How the Presidential Elections Can Affect Indonesia's Economy

How the Presidential Elections Can Affect Indonesia’s Economy

Indonesia’s financial sector and the political landscape have always been closely linked. In fact, their government’s executive branch requires the approval of several financial institutions before executing changes regarding the country’s economic focus.

One example of which is the influence held by the Indonesian Chamber of Commerce and Industry (Kadin) and the Indonesian Employers Association (Apindo). Both the Kadin and Apindo sought legislation to help the country become more competitive in the international landscape.

Their contributions include opposing the 7.5% increase in import tax on goods, which can be produced locally. The Kadin believes that raising taxes can push up the prices of consumer goods since the raw materials used for these products were imported. And, as a consequence, it may lower the consumer’s purchasing power [Jakarta Post].

In July 2018, both Apindo and Kadin sent representatives to the United States of America to improve its trade relations between the countries. This solidified Indonesia’s trade ties with the western nation. As a result, the country Financial Minister, Airlangga Hartarto, revealed that steel and iron exports to the USA increased by 87.7% by the end of Q4 in 2018.

This only shows that the government organizations have an influence in both legislative and executive branches of Indonesia. With the upcoming elections and candidates standing for different economic platforms, how will this affect businesses and FDI in the country?

Find out more on this blog about the 2019 Indonesian elections. And, learn its impact on the country’s financial attractiveness.

State of Indonesia’s Economy as of Q4 in 2018

As of Quarter 4 in 2018, the Indonesian economy resulted in 5.18% GDP growth, which is better than the initial 5.11% expected growth rate [Trading Economics]. This indicates that, along with the strengthening of the rupiah, there is an increasing domestic demand for goods. This expansion, however, is still short of the 7% GDP promised by the current Indonesian President Joko “Jokowi” Widodo.

Indonesia’s GDP Growth Chart. Lifted from Bloomberg

Moreover, this can also be attributed to his campaign’s focus on health, education, and infrastructure sectors; which can result in a slow but stable economy in the long-term. Although investors may not see immediate gains, it will benefit more long-term ventures such as real-estate/ property, domestic bonds, and mutual funds [Izinmudah].

Nevertheless, these lucrative investment options can also change depending on who wins the election.

Business Platforms Indonesian Presidential 2019 Candidates

Each candidate has put forth the economic focus of their administration. Here are their pro-business platforms.

Candidate Joko Widodo

Since assuming office in 2014, the current Indonesian president, Joko Widodo, has focused on preparing the country to be a global economic powerhouse. Part of his 16th financial package was to remove the MSME in the Negative Investment List. And, this could result in stricter regulations for foreign investment [HFW].

Fortunately, the president backpedalled on the restrictions after the calls of Kadin, Apindo and Hipmi [Jakarta Post]. As a result, more business opportunities in transportation and pharmaceuticals are now open to investors.

His 2019 presidential platform also prioritises further infrastructure development to improve economic competitiveness. He also unveiled plans to more on tourism, Islamic Finance, and the Digital Economy.

Therefore, investors should take note that Widodo vows to continue the previous agrarian reform while providing support for local farmers and fishermen.

Candidate Prabowo Subianto

Presidential challenger, Prabowo Subianto, promises a more inclusive economic package for all Indonesians across the sector- opting for a consumer-based economy. His platform includes job creation, raising the people’s purchasing power, and creating an efficient economic system.

Moreover, he vows to support industrialisation in the country to compete with South Korea and India. Part of this plan is to convert millions of hectares of degraded forests to be used for food production and energy generation [Straits Times].

Should he win the presidency, investors can expect pro-manufacturing legislation from the Kadin and Apindo.

Get Expert Advisory Solutions Before Investing in Indonesia

As the biggest market in the ASEAN region, Indonesia has the potential for lucrative ventures in Southeast Asia.

While it is true that the election results can significantly impact on the top industries, aspiring entrepreneurs and stakeholders could take advantage of the opportunities after the election is over. Just make sure to comply with statutory requirements before directly investing in key markets.

So, consider consulting an expert for a proper registration and compliance process. Contact Desfran Corporate Services for more details today.

 

Reference:

Lobby groups oppose plan to increase import tax, thejakartapost.com

Indonesian minister, businesspeople fly to US to begin trade mission amid war, thejakartapost.com

Business Expects Stability Ahead of 2019 Election After Candidates Pick Running Mates, jakartaglobe.id

Indonesia GDP Annual Growth Rate, tradingeconomics.com

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