Indonesia Reforms Unlikely As Favored Political Party PDIP Failed To Deliver During Parliamentary Elections

A weaker-than-expected performance over the weekend by the favored party in Indonesian parliamentary elections, led by Jakarta Governor and presidential candidate Joko Widodo, is likely to further delay much-needed economic reform and keep the nation's social safety net in place, experts said on Monday.

“Even if Joko were to win a first-round election in July, he could face a similarly unwieldy and fragmented coalition that has largely stymied reforms during President Yudhoyono’s second term,” the Eurasia Group said in a Monday research note.

The most pressing economic issues for the world’s largest Muslim nation include expensive fuel subsidies and anxiety among foreign investors about the strongly nationalistic Indonesian Democratic Party of Struggles (PDIP). Should the needed reforms be delayed, Indonesia is likely to miss the government-projected growth of 7 percent to 7.7 percent it targeted for 2014.

The fuel subsidies which pushed the nation’s budget deficit over the legal limit of 3 percent, will not be reduced this year or next, as elections loom. The subsidy is the world’s third highest, according to a study from the Energy Institute at Haas, and last year cost the Indonesian government more than $25 billion, more than 25 percent above the budgeted $19.3 billion.

“Despite most polls indicating PDIP would win up to 30 percent of parliamentary seats on the backs of nominating the popular Jakarta Governor Joko Widodo as its presidential candidate, the party won only 19 percent of the seats according to quick counts,” analysts for the Eurasia Group wrote in a research note on Monday.

This latest development will complicate the possibility of Indonesia’s reform efforts in the short term. Even as Joko remains the clear favorite to win, PDIP’s weak showing means the candidate will need to form a larger coalition of more than three parties to ensure the passage of PDIP’s agenda.

It now looks likely that a lack of common agenda and vision for Indonesia's economy, just like during President Yudhoyono’s term, will fuel a situation in which each party of the coalition will maneuver to push their own agendas and stall the next president’s reform efforts.