Jokowi benefits from short-term pre-election economic boost

Photo Credit: Kremlin.ru

Government and consumer spending surges as legislative and presidential elections near. That creates an economic spike that will benefit voters and the incumbent president.

By John Pennington

As Indonesians prepare to go to the polls on April 17, they do so against the backdrop of better-than-usual economic growth. Elections typically deliver economic upticks, and Indonesia’s will be no different.

In general terms, economic growth since incumbent President Joko Widodo (known as Jokowi) assumed office in 2014 has stalled. He has to hope that this last-minute burst will help him gain extra votes in his bid to see off rival Prabowo Subianto.

Sources: Country EconomyIMFThe Straits Times, World Bank (I), (II)

Money has been flowing since January

Since the start of the year, orders for party merchandise have been flooding in. Banners, clothing and placards are flying off the shelves. “The orders are 50% higher than during normal months,” reported Acep Abdul Aziz, who owns a shop in Jakarta’s Pasar Senen market.

Jokowi has also provided local government officials with extra funding. Data shows that government expenditure is up 14% from the same period last year as officials try and do everything they can to reach as many votes as possible. Social aid spending is up, and civil servants received a pay rise.

By capping fuel prices and increasing social welfare handouts, the government has increased the purchasing power of millions of Indonesians. That spending power is projected to bolster the economy over the coming weeks.

Analysts expect this spending surge to continue. Retail sales usually decline in the first couple of months of the year, but this year they are up 10.6% from 2018.

The government predicts annual GDP expansion to reach 5.3% for 2019, with the central bank’s estimate between 5 and 5.4%. That would represent higher growth than last year’s 5.2%, which was the highest since 2013.

“The big[gest] impact will be seen in household consumption and, at least, this will offset weakness of other drivers of growth,” assessed Dr Mohammad Faisal, executive director of the Centre of Reform on Economic Indonesia.

A combination of factors is driving this late economic surge

Legislative elections in Indonesia take place once every three years. Presidential terms last five years. This means that for the first time, voters are being asked to cast their ballots in both elections. More elections and more candidates have led to a demand for more campaigning material and merchandise.

Foreign direct investment levels are down, but inflation levels are at their lowest rate since 2016. Along with interest rate cuts, this is also contributing to extra consumer spending.

Source: Trading Economics

Elections are often won or lost by candidates’ actions towards the end of their campaigns. “Indonesian people mostly have a short memory, and so politicians mostly spend just days before the election,” explained David Sumual, chief economist at PT Bank Central Asia. Expect the spending – as well as the rhetoric – to continue to ramp up as polling day nears.

A late boost to the economy will benefit Jokowi

This burst of activity could play into Jokowi’s hands. He has put stimulating the country’s economy at the heart of his bid for re-election. He could use some economic success stories to convince voters that he is a better choice than Prabowo.

The majority of Indonesians are happy about the state of the country’s economy. The number of people describing their economic situation as positive is rising and has done so consistently since Jokowi took power.

Those who feel he has already handled the economy well will likely vote for him again, particularly if they see economic growth accelerating. He can also point to progress in other areas such as falling unemployment and poverty levels since he took office.

A pre-election economic boost is an established pattern

The phenomenon is nothing new. Experts predicted that consumer spending in India, Indonesia and Thailand – all of which held, or are scheduled to hold, elections this year – would grow.

A cynical view is that tactics such as handouts to those living in rural areas and cost caps are ‘tricks’ designed purely to win votes rather than long-term fiscal stimuli that benefit the entire country. Such tactics do not always work, as Turkey’s President Recep Erdogan recently found out during mayoral and municipal elections in his country.

Nevertheless, an economic surge could allow Jokowi to distract voters from areas of his presidency that have not been a success. For example, voters may overlook his failure to bring in infrastructure investment or deal with environmental issues if they feel the economy is making progress and they are likely to benefit.

Is Jokowi trying to buy an election victory?

Although recent opinion polls give Jokowi a commanding lead, the election result is far from clear-cut. The vast numbers of people that remain undecided mean that opinion polls cannot accurately predict what will happen come election day.

It is no surprise that Jokowi will do all he can to avoid an unpleasant surprise come April 17. His critics will accuse him of trying to buy himself another term in office, but incumbent politicians across the globe adopt similar economic strategies in election years.

It makes Prabowo’s challenge even more difficult. He must show why he represents a better choice for the country’s economy without the same tools at his disposal. He must also convince voters to overlook short-term financial gains and see the bigger picture.