Indonesia—Policy continuity the best outcome for foreign investors

South-East Asia’s largest economy held presidential and legislative elections on 17 April. Incumbent Joko Widodo, popularly known as Jokowi, won 55.5% of the vote, securing his second 5-year term as President. The ruling coalition led by Jokowi’s party, the PDI-P, also retained a majority in parliament. The presidential race was a replay of the 2014 election when Jokowi defeated Prabowo Subianto, a former general.

During the campaign, Jokowi promised to continue investing in infrastructure and social support programmes, the hallmarks of his first term. A higher proportion of the budget was spent on infrastructure as US$358 billion was allocated to roads, railways and dams (Chart). Jokowi’s government also rolled out welfare programs, including the expansion of health insurance coverage. But Jokowi has promised to ensure the budget Export Finance Australia does not exceed the legally mandated cap of 3% of GDPit is currently 1.7%. He has also pledged to attract foreign investment into Indonesia and to promote exports.

The two-term presidential limit in Indonesia could give Jokowi the incentive to undertake unpopular, but necessary, reforms including cutting corporate taxation to boost competitiveness and streamlining redundant government agencies and state-owned enterprises. These reforms would encourage further foreign investment.

Fig 2 Government Spending On Infrastructure Indonesia