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Indonesia election

Jokowi wins mandate to keep pushing Indonesia's economy forward

Second term to test president's appetite for structural reforms

Indonesia's presidential candidate Joko Widodo greets supporters during a campaign rally at a stadium in Serang, Banten province, Indonesia, on March 24.   © Reuters

JAKARTA -- Accelerating growth in Southeast Asia's biggest economy remains a challenge for Indonesian President Joko "Jokowi" Widodo, after an election in which voters appeared to have endorsed his approach so far.

Early counting suggests voters gave Widodo, 57, a former furniture maker, a solid mandate as it appears he beat challenger Prabowo Subianto by a greater percentage than when the two squared off in 2014.

Widodo played to his base with the refrain "I'm not an elite, I'm from a village," showing he was well aware how high food and fuel prices affect the everyday lives of low-income Indonesians.

The administration has been intent on tamping down inflation, especially ahead of the election on April 17, and introduced measures such as capping prices of some rice products and other staples, as well as reviving fuel subsidies in the 2019 budget. Inflation has dropped for four consecutive months in the run up to the election and stood at 2.48% in March.

"Most Indonesians are happy with the way that Jokowi has governed, particularly his management of the economy," said Ben Bland, director of the Southeast Asia project at Australia's Lowy Institute think tank.

Widodo's signature infrastructure policy has also contributed to lower inflation by improving connections among the archipelago nation's 17,000 islands.

Logistics costs amount to as much as 25% of Indonesia's gross domestic product, the highest ratio in Southeast Asia as of 2016, according to the Asian Development Bank. The Widodo administration has overseen openings of air and seaports, and claims to have extended the length of toll roads in the country by 436 km.

Under Widodo, Indonesia's economy has grown at an annual pace of about 5%, but nominal GDP per capita remains under $4,000 -- far below the global average. Without significant changes, the economy could continue to run far below the 7% growth rate he promised when he started his first term.

"Bureaucratic reform is a must" for Indonesia's economy to fire on all cylinders, said David Sumual, chief economist at Bank Central Asia, the country's largest private lender. "Many investors complain about bureaucracy... Policy consistency, how to improve the ease of doing business, fiscal and labor reform [are also important]."

Some observers say that because Widodo does not have to worry about another election -- the constitution bars him from serving a third term -- he has more leeway to undertake unpopular but needed reforms. These include changes to the country's rigid labor laws, which make firing workers notoriously difficult.

But Peter Mumford of Eurasia Group said: "Jokowi's victory, while likely accompanied by a larger majority in parliament, will be insufficient to break him free of the constraints of coalition partners and vested interests -- elite political, military, religious and state-owned enterprise leaders."

Mumford said the consultancy is "not optimistic that Jokowi will use his second term to push ahead with serious structural reform."

Indonesian President Joko Widodo addresses supporters after voting ended on April 17. (Photo by Kosaku Mimura)

The president will also have to bridge gaps in society, and stressed national unity in a speech after voting closed on April 17.

"Let's reunite after these legislative and presidential elections," Widodo said. "Let's preserve our harmony and brotherhood as brothers and sisters of one nation and one homeland."

One divide is between his supporters and those of his opponent, Subianto. Many millennial voters preferred the former general over the president -- at least according to survey results before the election -- perhaps because 5% economic growth has not translated to the creation of quality jobs for the young.

Widodo has said he will focus on improving the country's human capital to create a skilled workforce in his second term. Former Finance Minister Chatib Basri said this approach would give Indonesia "sustainable, long-term growth and will also increase potential growth."

However, one problem with such an approach is that the "milestones" are hard to see, said Basri, the co-founder of Creco Consulting and Research. Basri said the president may need to come up with short-term measures such as vocational training, but funding constraints may make it difficult.

Another divide is between the different factions of Islam in the country. Widodo was backed by a moderate brand of Indonesian Islam, while Subianto drew support from more conservative groups.

Syamsuddin Haris, a political-science professor at the Indonesian Institute of Sciences, said the sharp divide between moderate and conservative Muslim communities has been exacerbated by the heated election campaign.

To reunite the country, Haris said, "Jokowi must invite the Prabowo camp to work together to build a better Indonesia in the future -- by giving them opportunities to join the government."

Nikkei staff writer Erwida Maulia in Jakarta contributed to this article.

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