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One year in, Widodo flailing on revitalization

Indonesian citizens take part in a rally to demand the elimination of poverty in the country in front of the presidential palace in Jakarta on Oct. 20, which marked the first anniversary of the inauguration of President Joko Widodo.

JAKARTA -- One year after taking office, Indonesian President Joko Widodo is making desperate efforts to re-energize the country's floundering economy.

     Widodo's performance during the first year of his presidency has been rather disappointing, and disillusioned Indonesian voters are becoming more vocal in expressing their discontent.

     On Oct. 20, which marked the first anniversary of Widodo's inauguration, workers gathered in front of the presidential palace in Jakarta at a protest rally. They reviled the president, shouting that he should resign if he cannot stop job cuts and reduce poverty. The deterioration of the employment situation has been a major blow to public support for the Widodo administration.

     Mines across the country are cutting back on production in response to lower resource prices. Coal prices have fallen by more than half from their level four years ago, when Indonesia was reveling in the boom times of the global resources market. In the coal industry, which accounts for a sizable portion of Indonesia's exports, more than 400,000 workers have lost their jobs in the past year, according to Pandu Sjahrir, chairman of the Indonesian Coal Mining Association.

     Sales of motorbikes, the main mode of transportation for Indonesian workers, fell 20% during the first nine months of 2015 compared with the same period last year. Now a wave of job cuts is beginning to engulf plants that manufacture motorbike parts.

Policy missteps

Widodo was elected on the back of support from low-income voters. But he has yet to deliver on his campaign promise to improve the economic fortunes of Indonesian people.

     The country's real gross domestic product grew a modest 4.67% in the April-June quarter, well below the 7% Widodo promised during his election campaign. The rate is lower than the 6% deemed vital for creating enough jobs for Indonesia's workforce.

     Indonesia's lackluster economic performance stands in sharp contrast to the solid growth seen in neighboring Vietnam and the Philippines.

     Depressed prices of natural resources are not the only reason for Indonesia's economic woes, however. The Widodo administration's protectionist industrial policies are also to blame.

      In July, the government suddenly raised tariffs on more than 1,000 categories of imports by around 5%, including automobiles, meat, seafood and clothes. The finance ministry said the step was aimed at boosting the competitiveness of domestic industries in international markets. But amid inflation of over 7%, the tariff hikes have further weakened consumer spending.

     An executive at the operator of a Japanese-run shopping mall said the higher tariffs caused a retailer of imported sporting goods to abandon its plan to open a store there. 

     On Oct. 9, a Japanese government official visited Industry Minister Saleh Husin to convey concerns about Jakarta's plan to impose a tariff on industrial salt. The official warned that the step could have negative effects on plant operations and investments by Japanese chemical companies.

     The Widodo administration is considering the introduction of a tariff on industrial salt as a means to protect domestic makers. However, the move could serve as a powerful disincentive for foreign chemical companies to build new plants and hire local workers. Among Japanese firms, Asahi Glass is currently building a plant in Indonesia.

     Widodo's administration has also stopped issuing permits for operators of foreign ships, in order to protect local fishers. As a result, a trawling enterprise partially owned by Maruha Nichiro, a Japanese company, has slashed its workforce to 30 from about 200.

     The populist measures have backfired, as seen in the fall of the country's currency. In August, the rupiah dropped to its lowest level since 1998, when Indonesia was reeling in the aftermath of the 1997 Asian currency crisis.

Course change

The rupiah's nosedive has prodded the Widodo administration into adjusting its economic policy.

     Since September, the government and central bank have announced five packages of measures to revive the economy. On Oct. 21, Widodo stressed his firm commitment to revitalizing the economy by saying he will cobble together as many measures as necessary.

     The administration's policy actions, such as easing regulations, lowering fuel prices and keeping down money lending rates, are beginning to produce results. The rupiah has taken an upturn.

     Indonesia will also rejoin the Organization of the Petroleum Exporting Countries in December. It suspended its membership in January 2009 after it had been a net importer of oil for several years. Indonesia's decision to resume full OPEC membership, despite remaining a net oil importer, reflects its desire to secure oil supplies at stable prices by expanding cooperation with Middle Eastern oil producers.

     The Widodo administration is hoping the step will help improve fiscal health by providing support to the nation's key oil industry. Jakarta also wants to increase spending on infrastructure development to attract foreign investment and technology.

     Since its independence in 1945, Indonesia has been plagued by the harms caused by well-trenched vested interests in the political and business communities. Widodo's ability to cut through these will be sorely tested in his second year of office. Indonesia needs revitalized political and economic leadership to push through reforms that are necessary to save Southeast Asia's largest economy from long-term decline. 

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