Currencies, Emerging Markets, Stocks

Indonesia: Jokowi’s Cabinet Shake-Up Offers Hope, But Little Growth Impact

By Qingzhen Chen

Indonesian President Joko "Jokowi" Widodo.  Photo courtesy of Flickr/Ahmad Syauki  CC-By-2.0

Indonesian President Joko “Jokowi” Widodo. Photo courtesy of Flickr/Ahmad Syauki CC-By-2.0

Jokowi’s revamped cabinet features experienced technocrats appointed to boost the largest economy in Southeast Asia. Domestic business insiders welcomed the cabinet reshuffle, but remain cautious as they wait for better policy coherence and direction.

Just ten months into his first term, President Joko “Jokowi” Widodo replaced six ministers in a 34-official cabinet on Wednesday. He hopes to boost Indonesia’s economy, which grew at its slowest pace in six years in the second quarter, a drop from 4.7% in the first quarter.

When Jokowi came to office as the first president elected outside of political and military circles, he brought optimism as someone who would reinvigorate the country with infrastructure spending and effective governance. However, investors have been disappointed by the slow execution of his promises, hampered by an internal turf war, protectionist policies, and bureaucratic red tape.

This week, the president made a second attempt to send out an investor-friendly message by replacing key economic cabinet posts, aiming to better coordinate and implement his economic agenda, notably by speeding up government infrastructure spending.

Industry Leaders Welcome Experienced Technocrats

Among the appointed new ministers are professional technocrats who have strong experience in economics.

Thomas Lembong, a private equity executive and the president’s economic advisor, is the new trade minister. Lembong’s appointment brings a sign of reduced protectionism. Policies such as higher import tariffs and a reduction in the number of cattle import permits from Australia, introduced by the previous government, failed to improve exports and curbed investor confidence.

Under Lembong’s leadership, economic policies are expected to be more market-friendly. Lembong is regarded by industry leaders as someone with “deep understanding” of how global markets work and who recognizes the importance of free trade.

“[Thomas] Lembong understands, and is committed to, Indonesia’s adherence to international trading law, as well as the importance of free and open trade.”

— Douglas Ramage, Indonesia expert at business advisory Bower Group Asia

Another key appointment is Darmin Naustion, a former Bank Indonesia governor and a senior finance ministry technocrat, who now leads the country’s economic team, replacing Sofyan Djalil.

On the one hand, this appointment removes some inefficiency and internal barriers that have hindered Jokowi’s economic agenda. Sofyan Djalil is closely associated with vice-president Jusuf Kalla, who repeatedly disagreed with the president’s economic policy.

On the other hand, under the new minister, the pace of government infrastructure spending should also pick up. Naustion has been given command by the president to expedite the budget process to speed up government spending.

“Darmin [Naustion] brings with him a heft of experience across both monetary and fiscal policies, given his time as the governor of Bank Indonesia from 2009 to 2013, and a career in the Finance Ministry.”

— Wellian Wiranto, OCBC Bank economist

OCBC Bank economist Wellian Wiranto praised the new appointment, saying Naustion has “a better chance at coordinating economic policies among the myriad of ministries and agencies, which has been largely lacking thus far.”

His key priorities are to tackle rising food prices, accelerate government spending, and carry out reforms to attract foreign capital.

More Access Given to Jokowi’s Party to Ease Internal Turf War

The cabinet reboot also aims to appease its ruling party, Indonesia Democratic Party of Struggle (PDI-P), which is embroiled in an internal political struggle. Pramono Anung, a senior politician of the PDI-P, and Rizal Ramli, close to the PDI-P leader and former president, Megawati Sukarnoputri, are appointed as the new cabinet secretary and the coordinating minister for maritime affairs.

With more access to the president, this will ease the problematic relationship of the president and his party. Pramono has vowed to prioritise smooth political communication with government agencies, political parties, and mass organisations.

With his years of experience in the House of Representatives, Pramono will be “a valuable bridge for Jokowi, the PDI-P and other political parties both in and out of the coalition”, says the Jakarta Post’s editor-in-chief Meidyatama Suryodiningrat.

In addition, Rizal Ramli will likely implement policies that are conducive to the country’s growth, giving his previous experience as the finance and industry minister under former president Abdurrahman Wahid.

Little Immediate Impact as Investors Adopt a Wait-And-See Approach

Despite welcoming the personnel reshuffle, the reset failed to lift Indonesia’s main stock index, and its currency, the rupiah, sunk to its lowest level against the dollar since the 1997 Asian financial crisis.

While the new ministers bring economic expertise to the cabinet, they still have to operate within a political base with key ministerial posts strongly influenced by political parties.

Furthermore, the first few months of Jokowi’s government were marred by unfulfilled expectations, particularly regarding government spending. Going forward, the market will want a realistic government spending plan for next year that factors in both domestic and global economic conditions, with policy coherence from the new cabinet.

Qingzhen Chen is a research analyst for an international information company. Her research focuses on China and the Asia Pacific. Previously she was a market researcher for PwC. She has gained regional knowledge from internships with the UNDP, China Policy, and the Royal United Services Institute. She holds a BA in Politics and East European Studies and an MSc in Security Studies from University College London.


Courtesy of Global Risk Insights, © 2015 Global Risk Insights
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Global Risk Insights (GRI) provides expert analysis on political events impacting business, investment, and economic climates worldwide.

Discussion

2 thoughts on “Indonesia: Jokowi’s Cabinet Shake-Up Offers Hope, But Little Growth Impact

  1. Reblogged this on World Peace Forum.

    Like

    Posted by daveyone1 | August 23, 2015, 1:56 pm

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  1. Pingback: Indonesian President Widodo Vows “Massive Deregulation” To Boost Sentiment, Revive Investment | EMerging Equity - September 2, 2015

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