Insight - With a whiff of Wall Street, Indonesia's Jokowi tries a new tack | Reuters

 Insight - With a whiff of Wall Street, Indonesias Jokowi tries a new tack
| Reuters

JAKARTA Indonesian President Joko Widodo has been a let-down for investors who thought he would slash red tape and push aside reactionaries to revive the economy. Now, after nearly a year in office, he is starting to look like the leader they expected.

After months of policy confusion, internal bickering and pressure from powerful political forces rooted in the reflexive economic nationalism of Indonesia's past, aides say the president has had enough.

It began with a cabinet shake-up in August. Among the technocrats he brought in was a former Wall Street banker, and an ex-central bank chief with a doctorate from Paris. He followed up by appointing an anti-corruption crusader as his chief of staff.

Since then, Widodo has unveiled two packages of measures that will dismantle archaic regulations clogging up investment and trade in Southeast Asia's largest economy; this week he will launch a third.

Impatient for action as an unrelenting decline in the rupiah currency revives memories of Asia's late 1990s financial crisis, the usually mild-mannered president, known popularly as Jokowi, reportedly raised his voice at a cabinet meeting last week over bureaucratic delays.

The appointment of Tom Lembong as trade minister was perhaps the biggest surprise of Widodo's reshuffle.

POLITICAL MISFIT

A Westernised and urbane Harvard graduate who went to school in Germany and the United States, Lembong worked at Morgan Stanley (MS.N) in New York and Deutsche Bank (DBKGn.DE) before co-founding a private equity firm in Singapore called Quvat Management.

Like Widodo - a former furniture businessman and the first president to come from outside the political or military establishment - Lembong, a 44-year-old ethnic Chinese, is almost a misfit in the world of Indonesian politics.

Interviewed in his car on the way to a Muslim Eid al-Adha festival, Lembong says it is the president's readiness to break the mould that, after "a very shaky start", is now driving change.

"People don't realise how ready to break orthodoxy and conventions the president is," he said. "We became complacent with the commodities boom. We need a jolt."

Indonesia had averaged over 6 percent growth since the end of the Asian financial crisis, and touted as the next hot emerging market to join the BRIC giants: Brazil, Russia, India and China.

But as consumption and exports wane - Indonesia is the world's top exporter of power-station coal, tin and the palm oil found in products throughout supermarkets - the central bank expects growth this year to fall to just 4.9 percent.

Widodo said he wants to rely on foreign investment as a new economic growth engine. Key to that will be tackling some of the world's most woeful infrastructure, and a corrupt and intrusive bureaucracy.

Lembong played a key role in the first tranche of measures announced last month: easing trade permit regulations and ending arcane rules few had ever questioned, such as one requiring importers to put labels in Indonesian language on all goods before shipping them.

"The history of the last 100 years is that protectionism always backfired in the end," Lembong said.

COHERENT VISION?

It is too early to conclude that with his new inner circle of technocrats Widodo has turned a corner.

The meddling of coalition partners and his own political party - not least, former president Megawati Sukarnoputri who remains party president - were partly to blame for the stumbling of his first cabinet. Their demands are not likely to ease.

Widodo also will have to fend off figures who have a vested interest in keeping the wheels of business and trade turning their way and will press to have their allies in positions of influence.

And he has to contend with an influential Islamic group that is waging a "constitutional jihad" against capitalism and has dealt legal blows to private participation in the energy and water sectors.

Nor is it clear Widodo is genuinely wedded to reform or has a coherent vision of his own - he has lurched from cutting fuel subsidies to steps shielding industries from foreign competition.

Lembong conceded even those closest to the President struggle to read his mind.

CONSOLIDATING POWER

Yet Widodo now has a team whose members appear more in tune with each other than his first lineup - they have even set up a cabinet Whatsapp messaging group to share ideas.

"The first cabinet was the result of coalition politics, but what he has now is more reflective of his independent choices," said a government source. "He is consolidating power."

Kevin O'Rourke, a political risk consultant, said the deregulation steps marked a departure from the "interventionist, obstructionist and protectionist trade policies put in place over the past five years".

Political opponents, however, will try to portray the administration as acting against the national interest, putting pressure back on Widodo, he added.

Widodo squeaked out a victory in the July 2014 election over a former general, though he had been expected to win by a landslide. Many worried at the time his lack of support in the powerful legislature, inexperience and diffident manner would limit his capacity to bring about change.

Lembong said investors need to realise the challenges his boss faces.

"The euphoria accompanying his entry into office did create unrealistic expectations: our problems are so entrenched they are going to take a long time to resolve," he said.

(Additional reporting by Kanupriya Kapoor and Gayatri Suroyo. Editing by Bill Tarrant)

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Updated Date: Oct 06, 2015 03:45:10 IST