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 24 Apr 2009

Indonesian vice president to contend for top job

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April 10, 2009Indonesia: Yudhoyono's party seen leading the election race

Indonesian President Susilo Bambang Yudhoyono is likely to head a reform-driven alliance with Islamic parties after his vice president, Jusuf Kalla of Golkar, broke off coalition talks to challenge him for the presidency, reported Reuters.

Yudhoyono is by far the most popular candidate in the run-up to the presidential election on July 8, with support of more than 50 percent against less than 5 percent for Kalla, recent opinion polls showed.

A coalition between Yudhoyono's Democrat Party and small Islamic parties is seen as more likely to push for reform of the civil service, judiciary and police, and clamp down on graft, in a bid to attract more investment and revive economic growth.

The Democrat Party won a fifth of the votes in the April 9 parliamentary election, early counts showed, putting it ahead of Kalla's Golkar Party, with about 14 percent, and giving it a strong position in coalition talks.

Kalla's surprise bid for the presidency follows a week of negotiations between Golkar and the Democrats, which broke down on Wednesday amid disagreements over which candidates Golkar should field to run as Yudhoyono's vice president.

The move pushed the Indonesian rupiah and stocks moderately lower on Thursday.

But some analysts see Golkar's move as positive for Yudhoyono, because the party hampered his reform efforts during his first term. Relations between Yudhoyono, a former general, and Kalla, a fast-talking businessman, have soured.

"That's good news overall," said Kevin O'Rourke, a Jakarta-based political risk analyst.

"It means a better chance for Yudhoyono of having an independent approach to a second term and accelerating reforms in areas where Golkar has offered resistance in the past, particularly the civil service and the judiciary."

Kalla and former President Megawati Sukarnoputri of opposition party PDI-P are due to meet late on Thursday for coalition talks, although analysts do not see either of them posing a strong challenge to Yudhoyono in the presidential race.

However, Golkar and PDI-P could form a strong opposition bloc in parliament, potentially making it harder to pass legislation.

Golkar, once the political machine of former President Suharto, has held power for 33 out of the last 38 years. It is well-funded by business interests and is currently the main member of Yudhoyono's coalition in government.

But the party appears to be in some turmoil over its poor showing in the election and what strategy to follow. At a party conference on Thursday, it eventually decided to field Kalla against Yudhoyono.

"Golkar without Suharto has been in a process of continuous fragmentation, and not only have they been consistently dropping in the polls but they are almost hopelessly fragmented," said Jeffrey Winters, an Indonesia expert at Northwestern University.

"I see this flip-flopping as an indication that Golkar is really in much worse decline than even the numbers indicate."

Indonesia's financial markets fell on Thursday following the news that Golkar had pulled out of coalition talks. The rupiah and local stocks had both rallied in the days after the Democrat Party tripled its votes in the parliamentary election.

The main stock index had risen 11 percent between April 13, when trading reopened after a holiday, and Tuesday's close. On Thursday, it was trading down just over 1 percent.

The rupiah, the best-performing currency in Asia this year with a 1.5 percent rise against the dollar, fell 0.6 percent to 11,000 per dollar.

"I don't think there are conclusions to be drawn yet; it's just another twist and turn in the process, and there'll be a few more," said James Bryson, a Jakarta-based fund manager at HB Capital, on news that Golkar had pulled out of coalition talks.




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