Indonesia poll outcome dims economic reform hopes

Prospects for much-needed reforms in Southeast Asia's top economy are in doubt after a worse-than-expected election performance by the main opposition left Indonesia staring at an unwieldy coalition government, analysts warn. The Indonesian Democratic Party of Struggle (PDI-P) won around 19 percent of the vote at Wednesday's elections, according to initial results, putting it in first place but with less than the 25-30 percent expected. The party had been buoyed by the popularity of its presidential candidate, Jakarta governor Joko Widodo, frontrunner to be the country's next leader, but failed to translate this into overwhelming victory at the polls. The early count indicates the PDI-P will have to form a large coalition to put Widodo forward at the July presidential polls, meaning decision-making will remain cumbersome and reducing the chances of swift economic reform, analysts said. A party or coalition of parties needs 20 percent of seats in parliament, or 25 percent of the national vote, to put forward a presidential candidate. The small National Democratic party at the weekend became the first to say it would support the PDI-P, although negotiations are still ongoing with other parties and the final shape of any coalition remains unclear. The number of parties in parliament also increased to 10 from nine, with many small parties making gains, a result that will mean the notoriously fractious legislature is as hard to work with as ever. "The legislature is more fractured than it was in the last parliament," Paul Rowland, a Jakarta-based independent analyst told AFP, adding that "market-oriented" policies would be unlikely. Indonesia is a G20 economy and one of the world's fastest-growing -- it expanded by 5.8 percent last year -- but investors have long criticised policymakers' failure to realise its potential. Infrastructure is poor and corruption endemic, while the bureaucracy is enormous and hugely complex for foreign investors to navigate. Economic nationalism has also been rising in recent years, observers say, pointing to policies such as a ban on the export of some unprocessed mineral ores, which has hit foreign miners, and moves to stop foreign banks taking majority ownership of Indonesian lenders. - Slowing government down - A key problem seen as hindering reform in recent years has been the ruling coalition of President Susilio Bambang Yudhoyono, which was made up of six parties, and the quarrelsome nature of parliament, observers said. Parliament last year blocked ministers' attempt to water down the mineral ore ban and the government faced a tough battle to push through a reduction in fuel subsidies, which gobble up a huge chunk of the state budget, although it eventually succeeded. But hopes that the 560-seat lower house of parliament would be more stable following the elections have been dashed, analysts said. Market reaction after the election showed investors' discomfort -- Jakarta stocks plunged more than three percent and the rupiah lost ground against major currencies. "It was quite a disappointment for investors," said Fauzi Ichsan, a senior economist at Standard Chartered Bank, adding the business community had hoped the PDI-P could form a smaller and more manageable coalition. "Too many parties in the coalition slows the government down and is rife with conflict of interest," he said. Seen as untainted by corruption and a potential reformist, Widodo has raised hopes for a new type of leadership in Indonesia following years of rule by an elite with deep roots in the era of dictator Suharto. Some believe Widodo could still prove a strong leader and push legislation through parliament. "Based on (Widodo's) track record in Jakarta, he is much more decisive than" Yudhoyono, said Kennedy Muslim, a researcher from pollster Indonesia Political Indicator. Since become Jakarta governor in 2012, Widodo has made a start on tackling the city's many problems, beginning public transport projects to ease its paralysing traffic jams and increasing access to health and education. In contrast Yudhoyono has faced criticism, particularly during his second term, for being indecisive and failing to get enough done. Ichsan said investors hoped the country's new leader would create a "more effective and efficient" government. "I think (Widodo), judging from the way he has handled things in Jakarta in the past year and a half, can do this," he said.