Widodo targets rapid economic growth to boost Indonesia's standing

PUBLISHED : Wednesday, 23 July, 2014, 11:21pm
UPDATED : Wednesday, 23 July, 2014, 11:21pm

President-elect Joko Widodo says he's aiming for a pace of economic Indonesia hasn't seen since before the 1990s Asian financial crisis.

"We must address shortcomings in infrastructure, manufacturing, and then we need to invest more in strong human capital," Widodo, known as Jokowi, 53, said in an interview. "When our economy grows more than 7 per cent, I am very confident" it would strengthen Indonesia's role in international forums, he said.

Southeast Asia's largest economy could achieve such an expansion in two years, the Jakarta governor said. While Indonesia has lured record overseas investment in recent years, supply bottlenecks and limited public transport have held back its potential.

"We must be realistic," Widodo said. The one-time head of a furniture business has pledged to curb fuel subsidies that have sapped funds needed for infrastructure, and to rein in corruption, in part by moving to an online tax system.

Asia's fifth-biggest economy saw growth slow to 5.21 per cent in the first quarter, the weakest pace since 2009, and hasn't seen a pace of 7 per cent or more on an annual basis since the years before the 1997-98 Asian financial crisis - the turmoil of which helped bring down dictator Suharto.

Widodo secured 53.15 per cent of votes in the July 9 election, according to the General Elections Commission, beating Prabowo Subianto, a 62-year-old former army commando who was once married to Suharto's daughter. Prabowo claimed 46.85 per cent. The contest divided Indonesia between those looking for a more liberal democracy and those nostalgic for a leader who projects strength and decisiveness.

Prabowo called the ballot undemocratic, after making repeated calls for a delay in the results announcement. He has three days to contest the results in the constitutional court.

Widodo, looking ahead to his agenda after he takes office in October, cast a robust economy as key to projecting a revitalised Indonesia in the region.

"When our economy grows more than 7 per cent I am very confident for Indonesia to play a role in the world, not only in the Asean Economic Community but also in international forums," he said, referring to the Association of Southeast Asian Nations' efforts toward economic integration.

Widodo's coalition has 37 per cent of seats in parliament after elections in April. Some officials in parties in alliance with Prabowo, such as Golkar, have indicated they may switch to Widodo, which would make it easier for him to pass laws even if a more diverse coalition could make it harder to get consensus on policy changes.

"He's faced with a fragmented parliament and potentially a parliament that he might not have control of," Euben Paracuelles, a Singapore-based economist at Nomura Holdings , said of Widodo. "But the reforms that are needed to get there have to be done now."

Investment will grow at least 15 per cent this year, a slower pace than last year's 27 per cent, according to estimates given in April by Mahendra Siregar, chairman of the Indonesia Investment Coordinating Board.

"When I ask the investors, they said they need improving the infrastructure," said Widodo. "When they want to build the industry and there's no electricity, there's no power plant, there's no good infrastructure, of course they worry about that."

Widodo said as he transitions to power he would start discussions on a cabinet line-up, and is open to current ministers joining. He will also seek further details on the budget position from the finance and trade ministries and the national planning ministry, "because I really want to know the real condition" of the economy.

"I'm willing to take the professional, the technocrat and only the best," he said.

Widodo said dealing with the burden of state fuel subsidies will be a challenge. "I'm confident but it must be done gradually," he said. The government must "build the safety net to the people so the subsidies from the fuel we focus to the poor, to the infrastructure but for the poor, for the farmers, for the fishermen, for the workers".

Subsidies that keep local fuel prices low have spurred energy imports, straining the trade balance and tying up funds that could be used to build roads, bridges and railways. The current administration has had to cut 2014 budget spending by ministries to fund rising subsidy costs.

Raising prices could create political risk - demonstrations erupted across Indonesia in June last year as the current administration raised the price of subsidised fuel for the first time since 2008.

"We must have the political calculation and the economic calculation" on tackling fuel prices, Widodo said. "The economic calculation we know, we must do that," he said.

Widodo has also pledged to tackle corruption to boost growth, by moving tax collection and government services online, including procurement. Graft remains widespread, with Indonesia ranking 114th among 177 countries and territories in a 2013 Transparency International corruption perceptions report.

The country's anti-graft agency has gone after central bankers, ministers and chief executives, and says it is just scratching the surface of corruption.