CEOs Turn Pessimistic about Indonesia's National Politics

Now is the correct timing to take a look at CEO's perceptions of political (and economic) conditions because soon the new "political year" will arrive, meaning the focus will shift to the 2019 presidential campaign and election. We expect that this election will become another fierce battle between President Joko Widodo and Prabowo Subianto, the defeated candidate in the 2014 election.

In Indonesia, a young democracy that contains a multitude of political forces, political tensions are always high as these forces are consistently seeking to be on top of the political pyramid. Often the mass is used by a political force to put pressure on its opponents (while the mass may not always be aware of this).

For example, recently hardline Muslims have been demonstrating and expressing their concerns about rising communism in Indonesia. Although communism was completely destroyed in Indonesia by former president Suharto in the mid-1960s, these concerns surfaced because there are more and more (human rights activists) voices that want to see a profound investigation into the massive killings in the mid-1960s, while President Widodo recently said an anti-communist movie (produced by the authoritarian New Order regime in the 1970s) should be updated and adjusted to present times and knowledge.

However, Widodo's political opponents now seem to play the "communism card" and are seemingly trying to incite fears in society about a looming return of communism in Indonesia. Although the return of communism in Indonesia is a ridiculous thought, it is an effective way to get hardline Muslims on the streets for demonstrations. And, usually, anti-government language is used at such demonstrations.

Another reason why the 2019 presidential election of Indonesia should be a tight battle is because Widodo cannot point at impressive economic growth in the 2014-2018 period as reason for his re-election. When campaigning in 2014 Widodo said he would bring Indonesia's GDP growth back to 7 percent (y/y) as during the Suharto days. In reality, however, the nation struggles to keep economic growth above 5 percent (y/y). Indeed, infrastructure development has taken off (important for the so-called multiplier effect). However, it will require several years before big infrastructure projects are constructed and running (particularly as these projects often experience land acquisition trouble).

Expectations of a tight battle in the 2019 presidential election, sluggish economic growth, and the rising influence of hardline Islam on politics (see the Ahok case) are all reasons why CEOs' views on national politics turned pessimistic in the latest Kontan CEO Confidence Index (KCCI). In the September 2017 edition CEOs gave a 2.61 point score to (perceptions about) national politics, hence falling to the "pessimism" category, from a score of 3.0 points ("neutral") in the third quarter of 2017.

Meanwhile, CEOs willingness to invest in business expansion remained "positive" but with a lower score than before. However, CEOs also turned pessimistic about Indonesia's consumers purchasing power. Although Indonesia's economic growth accelerated modestly in 2016, people's purchasing power and household consumption have remained bleak for too long and therefore CEOs seem to have turned pessimistic.

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