Features

What next for Indonesia?

The Indonesian president, Joko Widodo, has won a second five-year term. Global investors will be watching him carefully.

944_MW_P05_Markets

Can Jokowi take on vested interests?

The Indonesian president, Joko Widodo (informally known as Jokowi) has won a second five-year term. Global investors will be watching him carefully. At first, Jokowi was seen as a "breath of fresh air, a liberal-minded reformer, a pragmatic achiever and a paragon of secularism", says The Economist. In a country where 88% of the population is Muslim, and "religion and politics have made violent bedfellows," he was a welcome new face.

During his first term, he oversaw improvements in Indonesia's poor infrastructure and also managed to trim the government's fuel subsidies. But to get re-elected he "betrayed his principles" by making common cause with a hard-line cleric and suppressing some of the opposition. This tendency to court the Islamist vote may be watering down his drive for reform: recent populist moves include nationalising a mine and reversing some of the fuel subsidy cuts.

The economy has expanded at an annual rate of 5% in recent years, and GDP per head is twice that of India. The World Bank's ease-of-doing-business rankings show a rise from 120th in 2014 to 73rd in 2019, between Mongolia and Greece. However, the nation continues to punch below its weight economically, says Craig Mellow on Barron's. GDP growth still lags behind the Philippines and Vietnam. The stockmarket is only half the size of Apple's market capitalistaion, and Indonesia has just four "unicorns" (private companies valued at $1bn or more) compared to China's 150.

Labour reforms will be crucial

But there has been scant progress on freeing-up Indonesia's rigid labour market. Everyone is hoping that Jokowi will be more inclined to take on vested interests now that the election is out of the way, says Gareth Leather of Capital Economics, but "we are not holding our breath." Meanwhile, headwinds continue to mount, as global growth has slowed and commodity prices have dwindled. The large and growing current account deficit, moreover, makes the country vulnerable to a reversal in global risk appetites. Stocks may be in for a bumpy ride.

Recommended

How to profit from India’s high-tech recovery
Share tips

How to profit from India’s high-tech recovery

Professional investor David Cornell of the India Capital Growth Fund, selects three of his favourite Indian stocks to buy now.
27 Sep 2021
The Information Age is about to get interesting
Economy

The Information Age is about to get interesting

The IT revolution has been around for a while now, says Merryn Somerset Webb. But we're just getting to the good bit.
24 Sep 2021
Russia's rigged election won’t rattle investors
Emerging markets

Russia's rigged election won’t rattle investors

Russian stocks are soaring, despite last week’s blatantly rigged election.
24 Sep 2021
I wish I knew what contagion was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what contagion was, but I’m too embarrassed to ask

Most of us probably know what “contagion” is in a biological sense. But it also crops up in financial markets. Here's what it means.
21 Sep 2021

Most Popular

A nightmare 1970s scenario for investors is edging closer
Investment strategy

A nightmare 1970s scenario for investors is edging closer

Inflation need not be a worry unless it is driven by labour market shortages. Unfortunately, writes macroeconomist Philip Pilkington, that’s exactly w…
17 Sep 2021
What really causes inflation? Here’s what prices since 1970 tell us
Inflation

What really causes inflation? Here’s what prices since 1970 tell us

As UK inflation hits 3.2%, Dominic Frisby compares the cost of living 50 years ago with that of today, and explains how debt drives prices higher.
15 Sep 2021
The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021