Indonesia’s Yudhoyono Party Stumbles as Corruption Charges Undermine Support

Yudhoyono Party Stumbles as Corruption Charges Undermine Support

Indonesia’s ruling Democrat Party chose the country’s president, Susilo Bambang Yudhoyono, as chairman ahead of national elections next year amid jockeying among possible replacements that could stall spending on roads and ports. Yudhoyono was elected March 30 at an extraordinary congress in Bali to succeed Anas Urbaningrum, who resigned after becoming at least the third senior party official linked to corruption allegations in less than two years.The claims threaten to tarnish the legacy of Yudhoyono, who founded the party to run for president in 2004 and is ineligible to stand again after serving two five-year terms. Failure to expand infrastructure could inflate business costs, boost inflation and extend current account deficits, said Anthony Nafte, an economist at CLSA Asia-Pacific Markets.

“You’re faced with a situation where you’ve got a political vacuum right now until that election in July,” he said. “It’s not as if you can identify any single candidate where you could say ‘Oh, here we’ve got the bold leadership that we need to give direction to Indonesia.’”

Yudhoyono’s decade at the helm of Southeast Asia’s biggest economy is nearing an end as a trade deficit pummels the rupiah and the economy expands at the slowest pace in more than two years. Polls show voter support is less than half the level when the party secured 26 percent of parliament’s seats in 2009.

“The party’s weakness is that it’s too dependent on one figure,” said J. Kristiadi, a political analyst at the Center for Strategic and International Studies in Jakarta.

Approval Rating

Yudhoyono yesterday named Syarief Hasan, minister of cooperatives and small businesses, as daily chairman for the party’s board of executives; House Speaker Marzuki Alie as deputy chairman of its high council; and Transport Minister Evert Erenst Mangindaan as daily chairman for the board of advisers.

The Democrat Party’s approval rating tumbled to 8.3 percent in February, according to a survey by Saiful Muljani Research & Consulting. It won 20.85 percent of the national vote in the 2009 legislative election and 148 of parliament’s 560 seats.

Yudhoyono may help the party regain credibility, said Kuskridho Ambardi, a political analyst at the University of Gadjah Mada. “The SBY factor is still attractive to some voters,” Mada said in a text message, referring to Yudhoyono’s initials.

Bribery Case

The former treasurer, Muhammad Nazaruddin, was sentenced in April 2012 to four years and 10 months in prison in a bribery case involving building projects for the Southeast Asian Games in November 2011. Youth and Sports Minister Andi Mallarangeng resigned in December after he was named a suspect by the anti- graft agency in a case related to a sports center in Bogor, West Java. Chairman Urbaningrum was named a suspect in the same case in February. Both denied any wrongdoing.

Rival parties are gaining support with parliamentary elections due in April 2014 and the presidential vote set for July next year. Former President Megawati Soekarnoputri, chairwoman of the Indonesian Democratic Party of Struggle and daughter of the country’s first president, Sukarno, is leading presidential polls on 20.7 percent, followed by Golkar Party Chairman Aburizal Bakrie on 20.3 percent, according to a March survey by the Indonesian Survey Circle, the Jakarta Post reported March 18.

“If we look at the surveys, none of the popular candidates are from the Democrat Party,” Fauzi Ichsan, Jakarta-based economist at Standard Chartered Plc, said in an interview before the party’s congress. “So whatever the outcome is at the congress, its relevancy to the presidential election will be small.”

Positive Note

On a more positive note for Yudhoyono’s party last week, his nominee for central bank governor, Finance Minister Agus Martowardojo, on March 26 won approval from a parliamentary committee by 46 to 7, with one abstention. Martowardojo’s plan to raise fuel prices was scuttled last year by violent protests including an advance on parliament. Cutting fuel subsidies would have helped curb the trade deficit and allow more spending on infrastructure projects to spur growth.

The nomination of Martowardojo as governor of Bank Indonesia may be an attempt to sideline him from government decisions and “open the door for a more profligate approach to fiscal policy ahead of the election,” Gareth Leather, a London- based Asia economist at Capital Economics Ltd., said in a March 11 report.

Trade Deficit

Indonesia’s trade deficit widened to a record in October and the rupiah has sunk about 6 percent over the past year, the worst performer among major Asian currencies after India’s rupee and the Japanese yen. Indonesia’s economy expanded 6.11 percent in the last quarter, the slowest pace since the first three months of 2010, as a slowdown in global growth hurt exports.

Indonesia missed its 2012 budget deficit target amid slow capital expenditure, underscoring Yudhoyono’s challenge to sustain one of Asia’s fastest growth rates with spending on roads, ports and bridges. Infrastructure investment has fallen to about 4 percent of gross domestic product from more than 8 percent in 1995 and 1996, Theo Thomas, senior public sector specialist at the World Bank in Indonesia, said in December.

‘Political Vacuum’

“Because you’ve got a political vacuum between now and the presidential election, you’re not going to get the supply side measures to increase productive capacity,” said CLSA’s Nafte. “The consequences of your policy inaction are persistent current account deficits for the next two years, accelerating inflation in the second half of 2014 and continuing labor unrest.”

Workers will continue to demonstrate this year until demands such as social security reforms, outsourcing and labor justice have been met, Detik news website in December cited Said Iqbal, chairman of the Confederation of Indonesian Workers Union, as saying.

Inflation accelerated to a 20-month high in February while Bank Indonesia kept its benchmark interest rate at a record low of 5.75 percent for a 13th straight month in March to support growth.

“The economy is on autopilot,” Standard Chartered’s Ichsan said. “The worse that could happen is that if the euro crisis deteriorates and the government, the central bank and the financial services authority aren’t prepared to face the crisis like they did in 2008 when the economy team was solid.”

To contact the reporter on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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