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After 3 years, Widodo achieves some success, but infrastructure stalled

Indonesia president narrows income gap, stays popular, but misses GDP goal

Indonesian President Joko Widodo poses for a photo at a newly constructed highway in Medan, Sumatra, in October. (Courtesy of Presidential Secretariat of Indonesia)

JAKARTA -- As Indonesian President Joko Widodo marks the end of his third year in office on Friday, attention is focused on whether he has made good on his promises of strong economic growth, backed by large infrastructure projects that would also improve the lives of the 250 million people scattered across the vast archipelago.

Widodo swept into power on strong support from the poor and on pledges of spurring economic development. He has achieved some success as recent data show that the gap between rich and poor is narrowing and Indonesia's economy is growing at a stable pace of around 5%. When Widodo took office, he had targeted 7% growth over the coming years. For 2017, the government had tempered expectations to target economic expansion of 5.4%, but it is missing even that.

The government had planned to invest a total of 3.7 quadrillion rupiah ($273.62 billion), raised from the public and private sectors, for so-called national priority projects during Widodo's five-year term. But the amount disbursed for investment until June this year totaled just 1.6 quadrillion  rupiah, according to the Indonesia Investment Coordination Board, representing just 43% of funds required to back these projects with only two more years of this administration to go.

This funding shortfall is problematic. A high-profile, high-speed railway project between Indonesia and China has made no headway due to a lack of funds, despite the groundbreaking ceremony held in January 2016.

The construction of electric power plants is another example. The administration had plans to build power plants capable of generating a total of 35 million kilowatts in during its term. Such capacity nearly equals that generated by Chubu Electric Power, which supplies electricity to Aichi -- an industrial area where Toyota Motor, among others, has manufacturing plants -- and other prefectures. Widodo's plan to achieve this in five years may have been too ambitious.

So far, Indonesia has only managed to build 40% of the plants under the power generation project and of this, some are still under construction, according to Indonesian utility PLN.

The Indonesian government has expressed its intention of relying on private funds for the development of Java, a province that includes Jakarta, and allocating government funds to regional development. But it is difficult to have private companies accept risks in long-term projects requiring huge investment, market participants said. The president of a local Japanese-affiliated company also pointed out that leaving everything to private companies may not be the best way forward. 

To be sure, Indonesia has not had any difficulty raising money in international markets. It successfully raised $2 billion in the bond market in July, soon after Standard & Poor's raised its credit rating to investment-grade, BBB-, in May. However, there is little room for the government to raise more money, because a law sets a maximum budget deficit limit of 3% of GDP to maintain fiscal discipline. This year's budget deficit is likely to come around 2.9%.

Despite the infrastructure snags, Widodo remains popular in part because he has also focused on developing regions such as New Guinea and remote islands, and not only in Java. A senior official said that unlike previous leaders, Widodo often travels to other parts of the country and sometimes spends just two to three days of the week in Jakarta. 

This is a fact recognized and appreciated by the citizens in Nunukan, an island in North Kalimantan province some 1,700km away from Jakarta. Here, they affectionately call the president by his nickname of Jokowi. "Goods have become abundant thanks to Jokowi," one of them said, sharing a widely held sentiment.

Under Widodo, ports have been expanded and roads improved in Nunukan. The cost of product distribution has also dropped, while the movement of people and labor has increased. Restaurants in the town proudly display photos of Widodo visiting the island in December 2014. 

Another policy of the Widodo government that has endeared him to the public is cutting gasoline subsidies that were seen to be only benefitting the middle class and redirecting those funds to infrastructure development. Coordinating Minister for Economic Affairs Darmin Nasution said recently that the change reflected the Widodo administration's commitment to an equitable economic policy that did not only benefit the wealthy who could afford cars and two-wheeled vehicles.

Indeed, such policy changes have borne fruit. Indonesia's Gini coefficient fell to 0.397 in 2016 from 0.414 in 2014, according to the government. The Gini ratio measures inequality and a number of zero reflects perfect equality, while social turmoil is thought to occur frequently at 0.4 or above.

The poverty ratio has also dropped by 0.2 percentage point over the past year. In fact, the Maluku and Papua region, until now left behind in the economic development of Indonesia, achieved a growth of more than 7% in 2016, topping Java's 5% growth.

Against such a backdrop, at the fourth-year juncture, Widodo still has the support of a large population. A survey conducted on Sept. 9 by the Indonesia Centre for Strategic and International Studies found 56.9% of respondents content with the Widodo administration's economic policy. Support ratings of the administration are also high at around 50% to 70%, according to different opinion polls.

But the true test of Widodo's government will come over the next two years. Important local elections, such as gubernatorial races in the densely populated provinces of West and East Java are slated for 2018.

In addition, the Asian Games, a major two-week athletics competition, will be held in Jakarta and Palembang in August 2018. A joint annual assembly between the International Monetary Fund and the World Bank will be held in Bali in October 2018.

These events will give the Widodo administration impetus to work toward its goals and to demonstrate the political and economic stability of Indonesia to the rest of the world. With the presidential election scheduled for April 2019, Widodo will face a critical test of whether he can accelerate economic growth that will bring benefit to all Indonesians and maintain his popularity.

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