“As political honeymoons go, Joko Widodo’s has been almost nonexistent,” says Bloomberg’s William Pesek. Indonesia’s new president was inaugurated last October, swept to power on a ticket of wide-ranging reforms and economic growth. But since then, growth has stalled, slipping to an annual rate of 4.7% – a five-year low.
The downturn is partly due to weak demand from China, which has hit nickel, coal and tin exports. Rising inflation, meanwhile, has prevented the central bank from cutting interest rates. But some of “Indonesia’s wounds are self-inflicted”.
Infrastructure was key to Widodo’s plan to revive the economy. But while the government aimed to spend 290trn rupiah on it in 2015, by May it had spent just 2.4% of this sum. Part of the problem is that tax revenues have not grown as fast as expected, due to the lacklustre economy and poor revenue collection, so now spending must be reined in to compensate. But Widodo has been slow to cut red tape and tackle corruption, says Pesek. To rectify this, he “would need to get his party on board, and fast”.
Moreover, government hopes that an opposition party would join the ruling coalition to secure the parliamentary majority for reforms have been dashed, says Avantika Chilkoti in the Financial Times. Critics have also slammed Widodo for his employment of “incompetent ministers and bungling bureaucrats”, add Bloomberg’s Kanupriya Kapoor and Gayatri Suroyo.
Still, it’s too soon to write off the reformist government. Overall, progress may be disappointing, but it has managed to push through significant cuts to fuel subsidies. Indonesia’s young working population and emerging middle classes bode well longer term, and our favourite Indonesia play – the Aberdeen Indonesia Fund (US: IF) – looks cheap enough to account for the risks on an unusually large discount to net asset value of 11%.