Five challenges for Joko Widodo

Joko Widodo, the reform-minded Governor of Jakarta, was elected as Indonesia’s seventh President in a bitterly-fought election that marks the first time the country will have a leader from outside its tightly-knit elite.

Mr Widodo was swept into the top job on a wave of optimism. But even as the congratulatory calls come in from other world leaders, the hard work must begin for a man who was a little-known, small-town mayor just over two years ago.

Here are five immediate challenges he must overcome if he is to start his presidency on the front foot when he takes office in October.

1. Pick a strong Cabinet

A leader is only as good as the people around him — even more so for a man such as Mr Widodo, who has minimal experience of national government and has shown little interest in intellectual abstraction.

The President-elect has said he will not engage in the usual political “horse-trading” (or “cow trading” in Indonesia) of Cabinet seats but will instead try to recruit ministers with the right background, character and skills.

Investors and Indonesians will be watching closely to see who he appoints to key ministries such as finance, foreign affairs, agriculture and trade.

But the four political parties in his coalition, and doubtless many other hangers-on, will be pushing for rewards for their support and he will have to weigh political realities against the national interest.

2. Cut the fuel subsidy Bill

Dr Raden Pardede, an economic adviser to outgoing President Susilo Bambang Yudhoyono, has warned that Mr Widodo’s government will start “broke” and will be under pressure to cut the huge fuel subsidy Bill — more than US$21 billion (S$26 billion) this year and 13 per cent of the budget — in its first 100 days.

There has been some speculation that the outgoing leader may give his successor a welcome gift by taking this politically-sensitive decision for him, but that looks unlikely to happen in reality.

The World Bank and others have for years been urging Indonesia to eliminate fuel subsidies, but politicians fear upsetting middle-class car drivers (who receive most of the financial benefits) and the “oil mafia” who control the import and export of fuel.

Mr Widodo hinted on the campaign trail that he wants to cut the subsidy but has been short on specifics so far.

Such a move would free up funds for much-needed investment in infrastructure, health and education and would send a strong signal to bond investors, who are worried about Indonesia’s fiscal deficit (forecast by the World Bank to hit 2.4 per cent of gross domestic product this year).

3. Improve the investment climate

The corrupt legal system and a rising tide of economic nationalism, often interlinked, have damaged Indonesia’s reputation as one of Asia’s hottest investment destinations.

Mr Widodo, who has made protectionist noises while demonstrating a pragmatic approach to foreign investment in local government, has the opportunity to repair the situation.

Doing so will help attract the much-needed dollars needed to finance the current account deficit and promote economic growth, which has fallen to a five-year low. But it will not be easy.

He will have to deal with tricky cases such as that of Newmont, the United States gold and copper mining company, which is taking Indonesia to international arbitration over the government’s ban at the beginning of this year on the export of unprocessed minerals.

Mr Widodo has said he will stick with the ban, which is designed to promote the development of a metal-processing industry. However, he will be under pressure to find a better way to implement it that encourages that value-added industry to develop.

The Newmont situation is hardly ideal for any side: The company has laid off several thousand workers on a poor, remote island and is paying more than US$20 million a month to maintain a shuttered mine while the government gets no revenue and is embarrassed by the international lawsuit.

With many avowed economic nationalists in his party, and well-connected tycoons trying to profit from foreign investors’ woes, it will not be an easy balancing act.

4. Manage relations with his party

Mr Widodo’s party, the Indonesian Democratic Party-Struggle (PDI-P), was never wholeheartedly behind his presidential campaign.

Many in the party felt that this upstart from the provinces was a threat to the established hierarchy and patronage networks within PDI-P, which is chaired by Ms Megawati Sukarnoputri, a former President and daughter of Indonesia’s founding President, Sukarno.

As Mr Widodo’s huge poll lead evaporated in the face of a tough campaign from his rival, former general Prabowo Subianto, it was volunteers on the ground in many parts of this vast country, rather than PDI-P officials, who came to his rescue.

One of the most damaging attacks from Mr Subianto was that Mr Widodo was a “puppet” of Ms Sukarnoputri, who is not a popular figure outside her party.

If he is to prove that he is his own man, without a Sonia Gandhi-style boss controlling him, he will have to manage Ms Sukarnoputri and her party carefully, without alienating his supporters.

5. Manage relations with the House of Representatives

The PDI-P and the three other parties in its coalition control only 37 per cent of the seats in Indonesia’s powerful House of Representatives (DPR).

That could make life difficult, especially as Gerindra, the party of Mr Prabowo, who is refusing to accept the results of the election, is the third-biggest party in the DPR.

But, as President Yudhoyono demonstrated in his second term, having a big majority in the legislature is no guarantee of smooth and successful government.

He struggled to manage his rainbow coalition of parties, which defied him in the DPR on crucial issues such as fuel subsidy reform and used their Cabinet posts as personal fiefdoms to peddle influence and line their pockets.

The DPR does not take many decisions through full votes, instead working through issue-based commissions that hammer out policy behind closed doors “through consensus”.

Mr Widodo’s Vice-President, businessman and former Yudhoyono Vice-President Jusuf Kalla, could come in useful managing the black box that is the DPR, as he is known to enjoy the cut and thrust of dealmaking in Indonesia’s interlinked world of politics and business. The Financial Times

ABOUT THE AUTHOR:

Ben Bland is Indonesia correspondent for The Financial Times.