This article first appeared in Forum, The Edge Malaysia Weekly, on August 8 - 14, 2016.

Something important — and potentially very positive — is stirring in Indonesia, and it goes beyond the cabinet reshuffle just announced by President Joko Widodo. That reshuffle was simply an outcome of a process that began a year ago and that has now culminated in Jokowi becoming the strongest Indonesian president since Suharto. With this, he now has the capacity to trigger a transformation of Indonesia into a vibrant growth pole of the world economy. Can he pull this off or will he stumble along the way?

Reshuffle shows an astute leader who now dominates the political landscape

In this reshuffle, Jokowi demonstrated that he could confidently face down once-powerful political leaders who previously obstructed him. The appointment of Sri Mulyani Indrawati as finance minister, six years after she was removed from the same position by former President Susilo Bambang Yudhoyono, is telling. In 2010, Sri Mulyani reportedly faced intense opposition from 

Aburizal Bakrie, former leader of the Golkar party and head of the Bakrie business group, while being assailed by a variety of other business and political leaders uneasy with her courageous commitment to strong governance. Even in the run-up to this reshuffle, her appointment had been resisted by powerful factions, all of which Jokowi was able to overcome. Several analysts also assert that Jokowi has cut Vice-President Jusuf Kalla down to size. It does appear that some of the latter’s allies have been either removed from the cabinet or demoted to lesser positions.

Of course, Jokowi is still not able to get his way on everything, and like other effective political leaders, he has had to make compromises and take risks. The appointment of General Wiranto as coordinating minister for politics and security has aroused criticism because of the allegations made against Wiranto over the 1999 East Timor debacle, when hundreds of Timorese were killed in an orgy of violence that some observers claim the Indonesian army, then commanded by Wiranto, orchestrated. However, Wiranto now heads a small political party that has been supportive of Jokowi from early days, a party whose loyalty Jokowi clearly felt he still could not risk losing.

Still, even with the compromises that are un–avoidable in political life, he has shown a deft political hand in this reshuffle, with carefully balanced political moves. He succeeded in bringing in new parties as allies, which means he now controls close to two-thirds of parliament. That means he is no longer as beholden to his nominal party boss in his PDI-P party, former President Megawati Soekarnoputri, and so has greater room for manoeuvre. However, he was also careful not to alienate Megawati. He retained most, though not all of her key allies, including her daughter Puan Maharani. Bowing to pressure from several quarters, he partially demoted his close ally Luhut Panjaitan, whom many in the political class resented for his close relationship with the president. But while losing the position of coordinating minister for politics and security, Luhut’s new position as coordinating minister for maritime affairs is still a powerful one.

Jokowi is now the boss, but can he deliver on reforms?

Clearly, Jokowi has shown who is boss — he is now more confident than ever that he can push back against any effort by powerful interests. This is a fairly dramatic improvement compared with last year, when he seemed buffeted by opponents on all sides. With his stronger political position, a courageous finance minister and other strong ministers such as new Planning Minister Bambang Brodjonegoro and Sofyan Djalil, who is now in charge of agriculture, Jokowi is in a better position to move on policy changes that might be unpopular in the short term but which, by delivering higher growth, could strengthen the economy and his political position over the medium term.

First, in Sri Mulyani, he has a tough and independent-minded minister with a strong commitment to liberalising reforms. She is a tried-and-tested technocrat who, in her previous stint as finance minister, competently managed the strains that Indonesia came under during the global financial crisis. During that stint, she also showed courage in tackling vested interests vigorously. She is exactly what Jokowi needs if he is serious about reforms.

Second, Jokowi also used this reshuffle to stamp his authority on the cabinet so as to ensure that his administration works as a cohesive one. He is said to have removed ministers such as Rizal Ramli, Sudirman Said and Ignasius Jonan because they had become embroiled in controversial squabbles with other ministers or had not actively supported specific policy initiatives of the president.

Some weaknesses still remain, though

The reshuffled cabinet does have its share of potential downsides, though, which the president will have to carefully manage.

The first is that there could be more infighting within the cabinet, given the presence of strong personalities who do not necessarily see eye to eye with each other. Wiranto was Luhut’s senior in the military and the two are reported to have had dis–agreements. Similarly, some analysts expect clashes between Sri Mulyani and Rini Soemarno, the state enterprises minister, who is a tough and strong-willed personality.

Another concern is the constant changing of key portfolios, such as trade and investment promotion, during Jokowi’s term so far. This lends a degree of instability to the cabinet. Similarly, it is a fair point that not all the new appointees seem to have the skills or experience needed for their posts. In particular, the trade portfolio is an increasingly important one, as there are manifold and highly complex trade negotiations that Indonesia will have to be party to. In other Asean countries, such as Malaysia and Singapore, trade ministers keep their portfolios for years because it takes a long time to master the knowledge of the intricacies involved in trade negotiations.

Other criticism of the reshuffle may be less worrisome. Yes, it is possible that the slightly larger proportion of political appointees in the cabinet compared with technocrats may lead to more 

inward-looking policies or those that favour vested interests under the cloak of economic nationalism. However, our view is that with Jokowi’s political authority so much greater, ministers will be careful to adhere to the broad policy directions he will set. While Jokowi appeared to begin his presidency on a more nationalistic footing, he has shifted direction since late last year. Since then, we have seen big moves to open up the economy to foreign investors and to loosen trade restrictions. We think this broad direction will continue.

Still, Jokowi is probably aware of the potential pitfalls. Moving forward, he is likely to further strengthen his ability to ensure that the cabinet and government structure move along the direction he has set. Now that he has reshuffled his cabinet, he might have to do the same for his inner circle — the presidential staff. Only with a strong inner circle of loyal, disciplined and competent advisers can he manage the cabinet effectively.

What will the agenda look like?

As he approaches the second anniversary of his inauguration in October, Jokowi knows that he is now in that critical phase before the 2019 presidential election when voters no longer want to hear promises; they want to see tangible results that matter directly to them. Jokowi probably realises that, to secure his re-election in 2019, he has to generate economic growth that is much more exciting than the roughly 4.5% pace that Indonesia is currently experiencing. If he is to achieve the roughly 7% growth rate that will ensure his re-election, he needs to address a few key areas.

One of these is infrastructure, which is a difficult one. It is not just Jakarta’s dysfunctional traffic system but congested or inefficient ports and roads as well as the availability of electricity that have to be tackled. Yudhoyono, Jokowi’s predecessor, tried hard to get infrastructure projects off the ground, but made limited progress. Jokowi has tried even harder, but even he has found it difficult to ramp up infrastructure projects on the scale that Indonesia desperately needs. The problem is not really money, of which there is enough if the conditions are right. Rather, the real obstacle is Indonesia’s notoriously difficult business environment — one marked by corruption, poorly drafted regulations issued by multiple jurisdictions and often conflicting laws and regulations that delay projects for years. Hence, Jokowi is determined to radically improve Indonesia’s ranking in the World Bank’s Ease of Doing Business. The World Bank painstakingly puts together a list of dozens of the dimensions of a business environment — from the ease of securing licences and permits to how easily taxes can be paid and how quickly businesses can be registered. A stronger cabinet will be in a better position to make progress in this regard — and so pave the way not just for infrastructure projects to finally take off but also for foreign investors to feel encouraged to look at Indonesia.

Another vital area for reform is the labour law, as some clauses that deter formal employment, such as massive redundancy payments even for poorly performing workers, need to be resolved. This regulation is one major reason why foreign investors have steered clear of Indonesia’s manufacturing sector despite the availability of low-cost labour and a huge consumer market.

Conclusion

The new Jokowi cabinet will be more focused on delivering results. If it can help the president pull off his intended reforms, Indonesia’s growth potential would be transformed. Better labour regulations and a much better business environment would crystallise massive flows of foreign investment that would boost growth within a couple of years to more than 7%. Unlike the high growth rates Indonesia enjoyed from 2007 to 2014, which relied on an unsustainable rise in commodity prices, this new growth phase would have stronger foundations and by putting the crucial manufacturing sector as well as modern services on a higher growth trajectory, create more jobs of higher quality and wages, thus raising the standards of living of ordinary Indonesians.

Manu Bhaskaran is a partner and head of economic research at Centennial Group Inc,  an economics consultancy

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