The Indonesian Elections: Unveiling the Impact on Foreign Investment

The Indonesian Elections: Unveiling the Impact on Foreign Investment

The 2024 Indonesian General Election marked a significant milestone in the nation’s democratic journey. As the world’s fourth most populous country and a beacon of democracy in Southeast Asia, Indonesia’s electoral process has always garnered global attention. The 2024 Indonesian General Election was held on 14 February 2024. The purpose of this election was to choose the President, Vice President, and members of the People’s Consultative Assembly (MPR), comprising the House of Representatives (DPR), the Regional Representative Council (DPD), as well as representatives for local legislative bodies at the provincial and city/regency levels. The election for president and vice president was the hottest topics for the past few months.

The candidates for the presidential elections were:

  1. Anies Baswedan for president and Muhaimin Iskandar for vice president
  2. Prabowo Subianto for president and Gibran Rakabuming Raka for vice president, and
  3. Ganjar Pranowo for president and Mahfud MD for vice president

Controversies in the run-up to the election

The 2024 election was not without controversy. Various parties claim that the social assistance disbursed by the government ahead of the election is a disguised action to win one of the presidential and vice-presidential candidates. This is reinforced by seeing the quick count results of the presidential and vice-presidential elections showing that the most votes were for Prabowo Subianto and Gibran Rakabuming Raka, who incidentally is the son of President Joko Widodo. This was followed by Anies Baswedan-Muhaimin Iskandar and Ganjar Pranowo-Mahfud MD who got the least votes, while they were supported by the Indonesian Democratic Party of Struggle (PDIP) the party that paved Jokowi’s path to becoming president.

Indonesians voted for stability and continuity

So, what does this mean to the Indonesian political landscape? Some believe that this means Indonesian people want the continuation of what Jokowi’s government has done, as this is the main message in Prabowo-Gibran’s campaign. If the official election results align with the quick count projections, it could indicate a sense of stability in both the political and economic spheres of Indonesia. A seamless transition of power or the reaffirmation of the incumbent government’s mandate would provide a degree of certainty and confidence to investors, businesses, and the general populace. This stability is crucial for fostering economic growth, attracting foreign investment, and ensuring the effective implementation of government policies aimed at addressing pressing issues such as infrastructure development, social welfare, and environmental sustainability.

This continuation of Jokowi’s government is important for the continuation and increase of foreign investment in Indonesia. According to The Ministry of Investment/Investment Coordinating Board (BKPM), The realization of foreign direct investment (FDI) in Indonesia in 2023 reached Rp744.0 trillion, growing by 13.7% compared to 2022 (year-on-year). This value is equivalent to 52.4% of the total national investment realization amounting to Rp1,418.9 trillion, while the investment realization throughout the year 2023 was distributed across five main sectors, namely basic metals industry, metal goods excluding machinery and equipment; transportation, warehousing, and telecommunications; mining; housing, industrial estate, and office areas; as well as chemical and pharmaceutical industries. This means that the trust in the current government is quite high.

Appetite for foreign investment

Foreign investment plays a pivotal role in Indonesia’s economic growth and development by injecting capital, fostering technology transfer and innovation, generating employment, promoting exports, supporting infrastructure development, diversifying the economy, and catalyzing policy reforms. Therefore, if the official election result is the same as the quick count and the new government is the continuation of the current government, we may see that the appetite for foreign investment will continue to grow. Even during the campaign period while some companies are doing ‘wait-and-see’, some continue to invest in Indonesia. For instance, in December 2023, still during the campaign period, the Deutsche Bank increased its investment in Indonesia. Taken to its press release, Deutsche Bank has “announced an increase that doubles its total local capital to IDR 10 trillion (€600 million) for its business in Indonesia. The additional investment will support the bank’s growth in the country and allow it to undertake more activity for clients.” Deutsche Bank CEO of Asia-Pacific, Europe, Middle East & Africa (EMEA) and Germany and Member of the Management Board, Alexander von zur Muehlen said: “We continue to invest in Asia Pacific and expand in markets that are becoming increasingly strategic for our clients. We see long-term opportunities in Indonesia, which has one of the fastest-growing economies in Asia. Its well-established resource strength is nicely complemented by its focus on emerging industries like technology and EV manufacturing. These factors and the country’s structural reform and economic transformation position it strongly.”

According to Rakyat Merdeka’s website, Airlangga Hartarto, Indonesia’s Coordinating Minister for Economic Affairs stated that the success of the election will bolster economic stability. He also expressed optimism that Indonesia’s economy will continue to grow, driven by sustained foreign investment interest. We can also see that one day after the election when the quick counts showed the temporary results of the Prabowo-Gibran pair’s superiority, the Indonesia Composite Index showed that foreign investors recorded a net buy of Rp2.73 trillion in the day’s trading. This means that the sentiment remains positive.

Looking at the 2023 Indonesian General Election that went peacefully, it is likely that foreign investment in Indonesia will continue to grow. The peaceful conduct of the 2023 Indonesian General Election is expected to bolster foreign investment in Indonesia by signaling to the international community that the country offers a stable and predictable investment environment. Political stability and a conducive business climate are crucial factors that influence foreign investors’ decisions, and a peaceful election outcome reduces uncertainties and risks associated with investing in Indonesia. Moreover, the absence of political turmoil reflects positively on Indonesia’s democratic institutions and political maturity, enhancing its reputation as a reliable investment destination. This, in turn, fosters investor confidence, encourages long-term investment commitments, and supports continued foreign investment growth in the country.

The 2024 Indonesia General Election holds implications for foreign investment that extend beyond the political sphere. The outcome of the election, along with subsequent policy decisions and reforms, will influence investor confidence, sectoral dynamics, and Indonesia’s overall attractiveness as an investment destination. As Indonesia navigates the electoral process, ensuring transparency, political stability, and a commitment to economic reforms will be crucial in maintaining and attracting foreign investment in the years to come.

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