Outlook for 2010: A Compromised Political Environment for Change

The world is such an interconnected place that the Presidents of both Indonesia and the US – two of the world’s largest democracies--are suffering deep political challenges resulting from the global recession. The 2010 story line will be the same in both countries: how to accomplish needed reforms and grow jobs in a compromised political environment. Elected by strong majorities in 2008 and 2009, President Obama and President SBY came in with what many thought was strong momentum. But each has seen their popularity drop and reforms challenged by an angry electorate and legislature unhappy with seeing big financial bailouts and little job creation. In Indonesia’s case, a scandal surrounding the bailout of a small bank, Bank Century, is diverting the government’s effort to build needed infrastructure and undertake judicial reform, and continues to threaten the career of one of the most competent and credible officials in the government: Finance Minister Sri Mulyani. US legislation to reform its healthcare and financial system is further not closer to passage following the special Massachusetts Senate election where voters continually raised the issue of big bonuses to Wall Street and little to Main Street. Should politics force out Sri Mulyani, the effect on investor sentiment would be negative even as Indonesia’s fundamentals remain positive. However, recent statements by SBY indicate that he will continue to back her. If SBY can successful navigate through difficult political shoals, a resurgent Asia and a recovering US and Europe will bring a better economy this year, advancing Indonesia closer to its target GDP for full employment of 7%.

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