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A Daunting Agenda for Jokowi

Author: Karen B. Brooks, Adjunct Senior Fellow for Asia
August 25, 2014
Wall Street Journal


Indonesia's Constitutional Court affirmed Thursday that Jakarta Governor Joko "Jokowi" Widodo won last month's presidential election and will take office in October. When he does, he will inherit many challenges from outgoing President Susilo Bambang Yudhoyono, who oversaw Indonesia's reemergence as a stable and economically vibrant nation over the past decade but failed to advance needed economic and political reforms.

Mr. Widodo takes over a nearly broke government facing a current-account deficit that more than doubled in this year's second quarter, thanks to slowing growth and exploding fuel subsidies. At 4.3% of GDP, the $9.1 billion current-account deficit is nearly Indonesia's worst ever. Second-quarter economic growth slowed to 5.12%, the weakest in five years, and growth is becoming less inclusive, with poverty reduction decelerating and a widening gap between rich and poor.

For years Indonesia has depended too much on certain commodities—including coal, rubber, palm oil and mineral ores—for over half of total exports, but prices dropped in 2012 and 2013, largely due to decreased demand from China that will likely persist. Government complacency during the commodities booms of 2005 to 2011 meant that officials failed to promote manufacturing via labor-market reform, infrastructure improvements and investments in education. The weak rupiah has helped lift some manufacturing exports this year but only after a long period of declines. Meanwhile total exports are down since a partial ban on unprocessed mineral exports took effect in January, and declining imports of capital goods have helped the balance of payments but at the expense of future growth.

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