June 30, 2105

The serious Cabinet reshuffle rumors began in June: in Indonesia, they are part of the air one breaths. An underwhelming economic performance would prompt President Jokowi to reshuffle his Cabinet after Lebaran (end of the Muslim fasting month on July 18), especially his economic team. The economy is, given Indonesia’s potential, standing still, even though GDP growth hovers at close to 5%. Very little of the dividend from the elimination of energy subsidies has found its way into infrastructure projects, even though the government now has more authority to settle nettlesome land issues. The question is whether the implementation problems are due to incompetent management at the top of ministries-hence the need for a Cabinet change-or something more structural. I am persuaded by the latter. Changing the Cabinet will not necessarily quicken the pace unless the President is persuaded to use more of the power that is vested in his office to bring a greater policy coherence throughout the government and the regions. The import and export ban and value added thesis along with a rupiah-only currency policy are overcompensations for a bureaucracy that has difficulty efficiently delivering the services it was created to deliver. One of the co-chairman of PECC (Pacific Economic Cooperation Council), Jusuf Wanandi, (who since the 1960’s has been an influential thought leader) recently said some very important things at a regional economic conference worth repeating here:

“There has been widespread disappointment with the Jokowi government, with economic growth falling to 4.7 percent in the first quarter, a lack of policy coherence keeping investors on the sidelines and bureaucratic inertia causing repeated delays to budget implementation. Investors have been waiting for the right signal to enter Indonesia, but the President should not convey mixed signals. He should do away with the inordinate nationalistic sentiment of the Indonesian Democratic Party of Struggle (PDIP)”.


You will read further in this issue of Outlook/Indonesia that the President intends to move quickly in the second half of the year to start spending. You can see moves in this direction by observing the statements of the state-owned construction companies who have announced toll road projects they have won as well as the progress in negotiations over a high speed rail project between Jakarta and Bandung. The stimulus achieved by getting projects underway will certainly help move Indonesia’s growth forward as most of it has been from consumption which has been slacking off. But the continuance of populist and protectionist policies (Indonesia just boosted tariffs on a range of food and consumer items), some designed to expand the role of the state in the economy, will likely yield mixed results or worse.

President Jokowi, unlike his fellow political mavericks such as the Governor of Jakarta and the Mayor of Bandung, has chosen to stick by the political party that chose him, PDI-P, a party that remains wedded to a 1950’s ideology of state interventionism and a patronage culture (return of favors ) that has been largely eschewed by Indonesia’s people. Cabinet changes could make a difference but only if accompanied by more open and transparent economic policies unfettered by the impulse to reward political parties and their benefactors. At least there has been the beneficial influence of the watchdog KPK (anti-corruption commission), press, and NGOs. However, their necessary vigilance has a side effect of paralyzing project implementation by fearful bureaucrats. Let’s hope that with or without a Cabinet shuffle the President and his team can reduce the transactional politics that underlies too much of the government’s decision-making and get the bureaucracy moving more swiftly. Only then will Indonesia get close to the 6% or higher growth that it is highly capable of achieving.