Impacts of 2018 elections on Indonesian economy

By Fitri Bintang Timur and Grace Dewi


Indonesia is bracing for simultaneous elections across 171 regions later this year and the preparations are ongoing. These elections are critical as they will directly determine the leadership of key rich provinces, such as East Kalimantan, Riau, South Sulawesi and the three most populous provinces in Java.

With almost 70 percent of Indonesia’s population expected to vote, the parties winning the upcoming elections may influence the political dynamics of future national leadership. The economy, too, is likely to gain momentum as political spending rises. According to the General Elections Commission (KPU), the simultaneous local elections will cost the central and local governments Rp 11.3 trillion (US$850 million).

On top of this official cost of administering the elections and counting the votes, there is also the price of maintaining security and order. Additionally, there is also spending incurred by political parties and candidates on media campaigns, lobbying and, perhaps, vote-buying.

These multiple costs inflate the amount of election spending. In the 2014 general election for example, Bank Indonesia estimated that election-related spending provided the national gross domestic product (GDP), which at the time was suffering from low commodity prices, with a boost of 0.1 percent, or nearly $9 billion.

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According to Home Ministry research and development data on the 2015 local elections, the cost for a candidate pair running for a city or regency leadership could reach Rp 30 billion, while for gubernatorial leadership the cost rose to the tune of Rp 100 billion.

With elections held in 17 provinces, 39 cities and 115 regencies in June, the total cost incurred by candidates could amount to Rp 6.3 trillion. Considering all costs combined, for such high spending, there is a need to determine whether, and in what manner, the local elections will impact on the Indonesian economy.

Arguably, the impacts of the local elections on the national economy can be grasped in three ways:

First, they may affect Indonesia’s exchange rate. Economic theory predicts that at equilibrium exchange rates are driven by greed and fear.

Those who are confident that the value of the rupiah will remain strong will choose to hold rupiah. Those who fear that the elections will be tumultuous and result in a less productive Indonesia will choose to exchange rupiah for other more stable currencies. When the collective fear exceeds confidence in rupiah, then the overall exchange rate will weaken. Furthermore, there are those who seek profit from this volatility, which adds to the stress on a currency.

Second, the elections may also have an impact on foreign investment — both direct and portfolio investment — for the same reasons as the degree of confidence in Indonesia’s future sustainability. Therefore, when investors, and the world in general, are confident that the election process will run orderly and reflect free and fair democratic values, a positive impact on the economy can be expected.

Lastly, the local elections also influence economic productivity, and can affect productivity at multiple levels. They impact workers whose time, energy and attentions are absorbed not only by work, but also by the increased intensity of politics in daily lives — such as the hustle and bustle of campaigns; the need to examine candidates’ quality, promises, attributes; and perhaps even the contemplation on how to cultivate this election time to gain the most, and perhaps, the only attention of local politicians.

That said, election times also impact the productivity of politicians holding government offices who are running for re-election. Instead of being able to fully concentrate on issues of governance at hand, inevitably, such politicians have to allocate attention and resources for the success of their campaigns. This will then slow down the local government’s effectiveness and, in turn, reduce economic productivity.

Based on those considerations, it is safe to conclude that the impacts of the 2018 local elections on the economy could go both ways: positive and negative. Positively, if the elections can be organized in an orderly manner, reflecting a mature and educated political process, which builds Indonesia for the better. Negatively, if the election management is disorganized and the political process is turbulent, especially when contesting candidates use scare tactics imbued with identity politics that may be useful for short term vote gains, but which create long-term social insecurity that can be unfriendly to investors and business.

It is important to stress that the way local elections go will depend primarily on the capacity and the intention of the election organizers and participants. Elections can be educative and are certainly a democratic method of appointing local leaders, from which society can collectively benefit. Through campaigning, political candidates are able to educate the masses about politics and economics — such as on the issues, opportunities and challenges that a particular region has, and how their proposed policies can address challenges and seize opportunities.

Unfortunately, learning from the Jakarta election last year, a political campaign can be spun to appeal to voters’ emotions and to bandwagon on identity politics in a negative, non-collaborative manner. When this happens, the positive impact of an election can be compromised, which affects the economy negatively. It is hoped that in the coming elections, Indonesia can rise above petty politics and make way for quality democracy.


The writers are researchers at Centre for Strategic and International Studies (CSIS), Jakarta.


Published in Jakarta Post, 18 January 2018


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