IntroductionThe Indonesian Economy in Transition—Policy Challenges in the Jokowi Era and Beyond

It is now more than twenty years since one of the most decisive and important turning points in Indonesian economic and political history. The year 1998 was one of exceptional turbulence, hardship and uncertainty. The seemingly impregnable Soeharto presidency came to a sudden end on 21 May. The economy and the currency were in free-fall, while an acrimonious relationship had suddenly emerged with international financial institutions. There were nasty episodes of conflict, mostly with serious ethnic undertones. Almost a million of the country’s citizens were internally displaced. There were various “Yugoslav” scenarios of territorial disintegration. Most important of all, there was no institutional roadmap to guide the country through the vacuum that Soeharto’s hasty exit had created.

Viewing the country through the gloomy lens of that era, it is perhaps no exaggeration to state that the economic and political developments over the intervening two decades are little short of miraculous. Indonesia is now regarded as one of the most vibrant democracies in Southeast Asia and in the Muslim world. It has maintained its territorial integrity. There have been four rounds of credible national elections, while democracy has also taken root in the more than 500 subnational jurisdictions. A far-reaching programme of decentralization has been implemented. The economy has returned to at least a moderate growth rate of around 5 per cent per annum. Inflation is well under control, and the macroeconomic framework is secure. The authorities navigated the 2008–09 Global Financial Crisis with little difficulty. The economy is now in much better shape than the resource-exporting members of the much-hyped BRICS group. Indonesia is recognized as a significant regional power through its membership of the G20 and other international fora.

Yet, in important respects, Indonesia is still a country in transition, and one that faces major development challenges. It is still a relatively young democracy, in the process of establishing durable institutions that will be needed to underpin an upper-middle income economy. Its ambitious decentralization programme is still being bedded down into an effectively operating system of government. Tens of millions of its citizens live below—or precariously above—a meagre poverty line. The economy is not growing fast enough to quickly eradicate poverty and destitution. Perhaps paradoxically, inequality has risen appreciably during the democratic era. There are daunting environmental challenges, too.

The papers in this and the following issues of the journal address these and other issues at this crucial juncture of Indonesian history, as the country approaches its fifth national elections of the democratic era. The papers are based on a conference organized by the Regional Economic Studies Programme and the Indonesia Studies Programme of the ISEAS – Yusof Ishak Institute in March 2018 with financial support of the Konrad Adenauer Stiftung.

President Joko Widodo—widely known as Jokowi—was narrowly elected to office in 2014 with high expectations. The seventh president of the republic lacked family name, military background and wealth, itself an impressive reminder of the country’s democratic resilience. Jokowi campaigned successfully as an effective local government leader, with a reputation for clean and pragmatic administration. His agenda was to accelerate economic growth, overcome the country’s massive infrastructure deficit, and eradicate poverty. He promised a professional cabinet. His first major economic policy decision was a very significant one, to dramatically reduce the crippling fuel subsidies.

Almost five years later, what can be said about his record? Inevitably, as the papers in this issue document, the outcomes have been mixed. Most of Indonesia’s major development issues are not amenable to quick solutions in a single-term presidency. Moreover, Jokowi had the misfortune to be elected just as the decade-long super commodity boom was fading. For growth to be maintained and the social policy agenda implemented, substantial reform was required. In the event, Jokowi has been a decisive president in some respects, but not the major reformer that some of his supporters had hoped for. He has lived up to his commitment to prioritize infrastructure, and continue with the popular social policies, including health...