muslim background. Perhaps more important, unlike the former governor, who spent nearly two years in prison, President Joko has not been an enterprising institutional reformer. Nonetheless, he is inherently cautious, and Purnama’s downfall apparently convinced him that he must appease and accommodate Indonesia’s nefarious vested interest groups, lest they band against him and tear him down.

Campaigning

Islam, corruption and reform have been the main elements in Indonesia’s democratic elections since the fall of Soeharto in 1998, including the two elections pitting President Joko against Prabowo. In 2014, Joko stood out as a pluralist candidate, while Prabowo aligned himself with the strictly Islamic Justice Welfare Party. He burnished his record as a clean regional head, while Prabowo pledged to be a decisive leader who would eradicate corruption through willpower. Both pledged to undertake reforms. He won in 2014 by 6 percentage points, and thereafter no viable new opponents emerged for the 2019 contest. President Joko’s prospects for defeating Prabowo again seemed strong. He had a credible record on which to run: long-awaited infrastructure projects were coming to fruition, social programs were rolling out and inflation remained low. He consistently projected an affable,

homespun demeanor that resonated with the public, and he had avoided any taint of scandal. By comparison, Prabowo had remained out of view for long stretches, he lacked campaign financing and his health appeared questionable. Throughout the 24 months until Election Day, polling data consistently showed President Joko with double-digit leads over Prabowo, almost invariably by a margin of 18 to 22 percent.

Nonetheless, he approached the election with caution, bred in part from observations of the 2016 17 anti Purnama campaign. He also appeared to be reactive: while Prabowo stuffed the upper ranks of Gerindra with retired generals and colonels, President Joko conferred the coveted post of presidential chief of staff on Moeldoko, the retired Army general; and when Prabowo confirmed the coal tycoon Sandiaga Uno as his running mate (and chief financier), the president responded similarly, recruiting another tycoon, Erick Thohir, to chair his campaign team. Most significantly, when Prabowo forged explicit support from hard-line Islamic organizations in a “Conference of Clerics,” President Joko reacted by bringing Amin onto his ticket.

In addition to assuaging his party backers, he recruited Amin in the clear hope that the conservative cleric would help the ticket’s image with Islamic oriented voters. Amin had stood out as Purnama’s chief accuser, and he held a senior post in the Nahdlatul Ulama (NU) mass Islamic organization as well as the top position in the MUI. But the president may have overstated the value of Amin’s credentials.

First, despite his seniority and age, Amin had become prominent only in 2015, upon appointment as MUI chair. Having spent much of his career in the Soeharto era provincial assembly of Jakarta, he conveys the sensibilities of a veteran Islamic party operator, in contrast to a younger generation of media savvy clerics whose sermonizing can sway audiences. And most important, by embracing Amin, President Joko was dismaying two key groups of his own ardent supporters within his base: pluralists wary of incursions on religious freedom and reform-minded voters resentful of the clerics and vested interests that brought down Purnama. He risked alienating more voters than he was gaining.

Nonetheless, his campaigning proceeded well. The economy stabilized by the end of 2018, keeping inflation in check; Amin avoided controversies and Prabowo campaigned poorly. At a November rally in Boyolali, Central Java Province, Prabowo told a crowd that if any of them attempted to enter a top hotel in Jakarta, the staff would oust them because “you look like bumpkins.” This damaged his image in an electorally crucial province. Prabowo also denounced political intimidation when his campaigner Ratna Surampaet claimed to have been assaulted by thugs, but this backfired when police exposed the claim as a hoax. Meanwhile, Prabowo’s stump speeches focused animosity on foreigners, a tactic that did little to damage the president. National polls showed that President Joko was maintaining his lead, and a series of presidential debates in early 2019 made no apparent impact on voters.

Prabowo adhered to caustic campaigning, denouncing Indonesia’s economic system and reiterating that “the nation’s wealth is leaking overseas.” He called for an end to foreign borrowing, an end to food imports, increased state ownership and controls on capital flows. These policies, even if only partly implemented, would have been a recipe for inflation, depreciation and stagnation. In the campaign’s final two weeks, Prabowo escalated his rhetoric, while reinforcing his association with Islamic groups. He surrounded himself with aides and followers in Muslim dress, while styling his own appearance on that of the nation’s founder and first president, Soekarno. In a massive final rally in Jakarta’s national stadium in early April, he drew more than 200,000 white clad supporters while he himself emulated Soekarno and railed against foreigners. He declared, “The Motherland is being raped.”

Election results

President Joko emerged with 55.5 percent of the election’s popular vote and endorsements from parties that account for 61 percent of the next Parliament. Ultimately, this supports a prima facie argument that his appeasement based strategy was appropriate: he subordinated policymaking to the re-election imperatives that he perceived, and he won. Nonetheless, it seems reasonable to question whether his choices were necessary, especially given their costs in terms of reform and economic opportunities forgone. Had he embraced more change – promoting cleaner governance, defending pluralism and recruiting a compelling running mate – he might have performed better.

In fact, the victory margin of 11 percentage points was lackluster, given the 15-20 point lead long indicated by nearly all credible polls. The final result was an equivocal appraisal of his first term. It also raises the specter that another campaign built on Prabowo’s identity politics could prove successful in 2024, if a comparable candidate emerges (or if Prabowo tries a third time). The opposition leader has demonstrated that his following in the next campaign need only expand by six percentage points in order to comprise a majority.

Why the polling was somewhat misleading remains unclear. A possibility is that the findings were exaggerating President Joko’s margin because some Prabowo supporters disguised themselves as “undecided” respondents or declined to answer queries. For instance, in a survey conducted by the Center for Strategic and International Studies from March 15-22, President Joko had an 18-point lead, while 14 percent declined to indicate their preference (an additional 1 percent described themselves as “undecided”). CSIS cross-tabulated those who did not answer based on various characteristics, and several categories featured disproportionately high percentages of respondents who did not answer, such as those working in professional positions (47 percent did not answer); residents of Jakarta (31 percent); university graduates (21 percent); and urban residents (17 percent). These are all categories in which Prabowo outperformed relative to his nationwide total. This provides some reason to suspect that, among respondents declining to answer poll questions, a disproportionately large number harbored pro Prabowo sentiment.

However, even if this effect did in fact exist, it seems doubtful that it accounted for the entire discrepancy between the indications of pre election polls and the official result. Differences in turnout ratios could be another factor: those who had backed President Joko in polls may have turned out to vote at a lower rate than those backing Prabowo. Yet another factor may have been a shift in sentiment in the final days of campaigning, after opinion polling ended but before Election Day. During that time, Prabowo garnered publicity for the spectacle of his final rally in Jakarta. Dwelling on economic injustices may have finally appealed to voters frustrated with a dearth of formal sector job opportunities. Polling has shown that top complaints are living costs and underemployment; President Joko has succeeded in containing inflation, but job creation has been anemic. Ultimately, the discrepancy between polls and the official result may have been attributable to a combination of factors: non-answers among Prabowo supporters in polls; higher turnout among Prabowo supporters; and a late shift in sentiment. In any event, a larger question is why Prabowo garnered such strong support. Identity politics clearly stands out as the main factor.

The presidential election breakdown by region suggests that religion played an important role, at least in certain areas. President Joko won by the largest margins in provinces populated predominantly by religious minorities (Bali, East Nusa Tenggara and West Papua.) Conversely, Prabowo won by the largest margins in provinces with pronounced Islamic characteristics (West Sumatra, Aceh and West Nusa Tenggara). Relative to 2014, these respective winning margins widened in 2019: President Joko improved markedly in his top three provinces, as did Prabowo. A wider disparity also emerged across one of the major divides of Indonesian politics: the division between the populous island of Java, on one hand, and all islands other than Java, on the other. In 2014, the president won Java by a margin of only 4 percentage points, while performing somewhat better off Java; in 2019, he dominated on Java, winning 60 percent, but won only a very narrow 51 percent majority off Java.

But if religious identity played a major role in the election, one question that remains is whether this arose organically from the grassroots or whether Prabowo’s manipulation of religious themes served to stimulate a reaction from voters (ie, whether identity politics come from the bottom-upward or from
the top-downward). Interestingly, Islamic and Islamic oriented parties fared no better in the 2019 legislative election, on aggregate, than they did in 2014. Nor, for that matter, did Prabowo’s Gerindra Party improve. If there was a greater tendency for sectarian-driven voting in the presidential contest, it appears to have been absent in the simultaneously conducted legislative vote.

Future polling may shed some light on how much of Prabowo’s 44.5 percent of the electorate favored him for religious reasons, and how much responded to his strident denunciations of inequality, injustice and hardship. Any lessons gleaned from such polling will likely shape the open 2024 presidential race: there will undoubtedly be contenders ready to campaign on emotive religious issues or exploit grievances about the economy and corruption. In addition, the lessons that President Joko discerns may shape his approach to his second term. If he concludes that a wave of grassroots Islamic sentiment came quite close to ousting him, he may instinctively cater to Islamic groups and attempt appeasement, which might point toward yet more inward looking and dogmatic policymaking. But if he concludes that economic grievances were significant, constructive remedies might come forth. Facilitating investment and reforming regulatory rigidities in the labor market could be effective starting points.

Joko 2.0

In theory, President Joko is in a perfect position to unleash constructive change in his second term. As he himself has pointed out, he is “unencumbered” – he cannot run again due to term limits and therefore faces no electoral constraints on his policymaking. He possesses formidable power in the office of the presidency, and he has endorsements from parties accounting for at least 61 percent of Parliament. Having arrived in national politics via successive popular elections for regional head posts, he lacks the entanglements with the establishment that tend to hold back other politicians. Nonetheless, despite these considerations, the prospects for a second term “whirlwind” of reform are actually remote.

First, the parties backing President Joko have scant interest in change. Parliament earns low regard from poll respondents; the assembly has a low legislative work rate; and rent seeking remains commonplace, as made clear from a long series of cases prosecuted by the independent Corruption Eradication Commission (KPK). All nine parties in the current assembly have demonstrated hostility toward the KPK, with Megawati’s PDI P among the most vociferous. (President Joko is only a rank-and-file member.) Furthermore, parties in a nominating alliance need not adhere to every stance that a president makes, and experience has shown that divergent postures are common. More important, his own personal approach to politics has gradually changed: he now places emphasis on pursuing consensus and avoiding confrontation. This aversion to risk and rancor is a limiting factor in Indonesia’s outlook. Rather than a transformation or metamorphosis, he aims to bring about change inclusively, accommodating an array of interests. In practice, this risks torpor.

Patronage style politicking (a legacy of age old practices) remains strong, and it runs directly counter to the imperatives of democratization and the rule of law. While much of the elite adheres to conventional habits of rent-seeking and fealty, the bulk of the public prefers change and reform, as evinced by years of opinion polling and the outcome of successive elections, nationally and regionally. At present, Indonesia is only partway through a systemic transition, and two mutually incompatible political systems are operating simultaneously. President Joko is wedded to forging unity and consensus among the disparate elements of national politics. But if he continues to attempt to blend these interests, rather than championing change, dysfunctions will persist and he will be working within a morass. Presiding over two conflicting systems, his penchant for consensus promises yet more dysfunction.

Indonesia is only partway through a systemic transition, and two mutually incompatible political systems are operating simultaneously.

President Joko’s priorities in a second term seem likely to feature strong continuity with those of his first five years, namely, social service spending and infrastructure development. Particularly popular is free universal health coverage (Kis) provided to lower income groups, along with an affordable national health insurance system (BPJS) for others. Kis beneficiaries in 2019 number 97 million, and the state budget allocates $1.9 billion (Rp 27 trillion) to cover the program costs. Together with the BPJS scheme, more than 82 percent of Indonesians are beneficiaries. Also popular is the Smart Card program to extend stipends for schooling to 18 million needy pupils. The program directly deposits funds monthly in a bank account accessible with an ATM card. There are also efforts to expand vocational education programs to prepare young people for roles in the real economy.

Yet another prominent program is the Family Hope Program (PKH), which provides 10 million impoverished households nationwide with monthly cash stipends, provided that they take part in maternal child health care programs and keep their children enrolled in school. President Joko announced that he will nearly double PKH spending in 2019 to $2.4 billion. Each household received $130 in 2018; in 2019 this will increase and vary according to needs, to as high as $245.

Yet another form of fiscal stimulus is the Community Funds program, which deposits approximately $70,000 annually with each of the country’s 75,000 communities, for their use in local improvement projects such as roads, irrigation works, clinics, markets, kindergartens and sanitation projects. Total spending on the nationwide program will rise in 2019, with an increased focus on empowerment. Another initiative has been the distribution of free land ownership titles for households that have rightful claims to the small land plots that they occupy. President Joko has consistently presided over ceremonies to confer these legally secure titles. In 2015, 116 million land parcels qualified for titles, but the National Land Agency (BPN) had issued titles for only 46 million parcels. The BPN issued five million free titles in 2017 and nine million in 2018. Its target is to issue 11 million in 2019. By 2025, the BPN aims for all valid parcels nationwide to have titles. Because they qualify as a form of collateral, titles enable landowners to access financing for investments that improve their land, thereby boosting growth.

Infrastructure development has been the other main leitmotif of President Joko’s first term, and this seems likely to continue, provided that financing remains available. A singular accomplishment of the president pertains to land acquisition: he achieved breakthroughs to finally make projects feasible through the use of eminent domain, whereby the state has the power to cancel land ownership rights for public interest infrastructure projects (in cases where landowners refuse independent fair appraisals of compensation for their land and building value). Rules governing this process went into place under President Yudhoyono, but he never actually implemented them. President Joko showed more resolve and, by now, processes for taking over land needed for projects have become reasonably commonplace and routine.

The president’s administration has delivered a host of projects such as toll roads, railways, seaports, airports and reservoirs. Prominent projects in the Jakarta area have included the construction of Terminal 3 at Soekarno-Hatta International Airport, the Mass Rapid Transit line and the upgrading of the busway network, the Outer Ring Road, intersection underpasses and rail linkages. Projects under way include a Light Rail Transit line, an elevated toll road to Bekasi, West Java Province, an integrated transportation hub downtown, an extension of the MRT and construction of a third runway at Soekarno Hatta. Elsewhere in the country, the long-awaited Trans-Java Toll Road became linked in February 2019 and a Trans- Sumatra toll road is gradually making headway. Reservoir construction is under way in scores of areas, to support irrigation and conserve water. Signature projects include the Makassar Seaport, the striking Holtekamp Bridge in Jayapura, West Papua Province, and new airports in Medan and Yogyakarta.

In some cases, projects coming to fruition have shown signs of faulty planning. An LRT line in Palembang, South Sumatra Province, suffers severe underutilization, while the new Jakarta Airport Train is distinctly unattractive for most types of passengers. In West Java, the world-class Kertajati Airport is virtually empty because a toll road link to Bandung has not yet materialized. Perhaps most noteworthy is the $6 billion Indonesia-China high-speed rail project linking Jakarta and Bandung; given the unstrategic locations of the terminals at either end, the benefits for commuters are questionable, as are the costs shouldered by state enterprises. Meanwhile, urgent nationwide needs for sanitation and potable water continue to suffer neglect.

Another deficiency of infrastructure development has been the paucity of private participation. In some cases, state enterprises have made progress faster than private players might have done, but, overall, the government has committed finite state resources to a host of projects that private entities might have performed instead, alleviating burdens on the state. President Joko’s approach has produced some quick wins, but the sustainability of the effort is questionable.

A priority that the president has pledged to pursue in his second term is human skills development. He is keen in particular to provide vocational training and ensure that graduates with skills have opportunities for jobs in the real sector. The goal is certainly worthwhile, as human resource issues constrain prospects for investment and growth. However, significantly upgrading the productivity of the work force ultimately requires breakthroughs in education at all levels. Under the president’s appointees for the portfolios of education and higher education, reform initiatives have been lacking and conventional “business as usual” practices persist. In particular, mathematics lack emphasis in a curriculum crowded with dogmatic subjects, while rote memorization is commonplace. The prospect of enabling international schools to operate universities on a for-profit basis has faced intense resistance, on ideological grounds as well as from incumbent schools fearful of competition. President Joko has promised to open tertiary education to foreign involvement, but doing so would require an act of Parliament – and liberalizing myriad controls over staffing and curriculum would run directly counter to the longstanding instincts and proclivities of policymakers.

Thus far, President Joko’s focus on the priorities of infrastructure and social services has provided dividends, both economically and politically. Improvements in human resources, if feasible, would be similarly constructive. But these do not touch on several other more fundamental and urgent needs. These include the energy sector, the labor market and the fundamental management of the state
apparatus.

Breakthrough potential

In the energy and mining sector, President Joko has been emphasizing resource nationalism, combined with the prioritization of state enterprises and the restoration of subsidies for fuel. These policy tendencies were in place before he took office, and he has reinforced them. He implemented the nationalization of the copper and gold mine Freeport, while refusing to extend concessions for two giant oil and gas fields: Total’s Mahakam block and Chevron’s Rokan block. These moves have chilled the business climate, by demonstrating that foreign operators have very limited scope within which to recoup their returns on exploration and investment. Biannual auctions of exploration blocks have received virtually no bids from any of the international oil majors for the past three years. Meanwhile, under the management of Pertamina, the Mahakam block has suffered a serious decline in production. Having fallen by 22 percent over the past decade, oil production appears likely to continue trending downward.

At the same time, the 2017 reimposition of fuel subsidies serves to encourage overconsumption, and nearly half of domestic consumption depends on foreign imports of oil. Indonesia is recording an oil trade deficit that is growing inexorably, weighing heavily on the current account, which is also in deficit.
Thus far, an offsetting factor has been a gain in exports of coal and crude palm oil, but this is temporary; the deficit in oil will soon outstrip the coal and palm oil surplus. Covering the current account deficit (CAD) depends on investment. But long term FDI slumped in 2018, while inflows of short-term placements and portfolio funds (ie, “hot money”) were also weak, and therefore the rupiah sank
steadily throughout most of last year. Amid a mounting oil deficit and lackluster FDI, hot money flows will continue to render the CAD – and the rupiah – volatile. Longer term, the sustainability of the CAD is questionable in the absence of remedial policy measures.

A key remedial effort could be a move to emphatically embrace renewable energy. Indonesia has been among the world’s least friendly environments for investment in renewable energy, due to regulatory restrictions imposed by the energy ministry and the resolute preference by state power company PLN to use coal. The ongoing prosecution of former PLN chief director Sofyan Basyir in the Riau-1 case, which involves substantial kickbacks paid on a coal supply contract granted by PLN, seems to indicate that PLN’s preference for coal-fired plants pertained to the lobbying prowess of industry players and the waywardness of incumbent interests. (The Riau 1 plant is one of more than half a dozen coal power plant projects involving financing and technology from China.) Meanwhile, Indonesia’s vast potential for solar, wind, geothermal and micro-hydro power still remains virtually untapped. This could change through an overhaul of decision makers in the cabinet and the top ranks of relevant ministries, but President Joko has shown scant willingness to make sweeping personnel changes to date.

Indonesia could also correct the current account deficit by energetically growing exports of manufactured goods, but a boom in this sector would require significant changes to the regulatory framework for the labor market. President Joko has signaled a willingness to countenance certain changes, and ample scope would appear to exist for an equitable compromise between the divergent interests of employers and unions, but reform-minded personnel with the requisite aptitude for forging agreements has been absent under his administration.

Particularly pernicious are stringent rules on job security, combined with high mandatory severance payments for laid-off workers. World Bank data from its Ease of Doing Business Survey show that Indonesia ranks third in the world, after Mauritius and Sierra Leone, in terms of weeks of pay due to workers made redundant (for workers with contract tenures of one, five and 10 years, the weighted average payout required is 60 weeks). For smaller scale operators in labor-intensive manufacturing of garments and footwear, going into and out of production is a routine occurrence. But the regulatory framework deters such investors from entering, given the cost and difficulty of closing down when necessary.

In effect, labor regulations serve the interests of a small minority of formal sector workers in active unions (who enjoy strong job security), while preventing sorely needed job creation that might benefit non-union workers and, especially, the majority of the working age population that still toils in the informal sector, underemployed with no benefits or safeguards whatsoever. The framework is a textbook example of policy captured for the benefit of a well-organized minority, at the expense of a larger contingent of the disadvantaged and poor.

The regularity rigidities in the labor market are particularly pernicious at present, as potential exists to accommodate manufacturers from China who are relocating en masse to Southeast Asia. Indonesia has been lagging far behind neighboring competitors for FDI from China. However, minimum wages remain internationally competitive in some regions of West Java and, especially, Central Java, while transportation and power infrastructure is improving. Moreover, anecdotal evidence suggests that some district chiefs in these provinces are beginning to discern the electoral benefits of facilitating investment and generating jobs for constituents (as opposed to viewing putative investors as marks for shakedowns). Potential would seem to exist for attracting Chinese investors, who through their sheer size can transform entire sectors. However, impediments persist, including restrictions on hiring and firing workers, limitations on expatriate work permits and tax disincentives for foreign executives.

An even more crucial need, because it cuts across the full range of the functions of the state, is fundamental institutional reform, particularly for the incentive structures affecting state personnel in the bureaucracy. In 2009, when the re-election of Yudhoyono momentarily lifted optimism for reform, Vice President-elect Boediono and the incoming chairman of the Presidential Work Unit on Accelerating Development, Kuntoro Mangkusubroto, compiled a list of priorities for reform, and bureaucratic reform
ranked first. However, subsequent cabinet appointments by Yudhoyono prevented progress. Not until 2014 did a meaningful step occur, with the passage of the State Civil Apparatus Law, but to date President Joko has produced only a small handful of the dozen or so implementing regulations mandated by the law.

Ironically, as president, he has brought genuine concern for the plight of those who are poor or underserved by the government, yet he has paid little heed to the bureaucratic management structures

that perpetuate dysfunctions and mitigate against professionalism in service delivery. Having spent his career in private sector manufacturing as an entrepreneur, President Joko has lacked firsthand experience operating within a public organization. Suitable examples exist to emulate institutions that
have implemented reforms and achieved professional performance. These include key parts of the Ministry of Finance, the KPK and Mangkusubroto’s former Aceh Reconstruction Agency (BRR). The latter handled more than $5 billion in international aid for reconstruction and redevelopment after Aceh’s 2004 tsunami without mishap or scandal. A common feature of both the KPK and BRR is that the government authorized exemptions from standard civil service management roles when the agencies came into existence. The KPK and BRR were therefore able to pay adequate salaries, prevent conflicts of interest, impose accountability for wrongdoing and reward personnel who attain key performance indicators. These simple and effective principles have yet to roll out to the vast bulk of the government bureaucracy, due primarily to resistance from vested interests that manipulate current structures and incentives for their own advantage.

In particular, civil servants take home plenty of money at the end of the month on average, but only a small percentage comes from theirbase salary. The bulk emanates from a myriad of stipends, per diems and honorariums that their superiors control. This renders personnel subservient to the senior-most civil servants, but it mitigates against meritocracy and renders the bureaucracy susceptible to manipulation by patronage style leadership. Hundreds of corruption cases successfully prosecuted by the KPK have disclosed the prevalence of rent-seeking behavior, whereby senior officials focus on establishing policies and regulatory structures that generate flows of extraordinary remuneration, or “rent.” Dismantling these “rentier” structures is imminently feasible, provided that an adequate number of reform-minded officials at the highest levels are able to restructure bureaucratic incentives within their ministries and agencies. The effort would require relatively little in terms of fiscal resources, and
meanwhile, the returns would be significant in terms of reduced waste, more effective service delivery and, most of all, increased certainty in regulatory functions and law enforcement.

During a debate during the presidential campaign, President Joko explicitly mentioned prospects for bureaucratic reform and outlined the scope in a nutshell. However, as president, he has paid scant interest to the issue in practice. He has made a series of weak appointments for the crucial cabinet position pertaining to the matter (the post of state minister for the state apparatus and bureaucratic reform). Political elites covet the job because it entails authority for approving or rejecting requests by ministries to add personnel or alter their official organizational structure in any way (a potentially
remunerative power). The president’s treatment of the post as an item of patronage to be bartered tends to tacitly encourage abuse of its powers for rent-seeking – precisely the behavior that the appointee as state minister should be countering.

Prior to becoming mayor of Solo, President Joko had spent his adult life as an entrepreneur, without having experienced the operations of a bureaucratic organization from within. In any event, for whatever reason, he remains determined to pursue better governmental outcomes without attempting
to change the operating methods by which the government produces those outcomes. Focusing on retooling the state apparatus would boost future prospects, but he is either overlooking the potential or overestimating the costs.

A full two decades since the advent of democratization and reformasi, entrenched mafia style practices still impair governance. Having freed the press, instituted real elections and changed successive governments peacefully, Indonesia has accomplished the seemingly difficult aspects of its transition. And yet, the democratically elected president and Parliament are arguably neglecting the public’s desire for more clean and responsible governance. Two mutually incompatible political systems continue to operate simultaneously, producing conflict on a daily basis: one, mandated by the electorate, demands transparency, accountability and responsible policymaking; the other, in place
for centuries, prioritizes rent seeking in order to accumulate resources, fund largesse with which to procure political loyalty and thereby acquire yet more power.

Democratic reform still hangs in the balance, and President Joko’s second term appears likely to be the most momentous of the post-Soeharto era. With economic reforms to lift growth, Indonesia might yet avert a looming middle-income trap. And with institutional reforms to professionalize governance and purge mafia style elements, voters in the next election cycle may retain faith in the abilities of democratic-minded leaders. However, the president’s penchant for avoiding conflict risks stagnation. If so, voters in 2024 may turn in desperation to sectarian or arch-nationalist alternatives.



"Kevin O’Rourke is the writer of Reformasi Weekly, a subscription service analyzing Indonesian politics and policymaking."

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