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Investors keenly await an end to Indonesia’s political limbo

It was the former British Prime Minister Harold Wilson who reportedly asserted that “a week is a long time in politics”. For many who have been following the recent Indonesian Presidential Election, the two week period between Election Day (9th July) and the anticipated announcement of the official result on 22nd July feels like an eternity.

Many Indonesians quip that their country currently has three presidents: the incumbent and outgoing president, Susilo Bambang Yudhoyono, plus the two contenders – Joko Widodo and Prabowo Subianto – who have both claimed victory.

This current fortnight of political drama and limbo is the finale in a protracted political drama. It has long been known that 2014 would be a year of change: under Indonesia’s constitution, President Yudhoyono is obliged to stand down this year after two terms in office. However, the ‘change’ that would ultimately be on offer to the electorate had long been a topic of speculation, right up to the final months before the election. Would Jakarta’s popular Governor, Joko Widodo (Jokowi) stand or not? Would the incumbent president’s party (Partai Demokrat) be able to field a candidate or not? In the end, it wasn’t.

For many foreign investors, statements from the two candidates to date have provided a rather hazy mix of cautious optimism and mild concern. Neither candidate has indicated a radical shift in policy towards foreign investment. Both have a background in international business and in one form or another have acknowledged the contributions FDI has made to the Indonesian economy. However, both have also taken care to acquiesce to nationalist sentiments by talking a negative stance on certain foreign investment activity:

Earlier in the year, Jokowi’s party (the PDI-P) stated in its economic platform for 2014’s two elections (legislative and presidential) that “we are facing a situation in which our economic sovereignty and policies are being dictated by foreign powers.” Meanwhile, Prabowo has indicated plans to renegotiate contracts with foreign companies to get better terms for the Indonesian state.

The degree to which such rhetoric actually evolves into hard policy once the president is sworn in is questionable however. Fauzi Ichsan, Senior Economist at Standard Chartered, recently asserted that “the rhetoric during the political campaign is likely to be thrown out of the window the moment either [candidate] is elected president.”

In the case of Jokowi, some recent actions reassuringly seem to trump the less encouraging rhetoric. Infrastructure is widely regarded as both the impediment and key that will unlock much of Indonesia’s investment potential and ease of doing business. On this, Jokowi has an encouraging track record as mayor of the Javanese city of Solo and more recently as Jakarta’s Governor, where after years of inertia despite the economic boom times, the capital has finally begun the construction of a long-awaited mass rapid transit (MRT) system, with other major transport infrastructure projects in the pipeline.

For his part, Prabowo’s credentials as a businessman with significant overseas interests lead some to believe and hope that he would maintain an investment-friendly business environment. However, the high-profile case of the UK’s Churchill Mining and its long-running dispute with Indonesia’s Nusantara Energy (which is affiliated to Prabowo), has lingered in some investors’ minds.

Whatever the outcome that’s announced on 22nd July, there’s widespread hope among international political and business leaders alike that the new administration will keep Indonesia on the path of reform and openness with the global economy. With a population nearing 250 million and a growing, urbanised middle class eager for new, innovative products and keen to build careers in increasingly sophisticated industries, Indonesia’s new leadership will owe its people nothing less than the vast economic and professional development opportunities that can come from attracting targeted, value-added FDI.

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Daniel Nicholls is author of Foreign Direct Investment.

Daniel Nicholls is a London-based Consultant at the economic development consultancy OCO Global where he works on a variety of consulting and training assignments for clients and industry associations. With a background in marketing and communications, Daniel has lived and worked in various European countries over the past decade and is currently on assignment in Indonesia.