Over the past two months, more than one billion people cast their vote in elections in India, Indonesia and the Philippines. Incumbent parties and leaders have won these elections, securing a stronger mandate (the Philippines) or entering a second term of ruling (Modi in India and Widodo in Indonesia). Given that these countries have similar problems and objectives, we can expect new economic policies in the most vibrant regions of the global economy, as well as changing power dynamics in one of the most contested geopolitical regions of the world.
- Philippine President Rodrigo Duterte has strengthened his grip on the Philippine Senate, as his allies won nine of the 12 seats at stake in the midterm elections. With the other three seats going to relatively unaligned politicians, Duterte’s opposition was shut out of the Senate elections, in which now only four opposition leaders remain in a total of 24 seats. Duterte’s ruling coalition also maintained its majority in the Philippine House of Representatives, implying that official opposition against Duterte has suffered a significant setback. As Duterte is halfway through his first six-year term, the results can be interpreted to mean that the 63 million Philippine voters are happy about the controversial policies of his first three years (e.g. seeking reconciliation with China, his “war on drugs”, his fiscal push to upgrade the Philippine’s infrastructure (e.g. the Build Build Build program)), as well as his fierce and combative rhetoric.
- The first polls suggest that India’s incumbent Prime Minister Narendra Modi has won a sweeping victory in the Indian elections. Modi’s Bharatiya Janata Party (BJP) has likely won a majority of the seats in theLok Sabha, India’s lower house of parliament, securing a strong mandate for Modi’s second term. The largest pan-Indian opposition party, the Indian Congress Party (INC) performed much worse than polls predicted, meaning that opposition against Modi’s campaign agenda will become much more fragmented. Five years ago, Modi won the election in a sweeping victory with his message of no-nonsense economic policy and cracking down on corruption. However, with the economic troubles of the past year, this year Modi’s campaign was more focused on national security as a result of internal (e.g. minorities threatening India’s Hinduist essence) and external threats (especially in Pakistan after the February 2019 attacks in JK). Having secured a second term from the 600 million Indian voters (a 67% turnout, a record), Modi will now have to fix India’s sputtering economy: with growth slowed down to 6.6%, industrial output that keeps on falling, India’s unemployment at a 45-year high, troubles of overcoming India’s “crony capitalism”, and rising inflation that’s eating away at consumers’ purchasing power, Modi’s new government will have lots of work to do.
- Incumbent President Joko “Jokowi” Widodo has been re-elected in Indonesia’s April 2019 elections, after a recount of the almost 150 million votes cast. Although his victory was widely expected, it will mean more continuity in Indonesia’s economic policy. During his first term, Widodo presented himself as a pragmatic reformer that tried to improve Indonesia’s business climate and cracked down on corruption. During his first term, Indonesia jumped 47 places in the World Bank’s Ease of Doing Business Index, 25 places in the Transparency Corruption Perception Index, and 44 places in the Heritage Foundation’s Index of Economic Freedom, and for his second term, Widodo campaigned for even more and tougher economic reforms. However, violence has erupted as his main challenger, Prabowo Subianto, has vowed to challenge the elections results in the Constitutional Court, meaning that post-election violence and battles could drag on for months.
Connecting the dots
A year ago, we named the Philippines, Indonesia and India as Asia’s next growth engines, providing they could manage their countries’ transformation and leverage their strategic positions. Given their size (they have a combined population of 1.7 billion people, a quarter of the global population, and their economies amount to$4.4 trillion altogether, a sixth of global GDP), the fact that these countries have similar demographic structures(nearing their demographic dividend) and are in the same phase of their socio-economic development (set to move from low to middle-income economies in the coming years), they have a significant impact on the global economy and within global power dynamics in the Asia-Pacific region. With stronger mandates for their rulers, these transitions are accelerating, with three focus points.
First is urbanization and the corresponding urban troubles when millions shift from countryside to urban jungles. Especially Modi made campaign promises of creating an urbanized and modernized Indian “neo-middle class”, meaning a decisive break with India’s traditional urban planning. In his book From the Ruins of Empire, Pankaj Mishra explains that India’s anti-imperial movements juxtaposed India’s spiritual, rural life against mechanized and urban modern life. As a result, India has a relatively large agricultural sector and is one of the least urbanized countries in the world. However, Modi’s 2015 Smart Cities Mission envisions India’s future in its cities, and with the current urbanization rate of only 34%, this implies that hundreds of millions of in Indians will move to cities in the coming years. The Philippines and Indonesia have paved the way for very rapid urbanization in recent years, since about half of the Philippine and Indonesian population now live in cities.However, this rapid urbanization has created huge problems, such as mobility (e.g. Jakarta is one of the most congested cities in the world) and pollution (e.g. Manila is one the least sustainable cities in the world). As such, urbanization and fiscal push for building sustainable and livable cities have become major campaign pledges of Modi, Widodo as well as Duterte, but also entail major leapfrog potential for these countries to build sustainable and smart cities. We’ve already speculated how future Indian reforms, as well as smart city solutions, could come on the back on the emerging Indian Stack.
Second, these leaders are staying in power at a crucial moment of their country’s development: with GDP per capita ranging from $2,200 (India), $3,280 (Philippines), $4,120 (Indonesia), these countries will have to make the transition from low- to upper-income countries in their leaders’ coming term. We have written before that this will require more investments in healthcare, education, and general stock of human capital to boost productivity in the secondary and tertiary sectors. Another important matter is these countries opening up their economies to foreign investments. The Philippines, for example, still trails other countries in Southeast Asia in FDI inflows, largely because of rules hindering foreign ownership and an opaque tax system. With a stronger mandate, Duterte can now pursue further reforms to open up the Philippines’ economy in order to attract foreign funds for his infrastructure programs. As Asia has an infrastructure gap of about $1.7 trillion (!) per year, with India, Indonesia and the Philippines having some of the largest gaps in the region, these countries will have to further open their economies to foreign investors in the coming years.
That brings us to the last similarity. All these democratic, naval economies have an ambiguous relationship with authoritarian land-power China. We have written before that India and China will enter a period of increased competition. But even in the Philippines, which has made a U-turn under Duterte to embrace China in order to attract loans and foreign investors, issues in the South China Sea remain unresolved and tensions seem to be rising between both countries’ navies. Likewise, a significant group of Indonesian politicians remains wary of the warming ties between Indonesia and China, and it is one of the main points of contentment between Widodo and Prabowo. However, as both Duterte and Widodo have strengthened their position and vowed to seek ever-closer relations with China, these countries are moving closer into China’s orbit. That said, a rising India that is seeking to revitalize its position in the Indian Ocean means that these countries will increasingly have to triangulate between Asia’s two superpowers.
Besides being the largest democracy (India) or some of the largest democracies (Indonesia and the Philippines) in the world, these countries are also highly diverse and plexiform, as well as strongly religious with Catholicism as the dominant religion in the Philippines, Islam in Indonesia and Hinduism in India. As such, these countries could increasingly brand themselves in the rest of secular Asia. For example, Widodo’s plan to launch a “sharia economy” and Modi’s idea of combining material welfare with spiritual well being could help to attract foreign investments.
With booming populations and fast-growing economies, India, the Philippines and Indonesia are on track to improve the lives of more than a billion people. In fact, as the “Asian Tigers” and China formed the first wave of Asia’s growth miracle, depending upon exports, industrialization and state-backed capitalism, these three countries could now create new growth models for the future economy (e.g. software in India or sustainable energy in the Philippines). As such, these countries have the potential to become bright spots of hope for the future as they can leapfrog into business models that transcend industrial modernity.