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Zubaidah Nazeer
Saturday, Jun 21, 2014

Asia

Candidates must woo investors too

The Straits Times | Zubaidah Nazeer | Saturday, Jun 21, 2014

Children fly their kites near demolished houses in Jakarta, May 5, 2014. Indonesia's economy grew at its slowest in more than four years in the first quarter as a mineral export ban, successive interest rate rises and uncertainty over upcoming presidential elections unnerved investors.

As Presidential candidates make generous pledges to build new roads, airports and irrigation systems, Indonesia is facing more immediate and stark economic challenges.

South-east Asia's largest economy has seen a ballooning fuel subsidy bill, pressure to cut spending and growth slowing to its slowest pace in five years.

"Manufacturing growth has slipped due to higher electricity tariffs and anticipation over a change in government, affecting the growth of the economy. Now, everyone is being realistic," Industry Minister M.S. Hidayat told reporters on Tuesday.

He revised the manufacturing growth forecast this year to 6.15 per cent from as high as 6.8 per cent, citing the absence of large labour-intensive investment in the first quarter as a reflection of investors' wait-and-see approach.

The rupiah breached 12,000 to the US dollar for the first time since February amid nervousness about the outcome of the presidential election on July 9, as the race has become closer than expected.

Many investors worry about the policies of the new government, especially as both candidates, front runner Jakarta Governor Joko "Jokowi" Widodo and former special forces general Prabowo Subianto, have been sketchy on how they would implement their key economic policies and tended to sound nationalistic to win support.

Short-term portfolio investors who react swiftly to market sentiments have shaken the currency with their movements, giving a clear indication that they believe Mr Joko to be more market-friendly than Mr Prabowo.

There is also the sense that Mr Joko's running mate and former vice-president Jusuf Kalla, a businessman, is more savvy about what businesses need while Mr Prabowo's running mate, former coordinating economics minister Hatta Rajasa, has a record of introducing protectionist measures.

Analysts point to how the market soared on June 10 after Mr Joko's better performance in the first presidential debate on the night before, with the Jakarta Composite Index (JCI) jumping 61 basis points, or 1.25 per cent, to 4,946.09.

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