Indonesians went to the polls Wednesday to vote for the next leader of the world's fourth most-populous nation. The three candidates vying for the top job are Defence Minister Prabowo Subianto, former Central Java Gov. Ganjar Pranowo and former Jakarta Gov. Anies Baswedan. If none of the presidential hopefuls secures a majority in the first round of voting, a runoff will be held in June. With hundreds of millions of votes to be tallied, economists are watching to see what's in store for the largest economy in Southeast Asia.

A first-round win would soothe election jitters, but while recent polls had Prabowo as a front-runner, a runoff is still very much a possibility. Prabowo is running with outgoing President Joko Widodo's son, Gibran Rakabuming Raka, as his vice presidential pick.

Here are some of the key factors in focus, as highlighted by economists and analysts:


"Quick count as well as private opinion polls usually begin to trickle in after the booths close and continue over the next few days. This will provide an early indication of the outcome, primarily whether there is a clear winner, or a second runoff is needed on June 26," says Radhika Rao, senior economist at DBS Group Research. But "the last time that local elections produced a conclusive result was in July 2009," she notes. For a first-round win, candidates need "more than 50% of the nationwide vote and at least 20% of the provincial vote." Recent polls had Prabowo narrowly over the 50% mark, followed by Anies and then Ganjar in a close third. Undecided voters might sway the final count, Rao reckons. For the markets, a first-round win will provide clarity on the way forward, largely clearing the election fog. A run-off, depending on who bags the second ticket, will extend the period of uncertainty. With the new government due to be inaugurated by Oct. 20, political developments will likely "dominate market direction and dynamics this year," Rao says.


"Among the three candidates contesting the presidency, policy differences at the economic level are minimal," analysts at BMI, a unit of Fitch Solution, say in a note. A victory by Prabowo would suggest policy continuity. "Prabowo would likely maintain Jokowi's infrastructure development push, perhaps with increased defence and security spending," says BMI. "Prabowo's commitment to Jokowi's policies, including the construction of the new capital city Nusantara in the island of Kalimantan, and attracting investments into the electric vehicle sector, signals continuity in economic strategies, with a pro-business stance expected to prevail."

If Anies wins, "policy uncertainty could rise in the short term," BMI says. That "could disrupt financial markets... although over the long term, he [Anies] could deliver a more transparent investment environment with focused technocratic reforms." "Anies' criticism of Jokowi's mega infrastructure projects, and especially of the capital move, suggests potential reviews and shifts in infrastructure priorities. While continuing to promote Indonesia's role in the global EV supply chain, Anies might place a stronger emphasis on social and environmental aspects of resource exploitation," BMI says.


"All the three candidates seem broadly supportive of President Jokowi's manufacturing downstreaming policy," HSBC economists say. "Recall that Indonesia banned the export of nickel ores in 2020, with the intention of adding value, manufacturing stainless steel, EV batteries and even EVs. It has since moved up the manufacturing value chain on several fronts," economists Pranjul Bhandari and Aayushi Chaudhary say. "In fact Prabowo has even advanced it [the policy], saying that Indonesia should make its own cars, motorbikes, TVs, airplanes, trains and ships...Vis-a-vis President Jokowi's policies, Prabowo seems most aligned in terms of supporting industrial down-streaming and some of the large infrastructure projects." Anies seems most unaligned with existing infrastructure projects, and "has also spoken about reviewing the debt position of SOEs. Ganjar's policies seem more mixed...," HSBC says. "There are also hints about increasing the country's self-sufficiency in plans set out by Prabowo and Anies, with the former expressing his desire to be self-sufficient in food, water and energy. Anies has also spoken about minimizing imports of staples."


The three candidates' programs "have implications for widening the fiscal deficit," UOB economists Enrico Tanuwidjaja and Agus Santoso say. Anies and running mate Muhaimin Iskandar are "emphasizing equitable prosperity and equal access to public services. They have a create equality and justice." Meanwhile, "Prabowo and Gibran are targeting long-term development... They offer concrete programs that aim to improve people's immediate welfare, such as free school lunches and milk. Their focus is on sustainable and comprehensive development, highlighting aspects such as education, health, and poverty eradication." Ganjar and running mate Mahfud MD meanwhile "emphasize maritime development, justice, and environmental sustainability," UOB says.

"We will wait to see how the candidates strategize to realize these programs. Budget reallocation and debt issuance are the simplest ways to meet the financing deficit, but this strategy will burden the state budget in the long term. Increasing the tax ratio is a wise way to fulfill budgetary needs without putting fiscal balance under pressure," the UOB economists say.


Many economists think the Indonesian economy is on firm enough footing to not be derailed by political fallout but they don't discount the possibility of destabilizing impacts ahead.

"We remain cautious of balance of payment pressures due to the elections and rising fiscal risks," Nomura analysts Euben Paracuelles and Nabila Amani say. Fiscal risks could be especially intense "if Prabowo pushes for the early implementation of his key campaign pledges, including subsidies. We will monitor early signs by Q3, when cabinet appointments could be announced and budget deliberations take place. More protracted political uncertainty and domestic demand weakness could pose downside risks to growth."

"Indonesia could remain a bright spot for longer," HSBC economists say. "The starting points indicate a disciplined economy, and structural improvements of the past decade have put in place enough buffers. For instance, better infrastructure and lower logistics costs will likely keep a lid on core inflation, as has been clear in recent months. Supply-side reforms could help control the rise in food inflation. And rising exports of processed metals will likely keep the external deficits manageable."

UOB economists "continue to maintain a relatively resilient macroeconomic outlook for Indonesia, forecasting it to grow 5.2% this year."

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(END) Dow Jones Newswires

02-14-24 0405ET