Indonesia is predicted to grow at a much lower rate due to slow government spending. While expectations of a new cabinet has been widely anticipated in recent weeks, President Jokowi has yet to confirm such a change as he struggles to find loyal staff.
Asian Development Bank (ADB) and the World Bank have recently revised down their forecasts of the growth of Indonesia for 2015 — 5% and 4.7%, respectively — after the country grew at a six-year low rate of 4.71% in the first quarter of 2015.
Slow government spending on infrastructure, weak results from economic reforms and poor export performance caused by reduction in China’s commodity demand are the reasons for slow growth in Indonesia this year.
Experts continue to see government spending on infrastructure as the key driver for economic growth in Indonesia. Rodrigo Chaves, World Bank Country Director for Indonesia, said increased infrastructure spending would reduce logistical costs and fight economic slowdown. Helmi Arman, an economist at Citibank, says Indonesia cannot rely on its commodities-dominated export market anymore, and government spending is the only hope.
Of course, President Joko Widodo, known as Jokowi, understands that the future of the Indonesian economy depends on government spending and vowed to increase infrastructure spending when he came to power in October 2014. However, less than 10% of the allocated IDR 290 trillion state budget ($21 billion) has been spent.
Many blame Indonesia’s politics for the largest Southeast Asian economy’s slow growth. Piyush Gupta, CEO of the Development Bank of Singapore (DBS), Southeast Asia’s largest bank, attributed the political struggle between the ruling coalition and the opposition camp at the House of Representatives often hinders government’s reform plans.
The President not only faces a problematic relationship with his own party, Democratic Party-Struggle (PDI-P), headed by former President Megawati Sukarnoputri, but cracks seem to have also formed between him and the vice president, Mr. Jusuf Kalla, who has given contradictory public statements on several occasions.
Political observer Cecep Hidayat of the University of Indonesia noted that the cabinet lacks unity and some ministers have issued policies that contravene the President’s instructions. President Jokowi is struggling to assert his authority to govern the country effectively.
Jokowi struggles to find loyal staff
The public is unhappy with the new government’s economic performance. People are feeling worse off under the new administration, as their spending power has been hampered by weak rupiah and high inflation.
A survey commissioned by Indonesian Public Opinion Study Group (kedaiKOPI) showed that 96.5% of the 368 public respondents want an immediate cabinet reshuffle. Politicians from the opposition, and as well as those from President Jokowi’s governing PDI-P, have also joined the public to call for a reshuffle.
Jokowi has yet to confirm if he would reshuffle his cabinet, but has hinted that he is looking for people he can trust to fill key posts in the administration. Finding the right people to follow his economic plans is not an easy task; to date, the President has not even found a spokesman he can trust.
Jokowi’s party is taking advantage of his poor economic performance to push for greater representation within the government. However, the issue is whether the party has professional experts that are competent for the posts, should a cabinet reshuffle take place. After all, political parties exist to gain power. There has already been concern that Jokowi, who has little power within his party, might have become a puppet for the former President Sukarnoputri.
At the same time, Golkar, the third largest party of Indonesia, has exited the opposition coalition, the Red-White Coalition, in order to give better support to the Joko Widodo-Jusuf Kalla administration. However, with Golkar entering the government, it is likely to change the balance of power in the top-level decision making process.
The Golkar party is likely to ask for seats upon joining the government, like any big and politically competitive party would do, said Achmad Sukarsono from a risk advisory company Eurasia Group. Mr Kalla, who previously led the party, will also be in a stronger position to challenge decision makes within the senior government. Should the fractures between him and the president persist, markets will be concerned about it.
Another option available for President Jokowi is to look beyond political parties and choose technocrats that are free from certain groups’ influence. However, as former Head of Muhammadiyah Office Syafii Maarif admitted, it is not easy to select independent ministers. At the end of the day running a company is different from running a ministry.
Furthermore, technocrats lack the political influence that is needed to carry out policies. The Deputy Secretary-General of the coalition-member National Awakening Party, Daniel Johan, blames the lack of political stability for the current economic chaos, and suggests the replacement of independent ministers with those with a political party, who have network in the parliament and grassroots support.
So far, according to a survey conducted by global asset management firm Schroders, investors have remained optimistic about Indonesian’s economy. However, they will factor the slow growth in their portfolios, said CEO of Schroders Indonesia Michael Tjoajadi.
The public on the other hand is disappointed with slow government spending. Whether or not Jokowi decides to reshuffle, he needs to ensure his existing or new cabinet continues push ahead with his infrastructure spending in order to reinvigorate the economy.
