After a long and largely uneventful campaign, on 17 April next week, Indonesians will finally have their chance to vote for incumbent President Joko “Jokowi” Widodo and running mate Ma’ruf Amin or their challengers, Prabowo Subianto and Sandiaga Uno.
Indonesian elections typically focus more on personalities than policy and the 2019 elections have been no exception. But if there was a defining policy issue of the 2019 elections season, it would be the economy. The candidates have offered a variety of economy-related policies, covering matters such as infrastructure, energy policy and foreign investment, but four issues stand out: food security, employment, purchasing power and inequality.
In terms of food security, Jokowi has promised to: revitalise post-harvest processing in the food, horticulture and estate crops sectors; improve farmers’ welfare through boosting agricultural production; and improve fishers’ welfare through technological innovations that can intensify sustainable fish cultivation.
Revitalising the post-harvest industry is particularly important. But because agricultural products are seasonal, this plan will require sufficient and sustainable funding throughout the year. Jokowi has not yet explained how he plans to do this.
The other two priorities for food security suggest that Jokowi will continue the existing approach of attempting to boost production. But with production as the focus, the welfare of farmers and fishers ends up being a second order issue. If Jokowi really wanted to improve farmers’ welfare, the focus would be on profitability. Production will automatically increase if farming is more profitable. The biggest problem affecting profitability in Indonesia is the high cost of production, which, because of the small scale of farming in Indonesia, is much higher than in other Asian countries. Jokowi has yet to outline any plans for addressing the high costs of production in Indonesia.
Prabowo, meanwhile, has offered a whole raft of food security plans, including achieving food self-sufficiency by opening up two million hectares of land for enhancing food production, especially in rice, corn, sago, soy, and sugarcane. Other plans include: rehabilitating degraded forests and restoring or converting them into natural forests, industrial forests, or food plantations; encouraging increased production and consumption of protein derived from milk, eggs, fish, and meat to improve national nutrition; implementing the agrarian reform agenda to improve farmers’ welfare and increase plantation and forestry production; establishing new NPK (nitrogen, phosphorous, potassium) fertiliser plants and encouraging production of organic fertilisers; and guaranteeing food prices that deliver profits to farmers while remaining affordable for consumers, through upstream to downstream protection schemes, such as providing assistance for the development of infrastructure, technology, training, and marketing.
But Prabowo’s campaign team has yet to explain where they will source the two million hectares of land for their food self-sufficiency plans. Not all land is suitable for food production. Indonesia should not repeat the environmental disaster of the one million hectare Mega Rice Project. A major agrarian reform agenda was introduced in the Basic Agrarian Law of 1960 but as yet no government has been able to successfully implement it. How will Prabowo be any different to his predecessors?
Further, delivering profits to farmers and guaranteeing affordable food for consumers are two opposing objectives. The only way that Prabowo can deliver both is through subsidy schemes. The question is, who will be subsidised, the farmers or consumers? Each will have its consequences.
On the issue of employment, Jokowi has said he aims to: establish a system of employment and wages that will both improve workers’ welfare and the country’s industrial competitiveness; improve the skills of job seekers and workers through vocational training and certification, involving the government, the private sector, and academics; expand workers’ access to scholarships to pursue higher education and skills enhancement; improve protection for workers in the informal sector; and accelerate improvements in the systems and services that support migrant workers, such as recruitment and training of migrant workers, access to credit, and protection.
But how can Jokowi increase workers’ wages at the same time as boosting industrial competitiveness? Existing high minimum wages (for the Southeast Asian region) and severance pay requirements that are among the most generous in the world have been responsible for weakening competitiveness of the industrial sector. It is hard to see how Jokowi could raise wages and improve workers’ welfare without further weakening competitiveness. Meanwhile, the plan to improve the skills of job seekers and workers through vocational training and certification seems designed to address the high rate of youth unemployment, which sits at about 25-30 per cent. But are young people finding it difficult to land a job because of low skills? Or is it because of rigid employment regulations that are not conducive to job creation?
On the other hand, Prabowo’s plans include: revoking Government Regulation 78 of 2015 on Wage Setting, which pegs the increase in minimum wages to economic growth, and improving workers’ purchasing power by adding more goods and services as the basis for setting the minimum wage; encouraging the growth of startup companies to provide new jobs; and revamping infrastructure to provide even more job opportunities.
Revoking Government Regulation 78 of 2015 will result in the return of uncertainty over setting minimum wages, which will worsen the business climate. In addition, startup firms are generally capital and technology intensive, so they do not absorb that many workers. Is supporting startup firms really the right approach for job creation?
On the issue of purchasing power, Jokowi has said he plans to stabilise the price of basic goods and increase incomes. But how will prices be stabilised? Currently, the government has set price ceilings for rice. Will the plan be implemented by setting the highest retail price for commodities other than rice? And what will the government do to increase people’s incomes?
Prabowo has offered three strategies to improve purchasing power, namely: raising the non-taxable income and reducing income tax; providing cheap public transport for workers and the poor; and abolishing land and building taxes on main/first residences. Increasing the non-taxable income threshold and reducing income tax will certainly increase people’s disposable income but it will also reduce tax revenues. This will make it hard for the government to raise the tax-to-GDP ratio, which is already low.
Further, will the plan to abolish land and building tax on main and first residences be implemented universally across the country and for all income levels? Land and building tax is a major source of income for regional governments. What will Prabowo offer regional governments to compensate for this significant loss in income?
Finally, both candidates’ campaign teams claim that inequality is a problem that must be dealt with immediately. As explained in a previous post for Indonesia at Melbourne, inequality in Indonesia is caused by structural factors, so the trend is unlikely to change soon, whoever is in charge.
Second, inequality in Indonesia follows the Kuznets curve, that is, it rises then falls with increases in income per capita. Indonesia is still at the stage where inequality is rising. Whoever wins the election, inequality will continue to rise. No matter who is president, his pre-election promises of reducing inequality will surely go unfulfilled.
This post was based on Asep Suryahadi’s presentation at the “Presidential Election Dialogue: Evaluation of Presidential Candidates’ Programs on Politics and the Economy” conducted by the Indonesian Institute of Sciences (LIPI) on 28 March 2019.