Far Eastern Economic Review, Jakarta, James Van Zorge, June 19 - There are few people in Indonesia who doubt that the incumbent president, Susilo Bambang Yudhoyono, widely known as SBY, will win the July 8 presidential election. Mr. Yudhoyono's competitors, who include his predecessor and erstwhile boss, Megawati Sukarnoputri, and his current vice president, Jusuf Kalla, are trailing far behind in popularity polls. Pundits and pollsters alike doubt Ms. Megawati can win more than 20% of the popular vote, and Mr. Kalla would be considered extraordinarily lucky if he could manage 10% of voters' support in his bid for the presidency. Barring some unforeseen disaster on the campaign trail, Mr. Yudhoyono will walk away with a simple majority of the vote and once again become the leader of the world's third-largest democracy.
The president's broad appeal compared to Ms. Megawati and Mr. Kalla is no mystery. The primary reason is economic performance: Under Mr. Yudhoyono's leadership, over the past five years the Indonesian economy has registered strong growth, more than 6% in 2008 and perhaps reaching 4% in 2009, a respectable performance for any economy during today's global financial crisis. Poverty, underemployment and income distribution remain an issue, yet there are signs that poorer Indonesians have seen an improvement in their standard of living and the middle class continues to grow.
The international and domestic business communities also praise Mr. Yudhoyono's administration for its macroeconomic management. In particular, the stewardship of Minister of Finance Sri Mulyani has stood Indonesia in good stead, and the country is well positioned to receive direct and portfolio investment flows when the global economy starts to recover. A few multinationals are already taking the plunge -- Volkswagen of Germany, for example, recently inked a deal to develop a large manufacturing facility in Jakarta to serve the domestic and regional markets.
Indonesians remember Mr. Yudhoyono's predecessor, Megawati Sukarnoputri, in a dramatically different light. As the daughter of the country's first president, Sukarno, she initially evoked sentiments of nationalist pride and hopes for a return to the imagined glories of her father's era. Using the Sukarno name as her main calling card, most Indonesians did not seem to notice her lack of depth in policy issues. But not soon after rising to office, very quickly Ms. Megawati's supporters realized that she was out of her league.
Aloof and apparently taking very little interest in managing affairs attendant of her office, most of Ms. Megawati's time was spent on ceremony and pomp. Meanwhile, the policy vacuum was filled by her husband, businessman Taufiq Kiemas, along with a gang of crony politicians and their financiers in the corporate world. Not only was there little reform, there was a palpable sense the country was going backward.
Whereas Ms. Megawati suffers from the public's memories of her lackluster performance in office, Vice President and Golkar Party Chairman Kalla fares even worse. Touted as faster and better than Mr. Yudhoyono, Indonesians might concede that their president is not much of a decision-maker, but they are not necessarily convinced Mr. Kalla would make a better head of government.
Most Indonesians would probably agree that Mr. Kalla has shown himself to be a more decisive leader than Mr. Yudhoyono. The president is widely viewed as risk-averse and painfully slow when it comes to making policy pronouncements. As one cabinet minister recently told me, "I have been going to cabinet meetings for almost five years. Not once did the president make a decision during any of those meetings."
Yet Mr. Kalla consistently polls less than a 5% approval rating as a presidential candidate. One possible reason is his background. As a successful businessman during the former Suharto regime, Mr. Kalla is placed in the same class as another Golkar Party leader, Aburizal Bakrie, a billionaire who also happens to serve as Mr. Yudhoyono's coordinating minister of people's welfare. Mr. Yudhoyono might not fit everybody's image of the ideal president who takes charge, but Mr. Kalla is viewed as something worse: a political dinosaur.
Certainly Mr. Kalla and Ms. Megawati have not helped their chances of winning through their choices of running mates. Mr. Kalla picked retired General Wiranto, a former Suharto adjutant commander-in-chief of the Indonesian armed forces. Ms. Megawati joined forces with Prabowo Subianto, another retired general and former in-law of Suharto. Both vice presidential candidates share a tainted past. Mr. Wiranto is thought to be responsible for bloodbaths in East Timor, while Mr. Subianto has admitted to being behind Operation Rose, a special forces operation ordered by Suharto in 1998 that involved abductions, torture and the murder of student activists.
In stark contrast, Mr. Yudhoyono's running mate is Boediono, a professional economist and widely respected technocrat who until recently was head of Indonesia's central bank. Holding a doctorate in business economics from Wharton, the soft-spoken Mr. Boediono is not only recognized as a highly competent public official, but clean as well.
So far, opposition candidates have tried a variety of tactics to attract voters. Mr. Kalla and Ms. Megawati are, for example, trying to woo voters with a nationalist platform, and have charged Mr. Boediono with being a "neoliberal," implying that he is overly inclined to support foreign investment and open markets at the expense of the welfare of poorer Indonesians.
Unfortunately for the opposition, a nationalist platform is unlikely to elicit much excitement or support from lower-income Indonesians, primarily because they have seen their household incomes improve substantially during Mr. Yudhoyono's tenure in office. Calls for retreating to inward-looking policies might be attractive to a minority of voters, but when the economy is doing well it is hardly a winning platform.
Both of the opposition candidates are also claiming that they will be able to grow the economy faster than Mr. Yudhoyono. In a recent business forum, Ms. Megawati said she could grow the economy by 11% -- when she was queried how she would achieve growth rates exceeding China's, her only reply was that she did not yet have any specific policy ideas. Lacking substance, it is unlikely Indonesians will be buying Ms. Megawati's tales of future prosperity.
Mr. Yudhoyono should not assume a victory in July would necessarily result in a more vibrant business climate. Indonesia is definitely better placed now than some of its regional neighbors in attracting investment, especially when one looks at the economic challenges facing Singapore, South Korea and Taiwan, and the political turmoil in Thailand and Malaysia. Still, some questions need to be asked about the direction Mr. Yudhoyono will be taking Indonesia for the next five years.
Investors will be watching for Mr. Yudhoyono's choice of a cabinet. They will also be waiting to see if he will be able to parlay a mandate from the electorate into a pliant DPR -- at least one that is more cooperative than during his first term in office. Finally, the international and domestic business community will be anxious for the president to articulate a more detailed blueprint for economic policy for his new administration, hopefully addressing some of the more pressing issues that previously remained untouched.
Hopefully, Mr. Yudhoyono will not yield to the temptation to stitch together a coalition cabinet. He tried this during his first term in office, as did his predecessors, based on the mistaken belief that bringing politicians from other parties into the cabinet would result in greater support for his policy initiatives inside the DPR. Not only did cabinet positions fail to buy loyalty, it also resulted in cabinets with little redeeming value, more often than not burdening the president with ministers who were more focused on advancing their vested interests, and in more egregious cases used their offices as a source of largesse.
At the very least, Mr. Yudhoyono will need to reserve some of the more critical economics-related and judiciary cabinet postings for seasoned, reputable professionals if he is to instill confidence and win the respect of the business community. Mr. Yudhoyono's choice of Mr. Boediono as his vice president is an early sign that he will probably lean in this direction. Still, it is too early to tell whether or not Mr. Yudhoyono might succumb to political pressure from party bosses and make unnecessary compromises.
Assuming the president does select a cabinet based primarily on merit, that opens up a related question: If a coalition cabinet does not ensure loyalty to the president from coalition members inside the DPR, then what will? Indeed, it has become increasingly difficult for Indonesian presidents since the demise of Suharto and his Golkar party to find ways to work effectively with the DPR. The powers of the DPR have increased substantially, and members are eager to exercise them.
Moreover, the number of new parties has mushroomed since 1998 (32 parties participated in this April's elections, and nine ended up with sufficient votes to seat members inside the DPR). To make matters even more complicated, leadership within parties tends to be fractured. If chairmen find it difficult to lead their own parties, how can a president be expected to deal with nine individual parties at once?
One possible solution is to give the president more help inside the palace. In terms of professional support staff commonly found in mature democracies, the Office of the Presidency currently has scant resources. For example, there is no equivalent of the U.S. White House Office of Congressional Affairs, which is staffed with scores of analysts and skilled operators whose sole purpose is to improve prospects for congressional approval of the president's legislative agenda. There are rumors in palace circles that Mr. Yudhoyono is thinking about creating a legislative liaison office to help him realize his policy agenda.
What then will Mr. Yudhoyono try to achieve during his next five-year term? So far there are few signs of new directions on the policy front. It is probably safe to assume that one of Mr. Yudhoyono's priorities will be continuing efforts to combat corruption. It is also widely assumed that his core economics team will stay in place, and therefore sound monetary and fiscal policies will remain a hallmark of his administration.
The business community hopes for more -- the investment community believes that the president should leverage the country's political stability and economic recent successes, and use his public mandate for pushing ahead with policies that could reposition Indonesia as the destination of choice for business in Southeast Asia. Business leaders put the priority on three areas: expanding and modernizing the country's antiquated infrastructure, overhauling uncompetitive labor laws, and improving the legal and regulatory framework underpinning regional autonomy. Whereas infrastructure is primarily an issue requiring increased government spending and could be easily accommodated because of Indonesia's low budget deficit, the latter two areas would require some political risk-taking from Mr. Yudhoyono.
Indonesia's labor laws, in particular excessively high severance pay, have long been a source of complaints from local and foreign business, causing many labor-intensive manufacturing industries such as textiles and footwear to relocate to China, Vietnam and Bangladesh. Corporations also complain frequently about local governments' cavalier attitude toward business and excessive rent-seeking.
Reforming Indonesia's labor and regional autonomy laws would require the president to challenge labor leaders and heads of local governments. The prototypical Javanese, Mr. Yudhoyono avoids conflict and seeks consensus above all else. Those are precisely the types of character traits that many find troublesome, especially those who hope for more change in the future. Whether or not Indonesia's president is capable of finding the strength to tackle the next stage of reform remains to be seen.
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Mr. Van Zorge is a partner in Van Zorge, Heffernan & Associates, a consulting firm in Jakarta specializing in business intelligence and government relations.
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