Investors cautious over Indonesia poll

Economy March 22, 2014 00:00

By The Straits Times

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Traffic along Jakarta's main streets has become worse in recent months.

Still, when the man responsible for managing the Indonesian capital was named a presidential candidate last Friday, the stock market rallied to its largest one-day gain in six months.
Residents are willing to forgive the gridlock, observers note, because it is due to construction of an MRT system that finally got off the ground last year after numerous delays.
And investors appear equally hopeful that despite the short-term uncertainty of an election year, a change of national leadership will lead to more decisive improvements to infrastructure across the archipelago.
“One can be cynical about elections, believing that no matter who wins, little will change," Wuddy Warsono, country head for Indonesia at brokerage and investment bank CLSA, told The Straits Times.
“On this occasion though, the market seems to think that Jokowi can make a great deal of difference,” he added, referring to Joko Widodo, the Indonesian Democratic Party – Struggle’s (PDI-P) presidential candidate and the front runner in recent opinion polls.
President Susilo Bambang Yudhoyono cannot stand again by law, and his outgoing administration has come under criticism for failing on the reform front.
Anton Gunawan, chief economist at Bank Danamon, said there was more at work in the stock market rally and the improving economy than just the “Jokowi effect”.
Recent improvements in the current account deficit had helped, he said.
However, he added, political factors were also at work.
Although the rally in the Jakarta Composite Index has since cooled down, in line with global conditions, economists say there is much optimism that a new government will adopt decisive policies to take Southeast Asia’s largest economy forward.
Gunawan said there was wide expectation that a PDI-P-led coalition – which many expect to form the new government come October – would have fewer parties than the existing six-party ruling coalition, and this would give the government more power.
He believes it will have a freer hand to appoint technocrats over politicians to lead key economic ministries.
Analysts say one of the first challenges facing the new president will be to reduce the heavy burden that fuel subsidies exert on the economy.
Such subsidies, which are projected to hit 210 trillion rupiah (US$18 billion) this year – out of a total government budget of 1,842 trillion rupiah, could be diverted to education, health and infrastructure instead, economists say.