Jokowi wants to boost Indonesia’s economy through a string of bureaucratic reforms designed to increase foreign investment. But his cabinet appointments could derail his economic agenda.
Indonesia’s president, Joko Widodo, has vowed to use his second term to push bureaucratic reform and further open the country’s industries to foreign investors. During his victory speech, he urged the government not to be allergic to investment and to pull out all the stops to lure foreign funds to the archipelago.
However, some of his cabinet members may be uneasy with Jokowi’s reform plans. In some cases, increased foreign investment would be at odds with their own business interests. Will they get on board with reforms that may be beneficial to the country at large but sting their back pockets?
Jokowi’s cabinet cobbles together veteran politicians from across the political spectrum
On October 23, 2019, Jokowi announced the 38 ministers that would sit in his new cabinet. Nicknamed his “rainbow cabinet”, the group was a blend of new faces and political dinosaurs from across the political spectrum.
While Jokowi’s intent was to create stability through political diversity, appointing cabinet members from ten political parties, his cabinet appointments have severely diminished the opposition’s ability to provide checks and balances on the government of the day. By bringing political opposition figures into the cabinet, including his two-time electoral opponent Prabowo Subianto, Jokowi has removed any effective opposition from parliament.
Jokowi’s ministers have deep business ties to oligarchs and industry tycoons
Prabowo Subianto, Jokowi’s new defence minister, has strong ties to oligarchs that benefit from monopolies.
Luhut Pandjaitan, the chief maritime minister who is a close confidant to the president, now has the official role of investment oversight. Mr Pandjaitan, a former military general, has significant business holdings in the natural resources, power generation, and agricultural sectors. There are concerns that he may use his power to influence the lucrative oil, gas, and mining industries to benefit his company, Toba Sejahtera Group.
There are also concerns that not every cabinet member’s business interests have been fully disclosed. A recent report from NGO Global Witness suggested that high ranking politicians Luhut Pandjaitan and Sandiaga Uno may have used corporate secrecy techniques to hide their ownership of companies and cash flows.
While there is ample talent in his cabinet and a genuine appetite for economic reform, Jokowi has awarded control of the country’s main ministries to established political veterans. These dinosaurs have the closest ties to Indonesia’s traditional industries and are the least likely to depart from the economic status quo. Even if the young reformers and startup founders like Go-Jek’s Nadiem Makarim can produce modern solutions to economic issues that have long dogged Indonesian markets, there is no guarantee they are unlikely to secure the support from the veterans that hold the levers of power.
As foreign investment increases competition in key industries, these veteran politicians with significant business interests could find their monopolies under threat. They would then face the difficult task of implementing reforms that could negatively impact their personal financial interests. Given such a task, would they push back against Jokowi’s economic agenda?
With conflicting interests among his cabinet members, there is also a large margin for bureaucratic infighting. Persistent disagreement could undermine Jokowi’s effectiveness in implementing his economic agenda.
Previous presidents governing over a broad cabinet have had to use patronage mechanisms to bring defiant cabinet members to secure their political backing. Jokowi may have to dispense similar measures to build a consensus.
Jokowi’s disinterest in political reform could also limit economic progress
Recent revisions to the country’s Corruption Eradication Commission (KPK) have reduced independent government oversight and will reduce the organisation’s reach in bringing corrupt officials to justice.
The crippling of anti-corruption efforts represents a form of democratic backsliding that sends a worrying message to investors. Corruption and graft create a business environment that favours established domestic businesses. Even if Jokowi’s government can remove bureaucratic barriers to investment and reduce red tape, without a concerted effort to tackle corruption Indonesian markets may not receive the capital inflows Jokowi is anticipating.
Jokowi craves economic progress
Jokowi wants to leave his mark on the Indonesian economy. His bold infrastructure plan and deregulation efforts were supposed to bring economic growth to 7% and beyond. Despite progress on curbing inflation and the construction of a host of new roads and ports, his 7% target has remained out of reach.
Widodo has a final term to cement his legacy. But to do so he must view economic growth and reform through a political lens. Deregulation without a serious effort to tackle corruption will not bring the foreign direct investment he craves. Just as a broad cabinet will not bring consensus and stability. To effectively court investment, he must create a political environment that supports competition and a level economic playing field. That should start with a reform-minded cabinet.