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A tricycle driver transports ballot boxes that are being distributed to polling stations in Yogyakarta, Indonesia, Tuesday, July 8, 2014. As the world's third-largest democracy prepares to elect a new president Wednesday, Indonesians are divided between two very different choices: a former furniture maker, Jakarta Governor Joko Widodo and a wealthy ex-army general with close links to former dictator Suharto, Prabowo Subianto. (Slamet Riyadi/AP)
A tricycle driver transports ballot boxes that are being distributed to polling stations in Yogyakarta, Indonesia, Tuesday, July 8, 2014. As the world's third-largest democracy prepares to elect a new president Wednesday, Indonesians are divided between two very different choices: a former furniture maker, Jakarta Governor Joko Widodo and a wealthy ex-army general with close links to former dictator Suharto, Prabowo Subianto. (Slamet Riyadi/AP)

As Indonesia heads to the polls, new blood goes up against old elite Add to ...

When Francisco Goncalves first visited Jakarta on business in the late 1980s, he was told by local Indonesians that it was a great time to do business in the country – and that they were even getting a subway in the capital.

The engineering consultant moved to Jakarta full-time in 1995, and has remained ever since. But Mr. Goncalves still gives himself two hours to get to meetings in the gridlocked capital, which has 10 million people, because Jakarta’s subway is still not built even now, more than 20 years later.

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“It’s not that they don’t have the money,” says Mr. Goncalves, the president of PT McElhanney Indonesia, which has done work for Rio Tinto and Newmont Mining. “It’s just they don’t have the political will.”

Indonesia, the world’s fourth most populous country, is heading to the polls this week in a historic election that pits a political outsider against an authoritarian member of the country’s old guard elite. And building Jakarta’s subway is just one example of the many infrastructure challenges – ranging from a lack of roads to insufficient ports – facing the giant Southeast Asian nation of 250 million people.

Building infrastructure, meanwhile, is simple compared to the complex structural economic reforms, such as cutting fuel and electricity subsidies, that must also be part of the mix. Although investors remain optimistic about Indonesia’s long-term potential as an emerging market with a fast-growing growing middle class, frustration over everyday nuisances, such as corruption, has turned to anxiety as the two presidential candidates haul out nationalist rhetoric in order to win a tight election.

“The business community is extremely jitterish,” says Chris Bendl, the CEO of Manulife Indonesia, which has more than two million customers in the country. “It really cannot be understated how important this election is to the future of [economic] reforms of the country … I think the broad concern is that because a lot of these elections are not necessarily fought on policy, a lot of the agendas are not clearly understood.”

Indonesia, like Turkey and South Africa, was buffeted by the tapering of the U.S. Federal Reserve’s bond buying stimulus program, and has also seen growth crimped by China’s waning demand for the country’s plentiful commodities – which include palm oil, rubber, tin, coal and cocoa. An export ban on unprocessed minerals that was designed to spur local manufacturing has also hit the local nickel and bauxite mining industries hard.

“You can encourage more value added [manufacturing], but they did it with a sledgehammer,” says Richard Barichello, a University of British Columbia professor who advised Indonesia’s government in the 1980s.

Businesses and investors are now anxious to see whether there will be any more nationalistic policy making, as two rival presidential candidates campaign at least partly on the belief that foreigners have dominated Indonesia’s economy for too long – and that the time for the country’s emerging middle class is now. At the same time, whoever is elected will have to rule within a governing coalition in a country that has devolved an enormous amount of power from the centre to extremely local, district-level municipalities – a structural reality that makes implementing national priorities difficult.

Indonesia’s election – which will be the first democratic transition between elected leaders after the fall of the dictator Suharto in 1998 – is particularly dramatic given the stark differences between the two presidential challengers.

Joko Widodo, known widely as Jokowi, has drawn both political and physical comparisons to U.S. President Barack Obama, mainly because the former furniture seller comes from far beyond the normal elite who govern the country. Mr. Widodo, who is known for being uncorrupt and bringing a hands-on, practical style to governing, was first elected the mayor of the mid-sized city of Solo before he became the governor of the Asian metropolis of Jakarta.

Mr. Widodo’s rival, Prabowo Subianto, is a former general from the Suharto era. He has admitted to ordering the kidnapping of pro-democracy activists in 1998 when he headed Indonesia’s special forces, which eventually led to a discharge from the army. Some feel that Mr. Subianto projects the type of strongman image that reassures some voters, but many also fear that Mr. Subianto would represent a return to the old days of human rights violations.

“I think he’s attractive to Indonesians because he has discipline,” Mr. Goncalves says. “What’s not attractive to Indonesians is that he’s considered to be a nutcase.”

In the early days of the campaign, Mr. Widodo was widely favoured to win, but Mr. Subianto has significantly narrowed the gap – and now pollsters say the race is too close to call. Analysts suggest that Indonesia’s stock market could fall by 5 per cent if Prabowo wins, and there are also fears that the Indonesian rupiah would come under even more pressure. Foreign investors, in particular, fear the emergence of a hard-line, ultra-nationalist take on multinational businesses.

“Investors think that Jokowi would be more of the same, in terms of economic policy, but better at implementation – in terms of building things,” says Ernest Bower of the Washington, D.C.-based Center for Strategic and International Studies. “Probowo is a bit more of an unknown. And he’s said some things that feel anti-foreign. There’s been some ultra-nationalist rhetoric.”

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