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Analysts of Indonesian affairs are closely monitoring two issues: Joko Widodo's as yet undeclared bid for president in July 2014 and the future of foreign direct investment (FDI) in the country. Despite the seemingly disparate nature of these issues, they will become increasingly intertwined closer to the election. The big question: how would the election of Widodo, the incumbent governor of Jakarta and frontrunner in opinion polls, impact the country's investment climate?
There is debate about the current role of FDI in Indonesia. Buoyant FDI inflows into the country have garnered worldwide
attention in recent years. They include a surprising net positive inflow during the 2008 global financial crisis. According to the World Bank, in 2012 Indonesia reached its highest level ever of inward FDI, estimated at US$19.8 billion. Champions of FDI claim that increased foreign investment is invaluable for growing and developing the economy.
Mahendra Siregar, the new head of the Indonesian Investment Coordinating Board, told The Wall Street Journal that boosting FDI is a critical strategy for maintaining Indonesia's economic momentum and reversing a rising current-account deficit. Not everyone, however, shares Siregar's enthusiasm about FDI's role.
Opponents argue that FDI infringes on the development of crucial domestic industries such as infrastructure and pharmaceuticals; this view is widely held among local governments and organizations in Indonesia. Additionally, recent reports indicate that business associations like the Indonesia Logistics and Forwarders Association (ALFI) are against foreign majority-ownership of local enterprises, as they fear foreign management will lead to the elimination of jobs.
In actuality, the role of FDI in Indonesia likely falls in between these two competing views. FDI has contributed to the country's economic resilience amid global crisis, as have until recently high global commodity prices, but new data suggests an uncertain future. Economists expect FDI to decline for at least the next two years, adjusting consensus forecasts downward from 6.3% to 5.8% of economic growth.
While FDI increases the country's exposure to foreign job competition, it also leads to new job creation. For example, the Research Institute of Industrial Economics in Sweden found that foreign take-overs of Indonesian firms, on average, actually increased employment. Further, the Investment Coordinating Board claims that 62% of the country's jobs created in the second quarter of 2013 resulted from realized FDI.
If nominated and elected president, Widodo will need to quickly decide where he sits on this spectrum of views. The undeclared candidate has not taken a strong public stance, but his past actions may shed light on his future political position.
Widodo's strong popularity results largely from his reformist image in Jakarta. Famous for wandering the capital's streets and shaking hands with the crowds of people who follow him, he is considered a fresh political face amid a stodgy old guard. As governor, he has fought with a populist touch to raise wages for laborers. In his previous tenure as a mayor, he distributed health cards for low-income residents to access public healthcare.
Both policies generated mass appeal among his constituents; however, these reforms have been at a provincial level and his national policy priorities are unknown.
The signals have been mixed. Last June, Widodo banned foreign investors from entering the tourism sector on the Thousand Islands area on Jakarta's northern coast. He planned instead to allocate regional funds to develop a local tourism infrastructure.
In contrast, Widodo spoke out in favor of FDI on a micro-scale between Jakarta and Association of Southeast Asian Nation (ASEAN) countries at a conference in September. Then, he stressed the need for ASEAN countries to welcome the free market, including opening up their respective education and tourism sectors to foreign participation.
Liberal rhetoric, protectionist party
If nominated to run for president, Widodo will need to clarify quickly whether he will embrace his most recent liberal rhetoric or continue to protect local investors against foreign ones. His position may ultimately rely less on his past actions and more on the stance of his political party.
That party, the Indonesian Democratic Party-Struggle, has historically favored self-reliance and protectionist-leaning policies. In the past, party leader Megawati Sukarnoputri has promoted protectionist trade policies and national ownership of certain industries of the economy.
As president between 2001-2004, Sukarnoputri implemented various policies with the goal of self-sufficiency by way of a controlled economy; these policies often conflicted with the goals and desires of foreign investors. If Sukarnoputri allows Widodo to carry the party banner at the 2014 election, he is expected, though not guaranteed, to fall in line with her tendency towards protectionism.
Widodo's strongest competitor, Prabowo Subianto, has been a national figure for much longer and his policies are more clearly defined. As a presidential candidate in 2008, Subianto argued for self-sufficiency in agriculture as a central component of his economic policy. Many analysts portrayed his campaign as "populist".
Subianto has been viewed as a nationalist in the past, but he has tried to downplay that image in the run-up to the 2014 election. He has acknowledged FDI as important for the economy, but is quick to remind that he will "uphold national interests" first. Many analysts agree that the election of Subianto would likely have a negative impact on future FDI.
Foreign investors are closely watching the run-up to the 2014 election. Experts suggest the slowing pace of FDI partly results from foreign investors taking a wait-and-see position on the polls. This means that the election will likely be a larger determinant of future FDI for Indonesia than in previous years.
Deyi Tan, of Morgan Stanley Research, reported in July that the 2014 elections matter more than the presidential election of 2009, which catapulted Susilo Bambang Yudhoyono to a second term. Given that the current candidates' policy positions are uncertain, there is a greater risk of investing at this time, Tan argues.
As the election draws closer, presidential candidates will be pressed for their policies towards FDI. As the current leader in the polls, Widodo's stance could have a major impact on the outcome of the poll. And the outcome of the election will undoubtedly have a major impact on the future investment climate in Indonesia.
Joel Moore holds a Master's Degree in International Affairs from the University of Pittsburgh in the United States. He currently works for an international organization focused on Asian affairs based in New York. The views expressed here are his own.
Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing. Articles submitted for this section allow our readers to express their opinions and do not necessarily meet the same editorial standards of Asia Times Online's regular contributors.