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Message from the Board


Message from the Board

January 2014

As we enter 2014 the upcoming House of Representatives (DPR), 9 April, and Presidential, 9 July, elections are set to dominate not only the political sphere over at least the first half of the year, but also the Indonesian legal and business landscapes.

On the political side, Joko Widodo, commonly referred to as Jokowi, the Governor of Jakarta, and Prabowo Subianto are being represented by certain portions of the Indonesian media as the strongest presidential contenders, although Anies Baswedan, a competent contender with high integrity, also bears watching. However, in 2004 Susilo Bambang Yudhoyono emerged close to elections and ultimately won despite initial predictions. President Yudhoyono’s victory in 2004 shows that the Indonesian political process can be highly dynamic up until the election date. Another aspect to consider is that following revelations of corruption at the highest level of the Constitutional Court, which arbitrates election disputes and is currently reviewing a constitutional challenge to the Presidential Election Law, the election process is likely to attract significant scrutiny during the current election cycle, and as a result could see a certain level of turbulence.

During the pre-election period we are already seeing elected officials shifting to campaign mode, with attempts to introduce populist policies, delays and a certain reluctance to make decisions in anticipation of the campaign period and the post-election reshuffle. Similarly, higher-level administrative officials are also shifting their focus to pre-election political issues and the inevitable changes that will follow the election. This can be expected to manifest in the form of delays and in a lack of willingness to engage prior to the outcome of the elections, which unfortunately means that 2014 will likely be a challenging year for any interactions with the administrative state.

The Financial Services Authority (OJK) has taken over the banking industry oversight role of the central bank (Bank Indonesia), thereby implementing OJK’s envisioned role as a financial super regulator. The process of transition of capital markets and insurance from the Ministry of Finance to the OJK, which started in 2012, had gone sufficiently smoothly, with the OJK gradually building up their organization and capacity, which makes it reasonable to expect that the current transition process will also not result in significant changes from the era of Bank Indonesia oversight.

As the Indonesian economy has cooled, and the Indonesian Rupiah has seen significant depreciation over the preceding months, Bank Indonesia has increasingly focused on Indonesia’s current account deficit and associated issues such as repatriation of foreign earnings and constraining credit growth. Such policies can be expected to persist in the near term, in line with most state institutions’ likelihood of being largely reactionary in the very short term rather than pursuing more forward-looking policies prior to the emergence of a stronger political mandate following the elections.

Heading into 2014, the main challenges, but also some of the greatest opportunities, faced by Indonesia are infrastructure sufficiency and legislative certainty. Infrastructure, while being a challenge and a constraint to reaching the full growth potential, also presents significant avenues for investment and business as the domestic market continues to grow and develop.

 

[Last update: 2014-01-10 10:09:02]

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