A Jokowi Presidency

Politics, Government and Business Under

Indonesias Future President
July 24, 2014




A Jokowi Presidency


Indonesia

is the fourth largest
country in the world by
population.
is the worlds largest
Muslim-majority
democracy.
is the 10
th
largest
economy in the world
based on PPP.
has a rapidly growing
middle and consumer
class, currently
numbering some 45
million.

Executive Summary
Joko Jokowi Widodo has emerged victorious in
Indonesias closely fought presidential election. On
July 22, the General Elections Commission (KPU)
officially declared the Jokowi-Jusuf Kalla ticket the
winner of the July 9 election, following a nearly two-
week process of tallying more than 130 million votes
from across the archipelago. Jokowi will be sworn in
as Indonesias seventh president and the second
president elected by full and direct democracy no
later than October 20.

Jokowi will take the helm of the worlds fourth largest
country at a time of unprecedented challenges. He
will lead a nation in which ethnic and religious
tensions are intensifying, the gap between rich and
poor is expanding, and trust in government sits at an
all-time low due to corruption. He will need to breathe
new life into Indonesias lackluster economy, while
preparing the country for rising competition associated
with the imminent launch of the ASEAN Economic
Community. Profound reforms are needed in
education, infrastructure remains underdeveloped,
and he will need to make deeply unpopular cuts in fuel
subsidies. On the global stage, he will contend with a
rising China to the north, a continuing influx of asylum
seekers, and rising pressure to protect Indonesias
overseas workers.

Jokowi will need to lead the country through these
challenges in a country divided over his very
leadership. By Indonesian standards, his eight
million-vote win over rival candidate Prabowo
Subianto is a feeble victory. It has given him a fragile
mandate to lead, which may be further enfeebled by
Prabowos promised legal challenges and internal
politics within PDI-P. Thus, the question becomes
whether or not Jokowi has the political capital
necessary to make the tough decisions the country
needs.

In Indonesia, like in any democracy, successful
governance is determined by successful politics. The
end of the official campaign marks the beginning of an
intense period of political jockeying and behind-the-
scenes campaigning. Coalitions will be dissolved and
remade, parties will elect new leaders, political
appointments will be made, and the legislature will
make some important decisions of its own. Navigating
this period will require a strong balancing act from
Jokowi. His actions and choices will need to reaffirm
his image as a reformer, while simultaneously
garnering political support from the old guards that still
dominate Indonesias politics. The success or failure
of the Jokowi administration over the next five
years will be largely determined by the political
decisions made in the next three months.

Multinationals in Indonesia will need to watch this
political process carefully. Foreign investors have
reacted positively to the Jokowi win on the back of his
pledges to welcome foreign investment, cut red tape
and ease bureaucracy. Yet Jokowis ability to
implement these promised reforms will come down to
whether he can build strong political support that can
help him overcome his post-election weaknesses.





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A Jokowi Presidency
Election Fast Facts
There were over 190 million
eligible voters
Total turnout was over 134
million, representing almost
70% of eligible voters
There were an estimated 67
million new voters,
representing 35% of the
population
Jokowi won with
79,997,833 votes
(compared with Prabowos
62,576,444 votes)
Jokowi won in 23 of 33
provinces, including
Jakarta, central and east
Java, Bali, Papua and most
of Kalimantan and Sulawesi

.


Joko Widodo
Born: June 21, 1961 in
Surakarta (Solo), central Java
Age: 53
Religion: Islam
Socioeconomic background: working class
Education: engineering degree from Gadjah
Mada University (1985)
Family: Married to Iriana, has three daughters
Current political party: Indonesian Democratic
Party of Struggle (PDI-P)
Pre-political career: furniture store owner
Political career: mayor of Solo (2005-2012),
major of Jakarta (2012-2014)
Notable achievements:
o Anti-corruption initiatives, like barring
his own family members from bidding
on municipal projects
o Healthcare insurance program in Solo
and Jakarta
o City revitalization and infrastructure
projects
Personal style and approach:
o Populist, can-do, down-to-earth
o Media savvy
o Relies heavily on trusted advisors, often
outside official administration
o Patient politician deals come after
several face-to-face meetings
A Fragile Mandate
Joko Jokowi Widodo officially won the July 9
Indonesian election with 53.15% of the popular vote.
This result reflecting a differential of just over 8
million votes represents the smallest margin of
victory in Indonesias history of direct presidential
elections.
It was a closely-fought campaign that in many ways
represented a nationwide referendum on Indonesias
future direction. Jokowi ran as the candidate of
change. His very candidacy represented a break from
the political dynasties that had dominated the
presidency since the founding of Indonesia. He
pledged to bring a new style of politics to the office of
the president; a style that is bottom-up, down-to-earth
and reflects a can-do spirit. He positioned himself as a
man of the people and the natural leader of
Indonesias younger generation.
His rival, Prabowo Subianto of the Gerindra Party,
presented the public with the option of returning to
old-style politics. He pledged to bring back a level of
decisiveness that many feel was lacking during the
10-year administration of outgoing President Susilo
Bambang Yudhoyono. Deeply populist and
nationalistic, Prabowo painted a compelling picture of
an Indonesia for Indonesians. In words and in action,
he was a bastion of old-style politics.
The fact that the final results were so close suggests
that this election did not produce a definitive answer
about Indonesias future. Jokowi will come to power in
October in a country where nearly half the voters are
skeptical of his leadership and his vision for Indonesia.
He simply does not have the popular support to enact
the sweeping changes that will substantiate his image
as a reformer. Without this mandate from the people,
Jokowi will need to turn to politics to build the support
he will need to be an effective leader.
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A Jokowi Presidency







Can Prabowo Still Win?
Prabowo has pledged to appeal the
KPU decision to the Constitutional
Court by Friday, July 29. The Court
has said it will listen to the case
beginning on August 4, before making
a decision by August 20.
The Court can make the following
rulings:
Reject to hear the appeal due
to lack of evidence, thereby
upholding the KPU results
Issue a recount in some areas
or nationwide
Call for a revote
Prabowo is unlikely to be successful
in his appeal, despite having a degree
of influence in the Court Although
Jokowis victory margin was the
smallest in Indonesias short history of
directly electing presidents, It is still
large enough to rule out a level of
fraud that would alter the outcome of
the election.


A Difficult Balancing Act

While the official campaign season has ended, the politics associated with this election are far from over.
The fact that Jokowi was unable to secure decisive popular support means he will need to build strong political
support to ensure he is able to govern effectively. Between now and his October inauguration, Jokowi will need to
take steps to solidify his political backing and lay the foundations for an effective administration. The success of his
presidency can be judged by whether he is able to:

Move the conversation beyond the election. Jokowis rival candidate Prabowo
Subianto theatrically withdrew from the election results just hours before the official
announcement, citing systematic unfairness by the KPU and other injustices. He has
pledged to appeal the results to the Constitutional Court, which will have one month
to issue a decision on the appeal. To ensure that his image is not tarnished by
protracted legal battles, Jokowi will need to deftly position himself as Indonesias
undisputed next leader without antagonizing diehard Prabowo supporters. He can do
this by continuing neutral remarks that support unity as well as acquiring supports
from the oppositions side.

Negotiating within PDI-P. The Indonesia Democratic Party of Struggle (PDI-P) is
chaired by Megawati Sukarnoputri, former president of Indonesia (2001-2004) and
daughter of Indonesias founding father, Sukarno. A powerful politician, Megawati
has made it clear that she views the party as the paramount ruling institution, of
which Jokowi is a key member. So long as Megawati remains at the head of PDI-P,
Jokowi will need to ensure that he retains strong support from her without opening
himself to criticisms that he is a frail or puppet leader. Finding this balance will
require him to make some concessions within the PDI-P while also standing his
ground on key appointments and with regards to his policy agenda.

Build a strong coalition. There are already signs that Prabowos election-run merah-putih (red-white)
coalition is beginning to unravel. Golkar, a party that has never served in the opposition, has already called
for an extraordinary [party] congress that may see it elect a new leader who favors joining the Jokowi
coalition. Meanwhile, an official from the outgoing ruling party signaled that his Democratic Party may be
open to negotiations with the Jokowi coalition.
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A Jokowi Presidency










Indonesias Social
Challenges

o Indonesia ranks 121 of 187 on
the Human Development
Index, which measures quality
of life, access to knowledge
and standard of living
o 11.4% of the population
continues to live below the
poverty line according to the
World Bank
o Indonesias Gini Coefficient (a
measure of inequality) rose
from 0.37 in 2012 to 0.41 in
2013
o Indonesia ranked 114 out of
175 (where 1 is least corrupt)
on the 2013 Corruption
Perception Index



How coalitions break apart and are reformed will be
important especially in so far as they affect the
dynamics in the House of Representatives (DPR).
As it stands, the PDI-P-led coalition trails the
Gerindra-led coalition by 146 seats. Securing a
legislative majority in the DPR will increase Jokowis
changes of seeing his reformist agenda enacted,
though opposition parties will always seek to impose
roadblocks. Securing a majority will also allow his
coalition to select the speaker of the house under a
recent change to House rules (Law on MD3). A
switch by Golkar alone could secure this majority.

Jokowi will need to cement the backing of these swing parties without being seen as buying political
support, which would damage his reputation as a reformer. To achieve this, he will need to emphasize a
common platform. A key litmus test will be if he is able to keep his pledge to appoint only capable
technocrats to his cabinet, at least for the key ministries.
Navigating the political minefield of the next three months until the inauguration of the new president will require a
strong balancing act from Jokowi on multiple fronts: between himself and the Prabowo camp, within his own party,
and among his coalition partners. His actions and choices will need to reaffirm his image as a reformer, while
simultaneously garnering political support from the old guard that still dominates Indonesias politics. The success or
failure of the Jokowis administration over the next five years will be largely determined by the political decisions
made in the next three months.

A Jokowi Administration: The First 100 Days

Jokowi and Jusuf Kalla will be inaugurated president and vice-president on October 20. It will be evident within the
first 100 days of the administration whether Jokowi has amassed sufficient political capital and whether he has the
necessary tenacity to take on Indonesias toughest challenges.

The challenges that Jokowi will confront are both numerous and acute. He is set to lead a nation in which ethnic and
religious tensions are intensifying, the gap between rich and poor is expanding, and trust in government sits at an all-
time low due to corruption. He will need to breathe new life into Indonesias lackluster economy, while preparing the
country for rising competition associated with the imminent launch of the ASEAN Economic Community. Profound
reforms are needed in education, infrastructure remains underdeveloped, and he will need to make deeply unpopular
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A Jokowi Presidency
The Five-Year Plan
Another key task for the new
administration will be to finalize
Indonesias next National
Medium-Term Development
(RPJMN) for 2015-2019. While
the drafting has been going on
for several months, the new
administration will have the
opportunity to provide
significant input so that the final
plan reflects the policy priorities
of the new government. The
plan will be released early next
year and will form the basis of
ministerial five-year plans
(renstra) that will govern the
work of all the key government
agencies through Jokowis first
term.


cuts in fuel subsidies. On the global stage, he will contend with a rising China to the north, a continuing influx of
asylum seekers, and rising pressure to protect Indonesias overseas workers.

During this three-month window, Jokowi will need to skillfully divide his resources and political capital between
addressing basic issues and investing in broader, aspirational initiatives that could cement his popularity among the
electorate. The priorities of the Jokowi-JK administration during the first 100 days will likely be:

o Bolstering economic growth. The previous government has already reduced the 2014 growth forecast
from 6 percent to 5.5 percent. With the World Bank predicting that Indonesia will need to grow by over 9
percent to avoid the middle income trap, Jokowi will make bolstering growth through both fiscal and
monetary tools his top priority.

o Improving infrastructure. A second issue, very much related to the first, is that infrastructure, a growth
driver, has been lagging behind the countrys overall economic growth. Bottlenecks, high transportation
expenses, and the cost of logistics have created economic inefficiencies and contributed to massive social
frustration. Adherence to the Master Plan for Acceleration and Expansion of Indonesia's Economic
Development (MP3EI), which was compiled in 2011 as well as the Master Plan on ASEAN Connectivity,
means focusing on acceleration of economic development through infrastructure investment. The Jokowi-JK
administration will make getting Indonesia back on track with its infrastructure goals a top priority.

o Cutting subsidies. A pressing issue that is weighing down the government is the existence of subsidies,
which is nearly 400 trillion IDR, or one third of the 2014 national budget. The enormously popular fuel
subsidy, which makes up a large proportion of the program, was actually increased by the outgoing
government. Jokowi-JK has promised to resolve the issue by replacing oil power with more gas, coal and
geothermal power. They stated they will remove up to 90 percent of diesel-fired power plants within three
years, which would save seven billion USD in energy costs annually.

o Addressing social issues with signature initiatives. In addition to addressing these immediate problems,
Jokowi will likely see the first three months as an opportunity to push through signature initiatives that will
bolster his popularity. During the campaign, Jokowi promised two welfare programs for the people: a 'Kartu
Indonesia Pintar' (Indonesian Smart Card) for poor children to be able to attend school and a 'Kartu
Indonesia Sehat' (Indonesian Health Card) for poor people to get access to free health services. One or both
of these programs will likely be rolled out within the first 100 days.
At the conclusion of this period, roughly at the start of the new year, Jokowi will turn his attention to a myriad of
secondary issues. He will focus on ensuring Indonesias readiness for the launch of the ASEAN Economic
Community in December 2015. He will ramp up his diplomatic activities both within ASEAN and globally. He will have
a hand in renegotiating a series of major mining contracts. He will broaden social programs, and then, in the blink of
an eye, it will be time for Jokowi to prepare to run for his second term.
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A Jokowi Presidency

Protectionist Policies

New Trade Law. Enacted
earlier this year, the new law
gives greater power to the
state over strategically
important industries and a
stronger role in protecting local
industries. This came on the
back of a ban on the export of
unprocessed mineral ores at
the beginning of the year.

Amendment to the
Negative Investment List.
The amendment, passed by a
presidential decree, limited FDI
in a variety of important
industries, though some
sectors were further opened to
investment.

A Case for Measured Optimism from MNCs
Foreign investors and multinationals (MNCs) operating
in Indonesia overwhelmingly supported Jokowi in the
2014 election. Jokowi is indeed a major proponent of
continuing to expand foreign direct investment (FDI) into
Indonesia, believing that it can make a positive
contribution to delivering a sustainable and strong
economy.
However, foreign companies operating in Indonesia
should not assume that a Jokowi administration will
enact policies that will dramatically open Indonesias
economy to foreign business. Several factors make this
unlikely:
Regulatory realities. 2014 saw the DPR enact
several pieces of legislation (left) that impose
greater restrictions on foreign activities. As this legislation has already become the law of the land, the new
administration will need to propose policies that generally agree with these regulations.
Campaign rhetoric. The PDI-P was quite vocal at the beginning of 2014 in asserting that Indonesias
economic sovereignty is in danger of being unduly influenced by external actors. Jokowi himself has gone on
record saying that foreign companies wanting to come to the ASEAN region should have to work harder to
demonstrate a clear contribution to the regions economic and social development. Therefore, in addition to
existing regulatory realities, statements by both the future president and future ruling party suggest that
dramatic shifts in the scope of allowed FDI should not be expected. Jokowis statement in particular suggests
that Indonesia may in fact enact policies that require greater value-add from foreign investors going forward.





A Cause for Optimism
While the openness of the Indonesian market to foreign investment is unlikely to increase, a Jokowi administration is
likely to benefit foreign MNCs in another important way. During his campaign, Jokowi pledged to:
Tackle corruption from the bottom-up;
Ensure unfair and illegal trade practices do not hinder the business environment further;
Streamline bureaucratic structures that have made doing business cumbersome and difficult;
Cut bureaucratic red-tape.
If Jokowi is able to secure a majority in the DPR, as well as sufficient political support, foreign companies can expect
there to be measurable progress in the ease of doing business under a Jokowi presidency.
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A Jokowi Presidency


Recommendations for Multinationals

1. Watch the politics closely. Given the make-or-break importance of the transition period in
determining the political strength of the Jokowi administration, multinationals with a business
interest in the country will need to closely track developments over the next three months. In
particular, Jokowis ability to form a coalition that gives him a majority in the DPR will signal
whether his pro-business reforms will succeed in passing. The outcomes of this interim period
will be especially key for MNCs considering major new investments into the country.

2. Prepare for a new style of governance. Jokowi is known for a way of governing that sets him
apart from the hierarchical, staid style of most politicians. He is seen as approachable by the
business community. He often chooses to forgo bureaucratic formalities in order to solve
problems, and decisions are often made following iterative trust-building sessions. While
Jokowis style will need to change somewhat to accommodate the demands of a national
mandate, MNC executives will nevertheless need to anticipate a new style of government
relations that is more personal and puts greater emphasis on trust.

3. Consider how your business contributes to Indonesias development. The days of open
FDI are coming to an end. Jokowi has already said that new FDI into Indonesia will need to
demonstrate its contribution to the development of society, which is reinforced by various
legislation passed in 2014. MNCs hoping to enter or expand their business in Indonesia need to
develop strong narratives that demonstrate a clear and authentic value proposition to Indonesia.

4. Start forming relationships with the key people. The task of preparing a new government
relations strategy should start now. The first step is to develop a stakeholder map that identifies
the individuals both public-facing and behind-the-scenes that will influence your business in
the next term. The map should be a living document that is updated as more information is
announced. Appendix 1 identifies just a few of the top influencers that APCOs Jakarta team
believes should be on every businesss radar at this stage.

5. Look for authentic door openers. The next six months offer numerous opportunities for
multinationals to approach the government to begin build relationships with the next
administration. Opportunities include:
1. Suggesting language for the next national five-year plan based on global best practices;
2. Providing practical ideas for how the government can meet the proposed targets under
the new Sustainable Development Goals, which will replace the Millennium
Development Goals in 2015;
3. Offering concrete proposals for public-private partnerships that can address a need in
Indonesia.

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A Jokowi Presidency

Appendix 1: Some of Jokowis Top Influencers
Just some of the individuals that should be included in early versions of stakeholder maps are listed below. Going
forward, there will be a range of influencers around Jokowi both in public and behind-the-scenes roles that
MNCs will n eed to track carefully in order to maximize the effectiveness of their government relations efforts.
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A Jokowi Presidency


About APCO Worldwide in Indonesia

APCO Worldwide opened its office in Jakarta in 2000, at a time of political transition and intense
uncertainty, when Indonesias people were enthusiastically embracing democracy after many years of
authoritarian rule. APCO assists clients in understanding and responding to new paradigms for business
in a complex, fast changing and sometimes turbulent environment. APCO is today an established part of
Jakartas business infrastructure. We offer a range of services within the framework of strategic
communication, public affairs and corporate advisory services. Our services include:

government relations
crisis management
regulatory and fiscal reform
corporate responsibility
coalition building
market entry
litigation communication
media relations and monitoring

APCOs strategic approach is based on tailored research and insightful analysis. Our knowledgeable and
experienced professionals in Jakarta have strong sector experience particularly in energy, mining,
pharmaceuticals, food and beverage, banking and financial services, as well as in providing services to
governments and nongovernmental organizations (NGOs). We also work with our colleagues in APCOs
offices globally to meet the needs of our international clients.

For questions or comments on this analysis, or to learn more about APCOs services in Indonesia, please
contact us:


APCO Worldwide, AXA Tower, 45th Floor Kuningan City, Jl. Prof. Dr. Satrio Kav. 18, Jakarta 12940 www.apcoworldwide.com
Madeleine Hardjono
senior director, Jakarta
+62 811850911
mhardjono@apcoworldwide.com

Jennifer Hart
deputy managing director, Jakarta
+62 8119885455
jhart@apcoworldwide.com
Quint Simon
consultant, Jakarta
(m) +62 821 90790460
qsimon@apcoworldwide.com
Muhamad Heikal (Heikal)
consultant, Jakarta
(m) +62.8111991011
mheikal@apcoworldwide.com
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