Jokowi Still Likeliest to Win
Executive Summary
Campaigning is reaching a frenzied pace in the run-up to the July 9 presidential election. Although campaigning is officially supposed to cease by July 5, that deadline is likely to be ignored, with both leading parties continuing to pursue their agendas, albeit far more quietly. For example, teachers in various areas reportedly received letters from candidate Prabowo Subianto that contained not only campaign pitches, but also money. The official spokesman for Prabowo’s coalition admitted they’d written the letters to try to win the teachers’ votes.
The latest and most credible two independent polls show Joko Widodo (known universally as “Jokowi”) leading by 7-9 percentage points. The polls were taken by the respected Jakarta-based media outlet Kompas, and the Indonesian Science Agency LIPI, a government research agency. The former reported support at 43% for Jokowi, and 34% for Prabowo. Yet undecided voters are still relatively substantial in both surveys and can make a significant difference. We believe that some undecided voters were unwilling to share their preferences, for fear of inciting consequences. If that’s so, it’s likely that more undecideds will choose Jokowi. That also means that the real difference between the two candidates is greater than the polls show. We predict that Jokowi will win by a margin of more than 10 percentage points.
In April, the trade balance abruptly shifted into deficit, to the tune of almost $2 billion. Many government officials, unprepared for that result, tried to blame large imports of cell phones and other consumer products. Yet those imports increased least in April, in nominal as well percentage terms. The rise in the deficit was, rather, primarily driven by stepped-up imports of raw materials in preparation for the Muslim holidays. The deficit, together with outbound remittances from the dividend payments of various companies during Q2, put significant devaluation pressure on the currency, while political uncertainty pressured the markets. So the rupiah has weakened significantly in recent weeks. The dollar is now trading at above Rp. 12,000. Pressure on the currency may wane after the elections, especially if Jokowi wins.
In the midst of a heated presidential campaign, news that May inflation was mild was certainly a good thing. But compared with the same period in 2013, April inflation was higher. So y/y inflation in May returned to 7.32%, after declining to 7.25% in April. Bank Indonesia kept its reference interest rate unchanged, at 7.5%. We expect inflation to drop sharply in June; after that, we’ll be in a better position to assess whether to revise our inflation projections for 2014, now at 5% or less.
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