Officials with the Presidential Palace in Indonesia wave flags and hold banners reading "congratulations Mr Jokowi," as Indonesian President Joko Widodo's motorcade leaves the palace in Jakarta on Sunday to attend his inauguration as the president of Indonesia for a second term. Photo: AFP

Indonesian President Joko Widodo was sworn in on Sunday for a second five-year term leading the world's third-biggest democracy, after an election dominated by economic issues but also the growing influence of conservative Islam.

Widodo, 58, has pledged to cut red tape and keep building infrastructure to underpin growth in southeast Asia's ­largest economy, but also made improving education a top priority to encourage investment and create jobs for a youthful population of 260 million people.

"This will be a big problem if we fail to create enough job opportunities," Widodo told parliament after his inauguration, where he cited his dream of Indonesia becoming one of the world's top five economies by 2045 with a GDP worth $7 trillion.

The president said he would push two bills to replace laws that have hampered job creation, as well as warning he could sack under-performing civil servants.

He said he would name his cabinet on Monday morning.

There was tight security at parliament for his swearing-in alongside his vice president, Islamic cleric Ma'ruf Amin.

More than 30,000 security personnel were deployed following recent student demonstrations and after the country's security minister was stabbed by a suspected Islamist militant earlier this month.

The inauguration was attended by foreign dignitaries including Chinese Vice-­President Wang Qishan, Malaysia's Mahathir Mohamad and Singapore's Lee Hsien Loong.

Widodo grew up in a riverside slum and was the first national leader to come from outside the political and military elite.

"The president wants to improve the investment environment but is likely to face implementation woes when planned reforms are confronted by the interests of power brokers in his coalition," Achmad Sukarsono, a political analyst at Control Risks, said in a note.