Market welcomes certitude

Indonesia’s stocks jumped and the rupiah posted big gains after last Wednesday’s peaceful presidential elections initially gave incumbent President Susilo Bambang Yudhoyono (SBY) and his running mate Boediono a landslide win against the two other contestants.

The bullish sentiment reflects the great welcome by the market of a highly probable one-round election, instead of another run-off in September with all the risks of uncertainty during the remaining three months of the current SBY-Kalla administration.

This also signals that the market and investors are quite comfortable with the SBY government and want it to continue governing the country for another five years until October 2014. The stronger seems to be the vote of confidence for SBY because the people rest assured that his vice president elect Boediono, a senior  economist and former central bank chief with impeccable integrity, will contribute greatly to strengthening his economic team.

Even though  SBY may have to distribute a number of Cabinet portfolios to other political parties to build up a strong coalition at the House of Representatives, the presence of Boediono, who will most likely lead the SBY economic team, will guarantee policy consistency and predictability.

The market has been impressed by the success of the SBY economic team, led by Boediono from December 2005 to April 2008, in gearing up the economy for weathering the adverse impact of the global financial crisis and sharp downturn.

The vote for SBY-Boediono is also a strong endorsement of his strong anti-corruption campaign and his concerted drive for promoting good governance, including the ease of doing business.

Voting for political continuity under SBY’s leadership doesn’t, however, mean that the general public, notably businesspeople, expect more of the same in economic management — indecisiveness with regard to painful reform measures.   People instead expect SBY to be a much stronger leader during this second, last term, more decisive and courageous enough to introduce, bold, painful reform measures badly needed to strengthen the foundations of the economy.

His Democratic Party’s hold of more than 20 percent of the new House, as against 7 percent now, will further strengthen a political environment conducive to  his strong leadership.   

It is most imperative that SBY-Boediono launch bolder measures to reinvigorate economic growth to lift the estimated 35 million people out of absolute poverty and generate productive jobs for the 10 million unemployed and around 30 million under-employed.

The 4.4 percent growth in the first quarter, compared to deep contraction in most other countries, except in China and India, should serve as a building block of confidence to pump prime domestic private consumption and investment as the main locomotives of growth.  But an annual growth of 5 to 6 percent, as it has been over the past five years, is not enough to address high rates of poverty and unemployment. The new government will have to generate an economic expansion of at least 7 percent beginning in 2010 or 2011.

Such robust growth requires bold measures to accelerate public-sector spending, to woo private investment and speed up the development of basic infrastructure such as roads, ports and airports, power generation and telecommunications facilities.