Time of Uncertainty for Indonesia

The dynamics of the race to succeed Susilo Bambang Yudhoyono as the next president of Indonesia in 2014 have quickly become complex and surprising. The good news is that the elections – legislative polls will be held April 9, 2014 and the presidential election about three months later – are expected to be orderly and reasonably clean.

The country has moved on from the instability and incipient chaos of a decade ago to become a symbol of emerging-market dynamism anchored by solid domestic economic growth.

But beneath the bullish headlines about Indonesia’s economic progress in recent years, there are serious issues at play politically. Chief among them are a palpable weariness among the electorate with old political faces, many of whom are mired in corruption, and a political system that has become rudderless and indecisive under this president.

A year and a half ago, it seemed a foregone conclusion that Yudhoyono, widely known by his initials, SBY, would be a kingmaker and that the choice for president in 2014 would come down to an old face – probably one aligned with one of the three major parties. This conventional wisdom has been turned on its head, with the likelihood that Indonesia will see a massive shift away from Yudhoyono’s Democrat Party and its ineffective governing coalition with Golkar and other parties.

Will Jokowi Join the Fray? The opposition Indonesian Democratic Party of Struggle (PDI-P) is poised to take a leading role because it has Jakarta Governor Joko “Jokowi” Widodo in its ranks and he is now the country’s most popular politician. Should Jokowi run, as seems likely – though he is yet to officially declare his candidacy – it is unclear what kind of policies he would pursue if elected. The PDI-P is nationalist in origin and the party of the nation’s founding president, Sukarno. His daughter, former president Megawati Sukarnoputri, still chairs the party and she has the sole power to decide if the PDI-P will ask Jokowi to run.

Jokowi himself is untested on the national and international stage, which is a big part of his domestic appeal. Again, while he has seemed honest and forthright in getting things done, first as a small-city mayor and now as Jakarta governor, how that would translate into complex national governance is a matter of some concern.

Opinion polls put him as the clear favorite in a presidential run-off. His closest rival is former general Prabowo Subianto, who is running as a populist/nationalist man of the people despite his blueblood Javanese heritage. Certainly, though, Jokowi seems capable of redrawing the political map in favor of the PDI-P.

And he does have the common touch: when he attended a concert by American heavy-metal band, Metallica, in Jakarta recently, he left the VIP area and spent the evening in the crowd, pumping his fist in the air and grinning broadly. This episode, well publicized, goes some way to explain how this relative political novice has redefined the 2014 race. He may be seen as an enormous political gamble in some circles, but his broad political appeal to the electorate is undeniable.

Currently polling at around 40 percent approval in most opinion surveys, he looks to be the most likely contender. All he needs is Megawati’s endorsement as the PDI-P’s candidate.

Megawati and Jokowi meet two or three times a week, which would seem to indicate their relationship is strong. However, she will need to have great trust in him if she is going to turn over the Sukarno clan’s political franchise to a freshman politician, even if he shares her East Java roots.

Snipers deployed This lack of experience is now being questioned by political opponents from the likes of Golkar and Gerindra, though none of those reservations seem to have dented the Jakarta governor’s popularity. If anything his lack of experience makes him more attractive to voters who are tired of seasoned, self-serving politicians.

Charges of inexperience may also be somewhat overdone: he has built an effective political machine and is already attracting substantial campaign-funding offers from a number of wealthy business interests. Furthermore, PDIP-P insiders claim that Magawati, whom it’s widely assumed, wants to hand over the party’s leadership to a family member, is ready to give the nod to Jokowi – perhaps at the PDI-P’s 41st anniversary celebrations in January.

So this is where we stand. Yudhoyono, a popular reform-minded ex-general with a solid international reputation, is ending his second and final presidential term as his political party battles corruption charges and critics point to his lack of decisiveness. Golkar, one the country’s largest parties, is led by scandal-tainted tycoon Aburizal Bakrie, who is running for president despite dismal poll numbers. Prabowo, a former Suharto son-in-law with a reputation for human rights abuses and mercurial mood swings, is leading a small party in the shadow of rising star, Jokowi.

Democrats Stumble As for the current government, despite the stability and growth of the Yudhoyono era, SBY’s administration will end with numerous senior officials in jail or on trial for corruption and the Democratic Party, which won 60 percent of the popular vote when he was reelected in 2009, in decline. Yudhoyono himself, meanwhile, is increasingly being seen as a lame duck.

He allowed his respected Finance Minister, Sri Mulyani Indrawati, to be hounded from office by Golkar lawmakers acting with Bakrie’s blessing. He was at loggerheads with her approach to regulatory and tax issues. Her appointment as a managing director at the World Bank in 2010 was a slap in the face for both Yudhoyono and Bakrie. Indeed, the Sri Mulyani incident was an early sign that the president would not defend his ministers from political attack, that he could not control his coalition, and that he would allow major issues to drift.

Major investors complain constantly of contradictory regulations and a lack of dialogue with policymakers. A significant nationalist trend has emerged without any clear public direction from the president. The Constitutional Court lawsuit that dissolved the former upstream oil-and-gas regulator, BPMigas, in 2012, was widely thought to be backed by the Coordinating Minister for Economic Affairs, Hatta Rajasa, who seems to be driving nationalist policies. Yudhoyono, however, failed to weigh-in on this crucial issue.

Concerns about massive fuel subsidies were allowed to fester without action during flush times when the president had a major mandate from voters. It was only this year, as the current-account deficit was worsening, that partial action was taken to reduce subsidies, which have subsequently boosted inflation at a time of economic weakening.

However, because of corruption and the public’s distaste for traditional politicians, the 2014 election will not turn on issues but on perceptions of change, a factor that greatly favors Jokowi, and to some extent Prabowo. General policy directions – especially on resource nationalism – will likely remain unchanged, but the shift in government is likely to be so significant that it could take a year or more from taking office in October 2014 for the new president’s policy direction to become clear.

Doing the Arithmetic The key to being elected is to solve the arithmetic of the legislative “threshold” that determines whether a candidate even gets on the ballot for president. The real horse-trading begins after the April legislative polls when the 12 eligible political parties form coalitions for the July presidential election. The coalition negotiations determine vice-presidential candidates and usually result in promises of financial support and cabinet positions for the winning side.

There are no independent candidates for president, and unless the People’s Representative Council (DPR), the lower house of parliament, changes the rules later this year in order to secure a spot on the ballot, a party or a coalition of parties must win either 20 percent of DPR seats or 25 percent of the popular vote in the legislative elections. The three largest parties in the current DPR – the Democrats (148 seats), Golkar (108 seats) and PDI-P (93 seats) – have said they favor keeping the rule intact.

This has been a reaction principally to Prabowo’s candidacy and the fact that his Gerindra Party, which won 4.5 percent of the vote the last time around, will need a major coalition partner to get his name on the ballot. For Gerindra to succeed, the party needs to win 10-12 percent of DPR seats and then attract a few smaller parties to reach the 20 percent mark.

The Democrats seem likely to dramatically lose seats, with polls showing the party running at about 8 percent, which would leave them in a junior position in a possible coalition. Golkar does consistently well in DPR elections due to its superior party machinery, and should pick up 15- 20 percent. The PDI-P, which always runs strong, especially in Java, could get a huge boost from Jokowi if he runs, and get 30 percent or more of DPR seats. It could head into the presidential election as a strong coalition leader with the possibility of enjoying a commanding advantage in the Lower House in the next government.

Few Also-Rans None of the other parties, a handful of which are Islamic, seem likely to get more than 3 to 5 percent of the seats, leaving them as junior partners jockeying for a cabinet post or two in the next government.

The spectacular decline of the Democratic Party in the last year and a half, meanwhile, has been a dismal counterpoint to a Yudhoyono presidency that should be celebrating its successes on the economic front and Indonesia’s rise in international prominence. Instead the party that once stood for clean government has become a symbol of corruption. In March 2013, Yudhoyono took over the chairmanship of the Democratic Party as it was reeling from the Hambalang Sports Complex scandal – a kickback mess that led the powerful Corruption Eradication Commission (KPK) to indict a number of high-ranking senior officials.

In a bid to find “fresh faces” to run for president, Yudhoyono set out to create the closest thing Indonesia has ever seen to an open nominating process. If the Democrats are able to leave the scandals behind and have any relevance beyond being the party that put Yudhoyono in power in 2004 and 2009, such a process could provide more transparency over candidate selection which has traditionally been decided by a handful of power brokers.

But the Democrats took another beating in August just as the primary process was starting. The head of oil and gas regulator SKKMigas – a Yudhoyono appointee – was arrested by the KPK for accepting bribes from a small Singapore-based company to import oil into Indonesia. The scandal also involves the Energy Ministry, whose secretary general has been cited as a suspect; it is widely expected that powerful Energy Minister, Jero Wacik, a powerful Democratic Party figure, could also be charged. The upshot of all this is that if the Democrats take a beating in the legislative elections, its appeal as a coalition partner is likely to plummet.

The primary also lacks any major Democratic Party candidate with an obvious chance at the top job. Most possible contenders lack the mass appeal needed to win a direct presidential election, especially given the party’s current weakness. According to insiders, the most-likely front runner for the Democrats will be the president’s brother-in-law, former Army Chief of Staff, retired General Pramono Edhie Wibowo. The son of prominent Suharto-era general Sarwo Edhie Wibowo, he is widely viewed as the approved candidate of his sister, First Lady Ani Yudhoyono.

The Prabowo Run When Jokowi was elected governor of Jakarta in September 2012, it looked like a victory for Prabowo, whose Gerindra Party backed the PDI-P candidate. Prabowo proclaimed Jokowi as the herald of change and a sign that populist aspirations had taken hold among Indonesians. Many politicians claim credit for “discovering” Jokowi and Prabowo’s celebration of Jokowi’s victory as also “his” win is said to have deeply angered Megawati and caused the PDI-P to back away from the former general, who ran with Megawati as a vice presidential candidate in 2009. The split now seems complete.

The big thing for Prabowo is the legislative threshold and the hope that his image as a competent populist strong man will outweigh the negatives associated with his human-rights record and widespread reports that he has a violent and erratic temper. Any showing below 10 percent in the legislative elections however could cost Prabowo his ability to get on the ballot in a coalition, despite his still-strong polling numbers.

On specific issues, Prabowo is the only candidate with a real platform. This consists of a long-term plan for the next 20 years to tackle the depletion of energy resources, corruption, weak governance, inefficiency, food security and population pressures. He warns that Indonesia risks becoming a “failed state” if governance and corruption problems are not fixed. Furthermore, he assures audiences that he will not tolerate radical Islamists who have consistently broken the law with impunity during Yudhoyono’s tenure.

Like all other candidates, however, Prabowo is at heart an economic nationalist on resources issues and he talks about the need to give domestic players a “level playing field” in key areas of investment.

In contrast to Jokowi’s inexperience, Prabowo benefits from having a platform and by insisting he knows how to get things done. He may appeal to elites who could be nervous about handing the keys to the untested Jokowi. But Prabowo’s presumed involvement in the bloody anti-Chinese riots of 1998, make it difficult to imagine the bulk of the Chinese-Indonesian elite feeling comfortable with a Prabowo presidency.

What Makes Bakrie Run? Of the 2014 candidates, Aburizal Bakrie has been both the most consistent and the most puzzling. The consummate insider businessman, Bakrie has used politics to assist his business empire since the Suharto days. Moving “full time” into politics in 2004 in Yudhoyono’s first cabinet did little to mute the public perception of Bakrie as someone who uses the political system to benefit his empire. This was confirmed for many when the Supreme Court absolved his companies of responsibility for the 2006 Lapindo mud-flow disaster.

The Bakrie Group later also narrowly escaped ruin when regulators suspended trading in group stocks for several days during the crash of 2008. Concerns over his involvement in Sri Mulyani’s forced resignation also still linger.

Furthermore, there are constant rumblings inside Golkar that the party has suffered under Bakrie’s leadership. Party leaders feel that the numerous financial troubles inside Bakrie Inc. have dried up funding promised to various branches of the party. All this inhibits his ability to rise in the polls and make his long-stated desire to be president seem Quixotic. Indeed, many observers are just waiting for him to find an excuse – his health perhaps – to withdraw.

In recent conversations, however, Bakrie has dismissed his low poll numbers, discussed possible running mates and outlined a business-friendly administration that would be decisive in ways that the Yudhoyono government is not. But given his many negatives, it is highly unlikely that he could win the presidency. That said, it appears likely he will hold on to the Golkar reins and keep running at least until the legislative elections. The party could change candidates or realign itself in various ways following the elections, depending on its coalition partners.

The fact is that winning the presidency is a lesser priority for Golkar than maintaining regional power and gaining a strong cabinet presence. In any event, the party is likely to do well in the DPR elections and its organization and experience make it a strong coalition partner.

Furthermore, aligned with the PDI-P on a winning ticket, it could emerge once again as a key legislative player with a strong cabinet presence able to dictate terms to the next government regardless of who wins.

Milestones Ahead In the months leading up to the April DPR elections, the rumor mill will churn with talk of potential vice-presidential candidates and possible coalitions. Nothing will be set in stone until after the result of the legislative elections. It is expected that the PDI-P will announce a Jokowi candidacy ahead of those polls, giving the party a major boost. If Megawati defies the logic of playing to Jokowi’s popularity, Prabowo could find himself in a commanding position as the candidate of change.

One of the current hopefuls seeking the Democratic Party’s endorsement could emerge as a vice presidential candidate. It seems just as likely, however, that a No. 2 could come from the ranks of Indonesia’s regional politicians in the same way that Jokowi became a national figure after doing well locally. Sri Mulyani’s name is being floated as a possible vice president under Jokowi, should she wish to give up her job as COO of the World Bank for a return to the rough and tumble of political life back home.

Expect more unknowns and more surprises going forward. Given the perceived vacuum of leadership under the current administration, the politics of the future can only grow more intense.

(This was written for the Hong Kong-based financial research firm Asianomics.)