The story is too common. A president gets elected as the “people’s president”, he runs on a populist platform promising ‘(mental) revolutions’ and being an agent of change. He surrounds himself with a small section of the elite, essentially the super-rich to fight the other super-rich, he appoints a bunch of leftist activists to appeal the base, recruits a bunch of generals into his administration and promises land reform and anyone that does not comply. We are not talking about Donald Trump, the iconoclastic president but the Indonesian president Joko Widodo alias Jokowi, the much celebrated, current president of Indonesia who is running for re-election in 2019.
His officials beating the early victory drums of Jokowi being the best option in comparison to the contender former army General Prabowo Subianto. But a more critical view should be applied reviewing Jokowi’s policies.
The Indonesian rupiah remains weak dropping by 55% since Jokowi’s election in 2014 as the country has to cope with a current account deficit, foreign investment is so-so at best below the 7 percent targets set by Jokowi. Many investors were interested in investing in Indonesia, but those who had never invested in Indonesia were taking their time to assess risk in the country.
The New York-based Value Penguin ranks Indonesia among the least attractive investment destinations in the Asia-Pacific region in terms of investment in start-ups. In early April this year, Jokowi further signalled a change in policy cancelling some of the 245 infrastructure project being unable to complete the projects before the elections in 2019. Under his administration he was only able to six (!) projects in 2017 and twenty (20) in 2016. In other words the current populist president achieved only 11% of his own agenda.
The infrastructure is crumbling, and of the four growth engines of the Indonesian economy, mining, oil and gas, paper and pulp and palm oil, two are torpedoed by a flawed economic change model that turns towards films, fashion and handicrafts.
Renamed as ‘creative economy’ Jokowi’s ideological economy going left trying to create a basket weaving economy to generate 9 percent GDP (only by 2020, maybe) is an attempt to undermine the resource industry.
Economics thrown overboard the administration killing off the lucrative palm oil and paper and pulp industry. The economic impacts are soon to be felt with Indonesia losing out on the global dominance of its two flagship industries. Years of foreign activist negative campaigning and now politics supporting the green politics causes a GDP loss between 1 -3 percent according to expert studies. The threat of a massive mis-calculation by Jokowi administration harming the long term effects of the economy looms.
One of them is TORA, the agrarian reform executed by another iconoclastic personality, the minister for environment and forestry, Siti Norbaya. The minister laid out her, and hence her bosses vision of the new society of agrarian reform.
According to the minister the land redistribution does not reflect a reduction of forestry owed by the state (approximately 125,922,474 ha) but a redistribution of the private held concessions.
The numbers the minister presented are deceiving. The forests held by the industry represents only 33.55% of total forestry hectares of Indonesian assets.
The minister’s strategy shows a redistribution of the “95.76%” privately managed forests to reduce the commercial holdings to the TORA objective of 59-62% of licensed forests. This effectively means only 24,929,408 hectares/26,197,995 hectares available to the industry.
The government of President Jokowi is executing a conversion of the current “95.76%” private holding to a 88 percent /12 percent split. This shifts the private holdings to 37,182,845 hectares (private) / 5,070,388 hectares (communities). The government stated at no time it will release further government land. The industry is unlikely comprehending the significant paradigm changes in Jokowi’s policies.
Proportionally the loss for the industry results in about 26-29% of existing land bank holdings. Whereas the political message from team Jokowi is greeted with joy by the activists’ reality is the government taking from the rich to feed the poor, so it seems.
But as always populist policies are not benefiting the poor. Economic theory of higher productivity with lesser asset in the context of the already depressed economy will unlikely benefit the investor community.
The actual concern for the investment community is the use of populist policies to undermine investor confidence. With no guarantees of a stable, legal framework, punitive policies and leftist leaning ideologies such as the support for the creation of an indigenous law, the government is using private industry commitments to benefit a questionable people’s policy which are deeply flawed, does not benefit the communities, nor advances the economy.
Jokowi recently lamented about the lack of foreign investor commitments. Land redistribution on the expense of investors is never a sound policy.