Pranjul Bhandari, Chief Indonesia Economist, discusses the upcoming Indonesian elections and their implications on the economy. They also delve into Indonesia's transformation in processing natural resources and the risks it faces. Climate vulnerability and Jakarta's susceptibility to rising seas caused by climate change are highlighted.
The upcoming national election in Indonesia could lead to potential changes in economic policy, including a new tax office reporting directly to the president and increased fiscal expenditure.
Indonesia's transformation in the natural resources sector, particularly in the processing of nickel, has positioned it as a global powerhouse and attracted considerable foreign direct investment.
Deep dives
Indonesia's upcoming national elections
Indonesia is gearing up for national elections on February 14th, with three candidates vying for the presidential post. The leading candidate, Pobo Bohe, is currently in the lead with about 48% of the votes, just shy of the 50% required for victory. If no candidate reaches the required threshold, a rerun of the elections will take place in June. Continuity of policy is a possibility as Pobo Bohe's vice presidential candidate is the son of the current president, Jokowi. Potential changes include a new tax office reporting directly to the president, increased fiscal expenditure, and more subsidies and social welfare spending. Despite potential challenges, Indonesia remains an attractive market with a strong domestic demand and the capacity to grow while maintaining macro stability.
The transformation of Indonesia's natural resources sector
Indonesia has seen significant transformation in its natural resources sector, particularly in the processing of nickel. With the ban on raw mineral exports, Indonesia has ramped up the processing of nickel, making it a global powerhouse in the sector. The country is also making strides in the EV ecosystem, utilizing nickel for EV batteries and aiming to manufacture and export EV cars. This shift has attracted considerable foreign direct investment (FDI) with billions of dollars waiting on the sidelines. While there are challenges such as carbon footprint reduction and competition from alternative metals like lithium, Indonesia's potential growth is set to rise due to the expansion of processed metals and EV sectors.
Indonesia's promising growth story and key risks
Indonesia's large consumer market, coupled with strong domestic demand, positions it as an attractive economy. Over the past decade, Indonesia has made significant progress in stabilizing macro factors like inflation and exchange rates, contributing to its growth potential. With potential growth forecasted to increase from 5.3% to 5.8% over the next five to six years, Indonesia's focus on new sectors such as processed metals and EVs, which have global demand, further supports its positive growth trajectory. However, risks remain, including commodity price fluctuations, global volatility, and climate change impacts such as rising sea levels and erratic rainfall patterns.