WILLIAM PESEK
PUBLISHED : Tuesday, 12 May, 2015, 4:01am
UPDATED : Tuesday, 12 May, 2015, 4:01am

It is time for less talk and more action from Indonesian president Joko Widodo. Photo: Robin Fall
As political honeymoons go, Joko Widodo's has been almost nonexistent. Since his October inauguration, Indonesia's inflation has accelerated, its currency has fallen and its economy has veered dangerously close to recession.

Widodo does not deserve all the blame for the perilous state of Southeast Asia's biggest economy. But he has not earned credit for setting up a turnaround, either. And, if anything, his recent indulgence of populist rhetoric suggests he might not be up to the challenge.

The sprawling archipelago of 17,000-plus islands has come a long way since 1997, when its economy collapsed during Asia's financial crisis. Most observers at the time thought Indonesia was destined for failed-statehood; instead, it became one of the world's model emerging economies. Now Indonesia is facing another challenge. Its economy shrank in the first three months of this year, the country's second straight quarter of negative growth.

The downturn was triggered by tepid world growth (and China's slowdown, in particular). But many of Indonesia's wounds are self-inflicted. Other than flagging exports, the absence of government spending is the key reason Indonesian growth has evaporated. Widodo has pledged to dole out roughly US$22 billion for an infrastructure stimulus programme. But as of April 30, only US$541 million has been spent on roads, bridges, ports and power grids. The country's rampant corruption and cronyism also do not help matters.

Widodo could overcome some of these problems by accelerating his spending plans, cutting red tape and attacking graft. But in order to do any of that, he would need to get his party on board, and fast. As reform-minded governments in Japan and India have recently demonstrated, it is important to pull off big wins soon after winning elections, before approval ratings wane.

It is time, in other words, for less talk and more action from Widodo. Sadly, he has been doing more of the former, and in contradictory fashion. In late April, Widodo thrilled a World Economic Forum audience with talk of "incredible profits" and an invitation to call him directly if foreigners ran into any resistance. Just days later, he called for "a new global economic order" free from "domination of certain groups and countries". That was widely seen as a swipe against the sort of multinational companies Indonesia should probably be courting. The government's recent execution of seven foreigners for drug smuggling also threatened to dent economic ties with other countries, particularly Australia.

Widodo's populism needs to be understood as a bid to placate reactionaries within his Indonesian Democratic Party. Fiery rhetoric tends to play well in a country where natural resources have a long history of enriching foreign companies rather than the native population. (More than 40 per cent of the country's 250 million people live on less than US$2 a day.)

But Widodo's democratic instincts are now getting in the way of his democratic mandate. The easiest way for him to raise living standards and generate the 7 per cent growth he promised during his campaign would be to attract overseas investment. Instead, Widodo has presided over the opposite. Last quarter, foreign investment declined 4 per cent year on year.

What is particularly ominous is that Indonesia's rupiah led last week's drop in Asian currencies. That suggests that any turbulence in financial markets - whether triggered by a slowdown in China, tapering in the US, or a lurch in Europe's currency crisis - would affect Indonesia more than any of its peers.

Bloomberg.

http://m.scmp.com/business/global-economy/article/1793760/indonesia-needs-action-not-talk-joko-widodo

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