Previous Quarterly Editions
Expropriation Risk: 80 80 84 83 Political Violence Risk: 66 64 68 69 Terrorism Risk: 56 58 57 55 Exchange Transfer and Trade Sanction Risk: 57 60 61 62 Sovereign Default Risk: 47 48 47 46
TREND ▼ OUTLOOK ►
The general election held on April 17 gave the country’s 193 million voters an opportunity to choose the president, the national parliament and provincial, city and district government from almost a quarter of a million candidates standing for office. Despite concerns that Islamist extremist or domestic terrorist groups would seek to disrupt the polls or use the opportunity presented by the elections to stage high-profile attacks, the elections passed off peacefully with few security-related incidents prior to the declaration of final results on May 21. Although the country’s election commission needed six weeks to assemble the official outcome, presidential results released on April 22 with 15% of the vote counted showed incumbent President Joko ‘Jokowi’ Widodo with 55% of the vote and his challenger Prabowo Subianto with 45%. This was in line with pre-election polling and also the so-called “quick count” of ballots conducted within hours of the polls closing. Turnout was estimated at around 84%, up from 70% in the 2014 presidential election and suggesting that a "no vote" campaign designed to reduce support for Jokowi was largely unsuccessful. However, although Prabowo’s early claim of victory was quickly withdrawn, his supporters, who are mainly drawn from conservative rural-based Muslim organisations, joined with other groups opposed to Jokowi to hold two days of strikes and demonstrations coinciding with the official results in May. In response, more than 30,000 police and security personnel were deployed in Jakarta and there was concern about a possible terrorist attack on the election commission. Indonesian elections are not contested on ideological grounds, with candidates instead vying for votes by focusing on narrow issues often barely distinguishable from each other’s policies and pledges. However, although no exception, the 2019 election has revealed the extent and nature of divisions within Indonesian society. The growing divide between conservative Islam and the more secular attitudes of the largely urban younger generation will broadly define the country’s future political fault lines. In the shorter term, the implications of the election for foreign investors and contractors are mixed. While Jokowi’s re-election with a similar level of support in parliament ensures continuity and is unlikely to result in new policies that undermine or add further costs to foreign companies, there is concern over his willingness to offer China huge contracts associated with his 300-billion-dollar infrastructure programme. Moreover, he continues to favour local state-owned enterprises over local and foreign commercial companies. There are also doubts that the president will follow through on his first term promises to reform the country’s labour laws or make a serious attempt to rein in the huge and costly fuel subsidies that absorb around 7 billion dollars a year. Growth slipped slightly during the first quarter as export volumes fell for the first time since 2016 amid the general weakness in global trade.
While campaigning, both presidential candidates emphasised their support for policies that prioritise Indonesian control of the country’s natural resources. Economic nationalism proved useful in mobilising political support, and there is no indication that Jokowi will now soften his tough stance on foreign investment in such areas as mining that developed during the latter half of his first term. In December, state-owned mining company PT Inalum assumed control of the local unit of US-based Freeport-McMoRan that operates the huge Grasberg copper and gold mine in Papua province. This is likely to be followed by the government acquiring 20% equity in nickel miner PT Vale Indonesia (INCO).
TREND ▲ OUTLOOK ▲
The April elections were conducted peacefully despite earlier concerns that organised and well-funded conservative Islamist groups could disrupt the polls. However, the demonstrations by anti-Jokowi forces in late May were unexpectedly large and the clashes with security forces did some damage to the country’s image. Prabowo appears set to challenge the result in the Constitutional Court, which must rule on his case by August. Although he will be no more successful than he was when bringing a similar complaint in 2014, the move will keep protests and disruption going for several months. Jokowi’s pre-election tack towards conservative Muslim organisations, including in his choice of running mate, may help to dampen Prabowo’s support slightly this time, but protests against the government from religious groups remain possible on a range of issues.
In the year since the wave of terrorist incidents in May 2018 that included suicide attacks against churches and police facilities in the East Java city of Surabaya, there has been nothing on a similar scale. The authorities blamed these attacks on the Jemaah Ansharut Daulah (JAD) group, a loose confederation of extremists associated with Islamic State. JAD is banned and anti-terrorism legislation has been amended to give the military a greater role in countering such groups. Security forces are continuing a crackdown in Papua against the Free Papua Movement's armed wing, with sporadic casualties on both sides.
TREND ▲ OUTLOOK ►
Capital outflows linked to concerns over the country’s economic performance, US interest rate increases, and the US-China trade dispute saw the rupiah start 2019 at its lowest level against the dollar for two decades. It recovered marginally during the first quarter but its course for the rest of the year will reflect a combination of external factors and domestic reaction to the country’s new government. There are growing concerns that a steep rise in loans during 2018 drained liquidity from local banks. Headline inflation was 2.5% in April. While it is likely to rise as subsidies are adjusted, it should remain within the government’s 2.5-4.5% target for 2019.
Foreign debt stood at 377 billion dollars at the start of 2019, up almost 7% year-on-year but remaining relatively stable at around 36% of GDP. This is well within the government’s legally mandated ceiling of 60% of GDP. Government debt, much of which is held by overseas interests, rose 3.3% and private sector debt increased 10.9% during 2018. The 2018 budget deficit was equal to 1.72% of GDP, below the government’s own forecast of 2.19%. Foreign exchange reserves totalled 124.5 billion dollars at the end of March, boosted by higher oil and gas revenues and the weak rupiah exchange rate.
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