JAKARTA, Dec 15 (Reuters) - Indonesia has emerged
\nremarkably strongly from the global economic crisis, but hopes
\namong investors that the government would quickly push through
\nreforms have been dented by controversy over corruption.<\/p>\n
Following is a summary of key Indonesia risks to watch:<\/p>\n
* CORRUPTION AND GOVERNANCE<\/p>\n
Corruption has emerged as the defining issue for Indonesia
\nat the start of the second term of President Susilo Bambang
\nYudhoyono, with popular anger mounting over a power struggle
\nbetween the respected Corruption Eradication Commission (KPK)
\nand the police and attorney-general's office. The KPK has made
\nsignificant progress in investigating corrupt officials, but
\nthis has stirred powerful opposition. The state prosecutor has
\ndropped a case against two top anti-graft officials who were
\napparently framed by officials in the police and
\nattorney-general's office, removing one flashpoint for tension,
\nbut Yudhoyono has so far appeared cautious about taking more
\ndecisive action to end the feud and press ahead with decisive
\nreforms.<\/p>\n
Key issue to watch:<\/p>\n
-- Pace of reform of Indonesia's civil service, police and
\ncourts. Yudhoyono's cautious response to the power struggle
\nover the KPK suggests he will move much slower than markets had
\nhoped, confirming his reputation for preferring gradual change
\nto bold, sweeping reform. Investors betting on more decisive
\nreform during Yudhoyono's second term have had to adjust their
\nexpectations.<\/p>\n
-- Investor perceptions of progress in tacking corruption.
\nIn Transparency International's 2009 Corruption Perceptions
\nIndex, released last month, Indonesia's ranking improved to
\n111th out of 180 countries from 126th the previous year. But
\nrecent events may cause investors to re-evaluate their
\noptimism.<\/p>\n
* GOVERNMENT EFFECTIVENESS IN DRIVING REFORM<\/p>\n
Yudhoyono, returned to a second term after a decisive
\nelection win in July, is widely regarded as a progressive,
\nmarket-friendly reformer. Many investors hoped that his second
\nterm would see a faster pace of reform, and hopes were raised
\nwhen he announced a cabinet in October that included top
\ntechnocrats Sri Mulyani Indrawati and Mari Pangestu in the key
\neconomic posts, with a new presidential delivery unit headed by
\nKuntoro Mangkusubroto and another technocrat, Boediono, as vice
\npresident. But so far, the evidence suggests his second term
\nwill, like the first, move slowly in implementing reform.<\/p>\n
Controversy over the bailout of a small bank last year may
\nalso damage reform prospects. Parliament said last week it
\nwould investigate the bailout of Bank Century, which had been
\nbacked by Indrawati and Boediono. Local media have reported
\nthat among the bank's depositors were several wealthy
\nbusinessmen who later donated money to Yudhoyono's re-election
\ncampaign. The president, vice president and finance minister
\nhave all denied wrongdoing, saying that the bailout was crucial
\nto maintain confidence in the financial system as the global
\ncredit crisis struck.<\/p>\n
Key issues to watch:<\/p>\n
-- Developments in Bank Century case. The main risk at this
\nstage is that the case will distract the government from
\npolicymaking, and damage the reputations of Indrawati and
\nBoediono, key pro-market members of the government. Analysts
\nsay that for the moment, there appears little risk that they
\ncould be forced to resign, or that Yudhoyono could face
\nimpeachment. But powerful vested interests could try to use the
\nissue to force the government to go slower on economic reforms.<\/p>\n
* HOT MONEY AND CAPITAL CONTROLS<\/p>\n
The rupiah IDR=, Asia's best performing currency, has
\nappreciated by around 16 percent this year and the central bank
\nis concerned about destabilising "hot money" inflows. Last
\nmonth the senior deputy governor said Bank Indonesia was
\nstudying the possibility of curbing foreign ownership of its
\nshort-term debt. Signs that capital controls are becoming more
\nlikely could spur some investors to take profits after the
\nyear's strong rally in Indonesian assets.<\/p>\n
Key issues to watch:<\/p>\n
-- Comments from officials on the threat from hot money.
\nOfficials have played down the prospect of curbs in the short
\nrun, but if they change their tone, some investors will be
\nscared off. Analysts say that Indonesia's pro-market officials
\nare unlikely to introduce any drastic measures, however, and
\nany tightening of capital controls would most likely be mild.<\/p>\n
* SECURITY<\/p>\n
Suicide bombings at two luxury hotels in Jakarta in July
\nwere the first major terror attacks in Indonesia since 2005 and
\nraised concerns that the threat from militants was again on the
\nrise. The killing of Noordin Mohammad Top and other key figures
\n-- including the man who recruited the two suicide bombers for
\nthe attacks in July -- may significantly reduce that threat.
\nAnalysts warn, however, that other dangerous militants remain
\nat large and further attacks cannot be ruled out.<\/p>\n
Key issues to watch:<\/p>\n
-- Ability of the militants to regroup and launch more
\nattacks. Opinions vary on whether Top was leading a beleaguered
\nand shrinking team or whether he had managed to attract
\nconsiderable new manpower, funding and weaponry over recent
\nyears. Police say there are signs some of Top's funding was
\ncoming from overseas. If the group managed to establish firm
\nenough links with al Qaeda to secure sustained funding,
\nexpertise and recruits, the threat may be far from over.<\/p>\n
* OVER-RELIANCE ON YUDHOYONO<\/p>\n
Many analysts worry that Indonesia's recent progress
\ntowards greater political and economic stability has been very
\nreliant on the personal popularity and power of Yudhoyono. If
\nanything were to happen to him, much of Indonesia's recent
\ngains could unravel. He has no obvious successor with the
\nsupport base and drive to continue the reform process. And if
\npopular anger over corruption and the Bank Century issue
\nsignificantly undermine his popularity, the perception among
\ninvestors that Indonesia's political stability has greatly
\nimproved would be threatened.<\/p>\n
(Compiled by Andrew Marshall and Sara Webb)<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/five-political-risks-to-watch-in-indonesia-1260851008", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }