Indonesia is all set for its Obama moment. The problem is, it doesn’t know which Obama moment it is about to get.
Joko “Jokowi” Widodo, until recently the clear favourite, faces off against rival Prabowo Subianto on Wednesday for the right to be the country's president.
Jokowi, the 53 year-old former Jakarta governor, has been consistently likened to the US president in more ways than one. Both are relatively young, both have drawn scrutiny for their ethnic and religious background, and both at various points have embodied a potential new direction for their countries.
Prabowo, in contrast, has probably never been compared to the US president. A former general, he has links to incumbent president Susilo Bambang Yudhoyono, is staunchly nationalistic and is backed by the political and old-school business elite.
If he wins, the country will be spared talk of a new political dawn but it will not be spared every aspect of the Obama presidential era. That's because whoever succeeds in Indonesia on Wednesday will face a polarised domestic political climate rife with competing factions and self-interests, much like Obama.
The very loose alliance of parties that controls parliament and enabled Jokowi to be pushed forward as a presidential candidate holds less of the public vote than the opposition.
“Like Obama's administration, the next Indonesian presidency will likely be shackled by party politics, especially when it comes to working with the legislative branch,” Wellian Wiranto, economist, treasury research and strategy, global treasury at Oversea-Chinese Banking Corporation in Singapore, told FinanceAsia.
So will the country get Obama “Yes we can” or ObamaCare, the divisive and politically damaging health programme pushed by the president?
The answer to this is crucial for Indonesia's 250 million citizens but also for investors and the markets. With foreign direct investment running at an average $4.4 billion per quarter since the turn of the decade, the possibility of protracted delays, self-interest and indecision is not what they want to hear.
“FDI increased significantly after the financial crisis of 2008,” Wijayanto Samirin (Wija), a policy adviser to Jokowi, told FinanceAsia.
“Global investors perceived the country as a haven and this investment plays a very important role in terms of growth and jobs. If we can’t maintain this we can’t expect Indonesia to keep growing,” he said.
Such sentiment is important because a wide streak of nationalism has pervaded the presidential election, on both sides.
Jokowi, regarded as the more liberal of the two, nevertheless attacked “liberal economic policies” that “enslave” Indonesia, in a local media article in May.
Prabowo, backed by the political elite, was in the same month forced to deny he would nationalise foreign assets if he took power.
But these politicians are following a well-trodden chest-thumping rhetoric that is typical across emerging or developing markets and not necessarily a serious threat to foreign investors.
“Prabowo is far more nationalistic [than Jokowi]. He wants Indonesia to be the tiger of Asia. But even he wouldn’t nationalise companies,” said Wija, who is also managing director and co-founder of the Paramadia Public Policy Institute in Jakarta.
Either way, reforms are needed if Indonesia is to truly to become a sensible place to do business, for both local groups as well as foreigners.
Battle lines were redrawn even before the governmental elections in April, with changes to foreign investment rules becoming effective in April. Restrictions were loosened in some areas but tightened in others and investment prohibited entirely in others.
“The winner will have to keep foreign investors interested. If foreigners pull money out of the country it will not be good for economic growth,” OCBC Bank's Wiranto said.
Appointing technocrat ministers is an important first step, Wiranto said, with Jokowi the more likely to be flexible in this regard as Prabowo (left) appears to have assigned cabinet seats already.
Either way, FDI growth slowed at the start of the year and both candidates will inevitably continue along a similar path to that which has categorised the past 10 years.
“A dialing down of nationalism towards liberalisation will happen for both candidates. But it will be more difficult for Prabowo; it will take longer,” Wiranto said.
So, with that in mind, what kind of foreign groups does the country want to attract?
Wija said that a Jokowi (below left) presidency would seek to attract “efficiency-seekers” rather than resource groups or those merely interested in taking domestic market share.
He cited technology groups and outsourcers as the types of investors the presidency would hope to attract.
To do this, he said the government would look to make policies more flexible, provide incentives for foreign companies and make it easier for expatriates to live in the country. “We need to improve the quality of cities to make it easier for people to live here,” he said.
An admirable ambition – and one that might please foreign investors - but it all boils down to which candidate the Indonesian public believes in more.
“We are upbeat on Indonesia, whichever way the people decide on their future leader,” Ramesh Subramaniam, the Asian Development Bank's deputy director-general for Southeast Asia, told FinanceAsia.
“Over the last decade or so Indonesia has become stronger and more resilient, thanks to the reforms under way,” he said.
Which way the people decide to vote should be clear at about 6pm Jakarta time on Wednesday, when the “quick vote” estimates are known, akin to an exit poll but based on preliminary voting at various districts.
Official results will not be known for a few weeks but the race has tightened significantly since the two announced their candidacies. So much so that there is now talk of an effective tie.
Xavier Jean, corporate ratings analysts at Standard and Poor’s, said major foreign investment decisions would likely be put on hold until there is clarity on the election outcome and also on the direction of the administration’s economic policies.
Wija concurs. “We need a decisive result. If the gap is 1%-2% the one who loses will no doubt bring a case to the constitutional court and this would take time – perhaps 2-3 weeks,” he said. “This would not be good for the country. The uncertainty would be very bad”.