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Indonesia's Jokowi must use popularity to remake the economy

President has numbers in person and in parliament to pass radical reforms

| Indonesia
High approval for Jokowi should be put to good use.   © NurPhoto/Getty Images

Indonesia's President Joko Widodo was that rarest of things in 2019: a world leader who ended a tumultuous year for the globe more popular than he started it.

Peers from Washington to Tokyo had exactly the opposite fortune as trade wars, scandals and controversies hit approval ratings. Yet Widodo, known as Jokowi, saw his support jump to 70% in the first 100 days of his second term. That is up from 58% at the same point in his first term in 2015. His super-coalition also has 75% of seats in parliament.

It is high time he aimed all this political capital at an economy in need of a serious surge of structural reform.

On February 20, Bank Indonesia rode to the rescue again. It cut a key rate by 25 basis points to 4.75%, the fifth cut in a series that began last May. The latest step came as the coronavirus fallout threatens tourism.

It is a familiar pattern. As political squabbling in Jakarta stymies efforts to boost growth and competitiveness, central bank governor Perry Warjiyo's team prepares yet more stimulus. Such short-termism, though, explains why the economy is underperforming.

Last year's 5% growth rate was the slowest since 2016, and a far cry from the 7% Jokowi targeted in his first presidential campaign. Though government officials blame the U.S.-China trade war, foreign investment has underwhelmed too. This is a direct result of the glacial pace of progress cutting bureaucracy, modernizing labor laws and increasing innovation.

These upgrades could be Jokowi's for the taking if he exercised greater political courage. Last year, the government missed several deadlines for a so-called omnibus reform bill aimed at creating new jobs. Another bill to cut corporate taxes also has seen more talk than action.

The good news is that Jokowi finally delivered the jobs-creation plan earlier this month. He urged lawmakers to act in the next 100 days; that would surely comfort multinational companies looking to tap Indonesia's young, growing population. It would help morph the nation into the $7 trillion economy Jokowi envisions by 2045.

But success requires taking greater risks. The slow pace of change owes much to fears about how 263 million Indonesians respond to the biggest dose of capitalism in 20 years. The jobs bill, for example, would repeal decades-old labor norms including cutting severance pay. Giant protests, with labor unions threatening more to come, have politicians on edge. The same goes for steps to curb budget-busting subsidies.

Laborers gather during a protest against government plans to change restrictive labor regulations in Jakarta on Jan. 20: giant resistance have politicians on edge.   © Reuters

Cutting taxes is a risky business given the rise of economic nationalism over the last decade. Jokowi still needs to sell the masses on the merits of cutting levies on giant companies to 20% by 2023 from today's 25%.

These arguments are easier to make when growth is closer to 7%. But they are very much worth making, particularly given Jokowi's enviable approval ratings.

Passing the omnibus bill could greatly increase economic efficiency and reduce graft. It does away with overlapping laws that give regional governments autonomy to regulate as they see fit. The legislation affords Jakarta scope to standardize policies on wages, licensing and foreign ownership levels. For a mining-dependent nation keen to attract overseas capital, this kind of centralization makes since.

Increased fiscal control could be a boon for Jakarta's credit rating. The central government would have greater authority to penalize local governments borrowing with abandon or squandering public money. Any credible plan to reduce a budget deficit that hit 2.2% of gross domestic product in 2019 runs through the whole country.

Eradicating Jakarta's notorious corruption is also key. Granted, Indonesia is generally moving in the right direction. In Transparency International's annual corruption perceptions index, released last month, Jakarta improved another four places to 85th. Enacting his reform bill could empower Jokowi to accelerate efforts to increase good governance and accountability.

High approval should be put to good use. Japan's economy might not now be skirting recession if Shinzo Abe had used his early popularity to enact big upgrades. The same goes for China's Xi Jinping, India's Narendra Modi, South Korea's Moon Jae-in and myriad others.

Jokowi does not have to worry about reelection, since the constitution only allows two terms. Now is the time to shake up Indonesia Inc. in ways he has been pledging since his 2014 campaign.

The trick is pressuring parliament to act expeditiously. It is also learning to multitask. Until now, Jokowi's team has put most of its energy into infrastructure, a reasonable priority given Indonesia's hopes of becoming a manufacturing power. With Jakarta literally sinking and hobbled by GDP-killing traffic, Jokowi is relocating the capital.

Yet improved hardware, such as roads, bridges, power grids and ports, does little to strengthen the economic software. Jakarta must invest more in education, training and raising productivity to compete in a data- and innovation-driven global economy. Jakarta should incentivize entrepreneurs to create more tech unicorns.

Investing in human capital is vital to becoming a high-income nation over the next two decades. It is the right thing to do for Indonesia's young population and investors alike. And heaven knows Jokowi has the numbers to get it done.

William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."

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