Yesterday's Jakarta gubernatorial election seems to have little impact on the performance of Indonesian stocks and the rupiah today (20/04). While Indonesia's benchmark Jakarta Composite Index is cautiously higher (in line with the general trend of Asian stocks this morning), the Indonesian rupiah had depreciated 0.10 percent to IDR 13,332 per US dollar (Bloomberg Dollar Index) by 10:00 am local Jakarta time on Thursday (20/04). The rupiah performance is slightly out of tune with most other Asian currencies but its weakening is still rather insignificant.
The defeat of incumbent Governor Basuki Tjahaja Purnama (better known by his nickname Ahok) in the 2017 Jakarta gubernatorial election was a disappointment to many, especially to those millions of Jakartans who were happy to have someone in office who is not corrupt and who actually made strong efforts to develop the capital city in terms of infrastructure and social welfare. However, apparently it is too controversial (also for many of the city's nominal Muslims) to have a Christian (of Chinese descent) leading a city with a Muslim-majority population.
But despite the fact that religious and racial sentiments (also those stemming from his blasphemy trial) undoubtedly contributed significantly to Ahok's loss, it is fair to say that the incumbent governor had some weaknesses of his own. His bluntly outspoken and sometimes even aggressive style of communicating differs markedly from the mostly soft-spoken Javanese leaders. Moreover, in his efforts to improve infrastructure (and combat the annual floods) Ahok forced the eviction of thousands of people from their (mostly illegally built) homes at river banks. Even though these people were offered subsidized low income apartments (implying they would have to start paying a monthly tariff for their new - and much better - housing) as well as access to free public transportation to travel across the city, Ahok's political enemies used the anger of the evicted people to accuse Ahok of human rights violations. The irony is, however, the people were offered to move to much healthier conditions compared to the dirty slums that had developed on the river banks (while their habit to throw thrash in the river is partly to blame for the heavy floods in Jakarta that cause high economic costs).
However, the Jakarta election has no impact on the true fundamentals of the Indonesian economy and therefore investors and other market participants are not too concerned about the quick count results that show a clear victory for Anies Baswedan. Few are also concerned about the 2019 presidential election. Indeed, the Baswedan victory in Jakarta means defeated presidential candidate Prabowo Subianto (who backed Baswedan in the Jakarta election) got a moral boost that may convince him to run again in the 2019 presidential election. However, the position of President Joko Widodo should be strong enough to deal with the challenge. Widodo enjoys popularity across the country and is building up a good track record. Considering economic growth is accelerating, it should make matters only easier for him in the remaining two years of his first term. We also do not think radical Islamic voices are strong enough to do the same damage to Widodo that they had done to Ahok in the Jakarta election, simply because Widodo is a (Javanese) Muslim.
By 10:00 am local Jakarta time on Thursday (20/04), the Jakarta Composite Index had climbed 0.18 percent to 5,616.49 points, in line with the cautiously rising stocks across Asia, where good trade data from Japan boosted stocks across the region, while crude oil prices came off two-week lows. However, there remain plenty of concerns related to the Korean Peninsula and the first round of the French elections due at the weekend.