A stronger Jokowi must face economic headwinds

Jakarta

INDONESIAN President Joko Widodo heads into his second term with a stronger mandate to tackle the significant risks facing South-east Asia's biggest economy.

The General Election Commission (KPU) confirmed unofficial counts by private pollsters in the April 17 election, giving Mr Widodo a 55.5 per cent share of votes against 44.5 per cent for Prabowo Subianto.

Mr Jokowi won more than 85 million votes of a total of 154 million cast in the world's third-largest democracy, but Mr Prabowo told reporters he believed there had been widespread cheating and about 1,000 supporters gathered in a peaceful protest.

The retired general pledged he would "continue to make legal efforts in line with the constitution to defend the mandate of the people", Reuters reported. Sufmi Dasco Ahmad, the legal director of Mr Prabowo's campaign team, confirmed it planned to contest the result in the Constitutional Court.

The KPU announced official results more than a day earlier than expected after working into the early hours of Tuesday.

The president must now deliver on a reform agenda that includes plans for record spending on new infrastructure over the next five years. He'll also need to attract foreign investment and navigate a worsening global trade environment, which is weighing on growth.

"Jokowi is well placed to push ahead with his economic agenda, which will centre around developing infrastructure and streamlining byzantine red tape in order to attract investment," said Hugo Brennan, principal political analyst with Verisk Maplecroft in London told Bloomberg.

While Mr Jokowi won't be inaugurated until October, he's already set about drafting plans to spend more than US$400 billion on infrastructure, such as building new power plants and airports. As much as 40 per cent of the total is expected to be funded directly by the government, 25 per cent through state-owned enterprises and the rest through the private sector.

The president is betting on a spending boom to lift economic growth, which hasn't hit the 7 per cent target he set in his first term. The trillion-dollar economy grew 5.07 per cent in the first quarter, the slowest expansion in a year, Bloomberg reported.

Mr Jokowi has ordered his cabinet to try to stimulate the economy by boosting investment and exports. With the budget deficit forecast at 1.84 per cent of gross domestic product - well below the 3 per cent ceiling - the government has room to pursue more expansive fiscal policies after a year of aggressive monetary tightening.

Weaker global demand and the US-China trade tensions have weighed on exports, pushing the trade deficit to its widest in at least a decade. That makes it more difficult for the government to rein in the current account shortfall from a four-year high in 2018, and means it remains reliant on foreign inflows to fund imports.

With global risks rising, foreign funds have once again began dumping emerging market assets, including Indonesian stocks and bonds. Investors will be watching if Mr Jokowi can pursue structural reforms to lure more stable foreign direct investment instead. Mr Brennan said investor sentiment in the mining sector will continue to be undermined by "resource nationalism and a clear preference for domestic state-owned companies".

After slowing to a decade-low in March, inflation is set to accelerate again and could pose risks if Mr Jokowi decides to lift a freeze on petrol and electricity prices enforced in 2016. The central bank - which has kept its key interest rate unchanged at 6 per cent this year after six hikes in 2018 - expects inflation to stay inside the 2.5 per cent to 4.5 per cent target this year.

With steps to propel growth likely to take precedence over everything else, the president may maintain price controls and continue food imports to boost supplies. While he would be looking to Bank Indonesia governor Perry Warjiyo to gradually cut rates to support the economy, the central bank is proceeding cautiously and wants to avoid a repeat of last year's market rout.

The rupiah has fallen almost 3 per cent against the dollar in the past month, while the yield on benchmark 10-year sovereign bonds surged 47 basis points in the same period as investors pulled out more than US$900 million.

Singapore President Halimah Yacob and Prime Minister Lee Hsien Loong have written letters to the Indonesian president to congratulate him on his re-election at last month's election. Madam Halimah said Mr Joko's convincing victory was a testament to the trust and confidence that the Indonesian people had in his leadership.

Congratulating Mr Joko on his victory, Mr Lee said: "The strong mandate you received reflects the trust that Indonesians have demonstrated in your continued leadership, and your vision to uplift the lives of all Indonesians." BLOOMBERG