By Fransiska Nangoy and Wilda Asmarini
JAKARTA (Reuters) - Indonesia's Joko Widodo took over as president of the world's third-largest democracy on Monday with supporters' hopes high, but pressing economic problems and sceptical rivals set to test the former furniture salesman.
Widodo won a narrow victory over a former general in a July election with promises of clean government and tackling entrenched interests. It was the first time in the young democracy's history that a president was elected from outside the established military and political elite.
"This is the time for us to unite our hearts and hands, this is the time for us ... to reach and realize an Indonesia that has political sovereignty, economic independence and cultural character," Widodo said in his inaugural speech to a packed parliament.
His priorities will be getting to grips with slowing growth in the resource-rich country, as well as deteriorating state finances, a heavy subsidy bill and flagging investor interest.
Indonesian shares closed at a near three-week high on Monday amid inflows and a rise in the rupiah on expectations of economic reforms by the new president.
U.S. Secretary of State John Kerry attended the inauguration along with various Asian leaders including the prime ministers of neighboring Malaysia and Singapore, the Sultan of Brunei and Australia's prime minister.
The former mayor of the city of Solo and governor of the capital, Jakarta, is untested on the national and international stages, but he already faces resistance from the establishment to his transparent, can-do approach to governance.
"He has climbed up to the top of the pyramid but he's still weak within the powerful political class," said Achmad Sukarsono, a political analyst at the Habibie Centre think-tank.
Tens of thousands gathered on the streets of the capital, Jakarta, waving flags and banners to celebrate the unprecedented ascent of the small-town businessman to leader of the country with the world's biggest Muslim population.
"This is the first time we've been this happy after voting," minibus driver Susanto said while waiting for Widodo and Vice President Jusuf Kalla to pass by on a horse-drawn carriage.
"The government is truly close to the people."
Widodo, 53, is an avid heavy metal fan and is expected to join the celebrations later on Monday and jam with a rock band.
The new president has been struggling to build support in parliament without indulging in the old game of trading support for jobs, but his refusal to swap cabinet posts for backing has driven unaligned parties to the opposition, leaving him with a minority that is set to face resistance to his reforms.
Even Widodo's staunchest supporters have worried that his principles might stymie his reforms. But the lean, affable president with a common touch has been resolutely optimistic about working with the legislature.
After weeks of gridlock, Widodo last week sought to improve ties when he met with opposition leader Prabowo Subianto and prominent opposition member Aburizal Bakrie, who pledged to support his government, albeit reserving the right to criticize.
BACK TO THE SEA
In his inaugural speech, Widodo said he considered himself the country's "captain at the helm" and promised to make the nation of 13,500 islands a maritime power.
He has promised to expand the country's ports to help revive economic growth, but will need to find the funds for such an ambitious project.
His first big test looks set to be cutting fuel subsidies in the next two weeks to avoid breaching a legal limit on the budget deficit, which is under pressure from a shortfall in tax revenues and the slowest economic growth in five years.
Higher fuel prices have sparked protests in Indonesia before and contributed to the downfall of long-serving autocrat and then president Suharto in 1998.
While Widodo has remained largely silent on his cabinet, he has said just over half of his ministers would be technocrats. He is expected to announce his team as early as Tuesday.
Within weeks of taking office, Widodo will be in the international limelight with an Asia-Pacific summit in Beijing and a G20 summit in Australia.
U.S. Secretary of State Kerry met Widodo and was expected to have encouraged him to maintain the active role in regional foreign policy pursued by the previous administration, amid concern the new president may be more inward-looking.
"What we see in the region is a pretty steady calling for Indonesia to remain active in foreign affairs," said a U.S. official traveling with Kerry.
(Additional reporting by Kanupriya Kapoor, Fergus Jensen, Eveline Danubrata, Gayatri Suroyo, Nilufar Rizki, Dennys Kapa, Michael Taylor, and David Brunnstrom; Writing by Randy Fabi; Editing by Robert Birsel and Crispian Balmer)