Jokowinomics gambles with Indonesia’s democratisation

On 23 October, Indonesian President Joko “Jokowi” Widodo announced the cabinet for his second term in office, after two days of theatrically staged visits to the presidential palace by high-profile political, military and business figures. The whole process made for compelling melodrama, with the staggering plot twist that Prabowo Subianto, Jokowi’s opponent in the divisive April election, was named the new Minister of Defence.

Reactions to the cabinet have largely tilted toward pessimism, especially regarding the appointment of Prabowo. Marcus Mietzner took a very bleak view, suggesting Prabowo might “use the post to make the military loyal to him…and destabilise the government from within to eventually profit from its fall”. Some have decried Prabowo’s inclusion as a usurpation of Jokowi’s democratic mandate. Others have lamented the lack of female representation. By and large the take-away is that Jokowi has packed the cabinet, more so than in his first term, with political power brokers to whom he is beholden for supporting his campaign or backing him in the DPR, and that they will use their new suction to plunder the state’s resources.

But is there another way to look at these events, including the composition of the new cabinet, besides as an unchecked descent into illiberalism and elite patronage facilitated by a weak president captured by oligarchic interests? Cabinet appointments in Indonesia have always been a balancing act and a way of rewarding political allies, as is true in many political systems. But if we frame recent developments in terms of Jokowi’s narrow focus on economic development, many of these things snap into sharper focus.

Economic growth was, by and large, the singular focus of Jokowi’s first term. He came into office in 2014 with big dreams of pumping money into infrastructure projects and courting private capital, both foreign and domestic, to propel the economy to 7% growth. Much of that private investment never materialised and SOEs ended up pouring billions of dollars into building new airports, toll roads, hospitals, subsidised housing, ports, bridges and other infrastructure. When private capital did get involved, it usually required explicit financial guarantees from the government, or the invocation of bulked up legal and administrative powers by the state to speed up land acquisition or circumvent cumbersome regulatory hurdles in order to reassure skittish investors.

While the economy fell short of the 7% growth target, this state-led development approach, often referred to as Jokowinomics, has been broadly successful in increasing the country’s stock of fixed capital. Despite an unreliable judiciary, regulatory uncertainty, a long history of protectionism and often incoherent policy-making, Indonesia has seen a wave of big-ticket infrastructure projects accelerate under Jokowi’s leadership, including hundreds of kilometres of new toll roads and thousands of megawatts of additional power capacity. The 44 kilometre drive from Yogyakarta to Magelang in Central Java, for instance, involves passing three new hospitals that have gone up in just the last three years.

I believe Jokowi internalised two key lessons from his first term. First, he believes he materially improved the lives of everyday Indonesians by focusing on infrastructure development as a driver of economic growth. This is a view I broadly agree with, though of course the gains from development have been unevenly distributed and there has probably not been enough attention paid to human rights or environmental protection. Second, these gains were only possible by centralising power in Jakarta and leveraging the power of the state to push through regulatory hurdles and compensate for market failures created by Indonesia’s inefficient bureaucracy and cock-eyed institutional architecture.

For his second term in office, Jokowi plans to double down on this pro-growth platform by continuing to build infrastructure, invest in human capital, and pass meaningful structural reforms that will actually induce private investment at scale in a multitude of sectors, not just in home-grown tech unicorns or coal-fired power plants. I believe this is his singular, overriding policy goal for the next five years. He is willing to horse-trade aggressively and make unsavoury political pacts with the ruling elite in order to see it carried out.

Making this vision a reality, particularly the structural reforms necessary to truly reduce transaction costs and boost productivity, will require buy-in from a wide range of stakeholders. It cannot be accomplished through a series of presidential decrees, but needs the backing of the legislature and power brokers in the business and political community. The composition of the new working cabinet is Jokowi laying the groundwork to get the buy-in he considers necessary for Indonesia to reach its economic potential.

Jokowi has been willing to allow lawmakers to inoculate themselves against corruption charges, and has given the state security apparatus a free hand in Papua. He has appointed political party bosses to positions in his cabinet through which they can extract rents. He has side-lined the opposition and, in the view of many, removed meaningful accountability.

This is obviously a gamble. Necessary reforms may continue to be held up or they may not have the anticipated effect—in which case Jokowi will have traded away his credentials as a reformer for nothing. A very valid argument also exists that a myopic obsession with economic development at the expense of human rights, environmental protection and accountability is not a worthwhile trade-off. Surely, in Papua the answer to every question cannot simply be pembangunan. And to pretend that economic growth is everything echoes the memory of Suharto, who turned the state into a patronage machine while cloaking it in the rhetoric of national development.

It is too early to say if the gamble is worth it—if Jokowi has given up too much in exchange for too little. It is quite possible that Prabowo will turn out to be a Trojan horse, abusing the military’s large budget and accruing loyalty in the ranks for his own personal benefit. But Jokowi now has the support of the Gerindra Party behind him, with less incentive for them to engage in economic nationalist muckraking. This means it is possible binding legislation will be passed to eliminate local content requirements, reduce barriers on foreign investment, and make permitting and licensing easier (even if this means making hard choices like eliminating overlapping approval processes that have long provided cushy jobs to large numbers of civil servants).

In his first term, Jokowi found himself making economic policy mainly via executive fiat and by leaning into SOEs to do the heavy lifting of infrastructure development. Yet presidential and ministerial decrees can only go so far in driving sustainable growth, and the metastasizing of the state-owned sector cannot continue unchecked forever. Eventually private capital needs to step in and pick up some of the slack, and as the economy matures and develops the labour pool will require more high-skilled workers who can drive productivity gains. Jokowi is gambling that letting the foxes into the henhouse will give him policies and reforms that can make those things happen.

The question that will linger over the next five years is not whether the foxes are in the henhouse—they clearly are. The question is whether letting them in was worth it, and how many hens might get eaten along the way.