Presidential Elections Threatens to Hurt Indonesia's Business Environment

The business climate in Indonesia is poised for change due to the impending presidential elections on July 9.

The elections will mark a milestone in Indonesia’s democratic trajectory as power will be transferred from one directly elected president to another for the first time.

According to the latest Grant Thornton International Business Report (IBR), confidence of Indonesian businesses regarding the country’s economy as well as business environment declined in the second quarter of 2014 from a net balance of 78 percent in the previous quarter to 48 percent.

However, despite this decline, optimism amongst Indonesian business owners is still ahead of the global average at 46 percent. Indonesia is ranked fourteenth among the 34 surveyed economies.

The Indonesian economy is expected to grow 5.3 percent (year-on-year, yoy) in the second quarter of 2014 because of improved household consumption supported by the legislative and presidential elections in 2014.

Meanwhile, Indonesian exports are also expected to have improved slightly from its performance in the first quarter of the year due to improved economic conditions in Europe.

Whoever is voted in as the new leader of South East Asia's largest economy will face challenges including combating corruption and maintaining economic growth.

Joko ‘Jokowi’ Widodo – the current governor of Jakarta – remains the narrow favorite to win the race, although he has seen his once double digit opinion poll lead reduced dramatically in the final weeks of campaigning.

Jokowi has won popularity based on his down-to-earth campaigning style and his image as a leader untainted by association with Indonesia’s corrupt political elite, according to Maplecroft.

Foreign investors have also indicated their approval of his commitment to invest in improving the country’s infrastructure and curb corruption.

His opponent is Prabowo Subianto, a former special forces general under the late dictator Suharto, whose image is tainted by accusations of human rights abuses in the 1990s.

Prabowo favors a ‘strong-man image’ and critics have questioned his commitment to democratic ideals. Despite this, he has successfully mobilised a late surge of support with his nationalist rhetoric and populist policies that have worried many foreign investors.

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