Jokowi’s challenges

SLOWING ECONOMIC GROWTH

High prices for key export commodities like coal, palm oil and rubber boosted Indonesia’s economy for much of the past decade and covered up many of the cracks in the country’s development. But the structural slowdown in China, the leading buyer of Indonesian commodities, has exposed the country’s weaknesses. The central bank and the government have been forced to cool domestic consumption — which makes up around 60 per cent of GDP — to limit the imports that were adding to the current account deficit.

STAGNANT MANUFACTURING

China, Vietnam, Bangladesh and India have all significantly boosted their share of global manufacturing since the ’90s but the contribution from Indonesia’s factories has remained unchanged. Despite the large poll of untapped cheap labour, Indonesian manufacturing has been shrinking as a proportion of national income.

POOR HEALTH AND EDUCATION SYSTEMS

The child malnutrition emergency in Indonesia is symptomatic of the failures to deliver adequate health and education services. The government launched a new nationwide health insurance scheme this year, with free coverage for the poor. But it has not increased spending on public hospitals and clinics significantly.

RAPIDLY RISING INEQUALITY

Income disparity is a growing concern for economists in wealthy Europe and the United States, but in Indonesia the gap between rich and poor is painfully wide, raising the fear of future social instability. Mr Cristobal Ridao-Cano of the World Bank says that no developing country has ever reached high income status while inequality is growing.

FUEL SUBSIDY BURDEN

Since Indonesia became a net oil importer in 2003, its large fuel subsidies have become an even greater fiscal burden. With petrol selling for 6,500 rupiah (S$0.68) — half the market price — consumption and smuggling have surged. The government is forecast to spend 246,000 billion rupiah this year on fuel subsidies, 13 per cent of the budget, limiting its ability to invest in more productive areas like infrastructure.

CORRUPTION AND RED TAPE

Indonesia remains a much harder place to do business than many rival emerging markets because of deeply entrenched corruption, the inefficient bureaucracy and widespread legal uncertainty. The independent Corruption Eradication Commission has taken some high-profile scalps but bribery and kickbacks remain endemic. That makes life particularly difficult for US, United Kingdom and Australian companies that must comply with new laws making overseas bribery a criminal offence.