Text size

Political outsiders are the Black Swans of our day, upending all pundits thought they knew about governing from Manila to London to Washington. What voters see as anti-establishment heroes, markets fret as systemic risks. What to make, then, of a leader embodying the best of both worlds?

Take Indonesia’s Joko Widodo, who just put an impressive reform win on the board in Jakarta. Stocks, bonds and the rupiah are already rejoicing over the parliament approving a tax amnesty sure to pull in tens of billions of dollars to plug a yawning budget gap, finance key upgrades and generate fresh economic energy.

The president, who’s known as Jokowi, had been after lawmakers to tax at much lower rates undeclared assets individuals bring back to Southeast Asia’s biggest economy. At the moment, tax evaders pay as much as 30% on repatriated cash. Now, the rate will begin as low as 2% and top out at 10%, a step seen pulling about $43 billion toward Jokowi’s cash-strapped nation beginning next month.

Even more important than that capital haul, this moment suggests that Jokowi has rediscovered his reformist mojo.

Jokowi took office in October 2014 as the consummate outsider - the first Indonesian president independent of a dynastic family or the military. His two-year stint as Jakarta governor saw him roll up his sleeves, often arriving on the scene of city emergencies -- sometimes even on bicycle. Jokowi’s no-nonsense, man-of-the-people persona endeared him to voters in the fourth-most populous nation, as did his reputation for probity in a place notorious for corruption, cronyism and chronic dysfunction.

That particular Jokowi seemed to disappear soon into his presidency. His pledges to increase competiveness, attack graft and increase investments in human capital seemed lost in a barrage of economic nationalist rhetoric more befitting the time of dictator Suharto and tolerance for the military reasserting itself. Well, not so much. Jokowi, it seems, has been playing the long game - wooing domestic constituencies to consolidate his power so he can get big things done.

To be sure, the tax amnesty victory alone doesn’t absolve Jokowi’s glacial embrace of change these last 619 days. But if this is the first successful sortie in a broadening campaign to hasten growth and level the playing field, then this week may be remembers as a key inflection point. To Teneo Intelligence’s Bob Herrera-Lim, all this may “signal a more confident President Widodo who appears more willing and able to use the political levers of popularity and control of a larger parliamentary coalition.”

The surrealness that permeates Indonesia Inc. can be summed up with one figure: 27 million. That’s the number of registered taxpayers in the nation of 255 million people. Earlier this month, Standard & Poor’s delayed a decision to upgrade Indonesia from junk to get a better read on fiscal trends. Now that Jokowi has passed the tax-amnesty litmus test, might S&P pull the trigger?

“ What Beijing may read as saber-rattling, Jokowi’s domestic audience sees as the take-charge leader they elected finding his sea legs. ”

Wooing tens of billions of dollars hidden overseas aids three vital goals. One, paying for infrastructure that better matches Indonesia’s enviable store of natural resources and voracious demand from China, India and elsewhere. Two, financing improvements in education to spread the benefits of 5% growth. The demographic dividends enjoyed by young populations like Indonesia’s quickly become nightmares if you don’t create enough good-paying jobs. Three, it starts a healing process decades in the making as tycoons return to invest on their home turf rather than Singapore or London.

Untold billions of dollars fled the nation over the decades as repressive, corrupt or inept regimes squandered opportunities at home. The capital flight accelerated after Asia’s 1997 crisis. Even as Indonesia bounced back, thanks largely the handiwork of President Susilo Bambang Yudhoyono from 2004 to 2014, the bulk of spoils stayed abroad. Indonesia’s tax move is a study in pragmatism: it’s better to let bygones be bygones and harness those riches than quibble over who got rich, how and when.

It’s also fascinating to see Jokowi playing a more muscular role in territorial disputes with China. Last week, he even traveled to the South China Sea’s southern end to visit to navy warship. There, he held a cabinet meeting to discuss his defense and trade plans. What Beijing may read as saber-rattling, Jokowi’s domestic audience sees as the take-charge leader they elected finding his sea legs.

Other political outsiders are making waves of their own. Today marks Rodrigo Duterte’s first day as president over in the neighboring Philippines, where he plans to champion peace and order to one of Asia’s more unpredictable economies. That worries investors fearing Duterte’s government will act erratically –- and focus less on economic progress -- relative to the outgoing Benigno Aquino. Over in Britain, punters are placing odds on whether former London Mayor Boris Johnson, a leading voice behind leaving the European Union, will be the next prime minister. Across the Atlantic, investors are bracing for the specter - and likely chaos - of a Donald Trump presidency.

Jokowi, though, may be that oddest of things: an outsider who found a way to tame his nation’s worst impulses without inflicting his own on the masses. With 842 days remaining in his term, history may prove my optimism to be misplaced. But seeing Jokowi rolling up his sleeves of late, Indonesia may be about to surprise is all.

Email: william.pesek@barrons.com

Comments? E-mail us at asia.editors@barrons.com